Industry, Technology, and the

Environment: Competitive Challenges and

Business Opportunities

January 1994

OTA-ITE-586

NTIS order #PB94-134616

GPO stock #052-003-01362-2
Recommended Citation:

U.S. Congress, Office of Technology Assessment, lrzdustry, Technology, and

the Environment: Competitive Challenges and Business Opportunities, OTAITE-586 (Washington, DC: U.S. Government Printing Office, January 1994).

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ISBN 0-16 -043023-2
Foreword

D

ebate about environmental concerns and industrial competitiveness has

been underway at least since the early 1970s, when the United States

pioneered strong environmental standards, Today, the debate has new

urgency: the world is becoming more aware of the global nature of many

environmental problems at a time of intensifying international economic

competition.

This report finds both competitive challenges and opportunities from

these trends for two sets of American industries affected by environmental regulation: those in the business of making and selling environmental technologies,

and the manufacturing firms that are among their major customers.

For U.S. environmental firms, the years ahead could pose unprecedented

opportunities to expand into new markets as more countries develop or tighten

environmental standards. Yet, as the report documents, they already face strong

competition from firms in Europe, Japan, and from some newly industrialized

countries.

Perhaps their greatest challenge in the long term will be to integrate

environmental concerns into the next generation of manufacturing technologies.

Compliance costs in many U.S. manufacturing sectors are already among the

highest in the world. Cleaner, more cost effective production technologies could

help these firms lower compliance costs while still meeting the U.S. standards

that are likely to remain among the toughest in the world.

Policymakers, not only here but in Europe and Japan, are actively debating new approaches to address twin concerns about intensifying global economic

competition and global environmental problems. More than is usually the case,

government policies play a central role, since regulations both create markets for

environmental technologies and the conditions for compliance faced by industry.

Other policy areas not traditionally thought of as affecting environmental concerns, including manufacturing research and development, industrial extension,

and export promotion, also affect competitive outcomes.

This is the final report in a series of three in OTA’s assessment of

American industry and the environment, which was requested by the Senate

Committee on Finance, the House Committee on Energy and Commerce, and the

House Committee on Foreign Affairs. The first publication, Trade and

Environment: Conflicts and Opportunities, discusses the interactions between

these two policy areas. The second, Development Assistance, Export Promotion,

and Environmental Technology, explores links between foreign aid and export

assistance.

Roger C. Herdman, Director

. . .

Ill
Advisory Panel

Roland W. Schmitt, Chairman

Rensselaer Polytechnic Institute

Edgar Berkey

National Environmental

Technology Applications Corp.

 (NETAC)

Judith Dean

School of Advanced International

Studies

Johns Hopkins University

Robert E. Driscoll

U.S.-ASEAN Council for Business

and Technology, Inc.

Peter Emerson

Environmental Defense Fund

Harry L. Foster

General Motors Co.

Stewart J. Hudson

National Wildlife Federation

Mary Kelly

Texas Center for Policy Studies

Jeffrey Leonard

Global Environment Fund

David S. Marsh

Marsh Plating Corp.

Jessica Matthews*

World Resources Institute

Robert S. McNamara

U, S.-Japan Foundation

J.A. Meyer

Chevron Corp.

T.C. Parsons

Center for Industrial Services

University of Tennessee

Lawrence Ross

Center for Waste Reduction

Technologies

American Institute of Chemical

Engineers

Martyn Riddle

International Finance Corp.

Paul Relis

California Integrated Waste

Management Board

Maxine Savitz

Garrett Processing Division

Allied-Signal Aerospace

Samuel A. Schulhof

General Electric Co.

James Selover

Selover Associates

Peg Seminario

Department of Occupational Safety

and Health

AFL-CIO

John J. Sheehan

United Steelworkers of America

Sally Shelton

Georgetown University

*Resigned April 1993

NOTE: OTA appreciates and is grateful for the valuable assistance and thoughtful critiques provided by the advisory panel.

The panel does not, however, necessarily approve, disapprove, or endorse this report. OTA assumes full responsibility for the

report and the accuracy of its contents.

iv
Project Staff

Peter D. Blair, Assistant Director, OTA

Industry, Commerce, and International Security Division

Audrey B. Buyrn, Program Manager

Industry, Technology, and Employment Program

Wendell Fletcher, Project Director

Robert Atkinson, Senior Analyst

Rodney Sobin, Analyst Robert Weissler, Senior Analyst

Sebastian Remoy Susan H. Lusi Takashi Mashiko

Elizabeth Sheley, Editor

ADMINISTRATIVE STAFF

Louise Staley,l Office Administrator

Carol A. Bock,2 Office Administrator

Diane D. White, Administrative Secretary

Madeline Gross, Contractor

CONTRACTORS

David T. Allen (UCLA)

Hirschhorn and Associates, Inc.

Stephen H. Lipmann

Curtis A. Moore and Alan S. Miller

N. McCubbin Consultants, Inc.

F.A. Steward Consulting, Inc.

Konrad von Moltke

PUBLISHING STAFF

Mary Lou Higgs, Manager, Publishing Services

Chip Moore Dorinda Edmondson Susan Hoffmeyer

IFrom Oct. 1, 1993 2unti1 Sept. 30, 1993
contents

PART I. Summary, Policy, and Conceptual Framework

1

2

3

Summary 1

Executive Summary 1

Organization and Scope of the Report 7

Extended Summary 8

Issues and Options 39

Options for U.S. Policy 40

Context and Conceptual Framework 71

Global Environmental Trends 72

A Framework for Classifying Environmental Activities 75

The Environmental Goods and Services Industry 79

The Environment and Competitiveness Context:

The Case of Manufacturing 81

PART H. Providers of Environmental Technology and

Services: The Environmental Industry

4

5

6

The Global Environmental Market: Trends

and Characteristics 89

Market Drivers 91

Defining the Industry and its Market 93

Global, Regional, and National Markets 97

Conclusions 116

US. Competitiveness in Environmental Technologies

and Services 117

Environmental Trade 117

Factors Affecting Competitiveness 121

Sector Descriptions and Analyses 128

Conclusion 149

Export Promotion Programs 151

Efforts To Develop U.S. Strategy 154

U.S. Export Promotion Programs in International Context 159

Assistance for Export Planning and Marketing 160

Technology Verification and Demonstration 173

Use of Foreign Aid To Promote Exports 173

Financing 177 “

vii
PART Ill. Users of Environmental Technology:

US. Manufacturers

7 Environmental Requirements and U.S. Manufacturing

Industry Competitiveness 183

Overview 185

U.S. Pollution Abatement and Control Expenditures 186

Private Sector Compliance Costs Compared With Other Nations 197

Effects of Regulation on Innovation, Trade, and Industrial

Location 214

Conclusion 221

8 Pollution Prevention, Cleaner Technology, and

Compliance 229

Major Findings 230

The Rate of Adoption of Pollution Prevention and Recycling 231

Pollution Prevention, and Recycling and Economic Performance 232

Pollution Prevention Options 237

Factors Limiting the Adoption of Pollution Prevention 244

Pollution Prevention Technology Development 250

Technical Assistance for Pollution Prevention and Environmental

Compliance 251

Financial Assistance 260

9 Regulations and Economic Incentives in a Competitive

Context 263

Principal Findings 264

Regulatory Reform 265

Incentive-Based Regulations 277

PART IV. Government Support for Environmental

Technology Development, Here and Abroad

10 Research, Development, and Demonstration 291

United States 294

Japan 310

European Programs 314

APPENDICES

A Effects of Environmental Regulations on Economic Growth:

A Review of Research 321

B List of Acronyms 327

INDEX 329

. . . Vlll
PART I.

Summary,

Policy, and

Conceptual

Framework
Summary 1

T

his study analyzes the international competitiveness of

two sets of U.S. industries that are affected by environmental policies:

1. firms that develop and market environmental technologies and services; and,

2. companies (especially manufacturing fins) that

must meet U.S. environmental requirements, often

while competing with firms from countries that have

weaker standards or provide more assistance to their

industries,

EXECUTIVE SUMMARY

Both sets of industries operate under new competitive

realities—realities shaped not only by intensifying global

competition but also by the environmental expectations of their

customers and the societies in which they operate.

Environmental problems of new urgency now confront all

countries. Some argue that a conceptual shift is beginning to

occur in the world marketplace: as recognition grows that

economic activity can do serious harm to both the local and

global environment, and in the process harm human health and

interfere with development objectives, business increasingly will

have to internalize a new imperative of avoiding harm to the

environment-an approach embodied in the term sustainable

development (see ch. 3), Over time, according to this view,

environmental imperatives could join the front ranks of business

precepts, such as providing quality products at a competitive

price, that no business can afford to ignore.

Recognition of global environmental problems, as well as

greater attention to local needs in a growing number of countries, 1
2 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

are producing new markets for environmental

technologies, and could spur technological innovation to meet those needs. In some cases, such as

global climate change, technological remedies

and strategies have only recently been sought,

with responses still in the early stages of development. In other cases, such as wastewater treatment and control of some air pollutants, technologies are well developed but widely used in only a

few countries.

Some analysts believe that the expanding

global market for environmental technologies

will produce major commercial opportunities;

how U.S. firms will fare in those new environmental markets has become subject of debate in

Congress. Germany, Japan, and other countries

with strong environmental industries are also

asking how they might capture a greater share of

this growing global market.

While environmental regulations produce business opportunities for environmental firms, they

also impose costs on the manufacturing firms and

other businesses that buy their goods and services. U.S. environmental standards are likely to

remain among the world’s most stringent. In a

more competitive global economy, it will be

important to find ways for U.S. industry to

achieve environmental goals while avoiding competitive handicap.

The report’s two subjects—the industry for

which environmental regulations often mean

costs and the industry for which environmental

regulations mean business-are often thought of

separately. But they are linked. The linkages are

pertinent to debate about the competitive impact

of environmental regulations on U.S. manufacturing firms and about government role in promoting U.S. environmental industries.

Among the linkages:

● Technological advancement (including hardware, technical and scientific knowledge, and

management expertise at the business and

societal levels) is increasingly necessary to

address both competitiveness and environmental needs. A number of initiatives and

proposals have been made at Federal and State

levels to better integrate environmental objectives within technology policy. Some industries support consortia, involving firms and

government or university laboratories, to undertake research and development (R&D) on

processes and products that would be environmentally preferable to those now in use.

■ The industrial market for environmental equipment and services is likely to be greatly

affected by a shift away from conventional

pollution control to pollution prevention and

cleaner production processes. (These processes

produce less waste and pollution, thus reducing

the need for waste treatment or disposal. They

often use materials and energy more efficiently

than conventional processes.)

w This shift, now in its early stages, will have

repercussions for both environmental companies and manufacturing fins. Manufacturing

firms that use cleaner production processes are

likely to reduce compliance costs and, in some

cases, production costs. An environmental

goods and services (EGS) industryl that develops more cost-effective approaches to reducing

pollution may fare better in global markets.

w New forms of regulations allowing firms to

adopt innovative approaches for addressing

pollution can help both developers and users of

I The environment industry, as defined in chapter 3, refens to firms that develop and market products, equipment or services that have

environmental improvement as a primary or significant secondary benefit. The report focuses on fm that sell technologies and semices to

control, trea4 cleanup, and prevent pollution and waste (including cleaner production and cleaner energy technologies). Environmental

management technologies and services used in a@uMure, foreshy, fisheries, and mining are not discussed in detail. Firms selling consumer

products claimed to be environmentally preferable might be considered part of the environmental industry, but are not covered in this report.
Chapter 1-Summary 3

environmental technology. These include performance standards, economic incentives, and

adjusting permitting procedures to stimulate

the development and adoption of innovative

environmental technologies.

At the same time, government policies can

affect these two sets of industries in quite

different ways. Policies to speed use of cleaner

production processes that offer competitive

benefits to firms that must comply with environmental regulations can also reduce the need

for remedial or end-of-pipe technologies. Likewise, policies that continue to promote end-ofpipe solutions for environmental problems can

impede adoption of cleaner production and

pollution prevention approaches.

Environmental and economic policies have

often been viewed as in opposition and, for the

most part, have been developed separately. Nonetheless, more and more, policymakers see benefits in addressing the two together. The interactions between environmental concerns and industrial

competitiveness have ramifications for many

policy areas, including pollution control and

waste management, technology development and

diffusion, export promotion and development

assistance, and trade policy and negotiations.

Addressing these interactions could require

changes in U.S. Government programs. Among

proposals now on the table are those to:

devise a strategy to promote development and

export of U.S. environmental technologies

create mechanisms to integrate environmental

objectives into government support for manufacturing industry R&D and technology diffusion

develop regulatory approaches that allow industry more options to innovate while maintaining or exceeding current environmental

objectives

work toward bilateral and multilateral agreements on environmental standards that further

environmental goals, lessen the likelihood of

adverse competitiveness impacts for U.S. firms

and workers, and expand opportunities for U.S.

environmental firms at home and abroad.

I Principal Findings

THE GLOBAL ENVIRONMENTAL MARKET

1. The market for environmental technologies

and services is growing in the United States and

abroad, in both industrialized and developing

countries. Most of the current market is for

well-known, widely used approaches and technologies for end-of-pipe pollution control, waste

disposal, and remedial clean-up of pollution.

According to a widely cited estimate, this global

market probably amounted to $200 billion in

1990, and could grow to $300 billion annually by

the year 2000. The projected market would be

much larger if cleaner production technologies

and products were included, but there are no good

projections of the potential size of this market.

2. As more countries respond to their environmental problems, the global environmental market is likely to continue to expand—although not

as rapidly as predicted in the late 1980s when

recession-proof growth in environmental markets

was widely assumed. Over the next 10 or 15

years, the advanced industrial economies likely

will still account for most of the growth. However, markets are rapidly emerging in the newly

industrialized countries and many developing

countries, particularly in the Pacific Rim and

Latin America. The transformingg economies of

Central and Eastern Europe offer large potential

markets, although there, as elsewhere, scarcity of

financing limits environmental investments. Bilateral and multilateral aid is a significant source

of environmental investment in some areas.

3. While the global environmental market is

large, most environmental expenditures go to

day-to-day operations and construction of facilities that use locally available labor, materials, and

parts. International trade thus fills only a small

portion of EGS demand. The exact amount of

trade is uncertain because the quality of the data
4 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

is very poor. However, traded items and services

probably do not account for more than 10 or 15

percent of the total market. Even so, this fraction

represents a significant amount of trade, which

may grow in volume as the world market grows.

The most significant prospects for U.S. exports

are for relatively sophisticated equipment and

professional services. While the attendant growth

in U.S. employment probably will be modest,

many of these jobs are likely to be high-wage jobs

in management, engineering and other technical

professions, as well as some blue collar manufacturing jobs.

4. In the long term, cleaner technology and

production processes may have the potential to

generate more export-related growth and jobs

than conventional pollution control equipment.

Government technology and export promotion

policies aimed at strengthening environmental

industries need to take into account the technical

possibilities and commercial opportunities in

cleaner production.

5. The shift toward cleaner production is likely

to occur incrementally over the next 15 or 25

years, as manufacturers build new facilities or

upgrade existing plants. There likely will be

growing global demand for cleaner and more

energy-efficient industrial facilities, including

those for power generation, chemical processing,

smelting, oil refining, papermaking, food processing, and product assembly. Countries with

firms that are competitive suppliers in these areas

will benefit from the jobs and commerce generated from trade in capital equipment and related

professional services. Moreover, as these countries’ domestic producers in other industries

invest in cleaner technologies, they may make

changes that will enable them to compete more

effectively against firms in other countries,

6. Regulations and enforcement (including

liability and fees) are likely to continue to drive

markets for environmental technologies and services. However, a number of other factors may

affect these markets. Energy efficiency investments are often cost-effective even in the absence

of regulation as are some pollution prevention

projects. Potential users often know little about

these alternatives, but as knowledge about their

cost-effectiveness grows, they may be used more

widely. Some companies also may make environmental investments out of concern for their

environmental image among customers, investors, and the public, especially where reporting

requirements or consumer labeling exist.

THE COMPETITIVE POSITION OF U.S.

ENVIRONMENTAL FIRMS

1. Global competition for environmental markets has become fierce during the last decade. The

U.S. environmental industry’s overall international performance is mixed. In many foreign

markets, U.S. firms remain competitive but not

dominant; in other areas, the U.S. position has

eroded. Estimates of market shares in major Latin

American countries show U.S. sales accounting

for about half of environmental imports, but note

growing European and Japanese presence. U.S.

performance in other regions (including the fast

growing Pacific Rim) is less strong. As with

conventional environmental equipment, U.S. firms

that design, construct, and manufacture cleaner

and more energy-efficient capital goods and

facilities can expect intense foreign competition.

2. Large and highly competitive environmental

industries exist in Germany, some other European

countries, and Japan-countries with firms that

have a stronger export orientation than many U.S.

environmental companies. Several newly industrialized and advanced developing countries have

nascent environmental industries that supply

basic environmental goods for their own markets

and also for export; as developing country environmental investments grow, some of these firms

may well become important regional suppliers.

3. While some U.S. environmental firms are

major international players, most focus on the

huge domestic environmental market, which is by

far the world’s largest. Here, too, American firms

face competition, For European and Japanese

environmental fins, the United States is an
Chapter 1-Summary ! 5

attractive export market. It also offers major

opportunities for licensing of technologies, joint

ventures, and acquisitions of U.S. companies, In

the last decade, U.S. firms have become more

reliant on foreign technology and foreign capital

in a number of environmental sectors. For example, half of the 10 largest U.S. manufacturers of

wastewater treatment equipment are foreign owned.

Also, U.S. companies have become more dependent on foreign air pollution control and incineration technologies. In some cases these technologies were first developed in the United States and

then licensed and improved abroad.

4. To succeed in foreign markets, U.S. firms

may need to adapt products developed for U.S.

needs to the sometimes quite different conditions

in other countries. While U.S. environmental

standards and technologies enjoy a good reputation, potential customers in developing country

markets sometimes see U.S. products as too

expensive or sophisticated. Further, some U.S.

suppliers are viewed as insufficiently concerned

with service, training of personnel, and provision

of parts.

5. Most U.S. environmental firms (especially

smaller ones) have little export experience; firms

in Japan and many European countries have more.

Private export financing in the United States is

scarce (especially for smaller firms); it is more

plentiful in Japan and several European countries,

where firms also get more government help with

export marketing and financing than in the United

States. The U.S. government’s help is also poorly

coordinated and difficult to access, The U.S.

government also provides less confessional financing, and structures its development assistance programs in ways that provide less help to

national firms bidding on large capital projects.

6. Technological innovation is likely to be

increasingly important for environmental firms

competing in global markets. U.S. regulatory and

permitting procedures present some impediments

to environmental technology innovation. Companies may find it too expensive, uncertain, or

time-consuming to secure regulatory permits for

R&D and testing of innovative environmental

technologies. Regulated industries hesitate to

employ innovative technologies not only because

of technical uncertainties associated with new

approaches but also because of regulatory uncertainties, Permitters often shy away from approving unfamiliar technologies and tend to prefer

environmental technologies with established track

records, Limited technical expertise, small budgets, and lack of incentives for championing new

approaches account for risk-averse behavior by

permit writers.

COMPETITIVE IMPACT OF ENVIRONMENTAL

REGULATIONS

1. While comparisons are difficult, the compliance costs incurred by U.S. manufacturers for

pollution control and abatement are among the

highest in the world. Firms in a handful of

countries such as Germany face equal or higher

costs, but they are the exception. Japanese manufacturers appear to spend lesson pollution control

than U.S. industry and that gap has been growing.

However, Japanese industries pay more for energy, leading them to implement more energy

efficient measures, which provide some environmental benefits. Some countries (including Germany and Japan) provide greater financial incentives (tax incentives, loans, grants) to companies

for compliance with their nations’ environmental

requirements.

2. For most U.S. manufacturing sectors, pollution control and waste management regulations

are not among the top ranking factors determining

international competitiveness. Even sectors with

the highest compliance costs-chemicals, primary metal production, pulp and paper, and

petroleum refining-represent a range of competitive positions. However, some U.S. firms face

increasing competition for nonenvironmental reasons, and for these firms even small cost differences can erode relative competitive position.

Conventional forms of regulation can have effects

other than just raising production costs. For

example, complex and time-consuming permit-
6 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

ting procedures can make it difficult for manufacturers to continuously improve production processes and rapidly introduce new products.

3. A number of experiments are underway

across the Nation as regulators and industries seek

new regulatory approaches that protect the environment effectively while reducing competitive

impacts on fins, These experiments include

emphasis on pollution prevention; use of multimedia regulation, permitting, and inspections;

development of facility-wide emission caps and

performance standards; allowing good environmental performers more choices in selecting how

they will comply with regulations; and introduction of economic incentives, including tradable

permits and fees. The techniques explored in

these experiments can complement and enhance

the present regulatory tool kit, but they have yet

to be widely adopted,

4. In many cases, economic incentives could

lower environmental compliance costs. With

tradable permit systems, for example, firms able

to reduce pollution cheaply have an incentive to

go beyond what otherwise would be required,

while firms with higher marginal control costs

would not need to do as much as otherwise if they

purchase credits from the lower compliance cost

firms. Incentives could also stimulate development of lower cost compliance approaches. While

incentive systems can lower compliance costs,

they cannot be applied in all cases. They are a

supplement, not a replacement, for the regulatory

system.

5. The traditional means for complying with

pollution abatement laws—use of end-of-pipe or

remedial technologies to deal with pollution or

waste after it has been created—almost always

add to manufacturing costs. Pollution prevention

alternatives (which include source reduction) and

recycling of industrial pollutants and wastes are

promising ways for lowering compliance costs.

Some source reduction and recycling projects

quickly pay for themselves through reduced

material and energy use and savings from recovered materials. Source reduction sometimes

speeds technical change, leading to increased

investment in new plant and equipment. Source

reduction and recycling usually pay off when

compared to the cost of treating or disposing

wastes. But, many projects are not cost-effective

in the absence of regulatory requirements.

6. As the simpler steps for pollution prevention

become widely adopted, a significant source of

environmental improvement will lie in new generations of manufacturing process technologies

that are cleaner, and often more productive, than

older generations. Cleaner technology has only

recently emerged as an objective for industrial

R&D. With the exception of some energy related

technologies, public and private funding has been

limited.

7. Technical assistance can help fins, particularly small and medium-sized firms, implement

pollution prevention and recycling measures and

more effectively meet environmental regulations.

Yet, U.S. programs are very small; many of them,

by focusing only on pollution prevention, do not

consider productivity and quality issues that

could more fully meet manufacturers needs.

I Preview of Policy Options

In this study, OTA assumes that U.S. pollution

control and abatement standards will continue at

their current levels, which makes them among the

highest in the world, and that the standards may

well become more stringent in the future.2 OTA

does not consider the option of lowering U.S.

standards as a competitive response to weaker

2 Other types of environmental laws and regulations, such as those governing land use, resource managemen~ and protection of species,

are not addressed in this assessment.
standards elsewhere.3 Hence, the major competitive questions in this study are:

1. Given continuation of strong standards,

how can U.S. manufacturing maintain or

enhance its industrial competitiveness?

2. How can the United States benefit from

high standards through an internationally

competitive U.S. environment industry?

OTA has examined the pros and cons of a wide

range of policy options that bear on these

questions, both domestically and abroad (see

table 1-4 and additional discussion further on and

ch. 2). Domestic measures, for example, might

include coordinating Federal support for environmental and manufacturing industry R&D; encouraging States and Federal agencies to integrate

delivery of environmental and manufacturing

technical assistance to better assist small and

medium-sized firms; and giving firms that are

strong environmental performers more options to

determine how they will meet environmental

standards.

The Federal Government also might do a better

job of promoting exports of U.S. environmental

goods and services. Authorizations in recent laws

directed at this goal provide a starting point.

Additional measures could be considered. Some

steps taken primarily for domestic purposes might

enhance exports. For example, the Federal Government could oversee more independent evaluations and performance verifications of U.S. environmental technologies, and make this information

available to foreign purchasers.

Greater international cooperation on environmental matters could produce new commercial

Chapter 1-Summary ! 7

opportunities for U.S. environmental firms and

ease negative competitive impacts for manufacturing fins. For example, both competitiveness

goals and environmental goals might be served if

the U.S. Government were to more vigorously

negotiate agreements with other countries to

upgrade their environmental standards. It could

also help developing countries build their environmental capabilities on a multilateral basis.

The options could be adopted singly or in

packages. OTA has formulated two strategies—

an incremental approach and a more aggressive

effort—that could guide U.S. efforts (see box 1-D

further on and ch. 2). Many of the options could

be accomplished through more effective integration, coordination, or reorientation of Federal

programs. While such steps could be useful, some

actions—such as development of next generations of cleaner manufacturing technologies, or

increasing access to export financing for U.S.

fins-would require new funding beyond the

current modest levels.

ORGANIZATION AND SCOPE OF

THE REPORT

This report is the third and final publication of

an assessment of environmental issues and American industry that was requested by the House

Foreign Affairs Committee, the House Energy

and Commerce Committee, and the Senate Finance Committee.4 The final report examines:

■ how American business and the U.S. economy

might benefit from the growing global interest

in controlling emissions, treating wastes, and

preventing pollution; and

s This assessment does not examine environmental priorities or goals. Nor does it examine risk assessment/management as a way to set

environmental spending priorities. The latter approach is advocated by those who argue that the present environmental protection system directs

too much spending to areas of relatively little environmental risk and too little to areas posing much higher risks. Another OTA study is

examining the research base to improve risk assessment, including environmental pollutants.

4 The House Foreign Affairs Committee also asked OTA to provide interim products on trade and environment issues, and on environmental

industries. OTA produced two background papers in respome. See U.S. Congress, Office of Technology Assessment Trade and Enviromnent:

Conj7icfs and Opportunities, OTA-BP-ITE-94 (Washington, DC: U.S. Government Printing Office, May 1992) and U.S. Congress, OffIce of

Technology Assessment, Development Assistance, Export Promotion, and En~’ironmental Technology, OTA-BP-ITE-107 (W~hingto@ DC:

U.S. Government Printing Office, August 1993).
8 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

ways to counteract competitive disadvantages

for U.S. manufacturers that compete with firms

in countries with weaker environmental standards or with firms from countries that provide

more government help for compliance with

environmental standards.

Part 1 is comprised of this summary chapter, a

chapter on policy issues and options, and a

chapter about the report’s conceptual framework.

Part 2 discusses opportunities for U.S. business

in providing environmental technologies and

services to a growing global market. The discussion covers, first, the traditional sectors that

market equipment and services for control, disposal, and remediation of industrial pollution and

household waste, and, second, on a more selective

basis, cleaner production technologies and related

services. The latter sector can be thought of as an

“invisible’ environmental industry of pollution

prevention and improved energy efficiency. (Green

consumer products are not addressed in detail).

Government export promotion policies of the

United States and some competing countries are

also discussed.

Part 3 examines the difficulties manufacturing

firms face against competitors in countries with

weaker or more flexible regulations or that get

more help in complying with environmental

regulations or improving technology. It examines

ways to reduce potential competitive impacts

while maintaining or strengthening standards.

These include an increased focus on pollution

prevention (including public and private efforts to

develop and diffuse cleaner production processes), use of economic incentives, and modifications to make the regulatory system operate more

efficiently.

Part 4 examines the organization of environmental technology R&D in the United States and

some other nations.

EXTENDED SUMMARY

Results from the report are discussed more

fully below. The section immediately below

discusses the environmental market and U.S.

environmental industry competitiveness. This is

followed by discussion of environmental compliance costs, regulations, pollution prevention, and

manufacturing industry competitiveness. The final

section discusses policy issues and options in 6

areas: technology policy; diffusion of best practices and technologies to industry; regulatory

reform and innovation; development assistance,

export promotion, and environmental industries;

trade and environment interactions; and data

needs for policymaking.

I Environmental Markets and U.S.

Environmental Industry Competitiveness

Estimates of the current and future size of the

global market for environmental goods and services vary widely. A study by the Organization for

Economic Co-operation and Development (OECD)

estimated the 1990 market for environmental

services and for traditional pollution control and

waste treatment equipment at $200 billion, with

the potential to grow to $300 billion in the year

2000. 5 Another estimate placed the 1992 market

at $295 billion worldwide, with potential to grow

to $426 billion for 1997.6 Different definitions

partly explain the variation. Also, the quality of

data varies.

Neither estimate fully accounts for cleaner

production technologies (referred to as invisible

EGS) which could become a fast-growing segment of the environmental market. Manufacturers

f’ Orgarliza tion for Economic Co-Operation and Development (OECD), The OECD Environment lndusrry: Siruarion, Prospects and

Government Policies, OCDE/GD(92)l (Paris: OECD, 1992). OECD’S estimates do not include cleaner production and energy eftlciency

products or services except for some pollution prevention consulting services.

b Grant Ferner, Environmental Business International, presentation to Environmental Business Council of the United States conference,

Washingto% DC, June 7-9, 1993. The estimate does not include cleaner technology except for renewable and cogenerated energy.
—

Chapter 1–Summary 9

Box 1-A—Leaders in Cleaner Technologies

in the United States, several northern European countries, and Japan, efforts to develop and

establish cleaner technologies are underway. The primary motivation is to further environmental

objectives through pollution prevention, reduced use of toxic and hazardous substances, improved

energy efficiency, and product reuse or recycling.

In contrast to pollution control, pollution prevention is integral to process and product; therefore,

cleaner production technologies change (and can sometimes improve) production systems. In some

cases, developers, vendors, and early users of these technologies can gain competitive advantage.

The United States is a leader in the development of many cleaner production technologies. R&D

has been spurred by the expense and liability of hazardous substance disposal, phase-out of ozone

depleting substances, a requirement that firms report their releases of toxic substances, and increased

regulation of volatile organic compounds and toxic air pollutants. As a result, many U.S. firms are

actively seeking substitutes and ways to reduce the use of these substances when they cannot be

eliminated. Aqueous metal cleaning baths, low emission paint nozzles and coating formulations,

advanced curing technologies, better catalysts and chemical reactor designs, and cleaner pulping

technologies are among advances that the United States can capitalize on through technology exports

and improved domestic production. U.S. firms are a dominant market presence in some clean energy

technologies such as gas turbines. There is, however, strong competition from abroad in several

renewable energy technologies, some advanced combustion technologies, and emerging technologies

like fuel cells. The United States also has pioneered demand-side management approaches for electric

power conservation.

Germany appears to be moving toward greater emphasis on pollution prevention. As in the United

States, there are strong efforts for replacement and recovery of organic solvents and toxic chemicals.

German environmental compliance costs are on the same order as in the United States; industry can

find lowest cost solutions through pollution prevention. In addition to pollution prevention, Germany is

establishing strong requirements for recycling. Initially focused on packaging, German product take

back requirements could soon apply to a wide variety of products including automobiles, computers, and

other machinery. Such requirements can give German industry significant impetus to design products

for ease of recycling and to create processes to aid in recovery and reuse. Initial implementation,

(continued on next page)

and designers of less-polluting and more energy- duction processes, and energy efficiency into a

efficient equipment for power generation, industrial processing, buildings, and transportation are

likely to find increased trade opportunities in

many regions of the world. In the long run,

cleaner production technologies may cut into

(although not eliminate) demand for end-of-pipe

technologies.

It is very difficult to estimate the current and

potential size of the market for cleaner technologies and production processes. Some projections

combine conventional technology, cleaner prosingle forecast for a seemingly enormous environmental market ($600 billion or more) a decade

from now. Such projections suggest the growing

importance of environmental factors in the demand for a wide range of products and services.

While the commercial potential of cleaner technologies is high, development efforts are still in

their early stages; aside from the United States,

most of the activities are occurring in a few

European countries and Japan (see box l-A).
10 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Box 1-A—Leaders in Cleaner Technologies--Continued

however, has proven difficult.1 If they are adopted in other countries, requirements that make

manufacturers responsible for disposal of products could alter the relative competitiveness of American

and German firms. German firms are also highly competitive suppliers of renewable energy and other

cleaner energy technologies.

Other northern European countries that strongly promote pollution prevention include the

Netherlands and the Scandinavian countries. The large Swedish/Swiss environmental and electrical

machinery conglomerate, ASEA Brown Boveri, is a major provider of advanced turbines and a leader

in some advanced combustion technologies. Scandinavian pulp and paper firms and suppliers are

among the world leaders in cleaner pulp and papermaking technologies. In the energy sector, Denmark

is the major competitor of U.S. firms in wind energy.

The Dutch use their tax code to promote the development and use of clean manufacturing

technologies. Firms that install innovative pollution prevention or control technologies can depreciate

their investment in 1 year instead of 10. The tax break only applies to a list of innovative technologies

that is annually revised by a group of industry and government experts. Technologies are dropped from

the list when they gain a significant marketshare or are required by regulation. Overall, the Dutch spend

close to $500 million a year on environmental technology (equivalent on a per capita basis to $9 billion

in the United States), and a significant share is for pollution prevention and energy technologies.

Because of high energy prices and aggressive government policies adopted after the energy

supply shocks of the 1970s, Japanese industry has made significant strides in adopting energy efficient

technologies, which provide direct and indirect environmental benefits. Japan is contending for

leadership in some clean energy fields including photovoltaic power and fuel cells. Since early 1992, the

Japanese Government has supported its fuel cell industry by subsidizing purchases by hospitals, hotels,

and schools. Moreover, Japan is active in recycling technology, a logical interest for a nation that is

highly dependent on imported materials and has little space for landfills. Japanese firms also have been

very active in developing CFC substitutes. However, in contrast to conventional wisdom, the Japanese

do not appear to be in the forefront in other areas of industrial pollution prevention. The distinction

between prevention and control of pollution seems to be less advanced in Japan than in the United

States and Northern Europe.

1 $’@r~ny”S TrOU~@ DSD Offers l.essom on Product Takeback Policy”, WslneSS and the fivl~n~nt,

vol. IV, No. 7, Juty 1993, f). 2.

According to the OECD estimate, the industri- market as a whole. Much of the demand in these

alized countries accounted for more than 80

percent of the 1990 market for environmental

services and conventional equipment. The United

States accounted for 40 percent of the global

market, making it the largest national market.

Industrial country markets (the OECD member

states) are likely to account for most EGS demand

over the next 10 to 20 years.

While small now, some markets outside the

OECD may grow more rapidly than the OECD

nations is for environmental infrastructure, such

as water and wastewater treatment, and other

basic sanitation services, and control of urban air

pollution. The fast-growing East Asian area,

already a significant market for some environmental technologies, could emerge as a major

new market for a full range of technologies,

including cleaner production processes and facilities.
Chapter 1--Summary I 11

Singapore, one of the four Asian economic

tigers, has in place environmental standards that

rival those of some OECD countries. South

Korea, Taiwan, Thailand, and Malaysia plan

major environmental expenditures in coming

years. Some less prosperous nations, including

China and Indonesia, may grow into significant

environmental markets. But U.S. firms seeking to

expand into the East Asian markets will face

Japan’s already strong commercial presence,

Some efforts, such as the public/private United

States-Asia Environmental Partnership, attempt

to give U.S. firms a more visible role in the region.

Latin America is another promising region for

American technologies and services. Mexico and

Brazil plan multibillion dollar investments to

treat drinking and wastewater, and hope to tackle

other urban and industrial environmental problems. Other Latin American countries, including

Argentina, also plan major environmental investments. The nations of Central and Eastern Europe

and the former Soviet Union are trying to repair

severe environmental damage. These huge potential markets are likely to be constrained by the rate

at which these countries progress economically

and move to successful market-based economic

systems.

Many factors affect the size and nature of

environmental markets, The most important is the

strength of a country environmental regulations

and its ability to enforce the regulations. Most if

not all end-of-pipe and remedial controls are not

cost-effective in the absence of regulatory requirements. Other factors are also important. A

healthy economy is important for environmental

market growth; contrary to some past predictions,

the EGS industry is not immune to recession even

in countries with strong regulations. The possibility of saving money and realizing gains in quality

and productivity can make some investments in

source reduction, and waste recycling, and particularly energy efficiency cost-effective even in the

absence of regulation. In addition, new technologies to improve productivity often have concomitant environmental benefits.

L

k.,-.,

Basic services, such as water supply, sewerage, and

refuse collection, are major environmental needs in

most developing countries.

Also, some consumers are choosing products

produced in ways deemed environmentally preferable; this can influence producers even in

countries without strong standards. To some

degree, environmental investments in countries

without strong standards may be driven by the

decisions of some multinational companies to

apply their home country environmental standards. Public financing agencies and private lenders increasingly consider environmental factors

(e.g., possible future liability) in making loans in

areas that lack strong standards.

While the worldwide market is large, most

spending for environmental infrastructure (water,

sewer, and waste utilities), major industrial air

and water pollution abatement installations, and

remedial treatment is for local construction,

fabrication, and operation. In many cases lower

value materials like cement and sheet metal will

be procured locally rather than imported. Operation of environmental facilities, including trash

collection and disposal, and water and sewer

service, largely involves local or regional labor

forces. Environmental industries are developing

in many countries, In local and regional markets

these firms may increasingly compete with American and other OECD-based firms. In some cases,

local content regulations and tariffs can limit

export opportunities although the development of
12 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

local pollution control expertise may create demands for more sophisticated technologies more

likely to be supplied by imports or licensing.

For all these reasons, international trade fills

only a fraction of the demand for goods and

services associated with environmental projects.

Still, that fraction represents a significant amount

of trade, for which competition is intense. Trade

data and information are inadequate. However,

Germany and the United States are believed to be

the largest exporters of EGS.

According to one estimate,7 Germany, the

United States, and Japan exported $23 billion in

environmental products in 1992—about 7.8 percent of an estimated world environmental products and services market of $295 billion. U.S.

product exports were estimated to be nearly $7

billion, or about 20 percent of U.S. environmental

goods production. German and Japanese product

exports were estimated to be $11 billion and $5

billion, respectively. U.S. service exports were

estimated to be $3.5 billion-less than 10 percent

of U.S. solid waste management revenues, and 5

percent or less of sales for engineering, hazardous

waste, analytical, and other services. (Imports,

non-U.S. service exports, and the proportion of

production exported by other countries were not

estimated).

According to OECD’s study, Germany, the

United States, and Japan had 1990 trade surpluses—

including license royalties-of $10 billion, $4

billion, and $3 billion, respectively. Britain and

France had estimated trade surpluses of $500

million each. The Netherlands and Sweden apparently also were net exporters.

An EPA study, based on analysis of several

product trade codes deemed environmental, concluded that the United States ($1.7 billion total,

$1.1 billion net), Germany ($1.5 billion total, $0.7

billion net), and Japan ($0.7 billion total, $0.3

billion net) were the largest exporters of environmental products.

Environmental services, including engineering

and management services, are an expanding

component of environmental expenditures. International sales in products center on relatively

sophisticated equipment and supplies such as

monitoring and control instruments, specialized

devices (e.g., aerators, falters) and chemicals, and

ancillary equipment (e.g., construction and materials handling machinery). Licensing of technologies is also common.

Environmental components are also embedded

in other products or services that are traded. This

can complicate analysis. For instance, while U.S.

companies are major producers of automotive

catalytic converters, the United States imports

foreign-assembled catalytic converters that are

attached to imported automobiles. And, while

there is growing world demand for engineering

design services for environmental projects (e.g.,

waste treatment facilities or scrubbers), such

services can be a component of larger contracts

for design of whole production facilities (e.g.,

power plants, refineries, or chemical plants). As

cleaner production becomes a more important

objective, those engineering firms that are most

adept at integrating environmental objectives into

the design of full facilities may have a competitive leg up (see box l-B).

U.S. ENVIRONMENTAL INDUSTRY

COMPETITIVENESS

It is difficult to assess national competitiveness

in most environmental sectors. As discussed

previously, data on environmental products trade

are limited, while data on trade in services are

largely unavailable. Licensing, joint ventures,

and multinational acquisitions further complicate

analysis. Many large environmental firms now

operate on several continents. Flows of profits

7 Grant Ferner, op. cit., footnote 6. The estimate in the next paragraph above is ffom OECD, op. cit., footnote 5; that in the second paragraph

that follows above is from U.S. EPA, “International Trade in Environmental Protection Equipment: An Analysis of Existing Data, ” EPA

230-R-93-O06, Washington DC, July 1993.
Chapter 1-Summary 13

Box l-B—Engineering Services and Cleaner Production Facilities

Engineering and construction firms could play a role in moving industrial production from a largely

end-of-pipe approach toward pollution and waste to a cleaner production orientation. In addition to

designing and building wastewater treatment plants, waste disposal facilities, and major air pollution

abatement installations, these companies also design power plants, chemical plants, pulp and paper

mills, petroleum refineries, steel mills, and other industrial production facilities. In theory, these firms are

well-positioned to integrate improved energy efficiency and cleaner production processes into facility

design.

Design of whole production facilities could be more commercially rewarding than contracts for

discrete environmental add-ens. While potential markets for discrete environmental goods and services

are large, the markets for industrial production capital plants and machinery are far larger. Wards of

design contracts to U.S. companies can contribute to U.S. exports through fees earned by t hose firms,

and indirectly, because U.S. designers are more Iikely to incorporate U.S. standards and products into

their plans. Furthermore, environmental design responsibilities for a facility often may lie with the overall

facility designer. The United States is highly competitive in the engineering field and possesses high

competency in process engineering. However, major competition is presented by European and

Japanese firms that can often bring to the table financial packages sweetened by their governments.

and royalties are difficult to compare with em- 2. Fiscal and other domestic incentives for

ployment and export earnings. For instance, some

environmental companies in the United States are

subsidiaries of foreign firms but export goods and

services from the United States. At the same time,

a number of American companies have foreign

operations that mainly serve local markets.

Generally, the most competitive environmental

industries are found in countries with stringent

environmental regulations. However, many other

factors are involved, Some, including cost of

capital, general export promotion policies, and

overall workforce ability, are common to most or

all industries. Others are more particular to the

EGS sector.

Among the major competitiveness factors are:

1. Strength and form of home country environmental regulations. Leading international

environmental firms generally come from

countries with the toughest regulations.

Also, the form of regulations can influence

innovation, which in turn can lead to new

product offerings and to export opportunities.

adoption of innovative environmental technologies or approaches. Countries may use

tax incentives, loans, utility regulation, and

other techniques to encourage domestic

industry to make environmental investments. National environmental firms may

be helped as a result.

3. Industrial structure, including company size

and financial strength. While small entrepreneurial firms can be innovative, large

companies have easier access to capital and

possess the resources to pursue export

opportunities.

4. Promotion abroad of home country standards, practices, and testing protocols. This

can help create markets for technologies

known to meet the standards.

5. Export awareness and support. Many U.S.

environmental firms are not attuned to

export opportunities, while some foreign

competitors are more focused on international business.

6. Financing packages, including development

assistance. For projects in developing coun-
14 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Figure 1-1--Overlap of Selected Environmental Compliance Costs and EGS

EGS market revenue Industrial compliance

costs

Market Revenues

[

Noncompliance costbased EGS Market

[

■ Municipal garbage

collection

■ Municipal water supply

■ Some cleaner energy

\

technologies [

Compliance costs

in EGS market

● Hazardous waste

management

~ Water pollution control

● Air pollution control

o Motor vehicle emission

SOURCE: Office of Technology Assessment, 1993.

tries, foreign government aid donors sometimes offer attractive financing packages

benefiting their firms that American companies cannot meet.

7. Appropriate technologies, products, and

services. Many countries lack resources or

do not have the expertise to obtain or

maintain advanced technologies. Some products used in high-standard countries maybe

too expensive and sophisticated for other

markets.

8. Research, development, and demonstration.

R&D can yield new and improved technologies, while demonstrations and independent

technology evaluation can play an important role in diffusing innovative technologies domestically and internationally.

Compliance costs

not in EGS market

8

8

■

In-plant labor for

mental compliance

Energy and some materials

used to control pollution

Regulatory fees

)

/

No single factor explains leadership in all EGS

sectors. For instance, tough standards in home

country markets help explain the strength of

German, Japanese, and Scandinavian firms in

selling some sulfur dioxide (SO2

) and nitrogen

oxide (NOX

) control technologies. But, British

and French wastewater treatment companies are

strong performers in the international market

even though British and French standards are

weaker than those in the United States and some

other European countries. Strong cash positions

following privatization and experience in providing integrated services as large utilities contribute

to British and French success.

The U.S. environmental industry is the world’s

largest, estimated at over 34,000 firms employing

over 900,000 people and earning $112 billion in

revenues (not including private water utilities or
Chapter 1-Summary [ 15

publicly operated water, sewer, and solid waste

operations). 8 The revenue estimate is not a

measure of final demand or of the total contribution to GDP. Sales from EGS firms to other EGS

firms may be double-counted. Sales of some

cleaner technologies may not be counted. The

revenue estimates also do not include internal

costs (e.g., labor) by complying firms. Hence, the

revenue estimate differs from estimates of U.S.

environmental compliance costs (figure l-l).

The U.S. industry is comprised of a few large

fins, some of which operate on a worldwide

basis, and a large number of small- or mediumsized enterprises. Many of their major European

and Japanese competitors belong to large, wellcapitalized conglomerates that operate in other

major markets, including the United States. There

are indications that these firms sustain higher

levels of private R&D than most of their American rivals. Many major U.S. and foreign firms are

active in several businesses, such as engineering

and construction, chemicals, power generation,

petroleum, transportation, instrumentation, electrical equipment, and materials.

OTA has analyzed international competition in

8 major environmental industry sectors encompassing both goods and services. Most of the

cases feature end-of-pipe control, disposal, and

remedial technologies and services but some,

more selectively, highlight pollution prevention

and cleaner production. The cases examined are:

1.

.2.

3.

4“

5.

6.

7.

design and construction services;

stationary source air pollution controls;

mobile source air pollution controls;

water and wastewater treatment equipment

technologies;

solid and hazardous waste management;

contaminated site remediation;

cleaner energy technologies, including gas

turbines, advanced coal technologies, reSome large environ mental firms operate on a

worldwide basis. This hazardous waste treatment

facility in Hong Kong is run by a subsidiary of

a U.S. firm.

newable energy, and end-use energy efficiency; and

8. cleaner industrial production technologies.

U.S. companies remain competitive, although

not dominant, in most environmental sectors.

However, the U.S. position has eroded in some

areas, Foreign ownership of U.S. environmental

firms has increased over the last decade. U.S.

companies seem to depend more on air, water,

and incineration technologies developed abroad.

Foreign technologies as well as U.S. subsidiaries

of foreign-owned firms are prominent in such

Federal technology development and demonstration programs as the Clean Coal Technology

Demonstration Program. Clearly, competition in

international environmental markets has intensified.

American technologies often have a good

reputation abroad. However, particularly in developing and newly industrialized countries, they

are sometimes perceived as over-engineered and

too expensive for local needs. US. vendors are

sometimes seen as providing poorer after-sale

8 Grant Ferrier, op. cit., footnote 6.
16 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

service than Japanese, German, and some other

foreign vendors.

Because international trade fills only a small

fraction of world demand, the growth in exportrelated jobs in the United States and leading

exporters will be smaller than suggested by the

size of the global market. However, these exportrelated jobs are likely to include many high wage

engineering and management positions, and relatively skilled blue collar jobs in the manufacture

of components and machinery. Some jobs could

accrue from exports of ancillary goods such as

construction equipment used in building environmental projects.

In the long term, opportunities for the export of

cleaner production goods—that is, capital goods

for factories, mines, mills, power plants, and other

production facilities--could become an important source of export-related jobs. Manufacturers

of environmentally superior capital goods, especially those incorporating cost-saving improvements in energy or materials efficiency, will have

an advantage as other countries tighten their

environmental requirements. The distinction between the visible EGS sector of environmental

equipment and the invisible EGS sector of cleaner

production goods may blur over time.

While some U.S. environmental companies are

keen competitors for international markets, the

great majority do not export. Most U.S. environmental firms are small or medium-sized, with

modest capitalization. They often lack the interest

or the resources to exploit-or even learn about—

export opportunities. Even many larger U.S. firms

are not well-represented in international markets.

The size of the U.S. domestic market has created

a large, vibrant, domestic industry that often has

little interest in exporting; at the same time, the

U.S. market attracts foreign competitors. (Table

1-1 illustrates some of the relative strengths and

weaknesses of U.S. environmental industries.)

Increasing export awareness and interest among

small and medium-sized U.S. environmental

firms will be important for improving U.S. export

performance. Improving export awareness among

lenders is important as well; banks outside of the

major U.S. money centers are often inexperienced

in international transactions. As is discussed in

chapter 6, U.S. firms receive less export assistance from government than their counterparts in

some European countries and Japan.

Both EGS competitiveness and manufacturers’

ability to comply with regulations is affected by

government support for environmental technology research, development, demonstration, and

evaluation. As is discussed in the policy section

below and chapter 10, U.S. government agencies

spend substantial funds for R&D pertinent to

environmental technologies. While there are major

exceptions, commercial objectives have not been

a key priority for most of these programs. Also,

Federal R&D support has not been centrally

coordinated (although two interagency bodies

have recently been formed). Recent legislation

and administration initiatives, if vigorously pursued, could result in more governmentwide coordination and a more commercial orientation;

several pending bills address Federal environmental technology R&D.

In Europe and Japan, government support for

environmental technology R&D often is funded

or coordinated by agencies with industrial policy

missions, such as the Japan’s Ministry for International Trade and Industry (MITI), Britain’s Department of Trade and Industry, Germany’s

Ministry for Research and Technology (BMFT),

and the European Community’s DirectorateGeneral XII. The R&D programs focus on technologies with domestic and international commercial promise. The usefulness of R&D to

industry is a key concern; for example, Japan’s

New Energy and Industrial Technology Development Organization (NEDO), a MITI affiliated

quasi-public corporation, directly funds industry

technology development projects.
Chapter 1--Summary 17

Table l-l—The U.S. Environmental Industry: Strengths, Weaknesses,

Opportunities, Threats

Strengths:

Large domestic market supports U.S.

EGS development

Head start; toughest standards in many

areas

High technical capability of industry

Good reputation of EPA technical

information abroad

Strong Federal and university R&D

capacity

Many small innovative firms

U.S. political, economic, technical,

and cultural leadership

Opportunities:

Growing U.S. and foreign demand

Possibility y of others adopting U.S.-based

standards and practices

Development assistance can promote

U.S. exports

Internationalization of EGS business:

—Acquisitions of foreign firms

(U.S. gets profits)

—Licensing abroad (royalties)

—License from abroad (U.S. jobs)

Opening of many countries to greater

trade, foreign investment, privatization

Weaknesses:

Large domestic market inhibits desire to

export

Other nations often perceive U.S. technology as too expensive/sophisticated

Spotty public/private links in R&D, export

promotion

Limited Federal effort to certify or provide

objective evaluations of technologies

Slow transfer of technology to the

marketplace

Small firms have difficulty accessing capital, exploiting export opportunities

Limited effort to understand foreign cultures, languages, business practices

Limited role of industry associations in

trade and R&D

Some regulatory measures impede environmental technology innovation

Threats:

Growing foreign environmental industry

capacity, including penetration of U.S.

market

Foreign standards highest in some cases

Possibility of others adopting foreign

standards and practices

Other donors’ use of tied aid credits keep

U.S. firms from winning some business

Internationalization of EGS business:

—Acquisition by foreign firms

(foreigners get profits)

--Licensing abroad (jobs abroad)

—License from abroad (royalty paid)

Strong foreign public/private cooperation

in R&D, export promotion

Stronger foreign trade association role in

trade promotion and R&D

SOURCE: Office of Technology Assessment, 1993.
18 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Table 1-2-Some Economic Costs and Benefits of Environmental Regulation

Potential costs Potential benefits

●

●

●

●

End-of-pipe investments divert funds from more

productive investments, thus slowing productivity growth

Some plants facing high environmental compliance costs relocate to pollution havens or close

Increased production costs for high compliance

cost sectors, therefore reducing exports and

increasing imports

Reduced innovation (e.g., uncertainty about

regulatory acceptability of new products or

processes)

●

●

●

●

●

Increased benefits from a cleaner environment

(e.g., reduced health costs, increased natural

resource productivity)

Production process changes that increase

productivity

Job creation in environmental goods and services sectors

Possible trade surplus in the environmental

goods and services sectors and increased

sales from consumer demand for green

products

Increased innovation (e.g., more efficient

products)

SOURCE: Office of Technology Assessment, 1993.

B Environmental Regulation and

Manufacturing Industry Competitiveness

The impact of the current system of environmental regulations for U.S. manufacturing must

be viewed in the context of an increasingly

competitive world economy. As other OTA

reports have documented, U.S. manufacturing

industries have been challenged in the last decade

by able foreign competitors from other advanced

industrial nations and from some newly industrialized countries.9

Environmental regulations, while providing

important societal benefits, can have negative

impacts for individual fins. In addition to higher

costs from treating or controlling wastes, firms

may be affected by regulatory delays, and in some

cases may avoid using new technologies because

of regulatory risks. Of course, some firms may

benefit from environmental requirements if they

can upgrade production processes and become

more efficient. Table 1-2 shows representative

costs and benefits.

Environmental regulations are not a principal

determinant of industrial competitiveness, Other

factors, such as management savvy and time

horizon, capital cost and availability, workforce

skills, market access and foreign trade practices,

and technology innovation and diffusion, play

more significant roles. However, because environmental regulations do play some role in

competitiveness, reducing environmental compliance costs while maintaining current levels of

environmental protection can improve U.S. industrial competitiveness. Moreover, certain industrial sectors are affected far more than others.

Efforts have begun to make our environmental

protection system more efficient and to reduce the

tradeoffs between environment and economics.

One way to do this is pollution prevention. Many

source reduction and recycling options yield net

9 Sce for example, U.S. Congress, Office of Technology Assessment, Competing Economies: America, Europe, and the

Pacific Rim, OTA-ITE-499 (Washington, DC: U.S. Government Printing Office, October 1991); U.S.-Mexico Trade: Pulling Together

or Pulling Apart?, OTA-ITE-546 (Washington, DC: U.S. Government Printing Office, October 1991); Making Things Better:

Compering in Manufaczurr”ng, OTA-ITE-443 (Washingto~ DC: U.S. Government Printing Oftlce, February 1990); International

Competitiveness in Electronics, OTA-ISC-200 (Washington DC: U.S. Government Printing Office, November 1983); and Technology

and Sreel Industry Competitiveness, OTA-M-121 (Wa.shingtoq DC: U.S. Government Printing Office, June 1980),
Chapter 1--Summary 19

positive rates of return equaling nonenvironmental investments; others are less attractive as an

investment, or cost money, although usually less

than end-of-pipe treatment. While pollution prevention can ease conflicts between environmental

protection and industrial competitiveness, it does

not eliminate it.

U.S. INDUSTRY’S COMPLIANCE COSTS

According to a Commerce Department survey,

U.S. businesses spent $42 billion on pollution

abatement and control in 1991. While only about

0.8 percent of total manufacturing sales, compliance costs are more significant when measured

against other demands for a fro’s resources. For

example, U.S. firms spent about $43 billion in

1991 on formal training for their workers, and

about $78 billion on research and development.

Manufacturing firms alone spent $21 billion

for pollution abatement and control in 1991. (For

reasons discussed inch. 7, their expenditures may

be underreported by 20 to 30 percent). Process

industries experience higher compliance costs

than the discrete parts manufacturers and assemblers. Just four process industries-chemicals,

petroleum, pulp and paper, and primary metals—

account for nearly three-fourths of pollution

abatement capital expenditures by manufacturers

(but only 22 percent of manufacturers’ value

added). These industries also account for a

disproportionate share of pollution and hazardous

waste generation by manufacturers.

Compliance costs are not a major share of total

costs for any industry, and are only one of many

factors determining competitive advantage. For

example, of the high compliance cost sectors

mentioned above, chemicals and wood pulp are

highly competitive internationally, with significant trade surpluses. The primary metals industry

is struggling. These four sectors devoted an

average of 15 percent of their capital expenditures

to pollution abatement and control, compared to

3.2 percent for all other manufacturing sectors.

Their pollution abatement and control expenditures amounted to 4.85 percent of their value

added, compared to the average of 1.72 percent

for manufacturing as a whole. Some subsectors

have much higher compliance costs than the

sector average. For example, while the fabricated

metals industry as a whole spent 4.6 percent of

capital on environmental protection, the metal

plating and polishing subsector spent over 27

percent.

Pollution control and abatement regulations

can also make it harder for firms to alter

production processes quickly. Flexibility is especially important for batch manufacturers (e.g.,

specialty chemicals) and discrete part manufacturers (e.g., semiconductors). As more U.S. manufacturers seek to adopt production systems

amenable to continuous improvement and rapid

new product introductions, some features in the

regulatory system may need to be modified

accordingly. As discussed below, there are a

number of options to lessen adverse competitive

impacts on firms that are good environmental

performers, and to do so without jeopardizing

environmental standards.

As has been discussed, some environmental

compliance costs for manufacturing industries

represent equipment and services provided by

environmental fins. However, there is not a

one-to-one relationship between compliance costs

and EGS industry revenues. As shown in figure

1-1, some compliance costs are for labor or other

internal costs. And some revenues (e.g., for

garbage collection or for water purification and

supply) are income for environmental firms but

are often not considered a regulatory cost.

FOREIGN ENVIRONMENTAL REQUIREMENTS

Environmental cost data for different nations

are limited and of varying quality. Even so,

judging from the available information, it appears

that pollution control and abatement costs in most

of the other OECD nations, with the exception of

Germany and possibly some of the Nordic countries, are lower than in the United States. Japanese

manufacturers’ compliance costs appear to be

significantly lower than U.S. costs. While Japa-
20 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

U.S. automakers spend large sums to build and operate facilities to control painting emissions. Ford estimates

that it has spent between $150 to $180 million to build its recent paint shops, of which $20 to $40 million is to

control pollution. The paint shop (on the left) of this Ford truck plant in Virginia is larger than the assembly line

building on the right.

nese industry made high levels of investments for

pollution control in the early 1970s, U.S. industry

over the last 15 years has paid more for pollution

control and that gap is growing. For example,

pollution abatement capital expenditures by U.S.

automobile firms (to control pollution from the

production process) are approximately five times

greater than those of automobile firms in Japan as

a percent of total capital investments; they are

three times more as a percent of sales. Japanese

industry did, however, make major investments in

energy efficiency technologies over the same

period.

There is also significant variation in the degree

to which governments provide both financial and

nonfinancial assistance to help polluters meet

environmental requirements. A number of countries, including Germany and Japan, offer tax

incentives, R&D funds, technical assistance, and

loans to firms to help them cover the costs of

implementing environmental technologies. This

not only helps their manufacturers with compliance but also helps their environmental firms

make sales, For example, in 1992, the Japanese

Government provided the equivalent of over $2

billion in low-interest loans to firms installing

pollution control equipment.

The U.S. Government provides relatively little

financial help to its industries to meet environmental standards, U.S. industry must depreciate

pollution control equipment over a longer period

than firms in some other countries. Some technical assistance is available through State programs, although this also is quite limited.

Compliance costs in newly industrialized countries (NICs) and developing countries are much

lower than in most OECD nations, as most of

these countries have only recently begun to put in

place and enforce environmental standards. Hence,

a regulatory gap between the United States and

most other countries will continue throughout this

decade and beyond. An important issue is whether

this gap will make U.S. products more expensive,

or encourage U.S. firms to relocate to countries

with fewer or less stringent regulations. These

questions are now more prominent due to debate
Chapter 1--Summary 21

about liberalizing trade and investment with

developing and newly industrializing nations.10

These issues are difficult to analyze, and

studies offer mixed results. Most find that environmental regulation has had little overall effect

on U.S. trade performance. However, a number of

studies detect greater impacts in some sectors

where U.S. firms have higher compliance costs

than their competitors. As for siting facilities,

market access, wages, and labor standards are

much more important overall, but environment is

a more prominent location criterion for U.S. firms

in industries with high compliance costs or

regulatory burdens.

To the extent that U.S. manufacturers are

disadvantaged, various responses (including both

trade and domestic measures) are possible. Trade

measures such as countervailing duties could be

considered, although there are concerns about

their administrative practicality and consistency

with trade rules. 11 The United States also could

negotiate with other countries for higher standards, as is discussed in the policy section below

and in chapter 2, Another possibility, discussed

below and in chapters 8 and 9, would be to make

it easier for U.S. industry to adopt lower cost

compliance strategies through incentives for pollution prevention and changes in the regulatory

system to encourage innovation.

POLLUTION PREVENTION, CLEANER

PRODUCTION, AND COMPLIANCE COSTS

It is difficult to document the current extent of

source reduction or recycling by industry. Some

argue that U.S. firms have already done what is

easy and inexpensive, and therefore future gains

will be small. However, significant source reduction opportunities still appear to exist, particularly those arising from industrial process modifications and the adoption of new technologies.

Widespread diffusion of- existing off-the-shelf

technologies could go a long way in further

reducing pollution. However, many in industry,

particularly small businesses, are unaware of

pollution prevention options. Some technical

assistance is available to industry through State

programs and other sources, but programs are

small. More importantly, by considering pollution prevention separately from other manufacturing needs, such as productivity and quality

improvements, most programs fail to develop the

vital synergies and working relationships with

manufacturers that are essential to drive both

pollution prevention and increased manufacturing competitiveness. Recently, some innovative

programs in this country and in Europe have

attempted to bridge this gap (see box l-C).

A key to further advances in pollution prevention is development of new cleaner production

technology. In some industries, new technologies

in development or under consideration offer the

potential to reduce pollution, often at lower costs

than conventional treatment or disposal methods,

and in some cases with lower production costs.

The greatest promise is in sectors with high

environmental impact and compliance costs, such

as the chemical industry, pulp and paper, and

metals finishing; however, even when technologies are available, obstacles to their use remain.

As is discussed in chapter 8, a number of

emerging technologies in the chemical process

industries have the potential to cut pollution,

often more cheaply than alternative end-of-pipe

methods. New catalysts can increase chemical

reactor yields, cutting waste generation significantly. Approaches such as catalytic distillation

offer opportunities to cut waste and possibly

reduce capital and operating costs. However, the

development of new catalysts and reactor designs

to cut wastes is still in its infancy, and new reactor

lo For [u flher discussion, see U.S. Con~ess, Office of Technology Assessment, U.S.-Mexico Trade.” Pulling Together or Pulling Apart, oP.

CII., footnote 9; and U.S. Congress, Office of Technology Assessment, Trade and Environment: Conflicts and Opportunin”es, op. cit.,

footnote 4.

11 see, for Cxmp]e, Trade and En}’ironment, op. cit., foo~ote 4, PP ’68
22 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Box 1-C--Technical Assistance for Pollution Prevention and

Environmental Compliance

Widespread diffusion of best management practices and off-the-shelf pollution prevention

technologies would further economic and environmental goals. However, many companies, particularly

small and medium-sized firms, need technical assistance to identify and implement pollution prevention

measures.

Technical assistance programs for pollution prevention in the United States tend to be small.

Moreover, manufacturers may hesitate to use these services, which often are housed in State regulatory

agencies. Nor is technical assistance for pollution prevention usually undertaken as part of an effort to

address other manufacturing concerns such as productivity, quality, and worker training. Hence, most

programs fail to create synergies between pollution prevention and increased manufacturing

competitiveness.

However, a number of programs have begun to better address the linkages between environment,

energy, worker safety and health, quality, and productivity. These programs appear to be more fully

developed in Europe, where efforts to integrate technical assistance, including industrial network

programs, grants for technology demonstration, and industrial service centers are more common.

In Italy, the Centro Ceramico, a research/industrial services center funded by 500 ceramics firms

in the Bologna area, helps its members solve environmental problems. The Center Conducts research

to quantify the environmental impact of ceramic processes and to develop clean ceramic production

technologies and technologies for sludge and residue reuse. The center also provides research and

technical assistance to help firms reduce energy consumption, develop new materials and products,

and put in place more efficient processes.

In Denmark, a national program to seed industrial networks helped create an industrial ecosystem

where a power station, oil refinery, plasterboard factory, biotechnology firm, and the City of Kalundborg

now exchange and reuse what were formerly wastes.1

In Holland, a nationwide network of 18 regional innovation centers, responsible for encouraging

transfer of technological knowledge to small and medium-sized Dutch firms, recently received increased

funding to work with firms on innovative and lower cost environmental technologies.

There are examples in the United States, as well. One of the older programs is the Center for

Industrial Services, established in the early 1960s at the University of Tennessee. Since the mid-1980s,

it has operated a pollution prevention program. The Environmental Services Program, a division of the

Great Lakes Manufacturing Technology Center (funded by the National Institute of Standards and

Technology) works with manufacturers to help them meet environmental regulations and adopt pollution

prevention technologies. In both programs, staff are often able to design solutions that result in greater

productivity, reduced pollution, and energy savings.

Some programs have begun to work with groups of manufacturers facing common problems. For

example, Massachusetts’ Center for Applied Technology formed a group of six firms involved in metal

stamping, ranging from Gillette to a small company with 20 employees, to help identify, test, and use

a set of lubricants that are environmentally preferable, as well as optimize tool performance.

1 Hardin B. C. Ti~, ’’lfldustrial Eooiogy:An Envkonrnental Agendaforlndustry,” ~o/e_rth/?evlew, winter

1992, pp. 4-19.
Chapter 1--Summary 23

designs are generally only feasible when new

plants or major retrofits are made.

In the pulp and paper industry, new processes

could substitute for chlorine bleaching processes

or make them less polluting. Also, several delignification (chemical pulping) processes have

been developed that recover one-third to twothirds of the organic substances that would

otherwise be discharged to the mill effluent

treatment system, including some that are not

biodegradable. Many of these technologies, while

requiring capital for installation, can lower operating costs.

In metal finishing, a number of technologies for

in-process recycling can either extract certain

materials for reuse or extend the life (and reduce

pollution) of plating baths. Also, several processes under development have the potential to

replace wet-based electroplating, which has

caused environmental problems. Currently, high

capital costs and low throughput rates impede

wider application.

If cleaner technology is to be developed more

quickly, industry will need to consciously incorporate environmental concerns into industrial

process technology development. While a number of public and private entities now conduct

R&D on cleaner industrial production, efforts are

small and uncoordinated, and effective transfer of

technology to a broad array of industrial users

may not happen. Researchers and pollution prevention specialists in the field seldom work

together to identity problems and areas of potentially valuable research. Coordination and cooperation with programs in other countries that fund

cleaner production technology development, such

as those in Northern Europe, are also limited.

Some international activities, such as the United

Nations Environment Program, are underway but

sparsely funded.

Estimates of Federal spending are imprecise,

but it appears that no more than $70 million a year

is spent on R&D devoted to waste minimization

in industrial processes, although other industrial

R&D (e.g., for energy-efficiency) also can advance pollution prevention. Some Federal cleaner

production technology R&D programs have involved industry to identify needs, problems and

solutions. Some industry-government partnerships and consortia exist as well. However, more

can be done to involve industry, and an overall

Federal R&D strategy and institutional coordination for cleaner production technology has been

lacking.

THE REGULATORY SYSTEM AND

ENVIRONMENTAL COMPLIANCE COSTS

At present, differences in compliance costs

probably reflect variations in regulatory stringency (including enforcement) among nations.

However, among firms from countries with comparable standards, those that are more efficient in

complying with regulations will incur lower

compliance costs. Moreover, the nature of government regulations and the availability of economic incentives for adopting new technologies

affect compliance costs. For these reasons, the

form of the U.S. regulatory system and its

implications for competitiveness is attracting

attention.

It is difficult to generalize about the regulations

to control industrial pollution that have been put

in place over the last two decades in the United

States. However, there is wide agreement about

some of its prominent features. For example,

end-of-pipe approaches continue to be emphasized. Separate laws, regulatory offices, and

enforcement procedures exist for air, water,

hazardous waste, and other media. Rather than

setting an overall emission limit for a facility,

regulations and permits often require control of

specific sources within a plant at specified

emission rates. The system is usually characterized as command-and-control. In addition, local,

State, and Federal laws and reporting requirements often overlap. The system is highly adversarial, with frequent challenges to administrative

actions taken by all sides long after laws are first

passed. Finally, there is relatively little emphasis

on technology development or technical assist-
24 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Table 1-3—Approaches to Environmental Regulation

Prevailing

Elements System Innovations

Rulemaking process Adversarial

Policy tools Regulations

Pollution targets

Breadth of regulations

Specificity y of control

Level of emission

End-of-pipe treatment and

disposal

Single-media

Individual sources controlled

(one facility may need many

permits)

Uniform release rates by

facility

Enforcement mode Sporadic but inflexible

Agency organization Media-organization (e.g., air

off ice, water office)

Training Narrow, focused on single

media

Technical development Minor focus

and assistance to industry

Intergovernmental mode EPA-led (headquarters

oriented)

Negotiated or mediated

where possible

Regulations may be supplemented by incentives,

and voluntary programs

(e.g., 33/50 program)

Priority given to source

reduction

Multimedia if possible

Facilitywide prevention and

control

Flexible, determined by

taxes or marketable

permits

Systematic, but flexible

Industry sector focus (e.g.,

petroleum refining, metals

finishing)

Broad-based, but with technical focus

Important focus

EPA-State partnership (e.g.,

negotiated strategies)

SOURCE: Office of Technology Assessment, 1993.

ance to help industry meet requirements. (Representative features of the prevailing system are

listed in the second column of table 1-3).

While major strides have been made under this

system in controlling industrial pollution, it is

hard to argue that the level of environmental

protection enjoyed today could not have been

achieved in a more cost-effective fashion. The

system was first put in place at a time when few

sources were well controlled. But now, as more

stringent controls are required, cost-effectiveness

and competitive impact are growing concerns.

There is considerable interest in finding ways to

achieve comparable or higher levels of environmental protection at lower costs and with less

potential for adverse competitive impacts on U.S.

industry.

Federal and State regulators and industry in

many areas around the country are experimenting

with new approaches that, if replicated elsewhere

in an appropriate manner, could ease adverse

impacts on competitiveness while reducing pollution and waste. State and local regulatory officials, who administer most of the Nation’s
Chapter 1--Summary ! 25

environmental permits and regulations, have initiated many of the more innovative approaches to

environmental management. (The third column in

table 1-3 lists some characteristic features of these

innovations, which are discussed in more detail in

ch. 9).

These innovations typically involve one or

more of the following:

1.

2.

3.

4.

5.

6.

7.

efforts to negotiate areas of agreement

among government, industry, environmental

groups, and other nongovernmental organizations in devising rules and implementation plans;

setting strict emission goals, but letting

industry choose among several means to

meet these goals;

addressing all emissions from a facility,

rather than addressing sources or kinds of

pollutants individually;

paying attention to total emissions in a

geographic area, rather than just individual

plants or sources, thus making it possible

for firms to reduce emissions on the basis of

the lowest marginal costs;

placing more priority on prevention of

pollution rather than end-of-pipe treatment

and disposal;

organizing regulatory offices and procedures to allow an industry-sector orientation; and

promoting technological innovation and

diffusion as an additional method of meeting environmental goals.

As long as a backdrop of strong regulation and

enforcement is fully maintained, a number of

steps could be taken to reduce the competitive

impacts on industry while still achieving environmental goals. Some options are discussed in the

policy section later in the summary.

Although not addressed in the options, use of

economic incentives in environmental regulations also could lower compliance costs. (See ch.

9). The marginal costs of pollution control usually

differ among firms, and among processes within

the same firm or facility. These variations in

compliance cost stem from differences in size,

age, technology, cost of substituting inputs,

location, management practices, and other factors. Allowing or encouraging more use of market

incentives or facility-based performance standards could allow firms to select less costly

compliance strategies or strategies more consistent with other objectives, such as modernizing a

production line.

Two principal market incentive approaches are

marketable permits and taxes and fees. Marketable permits allow firms to meet regulations by

either releasing no more than permitted levels of

pollution, or by buying the rights to pollute from

a firm that has reduced pollution below permitted

levels. Alternatively, releases might be taxed so

that firms with high marginal costs of control

would choose to pay the tax while firms with low

costs would reduce releases. In theory, both

approaches could be structured so that overall

emission levels would be no higher than with

regulation alone, but compliance costs would be

lower. Firms would also have an incentive to

develop technical approaches to reduce pollution

because they could get economic benefits from

performing better than standards require.

Although economic incentives can reduce compliance costs, they may not always be appropriate.

Usually, there will continue to be a need for tough

standards and enforcement to protect health and

the environment. Moreover, taxes and fees and

auctioning of permits could raise total compliance costs for industry, even if abatement expenditures were reduced. However, fees and auction

income can be rebated back to companies so that

they are revenue-neutral. Another OTA assessment on new approaches to environmental regulations is examining incentives.

I Federal Policy Options

It is increasingly difficult to separate environmental policy questions from issues of trade,
26 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

technology, and competitiveness. Similarly, it is

becoming harder to consider economic and technology policies without also considering their

environmental ramifications.

Many government policies (in this country and

abroad) will affect both the international competitiveness of the U.S. environmental industry and

the ability of U.S. manufacturers to meet environmental regulations with minimal competitive

disadvantage. These include domestic policies to

promote the development and diffusion of new or

cleaner technology (e.g., tax incentives and other

support for R&D, industrial extension, tax incentives to encourage capital investments). The

competitiveness of U.S. environmental firms will

also be affected by trade, export promotion and

foreign assistance policies-here and elsewhere.

If Congress wishes the Federal Government to

play a more active role in addressing these

concerns, there are number of steps it could

consider, each with its pros and cons. Six issue

areas are discussed below, and in more detail in

chapter 2. The issue areas are: L

A.

B.

c.

D.

E.

F.

Federal Technology R&D Policy;

Diffusion of Best Practices and Technologies to Industry;

Regulatory Reform and Innovation;

Development Assistance, Export Promotion, and Environmental Industries;

Trade and Environment Issues;

Data and Information Needs for Policymakers.

Table 1-4 presents over 30 options in these

issue areas that Congress may wish to consider.

The options could be adopted either singly or in

different packages. Box 1-D identifies two strategies-an incremental approach and a more aggressive approach. The two strategies and each

option are discussed in detail in chapter 2.

ISSUE AREA A: FEDERAL TECHNOLOGY R&D

POLICY (OPTIONS 1-5 IN TABLE 1-4)

Debate in Congress about the Federal role in

commercial technology development has been

underway for some time. Environmental technology has become a focus of this debate, with

several bills proposed in the 103d Congress.12 In

addition, the Clinton administration has been

developing an environmental technology initiative.

Issues include how to identify environmentally

critical technologies, how to set related Federal

priorities, interagency coordination, and whether

to undertake more partnerships with industry to

develop cleaner technologies.

New priorities and projects will compete for

limited R&D dollars. Precise figures are not

available, but the Federal Government probably

spent $1.8 billion or more in fiscal year 1993 on

R&D pertinent to the environmental technologies

covered in this report. (Larger estimates exist, but

these have a more inclusive definition of environmental.) The largest portion, about $1 billion, is

for energy-related technologies including clean

coal, renewable energy, and cleaner and more

efficient energy conversion and use technologies.

Another large portion (exceeding $500 million) is

for R&D on remediation technologies to cleanup

contaminated Federal sites. Federal R&D support

for advancing end-of-pipe technologies is in the

neighborhood of $100 million per year. Pollution

prevention R&D probably accounted for only

about $70 million of the total (although some

industrial energy-efficiency R&D also advance

pollution prevention objectives).

Much of industry’s pollution prevention effort

has focused on relatively simple housekeeping

and process modifications, which offered large

payoffs for little effort. More significant advances

will require greater emphasis on fundamental

improvements in manufacturing process technolIZ BlllS ~Cludes. 978, tie propos~ National Environmental Technology Act of 19!3S, as reported by the semk EIlvbnment and mblic

Works Committee on July 30, 1993;S.811, the proposed Environmental Competitiveness Act of 1993; H.R. 2224, a proposal to set up a national

environmental technology office; and H.R. 3603, the proposed Environmental Technologies Aet of 1993.
Chapter 1---Summary ! 27

Table 14-Summary List of Options

Issue Area A. Federal Technology R&D Policy:

1 Review Federal progress to:

. set priorities and coordinate R&D for environmentally critical technologies

● integrate cleaner production in R&D program missions

2 Review Environmental Protection Agency (EPA) clean technology priorities

3 a) Fund pertinent Department of Energy (DOE) RD&D programs

b) Make cleaner production a central mission of DOE’s Office of industrial Technology

4 Increase support for National science Foundation dean technology work

5 Fund startup or expansion of industry sector R&D technology consortia

Issue Area B. Diffusion of Best Practices and Technologies to Industry

6 Evaluate incentives to diffuse cleaner technology to industry

7 Make cleaner production and pollution prevention a mission and service of manufacturing extension services

8 Direct EPA to oversee more technology evacuations, and disseminate results here and abroad

9 Support efforts to integrate environmental components in engineering and business school curricula

Issue Area C. Regulatory Reform and innovation:

10 Set up an EPA pilot project to experiment with innovative permits for firms that are first rate environmental performers

11 Give incentive grants for regulatory reform innovation projects to States and firms

12 Upgrade training of permit and regulation writers

13 Set up industry sector consortia/cluster groups

14 Modify R&D permitting to better accommodate R&D, such as fixed site permits for R&D centers

15 Set up an environmental cooperation institute and sector cooperation councils

issue Area D. Export Promotion, Development Assistance, and Environmental Firms:

16

17

18

19

20

21

22

23

24

25

Work to setup a program to help developing countries identify needed environmental technologies

Make cleaner production/pollution prevention a priority in multilateral aid

Fund EPACT programs for AID-DOE transfer of innovative energy and environmental technologies to developing countries

increase Trade and Development Agency funding for feasibility studies

Encourage U.S. firms to emphasize training of developing country personnel in equipment and services contracts

Conduct early oversight on the Trade Promotion Coordinating Committee’s environmental working group strategy and

proposed budget

Encourage commercial interactions through:

. increasing overseas commercial officers or contractors;

. increasing outreach to industry associations;

● operating through environmental business centers here and American business centers overseas.

Disseminate information about U.S. technologies abroad

Provide resources for one stop shopping and regional centers to help smaller firms access and make use of available export

assistance

Consider ways to expand export financing while keeping environmental safeguards

issue Area E. international Trade and Environmental Policy:

26 Conduct oversight on U.S. policy development for GAIT and OECD trade/environment discussions

27 Expand efforts to develop multilateral or bilateral agreement on environmental standards to address competitive impacts

28 Combine technical assistance with efforts to upgrade developing country environmental standards in advance of trade

discussions

29 Work for more effective monitoring and enforcement of multilateral environmental agreements

30 Work to establish a global business charter on environmental standards

31 Encourage other countries to require firms to report toxic release inventories

issue Area F. Data Needs for Policy Making:

32 Direct pertinent agencies to:

. collect and analyze more commercially relevant data on trade and environmental goods and services

. facilitate flow of commercial information to companies

● verify and assess ways to improve pollution abatement cost data

● identify and quantify benefits of regulations through study

33 Gail for periodic assessment of competitive effects of differing levels of environmental regulations among countries, and for

development of strategies to address any adverse effects

SOURCE: Office of Technology Assessment, 1993.
28 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Box 1-D--Strategies for Federal Policy

The options discussed in this report are intended to further two competitiveness objectives: (1)

realizing opportunities for benefit to U.S. business and society from providing environmental

technologies to a growing global market; (2) reducing the adverse competitive impacts faced by U.S.

firms in complying with environmental regulations.

These options could be adopted singly or in various packages. Taken singly, they would be modest

steps in addressing either issue. Taken together, they would comprise a fundamental shift in how the

United States addresses the interactions between its environmental policies and commercial policies.

Several recent laws authorize new programs and initiatives relevant to these objectives. Examples

include the Energy Policy Act of 1992 (Public law 102-86), the Export Enhancement Act of 1992 (Public

law 102-429), and the Aid, Trade and Competitiveness Act of 1992 (TitIe lll of Public Law 102-549). The

Clinton administration has announced several plans or initiatives important to commercial and

environmental technology policy, export promotion, and pollution prevention. Depending on future

levels of funding and other indicators of commitment to implementation, these laws and initiatives could

be a basis for partly addressing the two competitiveness objectives above.

The incremental approach assumes that some steps will be taken. There are two fundamental

changes in the more aggressive approach: (1) more efforts to develop and diffuse environmentally

preferable technology to U.S. industry and to promote environmental technology exports; and, (2) much

more effort to integrate environmental and competitiveness policies, both domestically and internationally. Under this strategy, environmental objectives would be integrated within U.S. Government support

for commercial technology research, development, and diffusion, with more emphasis on diffusion of

cleaner and more energy-efficient technology to U.S. industry. Changes in Federal regulatory policies

would allow a facility more flexibility, including using pollution prevention, with safeguards to keep

environmental standards high and to prevent and detect abuses.

ogies to make manufacturing both greener and and disposal technologies could require more

more productive.

U.S. firms are making some progress in developing new generations of cleaner production

technology. Environmental concerns are slowly

being integrated into manufacturing process technology development. However, these efforts are

ad hoc, and probably small, although data is poor

(see box l-E). The risks to individual firms in

proceeding alone with needed R&D on either

cleaner production or new pollution control

technology could be too great, given the uncertainty about the acceptance of new technologies

in the regulatory system, and difficulties in

capturing benefits that accrue widely across an

industry and across society as a whole.

Developing cleaner technologies and more

effective and cost-effective control, recycling,

funding and new ways to conduct governmentindustry partnerships. If Congress wished the

Federal Government to do more to encourage

development of such technologies by industry, it

could consider a number of steps (see options 1-6

in table 1-4).

Better coordination is one need. Federal support for research on pollution and waste prevention, control, and recycling relevant to manufacturing industry has not been coordinated, limiting

its effectiveness and making it difficult to transfer

the results to industrial users.

The administration has announced steps for

more interagency coordination, and has called on

Federal R&D agencies to adjust their missions

and priorities to take into account both environmental and industrial competitiveness objectives.
Chapter 1--Summary ] 29

Box 1-E–Private Sector Environmental R&D

According to one estimate, U.S. industry spends a significant share of funds on environmental

R&D, as high as 13 percent of its total R&D1 although methodological problems suggest that this

estimate is too high. OTA’s calculations suggest that the actual amount is significantly less, between

1.3 and 2.6 percent of total R&D, or between $1 and $2 billion dollars a year.

About half of this spending appears to be by the regulated industry to help it meet environmental

requirements, particularly by industries with high compliance costs. For example, in 1990, the petroleum

industry spent an estimated$175 m ill ion on environmental R&D, including an estimated $50 m ill ion on

reformulated gasoline, with nonproduct pollution control R&D amounts to about 6 percent of total R&D.

Pollution control R&D by regulated industry is likely to increase in the 1990s, as firms seek to comply

with more stringent environmental regulations.

Information about R&D by environmental firms is limited. Relative to manufacturing as a whole,

which spends approximately 3.3 percent of sales on R&D2, the environmental equipment sector

appears to spend less as a share of sales, perhaps between 2.5 and 3 percent. Small, R&D-intensive

startup firms might spend more as a share of sales, although overall expenditures are likely to be small.

Environmental service firms, including waste management firms, appear to spend much less.

This suggests that the EGS sector might be spending on the order of $750 million to $1 billion per

year on R&D. While this figure is just a guess, it does suggest that the U.S. EGS sector is not highly R&D

intensive and moreover, that at least about half the private environmental technology R&Din the United

States is not done by EGS firms, but rather by regulated industry.

1 Brian Rushton, ’’How Protecting the Environment Impacts R&Din the United States,” Research Technology

Management MayJune 1993, p. 13.

2 un~~ish~ cja@ Nat[onal Science Foundation.

For example, agencies now supporting cornmer- 3). It also could review RD&D priorities under the

cial technology R&D could add environmental

objectives into their mission statements and

planning. Congress could review progress at an

early date (Option 1).

Other steps could involve increased funding of

government environmental technology programs.

The Clinton administration has proposed more

EPA funding for environmental engineering and

technology development; if it provides these

funds, Congress could make sure that cleaner

technology and pollution prevention is a priority

in EPA R&D (Option 2). The administration also

has proposed more funding for the Department of

Energy’s Office of Industrial Technology, which

now cost-shares some R&D projects with industry. Congress could give this office a more direct

cleaner production technology mission (Option

Energy Policy Act of 1992 (EPACT, Public Law

102-486) to assure that funding is adequate for

continued progress in environmentally pertinent

energy technologies (e.g., renewable energy, fuel

cells, and improved combustion). Some other

agencies (e.g., the National Science Foundation)

also support industrially relevant clean technology research activities; these could be expanded

(Option 4).

The most far-reaching option considered here

would be to seek greater involvement by industry

sector organizations. Such organizations could

play an important role in the development and

diffusion of cleaner production, improved pollution control, and recycling technologies by identifying technology needs, organizing R&D efforts,

and diffusing results. The Federal Government
30 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

could support the start-up or expansion of such

organizations, and also share R&D costs with

them (Option 5). To be eligible, an organization

would need to serve an industry sector with high

environmental impact or high compliance costs

and include as participants many firms in the

industry. While industry governance and funding

would be crucial, the organization could work

cooperatively with Federal laboratories. The organizations could undertake many different activities:

B serving as a forum for industry to collectively

identify R&D needs related to environment;

■ arranging partnerships among researchers, equipment makers, and industrial users to develop

new manufacturing technology that is more

energy efficient and cleaner;

■ supporting demonstration of cleaner technologies, and improved control, recycling, and

disposal technologies;

■ identifying and diffusing innovations and best

practices in pollution prevention as well as

control and recycling to industry; and

■ identifying regulatory barriers to more efficient

environmental solutions, and training inspectors and permit writers on pollution prevention

and control in that particular industry. (See

further discussion in Option 17 in Issue Area C

below).

While these options would encourage greater

industrial activity on cleaner production technology, they could have drawbacks. If efforts at

environmental integration led to set-asides in

manufacturing R&D, for example, there could be

game playing in identifying environmental projects or, if the set-aside was too large, interference

with other crucial objectives. Similarly, at a time

of very limited Federal funds, development of

more cost-effective remedial technologies for

Federal site cleanup may have a special claim on

Federal money for environmental R&D. Even so,

the long-term benefits to U.S. industry and

society from cleaner industrial technologies could

be very large, and it is not certain that industry

will act on its own to develop these technologies

unless it is clear that government is committed to

their use in environmental compliance.

ISSUE AREA B: DIFFUSION OF BEST PRACTICES

AND TECHNOLOGIES TO INDUSTRY (OPTIONS 6-9

IN TABLE 1-4)

Often, new technologies are not necessary to

achieve cleaner, more efficient production; existing technologies and approaches would suffice,

but are not well-known to firms. The gap between

best industry practice and prevailing practices can

be great, especially for small and medium-sized

companies with limited resources, management

time, and capacity to seek out, evaluate, and adopt

unfamiliar approaches.

As discussed below, a number of steps could be

taken to help diffuse knowledge about best

practices to industry, including use of economic

incentives, technical assistance, and enhanced

efforts to evaluate technologies. In the long term,

some of the greatest opportunities lie in strengthening environmental components in engineering

and business school education.

Economic incentives might be considered to

diffuse improved environmental practices throughout industry. A variety of approaches, ranging

from accelerated depreciation and favorable loans

to green fees (pollution taxes), could speed

adoption of these technologies; an evaluation of

the best choices, and their costs and benefits,

could be conducted before deciding to proceed

(Option 6).

As part of this evaluation, or separately,

Congress also might direct the administration to

provide initial evaluation of it use of Federal

procurement to achieve environmental goals-as

has been the thrust of several recent Executive

Orders issued by President Clinton.

Because the government is so large, its procurement policies and practices greatly influence

private sector management practices and product

offerings. Federal agencies themselves are often

major contributors to environmental problems.
Chapter 1--Summary 31

The Federal Government already provides

some technical assistance to small and mediumsized enterprises. Most states and a few localities

also have modest pollution prevention technical

assistance programs. However, these services are

almost always provided separately from other

services to manufacturers. As a result, manufacturers find it difficult to locate assistance, and the

programs have limited capacity to carry out

pollution prevention under an overall objective of

increasing the fro’s manufacturing competitiveness. Moreover, some firms may hesitate to seek

assistance from regulatory agencies for fear of

enforcement action. Thus, Option 7 proposes that

pollution prevention be made part of the mission

of federally supported manufacturing extension

services, and that additional funds be provided to

support this expanded mission. (These centers

have been singled out for possible expansion in

various bills before the 103d Congress and by

President Clinton.) Alternatively, EPA might be

directed to provide more pollution prevention

grants to state or local industrial extension

services. EPA could do this now, through its

pollution prevention grant program. However,

most of its grants have gone to branches of State

regulatory agencies or other environmental service organizations.

One disadvantage of the integrated approach is

that it may not target firms that contribute little to

State economic development objectives, even if

they cause environmental damage. 13 If the top

priority is to reduce waste, putting pollution

prevention programs in manufacturing modernization programs may dilute this focus. This could

be addressed in part by requiring waste reduction

goals to be an emphasis in the environmental

program of the manufacturing extension service.

Another possible disadvantage is that separating

technical assistance from the regulatory function

might further perpetuate regulators’ focus on

end-of-pipe solutions. Integrating regulatory and

technical assistance functions can offer an opportunity to educate regulators on the merits and

complexities of pollution prevention.

There is surprisingly little independent information about the performance of environmental

technologies, or appropriateness of specific technologies for specific needs. Technology developers now meet market resistance from users of

environmental technologies who fear that they

will not meet standards or that new technology

will be more costly than anticipated. This market

hesitancy toward new environmental technology

also makes venture capitalists and other investors

wary. Independent evaluations or performance

verifications could help; Congress might direct

EPA to expand its support for evaluation activities, which now center primarily on remedial

technologies, to include more control and prevention technologies of pertinence to industry14

(Option 8). Firms seeking to enroll their technologies for evaluation would pay most of the costs;

EPA’s cost would primarily be evaluation and

dissemination of results.

Such evaluations would also give U.S. firms

with good products added credibility with foreign

customers. While U.S. Federal authorities do not

(and probably ought not) certify or endorse

particular technologies or suppliers, independent

evaluations of U.S. technologies could help boost

U.S. environmental exports--as is further discussed in Option 25 in Issue Area D. A disadvantage of the Government-sponsored evaluation is

possible unintentional favoring of some firms

over others, if demand for evaluation services

outstripped EPA’s capacity to respond.

13 For example, many State pollution prevention programs have worked to encourage pollution prevention in sectors such as auto rep~.

dry cleaning, small print shops, and other local serving fiis. While these sectors may have an environmental impact, they have little impact

on State or natioml competitiveness. It should be noted, however, that neither these nor industrial extension programs have generally worked

with the most polluting sectors such as chemicals.

14 ~cre we sm~l ev~uation pro&ms for innovative municipal solid waste and industi waste reduction technolo@es.
32 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Ultimately, the ability of firms to address

environmental matters with the least degree of

adverse competitive impact depends on knowledgeable, well-trained engineers and managers.

Working such matters into the mainstream engineering and business school curricula is the job of

schools and professional societies, but Congress

could increase funds to the National Science

Foundation or EPA for projects to facilitate this

process (Option 9). This could provide longer

term benefits as new engineers and business

executives enter the workforce and become tomorrow’s business and technical leaders.

ISSUE AREA C: REGULATORY REFORM AND

INNOVATION (OPTIONS 10-15 IN TABLE 1-4)

As discussed earlier, and in chapter 9, current

approaches to regulation and enforcement sometimes make it difficult for firms to put in place the

lowest cost option to control pollution.

Some potentially lower cost approaches have

been difficult to integrate into EPA’s operations.

Part of the reason is EPA’s organization into

media-specific offices, each principally concerned

with controlling pollutants to one particular

medium. For example, pollution prevention often

has been carried out as a separate function, with

projects peripheral to EPA’s main regulatory and

enforcement role.15 While the basic concept and

rhetoric of pollution prevention are understood,

many managers have a single-medium end-ofpipe orientation to pollution abatement that has

changed only slowly. Also, regulations are often

biased toward end-of-pipe approaches. In principle, many regulations are performance-based and

allow alternative compliance options, but the

current reward system and lack of adequately

trained personnel for innovative permitting impede use of alternatives to established pollution

control technologies.

As long as strong regulation and enforcement

are fully maintained, a number of options could

be considered to allow firms to implement more

cost-effective approaches to controlling pollution

without jeopardizing environmental goals. Some

alternatives are discussed below (Options 10-15).

Increasingly, manufacturers find that they must

continually innovate to respond to rapidly changing technologies, customer demands, and the

competition-making expeditious and flexible

permitting a competitive need.

Several steps could be taken. For example,

EPA might launch a pilot program to experiment

with more flexible approaches, and authorize

States to conduct experiments in cases where

EPA has delegated responsibilities to the States.

(Option 10). Incentive grants might be given to

States to experiment with different approaches,

such as full facility permits and tradable permits.

(Option 11).

Examples might include:

pilot projects for firms or facilities with frost

rate environmental records and performance to

test more flexible approaches. Participating

firms might be given more options to determine

how to meet an overall emission cap; more

flexibility to change processes within certain

parameters without permit revisions; and when

permits are needed, priority to get expedited

reviews.

experiments with innovation waivers or failsafe strategies with firms that are first rate

environmental performers. For example, participating firms could be granted innovation

waivers that allow limited noncompliance while

developing new approaches that promise a

larger environmental pay-back.

While experience with such means is growing,

a number of barriers and concerns would need to

be addressed before these techniques could be

15 Recent deve]oprneu~, such as the June 1993 pollution prevention policy statement from the EPA Administrator, my Wed up the Press.

Memorandum of Carol M. Browner, Administrator, to all EPA employees, June 15, 1993, titled “Pollution Prevention Policy Statement: New

Directions for Environmental Protection.’
Chapter 1--Summary 33

widely used, Assurance would be needed that

health and the environment would be fully

protected. Safeguards would be necessary to

guard against, and quickly detect, abuses. New

techniques allowing continuous monitoring of

emissions would be helpful. It also could be

difficult to develop eligibility criteria for qualifying facilities with good environmental records

and performance, Concerns exist that flexibility

could lead to favoritism or foreclose enforcement

options. Thus, EPA could be required to evaluate

these regulatory experiments, identify areas for

improvement, and provide technical assistance to

states to implement these new approaches

Pollution prevention and other alternative technologies are often specific to particular industries

and processes. Without greater industrial expertise, it may be difficult for regulators to craft

regulations that allow industry to meet environmental goals most efficiently. As a result, regulatory agencies, now organized along media lines,

may need more orientation toward industrysector groups with expertise in all areas, including

new technology, pertinent to a given industry.

EPA could significantly expand its ongoing

efforts to cluster regulations for specific industry

sectors—a step that could deepen regulators’

understanding of industry problems and technological solutions specific to each industry. In

some cases, there could be both environmental

and economic benefits if regulations and rules

could be developed that collectively apply to

emissions in all media (air, water, and land).

To enable firms to more easily use alternative

technologies, permit writers and inspectors would

need strong technical backgrounds to deal with a

more complicated permitting process and to make

judgments about whether alternative approaches

are appropriate. Thus, provision would need to be

made for training (Option 12), adding to administrative costs.

Regulations and permitting procedures can

sometimes impede technology innovation and

diffusion. Some of these barriers might be overcome if there were closer links between technology developers, users, and regulators. EPA could

work with industry technology organizations

(e.g., the centers discussed in Option 5) on such

issues as the implications of foreseeable regulations for technology priorities, development, and

diffusion. This task could be assigned to industrysector groups at EPA (Option 13).

The form of domestic environmental regulations can affect innovation by the environmental

industry. Best available technology (BAT) or

similar standards that tend to make complying

firms select and install technologies used as

benchmarks by regulatory agencies can assure

successful EGS developers of a market. While

BAT standards are favorable for suppliers of

approved technology, they may inhibit development of new and innovative technology by others.

Complying firms are likely to stay with tried-andtrue technologies that seem to be endorsed by the

regulations.

Environmental technology developers also often

find it difficult to obtain a R&D permit under the

Resource Conservation and Recovery Act or to

use ad hoc procedures under the Clean Air Act

and Clean Water Act. There is some anecdotal

evidence of firms moving technologies abroad for

development and testing. Adjusting procedures to

accommodate the needs of innovators, providing

permits for fixed R&D and testing facilities, and

development of quicker and more predictable

permitting procedures might help U.S. innovators

(Option 14),

The options discussed above would help stimulate innovation. However, they would still be

controversial and, while experimentation with

such procedures are already underway, there is no

certainty that even demonstrably successful approaches would win broad acceptance with industry, environmental organizations, or regulators.

Over the years, many regulated industries have

tended to focus on reducing levels of regulation,

rather than improving the efficiency of the

regulatory system. Moreover, many in industry

fear that new approaches to regulation, such as

pollution prevention, could in time lead to more
34 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

burdensome requirements. For their part, many

environmental groups have been more concerned

with defending existing gains than with changing

the system to make it deliver equal or greater

environmental benefits at lower costs. Within

regulatory agencies, many are reluctant to embrace anew system that departs from accustomed

ways of doing things. Moreover, managers may

resist efforts to break down organizational walls,

particularly when resources are scarce.

Without more trust and commitment among

these key parties, the cooperative basis for

development of a more effective and efficient

regulatory model is unlikely, and the options

identified above are likely to have limited application. Thus Congress might consider ways to

build more cooperative relationships between

government, industry, and environmental organizations (Option 15). One possibility would be to

fund an institute for environmental cooperation to

promote innovative cooperative projects.16 EPA

could set up a small number of councils, comprised of industry, academic specialists, and

representatives from environmental organizations ,

and other nongovernmental organizations, for

sectors with high environmental impacts and

compliance costs.

Although not addressed in the options, market

incentives can focus pollution reduction on the

low-cost sources for reducing pollution. Two

systems are normally proposed to do this: taxes

and fees, and tradable permits. OTA’s assessment

on new approaches to environmental regulations,

scheduled for completion in late 1994, is examining the potential of these approaches to achieve

environmental goals.

ISSUE AREA D: DEVELOPMENT ASSISTANCE,

EXPORT PROMOTION, AND ENVIRONMENTAL

INDUSTRIES (OPTIONS 16-26)

Debate is occurring about U.S. government

export promotion programs, development assistance programs, and their interactions-both for

U.S. exports as a whole and for environmental

exports in particular. Several bills pertaining to

environmental export promotion have been proposed in the 103d Congress.17 In addition, shortly

before this report was sent to press, the Clinton

administration submitted a proposed action plan

on U.S. trade promotion programs in response to

a 1992 congressional directive, and issued an

environmental export strategy. The administration had also proposed major changes in U.S.

foreign assistance programs. See chapter 6 for

additional discussion of export issues.

Multilateral Cooperation for Technical Assistance (Options 16 and 17)--As the size of the

global environmental market grows, many countries are pursuing or considering policies to help

their firms participate in these markets, including

developing country markets. There is a potential

for conflict between development assistance objectives aimed at meeting the needs of developing

countries (e.g., for environmentally sound development) and the commercial objectives of donor

countries (e.g., encouraging exports of environmental technologies whether or not the particular

technology is the most suited for the developing

country). While a certain level of such tensions is

inevitable, the potential for conflicts could be

lessened if there were better, more objective

information available about the products, approaches, and technologies being sold. This is

16 A.lso, EPA could H~~eQSUS-building el%rts through university programs, For instance, the Massachusetts Institute of Technology

has been working with industry, govcrnmen~ and nongovernmental organizations to form mutual understanding on issues related to the use

of chlorine in industry.

17 ~ee &lu& H*R. 2112, ~ pm~ N~o@ ~~nm~~ T~de Development At of 1993, (re~~d out of the House Merchant

Marine and Fisheries CommI“ttec on June 30, 1993); H.R. 2096 to promote exports of environmental technology, goods, and services; S. 979,

the proposed Greentech Jobs Initiation Aet of 1993; and S. 1074, the proposed National Environmental Trade Development Act of 1993.
Chapter 1--Summary ! 35

always a problem, but especially so in developing

countries that increasingly need environmental

technologies, but have little information about the

best choices.

One option for addressing developing country

needs while still facilitating U.S. exports would

be for the U.S. Government to work with other

countries to set up an expanded technical information capability through the United Nations

Environment Program or another international

agency to provide objective information and

technical advice about environmental technologies (Option 16).

As well as helping developing countries, such

information could help U.S. firms with appropriate technology compete when it is up against

inferior foreign technology marketed more aggressively (such as with foreign tied aid credits).

Developing countries also could benefit from

pollution prevention and cleaner technology approaches. Efforts to increase support for such

activities through multilateral agencies could

help these countries while benefiting U.S. firms

that provide such services (Option 17).

Bilateral Foreign Assistance and Export Promotion (Options 18-20)---The United States now

spends about $650 million per year on environmental and related energy development assistance to developing countries. Relatively little of

this aid supports transfer of technology. Provisions in the 1992 Energy Policy Act would

authorize increased support for transfer of innovative energy and environmental technologies to

developing countries. Funding for such programs

(Option 18) could help developing countries and

also encourage exports of U.S. environmental

goods and services.

An increase in U.S. Trade and Development

Agency (TDA) funding of feasibility studies for

capital projects in developing countries also

might lead to more business for U.S. firms

(Option 19). The TDA’s mission is to assist U.S.

firms in exporting goods and services for major

capital projects in developing and middle-income

The U.S. Government and industry have cooperated to

develop and demonstrate technologies for cleaner

burning of coal, including retrofit technologies used

in this Illinois power plant.

countries. TDA’s annual budget is about $40

million, most of which pays for project feasibility

studies by U.S. firms, chosen for the likelihood

they will lead to follow-on work by U.S. fins.

Many of the projects are for environmental

infrastructure or have an environmental component. TDA’s feasibility studies have been successful in promoting U.S. exports; funding for

them could be increased, in time, to greater parity

with a comparable agency in Japan, which funds

an estimated $200 million per year of feasibility

studies by Japanese fins.

The U.S. Government also could begin to

support capital projects in developing countries—

something USAID now does rarely. Care would

be needed to assure that support went only to

environmentally and developmentally sound projects. Some contend that an emphasis on capital

projects would run counter to U.S. efforts to

discourage other donors from using mixed credits

or other tied aid loans.

Many U.S. environmental technologies require

highly skilled operators and maintenance workers; this can be an obstacle to their use in

developing countries. While training needs to be

worked out by the contracting parties, the U.S.

Government could help U.S. exporters locate

training facilities and personnel in developing

countries. Development assistance support for
36 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

training can sweeten bids of U.S. fins. Training

not necessarily linked to a particular project can

promote exports by familiarizing potential customers with certain technologies and by helping

U.S. firms to make contacts abroad. TDA spends

about $7 million per year on training programs

designed to promote exports related to capital

projects, many of them environmental or with an

environmental component. If TDA’s budget were

expanded, it might support additional training

activities. (Option 20).

A capacity to develop and enforce environmental regulations is a prerequisite for environmental market growth in developing countries.

U.S. technical assistance and training can help

build such capacity while familiarizing recipients

with U.S. standards, procedures, and equipment.

Some other aid donors have recognized potential

commercial benefits of this approach by equipping reference laboratories used by developing

country environmental agencies.

Several recent public-private partnerships have

been set up to involve U.S. industry in helping

developing countries address environmental problems. The United States-Asia Environmental

Partnership (US-AEP) works with U.S. agencies

and firms to encourage use of U.S. technologies

and expertise in addressing Asian environmental

problems. The U.S. Environmental Training Institute, established jointly by the U.S. Government and some businesses, brings developing

country personnel to the United States to take

short courses that include presentation of U.S.

firms of their technologies. While it is too soon to

evaluate these initiatives, they may, if successful,

provide models for further replication.

Other Export Promotion Issues (Options 21-26)—

The U.S. Government provides relatively little

support to U.S. manufacturing firms for exporting. Recent laws authorize a stronger Federal role.

The 1992 Export Enhancement Act (Public law

102-429) called on the interagency Trade Promotion Coordination Committee (TPCC) to develop

an overall export promotion strategy and to

propose an annual unified export promotion

budget. The initial TPCC report, with over 60

proposed steps, was submitted to Congress at the

end of September, 1993. TPCC was unable to

propose a budget, but did say such a budget would

be worked out for the fiscal year 1995 appropriation cycle.18 The 1992 law also called for a Federal

strategy for environmental exports. The administration issued a strategy in November 1993 as this

report went to press.

19 Congress could monitor its

priorities and implementation plans, including the

need for additional actions (Option 21).

One question concerns the nature and degree of

private sector involvement. Some contend that

there needs to be more private sector involvement

in the process, and have proposed creation of a

public-private council to prepare an action plan to

implement the strategy. The danger is, of course,

that such a plan would become a form of special

pleading by its private sector members. However,

some precedents already exist for industry involvement in priority setting. One example is the

Committee on Renewable Energy Commerce and

Trade, which could become a model for other

subsectors.

A number of other export promotion options

could be considered. One possibility would be to

increase U.S. foreign commercial service representation, both in general and for the environment

per se (Option 22). When agriculture is not

considered, the United States spends very little

for export promotion-far less than our major

competitors. Our foreign commercial service is

lightly staffed: Canada has more overseas com18 Trade ~omotion cwr~~gco~tte, ~owur~ a ~ationa~ Expo~ Smafegy (w~~toq Dc: U.S. Government WthgOffke,

September 1993), For a critique of the plan see statement of Alan I. Mendelowitz, U.S. General Accounting OffIce, before the Economic

Policy, Trade and Environment Subcommittee, House Foreign Affairs Committee, Sept. 29, 1993.

19 Ron~d H. BrowH~elo’~v,CuolBro~er, Environmental Technologies Exports: Strategic Framework for U.S. Leadership,

November 1993.
Chapter 1--Summary 37

mercial officers, despite an economy one-tenth

the size of the United States.

The U.S. Government could also assist in

disseminating information about U.S. environmental technologies to potential customers in

other countries (Option 23). This possibility

could be carried out in conjunction with an

expanded effort to support independent evaluation of U.S. technologies (discussed in Option 8

of Issue area B).

Certain steps also might make it easier for U.S.

firms to get the information they need to expand

their export activities (Option 24). Environmental

exports might be used as a case for demonstrating

one-stop shopping to make Federal programs

easier for small firms to access. A more far-

-reaching approach, proposed in legislation before

the 103d Congress, might be to encourage exports

through a network of environmental business

centers in the United States and American business centers in countries with promising environmental markets .20 US-AEP has opened a number

of environmental business centers in Asia; their

efforts could be monitored for efficacy and

possible replication.

The U.S. Government assists a much smaller

share of its exports with public export financing

than several competitor countries; there are also

indications that U.S. programs are harder for

firms to use. (See ch. 6).

Given this favorable circumstance for foreign

fins, a key export promotion issue is the limited

public and private funds available here for exporting. Congress might consider export financing

needs as it evaluates alternative uses for available

Federal resources (Option 25). Funding for financing environmental exports could be increased, of course, but whether this could be done

without cutting into other needs remains to be

seen.

A disparity exists not only in ordinary export

financing, but also with respect to confessional

financing. European and Japanese firms often

appear to have greater access to confessional

project financing from their home countries than

do U.S. companies. The United States has a War

Chest in the Export-Import Bank (Eximbank) to

match confessional financing (below market

rates) packages put together by foreign competitors, and Congress recently increased its authorization to $500 million in grant funds (which

would support about $1.5 billion in confessional

loans). Increased War Chest use could be an

effective tool to enable U.S. bids to win on their

merit in the face of foreign governments concessional financing. However, this benefit must be

balanced against other uses for Eximbank’s

limited budget, since each dollar of confessional

lending reduces by several dollars Eximbank’s

capacity to make ordinary loans or loan guarantees.

ISSUE AREA E: TRADE AND ENVIRONMENT

ISSUES (OPTIONS 26-31)

As mentioned, the United States has stronger

environmental requirements than many competitors. Recent efforts to negotiate trade agreements

and the emergence of several strong competitors

in newly industrialized and advanced developing

countries have raised renewed concerns about

competitive impacts for the United States. Environmental issues were important in the debate

about the North American Free Trade Agreement

for Mexico, the United States, and Canada. In

addition to provisions in the NAFTA itself, a side

agreement addressing environmental matters was

negotiated.

Environmental matters will almost certainly

arise if other efforts to liberalize trade are

undertaken in Latin America or elsewhere. With

or without such liberalization, concerns about

competitive impacts from differing levels of

environmental regulations will arise. One possible response might be for the U.S. Government to

20 See, for example, Sections 7 and 9 of H.R, 2112, the proposed National Environmental Trade Development Act of 1993, as reported by

the House Merchant Marine and Fisheries Committee on June 30.1992.
38 [ Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

become more active in negotiating environmental

agreements with other countries-partly to address competitive effects (Option 27). Agreements could be combined with U.S. technical

assistance to help countries develop and implement appropriate standards (Option 28). As discussed in Options 29-31, the potential for adverse

competitive impacts also might be reduced if

there were more effective monitoring and enforcement of agreements, if businesses were

encouraged to adhere to developed country standards throughout the world, and if other countries

took steps such as calling on business to report

their releases of toxic substances, as they are

required to do in this country.

These approaches would be controversial, both

here and in other countries. Moreover, past efforts

to adopt such policies have had little success. Yet

there could be long-term benefits for the environment and, quite possibly, a more positive climate

in this country for trade liberalization with

countries that now have weaker environmental

standards.

Some might argue that there is no competitive

reason for such negotiations, because, they claim,

strict environmental regulations can lead to increased competitive advantage. Firms within

countries having strong regulatory demands on

industrial processes can find that aggressive

environmental actions, particularly pollution prevention, make them more competitive relative to

other domestic competitors. However, as a group,

firms within countries with strict regulations will

face higher compliance costs relative to foreign

competitors in countries with more lax standards

and enforcement. When waste disposal costs and

requirements are high, firms can sometimes save

money by controlling pollution and reducing

wastes. However, these actions are usually not

justified from an economic perspective alone

when waste disposal costs and requirements are

zero or minimal. Still, as has been mentioned,

strong domestic regulations are often a key factor

in competitiveness of environmental goods and

services industries.

ISSUE AREA F: DATA AND INFORMATION NEEDS

FOR POLICY MAKING (OPTIONS 32-33)

Data and information in several areas are

flawed or often lacking. While the need for data

is seldom so pressing as to preclude rational

policymaking, improved information would be

helpful (Option 32). For example, it would be

very useful to have verification of data obtained

for the Census Bureau’s Pollution Abatement and

Control and Expenditure surveys. Better data on

trade and production in environmental goods and

services would be helpful. Also, while there are

many estimates of the costs of regulations, there

is a need for better ways of estimating the benefits

of environmental regulations, and for accommodating such benefits in models measuring the

impacts of regulation on the economy.

There is an important need for periodic assessment of potential competitive impacts to American industry and the U.S. economy arising from

differences in environmental standards among

countries. Congress has in the past called on the

executive branch to conduct such assessments

when enacting some new environmental laws,

and to identify strategies for addressing such

impacts. As standards and competitive conditions

change, periodic undertaking of such assessments

and strategies would be helpful (Option 33).
I

I

t is increasingly difficult to separate environmental policy

issues from those of trade, technology, and competitiveness. It is also becoming harder to consider economic and

technology policies without also considering their environmental ramifications.

This is so because:

■ Environmental problems became a major policy concern in the

United States (and in a few other advanced industrial countries

like Japan and Germany) about two decades ago, at a time

when many took U.S. industrial supremacy for granted. Since

then, a number of events-a slow-down in productivity

growth, oil embargoes and energy shocks, and the emergence

of Japan as an economic superpower, to name a few—have

deepened concerns about U.S. economic competitiveness.

■ U.S. industry now competes not only with Japan, Germany,

and other Western European countries having comparatively

strong environmental regulations, but also with producers in

newly industrialized or advanced developing countries. Manufacturers operating in these countries pay lower wages, and

usually do not have to meet environmental, health, and safety

standards as strict as those in the United States.

■ There is a growing sense that economic development in all

regions of the world will need to be carried out in ways that

produce less harm to the environment (see ch. 3). Some

environmental issues (depletion of stratospheric ozone, global

warming, loss of biological diversity) are now widely viewed

as globally significant problems. Major regional environmental problems (e.g., those in Eastern Europe and the former

Soviet Union) have dramatized the serious health and ecoIssues

and

Options 2

39
40 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

nomic costs that can result when industry and

government pay too little attention to the

environment.

Global expenditures to address environmental

problems are increasing rapidly, creating new

markets for environmental goods, technologies, and services. In the next decade or so,

many more countries are likely to begin enforcing environmental standards to a greater extent

than before.

These concerns have prompted interest in the

commercial implications of environmental policies and the environmental implications of different commercial policies.

Environmental policies and policies to promote competitiveness both aim to influence

industrial behavior. Environmental policies often

require industries to control their processes and

modify products to meet certain standards. Other

domestic policies, including technology policies

(R&D support, extension services, and tax policies to encourage R&D and capital investment)

also influence industrial actions.

The competitiveness of U.S. industry (including the environmental industry) is affected by

trade, export promotion, and foreign assistance

policies-for example, policies to open foreign

markets to U.S. goods and services, to promote

U.S. exports, and to link foreign aid to commercial benefits for U.S. firms.

OPTIONS FOR U.S. POLICY

This assessment takes it as a given that U.S. air,

water, and waste standards will continue to be

among the world’s toughest.1 Within this framework, OTA has examined many options to further

two competitiveness objectives:

1. realizing the opportunities for benefit to

U.S. business and society from providing

environmental technologies to a growing

global market; and,

2. reducing adverse competitive impacts faced

by U.S. firms in complying with environmental regulations.

Later sections of this chapter discuss six issue

areas and related policy options pertinent to these

competitiveness concerns. The issue areas are:

a. Technology and R&D policy;

b. Diffusion of best practices and technologies

to industry;

c. Regulatory reform and innovation;

d. Export promotion, development assistance,

and environmental fins;

e. Interactions between trade policy and environmental policy;

f. Data and information needs for policymakers.

This chapter discusses the pros and cons of

over 30 options in these issue areas. The policy

tables in the chapter list options for each issue

area along with the goals furthered by these

options and their likely costs to the Federal

Government. All of the options are presented in

table 1-4 (in ch. 1).

The options could be adopted either singly or

in different packages. Some pertain to one objective only (e.g., development assistance options

are limited to environmental technologies and

services) while others apply to both (e.g., technology policy, trade, and environment policy).

In many cases, successful implementation of

these options will depend on extensive and

continuing involvement by industry, environmental organizations, and other affected parties.

Outcomes would depend not only on specific

packages of options and resources available, but

also on strategy, leadership, and continuing commitment to implementation. Two strategies for

government action, incremental and aggressive,

are discussed below.

1 This assessment does not examine the interactions between competitiveness and other types of environmental laws and regulations such

as those affecting land use, fisheries, and species protection.
Chapter 2–Issues and Options 41

ONE: The incremental approach would entail

continued implementation of existing policies,

with some new emphases:

■ Efforts to develop more cost-effective or improved technology for Federal site clean-up,

especially Department of Defense and Department of Energy sites, would continue. Cleaner

energy technology R&D would continue to be

the largest category of environmentally preferable technology supported by the Federal

government. Federal programs for other industrially pertinent technologies for pollution control and prevention or cleaner production would

continue at recent modest levels of support.

Government-industry cost-sharing of cooperative research and development agreements

(CRADAs) on environmental matters might

increase, subject to budgetary constraints.

■ Programs for independent evaluation or verification of the performance of U.S. technologies

would be expanded to give more emphasis to

prevention and control technologies in addition

to the current emphasis on contamin ated site

remediation. Such information, which is needed

for domestic users, could also help foreign

consumers select among competing technologies.

■ Clearinghouses, trade publications and associations, and State technical services programs

would be used to disseminate information

about cleaner technology and more costeffective compliance approaches to small and

medium-sized manufacturing firms.

E On the regulatory front, EPA and State regulatory agencies would experiment with incentives for technological innovation and with

alternative permitting and compliance procedures, and encourage wider replication of

successful approaches.

■ Federal export assistance programs would better coordinate services. The U.S. Trade and

Development Agency would fund more feasibility studies in developing countries, creating

business for U.S. consultants and some followon orders for U.S. exporters. Other export

promotion services, including commercial representation abroad, training of foreign nationals

in U.S. technologies and approaches, and trade

missions, would expand modestly.

■ Efforts to develop multilateral guidelines addressing interactions between trade and environmental issues would continue.

TWO: The aggressive approach differs from

the incremental approach in strategy, degree of

high-level leadership, and level of resources.

■ Much effort would be made to integrate environmental and economic issues at a high level

within the government. Technology policies,

trade policies, and environmental regulations

would be developed and implemented with

awareness of their interactions and their synergies—positive and negative.

■ A major effort would be made to enlist U.S.

industry-especially industry sector technology organizations-in cleaner technology development and diffusion. Government would

share the cost of R&D, demonstration, and

diffusion, and better address regulatory problems for those sectors with high environmental

impact or compliance costs.

■ Steps would be taken to integrate pollution

prevention services with manufacturing modernization services offered at the State level and

in new Federal manufacturing extension centers.

■ There would be accelerated experimentation

with more flexible regulatory approaches that

meet environmental requirements. Companies

with excellent environmental records might be

eligible for expedited whole facility permitting.

For example, such companies might be given

facility-wide emissions caps and more options

to choose among different pollution abatement

approaches. Regulations would be made more

friendly to environmental technology innovators.

s On the international scene, the United States

would signal to developing and newly industrializing countries that their environmental stand-
42 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

ards would need upgrading well in advance of

possible bilateral discussions on trade liberalization. Through framework agreements or other

agreements, the United States might offer more

aid for technical assistance and technology

transfer to developing countries (with U.S.

companies gaining some business from the

aid).

The executive branch would assess differences

in regulatory stringency among countries, and

related competitive impacts on U.S. firms;

alternatives for addressing adverse impacts

would be developed for congressional consideration.

Government efforts to promote U.S. exports,

including environmental exports, would intensify.

Foreign assistance would be tapped to encourage exports of environmentally and developmentally sound technologies and services (e.g.,

renewable energy technologies, pollution prevention services) to developing countries. On a

life cycle basis, such projects could be less

expensive for developing countries than conventional technology. In some cases, capital

project financing would be made available to

encourage transfer of U.S. technology.

The United States would continue to work to

limit commercial advantage from use of mixed

credits and other tied aid credits by aid donors;

however, when other countries use these credits

for unfair commercial advantage, it would

respond in kind but use environmental guidelines to prevent transfer of inappropriate technologies.

This strategy might recognize the need to give

more priority to broad-based adjustment assistance for U.S. workers. It is seldom feasible to

isolate the causes of plant closings and layoffs;

the major causes are patterns of trade and

investment, changes in consumer preference, and

obsolescence of plant and equipment from technological change. Sometimes environmental factors also contribute. While the implications of

technological upgrading for U.S. employment as

a whole are likely to be positive, the diffusion of

cleaner, more energy efficient technologies to

industry is bound to produce some displacement.

Not all of the steps listed in either strategy

would require new legislation, as several recent

laws authorize pertinent programs and initiatives

along these lines. Examples include the Energy

Policy Act of 1992 (EPACT, Public Law 102-

486), the Export Enhancement Act of 1992

(Public Law 102429), and the Aid, Trade, and

Competitiveness Act of 1992 (Title III of Public

Law 102-549). The Clinton administration has

announced several plans and initiatives related to

commercial and environmental technology policy, export promotion, and pollution prevention.

Depending on future levels of funding and other

indicators of commitment to implementation,

these laws and initiatives could form part of a

basis for the strategies.

B Issue Area A. Technology and R&D Policy

Debate is underway in Congress about the

Federal role in encouraging the development and

commercialization of innovative commercial technologies. Environmental technology has been

. gaining attention in this debate. The Energy

Policy Act of 1992, enacted at the end of the 102d

Congress, authorized expanded Federal support

for development and application of energyrelated environmental and industrial technologies. Several environmental technology bills have

been proposed in the 103d Congress,2 as well as

bills pertaining to the Federal role in commercial

technology development as a whole.3 An admin2 See, for example, S. 978, the proposed National Environmental Technology Aet of 1993, as reported by the Senate Environment and Public

Works Committee on July 30, 1993; S. 811, the proposed Environmental Competitiveness Act of 1993; and H.R. 3603, the proposed

Environmental Technologies Ad of 1993.

3 See H.R. 820, tbe proposed National Competitiveness Act of 1993 passed by the House on May 19, 1993, and S. 4.
Chapter 2–Issues and Options 43

Table 2-1—issue Area A. Federal Technology R&D Policy

c

o

Policy goals promotedb

1 Review Federal progress to:

. set priorities and coordinate R&D for environmentally

critical technologies s Y P P P

● integrate cleaner production in R&D program missions s Y Y P P

2 Review Environmental Protection Agency (EPA) clean technology

priorities s N ‘i P P

3 a) Fund pertinent Department of Energy (DOE) RD&D programs; L N Y P P

b) Make cleaner production a central mission of DOE’s Office of

Industrial Technology M-L N Y P P

4 Increase support for National Science Foundation clean technology

work M N Y P P

5 Fund startup or expansion of industry sector R&D technology consortia L Y Y P ?

a s~ma[l ($ I o million or le~); M-moderate ($1 O to $100 million); L-large ($100 million plus); a range indicates that it depends on how the option

is implemented.

b y=yes; P=potentially yes; N=no; ?=effect iS Unciear

SOURCE: Office of Technology Assessment, 1993.

istration environmental technology initiative is

also under development.

For the most part, Federal environmental

regulations-their form and strictness-have been

the primary government action determining development and use of environmental technology

by industry. This will continue to be the case.

However, nonregulatory forms of technology

policies—support for research, development, and

demonstrations, for example--could spur development and use of environmentally preferable

products and processes. While not necessarily

developed to further specific regulatory aims,

such products and processes in some cases could

make compliance easier and cheaper for firms.

Discussed below are three issues germane to

the question of whether the U.S. Government

should expand its support for development of

cleaner, more cost-effective technology by

industry:

goals and objectives for Federal environmental

technology policy,

coordination of Federal activities relevant to

cleaner technology, and

partnerships with industry to develop cleaner

technologies.

Five options pertinent to these issues are

summarized in table 2-1, and presented in greater

detail at the end of the discussion for this issue

area.

GOALS FOR FEDERAL POLICY

An expanded Federal role in developing cleaner

technologies or more cost-effective pollution

controls could require more funding and new
44 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

ways to conduct government-industry partnerships. The Federal Government already spends

nearly $2 billion per year on R&D pertinent to the

environmental technologies covered in this report.4 (See ch. 10.) Over $650 million is spent by

the Department of Energy (DOE), the Department

of Defense (DOD), and the Environmental Protection Agency (EPA) on remediation technologies for contaminated sites. Large commitments,

nearly $1 billion, are also made to cleaner energy

research, development, and demonstration (RD&D).

This includes renewable energy programs, the

Clean Coal Technology Demonstration Program

(which demonstrates pollution control and prevention technologies), advanced engine and fuel

cell R&D, and electric and other cleaner vehicle

technologies, among other areas. Federal R&D

support for cleaner industrial process technologies and for improved end-of-pipe controls for

manufacturing operations is only a small share of

the total-probably on the order of $150 million.

The question of whether, how, and to what

degree the Federal Government should support

additional initiatives to develop innovative environmental or environmentally preferable technologies depends in part on available resources and

Federal priorities.

Several candidate R&D priorities may vie for

limited funds, including:

Putting the Federal House in Order—Most remediation R&D centers on clean-up of contaminated defense-related facilities--clearly a Federal

or national responsibility. Developing lower cost

or more effective clean-up technologies is likely

to be a key Federal environmental and fiscal

priority for many years to come. Defining technology goals and objectives and securing cleanup R&D resources for this area alone will pose

continuing challenges.

Estimates suggest that, using current technologies, it could cost the U.S. taxpayer tens of

billions of dollars in the coming years to clean up

hazardous and radioactive wastes at DOD and

DOE facilities. Improved remediation technologies might reduce clean-up costs and also aid in

managing abandoned hazardous waste sites—a

Federal responsibility under Superfund.

To some degree, the improved technologies

and processes resulting from Federal clean-up

R&D could produce export opportunities for U.S.

environmental firms. However, most countries

now give much more priority to pollution control

and prevention than to clean-up of contaminated

land. Remediation markets abroad are relatively

modest. Also, some of the U.S. R&D no doubt

may support further development of processes

created by firms in other countries.

Helping Industry Meet Requirements at Less

Cost—Another Federal R&D priority might be to

encourage development of cleaner production

technologies (or, in some cases, more costeffective end-of-pipe or clean-up equipment).

This might further both environmental and industrial competitiveness goals. U.S. industries spend

more on environmental compliance than their

counterparts in most other countries. Even when

compliance costs are comparable, some countries, such as Germany, provide more government

technical and financial help to their fins.

It would make sense to concentrate on industry

sectors that produce large environmental impacts

or that have high compliance costs, For example,

as is discussed in Option 5 at the end of this

section, the government might share the costs of

RD&D efforts with industrial consortia to address

industrywide environmental challenges. Regulatory and tax incentives for development and early

4 Larger estimates exist, but they include other technology support, such as for agriculture, climate monitoring, health effects, management

of nuclear wastes, and mass transit that are not addressed in this report, See U.S. Library of Congress, Congressional Research Service, The

CurrenrStatus ofFederczlR&D:Environmental Technologies, 92-675 SPR (Washington DC: Congressional Research Service, Aug. 25, 1992).
Chapter 2–Issues and Options 45

use of innovative environmental approaches can

also be useful.

Spurring Development of Environmentally Preferable Products and Processes-The Federal

Government can help ensure that cleaner technology or production priorities are considered in the

technology development activities that it supports, directly or indirectly. With the wide range

of R&D funded by the U.S. Government, the

long-term effect in stimulating development of

cleaner technologies could be significant. Additionally, Federal, State, university, and professional association support for integration of

environmental matters in engineering education

can help effect a cultural change by bringing

environmental criteria from the periphery to the

core of product and process design.

Meshing environmental with commercial R&D

goals could be beneficial. It could produce

technologies and techniques that allow companies to meet their environmental obligations at

less cost. For the environmental industry as well

as manufacturers of cleaner capital goods, better

and more economical pollution control and cleaner

production technologies offer new business opportunities at home and abroad. And, of course,

the economy, the environment, and public health

will benefit if new technological approaches

allow better environmental protection at less cost.

Government procurement practices could be

used to spur markets for environmentally favorable products and processes, as well. Some examples include specifying cleaner printing and

painting, procurement of recycled materials, promotion of energy efficiency in Federal buildings,

and acquisition of cleaner vehicles. Military

specifications also could be rewritten to address

the environmental impacts arising from manufacture of products for DOD. Several executive

orders on these matters have been issued or are

under consideration in the Clinton administration.

Using government buying power as an instrument

of environmental policy is controversial with

suppliers of conventional products and other

industries who fear they might be adversely

affected.

Supporting Sustainable Development and Export Opportunities for U.S. Firms-In the years to

come, global demand for cost-effective, environmentally preferable technologies can be expected

to grow in a wide range of industry sectors. One

objective of Federal technology policy might be

to encourage development of such technologies in

the interest of global environmental improvement

and boosting export earnings and jobs for American fins. Joint R&D and industrial consortia

among environmental fins, regulated industries,

and government can help develop and demonstrate technologies that provide environmental

solutions both at home and abroad. In addition to

support for R&D, the U.S. Government can help

by disseminating information on U.S. technologies abroad and developing export awareness in

the United States. Technical assistance to improve foreign environmental management capacity and negotiation of standards and practices in

other countries compatible with those employed

in the United States can also promote this

country’s interests.

COORDINATION AND FUNDING

As additional Federal roles in environmental

technology are considered, some see an emerging

need to articulate an overall strategy5 and priori5 Developing an environmental technology strategy is one purpose of some environmental technology proposak under consideration in

the 103d Congress. The strategy proposed in S.978 as reported by the Senate Environment and Public Works Committee would, among other

matters, identify and rank priorities that would benefit from critical environmental technologies; recommend public-private partnerships;

recommend measures to encourage commercialization and Use of the technologies, especially by small business; and identify barriers,

incentives, and appropriate actions for developmen~ use, and exports of the technologies Critical environmental technologies, as defined in

the bill, would embody a significant technical advance, have potential to bring about large, cost-effective reductions in health or environmental

risks; apply broadly at the precommercial stage; and be tikely to have a favomble ratio of social to private returns if adopted.
46 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

ties for a coordinated response by pertinent

agencies.

Several agencies play, or could play, prominent

roles in environmental and/or commercial technology development—including DOE, DOD, the

Department of Commerce, and EPA. Working out

appropriate roles among these and other agencies

will be an important issue for policy makers in

Congress and the Executive Branch. Lack of

coordination of these programs could limit their

effectiveness, as well as complicate technology

transfer to industry.

Administration efforts and plans to address

environmental technology include:

an environmental technology strategy. In April

1993, President Clinton directed the Secretary

of Commerce to chair an interagency group for

creation of a national strategy for environmental technology development, diffusion, and

export promotion. Other key agencies include

EPA and DOE. This body was expected to issue

a report in the fall of 1993.

an expanded EPA role in environmental technology development. Over a 9-year planning

horizon, the projected increase would be $1.85

billion (much of which might pass through

EPA to other agencies). The purpose would be

to develop more advanced environmental systems and treatment techniques to produce

environmental benefits and exports of environmental technologies.

more funding for RD&D activities under the

1992 Energy Policy Act. (Among other things,

EPACT authorized increased Federal support

for environmentally significant energy technologies, including renewable energy, cleaner

vehicles and fuels, advanced engines, fuel cells,

and heating, cooling, and other building technologies. One title authorizes more R&D support for industrial technology related to energy

conservation, including waste reduction. For

example, it calls for more work on pulp and

paper technologies and improvement of energy

efficiency and cost-effectiveness of pollution

prevention technologies in energy intensive

industries-activities supported by the DOE’s

Office of Industrial Technology. Funding for

this office’s work on energy efficiency and

waste reduction is authorized to grow from

about $97 million in fiscal year 1992 to about

$137 million in fiscal year 1994.)

the administration’s overall technology initiative calls on key Federal agencies including the

Departments of Commerce, Defense, and Energy, to incorporate environmental goals when

supporting manufacturing R&D. The National

Institute of Standards and Technology (of the

Department of Commerce) would help small

and medium-sized firms improve energy efficiency and performance (see Issue Area B

below).

Two subgroups of the interagency Federal

Coordinating Council on Science, Engineering,

and Technology (FCCSET) are working on environmental technology priorities. The Subcommittee on Environmental Technology of the Committee on Earth and Environmental Sciences was

established to focus on environmental technology

issues. Also, the Committee on Manufacturing,

which seeks to define Federal priorities for

developing and diffusing manufacturing technology to the private sector, plans to look at the

environmental aspects of Federal manufacturing

R&D. These activities could be affected by plans

to reorganize FCCSET.

With so many Federal activities underway or

soon to be proposed, Congress might wish to

conduct early oversight—with special attention

to overall goals and objectives, and the extent to

which clean technology objectives are addressed.

(See Option 1 at the end of this section). It might

also review funding and priorities for specific

Federal programs pertinent to cleaner technology

development, such as those by EPA, DOE, and

the National Science Foundation (NSF), as discussed in Options 2 through 4 below.
Chapter 2–Issues and Options ! 47

PARTNERSHIPS WITH INDUSTRY TO DEVELOP

CLEANER TECHNOLOGY

As standards become tougher, more costeffective ways to improve environmental performance will be needed. To date, industrial

pollution prevention efforts typically involve

simple housekeeping and process modifications,

which often offer large payoffs for little effort.

More fundamental improvements in manufacturing process technologies to make manufacturing

both cleaner and more productive could require

substantial R&D. In some cases, advances in

control and disposal technologies also could

require more R&D.

While U.S. firms are making some progress in

integrating environmental concerns into manufacturing process and product development, most

efforts are small and ad hoc. The risks to

individual companies in proceeding alone with

the needed R&D often appear too great, given

technical uncertainties, questions about the acceptance of new technologies in the regulatory

system, and difficulties in capturing benefits that

accrue widely across an industry or to society as

a whole. Companies have been reluctant to

develop and try new generations of add-on

pollution controls for similar reasons.

Programs carried out through industry consortia or cooperative research and development

agreements with Federal laboratories may offer

useful vehicles for assuring industry involvement.6 An industry sector focus for these activities could help allocate efforts toward those

sectors that pose the most significant environmental threat or that face the highest compliance

costs. While DOE supports some cooperative

R&D in specific sectors (e.g., pulp and paper,

steelmaking, and foundries), firms tend to sign on

for a specific project rather than develop the

continuing relationship that a consortium implies.

A more aggressive alternative, centered on high

environmental impact, high compliance cost industries, is discussed under Option 5 below.

While consortia may hold promise, there are

drawbacks. Funding more industrial RD&D could

take scarce dollars away from other worthwhile

claims on Federal resources. To the extent that

new Federal funds are available, getting the

Federal Government’s own house in order

through clean-up of Federal sites might seem a

more pressing claim. The substantial funds for

technology development in this effort offer promise for new remediation technologies that could

be applicable to commercial remediation.7

However, the Federal clean-up efforts are

needs-driven and highly specialized. Clean-up

R&D is not intended to produce technologies for

industry to control emissions or to produce

cleaner technologies that prevent pollution. Instead, the technology is mostly intended to deal

with already contaminated sites.

Many in both government and industry look

askance at partnerships and similar attempts by

government to influence private sector R&D.

Some believe that such partnerships amount to

favoritism. Others contend that most such activities would be ineffective, thus wasting the taxpayers money, or, worse, could deflect R&D away

from other objectives that could turn out to be

more important.

One skeptical analysis of the premise that strict

environmental regulations might enhance industrial competitiveness also questioned the contention that R&D subsidies for environmental tech6 k this reg~d, Tide II of the House passed version of H.R. 820, the proposed National Competitiveness Act, would autioti= tie Commerce

Department’s National Institute of Standards and Technology to SUppOt-t large-scale research and development consortia. Among criteria for

an award: significant contribution to environmental sustainability.

7 Further, Federal funds supporting research on environmental sciences are limited. Such research could lead to better understanding of the

risks that environmental degradation poses to human health, natural processes, and ecosystems. Improved understanding of the nature of such

risks could contribute to more effective policymaking.
48 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

nologies would help promote U.S. industry.8

Government R&D subsidies might be needed to

obtain socially desirable investments in environmental improvements. However, in a world of

multinational firms and international markets,

capturing the benefits of the R&D for domestic

developers might be difficult.

Even so, the long-term benefits to U.S. industry

and society from cleaner industrial technologies

could be very large, and it is not certain that

industry will act on its own to develop these

technologies unless it is clear that the government

is committed to their use in environmental

compliance.

Following from the discussion above, a number of options might be considered by Congress

if it wishes to broaden the Federal role to

encourage development and deployment of new

generations of environmental technology by industry. Some are discussed in the two following

sections (technology diffusion, and regulatory

reform and innovation). Among those that relate

to the Federal Government’s direct role in supporting R&D activities are the following:

OPTION 1: Begin oversight at an early date on

the administration’s progress to:

■ coordinate and rank Federal R&D priorities for

environmentally critical technologies (including those most pertinent to industry);

■ integrate cleaner production objectives into

missions of commercial technology R&D programs.

OPTION 2: If Congress expands EPA’s role in

technology development, it could direct the

agency to work with other agencies and industry

to emphasize cleaner technology and pollution

prevention, and to seek to link regulatory development more closely with technological priorities.

OPTION 3: With regard to Department of

Energy programs:

Review funding priorities and monitor progress

on Energy Policy Act R&D for renewable

energy, clean coal, and other environmentally

pertinent technologies. (Option 18 below discusses EPACT provisions for export promotion

and transfer of some of these technologies).

Explicitly add environmental technology to the

mission of DOE’s Office of Industrial Technology;

Fund more research, development, demonstrations, and evaluations on cleaner production

technologies and pollution prevention processes.

OPTION 4: Increase National Science Foundation support for cleaner technology research,

through industry-university research centers, engineering research centers, and individual investigator grants offered through NSF’s environmentally benign manufacturing program.

OPTION 5: Authorize support for initiating (or

expanding) R&D cost-sharing with industry sector organizations to:

serve as a forum for industry to collectively

identify R&D needs related to environment;

arrange partnerships among researchers, equipment makers, and industrial users to develop

manufacturing technologies that are more energy efficient and cleaner;

arrange similar partnerships to develop more

cost-effective control, recycling, and disposal

technologies for pollution and wastes;

support demonstration of cleaner technologies

and new control, recycling, and disposal technologies;

identify and diffuse innovations and best practices in pollution prevention and control to

industry; and share information on cost effectiveness of pollution prevention relative to

control technologies; and

identify regulatory barriers to more efficient

environmental solutions, and train inspectors

g Karen L. Palmer and R. David Simpsonj ‘‘Environmental Policy and Industrial Policy,’ Resources: Resources for the Future, summer

1993, No. 112, pp. 17-21.
Chapter 2–Issues and Options 49

Table 2-2—issue Area B. Diffusion of Best Practices and Technologies to Industry

Policy goals promotedb

6 Evaluate incentives to diffuse cleaner technology to industry LC yc Y Y P

7 Make cleaner production and pollution prevention a mission and

service of manufacturing extension services M N Y ‘? ?

8 Direct EPA to oversee more technology evaluations, and disseminate

results here and abroad M N Y Y Y

9 Support efforts to integrate environmental components in engineering

and business school curricula s N Y P P

a s+mall ($10 ~lllion or less); M=rnoderate ($10 to $100 million);L-large ($100 m iliion plLJs); a range indiates that it depends on how the option

IS implemented,

b y-yes; p-potentially yes; N-no; ?-effect is unclear

C ~SumeS action IS taken after review or evacuation

SOURCE: Office of Technology Assessment, 1993.

and permit writers on pollution prevention and

control in particular industries. (See further

discussion below in Issue Area C: Regulatory

Reform and Innovation.)

To be eligible, an organization would need to

serve an industry sector with significant environmental impact or high compliance costs (e.g.,

chemicals, petroleum refining, primary metals,

metals finishing, and pulp and paper). In sectors

that now have such organizations, Federal support could focus on pollution prevention and

environmental technical assistance. While industry governance and funding would be crucial, the

organization could work with Federal laboratories.

1 Issue Area B. Diffusion of Innovations to

U.S. Industry

As discussed in chapter 8, there is a wide gap

between best environmental practices in industry

and prevailing practice. Many firms, especially

small and medium-sized companies, have limited

knowledge or access to information about innovations that might help them address environmental

problems in a more cost-effective manner. The

existing regulatory system often encourages compliance-driven approaches that, in the long run,

are often not optimal from either an environmental or a competitiveness standpoint. In the

final analysis, better integration of environmental

and economic considerations will require changes

in the educational system for both engineers and

managers. Discussed below are several issues and

options to encourage diffusion of innovations to

industry: incentives; technical help to smaller

companies; evaluation of technology performance; and integration of environmental matters in

business and engineering curricula. Table 2-2

lists these options,

INCENTIVES FOR DIFFUSION

Companies are often reluctant to install innovative technologies. The costs and risks of being
50 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

first lead many companies to stick with tried-andtrue environmental control approaches. In addition to alteration of regulations and programs for

technology verification and demonstration (described elsewhere in this chapter), Congress could

consider a range of incentives for innovative

environmental technology development and use.

To aid in this process, Congress might direct the

administration to provide analysis of the costs and

benefits of several specific mechanisms (see

Option 6 at the end of this section).

Accelerated depreciation and tax credits, loan

programs, and environmental taxes are among

approaches used in some other countries. Accelerated depreciation is used in the Netherlands,

where firms that install innovative pollution

prevention or control technologies can depreciate

their investment in 1 year instead of 10. The list

of eligible technologies is revised each year in

consultation with industry and government experts. Technologies that have gained significant

market share or that are required to be installed by

regulation are ineligible. This kind of approach

could also be applied to programs of tax credits or

low interest loans.

Environmental taxes applied to production of

pollutants or waste is another alternative or

complement to the incentives just described. If

the added costs are high enough, polluters may

seek to avoid such taxes through pollution prevention, or look for alternative technologies.

Environmental taxes could provide an incentive

for companies to perform better than standards

require. Some studies indicate that taxes on

pollution and other “bads" can be economically

preferable to taxes on “goods” such as labor,

investment, and savings.9 Revenues from environmental taxes could be used for general revenue, to displace income and other taxes, or to

finance the above mentioned environmental innovation incentives.

Government procurement can both encourage

or discourage the development of markets for

environmentally preferable technologies and products. Environmental objectives underlie recent

changes in procurement policies for such items as

paper (postconsumer recycled fiber content), light

bulbs (energy efficiency), and vehicle fleets (less

polluting fuels). Other steps (e.g., an Executive

Order by President Clinton to reduce toxic waste

emissions from Federal facilities to one half by

1999) could encourage development and markets

for alternative products. In some cases, other

policy objectives may slow adoption of alternative products. Changes in procurement policies

can be highly controversial, and provoke heated

opposition by affected industries. As part of the

Option 6 evaluation, or separately, Congress

might call on the administration to assess the

early experiences with these changes in procurement policies.

TECHNICAL ASSISTANCE TO SMALL AND

MEDIUM-SIZED COMPANIES

Technical assistance programs can help manufacturers, particularly small and medium-sized

enterprises (SMEs), understand and cope with

environmental regulations, and select low-cost

alternative technologies and approaches, such as

pollution prevention. Most States and a few

localities have pollution prevention programs,

which provide information and technical assistance services.

The Federal Government provides some funding and technical support to these programs.

However, resources are small relative to need.

Some EPA-supported programs are housed in

State environmental agencies. Wary manufacturers may not use these services, for fear of

triggering enforcement actions.

Pollution prevention is one of several kinds of

State or federally supported technical assistance.

Company officials may view other needs (e.g., for

g Robert Repetto, Roger C. Dower, Robin Jenkins, and Jacqueline Geoghega~ Green Fees: How a Tax Shift Can Workfor the Environment

and the Economy (Washington DC: World Resources Institute, November 1992).
Chapter 2–Issues and Options 51

manufacturing modernization, worker training,

and quality improvement) as more important.

Few programs provide fully integrated services;

in some states, there may be separate technical

assistance programs for energy conservation,

worker health and safety, pollution prevention,

and technology modernization. Manufacturers

may not know which program to contact; the

fragmentation of services thus limits opportunities to offer pollution prevention in the context of

a manufacturer’s needs for productivity and

quality improvements. Moreover, most programs

focus on fabrication and assembly industries, not

on highly polluting process industries, such as

chemicals or steel.

There are advantages to offering pollution

prevention, energy conservation, and manufacturing technology modernization in an integrated or

coordinated fashion. Providing services through

one-stop centers (or at least through closely

coordinated services) might improve efficiency,

technical consistency, and cost-effectiveness. Integrated service organizations can respond to a

wide range of industry needs and can rely on

existing field staff for leads. These organizations

can aid technology transfer, by conveying information to firms about new technologies, and aid

technology development by providing information to developers about industry needs. As

outlined in Option 7 at the end of the section, there

are several alternatives Congress might consider

as ways to provide integrated or coordinated

services.

Such a broad mission might be given to or

coordinated with new manufacturing technology

centers administered by the National Institute of

Standards and Technology in the Commerce

Department. 10 While some of these centers have

already been established, President Clinton has

proposed expanding this system, as have various

bills proposed in the 103d Congress. The mission

of these centers could be broadened to include

energy conservation and pollution prevention

along with training, modernization, and quality.

Such a move could help integrate pollution

prevention into the service infrastructure regularly used by manufacturing firms. The centers

would not need to offer these services directly, for

they could coordinate with the providers.

One disadvantage of this more integrated

approach is that it might not target the firms that

produce the most waste or cause the most

environmental damage.

11 If the top priority is to

reduce pollution and wastes, putting pollution

prevention programs in existing manufacturing

modernization programs may dilute this focus.

However, this matter could be addressed by

making sure that the environmental component of

these organizations concentrate on achieving

pollution and waste reduction goals.

EVALUATION OF TECHNOLOGIES AND

DISSEMINATION OF INFORMATION

Objective information about performance capabilities could make it easier to commercialize

innovative American environmental technologies. Some users of environmental technologies

are reluctant to try innovative technologies for

fear that they will not meet requirements or will

be more costly than anticipated. Rather than take

the risk, they may stick with established technologies that could be less cost-effective for the

enterprise and less effective from an environmental standpoint. Independent technology evaluations might help overcome some of the uncertainties accompanying new environmental technologies; hence, Congress might wish to encourage

such evaluation activities (see Option 8 at the end

of this section).

10 S. 978 as rcport~ t)y the Senate Environment and Public Works Committee would call on EPA and the commerce Depammtto ent~

into agreements so that EPA would provide technical assistance and support to the centem for this purpose.

I I For example, many State pollution prevention programs have encouraged pollution prevention in sectors such as aUtO re@, @cl*&

small print shops, and other local sewice firms. The environmental problems of these firms might get less attention m a program with more

of an economic development or competitiveness focus.
52 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Evaluation information also could aid U.S.

environmental firms in marketing their products

and services abroad by providing potential customers with a more solid basis for choosing

among technologies. Often, such clients hold

EPA in high regard as an unbiased source of

environmental information. While EPA does not,

and probably should not, endorse particular

technologies or vendors, some U.S. companies

say that lack of governmental endorsement can be

an impediment in marketing abroad, and claim

that foreign competitors sometimes obtain such

blessings from their home governments.

Legislation proposed in the 103d Congress

would authorize more extensive Federal support

in evaluation of environmental technologies.

Among its other evaluation programs, S. 978 (the

proposed National Environmental Technology

Act of 1993), would establish an EPA program to

evaluate, verify, and disseminate performance

and cost information on environmental technologies. One function of this program would be to

develop protocols and testing procedures. A

clearinghouse would disseminate information

about technologies that meet or exceed evaluation

guidelines. Another bill, the House passed version of H.R. 820, the proposed National Competitiveness Act, would authorize the Commerce

Department’s National Institute for Standards and

Technology to serve as testbed for advanced

technologies, including prototype clean manufacturing systems.

EPA already sponsors some evaluations of

innovative technologies developed by U.S. vendors, with the vendor picking up most of the costs.

Its Superfund Innovative Technology Evaluation

(SITE) Program is the largest and best known

example. Technology developers pay to design,

install, and operate their technologies while EPA

pays for site preparation and evaluation. Smaller

EPA efforts are the Municipal Innovative Technology (MITE) Program and the Clean Technology Demonstration Program.

Evaluations would not necessarily need to be

federally administered; federally supported centers could perform this function. For example, the

National Environmental Technologies Applications Corp. (NETAC), a nonprofit corporation

founded by EPA in 1988 and associated with the

University of Pittsburgh Trust, has provided

independent laboratory evaluations on oil bioremediation agents. EPA apparently prefers an

independent entity to oversee testing and review

of technical data on environmental technologies. 12

Evaluation programs have their drawbacks.

The SITE program received early criticism for

evaluating few truly innovative technologies .13 In

addition, vendor demand for evaluations could

exceed available resources; in such cases, evaluated technologies might receive a competitive

advantage over comparable or even superior

unevaluated technologies. Nonetheless, performance verification could be a useful step that would

help domestic and foreign customers chose among

alternatives. It could be a low cost way to promote

U.S. exports in an environmentally desirable way.

(See subsequent discussion of Option 23).

ENGINEERING AND BUSINESS EDUCATION

If U.S. industry is to better meld environmental

with competitive demands, it will need engineers

who are adept at integrating environmental considerations with other cost, quality, and technical

performance criteria, and managers who understand how different environmental solutions impinge on cost, quality, and marketing. Environmental goods and services firms also will need

such technical and managerial talent to offer

12 ‘CEpA C~IS for ~&pen&nt Environmental Technology Review Office,’ Inside EPA, Aug. 6, 1993,

13 Offl% of Tec~olo~ Assessment Coming Clean: Supetjimd Problems Can be Solved, OTA-ITE-433 (washgtom DC: Us.

Government Printing OffIce, 1989), pp. 182-183.
Chapter 2–Issues and Options 53

customers a full range of environmentally and

economically sound solutions. Yet such environmental matters are addressed on the periphery, if

at all, in most engineering and business education

programs.

In some engineering schools, environmental

engineering programs train students to design and

operate end-of-pipe pollution control and disposal systems. These students may have a limited

understanding of the industrial production processes in which pollution prevention opportunities

arise.

Students in traditional engineering disciplines

(chemical, civil, electrical, and mechanical engineering) and related areas (e.g., architecture

materials engineering, food science, and industrial engineering) usually do not receive much

training on how to consider environmental factors

in designing or modifying products, processes,

and structures. *4 Environmental criteria, such as

emissions standards, recyclability, and toxicity of

materials, tend to be thought of as externally

imposed constraints that are often treated as an

afterthought in the design process, As a result,

opportunities to improve the environmental performance of industrial processes and products

while keeping costs low and quality high may lie

unrecognized. Thus, integration of environmental

issues and perspectives in the mainstream engineering curriculum could be useful.15

As is discussed in Option 9 below, Federal

agencies, such as the National Science Foundation (NSF) and the Office of Environmental

Education at EPA, might contribute to efforts to

change engineering education. For instance, NSF

could assemble and disseminate course materials

for use in undergraduate curricula. It could help

professors and lecturers learn how to address

environmental factors in their courses. NSF could

support or complement some existing efforts. For

instance, the Center for Waste Reduction Technologies of the American Institute of Chemical

Engineers has developed a manual for incorporating pollution prevention design and homework

problems in chemical engineering courses. Government, industry, professional associations, and

universities can work together to produce and use

these educational materials. Such materials could

help in training undergraduate engineering students and in retraining practicing engineers, such

as those leaving defense-related jobs or participating in continuing education.

Business schools tend to treat environmental

issues as a peripheral matter, Their students are

seldom taught to account for and properly assign

all environmentally related costs. Without adequate environmental accounting and accountability, managers and engineers may not attack their

environmental problems in the most costeffective way. The costs of waste disposal may

not be assigned to individual processes and

product lines, for example. Regulatory costs,

potential liability, or loss of community or

customer goodwill also may not be fully taken

into account. Finally, ways to mesh environmental performance with better quality and productivity are seldom studied. The analogy between environment and quality is discussed

further in chapter 8.

Some business schools are beginning to respend.16 However, only about 1 in 10 has or is

developing environmental courses .17 The Federal

Government, in cooperation with professional

associations and universities, could support as14 For discussion of is~es relat~ to incorporation of environmental factors in the design of products, see U.S. cOfWMS office of

Technology Assessment, Green Products by Design: Choices for a Cleaner Environment, OTA-E-541 (Washingto~ DC: U.S. Government

Printing OffIce, October 1992).

15 Rob@ A. FrOSch and Nicholas E. Gallopoulos$ ‘‘S~te@es for Manufacturing, ‘‘ Scientific American, vol. 261, No. 3 (September 1989),

pp. 144-152.

16 J.E. Post, “The Greening of Management, ” Issues in Science and Technology, vol. 6, No. 4 (summer), pp. 68-72.

17 ~omation provided by SUM of he Management Lnstitute for Environment and Buskess, AU8USL 1992.
54 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

sembly and dissemination of relevant course

materials to business schools (see Option 9

below). For example, the Management Institute

for Environment and Business seeks to encourage

business schools to integrate environmental concerns into their curricula. It has produced a book

of case studies on environment and industrial

competitiveness.

OPTION 6: Direct the administration to identify and evaluate that best choices among economic incentives (e.g., accelerated depreciation,

loans, or fees) to speed diffusion of cleaner

technologies to industry. EPA, the Department of

Commerce, the Department of Energy, and the

Treasury Department could examine the competitive, environmental, and fiscal impacts of such

approaches. Congress also might direct the administration to provide initial evaluation of its use

of Federal procurement to achieve environmental

goals-an approach promulgated in several recent executive orders.

OPTION 7: Make pollution prevention and

energy conservation specific mission objectives

and services to be provided or facilitated by

manufacturing extension services. (Expansion of

these services is proposed in legislation before the

103d Congress.) Fund efforts at the State and

local level, through existing industrial modernization organizations, to help promote pollution

prevention. Use funding currently channeled

through several existing Federal technical assistance programs to support full-service industrial

extension, including manufacturing modernization, pollution prevention, energy conservation,

worker training, and worker safety and health.

Alternatively, Congress could expand EPA’s

Pollution Prevention Incentives for the States

(PPIS) program or the Waste Minimization Assessment Centers (WMAC), and direct that some

grants be provided to State industrial extension

services. PPIS provides $3 million a year to State

pollution prevention technical assistance programs. The three WMACs receive $200,000 a

year and are housed at universities where faculty

and staff perform free, in-depth waste minimization assessments for small and medium-sized

business.

OPTION 8: Direct EPA (either itself or through

a center) to undertake independent evaluations of

the technical, environmental, and economic performance of innovative environmental technologies. As remediation evaluation programs already

exist, this activity could be oriented to pollution

prevention and control and cleaner technology

options. Firms seeking to have their technologies

evaluated would pick up most of the costs.

Provide resources to ensure timely dissemination of results, including possible translation into

foreign languages.

OPTION 9: Provide seed funds through NSF or

the EPA Office of Environmental Education for

integration of environmental components into

engineering school and business school curricula.

The objective should not be to produce new

courses labeled pollution prevention (in the case

of engineering schools) or business and the

environment (at business schools) but to incorporate environmental methodologies into basic curricula.

1 Issue Area C. Regulatory Reform and

Innovation

It is difficult to generalize about the U.S.

system of environmental regulations, even when

the focus is just on manufacturing firms. However, there are some common characteristics. For

example, there continues to be a focus on single

media; there tends to be more emphasis on

controlling or treating pollution after it has been

generated; and there is relatively little direct

encouragement for technology development or

innovation.

As discussed in chapter 9, traditional approaches to regulation and enforcement sometimes make innovation difficult. Complying firms

also can find it difficult to implement the lowest

cost approaches.
Chapter 2–Issues and Options 55

For example, it has been difficult to integrate

the mission of pollution prevention into EPA’s

operations. (Recent developments, such as the

June 1993 pollution prevention policy statement

from the EPA Administrator, may speed up the

process. )18 Pollution prevention often has been

carried out as a separate function, with projects

peripheral to EPA’s main regulatory and enforcement role. Many regulations and rules reinforce

reliance on end-of-pipe technology. Even for

performance based regulations, personnel responsible for permitting may not have adequate

training to recognize appropriate opportunities

for use of pollution prevention alternatives.

Strong environmental regulations and enforcement are essential to encourage firms to adopt

pollution prevention and to encourage innovation. However, prescribing pollution prevention

practices or techniques could make it difficult for

manufacturers to develop pollution prevention

solutions that make the most sense for their

operations. Better results might be achieved by

encouraging (or even mandating) pollution prevention planning, modifying regulations to allow

more pollution prevention, and increasing technical assistance and support for technology development.

As long as strong regulation and enforcement

are fully maintained, steps could be taken to

explore approaches that allow firms to use more

cost-effective approaches without jeopardizing

environmental goals. Innovative experiments conducted in many places around the country are

promising and could be attempted elsewhere. For

example, full-facility studies examining all pollutants and waste generated by different types of

industrial facilities can be useful for guiding

company pollution prevention efforts and helping

regulators establish more effective but less costly

environmental protection requirements. The Amoco

Yorktown study, jointly managed by Amoco Co.,

EPA, and the Commonwealth of Virginia, identified many pollution prevention and control options that could achieve greater pollution reduction than now required by regulation. Such

studies done for other types of facilities, such as

pulp mills, or various classes of chemical plants,

would be useful.

EPA has been assessing additional steps that

might be taken to encourage innovation, such as

setting up reinvention laboratories (or pilot projects) staffed by experienced EPA and state permit

writers. 19 Concern exists within EPA about its

authority to undertake such efforts .20 If Congress

wishes to encourage more innovation, it could

explicitly authorize and fired options such as

those listed for Issue Area C in table 2-3 and

discussed below.

OPTION 10: Congress could provide funds to

EPA for a pilot project program with industry to

demonstrate regulatory approaches that give firms

that are first rate environmental performers more

choice in the means they use to meet environmental requirements. Firms showing commitment to environmental excellence (e.g., significant pollution prevention efforts, participation in

EPA voluntary programs, and willingness to

conduct facility-wide environmental and pollution prevention audits) might be eligible for such

benefits as:

coordinated multimedia permitting and inspection (rather than single media permits with

multiple inspections),

facility-wide emission caps, rather than individual source limits,

IS Memomnd~ of Cml M. Browner, Adminis~ator, to all EPA employees, June 15, 1993, titled “POhhOn prevention Policy statement:

New Directions for Environmental Protection. ”

IQ For discussion of this concept and severat other steps to encourage innovations, see U.S. Environmental Protection Agency, ‘‘Report of

EPA’s Environmental Technology Team for the National Performance Review, ’ August 1993, mimeo.

m Ibid., p. 17.
56 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Table 2-3--Issue Area C. Regulatory Reform and Innovation

Policy goals promotedb

c

o

10 Set up an EPA pilot project to experiment with innovative permits for

firms that are first rate environmental performers M N Y ‘? 7

11 Give incentive grants for regulatory reform and innovation projects to

States and firms M N Y ? ?

12 Upgrade training of permit and regulation writers M N Y ? ?

13 Set up industry sector Consortia/cluster groups s Y Y 7 ?

14 Modify R&D permitting to better accommodate R&D, such as fixed site

permits for R&D centers s Y Y Y 7

15 Set up an environmental cooperation institute and sector cooperation

councils s Y Y ? ?

a Sfima[l ($Io mjllion or Ies); M_m~erate ($ I o to $100 million); L-large ($100 million plus); a range indicates that it depends on how the option

is implemented.

b Y=Yes; p-potentially yes; N-no; ?=effect is unclear

SOURCE: Off Ice of Technology Assessment, 1993,

use by participating firms of any technical

approach that meets environmental standards,

and

accelerated permitting in some circumstances.

OPTION 11: Congress could give EPA funds

to make incentive grants for innovative regulatory

reform projects, and funds for innovations by

State environmental agencies. For example,

grants could be used to conduct full-facility

studies examining all sources of pollution and

pollution prevention options, provide training to

implement new approaches, integrate information

management technologies into compliance monitoring, and conduct multimedia inspections. In

addition, EPA could actively work to encourage

coordination, and disseminate information about

the States experiences.

* * *

While experience with such approaches as

those in Options 10 and 11 is growing, a number

of barriers and concerns would need to be

addressed before these techniques could be put

into widespread use. Assurance would be needed

that health and environmental standards would be

maintained. Safeguards to guard against, and

quickly detect, abuses would be needed. (Hence,

new techniques allowing continuous monitoring

of emissions would help.) It also would be

difficult to develop criteria to use in determining

what constitutes a good environmental record for

qualifying fins. Concerns exist that flexibility

could lead to favoritism or foreclose enforcement

options.

For all these reasons, evaluation of the activities undertaken under Options 10 and 11 would be

essential to identify the most effective approaches

and needed areas for improvement. EPA could be

directed to provide for such evaluations, and to

provide technical assistance to states seeking to

implement these approaches on a wider basis.
Chapter 2–Issues and Options 57

Widespread use of these approaches could

stress regulatory agencies now organized along

media lines for end-of-pipe compliance. The

skills needed by permit writers would change

from narrow and specialized to broad based, yet

the permit writers would need strong technical

backgrounds to deal with a more complicated

permitting process and to judge whether alternative approaches are appropriate. Provision would

need to be made for training.

OPTION 12: Congress might increase EPA’s

resources to hire or train inspectors and permit

writers to recognize and evaluate a variety of

technical approaches for meeting environmental

standards.

* * *

Regulations and permitting procedures can

sometimes impede technology innovation and

diffusion. Best available technology (BAT) or

similar standards can assure successful environmental technology developers of a market, but

can make acceptance of alternative environmental technologies harder, Complying firms

may install technologies used as benchmarks by

regulatory agencies on the assumption that it is

better to stick with proven technologies that seem

to be endorsed by the regulations. While BAT

standards are favorable for suppliers of approved

technology, they may inhibit development of new

and innovative technology by other vendors and

developers.

Some of the impediments might be overcome

if there were closer links between technology

developers and regulators, EPA could work with

industry-sector technology organizations (e.g.,

the organizations discussed in Option 5) on

environmental issues facing the industry, including the implications of foreseeable regulations for

technology priorities, development, and diffusion. This task could be assigned to industrysector groups at EPA with expertise on a given

industry. Better training of permit writers, so that

they might more confidently judge innovative

alternatives, would also help.

OPTION 13: Congress could direct EPA to

expand its industry sector-based activities. EPA

could be given resources to develop more sectoral

specific expertise at EPA and within the States.

With more industry sector expertise, efforts to

develop regulations that realistically anticipate

compliance problems could be enhanced.

* * *

Firms complain about the complexity, uncertainty, cost, and time required to obtain an

innovative environmental technology R&D permit under RCRA or under ad hoc procedures

under the Clean Air Act (CAA) and Clean Water

Act (CWA). Some technology developers have

moved technologies abroad for development and

testing. Adjusting procedures to meet the needs of

innovators, provide permits for freed R&D and

testing facilities, and develop quicker and more

predictable permitting might help U.S. innovators, but would need to be done in ways that avoid

the potential for abuses.

OPTION 14: Modify permitting in RCRA,

CAA, and CWA to better accommodate research,

development, demonstration, and testing. R&D

permits lack the flexibility required to encourage

research; ad hoc administration of innovative

technology testing lacks predictability. Congress

might therefore institute streamlined and flexible

permitting for innovative technology, including

permitting of testing centers.

* * *

The options discussed above are intended to

help stimulate innovation. However, they would

still be controversial. While experimentation with

such procedures is already underway, even some

demonstrably successful approaches might not

win acceptance with industry, environmental

organizations, or regulators. Over years of debate

about regulations, regulated industries often have

concentrated more on reducing levels of regulation than on improving the efficiency of the

regulatory system. Many in industry fear that new

approaches to regulation, such as pollution prevention, could lead to more burdensome requirements. For their part, many environmental groups
58 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

have been more concerned with defending existing gains than in making the system deliver equal

or even greater environmental benefits at lower

costs. Within regulatory agencies, many are

reluctant to embrace a new system that departs

from accustomed ways of doing things. Also,

managers may resist efforts to break down

organizational walls, particularly when resources

are scarce.

Without a sense of trust and commitment

among these key parties, the cooperative basis for

developing more effective and efficient regulatory approaches will be limited, Thus Congress

might consider ways to build more cooperative

relationships between government, industry, and

environmental organizations, as in Option 15.

OPTION 15: Congress could fund an Institute

for Environmental Cooperation to promote innovative cooperative efforts between industry, environmental groups or other nongovernmental organizations, and government. The institute could

be a forum for collaboration, bringing various

parties together to explore new approaches and to

craft new solutions. Moreover, the institute could

study innovative cooperative efforts and disseminate lessons learned from these approaches.

Universities could also serve as forums for

consensus building and collaboration. One example is an effort at the Massachusetts Institute of

Technology in which industry, nongovernmental

organizations, regulators, and academics are examining issues related to industrial chlorine use.

Such efforts could be supported as part of an

Institute for Environmental Cooperation.

Congress might also want to explore creating

sectoral industry councils within EPA. A small

number of councils might be formed for those

industries with the greatest environmental impacts, with membership from industry and environmental organizations. If EPA moves toward

sectorally based, multimedia rulemaking, these

councils could support these efforts.

# Issue Area D. Export Promotion,

Development Assistance, and

Environmental Firms

Compared to several competitors, the U.S.

Government provides relatively little support for

U.S. manufacturing firms for exporting. Recent

U.S. laws give new legislative priority to Federal

export promotion programs; someplace emphasis

on environmental technologies and services specifically. Several bills pertaining to promoting

exports of U.S. environmental technologies and

services also have been proposed in the 103d

Congress.

Responding to a congressional directive, the

Clinton administration issued a proposed export

promotion strategy with over 60 recommended

actions in September, 1993, While many of the

proposed steps do not require congressional

action, debate about level of funding and support

for these new programs will continue. The

administration also issued an environmental export strategy in November 1993 just before this

report went to press.

While most of the environmental market is in

advanced industrial countries, markets in newly

industrialized countries are growing rapidly. Most

developing countries have limited experience in

addressing environmental matters. However, developing country environmental problems are

great, and some are beginning to invest in

environmental protection. They thus have become a focal point in debate about policies and

programs to promote exports of environmental

technologies, not only in this country but in other

countries with large environmental industries. In

this case, alternative governmental roles in promoting exports need to be evaluated in the

broader context of encouraging international

cooperation to improve the environment, which is

the shared heritage of all countries, and in
Chapter 2–Issues and Options I 59

Table 2-4—issue Area D. Export Promotion, Development Assistance, and Environmental Firms

Policy goals promotedb

Multilateral cooperation for technical assistance:

16 Work to setup a program to help developing countries identify needed

environmental technologies

17 Make cleaner production/pollution prevention a priority in multilateral

aid

Bilateral Foreign Assistance/Export Promotion:

18 Fund EPACT programs for USAID- DOE transfer of innovative energy and

environmental technologies to developing countries

19 Increase Trade and Development Agency funding for feasibility studies

20 Encourage U.S. firms to emphasize training of developing country

personnel in equipment and services contracts

Export Promotion

21 Conduct early oversight on the Trade Promotion Coordinating Committee’s environmental working group strategy and proposed budget

22 Encourage U.S. foreign commercial interactions through:

● increasing overseas commercial officers or contractors

● increasing outreach to environmental industry associations

● operating through environmental business centers here and American Business centers overseas.

23 Disseminate information about U.S. technologies abroad

24 Provide resources for one-stop shopping and regional centers to help

smaller firms access and make use of available export assistance

25 Consider ways to expand export financing while keeping environmental

safeguards

s

M

L

M-L

M

s

M

M

M

s

M

LC

N

N

Y

Y

Y

Y

N

N

Y

Y

Y

Y

N 7 Y Y

N Y Y

N

Y

Y

Y

P

P

N

N

Y

Y

Y

Y

yc ? Y P

yc ‘? Y P

a S-ma[l ($ I o million or less); M-moderate ($1 O to $100 million); L-large ($100 million plus); a range indicates that it depends On how the option

is implemented.

b y-yes.; p-potentially yes; N=no; ?-effect is unclear

C ~SumeSaction is taken after review Or evahJatiOn

SOURCE: Office of Technology Assessment, 1993.

furthering developmentally sound progress in the

developing world.

Discussed below are three matters that bear on

where to draw the line between competition for

markets and environmental cooperation: the role

of multilateral aid to developing countries; links

between development assistance and export promotion; and the Federal export promotion role

more generally. A number of options, summarized in table 2-4, are discussed.

This ordering is deliberate: this report finds

that efforts by developed countries to promote

environmental exports need to take place within

a context of bilateral and multilateral actions to

improve the environmental capabilities of developing countries.
60 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

There is a potential for tensions between

development assistance objectives aimed at meeting the needs of developing countries (e.g., for

environmentally sound, sustainable development)

and the desire of many donor countries to realize

commercial benefit from their aid (e.g., encouraging exports of environmental technologies whether

or not the particular technology is best suited for

the developing country). A background paper

prepared for this assessment, Development Assistance, Export Promotion, and Environmental

Technology, discusses this issue in some detail.21

MULTILATERAL COOPERATION FOR TECHNICAL

ASSISTANCE

Developing countries have a great need for

appropriate environmental technologies and services. Yet few developing countries have the

necessary information or technical resources to

make the best selections; nor can they be sure of

the objectivity of other nations in providing

technical help when commercial transactions are

involved. These concerns might be addressed

through multilateral and bilateral efforts to provide developing countries with technical information and assistance about environmental technologies and services.

As discussed in Option 8, U.S. agency support

for independent evaluations of environmental

technology could be expanded. Expansion to

include more emphasis on evaluation of prevention and control technologies as well as remediation could benefit U.S. firms seeking foreign

clients. However, even with independent information, officials in developing countries often do

not have enough information about available

options. In some cases, relatively simple technologies may suffice. Information and technical

assistance provided by national governments or

by firms could be suspect. Hence, a multilateral

approach could be helpful.

One possibility (see Option 16 at end of

section) would be for the U.S. Government

(acting through the Department of State, USAID,

or another agency) to work with other countries to

expand the ability of international agencies like

the United Nations Environment Program to

provide objective information and technical advice about environmental technologies (including

cleaner technology choices).

The costs of needed environmental improvements in developing countries could be great.

With end-of-pipe solutions, developing countries

might easily need to invest over $50 billion per

year (1 percent of their projected gross domestic

products in the year 2000) to factor environmental

matters into their development plans.

Most of the costs of environmental protection

in developing countries will need to be paid for by

the developing countries themselves or through

resources made available through increased trade

and investment. However, bilateral and multilateral aid might serve a catalytic function in

prompting action. As discussed in OTA’s Development Assistance, Export Promotion, and Environmental Technology, industrial countries provided about $5 billion in bilateral and multilateral

environmental aid in 1991.22 This aid has probably increased; Japan claims its 1992 environmental aid was more than twice that in 1991—

over $2 billion.

Cleaner technologies and pollution prevention

are promising options to keep life cycle costs for

environmental infrastructure manageable. Some

pollution prevention approaches are very inexpensive, although requiring technical assistance

and training of personnel. In other cases, cleaner

technologies entail higher front end costs than

conventional equipment; however, they can be

more attractive than conventional options when

operating and maintenance costs are considered.

Technical assistance to provide reliable informaZ1 US. con~ms Office of TeclmoIogy Assessmen~ Development Assistance, Export Promotion, and Enw”ronmental Technology,

OTA-BP-ITE-1O7 (Washington, DC: U.S. Government Prinitng (Mce, August 1993).

22 Ibid.
Chapter 2–Issues and Options 61

tion about alternatives could be useful to developing country decisionmakers. U.S. firms and consultants are among the leaders in providing such

services.

The United States offers substantial assistance

to developing countries to enhance their environmental management capabilities.23 If Congress

wished to pursue more multilateral activities to

help develop information needed for environmentally and economically sound choices, the following options might be considered:

OPTION 16: Support establishment of a technical information program by an international

agency such as the United Nations Environment

Program, the United Nations Development Program, or the Global Environment Facility to

provide objective information and technical advice about environmental technologies to developing countries.

OPTION 17: Through multilateral channels,

support cleaner technology and pollution prevention services to developing countries in addition

to the existing USAID bilateral environmental

pollution prevention project.

BILATERAL ASSISTANCE AND

EXPORT PROMOTION

The United States Government now spends

about $650 million per year on environmental and

related energy aid to developing countries. U.S.

aid programs are not as overtly commercial as

some other countries’ programs are perceived to

be. Use of aid to support commercial transfer of

U.S. environmental technologies has been limited. However, some forms of assistance can

benefit a donor country’s commercial goals in

ways that are compatible with the development

aspirations of developing countries.

Some recently initiated public-private partnerships aim to involve U.S. industry in efforts by

developing countries to address environmental

problems. The United States-Asia Environmental

Partnership (US-AEP), launched in 1992, works

with U.S. agencies and firms to encourage use of

U.S. technologies and expertise in Asian country

environmental efforts. It is too soon to evaluate

US-AEP. If it succeeds, US-AEP’s regional

emphasis might be attempted in other promising

market areas. The U.S. Environmental Training

Institute (USETI), another recently launched

public-private partnership, brings business and

governmental decisionmakers to the United

States for training through which U.S. firms can

showcase their technologies.

Newly authorized programs, such as major new

environment and energy technology transfer programs called for in the 1992 Energy Policy Act,

emphasize an USAID role with the Department of

Energy in transferring technologies to developing

countries, in part because of the potential benefits

to U.S. firms and the U.S. economy. As indicated

in Option 18, Congress might consider fuller

funding for these programs.

Helping developing countries with capacity

building also can bring commercial benefits to

donors. Support for the development of central

laboratory facilities-equipment and training—

for the environment agencies of developing

countries could create preferences for U.S. standards, protocols, instruments, and other equipment. Such laboratories may set nationwide

standards for environmental monitoring that may

produce further orders for U.S. equipment from

private sector and State/provincial/municipal laboratories. 24

Technical training is another area where a

donor’s commercial interests and the recipient’s

developmental and environmental interests may

coincide. The United States has an advantage in

that many engineers in developing countries have

23 Ibid., pp. 58-61.

m J~pm for fi~ce,~~d~ me Enviro~en~ mgement Center for the Indonesian environmental agency. me Center ~clude$ a

central reference laboratory that will be outtltted with Japanese instruments. Some expect that provincial and private laboratories might adopt

similar Japanese instruments so that they will be compatible with the central government laboratory.
62 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

received university education here. programs like

USETI offer a way to expose developing country

officials in both the public and private sectors to

U.S. technology. However, there is also a need to

train developing country personnel who will

operate and maintain equipment and plants once

facilities are constructed. Support for operations

training could be an effective way to meet both

development assistance and export promotion

goals.

Grants to developing countries for project

feasibility studies conducted by U.S. firms is

another form of support; often, these studies lead

to subsequent purchase of technologies or products made in the United States. The U.S. Trade

and Development Agency (TDA) contends that

its feasibility study grant program generates over

$20 in U.S. sales for every Federal dollar spent.

Compared to some other countries, such as Japan

(over $200 million per year), funding for TDA is

low—about $40 million in fiscal year 1993; an

increase to $60 million has been proposed. Since

many TDA feasibility studies contain environmental components, such an increase would

likely encourage more environmental exports. In

its recent export promotion strategy, the Clinton

administration proposed consolidation of all Federal feasibility studies for major projects primarily intended to promote U.S. exports.25

Compared to some donors, the United States

provides little aid for capital projects—projects

that often involve internationally traded goods

and services. If undertaken in a developmentally

and environmentally sound way, funding capital

projects could create many commercial opportunities for U.S. firms. Some would contend that

such a change would ruin months to years of U.S.

efforts to encourage other donors to reduce their

use of mixed credits and other tied aid loans.

If Congress wishes to place more emphasis on

links between foreign aid and environmental

export promoting, it might consider several options:

OPTION 18: Fund provisions in the Energy

Policy Act of 1992 (Public Law 102-486) that call

on the Secretary of Energy, acting through

USAID or other Federal agencies, to encourage

transfer of environmentally preferable energy

technologies to developing countries. Three new

programs were authorized: an innovative environmental technology transfer program, a clean

coal technology transfer program, and a renewable energy technology transfer program. (The

authorized funding level for each of these programs

is $100 million per year through fiscal year 1998.)

Also fund the developing country training program

on renewable energy authorized by the law.

OPTION 19: Increase funding for the Trade

and Development Agency for project feasibility

studies.

OPTION 20: Encourage U.S. firms to provide

training of developing country personnel for use

of U.S. equipment and services. This might be

accomplished through TDA funds.

EXPORT PROMOTION POLICY AND STRATEGY

The Export Enhancement Act of 1992 gave

new emphasis to the need for better coordinated

Federal export promotion efforts, including those

pertinent to environmental exports. In addition,

several environmental export promotion bills had

been proposed in the 103d Congress.26

The Clinton administration’s initial export

promotion strategy, prepared in response to the

Export Enhancement Act by the Trade Promotion

Coordinating Committee (TPCC), was issued in

~ ‘Trade Romotion Cmrdinafig Committee, ~owarda~ationaz ~orr~rraregy (Washington, DC: U.S. Government mt@ Office, Sept.

30, 1993), p. x.

26 See, for e~ple, H.R. 2112, tie propos~ National Environmental Trade Development Act of 1993, as reported by the HOUX Merchant

Marine and Fisheries Committee on June 30, 1992; Hi?. 2096, to promote exports of environmental technology, goals, and semices; S. 979

the proposed Greentech Jobs Initiative Act of 1993; and S. 1074, the proposed National Environmental Trade Development Act of 1993.
Chapter 2–Issues and Options 63

September 1993.27 The Act also gave statutory

direction for an environmental trade working

group as part of the TPCC. The Department of

Commerce, the Department of Energy, EPA and

some other Federal agencies had just issued an

environmental export strategy when this report

went to press.

28 Congress could monitor its

priorities and implementation plans, including

mechanisms for private sector involvement and

priorities for the export potential of cleaner

technologies (Option 21).

Federal Agency Export Promotion Budget—

Several U.S. agencies and programs work to

promote U.S. exports. Five agencies, the Commerce Department, Eximbank, the Agriculture

Department, USAID, and the Small Business

Administration (SBA), account for 90 percent of

Federal outlays and most Federal field operations.29 Other agencies with important roles include TDA and the Overseas Private Investment

Corp. (OPIC). Numerous other agencies, including DOE and EPA, may have some involvement.

The Export Enhancement Act charged the

TPCC with proposing an “annual unified” Federal export promotion budget. In its initial year

under the new Act, the TPCC was unable to

accomplish this--deferring development of the

budget proposal to the fiscal year 1995 budget

process. A particularly thorny issue concerns

agriculture’s budget share: according to the U.S.

General Accounting Office, agriculture, in fiscal

year 1991, accounted for 10 percent of U.S.

exports, but 75 percent of the Federal export

promotion budget.

Private Sector Role--A key question in export

promotion generally, and in environmental exports specifically concerns the nature and degree

of private sector involvement strategy development and priority setting. Some contend that there

needs to be more private sector involvement in

developing an environmental export strategy, and

have proposed creation of a public private council

to prepare an action plan to implement the

strategy after it is accepted. The danger is, of

course, that such a plan would become a form of

special pleading by its private sector members.

However, some precedents already exist for

industry involvement in priority setting. One

example is the Committee on Renewable Energy

Commerce and Trade (CORECT) which could

become a model for other subsectors.

Financing-Inability to put together an acceptable financing package often limits U.S. fins’

ability to secure overseas projects. Moreover, the

U.S. Government has few funds available for

capital project financing in its aid program. Some

other exporting countries offer more accessible

and lower cost financial help to their firms in

exporting (see ch. 6). The U.S. Eximbank does

maintain a War Chest, but it is used defensively

to counter unfair financing packages put together

with support from other countries. Increased

funding for the War Chest was authorized by

Congress in 1992; it could be used to help U.S.

environmental firms with financing when faced

by a competitor with an unfair package. The War

Chest also might be used proactively, to help U.S.

firms finance projects that are more favorable

from an environmental standpoint that might not

otherwise be able to compete with lower cost,

environmentally less favorable projects.

Another approach would be to give special

priority to environmental projects by opening a

special window for environmental loans at closeto-market rates at the Eximbank or other financ17 Toward a National Export Straregy, op cit., fOomOte 25.

28 Ronald H. Brown, Hazel O’Leary, Carol Browner, Environmental Technologies Exports: Strategic Framework for U.S. Leadership,

November 1993.

19 Stataent of AlIan L. Mendelowitz, ‘ ‘Export Promotion: Initial Assessment of Governmenhvide Strategic PlarL” testimony before the

House Committee on Foreign Affairs Subcommittee on Economic Policy, Trade and Environmen~ September 29, 1993, U.S. General

Accounting Office, GAO/T’-GGD-93-48, p. 9.
64 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

ing institutions. These institutions are now expected to give special attention to projects that are

environmentally preferable.

Foreign Commercial Service Representation—

The United States & Foreign Commercial Service

(US&FCS), part of the Commerce Department,

maintains offices in this country and overseas. It

is understaffed relative to the commercial offices

of several competing countries. (See table 6-6 in

ch. 6.) Congress could consider increasing the

number of commercial officers. It also could

provide resources to improve the timeliness and

quality of commercial information from overseas

offices to U.S. fins. Such steps might help

increase U.S. exports of goods and services

generally, not just in the environmental arena.

In some countries, the few US&FCS officers

that are available must help sell a great range of

American products, from textiles to nuclear

power plants. It might help if some commercial

officers could specialize in specific industries,

such as environmental products where a potentially large market exists-a step authorized by

the Export Enhancement Act.30 While more officers could be assigned overseas, it might be

cheaper to employ local nationals or American’s

living overseas. While increasing environmental

officers would be useful in this sector, the more

general issue of staffing and resources for US&FCS

remains.

A more far-reaching approach would be to set

up American business centers in key market areas

to facilitate interactions between U.S. firms and

potential clients. An environmental trade measure

under consideration in the 103d Congress, H.R.

2112, proposes such an approach.

Information Clearinghouses and One-Stop

Shopping—Many U.S. companies (including small

and medium-sized enterprises) find it difficult to

make use of government export assistance programs. They may not know how to obtain

information about environmental opportunities in

other countries. An information clearinghouse

and a one-stop shopping process might help. Such

a process would allow a business to tap into all

U.S. export promotion and financing programs at

a single source. Small companies have special

difficulties financing market research in other

countries, especially when they are inexperienced

with exports.

Many potential exporters are unaware of existing Federal export support services. Better marketing of these services, such as the 1-800-USATRADE DOC Trade Information Center, US&FCS

regional offices, and the National Trade Data

Bank, through advertising in business and industry publications could heighten export awareness.

If Congress wishes to provide more emphasis

on environmental export promotion, it could

consider several steps:

OPTION 21: Conduct early oversight of the

administration’s environmental export strategy,

including mechanisms for private sector involvement in implementation, and the priority given to

export opportunities associated with cleaner technologies.

OPTION 22: Provide resources for US&FCS

to hire industry sector specialists, including

environmental industry specialists in key countries.

OPTION 23: Call for dissemination of evaluations of U.S. environmental technologies to

potential foreign customers (see also Option 8).

OPTION 24: Call for demonstration of onestop shopping approaches for export promotion,

using environmental technologies and services as

one area of emphasis. This activity would go

beyond the initial efforts by United States-Asia

Environmental Partnership and the Committee on

Renewable Energy Commerce and Trade to

consolidate application forms by providing a

range of services to small businesses with limited

export experience.

JO me US.&iafivfiowen~P~er5hiphas rWe@opened business ot%ces in a number of Asian capitals as a complement to US8CFCS

in promoting U.S. environmental business opportunities.
Chapter 2–Issues and Options 65

Congress also might direct Federal export

promotion programs to take steps to make U.S.

firms more aware of available services by advertising in business and industry publications,

increasing outreach to industry associations, chambers of commerce, and industry conferences, and

increasing support and collaboration with State

and local export promotion programs and World

Trade Center institutes.

A more far-reaching approach, proposed in

H.R. 2112 in the 103d Congress, would be to

encourage exports through a network of environmental business centers in the United States and

American business centers in countries with

promising environmental markets.

OPTION 25: Consider ways to expand export

financing while maintaining environmental safeguards. One possibility would be to offset extra

costs borne by U.S. firms in designing environmentally preferable projects when going up

against a project proposed by a foreign firm with

inadequate safeguards.

9 Issue Area E: International Trade and

Environmental Policy

The potential for conflict between environment

and trade objectives seems to be increasing.

Environmentalists contend that the environmental

implications of the Uruguay Round trade discussions at the General Agreement on Tariffs and

Trade (GATT) were overlooked by trade negotiators. Trade officials, for their part, are wary that

some measures ostensibly taken to protect the

environment could be used as means for trade

protection.

U.S. positions on trade and environment issues

will need to be developed for international

discussions over the next few years. Since 1990,

the Organization for Economic Cooperation and

Development (OECD) has been sponsoring member country discussions about possible trade and

environment guidelines. Both trade agencies and

the environmental agencies of member countries

(mostly, advanced industrial nations) are involved so that the discussions could lead to

greater integration. However, some disputes involve developing countries, which are not members of OECD.

GATT, long inactive on trade and environment

matters, has begun to review these questions from

the trade perspective. A working group is examining trade measures in international environmental

agreements, the trade transparency of national

environmental regulations, and the trade effects

of environmentally oriented packaging and labeling requirements. GATT groups have begun to

discuss possible ways to follow up on a recommendation from the United Nations Conference

on Environment and Development (UNCED) that

multilateral agencies work to make environment

and trade mutually supportable in the service of

sustainable development. While environmental

matters have not been addressed in the Uruguay

GATT Round, the possibility of addressing trade

and environment questions in a subsequent GATT

round has been raised by some trade officials.

An OTA background paper, Trade and Environment: Conflicts and Opportunities, discusses

some of the difficulties entailed in developing

U.S. positions during the initial period of the

OECD discussions.31 The complexity and difficulty of the subject matter, and the number of

agencies involved (the United States Trade Representative, the State Department, the Environmental Protection Agency, and several other

mission agencies) partly explained the slow

progress. More importantly, it was difficult to

articulate goals for U.S. negotiating positions,

since trade, economic, and environmental perspectives all need to be taken into account in

defining U.S. positions. Such differences in

perspective continue even when administrations

change. To assure adequate formulation of U.S.

S1 U.S. Con=ss, Office of Technology Assessment, Trade and Environment: Conflicts and Opportunities, OTA-Bp-~-94 (w~~gto~

DC: U.S. Government Printing OffIce, May 1992).
66 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Table 2-5-issue Area E. International Trade and Environmental Policy

Policy goals promoteda

a S+mall ($10 ~jllion or le~); M-moderate ($1 O to $100 million); l--large ($1 ~ million plus); a range inrJ@es that it depends on h~ the option

is implemented.

b y-y~; p-potentially yes; N-no; ?-effect Is un~ear

SOURCE: Office of Technology Assessment, 1993.

policy in this area, Congress may wish to conduct

oversight or provide guidance to the administration (Option 26 discussed at end of this section

and discussed in table 2-5).

NEGOTIATING ENVIRONMENTAL STANDARDS

Compared to many other countries, the United

States imposes relatively strong environmental

standards on industry. While there has long been

concern about possible competitive impacts of

such standards, much of the research conducted in

the 1970s and 1980s found only minor impacts.

However, recent efforts to liberalize trade and

investment rules, and the emergence of several

newly industrialized and advanced developing

countries as strong competitors, have again

brought attention to possible competitive impacts.

Environmental issues were central in the debate about the North American Free Trade

Agreement for Mexico, the United States and

Canada. Aside from the NAFTA itself, a side

agreement addressing environmental matters has

been negotiated. (Congress had just approved

NAFTA when this report went to press).

Environmental matters will almost certainly

arise if other efforts to liberalize trade are

undertaken in Latin America, the Asian Pacific

region, or elsewhere. With or without trade

liberalization, there is special concern about the

potential for competitive and investment impacts

for the United States when firms in other countries have lower labor costs as well as less strict

health, safety, and environmental standards or

enforcement.

Given this context, some have suggested that

the U.S. Government should do much more to
Chapter 2–Issues and Options ! 67

encourage other countries to upgrade their environmental standards as part of a strategy to

improve the environment, expand opportunities

for U.S. environmental firms, and avoid negative

competitive impacts for U.S. firms and workers.

(Option 27). Legislation to that effect has been

introduced in the 103d Congress.32

An aggressive effort to negotiate bilateral and

multilateral environmental agreements would be

a departure from policies in the 1980s, and would

require high level guidance and coordination.33

Such an effort would be controversial with

developing countries, and is not likely to succeed

unless accompanied by help for capacity building

and technical assistance. It might also be opposed

by those who see such efforts as steps toward

global bureaucracy. The strategy would be difficult to carry out without continuing, high level

commitment.

As discussed in Options 29-31, the potential for

adverse competitive impacts also might be reduced if there were more effective monitoring and

enforcement of agreements, if businesses were

encouraged to adhere to developed country standards throughout the world, and if other countries

took steps such as calling on business to report

their releases of toxic substances, as they are

required to do in this country.

The approaches set forth in Options 26-31

would be controversial, both here and in other

countries. Moreover, past efforts to adopt such

policies have had little success. Yet there could be

long-term benefits for the environment and quite

possibly, a more positive climate in this country

for trade liberalization with countries that now

have weaker environmental standards.

To some extent, officials in developing nations

may believe they are in a prisoners dilemma with

regard to environmental regulations. If one country raises standards, it risks losing out on investments by multinational corporations to neighbors

with lower standards. As a result, standards may

stay lower than they might be otherwise. If

companies applied high standards in their facilities around the world, concerns about competitive

disadvantage from strict regulation would be

eased. While some multinational companies (including a number of U.S. firms) say they do this

already, they may well be the exceptions.

Some might argue that there is no competitive

reason for such negotiations, because, they claim,

strict environmental regulations can lead to increased competitive advantage. Firms within

countries having strong regulatory demands on

industrial processes can find that aggressive

environmental actions, particularly pollution prevention, make them more competitive relative to

other domestic competitors. However, as a group,

firms within countries with strict regulations will

face higher compliance costs relative to foreign

competitors in countries with more lax standards

and enforcement. When waste disposal costs and

requirements are high, firms can sometimes save

money by controlling pollution and reducing

wastes. However, these actions are usually not

justified from an economic perspective alone

when waste disposal costs and requirements are

zero or minimal. Still, as has been mentioned,

32 see fOr ~xmple, H R 1830 the propos~ Global Environmental Cleanup Act and H.R. 1446, the proposed W’estem HernlsPhere . .

Envuonmental, Labor, and Agricultural Standards Act of 1993. Other approaches, such as treating the absence of strict standards as an unfair

trade practice for which countervailing duties might be imposed, have also been proposed. For discussion on how such approaches might be

viewed in the context of the GATT, see Trade and Environment: Conjlicts and Opportunities, op. cit., pp. 66-68.

33 It should& noted tit congress has required strategies in the past. Section811 of the 1990 Clean Air Act Amendments (p.L. 101-549)

required the President [o provide Congress with a strategy for addressing competitive impacts arising from differences in national standards

through ‘‘trade consultations and negotiations. ’ Although due in May 1992, the strategy had yet to be submitted in September, 1993. Section

6 of the 1972 Federal Water Pollution Control Amendments (P.L. 92-500) directed the President to negotiate international agreements to apply

uniform performance standards or uniform controls for some categories of pollutants in order to head off possible competitive impacts. Efforts

by the Carter administration in 1978 to raise pollution and workplace heatth standards in Tokyo Round GA’IT talks encountered strong

opposition from business and foreign countries. See H. Jeffrey Leonard, Are ErwironmentaI Regulations Driving U.S. Induso-y Overseas?

(WaWngtonj DC: The Conservation Foundation, 1984), pp. 8, 13.
68 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

strong domestic regulations are often a key factor

in competitiveness of environmental goods and

services industries.

Steps Congress could consider include:

OPTION 26: Conduct oversight on development of U.S. positions on trade and environment

matters. Several agencies (USTR, State, EPA,

etc.) have missions that relate to trade and

environment questions; efforts to use interagency

discussions to develop positions have been ineffective. Without high level guidance, informed by

other high level strategy documents (e.g., a

possible administration policy on international

environment, trade policy, etc.), it will be difficult

for the United States to present appropriate

positions at OECD, GAIT, and other forums.

OPTION 27: Call on the administration to

expand efforts to develop multilateral or bilateral

agreements on environmental standards, not just

for environmental reasons but also to offset

competitive impacts arising from different levels

of regulation. The U.S. Government could encourage other countries to strengthen their domestic environmental standards, and provide

technical assistance on how to implement and

enforce standards. Such discussions and activities

could be carried out in advance of any formal

discussions about trade liberalization. This approach would require close coordination among

agencies with roles to play in foreign assistance,

the environment, international trade, and export

financing and promotion.

OPTION 28: Increase emphasis in U.S. development assistance on technical assistance to

developing countries for implementing and enforcing environmental standards. (See additional

discussion under Issue Area D.)

OPTION 29: Work to develop more effective

monitoring and enforcement provisions for multilateral environmental agreements.

OPTION 30: Encourage establishment of a

global business charter under which participating

multinational companies agree to use home country standards when investing in other nations.

OPTION 31: Encourage other countries to

make use of reporting requirements (such as that

required for U.S. firms by the toxic release

inventory).

I Issue Area F: Data and Information

Needs for Policymaking

Data on commerce in environmental products

and services, and on costs borne by industry to

meet environmental standards are often poor,

often inconsistent, and frequently not available.

The economic consequences of pollution are even

less well-documented, though they are real nonetheless.

Trade and production figures collected by the

Department of Commerce and foreign equivalents often do not correspond closely to many

categories of environmental products. In many

cases the distinction between an environmental

and nonenvironmental good is difficult to discern--

a blower, pump, or measuring instrument may be

used in environmental equipment or not—and

discruminating between the two types of goods is

likely to become more difficult as pollution

prevention approaches become more widely used.

However, better data gathering is possible. For

instance, since 1971 the U.S. Bureau of Census

has been collecting yearly data on orders and

shipments of selected industrial air pollution

control equipment—yet such data series seem not

to have been collected for industrial wastewater

and waste treatment equipment. Another example

comes from the Japan Society of Industrial

Machinery Manufacturers, which publishes data

on orders for environmental equipment categorized by media (air, water, waste, noise, and

vibration) and by user (manufacturing, nonmanufacturing industry, government, and export).

OPTION 32: Improve the collection and analysis of commercially relevant environmental data

including production and trade of environmental

goods and services, environmental compliance

costs for businesses, and economic costs of

pollution and environmental degradation. Such
Chapter 2—Issues and Options ! 69

Table 2-6--issue Area F. Data Needs for Policy Making

c

o

Policy goals promotedb

32 Direct pertinent agencies to:

● collect and analyze more commercially relevant data on trade and

environmental goods and services s N 7 Y Y

● facilitate flow of commercial information to companies M P Y Y Y

. verify and assess ways to improve pollution abatement cost data s N P N N

. identify and quantify benefits of regulations through study M N ? ? 7

33 Call for periodic assessment of competitive effects of differing levels of

environmental regulations among countries, and for development of

strategies to address any adverse effects s N Y P P

a S+ma]l($10 million or le~~); M=m~erate ($10 t. $100 milllon); L-large ($100 million plIJs); a range indicates that it depends on how the option

is implemented.

b y=ye~; p=potentially yes; N=no; ?-effect is unclear

SOURCE: Office of Technology Assessment, 1993.

efforts could be coordinated with the OECD and

perhaps the UN Statistical Office. As part of this,

Congress would:

Support a small effort at the Census Bureau to

verify accuracy of the Pollution Abatement and

Control Expenditure Data and to determine

ways to improve the data. Support a small effort

at the International Trade Commission or the

Department of Commerce to improve data and

reporting of environmental products and services trade.

Fund a reasonably large scale study to more

carefully identify and quantify the benefits of

environmental regulations. Ensure that the

findings can be readily incorporated into economic models measuring the impact of regulations on the economy.

OPTION 33: Call for periodic reassessment of

the competitive impacts of different levels of

environmental standards among different countries. The research could focus on comparison of

relative strictness of pollution control and waste

treatment actions required of industries in other

countries, and identification of competitive effects for business operations in the United States.

These options are listed in table 2-6.
—

Context and

Conceptual

Framework 3

N

ew questions have emerged in the debate about environmental concerns and industrial competitiveness that

suggest a need to re-ex amine traditional views. Will

environmental concerns in time fundamentally alter the

way in which business is done? Will concepts like sustainable

development come to have a major influence on the way in which

development decisions are made? To what extent will environmental needs influence the dynamics of the market? What are the

risks for companies—and countries-that fail to accurately

gauge the dynamics of this market? What impact will more

stringent environmental regulations have for manufacturing

industry competitiveness, especially for countries with stronger

regulations than their competitors? What, if anything, needs to be

done to address the linkages between environmental policy and

competitiveness? And what implications do such issues have for

jobs and employment? Such questions, while not lending

themselves to hard and fast answers, will need to be addressed in

the competitive strategies of companies and countries; just as

surely, the competitive impacts and commercial implications of

environmental policy choices will confront policy makers more

and more.

This chapter begins with a discussion of global environmental

trends and the likely implications of these trends for both the

environmental goods and services industry, and for manufacturing firms generally. A conceptual framework depicting the

relationship between environmental and economic factors illustrates the growing importance of environmental considerations

in business. This is followed by presentation of a classification

of the environmental goods and services industry (specific cases

are taken up in detail in ch. 5). The next section explores

relationships between environmental issues and economic com- 71
72 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Finding ways to boost living standards for the world’s

poor while avoiding environmental damage is a

critical challenge for sustainable development.

petitiveness. OTA has focused on environment

and competitiveness in manufacturing, drawing

on examples (discussed in subsequent chapters)

from such sectors as chemicals, pulp and paper,

and metals finishing. The interactions between

environmental regulations and competitiveness

could be quite different if other sectors—

agriculture and forestry, extractive industries

(e.g., mining, energy extraction)--were considered.1 The concluding section reviews the linkage

between environmental and industrial policies.

GLOBAL ENVIRONMENTAL TRENDS

Making economic development and environmental protection more compatible will be a

critical challenge for a human population likely to

more than double in the next 100 years. Findings

from the World Commission on Environment and

Development (the Bruntdland Commission), the

1992 United Nations Conference on Environment

and Development, and a host of reports emanating

from such bodies as the World Bank, the Organization for Economic Cooperation and Development, and the Business Council for Sustainable

Development, have warned that a continuation of

current patterns of economic growth could result

in levels of environmental degradation severe

enough to jeopardize the ability of future generations to meet basic needs.

Global environmental problems, including loss

of biodiversity, climate change, and stratospheric

ozone depletion, have become increasingly important. Problems of air and water pollution and

toxic waste disposal are common in all industrialized nations. In developing nations, millions lack

access to sanitation services and safe drinking

water, while dust and soot in air contribute to

hundreds of thousands of deaths each year.2

Moreover, serious damage from pollution and

overuse of renewable resources challenge world

fisheries, agriculture, and forests, with significant

adverse effects for productivity and biological

diversity.

At the same time, an improved standard of

living is a critical need for a substantial portion of

the world’s population. As a result, the key issue

is not whether there should be additional growth,

but rather how to achieve it without thwarting

important social, economic, and environmental

goals.3

The relation between environmental damage

and economic growth is complex. Pollution and

environmental damage are a result of the size of

the population, per capita income levels, and the

amount of environmental damage associated with

each unit of gross domestic product (which

depends on the level of emissions of the production technology itself and the level of pollution

treatment and control).

Population growth and per capita income

growth will put new strains on the global environment. In 1960, the world’s population was about

1 OTA is currently conducting a study of agriculture, trade and the environment scheduled for completion in late 1994.

z For discussion, see U.S. Congress, Office of Technology Assessment Development Assistance, Export Promotion, and Environmental

Technology, OTA-BP-ITE-1O7 (Washington DC: U.S. Government printing Office. August 1993).

3 World Resources Institute, in collaboration with the United Nations Environment Rogramme and the United Nations Development

Programme, World Resources, 1992-1993: A Guide to the Global Environment (New York, NY: Oxford University Press, 1992).
Chapter 3-Context and Conceptual Framework 73

3 billion; today, it stands at 5.3 billion and,

according to the World Bank, could grow to

roughly 9 billion-a 70 percent increase by 2030

under a midrange forecast. Moreover, global per

capita incomes are estimated to increase by over

80 percent between 1990 and 2030, and developing country per capita incomes may grow by 140

percent. 4 As a result, by 2030, world economic

output could, by one projection, grow to as much

as $69 trillion, 3.5 times more than presents If

pollution rose in step with this projected development, according to the World Bank, the result

would be appalling environmental and human

costs, Figure 3-1 projects the increase in production of key materials that would be needed if all

of the world’s current population were to enjoy a

per capita consumption level equivalent to that in

the United States.

Since continued population growth seems likely

and since income growth for a substantial fraction

of the world’s population is essential, reducing

the amount of environmental damage for each

added unit of world product (or, as one analyst put

it, per unit of human advance6) will be crucial. In

fact, to simply hold steady at the current level of

environmental damage, significant reductions in

damage intensity will be needed. Some of this

may occur if the expected growth in the developing nations is less materials-intensive and polluting than current economic activity in developed

nations. Even given differences in types of

growth, however, economic activity overall will

have to become less environmentally damaging if

we are to hold constant or have only small

increases in total environmental damage.

Figure 3-l-World Production of Materials Needed

To Match U.S. Per Capita Consumption

Mllllon metric tons

‘“”T ‘-’–---’------”

5001

I

4oo -

2ooj

I

100

0

II

----1 m 1990 world production 1 ~ Production at U.S. rate

~

Plastlc Aluminum Copper Potash Synthetic Nitrogen

fibers

SOURCE: U.S. Bureau of Mines

The intensity of damage could be reduced

through existing technologies and approaches

that use resources more efficiently (e.g., energy

conservation, recycling and reuse of materials and

products, and more efficient operation of existing

industrial equipment).7 Technological evolution

often results in new generations of technology

that use materials or energy more efficiently than

their predecessors (see table 3-l). One study

concluded:

In a surprising number of cases, the technologies

that lead to increased material-efficiency and

reduced emissions are also the most economically

efficient. The somewhat ironic effect is that a

robust and competitive economy encouraging

new investment in plant and equipment can lead

to a decline, instead of an increase, in the

deleterious environmental and health effects of

economic activity.8

4 Calculated from data contained in the World Ba& World Deveiopmenr Report, 1992 (Washington DC: World Banlq 1993).

5 Ibid., p. 32.

6 See Robert S. McNamara, ‘A Global Population Policy to Advance Human Development in the 21 st Century, ’ Rafael M. Saks Memorial

I.ecture, United Nations, New York, Dec. 10, 1991.

7 See U.S. Congress, Office of Technology Assessment, Green Products by Design, OTA-E-541 (Washington, DC: U.S. Government

Printing Office, October 1992).

g Hen~ C, Kelly, Peter D. Blair, and John H. Gibbons, “Energy Use and Productivity: Current Trends and Policy Implications,’ Annual

Review of Energy, Jack M. Hollander, cd., vol. 14, 1989, p. 333.
74 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Table 3-1—ExampIes of Technological Evolution Leading to More Efficient

Use of Energy and Materials

Lumber mills

Pulp and paper mills

Paints and coatings

Polyethylene production

Steelmaking

Computerized process

controls

Fiber optics

Computer-assisted selection of saw lines during milling can increase lumber

yields by 20 percent, permit sawing to higher grades, and reduce round

wood requirements.

Press drying technology can increase burst and tensile strength needed in

some applications, while saving 20 percent on energy. Extended rooking

and ozone delignification of pulp can significantly reduce bleaching needed,

lowering organo-chlorine emissions, including dioxin.

Higher solid content paint can cover more space with less volatile organic

compound emissions than conventional paints, while water-based coatings

can eliminate VOC emissions.

Low pressure polyethylene production saves energy and avoids use of

solvents and minimizes costly separation steps relative to high pressure

methods.

Basic oxygen furnaces and increased use of electric furnaces in mini-mills

reduce pollutants compared to open hearth furnace steelmaking. Continuous and thin slab casting reduces energy use through increased yields. The

development and introduction of cokeless steelmaking offers potentially

greater reductions in pollution.

Applied to a variety of manufacturing processes, better controls increase

efficiencies and overall yields.

Optical cables use far less material than copper cables per unit of

communication. Furthermore, environmental damage from copper mining

and smelting can be avoided.

SOURCE: Office of Technology Assessment, 1993.

Of course, this is no hard and fast rule. Many

technological innovations have greater impacts

on the environment than the systems they replaced.

With stepped up efforts, cleaner manufacturing

processes and technologies that produce fewer

emissions and are more efficient from a materials

and energy standpoint may become available

sooner. Also, environmental matters are being

addressed earlier in the design of products.9 (See

box 3-A). Reducing the use and emissions of

toxic chemicals will have to be a special focus of

such technology developments, since toxic chemical emissions tend to increase with greater

national per capita income.10

Finally, environmental health depends not only

on new and more efficient production processes,

but also on the degree to which residual pollution

is controlled. Countries that are members of the

Organization for Economic Cooperation and Development (OECD) have spent, on average,

between 0.8 and 1.5 percent of Gross National

Product (GNP) on environmental improvement

over the last 20 years. Developing nations have

invested much less in pollution control and

abatement. If environmental problems are to be

reduced, these nations will have to increase such

expenditures. As developing country per capita

incomes grow, they will be better able to afford

such investments.

9 Green Products by Design, op. cit., foomote 6, discusses the potential to use the design process to address environmental concerns.

10 David ~ee]er, f~hgs from tie World Industrial Pollution Project, Environment Department, World Batdc, WaSh@tOU DC, 1992.
Chapter 3--Context and Conceptual Framework 75

Box 3-A—Environmental Design and Manufacturing Competitiveness

An estimated 70 percent or more of the cost of a product’s development, manufacturing, and use

are determined during the initial design stage.1 The environmental attributes of a product also are largely

set in t he design stage through choice of materials, and consideration given to such factors as product

reuse, recycling, and disposal, energy requirements, and pollution emitted. Product design also

infIuences production processes and associated wastes and emissions. In turn, process modifications

often entail changes both in products used by the process and the end product itself. For instance, the

process of reducing volatile organic compounds (VOCs) in parts painting may require low emissions

painting booths, paint applicators, and new paint formulations. OTA has found that “green design is

likely to have its largest impact in the context of changing the overall systems in which products are

manufactured, used, and disposed, rather than in changing the composition of products per se.”2

In many manufacturing industries, success in integrating environmental performance into product

and process design is becoming more important to competitive outcomes. Many products already are

regulated or labeled by environmental characteristics that may prompt process changes or alter product

markets. For instance, in the United States and an increasing number of other countries, air pollution

standards for automobiles have led to changes in vehicle design and introduction of catalytic converters.

Petroleum refiners in turn have had to modify their processes to produce unleaded gasoline and low

sulfur motor fuels. In many countries, various pesticides and toxic chemicals are restricted and in some

cases banned. Chloroflorocarbons (CFCs) are being phased out globally. In Germany, packaging

design is influenced by legal requirements for manufacturers and distributors to collect packaging for

recycling. Germany may later extend recycling requirements to durable goods as well. Eco-labels in

1 AS Cited in U.S. Congress, Office of Technology Assessment, Green Products by Design: ChOiCOS for a

Cleaner Hwkonment, OTA-E-541 (Washington, DC: US. Government Printing Office, October 1992), p. 3.

z Ibid., p. 9.

(continued on nexf page)

A FRAMEWORK FOR CLASSIFYING 3) they result in fewer emissions of harmful

ENVIRONMENTAL ACTIVITIES

The definition of environmental activity has

become more and more vague as concern for the

environment has developed, Environmental issues cover matters as diverse as energy conservation, control of pollution from factories, development of renewable energy sources, tropical rain

forests and endangered species, preservation,

reduced use of toxic chemicals, and recycling

household solid waste. Environmentally preferable activities differ from less preferable activities

in one or more of the following ways:

1) they often use less energy or material;

2) they have less impact on natural systems,

the land, or communities; and

pollutants or wastes (including toxic or

hazardous waste).

Each stage in a product’s life cycle (including

materials extraction, processing, manufacturing,

product use, and, finally, disposal) may need to be

examined to determine its environmental implications. As a result, as global environmental problems have grown, there has been an unprecedented interest in the commercial implications of

environmental policies.

The sheer scope of environmental activities

makes it necessary to develop a framework to

classify activities and undertake analysis. Table

3-2 provides one framework, and also delineates

the scope of activities this report will examine.
76 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Box 3-A—Environmental Design and Manufacturing Competitiveness-Continued

Canada, Germany, Japan, and the Nordic countries as well as those being developed by the European

Community and two private U.S. organizations may potentially affect market shares earned by

manufacturers. At times environmental product standards have become the subject of international

trade disputes as in a European Court case involving a 1981 Danish regulation on reuse of beverage

containers. 3 With direct regulation of products, even the cleanest and lowest cost production process

may be insufficient for gaining markets if the product itself fails to meet standards.

As for industrial processes, environmental regulations can increase demand for conventional

pollution control equipment and cleaner production processes and reduce demand for technology that

is less preferable environmentally. The phase-out of CFCs and other ozone depleting substances

affects the manufacturers of those chemicals and their substitutes and the design of manufacturing

processes and capital goods. For instance, markets are developing for new machines to clean metal

and electronic parts that use alternatives to CFCs. Designers increasingly need to come up with process

innovations to deal with new regulations limiting VOC emissions. In addition to paint and painting

equipment, cleaning machines are being developed that recover VOCs or use alternative solvents.

Cleaner burners, ultrafiltration devices, and new catalysts are among other examples of industrial

products being developed to meet new environmental regulations.

The links between environmental performance, materials use, industrial processes, and product

design extend vertically among suppliers and customers as well as horizontally across a sector’s firms.

In some cases, industry consortia or other cooperative mechanisms might help overcome environmental challenges in manufacturing. Such consortia could benefit regulated industries through the

development of cleaner processes that allow lower cost environmental compliance and even cost

savings or product improvement. Suppliers to those industries would benefit through the development

of new product lines that can be sold domestically and abroad as environmental regulation and

enforcement tightened. Furthermore, supplier firms depend on the competitiveness of their customers

for their own survival and prosperity.

s U.S. Congress, Office of Technology Assessment, Trade and Environment: Conflicts and @/WfUnifies,

OTA-BP-ITE-94 (Washington, DC: U.S. Government Printing Offioe, May 1992), p. 89-90.

The first dimension for classifying economic reduce volatile organic compound (VOC) emisactivities is the degree to which environmental sions but also to save money). Hence, it is often

concerns spur the undertaking of a given eco- difficult to know the degree to which environnomic activity or purchase.11 The importance of mental factors or other concerns, such as cost,

environmental considerations among rationales energy use, performance, and quality, are refor undertaking an activity ranges from minimal fleeted in choices of economic activities. The line

or none (e.g., conventional mining of materials) to between what is and is not an environmental

almost 100 percent (e.g., installation of advanced activity is fuzzy and can change over time.

wastewater treatment systems or scrubbers), to However, it is important to note that the environany possible range in between (e.g., firms may ment industry consists of not just those activities

invest in solvent recovery systems not only to that are undertaken almost solely for environI I ~sshould not & Confused with tie environmental impact of the activity, which may or may nOt be relakd tO the fipOflanCe of

environmental considerations in undertaking the activity or making the purchase.
Chapter 3-Context and Conceptual Framework 77

Table 3-2—A Framework for Classifying Economic Actions by Primacy of Environmental Motive

Environment is prime motivation

for undertaking activity or developing/buying product

Cell A

Resource Biodegradable oil drilling fluids

management and Turtle exclusion devices

extraction Wetlands restoration

Abandoned mine reclamation

Oil spill cleanup

Cell D

Manufacturing/ Pollution prevention:

commercial Desulfurized diesel fuel

activities Chlorine free pulp production

Non-CFC solvents

End-of-pipe:

incinerators

Waste water treatment

Catalytic reduction of NOX

flue-gas desulfurization

Consumer

products

Ceil G

Reformulated gasoline

Zero or ultra low emission cars

Paper with recycled content

Low mercury/lead batteries

Phosphate-free detergents

Environment is one motivation

among several for undertaking

activity or developing/buying

product

Cell B

Integrated pest management

Drip irrigation

Eco-tourism

Cell E

Recycling facility

HVLP paint applicators

Solvent recovery equipment

No-clean solder techniques

industrial controls

Efficient catalytic reactors

Redesigned pulp digesters

Solar cells

High efficiency gas turbines

Cell H

Fuel-efficient automobiles

Energy-efficient appliances

Minimal packaging

Residential energy controls

Environment is not a motivation

for undertaking activity or developing/buying product

Cell C

Unrestricted logging

Strip mining

Drift net fishing

Cell F

Bleached-kraft pulp processes

Organic solvent decreasing

Mercury cell chloralkali production

Conventional circuit board

manufacturing

Open hearth and basic oxygen

steelmaking

Cell I

Leaded gasoline

Many disposable products

Many household cleaners

Leaded paints

SOURCE: Office of Technology Assessment, 1993.

mental reasons (cells A, D, and G, table 3-2) but

increasingly of activities that are strongly influenced by environmental factors (cells B, E, and H,

table 3-2).

Activities can also be differentiated by their

place in the product cycle.12 Environmental

considerations underlie the development of the

features of some products (cell G, table 3-2).

Other products, such as high-mileage autos,

which are partly driven by environmental concerns and partly by economic concerns, might or

might not be considered an environmental product (cell H, table 3-2). Both areas will have

potentially significant economic implications either as regulation drives product choices or as

consumers include environmental factors in their

purchasing decisions. How corporate management responds to such new demands may be a

critical factor in determining competitiveness.

A second area concerns resource management

and extraction (cells A, B, and C, table 3-2). Land

and waterway use, preservation of natural areas

such as wetlands, agricultural chemical use and

farming practices, sustained yield forest management, depletion of nonrenewable resources, wildlife preservation, and a host of other issues affect

12 See OTA, Green Products by Design, op. cit., foomote 6
78 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Research is underway to develop advanced

steelmaking processes that could lower environmental

imports. This pilot scale research smelter near

Pittsburgh, PA to test direct steelmaking is conducted

jointly by the American Iron and Steel Institute and

the U.S. Department of Energy.

resource management. For people involved in

fisheries, farming, mining, quarrying, and oil and

gas exploration, such issues are likely to become

more central to their economic well-being.

Third is the processing of materials and the

production of goods and services (cells G, H, and

I). This includes materials used in production,

energy generation, and production equipment, as

well as end-of-pipe treatment equipment used by

industry. Also included are public or private

water, sewer, and solid waste utilities. This

framework allows for a definition that goes

beyond the conventional environmental goods

and services (EGS) industry, to include production technologies that inflict less environmental

damage than conventional production equipment

(cell D, table 3-2). For example, solvent recovery

equipment, no-clean soldering equipment, and

low-VOC paints would all be part of the EGS

industry under this framework, since their development and use is driven largely by environmental considerations (cell E, table 3-2). Similarly, some alternative energy technologies, such

as solar cells and wind turbines, would fit here.

As defined here, the environmental industry

includes firms that develop and provide products,

equipment, or services that have as a primary or

significant secondary benefit the improvement of

the environment. (Those firms providing consumer products said to be environmentally preferable are not discussed in detail in this report.)

Because manufacturers often need to improve the

environmental performance of their production

process, they are often the principal consumers of

these goods and services. Environmental firms

often are themselves manufacturing fins. Also,

traditional manufacturers may develop and market products that improve the environmental

performance of their own and others’ manufacturing processes. To the extent that the EGS industry

develops processes that lower the cost and raise

the effectiveness of environmental goods and

services, then U.S. industry as a whole will

benefit. Conversely, to the extent that U.S.

industry continues to prosper, it can serve as a

major market for domestic EGS firms.

This report focuses in large part on the activities taking place in cells D and E, activities related

to the production process and being driven to a

large or moderate degree by environmental factors. However, it is important to note that the line

between areas is not immovable.

It maybe that the preferable actions are indeed

those in the middle cells where both environmental and other factors motivate action. Many

pollution prevention activities, which are often

preferable to end-of-pipe solutions, fall into this

cell. Moreover, because other factors, such as

cost, quality, and reliability, are more likely to

enter decisionmaking for activities in these middle cells, widespread adoption of these activities

is more likely than for those activities executed

solely for environmental reasons.

The chapters on competitiveness emphasize

manufacturing, as opposed to other sectors, for

several reasons. First, concern about U.S. manufacturing competitiveness has assumed center
Chapter 3-Context and Conceptual Framework ! 79

stage in the debate about U.S. economic competitiveness. 13 Second, manufacturing accounts for a

disproportionate amount of pollution relative to

its share of total economic activity (see figure

3-2). For example, while manufacturing represents approximately one-third of GNP in OECD

nations, it accounts for 60 percent of biological

oxygen demand in water and 75 percent of

noninert waste.14 Third, along with electric utilities and mining, manufacturing bears a major

portion of environmental compliance costs. (see

ch. 7).

As economic activity influenced by environmental factors (cells A, D, and G) becomes

increasingly important in solving environmental

problems, it is important to note that not all

environmental problems have the same worldwide consequences. Some such problems (ozone

depletion is perhaps the most conspicuous example) are global: activity in one location can affect

the Earth’s environment as a whole. Other problems, while not necessarily global, have effects

that cross national borders (e.g., sulfur dioxide

emissions in one country contributing to acid rain

in another). Finally, some problems have principally local effects, although, the line between

local and nonlocal effects is arbitrary. Locally

used toxic substances can be transported far from

their points of origin. For example, pesticides,

polychlorinated biphenyls (PCBs), lead, and dioxins are found in Arctic regions, far from their

points of release.15

THE ENVIRONMENTAL GOODS AND

SERVICES INDUSTRY

The issues discussed in this chapter illustrate

the competitiveness context that affects both

industries that supply environmental goods and

services and those that use such products. The

Figure 3-2—Manufacturing’s Share of

Water

use

N O ,

‘/o GDP

Energy

SO*

Greenhouse

gases

BOD

Non Inert

wastes

TOXIC

emlsslons

to water

Pollution in OECD Countries

Percent of total

D“- t-----------m

H

L–-..--–—-——— -!

t 1

-—.—

–i 1- ——.. —.———

0 20 40 60 80 100

SOURCE: Organisation for Economic Cooperation and Development,

1991.

perspectives and interests of environmental product suppliers and users can be quite different,

although some firms fill both roles.

As discussed in chapter 4, a large industry

amounting to $200 billion or more annually

worldwide has developed to provide goods and

services for the end-of-pipe control, treatment,

disposal, and remediation of pollution and environmental damage. If business opportunities for

pollution prevention or cleaner production were

also included-but the size of such markets is

very difficult to estimate-a still larger market

would be apparent.

Not all environmental expenditures translate to

spending in the environmental goods and services

industry. For instance, many industrial firms have

substantial internal environmental activities that

only partially correspond to purchases of goods

and services from outside source. There are,

however, companies that have used their accumu-

] J U,S, conge~~, office of Tec~ol~= A~~e~~ment, M&ing Thing~Eetter: competing in ~onufactu~”ng, OTA-ITE-443 (waShiIlgt04 ~:

U.S. Government Printing Office, February 1990).

1A Orgmlsation for &onomicCooperation and Development, The S~are of rhe Environment (pariS: OE~,1991).

15 Curtis C. Travis and Sheri T. Hester, ‘‘Global Chemical Pollution,’ Environmental Science & Technology, vol. 25, No. 5, May 1991, pp.

814-819. Travis and Hester refer to E. Dewailly et al., Bulletin of Environmental Contamination and Toxicology, vol. 43, 1989, pp. 641-646.
80 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

lated internal expertise to establish environmental

business units.

Although some may view the environmental

industry as limited to firms that provide end-ofpipe and remediation equipment and services,

many of the most significant opportunities for

improving the environmental performance of

industrial production lie in the realm of pollution

prevention, cleaner production, and improved

energy efficiency. Such business opportunities

are expanding as enterprises seek to improve their

environmental performance under pressure from

regulators, public opinion, and, in some cases,

investors and corporate leaders. This report therefore defines the environmental industry to include

pollution prevention goods and services.

By these criteria, products such as advanced

gas turbines could be viewed as environmental

products. While such turbines offer cost and

technical advantages over other power-generating

technologies, a significant part of their appeal

derives from less complex siting and permitting

that accompanies their cleaner performance and

lower pollution abatement costs relative to other

technologies (e.g., coal-fired steam turbines).

Likewise, while industrial controls technologies

can improve industrial productivity and product

quality, diminished pollution can influence a

company’s decision to install or upgrade automated monitoring and control equipment.

Competitiveness in the remedial or end-of-pipe

pollution abatement industry is affected by the

state of cleaner production and pollution prevention technologies. Over time, as pollution prevention becomes more widely practiced, some pollution control technologies could be obviated by

pollution prevention technologies. Whether or

not this occurs, the interplay of pollution prevention and pollution control is important to the

developers and vendors of environmental technologies and to policymakers concerned with

competitiveness in the environmental industry.

Box 3-B illustrates how pollution prevention and

control businesses can interact.

There are other pertinent dimensions beyond

the distinction between end-of-pipe and pollution

prevention to an assessment of environmental

industry competitiveness. One is the distinction

between technologies and industries for which

there are already large markets and those that are

now precompetitive or niche-competitive but

offer very large potential markets in the future.

Competitiveness policies may differ depending

on whether a U.S. industry is fighting to gain or

defend a share in an existing market or whether it

is competing for prospective markets where

major benefits may accrue to early entrants.16 In

some cases, such a market is likely, but the

technology is not yet cost-effective (e.g., utilityscale photovoltaic cells). In other cases, the

technology is already well understood but a large

market has not developed because few countries

currently require the technology (e.g., tertiary

wastewater treatment).

The pace and characteristics of technological

change also affect environmental industry competitiveness. In some cases, technologies are

mature and now enjoy a substantial market (e.g.,

secondary wastewater treatment). In other cases,

incremental improvements in the cost and performance of existing technologies might open up

a large market (e.g., wind turbines). In still other

cases, the industry is likely to be subject to radical

innovations because of rapid changes in fundamental understanding and competition among

rival technological approaches. This category

includes bioremediation, photovoltaic cells, and

advanced coatings that can obviate existing

dirtier processes.

Examples of how a variety of environmental

technologies fall into the categories of end-ofpipe versus pollution prevention and relatively

mature versus relatively dynamic technological

trajectories appear in table 3-3.

16 See W. Brian Arthur, “Positive Feedbacks in the Economy,” Scientl~c American, vol. 262, No. 2, February 1990, pp. 92-99 for a

discussion of how early entrants can gain enduring benefits from introduction of new technologies.
Box 3-B—interaction Between Pollution Prevention and Pollution Controlf

An example of how a technology not usually considered to be within the environmental industry can

emerge as an environmental business opportunity at the expense of traditional disposal and control

industries is provided by a recent demonstration project sponsored by the Illinois Hazardous Waste

Research and information Center and the U.S. Environmental Protection Agency (EPA) under the Clean

Technology Demonstration Program.

Steel delivered to the R.B. White, Inc. plant, a steel-shelving manufacturer in Illinois, must have

oil-based rust inhibitors, coolants, and lubricants removed in a decreasing bath prior to painting.

Phosphating reagents are present in the bath to promote paint adhesion and corrosion resistance of the

steel. The company used to dump its phosphating/degreasing bath periodically as oil built up in the bath

and compromised product quality. This process generated about 15,000 gallons a year of hazardous

waste that cost the company about $1 per gallon, or $15,000 a year, for hauling and incineration in a

cement kiln.

After bench and pilot scale demonstrations, the R.B. White plant installed an ultrafiltration system

from Koch Membrane Systems to remove oils from the phosphating/decreasing bath and greatly extend

bath life. Koch makes membrane-based filtration systems for pollution control and prevention and

in-process materials filtration. Ultrafiltration is normally used in a number of industrial processes,

including the concentration of milk and fruit juices. For R.B. White, ultrafiltration lowered the volume of

hazardous waste by over 99 percent, to about 30 gallons a year and greatly reduced disposal costs.

From the perspective of R.B. White, ultrafiltration was a cost-effective process technology that paid for

itself in under 7 months, For Koch Membrane Systems and other manufacturers of ultrafiltration

products, the environmental problems of the metal finishing industry offer new market opportunities. But

for the environmental companies that haul and treat R.B. White’s wastes, ultrafiltration means lost

business.1

1 This discussion draws extensively from Gary D. Miller etal., ‘

(Evaluation of Ultrafiltration to Remove Oil and

Recover Aqueous Iron Phosphating/Degreasing Bath,” draft, Hazardous Waste Research and Information Center,

Champaign, IL, and Tim Lindsey, Hazardous Waste Research and Information Center, personal communication,

Jan. 11, 1993.

THE ENVIRONMENT AND

COMPETITIVENESS CONTEXT:

THE CASE OF MANUFACTURING

There have long been differing views about the

environment and manufacturing industry competitiveness. One view is that pollution and waste

control regulations (by imposing costs on companies, diverting scarce resources to purposes distant from a company’s strategy, etc. ) are a dragon

competitiveness. While few analyses put such

regulations at the top of those factors affecting

U.S. industrial competitiveness, compliance can

be expensive. For U.S. manufacturing in 1991,

pollution control and abatement compliance costs

accounted for 1.72 percent of value added. Some

industries, such as chemicals, spend a high

portion (13 percent or more) of their capital

budgets on environmental protection. As detailed

in chapter 7, money and resources (including

management time) devoted to environmental

compliance are money and time not spent on

concerns more central to a firm’s mission. Moreover, if foreign manufacturers face fewer constraints, they may gain a competitive advantage.

A contrary view is that pollution and waste

requirements (at least if properly structured and

implemented) could spur competitiveness by

prompting technological innovation, encouraging

companies to make more efficient use of energy
82 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Table 3-3-A Framework for Categorizing Environmental Technologies*

Examples of

end-of-pipe/

remedial

treatment

technologies

Pollution

prevention

and

cleaner

technologies

Incrementala Dynamic b

Primary/secondary sewage Hazardous waste remediation

treatment (e.g., bioremediation)

Catalytic converters Emissions monitoring

Flue-gas desulfurization Advanced vapor recovery

Tertiary sewage treatment (e.g., membranes)

C02 recovery

Incrementala

Dynamicb

Fuel oil desulfurization Industrial monitoring and Controlsc

Cogeneration c

CFC substitutes

Advanced gas turbinesc

Advanced Coatingsc (e.g., vapor

Low VOC Coatingc (e.g., UV curing) deposition)

No chlorine paper production Biocatalysis c

Wind turbines Photovoltaics

Fuel cellsc

a incremental ~ean~ fundamental technol~icai Changes are not expect~, progress wiii come Iargeiy through

innovation based on existing technology.

b Dynamic means that significant technological evoiution is expected as fundamental scientific understanding

changes.

C Th= twhno@ies offer ~Omk ort~ni~i advantages in some instan~ in addition totheirenvironmentai attributes.

● The examples offered are illustrations rather than specific sectors examined in this assessment. The distinctions

between the different categories, particularly concerning projected technological change, are necessarily judgmental.

SOURCE: Office of Technology Assessment, 1993.

and materials, and stimulating the development of

new products (e.g., cleaner, more efficient boilers) that, over the long term, will benefit economies that produce them (see box 3-C). Some who

hold this view cite Japan’s success in international competition during a period when Japanese

industry began to comply with new environmental standards.

In exploring the relationship between environment and competitiveness, this report discusses

manufacturing industries in general, with particular attention to chemicals, pulp and paper, and

metal finishing. These industries have high environmental impact or compliance costs, but a

range of competitive circumstances (see table

3-4). Other industry sectors, such as auto assembly and steelmaking, also receive some attention.

There are several ways in which environmental

regulations might contribute to competitiveness.

There are also several ways environmental regulation might hinder competitiveness. Major arguments on both sides are outlined below (see also

table 1-2 inch. 1). For further discussion of these

issues, see chapter 7 and appendix A. The

concluding section of this chapter discusses

employment issues.
Chapter 3-Context and Conceptual Framework 83

Box 3-C-Does Environmental Regulation Improve Competitiveness?:

The Michael Porter Hypothesis

In his book, The Competitive Advantage of Nations and in an essay in Scientific American, Michael

Porter, a professor at the Harvard Business School, discussed the possible positive relationship

between some types of regulations and economic competitiveness.1 As a result, a number of people

have cited Porter’s hypothesis as evidence that environmental regulations help competitiveness.

However, such benefits cannot be assumed to arise without careful case-by-case analysis.

Porter argues that while environmental regulations impose costs and other constraints on industry,

they may also stimulate innovations and/or efficiency gains which may offset costs. These can occur

through increased economic activity in the environmental goods and services industry or increased

innovation in the regulated sector itself, either through new products from product regulations or more

efficient processes from process regulations. In contrast to many economists, who concentrate on the

short-term static effects of compliance costs, Porter stresses that it is important to also look at the longer

term dynamic effects of regulation on innovation. Porter acknowledges, however, that these offsets may

not completely compensate for the costs of pollution control borne by industry.

Porter discusses four major ways that innovation can help offset the negative impact of compliance

costs on competitiveness.

First, stringent environmental regulations can lead to a competitive advantage in the environmental

goods and services industry. Countries with strict regulations are more likely to develop strong firms

providing the environmental goods and services used by industry to meet regulations. Porter cites

several examples, including Swedish low-noise compressors and the purported German and Japanese

leads in air pollution equipment stemming from early and strict SO2 and NOX regulations on stationary

sources. Chemical companies may gain a competitive advantage from developing Iow-VOC paints and

coatings and from CFC-substitutes, if their customers are faced with environmental requirements

leading to the need to use these products. However, their customers, the regulated community, may

face higher costs in using these materials or products. (The impact of regulations on the environmental

goods and services industry is discussed in chs. 4 and 5.)

Second, Porter points to a number of cases where regulations stimulated the development of

innovative or higher quality products. For example, the German Solingen law set rigid standards fort he

1 Mi@ael E. porter, The Competitive Advantage of IVatlons (New YW NY: ne f%ee mess, Iwo);

“America’s Green Strategy,” Scientific Arnetican, vol. 264, No. 4, April 1991, p. 16S.

(wnthwedon next page)

WAYS IN WHICH ENVIRONMENTAL REGULATION health care costs, increased agricultural and labor

MIGHT HELP COMPETITIVENESS: productivity, and lower costs in other parts of the

Improved Environmental Conditions--If envi- economy resulting from reduced pollution.17

ronmental regulations create benefits in excess of These benefits may accrue to firms both directly

costs, then they can improve economic welfare. and indirectly (cheaper supplies and inputs).

Lower levels of pollution may lead to lower While it is important to include data on these

17 See Orgafimtion for Economic Cooperation ~dDevelopmen~ EnvironmenralPolicy Bene@: Moneta~Vah@ion (pfis: OECD, 1989).
84 [ Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Box 3-C-Does Environmental Regulation Improve Competitiveness?:

The Michael Porter Hypothesis-Continued

quality of cutlery.2 Other examples are Japanese energy conservation laws and taxes that led to

development of internationally competitive energy efficient products. However, regulatory impacts on

products are different than on processes. Consumers can identify and value the regulatory impact on

the product and as a result, firms can translate this into competitive advantages It is not clear how much

consumers care about the presence or absence of environmental controls in the production of an item

(although this kind of valuation appears to be growing). Moreover, the majority of the costs of

environmental regulations probably arise from regulations on processes not products.

Third, Porter argues that properly constructed process standards can encourage companies to

re-engineer technology to reduce not only pollution but also costs, as production processes become

more efficient. However, as discussed in chapter 8, only a small share of investments to comply with

environmental regulations are for in-process changes, and of these, it is not clear how many pay for

themselves in savings. Environmental regulations often raise capital and operating costs, even with

aggressive pollution prevention efforts.

Finally, Porter argues that while some regulations can lead to competitive advantage, those that

prescribe particular technologies, as opposed to performance-based standards, do not. To extend this

point, it should be noted that regulation that Ieads to abatement or cleanup, rather than prevention, will

increase, not lower, costs for manufacturers. Regulations that make it risky to innovate (e.g., no

phase-in periods, strict penalties for companies unsuccessfully trying innovative approaches) will also

reduce offsets. As discussed in chapters 8 and 9, many aspects of the regulatory system make it more

difficult for industry to develop innovative and low-cost responses to pollution control regulations.

Some forms of regulatory reform will increase the potential of these innovation offsets, but it is by

no means clear that these offsets will outweigh the costs and stimulate competitiveness. Nonetheless,

Porter enumerates several offsetting benefits for industry from environmental regulation. In the debate

on the effect of regulations on industrial competitiveness, it is important, however, to keep in mind that

the principal purpose of regulations is to produce a clean environment and protect public health; the

resulting societal benefits may justify the added costs to producers and consumers.

z Ibid., p. 647-649.

3 EpAhas~mmlssioned astudyto examine the Porter hypotheses and itIOXamining a number of indust~es

affected by regulations. However, most of these are either environmental industries (scrubbers) or products (paints

andcoatingsandpestlcides). Making the case that process regulations hasheiped competitiveness of the regulated

industry is more difficult.

benefits in any assessment of the relationship gain a short-term competitive advantage that may

between regulation and economic growth, current

measurements are inadequate.

Even if net benefits from regulations exceed

costs, the expenditures normally occur in the

present while the benefits often occur in the

future. If other countries choose to minimize

short-term costs by limiting regulation, they may

continue well into the future.

Improved Manufacturing Efficiency—Another

view is that pollution and waste regulation can

improve manufacturing efficiency and save money.

Pollution prevention may increase competitiveness if it results in firms paying closer attention to
Chapter 3-Context and Conceptual Framework 85

Table 3-4—Economic and Environmental Factors for Selected Industries, 1991

Important environmental Pollution control Sales

impacts of the investments as 0

/0 of 1990

Industry production process Competitive position capital investments ($ billion)

Motor vehicle Volatile organic compounds Decreased domestic market 2.9 % 214

production (VOCs) from painting share, strong Japanese competition

Chemicals Large quantities of VOC air Strong, $18.8 billion trade 13.4 % 288

emissions, heavy metals, surplus

hazardous wastes

Metal finishing Acids and heavy metals in Generally not traded but over- 27.5 % 4.5

wastewater and sludge seas firms are strong

Pulp and paper Waterborne pollutants, dioxin Strong, net exporter of 11.8 13.8 “/o 131

million tons of paper, pulp and

paperboard

SOURCE: Office of Technology Assessment; U.S. Census Bureau, Po//ution Abatement Cost-Expenditures, 1991, (MA200 (91 )-1 (Washington, DC:

U.S. Government Printing Office, 1993); U.S. Census Bureau, Annual Survey of Manufacturers, 1990 M90 (AS)-1 (Washington, DC: U.S.

Government Printing Office, 1992).

energy and materials efficiency and continuous

process improvement.18 However, even though

an aggressive pollution prevention effort can

reduce compliance costs, particularly when compared to the current end-of-pipe approach, industry still faces compliance costs that increase

production costs (see ch. 8). Regulation could

also drive modernization if it led industry to

upgrade production facilities or to invest in new,

more productive facilities.

Recently, some corporate leaders have argued

that correct pricing of pollution can increase

competitiveness. 19 If firms must pay the full costs

of polluting (e.g., through a fee or tax), then

environmentally conscious firms will gain a

competitive advantage if all firms competing in

the industry face equivalent costs. In such a

situation, firms can reduce costs by becoming

cleaner. However, given that firms in other

countries do not pay the full costs, such a scheme

would raise U.S. production costs relative to

foreign costs, unless there were some means, such

as a border tax, to impose similar costs on imports

and provide rebates for exports.

Increased Innovation-When properly structured, regulation stimulates innovation in the

environmental control industry (see ch. 5). In

addition, regulations may create pressures on

firms to develop new products, thus adding to the

dynamism of the economy. For example, regulation is credited with encouraging a number of new

automobile technologies.20 In some cases, overcoming problems related to regulation may have

enhanced fins’ problem-solving capacities and

contributed to commercial innovation.

Early Mover Advantages-If U.S. regulations

are copied by other countries, then technology

developed to meet U.S. regulations could give

18 See U.S. ConPeSS, OffIce of Technology Assessment Sen’ous Reduction of Hazardous Waste,” For POllun”On prevenfi”on and Itiustn”ai

.Eficiency, OTA-ITE-317 (Washington DC: U.S. Government printing Office, September 1986); also Michael Porter, “America’s Green

Strategy, ” vol. 264, No. 4, April 1991, p. 168.

19 “Viewpoint,” Chemical & Engineering News, vol. 71, No. 2, Jan. 11, 1993, p. 8.

20 Robefl D, Atkinson and I-es Garner, ‘‘Regulation as Industrial Policy: A Case Study of the U.S. Auto Industry, ’ Economic Development

Quurter/y, vol. 1, No. 4, November 1987, pp. 358-373.
86 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

U.S. companies an advantage in foreign markets

when similar regulations are adopted. Firms in

other countries may have to invest sizable amounts

to come up to speed and, because they have less

experience in dealing with pollution, may do so at

relatively higher costs. Therefore, one important

characteristic of regulations is whether they lead

where other countries are likely to follow. U.S.

mobile source air pollution regulations have done

so, leading to a competitive U.S. industry in

catalytic converters. As U.S. Superfund regulations have not been copied, the cleanup technology developed in response has had only modest

use in foreign markets.

Increased Consumer Demand--Regulation could

also help competitiveness if it leads businesses to

develop products made in less environmentally

damaging ways and if consumers value these

products more than other products. Leading areas

of consumer demand for products manufactured

in environmentally friendly ways are in paper,

and, to some extent, products manufactured

without CFC’s. Scott, the world’s largest tissue

manufacturer, recently dropped from among its

pulp suppliers three with the worst environmental

performance.

21 Similarly, pressure from European paper consumers are leading pulp suppliers

to move to chlorine-free pulp making.22 Such

pressures are relatively weak in North America.23

Moreover, it is unclear the extent to which

consumers will prefer other products made in

environmentally preferable ways. If they do not,

and regulation imposes costs on the production

processes, then firms may be less competitive.

Adaptation to the Future Economy—Finally,

some argue that a ‘‘green economy’ is a more

24 Along these economically efficient economy.

lines, it is argued that many U.S. companies are

wedded to an old production system that uses

high levels of energy and materials. This reasoning maintains that since future economies will

force firms to take these factors into account, U.S.

firms will then be at a disadvantage. However,

these green savings normally stem from increased

efficiency from energy conservation, the development of renewable energy sources, and increased

materials recycling. While these changes may

increase economic welfare, they do not directly

address the issue of the effect of environmental

compliance costs on manufacturing processes.

WAYS IN WHICH ENVIRONMENTAL REGULATION

MIGHT HURT COMPETITIVENESS:

Societal Costs May Exceed Benefits-Even if

pollution and waste-related compliance costs are

higher in the United States than in other nations,

it is possible that in the long run the nation may

not suffer competitive disadvantage since society

benefits from these expenditures. Some analysts

argue that currently the costs of regulation exceed

the benefits and that, therefore, both GDP and

social welfare will be lower as a result of

environmental regulation.

Analyses focusing on the costs of regulation,

particularly the price to industry, often ignore or

minimize the benefits of regulation and as a

result, findings of net costs are assured.

Regulation May Inhibit Innovation--Some maintain that regulation may inhibit innovation, leading to relatively large costs over the long term.

21 Paul Abr-s,*’Scott’s Clean Sheet, ’ Financial Times, NOV. 4, 1992, p. 14.

22 ~ces of cMorine-free pulp are slightly higher than pulp made conventionally.

23 A relatively sw ~rwntwe of us. pulp is exported to Europe. &fwIy of tie miUS that prodU@ pulp fOr expOll me mOVhlg tO ~Ze

or elimimte chlorine bleaching. (Neil McCubbin, ‘‘Environment and Competitiveness in the Pulp and Paper Industry,’ OTA contractor repom

1993.)

2A Mictiel Renner, Jobs in a Sustainable Economy (Washingto% DC: WorldWatch MthUte, 1991).
Chapter 3-Context and Conceptual Framework 87

Regulation can hinder innovation by diverting

funds from capital investment in new plant and

equipment and commercially oriented R&D.

Because regulatory requirements are often stricter

for new facilities (which often must install best

available technology) than for older plants, new

investments may be discouraged. Regulation can

also delay the introduction of new industrial

processes if permit applications take a long time

to be processed. Finally, regulation can increase

the risk of innovation. If firms feel that regulations are likely to change so as to make pending

innovations obsolete or unusable, they may wait

until they receive clearer signals.

Regulation May Increase Production Costs—

Regulation raises the costs of production for U.S.

firms. If U.S. firms face higher environmental

compliance costs than companies in other nations, and the benefits they receive do not

compensate for the costs, their relative competitiveness will decline, resulting in net export

losses; some firms might relocate to countries

with weaker regulation. In addition, high compliance costs mean that domestic firms will have less

capital and human resources to invest in new

products and production processes, thus reducing

productivity. Some jobs losses may result, although the size of these impacts is uncertain.

1 Employment and Environmental Trade

Few aspects of environmental regulations

prompt as much debate as their potential for

employment effects, Yet, studies of the employment implications of pollution control regulations

are poorly developed. Some argue that regulations cost jobs either from plant closures, from the

high cost of regulations, or from reduced consumer demand for products produced with high

environmental compliance costs. Others argue

that environmental regulations create jobs in the

environmental goods and service industry, and

also environmental jobs in companies complying

with regulations.

Estimates of the number of jobs in the U.S.

EGS industry vary widely. The Environmental

Business Journal estimates that total EGS employment in 1992 was 1,073,000. However, some

of these jobs are not related directly to regulations, including many in water supply utilities,

alternative energy, and private refuse collection.

It is, however, difficult to declare as benefits

jobs to meet domestic EGS demands without also

knowing how many jobs are lost in polluting

industries due to reduced domestic consumption.

These EGS jobs represent resources transferred

from one activity to another and, in a sense, are

the price we pay to clean the environment.

The better measurement of net employment

benefit offered by the EGS industry would be

from net jobs created through foreign trade. If the

United States exports more in EGS than it

imports, the net job creation should be counted

against the jobs lost due to higher prices for

domestic goods from environmental regulations.

Some also argue that investments in environment and energy-efficiency create more jobs per

dollar of investment than highly polluting industries and that, therefore, regulation increases

employment. 25 If this is true, productivity and

wages in these EGS industries, and in particular

in the indirect economic activity created from

them, would need to be less than in highly

polluting industries, such as chemicals and oil and

gas. As a result, there may be a tradeoff in the

short term between more jobs at lower wages (and

possibly lower skill levels) and fewer jobs at

higher wages (and possibly skill levels). In the

medium and longer term however, net job creation should equalize.

25 Howu~ fJ~~c~, John DICiCC~, and Stip ~i~er, Energy ~ficienqj und Jo~ Creation (w~ti~o~ DC: &IleriCm COUUCd fOr an

Energy-Efficient Economy, October 1992); also Michael Renner, Jobs in a .$ustainable Economy (Washington, DC: WorldWatch Institute,

1992).
PART II.

Providers of

Environmental

Technology and

Services: The

Environmental

Industry
The Global

Environmental

Market:

Trends and

Characteristics 1 4

T

he global market for environmental goods and services

(EGS) is large and growing. The Organisation for

Economic Co-operation and Development (OECD) estimates that the global market for environmental services,

combined with pollution control and waste management equipment and goods, stood at $200 billion in 1990 and will reach

$300 billion by the year 2000.2 Another calculation of the global

market claims the 1992 market was $295 billion and projects a

global demand of $426 billion by 1997.3 These projections do not

fully capture business opportunities for preventing pollution

through cleaner production. While calculations of environmental

market sizes should be viewed with caution due to varying

quality of data and definitions of the market, it is clear that the

environmental sector is sizable. For comparison, in 1990 the

aerospace products industry commanded a global market of $180

billion and the chemical products industry stood at $500 billion.4

In order for environmental markets to exist, there must be both

the will and resources available to address environmental

problems. Regulations and enforcement, including assignment

of liability, are the main drivers of environmental markets.

Prosperity is an important determinant of environmental market

size; contrary to previous expectations, the environmental

1 This chapter discusses size, trends, and drivers of environmental markets; ch. 5

discusses competitiveness in environmental industries.

2 Organisation for Economic Co-operation and Development (OECD), The OECD

Environment Industry: Situation, Prospects and Government Policies, OCDE/GD(92)l

(paris: OECD, 1992).

3 Grant Ferrier, president of Environmental Business International, presentation at the

Environmental Business Council of the United States meeting, Washington DC, June

8-9, 1993.

4 OECD, op. cit., footnote 2. 89
90 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

industry is not immune to economic slow-downs.

Fiscal incentives now in an early stage of

application, such as pollution fees and tradable

allowances, may also promote demand. Corporate interest in appealing to the environmental

concerns of customers and investors is increasing,

particularly where reporting requirements place

corporate environmental performance in public

view. And opportunities for cost-effective environmental improvement through pollution prevention and improved energy efficiency are

becoming better understood; such cleaner production approaches may some day obviate the need

for certain end-of-pipe pollution controls.

Environmental priorities differ by country and

region. In most low and many middle-income

countries, key needs include provision of water,

sewer, and refuse services, as well as basic

pollution control equipment. In more affluent

countries, there is growing demand for more

sophisticated equipment and services for pollution prevention, control, and remediation. The

largest environmental markets are in the industrialized nations of the OECD, which account for

perhaps 80 percent of the international market.5

The largest single market, about 40 percent of the

total, is the United States. However, markets in

some non-OECD nations, including a number of

rapidly industrializing countries in Asia and Latin

America, are poised for rapid expansion.

National markets can be thought of as falling

within several broad categories:

■ The United States, Japan, Germany, and several other Northern European countries have

the most strict environmental regulations. No

single country is most stringent for all pollutants or media. Much progress has been made

against traditional soot and sewage problems.

New problems and those that have resisted

previous solution—including smog, acid rain,

toxic substances, nonpoint pollution, and climate change—are now being addressed. These

countries are at the forefront of environmental

management and are sources of demand for

new or improved environmental technologies.

The United Kingdom, France, Italy, and several

other OECD countries form a second tier of

countries that have relatively strong environmental standards and enforcement but have not

led in environmental management.

Portions of the European Community (EC),

including Spain, Portugal, and Greece, often

lack adequate infrastructure for wastewater,

solid waste, and hazardous waste treatment.

Significant efforts are necessary to bring these

countries into compliance with EC standards.

Their level of environmental investments will

depend on economic growth and EC funding.

Rapidly industrializing countries in Asia—

including the four ‘tigers’ (Hong Kong, South

Korea, Taiwan, and Singapore), Malaysia, Thailand, and the Philippines, and the larger countries of Indonesia, India, and China-are now

expending more resources on the environment.

This region is probably the fastest growing

environmental market, due to investments in

water, sewer, and waste disposal infrastructure,

and from environmental factors now being

incorporated into new investments in energy

and industrial production. Economic growth is

providing many of these countries with the

resources to pay for environmental investments.

Several Latin American countries also have

rapidly expanding environmental markets. Mexico and Brazil are the largest. This region, too,

offers strong environmental business prospects. As in the rapidly growing Asian economies, investment in public environmental infrastructure is increasing. Tougher regulation and

enforcement are creating markets for pollution

control equipment. As more countries develop

environmental capabilities, the market for monitoring equipment is also growing.

5 Ibid.
—

Chapter 4–The Global Environmental Market: Trends and Characteristics 91

Central and Eastern Europe, including the

states of the former Soviet Union, have a legacy

of environmental mismanagement. Basic controls of air and water pollution and wastes are

often lacking or in disrepair. While the potential market is great, the actual market is limited

by lack of financial resources. Political and

economic uncertainties inhibit foreign investment.

Many developing countries in Africa, Asia, and

Latin America have limited capacities for

managing industrial and urban environmental

challenges. Development assistance is a key

source for environmental investment in these

countries.

As discussed in chapter 5, most environmental

goods and services are not internationally traded.

Even so, substantial trade occurs; estimates of

international environmental business transactions

range from the low billions of dollars to over $20

billion annually.

American firms face growing challenges from

foreign companies both overseas and in the

domestic U.S. market for the provision of both

traditional environmental products and cleaner

technologies (see ch. 5).6 Germany, Japan, Austria, the Netherlands, Switzerland, Sweden,

France, Britain, and Canada have environmental

companies that are competitive with U.S. firms on

the world market. Foreign firms also are competitive sources for a variety of cleaner production

technologies. In countries like South Korea,

Taiwan, and Mexico, environmental industries

are developing in response to increased regulation

and enforcement, although they remain dependent on OECD-country suppliers for many environmental products and services. Examples of

sectors and technologies where U.S. firms maintain an advantage and where foreign firms have

gained advantage are discussed in chapter 5.

MARKET DRIVERS

Environmental markets arise primarily when

regulations are put in place and enforced.7 Other

factors also contribute; for instance, pollution

prevention measures are sometimes costeffective even in the absence of strong regulation,

and corporate concerns about public image can

promote demand for EGS. However, regulation

remains the driving factor. This is because

polluters seldom on their own pick up the costs

that pollution and environmental degradation

place on third parties and society as a whole. In

economic terms, pollution is a negative externality and the services nature provides (e.g., cycling

air and water, maintaining soils and biological

diversity, and so forth) are free goods. These

market imperfections diminish the welfaremaximizing force that free markets can theoretically deliver. In short, without regulation (and

enforcement), people will pollute excessively.

Externalities and public goods as types of market

imperfections are classically justified reasons for

government regulation.

Environmental laws and regulations create

markets for many kinds of goods and services.

Obvious examples include pollution prevention,

control, and clean-up equipment and supplies,

and operation of waste disposal and pollution

abatement systems, Analytical instruments to

measure contaminants and monitor pollution, and

specialized services (including engineering, management consulting, construction, and laboratory

analysis) are also needed. Regulations also stimulate demand for environmental impact assess6 Cleaner production and energy technologies can be found in v Wy all economic sectors. A few examples are direct steetrnaking,

renewable energy technologies, advanced gas turbines, chromium-free leather tanning, chtorine-hx paperrnakm“ g, no-clean soldering, better

industrial controls, less polluting paint applicators and formulations, and improved catalysts.

7 Here regulation includes the use of environmental taxes and charges, marketable pollution allowances, and assignment of liability on

polluters, as well as conventional comma rid-and-control approaches that require achievement of performance-based or technology-based

environmental standards.
92 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Routine environmental services such as refuse

collection and disposal, while locally provided, can

create trade opportunities for equipment suppliers.

ment, legal, and information services. Furthermore, the force of regulation can lead to demand

for substitute or alternative products or processes.

Examples include alternative solvents, fuel switching, or no-clean soldering.

Sometimes environmental laws and regulations create markets directly by mandating certain

standards. In the case of performance-based

standards, a number of environmental technologies and practices might allow achievement of

standards. In contrast, technology-based standards require installation of particular environmental devices, thus stimulating large markets for

those devices. Innovation may suffer because

competing technologies and approaches are not

sanctioned. 8 Sometimes regulations are formally

performance-based, but, in practice, permitting

and administrative procedures still favor specific

reference technology.

Regulations can promote environmental markets by making pollution and waste very expensive to generators. For instance, the U.S. Resource Conservation and Recovery Act (RCRA),

among other things, places stringent requirements

on storage, transport, and treatment of hazardous

wastes. This not only stimulates expenditures for

hazardous waste handling and disposal, but also

encourages waste producers to find ways to cut

disposal expenses by minimizing waste.

Similarly, pollution taxes and fees may stimulate environmental technology sales. It is not yet

clear the degree to which marketable pollution

allowances might spur environmental technology

innovation and sales by placing real dollar value

on pollution. Companies may avoid environmental

technology expenditure-for instance, by switching to low sulfur coal instead of buying scrubbers

in the case of electric utilities. (Chapter 8

discusses the implications of different environmental regulatory approaches for manufacturing

industries. 9) Other innovative regulatory approaches,

such as utility pricing rules that encourage

demand-side management (DSM) in electric utilities, have spurred business opportunities in energy efficient products and related services that

may be environmentally preferable.

Threats of future liability are an impetus for

environmental markets; the U.S. Superfund law

that retroactively ascribes liability for contaminated sites is a noteworthy example. Reporting

requirements, like the Toxic Release Inventory

(TRI) of the U.S. Superfund Amendments and

Reauthorization Act (SARA, Title III), can also

stimulate pollution prevention and control efforts.

TRI requires manufacturing enterprises to publicly disclose information about their production,

release, and disposal of several hundred toxic

compounds. These reporting requirements led

some companies to adopt aggressive waste reduction goals.10

8 Robefl Rep~o, George Heato~ and Rodney Sob@ Transforming Technology: An Ageti for Sustainable Growth in the 21st Cenmv

(Washingto% DC: World Resources Institute, 1991), p. 23.

g Another OTA assessment, due for completion in late 1994, is examining new approaches to environmental regulation.

10 See Bruce Smti (~.), Beyo~Comp/jance: A New Industry View of the Environment (Washington, DC: World Resourees ~titut% Apfi

1992) for several examples.
Chapter 4-The Global Environmental Market: Trends and Characteristics ] 93

Although the combination of regulation and

enforcement has been the most potent driver of

environmental markets, it is not the only force,

The environmental concerns of consumers and

investors are a factor, as is the threat of additional

future environmental regulation because of unfavorable public image. These concerns explain the

potency of TRI in stimulating environmentally

favorable corporate action. They also help explain

cases of pressure on corporations from peers,

suppliers, and customers as forces for environmental investment and cleaner production. The

U.S. Chemical Manufacturers Association’s Responsible Care program (which is mandatory for

members) and similar chemical industry programs abroad, as well as environmental charters

of the Business Council for Sustainable Development, the International Chamber of Commerce

and the Keidanren (Japan’s major industry association), are among examples of business initiatives

to promote improved industrial environmental

performance.

Finally, as has been noted, some environmental

investments in pollution prevention and especially energy efficiency are cost-effective even in

the absence of regulations, Markets may develop

as these opportunities become better known.

DEFINING THE INDUSTRY AND

ITS MARKET

The previous section refers to EGS, cleaner

production, and the environmental industry without crisp distinctions. This is because definitions

of the industry and its market are inconsistent and

sometimes nebulous, and data are often lacking.

The reasons why data are inadequate and the

differing definitions of the market used by several

studies are discussed below. As is discussed in

chapter 3, this assessment does not adhere to a

rigid definition of EGS.l1 Instead, it examines

markets and competitiveness in a number of

traditional environmental areas-air, water, and

waste management, including services-with illustrative cases from cleaner production important to the energy and manufacturing sectors.

Information on environmental markets and

industry size is inadequate for several reasons:

9

■

—

Little effort has been made by the United States

and other countries to track EGS production

and trade. U.S. Standard Industrial Classification (SIC) codes and the international Harmonized Code (HC) do not correspond well with

environmental product categories .12 Thus, official data on production and trade are of limited

value. (See ch. 5 for discussion of environmental trade.) Many products used in environmental equipment and facilities are also used in

other applications. It is often not possible to

determine whether the end use of a product is

environmental.

Production data are difficult to obtain because

of the industry’s structure. It has been estimated

that about 200 public companies account for

roughly one-third of U.S. environmental revenues but that over 58,000 privately held fins,

averaging $1.3 million in annual revenues each,

account for the remaining two-thirds.13 Privately held companies are not required by the

Securities and Exchange Commission to publicly divulge financial information. There may

be over 10,000 environmental fins, mainly

small, in Western Europe.

11 ,& ~revloUSly discussed, sever~ impo~t aspects of environmental teChllOIOgieS inclllding a@c~w~ tec~olo@es! geophysid and

ecological modelmg, technologies for assessing health effects, and nuclear-related technologies are not examined in this asessment. Green

product design was the subject of another recent OTA assessment, U.S. Congress, Office of Technology Assessment, Green Products by

Design: Choices for a C’/eaner Environment, OTA-E-541 (WaShingtO~ DC: U.S. Government Printing Office, September 1992).

IZ one exception is SIC 35646~C g4Q 139, Selected ~dus~al Air Pollution Control Equipment. Several o~er categories P~allY cover

EGS products. Further discussion of this issue is found inch. 5.

13 ~nk,ironmenfa~ Business Journal, vol. 5, No, 4, April 1992, p. 7. Over 24,000 of ~ese compa~es me priVate water utilities averaging

.$400.000 in annual revenues.
94 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

■

■

Many environmental companies, including large

conglomerates, are active in a variety of industrial sectors; they generally do not report their

environmental business separately. Engineering and construction companies have provided

design and construction management services

for environmental projects for many years.

Instrument manufacturers produce lines of

equipment for environmental monitoring and

analysis. Producers of boilers and power generation equipment sell air pollution control equipment (as well as less-polluting combustion

systems and turbines). A number of chemical

companies have spun off commercial hazardous waste management businesses in addition

to producing specialized chemicals for water,

air, and waste treatment. And, with the end of

the Cold War, many defense contractors are

seeking environmental business opportunities

ranging from clean-up of Federal facilities to

development of electric vehicles.14 A few

companies in other sectors facing tough times,

such as the Pacific Northwest forest products

industry, are redirecting their efforts toward the

environment (see box 4-A).

Industrial establishments operate in-house air,

water, and waste treatment facilities and services. These operations, while recorded as pollution abatement expenditures in corporate accounts, are seldom included in estimates of

environmental goods and services. This partly

explains why sales by environmental firms

differ from national estimates of environmental

compliance cost (see ch. 7). Internal corporate

environmental expertise and facilities sometimes provide a basis for new businesses. For

instance, Amoco, Dow, DuPont, and RhonePoulenc are among the chemical concerns that

have established hazardous waste management

businesses. 15

Most estimates of the size of the environmental

industry focus primarily on clearly identifiable

end-of-pipe pollution and waste control, treatment, and remediation. Even here, however,

coverage varies, as is shown in the following

studies:

9 The OECD divided the market into four equipment and related service sectors—water and

effluents treatment, waste management, air

quality control, and “other’ (which includes

land remediation and noise abatement)--plus a

separate general environmental services category.

l6 Cleaner production or pollution prevention products are not included, although some

related consulting services are.

ECOTEC, a British consulting firm, uses four

primary categories: air pollution control, water

and wastewater treatment, contaminated land

reclamation, and waste treatment and disposal

(including consulting and analytical services

related to these areas) .17 It does not include

municipal solid waste collection, noise abatement, construction of environmental infrastructure, or cleaner production.

Farkas Berkowitz & Co., a U.S. consulting

firm, divides the American environmental industry into air, water, solid waste, hazardous

waste, consulting, and “other” (which includes analytical and information services, and

landfill liners, among other things).18 Water

supply and solid waste handling equipment (for

14 For a~ysis of defense convemion issues, see U.S. Congress, OffIce of Technology Assessment Ajler the Cold War: f.iving With hwer

Defense Spending, OTA-I’TE-524 (Washingto~ DC: Governrnent Printing ~lce, February 1992), and U.S. Congress, OffIce of Technology

Assessment Defense Conversion: Redirecting R&D, OTA-ITE-553 (Washingto~ DC: Government Printing Office, May 1993).

15 Environmental Business Journal, op. cit., footnote 13, p. 9.

16 OECD, op. Cit., fOOtnOte 2, p. 5$

17 ECC)TEC Research and (lmsdtig, Opportunities for the Environmental Protection and Waste Management lndusOy in Europe

~.umingharn, U.K.: June 1990).

IS Farkas Berkowitz& Co., The Fifih Annual State-of-the-Industry Report ~ashingtoq w: 1993).
Chapter 4–The Global Environmental Market: Trends and Characteristics 95

Box 4-A–Forest Product Supply Firms and Environmental Business Opportunities

In Oregon, some forest products firms and suppliers are pursuing environmental business

opportunities in response to declining forest harvesting and processing.’ For instance, the Eugenebased Ross Corp., a designer and manufacturer of heavy equipment used to extract and transport logs,

has capitalized on its experience to develop materials-handling equipment for municipal solid waste

disposal and recycling. Examples include balers, conveyors, sorting systems, and scrap handlers. The

company also designs municipal recovery facilities: one such facility is operating in Washington State.

Offices in Canada and New Zealand support international marketing activities.

Another Eugene-based firm, Bulk Handling Systems, has adapted its materials handling

machinery expertise, in this case for the lumber, panelboard, and paper industries, to manufacture

handling, sizing, and storage equipment for waste and scrap materials. The company also makes

equipment for power plants that use agricultural and forestry wastes as fuel. Phoenix Industrial Park in

Eugene was a virgin plywood manufacturing facility until a lack of old growth logs put it out of business.

The site now houses a plant for reclaiming and processing urban and industrial wood wastes; also at

the site is an oil recycling facility. International Resources Unlimited’s engineering consulting business

used to concentrate on the forest products sector. The firm now works on a wider variety of structural

materials. With U. S., Finnish, and Hungarian collaborators, it is developing a number of products using

mixed waste paper and mixed paper, cardboard, and plastic wastes to displace virgin wood in

panelboard and fiberboard construction materials.

Contraction of the forest products industry in the Pacific Northwest has parallels to declines in

defense-related industries. Redirection of economic development and adjustment assistance are

urgently needed by displaced workers and their communities. While opportunities in environmental

goods and services, as well as environmentally preferable materials, probably will not cancel out

declines in the forest products industry, they do provide some options for economic development and

growth. This has been recognized by Washington, Oregon, California, and British Columbia, which have

all identified environmental technologies and services as a key sector for development.

1 Eugene I=. Davis, president, international Resources Uniimited, Eugene, OR, protiwd infor~tion forthis

and the following paragraph.

instance, garbage trucks) are omitted but mu- 4. asbestos abatement,

nicipal refuse services are included. Recycling 5. water infrastructure (water and wastewater

of municipal solid wastes and hazardous indus- treatment equipment and supplies),

trial chemicals are listed but recovery of 6. water supply utilities,

industrial scrap is not. 7. engineering/consulting,

■ One of the most comprehensive estimates, that of 8. resource recovery (includes recycling),

the Environmental Business Journal, divides the 9. instrument manufacturing,

U.S. environmental industry into 12 categories: 19 10, air pollution control,

1. analytical services, 11. waste management equipment, and

2. solid waste management, 12. environmental energy sources (includes

3. hazardous waste management (includes re- renewable energy and cogeneration).

mediation),

19 E~\ironme~tal Business Journal, Op. Cit., fOO~Ote 13.
96 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

The journal tracks private companies (publicly

and privately held) and publicly owned water and

waste utilities. However, the mobile source air

pollution control sector is not included.

None of the studies fully account for pollution

prevention and cleaner technology-processes

and products that use energy and materials more

efficiently, that generate less total waste and less

hazardous waste, and that decrease use of toxic

substances. Unlike add-on environmental technologies, which are additional costs to industry,

this mostly invisible environmental sector can

sometimes lead to improvements in productivity,

efficiency, and product quality. And even when

cleaner production and pollution prevention are

net costs to business, they are usually less

expensive than end-of-pipe pollution control and

waste disposal.20

Cleaner technologies may be adopted specifically to meet environmental requirements-for

instance, replacement of chlorofluorocarbons (CFCs)

in light of CFC phase-out laws or new paint

applicators stimulated by tough regulations for

volatile organic compounds (VOCs)--or they

may be chosen for primarily nonenvironmental

reasons+. g., low pressure polyethylene production offers advantages (lower cost and avoidance

of high pressure reactions) over high pressure

polyethylene production while using less organic

solvent and saving energy.

21 Environmental performance will remain one of a number of factors--

technical performance, cost, consumer preferences, worker safety, and so on—that engineers

and managers will consider in production technology choice and product design.

To the extent that cleaner production is not

included in estimates of the environmental industry, then environmentally inspired business opportunities will be understated. For instance, in

the 1990s, developing country and Central and

Eastern European capital investment for the

electric power sector may reach $1 trillion.22 If a

study on environmental business opportunities

associated with power sector investment were to

concentrate on end-of-pipe pollution abatement,

waste handling, and restoration of coal mining

sites, it would miss very large commercial and

environmental opportunities offered by more

efficient power generation technologies, electricity and heat cogeneration, cleaner fuels, and

renewable energy. A narrow environmental sector definition would also miss the great potential

of selling negawatts--or improved energy efficiency—to power users.

In addition, studies that focus only on end-ofpipe technologies may neglect the possibility that

such technologies could be displaced by cleaner

production approaches. For instance, if organic

solvents are replaced by mechanical or aqueous

processes (e.g., powder coatings and water-based

paints), markets for VOC control devices maybe

diminished. As another example, cleaner combustion processes and non-fossil energy sources

could dampen long-term demand for add-on

emission control equipment, although near-term

markets for these devices are robust.

Yet, an all-encompassing definition of environmental technology offers little practical guidance in assessing environmental markets and

competitiveness. Nonetheless, the realization that

technology-not just environmental goods and

services-and environment are intimately bound

together has broad implications for the molding of

~ mere are alSO c~es where add-on pollution controls can allow manufacturers to maintain high W@products Wtile rn~tinS

environmental requiremenkfor instance, catalytic converters have allowed automobile engines to be optimized for power or fuel economy

while decreasing emissions.

2’ William H. Joyce, “Energy Consumption Spirals Downward the Polyolefii Industry, “ in Jefferson W. Testor, David O. Wood, and

Nancy A. Ferrari (eds.), Energy and the Environment in the 21st Century: Proceedings of the Conference Held at the Massachusetts Institute

of Technology, Cambridge, MA AZarch 26-28, 1990 (Cambridge, MA: MIT Press, 1991), pp. 427435.

22 World Bati Capital ExpendituresforEIectric Power in the Developing Countries in the 1990s, IENEnergy Series Paper No. 21, February

1990, in World Bank, The Bank’s Role in the Elecm”c Power Sector, Industry and Energy Department, box 5.
Chapter 4–The Global Environmental Market: Trends and Characteristics I 97

technology, environmental, and economic policies.23 Some long-term technological trends such

as ‘‘dematerialization" 24—which includes the

substitution of knowledge-intensive production

for resource-intensive production, precision control of processes, and, generally, doing more with

less material and energy—have salutary environmental effects. For instance, fiber optics is

arguably an environmentally preferable technology because fiber optic cables require much less

energy and material per unit of communication

than do copper cables (and concommitantly less

environmental damage from mining and manufacturing); they have allowed the development of

new monitoring and control technologies that can

increase production efficiency and decrease waste;

and they allow further substitution of communication for transportation.

GLOBAL, REGIONAL, AND

NATIONAL MARKETS

The OECD estimates that over 80 percent of

the 1990 market for environmental services,

pollution control, and waste treatment occurred in

the 24 member countries of the OECD.25 (See

table 4-1 and, for European national data, table

4-6.) The remainder is split between Eastern

Europe/former U.S.S.R. (7.5 percent) and ‘Other’

(10.5 percent). The United States is by far the

largest national market ($78 billion) followed by

Japan ($24 billion), western Germany ($17 billion), and France ($10 billion). The study anticipated higher-than-average growth in Canada,

Japan, several European Community countries

that need substantial environmental investment to

meet Community standards, and the “other’

category, which includes the dynamic economies

of the Pacific Rim. The lowest growth rates are

anticipated in the Nordic countries, Germany, the

Table 4-1--OECD Estimate of Environmental

Market Sizes and Growth by Region

(in 1990 dollars)

Annual

1990 2000 growth

($ billion) ($ billion) (percent)

OECD North America

United States

Canada

OECD Europea

OECD Asia-Pacific

Japan

Australia

New Zealand

OECD total

Non-OECD total

Eastern Europe/

Former U.S.S.R.

Other Non-OECD

World total

84.0

78.0

7.0

54.0

26.2

24.0

2.0

0.2

164.0

36.0

15.0

21.0

200.0

125.0

113.0

12.0

78.0

42.0

39.0

2.8

0.3

245.0

55.0

21.0

34.0

300.0

4.1

3.8

5.5

4.1

4.3

3.4

4.9

4.1

a S-table 4-6 for European national data.

NOTE: Percentage growth was recalculated from the original source as

a compound annual rate.

SOURCE: OECD, The OECD Environment Industry: Situation, Prospectsand Government Polities, OCD!3GD(92)1 (Paris: OECD, 1992).

Netherlands, Switzerland, and Austria, which

already possess relatively advanced environmental management capabilities; the U.S. market

is expected to expand more slowly than the

OECD average. OECD’s analysis suggests that

Central and Eastern Europe’s environmental market will experience above-average growth, although the combined Eastern Europe/former Soviet Union category rate could be below average.

By environmental sector, 24 percent of OECD

countries’ environmental industry 1990 output

was for environmental services, 30 percent for

water and wastewater treatment equipment, 20

percent for waste management equipment, 15

percent for air quality control equipment, and 11

23 HmtoL Repetto, and sobi~ op. cit., footnote 11; George Heaton, Robert Repetto, and Rodney Sobin, Backs fo the ~uture: U.S.

Government Policy Toward Environmentally Critical Technology (Washington DC: World Resources Institute, June 1992).

~ R. He~~ S.A. Ardekani, and J.H, Ausubel, ‘‘Dematerialization, “ in Jesse H. Ausubel and H.E. Sladovich (eds.), Technology and

Environment (Washington, DC: National Academy Press, 1989), pp. 5069.

25 Data for these several paragraphs are from OECD, op. cit., footnote *.
98 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Table 4-2—OECD Estimate of Environmental

Markets by Sector (in 1990 dollars)

Table 4-3—Environmental Business International

Estimate of the Global Environmental Market

Annual

1990 2000 growth

($ billion) ($ billion) (percent)

Annual

1992 1997 growth

($ billion) ($ billion) (in percent)

Equipment 152 220 3.8

Water/wastewater 60 83 3.3

Waste management 40 63 4.6

Air quality control 30 42 3.4

Other 22 32 3.8

Services 48 80 5.2

Total 200 300 4.1

NOTE: Percentage annual growth was recalculated from the original

source as a compound annual rate.

SOURCE: OECD, The OECD Errtircmment Mustry: Situation, Prospects ancf Gcwerrrrnent Po/kes, OCDE/GS(92)l (Pans: OECD, 1992).

percent for other forms of EGS, including contaminated land remediation and noise control (see

table 4-2). Within OECD, the highest predicted

growth rate is within the service sector and lowest

in water and wastewater treatment. Much of the

growth in the “other” sector is likely to be based

on expanded efforts in contaminated site remediation.

An analysis by Environmental Business International (publisher of the Environmental Business Journal) suggests a significantly larger

environmental market (see table 4-3). The estimate also is much more optimistic than the OECD

about the growth potential of the EGS industry,

projecting a 5-year annual average growth rate of

between 7 and 8 percent.

These analyses provide only a general indication of the global environmental market, rather

than definitive estimates. Furthermore, estimates

of national and international environmental markets are not the same as estimates of either

environmental compliance costs or the environmental sector’s contribution to gross domestic

product (GDP). As discussed previously, many

environmental expenditures are internal to the

United States

Canada

Mexico

Other Latin America

Western Europe

Eastern Europe/Former

U.S.S.R.

Japan

Australia/New Zealand

Southeast Asia

Rest of world

Total

134

10

1

6

94

14

21

3

6

6

295

180

17

2

10

132

27

31

5

13

9

426

6.1

11.2

14.9

10.8

7.0

14.4

8.1

10.8

16.7

8.4

7.6

NOTE: Percentage annual growth was recalculated from the original as

a compound annual rate.

SOURCE: Grant Ferrier, president of Environmental Business international, presentation at the Environmental Business Council of the

United States meeting, Washington, DC, June 8-9, 1893.

firm and do not accrue to the environmental

industry. And total environmental firms’ revenues do not represent total contributions to GDP

because they do not measure final demand or total

value added by the environmental industry. Many

sales by environmental companies are to other

environmental companies; for instance, waste

management service companies buy equipment

from environmental product manufacturers, and

environmental contractors often subcontract jobs

to other environmental companies. In other words,

total revenues overstate contribution to GDP by

double-counting expenditures.

As has been mentioned, pollution prevention

and improved energy efficiency are only partly

covered in environmental market estimates.26 An

analysis done for the Department of Energy

projects annual global energy efficiency export

markets at $8.4 billion annually during the years

1990 to 2000, doubling to $16.8 billion annually

21S Enviro~ent~ Consultfig related to po~ution prevention is often included and the Environmental Business Journal includes renewable

and co-generated power.
——

Chapter 4-The Global Environmental Market: Trends and Characteristics 99

Table 4-4-Environmental Business Journal Estimate of U.S. Environmental Industry Revenue and Growth

($ billions, percent growth)

● From U.S. Department of Commerce, Survey of Current Business and Statisfica/Abstracf of the United States 1992.

SOURCE: Environmental Business Journal, April 1992 and April 1993.

during the years 2000 to 2010.27 About half of the

market is likely to be in developing countries.

OTA has identified improving energy efficiency

as an especially valuable opportunity for simultaneously assisting environmental protection and

international development.

28 Descriptions of major

regional and national environmental markets

follow.

9 United States

Because of the Nation’s large size and its

relatively strict environmental regulations, the

United States is the world’s largest producer and

consumer of EGS. Many U.S. environmental

firms have focused exclusively on the domestic

market. However, the size and relative openness

of the U.S. market has made it attractive to foreign

competitors, and competition is intensifying (as

discussed in greater detail in ch. 5).

As previously noted, estimates of the U.S.

environmental market vary, due to differences in

definitions, methodologies and interpretations.

OECD estimated the market to be $78 billion in

1990. The Environmental Business Journal reported U.S. EGS industry revenues of $126

billion in 1990 and $133.7 billion in 1992,

although mobile source air control revenues—

mainly catalytic converters-of about $8.3 billion in 1990 were not included29 (see table 4-4).

Farkas Berkowitz and Co. produced an estimate

of $75 billion in 199230 (table 4-5). EPA reported

U.S. 1990 environmental expenditures tobe$115

27 U.S. Department of Energy, ‘ ‘National Energy Strategy Technical Annex No. 5: Analysis of Options to Increase Exports of U.S. Energy

Technologies,” 1991/1992, pp. 67-68.

28 us Conwess, Offlw of Te~~ology Assessment, Fue[ing Development: Energy Technologies For Developing Counttief, OTA-E-S16

(Wa.shingtom DC: U.S. Government Printing Office, April 1992).

29 Environmen tal Bu~ine~~~ournu/, vol. 6, No, 4, April 1993, and vol. 5, No. 4, April 1992; U.S. Department of Commerce ~ ICFReso~ws

and Smith Barney, Harris Upham and Company Inc., Business Opporruniries of~he New Clean Air Act: The Impact of the CAAA of 1990 on

the Air Pollution Control Industry, August 1992, p. 1-2.

30 Fm~s Berkowitz & Co., op. cit. footnote 18.
100 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Table 4-5--Farkas Berkowitz Estimate of

U.S. Environmental Industry Revenue

Segment Percent

Environmental consulting 12

Hazardous waste and remediation 8

Air pollution control (mobile and stationary) 12

Solid waste 37

Water quality 17

Other 14

Total Estimated 1992 Revenue $75 billion

SOURCE: Farkas Berkowitz & Co., The Fifth Amwa/ State-ot-thehdustry Report (Washington, DC: 1993).

billion.31 However, as noted, these are not identical to environmental industry revenues.

Future environmental market growth in the

United States could come from several directions.

For instance, an analysis of business opportunities offered by the Clean Air Act Amendments

(CAAA) of 1990 estimates that cumulative revenue increases (in 1990 dollars) for stationary and

mobile source air pollution control equipment

producers will be $35 to $49 billion by the year

2000. 32 Engineering, design, and construction

firms could bring in another $2 to $4 billion

during this period. Makers of instruments and

monitoring systems might see revenues grow $1

to $3 billion over the period. The CAAA also is

expected to increase revenues for natural gas,

low-sulfur coal, and reformulated and oxygenated

gasoline producers. In some cases, the ability to

switch to low-sulfur coal or natural gas allows

managers of electric power plants and other

facilities to avoid installing add-on pollution

control equipment. (These revenue estimates are

sensitive to assumptions about timing of regulations, scope of facilities regulated, technology

choices made by regulated industries, and costs of

technologies. A slow economy and uncertainties

about CAAA implementation make the air pollution control estimates presented above seem

overstated.)

The CAAA tightens emissions control requirements for both stationary and mobile sources. It

orders major reductions in sulfur and nitrogen

oxides (SO2 and NOX respectively) emissions

from power plants and other major sources;

strengthens controls on volatile organic and toxic

air pollutants; requires cleaner vehicles and fuel;

expands monitoring requirements for power

plants; and regulates disposal of CFCs.

State and local air quality requirements (some

of which are required by Federal law) will also

affect the market for both traditional EGS and

cleaner products and processes. Examples include

the South Coast Air Quality Management District’s tough regulations to control smog in

southern California and California’s requirements for development and marketing of low-,

very low-, ultralow-, and zero-emission vehicles

over the decade. Other States are considering

adoption of California’s automobile standards.

(See box 7-B for discussion of some regulated

industry responses to California’s air regulations.)

Growth in U.S. demand may occur for other

environmental sectors. New drinking water standards under the Safe Drinking Water Act’s 1986

amendments and storm sewer management regulations mandated by the Clean Water Act’s 1987

amendments are being implemented. The Clean

Water Act, Safe Drinking Water Act, Superfund,

and the Resource Conservation and Recovery Act

are scheduled for congressional reauthorization.

If the laws are strengthened, environmental market growth is likely. Meanwhile, State and local

regulation of wastes and recycling increases.

Contamin ation and waste from decades of U.S.

military activity and weapons production during

the Cold War are now major environmental

31 ICF Reso~ces and Smith Barney, op. cit., footnote 29, pp. I-2, I-3, original estimates in A. Carlin and the Environmental Law hstitute,

Envirorvnermd Invesmwnts: The Cost of a Clean Environment Summary, EPA-230-12-90-084 (Washington DC: U.S. Environmental

Protection Agency, December 1990) were expressed in 1986 dollam and were inflated 15 percent to derive 1990 dollars.

32 ICF Reso~ces and Smith Barney, op. cit., footnote 29, p. W-3
Chapter 4-The Global Environmental Market: Trends and Characteristics I 101

issues. Many Department of Defense (DOD) and

Department of Energy (DOE) facilities are badly

contaminated with various wastes, ranging from

radioactive byproducts of nuclear weapons production to spills of common fuels and solvents.

This hazardous legacy threatens health and the

ecology. Decontamination of decommissioned

military facilities is important if those lands are to

be made viable for civilian use and commercial

investment. Some estimates of the costs for

clean-up, decontamination, and waste management of the Nation’s nuclear weapons complex

reach $75 to $105 billion through the year 2010.33

DOE’s estimated fiscal year 1994 outlay for

environmental restoration and waste management

will be over $5 billion, while DOD’s environmental restoration outlays will be about $2

billion .34

9 Canada

According to OECD, Canada’s environmental

market was $7 billion in 1990, and might grow to

$12 billion by 2000 (5.5 percent annual

growth). 35 Environmental Business International

estimated a $10 billion Canadian market for 1992,

and projects $17 billion by 1997 (1 1.2 percent

annual growth).36 Both studies suggest that the

annual growth rate for the Canadian market will

be above the OECD-country and global average,

Canadian environmental problems and responses

have mirrored those in the United States but, at

times, with a lag. The national Green Plan,

announced in December 1990, calls for a variety

of measures, such as antismog actions, acid rain

controls, CFC phase-out, stronger toxic effluent

and emissions standards, clean-up of hazardous

waste sites, reduced urban wastes, and limits on

greenhouse gas emissions. Provincial and local

authorities will upgrade sewer and waste disposal

systems while continuing to promote recycling.

A study for the Ontario Environment Ministry

indicated that U.S. regulatory policies often

precede and influence practices in Canada.37

Some Canadian jurisdictions use U.S. experience

with environmental technology for regulatory

guidance. And many subsidiaries of U.S. companies operating in Canada may adopt parent

company environmental practices.

Trade may eventually lead to greater convergence of U.S. and Canadian standards. Surveyed

Ontario industrial firms indicated that the United

States was the source for most imported environmental products and services.38 Canadian environmental firms see the United States as their

major export market.

I Western Europe

The EC and Western Europe can be divided

into three major tiers of environmental priorities

and capabilities.39 The top tier countries already

possess relatively advanced environmental management systems, including comprehensive legislation, tight standards, capable administration,

and good infrastructure. Denmark, Germany, and

the Netherlands of the EC, along with Finland,

Norway, Sweden, Switzerland, and Austria, fall

into this tier.

33 U.S. Gener~ A~oun~g OffIce, brig-Term Plans to Address Problems of the Weapons Compiex Are Evolving, GAO~CED-9@219,

September 1990. The GAO also includes $50 billion for modernkition of the Weapons Complex.

34 Exe~tive Office of tie ~esiden~ OffIce of Management and Budget, Budget of the United States Government, Fiscxd Yw1994, pp.

App.-46l, App.-462, App,-570..

35 OE~, op. cit., footnote 2.

36 Gmnt Ferner, op. cit., fOOtnOte 3.

ST on~o ~i~u of Envhoment, Stiy @ the Onran’o Environ~n~a/ Protection fnd~~~ (Queen’s Prirlter for (lntario, 1992),

pp. 134-35.

38 Ibid.

39 Richard Haines, ‘Pollution Control Market to Flourish in Post-1992 Europe,’ PoZZution Prevention, vol. 1, issue 2, April 1991, pp. 11-20.
102 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Table 4-6-Western European Environmental Markets ($ billion)

Annual Annual

ECOTEC estimate rate OECD estimate rate

1990 1995 (percent) 1990 2000 (percent)

Germany (west) 14.4

France 6.5

United Kingdom 8.9

Italy 4.2

Netherlands 2.2

Switzerland 1.5

Spain 1.4

Sweden 2.0

Belgium/Luxembourg 0.8

Austria 1.3

Finland 1.0

Denmark 0.7

Norway 0.7

Portugal 0.3

Greece 0.2

Ireland 0.3

OECD-Europe* 44.3

20.0

9.5

11.5

6.4

2.8

1.8

2.5

2.5

1.2

1.8

1.3

0.9

0.9

0.6

0.5

0.4

64.4

6.7

8.0

10.6

8.7

5.3

4.8

12.7

4.8

8.4

6.0

3.8

7.0

5.3

13.5

14.1

8.3

7.8

17.0

10.0

7.0

5.0

2.7

1.9

1.8

1.5

1.4

1.3

1.0

1.0

0.7

0.4

0.3

0.3

54.0

23.0

15,0

11.0

7.7

3.7

2.5

3.0

2.0

2.3

1.8

1.3

1.2

1.0

0.7

0.5

0.5

78.0

3.1

4.1

4.6

4.4

3.2

2.3

5.2

2.9

5.1

3.3

2.7

1.8

3.6

5.7

5.2

5.2

3.7

● Does not include Iceland and Turkey.

NOTE: ECOTEC’S analysis does not include civil engineering work, waste collection costs, and noise abatement

included in OECD’S estimates. Figures are rounded to nearest $0.1 billion. Percentage growth rates were recalculated

from the original sources as compound annual rates.

SOURCE: ECOTEC Research& Consulting, Ltd., and OECD, The OECDEnvironmerIt /nuiWry: Situation, Prospects

and Government Po/ices,OCDE/GD(92)l (Paris: OECD, 1992).

The middle tier includes Belgium, France,

Ireland, Italy, Luxembourg, and the United Kingdom, which now have less rigorous environmental policies. Environmental markets in these

countries may grow as they move to meet EC

environmental standards.

The bottom tier countries-Greece, Portugal,

and Spain-lack sufficient environmental experience, environmental infrastructure, and the ability

to enforce strong environmental policies. They

need to boost their environmental management

capabilities to meet EC standards. Their environmental markets may grow most rapidly of the

Western European countries.40’

41

Two estimates of Western European environmental markets are presented in table 4-6. Table

4-7 presents market estimates by environmental

sector. The eastern portion of Germany, an

anomolous environmental market where the ruinous environmental legacy of Communist rule

meets the economic strength and tough environmental standards of Federal Germany, is discussed in box 4-B.

Western Europe thus includes markets for both

cutting edge technologies and catch-up equipment and processes. Both markets may exist even

in countries with strong standards. For example,

some German air quality standards are more

stringent than U.S. requirements; almost all major

sources of SO2 and NOX in western Germany are

well-controlled. Yet Germany is still phasing in

automotive catalytic converters, first introduced

in Germany 1986 but only now (1993 model year)

required for all size classes of new automobiles.

@ OEm, op. cit., footnote 2.

Al ECO’I”EC Rese~ch & Consulting, The EuroPean Pollution Conrrol and Wusre Management itfarker.’ An ~ve~ie~ @i*gh, U. K.:

January 1992).
Chapter 4-The Global Environmental Market: Trends and Characteristics I 103

Table 4-7—Western Europe’s Environmental

Markets by Environmental Sector ($ billion)

Annual

growth

1990 1991 1995 (percent)

Air pollution control 9.6 10.3 12.8 4.3

Water/wastewater

treatment 12.8 13.8 21.3 9.1

Contaminated land

reclamation 1.0 1.1 2.3 16.1

Waste management 20.9 22,5 28,0 4.5

Total 44.3 47.7 64.4 8.5

SOURCE: ECOTEC Research & Consulting, Ltd. (ECOTEC’S environmental market definition does not include construction work, water

supply, or municipal waste collection.)

Most other Western European states have not yet

reached western German levels of stationary

source air pollution control or American levels of

mobile source controls, Both will be areas of

market growth. It is also possible that future

European policymakers may look toward Californiatype air standards as a model. Industrial VOC

controls are another area of EGS demand in

Western Europe.

Water and wastewater treatment technologies

and markets are relatively mature in much of

Western Europe. Yet lack of infrastructure in the

southern EC states—where primary and secondary sewage treatment often is unavailable-and

investment needs in the UK are reasons for

forecasts of significant capital expenditure in this

sector. Due to EC directives, most countries will

upgrade systems and improve water quality

monitoring. Treatment chemicals and advanced

treatment technologies, such as use of membranes

and ion exchange, are other areas of growth.42

In remediation of contaminated lands and

hazardous waste handling, Europe lags behind the

United States in experience and policy .43 An

estimated 62,000 contaminated sites associated

with closed industrial facilities and refueling

stations are known, with perhaps many more to be

discovered. The 1990 market, primarily in Northern Europe, was estimated at $1 billion a year but

could shoot to $2.3 billion by 1995, stimulated by

more stringent laws. Likewise, markets to treat or

dispose of hazardous waste may triple, from $2.5

billion to $7.6 billion by 2000. This would reflect

an anticipated rise in landfilling costs due to

capacity constraints, stricter controls, greater

quantities of hazardous substances generated,44

and more waste pretreatment requirements.

As with water and wastewater treatment, municipal and hazardous waste treatment is characterized by poor infrastructure--often open dumps—

in parts of Western Europe at the same time other

areas are advancing the state of the art.

Western Europe’s large environmental market

has stimulated a very capable environmental

industry in some countries and sectors. In 1990,

there were an estimated 10,000 environmental

firms in the Western Europe; 65 percent of these

companies had annual revenues of under $5

million. 45 About one-fourth of Western Europe’s

environmental companies are German.46 Another

15 percent are British, 12 percent are French, and

10 percent are Italian. The number of such firms

in the Netherlands (7 percent), Sweden (5 percent), Switzerland (4 percent), and Denmark (3

percent) is small but disproportionately high

relative to population or GDP. This reflects the

relatively strong and well-established environmental regulations in those countries. Other

Western European countries each accounted for

between 1 and 3 percent of the total. As illustrated

in the following chapter, companies from Ger4Z H~neS, op. cit., footnote 39; ECOTEC, op. cit., foomote 41.

43 Ibid. for data in this paragraph.

~ ~s will Owm p~y by definition as more substances are defined m tidous.

45 ECOTEC Research & Consulting, op. Cit., foomote 41.

46 ~o~m e~timte suggests tit 9,~ to lo,~env~onm~~ f-may be feud in German y alone. Ariane Genillard, “Industrial

Clean-up on a Grand Scale, ” Financial Times, Sept. 16, 1993, p. 12.
104 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Box 4-B-Environmental Needs in Eastern Germany

The “new Laender’-’-the new states of the Federal Republic of Germany--have an environment

damaged by decades of abuse under inefficient central economic planning, which gave the environment

very little consideration in the course of industrial and agricultural development. The result has been

damage to public health and degradation of air, water, soil, and biological resources. One direct

environmental consequence of the Cold War is 800 known sites in eastern Germany where old

munitions have been buried.1 Eastern Germany’s reliance on low-quality, high-sulfur coal for 75 percent

of its energy also produced severe environmental contamination. Emissions of a number of air and water

pollutants are comparable to the highest levels occuring in western Germany 20 to 30 years ago; S02

emissions are the highest per unit of area of any European country.2 The Association of German

Electricity Producers (VDEW) estimates it will take $25.5 billion over 10 years to bring eastern German

power plants into compliance with Federal German environmental standards.3 Many industries, as well

as water supply, wastewater treatment, and solid waste utilities, will require substantial investment to

meet Federal German and European Community environmental standards. New facilities must meet

Federal standards; existing facilities are subject to a compliance timetable that extends to the year

2005.4 Some estimates of eastern German environmental needs are great. (See table 4-B-1.)

While the transition of the eastern German economy to a market basis is difficult,

the region has an advantage over its eastern

neighbors because it is hitched to the most

powerful economy in Europe. Even with the

German recession of the early 1990s, the

flow of money from western Germany, plus

the stability of Germany’s Iegal, political, and

economic system, make investment and

trade with eastern Germany less risky than

similar transactions with other former soviet

bloc countries in Central and Eastern Europe.

Over $3.5 billion in loans and grants

were made by the federal government for

improvement of the eastern German environment in 1990 and 1991.5 The federal

Table 4-B-l-Needed Environmental Expenditures

for Eastern Germany 1992 Through the Year 2000

(billion 1992 dollars)

Best

Environmental sector Low High estimate

Wastewater management 33.9 86.0 80.2

Drinking water improvement 10.8 19.2 10.8

Waste disposal 1.9 22.0 22.0

Air pollution 3.2 22.4 14.4

Contaminated site remediation 1.9 44.8 6.8

Noise abatement 1.3 2.6 1.3

Total 53.0 205.7 135.4

SOURCE: IFO Institute for Economk Research in OECD, OECf)

EnW0WwntalP6d0rrna ntx ReWwvs:Gwnwn y(Park:OECD, 1993),

p. 91.

government may bear 60 percent of $8.3 billion presumed to be needed for remediation of contaminated

eastern sites through 1998, with additional funds provided by states.6 Much remedial work will be

associated with privatization of state-owned enterprises. While some American firms may concede

eastern German environmental markets to Germany’s strongly competitive environmental industry, the

market may still be particularly attractive. American environmental firms could even find that acquisitions

and investments in Germany can offer a platform for expansion into Central and Eastern Europe.

1 U.S. ~timsnt of Commerce, “Market Insight Report: Environmental Market Opportunities in -tern

Germany,” March 1992.

a OECD, OECD aVhtWIWW Performance Retdews: Germany (Paris: OECD, 1993), p. 33-90.

3 U.S.~W~~of~~r~~e,~ 2,1992, in U.S. Department of Commerce, Nati*Tmde ~ta

Bank.

4 C)ECD, op. dt, footnote 2.

5 [~.

6 ~vjn~tia)Scjence & T~no/09Y, vol. 27, No. 8, 1993, p. 1461.
Chapter 4–The Global Environmental Market: Trends and Characteristics I 105

many, Sweden, the Netherlands, Britain, France,

Austria, and Switzerland are strong competitors

with American and Japanese companies in most

of the world, including the domestic U.S. market.

I Japan

Behind the United States, Japan has the second

largest national environmental market, estimated

by OECD as $24 billion in 1990 and expected to

grow to $39 billion by 2000.47 Japan, like the

United States, Germany, and several other OECD

countries, has stringent environmental regulations. And as in those countries, environmental

markets will reflect strengthening of already strict

standards in some areas and efforts to match

better foreign performance in other areas.

Some air quality markets in Japan are the most

developed in the world—Japan operates over

three-quarters of the world’s stack gas desulfurization and denitrification facilities48--yet air

pollution control requirements continue to be

bolstered. For instance, Japanese diesel truck and

bus manufacturers are under pressure to meet NOX

reduction requirements of 17 and 35 percent by

1994-1995 for heavy- and light-duty trucks,

respectively, with longer term reduction goals of

38 and 56 percent.49 However, stationary source

VOC emissions and toxic air pollutants are less

tightly controlled than under the United States’

1990 Clean Air Act Amendments.

Additional efforts are envisioned in the water

and waste sectors. At the end of fiscal year 1990,

only 44 percent of Japanese residents were served

by centralized sewage treatment, and only 62

percent had flush toilets.50 The Five-Year Program for Sewerage Construction and Basic Program for Public Investment anticipates sewerage

services for 70 percent of Japan’s residents by

2000. Meanwhile, improvement of residential

septic systems is underway. Although already

incinerating three-quarters of its municipal solid

wastes, the Japanese waste treatment infrastructure is pressured by lack of space for landfills and

for new waste disposal facilities. Recycling and

waste reduction-related EGS, and improved incineration and resource recovery are growing

needs. Japanese hazardous waste treatment and

contaminated land remediation requirements do

not appear as strong as those in the United States.

# Central and Eastern Europe and the

Former Soviet Union51

The once centrally planned economies of

Central and Eastern Europe and the former Soviet

Union have inherited grave economic and environmental problems resulting from decades of

grossly inefficient management.52 The region

serves as a cautionary example of the dangers of

ignoring the environment when pursuing industrial development. Central planners promoted

heavy industry and intensive agriculture, with

minimal attention to environmental protection.

Therefore, many factories do not have pollution

abatement equipment; in other cases, existing

47 oE~, op. cit., footnote ~.

48 coal Tcchno]ogy Research Institute, “World’s Emission Purification Techniques,” Japan Ministry of Foreign Affairs, “Japan’s

Environmental Endeavors,” April 1992, p. 10.

49 * ‘Tmck M~er~ ~essed T. Reduce Ni@ous Oxide Emissions, ” Nikkei Sangyo Shimbun, Dec. 4, 5, and 6, 1991, in Foreign Broadcast

Information Service, YPRSReporr:Environmenral issues, JPRS-TEN-92-001-L, Mar. 25, 1992, pp. 17-21. ‘f%ree-partseriaf rtewspaperarticles

by Hirofumi Tanaka.

50 En;,ironment ~~ Development: Japan’s &p~rience uti Ac~ievemenf, Japan’s national qofi to mCED 1992, December 1991, pp.

32-33.

SI Anotier OTA assessment on environmental and ener~ technology transfer to Central and Eastern Europe is underway. U.S. Congress

Office of Technology Assessment Energy Eflciency Technologies for Central and Eastern Europe, OTA-E-562 (Washi.ngto~ DC: U.S.

Government Printing Office, May 1993) is the fwst report of that assessment; a second report, to be released in 1994, will address issues of

energy supply and provide additional analysis of energy efficiency.

52 see ~x 4_B for discussion of the former East Gefmany.
106 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

equipment is often in disrepair. Reliance on poor

quality high-sulfur coal is very high, accounting

for 80 percent of Polish and 62 percent of Czech

and Slovak energy consumption.53 Sewerage and

effluent treatment is usually inadequate-where

present. Safe waste disposal sites are lacking. The

list of health and environmental impacts is lengthy—

diminished lifespans, high rates of lung disease,

extremely high heavy metal levels in children’s

blood, cities blackened with air pollution, dead

rivers and lakes, ground saturated with spilt oil,

eroded and saline soils, dying forests, Chernobyl,

and so on—and is documented elsewhere.54

Industrial production itself is hampered by

pollution; reportedly 65 percent of the rivers and

streams in the Katowice region of southwestern

Poland—and 30 percent nationwide—are so polluted that they are unusable for industrial purposes.

55 The major factors of production-labor,

capital, and natural resources-have all been

impaired by environmental damage, And, contamination inhibits Western investment.

While the needs are great, the resources are

modest. Clean-up of Poland alone might require

$260 billion over 25 to 30 years, of which $70

billion would be for pollution abatement and most

of the rest for restructuring the energy and

industrial sectors.56 The pursuit of a cleaner

environment is handicapped by intense economic

and political difficulties in moving to market

systems of exchange, and from ethnic friction and

warfare in some areas. However there remains

interest in improving the environment. For instance, Poland committed about $1 billion to

environmental investments in 1991, of which all

but $60 million was raised in-country, primarily

from environmental fees and fines; these locally

raised funds were expected to double in 1992.57 In

addition to local currency funds, which might be

translated into export commodities such as oil and

gas, financial resources come from the European

Bank for Reconstruction and Development, the

World Bank, the Nordic Investment Bank, the

European Investment Bank, EC’s PHARE program, and bilateral assistance agencies of the

United States and other countries. Still, many

environmental products, as well as expertise,

must be imported into the region.

Warsaw Pact forces treated their real estate

with less care than U.S. and other Western

military forces, and the former Soviet nuclear

complex is probably an extraordinary challenge

to safety and environment.58

Water quality is a major environmental priority. Almost two-thirds of Poland’s environmental

expenditures in 1991 were for the water sector.59

Polish environmental spending for 1991-1995 is

anticipated to reach $1.29 billion for water

53 1989 statistics, united Nations !jtatistical Office, U.N. Energy Thpes (New Yor~ NY: United Nations, 1991) in World Resources Mtitute,

World Resources 1992-93 (New York NY: Oxford University Press, 1992), T 5.1.

54 see, for ~S~nce, M. &jhbach and A. Friendly, Jr, Ecocide in the USSR: Health andNature Under Siege (New York NY: Basic Books,

1992); Bedrich Moldan and Jerald L. Schnoor, “Czechoslovakia: Examking a Critically Ill Environment,’ Environmental Science and

Technology, vol. 26, No. 1, 1992, pp. 14-21; Ministry of Environmental Protection, Natural Resources, and Forestry, The Stare of the

Environment in Poland: Damage and Remedy (Warsaw, Poland: 1992); World Resources Institute, WorldResources 1992-93 (New York NY:

Oxford University Press, 1992), Ch. 5; The World B@ Environment Strategy Study reports for Bulgaria, Poland, and Czechoslovakia.

55 James F. Manji, ‘‘Cleaning up in Eastern Europe,“ Automation, May 1991, pp. 20-21.

56 me world Ba~ “pOland Draft Environment Stllltegy Study, ” ~~t summ ary, conclusions, and recommendations (Washington DC:

The World B@ 1989), p. iii; % World Resources Institute, World Resources 1992-93 (New York: Oxford University Press, 1992), p, 57,

ST ~ek Now~ows@ Director for mternatioml Cooperatio~ Ministry of Environmental Protection of Poland, presentation at GLOBE ’92,

Vancouver, BC, Canada, Mar. 19, 1992.

58 See U.S. Conflss, Office of Technology Assessmen~ Dismantling the Bomb and Managing the Nuclear Materials, OIX-O-572

(Washington DC: U.S. Government Printing Office, September 1993) for discussion of environmental, health, and safety issues related to

dismantling and disposing of military nuclear materials.

59 Ke~e~ J. Macek and Grego~ K. Schw~z, “Domestic Environmental products and Services Sectors: Poland, ” TMS Management

Consulting, Framingham, MA, October 1991. Municipal solid waste or equivalent was not a listed category,
Chapter 4-The Global Environmental Market: Trends and Characteristics I 107

supply, $3.05 billion for water protection, $2.67

billion for air pollution, and $360 million for

industrial waste. Hungary intends to spend over

$1 billion on water supply and sewerage treatment infrastructure out of a total $2.5 to $3.5

billion environmental investment in 1992 -1996.60

Air pollution is a very visible problem. Baghouses

and other filters, cyclones, and electrostatic precipitators are relatively simple, low-cost, and

effective means of controlling the health threats

posed by particulate found in smoke and dust.

Coal-cleaning technologies can improve combustion efficiency. Heavy reliance on high-sulfur

brown coals leads to a market for desulfurization

technologies. Control or prevention of NOX and

VOC emissions for both stationary sources and

vehicles are additional needs.

The large stock of obsolete and inefficient

capital provides an opportunity for the provision

of cleaner production and energy efficiency

technologies for both retrofit and new facilities. A

recent study estimates that six former Eastern

Bloc countries (Poland, Hungary, Bulgaria, Rumania, Czech Republic and Slovakia, and the

former Yugoslavia) offer a $19.4 billion potential

market for industrial-sector energy-efficiency equipment—meters, analyzers, thermometers, steam

traps, fluorescent lights, combustion equipment,

insulation, and others.61 This estimate was derived from results of a U.S. Agency for International Development (USAID) energy assistance

program in which 48 industrial facilities in these

countries had energy audits and were provided

with over $1 million of U.S.-manufactured energyefficiency equipment. The equipment provided

was low-cost and was chosen to offer simple

payback within 3 years, although most installations yielded much faster payback—in some

cases measured in days.

Monitoring and control technologies, including industrial process control and residential

thermostats, offer large environmental and commercial opportunities in these countries.62 For

instance, some urban areas are heated from

district heating plants, which in principle can

offer superior efficiency because of the opportunity to cogenerate electricity and useful steam.

District heating also obviates the need for separate heating plants in each building served.

However, in Moscow and other cities, apartments

lack thermostats, so overheated apartmentdwellers open their windows in mid-winter, while

those in apartments further down the steam line

have insufficient heat; the result is tremendous

energy waste and discomfort.63 Companies such

as Honeywell are investigating opportunities in

this area.64 Business opportunities for energy

service companies (ESCOs) may also arise.

ESCOs, pioneered in the United States, identify

and provide equipment and services for improved

energy efficiency to industrial and commercial

clients. Their earnings come from a portion of the

money saved from clients’ energy bills.

In some cases, existing facilities are so inefficient as to be beyond salvage. This leads to the

possibility of phasing out dirtier methods of the

past-open hearth steelmaking and mercuryconsuming chlor-alkali production, for instance—

and introducing cleaner production technology,

In the long run, gas turbines burning the region’s

plentiful natural gas may produce electricity more

cheaply and with less pollution than existing

60 Kemeti J. Macek, ‘‘Domestic Environmental Products and Services Sectors: Hungary,’TMS Management Consulting, Framingham,

MA, January 1992.

61 -k Hopk~, Bu$ine$$ Oppotiunities in Ea$tern Europe for Energy .Efi.&nt I&~s~ia~ products (WNJlhgtO~ IX: The Alliance tO

Save Energy, January 1992).

62 us, conwe~~, Office of TecJ-molou Assessment, Energy Eficiency Techno[ogiesfor central and&stern Europe, op. cit., footnote 51,

pp. 55, 65-67.

by Ibid., p. 65.

M fbid., pp. 88-89.
108 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

plants. Similarly, fluidized-bed combustion and

other clean coal technologies are likely to prove

superior to air pollution controls on existing

power plants. Long-term markets for more economically efficient and environmentally preferable industrial production technologies may far

exceed the demand for retrofitted pollution abatement and waste treatment equipment. Some new

facilities will be needed before others; for example, capacity to produce unleaded gasoline and

low-sulfur motor fuels will bean early need if the

region adopts EC-like vehicle standards.

9 Latin America

Growing environmental awareness and liberalizing of trade are opening up Latin American

environmental markets. The region is characterized by a heretofore modest commitment to

environmental protection and by continuing poverty in both rural and urban areas. However, the

traditional view of environment and development

as in opposition is softening. And some countries,

have committed growing financial, legal, and

administrative resources to environmental matters; for example, the Mexican environment

agency’s budget grew from $4.3 million in 1988

to $78 million in 1992, essentially doubling

yearly in real terms.65 In April 1992, Mexico, with

World Bank aid, began a $126 million program to

strengthen environmental management capacity

at federal, state, and local levels.66 Mexico and

Brazil are and will continue to be the region’s

largest environmental markets.

Mexican environmental markets are of particular interest to the United States because of a long

Table 4-8-Mexico City Air Pollution

Control Program ($ million)

By category of expenditure

Clean fuels/fuel substitution 2,153

Rehabilitation & expansion of public transport 1,536

Emissions control and monitoring 639

Reforestation 327

Training and R&D 27

By source of funding

Mexico 3,671

Japan Overseas Economic Cooperation Fund 689

Japan Export-Import Bank 228

Interamerican Development Bank 46

World Bank 44

SOURCE: Comprehensive Pollution Control Program for the Mexicm

City Metropolitan Zone, April 1991 in U.S. AID, Energy and Environment Market Conditions in Mexico (Washington, DC: U.S. AID, March

1992).

shared border, environmental issues associated

with the proposed North American Free Trade

Agreement (NAFTA), and growth of commercial

ties (e.g., American-owned maquiladora plants)

and trade. Extreme air pollution in Mexico City

and a 1992 disaster in which portions of the

Guadalajara sewer system exploded, resulting in

significant loss of life, are among the situations

that have raised the visibility environmental

issues in Mexico and have aroused the interest of

EGS exporters and investors abroad. Significant

funds are now available for environmental protection; for instance, $4.6 billion is budgeted for a

4-year Mexico City air pollution control program

that started in 1991, and $4.5 billion is planned for

water/wastewater investments during 1990 to

199467 (see tables 4-8 and 4-9). An additional

$460 million over 3 years is being committed for

the Mexican side of the U.S.-Mexican border

tis Ser@o Reyes LuJa% subse~e~ofWo]om,SEDUE (Secretariatfor mo]ogyand Urban Development), Mexico, Presen~tion at GJ-OBE

’92, Vancouver, B. C., Canada, Mar. 19, 1992. The Mexican environment agency is now part of SEDESOkthe Secretariat for Social

Development.

66 U.S. Agency for hternation~ Development Environmental Market Conditions and Business Opportunities in Key btin Arnen”cun

Countries, Business Focus Series, (available through USAID, Arlingto~ VA), October 1992.

67 U.S. Agency for ~te~tio~ Development Offke of Energy & Infrastructure, Energy and Environment Marker COnditiOnS in Me.xico,

Business Focus Series, (available though USAID, ArlingtoU VA), March 1992.

68 Jm Gflbrea~ Rich, $ ‘Financing Environment~ and Infrastructure Costs Under a North American Fme Trade Agreement With Emphasis

on the Texas-Mexico Border, ” draft presented to the Institute of the Americas conference “Latin American Environment and Technological

Cooperation’ La Jolla, CA, NOV. 17-19, 1991.
Chapter 4-The Global Environmental Market: Trends and Characteristics I 109

Table 4-9—1 990-94 Water Supply and Sanitation Sector Plan ($ million)

1990 1991 1992 1993 1994 Total (%)

Water supply 206.1 674.1 695.6 690.8 728.1 2,994.7 (66.5)

Sewerage 63.7 232.6 252.1 247.0 238.0 1,033.4 (23.0)

Treatment 16.0 121.5 107.5 112.9 117.6 475.5 (10.5)

Total 285.8 1,028.2 1,055.2 1,050.7 1,083.7 4,503.6

NOTE: Does not include Mexico City, Guadalajara, Monterrey, and some U.S.-Mexico Border Plan water and

wastewater investments. The inter-American Bank has loaned $300 million for Guadalajara and $325 million for

Monterrey that are not included in the figure. Mexican projects in the U.S.-Mexico Border Plan allocate an addition $220

million for ‘%vastewater treatment and recycling projects.”

SOURCE: World Bank, 1991 and U.S. AID, Energy and Environment Market Conditions in Mexico (Washington, DC:

U.S. AID, March 1992)

region. 68 The World Bank recently signed an

agreement with Mexico to provide $1.8 billion in

loans, matched by $1.2 billion from the Mexican

government, for environmental clean-up during

the years 1994 to 1996.69

A special facility for financing environmental

infrastructure projects along the Mexican-United

States border region has been proposed as part of

an environmental side agreement to NAFTA.

(Congress had not yet voted on NAFTA when this

report went to press).

Table 4-10 provides a partial estimate of

Mexico’s environmental market size. Of an estimated 1992 total environmental market of $614

million, imports accounted for $150 million, of

which $85 million (about 56 percent of imports)

came from the United States.70 U.S. Department

of Commerce data from 1989 indicate that U.S.

companies garnered about a quarter of Mexico’s

air pollution import market. Other major players

included Germany, Japan, and Switzerland. U.S.

producers dominated equipment imports for water

pollution (60 percent of imports) and solid and

hazardous waste (over 70 percent of imports) in

1989; German, Japanese, French, and Swiss firms

were prominent rivals .71 Although not included in

these figures or table 4-10, a U.S. Department of

Commerce analysis found that the Mexican solid

Table 4-10—Mexican Environmental Markets

($ million)

1992 1993-95

1990 1991 (est.) (est.)

Air pollution 78 90 104 119-157

Water pollution 105 126 400 500-780

Solid/hazardous waste” 83 95 110 127-167

Total” 266 311 614 746-1104

● See text for discussion of environmental products that maybe omitted

from these figures,

SOURCE: U.S. Department of Commerce in U.S. AID, Environmental

Market Conditions and Business Opportunities in Key Latin American

Countries (Washington, DC: U.S. AID, October 1992).

waste handling equipment market (garbage

trucks, waste compactors, street cleaners, and

other equipment) amounted to $500 million in

1991 and was expected to reach $625 million in

1992; U.S. suppliers of this equipment sold $233

million (69 percent) of the $337.5 million Mexico

imported in 1991.

There are significant environmental markets

elsewhere in Latin America. Tables 4-11 and 4-12

present 1992 estimates of the six largest markets

and their imports. Environmental spending is

expanding for the provision of public water,

sewer, and refuse disposal services as well as for

industrial environmental activities. Major buyers

of air and water pollution control equipment

@ Gary Lee, “World B* Mexico Agree on Pollution Cleanup Funds, ” Washington Post, Sept. 29, 1993, p. A18,

TO U.S. Agency for Internation~ Developmt@ Environmental Market Conditions and Business Opportunifi”es in Key htln Amen”can

Countries, op. cit., foomote 66.

7) Ibid.
110 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Table 4-1 l—Major Latin American Environmental

Markets in 1992($ million)

Air Water Solid/Hazard Total

Argentina 53 100 15 168

Brazil 120 845 50 1,015

Chile 195 350 15 560

Colombia 20 15 10 45

Mexico” 104 400 110 614

Venezuela 25 9 10 44

Total 517 1,719 210 2,446

● See table 4-10 for details and note.

SOURCE: U.S. Agency for International Development Entirorvnenta/

Market Conditions and Business Opportunities in Key Latin American

Countries (Washington, DC: October 1992).

Table 4-12—Major Latin American Environmental

Import Markets in 1992 ($ million)

Total Percent Imports

imports of total from U.S. Total

Argentina 42 25 11 168

Brazil 190 19 92 1,015

Chile 500 89 200 560

Colombia 35 78 10 45

Mexico 150 24 85 614

Venezuela 43 97 38 44

Total 960 39 436 2,446

SOURCE: U.S. Agency for International Development Enwronmenta/

Market Conditions and Business +portunities in Key Latin Amerkan

Countries (Washington, DC: October 1992).

include chemical, petroleum refining, steel, pulp

and paper, food, textile, and other process industries. For instance, Brazil’s steel, pulp and paper,

and cement sectors plan environmental investments that could reach $300 million a year or

more.

72 The electric power sector is another

important market for environmental equipment.

Economic liberalization and loosening restrictions on foreign investment in energy and other

industries may assist in the diffusion of cleaner

production technologies to the region.73 Multinational firms from the United States and Europe are

major purchasers of environmental equipment

and services.

As in Central and Eastern Europe and the

former Soviet Union, cleaner production opportunities in Latin America arise from the building of

new facilities and introduction of cleaner processes. For instance, the Chilean copper industry is

considering investment in new and modernized

smelters, copper dryers, and sulfuric acid recovery units that will prevent air pollution.74 Pemex,

the Mexican national oil company, has been

adapting refineries to produce unleaded gasoline

and low-sulfur fuels.75 One low-sulfur fuels

project, costing $450 million in 1992, involves

transfer of technology from U.S. companies

(HRI, Texaco, and Foster Wheeler) to several

Mexican refineries. Anticipated 6 to 8 percent

growth in annual electricity demand in Mexico

through 200076 could produce markets for cleaner

and more efficient electricity generation and

end-use technologies as well as for pollution

abatement equipment. These examples are illustrative and could apply generally to other expanding industrial sectors throughout the region.

~ South Korea and Taiwan

South Korea and Taiwan are the two largest of

the four East Asian ‘‘tigers,’ the other two being

Hong Kong and Singapore. These Newly Industrialized Countries (NICs) have engineered sustained high rates of economic growth. Their

72 Ibid., p. 41.

73 Bird~ md Whwler provide limited empirical evidence horn Latin America that relatively open economies adopt Ckaner tWhOIO@eS

more readily than relatively closed economies. Nancy BirdsaU and David Wheeler, ‘‘Trade Policy and Industrial Pollution in Latin America:

Where are the Pollution Havens?, ” Patrick Low (cd.), Infernatiomd Trade and the Environment (Washington DC: The World Bank, Aprit

1992) pp. 159-67.

74 U.S. Agency for ~ternation~ Development Environmental Market Conditions and Bufl”ness Opportunin”es in Kt?y hin Amen”can

Countries, op. cit., footnote 66.

‘s Ibid., p. 27.

T6 U.S. Agency for kte~tio~ Developmen~ Energy and Environment Market Conditions in Mm-co, Op. cit., foomote 67.
Chapter 4-The Global Environmental Market: Trends and Characteristics ! 111

Table 4-13—Republic of Korea Environmental Investment Plan 1991-95 ($ million)

1991 1992 1993 1994-95 Total

Air pollution $1,384.2 $1,342.5 $598.9 $1,094.0 $4,419.7

Water pollution 622.5 872.0 1,110.4 1,624.7 4,229.7

Waste management 204.7 364.5 493.6 1,890.0 2,952.8

Soil conservation 12.6 15.4 17.7 47,6 93.3

Marine conservation 21.9 25.3 24.0 13.3 84.5

Nature conservation 0.3 0.7 1.3 3.2 5.4

R&D 2.7 12.0 12.7 25.7 53.1

Total 2,248.9 2,632.5 2,258.7 4,698.3 11,838.5

SOURCE: Ministry of Environment (Republic of Korea), White Paper 7990, 1991, in Ral Woo Lee, “Perspective of

Environmental Industry in Korea,” paper presented at GLOBE ’92, Vancouver, BC, Canada, Mar. 16-20, 1992.

(Categories may not add to total due to rounding off.)

export-led strategies of industrialization are models for other developing countries. Neighboring

countries Thailand, Malaysia, and Indonesia aspire to be the next tigers, while other countries in

Asia, Latin America, and Africa try to distill the

tigers’ formulae for success and adapt them to

their own contexts. However, the tigers’ economic success has occurred with significant

adverse impacts on environmental quality.

Inadequate or nonexistent sewerage and industrial effluent treatment facilities, improper handling of municipal and hazardous wastes, and

poor control of air emissions affect the health and

well-being of Koreans and Taiwanese. Drinking

water resources are threatened, as are coastal

fisheries (which are also overfished).

Both countries have substantially boosted their

environmental protection efforts in recent years.

The Korean Ministry of Environment has outlined a $10.5 billion, 5-year program of public

and private environmental investment from 1991

to 199577 (see table 4-13). The Korean environmental investment plan includes large allocations

for SO2 controls, waste landfills and incinerators,

and wastewater treatment. Investments in cleaner

fuel infrastructure, such as liquefied natural gas

facilities, are part of Korea’s air quality investment plans. The plan includes construction of 60

wastewater treatment plants and 55 incinerators

by 1995. Thirty-four sanitary landfills may be

built over the next two decades.

In 1991, South Korean businesses spent about

$732 million on pollution control facilities, of

which $375 million was for the water sector, $314

million for air quality, and $37 million for noise

abatement. 78 Reportedly, $181 million of EGS

were imported to South Korea in 1991, with the

U.S. share accounting for 14 percent.79 As stricter

air and water pollution standards come into effect

in 1995 for air and 1996 for water, environmental

investments could grow from $1.25 billion in

1992 to $4.5 billion in 2000, according to sources

from South Korea’s Energy and Resources Ministry.80Requirements for catalytic converters in.

new automobiles will create large markets. Growing environmental concerns have led to an

expanding Korean environmental industry--over

$750 million of environmental projects were

77 ~is~ of Environment (Republic of Korea), White Paper 1990, 1991, in T~ WOO he, “Perspective of Environmental Industry in

Korea, ” paper presented at GLOBE ’92, Vancouver, BC, Camda, Mar. 16-20, 1992.

78 “Businesses Spend More on Pollution Facilities in 1991, ” Yonbap (S. Korean news agency), Mar. 9, 1992, in Foreign Broadcast

Information Service, JPRS Report: Environmental Issues, JPRS-TEN-92-O08, May 5, 1992, pp. 4546. Business expenditures on solid waste

facilities were not noted.

79 ‘ ‘Korea Needs U.S. Equipment; Problems Remain, ’ NewsACTION, VO1.7, No. 1 (spring 1992), pp. 16-17.

go “Businesses Spend More on Pollution Facilities in 1991, ’ Op. cit., footnote 7*.
112 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Table 4-14-Selected Environmental Projects

in Taiwan

Wastewater treatment $4.7 billion 21 projects

Solids waste disposal 3.5 billion 23 projects

General projects/other 1.6 billion 9 projectsa

Air and noise pollution 532 million 7 projects

Environmental monitoring 256 million 5 projects

“Environmental sanitation” and

toxic wastes 53 million 3 projects

a me ~mjwt of the Chinese Petroleum Corf30ration for “Industrial

Pollution Control” accounts for $1.3 billion in this category.

SOURCE: International Business Development, Northwestern University. (Peter Hage, “U.S. Execs Hear Details of Taiwan’s Hot Market,”

NewsACT/ON, vol. 7, No. 1 (spring 1992), pp. 5-7, published by the

International Business Development program, Northwestern University.)

awarded to 631 registered environmental firms in

South Korea in 1991.81

The Taiwan Six-Year National Development

Plan for 1992 to 1997 lists $305 billion of public

infrastructure and state-owned industrial projects.82 Of these 775 projects, 68 (accounting for

$10.7 billion) are under partial or complete

purview of the Taiwan Environmental Protection

Administration or local environmental agencies

(see table 4-14). Additional projects of the

Taiwan Six-Year Plan that are environmentally

significant call for installation of cleaner production technologies, including combined-cycle gas

turbine generators for Taiwan Power Co., cogeneration and heat recovery projects for the state oil

and steel companies, fuel desulfurization facilities, and various efficiency upgrades in stateowned industrial fins.

Taiwan’s environmental market was $907 million in 1991, of which imports supplied 68

percent, including $210 million for U.S. goods

and services.83 Details are summarized in table

4-15.

Table 4-15-Taiwan Environmental Equipment,

Instruments, and Services Market and Trade

($ million)

Est. Real

Ann.

Growth

1989 1990 1991 (percent)

Total market 645 745 907 20-25

Imports 450 520 620 20

Exports 3 5 8

Local production 198 230 295

1990 import market share (percent):

U s . 34

Japan 29

W. Germany 17

Sweden 5

United Kingdom 4

SOURCE: U.S. Department of Commerce and American Institute in

Taiwan.

I India and China

The two most populous nations in the world,

China and India, face major challenges in meshing economic development and environmental

protection. The two Asian giants suffer from

insufficient water, sanitary, and refuse disposal

services for their populations. The industrial

sectors of both nations are growing fast, including

highly polluting sectors such as chemicals, metals, electric power, and cement. Both countries

rely on large deposits of cheap coal that create

significant pollution problems, particularly when

both fuel combustion and energy use are inefficient. These countries are struggling to provide

basic environmental services at the same time

they face growing toxic and hazardous threats

posed by modern industry. The tragic toxic

chemical release at Bhopal, India in 1984 focused

attention on environmental safety in the growing

Indian chemicals sector.

al ‘{s~cter G~de~~ for Environmen~ Protection” The Korea Times, Aug. 18, 1992, in Foreign Broadcast Information service, JpRS

Reports: Environmental fssues, JPRS-TEN-92-017, Sept. 21, 1992, p. 29.

62 ~eficm~ti~tein’IdwaD, ‘Listing of Taiwan’s Six-YWDevelopment Plan Projects (Partial List) & Status Report on Selected Major

Projects,” August 1991.

63 ~e~cm ~ti~te in mwan and U.S. Department of Commerce, International Trade Administration Market Research Reports:

Taiwan-Pollution Control J@ipmen~ July 1991.
Chapter 4–The Global Environmental Market: Trends and Characteristics I 113

Environmental markets in these two countries

are modest by industrial nation standards. The

U.S. Department of Commerce estimated that the

total Indian market for pollution control equipment in 1990 was $400 million, of which imports

accounted for 20 percent ($80 million).84 The

great majority of environmental equipment is

made in-country by Indian firms, a number of

which are affiliated with U. S., Swedish, and

German EGS suppliers via licensing or partnership arrangements. British, Japanese, and Swiss

EGS suppliers are also active in the Indian

market. About 45 percent of pollution control

equipment demand in India is thought to come

from the electric power and chemical sectors.

Indian environmental equipment markets are

projected by the U.S. Department of Commerce

to grow 25 to 30 percent annually over the

following several years. Estimates of demand for

environmental consulting and other services were

not available.

China’s environmental investments are increasing. The Five-Year Plan for 1991-95 allocates about $15 billion for environmental protection, or about double the spending allocated in the

1986-90 Plan.85 The government goal is for state

spending on environment to reach 0.8 percent of

GDP by 1995. Much of the money is likely to be

spent on countering pollution from coal-burning

by means of fuel switching and improving heating

system efficiency, as well as end-of-pipe emissions controls. Japan has targeted part of its Green

Aid toward Chinese power plants for leasing and

adaptation of flue-gas desulfurization technology.

86 American clean coal technologies might

meet some of China’s needs.

Water quality spending in China is considerable, with an equipment and instrument market

estimated at about $433 million in 1991.87 However, imports accounted for less than $50 million

of this market; Japan (40 percent), Austria (25

percent), and the United States (8 percent) were

major suppliers.88 Solid and hazardous waste

handling and disposal are also acute needs; China

has few landfills or incinerators that can meet

industrial country standards for environmental

protection. As in the case of India, an indigenous

environmental industry is developing. Over 4,000

enterprises with an estimated output of $1 billion

comprise the Chinese environmental industry.89

~ Other East Asian Markets

Environmental markets elsewhere in Asia are

also expanding. Like Taiwan and South Korea,

the Association of South East Asian Nations

(ASEAN) countries (Brunei, Indonesia, Malaysia, the Philippines, Singapore, and Thailand)

have been experiencing rapid economic growth

and industrialization. But environmental degradation accompanying industrialization has become significant and recognition of the problem

is only recent. A very rough estimate of the 1993

aggregate ASEAN environmental market is $1.8

billion. 90 (Environmental issues related to forS4 U.S. Dep@ment of Commerm, International Trade Administration, Market Research Reports: India-Pollution COn@Ol @pment in

the Chemical & Power Generation Sector, July 1991 for all information in this paragmph.

85 “C~a Batfles Hard To Clean Up Environment, ” China Daily, Oct. 8, 1992, p. 4, in Foreign Broadcast Information Service, JPRS

Reports: Environmental Issues, JPRS-TEN-92-021, NOV. 12, 1992, p. 6.

86 “Japan TO ROPOW cmbae Equipment To Trap Sulfur From Coal-Burning Plmts,” International Environment Reporter, May 19,

1993, p. 375.

ST U.S. Dep~ment of Commerce, International Trade Adrninistratio~ Market Research Reports: China-Urban Water stitatio~

ISA9109, Dec. 23, 1992.

88 Ibid.

89 ~Ua news agency, ‘‘First Market for Environmental Protection Products, ’Aug. 9, 1993 in Foreign Broadcast Information Service,

JPRS Report: Environmental Issues, JPRS-TEN-93-022, Sept. 3, 1993, p. 2.

90 Jomthm Ma=, Acting &SiS@nt secretary for Trade Developmen~ U.S. Department of Commerce, WTitten testimony before the

Subcommittee on Environment and Nahmd Resources of the House Committee on Merchant Marine and Fisheries, Feb. 25, 1993.
114 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

estry are very important in this region but are not

discussed in this assessment.)

Singapore has instituted relatively strong environmental requirements, which accompany a

relatively advanced economy. The country Ministry of Environment has allocated $609.3 million

to environmental programs for 1992 and aspires

to take regional leadership in the environmental

industry.91 Unleaded fuels and stricter emission

requirements have been introduced, and CFC

substitution for the country’s electronics industry

is underway. Hong Kong, another city-state (and

not an ASEAN member), has emphasized landfills

and sewage treatment. Browning-Ferris Industries (U.S.), for example, was recently awarded a

joint venture contract valued at $400 million over

25 years to build and operate a landfill in Hong

Kong. 92 A $15 billion sewerage infrastructure

program is in progress, with extensive British

business involvement.93 Hazardous wastes are

also a growing concern in this rapidly industrializing region; Hong Kong, Singapore, and Indonesia have integrated hazardous waste facilities in

operation or under development by Waste Management International, subsidiary of WMX Technologies (U.S.), and Malaysia has recently awarded

a contract for such a facility to I. Kruger

(Denmark).

Water and wastewater treatment, including

industrial effluent treatment, are priorities

through most of ASEAN.94 River water is often

highly polluted, sewerage service and safe tap

water are often unavailable. Oil and chemical

spills are another concern in this region because

of a high concentration of petroleum production

and refining facilities. The World Bank and Asian

Development Bank have over $2.5 billion of

urban water and wastewater projects under development in Indonesia, although that country’s

1992 market for water pollution control equipment was estimated at only $23 million.95 Malaysia’s 1991-1995 development plan allocates over

$1.5 billion for water resources, of which about a

quarter is for sewerage and urban drainage.96

Air emissions are also of growing concern.

Clean coal and other cleaner energy technologies

are important features in Thailand’s environment

and development plans. Recent Thai utility awards

of flue-gas desulfurization contracts to Japanese

suppliers and gas turbine power plants to U.S.

companies are examples of energy and air quality

business opportunities in the area. Vehicles emissions are becoming more problematic and it is not

unreasonable to believe that other nations of the

region will follow Singapore, South Korea, and

Taiwan in adopting cleaner motor fuels and

vehicles.

Again, as illustrated in previous sections, rapid

development creates opportunities for the provision of both traditional environmental products

and cleaner industrial and energy technologies.

U Near East

Environmental protection is an emerging concern in the Near East as human populations,

industrial activity, and agricultural production

increase in scale and concentration. In most

countries of the region, environmental regulations are still at an early stage of development.

91 V~C~ntYipandBfi~Flm~~ “c~HongKong, As~coun~es~ ~ontier~ke~,’’New~c~]ON, VO1. 7, No. 1 (sp@ 1992),

pp. 14-16.

92 ~ ‘Browning-Ferns Gets Contract to Operate a Hong Kong Dump,” Wall Srreet JournaZ, June 29, 1993, p. A8.

93 Yip and F~e4 op. Cit., fOOtUOte 91+

94 U. S.-ASEAN Council for Business and Technology, “A SEAN Environmental Markets: Opportunities for U.S. Equipment and Semice

Companies” (Washington, DC: 1991).

95 U. S..ASEAN Council for Business and Technology, “ASEAN Wastewater Treatment Markets: Opportunities for U.S. Companies,”

draf~ 1992.

96 Ibid.
Chapter 4-The Global Environmental Market: Trends and Characteristics I 115

Table 4-1 6—Egypt’s Estimated Environmental

Market ($ millions)

1992 1997

Municipal water and wastewater

treatment

Waste recycling

Industrial wastewater treatmt

Air pollution control

Water purification systems

Municipal solid waste

Renewable energy (mainly wind)

Mobile source air pollution

Air/water monitoring/testing

Environmental consulting

Total

350’

5

9

N A

b

30

NA

12

0

6

15a

430

550-700

8-10

100-150

100-150

50-60

NA

20

10

10

40

890-1,150

a Current spending chiefly from development assistance.

b NA denotes information not available

SOURCE: Project in Development and Environment and U.S. AID,

Profile of the Environment Business Sector in Egypt (Arlington, VA:

October 1992).

Water is the major environmental concern of

the region. Estimates of Egypt’s environmental

market indicate that water and wastewater treatment is by far the greatest priority in that country

(see table 4-16). Currently, 90 percent of Egypt’s

effluents are untreated.97 Twenty percent of

Morocco’s 1988-1992 National Investment Budget

was dedicated to sanitation.98 Efficient water use

and wastewater recycling are important components of Israeli environmental practice; 66 percent of sewage is reused for irrigation and drip

irrigation apparatus is employed to minimize

spread of water borne pathogens.99

Waste management is a public health concern

particularly in urban areas. Greater Cairo has

landfill and comporting capacity to handle only

22 percent of wastes generated; most wastes in

smaller Egyptian cities are not collected.100 Tur-

.> . ———— - -w

Abu Rawash Wastewater Treatment Plant, Egypt.

Many newly industrialized and developing countries,

and nations in Central and Eastern Europe, plan

large investments in water related infrastructure

development, often with support of international aid

agencies. These projects offer business opportunity

for suppliers of equipment and engineering and

construction of firms.

key reportedly has no modern landfill or waste

101 With growing industrial incineration capacity.

production, lack of hazardous waste treatment

and disposal capability is also an issue. Air

pollution is a major concern in urban areas as

industry, motorized transport, and electric power

generation increase.

1 Other Developing Countries

Environmental markets in most of Africa, other

parts of Asia, other parts of Latin America, and

the small island nations are not well-documented.

Environmental needs vary with the level of

industrialization and urbanization. For most developing countries, provision of basic water,

97 ~ojwt in Development and Env~onment and U.S. Agency for International Development, PrOfi/e of the En}’ironmenf ~USlnf3SS ~ect~r

in Egypt (Arlington, VA: October 1992), p. 9.

98 U.S. Dep~ment of Commerce, Market Research Reports, Morocco--Water Sanitation Muipment, Dec. 23, 1992.

99 YomAvnimelec~ ‘ ‘Irrigation With Sewage Effluents: The Israeli Experience, ’ Environmental Science & Technology, vol. 27, No. 7,

hdy 1993, Pj). 1278-1281.

lm ~ojcct in Development and Ikwircmrntmt and U.S. Agency for International Development, Op. Cit., footnote 97, P. 10.

101 IntamtloMl Fimnw Cowomtiom ~nve~ting in the Environ~nt: B~~ine~~ oppormni~ie~ in De},e/oping coun~’es (W&liXl@O~ ~:

World Bank and International Finance Corporation 1992), p. 16.
116 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

sewer, and refuse disposal services are the major

environmental priorities. Often in these countries,

techniques and technologies appropriate for rural

village application (which are not examined in

this assessment), such as improved cookstoves,

forest management, and improved agricultural

practice, are of great importance.

Relative to larger or more industrialized developing countries, these national environmental

markets are small. Environmental regulations and

enforcement are often weak and the availability of

technical and managerial expertise limited. Most

less-developed countries must rely on assistance

from multilateral institutions and bilateral donors

to build their environmental management capabilities and their environmental infrastructure.

For environmental product and service providers,

aid and foreign investment are likely to be the

major funding sources for environmental business.

CONCLUSIONS

Markets for environmental goods and services,

including cleaner production technologies, are

growing throughout the world. The character of

these markets depend on the environmental and

economic situations in each country. Perceptions

of risk and available resources-financial, technical, and others-determine what environmental

markets will be like.

The largest markets are in the industrialized

nations. A leading tier of countries (including the

United States, Japan, and Germany) continues to

toughen their relatively stringent regulations while

some other industrial nations play catch-up. Even

within the leading tier, regulatory stringency

varies-a country may have the strictest regulations for some pollutants and more lax ones for

others.

The NICs (South Korea, Taiwan, Singapore,

and Hong Kong) and advanced developing countries, including several countries in ASEAN and

Latin America (especially Brazil and Mexico),

have recently made environment a prominent

feature of governmental attention and national

investment. The industrialized nations and the

more prosperous of the newly industrialized

states have the money to spend on environment

and will likely dominate environmental market

growth in the decade ahead. A number of

low-income countries, including China, India,

and Indonesia, also present environmental business opportunities.

Central and Eastern Europe and the former

Soviet Union have enormous environmental problems and financial resources that are sparse in

comparison--except for eastern Germany, which

can rely on the wealth, stability, expertise, and

strong currency of its western compatriots. While

nations like Poland are now dedicating local

currency resources and adopting policies (like

rational energy pricing) that are more conducive

to improved environmental performance, the

region’s unstable institutions of business, property, law, and governance may dissuade some

foreign investment. However, foreign assistance

from development banks and bilateral programs

is significant, and innovative investors might take

returns in the form of oil, gas, fertilizer, and other

export products. Political and social unrest make

portions of the region financially and even

physically unsafe (e.g., former Yugoslavia, the

Caucasian republics) for investment. An advantage the region has over much of the developing

world is their highly educated workforce and

highly trained technical and scientific talent.

Most of the developing world is struggling to

deal with the environmental stresses often exacerbated by a lack of basic environmental infrastructure and services, like running water, sewerage,

and refuse collection. In less-developed countries, environmental product and service exporters and investors may find profitable options

limited to projects financed through foreign

assistance. Careful investment, however, may

produce successful local enterprises.
T

U.S. Competitiveness

in Environmental

he United States’ environmental goods and services

(EGS) industry appears to be competitive in most

sectors. Environmental industries in Japan, Germany,

and several other Western European countries are also

strong. They compete with U.S. companies in all sectors of the

industry in all parts of the world. Indeed, foreign firms and

technologies have garnered noteworthy shares of the U.S.

environmental market through direct exports, licensing of

technologies, and acquisitions of U.S. firms. Also, newly

industrialized and developing countries are building their own

capabilities to meet part of their domestic environmental needs

and to compete in export markets. Thus, competition is likely to

increase.

This chapter discusses international competitiveness in environmental technologies and services. It begins with an overview

of the limited data on trade in this area. This is followed by a

discussion of competitiveness factors. Most of the chapter

consists of brief sector analyses of eight major areas.

ENVIRONMENTAL TRADE

Several estimates of international trade in environmental

goods and services are discussed below. Because of data

limitations, these estimates should be approached with caution.

Information on EGS trade, profits, and productivity is limited,

making analysis of competitiveness difficult. The Standard

Industrial Classification (SIC) and international Harmonized

Code (HC) systems used to tabulate trade data do not conform

well to EGS categories. For example, the United States, the

European Community (EC), and Japan put industrial air pollution control devices in different categories, making direct

117
118 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Table 5-l—Estimates of Environmental Exports

($ billion current dollars)

OECDa Env. Bus. Int.b EPACJSIMMd

Net goods,

services, Total Total Net Total

& licenses products services equipment equipment

1990 1992 1992 1991 1991

United States 4.0 6.9 3.6 1.11 NA

Germany 10.0 11.0 NA 0,72 NA

Japan 3.0 5.0 NA 0.48 0.35

France 0.5 NA NA 0.01 NA

United Kingdom 0.5 NA NA 0.29 NA

SOURCES AND NOTES: NA denotes data not available.

a OECD, me OECD &rvirmrrrtmf hfustry; Situation, Prospects and Government Policies, OCDBGD(W) 1 (Paris:

OECD, 1992). Includes income from technology licenses.

b Environmental Business International, San Diego, CA.

c U.S. EPA, “International Trade in Environmental Protection Equipment,” EPA 230-R-93-006, July 1993. Based on

trade categories considered environmental by authors.

d Japan Smlety of Industrial Machinery Manufacturers, May 1992.

comparison difficult.1 In some cases, categories

include environmental products and nonenvironmental goods.2 And many products-e. g., pumps,

motors, chemicals, measuring devices—have environmental applications not identified in trade

statistics. Furthermore, data for existing environmentrelated categories have only recently become

available; EC data prior to 1988 are more highly

aggregated, and U.S. data prior to 1989 did not

conform to the HC system that permits comparability across nations.3

Table 5-1 summarizes trade estimates from 4

sources. The estimate shown for the Organisation

Economic Cooperation and Development (OECD)

is for net exports of environmental products and

services, including income derived from licenses.4

The study concluded that Germany was the

largest environmental exporter, producing $10

billion of trade surplus, of which half came from

exports to other European OECD countries. The

United States and Japan followed, each with

several billion dollar surpluses. Britain, France,

the Netherlands, and Sweden were also believed

to be net exporters. Major importers of EGS were

not identified.

The estimate by Environmental Business International in table 5-1 also ranked Germany, the

United States, and Japan as the world’s three

largest environmental exporters, respectively.5 Its

analysis is limited to product exports for the three

1 U.S. categories include HC 8421390010 Dust Collection and Air Purification Equipment, 8421390020 Electrostatic Precipitators, and

8421390030 Industrial Gas Cleaning Equipment ‘not elsewhere specified or indicated. The European Community has additional categories,

whereas Japanese trade statistics combine these categories with 8421390050 Gas Filtering or Purifying Machinery to form an aggregate

category containing an unknown proportion that is not related to air pollution control.

2 HC 8421210000 Water Filtering or purif~g Machinery and Apparatus and 8417800000 Industrial or Laboratory Furnaces and Ovens,

Including Incinerators are two examples.

s The National Trade Data Bank (U.S. Department of Commerce), Eurostat (EC), and Japan Trade Monthly were consulted.

4 OECD, The OECD Environment Industry: Situation, Prospects and Government Policies, ’ OCDE/GD(92)l (Paris: OECD, 1992).

OECD’S definition of EGS includes water and effluent treatmen~ waste heatment and disposal, air pollution control, contaminated land

reclamatio~ noise control, and environmental services. It does not include trade and markets in cleaner production and energy efficiency

products or services except for some pollution prevention consulting services explicitly identified as environmental consulting.

s Grant Ferrier, Environmental Business International, presentation to Environmental Business Council of the United States conference,

Washington, DC, June 7-9, 1993. Environmental Business International is the publisher of the Environmental Business Journal.
Chapter 5-–U.S. Competitiveness in Environmental Technologies and Services 119

countries and U.S. environmental service exports. 6 The study, using information from fins,

concluded that about 20 percent of U.S. environmental goods production was exported. As for

U.S. services, the study concluded that under 10

percent of solid waste management revenues and

under 5 percent of revenues for engineering/

consulting, hazardous waste management, and

analytical services originated abroad.

An Environmental Protection Agency (EPA)

study that examined official trade statistics came

to markedly different conclusions.7 As shown in

table 5-1, it concluded that the United States was

the largest exporter of environmental goods,

earning $1.1 billion of surplus out of total exports

of nearly $1.7 billion in 1991. Germany was

second with over $700 million in surplus from

$1.5 billion of exports. Japan followed, with

almost a half-billion dollar surplus from almost

$700 million in exports. However, due to data

limitations, the EPA study understates environmental trade in some respects and overstates it in

others. As discussed above, many trade categories

include goods that have both environmental and

nonenvironmental applications. For instance, the

study did not analyze product categories that

include many types of treatment chemicals,

analytical and control instruments, refuse handling equipment, and pumps and valves, and other

goods. At the same time, trade codes for gas

separation and purifying equipment, liquid filtering and purification equipment, and industrial and

laboratory furnaces (including incinerators) were

included even though industry uses much of the

equipment in these categories for nonenvironmental purposes. (EPA did not estimate trade in

environmental services or revenue flows from

Table 5-2-Japanese Production and Exports of

Environmental Equipment ($ million 1991)

Total Percent

Year production Exports Exported

1987 4086.0 160.9 3.9

1988 5211.3 170.1 3.2

1989 5314.0 589.5 11.1

1990 5262.0 365.5 6.9

1991 8054.6 350.2 4.3

SOURCE: Japan Society of Industrial Machinery Manufacturers, May

1992.

technology licenses; official trade data are not

suited to such analysis.)

The Japan Society of Industrial Machinery

Manufacturers collects data on Japanese environmental equipment production and exports but not

imports (see table 5-2). Its information indicates

that between 3 and 11 percent of Japanese

manufactured pollution control equipment (for

air, water, wastes, and noise/vibration control or

treatment) was exported during the years 1987-

1991.8 For 1991, about $350 million of a total of

$8 billion of environmental machinery production was exported. This figure is smaller than

EPA’s calculation of Japanese exports and is far

smaller than estimates from OECD and Environmental Business International.

The U.S. Department of Commerce tracks

production of some industrial air pollution control equipment (see table 5-3 and figure 5-l). U.S.

production of these items grew from $600 million

to $900 million (1991 dollars) from 1987 to

1991. 9 During those years between 10 and 16

percent of production was exported.10 Unfortunately, similar data series for U.S. water pollution

and waste-related equipment trade and production are not available.

6 License revenues are not included nor were import levels calculated.

7 U.S. Environmental Protection Agency, ‘‘International Trade in Environmental Protection Equipment: an Assessment of Existing Data, ’

EPA 23@ R-93-006, .hdy 1993.

8 Japan Society of Industrial Machinery Manufacturers, May 1992.

9 U.S. Department of Commerce, Bureau of the Census, ‘‘Current Industrial Reports: Seh.xted Industrial Air Pollution Control Equipment, ’

MA35J, various issues.

10 Ibid,, and IJ.,S. Deptirnent of Commerce, Natioml Trade Data Bti.
120 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

1,400

1,200

y 1,000

(u=

o

; 800

u)

c

.—

; 600

&

2 400

200

0

Figure 5-1—Selected Industrial Air Pollution Control Equipment—U.S. Production and Exports

Othe r n Partmulate ernlsslons

~ Gaseo.sernissions _ Total export s

1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991

SOURCE: Bureau of the Census and National Trade Data Bank, U.S. Department of Commerce.

Table 5-3-Recent U.S. Production and Trade in

Selected Industrial Air Pollution Control Equipment

($ million 1991)

Year Production Exports Imports Trade surplus

1989 772.2 113.9 78.8 35.1

1990 861.9 119.3 76.1 43.2

1991 936.6 149.0 74.9 74.1

SOURCE: U.S. Department of Commerce, Bureau of Census and

National Trade Data Bank.

Data from environmental equipment manufacturers is too limited to compare productivity and

quality trends among firms from different counties. The growth in joint ventures, licensing

agreements, international acquisitions, and foreign branch operations further complicates national comparisons and efforts to define national

policies for environmental industries.11 Is issuance of a license a strength because it indicates

ownership of a technology that will yield royalty

income? Or does licensing indicate forgone

returns from manufacturing (including exports

and export-related jobs)? As in other industries,

there are cases of foreign-owned firms employing

Americans to make products for export and the

U.S. domestic market, and cases of American

firms with significant manufacturing operations

abroad.

1 Export Related Employment

From a national perspective, economic benefits

of a strong environmental industry include income and jobs that come from exports (or from

avoiding imports) and revenues derived from

licenses and operations abroad. However, because most EGS is not internationally traded, the

export-related employment from growing environmental markets abroad is difficult to estimate.

A major portion of expenditures for large environmental projects, such as wastewater treatment

plant construction, landfill or incinerator development, or power plant scrubber installation, is

for local construction and assembly and for

low-value materials that can often be more

cheaply provided locally. For instance, estimates

from the United States indicate that over half of

11 For more on tie bl~g of oatio~ corporate identifies, see IJ.S. Congress, Office of Technolo~ Assessmen4 MU/RWlfiOflU/s U~d ~h

Natiorud Interest: Playing by Different Rules, OTA-ITE-569 (Washington, DC: U.S. Government Printing OffIce, September 1993).
Chapter 5--U.S. Competitiveness in Environmental Technologies and Services 121

municipal wastewater treatment capital expenditure is for construction, as is about three-quarters

of public water supply treatment capital spending.

12 In developing countries, where labor is

often cheap and capital in short supply, such

projects may be more labor-intensive than in

more industrialized countries. This, in turn, may

limit ancillary exports of construction machinery

associated with environmental infrastructure development. Much environmental spending is for

day-to-day operation of water and wastewater

utilities and refuse collection and disposal. These

jobs, too, are staffed locally.

Thus, international trade is centered on relatively sophisticated manufactured goods, engineering and project management services, and

technology licenses. The most significant opportunities for growth in U.S. EGS exports probably

lie in these areas. While export related growth in

the number of jobs in such areas will probably be

modest, many of these jobs are likely to be

high-wage jobs in management, engineering and

other technical professions, as well as some

manufacturing jobs.

While most environmental technologies are

well-established, a small high-technology sector

does exist. The technological trajectories for new

approaches such as bioremediation and advanced

biological treatment,13 supercritical fluid extraction and oxidation, new and improved catalysts,

and advanced monitoring technology, among

others, are hard to discern.

Over time, the environmental technology landscape may shift considerably toward pollution

prevention and cleaner production. Business opportunities may expand for producers of cleaner

technologies that prevent pollution, supplanting

some demand for end-of-pipe pollution control,

waste disposal, and remedial clean-up in advanced industrialized countries (see box 3-B for

an example). Also, fast growth in industrial

production and infrastructure in many developing

and newly industrialized countries and reconstruction in Central and Eastern Europe open up

opportunities for firms able to integrate cleaner

and more efficient processes and equipment into

new and replacement capital stock. Designers and

equippers of cleaner power plants, chemical

works, pulp and paper mills, smelting operations,

steel mills, oil refineries, assembly plants, and

other industrial facilities can position themselves

to benefit from the growing interest in sustainable

development.

FACTORS AFFECTING COMPETITIVENESS

The competitiveness of a country’s environmental firms is determined by a variety of factors.

Some factors are fairly specific to environmental

businesses, including domestic environmental

regulations and the use of development assistance

to promote environmental goals. Other factors are

shared with other industries, including cost of

capital, export promotion policies, workforce

skills, industrial structure, and strength of industry associations.

The U.S. environmental industry enjoys a

variety of strengths and suffers from a number of

weaknesses that affect its performance in the

global marketplace. Emerging threats and opportunities will determine its performance in the

future. Table 1-1 in chapter 1 presented a short list

of major strengths, weaknesses, opportunities,

and threats for the U.S. environmental industry.

Several factors impinging on U.S. and foreign

12 Willi~T. ~rew & CO., 1992 Updat~ater Pollution Control Industry Outlook (Concord, NH: William T. l-oreu & CO., APril 192),

pp. 244, 287.

13 see U.S. congress, Office of Technology Assessment, Biotechnology in a GlobalEconomy, OTA-BA-494(Washingtou DC: Bvernment

Printing Office, October 1991) ch. 8 for an analysis of environmentrd applications of biotechnology.
122 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

environmental industry competitiveness specifically are discussed below.14

I Strength of Domestic Regulations

Countries with the strongest regulations and

enforcement—which can include environmental

liability, reporting requirements, and environmental fees-create markets for new and improved types of EGS. Domestic environmental

firms can be in a better position than foreign firms

to develop products and services to help domestic

industries comply with environmental requirements. If comparable regulations are later adopted

in other countries, these companies may be

favorably positioned to export to the new markets.

The strength of the United States, Germany,

and Japan in environmental technologies-along

with the disproportionately strong position of

several smaller countries, including the Scandinavian nations, the Netherlands, and Switzerland—

supports the thesis that countries with the strongest domestic requirements are the most competitive

providers of EGS. The relative growth in strength

of Japanese and German firms in (sulfur dioxide

(SO2

) and nitrogen oxides (NOX) control technologies during the 1980s, when their domestic

standards became stronger than U.S. requirements, as well as the relatively strong position of

American hazardous waste remediation technologies, further supports this point.

But the situation is complex. The strong

performance of recently privatized British and

French water and wastewater treatment fins,

despite tighter environmental requirements elsewhere in Europe and in the United States, is one

example. In the automobile catalyst business, two

of the largest companies are U.S. fins, as might

be expected because the United States has the

largest market and, with Japan, the strictest

standards. But the single largest firm is headquartered in the United Kingdom, despite a history of

much weaker requirements in Britain and Europe.

And Japanese firms have smaller market shares

despite Japan’s strict vehicle emissions standards.

I Form of Domestic Regulations

Two countries with the same numerical emissions or effluent standards for a given pollutant

may still provide different incentives for companies to develop and market innovative environmental technologies. 15,16 Technology approval

and permitting procedures, if lengthy and expensive, can be burdensome to developers seeking to

bring new technologies to market. Some American environmental technology developers claim

to have gone abroad because of difficulties in

obtaining proper permits to continue R&D in the

United States (see box 5-A).17 Uncertainty in

permitting innovative technologies may dissuade

venture capitalists and other investors from funding environmental technologies in the vital stage

between the laboratory and proven commercial

application. 18

Technology-based standards that mandate or

favor the use of specific technologies or ap14 For discussion of broader facton affecting competitivene,w, see U.S. Congress, Office of Technology Assessment Op. Cit., fOO@Ote 11,

and U.S. Congress, OffIce of Technology Assessment, Competing Economies: America, Europe, and the Pacijic Rim, OTA-ITE-499

(was@tom DC: U.S. Government Printing Office, October 1991).

15 N.rqo~of the Natio~ AdvisoV CoWcil for Enviro~en@ Policy and Tec~ology(NACEPT), arl ~viso~ gTOUp to EPA, examine

the effect of U.S. permitting and compliance policy on environmental technology and innovation: U.S. EPA, “Permitting and Compliance

Policy: Barriers to U.S. Environmental Technology Diffusiou” EPA 101/N-91/001, January 1991; and U.S. EPA, “Tmnsforrming

Environmental Permitting and Compliance Policies Tb Promote Pollution Prevention: Removing Barriers and Providing Incentives To Foster

Technology Innovatio& Economic Productivity, and Environmental Protection” April 1993.

16 ~othm OTA ~sessment is exarnfig characteristics and implementation issues of alternative environmental regulatory approaches.

17 Grant Ferner, president, Enviro~en~ Business International, Inc. and Editor-in-Chief, Environmental Business JOM@ teStimOny at

hearings before the House Merchant Marine and Fisheries Committee, Subcommittee on Environment and Natural Resources, Feb. 25, 1993.

18 Dag S@st, Teckology Funding, testimony at h earings before the Senate Committee on Environment and Public Works, May21, 1993.
Chapter 5-–U.S. Competitiveness in Environmental Technologies and Services I 123

Box 5-A-Regulations and Environmental Technology Innovation

How to accommodate research, development, and demonstration of new technologies is an

important issue in pollution control and waste treatment Iaws.1 If permitting is too easy, enforcement

loopholes could develop; if too strict, innovation could be dampened. This can impede the ability of

regulated industries to install technology to Iower compliance costs (see ch. 9) and diminish incentives

for environmental companies to develop and commercialize new technologies in the United States. The

U.S. Clean Air and Clean Water Acts have no testing permit provisions and rely on ad hoc administrative

procedures that Iack predictability. The RD&D permitting provision of the Resource Conservation and

Recovery Act (RCRA) are little used. Firms complain that the procedures needed forgetting a permit

are time consuming, inflexible, and costly. Commercialization of innovative technologies can also be

made difficult by inflexible and costly procedures for demonstrating the efficacy and safety of new

approaches.

Some U.S. innovators have taken environmental technologies abroad because of burdensome

U.S. regulatory standards. One example is offered by a major company that is developing a vitrification

technology that turns wastes into a stable glass.2 An early use of t he technology is for hazardous fIy ash,

but it may be applicable to a wide variety of hazardous wastes. Under RCRA rules, any material derived

from a hazardous waste is itself considered to be hazardous until the material is delisted following tests

to show that it is non-hazardous. This provision is necessary to protect public health and the

environment. However, delisting is a lengthy, expensive, and uncertain process often taking 2 to 3

years, or longer. EPA requires separate delisting procedures for each individual type of waste mixture

vitrified rather than allowing delisting of a family of materials. Since waste streams often vary in

composition, the separate delisting procedures for each mixture likely to be encountered during

treatment places an expensive and time-consuming burden on technology innovators. In this

company’s case, further development of the technology was moved to Europe, where a subsidiary is

working with a European firm in what they perceive to be a friendlier climate for hazardous waste

treatment R&D. If the technology is successfully commercialized, the foreign partner will benefit from

technological expertise and financial gains that might have stayed in the United States.

1 National Advisory Council For Environmental Policy and Technology, Permitting and compliance po/icY:

Barriers to U.S. Environment/ Technology Innovation, U.S. EPA, EPA 101/N-91/001, January 1991.

2 This paragraph based on discussions with a senior company representative on May 4 and 19, 1993.

preaches for pollution control can have mixed Performance-based standards that do not favor

effects on environmental industry competitiveness. For instance, many environmental regulations in the United States, Germany, and Japan are

based on best available technology (BAT) or

similar criteria. BAT-type standards can guarantee a large market in a short time to vendors of

favored technologies and help environmental

equipment manufacturers achieve economy-ofscale benefits. However, such standards, if not

frequently updated, can freeze existing environmental technologies and discourage innovation.

particular types of hardware can allow environmental technology innovation-although even

here permitting procedures and administration

may still favor a particular reference technology.

Also, as in the case of technology-based standards, if performance-based standards are not

regularly updated, incentives for innovation may

weaken.

Environmental taxes or fees may provide

incentives for performance better than standards

require and for technical innovation. So might
124 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

tradable emissions or effluent permits that allow

polluters to trade pollution rights. The likely

extent of their impact on innovation is difficult to

predict. While these approaches might provide

incentives for technological innovation, they may

also diminish the possibility of large uniform

markets for new environmental products and

services. Lack of experience with these new

regulatory approaches means that empirical data

on their efficacy and their effects on innovation

are limited. However, they do allow more costeffective achievement of environmental goals as

compared to other regulatory approaches.

The division of environmental standard-setting

and enforcement authority among national, regional, and local authorities can affect innovation

in environmental technologies and the ability of

environmental firms to achieve scale economies.

The U.S. federal system places major responsibility on States for administering environmental

requirements. The ability of States to sanction

flexible regulatory approaches and, in some

cases, to impose stronger-than-Federal standards

may spur environmental innovation. German

states and Japanese prefectures can sometimes

require adherence to higher-than-national standards. However, varied standards and permitting

procedures fragment the environmental market

and can slow the development and diffusion of

new environmental technologies.

B Fiscal and Other Incentives

The stick of environmental regulation can be

supplemented with the carrot of subsidy or other

kinds of incentives. To help regulated industries

comply with environmental requirements, some

countries and states provide tax credits, accelerated depreciation, or low-cost loans for the

installation of environmental equipment. (These

mechanisms, widely used in Japan, Germany, and

the Netherlands, are discussed in ch. 7.) Such

incentives can help secure markets for the developers and vendors of environmental technologies.

Sometimes they promote innovation. For instance, the Netherlands has a tax-incentive regime (accelerated depreciation) that applies to

early installers of listed innovative environmental

technologies (both pollution prevention and endof-pipe controls). As such equipment becomes

commercially established, the technology is supposed to be removed from the list. (It is too early

to evaluate this approach.)

Incentives can help jump-start industries. In the

United States, Federal and State tax credits,

combined with high energy prices, stimulated an

alternative energy industry in the 1970s. Germany and Japan employ subsidies to build

markets for clean energy technologies.19 The U.S.

Public Utility Regulatory Policy Act helped

create a market for electric power co-generators.

The United States has also pioneered demand side

management (DSM) for promoting electricityuse efficiency. State utility commissions, in some

cases, allow utilities to make a profit on energy

saved. Some utility commissions’ costing procedures penalize more polluting energy sources and

reward selection of cleaner energy. DSM has

stimulated the creation of energy service companies that earn money through improving the

energy efficiency of clients.

Another innovative approach is the use of

bounties for early developers of technologies that

meet new environmentally superior standards. A

consortium of 24 electric utility companies, in

cooperation with the Electric Power Research

Institute, EPA, and Department of Energy (DOE)

recently ran a contest in which a refrigerator

manufacturer that met future Federal energy

efficiency standards and other performance criteria without use of CFCs won $30 million.20

19 For Cxmple, Japan’s Mfis@y of Internation~ Trade and Industry (MITI) has budgeted nearly .$40 dliOnfOrflSCalyt%U 1994 to subsidize

two-thirds of the cost of residential photovoltaic systems. MI’IT’s goal is 70,000 systems installed by 2000. Nihon Keizai Shimbun, Aug. 22,

1993.

20 John Holusha, “whirlpool Takes Top Prize in Redesigning Refrigerator, ” New York Times, June 30, 1993, p. D4.
Chapter 5–-U.S. Competitiveness in Environmental Technologies and Services! 125

As discussed in the previous section, environmental taxes and tradable pollution allowances

might, as supplements to conventional environmental regulations, influence sales and development of environmental technologies.

S Firm Size and Financial Strength

Most environmental companies in the United

States (roughly 34,000, not including water utilities) and Europe (10,000 or more fins) are small

to medium-sized enterprises (SMEs).21 Some SMEs

that offer innovative technologies or services

successfully enter foreign markets, often through

licensing or joint venture arrangements. However, large, well-capitalized companies have significant advantages in marketing abroad. They

can spend significant time and effort investigating foreign markets. They can buy local market

access by acquiring local companies or taking

large equity stakes in joint ventures. They can

afford to conduct R&D (although they might

actually do little) or acquire innovations from

others. These companies also have better access

to capital than smaller fins.

Larger firms can supply customers and clients

with integrated services or one-stop shopping.

U.S. companies such as WMX Technologies

(formerly Waste Management, Inc.) and Air &

Water Technologies are attempting to develop

such capability. Others offer environmental products and services complementary to core businesses. For example, a number of major international producers of boilers and power generation

equipment also sell air pollution abatement equipment. Various engineering and construction firms

design and install environmental equipment as

part of their general design and construction

businesses. Other large environmental companies

are divisions of strong multinational conglomerates such as Asea Brown Boveri (ABB), General

Electric, Metallgesellschaft, Hitachi, Mitsubishi,

and Kawasaki, among others.

1 Promotion of Techniques and Standards

The respect accorded abroad to domestic standards and technological solutions can contribute to

competitive position. The United States is widely

regarded as a leader in many categories of

environmental technology. EPA is widely respected abroad, and some U.S. professional

society standards and guidelines, such as those of

the American Water Works Association and the

Water Environment Federation, are observed

abroad. American firms sometimes contend that

EPA’s inability or unwillingness to certify their

products as meeting U.S. standards leaves them at

a disadvantage compared to some foreign firms

that claim certifications from their governments.

As is discussed in chapter 2, an expanded Federal

role supporting demonstration and independent

evaluation of American environmental technologies is under consideration. If undertaken, such

programs could disseminate objective performance and cost evaluations of U.S. products but

avoid potential problems (and, perhaps, loss of

credibility) from government endorsement of

particular technologies and companies.

Countries sometimes pattern their environmental regulations after those of another country

whose environmental firms may thus derive an

advantage over rivals that meet somewhat different home country standards. Training programs,

technical assistance, and grants and loans for

equipment might influence the standards and

21 En},ironmenta/ Business Journal, vol. 5, No. 4, April 1992; ECOTEC Research and Comulttig, ‘‘The European Pollution Control and

Waste Management Market: An Overview, ’ Birmingham, UK, January 1992. Studies of Japanese environmental industry structure have not

been found, The Conference for Promotion of High Technology Pollution Control Equipment, an affiliate of the Japan Society of Industrial

Machinery Manufacturers, listed 130 engineering and manufacturing enterprises as members in 1990. Members, including divisions of

Japanese conglomerates and affiliates of foreign firms, are certified as being capable of producing EGS that meets Japanese environmental

standards,
126 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

practices employed by the recipient country. The

United States and other countries have technical

assistance and training programs. Japan’s funding

of environmental research centers in several

Asian countries, including the outfitting of Indonesia’s central environmental reference laboratory, 22 could affect these countries’ environmental standards and practices.

1 Export Awareness and Support

The very large U.S. domestic environmental

market supports a strong U.S. environmental

industry, yet it also dampens the desire of many

U.S. firms to pursue export markets and attracts

foreign environmental fins.

U.S. companies interested in exports frequently

face difficulties accessing private finance or

Federal assistance. Some companies that win

export orders do not cultivate long-term relationships with foreign customers or find partners able

to provide service in export markets—thus hurting future export prospects. Export awareness and

support in the environmental sector is discussed

extensively in chapter 6.

Environmental exports are sometimes impeded

by tariff and nontariff trade barriers. Promotion of

liberalized trade in the context of the General

Agreement on Tariffs and Trade (GATT), the

North American Free Trade Agreement (NAFTA),

and other trade negotiations may diminish such

barriers.

U Financing

Project financing is a large factor in the ability

of environmental firms to obtain contracts, particularly in cash-strapped developing countries and

the restructuring nations of Central and Eastern

Europe and the former Soviet Union. The attractiveness of financial packages is often more

important than the technological credentials of

competing environmental companies. Loan aid or

mixed credits from Japan and several European

countries is often perceived to be linked to

commercial benefits for home country fins. U.S.

bilateral assistance places less emphasis on capital projects likely to generate equipment exports

than does European and Japanese development

assistance. The use of tied aid and mixed credits

is a contentious issue discussed in the OTA

background paper Development Assistance, Export Promotion, and Environmental Technology.

23 The use of official financing sources to win

business for a donor country firm in a developing

or restructuring country can have long-term

competitive implications that go beyond the

scope of a specific project. Projects can generate

continuing business for spare parts and supplies.

Early entrance into an emerging market can

establish familiarity and brand loyalty that in turn

yield future business.

9 Appropriate Technologies, Products, and

Service

Customers in developing countries often cannot afford technologies designed to meet the more

rigorous environmental requirements of the United

States, Japan, and Northern Europe. Even if they

can afford state-of-the-art technologies, they may

lack the financial resources and trained personnel

needed for adequate operations and maintenance.

Cheaper, more easily maintained technologies

can be environmentally preferable to complex

technology that is unused or falls into disrepair

due to poor operation and maintenance.

Customers in some developing countries admire U.S. environmental technology but regard it

as too expensive and complex, a problem that also

faces Japanese, German, and other industrial

country competitors. Japan has begun a program

to adapt flue gas desulfurization technologies for

22 BApEDAL (~donesian Environment Agency) Briefing to U.S. Environmental Technology and Business Mission Participants, J-,

Oct. 26, 1992.

23 U.S. Conwess, office of Technology Assessment, Development Assistance, Export Promotion, and Environmental Technology,

OTA-BP-ITE-1O7 (Washington, DC: Government Printing Office, August 1993).
Chapter 5-–U.S. Competitiveness in Environmental Technologies and Services! 127

developing Asian markets.24 Some technologies

available or under development in the United

States—for instance, engineered wetland wastewater treatment-are relatively low-cost. Of great

potential are pollution prevention and cleaner

production technologies that often offer more

cost-effective avoidance of environmental damage than do conventional pollution controls.

Energy-efficiency improvements-both supply

and use-could limit environmental impact, save

money, and promote development in lessdeveloped countries.

25 Relatively low-cost options are also available for reduction of wastes

and for decreasing use of toxic substances.

However, a tension may develop between sale

and transfer of low-cost environmental technologies to developing and restructuring countries,

and the desire to increase export income through

the sale of more expensive technologies that can

also generate more sales of parts, supplies, and

service.

I Research, Development, and

Demonstration

New environmental technologies, whether related to cleaner production, end-of-pipe controls,

or remediation, are products of research and

development (more thoroughly discussed in ch.

10). A country’s private sector, university, and

government R&D system can contribute to its

environmental industry’s competitiveness. The

R&D endeavor, however, extends beyond the

laboratory bench and the pilot plant to the

demonstration and testing needed to convince

potential customers of the economy and efficacy

of new technologies. And attention to manufacturing technology is important for achieving

continuous improvements in product quality and

price. As made clear in the recent past, with

consumer electronics, automobiles, memory chips,

and many capital goods, possession of the most

able scientific research establishment does not

ensure commercial predominance.26

Germany and Japan are this country’s principal

rivals in environmental technology R&D and

related energy technology research. Japanese

environmental technology is chiefly under the

direction of the Ministry of International Trade

and Industry (MITI). German environmental technology R&D is mainly under the Federal Ministry

for Research & Technology and its state equivalents. Both Germany and Japan have a history of

industrial policies that feature public-private coordination and research consortia. These approaches are less extensively used in the United

States.

The U.S. Government provides more than $1.7

billion per year for R&D related to the environmental technologies covered in this report, but

this support is scattered and uncoordinated.27

American public-private partnerships have increased, however. For example, several costshared Department of Energy programs support

development and commercialization of environmentally pertinent energy technologies and less

wasteful industrial processes. EPA evaluates and

disseminates information on innovative contaminated site remediation technologies; somewhat

smaller programs fund evaluations of municipal

solid waste and industrial waste reduction tech-

~ ~nternan”onal Environment Reporter, “Japan To Work With China in Developing Cheap Desulfurization Units for Plants, ” July 29, 1992,

p. 497.

25 us, ConWe~s, Office of Te~~ology Assessment Fue/ing Development: Energy Technologies for Developing Counm”es, OTA-B516

(Washington DC: U.S. Government Printing OffIce, April 1992), pp. 5-12.

26 U.S. Con flcss, Office of Technology Assessment, Making Things Better: Competing in Manufacturing, OTA-ITE-443 ~as~gtoq ~:

U.S. Government Printing Office, February 1990) provides an analysis of manufacturing competitiveness.

27 The Congressional Research Service concluded that Federal environmental technology R&D support amountsto $2.5 to $3 billion

annually, but this includes support for areas not addressed in this assessment such as agricultural technology, technology for assessing

toxicological and other health effects, and modeling and monitoring of ecological and geophysical processes. U.S. Congress, Congressional

Resach Service, “The Current State of Federal R&D: EnviromnentaJ Technologies, 92-675 SPR, Aug. 25, 1992.
128 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

nologies. Other examples are discussed in chapter

10. However, R&D consortia among environmental fins, regulated industries, and government to address widespread environmental problems by industrial sector remain uncommon in the

United States.

SECTOR DESCRIPTIONS AND ANALYSES

These are only a few of the factors that affect

the competitiveness of the American environmental industry. As is shown in the brief case

studies that follow, these factors weigh differently on different EGS sectors and technologies.

Some of the cases pertain to environmental

technologies that are capital-intensive, while

others are not. Some technologies are new and

changing rapidly, while others are mature. In each

case, the role of tough regulations, technological

sophistication of companies, and access to capital

will have varying effects on firms in the industry.

It is often difficult to say which countries’

industries are ahead.

1 Design and Construction Services28

Such environmental projects as wastewater

infrastructure, waste treatment facilities, and

large air pollution abatement installations require

substantial design and construction management.

A large international business exists to provide

such design and construction services.

Engineering firms are not only important for

designing discrete add-on pollution controls and

waste disposal facilities. The engineering consulting industry also could play a key role in

incorporation of pollution prevention and cleaner

production into whole plant design and process

engineering (see box l-B). Although explicit

waste minimization and pollution prevention

activities now make up less than 5 percent of U.S.

environmental engineering consulting business,

this segment is likely to grow quickly .29 Cleaner

production may increasingly be integrated into

engineering design such that the proportion of

design activities attributable to environmental

concerns becomes more difficult to identify.

American companies are strong competitors in

providing design services. This can have ramifications for U.S. manufacturers, as they may have

a better chance of winning orders for Americandesigned facilities than for foreign-designed projects. This may not be because of any explicit

preference for American goods by U.S. designers

so much as their greater familiarity with those

goods.

U.S. design firms are internationally prominent

in environment-related projects; a long list of

companies are involved.30 Some of these companies provide a wide range of architecture and

engineering services. Others specialize in environmental projects such as wastewater system

design. 31 Subsidiaries of other environmental

firms such as Metcalf & Eddy (part of Air &

Water Technologies), Wheelabrator, and Rust

International (both part of WMX Technologies)

also perform international engineering services.

There are overlaps between the design and

contracting categories, as some construction firms

also provide engineering services.

As for construction contractors, U.S. firms

(including a U.S.-based ABB subsidiary) are the

28 ~s section dWs not discuss en@~r@ design conducted by manufacturing industries for their product and process development.

National Research Council, Improving Engineering Design : Designingfor Competitive Advantage (Washington DC: National Academy Press,

1991) assesses the state of engineering design in U.S. manufacturing indushy. U.S. Congress, OMce of Technology Assessment Green

Products by Design: Choicesfor a Cleaner Environment, OTA-B541 (Wash.ingtop DC: U.S. Government Printing OffIce, September 1992)

discusses environmental aspects of product design.

29 “E/C Firms Position for Prevention, ” Environmental Business Journal, vol. 6, No. 8, August 1993, p. 1.

30 Environ~ntal ll~iness Journal, vO1. 6, No. 4, April 1993.

J 1 Even mom s~ciali~d engineefig design is provided by some vendors of proprietary air pollution COIMJ1 and WiiSteWater BfXtCmCXM

technology. In some cases, technology vendors have no in-house manufacturing at all; their products are engineering and intellectual property.
Chapter 5-–U.S. Competitiveness in Environmental Technologies and Services! 129

Table 5-4-Largest Winners of International Contracts in Selected Market Sectors

Sewer/waste Hazardous waste

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

Bouygues (France)

Parsons Corp. (U. S.)

Mitsubishi Heavy Industries (Japan)

Bilfinger+Berger Bauaktieng.(Ger)

Foster Wheeler (U. S.)

NCC Internation (Sweden)

Consolidated Contractors (Greece)

Kajima (Japan)

Skanska International Civil Engineering (Sweden)

The Badger Co. (U. S.)

Water

DUMEZ (France)

Bechtel Group (U. S.)

Fiatimpresit (Italy)

SGE Group (France)

lmpresit-Girola-Lodigiani IMPREGLIO (Italy)

Bouygues (France)

Hochtief (Germany)

Girola (Italy)

GTM-Entrepose (France)

Morrison Knudsen (U. S.)

Parsons Corp. (U. S.)

Bechtel Group (U. S.)

ABB Lummus Crest (U. S.)

Bouygues (France)

Foster Wheeler (U. S.)

The Badger Co. (U. S.)

CEGELEC (France)

Jacobs Engineering Group (U. S.)

Bilfinger+Berger Bauaktieng. (Ger.)

Spie Batignolles (Italy)

Power

CRSS (U. S.)

Mitsubishi Heavy Industries (Japan)

Spie Batignolles (Italy)

Bechtel Group (U. S.)

DUMEZ (France)

ABB SAE Sadelmi (Italy)

Guy F. Atkinson (U. S.)

John Brown/Davy (U. K.)

CEGELEC (France)

Ansaldo (Italy)

SOURCE: Engineering News Recurd, Aug. 24, 1992, p. 37.

eight largest winners of international contracts.32

In four categories relevant to environmental

infrastructure, several U.S. firms are among the

top 10 winners of contracts (see table 5-4). U.S.

firms also appear in the top 10 four and eight

times, respectively, in the manufacturing and

industrial/petroleum markets.33 French, British,

Italian, German, and Japanese contractors are the

largest rivals. Swedish and Greek firms also

appear on these listings.

Beyond the top 10 listing, there are many other

U.S. construction companies with significant

international presence engaged in environmental

projects or projects with major environmental

components. 34

Among the more important issues affecting the

competitiveness of firms in this industry is the

availability of financing. This is particularly

important for projects in developing countries and

the cash-poor nations of Central and Eastern

Europe and the former Soviet Union. Bilateral

development assistance and loans from the World

Bank and other multilateral lending institutions

are important sources of funds in these markets.

As has been mentioned, significant controversy

surrounds the use of tied aid and mixed credits as

means for countries to link development assistance to sales by home country businesses. These

issues are discussed extensively in the previously

cited OTA background paper, Development As3’2 “me Top 1nterMfiOn~ contractors, ” Engineering News Record, Aug. 24, 1992, p. 38.

33 “Firms Set Sail For Hot Markets, ’ Engineering News Record, Aug. 24, 1992, p. 37,

34 Environmental Business Journal, vol. 5, No. 4, April 1992, p. 3; Engineering Ne~ls Record, Aug. *4, 1992, PP. 38-45.
130 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

sistance, Export Promotion, and Environmental

Technology .35

Some in the engineering industry point to the

U.S. Trade and Development Agency (TDA)

support for project feasibility studies as being

particularly useful in their pursuit of opportunities abroad. Other countries also recognize the

value of feasibility and prefeasibility studies—

which can help determine which firms win bids

for project development, Japan allocated $226

million for this function in 1992, while TDA’s

fiscal year 1993 budget was $40 million.36 The

United States and other countries have created

special funds attached to the World Bank for

feasibility studies that some believe help win

World Bank contracts for contributing nation

fins. Use of feasibility studies is further discussed in chapter 6.

9 Stationary Source Air Pollution Control

This sector of the environmental industry

includes designers and manufacturers of devices

to control air emissions from power plants,

incinerators, and industrial facilities. American

companies remain competitive but are struggling

against very strong air quality industries that have

developed abroad. In addition, foreign companies, directly and through licensing, have made

significant inroads into the U.S. domestic market.

Air pollution control technologies-particularly

sulfur and nitrogen oxide controls-illustrate

how the competitiveness of different countries’

environmental firms can be affected by differences in regulations.

The timing and stringency of air regulations in

the three major air pollution control markets-the

United States, Japan, and Germany-have determined the sequence of air pollution control

technology development. In the mid-1970s, U.S.

regulations to control sulfur dioxide (SO2) created

a market for flue gas desulfurization (FGD)

scrubbers. Soon, however, the domestic market

for scrubbers stagnated, as most existing industrial and utility sources of SO2 were shielded from

the need to retrofit with FGD and new powerplant

construction slowed from weak electricity demand growth.

Although early FGD had cost and reliability

problems, the approach was adopted abroad.

Japan embarked on a strong program of FGD

installation and retrofit in the 1970s and 1980s.

This was followed in Germany in the mid-1980s

by requirements ensuring that virtually all major

sources of SO2 in former West Germany would be

outfitted with FGD within the decade. German

standards (called TA Luft) for SO2 and other air

pollutants are periodically updated to reflect new

state-of-the-art control technologies. They are

models for air regulation in Switzerland, Denmark, Italy, and the Netherlands.37

The FGD market is again growing in the United

States as the 1990 Clean Air Act Amendments are

implemented. FGD accounts for about 32 percent

of U.S. stationary source air pollution control

equipment revenues in 1992, about $1.7 billion.38

The law requires that SO2 emissions in 2000 be

half of what they were in 1980. According to an

analysis for EPA, a cumulative revenue increase

of $1.6 to $4.8 billion will accrue to SO2 control

equipment suppliers over the years 1992-2000

because of the Amendments.39 However, the

estimate is sensitive to a number of assumptions

35 U.S. Conmss, Office of TtxhnoIogy Assessment, Development Assistance, Export Promotion, and Environmental Technology, op. cit.,

footnote 23.

36 ibid., p. 43.

ST In(ermn”om[Enj,iron merit Reporter, “NewNational Guidelines Available for Setting Emissions Limits for Industry,” July 15, 1992, pp.

466-467.

38 Environment~ Business International, 1993 Survey of APC Equipment Manufacturers, San Diego, CA.

39 ICF Reso~ces, hc. md smith B~ney, Harris Upham and Co., Inc., Business Opportunities ofrhe New Clean Air Act: The Impact of the

CAM of1990 on the Air Pollution Control Industry (Washington, DC: ICF Resources, Inc., August 1992), p. III-38.
Chapter 5--U.S. Competitiveness in Environmental Technologies and Services! 131

about the cost of control, the use of low sulfur

coal, and other factors. Continued sluggishness of

the economy may slow the rate of investment in

FGD by utilities and industrial polluters.

In 1993, American companies continue to

produce their own proprietary FGD technologies

but no longer dominate the global market. German, Scandinavian, and Japanese suppliers aggressively compete with U.S. providers internationally, including growing Asian and Central

and Eastern European markets. They are also

advancing into the U.S. market. While the largest

and third largest FGD suppliers to the U.S.

market, Babcock and Wilcox and General Electric, are U.S.-based and use U.S. technology, the

Swedish-Swiss conglomerate ABB is the second

largest supplier.

40 ABB combines the assets of

Flakt, a Swedish air pollution control subsidiary,

with Combustion Engineering, a major U.S.

supplier of FGD and other air pollution controls,

which it purchased. Numerous other U.S. suppliers license FGD technology from Japanese and

European firms, and there is a U.S.-Japanese joint

venture marketing Japanese-developed FGD technology. Innovative foreign-developed FGD technologies are being demonstrated in DOE’s Clean

Coal Technology Program and, in one case, was

installed in Poland via a U.S. licensee with

Federal support.

41,42,43 Foreign technologies licensed by U.S. firms can yield income and jobs in

the United States. For instance, Joy Technologies

(U. S.) won a contract worth over $100 million to

install four FGD units in Taiwan.44 The technology, which Joy has also sold in Canada, was

developed by a German firm.45

Control of nitrogen oxides (NOx), a precursor

of smog and acid rain, from stationary sources did

not receive major attention from U.S. regulators

in the 1970s and 1980s. Thus, markets for

selective catalytic reduction (SCR)---a U.S. invented technology-and other NOx control technologies did not materialize in the United States.

Instead, the frost commercial market for SCR

materialized in Japan. Japan claims to operate

over three-quarters of the world’s stack gas

denitrification and desulfurization facilities.46

Germany is the second largest market for SCR as

that country’s power plants and industrial boilers

retrofit NOX controls. As with SO2 controls, the

1990 Clean Air Act Amendments are spurring

U.S. markets. California air quality requirements

are an additional impetus. Some of the earliest

U.S. installations of SCR are in California,

although the current national NOX control market

only accounts for 2 percent of 1992 U.S. stationary source air pollution equipment revenues (on

the order of $100 million).47

Japan is the dominant provider of SCR technology. Several Japanese conglomerates, including

Kawasaki, Mitsubishi, Hitachi, and Ishikawajima

Harima, license SCR to U.S. and European air

pollution control companies.48 There are also a

number of joint ventures between U.S. and

Japanese fins. However, SCR is one of the more

expensive NOX control options available. U.S.

companies have been developing Selective NonCatalytic Reduction (SNCR) and other technoloa The McIlvaine Co., “A is Pollution Management: Utility Air Pollution Awards Scorecard,” No. 116, November 1992.

4 i Daniel Kaplan, ‘ ‘Georgia Power Begins Tests On Innovative Fiberglass Scrubber,” Energy Daily, Nov. 9, 1992, p. 4.

42 Daniel Kaplan, ‘ ‘TVA, DOE Test promising Scrubber Alternative,” Energy Daily, Oct. 28, 1992.

43 Dafi~l Kapla~ 4 ‘DOE, pol~d Asks Industry for CCT Help,’ Energy Daily, sePt. 22, 1992, PP. 1-2.

44 Waste Tech New.~, vol. 5, No. 4, Jan, 25, 1993, p. 9.

45 waste Tech News, VOI. 4, No, 15, July 13, 1992, p. 9.

46 “ World’s Emission Purification Techniques,” Coal Technical Research Institute, in Ministry of Foreign Affairs, ‘Japan’s Environmental

Endeavors,” April 1992, p. 10.

47 Enviro~ent~ Business ~ternational, 1993 Survey of APC Equipment Manufacturers, San Diego, CA.

48 panorama of EC Itiu$try, “The Environmental Services Industry, ” p. 139.
132 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

gies that are less effective but also less expensive

than SCR. Combustion modifications, such as

low-NOX burners, are the lowest cost control

options. While Japanese dominance of SCR is a

concern, particularly as North America and Europe try to clean up their smoggiest regions, U.S.

providers may be at par or ahead on a number of

lower cost control technologies that may garner a

large proportion of the NOx control market in

areas not requiring as strict measures.

The competitive situation in some other air

pollution control sectors is less clear. Particulate

control, often using fabric filters and electrostatic

precipitators, is a relatively mature technological

sector in which U.S. companies remain active and

successful sellers abroad. In the United States,

particulate controls constitute 55 percent of stationary source air pollution control equipment

revenues.

49 In most other countries that proportion would be higher because fewer controls are

needed on other types of emissions.

In contrast to particulate controls, control of

VOCs and toxic air pollutants is relatively new

and the market is immature. U.S. and German

regulations are more stringent than Japanese

requirements for these pollutants; California’s

regulations may be the strictest. Activated carbon

adsorption, incineration, and catalyst-based systems for VOC control are available in the United

States and Europe from major vendors. Calgon

Carbon (U. S.) and Lurgi (Germany) are among

major suppliers of activated carbon systems.

Biofilters for VOC and odor control are very new

approaches under investigation in Germany, the

Netherlands, and the United States.

Licensing, joint venture, and multinational

operations make assessment of competitiveness

and national economic benefits difficult. The

snapshot of growing U.S. use of foreign technologies should be understood in the context of

growing technological interdependence. German

and Japanese companies license environmental

technologies to each other as well as to U.S. firms.

American companies do sell air pollution control

technology in the home markets of major competitors and derive benefits from ownership of

subsidiaries in those markets. It is difficult to

generalize about the economic implications of

foreign ownership of American air pollution

control firms. The American subsidiary may be

limited by the parent in its export opportunities,

or conversely, the parent company might open

new export markets for its U.S. subsidiary.

Employment implications of licensing and joint

ventures in air pollution control maybe relatively

modest—most FGD and other large pollution

abatement projects involve large amounts of local

fabrication and construction that do not involve

much international trade. However, profits, royalties, and income from engineering design work

conducted in the home market can be substantial.

Some air pollution control company executives

suggest, as a rule-of-thumb, that perhaps 30

percent of expenditures for major installations are

for internationally tradable engineering services

and sophisticated components, while 70 percent

is for local materials and assembly.50

Controlling air pollution from large power

plants and other large facilities entails major

expenditures. Hence, availability of financing is

often an important determinant of successful sales

to developing countries. Japan’s MITI, through

its Green Aid Plan, has targeted Asia for technical

and financial assistance in air pollution control

including FGD. The Plan will include adaptation

of FGD to lower cost and removal efficiency

levels appropriate for some countries.51 MITI has

also announced plans to lease air pollution control

equipment to address acid rain problems. However, a number of American companies already

@ fivimmen~ Business hternatioti, 1993 Survey of APC Equipment Manufacturers, San Diego, CA.

SO OTA staff discussions witi air pollution control company executives.

5 I lnternationa/Environment Reporter, ‘‘Japan to Work With China in Developing Cheap Desulfurwa “ tion Units for Plants,” July 29, 1992,

p. 497.
Chapter 5--US. Competitiveness in Environmental Technologies and Services I 133

produce less expensive lower efficiency control

technologies.

Competition in the air pollution control sector

comes not only from rival producers of air

pollution abatement products but also from alternative technology developers and vendors. In the

stationary source area, cleaner production technologies, including low-NOX burners, gas turbines, several clean coal technologies, and recovery and replacement of organic solvents in

industrial processes, may limit or even obviate

some types of air pollution control equipment.

Some issues related to competitiveness in clean

energy production are discussed in a subsequent

case analysis.

I Mobile Source Air Pollution Control

Estimates of the U.S. mobile source control

market range from $6 billion to $8.2 billion.52,53

The global vehicle emissions control market has

been estimated as $12.5 billion and may grow to

$29 billion by 2000.

54 The market includes

catalytic converters, diesel filters, inspection and

maintenance equipment, evaporative emissions

controls, and some engine controls. U.S. manufacturers are active exporters and also have

subsidiaries and licensees abroad. U.S. members

of the Manufacturers of Emission Controls Association reported that they sold $250 million of

catalyst and filter technologies outside the United

States and Canada in 1992; these firms projected

such annual sales to reach $400 million by 2000

which could add 2,000 new jobs.55

The United States pioneered strong vehicle

emissions controls. The introduction of the cataFirst required by the United States in the 1970s, use of

catalytic converters to control automotive emissions

has become a worldwide business. The three-way

catalytic converter shown here is used in a growing

number of countries. Recent tightening of U.S.

standards may require further developments in the

technology.

lytic converter, removal of lead from gasoline

(necessary for catalytic converter operation), and

desulfurization of diesel fuel were undertaken in

the 1970s in response to emissions standards of

the 1970 Clean Air Act. Japan quickly adapted

some of its requirements to meet U.S. standards,

in part to qualify Japanese-made automobiles for

export to the United States. Both countries

required oxidation catalysts starting in model

year 1975 and then, several years later, required

more effective three-way catalysts.

It was not until the late 1980s that more than a

handful of other countries required catalytic

converter use.56 By 1993, the European Community had adopted EC-wide catalytic conversion

52 Fakas Berkowitz & CO., “The Fifth Annual State-of-the-Industry Report,’ Washington DC, 1993.

53 U,S, Department of Comrneme in ICFResowes and Smith Barney, Harris Upham and Company Inc., Business Opportunities o~the New

Clean Air Act: The Impact of the CAM of 1990 on the Air Pollution Control Industry, op. cit., footnote 39, p. I-2.

54 ~c~e] p, W~s~ t ‘Motor Vehicle Pollution Control: The Global~ket—s~t “ Arlingto~ VA, Oct. 5, 1993.

55 Bruce Bertelsen, “Clean Air Act Spurs Growth of U.S. Motor Vehicle Emission Control Industry,” Clean Air Technology News

(published by the Institute of Clean Air Companies and Manufacturers of Emission Control Association) summer 1993, pp. 2-3.

56 H&w M_gement Science Consultmts, ‘~temtio~ Mobile Source Emissiom Conmls Market S~dy: Update No. l,” prepared for

the Manufacturers of Emission Control AssoeiatioG August 1990. Australia, Austria, Canada, Denmark, Norway, Swedeu and Switzerland

adopted catalytic converters in the late 1980s.
134 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

requirements, although delays were permitted for

a number of member states, and larger cars had to

meet an earlier 1989 deadline. Two NICs, Taiwan

and South Korea, adopted these requirements by

1991. Mexico is phasing in catalytic converters

and unleaded gasoline. Over the course of the

1990s a number of other countries in Central and

Eastern Europe, Asia, and Latin America will

likely adopt similar requirements. Diesel emissions controls using catalysts and particulate traps

are also a growing market as the United States,

EC, and other countries compel their use.

The most significant force for improving catalytic conversion technology is the set of California vehicle emissions regulations that will be

phased in over the next two decades. While the

ultimate goal of the California program is commercialization of zero emission vehicles—to

account for 10 percent of in-state automobile

sales by 2003—intermediate standards for low

emitting, very low emitting, and ultra-low emitting vehicles might be met by improved catalytic

converters used in conjunction with gasoline or

alternative fuels. Several other States may follow

suit with these requirements. California regulations and proposed Federal requirements are also

driving catalytic converter development for small

engines (e.g., lawn mowers, chain saws, snow

blowers); limited application has already occurred in Europe.57

A handful of major producers dominate the

global catalytic converter business. The largest

supplier of catalysts is Johnson Matthey, a British

firm with major U.S. operations, estimated to

have a 27 to 28 percent market share.58 Two

American suppliers, Allied Signal and Engelhard,

each garner about a fifth of the market with

domestic and overseas plants. Degussa of Germany (which has an American plant) is estimated

to have less than 10-percent share, with the

remainder split among a number of Japanese and

Taiwanese companies. W.R. Grace (U.S.), which

supplies industrial catalysts, and other companies

are trying to enter the market by developing

devices that will meet future California requirements. The substrates on which catalysts lie—

usually ceramic or stainless steel—are made by a

number of U. S., Japanese, and European firms.

Corning is a major producer of ceramic substrate

with a plant in Germany and a license to a

Japanese manufacturer. Several American companies including Donaldson Co., Corning, and

3M, and the Canadian firm Engine Control

Systems are active in the diesel control markets.

American producers are strong competitors in

the catalytic converter market and strict California standards may drive them to produce more

effective catalysts that could become national and

foreign standards. However, other automobile

producing nations also have strong incentives to

develop emissions control systems that will meet

tightening U.S. Federal and State standards so

that their exports qualify for the American market. Japanese, German, Swedish, and Canadian

companies and governments have significant

R&D programs for vehicles powered by alternative fuels, fuel cells, and electricity. Some foreign

companies have been working on projects designed to address California’s automotive requirements. 59 Some of these alternative vehicle

technologies could eventually obviate emissions

control technologies.

USCAR, a collaboration involving the U.S.

Government, the Big Three U.S. automobile

manufacturers (General Motors, Ford, and Chrysler), and component suppliers, is an important

effort toward creating the clean car while revitalizing the U.S. automobile industry (see ch. 10).

The Advanced Battery Consortium and a lowemissions vehicle initiative are components of

USCAR.

57 Julie Edelson Halpert, ‘‘Cleaner Garden-Variety Engines, “ New York Times, Sept. 26, 1993, p. F1O.

58 Stephen Lipmann, ‘‘U.S. Environmental Companies’ Competitive Strategies: Eleven Case Studies,’ OTA contractor repofi March 1993.

w South Cowt Air Qua~ty M~gement District, Technology Advancement Office, 1992 Progress Repo% July 1992.
Chapter 5--U.S. Competitiveness in Environmental Technologies and Services 135

U.S. companies’ strength in this sector has

benefited the United States through export earnings, license royalties, and profits. The employment benefits are less clear when catalytic converters are often imported into the United States

already attached to the automobiles.

~ Water and Wastewater Treatment

Technologies

The U.S. water and wastewater treatment

market is relatively mature, yet in much of the

world basic water sanitation is an acute need. The

provision of drinkin g water and treatment of

domestic and industrial effluents are not only

prominent in the plans of less developed countries

but are also important priorities for environmental

investment in the rapidly industrializing countries

of the Pacific Rim and Latin America. As

discussed in chapter 4, multibillion dollar water

and sewer projects are underway or planned in

many of these countries. A high priority on water

is evident in the environmental plans of Central

and Eastern European countries. Even within the

OECD countries, there is some room for improvement in the water and wastewater treatment

sector. For instance, centralized sewage treatment

is provided to only 44 percent of Japanese

residents60 versus 75 percent in the United States.

A number of EC countries will need to make

significant investments to meet EC water standards. And U.S. regulations continue to tighten.

OECD estimated the global market for water

and wastewater treatment goods and related

services at $60 billion in 1990.61 Most spending

related to water and wastewater projects is for

locally provided construction labor, lower value

materials, and operations. In the United States,

about 75 percent of municipal water treatment

and over 50 percent of municipal wastewater

treatment capital expenditures are for construction; the remainder are for engineering and

equipment.62 Of the portion of water industryrelated expenditures that is likely to be internationally traded, much will accrue to engineering

and construction firms for design and construction management. However, there is significant

commerce in equipment and supplies such as

aerators, falters, pumps, flow meters, monitoring

instruments, and chemicals for treatment systems.

This section centers on competitiveness of suppliers of such goods and technologies. There is an

overlap with the engineering/construction industry and water supply utilities-firms in both of

these service sectors have major interests in

equipment manufacturing fins. Also, because of

site-specific conditions, engineering services are

often integral to equipment sales.

U.S. drinkin g water and wastewater standards

are among the world’s most demanding; German,

Dutch, French, and Scandinavian country standards are also high. Standards of U.S. professional

associations, including the Water Environment

Federation and American Water Works Association, are used abroad. And U.S. water technologies are respected abroad. The Water and Wastewater Equipment Manufacturers Association

row), an industry association with about

70 member firms accounting for nearly $1 billion

of annual sales, reports that the majority of its

members sell abroad—mainly secondary and

tertiary wastewater treatment equipment and

disinfection systems.63 U.S. companies, among

them Nalco Chemical, Betz Laboratories, and

60 Environment ad Development.. Japan’s Experience and Achievement, Japan’s National Report to the Ufit~ Nations Conferenu on

Environment and Development (UNCED), December 1991, pp. 32-33.

c1 OEC’D, op. cit., fOOtnOte 4.

62 Willlam T. ~renz & Co., op. cit., fOO@Ote 12.

63 Dam fistof, Resident, Water ~d WasteWater Eq~pment ~n~ac~ers Associatio~ prso~ cornmwication, June 2, 1992.
136 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

W.R. Grace, are major international providers of

water treatment chemicals and services.64

Over the last decade Swiss, Swedish, French,

and British companies have been active in acquiring U.S. water and wastewater equipment companies.

65 Of the 10 largest U.S. providers of

treatment equipment, 5 are European-owned.66

And while U.S. companies license technologies

abroad, some observers believe that there is a net

influx of foreign water and wastewater treatment

technologies into the United States.67 European

firms also export directly into the U.S. market.

Despite good reputation and interest in exporting, a number of factors impede the U.S. water

and wastewater equipment industry’s competitiveness. The 70 members of WWEMA average

under $15 million in annual sales and operate

with low profit margins.68 The estimated 2,400 or

more other companies in the sector are yet

smaller. 69 Low profit margins leave limited resources for R&D and for exploring foreign

markets. In some regions, such as Southeast Asia,

local environmental firms feel that the United

States has been late in entering the market and

that Japanese and European firms have the

advantage of greater familiarity.70 Some of these

firms believe Japanese and European providers

offer better after-sales service than U.S. suppliers.

As in other environmental sectors, U.S. companies have difficulty competing in developing

country markets against some foreign suppliers

with superior access to confessional aid finance.

With multibillion dollar projects planned or

underway in a number of developing countries

(see ch. 4), aid can serve as a lever to shift

business--both equipment supply and engineering/

construction services-to a donor country’s fins.

The lever may be the formal or informal tying of

aid to spending in the donor country or it may be

training, technical assistance, and other support

that makes recipients more familiar with-and

more likely to choose-technologies and vendors

from the donor country. Except for projects in

Egypt ($2 billion over 14 years in the water

sector), 71 recent U.S. development assistance has

not emphasized large capital projects that can

generate exports, unlike aid from Japan and

several European countries.72 Japan’s reported

commitment of $1 billion to a $4 billion, 10-year

Brazilian clean-up of Rio de Janeiro’s Guanabara

Bay,

73 its funding of environmental centers in

Indonesia and other Asian countries, and other

forms Green Aid may yield commercial benefits

to Japanese fins. The United States and European countries also consider potential commercial benefits of aid.

~ Rick M~~, ‘ ‘water Tr@ment Chemicals and Services, ’ Chemicahveek, May 13, 1992, pp. 3240; Michael Roberts, “Europe: New

Laws, New Markets,” Chemiculweek, May 13, 1992, pp. 46-47.

6S Dawn Kristoff, op cit., footnote 63.

~ ‘‘EBJ’s ‘I@ Water/Wastewater Equipment Companies,’ Environmental Business Journal, vol. 6, No. 3, March 1993, p. 5. The listing

does not include revenues from treatment chemicals, instruments, pipes, and valves.

67 ~~wa~r/wmtewater Markets Remain Diverse, ” Environmental Business Journal, vol. 6, No. 3, March 1993, pp. 1,3-5.

68 Dawn ~stoff, op. cit., footnote 63.

69 Env~romen~a/Bu~jnes$ JowM/, vol. 5, No. 4, Apfi 1~, p. T. TWeny-fiVe publicly ~dcd companies averaged $259.5 fni.lliOn in 1991

revenues and 2,500 privately held companies averaged $2.4 million.

70 ~v~mm~ _gement and Rcsc~Ch Association of Malaysia, Bnefmg for Participants of U.S. ~vfinmenti T’*oIogY&

Business Missiom Kuala Lumpur, Malaysia, Oet. 30, 1992.

71 Rojat ~ D~elopm~t and he Environment, Profile oft~e Envi~onmental fl~ines~ ~ecto~ in Egypt (Washington, IX: (ktok 1992),

p. 19.

72 U.S. cowss, ~lce of ‘l’’ec~o]ow Assessment, De~telop~ntAssistance, Export promotion, arldEnviron~ntal Technology, Op. cit.,

footnote 23.

73 U.S. MD, Enviromntal Mar~t co~itio~s and Business oppor~nities in Kq ~tin Awn-can countries, Busilltxs FOCUS StXkS

(Arl.ingtox.L VA: October 1992), p. 50.
Chapter 5–-U.S. Competitiveness in Environmental Technologies and Services! 137

Judging form the limited data that is available

from the U.S. Department of Commerce,74 the

performance of U.S. water and wastewater equipment exporters in emerging markets has been

mixed. U.S. and Japanese firms each supply about

a third of Taiwan’s import market. U.S. suppliers

provide the majority of Mexico’s imported water

and wastewater equipment but fare no better than

German, Swedish, and British rivals in the

Brazilian industrial wastewater market. The correlation between aid and exports can explain the

strength of U.S. suppliers in Egypt, Japanese

companies in China, and French firms in Tunisia;

in each case the largest aid donor is the largest

provider of imported water-related goods and

services.

Among foreign competitors in the water and

wastewater market, the French and recently

privatized British water utilities have emerged as

particularly important players. Compagnie Generale des Eaux-Dumez and Lyonnaise des Eaux

from France, and several British companies

(Severn Trent, Northwest Water, Wessex, and

Thames Water among the largest) have utility

operating experience and healthy financial positions. They offer customers integrated water

industry services ranging from equipment to

design to operations. Some of these companies

also provide construction services. They have

diversified into the waste disposal sector and have

been active acquirers of companies in the United

States and elsewhere. In contrast, it is difficult for

the American water and wastewater industry to

match the integrated services. The U.S. water and

wastewater industry is more fragmented-most

designers and contractors do not operate water

facilities, 75 water and sewer utilities are usually

local government entities or small private firms

that only operate in a limited service area, and

Advanced water treatment technologies such as this

ultraviolet/ozone disinfection unit are at an early

stage of deployment.

equipment suppliers often lack operating experience.

Competition is very tough for American firms

providing water and wastewater equipment, and

continues to increase as newly industrialized and

developing countries expand their environmental

industries’ capability for providing water-related

equipment for their domestic markets and for

export.

Advanced systems; Advanced water and wastewater systems may move toward alternatives to

chlorine disinfection, such as ozonation and

ultraviolet irradiation. New biological methods

for sewage and industrial effluent treatment could

find growing application. The use of polymer

water treatment chemicals is increasing. Ion

exchange for metals recovery and membranebased systems (ultrafiltration and reverse osmosis) will likely find greater industrial uses for

some add-on treatment and in-process waste

minimization and water conservation. Organic

contaminant destruction by incineration or other

oxidative processes may expand as controls on

VOCs and air toxics tighten. Engineered wetlands

74 VFAOUS indusq sector analyses from the National Trade Data Bati Department of Commerce country desk offlcen. and U.S. A.rD

Business Focus Series reports are sources for market share data.

75 There me some exceptions. Some U.S. environmental firms, including Metcalf & Eddy (part of Ak & Water Teckologi=) and

Wheelabrator Technologies (affiliated with WMX Technologies) do operate a few facilities in addition to offering engineering services.
138 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

and similar nature-based aquatic treatment systems offer low-cost options for small communities in both industrialized and developing countries; however, the employment and income

associated with export of the know-how to build

such systems is likely to be quite modest.

Advanced water technologies may not be

limited to markets in advanced industrialized

countries. For instance, RMA Dornier, a subsidiary of Deutsche Aerospace, is introducing ion

exchange in Malaysia as a cost-effective alternative to conventional treatment and disposal of

metal-laden effluents from that country’s growing electronics industry.

76 In another example,

new bacterial degradation technology from MicroBac International (a Texas based firm) is used by

a quarter of Brazil’s chicken processing industry

for wastewater treatment, as well as by a number

of sewage systems; applications for individual

buildings and households and for toxic wastes are

under development.77

The competitive situation in advanced and

alternative treatment approaches is hard to assess,

for the market is at an early stage. Even in

countries with the most stringent regulations,

effluents are regulated using traditional indicators

of water quality such as pH, turbidity, biological

and chemical oxygen demand (BOD and COD),

and total dissolved solids. Regulation of toxic

chemicals is still evolving and markets are

immature. U. S., German, and other European

companies are competitive suppliers of ion exchange resins. Calgon Carbon and Nalco Chemical are among major U.S. suppliers of activated

carbon systems for removal of many organic

compounds from water and air. Lurgi, a major

German competitor in air pollution control, is also

a large supplier of activated carbon, providing

systems in 50 countries.78 Membrane systems,

ultraviolet and ozone disinfection, ion exchange,

real-time monitoring of effluents, engineered

wetlands, and other newer developments are only

in the early stages of use.

9 Solid and Hazardous Waste Industry

The waste sectors consist of service companies

that collect, treat, recycle, and dispose of wastes,

and firms that produce and market the equipment

and technologies needed by waste service companies. Types of technologies and equipment used

in the industry range from garbage trucks and

balers to sorting machines for mixed recyclable

to incineration technology and specialized treatment technologies for hazardous wastes.

Among service providers, the U.S. domestic

solid waste industry has undergone significant

consolidation over the last two decades, as many

small local refuse collectors and landfill operators

were acquired by large waste service companies.

WMX Technologies (formerly Waste Management, Inc.) and Browning Ferris Industries (BFI)

are the two biggest U.S. solid waste service fins.

Laidlaw (Canada) and Attwoods (U.K.) have

significant U.S. operations. Europe is also developing a more concentrated waste service industry,

comprised of companies whose main business is

waste handling and disposal and firms that are

waste subsidiaries of major water (e.g., Compagnie Generale des Eaux, Lyonnaise des Eaux, and

Severn Trent) and electric (e.g., RWE, the largest

German electric utility) utilities.

WMX and BFI are part of the consolidation

trend abroad. Out of WMX’s $8.6 billion in total

1992 revenues, almost $1.7 billion arose from

operations outside of the United States. WMX has

waste services in 20 countries in Europe, Asia,

and Latin America, including hazardous waste

facilities in operation or under construction in the

Netherlands, Hong Kong, Singapore, and Indonesia. The firm recently acquired a 90-percent

76 Env~~o’92 Cotierence and Trade Show, Kuala Lumpur, Malaysia, Oct. 30, 1992.

77 International Environment Reporter, “U.S. Biotechnology Used to Treat Sewage, Industrial Waste in Brazil, ” Sept. 23, 1992, pp.

599-600.

78 Me~l]gesellsc~t AG, 1990/91 Annual Repom
Chapter 5--U.S. Competitiveness in Environmental Technologies and Services 139

interest in Sweden’s largest hazardous waste

company.

79, 80 BFI is the second largest American

international waste service competitor, although

its services are limited to nonhazardous wastes. It

has operations in nine foreign countries and is

pursuing additional international opportunities.81

The large U.S. waste service companies bring to

the international market their extensive experience in operating facilities and handling diverse

wastes under strict U.S. regulations. Both WMX

and BFI have significant financial strength and

good access to capital. WMX is attempting to

reorganize itself into an integrated environmental

service company incorporating air, water, and

waste services under one roof.

Another American waste service competitor of

note is Safety-Kleen. It is the largest recoverer of

used solvents and motor oil in the United States

and believes itself to be the largest solvent

recycler in the world.82 Collected solvents and

oils are recycled, rerefined, or burnt for energy in

industrial furnaces. The company is also a major

provider of parts cleaning equipment, particularly

to the automotive repair industry. Safety-Kleen

has brought its recovery services to several

European countries and has several licensees in

the Pacific Rim, including Japan. The company

owns Germany’s largest solvent recycler and

biggest parts-cleaning service firm.83

Smaller hazardous and specialized wasterelated companies in the United States have been

entering foreign markets. U.S. companies may

have the advantage of operating under tough toxic

waste regulation for longer than foreign rivals.

The Resource Conservation and Recovery Act of

1976 was the first comprehensive U.S. Federal

law regulating hazardous wastes, The later passage of Superfund legislation further propelled

the U.S. hazardous waste industry by making

improper disposal of hazardous wastes a very

expensive risk for companies. No other country

imposes hazardous waste liability burdens as

great as those under Superfund. Interestingly,

growth of the hazardous waste industry may

ultimately be limited by increasingly stringent

hazardous waste standards. As the costs of

disposal and liability grow, generators have

increased incentives to practice pollution prevention through avoidance of toxic compounds and

minimization of hazardous residuals. Some waste

service firms also offer waste minimization services.

Although the U.S. waste service industry is

highly competitive worldwide, it is not without

rivals. Canada’s Laidlaw has a noteworthy presence in the United States and has entered Europe.

The Danish firm I. Kruger, a subsidiary of

Compagnie Generale des Eaux (France), was

chosen over a U.S. company to establish an

integrated hazardous waste facility in Malaysia.

Berzelius Umwelt-Service AG, a subsidiary of

Metallgesellschaft of Germany, is a major recycler of industrial materials, including metal-laden

wastes, plastics, and used foundry sand. The firm

has a 45-percent stake in Horsehead Resource

Development Co., the largest U.S. recycler of

electric arc dust.84 Although the United States and

Japan host significant recycling R&D efforts,

growing German recycling requirements and

disposal regulations, which could be adopted by

other European countries, may further propel

German expertise and technology in the area.

Japanese firms do not appear to be prominent in

providing waste services internationally.

In the equipment and technology sector of the

waste industry, American suppliers face tougher

79 LJpmann, op. cit.. footnote 58.

so Watre Tech ~~e~~s, vol. 4, No. 19, Sept. 7, 1992, p. 9.

al BH was rewntly awmded a $4.00 million 25-year joint venture contract to build and operate a landfdl iII Hong Kong. “Bm wning-Ferns

Gets Contract to Operate a Hong Kong Dump, ”Wall Street Journal, June 29, 1993, p. A8.

8Z Lipmann, op. cit., “ footnote 58.

83 Ibid.

84 Memllgesellsc~t 1990/91 Annual Repofi.
140 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

competition. Swiss, German, and French firms

successfully market comporting and recycling

machinery in the United States. European and

Japanese companies are major providers of waste

incineration technology. With less land available

for landfills, Europe and Japan incinerate more of

their waste than does the United States. Von Roll

of Switzerland and Martin of Germany are major

international providers of incineration technology. Deutsche Babcock licenses incineration

technology in Japan.

85 Japan has numerous incinerator builders; Ebara, a major engineeringconstruction concern and an important provider

of fluidized bed incinerators, maybe the largest.86

Numerous U.S. waste-to-energy firms rely on

European-licensed technologies .87

There have been some U.S. successes in the

equipment field; for instance, Detroit Stoker’s

grate system is a significant U.S. contribution to

incineration technology.88 Wheelabrator is building a facility in Germany. Basic Environmental

Engineering has licensed combustion technologies that will be used in a tire burning waste-toenergy facility in Britain.89 U.S. companies are

also successfully marketing recycling and wastehandling equipment and landfill liners abroad.

For hazardous wastes, new treatment technologies may provide viable alternatives to conventional incineration and treatment. With a number

of alternative technological approaches in various

stages of development and early commercialization, it is difficult to predict commercial leadership. Supercritical fluid extraction and oxidation—

which uses carbon dioxide or water at high

temperature and pressure to remove or destroy

organic materials-is one approach under study

in the United States. Molten Metal Technologies

(U. S.) is developing a molten iron bath system for

destroying wastes and recovering materials. A

U.S.-Mexican joint venture enterprise is considering this technology for a planned Mexican

hazardous waste treatment facility.90 Vitrification—

turning materials into a glassy substance—is still

another approach. A number of innovative treatment technologies being developed for contaminated site clean-up (see next section) may be

applicable for waste treatment.

9 Contaminated Site Remediation

The United States has more experience than

any other country in dealing with contaminated

land and groundwater. Congress passed the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA, or Superfund)

of 1980 to bring some order to Federal laws on

toxic substance clean-up and compensation.91

The law applied joint and several liability retroactively on site owners, former operators, waste

generators, and waste haulers associated with

hazardous wastes found in abandoned or inactive

sites. A Hazardous Substance Response Fund

(Superfund) was created to clean up sites in cases

where parties responsible for contamination cannot be located or are unable to pay. A number of

States have adopted mini-Superfunds. Although

subject to extensive criticism as inefficient,92 the

85 GWa Heavy Industries, 1992 annual report.

M ~sato 1tiw% f ‘Fl~~ed B~ ~cineratom Drawing Interest, ’ The Nikkei Weetiy, Sept. 12, 1992.

87 Willlm T. ~re~ & Co., ]991 up~t~olid Waste Control ]ndus~y outlook (concord, NH: willh T. bxenz & CO., June 1991) p.

486.

as Ibid., p. 446.

69 Waste Tech News, vol. 4, No. 19, Sept. 7, 199*, p. 6.

90 “MexicaU U.S. Bus~essmen Plan to Build Treatment Plant in Mexico, ” International Environment Reporter, Jan. 15, 1992, p. 7.

91 Frederick R. ~de~om Daniel R. M~delker, ad A. Dan TMIK~ Environmental protection: tiwand policy (BOStOIl: Little, Brown

and Co., 1984), p. 568.

w See, for ~s~nce, U.S. Conpess, Ofilce of Technology Assessment, Coming Clean: Superjimd Problems Can Be Solved, Om-lT’E433

@Ci.shington, DC: U.S. Government Printing Office, October 1989).
Chapter 5-US. Competitiveness in Environmental Technologies and Services I 141

Superfund Act propelled the emergence of a

hazardous waste remediation industry. Other

specialized remedial services have sprung up in

response to regulations and concerns about leaking underground storage tanks, asbestos, and lead

paint.

America’s focus on remedial environmental

clean-up has heightened in the last several years

as it has become clear that it will require billions

of dollars in annual expenditures for many years

to manage environmental contamination at vari -

ous Department of Energy (DOE) and Department of Defense (DOD) installations. DOE’s

estimated fiscal year 1994 outlay for environmental restoration and waste management will be

over $5 billion, while DOD plans to spend about

$2 billion for the same purpose.93 Federal site

contaminants range from common fuels and

solvents often found at civilian sites to radioactive substances, explosives, and propellants.94

European and Japanese remediation laws and

programs are less extensive than those of the

United States. Hazardous waste remediation experience in Europe has thus far been limited to

Germany, France, Great Britain, the Netherlands,

Denmark,95 and perhaps other Nordic countries.

Japan and Western Europe are still assessing the

extent of soil and groundwater contamination i n

their countries. Germany’s eastern states, the

restructuring countries of Central and Eastern

Europe, and the former Soviet Union offer

formidable remediation challenges and, if money

can be found, business opportunities.

Competitiveness is hard to assess in this sector,

where there are many technologies to handle

many types of contaminants. Incineration and

solidification are conventional techniques, but

newer innovations-including bioremediation,

vitrification, vapor extraction, thermal desorption, soil cleaning, and chemical treatment, among

others—are vying for markets.96 Site characterization technologies, including monitoring technologies and groundwater modeling systems, are

also being advanced.

Firms in the U.S. industry range from very

small, technology-based entrepreneurial firms to

large waste and engineering companies. Despite

new technologies, much remediation work involves labor-intensive activity such as earthmoving and construction. U.S. technologies appear to fare well as international markets arise.

Japan’s Environment Agency plans soil contamination research using U.S.-developed technologies. 97 Terra Vac Corp., an early developer of

vapor extraction technology, is an example of a

small U.S. firm exporting remediation services.

The company has joint venture partners and

business activities in Western Europe, Japan, and

the Czech Republic.98 WMX’s European and

Asian hazardous waste facilities may be positioned to serve remediation markets.

Foreign competitors are now emerging, however. For example, Metallgesellschaft (Germany)

established a remediation and hazardous waste

management subsidiary in 1989. It has won

industrial and military site decontamination cong~ Executive Office of the ~esiden~ Offlc.e of Management and Budget, Budget of the United States Government, Fiscal Yw1994, Pp.

App.-46l, App.-462, App.-57O.

94 see us ConWe~~, Office of Technolo~ Assessment, Comp[u Cleanup: The Environmental f.egacy of Nuclear Weapons Production,

OTA-O-484 (Washington, DC: U.S. Government Printing Office, February 1991) for discussion of clean up of DOE’s nuclear weapons

facilities.

95 ECOTEC Research& Consulting, “The European Pollution Control and Waste Mamgement Market: An Overview, ” January 1992, p.

24.

pf See U.S. EPA, ‘cleaning Up the Nation’s Waste Sites: Markets and Technolo~
142 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

tracts within Germany and, in partnership with

Messerschmitt, is seeking munitions site decontamination business in Russia.99 Heidemij Reststoffendiensten, a Dutch company, is operating an

80,000-ton-a-year soil washing facility in the

Netherlands. 100 The plant could be the world’s

largest. German technology is being tested by a

U.S. firm for cleaning up groundwater at March

Air Force Base in California.101 As their remediation markets grow, European and Japanese competitors are likely to expand their remediation

technology capabilities, using their own technologies or adapting and improving those developed

in the United States.

The strong U.S. emphasis on remediation has

created an environmental industry sector that has

the potential to export its products, services, and

technologies. But, in much of the world, including developing and newly industrialized countries, Central and Eastern Europe, and the former

Soviet Union, it is not clear whether or when

clean-up of existing contaminated sites will

receive much emphasis. The Environmental Action Program developed by the OECD and World

Bank for environmental aid to the former Eastern

Bloc places high priority on air pollution, drinking water, and nature conservation; the absence of

remediation as a priority is striking.102 The plan

was adopted by almost 50 environment ministers

from Europe, the United States, Canada, and

Japan. However, privatization of state-owned

enterprises in eastern Germany and other parts of

Central and Eastern Europe may propel some

remediation markets as authorities seek to make

facilities more attractive to investors, Many

developing countries have had a relatively short

history of hazardous chemical-intensive industies and activities, so they may have few sites

requiring remediation. While particular sites could

present extraordinary hazards or have leaked

chemicals and fuel that may be recovered for use,

remediation will usually be a lower priority than

prevention and control.

U Cleaner Energy Technologies

Energy extraction, conversion, and use is the

major contributor to a wide variety of environmental ills, ranging from the global build-up of

greenhouse gases to regional acid rain and smog

to local air pollution and oil spills. Demand for

energy and requirements for energy-related investment are likely to increase substantially over

the next two decades. For instance, an analysis

done for the U.S. National Energy Strategy in

1991/1992 projects that over $2 trillion of investment, amounting to over 1,000 gigawatts of

capacity, in the electric power supply sector will

occur outside the United States during the years

1991-2010.103 A little over half of this investment

may occur in developing countries, about a

quarter in OECD countries (other than the United

States), and the remainder in Central and Eastern

Europe and the former Soviet Union,

The World Bank estimates that non-OECD

electricity capital investments may reach $1

trillion during the 1990s.l04 Whether or not

growth in demand for electricity or energy occurs

at such a rapid pace, there is greater realization of

the need to address the environmental problems

caused by energy development. Business opportunities will arise for pollution abatement equipment, more efficient and cleaner energy extrac-

~ Me~lgesellsc~t Annual Report 1990/91.

100 WaSre Tech News,, vol. 4, No. 24, NOV. 16, 1992, p. 6.

101 Enviro~en@ Science& Technology, vol. 27, No. 10, October 1993, pp. 1957-1958.

1~ Marlise Simons, “West Offers Plan To Clean Up Eas4° New York Times, May 4, 1993, p. A13.

Ios us. Dep~ent of Energy, “National Energy Strategy Technical Annex 5: Analysis of Options to Increase Exports of U.S. Energy

Technology,” 1991/1992, p. 7.

1~ World Ba~ C ‘Capiti Expendiwes for Electric Power in the Developing CO~13’ieS, ‘‘ KEN Energy Series Paper No. 21, February 1990,

in World BardG ‘‘The Bank’s Role in the Electric Power Sector, ’ draft, Industry and Energy Departmen\ Box 5.
Chapter 5–U.S. Competitiveness in Environmental Technologies and Services I 143

tion and conversion technologies, and more

efficient energy end use.

This section discusses competitiveness in cleaner

energy technologies, in particular electricity supply, and features several classes of electric power

technologies including gas turbines (also called

combustion turbines), advanced coal technologies, and several renewable energy technologies.

While some of these technologies offer certain

advantages even in the absence of environmental

benefits, their environmental attributes can spur

their development and use. For example, gas

turbines and combined cycle power plants that

combine steam and gas turbine cycles can offer

advantages in cost, efficiency, and flexibility of

use over conventional steam plants; however,

significant advantages also accrue from their

cleaner performance, including lower pollution

abatement costs, easier permitting, and less difficult facility siting. These environmental benefits

are major factors in the adoption of these technologies and could be viewed as environmental

business opportunities.

COMBUSTION OR GAS TURBINES

New gas turbine technologies offer extensive

environmental and operational advantages over

conventional steam turbine power plants. For

more advanced models and configurations, such

as combined cycle (linking gas and steam turbine

cycles), steam injected, and intercooled steam

injected, electrical generating efficiencies of 45 to

over 50 percent are possible, in contrast to 30 to

35 percent for conventional steam plants.105 Net

energy efficiencies may exceed 80 percent if

cogenerated heat is recovered. Improved efficiency translates into less environmental damage

per unit of electrical generation or capacity;

carbon dioxide emissions are less than those from

conventional power plants, while particulate,

VOC, and SO2 emissions can be very low.

(Controls for NOx may still be necessary.) Gas

turbines can be economically and quickly installed in small increments-in contrast to large,

capital-intensive, centralized steam plants. Advanced gas turbines may have the flexibility to be

configured for both peaking-power and base-load

performance. Natural gas, oil, and gasified coal

and biomass can be used as fuels.

There are about 15 manufacturers of gas

turbines in the world; 106 the United States fares

well in this business. General Electric (GE) is the

largest supplier, with roughly half the U.S.

domestic market and, with its European and

Japanese business associates, who assemble turbines using key GE components, about the same

proportion of the world market.

107 The company

has had success in selling gas turbines in the home

markets of competing nations; 56 percent of

European orders in 1991 accrued to GE and its

associates log and Japan has been a good GE gas

turbine customer. Pratt & Whitney and Westinghouse are other U.S. gas turbine suppliers. So far

GE and Pratt& Whitney dominate the production

of aeroderivative gas turbines (derived, in part,

from jet engine technology) that are expected to

be in growing demand. 109 Major foreign competitors include ABB, Siemens (Germany), and Rolls

Royce (U.K.), which have been increasing their

U.S. market share.

International partnerships and licensing arrangements are proliferating. GE’s overseas associates include major Japanese and European

engineering firms and machinery manufacturers,

PP.

PP

lot OA ~~ge Na[io~ ~bomto~, Energy Technology R&D: What CouldMakea Difference?, vol. 2 (ORNL-6541/Vl/P2) December 1989,

41-46; and R.H. Williams and E.D. Larson, ‘‘Aeroderivativc Tbrbines for Stationary Power, ’ Annual Review of Energy, vol. 13, 1988.

429-489.

1~ us, Dcp~mcnt of Energy, op. cit., footnote 103, pp. 46-47.

107 Eugene ~]tman, Gener~ Eltxtric, persoml communication, Feb. 3, 1993

l~s * ‘GE Fo~s New European Marketing Arm, ” Energy Daily, Oct. 21, 1992, p. 4,

‘w Jim Clarke, “EPRI Official: Interest in Advanced Thrbines Increasing,” Energ? Daily, June 26, 1992, p. 4.
144 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Ohio Power Co. Tidd Plant, Brilliant, Ohio.

Pressurized fluidized bed combustion is one of a

variety of technologies being demonstrated under

DOE’S Clean Coal Technology Program. Clean coal

technologies may have growing markets as coaldependent countries around the world address

environmental concerns.

Westinghouse has partnerships and agreements

with Rolls Royce, Mitsubishi, and Fiat Avio

(Italy). Rolls Royce has a separate partnership

with ABB in Europe. And Pratt & Whitney has a

partnership with Siemens. General Electric Co. of

Great Britain is linked with Alsthom of France.

Competition has intensified as the number of gas

turbine manufacturers has grown. Several of the

partnerships just noted were forged to challenge

GE’s and Pratt & Whitney’s position in the

aeroderivative market. Firms in newly industrialized countries might enter the market as well.

ADVANCED COAL COMBUSTION AND

CONVERSION TECHNOLOGIES

Fluidized bed combustion (FBC) and coal

gasification are two major types of clean coal

technologies that may see considerable market

development as ways are sought to make coal use

more compatible with environmental protection.

Along with several other new cleaner combustion

technologies, they are being developed and demonstrated under the U.S. Department of Energy’s

Clean Coal Technology Program. The program is

a Federal-private cost-sharing effort to demonstrate new ways of using coal cleanly, including

precombustion coal cleaning, advanced combustion and conversion, and postcombustion cleanup. Over $2.7 billion of Federal money is

committed to five rounds of demonstrations from

fiscal year 1986 through fiscal year 1995.110 Of

$4.6 billion committed to 41 projects at the end of

1992, 40 percent was from DOE and 60 percent

from industry.111 Other DOE and Electric Power

Research Institute (EPRI) research has been

important in advancing combustion technologies

in the United States.

Two major variants of fluidized bed combustion are Atmospheric FBC (AFBC) and Pressurized FBC (PFBC). Both can effect high rates of

sulfur removal and are alternatives to conventional pulverized coal plants using flue gas

desulfurization. AFBC has been employed for

biomass and waste combustion, and can use low

quality fossil fuels like lignite and oil shale.112

PFBC, a less mature technology, offers higher

efficiency in less space than either conventional

or AFBC plants. These technologies may be

viable for repowering existing plants as well as

for new installations.

U.S. vendors of AFBC systems face considerable competition from Europe and Japan. India

and China are developing AFBC for their domestic needs. Less complex variants of AFBC have

been built mainly for biomass burning and waste

incineration. For larger utility scale applications,

the emphasis has been on more advanced circulating AFBC. Lurgi (Germany) and Ahlstrom/

Pyropower (Finland) have led with 40 and 30

plants, respectively, in operation or under con110 U.S. Congress, Congressional Researc h Semice, “DOE’s Clean Coal Technology Program: Goals and Funding,” CRS Issue Brief

IB88071, updated July 20, 1993,

11 I Dafiel ~pla% ‘*DOE ~~ to Fu~m in FM Clean cod Technology Solicitation’ Energy Daily, Dec. 10, 1992, p. 4.

112 E. Stratos Tavoulareas, “Fluidized Bed Technology, ” Annual Review of Energy and Environment, vol. 16 (1991), pp. 25-57.
Chapter 5--U.S. Competitiveness in Environmental Technologies and Services! 145

struction by 1990.113 Two Swedish companies are

prominent competitors; one has licensed its

technology to U. S., Japanese, and Spanish fins.

Keeler/Dorr-Oliver and Foster Wheeler are the

major U.S. providers of AFBC technology. Combustion Engineering, a U.S. subsidiary of ABB, is

another supplier and a participant in DOE’s clean

coal technology demonstration program. 114 Other

AFBC variants are being developed by U.S. and

German companies.115

PFBC is an immature technology that is not yet

commercially available. ABB has dominated the

field as supplier of all three major PFBC demonstration projects (in Spain, Sweden, and the

United States).116 Demonstration units have been

sold to Japan and the former Czechoslovakia.

ABB hopes to sell commercial-sized facilities in

the United States and Japan. Deutsche Babcock

(Germany), Foster Wheeler, and Air Products and

Chemicals are working together to demonstrate a

PFBC system in DOE’s clean coal technology

program.

117 Ahlstrom/Pyropower, using Finnish

technology, hopes to become a PFBC supplier,

with a U.S. demonstration plant planned for

completion later in the decade.118

Integrated gasification combined cycle (IGCC)

is another clean coal approach. Gas is derived

from coal while polluting ash and sulfur are left

behind, The gas, like natural gas, can be burned

relatively cleanly and at high efficiency in a

combined cycle power plant. Most existing coal

gasification projects produce gas for chemical

feedstock rather than for electric power production. The gasification process may be adaptable

for gasification of biomass as well. IGCC produces far less waste than fluidized bed combustion because sorbents are not needed to absorb

sulfur from the combustion chamber. This is also

an advantage over FGD on conventional power

plants. There are only a handful of gasification

processes in competition from U. S., German,

Dutch, and British firms.119 Japan’s government

and electric utilities are working together to

develop coal gasification and liquefaction technologies.

120 The major processes that appear to be

making commercial inroads are from Texaco,

Dow, Shell (Netherlands), and British Gas/

Lurgi. 121 The Texaco process seems to be most

used; there are facilities in the United States,

Japan, and Germany using the process, mostly for

chemical feedstock production. Texaco has received contracts in China and Italy, and is

working with Venezuela to promote IGCC use

with heavy Venezuelan oil for the U.S. and

Caribbean markets.122 Several DOE clean coal

demonstrations feature IGCC.

‘‘3 Ibid.

114 S+ B, AIp~ 1‘Clea coi-d Technology and Advanced Coal-Based Power plants, ’ Annual Review of Energy and Environment, vol. 16

(1991), pp. 1-23.

1 IS mid.

1 lb Robefl smock ‘ ‘Pressurized Fluid Bed Demonstration Units Operate Successfully, ‘‘ Power Engineering, vol. 97, No. 3, March 1993,

pp. 42-45.

117 R.C. Rittenhouse, “Clean Coal Technology: Where Does It Go From Here?,’ Power Engineering, Vol. 97, no. 7, July 1993, pp. 17-22.

*‘a Ibid.

119 O* Ridge Nation~ Laboratory, Op cit., footnote 105, p. 27.

120 Agency for ~dusrn~ Scienm and Technology, Shikenkenyusho Kenkyu Keikaku 1992 (Oct. 1992), as repotied in Foreign Bro~cast

Information Service, Foreign Media Notes, FB PN 93-330, July 28, 1993.

121 ~Wfi, op. cit., fOOmOte 1141 P. 20.

’22 George Lobenz, “Texaco, Venezuela Sign Accord Linking Orimulsio~ IGCC,” Energy Daily, June 18, 1992, p. 3,
146 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

RENEWABLE ENERGY123

Renewable energy sources, other than hydroelectric, make up only a small portion of commercial electric power generation today. However,

that proportion is likely to grow, perhaps rapidly.

Technological improvements that have lowered

costs, concerns about greenhouse gas emissions,

and continuing worries about the safety of nuclear

power add to renewable energy’s appeal. Renewable energy is key for pursuit of sustainable

development. Photovoltaic cells (PVs) and wind

turbines are among the renewable energy technologies that might make important contributions to

power supply in coming decades.

The United States pioneered development of

PVs, which found early applications in space as

satellite power sources. Today, PVs are being

used for remote location power production—

which is particularly important in developing

countries without widespread national power

grids-and are being evaluated for some utility

applications. U.S. PV manufacturers face very

strong competition from their Japanese, German,

and other European counterparts. The world’s

largest manufacturer of PVs is Siemens Solar

Industries, a U.S. subsidiary of Siemens (Germany), which recently bought ARCO Solar in the

United States.124 The company accounts for over

half of U.S. production, of which it exports 75

percent.

U.S. and Japanese producers each garnered

about one-third of the global market in 1992; up

from one-quarter for U.S. producers and down

from half for Japanese producers in 1986.125,126

European production grew from about 15 percent

to nearly 29 percent in that period. Some Asian

competitors have built up production experience

by making PVs for calculators, watches, and

similar devices. They now produce cells and

modules for remote sites, residential use, and

utility demonstration in competition with U.S.

manufacturers. There are at least a dozen U. S.-

owned PV manufacturers. Several, including

Solarex (an Amoco subsidiary), Mobil Solar, and

Texas Instruments, are parts of large companies.

Energy Conversion Devices (ECD) has formed a

partnership with Canon (Japan), called United

Solar Systems Corp., to manufacture PVs in the

United States.127 ECD has separate PV joint

ventures in India and the former Soviet Union.

The United States, Germany, and Japan are the

leading funders of research, development, and

demonstration of PV technology; several European countries have lesser efforts.

Wind turbines are providing utility power

today, with most installations in California,

Hawaii, and Denmark. Several improvements in

design, materials, and siting may make wind a

cost-effective electric power source in a large area

of the United States and abroad.128 DOE’s goal is

to achieve price reductions from a current average

of 8 cents per kilowatt-hour to 5 cents by the

mid-1990s, a cost similar to that of a new fossil

fuel plant. U.S. Windpower (a subsidiary of

Kenetech) claims to have already achieved this

goal with a new variable speed turbine.129 U. S.,

Danish, Belgian, Dutch, Japanese, German, and

British companies make utility-scale wind turbines. By the late 1980s, several Danish manufacturers were supplying over 50 percent of U.S.

lx A foficorning OTA ms~sment, Renewable Energy Technology: Research, Development, ad CO~ercial PrOSpectS, wti ~ayze

technological and commercial aspects of renewable energy including competitiveness issues.

1~ M~k Crawford, ‘‘Sevm Companies Awarded DOE Solar Grants, ” Energy Daily, Apr. 24, 1992, p. 3.

lx Photovol(aic News, vol. 12, No. 1, JmuM)J 1993, P. 1.

lx Photovo/taic News, vol. 11, No. 2, February 1992, p. 1.

127 Lipm~ op. cit., foomote 78.

IU Cul J. Weinberg and Robert H. Willi~S, “Energy From the SurL” Scientific American, vol. 263, No. 3, September 1990, pp. 146-155.

129 cC~L ~Mches sol~ ~Oj@~” Energy Daily, NOV. 4, 1991, p. 4; Kimhrly r)OZkr, ‘‘USW Touts Wind Thrbine Breakthrou~”

Energy Daily, Nov. 6, 1991, pp. 1-2.
Chapter 5-–U.S. Competitiveness in Environmental Technologies and Services I 147

wind-based generation capacity.130 Mitsubishi

entered the U.S. market in 1987. Belgian and

British machines also operate in the United

States. While there are a number of U.S. wind

turbine manufacturers, U.S. Windpower has been

the dominant U.S.-based supplier of utility-scale

machines, accounting for over 90 percent of U.S.

manufactured machines.

131 U.S. Windpower has

been working on projects in Europe, Latin America, Egypt, and New Zealand. At least nine other

U.S. companies are working with DOE’s National Renewable Energy Laboratory on costshared wind energy technology development

projects. 132

Pioneers in commercialization of renewable

energy technology do not necessarily enjoy commercial success. In California, LUZ International

developed several solar thermal electric power

plants. The technology uses mirrored troughs to

focus sunlight on tubes containing liquids that are

then used to generate steam for electric power

production; natural gas is used as a supplemental

fuel. The LUZ facilities are the largest commercial solar thermal electric plants in the world. The

company achieved economies of scale as its

facilities grew; its latest 80 megawatt units

generate power at 8 cents per kilowatt hour versus

24 cents for its first 15 megawatt unit in 1984.133

However, despite this progress, the company has

gone bankrupt. Research, development, and demonstration of other solar thermal systems continues in the United States and abroad.

The American renewable energy industry is

technologically strong and competitive-but so

are foreign suppliers. As in other arenas of

environmental technology competition, some foreign suppliers obtain more favorable financing

U.S. manufactured wind turbines at the Altamont Pass,

California. Technical advances are making renewable

energy sources more economically viable. U.S.

producers of such technologies face tough foreign

competition in the U.S. and international markets.

from home governments than do U.S. firms. This

is particularly important in developing countries,

which are an important export market for U.S.

renewable energy products.

Help for manufacturing R&D and development

of domestic markets can be important determinants of competitiveness. Japan and Germany

have strong programs for R&D, demonstration,

and evaluation of renewable and other alternative

energy technologies. They also employ tax incentives and subsidies to encourage installation of

renewable energy and other environmentally

preferable energy technologies (e.g., fuel cells).

For example, Japan’s Ministry of International

Trade and Industry (MITI) has earmarked nearly

$40 million for fiscal year 1994 in a multiyear

program to subsidize two-thirds the cost of

household PV installations; the goal is to have

1~ oak Ridge National Laboratory, op. cit., footnote 105, pp. 145-147.

131 Ibid

1

32 ‘‘NREL Launches Solar Projects, ’ Energy DaiZy, Nov. 4, 1991, p. 4; “NREL Funds Wind Turbine R&D Efforts, ” Energy Daily, Dec.

4, 1992, p. 4.

133 Michael ~tker, “B~ers to Commercialization of Large-Scale Solar Electricity: I.ssons Learned From the LUZ Experience, ’ Sandia

National Laboratory contractor report, SAND91-7014, November 1991.
148 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

70,000 systems installed by 2000.134 The 70,000

systems would amount to about 340 percent of the

world’s current annual PV production capacity.

These countries’ technology policies balance

efforts for improving the supply of new technology (R&D) and demand for new technology

(market creating incentives).

DOE is cooperating with renewable energy

technology manufacturers, electric utilities, and

other industries to promote manufacturing R&D

and utility applications of renewable. (See ch.

10.) The PV Manufacturing Technology Program’s goal is to prevent loss of the PV industry

to Japanese and German manufacturers by helping domestic companies improve their manufacturing capability. PVUSA—Photovoltaics for Utility Scale Applications-is helping to develop

utility PV markets through testing of various

manufacturers systems and identification feasible

utility applications. Other cost-sharing U.S. government-industry programs exist for wind and

geothermal R&D. A number of State utility

commissions’ rules for incorporating social costs

of pollution could help the U.S. market and

industry.

END-USE ENERGY EFFICIENCY

Improvement of energy use efficiency as an

international market opportunity is still in a

nascent state. The energy efficiency sector is very

diverse, including products ranging from instruments and controls to high-efficiency appliances,

heating, lighting, cooling, and motors to insulation and improved windows. Although highly

uncertain, global trade in energy efficiency products and services is estimated at $8.4 billion per

year during the period 1990 to 2000, doubling to

$16.8 billion annually in the decade leading to

2010; about half of that market is expected to be

in less-developed countries.135 U.S. AID estimates that U.S. companies can realistically capture only about 8 percent of the global energy

efficiency export market and 10 percent of the

annual exports to developing countries.136 Japanese and European firms provide tough competition for American companies.

Japanese and German producers are already

strong exporters of many capital goods, some of

which incorporate energy efficiency improvements that have helped those countries’ industries

achieve higher energy efficiencies than some

American sectors. More often than U.S. companies, Japanese and European companies have

already established substantial presence in developing countries. 137 Low-cost manufacturers in

Taiwan, South Korea, and other rapidly industrializing countries provide additional competition

for U.S. companies, or, at least, U.S.-based

manufacturing. Indeed, the United States is itself

a net importer of some energy-efficient products,

such as compact fluorescent lighting ballasts.138

As in other environment and energy sectors, the

availability of financing affects the performance

of U.S. vendors vis-à-vis foreign competitors in

developing country markets. U.S. suppliers are

expected to be most competitive in supplying

higher technology energy efficiency products

including industrial process controls and instrumentation, as well as industrial and residential

energy load management systems and controls

(e.g., thermostats). However, German and French

suppliers are also competitive in these sectors.

1~ Nihon Keizai Shihun, Aug. 22, 1993, as cited in Foreign Broadcast Information Service, pacific Rim Economic Review, VO1. 2, No. 1*,

Sept. 8, 1993, p. 7.

135 us Dep~ment of Energy, op. cit., footnote 103, pp. 67-6*.

136 Ibid., pp. 68-69.

137 Ibid., p, 69.

138 InterMtio~ ~ti~te for Ener~ Conservatio~ Seizing the Moment: Global Opportunities for the U.S. Energy Eflciency ItiusfrY

(Wi.stigton, DC: ~tematioti Institute for Energy Conservation December 1992), p. 4.
Chapter 5-–U.S. Competitiveness in Environmental Technologies and Services I 149

9 Industrial Pollution Prevention and

Cleaner Production

As in the case of energy end-use efficiency, this

business is less a sector than an agglomeration of

providers of many types of goods, services, and

technologies that are usually integrated into

production processes and are often hard to tease

out as separate items. Nonetheless, as discussed

earlier in this chapter and in chapter 8, pollution

prevention and cleaner production present important environmental market opportunities.

In some cases, equipment and technology used

for pollution prevention is similar to some forms

of conventional add-on environmental controls.

For instance, activated carbon, ion exchange, and

membrane-based technologies may be used for

in-process pollution prevention, for recovery of

materials for recycling, or for end-of-pipe or

remedial separation of pollutants for destruction

or disposal. The same vendors provide their

products for application across this continuum of

environmental activities. In other cases, the pollution prevention technology may only be weakly

associated with conventional environmental products; extended cooking in the paper and pulp

industry or improved process controls in most

industries are examples, The design of many other

industrial products and processes are strongly

affected by environmental concerns and, thus, are

environmental business opportunities. For example, environmental considerations are leading to

changes in painting and coating technologies

including development of high efficiency paint

sprayers; powder coatings; ultraviolet, infrared,

and microwave paint curing; and alternative paint

formulations.

While assessment of competitiveness in cleaner

production as a whole is difficult, because the

area is so broad, assessments could be made of

particular components such as cleaner painting,

metal cleaning, pulp and papermaking, or as

described above, electric power generation. As in

most of the sectors discussed, the United States,

Germany, and Japan are the major players with

competition from several smaller Northern European states. Regulations have certainly propelled

many cleaner production development activities.

The phase-out of CFCs has inspired searches for

alternative solvents, for solvent-free options, and

for closed-loop processes that avoid solvent

release; the United States appears to be a strong

contender in this area. California’s stringent air

pollution regulations have spawned partnerships

among government, energy utilities, and industry

for low emissions processes and fuels. The

winners in clean production innovation-in addition to public health and the environment--can be

both the regulated industry that seeks cheaper

ways to comply with regulations and suppliers of

cleaner production technologies that may find

growing markets for their innovations domestically and abroad.

CONCLUSION

The strength and form of environmental regulations in the home market are major determinants

of environmental industry competitiveness. However, a variety of other factors, including development assistance policies, export promotion, support for R&D and technology demonstration and

diffusion, and industrial structure also influence

environmental industry competitiveness.

The United States is competitive in many

environmental industry sectors but faces growing

competition from foreign companies, most seriously German and Japanese fins. The internationalization of environmental industries and lack

of data, and the early stage of deployment for

some environmental technologies, make definitive assessments of competitiveness difficult, In

a number of sectors, including stationary source

air pollution control and wastewater treatment,

foreign companies are making significant inroads

in the U.S. domestic market through exports,

technology licensing, and acquisitions of U.S.

fins. In addition, newly industrialized and developing countries are increasing their environmental industry capability. Pollution prevention,
150 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

cleaner technology, and energy efficiency pro- environmental controls; such opportunities

vide significant business opportunities that can should not be overlooked in policies for environoften allow higher degrees of environmental mental industrial support.

protection at lower cost than many end-of-pipe
-———

Export

Promotion

Programs 1 6

T

he U.S. environmental industry faces a number of

challenges in exporting. Some of these challenges are

fairly specific to the industry whereas others are shared

with other exporting industries.

U.S. firms in general export much less, as a percentage of total

sales, than firms in many counties that are members of the

Organisation of Economic Cooperation and Development (OECD)

(table 6-l). This is not surprising. For several decades, the United

States’ large domestic market often made exporting unnecessary

for a fro’s success. In addition, the United States is far away

from markets of comparable size, making exports often seem not

worth the bother. A tradition of exporting is ingrained in

European culture. National markets are smaller, making exports

more often necessary; similarly sized export markets are right at

hand. Japan, too, has a long tradition of exporting. It has

traditionally thought of itself as an island nation, poor in natural

resources, that must export to pay for the imports it needs. In

recent decades, exports have been central to its strategy for

economic growth and development.

As discussed in chapters 4 and 5, data on environmental goods

and services (EGS) export patterns are limited. Some estimates

suggest that key sectors of the U.S. environmental industry are

much less export-intensive than those of Japan and Germany:

environmental product exports, as a percentage of environmental

products and services production, is much less in the United

1 Parts of this chapter that pertain to the export promotion effect of foreign assistance

programs are discussed more fully in OTA’S background paper: U.S. Congress, Office of

Technology Assessment, Development Assistance, Export Promotion, and Environmental TechnoJog@ackground Paper, OTA-BP-ITE-1O7 (Washingto~ DC: U.S.

Government Printing Office, August 1993). 151
152 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Table 6-l—Export Intensity of Selected

OECD Countries, 1991

Exports as a percentage

Country of Gross Domestic Product

Belgium 69.3

Ireland 68.7

Netherlands 54.1

Norway 44.8

Austria 40.9

Denmark 36.9

Germany 38.5

Switzerland 35.1

Portugal 36.6”

Sweden 28.1

United Kingdom 23.4

Canada 24.4

France 22.7

Greece 22.6

Finland 22.3

Italy 18.0

Australia 17.7

Spain 17.3

United States 10.5

Japan 10.4

a B=~ on 1990 data.

SOURCE: Derived from data on exports of goods and services, and on

GDP, in International Monetary Fund, /r?ternzWona/ FirIancikl Statistics,

vol. XLVI, No. 4, September 1993.

States (table 6-2). One factor that could inhibit

U.S. exports is that the industry has so many small

fins. One analysis estimates that in 1991 the

U.S. environmental industry consisted of 207

public companies averaging $198.3 million revenue each ($41.0 billion total revenue) and 58,700

privately held companies each averaging $1.3

million in revenue ($78.4 billion total).2 Smaller

companies have a harder time exporting, and are

often reluctant to try.3 There is some inconclusive

evidence that EC environmental firms are larger;

data for Japan are lacking. Environmental industry structure is discussed further in chapter 4.

Without exporting more, some U.S. environmental sectors could become less competitive in

time. Foreign firms are increasingly penetrating

the relatively open U.S. environmental market

(ch. 5). Without expanding exports, U.S. firms

could lose out in sales and experience compared

with foreign firms. Lost sales mean reduced funds

for market development and R&D, reduced economies of scale, and reduced payoff for improved

production efficiency. Lost experience means less

feedback for improving product or service quality.

U.S. exports might increase if there were

greater industry commitment and more effective

assistance by government or industry associations. Firms that are serious about exporting must

invest substantial time and resources to explore

markets and cultivate business relationships abroad.

While government programs can provide market

information and facilitate contacts abroad, government commercial officers and company marketing brochures are no substitute for face-to-face

contacts between would-be exporters and potential customers. In many cultures, business is

conducted on the basis of personal relationships

that seldom jell from a single encounter at a trade

show. Partnering with local firms is often required, sometimes by law, to do business. Once

an order is won, a continuing presence (via a local

partner if not directly) is needed to provide parts

and service and to cultivate additional business.

Differences in language, culture, business practices, standards, and legal requirements can be big

challenges to U.S. firms (particularly smaller

ones) new to a market. Exports also require

arrangements and expenses for shipping, fmanc2 Environmental Business Journal, vol. 5, No. 4, April 1992, p. 7. However, 24,000 of these were water supply utilities (not normally export

candidates) averaging $400,000 in annual revenue.

3 William E. Nothdurft, Going Global: How Europe HeIps Smal/FirmsExporr (Washington DC: Brookings Institute, 1992), esp. pp. 12-19.

Personat communications with: Donald Comors, Environmental Business Council, Massachusetts, October 1992; Arthur Chu, Vice l%esiden~

Technical and Strategic Development, Ebasco Environmental International, Inc.; Robert Driscoll, U. S.-ASEAN Council for Business and

Technology, Nov. 5, 1992. Joseph Harrisoq Director of OffIce of Capital Goods, International Trade Administratio~ Deprutment of

Commerce, as quoted in William Maggs,“Commerce Looks to Boost Green Technology Exports,” Environment Week, Sept. 9, 1991.
ing, and

domestic

Chapter 6–Export Promotion Programs I 153

Table 6-2—Environmental Production and Exports, 1992

Production of

environmental Exports of

products and environmental Product exports as a

services products percentage of products

($ billion) ($ billion) and services production

Japan 21 5 24

Germany 36 11 31

United States 134 7 5

SOURCE: Presentation by Grant Ferrier, Environmental Business International, at Environmental Business Council of

the United States meeting, June 7-9, 1993, Washington, DC.

insurance, beyond those required for

sales. Given the large domestic market

for environmental products and services, many

U.S. environmental firms may feel that exporting

is not worthwhile.

The U.S. Government provides some assistance, as do State and local governments. However, firms often find U.S. export assistance

difficult to access and poorly coordinated. Moreover, U.S. policymakers disagree about whether

export promotion is a desirable government

function.

The situation in some other countries is different, with the result that:

Major foreign competitors dedicate proportionately more resources to export promotion

services than does the United States. They also

perform more high level advocacy, in which

ministers or even heads of state promote their

national firms to foreign governments.

U.S. firms appear to have more difficulty

obtaining export financing compared to rivals

in some other countries. Also, exporters in

some other countries have more access to

confessional financing that their governments

offer developing countries. Small businesses

often can not export without financing. Also, as

is discussed in chapter 5, financing can be

important in winning export contracts for many

large projects with an environmental

nent.

Recent Congressional and Executive

actions, however, emphasize a stronger

compoBranch

Federal

role in promoting exports. In 1992, Congress

called for a national strategy to promote exports;

in September 1993, the Clinton administration

delivered its first report aimed at framing such a

strategy.4

In addition to the overall export strategy,

Congress also called for a national environmental

export strategy. The Clinton administration’s

initial environmental strategy is expected to be

issued in the fall of 1993. In addition, as is

discussed in chapter 2, several bills to give added

emphasis to environmental export promotion

have been proposed in the 103d Congress.

Some specific areas of government policy are

especially pertinent to promotion of environmental exports:

■ As discussed in chapter 5, demand for environmental goods and services is driven largely by

regulations and enforcement. Technical assistance offered as part of foreign aid can help

recipient countries build environmental management capacity, which often stimulates demand for environmental goods and services

(EGS). If the recipient adopts the donor’s

approach, the assisting country’s firms may

4 Trade Promotion Coordinating Committee, Toward a Nutionul Export Strategy, report to the United States Congress, Sept. 30, 1993.
154 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

gain some advantage in supplying technologies

known to meet the requirements. Promotion of

voluntary and professional standards of environmental management may also help stimulate environmental product demand.

Foreign customers, particularly in developing

and newly industrialized countries, are often

unsure about the performance and suitability of

environmental technologies offered. Technology performance evaluations and verifications

by the Environmental Protection Agency (EPA)

(or other credible third parties) can help U.S.

environmental firms and foreign customers

alike without compromising EPA’s reputation

for objectivity. Indeed, they could also help

diffuse new technologies in the domestic market. Technology demonstrations done abroad

can also help U.S. technology developers.

Aid plays an important role in developing

countries’ environmental projects, which often

involve government and require outside assistance. Apart from confessional financing, aid

programs can promote exports in several ways.

For example, grants for feasibility studies by

national firms can help national firms win

follow-on projects. Training grants can sweeten

national fins’ bids. Aid personnel can pass on

to national firms information about recipient

countries’ upcoming projects and procurements, as well as information about possible

multilateral funding sources. Some other countries’ aid programs seem more attuned to these

commercial considerations.

Some efforts to coordinate assistance for environmental exports are already underway.

For example, the Committee on Renewable

Energy Commerce and Trade (CORECT), setup

in 1984, works to facilitate interaction between

government officials and private industry to

promote renewable energy exports; its concept

might be transferable to other subsectors of the

environmental field (box 6-A).

In 1992, the Bush administration launched the

United States-Asia Environmental Partnership

(US-AEP) which seeks to help developing countries in the Asia-Pacific region solve environmental problems by using U.S. environmental

goods and services. Federal agencies can use

US-AEP (a public-private partnership) to coordinate environmental export activities to the region,

and to provide one-stop-shopping. US-AEP has

recently, through the National Association of

State Development Agencies (NASDA), given

$700,000 in matching grants to assist small and

medium-sized firms in exporting.5

Another public-private partnership launched in

1992, the United States Environmental Training

Institute (USETI), brings developing country

decisionmakers to the United States for training.

U.S. vendors have the opportunity to showcase

environmental technologies.

EFFORTS TO DEVELOP U.S. STRATEGY

As indicated in figure 6-1, Federal export

promotion and financing responsibilities are divided among many agencies. The Department of

Commerce, the Export-Import Bank of the United

States (Eximbank), and the U.S. Trade and

Development Agency (TDA, formerly the Trade

and Development Program) all have export promotion as a major mission. The Overseas Private

Investment Corp. (OPIC) has the mission of

encouraging investment abroad, which often leads

to exports. The Office of the U.S. Trade Representative (USTR), the Department of State, and

the U.S. Treasury develop trade policy and

conduct international negotiations. The Department of Agriculture promotes U.S. agricultural

exports. Other agencies also participate in trade

promotion. Several U.S. Agency for International

Development (USAID) programs and activities

encourage U.S. private sector involvement in

development assistance. The Department of En-
Chapter 6–Export Promotion Programs 155

Box 6-A-Committee on Renewable Energy Commerce and Trade: A Possible Model for

Promotion of Environmental Technology Exports

CORECT was setup in 19841 to coordinate Federal policy and programs to promote exports in the

renewable energy field. Chaired by the Secretary of Energy, CORECT includes 14 Federal agencies

and industry, often represented through the United States Export Council for Renewable Energy

(ECRE), a consortium of 9 U.S. renewable energy trade associations.2

CORECT’s structure encourages a close relationship among Federal agencies and industry.

Industry representatives meet frequently with Federal agency officials to ask for Federal help with

specific export promotion efforts. Meetings are held separately for four market regions, and involve

working-level staff with detailed knowledge of market opportunities. Once a task is identified as meriting

support, each agency can commit resources depending on its own mission and expertise. CORECT

also receives funds directly from Congress for project seed money and administration; for fiscal years

1992-1994 this funding has been $2 million per year.

It is difficult to evaluate the impact of CORECT on exports of U.S. renewable energy technologies,

because public trade data are incomplete and the industry reveals little about its trading activities. A

recent U.S. General Accounting Office report3 notes that CORECT did not meet a congressional

deadline to formulate a plan for increasing renewable energy exports. Still, it has identified barriers to

export, investigated markets, and sponsored trade promotion events, which could comprise basic

components of a trade plan. CORECT and ECRE have established a uniform application form to make

it simpler for firms in the renewable energy field to apply for financing from USAID, Eximbank, the

Overseas Private Investment Corp. (OPIC), and TDA. GAO also concluded that CORECT has been

successful in pulling together financial resources from Federal agencies and industry for trade

development activities, as well as from multilateral institutions, and has been instrumental in developing

new financing mechanisms. U.S. renewable energy technology firms still, however, encounter very

competitive foreign financing and subsidization schemes.

DOE is trying to form a parallel group for energy efficiency, the Committee on Energy Efficiency

Commerce and Trade (COEECT). As of October 1993, COEECT had not yet met because no

representative consortium like ECRE existed for the energy efficiency industry. The fiscal year 1993

funding has been used for efforts to build such a consortium. It is possible that the CORECT approach

could work for still other specific subsectors of the environment industry (for example, air pollution

control), though no such proposals have been made.

1 Renewa~eEnergy Industry Development Act of 1983, Public Law 98-370, as mn*d by the Renewable

Energy and Energy Efficiency Technology Competitiveness Act of 1989, Public Law 101-218.

2 The factual des~iption of CORECT in this ~x is based largely on IJ.s. General Accounting offi~, Export

Promotion, Federal Efforts to Increase Exports of Renewable Energy T5chno/ogies, GAO/GGD-93-29 (Gaithersburg, MD: U.S. General Accounting Office, Deoember 1992), and on discussions with CORECT staff.

3 Ibid.

ergy (DOE) and the Small Business Administra- With so many programs and agencies, there has

tion (SBA) are involved in export promotion to been growing recognition that Federal export

further specific agency missions. Other agencies, promotion programs are poorly coordinated and

such as the Environmental Protection Agency often duplicative, and that a strategy to guide

(EPA), may become involved because of their Federal activities has been lacking. In addition to

special expertise or responsibilities. specific initiatives mentioned above for coordi-
156 \ Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Figure 6-l—Selected Federal Programs That Can Promote EGS Exports

Activity

Department/Program”

1. m ss Ions Studlf? s

& lravel —— ---1—.

cooper at I on

Agency for International Development

—

American Business Initiative x x

Bureau for Private Enterprise x x

Market and Technology Access Project x

U S -Asia Environment Partnership x x x x x x

Energy Technology Innovation Project x x x

Energy Training Project

—

x x

Environmental Credit Program x

Environmental Enterprises Assistance Fund x

Energy Efficiency Centers in E. Europe x x

Private Investment and Trade Opportunities x x x x

Project in Development & the Environment x x x

Environmental Improvement Project x x x x

Capital Development Initiative x x x

Department of Commerce

U.S. & Foreign Commercial Service x x x x x

Eastern Europe Business Info. Centers x x x x

L. Am./Carib. Business Development Center x x x x

E. Europe Enviro. Business Consortium x

Nat'l. Enviro. Technologies Trade Initiative x x x

Department of Energy

Export Initiative Program x x

Coal and Coal Technology Export Program x x x x

Support to Energy Efficiency Centers x x

Committee on Renewable Energy Commerce

and Trade x x x x x

Federal International Trade and Development Opportunities Program x

Environmental Protection Agencv ,

Office of International Activities x x x x

U.S. Environmental Training Institute x x

Regional Environment Center (Budapest) x x x

Caribbean Environm’t. & Developm’t Instit. x x x

CIearinghouses x x

Technical Information Packages x

;xport-import Bank 1 x I 1 I I

Overseas Private investment Corp. x x x

GIobal Environmental Emerging Markets

Fund, L.P. (not yet capitalized) x

Small Business Administration I x I I x

I x I I I

Trade & Development Agency I 1

x I 1

x x 1 I x

● Programs in italics involve substantial interagency, State or private sector participation in managing the program.

SOURCE: Office of Technology Assessment, 1993.
Chapter 6-Export Promotion Programs ] 157

nated government action (CORECT, US-AEP),

Congress and the executive branch have taken

some recent actions to improve program coordination and develop a more strategic emphasis for

all government export promotion efforts, and for

environmental export promotion as a whole

sector, as discussed below.6

I Trade Promotion Coordinating Committee

The interagency Trade Promotion Coordinating Committee (TPCC), chaired by the Secretary

of Commerce, was set up in May 1990 by

President Bush to consolidate and streamline

Federal export promotion activities. In the Export

Enhancement Act of 1992, Congress formally

established TPCC as a permanent institution.7

The Act directs TPCC to set strategic priorities,

eliminate duplicative activities, improve interagency coordination, and propose to the President

an annual unified trade promotion budget. One

strategic priority issue is the share of funding

given to agricultural vs. industrial export promotion. In 1991, the Department of Agriculture

received 74 percent of total government outlays

for export promotion, although only 10 percent of

all U.S. exports were agricultural.8 Whether an

interagency process alone can effectively identify

priorities for a meaningful budget is uncertain.

TPCC delivered an initial report in September

1993.9 That report does not set strategic priorities

or propose a unified budget, although it commits

to doing both in time for the fiscal year 1995

budget. 10 The report lists four goals for Federal

export promotion:

Create a more customer-focused, coherent, and

effective USG-wide export promotion strategy

within existing resource constraints to assist the

private sector in creating jobs and fueling

economic growth.

Leverage US government resources by strengthening city/state and public/private partnerships

domestically and in our overseas networks.

Remove or reduce government-imposed obstacles to exports wherever appropriate.

Seek to reduce foreign export credit subsidies

through multilateral negotiations and level the

playing field, when appropriate, by countering

foreign competitors’ efforts in financing.11

The report also lists 65 concrete recommendations covering resource allocation, export promotion services (including domestic field services,

Washington-based services, overseas services,

coordination with State export promotion activities, and advocacy), financing, and regulatory

obstacles to exports. Many of these address the

issues of duplication and coordination identified

by Congress.

The Export Enhancement Act also directs

TPCC to ‘‘provide a central source of information

for the business community on Federal export

promotion and export financing programs.”12

TPCC has set up an information clearinghouse,

the Trade Information Center. The Center, which

has a toll-free phone number, receives 200

c Both the spec~Jc initiatives and the Trade Promotion Coordinating Cornmittes (below) are also discussed in U.S. Congress, OffIce of

Technology Assessment, Development Assistance, Export Promotion, and Environmental Technology, op. cit., footnote 1, app. B.

7 Expofl Enhancement At of 1992, Public LAW 102-429, sec. 201. A predecessor to the TPCC, tie ~temgency Task Force on Trade, was

never established by statute. Headed by a Director of the Export-import Bank of the United States, the Task Force was dissolved when the

Director left office. U.S. General Accounting Office, Export Promotion: Federal Programs Lack Organizational and Funding Cohesiveness,

NSIAD-92-49 (Gaithersburg, MD: U.S. General Accounting Office, Jan. 10, 1992), p. 7.

s U.S. Congress, General Accounting Oftlce, Export Promon’on: Federal Programs Lack Organizan”onal and Funding Cohesiveness, op.

cit., footnote 7, p. 5.

9 Trade ~ornotion coordinating Committee, Toward a National Export Strategy, op. cit., footnote 4.

10 Ibid., pp. 9-10.

I I ~id,, p. 6, These four goals am quoted directly from the source.

12 Expofl Enhancement Act of 1992, op. cit., footnote 7.
158 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

inquiries a day from new-to-export and new-tomarket fins, and directs them to appropriate

Federal agency programs for assistance. Since

companies must still apply separately to the

individual agencies for assistance, the Center

does not provide one-stop-shopping.

E Environmental Trade Promotion

Working Group

The 1992 Export Enhancement Act declared

that it is the “policy of the United States to foster

the export of United States environmental technologies, goods and services. In exercising their

powers and functions, all appropriate departments

and agencies of the United States Government

shall encourage and support sales of such technologies, goods, and services.”13 Toward this end,

the law directed the President to establish an

Environmental Trade Working Group as a subcommittee of TPCC, to include representatives

from all TPCC member agencies and EPA. The

subcommittee is charged to be comprehensive

and strategic; it is “to address all issues with

respect to the export promotion and export

financing of United States environmental technologies, goods and services, ’ and ‘‘to develop

a strategy for expanding United States environmental technologies, goods and services.’’14

An environmental section was included in the

TPCC’s September 1993 report. That section

identifies 11 problem areas, which could be

grouped as follows:

the need for more strategy:

1.

2.

No agency has identified or targeted the

most attractive export promotion opportunities.

There are “conflicting or uncoordinated

policies toward developing and middleincome markets, which may require longterm market development efforts; issues

include ‘‘the appropriate role of development assistance in favoring U.S. commercial interests (e.g., tied aid), investment in

training, financing of demonstration projects, and establishing regulatory and testing protocols favorable to U.S. industry.

the need for better coordination and data:

3. “Export promotion activities are poorly

coordinated.

4. “At virtually all USG agencies there is a

lack of knowledge of existing programs

relating to environmental technologies. ’

5. “There is no single coherent source of

information available to the public about

the range of government activities in environmental technologies or industry data

collected by the government. ’

6. “No data exists for tracking and understanding the industry.’’15

the need to consider the effect on exports or

export potential when fashioning policies on:

7. Environmental technology development, especially at DOE and EPA.

8. U.S. regulatory standards.

9. U.S. positions in negotiations for international standards and multilateral environmental treaties.

the need to better reach smaller fins:

10. Small firms new to exporting.

11. Small and medium-sized firms in need of

financing assistance.

The TPCC report was followed in November

1993 by an environmental technologies export

]3 ~id., ~~~, 2@$.

14 Ibid.

15 me repo~ noted that it is ‘‘unclear to what extent this lack of data is perceived as a problem by the industry. ’ However, such data would

help government in setting strategic priorities and evaluating the success of its efforts.
Chapter 6-Export Promotion Programs I 159

strategy issued by an interagency group established by President Clinton.16

9 State Efforts

Although not discussed in detail here, efforts

by State governments and private sector organizations to promote environmental exports merit

notice. More and more States are providing export

promotion services. In 1992, the States appropriated a total of $97 million for international

activities, and had 546 domestic and 303 overseas

full-time-equivalent staff, of which 392 domestic

and 178 overseas full-time-equivalent were devoted to export promotion.17 In 1992, 39 States

did in-house market research.18 Some States have

environmental export promotion programs.

I Private Sector Efforts

Private organizations, such as the United StatesASEAN19 Council for Business and Technology,

the Environmental Business Council of the United

States (EBC), and the U.S. Environmental Technology Export Council (ETEC), are working to

facilitate U.S. exports of environmental technologies.

A complicating factor in developing a Federal

policy is that the environment industry consists of

many separate sectors and subsectors. Currently,

no industry groups represents the entire industry,

though two groups, EBC and ETEC, are seeking

that role. There are also several other industry

associations for particular subsectors of the industry.

U.S. EXPORT PROMOTION PROGRAMS IN

INTERNATIONAL CONTEXT

Countries provide several kinds of assistance to

help their firms export. The following sections

will briefly describe U.S. and foreign efforts in

four areas: assistance for export planning and

marketing, technology verification and demonstration, use of foreign aid, and financing. This

section gives some overall comparisons.

I Level of Funding

Japan and many European countries fund

export promotion (especially nonagricultural export promotion) at a higher level than the United

States, As discussed below, this is true for export

planning and marketing, and export financing. In

addition, Japan, France, and Germany, when

compared with the United States, structure their

foreign aid programs in ways that tend more to

promote exports.

1 Level of Expectations and Importance

In some ways, other countries seem to have

higher expectations for, and place higher importance on, government’s role in export promotion.

(Often the higher expectations go hand-in-hand

with higher funding.) Some examples, discussed

below, include: more ambitious assistance with

export planning; larger staffs posted abroad,

capable of rendering more assistance; more highlevel advocacy to influence foreign government

procurement; a ‘‘needs’ versus ‘‘entitlements’

approach to export financing; and a more aggressive use of tied aid credits.

16 Ron~d H, Brow H~el o’~w, cmol Browner, Environmental Technologies Exports: s~ategic Fra~workfor U.S. ~ad~ship~

November 1993. In an April 1993 Eartb Day address, President Clinton directed the Department of Commerce (DOC) to lead an Interagency

Working Group on Environmental Technology. With EPA, DOE, and other agencies participating, this group was to develop strategies to

further environmental exports, environmental technology development and domestic diffusion of environmental technology.

IT Nation~ Association of S@te Development Agencies, NASDA State Eqort Program Database (SEpD): 1992 (wm@3toU ~:NASD~

not dated), tables 6, 9. International activities can include export promotio~ attracting foreign investmen~ promoting tourism, and other

activities. While staffing figures are available broken down by these purposes, budget figures are not. Ibid., p. 9.

‘8 Ibid., table 14.

19 ASE~ is he Association of Soutieast Asian Natiom4
160 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

I Degree of Centralization20

The U.S. approach to export promotion is

decentralized, with several agencies having important roles, as discussed later in this chapter.

Japan’s approach is also decentralized;21 and

Germany limits Federal Government involvement, with trade associations playing a major

role. France and the United Kingdom have a

centralized approach.

1 Strategy

The United States has lacked a strategic plan

for promoting exports of nonagricultural goods.22

The September 1993 TPCC export strategy report

is a first step toward a strategic plan. Japan and

Germany lack a strategic plan, though in Japan

some individual agencies (e.g., MITI) have strategic priorities. France and the United Kingdom

each have a strategic plan.

~ Private Sector Involvement

In Japan, France, Germany, and the United

Kingdom, private sector organizations (including

chambers of commerce and industry associations)

play a major role in helping firms (especially

smaller firms) to learn about and to use government export promotion services. In some cases,

this private sector involvement stems from traditions and institutions not necessarily transferable

to the United States. In Germany, local chambers

of commerce, financed by mandatory dues, are

the primary point of contact to connect firms with

government services, overseas chambers of commerce, and other relevant government and private

organizations. Overseas chambers of commerce

serve functions similar to those of the Commerce

Department’s United States & Foreign Commercial Service (US& FCS). The German Industry

Council for Exhibitions and Trade Fairs (Die

Ausstellungs-und Messe-Ausschuss der Deutscher

Wirtschaft, or AUMA), a private organization,

coordinates domestic and overseas trade events.

In France, local, regional, and overseas chambers

of commerce play important roles, as does the

Federation of Small and Medium-Sized Industries. Local chamber of commerce membership is

mandatory in some cases. Chambers of commerce

play an important role in the United Kingdom,

and trading companies and industry associations

play important roles in Japan.

In the United States, the private sector role in

assisting access to Federal programs is more

limited. However, some environmental industry

associations play this role to some extent, including the U.S.-ASEAN Council for Business and

Technology, the United States Export Council for

Renewable Energy, ETEC, and EBC. American

Chambers of Commerce and American Business

Councils abroad can potentially play an increased

role.

ASSISTANCE FOR EXPORT PLANNING

AND MARKETING

Export planning and marketing services include educating firms about the export process;

gathering and disseminating market information;

helping firms to make contacts in foreign markets, such as by sponsoring trade fairs and trade

Zo The discussion of degree of cen~alizatio~ strategy, and private sector involvement is drawn in part from U.S. congress, GenAccounting Office, Export Promotion: A Comparison of Programs in Five Indusm”aiized Nations, GGD/92-97 (Gaithersburg, MD: U.S.

General Accounting Offke, June 22, 1992), pp. 16-22; U.S. Congress, Office of Technology Assessment Development Assistance, Export

Promotion, and Environmental Technology, op. cit., footnote 1, pp. 55-69.

ZI ~jor ~ctiom me p~om~ by the Japan External Trade Organization (JETRO), the Small Business Corporation (SBC), and tie

Export-Import Bank of Japan (JEXIM). Aid functions with export promotion effect are performed by the Japan International Cooperation

Agency (JICA) and the Overseas Economic Development Fund (OECF), These functions are all performed punsuant to policies formed by the

Ministry of International Trade and Lndushy (MITI), Ministry of Finance (MOF), Economic Planning Agency, and Ministry of Foreign Affairs

(MOFA). Several other agencies have signifkant roles.

22 As used here, a ‘‘strategic plan” is a plan that sets priorities for what exports to promote (normally by industry sector and geographic

region), to guide all agencies’ programs.
Chapter 6–Export Promotion Programs I 161

Table 6-3—U.S. General Accounting Office Estimates of 1990 National Government

Export Promotion Outlays, Excluding Agriculture

Spending ($) Spending ($)

Spending per $1,000 per $1,000

($ million) exports GDP

Francea

417 1.99 0.35

Germany 93 0.22 0.062

Italy 309 1.71 0.284

United Kingdom 298 1.62 0.305

United States 231 0.59 0.043

a Fren~ ~fficial~ were unable t. separate the agricultural spending from the total but stated that most of the total show

is for nonagricultural programs.

NOTE: Exchange rates used (average for t990) are: U.S. $1 equals 5.7 FF (France), 1.7 DM (Germany), 1254.3 L

(Italy), 0.592 (UK).

SOURCE: U.S. Congress, General Accounting Office, Export Promotion: A Comparison of Programs in Five

Mustrialized Nations, GGD/92-97 (Gait hersburg, MD: U.S. General Accounting Office, June 22, 1992), p. 24. Based

on GAO analysis of information provided by government officials.

missions;23 and high-level advocacy to influence

foreign government procurement. Judging from

three U.S. Government reports--one by the

General Accounting Office (GAO), and the other

two by the Department of Commerce (one published in 1992 and the other in 1988)24—the

United States appears to have spent proportionately less on such services than several competitor

countries (at least in the period 1987-1990). This

difference appears more pronounced when agricultural export promotion is excluded. Together,

these reports paint the following picture: the U.S.

Government, by many measures, spends less,

often many times less, than every major competitor studied, except for Germany, which by some

measures the United States outspends. In addition

to spending less overall, the United States allocates funds lopsidedly to agricultural (rather than

industrial) exports compared to the four other

countries for which such data are available.

The GAO Report (table 6-3) covers five

countries: France, Germany, Italy, the United

Kingdom, and the United States. It is restricted to

spending at the national government level, and,

except for France, excludes spending on agricultural export promotion. French officials did not

break out the agricultural portion but stated that

the majority of the spending shown was for

nonagricultural export promotion. The table shows

that, for nonagricultural export promotion, the

United States spends far less per $1,000 exports,

and many times less per $1,000 Gross Domestic

Product (GDP), than France, Italy, and the United

Kingdom. The United States is closer to Germany, spending more per $1,000 GDP but less per

$1,000 exports. However, in Germany the role of

entities other than the national government (including officially sanctioned chambers of commerce) is relatively large; when these are included

(as in the 1988 DOC report, discussed below),

Germany’s expenses appear somewhat larger.

The 1992 DOC Report, restricted to national

government budgets, shows the U.S. commitment

as many times less than those of the European

countries per $1,000 Gross National Product

(GNP) and per total national government budget,

and far behind the European countries per $1,000

exports and per capita (table 6-4). (Again, GerZJ Trade missions ~c Wkcting trips by a number of firms together to foreign countries; trade faizs are exhibitions at home or abroad of

products and services by many vendors to potential customers.

~ Citatiom I. fie rqo~s tie given in tables 6-3 through 6-5. For the information discussed here, both DOC reports relied p rimarily on 1987

data. However, the 1987 data presented in these two DOC reports do not appear to agree. The GAO report is based on 1990 data.
162 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Table 6-4--U.S. Department of Commerce Estimates of National Government Budgets

for Export Promotion in 1987

Export

promotion

budget as

percentage

of total

Budget ($) Budget ($) national Budget ($)

Budget per $1,000 per $1,000 government per

Country ($ million) exports GNP budget capita

Canada

France

Germany

Italy

Japana

South Korea

United Kingdom

United Statesb

432.9

189.1

61.5

196.9

285.0

54.2

190.9

257.2

4.75

1.27

0.21

1.69

1.04

1.14

1.41

0.88

1.17

0.21

0.06

0.26

0.10

0.42

0.28

0.06

0.47

0.11

0.041

0.58

0.061

0.030

0.122

0.002

16.97

3.44

1.01

3.36

2.30

1.29

2.81

1.05

a UXS 19s9 data. Consists of JETRCYS budget ($91 million) plus MITI’s and the Ministry of Foreign Affairs’ budgetfor

commercial services.

b Consisb of IJS&FCS budget ($57.8 million), Commerce and State Departments’ budgets to prOI?IOM industrial

exports, and Department of Agriculture’s budget ($157 million) to promote agricultural exports.

NOTE: A footnote to the original table states, “Numbers from 1987 Department of Commerce study unless otherwise

indicated.” OTA infers that 1987 refers to the year studied, though it could instead refer to the year in which the report

was published.

SOURCE: U.S. Department of Commerce, Foreign Government Cornrnerckd Services.’ A Comparative Stu@,

undated, table 2. This report appears to be the final version of a draft report of the same title, dated April 1992, issued

by the U.S. & Foreign Commercial Service as Strategic and Technical Reviews Working Paper SR 91-15, although a

DOC staff contact could not verify this.

many is an exception.) This study includes

Canada, South Korea, and Japan, which the other

two studies do not. Canada’s budget far exceeds

even the European budgets; South Korea shows

the same pattern as the European countries.

Japan’s budget, while not providing as sharp a

contrast with the United States, still is substantially greater per $1,000 exports and per $1,000

GDP, over twice as great per capita, and over 30

times greater as a fraction of the national government budget.

The 1988 DOC Report presents spending by

the United States and seven European countries.25

In some ways it is the most detailed and complete

of the three reports. It includes, separately stated,

spending by the national government, local governments, quasi-governmental agencies, and cooperating nongovernmental organizations (table

6-5). The inclusion of all of these spending

entities makes Germany’s spending appear somewhat larger compared to the United States than it

does in the other two reports, which cover only

national government spending (or budgets). Of

the eight countries studied, the United States was

lowest in total export promotion spending per

$ 1,000 GNP, per total national government spending, and per capita; it was sixth (ahead of

Germany and Belgium) in total export promotion

spending per $1,000 of exports. As in the two

other studies, foreign spending figures were often

many times the corresponding U.S. figures.

For Belgium, France, Italy, the United Kingdom, and the United States, the 1988 DOC report

also separates agricultural from industrial export

promotion, both in absolute spending and in

spending per $1,000 of that type of export. The

n me Comace Dep~ment noted that ‘‘Japanese totals are not provided, due to major gaps in available spending data. ”
Table 6-5—U.S. Department of Commerce Estimates of Total Export Promotion Spending in 1987a

Total Total Total

spending for spending on spending

agricultural industrial Total (on export

Total Total export export

Spending

spending

Spending by

promotion)

spending for spending for promotion promotion per Total per $1,000

Spending Spending by quasi- cooperating agricultural industrial per $1,000 per $1,000 $1,000 spending total national Total

by National by local gov’t non-gov’t Total export export agricultural industrial total per $1,000 government spending

government government agencies organizations b spending promotion

($ million) ($ million) ($ million)

promotion exports

($ million) ($ million) ($ million)

exports exports

($ million)

of GNPC

spending per capita

($) ($) ($) ($) ($) ($)

Belgium 45.8 0.5 16.6 NA 62.9 4.5 58.4 0.46 0.74 0.71 0.40 1.09 6.35

Canada 484.3 60.7 0.0 1.8 548.8 43.7 503.1 NA NA 6.00 1.48 6.02 21.44

France 330.1 NA 2.5 8.1 340.7 2.5 338.2 0.09 2.01 2.18 0.47 1.95 6.19

Germany 61.5 12.6 9.2 18.8 102.1 5.1 97.0 NA NA 0.35 0.11 0.68 1.67

Italy 209.3 NA 10.0 NA 219.3 30.7 188.6 9.30 1.78 2.00 0.29 0.64

Sweden

3.74

10.0 1.5 60.0 0.9 72.4 2.2 70.2 NA NA 1.65 0.46 1.33 8.72

United Kingdom 190.9 NA 2.7 0.5 194.1 2.7 191.4 0.29 1.51 1.43 0.28 1.24 2.85

United States 261.6 30.0 2.4 0.0 294.0 173.0 121.0 5.95 0.54 1.16 0.06 0.29 1.20

a spending levels are minimum estimat=, based only on amounts that could clearly be accounted for. NA indicates that no data were available even for minimum estimates.

Accordingly, actual spending could conceivably be much higher that the totals shown.

b Cwperating nongovernmental organizations include only those thata~t in ~ncertwiththe government Or on i~ behalf as an integral component of the government’s organizational strategy.

c Gross Domestic pr~uct (GDp) is used instead of Gross National product (GNp) for Canada and haly.

NOTES:

Exchange rates used : U.S. $1 equals 35 BF (Belgium), 1.36 C$ (Canada), 6.05 FF (France), 1.8 DM (Germany), 1300 L (Italy), 138 yen (Japan), 6.40 SEK (Sweden), 0.59 f (U. K.)

The source document could be interpreted to indicate that for a few entries in this table, 1987 data were not available and data from an earlier year were substituted.

SOURCE: U.S. Department of Commerce, Export Promotion Activities of Major Competitor Nations, September 1988, p. 6 (table A) and p. 58 (app. 1).
164 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

United States ranked second highest in agricultural export spending per $1,000 of agricultural

exports, but lowest in industrial export promotion

spending per $1,000 of industrial exports. The

United States only spent one-eleventh as much on

industrial exports as on agricultural exports, per

$1,000 of each type of export. In contrast, France

spent 29 times as much on industrial exports, the

United Kingdom 5 times, Belgium 1.6 times, and

Italy one-fifth as much.

I Export Education

Both DOC and SBA provide short, introductory export seminars. For example, many local

SBA offices run half-day workshops organized by

the Service Corps of Retired Executives (SCORE),

a nationwide network of retired executives. Introductory seminars typically give rationales for

exporting, explain the steps required, and describe Federal export promotion programs.

Most export education for U.S. firms is undertaken by States and local trade associations,

chambers of commerce, world trade center institutes, and other groups. In 1992, all States held

export seminars, probably in total close to a

thousand; many were cosponsored by DOC or

SBA. Some were general seminars; others were

on market opportunities in a particular country, a

specialized topic such as documentation or freightforwarding, or current events.26

Some European Community and Nordic countries are experimenting with more comprehensive

programs that assist firms over an extended time

to formulate an export strategy. One example is a

pilot program run by the Danish Technology

Institute, with six firms each from Denmark,

Ireland, and the Netherlands, funded in part by the

country governments and the EC Social Fund.27

Over 18 months, these firms participated in six

national seminars and three international seminars on export planning,28 plus regular progress-andadvice visits by facilitators. Each company produced a 2- to 5-year strategic plan to internationalize

its operations; almost all successfully implemented the plan. This program has since expanded to other countries.

Denmark, Norway, and Sweden run export

manager-for-hire programs to help small companies develop and implement export strategies.29

On a cost-shared basis, the governments provide

export managers. In Sweden, companies can hire

around 20 to 40 percent of an export manager’s

time for 2 to 4 years. The managers are export

professionals with substantial private sector experience. In 1987, the Swedish Trade Council

retained 23 such professionals under contract.

The export manager develops an export strategy

while training company personnel in export

techniques. In the first year, the companies pay 49

percent of the manager’s cost; the companies pay

75,95, and 100 percent for the second, third, and

fourth years respectively, For firms that need less

help, the Swedish Trade Council will also cover

up to 60 percent of up to 60 hours of export

consulting.

I GeneraI Market Information

Some of the market information governments

provide to exporters is collected and disseminated

routinely, rather than in response to specific

requests from particular firms. Such information

includes: trade statistics; studies of foreign markets in particular sectors; descriptions of foreign

technology; and data on foreign countries’ econoZ6 Natio~ Association of Smte Development Agencies, NASDA State Export Program Database, op. cit., fOOtiOte 17, p. 22 ~d table 20.

27 Discussion of this program is based on Nothdurft, op. cit., footnote 3, pp. 19-*1.

28 Each of these seminars required signifkant preparation by the companies. The national seminar s were on general managemen$ export

marketing management, f~ncial controls managemen$ technology and production managemen~ leadership and organization culture, and

strategic management and planning. The international seminars discussed export marketing, technology and productio~ and leadership and

organization.

29‘rhis p-graph is based on Nothdurf~ op. cit., footnote 3, pp. 31-32.
Chapter 6–Export Promotion Programs ! 165

mies, business cycles, regulations, tariffs and

other trade barriers, government purchasing, investment climate, aid projects, and trade fairs. It

also includes specific trade leads collected by the

government’s normal monitoring, though such

leads are often old. Because general information

is much cheaper than specific market research,

some companies hope these services by themselves will pinpoint customers. However, this

hope is unrealistic; rather, general information

just points to markets where firms might look for

customers .30

France, Germany, Japan, the United Kingdom,

and the United States all appear to offer similar

services for general market information.31 U.S.

firms may contact DOC desk officers that track

information for particular countries. In addition,

DOC publishes information for relatively low

prices. In the National Trade Data Bank (NTDB),

a monthly compact disk service, DOC provides

information about foreign markets and Federal

services. From September 1989 to November

1992, the NTDB contained 101 Industry Subsector Analyses (ISAs) on the pollution control

equipment markets in 38 countries, almost 5

percent of all ISAs in the NTDB.32 DOC provides

two other sources with information similar to that

in the NTDB: an Electronic Bulletin Board.

which is more timely, and printed journals, which

are less timely .33 All three sources provide both

general information and specific leads; however,

even the most timely Electronic Bulletin Board

probably provides leads only after they are known

to firms with an active presence and strategy in

the country.

B Helping Firms Find Customers

While general market information can be

helpful, exporters need quite specific market

information and ways to contact potential customers. It is difficult to get data that accurately

compares different countries’ programs, in part

because these programs are organized differently,

often described in different terms, and not always

precisely described. The data presented in this

section, while not definitive, suggest that U.S.

programs are often less ambitious than programs

in competitor countries.

MARKET RESEARCH SUPPORT

Table 6-6 shows assistance that several countries give for custom research. This can include

in-house research; research contracted out; and

published reports that fit a firm’s special needs.

The United States and Germany furnish reports;

the United States charges full cost and Germany

subsidizes the cost. France, Scandinavia, and the

United Kingdom support firms in hiring their own

consultants or doing research in-house; the United

Kingdom also similarly supports trade associations. In some cases, only smaller businesses are

eligible.

The U.S. assistance seems to be much less, on

an absolute scale, than that provided by France

and the United Kingdom, 34 even though the

United States has a much larger economy and

export volume, The United States contracts with

local firms for about 160 studies per year, passing

the full contract price on to the requesting U.S.

firm; the United Kingdom subsidizes about 600

consultant studies per year (plus some in-house

research and some purchasing of published re30 Ibid., p. 43.

31 See for exmp]e, tie coun~ appendices in U.S. Department of Commerce, Foreign Go]’ernment Commercial Services: A comparative ,

Sttiy, draft, April 1992, issued by the U.S. & Foreign Commercial Service as Strategic and Technical Reviews Working Paper SR 91-15.

32 ~dy Bihm, U.S. Dep~ment of Commerm, I_Jnited States and Forci~ Commercial Service, international Market Research Divisio%

facsimile transmittal of computer printout, “Industry Subsec(or Analyses (ISA) on Pollutlon Control Equipment, ” Nov. 24, 1992.

33 me Elec~ofic Bullet~ Bored co~t~ $35 per y~, plus a pcr.minute charge (after tie first 2 hou~ each year) of $.05 tO $.20, depending

on time of day.

34 The sowces for ~ble 6-4 do not present comparable data for Germany and Scandinavia cOunrneS.
166 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Table 6-6—National Government Assistance for Individualized Market Research

Country Service

France

Germany

Scandinavian

Countries

United Kingdom

United States

France funds up to half the cost of hiring a consultant to carry out detailed research

on a market, up to about $30,000 (average cost is about $10,000 ).a Firms apply to

their regional government or chamber of commerce and industry. Only small and

medium-sized enterprises (SMEs) are eligible. About 100-150 consultancies per

year are approved in the Paris area alone.

France’s export insurance and guarantee agency also offers insurance against

unprofitable export research. The insurance covers up to 75 percent of a firm’s

“fixed costs”b to investigate overseas markets which exceed related export profits.

Both domestic and overseas costs are covered.

Through local chambers of commerce, the German government’s Office of Trade

Information provides custom studies at below-cost prices.c

The “Export Manager for Hire” schemes run by Denmark, Norway, and Sweden

subsidize the hiring of export managers, who conduct research for the firm.

Through a program managed by the Association of British Chambers of Commerce,

the British Overseas Trade Board (BOTB) provides to trade associations and to

firms with under 200 employees:

● Free consulting on how to conduct export marketing research.

● Up to half the cost of hiring a consultant outside the EC, up to a grant of £20,000

(equal to $33,898 in 1990). Trade associations get better terms. Roughly 600

consultancies are approved per year, with an average cost of about $20,000.d

● For in-house research on non-EC markets, up to half of travel costs and

interpreters’ fees, plus a daily allowance for one researcher, up to the same

Q20,000 limit.

● Up to one-third the cost of published market research reports.

The Department of Commerce provides “Customized Sales Surveys” reporting on

overall marketability, key competitors, price of comparable products, customary

distribution and promotion practices, trade barriers, possible business partners,

and applicable trade events. DOC contracts out these studies and charges firms

their full cost, which is $800 to $3,500 per country. DOC provided 151 of these

studies in FY 1993, and 171 in FY 1992.

a The source ~~ment (Nothdurft) does not specify whether these numbers are maximum and aVerage COStS for the

whole study or just the government’s share.

b The source (GAO) does not define this term.

c ~ile thb table compares national government supprt, we note that in 11 German states, the state Ministry of

Industry, wofi”ng through the national Association of Chambers of Industry and Commerce (IHK), pays 25 to 30

percent of the cost of custom studies prepared by IHK’s affiliated bilateral Chambers of Commerce Abroad.

d it is not clear from the source document (Nothdurft) whether the $20,000 represents the total cost, or just the

government’s share.

SOURCE: U.S. Congress, General Accounting Office, Export Promotion: A Comparison of Programs in Five

/ndustria/izedNations, GGD/92-97 (Gaithersburg, MD: U.S. General Accounting Office, June 22, 1992), p. 29; William

E. Nothdurft, Going G/oba/: How Europe He/ps Sma// Firms Export (Washington, DC: Brookings Institute, 1992), pp.

43-45; Trade Promotion Coordinating Committee, “Export Programs: A Business Directory of U.S. Government

Resources,” April 1993; telephone conversations with DOC staff (for U.S. program).

ports), and France subsidizes 100 to 150 consult- thus, the foreign studies are probably more

ant studies per year for firms in the Paris area substantial.

alone. In addition, the costs of the U.S. studies The British Overseas Trade Board (BOTB), the

($800-$3,500) are much less than the average United Kingdom’s export promotion agency,

costs of the consultant studies subsidized by reports that its consultant study subsidy program

France ($10,000) and the United Kingdom ($20,000); has the highest customer satisfaction rate of all
Chapter 6-Export Promotion Programs I 167

BOTB advice and information services, and

claims that virtually all companies using this

program have started exporting to their target

markets. 35

TRADE FAIRS

A trade fair is an event at which many vendors

exhibit their products or services to potential

customers. The U.S. Government and many

foreign governments help their firms participate

at international trade fairs run by the government

and some run by third parties. The Commerce

Department runs or sponsors about 80 international trade fairs per year.36

While precise comparative data is difficult to

obtain, it appears that U.S. firms receive less

government support than firms in several other

countries for participation in trade fairs, From

table 6-7 it appears that foreign firms typically

have some of their exhibit-related expenses (e.g.,

space rental) paid for, while U.S. firms do not.

Some argue that this difference in subsidies

substantially decreases U.S. firms’ participation,

compared to foreign counterparts. Some foreign

governments started or increased their support to

correct what they viewed as inadequate trade fair

participation by national fins. In contrast, the

U.S. Government’s response to low participation

rates by U.S. firms was to cut back its trade fair

program.

In 1992, State governments sponsored an

average of 5.8 trade fairs; 13 State governments

provided some type of financial assistance for

participating firms.37

TRADE MISSIONS

A trade mission is a trip by a group of firms

(most often in one industry sector) to one or more

foreign countries to meet potential customers and

to learn about the nation(s), the market(s), and

how to do business there. When U.S. firms go on

trade missions, they may also meet U.S. and

foreign government officials responsible for trade

and investment. Data are not readily available to

compare U.S. support for trade missions with that

provided by other governments.

Nonagricultural missions run by the Federal

Government are usually run by DOC, though

other agencies such as USAID, DOE, EPA, and

OPIC are sometimes co-sponsors. In fiscal year

1993, DOC ran 44 missions, of which four had

environmental themes .38 DOC and other agencies

also can sponsor missions run by non-Federal

organizations such as trade associations, State

and local governments, and chambers of commerce. In fiscal year 1993, DOC sponsored 41

such missions, of which none had environmental

themes. 39 Box 6-B describes an environmental

mission in which several Federal agencies cooperated. For most DOC-run missions, participants

pay fees of $2,000 to $5,00040 plus their own

travel expenses. Fees are lower for DOC’s more

modest Matchmaker Delegations, which are for

companies that have not yet exported to the target

country. SBA at one time provided qualifying

companies up to $700 for a Matchmaker trip,

which according to one DOC official was a key

incentive for small business; but this was suspended in March of 1992.41

35 Nothdurft, op. cit., footnote 3, p. 44.

36 Trade ~omotion Coordinating cO133mitkX, “Export Programs: A Business Directory of U.S. Government Resources,” April 1993,

p. 26.

37 Nation~ Association of S@te Development Agencies, NASDA Stare Export Program Database, Op. Cit., foo~ote 17, pp. 3@31.

38~s~f, facsimile communicatio~ OCt. 19, 1993.

39 Ibid.

@ TrMe ~omotion Coordinating comfnittc% ‘‘Export Programs: A Business Directory of U.S. Government Resources, ’ op. cit., footnote

36.

41 U.S. Congess, GemmdAxxmnting Office, EWort Promotion: Problems in the Small Business Administration’s Programs, GGD/92-77

(Gaithersburg, MD: U.S. General Accounting Office, Sept. 2, 1992), p. 11.
168 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Table 6-7-National Government Support for Participation in Trade Fairs

Country Support

France

Germany

Italy

United Kingdom

European

Community

United States

Refunds 50-60 percent of the firm’s “total cost”a of participation in governmentsponsored and government-organized international trade fairs if the fair is not

profitable for that firm.

Firms pay for “exhibition space rental and freight transportation”; government

(through nongovernment fair organizers) pays “the remaining costs.” In practice,

this means that the government pays “roughly 30 percent of the cost of

participation.” b

For government-sponsored foreign trade fairs, pays all “indirect costs, such as

publicity and representational events,” and pays “direct costs such as construction

of displays and space rentals on a cost-sharing basis with the participating firms.”c

Industry consortia and overseas chambers of commerce also run trade shows, and

contribute support ultimately provided by the government. The so-called R.O.M.E.

consortium, for example, pays up to 70 percent of “total expenses.”d

Pays up to 50 percent of estimated cost of providing space, stands, utilities, and

display aids in selected trade fairs.

Pays up to 50 percent of the firm’s “total cost,” including space rental and

construction expenses,e in EC-sponsored fairs.

For DOC-run fairs, firms must reimburse DOC for all “direct” expenses excluding

salaries and overhead. This includes “booth construction, transportation, interpreters’ charges, and space rental.” For major international trade fairs, the “minimum

cost charged by the Department of Commerce. . . may range from $3,000 to

$7,500.”

a It is not ~~r~ether ‘total cost” is meant to include the firm’s own travel costs, or just the government’s or other fair

organizer’s coats initialty charged to the firms (e.g., space rental).

b It IS not cf~r whether the figure of 30 percent reflects a consideration of all costs-for example, the firm’s personal

travel expenses, and the cost of publicity or government staff time.

C ~ is not clear what the CoSt-Shafing percentages are. [t IS not clear whether firms’ travel expenses are cost-shared.

d it is not clear Mat ‘?otai expenses” includes.

e It is not ~lear fiat else ‘~otal cost” indudesr

SOURCES: U.S. Congress, General Accounting Office, Export Promotion: A Cornpatison of Programs in Five

Industddzedlbbtlons, GGD/92-97 (Gaithersburg, MD: U.S. General Accounting Office, June 22, 1992), pp. 28-28, and

discussions with GAO staff; some information on the United Kingdom is from documents supplied by the British

Embassy in Washington, DC.

OVERSEAS COMMERCIAL REPRESENTATION

A well-funded and staffed overseas commercial service can help companies identify and

pursue trade opportunities. The Commerce Department’s U.S. & Foreign Commercial Service

(US&FCS) has staff posted abroad in U.S.

embassies. Compared to its European competitors, Canada, and Japan, the United States has the

lowest ratio of foreign posted commercial staff to

exports, and by far the lowest ratio of foreign

posted commercial staff to GDP (table 6-8).

After the United States, Japan has the next

lowest staffing ratios. However, Japan’s overseas

commercial service strengths vis-à-vis the United

States are not all reflected in the table’s numbers.

Japan’s staff appears to be concentrated in the

most significant markets. For example, DOC

reported that when the Japan External Trade

Organization (JETRO) employed 74 commercial

officers and 144 total staff in the United States

(the latter amounting to a quarter of JETRO’s

total overseas staff), the US&FCS employed only
Chapter 6–Export

. -—

Promotion Programs ! 169

Box 6-B-The Mae Moh, Thailand, Power Project

The Mae Moh power project was an attempt by U.S. industry and several U.S. Government

agencies to act in concert to sell clean coal technologies to Thailand. The project provides a case study

of interagency and government/industry cooperation.

In June 1992, the U.S.-ASEAN Council for Business and Technology1

, with the support of the U.S.

Agency for International Development (USAID), the Department of Commerce (DOC), the Department

of Energy (DOE), and the Environmental Protection Agency (EPA), organized an eight-firm trade

mission to Indonesia and Thailand. The Trade Promotion Coordinating Committee, an interagency

group, partly facilitated the organization of the mission, through its Coal Technology Export Group.

TPCC also helped gain agency support for the trade mission, kept the agencies briefed on the mission

development, and provided a forum where all participants could agree on what message to send the

hosts. In-country organization was orchestrated through the U.S. and Foreign Commercial Service

(US&FCS) and USAID’s ASEAN Regional Office in Bangkok. The U.S.-ASEAN Council helped

incorporate industry input and planned the mission from the U.S. side.

Participants identified an opportunity to supply the Electricity Generating Authority of Thailand

(EGAT) with U.S. clean coal technologies. EGAT plans to increase its coal (including lignite) generating

capacity from 2,100 MW to 11,775 MW by 2006. Desulfurization technologies (retrofit and new

installations) were identified as a market opportunity at EGAT’s active mine development project at Mae

Moh.

After the June trade mission, the U.S.-ASEAN Council wrote a draft mission report that identified

market opportunities and mapped out a plan for followup action. This draft was reviewed by

representatives from industry and the four participating agencies, and was released in the first week of

September. 2 Recommendations included funding for feasibility studies, a reverse trade mission, and a

demonstration project at Mae Moh to inform Thai officials about U.S. technology and its potential to meet

their needs. Although there was general agreement that such activities should be pursued, the four

participating agencies were slow to provide funding. Because EGAT wanted fast action, US.

companies considered whether they should go it alone without government assistance. Without the

support of the U.S. Government, however, Thai officials were less likely to be certain that they were

being offered the most appropriate technologies.

The U.S. Government and industry periodically sent officials to Thailand to maintain interest in the

U.S. proposal. The U.S. Trade and Development Agency sent two consultants to conduct a definitional

study for a pre-feasibility study. The head of the U.S.-ASEAN Council and an Assistant Secretary of

Commerce made a detour from another trade mission to check in with EGAT officials, and AID’s Off ice

of Energy and infrastructure also sent officials to Thailand. These trips may have helped reassure EGAT

officials that the United States took this project seriously.

The project became more urgent after a temperature inversion and power plant emissions created

a health emergency in the vicinity of Mae Moh in October 1992. in the meanwhile, US. industry received

news that Japan had packaged and submitted a proposal to the Thai Government in October 1992.

1 ASEAN is the Assodatiorl of South East Asian nations consisting of Brunei Darussaiam, indonesia,

Malaysia, the Philippines, Singapore, and Thaiiand. The US.-ASEAN Councii for Business and Technology is a

private organization promoting trade and investment between the United States and ASEAN countries.

2 U. S..ASEAN Councii for Business and Technology, inc. “Mission Report; U.S. Coal Tectmoiogy Mission to

Thailand and Indonesia.”

(Continued on next page)
170 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Box 6-B–The Mae Moh, Thailand, Power Project-Continued

Thai officials asked EPA to conduct health and environmental assessments. In January 1993, EPA and

DOE assessed health and environmental damage from the October emergency and identified U.S.

sulfur dioxide control technologies appropriate for the Mae Moh facilities. A reverse trade mission

brought Royal Thai Government and EGAT officials to the United States in March 1993. USAID’s

Bangkok office monitored and communicated progress at Mae Moh.

in the end, a Japanese company won contracts to provide fluegas desulfurization technology to

new and existing boilers at Mae Moh.3 Reportedly, last minute concessional financing from the

Japanese government tipped the balance away from the U.S. contenders which had submitted a lower

bid than the Japanese and which-according to some Thai officials--offered the better technology.

Japanese contacts with EGAT officials were probably a factor as well. A U.S. firm did win a sole source

contract to provide computerized process monitoring services for all units at Mae Moh. Another U.S.

company is well-positioned to earn a contract to provide air quality monitoring equipment at Mae Moh

and other Thai facilities. Both of these American companies believe that this presence in the Thai market

will lead to long term business opportunities in Thailand and the region.

The Mae Moh experience provided some lessons. While TPCC coordinated the trade mission, it

had problems coordinating follow-up action and funding. And although TPCC served as a useful

information clearinghouse among participating agencies, it was not the primary motor for action. The

TPCC’s Coal Subgroup met only twice over the period of this project. Most of the day-today work was

carried out by the U.S.-ASEAN Council, which served as a liaison, persuading industry and the agencies

to make commitments and informing agencies of progress and of the activities of other agencies. As a

non-governmental body, the Council may have been able to facilitate cooperation, and work through turf

issues. It maybe that private multiplier entities will play a key role in packaging disparate Federal export

promotion services for environmental companies. The U.S.-ASEAN Council, agency participants, and

firms are hopeful that coordinated project-focused export promotion efforts can be improved and

employed elsewhere.

Perhaps the major lesson is that money talks. Despite the various actions Federal agencies took

in support of the US. company contenders and the apparent ability of the U.S. firms to provide

appropriate technology at a good price, foreign government concessional financing determined the

outcome for a major portion of the project.

3 Len Jornlin, U.S.-ASEAhl Council for Business and Technology, personal Communication, ~. 14, 1993.

11 commercial officers in Japan.42 JETRO’s industry, JETRO officers maybe more attuned to

commercial officers are not rotated as often as industry needs.

U.S. staff, better allowing them to become experts In addition, table 6-8 includes only JETRO

on specific markets.43 Because of their nondiplo- staff; it omits diplomatic staff. ‘ ‘Japan’s diplomatic status and their close relationship with matic corps regards export promotion as a major

42 U.S. r)ep~rnent Of Commace, Foreign Government Commercial Services:A Comparative Study, undated. ~s report appems to be fie

final version of the draft cited in footnote 31, though a DOC staff contact could not verify this.

43 Ibid., p. 7.
Chapter 6-Export Promotion Programs 171

Table 6-8-Foreign Commercial Service Staffing,a 1990

Total Total

Local staff per staff per

Overseas Commercial professional Total $100 billion $1 billion

Country posts officers staffb

staff of GDP of exports

France 180 100 1,130 1,230 108 5.87

Germany 50’ N A

d

NA 960e67 2.28

Italy 83 170 580 750 72 4.14

Japanf

76 300 300 600 18 1.72

United Kingdom 185 523 961 1,484 159 8.05

United States 123 155 460 615 11 1.56

a Thi~tab{e ~xclude~ staff foragri~[tural export promotion. General Accounting office staff, peC30nal COr?lrnUniCatiOn,

Oct. 25, 1993.

b The United states employs foreign nationais as ~mmer~al specialists, who are Calied “foreign service nattonais”

(FSNS). For the United States, the number given represents FSNS; forothercountries, the number given represents

FSN equivalents.

c ~ese posts are all chamber of commerce Offices.

d NA denotes not available.

e Includes 900 commercial staff in overseas chambers of commerce.

f Staffing and ~sts ~ of March 1992; GDp and export data for 1 Ml. staffing ad pOSfS are those of the Japan ~ernal

Trade Organization (J ETRO).

NOTE: Exchange rates used: one U. S.doliar equals 5.7 francs (France); 1.7 DM (Germany); 1,254.3 i ire (Itaiy); 134.7

yen (Japan); 0.59 E (United Kingdom).

SOURCES: U.S. Congress, General Accounting Office, Export Promotion: A Comparison of Programs in Five

hxfustrkdized Nations, GGD/92-97 (Gaithersburg, MD: U.S. General Accounting Office, June 22, 1992), p. 25 (based

on GAOanalysis of information provided by government of fiaais), anddiscussionswith GAOstaff. ForJapan posts and

staffing: JETRO, “JETRO: Japan External Trade Organization,” not dated, p. 17 (reporting data as of March, 1992).

For GDP data, and for export data for Japan: International Monetary Fund, /nternafiona/ Financ3a/SfatkWcs, September

1992 and Aprii 1993.

priority, "

44 though staffing figures are not available. On the other hand, table 6-8, which gives

JETRO’s total overseas staff, could overstate

JETRO’s export promotion staffing. The reason is

that recently JETRO has expanded its mission

from export promotion to include import promotion as well. In response to international pressure

on Japan to increase its imports, JETRO staff are

expending substantial effort to help U.S. firms

sell in Japan’s market; JETRO may be doing the

same for firms in other countries. JETRO claims

that its primary mission is now import promotion.

However, this claim is difficult to verify, and such

a shift would be surprising in view of Japan’s

historical philosophy and policies and its continuing drive to compete for world market share.

Thus, it seems likely that JETRO’s mission is still

predominantly to promote exports. Moreover, a

core JETRO function is gathering information on

foreign firms and markets and reporting that to

Japanese firms; and even staff nominally engaged

in import promotion are in a good position to

continue that function.

Another factor is the overseas export promotion staff’s sectoral expertise and focus. In this

regard, U.S. agriculture (not included in table 6-8)

is well represented; as of September 1993, the

U.S. Department of Agriculture’s Foreign Agricultural Service had export promotion staff in 79

overseas offices covering 117 countries, which

together represented 100 percent of the market for

U.S. agricultural exports.45 In contrast, US&FCS

officers are generalists working to promote all

types of nonagricultural exports. However, the

44 Tr~e ~omotion Coor&Mfig Comittee, Toward a National Export Smategy, op. cit., f~~ote 4, P. 75.

45 Ibid., p. 28.
172 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Export Enhancement Act of 1992 could lead to

placement of some environmental specialists.

That Act authorizes the Secretary of Commerce to

designate a Foreign Commercial Service Officer

as an Environmental Export Assistance Officer in

any country ‘‘whose companies are important

competitors for United States exports of environmental technologies, goods, and services, ’ or

“that offers promising markets for such exports." 46 That Officer’s duties would include

‘‘assess[ing] government assistance provided to

producers of environmental technologies, goods,

and services in such countries, the effectiveness

of such assistance on the competitiveness of

United States products, and whether comparable

United States assistance exists”; pointing U.S.

producers to assistance programs; informing U.S.

firms of foreign standards and regulations; helping companies identify market opportunities and

potential customers; and helping them obtain

necessary business services abroad.47

In addition, since the time covered in table 6-8,

US-AEP has opened nine business offices in

Asian capitals to strengthen commercial representation for U.S. environmental products and

services. The USAID-funded Private Investment

and Trade Opportunities Organization has staff in

the ASEAN region to promote exports and

investment, with emphasis on environment, energy, health care, and food industries.

OUTREACH TO POTENTIAL CUSTOMERS

Providing databases to potential customers is

one form of outreach. EPA, USAID, and DOE

co-sponsor the Environmental and Energy Efficient Technology Transfer Clearinghouse, an

on-line computer service of linked databases that

provides users with vendor, technical, and regulatory information for pollution control, renewable

energy, and energy efficient technologies. Managed by the World Environmental Center (a

nonprofit organization), the Clearinghouse as of

December 1992 operated in four Mexico City

locations, in Vienna at the United Nations Industrial Development Organization, and in Washington at EPA and the Inter-American Development

Bank; other locations are planned.48 EPA makes

its Vendor Information System for Innovative

Treatment Technologies (VISITT), a database on

U.S. technologies to treat contaminated groundwater, soils, sludges, and sediments, available to

foreign companies. The most recent database

gives has technical descriptions and vendor information for over 230 technologies offered by 140

vendors, although some of these technologies are

not yet proven at full commercial scale.49

Another outreach activity is the reverse trade

mission, in which foreign government and industry officials travel here for presentations by U.S.

fins. The U.S. Trade and Development Agency

(TDA), discussed in more detail later in this

chapter, brings officials from low- and middleincome countries to the United States on such

missions. In fiscal year 1992, TDA spent $1.9

million on reverse trade missions to show U.S.

technology to developing country private and

public sector representatives planning major capital projects.50

Other countries may have similar outreach

activities; no comparison is attempted here.

~ ~e Export Eticement Act of 1992, op. cit., footnote 7, sec. 204(a), adding 15 U.S.C. 4728(d).

47 Ibid.

48 ~A, C CGlo~ Markets for Enviro~ent~ Technologies: Defining a More Active Role for EPA Within a Broader U.S. GOve~ent

Strategy,” Report of the EPA lhsk Force on Technology Cooperation and Export Assistance, December 1992, p. 5.

49 EPA, ‘‘WSIIT Vendor I~omation System for Innovative Treatment Technologies: User Manual (VISIIT Version 2.0), ’ EPA

542-R-93-O01, No. 2, April 1993.

~ U.S. Trade and Development Agency, 1992 Annual Report, ww@to@ DC. 1993, P. 8.
Chapter 6-Export Promotion Programs 173

I High-Level Advocacy to Influence

Government Procurement

Foreign governments have sometimes been

forceful advocates for their national firms when

bidding on other countries’ government projects.

Even heads of states have made personal appeals

to procuring governments. While the U.S. government has done some high-level advocacy, it

has done much less than many other governments

and has not set strategic priorities for advocacy.

The Clinton administration plans to greatly increase high level advocacy and to set strategic

priorities. 51

TECHNOLOGY VERIFICATION AND

DEMONSTRATION

An important aspect of selling goods and

services is to convince potential customers that

they will work as claimed. In the environment

field, testing by the customer is often not practical, and a technology’s failure to perform as

advertised could have not only environmental but

regulatory consequences. In this context, independent evaluation of the technology by a credible third party can help to lessen a potential

customer’s doubts. Such an evaluation would

report the technology’s cost and performance

under specified conditions.

In many ways, the U.S. Government is in a

good position to foster such independent evaluations. It can provide land test sites; guarantee no

legal liability if a test fails; and lend its credibility

to independent evaluations by performing them

itself or hiring persons to do them under government supervision. In particular, EPA’s worldwide

technical reputation could make a test done under

EPA auspices quite persuasive abroad, as well as

useful at home. As is discussed in chapter 5, some

American firms contend many foreign governments often endorse technologies of their national

fins, giving them a leg up in competing for

contracts.

Technology demonstrations performed abroad

under U.S. Government auspices may also be a

useful tool to familiarize foreign customers with

U.S. technical capabilities and their application in

foreign conditions. Technology developers get to

showcase their capabilities and may gain technical and commercial insights that can help them

adapt their products and services for foreign

markets. Demonstration projects can also be an

avenue for technology cooperation and transfer,

and an opportunity for training and technical

assistance (discussed below).

The government’s role in technology verification and demonstration can be seen either as

export promotion (the subject of this chapter) or

as a late stage of technology development (the

subject of ch. 10). Chapter 10 discusses evaluations under EPA’s SITE program. An expanded

government role in environmental technology

evaluation and verification has been proposed in

legislation before the 103d Congress, as discussed under Option 8 in chapter 2.

USE OF FOREIGN AID TO

PROMOTE EXPORTS

Development assistance programs can promote

exports, including environmental exports, as discussed in detail in OTA’s background paper,

Development Assistance, Export Promotion, and

Environmental Technology. 52 The background

paper discussed certain structural features of

development assistance programs that affect export promotion potential, and compared leading

donors’ practices. Such features include sectoral

emphasis; formal and informal tying; linkages

between bilateral and multilateral aid; use of

loans with aid components; funding of feasibility

studies; and technology cooperation. This section

S I Trade Promotion co.ordm~g Committee, Toward u National Export Strategy, Op. cit., foo~ote 4, pp. 34-38.

52 U.S. congress, Office of Technology Assessment, Development Assistance, Export Promon”on, and Erwironmental Technology, op. cit.,

footnote 1.
174 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

discusses in detail only feasibility studies and

technology cooperation (the latter is also discussed in ch. 10); use of loans with aid components is mentioned in the next section, on

financing. Chapter 2 discusses policy issues and

options (see Issue Area D: Export Promotion,

Development Assistance, and Environmental Firms).

As is discussed in chapter 5, aid can be

important to commercial outcomes in specific

environmental sectors. The purchaser of environmental infrastructure projects is often a government (e.g., in its role as a utility owner), whose

purchasing behavior can be influenced by aid

programs. Environment-related capital projects

are often quite large, so that financing packages,

especially those incorporating an aid component,

are often important in making sales. Privatesector environmental sales are largely driven by

environmental regulations and their enforcement;

a donor’s assistance to the government in developing regulations and monitoring compliance can

increase private sector demand and may to some

degree influence environmental requirements in

ways that favor goods and services from the donor

country’s fins.

As developing countries begin to address their

environmental problems, some analysts see the

potential to link development assistance and

promotion of environmental exports as a potentially important business opportunity. Others see

it as a means to transfer needed environmental

technology to developing countries, and still

others as a potentially dangerous course that

could result in transfer of inappropriate technologies that do not meet recipients’ developmental or

environmental needs. OTA’s background paper

discussed these tensions between export promotion goals and development and environmental

goals in some detail. In brief, the potential for

transfer of inappropriate technologies could be

reduced through safeguards to keep export promotion efforts consistent with developmental and

environmental objectives (see ch. 2).

Japan’s aid programs pose the most commercial challenge to U.S. firms. Japan is, with the

United States, the largest donor of aid and

probably of environmental aid, and it has made a

commitment to expand its environmental aid

substantially. Japanese aid, though becoming

more geographically dispersed, still focuses on

East Asia, with its potentially large market for

environmental goods and services, and where

Japan has a strong commercial presence.53 Japan’s

aid includes two types of programs whose export

promotion effects can last far beyond the time of

the aid, with benefits far exceeding the size of the

aid program: funding for feasibility studies, and

training programs. Corresponding U.S. programs

appear to be smaller, though they could grow.

I Feasibility Studies

Large capital projects are usually preceded by

preliminary study of the project’s context, scope,

planned methods of implementation, and likelihood of success. Donors often use aid to fund such

feasibility studies-often tying the funding (i.e.,

requiring the recipient government to hire a donor

country firm to do the study). This often makes it

more likely that a firm from that donor country

will be selected to do the follow-on engineering

and construction, even if bidding for the construction phase is open. If the company performing the

study bids on the engineering and construction

phases, it is likely to have an informational

advantage. Even if the firm itself cannot bid on

the project, it maybe more familiar with, and thus

recommend, technical specifications that can be

met by donor country technologies or vendors.54

53 fiid., pp. 36,43,23 @OX 2-B). While Jap~’s aid programs historically were motivated by a desire to promote exports, Japan’s government

denies tit this motivation exists today. However, regardless of motive, Japan’s aid is still (albeit somewlmt less than before) structured in ways

that appear to enhance the aid’s export promotion potentitd. See ibid., pp. 37-38,4146.

M S~~ly, if tie fm doing tie feasibility study is selected o@ to manage the constructio~ it is likely to use its position of setting

specifications and advising the recipient country on procurement in a way that steers construction business toward fms from its own counby.
Furthermore, the firm performing the study establishes or maintains an in-country presence that

can help it make other sales.

The Japanese International Cooperation Agency

(JICA) seems to have an annual budget of about

$200 million for tied feasibility studies.55 The

corresponding U.S. budget is much smaller. The

primary agency involved is the U.S. Trade and

Development Agency (TDA, formerly the Trade

and Development Program). TDA’s mission is

‘‘to assist the U.S. private sector in exporting

goods and services for major capital projects in

developing and middle-income countries.’’56 TDA’s

appropriations were $35 million for fiscal year

1992 and $40 million for fiscal year 1993.57 The

fiscal year 1994 appropriation remained at $40

million, although the administration had requested $60 million. TDA estimates that for every

dollar of TDA program expenditure, over $25 are

returned to the U.S. economy in export income;

however, an unknown portion of those exports are

themselves financed or otherwise supported by

other U.S. Government agencies such as USAID

and Eximbank, so the ratio of outlays received to

U.S. Government program expenditures would be

lower. 58 By sector, TDA’s fiscal year 1992

program spending was 33 percent for energy and

natural resources and 12 percent for water and

environment; transportation and manufacturing

were also emphasized.59

In fiscal year 1992, TDA spent $39 million on

program activities (including some funds transChapter 6–Export Promotion Programs I 175

ferred from other agencies), of which $25 million

went to bilateral grants for feasibility studies (79

studies costing an average of $319,000), and

another $2.5 million to similar grants for multilateral development banks to evaluate proposed

projects.61 (Most of the rest was spent on training,

discussed below.) To receive feasibility study

finding, projects must meet four criteria aimed at

maximizing export impact:

9

■

■

■

Development priority. Projects must be development priorities of the host country, and likely

to be implemented; the host country must

request TDA assistance, and the U.S. embassy

must approve.

Export potential. Potential sales of U.S. goods

or services must be large relative to the cost of

the feasibility study.

Open to U.S. firms. It must be likely that the

project will be open to bidding by U.S. fins,

and that financing will be available that is not

restricted to firms of particular countries.

Competition. It must be likely that U.S. firms

will face strong competition from foreign

companies with foreign government support.62

One study funded in fiscal year 1992 was for a

facility to treat industrial and municipal wastewater in the Asuncion and Lake Ypacarai region

in Paraguay. TDA reports that the study costs

$680,000, and states that the U.S. export potential

in mechanical and electrical equipment and engi55 U.S. Confless, Office of Technology Assessment, Development Assistance, Export Promotion, and Environmental Technology, op. cit.,

footnote 1, p. 43.

56 U.S. Trade and Development Agency, 1992 Annual Report, Op. Cit., fOO@IOte 50, P. 5.

57 Ibid., p. 4.

s~ See U.S. Congess, OffIce of Technology Assessmen~ Development Assistance, Export Promotion, and Environmental Technology, op.

cit., footnote 1, p. 88 & note 14.

59 U.S. Trade and Development Agency, 1992 Annual Report, op. cit., foo~ote 50, pp. El, 18.

60 ~id, p. 22+ ~ogmactivities acco~ted for 92 ~rcent of TDA’s expenditures; he rW WaS for oPerat~g expe~~es.

61 ~ld, pp. c1, 7 me Cltiton AW5@ation Plain to consolidate US~D feasibili~ s~dy f~ds for capiml projects in TDA. Trade

Promotion Coordinating Committee, Toward a National Export Strategy, op. cit., footnote 4, p. 50.

62 u s Trade and Development Agency, 1992 Annual Report, op. cit., foo~ote ‘* P 6“ . .
176 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

neering and project management services is over

$149 million.63

I Technology Cooperation

“Technology cooperation” means cooperation between or among countries (either governmentto-government or with private sector participation) in developing or transferring technology. It

includes technology demonstrations, research and

development centers, training programs, and technical assistance to nascent institutions such as a

government environment agency. Technology

cooperation can encourage environmental exports in several ways. For example, exporters may

work with potential clients in another country to

adopt technologies to local needs, thus making

t

ogy cooperation also can provide access for one

country’s firms to key government and industry

decisionmakers in the other country. Where aid is

involved, training grants may help to develop the

needed technical and managerial skills in the

recipient country to make use of the donor

country’s technology.64

Training will be discussed in detail below;

technology development and demonstration, in

chapter 10. Technical assistance to new institutions will not be discussed in detail, but is a

significant factor. Both the United States and

other aid donors provide assistance in developing

regulations, testing protocols, and compliance

measurements. This assistance can increase the

recipient country’s environmental market. If the

recipient country adopts standards and practices

similar to those of the donor country, donor

country equipment and service vendors could

have an advantage (see ch. 5).

TRAINING BY THE UNITED STATES

TDA spent $7.4 million, about a fifth of its

fiscal year 1992 budget, on training.65 Some of

this went to sweetening the bids of U.S. firms on

capital projects meeting TDA’s four criteria

(listed above); some familiarized potential customers with U.S. technology, in cases where

future projects meeting those criteria seemed

likely. TDA also spent over half a million dollars

on technical seminars for government and industry officials, on topics such as sewage treatment

technology. 66

The United States Environmental Training

Institute (USETI), a nonprofit organization established jointly by the U.S. Government and some

U.S. businesses, also supports training for developing country decisionmakers.67 Under USETI,

firms provide training at their own expense, in

return for which they can showcase their proven

technologies. U.S. Government agencies such as

EPA, TDA, and USAID also contribute instructors. U.S. embassies and commercial offices

promote the courses. USETI only commenced

training in December 1992; it estimates that by

the end of 1993 over 450 people will be trained.

Its 1993 courses covered subjects such as solid

waste management, pollution prevention, efficiency in energy use, and air pollution control;

courses were 2 weeks long. For 1994, USETI

plans to train about 1,300 persons.

USETI’s 1993 budget was $3.4 million, including both cash and the value of in-kind resources

(primarily 

effort was $2.1 million, of which all but $0.2

million was in-kind. Over 20 firms, trade associations, and other organizations participated, including a technical school in Thailand. The public

63 Ibid., p. 7.

64 T. properly Seine a developing COUIIq’S needs, a capital development project based on @30rted t~hnolo8Y Wuires ~~ed lo~

operators; this is true of many environment-related projects. Some projects have not provided for enough training. U.S. Congress, Office of

Technology Assessment, Development Assistance, Export Promotion, and Environmental Technology, op. cit., footnote 1, p. 12.

65 U.S. Trade and Development Agency, 1992 AnnualReport, op. cit., footnote 50, pp. Cl, 8-9 (Etig~d teChniCd assismce categories).

66 ~ld., pp. cl, 8-$) (kCh&d symposia catego~).

67 ~S discussion is based on information provided by USETL
Chapter 6-Export Promotion Programs I 177

sector contribution (from nine Federal agencies,

plus small contributions from the World Bank and

the International Finance Corp.) was $1,3 million,

primarily in scholarships for travel and living

expenses and in training.

US-AEP funds environmental fellowships for

professionals from Asia and the Pacific islands to

work in business, government, and nongovernmental organizations (NGOs). These fellowships,

administered by the Asia Foundation, last 1 to 4

months and cover both technology and policy.

During the period 1993 to 1995, 125 fellowships

are planned, 35 of them at EPA. Some fellowships, such as those at EPA, might involve no

direct U.S. commercial contacts or implications

but might nevertheless help another country to

write and enforce environmental regulations, thus

creating demand for U.S. environmental technologies and services.

TRAINING BY JAPAN

Japan’s MITI funds the International Center for

Environmental Technology Transfer (ICETT),

established in 1990. ICETT’s first project involved training nine Mexican engineers on gas

emission controls. ICETT plans to train 10,000

engineers from developing nations by 2001.68

ICETT will work with environmental protection

specialists from developing countries, including

Eastern Europe.

The Japan International Cooperation Agency

(JICA) also runs a training program for foreign

officials and has 10 training centers throughout

Japan. While none are called environmental

training centers, many of the fields officially

covered likely have substantial environmental

content. Of 7,556 people accepted for training by

JICA in 1990, 1,456 were in the area of public

works and utilities, 837 in mining and industry,

713 in public health and medicine, and 211 in

energy.

69 In 1991, JICA offered training courses

in Japan on environmental maters to about 690

participants from developing countries. The training covered water quality monitoring, air pollution monitoring, technologies to reduce CFCs,

waste disposal, and conservation of the agricultural environment, among others. JICA has funded

construction of three environmental technology

centers in Asia with training components: the

Thai Environmental Research and Training Center; the Japan-China Friendship Environmental

Preservation Center; and the Indonesia Environmental Management Center.70

The extent to which Japan’s government offers

training to sweeten the bids of Japanese firms (as

the United States’ TDA does) is not known.

FINANCING

Most exporters need at least short-term financing to cover the time between when they ship

goods and when the customer pays. Some require

longer term financing for customers that demand

an extended payment plan. Long term financing

is critical for funding large capital projects such

as wastewater treatment plants and powerplant

environmental controls. Smaller businesses may

need ‘‘working capital’ loans to pay for production or marketing before export sales are made.

In the United States, private sector export

financing (without government help) is inadequate to meet exporters’ needs (especially those

of small exporters); many competitor countries do

better. There are several reasons for this.71 Export

financing tends to be more labor-intensive and to

66 Cctid Offered t. Clearl Enviro~ent Abroad; Help for Soviets in the Works at MITI, ” The Nikkei Weekly, July 27, 1991.

69 JIq 1 IJICA, For the Furure of the Earth, ” not dated, p. 6.

TO AS cited in Jap~ Intermtioti Cooperation Agency, JICA Newsletter, July 1993, and Gverment Of JaPW ~nviro~fftad

DeveZopmenr: Japan’ sEqerience and Achievement, Japan’s National Report to UNCED 1992, December 1991, pp. 25-26.

71 ns discussion of private sector export financing is based on James S. Ahchul, “The Export Finance Crisis” (Washington DC:

Economic Strategy Institute, July 1992), pp. 1-10; TPCC Working Group on Trade Finance,“National Export Initiative Bankers Meetings on

Trade Finance, ’ not dated (reporting on workshops held with bankers in 1991); and Nothdurf4 op. cit., footnote 3, p. 56.
178 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

have lower profit margins than other banking

activities, making it less attractive for banks. In

the United States, the profitability of export

financing is often further reduced because of

unfavorable tax consequences, and real or perceived unfavorable reserve requirements; further,

some U.S. banks’ accounting rules make export

financing appear less profitable than it is.

The low profitability of export financing has

mattered more in recent years because U.S. banks

have switched away from relational banking, in

which banks considered relationships with clients

to be paramount and therefore provided less

profitable services within the context of those

relationships, to transactional banking, in which

each type of transaction is scrutinized and

dropped if not sufficiently profitable. (In Europe,

relational banking still predominates.)

Because many U.S. banks incurred major

losses in the 1980s from unrepaid loans made to

developing countries, most U.S. banks have

become wary of lending to these nations, and of

international lending in general U.S. banks often

feel unqualified to judge foreign risks-they

generally lack the international experience of

European banks. U.S. banks are particularly

cautious about medium- and long-term loans for

exports to countries outside the industrialized

West and Japan, which the banks consider the

most risky.

The situation is particularly difficult for small

exporters. Smaller banks tend not to handle

export financing, and larger banks may find small

exports (below about $300,000) not worth their

while .72 U.S. banks are rarely willing to make

working capital loans for production or marketing. Even when an exporter has an order and is

ready to ship, U.S. banks normally will not,

without a government loan guarantee, finance

simply against foreign receivables; they normally

demand that the exporter get a confirmed letter of

credit, which is a promise by the customer’s local

bank to pay once documents conveying title to the

goods are delivered, guaranteed by a U.S. bank

that processes international transactions. (European banks more readily finance against foreign

receivables.) The minimum charge for a confined letter of credit is often at least $400,73

which can take a fair bite out of the profit of a

small order. An order of $20,000, for example,

might have a profit margin of $2,000 before

financing costs. Letters of credit also require

meticulous documentation when title to the goods

is delivered; inexperienced exporters often need

instruction on how to prepare documents, and

frequently prepare them incorrectly, which delays

payment for the goods.

To some extent foreign banks operating in the

United States are filling the demand unmet by

U.S. banks. However, their services concentrate

on larger firms and larger transactions. Moreover,

foreign banks seem interested primarily in providing financing for sales already in hand, rather

than working with firms to put together competitive bids.74 A foreign bank might be particularly

reluctant to work with U.S. firms to put together

a bid that would compete against one of the

bank’s clients in its home country.

Not only do U.S. exporters get less export

financing help from the private sector than their

counterparts in many major competitor countries;

at least for nonagricultural exports, U.S. exporters

also get less help from the national government.

U.S. Government assistance for nonagricultural

exports is provided primarily by the ExportImport Bank of the United States (Eximbank),

which in fiscal year 1992 assisted $14.0 billion in

72 US.AEP is WoI-I@ with the Bank Assoe~tion for Foreign Trade to link local banks with commercial banks experienced in international

transactions .Lewis Reade, Director-General, US-AEP, presentation at the Clean Air Marketplace Conference, Washington DC, Sept. 9, 1993.

73 J~es S. Altshcu~ op. cit., footnote 71, p. 7.

74 ~ si~tiom involving Eximbank’s msis~nce, U.S. banks have shown a greater willingness than foreign banks to work in this way with

Us. fiis.
Chapter 6-Export Promotion Programs I 179

exports.

75 In 1991, perhaps 13 percent of Eximbank’s assistance (by volume of exports assisted)

has gone directly to small business76; if the same

proportion held for 1992, about $1.8 billion in

small business exports were assisted in that year.

As shown below, Eximbank’s assistance is limited in several respects: total amounts, criteria for

assistance, and ease of administrative access.

However, Eximbank has taken measures to improve access, especially for small business, and is

likely to finance environmental exports more.

Eximbank’s financing programs cover a much

smaller share of exports than analogous programs

in major competitor countries. One report covering 1989 showed U.S. coverage at about 2 percent

of total exports, compared with 32 percent for

Japan, 21 percent for France, 20 percent for the

United Kingdom, and 4 percent for Germany .77

Eximbank’s limited export coverage results in

large part from budgetary constraints:

While Eximbank must consider the budget implications of transactions, regardless of ‘need’ (i.e.,

whether Eximbank has the budget resources to

commit to a particular transaction), its European

and Japanese competitors generally have the

budget flexibility to pursue creditworthy transactions which fall within their stated parameters.78

Also, Eximbank requires more justification for

assistance in particular cases than most major

foreign competitor agencies require:

In general, U.S. economic policy is guided by a

‘‘needs based’ principle, and such is the case for

Eximbank. Specifically, this policy translates to

Eximbank supporting exports facing officially

supported competition, or transactions for which

the private sector is unwilling or unable to

provide financing. Therefore, Eximbank generally must find evidence that one of these conditions exists to provide support for a transaction. In

contrast, most of our major competitors view

exports as being crucial to their countries’ ecoTS Eximbank, Annual Report 1992, p. 2, This takes into account Eximbank’s loans, 10MI wmtees, and insurance.

76 GAO repo~ed 13 percent. Congress, General Accounting OffIce, The U.S. Export-Import Bank: The Bank provides Direct and Itiirect

Assistance to SmalZ Businesses (Gaithersburg, MD: U.S. General Accounting Office, Aug. 21, 1992), pp. 2-5, 13, Direct assistance includes

only fmncing provided directly to small businesses; it does not include financing provided to subcontractors working through larger businesses

that receive Eximbank financing. GAO did not count some Unvetiled dat% and noted problems with some data that it did count. Eximb@

which counted both direct and indirect assistance, reported that it assisted small business exports of $2.1 billion in 1991 out of total exports

of $12.1 billion+ or 17 percent, Ibid, pp. 2-5; Eximb@ op. cit., footnote 75, pp. 3, 14-15.

~1 First Washington Associates, Ltd. (Arti@on VA), Comprehensive Directoq of the World’s Eport Credit Agencies (October 1991).

These figures include exports assisted by loans, loan guarantees, and insurance. The figures omit certain agencies, including the United States’

Small Business Administration for which data were unavailable. (SBA assists under $100 million of exports per year-less than 1 percent of

what Eximbank covers.) The U.S. figure includes 0.5 percent for Exirnbank and 1.5 percent for the Foreign Credit Insurance Agency (FCIA),

which issued insurance for Eximbak FCIA’S operations have since been absorbed into Eximbank itself.

A report covering 1987 gave similar figures, and a figure of 12 percent for the Netherlands. Altschul, op. cit., footnote71, p., 11, citing Trade

Finance & Banker Internationa/, January 1990, p. 32-4, and speech by Albert H. Hamilton to the American Bankers Association, May 1989

meeting on small business.

Both of these studies omit financing for agricultural exports by the U.S. Department of Agriculture’s Commodity Credit Corp., while the

figures for the foreign countries probably include agricultural expert promotion. Thus, the U.S, financing and foreign countries’ financing are,

strictly speaking, not being compared on the same basis. However, the Commodity Credit Corp. covers only about 1 percent of U.S. exports,

so including it would just raise the U.S. figures by 1 percent (see figures for 1991 in First Washington Associates, Ltd. (Arlington VA),

Comprehensive Direcfory of the World’s Export Credit Agencies (forthcoming in 1993)); this would not change the result that the other

countries listed have much higher export coverage (except perhaps for Germany). Also, some of the foreign countries probably offer limited

agricultural export financing, so that the figures reported in the study are correct or nearly correct comparisons of nonagricultural export

financing. In 1990, as a percentage of total exports, agricultural exports were only 17 percent in France, 5 percent in Ge rmany, 0.4 percent in

Japan, 24 percent in the Netherlands, and 7 percent in the United Kingdom. U.S. Department of Agriculture, Economic Research Semice, World

Agriculture, Statistical Bulletin # 815 (September 1990); U.S. Department of Agriculture, Foreign Agricultural Semice, Foreign Agriculture

1992 (Washington, DC: USDA, December 1992), pp. 53, 93.

78 Eximba~ Report to the U.S. Congress on Export Credit Competition and the Export-Import Bank of the United States for the pe~”od

January 1, 1991 through December 31, 1991 (July 1992), p. 8.
180 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

nomic well-being and security. To this end, they

provide export credit on more of an “entitlement” basis by broadly defining their target

audience and parameters, and allowing automatic

access to their programs when the parameters are

met.79

These differences mean that U.S. companies

applying for Eximbank assistance, compared

with foreign firms applying to counterpart agencies, must expend more effort in applying and

have less certainty of receiving help. U.S. firms,

especially small business, could therefore be

discouraged from applying.

Other factors have impeded access to Eximbank assistance, though Eximbank is trying to

change that.80 Eximbank now has 6 domestic

offices, compared to only one full-service office

before 1992; France’s export-import bank has 22.

Eximbank has no overseas offices; Japan’s exportimport bank has 16. Companies have consistently

complained that Eximbank is slow in processing

applications. 81

While Eximbank traditionally has relied on

commercial banks to reach small business, many

U.S. banks have discontinued international lending. Eximbank hopes to fill the gap with its

City/State Program, by which State and city

development and finance agencies can help firms

to apply for Eximbank assistance while perhaps

adding their own financing to the package. Begun

in 1987, this program by early 1992 included 18

States, Puerto Rico, a city, and a port authority.

Eximbank’s other steps to improve service to

small business include creating a high-level small

business unit, streamlining approval for most

small (under $2.5 million) working capital loan

guarantees, increasing marketing efforts, and

improving coverages.82

The Small Business Administration (SBA)

also provides export financing. However, the

exports assisted are under $100 million per

year

83; this is tiny, compared to Eximbank, which

assists (see above) an estimated $1.8 billion

dollars per year of small business exports. The

General Accounting Office has also found evidence that export promotion, including export

financing, is not a priority at SBA.84 The Clinton

administration has proposed harmonizing and

ultimately merging SBA's and Eximbank’s working capital programs.85

The Export Enhancement Act of 1992 requires

Eximbank to encourage ‘‘the use of its programs

to support the export of goods and services that

have beneficial effects on the environment or

mitigate potential adverse environmental effects.

Eximbank is to report annually on this effort.86

‘g Ibid.

go The ~omtion ~ this and tie next paragraph is taken in part from U.S. Congress, General Accounting Office, E~ort Finance: The Role

of the U.S. Export-]rnport Bank, GAP/GGD-93-39 (Gaithersburg, MD: U.S. General Accounting Office, Dee. 23, 1992), pp. 22-29; U.S.

Congress, Generat Accounting Office, Export Promotion: A Comparison of Programs in Five Industrialized Nations, op. cit., footnote 20, p.

31; and Eximbank, Report to the U.S. Congress on Export Credit Competition, op. cit., footnote 78, pp. 27, 32-35.

61 See, forex~ple, Kenneth D. Brody, letter to Donald W. Riegle, Jr., Chairman, Senate Committee on Banking, Housing and Uhan Mtis,

and to Henry B. Gonzalez, Chairma n+ House Committee on Banking, Fimnce and Urban Affairs, July 30, 1993, reprinted in Eximb@ Report

to the U.S. Congress on Export Credit Competition and the Export-Import Bank of the United States for the Period January 1, 1992 through

December 31, 1992 (July 1993). Access to Eximbank programs is also impeded, especially for small business, because, as discussed above,

there is no “one-stopshopping” for export services; firms must seek assistance individually from Eximbank and other agencies involved in

export promotion.

82 U.S. Cowess Gene~ Accounting Office, Export Finance, op. cit., foomote 80, p. 24. When it issued this report GAO found @tit was ,

too early to evaluate the success of these efforts.

83 U.S. Conmss, Gener~ Accounting Office, Export Promotion: Problems in the Small Business Administration’s programs, op. cit.,

footnote 41, pp. 8-9.

84 Ibid., pp. 10-12.

65 Trade ~omotion Coordinating Committee, To~ard a National Export Strategy, Op. Cit., fOO~Ote 4, p. 47.

86 The Expofl E~ancement Act of 1992, op. cit., footnote 7, sec. 106.
Chapter 6-Export Promotion Programs ! 181

Pursuant to the statute, the Bank’s board has

appointed an officer to advise it on ways to use

Eximbank programs to support environmental

exports .87

In 1992,20 States provided export loans and/or

loan guarantees. California had the largest program, assisting $180 million in exports over 1

year; Minnesota assisted $2.6 million in exports.

In addition, some States provided export insurance.

88 California also provides seed money to

partially cover costs of putting together export

deals (e.g., the cost of an investment banker’s

services) in the energy field, many of which

concern energy efficiency or renewable energy. In

its fifth year, California’s International Energy

Fund has provided $250,000 per year in contingent loans, to be repaid (with interest) only if the

project generates revenues. The loans are matching funds, and projects are selected by a stiff

competition. 89

9 Financing with an aid component

Countries sometimes use aid funds to sweeten

an export financing package, creating so-called

“tied aid credits.” The United States has used

tied aid credits less aggressively than many

competitor countries. Other countries’ use of tied

aid credits appears to be declining, but is still

substantial. Power generation is one sector in the

energy/environment realm that attracted substantial tied aid credits; it is possible that tied aid

credits will focus more on the environmental

sectors in response to changes in international

rules. Tied aid credits are discussed in detail in

OTA’s background paper.90

al Ex~~Ann~l Report 1992, op. cit., fOO~Ote 75, p. 8.

88 Natio~ Association of State Development Agencies, NASDA State Ewort Program Database (SEpD): 1992, Op. cit.,fW~Ote 17, PP.

27-29.

89 Tim @oq California Energy Commissiou personal communication, Oct. 22, 1993.

~ U.S. Conpss, Mice of TechnoIo~ Assessment, Development Assistance, Export Promotion, and Environmental Technology, op. cit.,

footnote 1, pp. 46-54.
PART III.

Users of

Environmental

Technology: U.S.

Manufacturers
Environmental

Requirements and

E

I U.S. Manufacturing

Industry

Competitiveness 7

nvironmental regulations can produce substantial benefits in the form of improved human health and a healthier

ecosystem, with reduced costs in these areas. However,

these benefits accrue to society as a whole, while

individual firms that bear the higher compliance costs experience

higher production costs as a result.l

Total U.S. spending (both public and private) on pollution

control and abatement (including local solid waste collection

costs) rose from approximately $52 billion in 1972 (1990 dollars)

to $108 billion in 1990. As a share of gross national product

(GNP), these expenditures grew more slowly, from 1.52 percent

of GNP in 1972 to 1.95 in 1990. Expenditures could increase to

between $133 and $147 billion (1990 dollars) by the year 2000,

or between 2.0 and 2.2 percent of GNP.2

Relative to total production costs, the cost of pollution control

to U.S. manufacturers is small-amounting, by one estimate, to

$21 billion or about 1.72 percent of manufacturing value added

in 1991. Moreover, the differential in compliance costs borne by

U.S. firms compared to foreign fins, especially in advanced

industrial nations, is not great. Factors other than environmental

regulations, such as market access, management capability,

financing, work force skills, labor costs, and technology, play

more prominent roles in determining competitive advantage.

Also, pollution control costs have not increased significantly

1 For discussion of the many factors that conrnbute to a firm or muon’s competitive

ness see Michael Porter, The Comperin”}~e Ad}’antuge ofNurions (New York NY: The Free

Press, 1990); and U.S. Congress, Office of Technology Assessment, Competing

E~onomies: Americu, Europe, and the Pacijic Rim, OTA-ITT3-498 (WJashingtou DC:

U.S. Government Printing Office, October 1991).

~ U.S. Environmental Protection Agency, EnvironmenfaZ lnvesrments: The Cost cfA

Clean .En\/ronment (Washingto~ DC: Island Press, 1991). 183
184 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

since the mid-1970s as a share of sales. However,

these costs may be more troublesome to U.S.

manufacturers now, due to intensifying demands

of international competition. In an era when U.S.

firms face increasing competition from able and

effective competitors from both advanced and

developing nations, even relatively small cost

differences can affect relative competitive advantage.

Pollution control expenditures by manufacturers in the United States differ significantly by

sector. For some industries, particularly process

industries (e.g., chemicals, petroleum, pulp and

paper, primary metals), pollution control expenditures can be a relatively large share of total

capital expenditures and a small but significant

share of value added. For example, as a share of

value added, the petroleum industry spends over

15 percent on pollution control, primary metals

and pulp and paper each spend over 4 percent, and

chemicals spends over 3 percent. Most other

industries, particularly discrete parts manufacturers and assemblers, spend much less. (It is

possible, moreover, that these expenditures on

pollution control by manufacturers are underreported, perhaps by as much as 20 to 30 percent.

See app. 7-A.)

Expenditures are only part of the picture. As

U.S. manufacturers seek to continuously improve

production processes and rapidly introduce new

products, complex and time-consuming permitting procedures and regulatory inflexibility can

present serious obstacles. Many analysts argue

that the U.S. regulatory system is more adversarial and rigid than those of most other nations.

While it is difficult to accurately compare

pollution abatement and control costs among

nations, it appears that compliance costs for U.S.

industry are among the highest in the world.

Manufacturers in western Germany and perhaps

a very few other Northern European countries

incur comparable costs; elsewhere in Europe

costs are lower. Japanese pollution control costs

for manufacturers have been lower than those for

the United States since 1977, and that gap has

been growing.3 

For example, compared to firms

in Japan, in 1990 automobile manufacturers in the

United States spent over five times more as a

percent of total capital investments and three

times more as a percent of sales to control

pollution from the production of automobiles.4

Pollution control and abatement costs in newly

industrialized and developing nations are significantly lower than in the United States.

Some of these cost differentials might be due to

more efficient regulatory systems. However, the

major source of difference appears to stem from

variances in regulatory requirements and the

intensity of their enforcement (or the degree of

compliance). Finally, U.S. firms often receive

less government financial and technical help

(e.g., tax deductions, loans, and R&D grants) than

their counterparts in Japan, Germany, and some

other countries.

Several attempts to assess the competitive

impacts of environmental regulation on the economy have been conducted since the early 1970s.

These studies differ in methodology, assumptions, and conclusions, and, because of the

complexity of the research question, offer limited

insight. The little research on employment effects

suggests that in the medium to long-term, the

impact on jobs from pollution and waste control

requirements is likely to be minimal. However, it

appears that pollution and waste control regulations had a small negative impact on manufacturing productivity, industrial innovation, balance of

trade, and the location of industrial investment.

While the effects are small, this does not mean

that they are insignificant and should not be

3 Compared to the United States, much of the private sector spending for pollution control in Japan is not by manufacturers, but rather by

electric utilities to control nitrogen oxides (?NOx) and sulfur dioxide (SOZ). Moreover, regulations of many pollutants, including volatile organic

compounds and hazardous wastes, are much stronger in the United States than in Japan.

4 Japanese automobile firms maintain higher capital investment rates as a percent of sales than do U.S. automakers,
—-

Chapter 7–Environmental Requirements and U.S. Manufacturing Industry Competitiveness [ 185

Figure 7-l—External Determinants of Environmental Compliance Costs

Location ,1 Weak

(e.g., density of environmental

nearby pollution regulations and

sources and enforcement

population)

— J 1 —

SOURCE: Office of Technology Assessment, 1993.

addressed+ specially if analysis could point the

way to more effective and less burdensome

methods of achieving environmental goals. This

is particularly true given stricter pollution control

requirements which will come into effect in the

mid and late 1990s.

This chapter first discusses the costs of complying with U.S. pollution control regulations for

manufacturers in the United States. It then discusses costs and regulatory requirements for

manufacturers in other nations, including Japan,

Germany, and Holland. Finally, it discusses

research on the effects of regulation on technology innovation and foreign trade and investment.

Appendix A discusses effects of regulation on

GDP and productivity.

OVERVIEW

Externally imposed environmental compliance

costs are determined in at least four ways (see

figure 7-1).

First, geographic location and density of pollution sources can be a factor. Firms located in

sparsely populated areas with very low levels of

pollution from other sources, may not have to

control pollutants as strictly to meet overall

ambient standards (unless, of course, requireDirect

subsidies of

environmental

compliance

costs

I

More efficient

regulatory system

(e.g., pollution

prevention,

Marketable permits)

ments are in place to prevent any significant

deterioration of existing environmental conditions).

Second, companies may bear few costs if they

are located in nations or regions that allow them

to pollute heavily, even where there are high

pollution loads. Moreover, while few data compare worker health and safety costs in different

nations, U.S. firms may carry higher costs in this

area compared to those in many competing

countries, particularly newly industrialized and

developing countries.5

In the long term, nations may pay more for

these implicit subsidies (e.g., through increased

health costs and reduced natural resource productivity). In some cases this penalty maybe so large

as to impede economic growth, as the current

situation in Eastern Europe and the former Soviet

Union illustrates. However, just as other subsidies can create industrial competitive advantages, 6

so can environmental subsidies, whether

in the form of lax regulations or direct assistance.

Some argue that strict environmental regulations can lead to increased competitive advantage. 7 Firms in countries with strict regulations on

industrial processes might find that aggressive

environmental actions, particularly pollution pre5 See Ixiwrence J. MacDomell, “Government Mandated Costs: The Regulatory Burden of Environmental, Health and Safety Standards, ’

Resources Policy, March 1989, pp. 75-96.

6 U.S. Congress, Office of Technology Assessment op. cit., footnote 1.

7 A n~ber of analysts use Michael porter’s, article, “America’s Green Strategy” Scientific Ameticun, April 1991, vol. 264, No. 4, p. 168

as evidence of this relationship. Porter’s writings on this relationship suggest a more limited view (see box 3-2).
186 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

vention, make them more competitive relative to

other domestic competitors having to comply

with the same standards. However, as a group,

firms within countries with stringent environmental regulations may often face a competitive

disadvantage in a global marketplace where they

must compete with firms in foreign countries with

more lax standards. When waste disposal costs

are high and regulatory requirements are stringent, firms can sometimes save money by controlling pollution and reducing wastes. However,

these actions are seldom financially justifiable in

the absence of waste treatment or pollution

control requirements.

The third factor in determining compliance

costs is the degree to which nations or regions

provide financial or technical assistance to meet

pollution control regulations. Although the Organization of Economic Cooperation and Development (OECD) has adopted the polluter pays

principle, which states that the polluter should

bear the expenses of carrying out measures to

protect the environment, the principle is not

strictly adhered to in any developed or developing

country. However, there is significant variation in

the degree to which governments provide both

financial and nonfinancial assistance to help

industry meet environmental requirements. Relative to some countries, the United States provides

little help to its industries to comply with

pollution abatement requirements.

Fourth, firms in nations that structure their

regulatory systems more efficiently (e.g., fewer

delays, more flexibility) while maintaining similar levels of protection, may face lower costs than

firms in nations that achieve the same level of

protection in less efficient ways. To some extent,

market incentives (e.g., taxes and fees, tradable

permits) and performance-based standards may

produce lower costs (see ch. 9). While no country

has used these approaches extensively, a number

of other countries’ systems do appear more

flexible than the United States, which may enable

them to achieve more pollution reduction per

compliance dollar spent. Another source of environmental efficiency is to reduce pollution

through prevention (in-process changes) as opposed to end-of-pipe methods. Countries appear

to differ little on the relative extent of in-process

changes.

Some analysts have argued that some environmental regulations impose sizable costs on the

economy, but deliver quite small benefits.8 Such

analysis is complex and requires a greater understanding of costs and benefits than currently

exists. As a result, this report does not examine

the issue of whether U.S. environmental regulations are too strong (or too weak). Rather, it

discusses the extent to which U.S. regulations

affect economic competitiveness. Chapters 8 and

9 examine ways in which pollution control

regulations can be modified to minimize their

negative effect on industrial competitiveness,

while achieving stable or greater levels of environmental protection.

U.S. POLLUTION ABATEMENT AND

CONTROL EXPENDITURES

The Bureau of Economic Affairs (BEA) in the

Department of Commerce estimates that U.S.

pollution abatement and control costs in 1991

were $91.5 billion, or 1.61 percent of GDP.9 The

Environmental Protection Agency (EPA) reports

a higher figure of $108 billion in 1990, or 1.95

8 Some have called for regulations increasingly informed by sounder scientilc informatio~ often based on risk assessment techniques to

determine relative risks, benefits, and costs. It is beyond the scope of this study to examine the potential for such approaches to lower complia.nee

costs while maintaining current levels of environmental protection.

g Gary L. Rutledge and Mary L, Leonard, “Pollution Abatement and Control Expenditures, 1987-91,” Survey o~Current Business, vol.

73, No. 5, May 1993, p. 61. These are net costs, which subtract the savings firms received from recovered energy and materials due to pollution

control. In 1991, these amounted to approximately $1.6 billion, Gross pollution abatement and control costs were $93.1 bdlion.
Chapter 7–Environmental Requirements and U.S. Manufacturing Industry Competitiveness 187

percent of GDP.10 Box 7-A discusses the different

methods for measuring costs.

Total pollution control and abatement expenditures (constant dollars) declined slightly in the

early 1980s, then steadily increased throughout

the rest of the 1980s (see figure 7-2). Expenditures increased from $52 billion in 1972 to $108

billion (by EPA calculations) in 1990 (inconstant

1990 dollars) .11 However, as a share of GNP,

environmental expenditures have increased less

rapidly, from 1.52 percent in 1972 to 1.95 in

1990. 12

According to BEA, business accounted for

slightly over half, or $48 billion, of the $91 billion

spent on pollution control and abatement in 1991

(see table 7-l.) Most of the cost to business was

for acquisition and operation of pollution control

equipment; a smaller share was for fees to

publicly owned wastewater treatment works and

for costs of pollution control devices on automobiles and trucks purchased by business. Of the

business expenditures, approximately $21 billion

was incurred by manufacturers: $6.4 billion for

electric utilities; $1.6 billion for mining; and the

rest by other sectors, including expenditures on

waste collection and sewage treatment.

Expenditures by manufacturers are displayed

in figure 7-3. The high level of capital expenditures in the mid-1970s reflects initial acquisition

of equipment as industry complied with the 1970

Clean Air Act and the 1972 Clean Water Act. The

portion of capital expenditures for pollution

abatement and control then tapered off for several

years. It appears to be increasing again, in part

because of the 1987 Clean Water Act amendments and the 1990 Clean Air Act amendments.

Operating costs have increased slowly and steadily, as the stock of pollution control equipment

Large fans and ducts transfer exhaust emissions from

automobile paint booth operations to the next stage of

the emission control system. The $35 million dollar

system reduces solvent emissions.

has grown. In 1991, capital expenditures to

comply with air and water requirements accounted for almost 85 percent of pollution control

and abatement capital expenditures; solid waste,

including hazardous waste, accounted for the rest.

Operating costs were divided almost equally

between the media (see figure 7-4).

I Pollution Abatement and Control

Expenditures by Sector

Pollution control costs for industry can be

defined as the direct and intentional outlays by

industry for pollution abatement and control.

These costs differ significantly by sector. In

general, process industries (e.g., chemicals, petroleum) experience higher compliance costs than

10 However, EPA includ~ some expen~~es that are only tangential to pollution abatement, such as 100 percent Of the $17 billion spent

on municipal solid waste collection costs. The EPA figures for 199(I arc estimates. Environmental Protection Agency, op. cit., footnote 2.

11 fivfi~en~ prot~tion Agency, Op. Cit., foomote 2.

12 Histofic s~tistics are gen~~y expressed as a share of Gross National Product (GNP) whereas more current statistics =e expressed ~

a share of Gross Domestic Product (GDP), Differences between the two measures are insigni.t3cant.
188 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Box 7-A-Government Measures of Pollution Abatement and Control Costs

Figure 7-A1—Differing Measures of Environmental

Compliance Costs

120

100

80

60

40

20

0

+ Annual expenditures

+ Amortized costs

) I , I I I 1 r I I ! I 1 [ I I I

1972 74 76 78 80 82 84 86 88 90

2“5~

o.5- + Annual expenditures

--+- Amortized costs

o I I I 1 I I I 1 I 1 I I f I I t r

1972 74 76 78 80 82 84 86 88 90

SOURCE: EnWonmental Prot@tbn Agency, Environmental hwesfrnds

(Washington, DC: Island Ress, 1991).

There are three main sources of

data on U.S. environmental compliance

costs:the Environmental Protection Agency

(EPA) published a report in 1990 on total

pollution abatement and control costs;

the Census Bureau publishes an annual

report on manufacturers abatement costs;

and the Department of Commerce’s Bureau of Economic Analysis (BEA) annually publishes data on total costs that rely

in part on the Census Bureau data.

BEA and EPA estimates differ significantly. One reason is that the EPA study

included all costs ($17 billion) for solid

waste management collection. BEA includes only 70 percent of these costs.

EPA includes all superfund costs ($4.2

billion). BEA includes a smaller but indeterminant share. Because garbage has been

collected for at least 100 years, It makes

little sense to include all these costs when

considering the effect of regulation on

economic competitiveness. EPA (but not

BEA) also included a share of expenditures for water supply ($4 billion), pesticide and fungicide regulations ($2 billion),

and nonpoint source water pollution controls ($0.77 billion).1 Both include the

costs from mobile source pollution control

(primarily automobile pollution control devices), but BEA’s estimate ($14.6 billion)

was almost double the EPA estimates of

$7.7 billion.

EPA and BEA account for capital

expenditures for environmental protection indifferent ways. BEA counts capital

expenditures and operating costs in the year they are made. In contrast, the EPA study converted the

data into annualized expenditures (the sum of operating costs for the year in question plus amortized

capital costs, which include interest and depreciation associated with accumulated capital investment).

1 IJ.S. EnVirOn~t~ Protection Agency, Ern4romnenta/ h?vestments: me COS! of A C/=n End~lW@

(Washington, DC: isiand Press, 1991).
.—

Chapter 7–Environmental Requirements and U.S. Manufacturing Industry Competitiveness I 189

Box 7-A-Government Measures of Pollution Abatement and Control Costs-Continued

In other words, if a firm spent $20

million in 1975 on capital equipment

with a useful life of 20 years, the EPA

study would record $1 million for each

year from 1975 to 1994, and add in

annual interest payments.2 The EPA

study provides both actual and annualized costs, but its annualized numbers have been more widely reported.

While EPA’s actual and annualized measures are both valid, the

latter measure gives the impression

that the environmental regulatory cost

burden has risen steadily and significantly (278 percent) since 1972, when,

in fact, annual expenditures (operating

costs plus capital costs in the year

purchased) increased only 77 percent

Figure 7-A2—EPA Environmental Compliance Cost

Projections

0

0-) 0-)4

-+ Amortized costs

40 + Annual expenditures

-+-- Annual expenditures (minus fnUniClpal

garbage collection costs)

0! ( I 1 I I {

1990 92 94 96 98 2000

(adjusted for inflation, figure 7-Al). SOURCE: Environmental Protection Agency, Envkomnenta//nvesfmenk(WashUsing the annualized method, ington, DC: Island press, 1991).

EPA estimated that the cost of environmental compliance will increase significantly in the 1990s, increasing 61 percent from 1990to$185

billion in 2000, assuming full implementation of all existing and new regulations currently under

development or proposed by EPA. However, nonannualized expenditures in 2000 will increaseto$147

billion, and $127 billion if local garbage collection is not included (figure 7-A2).

Since 1973, the Census Bureau has annually reported pollution abatement and control

expenditures for manufacturers (SIC 20-39).3 in 1990, when Census surveyed over 20,000 randomly

selected manufacturing establishments, over 90 percent responded to the survey.4 Appendix 7-1

discusses the validity of this data.

2 This is a particularly important distinction to make in estimating environmental industry revenues, since

amortized costs measure depreciation, intere~ and operating expenses.

3 U.S. Department of Commerce, Economics and Statistics Administration, Bureau Of the Census, Po)lm~on

AbatemntCostsandExpendifures MA200 (Washington, DC: U.S. Government Printing Office, published annually).

4 There are two mistakes commonly made when interpreting Census data. First while Census rewrts total

gross operating costs, net costs should be used. To calcuiate net costs, operating costs reccwered (usuaiiy through

recycling or energy production) are subtracted from gross operating costs. Semnd, totai environmental expenditures

are sometimes calculated as the sum of capital expenditures and annual operating costs. However, this

overestimates total costs since operating costs already include costs of depreciation of capitai equipment.

Subtracting depreciation fromthe total operating costs and capital expenditures provides a more accurate measure

of total spending,
190 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Figure 7-2—U.S. Environmental Compliance Costs

2.5

2

c1 1.5

z

%

$1

0.5

0

● ‘/o of G N P

I Expenditures ($1990)

1 1 1 1 1 1 1 1 1 1972 74 76 78 80 82 84 86 88 90

SOURCE: Environmental Protection Agency, Envhtmnenfa/ investments (Washington, DC: Island Press, 1991).

Figure 7-3-Trends in Pollution Abatement

1

0.8

(n 0.6 QI mIn

%

s 0.4

0.2

Expenditures for U.S. Manufacturers

12

I *

t

Operating expenses

Capital expenditures

o o

1973 75 77 79 81 83 85 87 89 91

SOURCE: U.S. Census Bureau, Po//ution Abatement Costs and

Expenditures (Washington, DC: U.S. Government Printing Office,

various years).

the discrete part manufacturers (e.g., electronics,

automobiles). In large part, this is because process

industries use significant amounts of energy and

process large amounts of materials to produce

output. This transformation of raw materials into

Table 7-l—Composition of Spending on Pollution

Abatement and Control in 1991 ($ millions)

Sector Amount Share

Personal consumption $18,544 20%

Government b

24,653 27%

Business 48,259 53°/0

Plant & equipment 42,515

Motor vehicle emission abatement 5,744

Net total $91,456 100%

Estimates of sectoral composition of business

plant & equipment operating and capital expenditures

Sector Amount Share

Manufacturing $20,910 49%

Electric utilities 6,385 15%

Mining 1,562 4%

Other businessd

13,658 32%

Total business $42,515 1OO%

a l~ludes mobile source pollution control, private septic systems and

sewer connections linking household piumbing to street sewers, and

household payments for sewage treatment.

b lwlud~ government direct expenses, principally for investments and

operation of municipal water treatment facilities, as well as costs of

regulation and monitoring, and research and development.

c [nciudes ca~tal expenditures and annual operating Costs, such as

payments to government units for sewage services and waste

collection and disposal. Excludes the cost of mobile source (automobile and truck) pollution control equipment.

d ~hersectors, such as construction, services, retail trade, etc., while

perhaps not bearing large pollution control costs related to stationary

source capital equipment, do bear costs through payments for

sewage services and solid waste collection and disposal.

SOURCE: Derived by OTA from data provided in Gary Rutledge and

Mary Leonard, “Pollution Abatement and Control Expenditures, 1987-

91 ,“ Survey of Current Business, May 1993, pp. 55-59; U.S. Bureau of

the Census, Pollution Abatement Costs and Expenditures, 1991,

MA200 (91)-1 (Washington, DC: U.S. Government Printing Office,

1993), and other unpublished data provided by Gary Rutledge.

products is often pollution-intensive. Four broad

industrial sectors (chemicals, petroleum refining,

pulp and paper, and primary metals) that produce

slightly over 20 percent of U.S. manufacturing

value added account for over 70 percent of all

pollution control capital expenditures by manufacturers, approximately 80 percent of all criteria

air emissions by manufacturers (particulate,

sulfur oxides, nitrogen oxides, volatile organic

compounds, and carbon monoxide), nearly 70

percent of Toxic Release Inventory emissions,
Chapter 7–Environmental Requirements and U.S. Manufacturing Industry Competitiveness I 191

Figure 7-4-Manufacturers’

Capital expenditures

Water. 450/0

Pollution Abatement Costs by Media:

Annual operating costs

Water, 32.5!40

( //’---+ , ,

rr

.

sold waste, 13.9%

‘\/ hazardous: 5.2Y0

nonhazardous: 8.7°/0

1991

\

\

Solld waste, 35.5?40

hazardous: 16.2Y0

/ /

‘~ nonhazardous: 19.3°/0

Air, 41 

‘“~i

YO

/

Air, 31 

‘iii

.9°/0

,/’

//

SOURCE: U.S. Census Bureau, Po//utkmAbatement Costs andExpendihms, 1991 (Washington, I) C:U.S. Government Printing Office, 1993) page

12.

and over 70 percent of manufacturing energy

usage

13 (see figure 7-5).

In 1991, 7.9 percent of capital expenditures by

manufacturers in the United States went toward

pollution control equipment. The share can be

higher in particular industries. For example, over

one-quarter of new capital expenditures by the

petroleum industry were for pollution control,

while the chemical industry spent over 13 percent. In contrast, the rubber, machinery, and

printing industries spent less than 2 percent of

capital expenditures for pollution control. However, significant differences among subsectors are

obscured when looking at broad industrial categories. For example, while only 4.6 percent of

capital expenditures for the fabricated metals

industry as a whole went for pollution control,

one subsector—the metal plating and polishing

industry—spent over 27 percent.

Total compliance costs (capital costs plus

operating costs minus depreciation) as a share of

sales and value added also differ by industry. The

petroleum industry spends the most, about 2.2

percent of sales, while the pulp and paper,

chemicals, and primary metals industries all

spend over 1.65 percent of sales on pollution

abatement and control. Share of value added may

be a more accurate measure of environmental

regulatory burden, since it measures the level of

economic activity performed by the firm, and

does not include the cost of materials purchased.

Using sales as the denominator understates the

true cost of pollution control to a firm, since the

pollution control costs embedded in the firms’

purchased products are not included in their

pollution control costs, but are included in the

sales figures.14

As a share of value added, the petroleum

industry spends over 15 percent on pollution

control, the pulp and paper and primary metals

spends over 4 percent, and the chemical industry

spends over 3 percent. For manufacturing overall,

13 U.S. Census Bureau, 1990 Annua/ survey ofManufactures: Value of Producf Shipments, M90(AS-2) (wm~gto% DC: U.S. @vernmcnt

Printing Office, 1990); U.S. Congress, Office of Technology Assessment, Industrial Energy Efficiency, OTA-E-560 (Washington, DC: U.S.

Government Printing Office, August 1993); U.S. Environmental Protection Agcney, Office of Pollution Prevention and Toxics, 1991 Toxic

Release ln~entory, Public Data Release (Washingto~ DC: Environmental Protection Agency, May 1993).

la Without the use of more sophisticated models relying on input/output tables, it is not possible 10 assess tOtil pOlhltiOn control cos~ to tie

firm embedded in its purchases. For example, firms that purchase large amounts of energy (e.g., aluminum or industrial gas producers) pay

more for electricity due to environmental controls on electrical utilities.
192 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Figure 7-5--Manufacturers’ Pollution Control Expenditures and Value Added, 1991

Pollution control expenditures Value added

Other, 38°/0 Petroleum, 16Y0

Pulp and paper, 11 ?40

. . . ......:.,.:.:.,.:.:.:.::: : : :,:; : ; :::; :: : , :,:.:.,, .: .;.:...,.:.. .. :.:.:..,.,.,..,,.,:,:,: ,:,:.:,; ,:

. . . . . . . . . . .,, ,,,.,.. ,,,. ,,, . . . . . . .

.. . . . . . . . . . . . .. . . . . . . . . . . . . . .. . . . .. . . .. .. .

, ....:. ,.,, .,,. , . ..,.,.,. ,. ..,....,,.,,,,

Otl

Chemicals, 25°/0

$20.9 billion $1,028 billion

SOURCE: U. S. Census Bureau, Pd/utionA~temat ti&8ti~tiditures, 1991 (Washington, C) C: U. S.Government Printing Office, 1993); U.S.

Census Bureau, 1991 Annual Survey of Manufactures, Statistics forlndafry Grwps andlndstries (Washington, DC: U.S. Government Printing

Office, 1992).

these costs are less--0.80 percent of sales and

1.72 percent of value added in 199115 (see table

7-2.) As discussed in appendix 7-A, these figures

may underreport actual costs, possibly by as

much as 20 to 30 percent.

Even among most high-compliance-cost sectors, pollution control costs are only one of many

factors affecting competitive advantage. Not all

high-compliance-cost industries are heavily involved in international trade. Among those that

are, some industries, such as chemicals and wood

pulp, are highly competitive internationally, with

significant trade surpluses.16 Others, such as

primary metals, have struggled competitively .17

Because environment is seldom the primary

factor in determining competitive advantage, it is

misleading to look at the performance of sectors

as a measure of the effect of pollution abatement

costs on competitiveness. It is possible, for

example, that lower compliance costs in the

chemical industry could make it even more

competitive. Moreover, when compared to other

corporate expenditures these costs are not trivial.

For example, while business spent $43 billion on

15 At least one ~ysis claims that COStS are much higher. A report by the National Commission for ~p@XIEnt pO~iCy (hfeUSUfi~g

Employment Eflecrs in the Regulatory Process, Washington, DC: January 1993), uses Census data to assert that total abatement expenditures

account for 3.48 percent of sales. However, this figure appeans to signMcantly overstate the actual cost effect. The authors overestimated Census

costs (double counting capital expenditures and depreciation and failing to subtract recovered costs) and used a methodology resulting in

inflated costs,

Is me chem.ic~ industry’s exports in 1991 w~e $43 billion and the trade surplus was $18.8 billion. U.S. ChemicaZ Industry Statistical

Yearbook, 1992 ~ashingtoq DC: Chemical Manufacturers Association 1992). However, developing nations, which genendly have weaker

regulations, increased their share of chemical exports faster than developed nations between 1980 and 1991. Earl Andersou “Developing

Nations’ Chemical Exports Surge, ” Chem”cal and Engineen”ng New, Aug. 2, 1993, pp. 14-15. The United States has enjoyed a trade surplus

in pulp since 1987, importing $1.9 billion worth of pulp in 1992 and exporting $3.1 billion. However, the paper industry ran a $2 billion trade

deficit in 1992. U.S. Department of Commeme, U.S. ZndustriaJ Outlook, 2993, (WSShingtoq DC: U.S. Government Printing Office).

17 k 1992, tie U.S. mn a $S biuon trade deficit in steel mill products (U.S. Department of Commeree, International Trade khkkXiOII+

U.S. Indusm’al Outlook, ’92 (VkAingtonj DC: U.S. Government Printing Office, 1992), p, 142.
Chapter 7–Environmental

Table 7-2—Pollution

Requirements and US. Manufacturing Industry Competitiveness I 193

Abatement Expenditures by U.S. Manufacturing Industries, 1991a

(millions of dollars)

Pollution

Capital Expenditures Total Pollution Control Expenditures

% of Net O/. of

Industry & Total Operating % of Value

(SIC Code)* $ Capital Exp. costs $ Sales Added

Petroleum (29)

Primary (33)

Blast furnace (331)

Paper (26)

Pulp Mills (261)

Chemical (28)

Inorg.Chem (281)

Stone (32)

Lumber (24)

Leather (31 )

Fabricated (34)

Plating (3471)

Food (20)

Rubber (30)

Textile (22)

Electric (36)

Transport .

Motor Vehicles (371)

Furniture (25)

Machinery (35)

Miscellaneous (39)

Instruments (38)

Printing (27)

Tobacco (21 )

Total U.S. manufacturers $7,390

a This table lists expenditures and costs reported by industry to the U.S. Census Bureau. As discussed in the teti, these

figures may underreport actual costs, possibly by as much as 20 to 30 percent.

Net operating costs =Total operating costs and payments to governmental units minus casts recovered and equipment

depreciation.

Total pollution control expenditures _ Total operating costs plus payments to governmental units plus total capital

expenditures minus costs recovered and equipment depreciation,

● Pollution abatement and control cost data are only for establishments with 20 employees or more. To ensure

comparability, total capital expenditures, value-added, and sales were estimated for establishments of 20 emptoyees

or more, using ratios from 1987, the most recent year the Census provides data for, (U.S. Bureau of the Census, 1987

Census ofhfardactwes, MC87-S-I [Washington, DC: U.S. Government Printing Office, 1991).

SOURCES: U.S. Bureau of the Census, Pollution Abatement Costs and Expenditures, 1991 MA200 (91)-1

(Washington, DC: U.S. Government Printing Office, 1993); U.S. Bureau of the Census, 1991 Annual Survey of

Manufacturers, Statistics for/ndusfry Groups and krdustries M91 (AS-1 ) (Washington, DC: U.S. Government Printing

Off Ice, 1993).
194 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Table 7-3-Selected Corporate Costs, 1991

(billions of dollars)

Non-environmental new plant and equipmenta $519

Corporate R&Db 78

Pollution abatement and control 43

Employee trainingc

43

a U.S. B“~~~” of the ~ngu~, Statjst&/ ~$t~t of the U. S., 1992

(Washington, DC: U.S. Government Printing Office, 1992), p. 538.

Capital expenditures for environmental control were subtracted from

total expenditures on plant and equipment.

b Nationai~e~ Foundation/Seienee Resourees &udies, ~atio~l

Patterns of R&D Resources: 1992 (Washington, DC: National

Scienee Foundation, 1993), table tE3.

C ~is f~ure kM3UdSS nonmilitary related training expenditures in

government. Jack Gordon, Wraining Budgets: Recession Takes A

Bite,” Training, October 1991, p. 37.

plant and equipment for pollution abatement and

control in 1991, it spent $43 billion on formal

training and $78 billion on R&D18 (see table 7-3.)

To the extent that pollution control expenditures

make a claim on the resources of the firm, they

could divert funding from these activities.

~ Future Costs

New and stricter environmental regulations

put in place in the 1990s may increase pollution

control costs, particularly for some industries.

Currently, about one-third of compliance costs

(public and private) result from regulations under

the Clean Air Act, another third from the Clean

Water Act, and the remainder from a variety of

laws covering drinking water contamination,

pesticides and herbicides, chemical production

and use, and solid and hazardous waste disposal. 19 Assuming full implementation of all

existing and pending regulations and rules, clean

air spending (nonannualized) could increase about

85 percent between 1990 and 2000.20 Compliance

costs for water are expected to increase more

slowly, by approximately 28 percent. Costs for

hazardous waste disposal and cleanup will continue to grow, particularly for Superfund, whose

costs are expected to rise from $3.6 billion in

1990 to $9.5 billion in 2000. Federal Government

costs, principally for Department of Defense

(DOD) and Department of Energy (DOE) cleanup

of contaminated sites, are also likely to grow

significantly.

EPA projects that with full implementation of

present laws, environmental costs will rise 40

percent by 2000, to $147 billion, including local

garbage collection ($127 billion excluding garbage collection) .21 As a share of GDP, environmental costs (including garbage collection) would

rise from 1.95 percent in 1990 to 2.25 percent in

2000.

Future reductions in pollution may be more

expensive if firms must reduce pollution to very

low levels. As cheap reductions are exhausted,

more expensive methods may be needed. Yet

there are reasons why costs may, in fact, be lower

than EPA estimates. First, full implementation of

all laws—including bringing all cities into attainment with the national ambient air quality standard for ozone and satisfying the nation’s municipal wastewater treatment needs to bring about

fishable/swimmable water quality-may not occur

or may occur more slowly than EPA projects.

Assuming 1990 levels of implementation, EPA

forecasts costs to increase only to about $133

billion, by 2000, $13.7 billion less than with full

implementation.22 In addition, in estimating costs,

la U.S. bUS&M is widely viewed as placing too little emphasis on tmining and R&D. U.S. Congress, Offlce of TdmOIOSY ASSWSMXK

Worker Training: Competing in the New International Economy, O’E4-ITE-547 (Washington DC: U.S. Government Printing OfIice,

September 1990).

19 ~~ond J. Kom, Paul R, pO~y, and D&ne E. DeWit$ “International COmpdsOIIS Of EIIvirOD.mentdReguktiou” Enviro~~aJ

Policy and fhe Cost of Capita/, Monograph Series on ‘k and Environmental Polities and U.S. Capital Costs (Wasbingtoq DC: American

Council for Capital Fonnatioq Center for Policy Researeh, 1990).

~ ~vironmen~ mt~tion Agency, Environmental Investments, Op. cit., fOOhIOte 2.

z] l’bid.

22 Ibid.
Chapter 7—Environmental Requirements and U.S. Manufacturing Industry Competitiveness 195

.’

-.. . .’

o

, -- ‘ . - .’

, .- . ,

. . .

–>

–>

+

–>

–>

->

–>

.—l)> u’
196 [ Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

EPA assumed that future compliance will be

attained with current technologies. Technological

innovations could lower compliance costs as

come on line.23 For example, in the pulp

paper industry, new in process methods to

waste cost slightly more than conventional

terns, but result in lower operating costs

avoided end-of-pipe costs, with the result

total costs are lower.24

9 Accuracy of the Cost Estimates

they

and

treat

sysand

that

The principal source of data on pollution

abatement and control costs for manufacturers is

from the survey of abatement expenditures by the

Bureau of the Census. There are various ways the

data could overstate or understate the actual costs.

There are several potential sources of overreporting, although their extent appears to be minor.

Anecdotal evidence indicates that respondents

may include, as pollution control costs, those

costs that were incurred for worker health and

safety. 25 In addition, firms may include all the

cost of an expenditure when only part of it is

attributable to environmental regulation. However, one study suggests that, if anything, firms

are likely to underreport expenditures when they

do not have full information. Plant managers may

classify some investments as environmental in

order to get projects approved more easily,

particularly when the return on investment (ROI)

is low.26 In addition, firms may lack full knowl27 Finally, while there is edge of recovered costs.

no evidence of this, some analysts speculate that

some respondents exaggerate costs in order to

influence regulation.28

The preponderance of evidence suggests that

the survey underreports pollution control costs.

For example, while Census figures indicate that

pollution control costs added 4 cents per pound to

the price of copper in 1985,29 at least four other

sources, based on actual examination of copper

smelting fins, found that the expenses were

much higher, ranging from 7.5 to 15 cents per

pound.30 Some industry association surveys of

compliance costs also report slightly higher costs

than Census.31

Census surveys may underreport for two reasons. First, survey respondents normally do not

have complete knowledge of all expenditures,

23 R~b@ hone, c ‘s~~~ Complication ~ the M~s~ement of Environment Control hpacts: A c~e Stidy of Water pollution ControlS,

Socio-Economic Planning Science, vol. 12, No. 3, 1978.

U ~tewiew wl~ Ned McCubb@ N. McCubbin Consultants, Inc. December 1992.

25 ~Pond J. Kopp and Paul R. PofieY~ “Estimating Environmental Compliance Costs for Industry: Engineering and Economic

Approaches, ‘‘ in Workshop on Effects of Environmental Regulation on Industn”al Compliance Costs and Technological Innovation, National

Science Foundation Division of Policy Research and Analysis, (WashingtotL DC: Sept. 10-11, 1981).

26 Beth sne~ ~d Bob unswo~ ( ‘Ev~uation of Unckrtfity Associat~ ~~ Air PoUution Abternent Compliance Cost Estimates—

Stationmy Sources,” (memorandum) Cambridge, MA: Industrial Economics Inc., Oct. 13, 1992.

27 one es~ate suggests that this leads to a l-percent overreporting of net COStS. @id., P. 5.)

28 Richtid Arldrews, ‘‘ Summary,’ ‘ Workshop on E~ects of Environmental Regulation on Industrial Compliance Costs and Technological

Innovation (Washington DC: Nationat Science Foundatio~ September 1981).

29 Data on pollution con~o] co5~ from the us+ B~au of the ce~~, pollution A~tement co~t~ and EWenditures, 1985, MA-200(85)- 1

(Washington DC: U.S. Government Printing Office, 1987),

30 see us. conme5~, Offlce of Technology Assessmen~ copper: Technology und competitiveness, OT4-J3-367 (wZ3hiIlgtOQ DC: U.S.

Government Printing Office, September 1988)----10 to 15 cents per pound; National Research Council, Competitiveness of the U.S. Minerals

and Metals Industry (Washington, DC: National Academy Press, 1990)--9 to 15 cents per pound;‘‘Counting the Cost of Clean Air,’ E&MJ,

January 199(_&7.5 cents per pound; Duane Chapmq “Environmental Standards and International Trade in Automobiles and Copper: The

Case for a Social Tariff,” Natural Resources Journal, vol. 31, winter, 1991, pp. 449-461-10 to 15 cents per pound. Total U.S. copper

production costs averaged 65 cents per pound.

31 For exmple, see: A sumey of pulp andpaperlndu$~ En~YironmentalProtection Expenditures - ]990 (New York NY: National COUIICfl

of the Paper Industry for Air and Stream Improvement, Inc., 1991); Petroleum Industry Environmental Pe~ormance, 1992 (Washington DC:

American Petroleum Institute, 1993).
Chapter 7–EnvironmentaI Requirements and US. Manufacturing Industry Competitiveness ! 197

including the costs of environmental controls in

retrofits and for environmental operating expenditures, since firms tend not to classify these as

discrete categories in their accounting systems.32

Second, the Census survey does not ask respondents to report interest expense; productivity

losses; fees, taxes, and frees; administrative and

R&D costs; and training costs.33

Without establishment-level studies, assuring

the validity of these cost data is difficult. It

appears, however, that actual costs may be 20 to

30 percent higher than reported costs. Appendix

7-A discusses possible sources of underreporting

and, in some cases, the likely associated costs.

Compliance costs do not provide a complete

picture of either total industry level expenditures

or effects on GDP.34 A complete picture would

account for the costs of dislocations associated

with regulation, including costs resulting from

closed plants due to regulation or from reduced

output (e.g., laid-off workers) due to higher

prices.

35 If a regulated firm goes out of business

and the products are made all or in part by firms

outside the United States, the costs will be greater

than if another U.S. firm increased production to

fill demand. Also, if regulated firms cut back

production because of regulations, this may be

compensated for by increases in production by

firms supplying environmental goods and services. Macroeconomic costs may exceed industry

compliance costs if impacts of increased prices,

reduced productivity, and other factors reduce

economic activity36 (see app. A).

A complete picture would also need to account

for the significant benefits of environmental

regulations, or, put another way, the costs companies, workers, and society would bear if environmental regulations were not in place. A cleaner

environment lowers health care expenditures and

improves human health, increases natural resource productivity, and provides valuable amenities (e.g., swimmable rivers). Only now is

research being undertaken to accurately quantify

these benefits.37

PRIVATE SECTOR COMPLIANCE COSTS

COMPARED WITH OTHER NATIONS

U.S. pollution abatement costs would have no

impact on U.S. economic competitiveness if firms

in other countries faced equivalent regulatory

costs and burdens. To the extent that they do not,

U.S. firms could face a competitive disadvantage.

Unfortunately, the literature comparing environmental management is sparse and largely limited

to Western Europe, Japan, and North America,

making accurate comparisons of environmental

regulations across all nations extremely difficult.

Few studies compare various countries’ approaches to regulation, for the information is

either not available or not always comparable.

There are several ways to compare regulatory

strictness. First, pollution abatement compliance

costs can provide a measure of regulatory burden

by delineating the costs borne by fins. However,

cost data are available from only a handful of

nations, and differences in definitions and rneas32 Duane c~pmam “Environment@ standards and International Trade in Automobiles and Copper: The Case for a SOCial T~f)’ Ibid

33 me Ccmus Bwwu does not survey firms wi~ fewer than 20 employees, Howev~, one estimate suggests bat small fhXllS aCCOUIlt fOr

less than 2 percent of the total costs, and about 5 percent of sales. (Beth Snell and Bob Unsworth, op. cit., foomote 26)

M See U.S. Conwess, Congressional Budget Office, “Assessing the Costs of Environmental I@slation’ (staff working paper, May 1988).

35 see ~ureenL. Croppr and Wallace E. Oates, ‘‘Environmental fionomics: A S~eY~ ‘‘ Journal of Econon’c Literature, vol. 30, June

1992, pp. 675-740.

M c+c Mic~el Hazilla and Raymond J. KOPP~ ‘‘The Social Cost of Environmental Quality Regulations: A General Equilibrium Analysis, ’

Journal of Political Economy, vol. 98, No. 4, 1990, pp. 853-873.

37 Debm s. ~opmn and Richmd A. smi~ ‘ “20 yeas of the cl~n wat~ Act: HM U.S, water Qu~ity unproved’?’ Environment,

January/February, 1993. vol. 35, No. 1; Organization for Economic Co-Operation and Development Environmental Po/icy Benefits: Monetary

Va/uarion (Paris: OECD, 1989). The EPA, as mandated by the 1990 Clean Air Act Amendments, Section 812, is conducting a study to quantify

the benefits of U.S. air pollution regulations. This study will not be released until late 1994.
198 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

urement complicate comparisons. Because countries vary in their shares of highly polluting

industries, it is best to compare costs for particular

industries.

Second, emission standards can indicate differences in regulatory strictness. However, standards are often difficult to compare without exhaustive analysis. First, some standards are measured

in hours, others in days; some apply to the overall

plant, others to particular sources. Also, different

categories of polluters may be regulated to

different standards (e.g., new sources v. existing

sources). Second, and more importantly, the

presence of standards gives little clue to their

application in practice—strict laws maybe loosely

enforced. Third, air standards for some pollutants

(e.g., NOx,ozone) give no indication of the

relative degrees of control placed on different

sources, such as large and small stationary

sources and mobile sources. Some places with

low standards may also have significantly less

mobile source emissions, necessitating relatively

less control on industry. Finally, many of the

comparisons of regulatory strictness emphasize

air regulations, particularly of oxides of nitrogen

@OX) and sulfur oxides (SO2

). Because this is

one major area where U.S. regulations may have

lagged behind several other nations in the past,

simply focusing on common pollutant air regulations can give a misleading picture of regulatory

strictness. It is important to focus on all regulations, including volatile organic compounds (VOCs)

and air toxics, water and solid and hazardous

wastes.

Third, it is possible to compare ambient concentrations of pollutants to ascertain regulatory

strictness. However, differences in industrial

structure, geography, climate, population concentration, and energy and transportation use may

have a greater effect on ambient concentrations

than differences in regulatory strictness.

Fourth are comparisons of rules and regulations governing the regulatory process and form.

This assumes that the process by which regulations are formed and implemented can affect

outcomes. For example, the degree of public

involvement in regulation-making and in prompting enforcement actions differs markedly by

country. The United States has a relatively open

process, which can make the process of finalizing

regulations lengthy and difficult. However, the

openness of the U.S. system does provide an

opportunity for many parties to have their voices

and viewpoints heard and considered. In addition,

permitting systems vary in flexibility.

I Pollution Abatement and Control Costs in

Selected Countries

Unfortunately, environmental cost data for

different nations are limited and of varying

quality. A number of OECD nations provide time

series data for some years, going back to the

1970s, on total private and public sector environmental expenditures .38 Because these data are

reported by individual countries, possibly using

different methodologies, they are best seen as

providing a general yardstick to compare compliance costs. Data are often not available for

industries located in countries with less stringent

standards.

A very few countries (including the United

States, Germany, Japan, and the Netherlands)

provide data for environmental capital expenditures by individual manufacturing sectors (e.g.,

chemicals, pulp and paper). However, there are

differences in definition, which must be adjusted

for to make meaningful comparisons. For example, some surveys exclude equipment when it is

required by the manufacturing process for technical reasons (e.g., United States, the Netherlands,

Denmark, Sweden), while others include it (Germany). Some surveys include the costs of interest

38 Japa ~mvid~~ dab on pUbllc Sw{or expendi~res, M not on total private sector expenditures. It does provide ~m on pollution control

capital expenditures for some industries.
Chapter 7–Environmental Requirements and U.S. Manufacturing Industry Competitiveness 199

payments on equipment (Canada, Holland), while

others exclude it (United States). Some countries

(Germany and Japan) include noise abatement

expenditures, while the United States does not.

Because investments can fluctuate significantly between years, and because some countries

may have imposed stricter regulations sooner, it

is more accurate to examine time series of data.

Some costs are not the result of strict standards in

the home country, but rather demands arising in

other nations that the country exports to. For

example, much of the recent increase in pollution

abatement expenditures by the Canadian and

Swedish pulp and paper industries may result

from consumer pressure from Europe (particularly Germany) for chlorine-free paper, not solely

from higher standards.39 In spite of these limitations, the industry-level cost data can provide a

broad picture about the different pollution control

burdens placed upon industry in different countries,

OVERVIEW OF DIFFERENCES IN COSTS

There are several different data sources presenting pollution abatement compliance costs for

a number of countries, including total private

sector compliance costs and costs by particular

industry. All point to the conclusion that U.S.

private sector pollution control costs are among

the highest in the world as a percentage of both

GDP and total private sector investments.

A study of five countries, which attempted to

control for differences in survey methods discussed above, found that during the period from

1978 to 1981, U.S. industry investments in

pollution control were between 10 to 50 percent

higher than European countries (see table 7-4).

For example, in 1980, investments in environment as a percent of total Dutch industry investments were only 70 percent of the U.S. rate,

Table 7-4—Relative Investments in Pollution

Control by Industrya (U.S. percentage of

investments defined as 100)b

Country 1978 1979 1980 1981

United States 100 100 100 100

Germany 76 67 74 89

The Netherlands 67 72 72 85

Denmark 64 41 66 81

Sweden 52

a The author adjusted the data for each COUntry to be generally

comparable. For example, in comparing Dutch and U.S. figures, he

did not include Dutch investments in noise control, since U.S. studies

did not collect data on these costs for U.S. industry. He d’d not

compare all countries together, but rather compared the Dutch to the

other countries individually. In addition, because of differences in

definitions, German figures are pmbabty slightly overstated relative to

theothernations. As a result, these data should be seen as indicative

of the direction and magnitude of differences, but should not be seen

as exact measures of differences in spending.

b lnv~tment in pollution control by industry divided by total capital

expenditures by industry in the country, normalized to the U.S. value

at 100.

SOURCE: Based on data in “international Comparison of Industrial

Pollution Control Costs, ” L. H.E.C. Plooy, Statist&d Journa/ of the

United Nations, 1985, pp. 55-68.

despite its having some of Europe’s strictest

regulations. Differences between the United

States and most other European countries were

probably greater.

According to OECD information, U.S. private

sector pollution control costs as a share of GNP

were nearly twice that of any European country in

the 1970s, although in the 1980s the gap narrowed

with a few countries40 (see table 7-5.) For

example, as a portion of GNP, German private

sector expenditures were approximately 60 percent of those in the United States in the 1970s, but

by 1990 the two were about equal. Spending by

French and Dutch companies continued to be less.

U.S. private sector pollution control expenditures

as a percentage of GNP are higher or as high as

any other OECD nation that reported private

39 Intemiew tih Nd McCubb@ N. McCubbfi Consultants, bC., December 1992.

@ OECD Environment ~onograp~, No. 38, Pollution Control andAbatement Expenditures in OECD Counm”es (paris: OE~, Novern~r

1990); also OECD Environment Monographs, No. 75, Pollution Control andAbaternent Expenditures in OECD Countries (Paris: OECD, June,

1993).
200 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Table 7-5-Private Sector Pollution Control Expenditures as Percentage of GNPa

Country 1972 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90

sector data as a whole .41 While these numbers give

a sense of the magnitude of differences in costs,

they should be interpreted cautiously.

INDIVIDUAL COUNTRIES

Japan—The view is frequently held that Japanese manufacturers spend significant amounts of

money on pollution control; in fact they spend

significantly less than U.S. manufacturers. In

part, this view is fueled by the fact that the

Japanese have placed high levels of emphasis on

energy conservation and on recycling of industrial and consumer products, logical steps for a

nation that imports almost all of its energy and

materials and has little space for landfills. Energy

conservation has contributed to a reduction in

some air pollutants. Moreover, much of the

pollution control spending by industry in Japan is

by electric utilities. Between 1972 and 1990,

Japanese electric utilities spent 2.8 times more on

pollution control equipment as a share of capital

expenditures than manufacturers did. In 1990,

they spent 2,5 times more, while U.S. electric

utilities spent 14 percent less than manufacturers.

42 As a result, much of the money spent on

pollution control in Japan is spent by utilities

rather than manufacturers. This is also consistent

with the Japanese stress on controlling common

air pollutants.

Japanese industry made high levels of investments for pollution control in the early 1970s.

However, since 1977, U.S. industry has paid more

to control pollution, and that gap is growing

(figure 7-6). In 1975, Japanese pollution control

investments by manufacturing firms peaked at 16

percent of total investments, while U.S. investments were around 10 percent.43 However, investments by Japanese firms fell sharply after this

initial surge (much of it was to comply with new

41 private sector expenditures excluded mobile source control expenditures, although it appews tit the United States pays more per GDP

for mobile source control than other countries. Japanese data were limited to a survey of a sampling of industrial firms and are discussed below.

42 Jap~eSe m5~ of Interlu[luml Tmde and Industry, Shuyo-Sangyo no Sersubi-Toshi-Kei&aku Hei.rei 4 @lants ~d %Uipment

Investments of Major Industries, 1992); U.S. Census Bureau, Pollution Abatement Costs andExpenditures, 1990, MA-200(90)-1 (Washington

DC: U.S. Government Printing Office, 1987).

43 ‘rhis ~omtion is deriv~ from a survey by the Japanese Ministry of International Trade and Industry, Plants andEquipmenrInvesrments

ofhlajor lrrdusm’es. In 1992, the most recent year MITI reported &ta (for 1990), MITI surveyed the approximately 3,000 Japanese fms with

capital stock of over 100 million yen. MITI received 812 usable responses. MITI asked the fm to report capital equipment purchased for

environmental protection. Given the possibility that responding firms have higher expenditures than the sample as a whole, it is not likely that

the sampling methodology causes underreporting. (Interview with MITI officials, May, 1993.)
Chapter 7–Environmental Requirements and U.S. Manufacturing Industry Competitiveness 201

Figure 7-6—Pollution Control Capital Expenditures by U.S. and Japanese Manufacturers

20 T – ‘

—- - ‘———— —

(na) I ~ United States

E

a)v

&

CL

15 i

_ Japan

1973 1975 1977 1979 1981 1983 1985 1987 1989

SOURCE: U.S. Census Bureau, Pollution Abatement Costs and Expenditures (Washington, DC: U.S. Government Printing Office, various years);

Japanese Ministry of International Trade and Industry, Shuyo-Sar)gyo no Setsubi-Toshi-Keikaku /4eisei4(Plants and Equipment Investment of Major

Industries, various years).

Japanese NOX and SO2 regulations) and have

averaged around 2 percent of total investments in

recent years.

44 In contrast, while U.S. investments

never reached this peak, they also did not decline

to as low levels and have shown signs of

increasing since the late 1980s to over 6.25

percent in 1990 (and 7.9 percent in 1991), while

Japanese costs appear stable.45 Between 1973 and

1990, manufacturers in Japan spent an average of

4.4 percent of investments on pollution abatement, while manufacturers in the United States

averaged slightly more, 5.3 percent.46 Japanese

costs are lower than U.S. costs in all media, but

particularly in solid and hazardous wastes, where

they spend very little47 (see figure 7-7).

These differences are not caused by different

industrial structures, for the trends and differences are consistent across sectors. For example,

trends in spending by the chemical industry show

a similar pattern (figure 7-8). Similarly, spending

for the automobile industry shows consistent

differences (see box 7-B). Capital and operating

costs associated with the 1990 Clean Air Act

Amendments could increase this differential further. Moreover, this differential does not appear

to be due to more efficient approaches to pollution

44 D1ffe-.ence~ in the ~lze of tie envlromen~] goods or ~~ices @GS) ~kets in tie Utited S@tes and Japan are consistent tith these

differences in compliance costs, Controlling for differences in size of population the Japanese EGS market is 60 percent of the U.S. EGS

market. (B,ased on OECD data m ‘‘The OECD Environment Industry: SituatioC Prospects and Government Policies, ’ OCDE/GD(92)l (Paris:

OECD, 1992).

45 Japan MifistV of Intermtioml Trade and Indus@y, Planrs atiEquipmenrInvestmenrs @Ma@rlndu$tn”e~, v~ous yems; and U.S. BWMU

of the Census, Pollution Abatement Costs and Expenditures, various years, op. cit., footnote 42.

46 Japan, does, however, include noise pollution expenditure, while the United States does not. AS a resdt, Japanese inves~en~ ~ ‘oise

abatement were subtracted from total costs. It is not known how much U.S. firms spend on noise pollutiorL although it may weIl be less. Even

so, these Japanese expenditures arc relatively small, accounting for about 10 percent of total pollution control capital expenditures in 1990.

47 Japan doe5 not have sup~und we provi510ns for tie cleanup of contafn~at~ sites. ~ addition, whi]e the United states regu]ata OVm

425 chemicals under RCRA, Japan has no “hazardous wastes” category per se, although roughly 30 hazwdous substances are monitored.

Moreover, over 75 percent of Japanese municipaJ solid waste is incinerated through 1,900 incinerators, with many used to generate electricity

or heat. Louise Jacobs and Leigh Harris, Public-Pn”vate Partnerships in Environmental Protection, A Study of Japanese and American

Frameworks for Solid Wastes and Air Toxics (Lexingto~ KY: The Council of State Governments, 1991).
202 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Figure 7-7—PolIution Control Capital Expenditures

by Media by U.S. and Japanese Manufacturers,

1990

9

Air

I

m United States

_ Japan

Water Solid waste

SOURCE: U.S. Census Bureau, Po//ution Abatement Costs and

Expenditures (Washington, DC: U.S. Government Printing office,

various years); Japanese Ministry of International Trade and Industry,

Kogai to Tasaku (Pollution and Anti-Pollution Measures) vol. 27, No.

15, 1991.

control. Despite progress on industrial energy

efficiency, anecdotal evidence suggests that Japanese industry has not emphasized pollution prevention in managing industrial waste.

Germany--In the 1970s, West German manufacturers spent less on capital expenditures for

pollution control (as a percent of total capital

expenditures) than did American manufacturers.

For example, while in 19786.3 percent of U.S.

capital expenditures went to pollution control,

only 3.6 percent of German manufacturers’ capital was spent for this purpose. The gap has

narrowed since the mid-1980s, to where spending

now appears to be about the same (see figure 7-9).

In 1990, as a share of total capital expenditures,

pollution control expenditures were lower in

West Germany than in the United States in 12 of

17 manufacturing sectors, and were lower for

manufacturing as a whole (4.2 percent v. U.S.

spending of 6.25 percent, see figure 7-10).48

However, because German capital expenditure

rates as a percent of sales are higher than

comparable U.S. rates, pollution control capital

investments as a share of sales are slightly higher

than in the United States (0.26 percent of sales v.

0.22 percent).

Other European Countries-Germany, Austria,

and some of the Scandinavian countries are

considered to have the strictest pollution control

regulations and enforcement in Europe. But the

fact that U.S. and German costs appear equivalent

suggests strongly that U.S. costs are higher than

for most other nations in Europe. The sectorbased data available for the Netherlands and, to a

limited extent, for France, support this view.

OECD data suggest that industry in countries

such as Great Britain and Canada also have lower

costs. 49

Pollution control costs for Dutch industry were

much lower than U.S. costs through the mid1980s. For example, in 1975, when over 10

percent of manufacturing investments in the

United States went to pollution control, only 2

percent of Dutch investments did (figure 7-1 1).

However, Dutch spending appears to have increased, so that it is now only slightly lower than

U.S. spending as a portion of capital expenditures. In 1990, 6.25 percent of manufacturing

investments in the United States went to pollution

48 -m~~ ~~lude a n@a of cos~ not ~clud~ ~ be Us, &@. Expn~~es h WiSC abtemen~ lad purchss~, ~d capital for

environmentally friendly products are included. The data repofled here subtract these costs (approximately 19 percent of total costs) from the

total German data to make it more comparable to U.S. data,

49 ~sto~c~ly, private ~tor ~~utioncon~l exwndi~es in the United Kingdom have been lower him iII he Utited s~t~~d ~~Y.

However, in 1989, public water authorities in England and Wales became privately owned companies, As a result, in 1990, U.K. private sector

expenditures (1 percent) as a share of GNP were actually slightly higher than in Germany (0.8 percent) and the United States (0.86 percent).

However, after reallocating the estimated costs of the formerly public water treatment authorities to the public sector, pollution control

expenditures by the private sector in the U.K. amount to approximately 0.75 pement of GNP.
Chapter 7–Environmental Requirements and U.S. Manufacturing Industry Competitiveness ! 203

Figure 7-8—Trends in Pollution Control Capital Investments by U.S. and Japanese Chemical Firms

QK —- L)J I

25

20

15

10

5

0 Ii

197 3

1

1975

b-k

1977

_ U.S. chemical

~ Japanese chemical

I I I 1979 1981 1983 1985 1987 1989

SOURCE: U.S. Census Bureau. Pollution Abaterrrent CosCS and Expenditures (Washington, DC: U.S. Government Printing Office, various years);

Japanese Ministry of Internatiorial Trade and Industry, Shuyo-S4ngyo no Setsubi-Toshi-Keikaku Heisei4 (Plants and Equipment Investment of Major

Industries, various years).

control compared to 5.1 percent in the Netherlands. After adjusting for differences in method,

Dutch operating costs (0.57 percent of sales) for

pollution control by industry are also lower than

U.S. costs (0.72 percent) .50

According to a recent survey, French manufacturing industry spent approximately 2.9 percent

of new capital expenditures on pollution control

in 1991 (compared to 7.9 percent in the United

States). 51 These differences were consistent across

sectors; for example, the share of pollution

control investments in chemicals was 6.5 percent

in France and 12.9 percent in the United States,

and in transportation, including automotive, 0.9

percent in France and 3 percent in the United

States, The article also cites European Commission data, indicating that pollution control costs in

Italy are significantly lower than in France.52

Newly Industrialized and Developing Country

Costs-Evidence suggests that pollution control

costs in developing and newly industrialized

(NICs) are significantly lower than in the United

States. For example, environmental compliance

costs are estimated at 0.24 percent of GDP in

Thailand and 0.38 percent in Indonesia and Korea

(1987) compared to 1.63 percent in the United

States (1990).53 Moreover, a greater share of these

costs may be for public infrastructure (e.g.,

sewage treatment plants) than is true in the United

States. In addition to having lower environmental

50 o~er ~tie ufited s~t~~, ~~ N~~e~~& is he o~y coun&y tit provides dab on opaa~ ss well ss CS@id COStS at he indus~

level. The Dutch survey includes a number of costs not included in the U.S. data, including the costs of interest on capital equipmen~ R&D

expenditures, expenditures on noise and landscaping, and environmental taxes and fees on fuels used or the exha costs of fuels with low sulfur

content. To make the data more comparable, these items were subtracted from total Dutch costs.“Statistics on the Costs of Environmental

Control by Industry,” paper from the Netherlands Central Bureau of Statistics, Department of Manufacturing and CortstructiorL undated.

51 Robefl Quivaux and Philippe Sabot, ‘‘Antipollution Investments by Industry,’ Industries (Paris), July-Aug 1993, in Foreign Broadcast

Information Service, JPRS Report: Environmental Issues, JPRS-TEN-93-022, Sept. 3, 1993, pp. 15-19.

SZ ~ld.

53 D~a I%antumvanit and Theodore Pamlyotou, “Industrialization and Environmental Quality: Paying the Price,’ paper presented at the

1990 TDRI conference, Industrializing Thailand and Its Impact on the Environment Dec. 8-9, 1990.
204 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Box 7-B—Pollution Control and Automobile Production in

Competitive Context

Relative to many materials intensive process industries, such as chemicals, the automobile

production process is not highly polluting. As a result, the industry faces Iower f acility compliance costs

than some other industries, although imposition of Clean Air Act and other regulatory requirements will

raise them.

While automakers face regulatory requirements in a number of areas, including hazardous waste

cleanup and disposal and water pollution, the major source of pollution and compliance costs is related

to air emissions from the automobile painting process. Paints have traditionally been applied in a liquid

form, with organic solvent-based carriers that upon application, evaporate and are emitted into the air.

Automakers have three basic control options: changing the coating formulation, improving transfer

efficiency, and adding on controls. Modified coatings, including higher solids paints (increasing the paint

content relative to the solvent content), water-based coatings containing few organic solvents, and

solvent-free powder coatings can reduce emissions of volatile organic compounds (VOCs). However,

technical limits and retrofit costs inhibit wider use of water-borne and powder technologies in the near

term. Improving transfer efficiency means that more sprayed paint adheres to the car and is not wasted.

In the last 20 years, automakers have Improved transfer efficiency substantially-in part to cut paint

costs-and additional improvements are sought. Finally, incinerators are used to burn VOCs in oven

and paint booth exhausts, supplemented in several installations by carbon adsorption units to

concentrate the solvents.

The United States has regulated VOCs from automobile painting since the late 1970s. As a result,

most U.S. plants have, at minimum, electro-deposited waterbased primecoats, low VOC coatings (using

high solids paints), high efficiency electrostatic spray applicators, and oven exhaust incineration.1

Because of these requirements, automobile assembly plants (SIC 3711) in the United States spent an

estimated $82 million in 1991 on capital equipment to control VOCs, amounting to 63 percent 2 of their

$130 million for pollution control capital expenditures, the Iatter accounting for 6.4 percent of their total

capital expenditures. According to estimates by the American Automobile Manufacturers Association,

VOC control costs might triple if stricter lowest achievable emission rate (LAER) standards are required

at every facility.

Regulations also impose indirect costs. Permitting requirements can reduce operational flexibility

needed to accommodate changes in the production process. Moreover, they can potentially delay

introduction of new production, particularly when permits are required prior to construction. Because

demand for autos fluctuates and models change, operational flexibility and timely regulatory decisions

can bean important competitive factor. Finally, regulatory requirements may affect product quality,

particularly the paint finish.

Automobile and truck producers in Japan appear to face less stringent and detailed requirements

and therefore lower compliance costs and probably greater operational flexibility and product quality

advantages. In 1990, U.S. automobile and truck producers, including parts suppliers (SIC 371) spent

over five times more on pollution control equipment than Japanese firms as a percent of total capital

1 Energy and Environ~nta[ Analysis, inc., *’Comparison of U.S. Air Quality Standards and controls to the

Air Poiiutlon Controis in Japan, Germany, Canada Mexioo, and South Korea,” draft report prepared for the Office

of Poiicy Anaiysis and Review, Office of Air and Radiation (Washington, DC: U.S. Environmental Protection Agency,

1992).

2 me majodty of this is presurna~y for paint VOC controis. U.S. Census Bureau, POhJtbn ~te~nt and

Contro/ =pendltures, 7997 (Washington, DC: U.S. Government Printing Offioe, January 1993).
Chapter 7–Environmental Requirements and U.S. Manufacturing Industry Competitiveness I 205

investments, and three times more as a percent of sales.3 Moreover, Japanese permitting requirements

are generally much simpler, with VOC sources and changes to them not requiring permits or prior

government approvals.4 Finally, it is widely asserted that weaker VOC regulations make it possible for

automakers in Japan to achieve very high quality finishes on their premium models (smoother and

higher gloss) without facing the environmental control costs U.S. automakers would incur.

If the U.S. motor vehicles industry (SIC 371) spent the same share of investments on controlling

pollution from production facilities as the Japanese, they would have spent $247 million less in 1990 in

pollution control capital expenditures and $410 million less in operating expenses. Differences in air,

water, and waste regulations on the automobile industry (not including costs of regulation on supplier

industries, such as steel, glass, rubber) added approximately $50 to the cost of a $15,000 car (sales

price of original equipment manufacturer).5

While regulatory requirements will likely increase, there are a number of technical changes and

regulatory modifications that could minimize the competitive burden. First, new approaches to VOC

control may reduce compliance costs relative to end-of-pipe control. The United States Council for

Automotive Research (USCAR), an umbrella organization for the big three U.S. automobile

manufacturers, has formed along-term low emission paint systems consortium to conduct research and

demonstrate VOC reduction alternatives, including electro-coating, powder-based primers, surface

coats, and clear-coat paint systems, and waterbased base coats (see ch. 10).

Second, a number of regulatory modifications, including use of facility-wide emissions caps,

performance standards, expedited permitting, and emissions trading, could make it easier for the

industry to comply with regulatory requirements (see ch. 9). Some specific changes advocated by the

auto industry include expanding pre-construction activities which can commence prior to New Source

Review permit issuance, determining Best Available TechnoIogy/Lowest Achievable Emission Rate

requirements at the time the permit application is complete, and prompt development by EPA of

Maximum Available Control Technology standards for automobile production paint facilities.

3 J~~ane~ ~tom~le firm tnairttah higher capital investment rates as a permnt of sales than do IJ-Sautomakers. Japan Ministry of International Trade and Industry, P/ants and Equipment /r?vestments of Wjor

/ndustnesr 1992 (Tokyo: MITI, 1992), pp. 480-493; and U.S. Bureau of the Census, Polh.MonAbaten?ent Costs and

Expenditures, 1990, op. cit.

4 Energy and Environmental Analysis, inC., Op. cit.

5 This includes ~[lution ~ntro[ ~pita[ and operating expenditures andassumes Japanese industries spend

the same ratio of operating costs to pollution control capital rests. OTAcalculations based on data from U.S. Census

Bureau, Pollution Abaterr?ent and Control Expenditures, op. cit.; and the Japanese Ministry of International Trade

and Industry, Plants and Equipment /investments of Major h?dustries, 1992, op. cit.

compliance costs, these nations also have signifi- their higher home country standards to their

cantly lower labor costs. investments or plants in less-developed nations.

While many less-developed countries have However, little systematic evidence has been

minimal regulations, or poor enforcement, some presented to evaluate this claim.54 Moreover,

multinational corporations (MNCs) claim to apply while U.S. maquiladoras firms in Mexico say that

M Onc Sumey of U.S. rnultinatio~s Suggests that only around 20 percent had written policies to meet or exceed U.S. regulations overseas

~hcn foreign laws are less stringen~ while 40 percent of the respondents said this was very important. Margaret Flaherty and Ann Rappaport,

Multinational Corporufiom and the Environment: A Survey of Global Practices (Medford, MA: Thfts University, Center for Environmental

Mamgement, 1991).
206 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Figure 7-9—Trends in Pollution Control Capital Expenditures by U.S. and German Manufacturers

12 ~

————

o

o

—

— — — Ml1

1984

D United States

m Germany

(Western only) a

1975 1976 1977 19’78b 1979 1980 1981 1982 1983

Ilk

1985 1986 1987

Ill

1989 1990

a Gernl~n d~t~ includes costs f~rnoiseabatement, land ~rch~es,and~~ta[forenvironmentally friendly products that are not included ifl the U.S.

data. To make the data comparable, expenditures on these items (approximately 19 percent of total costs) were subtracted from total German

costs.

b German cost data not collected prior to 1978.

SOURCE: U.S. Census Bureau, Po//ufkmAbaternerrt Costs and Expenditures (Washington, DC: U.S. Government Printing Office, various years);

Statistisches Bundesamt, hwestitionerr fur Umweltschutz im Prodzierenden Gewerbe f990(Wiesbaden: Metzler Peoschel, 1992).

Figure 7-10—Pollution Control Capital Expenditures by U.S. and German Manufacturing Industries, 1990

- United States

D Germany (Western only)

7

1

20 22 24 26 27 28 29 30 31 32 34 35 36 37 38 39 Tota l

SIC code

SOURCE: U.S. Census Bureau, Pollution Abatement Costs and Expenditures, 1990 (Washington, DC: US. Government Printing Office, 1992);

Statistisches Bundesamt, /rrvestitionen fur IJmwe/tschutz im Pro&zierenden Gewerbe 1990 (Wiesbaden: Metzler Peoschel, 1992).
Chapter 7–Environmental Requirements and U.S. Manufacturing Industry Competitiveness 207

Figure 7-1 l—Trends in Pollution Control Capital Expenditures

1

I

1975 1980 1982 1983 1984

by U.S. and Dutch Manufacturers

—

- United States

~ Netherlands

IIr

1985 1986 1987

SOURCE: U.S. Census Bureau, Po//ufior? Abatement CcJsfs and Expenditures (Washington, DC: U.S. Government Printing Office, various years);

“lndustrlal Investments for the Protection of the Environment, 1990,” Government of the Netherlands.

they don’t illegally pollute, others dispute this

claim and argue that sewage and other runoff from

the area is often highly infused with industrial

wastes.55 Even if MNCs abide by home country

standards, they may receive a cost advantage for

products shipped to countries with higher regulations if their local suppliers are unregulated.

I Government Support

Support for industry to comply with pollution

control regulations follows similar patterns for

industrial development assistance overall-the

United States tends to provide less direct assistance to industry than many of its major industrial

competitors, and relies principally on regulatory

measures to ensure environmental protection.56 In

contrast, a number of European nations supplement regulation with explicit use of technology

and industrial policies to help industry reduce

pollution, particularly through support of development and diffusion of innovative environmental technologies.57

Several countries provide direct assistance to

help firms address pollution control requirements. The Japanese Government contends that

private commercial banks are not necessarily

willing to finance unprofitable pollution control

investments, and that government-sponsored fundSS For cxamplc, see Joseph La DOU, ‘ ‘Deadly Migration: Hazardous Industries’ Flight to the Third World, ” Technology Review, vol. 94,

No. 5, July 199 i; Sanford Lewis et. al., “Border Trouble: Rivers in Peril. A Report on Water Pollution Due to Industrial Development in

Northern Mexico, ” National Toxws Campaign Fund, May 1991; Diane M. Perry, Roberto Sanchez, William H. Glaze, and Marisa Mazari,

“Binational Management of Hazardous Waste: The Maquiladora Industry at the U.S.-Mexico Border, Environmental Management, vol. 14,

No. 4, 1990, pp. 441 -450; Sandy Tolan, “Hope and Heartbreak, ’ The New York Times Magazine, reprinted from Best of Business Quarterly,

Winter 1990-9 1; U.S. Congress, General Accounting OffIce, ‘‘U.S.-Mexico Trade: Assessment of Mexico’s Environmental Controls for New

Companies,” GAO/GGHD-92-l 13, August, 1992.

56 U.S. Congess, Office of Technology Assessment, Competing Economies, Op. Cit., footnote 1.

57 Alan C. Williams, “A Study of Hazardous Waste Minimization in Europe: Public and Private Strategies to Reduce Production of

Hazardous Wmtc,” Bosron College Environmental Affairs Law Review, V. 14, Winter 1987, pp. 167-255; Kenneth Geiser, Kurt Fischer, and

Norman Beecher, “Fort-ign Practices in Hazardous Waste Minimization: A Report to the U.S. Environmental Protection Agency (Medford,

MA: Tufts lfniversity, Center for Environmental Management, August 1986).
208 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Oil Shale Plant in Estonia. Compared to expenditures

by industry in the United States for pollution control,

firms in most developing countries and Eastern

Europe face significantly lower costs.

ing is needed. Between 1975 and 1990, the

Japanese Development Bank, the Japan Finance

Corporation for Small Business, the Japan Environment Public Corporation, and other institutions provided approximately 35 percent of all

funds invested by Japanese industry for pollution

control and, in 1992, provided over $2 billion in

loans.58 The loans have interest rates 1 to 2 points

lower than commercial loans, interest payments

deferred for the first 2 to 3 years, and longer

terms. 59 Many Japanese prefectures and larger

cities provide direct technical assistance to help

firms manage wastes, and most Chambers of

Commerce maintain a Pollution Control Office.60

European nations are generally less active, but

many still provide more financial assistance than

the United States. Germany provides interestsubsidized loans for the installation of pollution

control equipment.61 Industry associations manage government grants that pay half the costs of

environmental consultants to small and mediumsized enterprises.62 Germany also provides partial

grants for some pollution control investments and

R&D. At least 97 distinct programs for environmental assistance to German industry have been

identified. 63 Several other European countries,

including the Netherlands and Denmark, provide

sizable grants for the development of clean

technologies (see ch. 10).

Publicly supported pollution control financing

programs in the United States are quite small.

Prior to 1986, air and water pollution control

facilities were eligible for tax exempt Industrial

Development Revenue Bonds (IDB’s). However,

the 1986 Tax Reform Act severely restricted the

use of these bonds for pollution control equipment by industry, as these were increasingly

considered more of a subsidy to private industry

instead of support for public infrastructure. As a

result, very few IDBs are issued for industrial

pollution control equipment.64

The Pollution Control Loan program operated

by the U.S. Small Business Administration (SBA)

made only four loans totalling $3.7 million in

1991 and 1992. (Some pollution control loans

58 The QW/i~ of EnvirOn~nt in Japan, 1992, Environment Agency, Government of Japan, 1992, p. 133. ThiS included approbtely $1

billion through the Small Business Corporation for energy and environmental loans.

59 “Bus~ess of Japan Enviro~ent Public Corporation,’ Environment Administration 1992.

@ &iser, Fischer, and Beecher, op. cit., fOOtIIOte 57, p. 54.

61 ~g~ation for fiono~c C@ OPmtionad Development, OECD Environmental pe~o~nce Reviews: Germany (Ptis: OECD,

1993).

62 Komad von Mel&e, C ‘~eficm ~dus~ ~d tie Enviro~ent: ~plicatio~ for Trade ~d Competitiveness, ” contractor IRpOII prepared

for the Office of Technology Assessmen4 November 1992.

63 Ibid.

64 us. Con=ess, Gener~ ~com~g Office, The Eflecr of the v~~~me cap on fnve~~~en~ in Environmental ]nfrasfrucrure (Gaithersburg,

MD: U.S. General Accounting Office, Oct. 28, 1993).
Chapter 7–Environmental Requirements and U.S. Manufacturing Industry Competitiveness 209

may be funded under the regular SBA 7A loan

guarantee program, but SBA does not report these

loans by purpose).

The Federal Government also provides some

support to U.S. industry for development of

cleaner technologies. For example, DOE’s Office

of Industrial Technologies funds industry consortia for the development of more energy-efficient

and cleaner technologies. These activities are

discussed in chapter 10.

A number of other countries have more general

tax incentives for pollution control. Accelerated

depreciation is the most common tax incentive for

pollution control investment.65 Many countries

offer special rates for the depreciation of pollution

control equipment that allow at least 80 percent of

the cost to be written off after no more than 3

years.

66 The Japan Ministry of Finance establishes a much shorter life span for pollution

control equipment than for other fixed assets.

Japanese industry can depreciate pollution control equipment in 7 years, and some ‘‘urgently

needed’ equipment even faster.67 In addition,

Japan allows a special capital cost allowance of

20 percent of the acquisition cost of pollution

control equipment for the first year of use. MITI

has proposed reducing fixed asset taxes on

CFC-free equipment and has allowed new purchases to be depreciated more quickly.

Although no longer in effect, German firms

were until recently allowed to take accelerated

depreciation of pollution control investments.68

In 1989, their net value was estimated at more

than DM1 billion, or about 13 percent of total

private sector environmental capital investments.69

(In accordance with European Community policy, the net subsidy effect of accelerated depreciation may not exceed 15 percent of the net cost of

the environmental portion of the investment.)

Taiwan allows air and water pollution control

equipment to be depreciated in 2 years, while

Mexico allows a first year deduction of 90

percent. While these subsidies may provide an

advantage to firms in other countries, they may

also stimulate needed environmental investments.

Some countries target abatement incentives for

innovative technologies or pollution prevention.

In the Netherlands, for example, companies

investing in innovative environmental technologies (as selected by the environment ministry) can

deduct the full amount of expenditures from

taxable income in the first year, instead of the

10-year depreciation period that usually applies.

(A broader tax incentive was in effect until 1984,

but proved too expensive.)

In the United States, special provisions for

writing off investments in pollution control equipment only apply to plants in operation in 1976 or

before. As new plants replace old ones, the

write-off has declined in importance. Even for

facilities in operation in 1976, it takes 5 years for

most manufacturers to fully write off the cost of

pollution control equipment certified under section 169 of the U.S. tax code. The recovery period

is far longer for manufacturing firms that are

subject to alternative minimum tax. Finally, while

the law includes equipment that prevents the

creation of pollutants, in addition to equipment

that reduced and controlled pollutants, the amor65 Stephen F. Clarke, “The Tax Treatment of Expenditures on Antipollution Equipment and Facilities in Selected Foreign Countries,” in

U.S. Ern’ironmenra/ Policy and Economic Growth: How Do We Fare?, Monograph Series on Tax and Environmental Policies and U.S. Capital

Costs (Washington, DC: American Council for Capital Formation+ 1992), pp. 53-61.

66 Ibid.

67 Bruce Aronson, “Review Essay: Environmental Law in Japa~” Harvardlhwironrnemal Luw Review, vol. 7, No, 1, 1983, p. 158.

68 In 1988, 73 percent of all investments in water, 68 percent in air, and 48 percent in waste management claimed an accelerated depreciation

allowance. OECD Technology and Environment program, “Background Paper on Policy Tbols and Their Applications in Various Member

Countries” (Paris: OECD, June 3, 1991).

~~ Komad von Moltke, op. cit., p. 61.
210 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

tizable cost of the facility must be reduced by the

amount of savings generated.70

While Federal incentives for investment in

pollution control facilities are limited, 38 States

offer incentives in the form of sales and property

tax exemptions, tax credits, and accelerated

depreciation of equipment.71 However, because

State tax rates are much lower than Federal, the

effect of these incentives is generally quite small.

Many also contain a bias against pollution prevention.

1 Environmental Standards and

Enforcement

While OTA has not made detailed comparisons

of regulatory strictness, some broad generalizations can be made. Taking into account all

compliance actions demanded of industry, U.S.

air, water and waste regulations appear to be

among the strictest, but the differences are not

large among the leading OECD nations. While

differences exist among media, Germany, Austria, Sweden, and some other Northern European

countries also impose strict regulations on their

firms (see app. 7-B). The differences in regulation

between the United States and the middle tier of

countries are somewhat larger. A number of

developed nations fall into this group, including

Australia, Britain, Canada, and France.

Assessing regulatory stringency in Japan is

difficult, in part because while Japanese regulations to control several common air pollutants

(NoX

, SO2), have been stricter than U.S. regulations (although they will probably be comparable

as the 1990 Clean Air Act Amendments are

implemented), in some other areas Japanese

regulations are less strict. The Japan Environment

Agency, the main regulatory body, is relatively

weak in comparison to other Japanese ministries,

such as MITI.72

Differences between the United States and the

lagging OECD nations, Eastern European nations, and NICs is more significant. For example,

Greek laws to control pollution are poorly developed and enforcement is lax.73

Enforcement of standards in Eastern Europe

and the former Soviet Union was very low.

Standards and enforcement in the NICs, such as

Hong Kong, Korea, and Taiwan, is low, although

there are now efforts to strengthen them.74 (Singapore’s environmental regulations are considered on a par with those of several advanced

industrial nations.)

Developing countries’ standards and enforcement remain low. In 1985 and 1989 the World

Health Organization surveyed 116 countries to

determine their ability to control key environmental problems, and included such factors as

legislation, enforcement, and staffing. They found

that while all industrialized countries met most of

the requirements needed to control pollution, only

18 percent of the moderately to rapidly industrializing countries and less than 5 percent of the less

To -etie united Sbtes dom p~vide less targeted assistance, this does not measure overall levels Of Corporate mtio~ which we ~so

different between nations. See: Organization for Economic Co-operation and Development, Tution in OECD Countries, 1993 (Paris: OECD,

1993).

71 Nation~ ASsoc~tion of Stite Nelopment Agextcies, Directory of lncentivesfor Business Investment and Development in the United

States (Washington DC: The Urban Institute Press, 1992),

72 Some schol~ su~est that the Japanese Environment Agency does not have signMcmtpowerand cannot sfford to offend indushy. (Cited

in Alan S, Miller and Curds Moore, “Japan and the Global Enviromnen~” Environmental L.uw and Policy Forum,, vol. 1, 1992, p. 38; also

Bruce E. Aronsou “Review Essay: Environmental Law in JapaU” Harvard Environmenta/Law Review, vol 7, No. 1, 1983, p, 145).

73 For exmple, in May of 1992 Greece passed its fmt law to control urban air pollutiom and much of the focus was on automobiles, nOt

industry. Thecountry’s fmt general environmental law was not passed until 1986 and was not begun to be implemented until late 1990. (“Greek

Parliament Passes Country’s First Air Pollution Law As Conditions Worseu” International Environmental Reporter, June 3, 1992,

p. 353.)

74 Stacy Mosher, “Hong Kong: Going Greeq” Far Eastern Econonu”c Review, Feb. 27, 1992, p. 17,
Chapter 7–Environmental Requirements and U.S. Manufacturing Industry Competitiveness ! 211

developed countries, did s0.

75 For example, in

Thailand, industrial hazardous wastes are often

dumped into rivers and landfills, or stored in

drums on site with little or no treatment. Most

biodegradable waste is discharged untreated into

public water bodies.76 Many of these countries

have highly competitive manufacturing sectors in

some areas, boosted not only by low environmental standards and enforcement, but also by

low labor costs, and lower standards for worker

health and safety.

Standards tell only part of the story. Enforcement and compliance make up the rest. While no

country can staff full enforcement, the gap

between regulation and enforcement is normally

smaller in OECD nations. Developing and newly

industrialized nations’ standards might be high,

but enforcement is often virtually nonexistent.77

For example, Argentina’s new environment secretariat has little power to even inspect polluting

plants.78 Hong Kong has in place environmental

legislation, but extremely lax enforcement means

that industry is required to spend little and

pollution levels remain high. 79 South Korea

amended its air pollution law in 1991, but

monitoring of discharge by industry is very

limited, particularly for pollutants other than SO2

and particulate.

80 Relying solely on emission

standards would lead to an overestimation of the

strictness of environmental regulation.

~ Regulatory Styles

While confirming data are difficult to obtain,

many analysts conclude that the U.S. regulatory

style is more rigid than those of most other

nations. 81 The relationship between regulatory

styles and regulatory stringency is complex, in

part because many countries with more cooperative styles of regulation appear to place less

stringent environmental demands on business.

However, it is important to consider standards

separately from regulatory styles. When goals and

laws are set and commitment to enforcement is

evident, cooperative frameworks can make implementation easier and more cost-effective, without necessarily weakening performance. As such,

regulatory styles can affect competitiveness.

While increased attention is being paid to more

cooperative regulatory processes (e.g., negotiated

regulations), the U.S. system is still characterized

by adversarial relations between industry and

regulators (see figure 7-12). Many U.S. firms

spend significant time and effort fighting regulations and delaying implementation, while regulatory agencies often enforce standards in ways that

make it harder and more expensive for industry to

comply. Short rigid deadlines can lead firms to

invest in readily available end-of-pipe approaches

rather than pollution prevention. If all facilities

face equal strictness, inflexible regulatory demands can raise the costs of regulation beyond

those that would follow adjusting control to the

75 counties tit did not meet most of tie r~uiremen~ include some of the most populated nations, iIIcIuding Brazil, In&& Mexico, and

China, which collectively account for approximately 40 percent of the world’s population. Countries meeting most standards contain only 24

percent of the world’s population. Morns Schaefer, Combating Environmental Pollution: National Capabilities for Health Protection (Geneva:

World Health Organization, 1991).

76 phantumvanit and Pamyotou, op. cit., foo~ote 53.

77 1‘C~:Brea~g the Air of Success, ’ The Economist, vol. 322, No. 7746, Feb. 15, 1992, p. 40.

78$ ‘~gentfi: Jailing of Executives for Water Pollution Prompts Debate Between Secretariat COurtS,” InternatiOnU/ Environmental

Reporter, May 20, 1992, p. 308.

79 Emily Lau, ‘ ‘Hong Kong: A License to Pollute, ’ Far Eastern Economic Review, May 10, 1990, p, 23,

80 Enerw ~d )2nv1romen~l ~~ysls, ~c,, Compan”$on of us. Air QUa[ipsta&rdS and con~ol$ TO the Air Pollution Controls in Japan,

Germany, Canada, Mem”co, and South Korea, prepared for Offke of Policy Analysis and Review, Office of Air and RadiatioU U.S.

Environmental Protection Agency, February 1992.

81 David Vogel, Nationol s~]es of Re,g~latio~: Environmental Regulation in Great Bn”tain a& the united states @hllCil, ~: COITld

University Press, 1986).
212 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Figure 7-12-Qualitative Mapping Along Key

Environmental Political Variables

USA

Sweden

Netherlands

Germany

Japan

France

UK

Rigid/statutory > Flexible/negotiated

Approach to

enforcement/implementation

SOURCE: Derived from Clinton Andrews, “Policies to Encourage

Clean Technology,” eds., Clinton Andrews, Frans Berkhaut, Robert

Socolow, and Valerie Thomas, Intistrial Ewlogyand Global Change

(Cambridge, England: Cambridge University Press, Forthcoming,

1 994).

actual technological conditions of the facility. In

some cases, technology based standards can

freeze environmental control technologies and

impede industry’s willingness to develop or apply

more cost-effective control or prevention approaches.

82 Finally, permitting in the United

States is often arduous and time-consuming,

requiring extensive studies and documentation.

In many other countries there is a more

cooperative relationship between regulators and

industry, and relative flexibility in enforcement.

This can be helpful if firms need additional time

to meet a standard, particularly through pollution

prevention. However, public and nongovernmental

organization (NGO) involvement is more restricted than in the United States and measures to

assure compliance may be weaker in some cases.

Some European countries have established

multipartite, collaborative efforts with industry,

government, academia, and occasionally NGOs,

to formulate and implement pollution control

regulations. The Netherlands Environmental Policy Plan formulates objectives to be achieved by

2010. The Environment and Economics Ministries consult with individual branches of industry

(e.g., chemicals, printing, metal products) to

develop objectives, schedules, and strategies for

each sector. In addition, representatives from

industry, government, NGOs, and academics

consult on specific issues (e.g., waste minimization) to develop strategies and assess technology

needs and developments.83 As part of this, the

Environment Ministry, in consultation with industry and academics, identified 30 key waste

streams and organized groups of producers and

users for each material to develop consensus on

methods of waste minimization.

In Germany, which is often characterized as

having the most command-and-control-like system in Europe, there is significant bargaining over

the terms of regulatory actions between enforcement agencies and their clients.84 The Canadian

Government recently established the National

Roundtable on Environment and Economy to

bring together government, industry, and NGOs

to reach a consensus on problem definition and

environmental action needed in Canada.85

82 U.S. Enviro~ent~ Protection Agency, The National Advimry Council for Environmental Policy md T~tioIo~ (NACE~), ~~prOving

TechnofogyDIfisionjorEnvironmenra/Projection, Technology Innovation and Environment Committee’s 1991 Report and Recommendations

(Washington DC: Environmental Protection Agency, 1991).

83 See J. Crmti, B. de ~t, ~d G. Stratm, ‘‘The Netherlands’ NEEP: Can Environmental Goals Be Met Through NEEf’ Measures,

Pollution Prevention, (European Edition), vol 2. August 1992, pp. 25-8.

u Joehen Hucke, ‘‘Implementing Environmental Regulations in the Federal Republic of Germany, ’ Policy Studies Journal, vol. 11, No.

1, September 1982, p. 130 see also Arieh A. Ullmann, “The Implementation of Air Pollution Control In German Industry, ” Policy Studies

Journal, vol. 11, No. 1, September 1982, p. 141.

85 Jean Pasquero, ‘ ‘Supraorganizational Collaboration: The Canadian Environmental Experimen~” Journal ofApp2iedBehaviora/ Science

VO1. 27, No. 1, March 1991, pp. 38-64.
Chapter 7–Environmental Requirements and U.S. Manufacturing Industry Competitiveness ! 213

Firms in other countries often face less arduous

permitting requirements, allowing them higher

levels of operational flexibility. Danish environmental inspectors have discretion to make exceptions to the regulations, particularly if the present

production equipment’s lifetime has not permitted sufficient amortization or if the firm needs

extra time to deploy the environmental technology.

86 Japan, prefectural governments have 60

days to decide to issue a new permit, after which

the firm can legally operate according to its

permit request specifications.

87 In Britain, regulators operate with considerable discretion.88

In some cases, such flexibility may come at the

cost of less vigorous enforcement, however.

H Information Disclosure and Public Access

While some European countries are discussing

measures similar to the U.S. Toxic Release

Inventory (TRI) system, only the United States

requires companies to routinely disclose to the

public information about their emissions.89 In

Germany, companies are not required to submit

confidential information and there is no equivalent to U.S. freedom of information programs for

the public at large.90 The Japanese Government

discloses little environmental information about

companies to the public.91 To the extent that

competitors can reverse-engineer proprietary processes on the basis of information provided to

regulatory agencies, companies operating in the

United States may beat a disadvantage relative to

those in countries that collect less information or

better maintain its confidential nature.92

The degree of public participation in the

formation of regulations and rules also differs by

country. Many U.S. environmental laws explicitly require public participation in formulation of

rules and regulations and other administrative

actions (see figure 7-12). Several laws also

authorize citizen suits against parties (including

government agencies) alleged to be in violation of

the law. In contrast, some European countries and

Japan limit participation rights.93 For example,

Japanese law seldom if ever gives environmental

organizations the right to sue the government.

The national government has no freedom of

information laws, while only a small number of

Japan’s prefectures and municipalities have them.94

Japanese Government practices and laws contribute to the weakness of environmental organizations. 95 The environmental movement has faced

opposition from industry and government.96 Even

in the EC, NGOs cannot bring suit in the

European Court of Justice against countries that

violate EC laws.97

86 OE~, ‘‘Back~ound paper on Policy Tools and their Applications in Various Member COmpatdes, ’ Op. cit., fOOtnOte 67.

87 Ibid.

88 Vogel, op. cit., footnote 81.

89 Under the TRI (mandated in Section313 of the Emergency Planning and COmmtity Right-to-Know Act of 1986), cm manufacturers

in the United States must report on an annual basis the amounts of over 300 toxic chemicals that they release to the air, water, or land.

%) SRI ~nter~tio~, “Analysis of Impact of U.S. Federal and State Reporting Requirements on Sensitive and Proprietary Company

Informatio~” prepared for the U.S. Chemical Manufacturers Associatio~ Washingto~ DC, July 1992.

91 “Interview with m. Saburo Kate: The Subsidization of Johkasu,” Water Report ~okyo), VO1. 1, No. 3, 1991, P. 9-10.

92 SW Internatio~, op. cit., fOOtnOte 90.

93 von Moltke, op. cit., footnote 6*.

9A Jacobs and Harris, op. cit,. footnote 47, p. 14.

95 Jim Gfifit~ ‘ ‘The Environrnentti Movement in Japa%’ Who[e Earth Review, winter 1990, pp. 90-97.

96 ~lcr and Moore, op. cit., foomote 72.

97 Hill~ Frcnc@ ‘ ‘The EC: Environmental proving Ground, ’ World Watch, vol. 4, No. 6, November/December 1991, pp. 26-33.
214 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

U.S. publicly-held companies must also disclose more in securities reporting, particularly

potential future significant liabilities. In contrast,

such information is very scanty among European

firms,98 and virtually non-existent among Japanese companies.

1 Future Directions

Regulations on industrial pollution appear to

be getting stricter in many countries. In Europe,

while EC-wide regulations will increase the

regulatory stringency of the countries with the

weakest standards, it is unlikely that regulations

will be harmonized at the level of the strictest

nations. Moreover, when EC directives have been

issued, many countries have either not adopted

them or been extremely slow to adopt them,99

particularly in the area of water quality.100 Inadequate EC enforcement, at least in the near term,

will remain a problem.101 Countries in other

regions are also raising standards, but progress is

slow. Many of the newly industrialized countries

are giving increased attention to the environment,

both in setting and enforcing standards.102 For

example, while standards are low in countries

such as Hong Kong, Korea, and Taiwan, and

enforcement even lower, there is increasing

pressure by government and the public to regulate

industry more stringently. However, industry

resistance makes this a slow process, and enforcement is spotty. Over the long term, however, the

likelihood is that enforcement will improve.

EFFECTS OF REGULATION ON

INNOVATION, TRADE, AND INDUSTRIAL

LOCATION

Since enactment of the major pollution laws in

the early 1970s, many have claimed that regulations controlling industrial pollution and economic growth and development are inversely

related. More recently, however, a number of

analysts have argued that environmental protection and economic growth are compatible and that

vigorous environmental protection is necessary to

achieve sustainable long-term economic development (see ch. 3.)

The debate has often been characterized by

lack of data, poor analysis, and sweeping generalizations of only limited applicability. It is not the

purpose of this report to address definitively the

question of the relationship between environmental regulations and economic competitiveness. However, this section reviews some studies

on the effects of environmental regulation on

innovation, trade, and industrial location. Appendix A reviews the literature examining the relationship between environmental regulations and

GDP and industrial productivity.

S Effects on Innovation

A number of studies attempt to explain the

relationship between environmental regulation

9L7 For ex~p]e, see ‘UK Study Says Corporate Environmental Reporting Does Not Disclose Enough Concrete h.fOKMitiOLL’ ~US~fICSS U~

the Environment, September 1992, p. 8.

99 Under EC law, d~Wtives f~g ~der ~cles 130 R and S, which cover most env~nmen~ ~ttem, must be approved UM~0U51y

by the Council of Ministers. This may prove difficult if countries with low standards resist the new measures. “Business Can Expeci Tougher

Measures as a Result of the Maastricht Summit, Report Says, ” International Environmental Reporter, June 3, 1992.

1~ “TheEC~dEwironmerMa.1 Policy and Regulations, United Statm Department of Commeme, International Trade Adrninistratiom Oct.

1, 1991.

lo] By 1990, the EC hd identfl~ 303 -es in which member nations had incorrectly or incompletely implemented EC envkonmentd

directives and 60 cases where they had not been implemented at all. Hillary F. Frenck “The EC: Environmental Proving Ground, ” op. cit.,

footnote 97, p. 26-33.

Im pad Cullen Beately, ‘‘The Benefits of a Global Environmental Compliance Strategy,’Corporate Management, vol. 158, No. 3, June

1989, pp. 14-19.
Chapter 7–Environmental Requirements and U.S. Manufacturing Industry Competitiveness 215

and technological innovation.103 Depending on

its form, regulation can help or hinder the

development and application of new technologies

that will permit more efficient solutions to

environmental problems. Sometimes regulations

can discourage use of new environmental technology. Most studies have found that the direct

impact of environmental regulation on nonenvironmental technological innovation was negative, although weak. But because competitiveness

in advanced industrial nations is based increasingly on innovation, such negative effects could

be harmful.

Regulation could hinder innovation in several

ways. First, by diverting funds from capital

investment in new plant and equipment to pollution control, regulation could retard the diffusion

rate for new process innovation and could reduce

funds available for commercially oriented R&D.

Regulatory requirements are often stricter for new

facilities (which usually must install the best

available technology) than for older investments;

some argue that such regulations discourage new

investments. 104 However, it is rare for regulation

to be the decisive factor in choosing to develop a

new facility.

Second, regulation can delay the introduction

of new industrial processes. Delays may stem

from lack of agency staff for permit processing,

from poorly prepared industry applications, and

occasionally from citizen review of new or

modified permits. For industries that depend on

continuous innovation to maintain competitive

advantage, permit delays can be a significant

problem. Permitting delays can sometimes impede the introduction of environmentally beneficial technology.105

Finally, regulation can increase the risks of”

innovation. If firms feel that regulations are likely

to change so as to make pending innovations

obsolete or unusable, they may wait until they

receive clearer signals.

However, there can be circumstances where

regulation stimulates innovation. Regulations may

pressure firms to develop new products or processes, thus adding to the dynamism of the

economy (see ch. 5). For example, regulation is

credited with encouraging a number of new

technologies in automobiles, including some

(e.g., computerized engine controls) not directly

related to pollution control. In addition, overcoming problems related to regulation may sometimes

enhance a fro’s problem-solving capacities and

contribute to commercial innovation.106

The way in which regulations are designed and

implemented often affects innovation (see ch. 9).

The use of technology-based standards rather

than performance standards can dictate particular

technological solutions, leading to increased diffusion of an existing technology but retarding the

diffusion or development of superior new technologies. 107 The regulatory focus on end-of-pipe

103 Roy Rothwell, ‘ ‘Industrial Innovation and Government Environmental Regulation: Some Lessons From the Past, ” Technovutzon, vol.

12, No. 7, October 1992, pp. 447-458; A. Irwin and P. Vergragt, “Rethinkm“ g the Relationship between Environmental Regulation and

Industrial Innovation The Social Negotiation of Technical Change,’ Technology Analysis and Strategic Management, vol. 1, No. 1, 1989, pp.

57-70; Organization of Economic Cooperation and Development, EnvironmentaZPoZicy and Technical Change (Paris: OECD, 1985); Nicholas

A. Ashford and George Heaton, “Regulation and Technological Innovation in the Chernieal Industry, ” Law and Contemporary Problems, VOI

46, No, 3, 1983, pp. 109-157.

1~ Robert Crandall, “pollutionCon~ols and Productivity Growth b Basic ~dusties, ‘‘ Productivity Measurements in RegulatedIndustries,

ed. Thomas G. Cowing and Rodney E. Stevenson (New York, NY: Academic Press, 1981).

105 For exmple, acCordlng t. one pe~ole~ indus~ Some, in tie co~se of reb~ding pm of a p~ole~ refinery in Texas, the company

sought to also rebuild older inefficient furnaces (making them more energy efficient and less polluting), However, the State indicated it would

not be able to issue a permit for the furnace rebuild for at least 9 months to a year. Because the other construction work was to be completed

before this, the company choose to not improve the furnaces, since this would have involved shutting down production at a later date.

106 Roy Ro~we]l, op. cit., footnote 103.

’07 Wesley A. Magat, ‘‘The Effects of Environmental Regulation on Innovatio~’ Law and Contemporary Problems, vol. 43, winter-spring,

1979, pp. 4-25.
216 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

treatment diverts attention away from fundamental process changes. In addition, a rigid regulatory

system can make firms unwilling to risk seeking

new ways to solve environmental problems, for

fear that if the solutions do not fully meet

environmental regulations, they will waste time

and money, and be penalized for noncompliance.

Tight compliance deadlines may also lead firms

to choose existing technological solutions rather

than develop new, potentially more effective

ones.

108 Finally, the current regulatory system

gives firms little benefit if they outperform

regulatory standards; as a result, they have little

incentive to innovate.

I Impacts on Trade and Industrial Location

The impact of environmental regulation on

trade and overseas investment was discussed in

detail in a prior report in this assessment, Trade

and Environment: Conflicts and Opportunities,

and therefore will be only summarized here.109

Environmental regulation could affect trade negatively if, by raising the costs of U.S. goods

relative to producers in nations with lower

environmental control costs, U.S. exports fell and

imports rose. Some studies find it impossible to

isolate the effect of environmental regulation on

trade because other variables such as the cost of

capital and labor and exchange rate fluctuations

overshadow the effects of increased environmental regulation costs.110 A recent OECD workshop concluded that environmental regulations

“have had minimal effects on overall trade

balance between OECD and non-OECD countries." 111

However, other studies claim larger impacts.112

One study concluded that a l-percent increase in

cost due to environmental regulation would have

resulted in a net reduction of the U.S. balance of

trade of $6.5 billion in 1982. 113 The study

concludes that this is a small effect. However, it

is worth noting that, if a similar impact had

occurred in 1991, the $101 billion U.S. merchandise trade deficit that year would have increased

by $8.6 billion. Yet another study found that if a

hypothetical pollution tax were imposed on

imported Mexican products equal to the difference in environmental control costs borne by

counterpart U.S. industries, Mexican exports to

the United States would decline 1.2 to 2.6

percent.114 This would reduce U.S. imports from

Mexico by $600 million a year. Moreover, most

108 Nicholm A- A~hf@ 14A u~~d T~c~ology.B~ed s~tegy for ~co~o~~g concerns About Risks, costs, and @llly hl SetNational Environmental Priorities, ’ paper presented at the Conference on Setting National Environmental priorities, Resources for the Future,

NOV. 16-17, 1992.

109 See ~so, pad po~ey, A-J~fe, Steven Peterson ~d Robefl S@viIIS, Environ~nta/ Regu/arions and the Competitiveness Of U.S.

Indusr?y (Cambridge, MA: Economics Resource Group, 1993).

I 10 U.S. Department of Commerce, “U.S. Pollution Control Costs and Iriternationzd Trade Effects-1979 Status Report” (mimeo),

September 1979, p. 3; also J. Tobey, “The Effects of Domestic Environmental Policies on Patterns of World Trade: An Empirical Tes~”

Kyklos, vol. 43, No. 2, 1990, pp. 191-209.

111 ~ga~tionfor~ono~c C& OWrationand Developmen~ “EnvironmentalP olicies andIndustrial Competitiveness, ” (ptis: OECD,

1993).

112 ~ga~tion for Economic c~opration ~d Development Jfacroco~omics Evaluation o~Environmenr~/ Programmed, 1978, p. 11,

OECD, h4acro-Economic Impact of Environmental Expenditures (Paris: OECD, 1985); Carl A. Pasur@ “Environmental Control Costs and

U.S. Effective Rates of protectio~” Public Finance Quarterly, vol. 13, No. 2, April 1985, pp. 161-182; Joseph P. Kalt, “The Impact of

Domestic Environmental Regulatory Policies on U.S. International Competitiveness,” A. Michael Spence and Heather A. Hazard (eds.),

International Competitiveness (Cambridge, MA: Ballinger Publishing Co., 1988); Carl Pasurka and Deborah Vaughn Nestor, “Trade Effects

of the 1990 Clean Air Act Amendments,’ report prepared by the Economic Analysis and Research Branc& Of17ce of Policy, Planning and

Evaluation, U.S. EPA, Mar. 24, 1992.

113 H. David Robison, ‘‘Industrial Pollution Abatement: the Impact on Balance of Trade, ’Canadian Journal ofEconomics, vol. 21, No. 1,

February 1988,

114 pa~ck~w, “Trade M~sures and Environmental Quality: Implications for Mexico’s Exports, ” paper presented at the SympOSiUm on

International Trade and the Environment, sponsorwi by the World Bank, WashinttgoIL DC, Nov. 21-22, 1991.
Chapter 7–Environmental Requirements and US. Manufacturing Industry Competitiveness I 217

studies rely on data that, as discussed previously,

appear to underreport environmental compliance

costs. Higher costs would result in greater impacts.

Some studies suggest that sectoral effects are

more significant than economy-wide effects.115

For industries with high compliance costs, such as

pulp and paper, copper refining, and steel, the

effects on trade can be larger.

116 For example,

OTA concluded that the cost to the U.S. copper

industry, particularly copper smelting, of environmental regulation “has been large, with substantial negative impacts on competitiveness and

capacity. "

117 Robinson found that between 1973

and 1982 the United States increased its net

imports of goods more from industries with

higher environmental control costs than from

those in which such costs were lower. 118 Because

the products of many highly polluting industries

tend to be standardized intermediate goods purchased by other industries (e.g., chemicals, petroleum, minerals) with high price elasticity of

demand, small changes in price may cause larger

changes in sales.119

Some argue that uneven regulation may induce

U.S. firms to migrate to countries with lower

levels of regulation-the so-called pollution haven

effect. There are reasons to suggest that the

migratory effect of environmental regulation is

likely to be less than the trade effect. Most

economy-wide studies suggest a low impact on

investment from differing environmental regulation; 120 one study found no significant effects.121

A study of U.S. maquiladora plants (plants

locating in Mexico near the U.S. border through

a special Border Industrialization Program) found

no relationship between the level of low Mexican

regulations and U.S. investment.122 However, in

part, these findings may result from limitations in

research methodologies making it difficult to

isolate effects of environmental regulations from

the effects of a large number of other variables

(e.g., labor costs, market access).

On the other hand, anecdotal evidence, case

studies, and surveys of businesses suggest that

lower environmental regulations do play a role.

For example, one study found that 26 percent of

maquiladora operators in Mexicali cited Mexico lax environmental enforcement as a major or

important reason for their relocation there 123 (see

box 7-C).

I IS Organ17AtiOn for ~OnOmic Co.operationand Development, su~~RepOrt Of (he wor~shop On En\~ironmenfalPolicies and Industn”al

Competitiveness, 28-29 January 1993 (Paris: OECD, 1993).

116 U,S, Dep~f~ent of Commerce, 1979, op. Cit., footnote 1~, p. 12; public ReSe~Ch ~ti~te, TheE&eCt~ ofEfluent Discharge ~intira~zons

on l“oreign Trade in Selected Industries, Report to the U.S. National Commission on Water Quality (Arlington, VA: February 1976).

117 U.S. ConWes~, Offlce of Tcchnoloa Assessment, copper: Technology and cornpe~tiven~~~, OTA-E-367 (Washingto~ DC: U.S.

Government Printing Office, September 1988).

1 Is H. David Robinson, “Industrial Pollution Abatement: the Impact on Balance of Trade, ” op. cit., footnote 113.

119 General Ageement on Tariffs and Trade (GA~ Secretariat, ‘‘Trade and the Environment, ” Feb. 12, 1992, p. 20.

I 20 For ~~~ple, see kgo ‘alter$ ‘ ‘Environmentally Induced Industrial Relocation to Developing Countries, ” Seymour J. Rubin and Thomas

R. Graham (eds.), Environment and Trade (hmdon: Frances Pinter Ltd., 1982); Hege Merete Knutsen, “Internatiotud Location of Polluting

Industries: Review of the Literature, ” Department of Human Geography, University of Oslo, Norway, unpublished manuscrip~ 1991.

Iz1 H Jeffrey, ~omd, Pol{ution ad the Srruggzefor the World Product (New Yorh NY: Cmbridge University ‘esst 1988).

122 Gene M. Grossman and Alan B. KIWeger, ‘ ‘Environmental Impacts of a North American Free Trade Agreemen~’ paper presented at the

conference on the US ,-Mexico Free Trade Agreement sponsored by the Mexican Secretmy of Commerce and Industrial Development, Oct.

8, 1991.

123 ~fieenpacent of me ffis said tit w~er env~onmental legislation w~ a ~jor factor in selecfig Mexico, while another 13 percent

said it was an important factor. (Roberto Sanchez, “Health and Environmental Risks of the Maquiladora in Mexicali, ” Natural Resources

Journa~, vol. 30, winter 1990.) One economic development officiat for the Mexican state of Sonora suggests, “The red tape and expense of

Amencanenvwonmental law is a powerful incentive for some companies to locate in Mexico. I’ve had a couple of companies come down solely

for that reason.” (Quoted in Sandy ToIan, “Hope and Heartbreak” op. cit., footnote 55.)
218 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Box 7-C-Regulations and the Furniture Industry in Los Angeles

Environmental regulations in the Los Angeles area are among the strictest in the nation,

particularly with regard to air pollution emissions. As a result, regulations have been singled out as a

contributor to the relocation of industry out of Southern California. Disentangling the importance of

environmental regulations in this industrial migration is difficult, as a host of other factors seem to be

operating, including high direct and indirect labor costs, high taxes, land costs, and declining quality of

life-including pollution.1

The wood furniture industry has been the focus of significant attention because of strict regulations

on air emissions. California ranks second in the nation in the production of household furniture; about

half of its furniture firms are within the South Coast Air Basin.2 Claims have been made that furniture

manufacturing is being displaced from the Los Angeles economy to Mexico for environmental reasons.

The California industry is dominated by a large number of small firms.3 These firms pay relatively low

wages, 4 employ relatively low-skilled workers, have low levels of technology adoption, and have low

profit margins. Avery large percentage of the furniture industry workforce is Hispanic. The industry has

sought to retain competitive advantage through low costs, while in turn depending on low wage rates.

The segments of the industry producing coated wood furniture is particularly affected by environmental

regulations. The environmental impacts of furniture manufacturing are due to t he presence of solvents

in wood finishing products. Within this segment, the ability to control solvent emissions varies widely

according to the nature of the product being finished. Much of the increase in regulatory pressure on

the wood furniture industry came about as a result of local regulations in 1987, which were directed at

solvent and coating use for wood furniture producers.

Reported pollution control costs are relatively low for California furniture firms. In 1990, they

reported $9.7 million in pollution control expenditures.5 Even assuming that these costs fall solely on

a selected group of SIC codes that use wood finishes, they amounted to only about 0.6 percent of sales

and about 1.2 percent of value added. However, air regulations in the furniture industry can reduce

productivity and lower product quality. For example, new coatings that comply with South Coast air

quality rules often take longer to apply and dry, there are more rejects, and finish quality is poorer. 6

These costs are not reflected in the reported expenditure figures. Increased costs of coatings maybe

excluded. (Some savings in coatings are obtained from switching to high-volume, low-pressure spray

guns.)

Other factors affect the decisions of these firms to move out of Los Angeles, including salary costs

(especially worker’s compensation), the rising cost (or value) of land in relation to the value added of

the production facilities, and the desire to retain existing advantageous permit conditions when facilities

f Barry Ft. ~dlik and Robert H. Herzstein, Business Chafe In !kWherf? Cdifomia (Rosmead, CA:

Southern California Edison, November, 1991).

z LLJ~ f-fi~, ‘Lne Role of Environmental Regulations in Industrial Location: Furniture Manufacturing in

Southern California” Masters thesis, Department of Urban Planning, UCLA, 1992, p. 92.

3 Over 70 percent of the establishments in 1989 had less than 50 employees, and 54 percent had kss than

20 employees. ibid.

4 wages range from an average of $5.11 an hour for assemblers wfth few skills, to $10.97 for rnaintenanCe

mechanics. Furniture industry wages were 65 percent of regional manufacturing average in 1987, down from 87

percent in 1977. ibid., p. 43.

5 However, because Rule1136 did not get adopted until August 1988, It is P(Xsible that ~m@ianCe ~sts Nil

increase. These costs are for establishments with greater than 20 employees. Share of saies figures were

normalized to reflect this.

6 Luci Hise, op. cit.
Chapter 7–Environmental Requirements and U.S. Manufacturing Industry Competitiveness 219

must move or expand rather than having to meet new source standards in the region.7

In contrast, Mexico had no established standards regulating emissions from paint coatings and

solvents in wood furniture manufacturing.* In 1991, Mexico employed approximately 255 pollution

inspectors, roughly the same number of inspectors for the South Coast Air Quality Management District,

which covers four counties in the Los Angeles area.9

While the difference between environmental regulation in Los Angeles and Mexico is stark,

differences in wages are also large. Mexican furniture industry wage levels are less than 10 percent of

Los Angeles wages .10 Because of the high cost of living, Los Angeles Iabor costs are also one-third more

than in parts of Texas, Colorado, and Oklahoma.11 Moreover, workers’ compensation is nonexistent in

Mexico and quite high in California. From 1980 to 1989, workers compensation rates more than doubled

for wood furniture manufacturers, from $9.06 to $19.40 per $100 dollars of labor costs.12 Other

worker-related costs are also higher, including health care and retirement benefits, and expenses

related to worker safety and health. Southern California utility rates areas much as 50 percent higher

than those in other States. Land prices are among the highest in the Nation. The 1990 average price

for a single family home in the State was $210,000, more than double the national average.13

The U.S. General Accounting Office found that between 11 and 28 wood furniture manufacturers

in the Los Angeles area relocated to Mexico between 1988 and 1990, taking with them 960 to 2,547

jobs.14 About 80 percent of the firms cited stringent air pollution standards as well as lower labor costs

as major factors in t heir location decision. In Mexico, these firms faced no air pollution standards fort he

application of paint coatings and solvents.15 But the majority of firms that relocate from Southern

California go to other U.S. States, rather than to Mexico.

Clearly, the ability of manufacturing industries to stay in an area with increasing population, rising

property values, and associated environmental pressures that drive more stringent environmental

standards is heavily dependent on the degree of value added of the activity in question. Low

value-added industries that face environmental pressures will have a harder time staying in the area.

Differences in labor compensation (wage rates, benefits, workmens’ compensation insurance) between

furniture workers in Mexico and Los Angeles appear to be driving the relatively small amount of

relocation that is occurring. However, strict environmental regulations governing the furniture industry

in Los Angeles and their absence in Mexico appear to be exacerbating this situation.16

7 Konradvon Moltke, “American Industry and the Environment: Implications forTrade and Competitiveness,”

contractor report prepared for the Office of T~hnology Assessment, November 1992, p, 51.

8 Lljci t+se, op. cit.

9 “can Mexi~ Clean Up Its Act?” Los Angeles Times, November 17, 1991, p. Al.

10 GAO reports that the average wage in wood furniture in Los Angeles was $8.92 an hour, while H was $0.77

for wood furniture workers in the maquiladora program (p. 4).

11 Ibid. In 1991, average hourly earnings of workers in Los Angeles were $11.17 while in San Antonio, Tx

they were $8.19, In the nonmetro areas of these States, the wage rates are lower. Bureau of Labor Statistics,

En?p/oyment and Earnings (Washington, DC: May 1991).

12 Ann M. ~SperanM, “Air QuaJity R~ldatiOnS and Their Impact on Industrial Growth in California, Based

on Census Data: A Case Study of the South Coast Air Quality Management District Rule 1136 and the %od

Products Coating Industry,” Masters thesis, Department of Environmental Health Saences, University of California,

1991.

13 Richard L. Stern and John H. Taylor, “IS the Golden State Losing k?” l%rbes, OCtOber 29, 1990, p. 67.

14 U.S. congress, U.S. General Accounting Office, “U.S.-Mexico Trade: Some U.S. Vkod Furniture Firm

Relocated From IJN Angeles Area to Mexico,” April 1991.

1

5 Ibid.

16 Luci HiSe, op. cit; Anne L0Sp0ranC8, Op. cit.
220 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Case studies may find greater impacts because

pollution control requirements affect some industries more than others. Industries such as mineral

processing, toxic products, and intermediate organic chemicals, which face relatively high compliance cost, are more likely than others to

relocate for environmental reasons.124 For example, one 1988 study found that U.S. operations

that moved to Mexico were either relatively

labor-intensive, low-polluting light manufacturing operations that moved principally to take

advantage of low wages, or producers of hazardous waste such as asbestos.125 As a result, for the

subset of industry that is labor-cost sensitive, is

relatively footloose, or is making new investment

decisions, and has high environmental compliance costs, weak environmental regulations can

add to the cost advantage gained by low labor

costs.

However, some analysts maintain that environmental regulations could positively affect trade.

One argument is that, if the United States is a net

exporter of environmental goods and services

(including environmentally preferable technology), then the country receives net economic

benefits that should be counted against costs of

regulation (see ch. 5). Some also argue that, even

if U.S. firms are subject to more stringent

regulations now, other countries’ regulations will

catch up. U.S. firms could then beat an advantage

having had more experience in producing goods

able to meet strict standards. Most importantly,

firms in other countries may have to invest sizable

amounts to come up to speed and, because they

have less experience in dealing with pollution,

may do so at relatively higher costs. These nations

and their resident firms may then be at a

competitive disadvantage.126 In the meantime,

U.S. firms still face higher costs.

INDUSTRIAL LOCATION WITHIN THE

UNITED STATES

A number of studies have examined ho w

environmental regulations affect investment and

growth among U.S. States. Their finding is that

differences in environmental regulation are not a

major factor governing industry location within

the United States. However, it may affect the

location of highly polluting industries and influence the location of industry between adjacent

States. For example, one study found no statistically significant effect of State environmental

regulations on the location of most branch

plts o

lzT However, the results regarding the

effect on highly polluting industries was less

conclusive. A study of the location of motor

vehicle branch plants found that while environmental regulations had little effect on location,

there was some evidence that firms were deterred

at the margin from locating in regions where

ground level ozone problems were particularly

severe.

128 According to a survey and interviews

with managers responsible for 162 new branch

plants of large U.S. corporations, traditional

location factors, such as labor cost and availability, access to markets and materials, and transportation were the key determinants of location

choices between regions.129 As expected, environmental regulations were more important for

more polluting plants than less polluting ones, but

even for these plants, other factors carried greater

[~ Ibid.

IM ~O~d, op. cit., footnote 121.

126 Mormvcr) ~ do~~ s. ~c. may rely hcav~y on tcc~ology and products developed in MtiOXLS with more advanced environmental

regulations.

127 TfiB-, ~ ~~e Eff~~s of Environmen~ Re~]ation on Business ~cation in tie United States, GroWth and change, S~ er 1988,

In Vlrgfia D. McCoMell and Robert M. Schwab, ‘‘The Impact of Environmental Regulation on Industry bcation Decisions: The Motor

Vehicle Industry, Land Economics, vol. 66, No. 1, February 1990, pp.67-81.

129 HowmdStiord, t ‘Environmental Motectionand Industri~ ~atio~Anna/~o~r~eA~socia~on ofAmerican Geographers, VO1. 75, No.

2, 19852 Pp. 227-240.
Chapter 7–Environmental Requirements and U.S. Manufacturing Industry Competitiveness 221

weight. One of the major concerns with environmental regulations was the uncertainty about

when necessary permits would be obtained.

A study using an econometric model found that

States with more stringent environmental standards experienced stronger economic growth in the

1980s than States with weaker regulations.130

One reason for this counter-intuitive finding may

be that many States with high concentrations of

industry not only have more pollution (and thus a

need for stronger regulations), but also have

nonregulatory locational advantages (e.g., large

markets, a large number of input suppliers, good

transportation and other infrastructure, and a

profusion of vital services). Compliance costs are

likely to be higher in these areas than in lessdeveloped and slower growing places.

CONCLUSION

The U.S. regulatory system for dealing with

industrial pollution and wastes was set up at a

time when the Nation had relatively few worries

about international economic competition and the

national economy was more insulated from foreign competitors. In a more closed economy, high

regulator-y costs could be passed on to consumers.

However, in a more global economy with highly

competitive foreign fins, many prices are determined by world markets, and firms are less able

to pass on the costs of regulation.

Given the assumption that U.S. regulatory

standards will continue to be as strict as they now

are, or get even stricter in the next decade, there

are several possible options for reducing the

competitive disadvantage of differential compliance costs and requirements. For example, the

United States can work with other nations to

encourage them to raise their standards. It also

could work to develop new technologies that

would make it cheaper for firms to comply with

U.S. requirements. In addition, the United States

can modify its environmental regulatory system

to make it easier for U.S. industry to comply with

regulations, while still meeting environmental

goals. The latter issues are the topic of chapters 8

and 9.

1.30 Stephen M. Meyer, ‘‘Environmentalism and Economic Prosperity: Testing the Environmental Impact Hypothesis, ’ unpublished paper,

MIT Project on Environmental Politics and Policy, Cambridge, MA, Oct. 5, 1992.
222 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

APPENDIX 7-A. POSSIBLE SOURCES OF

UNDERREPORTING OF POLLUTION

ABATEMENT COSTS

The U.S. Bureau of the Census’ Pollution

Abatement and Control Expenditure (PACE)

surveys are the principal source of information on

U.S. manufacturing pollution abatement and control compliance costs. However, a number of

researchers have suggested that these surveys

may underreport the true cost of compliance. It is

difficult to accurately quantify the extent of

underreporting. Adding the costs of those factors

discussed below that are quantifiable increases

costs by approximately 50 percent. However, 60

percent of this increase is related to interest costs,

which should or should not be used depending on

the definition of costs. The value of other factors

cannot at this time be quantified. As a result, a

reasonable but very rough estimate suggests that

these costs may be underestimated by as much as

25 percent. There area number of areas that may

be underreported, some of which may be addressed by more comprehensive survey methods.

I Underreporting from Omitted Cost Items

PRODUCTIVITY LOSSES

If a firm has to stop production because of

environmental problems, costs are incurred. If it

has to substitute new materials or processes that

are less productive than original ones, productivity could decline. More significantly, if environmental equipment is less productive than other

equipment, these costs will not be included.

However, most pollution control equipment is

added to the end of the production process and is

not likely to significantly affect production process rates. Moreover, as discussed in chapter 8, at

least some inprocess changes boost productivity

as they improve energy and materials efficiency.

PRODUCT QUALITY IMPACT

In some cases, environmental regulations lead

firms to make changes in materials or processes

that negatively effect product quality. For example, because of stringent U.S. volatile organic

compounds (VOCs) regulations, U.S. automakers

use ‘‘high-solid’ paints that sometimes produce

lower gloss finishes. In contrast, Japanese automakers can use ‘low-solid” paints that allow for

a premium “high gloss’ finish, particularly on

some of the higher priced models.1

POLLUTION CONTROL COSTS EMBEDDED

IN OTHER PURCHASES

For many industries, the costs of materials and

supplies is higher because of environmental

regulations. For example, firms in industries that

use large amounts of electricity (e.g., industrial

gas producers) pay higher prices for electricity

because of the regulations on electric utilities.

The PACE survey would identify the utilities’

higher costs due to environmental regulations, but

not added costs for utility customers from higher

electric rates.

INTEREST EXPENSE

The PACE survey does not include interest

expense for equipment. Using a real interest rate

of 7 percent and a 20-year life for investments,2

interest expense increases the costs of capital

investments by 88 percent. This would add

another $6.5 billion to manufacturing compliance

costs to the $7.4 billion invested in 1991, raising

total compliance costs ($21 billion) 31 percent.

FEES AND TAXES

Census figures do not include fees and taxes,

which, while currently small, are likely to be a

growing share of environmental costs, particularly as new fees related to the 1990 Clean Air Act

1 American Automobile Manufacturers Association The Effect of Air Pollution Control L.aws on the International Competitiveness of the

U.S. Automobile Manufacturers (Washington DC: AAMA, Jan. 5, 1993).

2 U.S. Environmental Protection Agency (EPA) uses a 7-percent interest rate to estimate environmental compliance costs, and assumes a

useful life of most pollution control equipment at 20 years. (EPA, Environmental lnvesrmenrs: The Cost ofa Clean Environment, Washingto~

DC: Island Press, 1991).)
Chapter 7–Environmental Requirements and U.S. Manufacturing Industry Competitiveness I 223

Amendments take effect. For example, Boeing’s

fees and taxes for environmental permits in the

United States increased from $23,000 in 1985 to

$2 million in 1991, while its overall costs for

environmental compliance exceed $100 million

annually. 3 In addition, taxes on industry to

support the Superfund Trust Fund are not reported

in the Census data. In 1990, the domestic petroleum industry paid $295 million, the chemical

industry paid $273 million, and manufacturers

paid approximately $252 million, for a total of

$820 million. Leaking underground storage tank

trust fund taxes were approximately $30 million

in 1990. Together, these two taxes add an

additional 4.1 percent to total annual pollution

control expenditures.4

COSTS OF REGULATORY DELAYS

Environmental regulation can delay new investments, as firms wait to obtain permits.

Calculating the impact of these delays on costs is

very difficult. However, as competitive pressures

on U.S. manufacturing have intensified, the

potential impact of regulatory delays becomes

more serious. Shorter product life cycles, more

rapid product introduction, more customized and

niche products, and increased use of flexible

manufacturing systems require firms to be able to

make more frequent and rapid changes in production. To the extent that the current regulatory

system is based on an earlier model of manufacturing, characterized by long runs of standardized

products with few changes in operating conditions, it can potentially hinder the ability of

manufacturers to make changes needed to respond to changing market demands. As a result,

regulatory delays, and slow and inflexible permitting processes can sometimes impede a fro’s

efforts to remain competitive.

LOSS OF PROPRIETARY INFORMATION

In some industries, particularly process industries, information reported to regulatory agencies

that becomes available to the public maybe used

by competitors to make inferences about the

firm’s manufacturing process. For example, since

basic synthesis methods have been published for

most commodity chemicals, a chemical company’s competitive edge is often based on knowhow or production techniques that provide small

but significant advantages for efficiency, yield,

and cost.5 A recent study by the Chemical

Manufacturers Association suggests that the reports required by some State environmental laws,

if made available to competitors, combined with

readily available information at the Federal level,

would give them significant opportunities to

‘‘reverse-engineer’ proprietary products and processes.

6 One firm indicated to OTA that they had

little faith in environmental agencies’ ability to

maintain confidentiality of sensitive company

documents, and that the company itself used this

source of information to gain information about

their competitors. In part the problem stems from

the fact that there appears to be no uniform

definition between agencies and programs of

what constitutes proprietary information. Moreover, many State environmental agency staff may

lack training or experience in this critical area,

RESEARCH AND DEVELOPMENT COSTS

R&D costs are also not included, but are likely

to be small. The National Science Foundation

estimates that in 1990, total R&D by the private

3 In 1990, Boeing paid approximately $2 million for water discharge and air emission fees and permit charges, $2 million for land disposal

fees (tipping fees), and $6,5 million to publicly operated sewage treatment plants (POTWS). (Information provided by the Boeing Co.)

4 U.S. Environmental Protection Agency, Office of Solid Waste and Emergeney Response, “Who Pays for Superfund,” November, 1990.

Also unpublished data from this office.

5 Impac( of the Chemical WeaponJ Convention on the U.S. Chemical Industry-Background paper, OTA-Bp-lSC-106 @J.S, con~~s~

Office of Technology Assessment, Washington, DC: U.S. Government Printing Office, August 1993).

e SRI International, Analysis of Impact of US. Federal and State Reporting Requirements on Sensitive and Propn”etary Company

Information (Menlo Parh CA: SRI International, Project 3307, July 1992).
224 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

sector for pollution abatement was approximately

2.4 percent of private sector pollution control

costs. 7 However, much of this R&D was for

automobile mobile source controls, new products

(e.g., reformulated gasoline), and the environmental goods and services industry. R&D by

firms toward compliance with process regulations

appears to be less. For example in the petroleum

and pulp and paper industries they represented

only 2.2 and 1.0 percent respectively of annual

pollution control compliance costs.8

PENALTIES AND FINES

In Fiscal Year 1991, EPA assessed a total of

$87 million in fines and penalties, not all of it to

manufacturing firms.9 While exact data are not

available on State fines and penalties, estimates

suggest that they total less than $280 million a

year.

10 Assuming that some local air pollution

control authorities also levy frees, it appears that

no more than $400 million is levied in fines.

Including all these penalties would increase

pollution control costs by approximately 1.9

percent.

OTHER COSTS

The survey also excludes several other costs,

including: land needed for pollution control

equipment; noise abatement expenditures; and

expenditures for complying with regulations to

protect worker health and safety, which can be

substantial in particular industries. In addition,

the potential negative effect of the Comprehensive Environmental Response, Compensation,

and Liability ("Superfund") on business access

and cost of credit is unknown.11

B Underreporting From Lack of Full

Knowledge of Costs

ENVIRONMENTAL COSTS EMBEDDED IN NEW

CAPITAL EQUIPMENT

Companies sometimes do not report the environmental costs embedded in new generations of

production equipment. For example, in reviewing

reported project expenditures for a segment of the

U.S. pulp and paper industry, OTA found that the

share of new equipment costs that were environmental were not reported as such. If these

expenditures are included, environmental capital

costs as a share of total capital costs increase from

approximately 12 percent to between 15 and 16

percent. 12 Assuming similar shares for all capital

investments, total pollution control costs would

increase 10 percent.

ADMINISTRATIVE COSTS

PACE does not directly ask for costs related to

environmental regulatory compliance, environmental auditing, recordkeeping, training, and

legal services to comply with regulations, particularly at the corporate level, as opposed to the plant

or facility. However, while these costs are not

insubstantial, relative to overall operating and

capital costs they are small. For example, in the

pulp and paper industry, corporate environmental

administrative costs were only 3.5 percent of

7 Unpublished dat% National Science Foundation,

S American Petroleum Institute, Petroleum lnaktry Environmental Peq%rmance, 1992 (Washington, DC: API, 1992); National Council

of the Paper Industry for Air and Stream Improvement Inc., A Survey of Pulp and Paper Industry Environmental Protection Expenditures -

1991 (New York, NY: NCASI, 1992).

9 Interview with Rick D@, Environmental Protection Agency, December 1992.

10 EPA does publish data on ties levied by statti under RCRA. In FY91 these totaled $148.6 million. RCRA fines appear tO Constitute N

least haLf of all fines, with fines for air and water accounting for the other half.

11 ~em is some evidence that banks are less likely to make IO~S to businesses witi gro~d cent arnination on site. U.S. Environmental

Protection Agency, Office of Policy, Plannin g and Evaluation “A Prelidnary Report on the Indirect Effects of the Superfimd Program”

(Washingto~ DC: U.S. EPA, May 20, 1992.

12 Neil McCubb@ “Environment and Competitiveness in the Ptdp and pa~r bdus~,” contractor report prepared for the Office of

Technology Assessment, January 1993.
-——

Chapter 7–Environmental Requirements and U.S. Manufacturing Industry Competitiveness 225

operating costs.

13 However, administrative and

legal fees in the Resource Conservation Recovery

Act (RCRA) and Superfund proceedings can be

larger. 14 These costs can be larger as a percent of

sales in small and medium-sized firms.

MANAGEMENT AND ENGINEERING STAFF TIME

Companies may not know or accurately report

the managerial and technical time devoted to

environmental issues. These issues, particularly

related to hazardous waste, occupy a significant

portion of time for some top executives—time

that might otherwise be spent on matters more

central to the corporation’s function.15 In addition, in many firms, a number of department

heads, technicians, and engineers devote some

share of their time to environmental compliance,

which may not be reported.

ENVIRONMENTAL TRAINING

Training for environmental compliance, which

can sometimes be a significant share of corporate

training expenses, is often not known or reported.

OTHER COSTS

Other items, such as asbestos removal, transformer replacement to eliminate PCBs, and underground storage tank replacement, may also not

be reported as environmental expenditures.16 In

addition, some operating costs, such as energy use

by abatement equipment, may not be separately

recorded.

13 NCASI, A .~lIne), Of pulp ad paper Industry Environmental Protecn”on E~enditures -1990, Op. cit., foo~ote 8.

.

14 For eX~pIC, potiey est]mates that costs of litigation and other noncleanup related expenses could exceed 20 percent of tot~ Superfund

cleanup costs. Paul Portney, ‘ ‘The Economics of Hazardous Waste Regulation” U.S. Waste Management Policies: Impacts on Economic

Growth and lnvesfmenr Strategies, Monograph Series on Tax and Environmental Policies and U.S. CapitaJ Costs (Washington, DC: American

Council for Capital Formation, Center for Policy Research, 1992).

15 John H. Sheridan, “Environmental Issues Sap Executive Time, ” l?tdustry Week, Mar. 16, 1992.

lb One report to EPA suggests a small degree of underreporting of capital investments due to inadequate information ~d a ~elY effect of

underreporting of operation and maintenance costs. However, the size of this underreporting is not known. Firms also appear to underreport

estimates of recovered costs, which would offset to some degree the undemeporting of operation and maintenance costs. Beth Snell and Bob

Unsworth, “Evaluation of Uncertainty Associated With Air Pollution Abatement Compliance Cost Estimates-Stationary Sources”

(memorandum) (Cambridge, MA: Industrial Economics Inc., Oct. 13, 1992).
226 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

APPENDIX 7-B. NATIONAL DIFFERENCES

IN POLLUTION CONTROL STANDARDS

AFFECTING MANUFACTURING

INDUSTRIES

It is very difficult to develop accurate crossnational comparisons of environmental regulations and approaches. With only a few exceptions

(e.g., some air pollution standards), relatively

little information is available.

1 Air Pollution

The most widely available data on ambient

standards concern air quality, particularly for

sulfur dioxide (SO2

), total suspended particulate

matter (TSP), and nitrogen oxides (NOX

).l International comparisons of ambient air standards

suggest that U.S. standards are very high, although nonattainment remains a major problem.

Countries such as Germany and Japan may have

higher standards for some pollutants. German

standards were especially high, largely in response to concerns with acid rain. In Japan, local

standards are often stricter than national rules,2

although it is unclear the degree to which industry

complies with more stringent local standards.3

Comparisons of emission standards show similar

patterns. Again, U.S. standards are among the

strongest, although Japanese and German regulations of SO2 and NOX are stricter. However,

countries regulations vary by categories of sources

and fuels. For example, in the United States, older

sources in most cases have not been required to

meet the same performance standards as new

facilities, although recent changes will require

more retrofitting by utilities. Germany and Japan

have required more retrofits. However, while the

U.S. Clean Air Act regulates 189 toxic pollutants

and 6 criteria pollutants, Japan’s Air Pollution

Control Law designates only 10 regulated pollutants.4

U.S. standards for some emissions, such as

total suspended particulate (TSP) and volatile

organic compounds (VOCs,) appear to be the

highest in the world. When fully implemented,

the 1990 Clean Air Act amendments on air toxins

will probably be the most demanding. Notably,

Japanese regulations of VOCs and hazardous air

pollutants are much weaker than those in the

United States, and the guidelines are not generally

followed. 5 For example, in the organic chemical

industry, the Japanese regulate only a few selected organics as toxics. VOC emissions from

Japanese automobile painting are subject to

minimal regulations, allowing the use of “lowsolid’ paints that enable a higher gloss finish than

from paints with higher solids.6 In contrast, in

response to U.S. VOC regulations, automakers

here use higher-solid paints, making it more

difficult to achieve high gloss finishes. German

controls on automobile painting more closely

approximate those of the United States, while

1 Raymond J. Kopp, Paul R. Portney, and Diane E. DeWitt, International Comparisons of Environmental Regulation (Washington DC:

Resources for the Future, September 1990); Clean Air Around the World: The Law and Practice of Air Pollution Control in 14 Countries in

5 Continents (Brighto% England: International Union of Air Pollution Prevention Associations, 1988); also, Gregory C. Praw “Air Toxics

Regulation in Four European Countries and the United States,” International Environmental Aflairs, vol. 4, No. 2, spring 1992, pp. 79-100.

2 Energy and Environmental Analysis, Inc., Comparison of U.S. Air Quality Standards and Controls to the Air Pollution Controls in Japan,

Germany, Canadk, Ma”co, and South Korea, prepard for Of.fke of Policy Analysis and Review, Office of Air and Radiatiom U.S.

Environmental Protection Agency, February 1992 (draft).

j I.muise Jacobs and high Harris, Public-Pn”vate Partnerships in Environmental Protecn”on: A Study of Japanese and American

Frameworks for So/id Wastes and Air Toxics (Lexingto~ KY: The Council of State Governments, 1991).

4 Energy and Environmental Analysis, op. cit., footnote 2.

5 Energy and Environmental Analysis, Inc., op. cit., footnote 2, p. 1-11. See also “Interview With Dr. Yasumoto Magara: Amendment of

Drinking Water Quality Standards,” Water Report (Tokyo), vol. 1, No. 4, 1991.

6 in part, this maybe because as a strategy to control ground level ozone, the Japanese control NOX more heavily than VOCS. Energy and

Environmental Analysis, Inc., ibid,
. .

Chapter 7–Environmental Requirements and U.S. Manufacturing Industry Competitiveness 227

Canadian controls are weaker.7 Most developing

nations, including Korea and Mexico, have no set

standards for VOCs, including automobile painting operations. In Mexico, furniture firms face no

air pollution standards for the application of paint

coatings and solvents.8

I Water Pollution

In part because standards are often set by

subnational governments, it is more difficult to

obtain data and compare water regulations between nations. In spite of this, there is some

evidence that many other nations regulate water

pollution less stringently than the United States.

For example, Japanese regulations to protect

ground water were established only in 1990.9

While the Japanese Government has moved to

reduce air pollution, it has taken much less action

to reduce water pollution and contamination of

drinking water.10 Japan lags behind other industri-. 

alized countries in setting chemical standards in

drinking water, and currently regulates only 26

contaminants for water quality .11 Water controls

in other countries are also weaker. 12 For example,

Canada is only now requiring that all pulp and

paper mills install secondary treatment, while

virtually all U.S. mills installed secondary water

treatment after the mid-1970s.13

1 Hazardous Waste

U.S. laws regulating hazardous wastes are very

strong compared to most countries. While many

European countries have laws similar to the

Resource Conservation and Recovery Act (RCRA),

none is as restrictive and comprehensive.14 For

example, while the United States lists approximately 500 wastes as hazardous, the United

Kingdom designate 31, the French control approximately 100, and the Germans restrict 348.15

One estimate suggests that only 20 percent of

Italian toxic waste is disposed of properly, with

the rest either stockpiled, dumped illegally, or

exported. 16 Of the six distinct classifications of

waste established by OECD member countries,

only the United States regulates waste in all six.17

However, EC waste laws appear to be getting

7 Ibid.

8 U.S. Congress, U.S. General Accounting Office, “U.S.-Mexico Trade: Some U.S. Wood Furniture Firms Relocated From Los Angeles

Area to Mexico’ (Washington, DC: U.S. Government Printing Office, April 1991); also Ibid.

9 Lmuse Jacobs and Leigh Harris, Public Private Partnerships in Environmental Protecfi”on.” A Study of Japanese and Amen”can

Frameworks for Solid Wastes and Air To.rics, op. cit.

10 Cwtls Moore and Alan Miller, ‘‘Japan and the Global Environment, ’ Environmental Lati and Policy Forum, vol. 1, 1992, p. 38; Bruce

E. Aronson, “Review Essay: Environmental Law in JapaL” The Harvard Environmcnfal Law Review, vol. 7, No. 1, 1983, pp. 135-171; and

Shigeki Masunaga, “Water Pollution Control in JapaL” Water Report (Tokyo), vol. 2, No. 3, 1992. Japan did take early action to reduce

mercury and some other toxic heavy metal levels in water, due to mercwy poisoning around several industrial facilities.

11 “~(ewlew wi~ Dr. Yasumoto Magara: Amendment of Drktking Water Quality Standards, ’ Water Report (Tokyo), vol. 1, No. 4, 1991.

In contrast, the Uruted States regulates 83 contaminants.

12 One suwey of UtS,-owned chemical facilities in Europe found significantly larger discharges of some toxic chemicals tO water tin in

the United States, According to the study, discharges of three chemicals —benzene, MEK, and xylene-from individual chemical plants in

Europe exceed the total discharge to water for the same chemicals from all 26,000 facilities that report to the U.S. Toxic Release Inventory.

David Saroki~ ‘ ‘Toxic Releases from Multinational Corporations: Does the Public Have a Right to Know?’ (Washington, DC: The Public

Data Project and Friends of the Earth, July 1992).

13 Discussion ~~ offlcia~ from tie National Council on Air and Stream Improvement, New York NY, December 1992.

14 Kopp, ponney, and Dewitt, ]nternationa/ Comparisons of EnvironntenfaZ Regulanon, op. cit.+ foo~ote 1.

15 Kopp, po~ey, and DeWitt, Ibid., P. 28.

16 John Glover, “Italian Industry Aims to Get Greener, But on its Own Terms,” Chemical Week, Feb. 6, 1991.

17 sowce: OECD, Tran&on~ier ~o,,emenfs of ~azar~ous waste (paris: 1985); and Reso~ces for The Fu(We, [nternationa[ Comparisons

of Environmental Regulations. (Cited in Steel industry Anntial Report, U.S. International Trade Commission, September 1991, p. 3-30.)
228 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

stricter. 18 Japanese ambient standards for dioxin

ingestion is 5,000 picograms per day for adults, as

compared to the U.S. standard of 50 per day.19

Few other nations have the regulatory provisions

(including mandatory planning in some States

and information disclosure) the United States has

to encourage waste minimization.

The difference between U.S. hazardous waste

laws and those in developing countries is even

greater. Few developing nations have significant

laws regulating hazardous wastes, For example,

maquiladora plants in Mexico generate unknown

but evidently large amounts of hazardous wastes,

and compliance with Mexican waste laws appears

to be low.20

U.S. law governing abandoned waste sites is by

far the strongest in the world. No other nation has

a Superfund law that imposes strict, joint and

several, and retroactive liability on industry.

While the EC is considering legislation to regulate contaminated sites, it is likely to only address

future and not past liability. Industries in Japan

are not subject to similar laws.

***

The discussion above is a selective discussion

of national-level environmental standards affecting manufacturing; subnational standards (which

in some cases exceed national requirements) are

not considered. A number of areas are not

covered. It does not, for example, include differences in requirements pertaining to global environmental issues (such as phase out of substances

that deplete the stratospheric ozone layer). Nor

does it include post consumer responsibility for

product disposal. For example, Germany is starting to make manufacturers responsible for the

ultimate disposal of the products they sell.

Initially focused on packaging, the requirements

may eventually apply to a wide variety of

products, including automobiles, computers, and

other equipment. Different countries’ environmental requirements affecting land use, resource

management, wildlife, endangered species, could

have differential effects on manufacturers, but are

not covered here.

As legislative and administrative bodies periodically revise and amend prior laws and regulations, relative rankings among countries change.

Some U.S. environmental laws, including the

Clean Water Act and the RCRA, are up for

reauthorization. The Japanese Diet is considering

changes in Japan’s basic environmental law.

Administering agencies also vary in the commitment made to implement standards and requirements in a timely fashion, and in the resources

available for enforcement.

18 IIEWOW Mwg fio~SS with hviro~erl~ Rcgs” Pollution Engineering, Sept. 1, 1992.

19 Moreover, he 2,X)() ~c~emtors & Jap~, tie ~~ so~~ of waste @eatment &e@ we not motitored for dioxill output. LtiIldfiiS Me

scarce in Japan and, as a resul~ the Japanese are constructing landfills in ocean bays and inlets, using the newly created land as industrial sites.

Imuise Jacobs and Leigh Harris, Public Private Partnerships in Environmental Protection: A Study of Japanese and American Frameworks

for Solid Wastes and Air Toxics @xington, KY: The Council of State Governments, 1991).

20 By law, ~ese f~me Supposed t. Ship tidous wastes back to the U. S., but this provision is not well emorced. U.S. ContPess) OffiCe

of Technology Assessment, U.S. Mexico Trade: Pulling Together or Pulling Apart?, ITE-545 (Washingto~ DC: U.S. Government Printing

OffIce, October 1992); See also U.S. Congress, Government Accounting Office, U.S.-Mexico Trade: Assessment of Mexico’s Environmental

Controlsfor New Companies, GAO/GGD-92-l 13 (Washington DC: August, 1992).
Pollution

Prevention,

Cleaner

Technology, and

Compliance 8

H

istorically, environmental compliance efforts in the

United States have focused principality on treatment of

pollution once it has been released (end-of-pipe approach) rather than on prevention or recycling, two

approaches that in many cases offer a lower cost means of

attaining compliance. End-of-pipe methods often result in

increased costs with no appreciable benefits to the firm in the

form of enhanced materials or energy efficiency. In contrast,

pollution prevention and recycling investments often not only

lower energy and material usage but also reduce end-of-pipe

treatment costs, resulting in decreased disposal expenditures,

possible reduced paperwork, and lower liability and insurance

costs, Greater emphasis on prevention and recycling can thus

lower environmental compliance costs for U.S. manufacturers.

Congress, in the Pollution Prevention Act of 1990, established

a hierarchy of preferred options, from elimination or reduction at

the source (including in-process recycling), to out-of-process

recycling (on-site and off-site), pollution control, waste treatment, and, finally, land disposal.l This chapter discusses

pollution prevention and cleaner technology from the standpoint

of the manufacturing firms that must comply with environmental

regulations, building in part on prior OTA work2 and on contract

1 F. Henry Habicht II, Deputy Administrator, U.S. Environmental Protection Agency,

Memorandum “EPA Definition of ‘Pollution Prevention, ’ “ May 28, 1992.

2 U.S. Congress, Office of Technology Assessment, Serious Reduction of Hazardous

Waste: For Pollution Prevention and Industrial Efi”ciency, OTA-ITE-317 (Washington,

DC: U.S. Government Printing Office, September 1986).

229
230 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

research undertaken for this assessment.3 Special

emphasis is given to three industrial sectors

facing high compliance costs and significant

environmental challenges--chemicals, pulp and

paper, and metal finishing. The chapter also

discusses barriers to pollution prevention, and

Federal and State government assistance to manufacturers in the United States to meet environmental requirements, particularly pollution prevention.

MAJOR FINDINGS

Pollution Prevention and Recycling

Compared to conventional treatment alone,

pollution prevention and recycling investments

are usually more cost-effective, often resulting

in reduced energy and material usage and lower

end-of-pipe treatment costs. Pollution prevention can produce significant environmental

benefits as well, including reduced cross-media

transfers and reduced environmental impacts

from avoided energy and materials usage.

However, while increased reliance on pollution

prevention and recycling offers a means to

reduce the conflict between environmental

protection and industrial competitiveness, it

does not eliminate it. While many pollution

prevention and recycling options yield net

positive rates of return equaling nonenvironmental investments, many others do not, and

often cost money. However, in most cases the

expense is lower than alternative end-of-pipe

approaches.

While source reduction is normally preferred

on environmental grounds, and usually yields

the lowest cost option for reducing pollution,

there are cases where recycling is preferred on

economic grounds. Depending on the material,

the size of the facility, and the industry,

recycling can be a more economical way of

■

■

9

reducing waste than source reduction. Moreover, recycling can be the preferred option if it

is less intrusive to the production operations.

Emphasis on pollution prevention can also lead

to beneficial organizational and technological

changes. It can speed technical change within

an industry, leading to increased investment in

new plant and equipment. Moreover, integrating pollution prevention into industrial operations can lead firms to pay closer attention to

the efficiency of their production processes and

is consistent with new management approaches,

including total quality management.

A variety of evidence suggests that, while

industry has increased its pollution prevention

and recycling efforts, particularly since the late

1980s, significant pollution prevention opportunities still exist, especially those related to

process modifications. A number of organizational and capital accounting factors

firms and aspects of the regulatory

retard greater progress.

Pollution Prevention Technology

Development and Diffusion -

within

system

As the simpler steps for pollution prevention

become widely adopted, a significant source of

environmental improvement will lie in new

manufacturing process technologies that are

cleaner, and often more productive. Many of

these approaches to waste reduction are still

underused and are just now being explored.

In spite of the importance of clean process

technologies, little Federal environmental R&D

support goes to this area.4 Moreover, no federally supported institution has taken a broader

policy role with regard to clean technology

development, although some agencies are interested in doing so.

3 Information on three industries was provided to OTA by outside contractor reports: Neil McCubbin Consultants, Inc., ‘ ‘Environment and

Competitiveness in the Pulp and Paper Industry’ David Allem “Clean Chemical Manufacturing Technologies: Current Practices and bng

Term Potential”; F.A. Steward, Inc., ‘‘Environment and Competitiveness in the Metal Finishing Industry. ’

4 One exception is the Department of Energy’s Clean Coal Technology progrm funded at $415 million in fiscal year 1992 (see ch. 10).
Chapter 8–Pollution Prevention, Cleaner Technology, and Compliance 231

While new technologies are necessary for

fundamental gains in pollution prevention,

widespread diffusion of existing off-the-shelf

technologies will go a long way to reduce

pollution. While many in industry want to

reduce pollution, a significant share do not

know how to move beyond the simplest measures; some, particularly small businesses, may

not even be aware of pollution prevention

options.

Technical assistance efforts can help these

firms implement pollution prevention and recycling measures. Yet existing programs are very

small and many do not adequately meet manufacturers’ needs. Most importantly, by considering pollution prevention separately from

other manufacturing needs, such as productivity and quality improvements, most programs

fail to develop the vital synergies and working

relationships with manufacturers that are essential to drive both pollution prevention and

increased manufacturing competitiveness.

Financial Incentives

Government financial support to industry for

the cost of environmental compliance can

lessen the competitive impact of environmental

regulations. A number of other countries provide more financial incentives (tax incentives,

loans, grants) to help companies comply with

domestic environmental requirements than does

the United States.

THE RATE OF ADOPTION OF POLLUTION

PREVENTION AND RECYCLING

Because of the dearth of careful studies, it is

difficult to document the extent of adoption.

However, while industry has increased its pollution prevention and recycling efforts, particularly

since the late 1980s, the evidence suggests that

significant pollution prevention opportunities remain, particularly those related to process modifications.5

Some industries have made more progress than

others. For example, such methods have been

extensively exploited in many major chemical

manufacturing operations. 6 A study of pollution

prevention projects in 21 chemical plants found

that, while a few projects date back a decade or

more, the majority were launched after 1985.7

The study argues that significant opportunities for

pollution prevention are still possible, even at

plants that have been implementing pollution

prevention for many years. For example, Hoechst

Celanese has committed to reducing Toxic Release Inventory (TRI) emissions 70 percent from

1988 to 1996, and expects that over three-quarters

of these reductions will come from pollution

prevention, with one-half of the total coming from

source reduction.8

In the metal finishing industry, pollution prevention housekeeping practices have been known

for over 20 years, but many firms have not

adopted them, as older facilities tend to perpetuate old operating habits. Only a small fraction of

metal finishers, principally the larger facilities,

appear to have taken advantage of some of the

5 There arc many sunilarities between energy conservation and pollution prevention. Each is driven by exterml costs, both are applied at

the margin, neither is done in isolation, and both are part of other productivity improvements in labor, equipment, and materials. When U.S.

firms first began to focus on energy conservation they focused first on the‘‘low-hanging fruit’ and then moved to more expensive changes

based on new technologies and processes. However, many companies continue to find new, relatively easy energy-saving opportunities. It is

possible that pollution prevention will follow this same path. (See U.S. Congress, OffIce of Technology Assessment, Industrial Energy

Eficienc?, OTA-E-560 (Washington, DC: U.S. Government Printing Office, August 1993.)

b Allen, op. cit

7 Mark H. Dorfman, Warren R. Muir, and Catherine G. Miller, Environmental Dividends: Cutting More Chemical Wastes (New York NY:

Inform, 1992), p. 14.

8 Discussion with James Connor, Environmental Division, Hoechst Celanese, Apr. 20, 1993. (Under Section 313 of the Emergency Planning

and Community Right To Know Act, certain manufacturers must report releases or transfers of over 3(?0 toxic chemicals.)
232 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Figure 8-l—Adoption of Selected Cleaner

Technologies in U.S. Kraft Pulp Mills

60%

50%

40%

30%

20%

10%

O%

Extended /

cooking

\

Oxygen

delignification

\

/

/

#

---- -

-~

I I I ~–~—~

198384 85 86 87 88 89 90 91 92 93 94

SOURCE: N. McCubbin Consultants Inc., 1993.

promising opportunities, such as use of advanced

concentrate and return technologies (e.g., reverse

osmosis, evaporation, ion exchange) for the

return of excess solution (dragout) to plating

baths. Of the installations that could achieve a

3-year payback, one estimate is that less than half

have installed the equipment.9

In pulp and paper, there has been a slow

increase in the share of pollution prevention

technology adopted. In 1984, 25 percent of water

pollution control investments were for in-process

measures, increasing to 30 percent in 1989 and 56

percent in 1991.10 Much of this increase has been

driven by the need to reduce organo-chlorines in

waste water. One way to do this is through

extended cooking in bleached kraft pulp production. Use of this technique has increased significantly since 1989; currently over one-third of all

pulp is made with this process. In contrast, the

adoption of oxygen delignification systems has

been slower, with about 27 percent of bleached

kraft production now using it11 (see figure 8-l),

Overall, the share of environmental investments in in-process pollution control appears to

be similar in Europe and the United States (table

8-l). Contrary to conventional wisdom, the Japanese do not appear to have made significant effort

in industrial waste-related pollution prevention.

However, because of high energy prices and

aggressive government policies, Japanese industry has made significant strides in adopting

energy-efficient technologies, which provide both

direct and indirect environmental benefits.

POLLUTION PREVENTION, AND

RECYCLING AND ECONOMIC

PERFORMANCE

1 Cost Savings From Pollution Prevention

and Recycling

There is disagreement on exactly how economical pollution prevention is. Some claim that

pollution indicates wasteful and inefficient practices and that, therefore, firms generally save

money by engaging in pollution prevention. In

fact, there are numerous widely publicized industrial case studies of very successful pollution

Table 8-l—Estimates of In-Process Changes as a

Share of Pollution Control Investments

Belgium* 20%

France” 13%

Germany a* 18%

Netherlands 20%

United States** 25%

a One study suggests that pollution prevention investments in Germany between 1975 and 1985 ranged from 16 to 24 percent

(Christian Leipert and Ucfo E. Simonis, “Environmental DamageEnvironmental Expenditure. Statistical Evidenoe on the Federal

Republie of German,” paper by Wissensehaftszentrum Berlin Fur

Sozialforsehung gGmbh, Berlin.).

SOURCES: ● Commission of the European Communities, Panorama of

EC Industry 1990 (Luxembourg: Offioe of Official Publications of the

European Communities, 1990), p. 134.

● * U.S. Bureau of the Census, Pollution Abatement Costs and

Expenditures, 1990 (MA200), 1992.

9 Steward, op. cit.

10 U.S. Bureau of tie Cemus, Pollution Abatement Costs and Expenditures (Washington DC: Government ~dngOffiCe, vtious yeas).

11 Mcabbin, op. Cit.
Chapter 8–Pollution Prevention, Cleaner Technology, and Compliance ! 233

Table 8-2—Case Examples of Pollution Prevention Savings

Savings

or payback

Industry period Option Source of savings

Ice cream

Trailers

Valves

Chemicals

Tobacco products

Nylon fabrics

Furniture

Furniture

Furniture

Printing

4 months

4 months

1.4 years

3 years

6 months

5.5 years

1 year

2 years

$70,000

Immediate

Housekeeping

Paint reuse, use of water-based cleaner

Aqueous parts cleaning

Evaporation equipment for ammonium

sulphate

Solvent recycling

Dye substitution, process changes

Solvent recycling

More efficient paint spraying

Painter training

Water-based inks

Material savings

Avoided paint purchases, lower disposal costs

Avoided solvent purchase, Iower disposal costs

Avoided EOP, sales of recovered chemicals

Avoided solvent purchase, lower disposal rests

Reduced wastewater treatment charges

Avoided disposal costs

Paint savings, avoided disposal costs

Reduced paint use

Lower ink costs, avoided disposal costs

SOURCES: Information provided bythe Center for Industrial Services, The University of Tennessee; the North Carolina Department of Environment,

Health and Natural Resources, Pollution Prevention Program; Case Summaries of Waste Reduction by/ndustries in the Southeast (Raleigh, NC:

Waste Reduction Resource Center for the Southeast, July 1989); Karf S. Tsuji, Energy and Environmental Analysis Group, ks Alamos National

Laboratory, “Waste Reduction in the U.S. Manufacturing Sector, A Survey of Reeent Trends,” unpublished paper, November 1991.

prevention projects, some with payback times of The few studies on the economics of pollution

12 But some in industry view well under a year. prevention suggest that while there are cases

these highly successful projects as relatively rare, where prevention yields net positive rates of

and there are elements of truth in both sides of the return equaling nonenvironmental investments,

argument. more yield either positive, but low, returns, or

13 

However, pollution prevention projects do not In controlling pollution, firms negative returns.

need to generate a positive rate of return to be normally have a range of options with a range of

successful. Because most pollution prevention economic paybacks. In a few cases the paybacks

solutions are cheaper than treating or disposing of are large enough to justify action solely on the

wastes, a greater emphasis on prevention can economic merits14 (see table 8-2.) One study

reduce environmental compliance costs, regard- found that, where payback information was reless of whether pollution prevention is profitable ported, companies were able to recoup their

even in the absence of regulatory requirements. investments rapidly, in 6 months or less, for

12 For example, see “Case Summaries of Waste Reduction by Industries in the Southeas~” Waste Reduction Resource Center for the

Southmst, Raleigh, NC, July 1989; Karl S. Tsuji, “Waste Reduction in the U.S. Manufacturing Sector, A Survey of Recent Trends,” Ims

.Mamus N~itional Laboratory, November 1991; Dorfman et. al, op. cit.;“Leaders in Hazardous Waste Reductioq 1989 & 1990, ” Pollution

Prevention Program, North Carolina Department of Environment, Health and Natural Resources; Pollution Prevention Case Srudies

Cornpcnd[um, U.S. EPA, Office of Research and Development, April 1992.

1~ ASdiscu5~~below, firms do not always adequately account for all benefits (and costs) from pollution prevention, ficludfig r~u~d

long-term environmental liability.

14 For example, see Cleaner Production Programme, Cleaner Production Worldwide (Paris: United Nations Environment Programme, 1993).
234 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

two-thirds of their investments.15 However, since

companies are more likely to implement pollution

prevention projects with larger rates of return,

such findings may be skewed and not represent

the entire universe of projects.

In other cases, while paybacks maybe positive,

they are not high enough to be justified on solely

commercial grounds. Finally, in many cases the

returns are negative, but often represent savings

over alternative end-of-pipe approaches. Companies would normally not invest in these projects

without some kind of regulatory pressure.

For example, 3M’s gross savings of $516

million from 1975 to 1992 in the United States

through its Pollution Prevention Pays (3P) program is often cited as evidence of potential

savings from pollution prevention.16 However,

3M has also spent over $220 million on pollution

prevention capital investments, and an additional,

unspecified, amount on labor to design and

implement these measures. Moreover, not all the

projects had net positive rates of return.17

Approximately half of the projects in Dow

Chemical’s Waste Reduction Always Pays program (WRAP) cost more to implement than they

save.

18 The chemical company Hoechst Celanese

analyzed over 200 projects in its Waste and

Release Reduction Program, focusing on SARA

313 releases. The company found that about 20

percent of the projects had a positive net present

value; the majority showed small but negative net

present value; and 20 percent had large negative

net present values. As expected, end-of-pipe

treatment projects often yielded the worst returns,

with source reduction and recycling showing the

best returns .19

Finally, pollution prevention does not eliminate the need for end-of-pipe treatment: these

firms still expend significant amounts on environmental compliance. While 3M saved $47 million

from its 3P program in 1992, it also spent over

$200 million on environmental compliance.20

The chemical company Monsanto has spent $100

million to reduce toxic air emissions through

end-of-pipe and prevention measures, and only

some of the projects were economically positive.21

Economics of pollution prevention differ by

industry. In the pulp and paper industry, prevention is cheaper than end-of-pipe treatment, because far less pulpmaking chemicals are used. For

example, if a new pulp bleaching plant is installed

in a greenfield mill or in rebuilding an existing

facility, the net capital cost of oxygen delignification systems generally will be close to zero. The

system eliminates the need for a chlorine-based

bleach stage and reduces chlorine dioxide consumption. In cases of a retrofit, the capital costs

typically range from $10 to $20 million, depending on the site. However, operating costs will be

reduced by around $10 per metric ton of pulp,

equivalent to about $1.5 to $4 million a year at

typical production rates. In addition, oxygen

delignification generally reduces biological oxygen demand (BOD) emissions by about 25

percent, lowering water treatment costs by a small

15 Dorfm~ et. al., Op. cit.

lb It is ~ficult to determine actual savings, Actual savings may be lower since 3M calculates prOjeCted Savings at the time Of prOJect

initiation and not after implementation. On the other hand, because savings are only estimated for the first year in operatiow actual savings

may be greater.

17 ~temiew Mm 3M official, Jmuary 1993.

18 “At~c~ng Wastes and Saving Money. . .Some of the Time, ” Industry Week, Feb. 17, 1992. Full cost analysis may not be done for all

projects, resulting in underestimation of savings,

1P Discussion wi~ Hoechst Celanese official, Apr. 20, 1993.

ZO Data provided by 3M.

21 Marc Reisch, “Monsanto’s Environmental Progress Comes at High COS6° Chemical and Engineering iVew.r, Dec. 14, 1992, p. 16.
Chapter 8–Pollution Prevention, Cleaner Technology, and Compliance ! 235

Table 8-3—Capital and Operating Costs for

Selected Pollution Prevention Measures

in the Wood Pulp Industry

Capital Annual

cost savings

Process option ($ million) ($ million)

Base case example mill

Maximum substitution with EOP &

existing CIO2 capacity

Extended cooking (if batch

digesters exist)

Extended cooking (if older

continuous digesters exist)

Extended cooking (if suitable

continuous digester exists)

Oxygen delignification

100% substitution without EOP

50% substitution without EOP

10OO/. substitution with EOP

Extended cooking with EOP

Oxygen delignification with 100%

substitution

Extended cooking with oxygen

delignification

Extended cooking with 100%

substitution

Extended cooking with OD and

10OO/. substitution

Extended cooking with OD & EOP

0.0

2.8

45.6

32.6

4.6

27.5

15.9

5.0

13.6

47.0

34.7

71.6

54.5

75.2

73.0

0.0

0.5

3.4

2.8

3.7

3.3

(7.1)

(1.9)

(3.2)

3.3

2.0

6.0

0.1

4.6

4.4

Values in parentheses are negative. Savings in parentheses represent

costs.

OD==oxygen delignificatlon.

EOP=caustic extraction reinforced with oxygen and hydrogen peroxide

bleaching.

Substitution-substitution of chlorine with chlorine dioxide.

SOURCE: Neil McCubbin, Proceedings, International Symposium on

Pollution Prevention in the Manufacture of Pulp and Paper Opportunities & Barriers, Washington, DC, Aug. 18-20, 1992.

amount.

22 If this negates the need to upgrade the

treatment system for mill expansion or to comply

with regulatory changes, capital savings of several million dollars can occur. Finally, oxygen

Oxygen reactors, part of an oxygen delignification

system in a pulp mill.

delignification frees up chlorine dioxide generating capacity, allowing the excess capacity to be

substituted for formerly purchased chlorine

bleach (table 8-3).

In metal finishing operations, some facilities

saved significant amounts of money using pollution prevention technologies. However, many of

these firms are plating with more valuable metals

(e.g., gold, silver) where metal recovery makes

more economic sense. Advanced recovery systems are sometimes more expensive than traditional end-of-pipe treatment, although recovered

metals and chemicals and avoided sludge disposal costs do provide savings. Such systems

appear to be more economical in the larger metal

finishing facilities and for more valuable stable

baths and in many cases can provide reasonable

payback times (less than 3 years).

Z’2 Similarly, in the electric utility industry, investing in heat rate improvements can reduce scrubber and waste disposal expemes, mom than

offsetting the costs. Robert C. Carr, ‘‘Integrated Environmental Control in the Electric Utility Industry,” Journal of the Air Pollution Control

Association, vol. 36, No. 5, May 1986, pp. 652-657.
236 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Future increases in sludge disposal costs or in

costs of input metals and chemicals would make

these operations more cost-effective. For example, Freon 113 is becoming more expensive due

to the tax aimed at reducing use of ozonedepleting substances. As a result, some pollution

prevention solutions that had once been too

expensive are now cost-effective.23

M Organizational and Technological Change

and Pollution Prevention

A focus on pollution prevention can sometimes

lead to beneficial organizational and technological changes. A driving force for new productive

investments is often technological obsolescence.

Improved environmental performance of production technology often goes hand in hand with

increased productive performance. As a result, a

focus on pollution prevention can speed technical

change within an industry, leading to increased

investment in new plant and equipment.

In some industries, process technologies are

relatively mature, with only slow rates of evolutionary change. However, increased concern with

reducing pollutants, particularly at the source, can

lead to reexamination of long-used technologies

and practices and may induce more rapid rates of

technical change.

24 For example, pulp and paper

technology evolved relatively slowly between the

1940s and 1970s. Increased concern with environmental performance has led to renewed interest in the production process, with a number of

major new process innovations being developed

within the last decade, and further developments

likely to occur in the 1990s. The innovations can

involve improvements in productivity or efficiency.

In the drive to become more competitive, many

U.S. manufacturers are organizing technology

and production processes in new ways (e.g.,

computer-integrated manufacturing, just-in-time

(JIT) delivery, and lean production) and rethinking their management systems (total quality

management or TQM).25 Pollution prevention is

consistent with these approaches.26 For example,

the environmental waste reduction program of the

textile firm Milliken grew out of its TQM

program, which received the Malcolm Baldridge

Quality Award in 1989. Similarly, as some firms

have moved to JIT delivery systems, they have

been able to eliminate decreasing and other

cleaning steps. Moreover, there is some evidence

that an increased focus on pollution prevention

can encourage production workers to present

ideas for improvement to process engineering

managers .27

There are a number of similarities between

pollution prevention and TQM/manufacturing

modernization28 (see table 8-4.) In both, firms

examine their production process in great detail

23 For exmple, managers at the GE compressor plant in Columbia, Tennessee replaced their freon degreaser with a $600,000 WUmus

washing unit, Without the increase in cost of 113 freon to $84 per gallon (from $45 recently) the new unit would not be cost-effective under

the company’s cost accounting system.

~ previous OTA work hag found that “a new focus on pollution prevention offers an opportunity to reappraise and modefize plant process

technology.” Serious Reduction of Hazardous Waste, p. 30.

25 U.!j. con~ess, OKlce of TechnologyAssessment, Making Things Better: Competing in Manufactun”ng, OT24-ITE-443 (Washington DC:

U.S. Government Printing OffIce, February 1990); and U.S. Congress, OtXce of Technology Assessmen4 Worker Training: Competing in the

New International Economy, OTA-ITE-457 (Washingto~ DC: U.S. Government Printing Office, September 1990).

26 ~ a study of pollution prevention in a large multinational fii, the units that had strong TQM programs k place undertook more

wide-ranging and effective pollution prevention efforts than divisions with less commitment to TQM. (Ann Rappaport, Development and

Transfer of Pollution Prevention Technology Within a Multinational Corporation, Dissertation Department of Civil Enginwring, Tbfts

University, May 1992.)

27 Andrew K~g, ‘Cooperatively arning BetweenPollution Control and process Engineering Departments in the Printed Circuit Fabrication

Industry, ” paper presented at The IEEE International Symposium on Electronics and the Environment May 10-12, 1993, Arlington, VA .

28 For exmp]e, S= .JMVin A~ “Pollution Prevention and TQ~’ Environmental Science and Technology, vol. 26, No. 3, 1992; dso Gene

Blake, “TQM and Strategic Environmental Management” Total Quality Environmental Management, spring 1992.
— — .

Chapter 8-Pollution Prevention, Cleaner Technology, and Compliance 237

Table 8-4-Organizational Aspects of Pollution Prevention and

Total Quality Management

Factor TQM and pollution prevention

Central focus Focus on continuous improvement of the production process

(goal of zero defects and zero emissions)

Source of improvement Quality and pollution prevention built into the production process

Desired results Increased efficiency and reduced waste (scrap and pollution)

Measurement process Benchmarking progress

Internal coordination Cross-departmental cooperation/coordination

Decision process Workers at all levels (including shop-floor) involved in decision making

Accounting system Activity-based and full-cost accounting

SOURCE: Office of Technology Assessment, 1993.

and focus on continually improving the process to

improve quality and productivity and reduce

scrap and pollution. Both practices incorporate

new cost accounting and measurement to assign

all costs to particular products or production

processes. Benchmarking progress is encouraged

in both.29 In TQM, firms strive for zero defects,

while in the best pollution prevention efforts,

firms strive for zero discharges.

The process of decisionmaking is also similar.

Both practices aim to involve all parts of company, rather than just the quality or environmental

departments. For example, in pollution prevention, representatives from purchasing, marketing,

R&D, production, and design are all encouraged

to work together to find ways to prevent pollution.

Similarly, both stress the importance of workforce

involvement and the key role of shop-floor

workers in improving quality and preventing

pollution. Many programs report that their best

suggestions to prevent pollution come from the

shop floor employees.30 Both pollution prevention and manufacturing modernization efforts

succeed best when shop-floor employees are

involved.

I n s ummary, when firms focus on pollution

prevention it facilitates the better focus on the

broader task of continuous productivity improvement.31 Preventing pollution through source reduction requires managers to improve materials,

energy, and resource efficiency.

POLLUTION PREVENTION OPTIONS

Strategies for reducing waste generation in

manufacturing include: good housekeeping, maintenance, and operating practices; product reformulation and raw material substitution; relatively

simple process modifications employing currently available technologies; and, perhaps most

importantly, more fundamental process modifications, many requiring technological innovation.32

29 Ann C. Smith, “Continuous Lrnprovement Through Environmental Auditing,” Total Qualiry Environmental Management, winter

199 1/92.

30 .S1filti resul~ ~Ve b~n found~~reg~d to energy conservation. (See Employee Participation in Energy Conservation: The U.S. ati

Japan Experience. University of Michigw Institute of Labor and Industrial Relations, 1983).

31 There arc a number of components of ISO 9000 (the International Standards Organization standard for quality mamgement) tit ~e

consistent with pollution prevention. For example, both stress the importance of working with suppliers.

32 R,L. Berglund and C.T. Lawsou ‘‘Preventing Pollution in the CpI, ’ Chemical Engineering, September 1991, pp. 12027; also Harry

Freeman et. al. “Industrial Pollution Prevention: A Critical Review” Journal ofAir and Waste Management Association, vol. 42, No. 1, May,

1992, pp. 618-656.
238 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

1 Good Housekeeping and Innovative

Management Approaches

Perhaps the simplest and easiest-to-implement

pollution prevention strategy is to adopt good

housekeeping, maintenance, and operating practices. Frequently characterized as low-hanging

fruit, many different industries have used such

methods in varying degrees to cut waste economically.

General improvements in manufacturing efficiency can reduce pollution. For example, statistical process control programs, a TQM element,

take some variance out of processes that generate

waste. Other improvements include, for example,

metal finishing opportunities such as operating at

lower concentrations in the bath, better racking or

barrel designs, draining over the tank, reduced

water usage, and use of simple drag-out stations

to catch and return drag-out solution.33 Such good

conservation and process control measures can

reduce drag-out by 50 to 60 percent and extend

the life of stable baths.

Innovative management approaches to waste

minimization include working with customers

and suppliers to redefine product needs so that

less-toxic chemicals or less-polluting processes

are required, renting of chemicals where the

supplier takes them back after use, and improved

operations management procedures like better

inventory control.34 Similarly, better attention to

preventative maintenance to eliminate spills,

leaks, and the like, can reduce emissions. Often

employee training programs have objectives (e.g.,

reducing scrap and waste) that bring pollution

prevention benefits.

9 Product Reformulation and Raw Material

Substitution

Coating and cleaning operations are a principal

area for raw material change. A significant

amount of effort has gone into replacing chlorinated solvents with other, often aqueous-based,

solvents. In painting, alternatives to volatile

organic compound (VOC)-based paints include

water-based paints, which can obviate the need

for end-of-pipe VOC controls. For example, the

Saturn automobile plant uses a water-based base

coat that gives off no VOCs. In metal finishing,

research is underway to find alloy coating materials that would be acceptable substitutes for

cadmium and chromium.35 On a broader basis, the

shift from metal parts to plastic parts in a number

of products has reduced the amount of metal

finishing required. Substitutes, however, do not

always provide identical performance or qualities

of the materials they replace.

1 Process Modifications Using Existing

Technologies

While many pollution prevention opportunities

represent relatively unique modifications not

generalizable between facilities (e.g., fine-tuning

process computer control systems to lower waste),36

many process modifications involve relatively

generic process changes. For example, ultrasonic

cleaning can greatly reduce solvent usage .37 More

efficient paint transfer operations can reduce

VOC emissions and paint sludge. In metal finishing, relatively standard technologies, such as

improved drag-out tanks and ion exchange, can be

employed economically, especially in the larger

33 my of ~me memww fwus on ~S~g that as much of the meti finish is applied to the part as possible, and as little as possible is

lost as parts are taken out of the plating bath.

34 Personal convemation, Jack Eisenhauer, Energetic, Columbia, MD, Jue, 1993.

35 Dep~ment of Enmgy, LOS AIamOS Natio@ Laboratory, Electroplating Waste Minimization, paper presented at the OffiCe of hdustrial

Technologies Industrial Waste Reduction Program Review, Washington DC, May 21, 1992,

36 For exmple, a Sma he plant reprogrammed its process control computers to reduce water use 65 percent, ad in SO doing avoided

installation of a $5 million pretreatment system. (Discussion with Roy Caraw~ North Carolina State University, Department of Agriculture,

March 1993.)

37 John A Vaccari, “Ultrasonic Cleaning With Aqueous Detergents, ” American Machinist, April 1993, pp. 41-42.
Chapter 8-Pollution Prevention, Cleaner Technology, and Compliance 239

operations. 38 More efficient process controls can

reduce variations in industrial processes, leading

to reduced emissions.

1 Fundamental Process Modifications,

Requiring New Technologies

Strategies involving more fundamental process

technology modifications, many requiring technological innovation, can be employed. Many of

these approaches to waste reduction are still

underused and are just now being explored.

However, as simpler steps for pollution prevention become widely adopted, a significant source

of environmental improvement will lie in new

generations of manufacturing process technologies that are cleaner, and often more productive,

than older generations. In addition, many of the

innovative clean technologies in the process

industries to date have focused on individual

processes, whereas process industries are a complex web of interconnected processes. Making

each individual process as clean as possible may

not be as effective as finding the collection of

processes that could make an entire industry

cleaner.

Process modifications are usually industryspecific+ specially in industries that process

raw materials into intermediate materials (e.g.,

chemicals, oil, rubber, pulp and paper, steel) .39

For example, new methods of pulp delignification

to reduce chlorine bleaching are specific to the

pulp and paper industry. Similarly, developments

in catalysis to produce higher chemical yields are

specific to the chemical industry (see box 8-A). A

number of new technologies are possible candidates to replace electroplating, including mechanWater soluble flux for soldering electronic circuit

boards developed by an aircraft company allows

reduced use of CFC-based solvent cleaners.

ical plating, physical vapor deposition, and thermal spray processes.

Other applications may, with some modifications, be used by a number of industries, particularly fabrication and assembly industries (e.g.,

electronics, transportation equipment, fabricated

metals). These include near-net shape metal

forming,

40 laser metal cutting, alternative coating

procedures (ion implantation, powder coating),

better separation and filtration devices, leak-proof

pumps, alternative cleaning (e.g., supercritical

cleaning, no-clean soldering), and design tools,

such as process simulators.41

Some fundamental changes in technology may

reduce the need for processes that are highly

polluting. For example, in the steel industry, the

shift away from hot rolled ingots to automated

continuous casting, followed by cold working and

38 [shwar K. Puri, *’The Metal Finishing and Allied Industries-Issues for Pollution Prevention” (unpublished manuscrip~ University of

Illinois, Ch]cago, 1993).

39 Arncricanpetro[eum Institute, Wa.!te Minimization in the Petroleum Zndusfry: A Compendium ofPractices (was~ao~ DC: API, ~~~).

m Noel Greis, Waste, Energy and Raw Material Reduction Potential of Near Net Shape Metal Forming Processes (Worcester, MA: ~efac

Corp., Nov. 15, 1991).

41 Jack ~iscnhaucrand Sbm MGQ~een,Environmental Considerations in Process Design andsimulation, AJointiy Spo~ored Wor~oP

by the U.S. Environmental Protection Agency, U.S. Department of Energy, and the Center for Waste Reduction Technology, Dec. 8-9, 1992.
240 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Box 8-A—Pollution Prevention in the Chemical lndustryl

The U.S. chemical industry generates over $250 billion in annual sales and runs a trade surplus

of $19 billion. However, the industry also generates large amounts of pollution and is the dominant

source of hazardous waste in the United States. As a consequence, the chemical industry spent $4.8

billion in 1990 to control pollution and will spend increasing amounts throughout the 1990s to comply

with new, tougher environmental standards.

Over 80 percent of air and water pollution abatement capital expenditures went to end-of-pipe

treatment equipment. There are, however, significant opportunities to control much of the pollution

through pollution prevention in all major unit operations of chemical processing, and in so doing to

potentially lower compliance costs.

Storage Vessels-Methods for reducing tank bottom wastes, fugitive emissions from tanks, and

residuals in shipping containers are abundant and relatively simple. Mechanical mixing or emulsifying

agents can help solubilize tank bottoms and reuse the wastes. Fugitive emissions from tanks can be

reduced with a number of fairly simple technologies, including floating roofs, insulated walls, and tanks

that can withstand high pressures, but many of these technologies are expensive and the amount of

material saved will not always cover the capital costs. Such actions as proper location of drainage valves

and dedication of storage containers to specific uses can reduce emissions from shipping containers.

Piping and Valves-The most significant environmental problem associated with valves, pumps,

compressors and other pipe fittings are fugitive emissions. Leak Detection and Repair (LDAR) programs

can significantly cut fugitive emissions. While such programs are expensive, they can yield significant

savings in material. For example, in a study of pollution prevention options at Amoco’s Yorktown Virginia

refinery, a quarterly leak detection program was projected to yield a 19 percent annual rate of return due

to savings from reduced material Ioss.2

Reactors-Reactors are a key element in any chemical manufacturing process and are particularly

important in waste generation. There are several levels of analysis to be considered in improving reactor

designs, including selectivity, contamination, and vessel design. However, a particularly promising area

for reactor improvements involves catalysis. For example, anew selective catalyst increased the yield

of linear polypropylene (product) relative to nonlinear polypropylene (a waste), and hence reduced

waste polypropylene by 90 percent. Similarly, a catalyst system developed for use in making

acetaldehyde cuts chloro-organics formed by over one-hundred-fold. Controlling attrition and limiting

deactivation of catalysts can also decrease wastes. Finally, integration of both reaction and distillation

in a single vessel (e.g., catalytic distillation) can offer opportunities to cut waste and possibly reduce

capital and operating costs. However, the development and new catalysts and reactor designs to lower

wastes is still in its infancy and new reactor designs are generally only economically feasible with new

plants or major retrofits.

Heat Exchangers-Heat exchangers can be a source of waste when high temperatures cause

fluids to form sludges. Steam-based cleaning produces significant quantities of wastewater.

Alternatives include sand blasting with dry ice or recyclable sand. In addition, use of adiabatic expanders

to mix high and low pressure steam to achieve optimal heat transfer temperatures is a relatively Iow-cost

method of minimizing waste.

Separation Equipment--Since separation units are designed to further purify products and isolate

contaminants, they are by nature waste-generating, although sometimes unreacted feedstocks or

1 TMS box iS based principally on a contractor report to OTA written by David Allen, Professor of Chemical

Engineering, UCLA.

2 AtTWXXMJ.S. EPA pollution t%vention Pro~ct, Yorktown, Wrginia. Prvject Summary, June 1992, p. 3.22.
Chapter 8–Pollution Prevention, Cleaner Technology, and Compliance I 241

byproducts may be reused or used elsewhere. It is difficult to generalize about separation, while in some

cases waste can be reduced economically, while in others it is quite expensive.

Flowsheet restructuring-Much of the focus on pollution prevention in the chemical industry has

been on individual unit operations. Another set of methods for waste reduction involves completely

reconfiguring the entire process flowsheet within a facility. Such dramatic process modifications are

done only rarely, but they do offer significant pollution prevention potential.

Byproduct reuse-Some of the waste products from chemical processes may have other uses. For

example, Arco’s Los Angeles refinery sells its spent alumina catalysts to Allied Chemical and its spent

silica catalysts to cement makers. These were previously characterized as hazardous wastes and

disposed of in a landfill at high costs.3 Solvent recovery also can allow solvents to be reused within the

process.

Industry-wide analysis--Selection of particular processes to make individual chemicals is quite

complex and will have different energy requirements and rates of waste generation. Moreover, the

selection will influence rates of waste generation in the rest of the chemical industry. For example, if

methanol is produced via carbon monoxide, it maybe possible to generate carbon monoxide through

partial oxidation of a material that is currently wasted. On the other hand, to convert carbon monoxide

into methanol requires hydrogen, which is an energy-intensive material. There have been few

system-wide analysis of the energy and environmental impacts of chemical processing to inform such

choices.

Table 8A-1—Reducing Wastes From Unit Operations in Chemical Processes

Examples of Process Modifications for Waste Reduction

Process modifications

Changes in operating Currently feasible requiring technology

practices process modifications development

Storage vessels

Pipes and valves

Heat exchangers

Reactors

Separators

Use of mixers to reduce

sludge formation

Leak detection and repair programs for fugitive emissions

Use of anti-foulants; innovative

cleaning devices for heat exchanger tubes

Higher selectivity through better mixing of reactants, elimination of hot and cold spots

Reduce wastes from reboilers

floating roof tanks, high

pressure tanks, insulated

tanks

Leakless components

Staged heat exchangers and

use of adiabatic expanders to

reduce heat exchanger temperatures

Catalyst modifications to enhance selectivity or to prevent

catalyst deactivation and attrition recycle reactors for catalyst recycling

Improvements in separation

efficiencies

Process specific changes to

eliminate need for storage,

particularity intermediates

Process designs requiring the

minimum number of valves

and other components

Heat exchanger networks to

lower total process energy

demand

Changes in process chemistry; integration of reactors

and separate units

New separation devices, efficient for very dilute species

SOURCE: David Allen, “Clean Chemical Manufacturing Technologies: Current Practices and Long Term Potential ;’’contractor report

prepared for the Office of Technology Assessment, May 1993.

3 Robert A. Frosch and Nichoias E. Gailapouios, “Strategies for Manufacturing,” Scientific American,

September 1989, p. 144-152.
242 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Brayton cycle heat pumps allow recovery of solvents

and energy from industrial processes. DOE’s Office

of Industrial Technology supports development of

this technology.

atmospheric annealing, significantly reduces both

the quantity of scale left on the steel’s surface, and

the amount of acid needed for pickling. Over the

long term, it is quite possible that technology will

allow metal goods to be manufactured in such a

way that the surface does not require separate

finishing, eliminating much metal finishing and

the pollutants it generates. If technically and

economically feasible, direct steel making will

eliminate the highly polluting coke process.

Some technological changes are unlikely to

occur in the near future, but hold significant

promise. For example, the design and operation of

bleached kraft pulp mills without any aqueous

effluent, except clean cooling water, is a realistic

goal. 42 However, little research is being done o n

this. Other possibilities may emerge in the longer

term, such as developing plastics with built-in

catalysts allowing them to be broken down into

their constituent chemical components and

recycled.

1 External Recycling

In the last two decades, businesses have made

greater efforts to deal with wastes. However,

these efforts have been highly atomistic, with

little interfirm or interindustry coordination in the

area of materials and waste management, and

with little consideration of wastes and products at

the ends of their useful lives as potentially useful

inputs to some other industrial process.43

The term ‘industrial ecology’ refers in part, to

the better use of waste and materials among

firms.44 Increasing the rate of recycle and reuse is

normally more economical than treatment, and,

even pollution prevention in some cases. Moreover, with regard to materials use, exchange of

waste products among firms may prove more

efficient than source reduction. optimizing an

individual plant with respect to waste reduction

may be less efficient than optimizing the industrial system with respect to that material.45

Similarly, it may sometimes be cheaper to treat

pollutants centrally than to install treatment or

waste reduction technologies in the individual

plants (see box 8-B) For example, when publicly

operated treatment works (POTWs) have excess

capacity, it maybe cheaper to have them treat and

dispose of some industrial wastes than have the

individual firms pre-treat their wastes.

There are several sources of savings from

recycling. First, firms generating these materials

no longer have to pay for their treatment or

disposal. Second, and perhaps more important,

use of processed materials can generate less

42 Ivkcul)t)in, op. cit.

43 Robe~ A. Fro~Ch, I b~&~&i~ ~~1~~: A p~lo~op~c~ ~~oductio~’ proceedings of the Natio~/ Academy of science, February 1W2,

p. 800.

~ c. Kurnar N. Patel, “Industrial Ecology,” Proceedings of the National Academy of Science, February 1992; also Matthew Weinberg,

Gregory Eyring, Joe Raguso, and David Jense% “Industrial Ecology: the Role of Government’ Greening IndusrriaZEcosysrems (Washington

DC: National Academy of Engineering Press, forthcoming, 1993).

45 me Dep~ment of Ener~ Waste u~~ation and Conversion program f~uses on fiese tids of material reuses issues. (OffiCe Of

Industrial Technologies, Waste Utilization and Conversion: Program Plan, Washi.ngto% DC: U.S. Department of Energy, Apr. 16, 1993).
Chapter 8–Pollution Prevention, Cleaner Technology, and Compliance I 243

Box 8-B–External Recycling in the Metal Finishing Industry

Many wastes from metal finishing processes are too small, too low in value, or require

treatment/recovery technologies too complex to be feasibly processed on-site by the generator.

However, because of economies of scale, there are good opportunities to process many of these wastes

at an off-site centralized plant that services numerous generators. Such a facility can extract metal and

other chemicals from the wastestreams and purify them to commercial standards to produce articles of

commerce. The economics of such an operation are only minimally dependent on the value of the

recovered metal or chemical. Rather, the primary factor making such a central processing plant

economically feasible is the cost to t he waste generator (monetary and on-going liability) for the disposal

of waste.

Currently, there are two types of external recycling in the metal finishing industry. Some

metal-bearing sludges (e.g., copper, nickel) are sent to smelters, who refine them along with other metal

inputs. In a centralized facility, metal finishers segregate their waste and ship it to a facility where it is

recycled and treated. in the mid-1980s, when new effluent standards were being promulgated for the

metal finishing industry, several communities explored establishing centralized facilities before their

metal finishing firms invested in expensive in-house treatment. However, a number of problems,

perhaps most importantly an unwillingness by EPA and state regulators to support these projects in

many cities,1 has meant that only one such facility has been developed in the United States, in

Minneapolis.2 In contrast, there area number of such facilities in Japan and Europe.

While operating costs appear to be the same or slightly higher for firms that manage wastes

internally versus those that use a centralized facility, the latter are able to avoid large capital

expenditures for environmental equipment and instead use the capital for expanding or modernizing

production equipment. In addition, they can rely on the centralized facility to professionally manage their

wastes. This is especially critical for smaller

shops that do not have (and cannot afford)

the operation/regulatory expertise to effectively operate in-plant systems.

The economics of a centralized facility

are such that it depends on fees for a

significant share of revenues. Recovered

chemicals and metals (e.g., copper, copper

oxide, nickel carbonate) are generally a

small share (1 O to 20 percent) of revenues.

Recovery at such facilities is in many ways,

analogous to recycling elements of municipal garbage. The feasibility of the effort

depends in part on the marketability and

price of the product produced. Some low

value streams, such as those made of A waste recovery and treatment company places these

commingled metals, will not be economically ion exchange canisters in industries to remove

recyclable, even on a very large scale, until waterborne hazardous wastes for further processing

sludge disposal rates increase significantly. and recovery at its centralized facility.

1 ste~en Basler, &~~r~/ Trea~rnenf and Recovery Fao”h’fies for fhe Meta/ Filllshhlg Itldustry: A Fh@ Ci~Y

Comparison, (Chicago: Center for Neighborhood Technology, June 1989).

2 l%e facility is a division of U.S. Filter Corporation, Inc., and is known as U.S. Filter Recovery Systems, Inc.
244 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

pollution and requires less pollution abatement

spending than the production of virgin materials.

For example, pollutants generated from secondary fiber pulping using recycled paper are quite

low compared to conventional bleached kraft

pulp production.

46 Third, in some cases wastes of

one process can be used as inputs to another. For

example, Dupont found a market in the pharmaceuticals and coating industry for hexamethyleneimine, a by-product of nylon manufacturing.

The market is now so strong that in 1989, Dupont

had to find a way to manufacture what had

formerly been a waste. Dow Chemical recovers

excess hydrochloric acid, which it either reuses or

sells on the open market, making a profit of $20

million annually.

47 While these examples are not

the norm, it is possible to design processes that

accept the wastes from other processes as inputs

and produce their wastes as inputs to other

processes.

Even though there are many environmental and

economic advantages to both in-plant and external recycling, the regulatory framework often

gives little credit to recycling. Some advocates of

source reduction argue that by providing firms

with the option of external recycling, they will

reduce their efforts at source reduction. It is not

clear the extent to which this may be true. While

source reduction should be the first option examined, there do appear to be cases where external

recycling is in fact cheaper.

Some types of pollution cannot yet be prevented and must be treated or disposed of. Some

prevention solutions may be relatively risky or

unstable under different operating conditions.

And some end-of-pipe (EOP) controls allow

manufacturers more flexibility in production. As

a result, there is always likely to be a need for

EOP treatment and disposal of pollutants and

wastes. Because of this, and because current EOP

technologies are often expensive, advances in

EOP technologies are still necessary, particularly

for those that lower cost and improve performance (see ch. 10).

FACTORS LIMITING THE ADOPTION OF

POLLUTION PREVENTION

To adopt pollution prevention options, firms

must first find opportunities, identify solutions,

and then authorize and implement them.48 Because there can be impediments at each of these

stages, there are a number of reasons why U.S.

manufacturing firms have not made greater

strides in pollution prevention49 (see table 8-5).

Not all firms will face the same impediments,

which can differ by industry, firm size, and

management practices.

H Finding Opportunities

Pollution prevention is strongly influenced by

the regulatory system. Regulation creates incentives by imposing a cost on polluting, which firms

can possibly reduce through pollution prevention.

Some regulations, such as the Toxic Release

Inventory reporting requirements, focus public

attention on emissions and provide an incentive

for reduction, particularly the relatively easy-to46 Waste Papti plan~ ~ically produce BC)D in tie range of 5-10 kg. per metric ton and no organochlorines, and use few chemicals as

compared to typical bleached kraft mill, which produces 20 to 50 kg of BOD per metric ton and some organochlorines. (McCubbb op. cit.)

47 Frosch and Gallapoulos, Op. cit.

48 peter Cebou ~ ‘Orga~mtio~ Be~vior as a Key El@ent in Waste Management Decision Making,’ The Environmental Challenges of

the 1990s (Washingto% DC: Environmental Protection Agency, 1990).

w ~ny of tie re=om are sim&M to hose found for not implementing cost-efilcient energy conservation measures in industry. Se% for

example, James R. Ross, “Energy Conservation in Sewn Products Plants,” paper presented at the 1979 American Institute of Industrial

Engineers annual conference; also Peter Cebon ‘‘High Performance Industrial Energy Conservation: A Case Study’ Kurt Fischer and Johan

Schot (eds.) The Greening of Indusrry (Washington DC: Island Press, 1993).

so me rewntc~ges in TRI reporting, where assions are reported even if they are treated, will most likely push pollution prevention even

more.
———-

Chapter 8–Pollution Prevention, Cleaner Technology, and Compliance 245

Table 8-5-Barriers to Pollution Prevention

Decision process affected

Identify Identify Implement

Barrier opportunities solutions solutions

Informational

Lack of knowledge of wastes

Bias toward end-of-pipe (EOP)

Lack of knowledge of alternatives

Equipment vendors focused on EOP

Environmental managers focused on EOP

Organizational

Environmental managers may not fully understand production

processes

Individuals may not be rewarded for pollution prevention

Worker involvement may be limited

Buyer process specifications may hinder pollution prevention

Technological

Appropriate technologies may not be available

Existing solutions may negatively affect process or product

Regulatory

Firms have hands full with compliance

Regulatory definitions of waste limit efforts

Regulatory enforcement patterns may raise risks of trying

innovative solutions

Regulations may require EOP solutions or mandate certain sources

be controlled

Regulations provide few incentives for going below the standard

Accounting

Firms may not measure solutions’ costs/benefits

Firms may incorrectly measure costs/benefits

Financial practices

Existing discretionary funds may go to EOP regulatory projects

Firms may not invest in all profitable projects

Corporate hurdle rates may be too high

Plant investment may not be fully amortized

Some industries may grow slowly with low investment rates

x

x

—

—

x

x

x

—

—

—

x

—

—

—

—

—

—

—

—

x

x

x

—

x

x

x

x

x

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

x

—

—

—

x

x

x

x

x

x

x

x

x

x

x

SOURCE: Office of Technology Assessment, 1993.

reduce emissions.50 Similarly, Superfund liability tion, certain aspects of the current system dampen

provisions encourage firms to reduce, rather than this incentive, and in some cases provide a

treat, emissions.51 However, incentives may not disincentive. An important barrier to pollution

be directed at the most appropriate people or prevention is the single-media, command-anddepartments within a firm.52 control focus of the regulatory system.53 The

Moreover, while the regulatory system as a single-media statutory directives, rules, and rewhole provides an incentive for pollution preven- ward systems for EPA personnel reinforce polluS1 However, it is impor-tant to note tbiit pollution prevention options inspired by these provisions may not always be tie most ecOnofi~ly

rational.

52 OTA, Serious Reduction of Hazardous Waste, op. cit., p. 5.

53 ~’atlon~ Cotission on the Environment, Choosing a Sustainable Future (Washington, DC: Island Ress, 1993).
246 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

tion control efforts, and provide only token

incentives for actively pursuing pollution prevention.54 While EPA top management has promoted

pollution prevention, translating this initiative

into action by middle managers has proven more

difficult. Moreover, EPA funding is geared toward end-of-pipe, not prevention, programs. Firms

are often too busy responding to single-media or

end-of-pipe regulatory requirements to devote

much attention to prevention.

Many firms are unaware of pollution prevention opportunities or their relative merits over

end-of-pipe solutions.55 Small and medium-sized

firms seldom analyze their wastes streams to

identify prevention opportunities. Moreover, many

firms lack the time and inclination to make their

way through the complex regulatory maze in

order to identify what is and isn’t allowed.

I Finding Solutions

In contrast to end-of-pipe treatment, which can

be applied without specific operational knowledge of the production process, pollution prevention requires those with intimate understanding of

the production process—line workers, managers,

and engineers-to contribute their knowledge.

However, responsibility for finding pollution

prevention solutions may not rest with those most

capable of doing so.56 The tendency of organizations to allocate responsibility for pollution prevention to a few agents in the organization is a

common source of many barriers. For example,

most plant managers are rewarded for getting

product out the door, not for reducing waste. As

a result, they may oppose prevention solutions for

fear they will divert resources from production

projects. Production supervisors may fear that

pollution prevention will negatively affect product quality or create interruptions. Engineers may

see prevention as diverting them from more

interesting and valued work. Production line

workers may not be rewarded for initiating

prevention solutions, and management may ignore solutions generated. Moreover, buyer specifications may require the use of certain processes,

making shifts to pollution prevention difficult.57

Most environmental managers have been trained

in end-of-pipe practices and thus may overlook

opportunities for prevention.

Organizational structures can also impede pollution prevention. Environmental management is

often the responsibility of a separate department

that is physically and strategically peripheral to

the production organization. Cross-departmental

communication may then be impeded by the

physical isolation of the environmental personnel, or by their low status and authority .58

Even when all levels of the organization are

involved, many firms, particularly small and

medium-sized firms and relatively autonomous

branch plants of large corporations, may either

lack the knowledge of technical alternatives or

not possess the engineering expertise needed to

redesign processes. For example, a survey of

Wisconsin hazardous waste generators found that

insufficient information about how to reduce

waste successfully was a significant barrier to

54 me Nation~ Adviso~ CounCil for Env~nmental Policy and Technology, Transforming Environmental permitting and compliance

Policies to Promote Pollution Prevention (Washington DC: U.S. Environmental Protection Agency, Office of the Administrator, February

1993), p. 25.

55 For exmple, Sm ]ndus~ SurV~ 92: Barriers to Po/httion Prevention (Baton Rouge, LA: Imuisiana Department Of Environmental

Quality, 1992); also “Response to Questions for Top Hazardous Waste Generators and TRI Releasers” (Austin: Texas Water Commission,

Task Force 21, Nov. 5, 1991).

56 For example, see Manik ROY, “Pollution Prevention, Organizational Culture, and Social Learning,” Environment/ Luw, vol. 22,

No. 149.

57 For exmple, both miliq specifications from DoD, as well as specifications from large corporate buyers or sellers, can be inflexible.

58 Andrew King, ‘‘ Cooperative L.earning Behveen Pollution Control and Process Engineering Departments in tbe Printed Circuit Fabrication

Industry, ” op. cit.
Chapter 8-Pollution Prevention, Cleaner Technology, and Compliance 247

further waste reduction.59 Moreover, firms may

doubt that pollution prevention opportunities or

technologies exist.

To overcome this, some fins, particularly

small and medium-sized ones, tend to rely on

vendors or consultants for information about

pollution prevention. Anecdotal evidence suggests that these may steer companies away from

prevention in favor of more generic end-of-pipe

equipment. This may in part be due to the fact that

most environmental consulting, focuses on end-ofpipe treatment, while most environmental equipment vendors sell end-of-pipe equipment.60

Finally, many firms overlook sources of savings such as energy reduction and pollution

prevention, reorientation of materials flow, reduced inventory, and improved quality, in favor

of either increased output or direct cost reductions

related to production. 61 This may be because they

believe that their core production process is

already efficient. While top level management

might understand the importance of profit maximization, operating managers often emphasize

output maximization, making it hard for them to

give priority to pollution prevention investments

when other matters occupy most of their attention. Investments in these cost-saving activities

are often seen as tying up capital that could be

used for other things, including expanding output.

Moreover, because pollution prevention projects

offer high levels of risk and low rewards for

decisionmakers (if they succeed the process

continues as usual, but if they fail the managers

can get in trouble), managers will often not make

the change.

As discussed in chapter 9, regulations require

strict compliance with a standard and seldom

provide firms with innovation waivers or tradable

pollution allowances for implementing pollution

prevention solutions that almost attain the standard. Moreover, because pollution prevention solutions, particularly those based on more complicated process redesign, can take a long time to

develop, and because regulations often give firms

short lead times to meet regulatory requirements,

firms often invest in end-of-pipe.

Finally, some prevention solutions may be

relatively risky, particularly with new projects. In

addition, some end-of-pipe controls allow manufacturers more flexibility in production. For

example, the Saturn automobile plant installed a

state-of-the-art carbon adsorption unit, which

gives them the ability to use many types of

coatings on the car, including those with higher

VOC content.

Z Authorizing and Implementing Solutions

Once managers identify and design pollution

prevention solutions, firms must still authorize

their implementation and provide resources. Top

management commitment is important in implementing pollution prevention.62 One reason why

the chemical industry has more aggressively

adopted pollution prevention practices is that top

management has made it a priority. Likewise,

studies have shown that when educated and

provided with organization position and effective

technology, environmental managers can be pow59 Reducing Hazardous waste In Wisconsin, Report V: Barriers and Incentives ro Hazardous Waste Reduction (Madison: Bureau of

Re.searclL Wisconsin Department of Natural Resources, August 1992).

a “WC Firms Position For Prevention, ” Environmental Business Journal, vol. 6, No. 8, August 1993.

s] O’rA, ]ndu~rriaf Energy Ejkiency, op. cit. A]so, B. Wilhlll Riall, “Nontraditional Equipment Justi.ilcation Methods and Their

Applicability to the Apparel Industry,” prepared for The U.S. Defense Logistics Agency, November, 1988.

62 ‘*~even~g po~ution: FOCUS on Organization and Management, ” Technology, Business and Environment Progrq MIT, September,

1991; also Robert Bringer and David Benforado, ‘‘Pollution Prevention as Corporate Policy: AI.mok at the 3MExperience, ” 1989, pp. 117-126.
248 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

erful advocates for pollution prevention.63 Notwithstanding, there are still a number of impediments to implementing solutions.

REGULATORY BARRIERS

The characteristics of the current regulatory

system may encourage companies to control

pollution from specific sources (e.g., boilers) with

end-of-pipe reference technology. As a result,

firms may have little incentive to reduce pollution

from other sources that might be less stringently

regulated or to use pollution prevention to reduce

releases below the regulatory standard. Moreover,

because end-of-pipe controls are often the defacto

standard, firms choose the path of least resistance

and install these, rather than pursue prevention.

While permit writers normally understand generic control technologies, they often do not

adequately understand industrial processes and

pollution prevention techniques.64

CAPITAL ACCOUNTING

Economic theory holds that managers of an

enterprise will attempt to optimize production to

maximize profits.65 Wastes, as one of several cost

factors, should be treated in a fashion in which

marginal investments are made in pollution

prevention until the point where marginal returns

on investments in other areas are higher. However, others argue that in practice, projects

yielding competitive paybacks are routinely ignored. There are several reasons postulated for

this.

First, a large proportion of firms do not conduct

discounted cash flow analysis on all investment

projects, particularly for pollution prevention

investments often seen as mandatory environmental projects that historically cost the firm

money.

66 Another barrier is that many firms use

simple payback measures, even though the former

count against pollution prevention projects that

normally have longer term benefits.67

Second, conventional discounted cash flow

methods can underestimate the benefits of pollution prevention projects. These benefits can

include reduced waste disposal costs, regulatory

compliance costs, insurance and liability costs,

and improved public image. One problem in

demonstrating the cost advantage of pollution

prevention investments is the inability of some

fins’ accounting practices to allocate end-ofpipe costs to specific product lines or processes.

Moreover, firms can underestimate labor savings

from pollution prevention.

There have been several efforts made to

develop better accounting practices to credit for

the full cost of pollution. Referred to as Total Cost

Accounting (TCA), such methods attempt to

include all costs including direct capital and

operating costs, indirect or hidden costs (e.g.,

63 Andrew King, “Innovation From Differentiation: Environmental Departments and Innovation in the Printed Circuit Industry, ” in

International Product Development Management Conference on New Approaches to Development and Engineering (Brussels, Belgium:

EIAS~ 1992).

64 Re@ations fmm other agencies can hinder pollution prevention. For example, pharnulceuticzd f~ must ~eive reI@atory appmvd

from the Food and Drug Administration to change their processes.

65 Adam B. Jaffe and Robert N. Stavins, ‘ ‘The Energy Paradox and the Diffusion of Conservation Technology,’ (draft), Harvard University,

unpublished manuserip~ Feb. 12, 1993.

66 For example, ‘Amoco’s project evaluation approach has usually viewed environmental projects in the limited context of meeting speeiflc

regulatory requirements within a freed timeframe. ’ Amoco-U.S. EPA Pollution Prevention Project, Yorktown, Virginia. Project Summary

(jointly published by Amoco Corp., Chicago, IL, and U.S. Environmental Protection Agency, Washington, DC: June 1992). See also Allen

L. White, Monica Becker, and James Goldste@ Alternative Approaches to the Financial Evaluation of Indusm”al Pollution Prevention

Investments, prepared for the New Jersey Department of Environmental Protection, Division of Science and Research, November 1991, p. 20.

67 Ross feud that for small energy conservation projects financial analysis is usually relatively simple and is supplemented by tiormd

adjustments. The result is that for many firms only the most profitable small projects are undertaken. Marc Ross, ‘‘Energy-Conservation

Investment Practices of Large Manufacturers,‘‘ in The Energy Industries in Transition, 1985-2000, Part 2, edited by John P. Weyant and

Dorothy B. Sheffield, Washington, DC: The International Association of Energy Economists, 1984.
Chapter 8–Pollution Prevention, Cleaner Technology, and Compliance I 249

compliance costs, insurance, on-site waste management, operation of pollution control equipment), future liability (penalties and fines and

payments due to personal injury and property

damage), and less tangible benefits (e.g., revenue

from enhanced company image).68 Some costs are

difficult if not impossible to quantify, such as

improved company image or reduced liability.

However, excluding them completely from cost

analysis unfairly disadvantages pollution prevention projects.

Case studies applying TCA suggest that in

some cases, TCA analysis can improve the

internal rate of return of pollution prevention

projects to make them competitive with alternative investments. In addition, as an accounting

method that leads firms to more accurately

measure and assign costs and savings, TCA is

consistent with other improved accounting methods, such as activity-based accounting69 

and

full-cost accounting,

70 that have been advocated

for helping firms make more rational decisions

regarding investments generally.71 However, preparing a TCA analysis can involve considerable

effort, limiting its use to larger firms implementing projects with considerable costs and savings.

INVESTMENT PRACTICES

Even if firms accurately measure costs and

benefits of pollution prevention investments,

capital accounting practices and capital availability may limit the adoption of even profitable

pollution prevention projects. Many small and

medium-sized firms find it difficult to get financing for pollution prevention projects, in part

because banks may not understand the projects

and view them as not generating a cash flow.

Many larger firms prefer to fund small capital

projects (like pollution prevention) from retained

earnings, in part to preserve credit ratings. Moreover, large firms often adopt capital rationing

systems where divisions and plants are given

limited amounts of capital for small projects,

regardless of how many profitable projects they

have. 72

Even without capital rationing, small projects

are commonly subject to more stringent hurdle

rates. The result of both practices is that much less

discretionary spending is undertaken than would

be justified by conventional analysis. In such

circumstances, waste reduction projects (characterized by a high number of small-scale investments) with rates of return higher than the

corporate cost of capital may not be funded if

other projects have even higher rates of return.

Moreover, because waste reduction projects are

optional and are often proposed by low-status

environmental managers, they are more likely to

lose out.73

This lack of assertiveness in investing in

positive pollution prevention projects may be part

of a larger pattern of lack of investment in a wider

range of productivity-enhancing technologies.

The problems in funding profitable pollution

prevention (and energy conservation) projects

may be symptomatic of deeper problems in U.S.

68 ~te, Becker, and Goldste~ op. cit.; tie Northeast Waste Management Officials’ Association in conjunction Witi the Massachusetts

OffIce of Technical Assistance have also developed a manuat for TCA, Costing and Financial Analysis of Pollution Prevention Projects.

69 Robin Cooper, “Implementing an Activity-Based Cost System,’ Cost Management, spring 1990, pp. 3342.

To F~I ~st a~o~fig assigns aIl costs to specitlc processes or product lines. TCA is concerned with both this more accurate mocation of

costs as well as the expansion of cost items beyond traditional concerns. (White, Becker, Goldste@ op. cit.)

71 For exmple, ~ny ~we tit Conventioti acco~ting me~ods do a poor job of acc~ately meas~g tie savings fTC)m implementation

of flexible automated production equipment. See R,H. Hayes and R. Jakumar, “Manufacturing Crisis: New Technologies, Obsolete

Organizations,’ HarvardBusiness Review, September-October 1988; atso B. William Riall, op. cit,; also Robert A Howell and Stephen Soucy,

Factory 2000+ Management Accounting’s Changing Role (Montvale, NJ: National Association of Accountants, 1988).

72 Marc Ross, “Capital Budgeting Practices of Twelve hge Manufacturers, “ Financial Management, winter 1986.

73 Job Erhe~eld, ‘{TW~oloW and me Environment: A Map or a Mobius s~p, ” paper presented at the World Resources 111.Stihlte

Symposium, “Toward 2000: Environment Technology, and the New Century, ” Annapolis, MD, June 13-15, 1990.
250 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

business financing that lead U.S. firms to underinvest in the assets and capabilities required for

competitiveness (e.g., projects with moderateterm paybacks in energy, technology, training,

and productivity) .74

SOCIAL BENEFITS

When firms do invest in pollution prevention,

there is evidence that expected corporate rates of

return eliminate some of projects that would be

justified from a societal perspective because of

the external costs of pollution. Ross estimates that

if firms applied a longer time horizon to investments (a lower capital recovery rate of 16 percent,

instead of the current rate of 33 percent) that

energy conservation measures would result in

consumption of approximately 20 percent less

energy.

75 Similar pollution prevention projects

also appear to be overlooked.76 If this is true, the

optimal investment practices of companies will

not maximize societal welfare. High hurdle rates

are often a hedge against high risk, yet pollution

prevention investments often have low risks,

possibly deserving lower hurdle rates.

INVESTMENT CYCLES

Finally, some firms and industries do not invest

heavily. Some managers are more cautious,

focused principally on survival; others aggressively seek out innovation and new investment.

Some industries with mature markets and equipment and low profits (e.g., metal finishing) invest

less in new facilities, so adding on new environmental equipment is harder. In addition, the

recession has further diminished new investments

in pollution prevention equipment.

One reason for slow implementation, particularly in the more capital-intensive process industries, is that many firms have large investments in

fixed capital. Firms may wait until the capital

equipment nears the end of its useful life (sometimes as long as 40 years) before investing in

newer, cleaner processes. Moreover, in many

industries most firms have invested in pollution

control facilities. For example, virtually every

metal finishing firm in the United States has a

functioning wastewater discharge system.77 In the

absence of new regulations, equipment replacement, or addition of new production facilities, it

often makes little sense for firms to invest in new

pollution control equipment.

POLLUTION PREVENTION TECHNOLOGY

DEVELOPMENT

Considerable gains in pollution prevention are

possible through wider deployment of existing

technology. Greater gains are possible through

development of new technologies. These environmentally preferable process technologies exist or

could be developed in all manufacturing sectors,

and hence may be critical to U.S. manufacturing

competitiveness in an environmentally constrained

world. 78

Only a small share of environmental R&D is

for pollution prevention technology development. Of the estimated 1.7 billion dollars the

Federal Government spent in 1992 on environmental technology R&D, less than 4 percent ($70

74 Councfl on ComWtitiven~s and Harvard Business School, Capital Choices: Changing the Way Amen”ca Invests in Industry (Washington

DC: Council on Competitiveness, June 1992).

75 For mOst gov~nment projects, Om~uires a red diSCOUnt rate Of 10 per~nt, w~e EPA r~uires a red discount rate ‘f 5 Wrcent ‘or

evaluating projects under its jurisdiction. Steven R. Booth, Linda K. Trocki, and Laura Bowling (Los Alamos National Laboratory), “A

Standard Methodology for Cost Effectiveness of New Environmental Technologies, ’ paper presented at the Hazardous Materials Management

Conference and Exhibition Atlanta, Geor~ Oct. 2-4, 1991.

76 For exmple, b he AIIMCO oil refiiery at Yorlcto~ Virginia, 2 of 11 pollution prevention projects had rates of return greater than 10

percent. (Amoco/U.S. EPA, op. cit.)

77 F.A. Steward, op. cit.

78 GWrge H=to% Ro~~ ReWfio, ~d Rodney Sob@ 7’runSfOrming Technology: An Agenda for Environmentally Sustaimble Growth in

the Zlsr Century (Washingto~ DC: World Resources Institute, April 1991).
Chapter 8–Pollution Prevention, Cleaner Technology, and Compliance ! 251

million) went to pollution prevention R&D.

Academic research patterns are similar. A survey

of 38 academic research organizations in the

United States involved in hazardous waste management found that only 28 of 529 projects could

be described as pollution prevention .79 Moreover,

little of the pollution prevention research focuses

on the fundamental changes in manufacturing

processes and methods that may be required to

meet long-term goals for environmental improvement at lower cost.

Pollution prevention R&D needs tend to be

poorly defined; if defined, they are only now

being acted on. The chemical industry has made

perhaps the greatest effort to identify R&D needs.

The Center for Waste Reduction Technologies

developed a list of R&D needs related to chemical

process industries.

80 Extensive research will be

necessary to fully exploit pollution prevention

opportunities.

As the importance of in-plant measures increases, environmental R&D will need to be

better integrated into the ongoing R&D of industrial materials and capital goods suppliers. In

addition to helping U.S. manufacturers produce

more cleanly and cheaply, this R&D can stimulate economic growth by making the capital

goods sector more competitive internationally,

selling ‘‘green’ machinery and equipment.

Two kinds of R&D will be needed to further

pollution prevention technology. The first is more

basic research, particularly into chemical processes and reactions. 81 The second need is for more

applied research in new industrial processes in

two areas: infrastructural or generic technologies,

where industry tends to underinvest because no

one company can appropriate the full economic

benefits (e.g., environmentally benign cutting

fluids); and strategic environmental R&D, where

business risks and financial constraints combine

to slow the development of technologies important to environmental performance and industrial

competitiveness (e.g., direct steelmaking, effluentfree pulp mills). Public and private R&D on

environmental technology, including pollution

prevention, is discussed in chapter 10.

TECHNICAL ASSISTANCE FOR POLLUTION

PREVENTION AND ENVIRONMENTAL

COMPLIANCE

Widespread diffusion of existing off-the-shelf

technologies and management and process technology changes will go a long way to reducing

pollution. However, many firms, particularly

small and medium-sized ones, are not aware of

these measures. 82 Technical assistance can help

these firms identify and implement pollution

prevention measures. Yet existing programs are

small. By focusing only on prevention, most

programs fail to develop synergies and working

relationships with manufacturers that could contribute to pollution prevention and increased

manufacturing competitiveness.

1 Government Pollution Prevention

Technical Assistance Programs

Most States and a few localities have programs

that provide information and direct technical

assistance to firms on how to reduce pollution,

The Federal Government provides a small amount

of funding and technical support to these programs.

79 New York state Center for Hazardous Waste Managemen$ Research and Development in Hazardous waste Management @u.ff~O, NY:

State University of New York, 1990).

5~ Energetic he., Report on the CWRT Work.rhop on. Waste Reduction R&D Opportunities in Industry (W&tigto% DC: U.S. Dep~ment

of Energy, Office of Industrial Tdmologies, September 1991).

81 IIESe uws include understanding tie dxxniml reaction processes at the molecular level, including advances in rmctiOn eJ@neefig,

thermodynamic modeling, and particulate formation. Other important tedmologicaJ areas include catalysis and reaction path selectivity,

particle technology, process synthesis, and recycle theory. (Allen, op. cit.)

8Z OTA Serlou$ Reduction of Hazardous waste, op. cit.} P. 33.
252 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

STATE AND LOCAL PROGRAMS

Nearly all States have programs to help industry prevent pollution.

83 In addition, a number of

localities, including at least 10 in California, have

established pollution prevention programs. Most

programs offer a variety of services, including

information and referrals on State and Federal

regulations and pollution prevention opportunities, including case studies, reports, and journals.

Many have developed waste reduction manuals

for particular industries, such as metal finishing,

printing, etc. Programs also conduct seminars,

workshops, and mailings to inform industry of

opportunities for waste reduction. Finally, most

programs provide some technical assistance to

industry, either through telephone consultation or

on-site visits. The latter often takes the form of

detailed waste audits to help firms identify

pollution prevention opportunities. These audits

are often conducted by full-time program staff,

but many programs also employ part-time retired

engineers to conduct audits.

EPA EFFORTS

EPA supports State and local technical assistance through the Pollution Prevention Incentives

for the States program (funding of $8 million in

fiscal year 1994). EPA provides a small amount

of funding for three hazardous waste minimization assessment centers located at universities in

Colorado, Tennessee, and Kentucky. EPA also

maintains a clearinghouse. Finally, EPA’s Risk

Reduction Laboratory Pollution Prevention Research Branch publishes manuals, fact sheets, and

waste audit guides. EPA also offers indirect

assistance by providing some flexibility in mediaspecific State grants for pollution

work. 84

1 Limitations of Current Efforts

These pollution prevention efforts,

ful, have significant limitations.

SMALL SIZE

prevention

while helpIn comparison to the need, State and local

pollution prevention programs are very small

with the average State program having three to

four fill-time staff.85 (e.g., Los Angeles’ pollution prevention program conducted 100 on-site

technical assistance visits in 1991. At that rate it

would take them 200 years to reach all of the

county’s approximately 20,000 manufacturers.)

Given the magnitude of the problem and opportunity, these programs are too small to have an

appreciable impact. Moreover, the lack of funds

has meant an emphasis on technical assistance,

with relatively little going to applied R&D and

demonstration and testing projects.

One reason programs are understaffed is that

few charge fees for services, in part because they

fear that their services would not be utilized and

that they would be seen as unfairly competing

with private sector consultants. However, this

first fear may stem more from the fact that most

programs do not have a long-term relationship

with the manufacturing community. Among those

that do, such as the Cleveland Environmental

Services Program (see box 8-C), manufacturers

pay a share of the cost.

These programs get little government money,

because they generally receive low priority in

EPA national and regional offices, as well as

States, in relation to enforcement and compliance

133 Forrno~ ~o=tionon Sute progrws see: u.S. EPA, Pollution Prevention 1991: Progress on Reducing Industrial Pollutants, OctobCr,

1991; Robert E. Deyle, Hazardous Waste Management in Small Business: Regulating and Assisting the Smaller Generator (Westport, CX:

Greenwood Press, 1989); and John Hodges Copple, “Strengthening State Pollution Prevention Rograms” Southern Growth Policies Board,

January 1990.

84 Memomndum from F. Hem-y Habicht ~, Deputy Admi.nistm,EPA “state Grants Guidance: h3tegratiOII of PO1lution PllXWltiO~” NOV.

12, 1992.

ES ~slie Scott and Renee Shatos, “Waste Reduction Technical Assistance Study,” Social and Economic Sciences Research Center,

Washington State University, spring 1991.
Chapter 8–Pollution Prevention, (leaner Technology, and Compliance 253

Box 8-C-Pollution Prevention Integrated Into Existing Industrial Extension Programs

At least 28 States have established, sometimes with Federal assistance, programs to help small

and medium-sized manufacturers modernize their production processes and adopt new technologies.

As these programs have gained experience in serving the needs of manufacturers, many have begun

to broaden the range of services they offer. Several programs, such as Tennessee’s Center for Industrial

Services and the Cleveland Advanced Manufacturing Program, help firms address environmental

requirements, including pollution prevention.

The Center for Industrial Services (CIS), a part of the University of Tennessee, was established

in the early 1960s to help firms solve technical problems related to manufacturing. In the mid-1980s,

firms started asking the Center for help on addressing RCRA hazardous waste matters. The center now

employs 13 full-time waste reduction staff (and 20 part-time retired engineers) in addition to its regular

extension staff. Its pollution prevention program is integrated into the industrial extension program, and

it hires staff with plant and process engineering backgrounds. The center’s extension field agents are

trained in pollution prevention so they can spot opportunities and refer firms to ClS’s pollution prevention

staff for further consultation, In 1992, the program claims to have saved Tennessee industry$12 million

through pollution prevention.

The Environmental Services Program (ESP) is a division of the Cleveland Advanced Manufacturing Program (CAMP). The state of Ohio formed CAMP in 1984 as one of its nine Edison Technology

Centers. The center, through three university affiliates, provides research, application, and training in

new manufacturing technologies. In 1989, CAMP was awarded a grant from the National Institute of

Standards and Technology to establish and operate the Great Lakes Manufacturing Technology Center

(GLMTC), one of seven NIST-funded manufacturing technology centers. GLMTC helps manufacturing

firms adopt modern technologies by providing in-depth, 1 to 5-day evaluations conducted by an

experienced, technical staff of 20 individuals.

Through consultation with industry, the staff became aware that their client companies were finding

compliance with environmental regulations a major problem. They came to believe that pollution

prevention was a logical extension of the continuous improvement philosophy associated with the

manufacturing modernization process, and that as a result, they would have a significant capacity to

provide services in this area. Toward that end they formed ESP in 1990.

In some ways, the environmental program is indistinguishable from the manufacturing modernization program. Both have an assessment component with a distinct protocol. ESP conducts an initial

audit of environmental compliance procedures, followed by a pollution prevention assessment with

recommendations. If a firm wishes to adopt the recommendations, ESP can work with the firm on

implementation, which may involve applied development work.

SOURCE: Office of Technology Assessment, 1993.

activities. When measured against the resources LACK OF TRUST

devoted to Superfund and hazardous waste issues, Because many firms are inherently suspicious

EPA efforts in pollution prevention are quite of working closely with regulators, the fact many

small and ad hoc. The statutory mission of EPA State pollution prevention programs are housed in

and State regulatory agencies is to implement regulatory agencies means that these programs

national laws and as a result, these efforts receive must devote much effort to convincing firms to

higher priority.
254 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

trust them.86 Since a key component of successful

technical assistance is the establishment of trust

between the service provider and the recipient,

firms must feel confident that information they

reveal will not be provided to regulators. Moreover, many of the programs focus on the process

of pollution prevention, rather than on industryspecific technical processes and how pollution

prevention fits into them.

REACTIVE POSTURE

Many programs provide assistance to any

requesting firm, even facilities that emit little

pollution. Moreover, programs often respond to a

fro’s definition of its problems, when a redefinition might be more realistic. For example, to

reduce the use of CFC-based cleaning solvents,

programs sometimes help firms find solvent

substitutes rather than examine whether solvents

are needed at all.87 The opportunity to help firms

expand their capacity to look at the production

process in new ways thus may be lost.

LACK OF FOLLOW-UP

Most programs visit firms only once and

provide little follow-up to help implement recommendations. 88 As a result, the success rate of these

interventions is often low. In many state programs

without extensive follow-up, only about one-third

of the firms assisted make any changes after

consultation .89

LACK OF COORDINATION

With so many Federal,

tion prevention activities,

State, and local polluduplication of effort is

a danger. Programs do not share specific information on a regular basis. In an effort to increase

coordination, EPA developed its Pollution Prevention Information Clearinghouse. The Clearinghouse provides a substantial amount of information on federal, State, and local pollution

prevention efforts. However, many State and

local users complain that the information is

overly general and out-of-date. EPA is aware of

most of these criticisms and is trying to add

technical case studies. However, even with these

changes, passive electronic clearinghouses normally play a limited role in information dissemination and coordination.

INADEQUATE TARGETING

The majority of pollution comes from larger

firms in the materials producing industries. Yet

EPA and State programs have emphasized pollution prevention efforts for small and mediumsized firms in fabrication and assembly industries. The technical requirements of working with

firms in materials industries (e.g., chemicals,

steel) is much greater but State programs cannot

gain this level of expertise easily. One reason for

targeting small and medium-sized firms is the

belief that large firms have the technical and

financial resources to support pollution prevention efforts, while small and medium-sized firms

do not. However, large fins, particularly in some

branch plant operations, are not as strong in

prevention as these programs may believe.

SfJ One smey of Sbte ~~ution prevention programs reported that 10 of 11 programs indicated that they felt business wu hesitant to -k

assistance from them because of their location in a regulatory agency. Washington State University, op. cit. Similar comments have been

reported about the OSHA consultation program, which often has difficulty working with fm since technicrd assistance providers working

with the fii cannot guarantee that they will not report OSHA violations.

87 Robert B. poj~~c ‘Is Your Quest for Solvent Substitutes Preventing You From Evaluating Other Options, ” pollution ~revenfion~eview

winter 1991/92.

86 Rob~ B. poj~ek and Lawrence J. Cali, ‘‘Contrasting Approaches to Pollution Prevention Auditing,’ Pollution Prevention Review,

summer 1991.

M For exmple, Mode Island found that one-third of the firms it assisted made changes. Similarly, about One-third Of the f-@liStCd k

the Blackstone Project in Massachusetts made changes. In Florid% about 40 percent of the fm made changes, Washington State University,

op. cit., 1991.
Chapter 8-Pollution Prevention, Cleaner Technology, and Compliance 255

FRAGMENTED SERVICES

In many States, more than one program provides pollution prevention technical assistance;

some specialize in different kinds of waste (e.g.,

air, water, hazardous waste). EPA’s own efforts

contribute to this duplication, as evidenced by a

recent EPA proposal to create a separate hazardous waste extension service. The new State

technical assistance programs mandated in the

Clean Air Act will add to the proliferation of

assistance efforts by creating new programs

aimed solely at air pollution, although some

States are trying to avoid duplication of effort.

In addition to multiple pollution prevention

programs, other government programs also aim to

modernize production processes. In fact, at least

three emerged before the interest in pollution

prevention. In the 1970s, State and Federal

Governments established programs to help manufacturers save energy, including adopting energyefficient process technologies and modification

of existing process and practices. In the absence

of a visible energy crises, government funding for

these programs declined, but funding by utilities

has increased. In the mid-1980s, partly in response to the increased competitive threat to U.S.

manufacturing, States and the Federal Government established programs to help manufacturers

modernize their production processes. Some

States also assist firms with training workers,

especially when adopting new technologies or

work practices. Funding for these programs is

increasing. Finally, in the area of worker health

and safety, OSHA funds State technical assistance programs to help manufacturers develop

safer work practices.

Methods for providing technical assistance to

small manufacturers for energy conservation,

boosting productivity, improving safety and

health, and reducing waste are similar.90 All four

activities focus on the manufacturing process.

Much of the work involves convincing companies

of the merit of change. Each area involves

assessment, often usually using a standard protocol. The best approaches generate worker input

and involvement, provide workforce training,

focus on continuous improvement, and address

both fundamental and incremental changes.

In spite of the considerable similarities in

functions, these services are almost always provided by separate programs with little or no

coordination. 91 These programs remain separate

in large part because neither the various Federal

Government departments nor the States think of

them as part of an overall manufacturing strategy.

Instead, they see each program as serving a

specific government objective-+. g., energy conservation, environmental protection, or job retention.

This fragmented approach causes several problems. Separate programs make it hard for industry

to turn to one source for technical assistance and

makes it hard for programs to market their

services to industry. Moreover, it becomes more

difficult for programs to establish the long-term

working relationships so important to instituting

both pollution prevention and manufacturing

modernization as a continuous process. Perhaps

most importantly, single issue programs may fail

to identify and promote cross-cutting solutions

that promote more than one goal.

1 Pollution Prevention Built Into

Comprehensive Industrial Service

Organizations

Because of the similarity in process, and

because of the significant advantages of combining industrial services in one organization, one

~ Ki[ty Weisma% David H~so~ and Alice Shorctt, Taming ~he Tom”c Threat: !$mategies To Reduce Hazardous Waste Generan’on in the

Northwest (Pacific Nm-thwcst Policy Center of the University of Washington, September 1990).

91 OTA intewiewed sever~ Stite pollution prevention officials who were not aware of manufacturing modernimtion technid assis~nce

programs m their States, even though there was considerable similarity of function and potential for coordination. While many of the

manufacturing modernization officials knew of the pollution prevention programs, none of them had contact with them.
256 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Waste minimization engineer from the University of

Tennessee works with an equipment manufacturer’s

environmental coordinator and operator to reduce

waste from a cleaning tank.

option for increasing the effectiveness of existing

State pollution prevention programs would be to

combine them with existing industry extension

programs. These programs can have several

advantages. First, many already have existing

relationships with industry to help them solve

technical and management problems. Second,

this relationship can serve as the means by which

other problems, including pollution prevention

and environmental control, are addressed. Finally, these programs can bring firms together

into cooperative networks to collectively solve

environmental problems.

S Sectoral and Industrial Network

Approaches to Pollution Prevention

While industrial service organizations might

provide pollution prevention services more effectively, most organizations still provide services to

one firm at a time. Hence, meaningful ways of

reaching out to more firms are still necessary.

Several approaches can extend the range of these

programs.

First, some programs have developed manufacturing net works to help firms cooperate in providing common services, such as training, joint

bidding on contracts, joint purchasing, and common facilities and equipment. The area of pollution prevention is ideally suited for network

cooperation. Firms in the same industry or same

process can benefit from joint R&D, share

solutions to reducing waste, and even exchange

waste. A few networks have begun to address

environmental problems. For example, Massachusetts’ Center for Applied Technology convened a group of 6 firms involved in metal

stamping, ranging from Gillette to a small firm

with 20 employees, to examine the issue of

lubricant replacement. Their goal is to identify a

set of lubricants that optimize tool performance

yet are environmentally preferable. Another example is the Pennsylvania Foundryman’s network, which has developed a jointly owned

corporation that runs a landfill for foundry sand

contaminated with heavy metals, and is exploring

pollution prevention solutions.

Firm networks can also be the basis of local

industrial ecologies where the wastes of one firm

become the inputs of another. In the United States

this practice is facilitated by a number of formal

waste exchanges. For example, the Northeast

Waste Exchange in Syracuse, New York helps

firms with wastes identify other firms that might

want to use these wastes as useful inputs to their

production process. However, while these programs are helpful, they essentially rely on passive

information sharing-in a sense, waste want ads.

More effective approaches are those that actively

try to match fins. (See ch. 1 for a discussion of

an innovative local waste network in Denmark.)

Second, there are economies of scale from

focusing on the technological needs of firms in

the same industry. Moreover, many of the technological issues in pollution prevention are unique

to particular industries. As a result, sectorally

based centers might provide a focus for pollution

prevention.

These sectoral approaches are more common in

Europe. For example, the Centro Ceramico in

Bologna, Italy helps its members solve environmental problems. The Center is a research/

industrial services center funded by the 500
—

Chapter 8-Pollution Prevention, Cleaner Technology, and Compliance 257

ceramics firms in the Bologna area that account of

70 percent of Italian ceramics production and 30

to 40 percent of the world market. The center

conducts research aimed at quantifying the environmental impact of ceramic processes and to

develop clean ceramic production technologies

and technologies for sludge and residue reuse. In

addition, the center works one-on-one with member firms to measure and reduce releases, solve

individual plant problems, and help them come

into compliance. It has developed close cooperative relationships with the local and national

environmental regulatory agencies. The center

also provides research and technical assistance to

help firms reduce energy consumption, develop

new materials and products, and put in place more

efficient processes.

Most technical assistance in the United States

is organized on a regional, rather than sectoral,

basis. However, some sectorally based efforts

may be emerging. For example, North Carolina

State University Agricultural Extension program

recently organized a meeting of the environmental managers of the major food processing

firms in the nation to identify common problems

and needs and discuss how a environmental food

processing center could help solve them. There

may be opportunities for such sectorally based

centers are developed in a number of industries,

including chemicals, lumber and wood processing, petroleum refining, pulp and paper, and steel.

9 Other Approaches to Technical

Assistance

Even if existing government technical assistance programs are improved, other approaches to

encourage adoption of pollution prevention practices will still be necessary. There are three major

nonregulatory approaches: integrating technical

assistance into the permitting and inspection

process, using government procurement to stimulate pollution prevention, and encouraging private sector pollution prevention technical assistance efforts.

INTEGRATE TECHNICAL ASSISTANCE INTO THE

PERMITTING AND INSPECTION PROCESS

State and Federal environmental permit writers

and inspectors visit manufacturing plants routinely; some might be able to provide basic

technical assistance. For example, the State of

Maine is interested in having its inspectors

promote pollution prevention and has approached

EPA for guidance.

There are, however, several institutional barriers to this. First, in the past, some regulatory

agencies, particularly EPA, have not actively

supported combining enforcement and assistance

roles. If State inspectors visited sites to provide

technical assistance, EPA’s formal policy was to

not count these towards the inspection commitments made by the State in its EPA inspection

grant. 92 In part this reflected EPA’s traditional

end-of-pipe, regulatory culture, which makes it

difficult for them to move towards a more

assistance-oriented role. However, recent guidance from EPA to the regional offices suggests

that this policy may be changing. 93 Second,

inspectors and permit writers may lack the

expertise to provide technical assistance, although a number of State pollution prevention

programs have begun to provide such training to

regulatory staff. Still, some inspectors do not feel

that they should even make referrals to technical

assistance programs. Finally, even if permit

writers and inspectors provide minimal levels of

assistance, this will not take the place of the more

in-depth assistance provide by extension programs.

92 See for example, letter from Julie Belaga, Regional Administrator, EPA Region 1, to Dean C. Marriott Cotnmisslonti, Mfie mp~~nt

of Environmental Protectio@ Mar. 18, 1992. However, EPA may be softening this policy,

93 Memomnd~ from Hem-y Habicht H, op. cit.
258 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

FEDERAL PROCUREMENT

Federal procurement, particularly by DoD,

could encourage companies to undertake pollution prevention.94 However, DoD procurement

practices often discourage pollution prevention.

For example, an increasing number of fins, such

as Allied Signal, Hughes, IBM, and Motorola, are

using no-clean soldering systems to produce

commercial electronics products. These systems

save considerable money in avoided cleaning and

flux costs, reportedly have as good or superior

performance, and reduce environmental releases.

However, DoD has not formally recognized these

methods as acceptable alternatives to resin-based

soldering .95

Unlike commercial industry, typical DoD specification changes take 3 months for simple

administrative alterations and up to 3 years for

complex, technical changes.

96 There are large

numbers of specifications that contain environmental implications, such as the approximately

9,500 military specifications that contain either

references or requirements for use of ozonedepleting solvents.97 Many firms use a program-byprogram, piecemeal approach of either applying

for waivers or changing specifications one at a

time. However this is a very time-consuming,

paperwork-intensive process, dependent in part

on the technical capacity and motivation of the

involved industry and DoD personnel. As a result,

the need to modify military specifications for

materials and processes to cope with changing

environmental requirements serves as a bottleneck in promoting pollution prevention among

military contractors and subcontractors.

Recent Executive Orders issued by President

Clinton have the potential to enlarge the role of

Federal procurement in energy efficiency and

some areas of pollution prevention. One order

directs agencies to revise their practices to reduce

procurement of substances that deplete the stratospheric ozone layer. Another directs agencies do

procure energy efficient computers.98

ENCOURAGE OTHER ORGANIZATIONS TO

PROVIDE POLLUTION PREVENTION TECHNICAL

ASSISTANCE

Some private sector organizations have an

interest in helping firms prevent pollution. Encouraging these efforts can expand the scope of

current pollution prevention efforts.

Electric Utility Efforts-Many public utilities

have tried to boost local economic growth, often

by trying to convince industry to move to their

service area.99 However, recently, a small number

of utilities have begun to focus instead on

improving the economic competitiveness of their

existing manufacturing customers, usually by

helping them save energy, but increasingly by

helping them prevent pollution.

100 For example,

Duke Power established an electro-manufacturing technology center, located at North Carolina

State University, to help textile firms adopt

cleaner technologies.

94 U.S. ConWess, Senate on Governmental Affairs, Subcommittee on Oversight of Government Managemen~ Hearings on Buying

“Green”: Federal Purchasing Practices and The Environment, S. Hrg. 102-563, Nov. 8, 1991.

95 Mk Cmwford, “pentagon Resists New Soldering Technology, ” New Technology Week, Monday, MN. 22, 1993, p. 7.

96 Karla M. Boyle, “Implementing Environmental Alternatives on Military Hardware, ” Hughes Aircraft Co., Corporate Environmental

Technology.

97 Ibid.

98 Executive @de~ 12843 and 12845, respectively. Weekly Compilation of Presidential Documents, Monday, Apr. 26, 1993, pp. 638-643.

President Clinton also signed an Executive Order encouraging procurement of alternative fueled vehicles or conversion of existing vehicles

to alternative fuels, and announced plans for an executive order for procurement of recycled materials,

99 For ,axmple, ei~{ pub]ic U{fities active]y q to r~ruif comp~es to move out of California. Business climate in Southern California

(Rosemead, CA: Southern California EdisoIL November 1991.)

]00 Dime De Vaul and ~wles B~~~‘{How Utifities cm Revi~e Indus~, ” Issuesin Science and Technology, Spfig IWS, pp. 50-56.
—

Chapter 8–Pollution Prevention, Cleaner Technology, and Compliance 259

Southern California Edison fears that it could

lose a significant component of its industrial rate

base as firms either move or go out of business in

response to the strict regulations. As a result, they

developed the Customer Technology Applications Center (CTAC), which demonstrates new

clean technologies and works with industry to

solve technical problems, mostly with cleaner

coatings technologies, such as ultraviolet curing,

infrared curing, radio frequency and microwave

drying, and powder coating. For example, Fender

Guitar Company was having trouble meeting air

quality standards for its coating process. CTAC

came up with a new finish using a water-based

coating with infrared drying that not only meets

requirements but also has a significantly faster

drying time and increases productivity.

Public Waste Collect ion, Treatment and Disposal

Services-Publicly owned water treatment works

(POTWs) receive and process sewage and wastewater. Under the Federal Clean Water Act,

POTWs have authority to restrict industrial pollutants from the waste water they receive by

establishing pretreatment programs. Through these

programs, POTWs can require generators of

waste water to reduce the toxicity of the water

they send into the treatment plant. The 1,500

pretreatment POTWs, while representing only 10

percent of the total, treat 80 percent of the

Nation’s indirect industrial wastewater.101

POTWs often have significant contact with

industry, and their wastewater inspectors often

have extensive understanding of industrial process operations. As a result, they are wellpositioned to promote pollution prevention.102

For example, seven of North Carolina’s POTW's

provide technical assistance to industries as a

routine part of compliance inspections. The

Neuse River Waste Water Treatment Plant in

Raleigh recommends, when possible, alternative

compounds and processes that eliminate toxics

discharges. Other POTWs, including those in

Milwaukee, Austin, and Orange County, have

also made significant efforts.

In spite of the potential for promoting pollution

prevention, many pretreatment POTWs have not

implemented aggressive pretreatment programs

either because they do not know how, or because

they don’t want to impose requirements on local

industry. Moreover, those that do restrict pollutants often encourage end-of-pipe treatment. In

addition, beyond a small grant program to POTW’s

for source reduction initiatives, EPA does little to

promote POTW pollution prevention activities.

In fact, EPA management of the pretreatment

program leads POTWs to focus on meeting

narrow regulatory requirements that are sometimes not related to actual environmental performance, serving as a disincentive for them to

aggressively and creatively pursue pollution prevention. 103

Customer/Supplier Linkages-In the last 10

years some U.S. manufacturers have begun to

form closer links with their suppliers to help them

improve quality, lower cost and in a few cases

prevent pollution.104 For example, Motorola is

now working with its suppliers to ensure that they

eliminate the use of CFCs. The Big Three U.S.

automakers, with several State and Canadian

provincial governments, have established a program to reduce persistent toxic substances that are

contaminating the Great Lakes; as part of this

lol ( cpoTws, ~etrcatment, and pollution preventio~’ unpublished paper, U.S. Environmental Protection Agency, June 1992.

IOZ NatioMl Adviso~ Council for Environmental Policy and Technology, State andbcal Environment Committee, ~~i~ding State u~~cal

Polfurion Prevention Programs (Washington, DC: U.S. Environmental Projection Agency, December 1992); also, Local Government

Commission “Reducing Industrial Toxic Wastes and Discharges, The Role of POTWS, ’ Sacramento, CA, December 1988.

lo~ NatioMl Advisory Council for Environmental Policy and Technology, January 1992, op. cit.

]~ Mic~el Robe flBcmbe, Integrating En\,iro~mentInto Business Management:A Study ofSupplierRelationships in the ComputerIndustry,

Master’s Thesis, Department of Civil Engineering, Massachusetts Institute of Technology, February 1992.
260 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

program they are encouraging their suppliers to

meet the same goal through pollution prevention.

Trade Associations-Because of their close

contact with industry, industrial trade associations have the potential to assist their members

with pollution prevention. European trade associations have been more active in this area. For

example, the Cologne (Germany) Chamber of

Commerce advises its members on the selection

of clean technologies and provides referrals to

universities and private consultants to solve

environmental problems.105

Most U.S. trade associations provide relatively

little technical help to their members in solving

environmental problems. A few trade associations have become interested in promoting pollution prevention, although they usually lack the

staff or resources to do more than provide general

information. For example, the National Association of Metal Finishers has distributed to its

members a pollution prevention checklist developed by California for the plating industry, and is

developing a pollution prevention handbook. The

Chemical Manufacturers Association (CMA) created its Responsible Care initiative to help

member companies improve performance in the

areas of worker health and safety and environmental quality. The initiative includes specific

codes of manufacturing practices in a number of

areas, including pollution prevention. Each CMA

member is required to make good faith efforts to

implement the program elements.106 The American Petroleum Institute has a similar effort for its

members.

EPA is working more with trade associations to

promote pollution prevention. For example, in

conjunction with EPA, members of the Ecological and Toxicological Association of the Dyestuffs Manufacturing Industry developed a pollution prevention guidance manual for the dyestuffs

industry which they distributed to their members.

However, it is not yet common practice for EPA

and the State pollution prevention programs to

involve either trade associations or industry

consultants.

FINANCIAL ASSISTANCE

Government financial support to industry for

the cost of environmental compliance can lessen

the competitive impact of environmental regulations. There are two principal possible sources of

support, tax incentives (e.g., tax credits and

accelerated depreciation) and direct financing

(e.g., loans, loan guarantees, and grants).

However, there are possible tensions between

financial assistance for polluters and the "polluterpays principle. OECD adopted some conditions

under which they are not incompatible. Financial

assistance should be limited to: target groups

where severe difficulties would occur otherwise;

well-defined transitional periods; and situations

where international trade is not distorted significantly.107Supporting development and diffusion.

of innovative equipment and clean technologies

is not inconsistent with the polluter-pays

principle.

As discussed in chapter 7, a number of other

countries, including Germany and Japan, take the

approach that if firms cannot pay the full costs of

implementing needed environmental technologies, the government can legitimately help them

through tax incentives, funding R&D, or direct

subsidies. In the United States, however, Federal

financing of pollution control equipment for

private industry has diminished. A number o f

other countries offer more generous accelerated

depreciation schemes. In addition, the limited

lo5 AIm c. willi~s, *‘A Study of Hazardous Waste Minimh tion in Europe: Public and Private Strategies to Reduce Production of

Hazardous Waste,” Boston College Environmental Aflairs Law Review, vol. 14, winter 1987, p. 210.

1~ See t ‘R~ponsible Care: Small mcmical Companies Struggle to Meet the Program’s Daunting Challenges,” Chemical aMEngineen”ng

News, Aug. 9, 1993, pp. 9-14.

107 ~ga~tion for fionomic Co-operation and Development OECD and fhe Environment @aris: 1986).
Chapter 8–Pollution Prevention, Cleaner Technology, and Compliance 261

U.S. tax incentives favor end-of-pipe equipment

over pollution prevention.

It is unclear the effect of government financing

programs on environmental behavior. Because

the limited U.S. support tends to be tied to

environmental investments required by law, the

effect appears to minimize financial hardship,

rather than stimulate increased environmental

investment. An OECD study suggests this maybe

the case in many member nations.108 However,

OECD argues that while financial assistance for

industry in complying with regulations is being

reduced, financial support for clean technologies

is likely to continue. While it is not clear that the

Federal Government should do more in this area,

its relative lack of support compared to some of

our major industrial competitors could have a

detrimental competitive impact, however small.

Moreover, it appears that more could be done,

without violating the polluter-pays principle.

M Environmental Issues in Private Sector

Lending

Many smaller enterprises lack the capital

needed to invest in new environmentally sound

technologies. Because pollution control loans are

low collateralized loans, marginally profitable

ventures may have difficulties in obtaining outside financing, or may face higher interest rates

and shorter terms. Environmental issues may also

hinder small and medium-sized firms in the

United States in obtaining financing for any type

of activity. A regulated firm subject to high

environmental capital and operating costs can be

a less attractive financing prospect than another

firm not subject to these demands. More importantly, lender liability for environmental claims

related to customers’ property may reduce

lending.

In particular, liability under "Superfund" may

make lenders less willing to loan to companies

with potentially contaminated sites.l09 While the

original statute does exempt lenders,110 courts

have interpreted this narrowly, so that in some

cases lenders can be liable for cleanup costs for

companies to which they have made loans.111

While it appears that the actual extent of liability

asserted against lenders has been insignificant,112

the uncertainty of the exemption appears to be

making lenders more conservative. This issue of

lender liability may apply to other types of

pollution covered by other statutes, such as

RCRA and the Clean Water Act. If these concerns

lead lenders to be more cautious in their financing

of small and medium-sized manufacturers, either

capital availability will suffer or interest rates will

increase.113 In addition, firms may choose to not

obtain loans if they have to fund expensive tests

to determine if their site is contaminated. Either

way, U.S. manufacturing competitiveness could

be affected.

To address this uncertainty and resulting caution by the lending community, EPA issued a

final rule interpreting the security interest exemption in April, 1992. However, this rule has been

challenged and as of August, 1993 was still

pending.

108 Orgal~za~on for Econo~c co-operation and Development, Economic lnsrrumenrsfor Environmental Protection (Paris: JuIY, 1989).

lw ~ese are provisions under tie Comprehensive Environmental Response, Compensation, and Liabilities Act.

110 me exemption protecK from habilityapq‘‘who, wi~out p~cipafig in tie mawgement of a ., . faci~ty, holds indicia of ownership

primarily to protect [a] security interest in the . . . facility. ” (42 U.S.C. 9601 (20)(A).

111 Ibid., pp. 54-55.

112 In fie first 10 ~em of ~RCLA1S existence, EpA issued mom ~18,~ notices to potentimy responsible parties. Ordy 8 were sent

to banks and EPA has recovered only $1.5 million in cleanup costs. (Ludwiszewski, p, 63),

113 Jo~ M, Cmpbel], Jr. ‘‘~n(jcrL1abi]ity for Environmen~] Cleanup: Effect on tie F~nci~ Swices Industry’ U.S. WcZStt?Ma?Zz?geme?lt

Policies: Impact on Economic Growth andln}esrmenrstiategies (Washingto~ DC: American Council for Capital Formation, May 1992), pp.

45-61.
Regulations and

Economic

Incentives in a

Competitive Context 9

w

hile the regulatory system that has evolved in the

United States over the last two decades to control

industrial pollution is complex, there is widespread

agreement about some of its more prominent features. (Some are shown in table 1-3 in chapter 1 in the column

labeled prevailing system.) Emphasis remains on treating

pollution once it has been released (end-of-pipe approach) rather

than on preventing it. A single media approach to pollution

predominates, with separate laws, regulatory offices and enforcement procedures for air, water, hazardous waste, and other media.

Rather than setting an overall emission limit for a facility,

regulations and permits often separately specify emission rates

for individual sources within the plant. The system is characterized as command and control. In addition, there are overlapping

local, State, and Federal laws and reporting requirements. The

system is adversarial, with frequent challenges taken by all sides

long after laws are first passed. Finally, there is little emphasis on

technology development and innovation or on technical assistance to help industry meet pollution control requirements

(discussed in chs. 7 and 8).

Much progress has been made to control industrial pollution

under this system. Still, it is hard to argue that the level of

environmental protection enjoyed today could not have been

achieved in a more cost-effective fashion, As a result, there is

considerable interest in finding ways to adjust the U.S. regulatory

system so that comparable or even higher levels of environmental

protection could be achieved at lower costs and with less adverse

competitive impacts on U.S. industry. Other countries and

263
264 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

regions, including the European Commission,

also are looking for new approaches.1

This chapter examines the potential to use new

regulatory approaches and economic incentives

in the regulatory system in ways that would

achieve comparable or higher levels of environmental protection at lower costs and with less

potential for adverse competitive impacts on U.S.

industry. 2 It is assumed in this discussion that

these alternatives are carried out in the context of

a regulatory system with strong standards and

vigorous enforcement. Otherwise, the environmental objectives might not be achieved.

PRINCIPAL FINDINGS

Regulatory Reform

For the most part, the current regulatory system

is characterized by a one-pipe-at-a-time approach to environmental protection, with separate legislative, regulatory, and implementation

systems dealing with the different media.

Moreover, the current permitting system requires individual sources to be controlled and

permitted, and sometimes establishes permit

limits that are defined by particular technologies. Finally, regulators often rely on strict

interpretation of statutes and regulations regardless of the environmental record of the

facility.

Federal and State regulators and industry in

many parts of the country are experimenting

with innovations that, if widely replicated

elsewhere in an appropriate manner, could ease

adverse competitiveness impacts while reducing pollution and waste.3 As shown in the third

column of table 1-3, these experiments include

multimedia regulation, permitting, and inspections; use of facility-wide emission caps and

performance standards; giving more regulatory

options to good environmental performers; a

focus on pollution prevention; and more emphasis on technological innovation and technical assistance. Taken as a whole, these experiments, in addition to efforts to institute economic

incentives, have promise as a way to expand the

regulatory tool kit, but they have yet to be

widely adopted.

As long as strong regulation and enforcement

are fully maintained, a number of steps could be

taken to reduce the competitive burden on

industry while still achieving environmental

goals. The top leadership of EPA in the current

and last administrations has recognized the

need for change (including greater emphasis on

pollution prevention), some people in various

EPA offices have been proponents of new

methods, and a limited number of pilot projects

and small programs in alternative regulatory

approaches have been started. However, widespread and systematic rethinking and reshaping

of the traditional regulatory system has yet to

take place.

Economic Incentives

The marginal costs of pollution control usually

differ between firms, and between processes

and facilities within the same firm. Therefore,

requiring equivalent pollution reductions by

both high-cost and low-cost sources and polluters can be an expensive way to control pollution. When used as part of a strong regulatory

1 For example, the European Commission reports that, ‘‘. , . achieving integration of the requirements for competitiveness and the

environment requires the implementation of a strategy based on the coordinated recourse to a wide variety of instruments, within the fields of

both environmental and industrial policy. ” European Commission Industrial Competitiveness and Protection of the Environment,

Communication of the Commission to the Council and to the European Parliament (Brussels: European Commission, 1992). A similar

consideration of alternatives is underway in Germany. Udo E. Sirnonis, ‘‘Environmental Policy in the Federal Republic of Germany,” paper

of the Science Center Berlh 1991.

2 Another OTA assessment, due to be completed in early 1995, is examining new approaches to environmental regulation in more detail.

3 For example, see Bradley I. Raffle and Debra F. Mitchell, Effective Environmental Strategies: Opportunities forinnovation andFlexibility

Under Federal Environmental Laws, draft (Chicago, 111: Amoco Corp., June 1993).
Chapter 9–Regulations and Economic Incentives in a Competitive Context 265

system, economic incentives can lower environmental compliance costs by obtaining more

reductions from polluters who can reduce most

cheaply, and fewer reductions from those who

face higher marginal control costs.

■ Two principal incentive approaches are marketable permits and taxes and fees. Marketable

permits allow firms to meet regulations by

either releasing no more than permitted levels

of pollution, or buying the rights to pollute from

a firm that has reduced pollution below permitted levels. Alternatively, emissions can be

taxed so that firms with high marginal costs of

control would choose to pay the tax while firms

with low costs would reduce emissions. In

theory, with both approaches, total emission

levels would be no higher than with a command

and control system, while compliance costs

would be lower and firms would possess a

greater incentive to develop innovative technical approaches to reducing pollution.

■ Incentive systems have limits. The necessary

accuracy and timeliness in monitoring may be

difficult to achieve in some situations. Depending on the type of pollutant, the covered

geographic area might have to be defined quite

narrowly to avoid excessive local concentrations of emissions. Unlike tradable permits,

reliance on taxes or fees makes it difficult to

predict the amount and pace of emission

reductions. There is no assurance that, on net,

firms will choose reducing emissions over

paying the tax, However, fee and tax systems

are likely to have lower administrative cost

associated with them than with tradable permit

systems. While incentive approaches promise

much in theory, their use may be more limited

in practice.

I Linkages Among the Alternatives

w There are important linkages between and

among these alternatives for regulatory reform

and economic incentives. A shift in emphasis to

pollution prevention (detailed in ch. 8) will

produce more projects that do not fit the

standard regulatory framework. More use of

tradable permits might require greater delegation of authorities to the States and, at the same

time, a closer working partnership between the

States and EPA. Firms able to sell or trade

pollution rights will likely have more incentives to undertake pollution prevention to lower

emissions below what is required. Full facility

permitting facilitates pollution prevention, since

it enables firms to examine all issues at once

and understand cross-media impacts. Heightened cooperation between industry, other affected interests, and regulators in regulation

development fosters pollution prevention since

industry can see in totality all upcoming

requirements and plan for them. An emphasis

on pollution prevention requires more effort

devoted to technology development and diffusion. Organizing regulatory activities more by

industrial sector, rather than media, enables

greater levels of consultation, reduces paperwork requirements, and facilitates pollution

prevention.

REGULATORY REFORM

A number of experiments are underway in the

United States that are testing new ways to achieve

high levels of environmental protection while

minimizing competitive impacts for firms. In

some cases, these efforts lower costs; others

provide more opportunity for technological innovation and production flexibility, and still others

reduce administrative burdens associated with

compliance.

Interest in these new approaches, including use

of incentives, can be expected to increase as

further incremental reductions in emissions become more expensive. So far, for a number of

reasons, their adoption has been relatively slow.

First, many of these ideas have only recently

emerged. Moreover, momentum for change will

be based on the results of policy experiments

underway in testing these approaches. Second,
266 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

some in the regulatory and environmental communities view regulatory reform the same as

regulatory relief, which reduces environmental

protection. Third, regulators have few resources

(time or money) to devote to policy and program

innovation; instead many have their hands full

implementing existing laws. Fourth, ways to

overcome monitoring and administrative difficulties will need to be addressed before widespread

replication occurs.

Most regulatory agencies, including EPA, have

focused principally on developing command and

control regulations, and have made less effort to

develop and implement innovative alternatives.

Still, a small, but growing number of experiments

are underway. EPA has initiated a number of

projects to test new approaches, though these

have yet to fully permeate the mainstream of

EPA’s culture. In contrast, a few States and

localities are farther ahead in initiating and testing

these approaches. So far, EPA has made only a

few efforts to develop State-Federal regulatory

partnerships to support these innovative State

efforts, and to evaluate, actively use and diffuse

the regulatory innovations.4

I Formulation of Environmental

Regulations

In the United States, affected interests, including industry and environmental organizations,

compete to influence environmental decisions by

legislative bodies and regulatory agencies. After

laws are passed, the rulemaking process allows

these interests to participate through comments

on proposed rules.

Many view the current system of notice and

comment rulemaking as slow, cumbersome, and

adversarial. Even some informal rulemaking procedures allow opposing parties to present formal

arguments and proof, similar to legal hearings.

Currently, four out of five EPA decisions are said

to be challenged in court, suggesting the difficulties of achieving consensuses The adversarial

process encourages polarization, which makes

achieving effective solutions more difficult. Industry often initially overestimates the costs of

compliance and the technical difficulties in achieving it, while environmental organizations often

promote solutions with little evaluation of costs.

Consultation is sometimes less extensive than

optimal because EPA is often under time pressures for rule development, and finds it difficult

to engage in more consultative efforts, even

though more consultation might reduce the total

time because implementation could then be made

swifter and less contentious.

Some other countries involve regulated parties

more fully in developing regulations.6 For example, regulation formation in the Netherlands

involves close tripartite cooperation between

government, the scientific community, and industry. Because issues of technological feasibility,

compliance deadlines, and cost are taken into

account at an early stage, it is less likely that

decisions will be challenged legally or politically

by industry.7 However, these systems also have

drawbacks. As practiced elsewhere, they are

usually less open and less accessible to environmental groups or other nongovernmental organizations (NGO) outside of industry. As a result,

4 A task force of state and federal regulatory managers was formed by former Administrator William Reilly in 1992 to formulate better

organization of state-federal relations. Under current Administrator Browner, EPA is developing a management plan to implement their

recommendations. See State/EPA Committee, “State Capacity: Building the Future for Environmental Management” (Washington DC: U.S.

Environmental Protection Agency, Oct. 13, 1992; also Report of the Task Force to Enhance State Capacity: Strengthening Environmental

Management in the United States, (Washingto~ DC: U.S. Environmental Protection Agency, June 21, 1993).

5 Don Clay, ‘ ‘New Environmentalist: A Cooperative Strategy, “ Forum for Applied Research and Public Policy, Spring, 1993, pp. 125-126.

6 Sheila Jasanoff, ‘‘Negotiation or Cost-Benefit Analysis: A Middle Road for U.S. Policy, ” The Environmental Forum, July 1983, pp.

37-43.

7 There arc significant institutional and cultural differences between these European nations and the United States that preclude simple

adoption of these policy processes. However, they do point to the advantages of more cooperative approaches.
Chapter 9–Regulations and Economic Incentives in a Competitive Context 267

there may be less incentive for vigorous enforcement and possibly weaker regulations,

Some experimentation is underway in the

United States to involve all affected interests

(including environmental organizations) in more

cooperative approaches.8 For example, negotiated rulemaking (reg-neg) processes use informal

bargaining among affected groups and regulators

that may culminate in an agreement that becomes

the basis for the rule.9 In theory, these processes

may have several advantages over more adversarial processes. 10 First, better outcomes are possible

because all views are heard and can be woven

together as parties become more aware of the

needs and constraints of the other stakeholders.

Second, negotiated rulemaking may increase rule

acceptability and make implementation easier,

since parties involved in making the rule are less

likely to oppose its implementation. Third, negotiation may speed acceptance of new technologies

and approaches once a law or regulation requiring

an outcome is in place. For example, several

major petroleum companies engaged in negotiations with the California Air Resources Board on

reformulation of fuels and, as a result, reduced the

time needed for approval of new reformulated

gasoline products.11

Cooperative approaches can also be used in

implementation. For example, a cooperative effort between EPA and Amoco Corp. provided an

opportunity for industry officials and regulators

to jointly examine emissions, regulatory requirements and control technologies for Amoco’s

Yorktown, Virginia refinery, The 2-year project

resulted in a detailed emissions inventory of the

facility. Moreover, it allowed industry and regulators to identify the lowest cost sources to control

and the most cost effective control technologies—

most involving pollution prevention. Besides

developing a large amount of useful knowledge

about the plant, the cooperative project also

allowed industry officials and regulators to better

understand each other’s concerns and orientation

to the problem. While the project itself was

successful, the approach has yet to be widely

replicated. However, both the President’s Council

on Sustainable Development and EPA Administrator Browner have indicated interest in further

Amoco-like cooperative projects.

Not all issues are subject to negotiations. For

example, it would be difficult to negotiate a

statutory ban on a particular substance, although

the timing, uses covered, and extent of technical

assistance might be negotiated. Moreover, negotiated rulemaking and other cooperative approaches

can be time-consuming and costly for stakeholders and regulatory agencies, especially on the

front-end of regulatory development, Finally,

care needs to be taken to ensure that all affected

parties are included, particularly the unorganized

or marginally affected. When many parties are

involved, reg-neg may not be viable.

M Integrated Regulation

As has been mentioned, the current regulatory

system emphasizes a one-pipe-at-a-time approach

to environmental protection, with separate legislative, regulatory, and implementation systems

dealing with the different media. As a recent

report suggests:

8 For example, EPA began negotiations in 1992 with industry, unions, environmental organizations, and state regulators to craft coke oven

cmission IUICS that all p,arties would agree to and not challenge in court.

g ‘ ‘Rethinking ReWlation: Negotiation as An Altermtive to Traditional Rulemaking” (research note), HarvardLuw Review, VO1. 94, 1981,

pp. 1871-1891.

lo peter Bohm and Clifford S. Russell, ‘ ‘Comparative Analysis of Alternative policy hls~eflts, ” Handbook of Natural Resources and

Energy Economics, vol. 1, edited by A.V. Knees and J.L. Sweeney (New York: North Holland, 1985).

1 I when ARCO developed reformulated gas, it involved technical staff from the California Air Resources Board (c-)in tie development

process from the beginning. Staff knew how the work was progressing and what the issues were and, as a result, ARCO was able to reduce

the time t.akcn to get the new formulauon approved by about a year. Similarly, Chevron worked with CARB to generate rules governing

reformulated dlcsel fuel, allowing the company to develop a less-expensive fuel.
268 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

EPA is caught in a structure that is oriented to

environmental media or a particular problem,

while its research, enforcement, and planning and

evaluation staff struggle for broader approaches.

The separate laws that guide each program use

different standards for action and provide no

overall mission for the agency .12

This single media approach has been criticized

both for failing to adequately protect the environment 13 and for unnecessarily adding to U.S.

industry’s regulatory burden.

The one-pipe-at-a-time focus makes it difficult

to take an integrated approach with multimedia

benefits.14 Sometimes efforts to clean up one kind

of pollution create problems in another media.

Scrubbing of stack gases, for example, creates

sludge that needs treatment and disposal.

A facility may produce several different kinds

of pollution, each subject to requirements that can

run at cross purposes. Firms often report the same

information to different media offices and agencies. 15 Monitoring, permitting, and reporting

requirements for the various media offices use

different timetables and measurement standards.

The media-specific organization of EPA and

most State regulatory agencies has been a barrier

to moving more towards lower cost pollution

prevention approaches.16 While some progress

has been made in supporting pollution prevention, media office staff have more incentives to

promulgate single-media pollution control regulations.17 EPA funding reflects the emphasis on

end-of-pipe programs.

The result has been the development of a corp

of experts primarily focused on the problems in a

single medium.18 Sharing of expertise and information among media programs is often limited, a

circumstance that can cause delays in rulemaking.

Moreover, this structure hinders industry in

finding a single point of contact in the agency to

address data duplication, conflicting rules, or

strategic planning for all media.

An alternative would be to seek to develop

multimedia regulations and rules, perhaps organized around particular sectors (e.g., pulp and

paper, petroleum refining). For example, the

Swedish environmental program is focused in

part on sectoral industry councils (e.g., pulp and

paper, iron and steel). A few States have begun to

organize more along industry lines. The Wisconsin Department of Natural Resources has set up

eight technology teams for particular industries.

EPA also has made some efforts to organize its

activities along industrial lines. In the late 1970s,

it established the Integrated Environmental Management Program.19 The agency undertook a

series of industry studies to assess the joint effects

of air, water, and solid waste regulations, both

those in effect and forthcoming, on particular

industries.20 The studies found that sometimes the

risks were much higher in a particular media and

it made little sense to concentrate equally on all

12 Nation~ Cotission On the fivironmen~ Choosing a Sustainable Future (Washington DC: Island press, 1993), P. 100.

13 B~Rabe, Fragmentation andIntegration in Stafe EnvironmenraliUanagement (Washington, DC: The Conservation Foundatio% 1986).

14 The Nation~ Adviso~ COunCil for EnvironrnentaJ Policy and Technology, Transformhg Environmental permitting and compliance

Policies to Promote Pollution Prevention (Washingto~ DC: U.S. Environmental Protection Agency, Office of the Administrator, February

1993).

15 Wendy Cleland-H~ett and Joe Retzer, “Crossing Agency Boundaries, ’ The Environmental Forum, March/April, 1993, pp. 17-21.

16 Natio~ Commksion on the Environment Choosing a Sustainable Future, Op. cit., foomote 12.

17 The Natio~ ~visoV Comcfl for Enviro~en~ Policy and Technology, Transform-ng Environmental permitting and Compliance

Policies to Promote Pollution Prevention, op. cit., footnote 14, p. 25.

18 mesh p~~d Howard Wee, ‘‘~te~ated Envi.ronrnen@l Management: A Cost-Effective Approach to Protecdng the fivhmeng ”

The Journal of Resource Management and Technology, vol. 21, No. 1, March 1993, pp. 3343.

19 Personal Convemation with Michael Gruber, former EPA official, June, 1993.

20 These ~dus~es ~cluded ~hemica~, copper reffig, ~on and steel -g,me~ ffis~, petroleu reftig, ~d pulp and papm.
——

Chapter 9–Regulations and Economic Incentives in a Competitive Context 269

media. Some studies questioned the costeffectiveness of such approaches. While these

exploratory studies unearthed useful information,

they were not linked in a direct way to decisionmaking. The effort was phased out in the mid1980s.

EPA has recently reinstituted similar efforts.

Under the Agency’s regulatory cluster team

concept, a team from relevant EPA offices

approaches particular problems from a broader

21 Four industry clusters have been viewpoint.

formed (petroleum refining, oil and gas production, pulp and paper, and the printing industry) .22

EPA is using clusters to jointly develop effluent

guidelines for discharges to water and Maximum

Achievable Control Technology (MACT) standards for toxic air pollutants for the pulp and paper

industry.

EPA is also piloting a revised regulatory

development process through its Source Reduction Review Project (SRRP), which commits the

agency’s single media programs to jointly investigate and promote pollution prevention during

the rule development process. The SRRP is

EPA’s response to the 1990 Pollution Prevention

Acts requirement that EPA ascertain the effect of

its regulations on source reduction.23 Its shortterm goal is to ensure that source reduction

measures and multimedia issues are considered

during the development of air, water, and hazardous waste standards affecting 17 industrial categories. The long-term goal is to provide a model

for a new regulatory development process for

EPA.24

However, these cluster and source reduction

review projects are still small and have not yet

been broadly assimilated within the agency.

There are several reasons for this. EPA often

focuses on single media due to statutory requirements or court-ordered deadlines. The pressure to

respond to tight deadlines makes it difficult to

coordinate efforts involving several offices. Moreover, the current organization of media programs

creates institutional barriers to more coordinated

efforts.

Greater emphasis on industrial sectors might

offer several advantages. Permit writers and

inspectors could focus on a narrower range of

industries and processes in order to develop more

indepth knowledge of the nature of the pollution

problems in those industries, the regulations

covering them, and the most effective ways to

solve them, including through pollution prevention, Regulators would be more knowledgeable

about industry leaders and laggards in controlling

and reducing pollution. Officials would better

understand pollution prevention and industrial

process technology, since, unlike treatment technology, pollution prevention technology is often

specific to particular sectors. At present, some

efforts to develop integrated regulations suffer

from lack of indepth understanding of the sector

being examined. Moreover, a sectoral orientation

could stimulate new opportunities to experiment

with cooperative interaction among industry,

environmentalists, and government. Finally, because all parties would be examining the workings of regulation on an industry, it might be

clearer when incongruities arise among proposed

requirements. 25

There are several potential drawbacks to such

an approach. Regulators might be more easily

captured by industry interests if they dealt exclusively with that industry. Moreover, some indus21 clelan&H~ett and Retzer, op. cit., fOOfIIOte 15.

~~ EPA has formed 17 clusters, most of which do not focus on specif”c industries but rather on chemicals (e.g., lead) or on activities (e.g.,

non-point source water pollution).

‘~ Lynn L, Bcrgeson, “The SRRP: Making Pollution Prevention Work, ” Pollution Engineering, July 1993, p. 73-76.

‘4 Discussion with Lym Vendenello, EPA Pollution Prevention Office, May 1993.

~s Among the alternatives being considered by EPA for reorganizing its Enforcement Office, N to organize it according to major industrial

sectors.
270 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Figure 9-l-Spectrum of Integrated Permit Options

Information Coordination Integrated Permitting

Present Medium-specific

permit system Simultaneous permitters write

(Independent in Use common renewal of one multimedia

each medium) facility ID permits permit

least integrated most integrated

Establish Place all data Multimedia Consolidated

common on common inspection, Permitting

measurement information collaborative (multimedia

metrics system permit permitters

writing, but issue single

separate permits permit)

SOURCE: James Cummings-Saxton and Robert G. Black, “Integrated Permits: What Are the Data Requirements,” contract report for U.S. EPA,

prepared by Industrial Emnomies, Inc., September 1990.

tries might argue that others are not regulated

heavily.

as

~ Integrated Permitting and Inspection

Presently, each medium’s program operates

separately, maintaining separate databases, using

different reporting requirements, issuing separate

permits with different timing, and even using

unique definitions and nomenclature.26 Less than

15 percent of EPA inspectors perform inspections

in more than one program area. 27 One study

concludes:

Relatively few regulated facilities and regulators

have begun to think in terms other than singlemedium pollution control.28

More integrated approaches to permitting are

possible--even including a fully consolidated

permit system where each facility receives one

permit, with allowed releases to the environment

to be determined in a coordinated manner29 (see

figure 9-1). Other less comprehensive approaches

include coordinated and concurrent permitting.

With any of these approaches, permitting to

achieve administrative streamlining can be coordinated to prevent pollution and avoid cross

media transfers. For example, the principal purpose of New Jersey’s integrated permitting program is to promote pollution prevention and

reduce total releases from a facility.

Several European countries are aggressively

pursuing integrated permitting and inspections.

For example, in Sweden many larger regulated

facilities have only one permit for all emissions.30

The United Kingdom has passed legislation that

proposes that covered installations be regulated

26 Manik Roy, “Pollution preventio~ Organizational Culture, and Social Learning,” EnvironmentaZLuw, vol. 22, 1991, pp. 189-251.

27 U.S. ~viromen~prot~tion Agency, Office of Cooperative Environmental hlanagemen~ EPA Inspector profile (draft) Sqtetim

1989. There has been some growth in multi-media inspections since then.

~ me Natio~ Advisory Council for Environmental Policy and Technology, Technology Innovation s-rid ~OnOmiCS Committ=,

Tran#orw”ng Environmental Permitting and Compliance Policies: To Promote Pollution Prevention op. cit., footnote 14, p. 24.

29 James Cumm.ings-Saxton and Robert G. Black ‘Integrated Permits: What are the Data Requirements,’ Contract for U.S. Environmental

Protection Agency, prepared by Industrial Economics, Incorporated, September 1990.

W Hm@S H. m, ‘ *AII Integrat~ Framework for Preventing Pollution and Protecting the tivironmen~” ErwironmenfalLuw, VO1. 22.,

No. 1, 1992, pp. 1-77. See also, Graham Bemett and Konrad Von Moltke, ‘‘Integrated Permitting in the Netherlands and the Federal Republic

of Germany,” in Integrated Pollution Control in Europe and North Amen”ca , edited by Nigel Haigb and Frances Irwin (WashingtorL DC:

Conservation Foundation 1990).
Chapter 9–Regulations and Economic Incentives in a Competitive Context! 271

Box 9-A—integrated Inspections in Massachusetts

Traditionally, the Massachusetts Department of Environmental Protection (DEP) conducted

multiple, separate media inspections of each polluting facility. However, since 1987 DEP has been

developing an approach to environmental protection that treats each regulated facility as a whole

entity.’ Under a pilot program named the Blackstone Project, individual inspectors conducted

multimedia inspect ions of facilities regulated as major in one media program and m i nor in others, while

teams conducted inspections for facilities regulated as major in more than one media program. The

inspectors were trained to identify and promote pollution prevention opportunities. When more technical

information was required, firms were referred to the State’s pollution prevention technical assistance

program.

The project was quite successful in the eyes of both the State and the business community.

Business liked the team inspection approach because it saved them time and money through the

promotion of pollution prevention. The State liked it because the inspection system took up to 50 percent

Iess time than conventional inspections, which account for nearly one-fourth of the agency’s $51 million

operating budget. In addition, inspections were able to find more violations. Multimedia inspections also

better facilitated pollution prevention. Based on the Blackstone model, the State launched its Waste

Prevention Facility-wide Inspections to Reduce Sources of Toxics (FIRST) Initiative for inspections and

resulting enforcements of industrial sources. DEP is developing teams in regional offices, training

inspectors to work together, and training them in proficiency in all regulatory areas. Inspectors also

receive training to identify and communicate pollution prevention opportunities. Through an agreement

with EPA regarding use of Federal grants, DEP is expanding this approach. Two work groups will seek

ways to improve reporting requirements and documentation of inspections. A few other States are

making similar efforts. A pilot program in New Jersey will designate 18 industrial facilit ies for facilitywide

permits, which, in some cases, could replace the hundreds of individual air emission and water

discharge permits with varying requirements and expiration dates.

1 Manik R~~ and be A. Dillard, ‘iToXics Use R~Ucti~n in Mas~~usetts: llle Blackstone pro]ect,” Jouma/

of Air and Waste ManagementAs sociation, October, 1990, 40:10, pp. 1368-1371.

under a single permit. .

31 The European Commis- containing all regulatory information on sources

sion is considering policies related to pollution and allowing firms to apply for permits and

prevention and integrated regulations. The OECD permit modifications directly by computer modem.

has also promoted integrated regulations and Massachusetts is establishing an integrated inpollution prevention. spection program across all media (see box 9-A).

Several U.S. States, including Massachusetts, New Jersey has initiated a pilot program to

Minnesota, New Jersey, and Kansas, have taken promote pollution prevention through integrated

32 For example, Minnesota steps in this direction. permitting. 33

is attempting to develop a computerized database

31 John Falks, “Legal Profile: EC Integrated Pollution Prevention and Control, ” European .!?nviromnenr. vol. 2, Part 6, December 1992,

pp. 1012.

32 For more information on the New Jersey efforts, see Barry G. -be, “Environmental Regulation in New Jersey: Innovations and

Limitations,” Pubiious, Winter 1991, pp. 83-103.

33 Steven Anderson and Jeame Herb, ‘ ‘Building Pollution Prevention Into FacilityWidepe~t~g, ‘‘ Pollution Prevention Review, vol. 2,

No. 4, Autumn, 1992, pp. 415429.
272 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Such projects are few and address only a

handful of firms in the States implementing them.

While EPA is providing a small amount of seed

money and technical assistance to these projects

and working to disseminate lessons, the Agency

does not appear to have used the lessons arising

out of these experiments to make significant

changes in its own approach to pollution control

regulation, or to actively encourage other States

to adopt these approaches. Nor has EPA given

States much encouragement to implement these

innovative approaches.34 Moreover, singlemedium statutes can contain their own permitting

requirements and compliance deadlines, making

coordination more difficult.

Multimedia approaches have some limitations.

First, it is unclear whether these projects r-night

require more agency resources than the conventional single media approach. If they prove to be

more costly, firms wanting multimedia inspections and permitting might be willing to accept

higher fees in order to cover the marginal cost

differences. Second, while multimedia approaches

might work for both very large facilities where

teams of inspectors are needed and small ones that

don’t have complex operations, they may be less

suitable for mid-sized facilities.

Third, a single media focus can manage the

complex interactions among laws, environmental

emissions, and industrial processes. Regulators

may not know enough about the tradeoffs between emissions in one media to another to make

intelligent choices in granting a multimedia

permit. Increased training of regulators and inspectors, particularly to recognize other media

issues and pollution prevention opportunities,

could address this issue. Finally, EPA’s ability to

fund multimedia approaches is made more difficult because of statutory limitations.

1 Performance Standards and

Facility Bubbles

Normally firms must have a large number of

separate permits, for different media (e.g., permits

for air emissions, water discharges) and often for

individual sources within the plant. Many regulations require sources to be controlled with release

limits defined by particular technologies. These

technology-based standards specify the method,

and sometimes the equipment, that firms must use

to comply with a regulation. Performance standards set a uniform standard of control for firms

and often for their individual processes, but allow

them flexibility in how to meet it. However, even

most performance standards are usually based on

some form of best available technology (BAT)

prescribed in reference technology documents,

which, in practice, the regulatory community and

industry usually rely on to ensure compliance (see

table 9-3).

These technology-based standards can discourage firms from developing or adopting more

innovative and cheaper methods.35 If standards

describe one type of technology, and if firms

choose a different type of technology they can

have difficulty getting approval, since permit

writers often do not have the time or inclination

to approve approaches different from those normally prescribed.36 Moreover, EPA will sometimes disallow technologies even if they are

approved by State regulators.

Some performance standards limit flexibility.

For example, concentration-based standards for

effluent limitations may discourage pollution

prevention approaches if they result in higher

concentrations of the pollutant due to reduced

water volume, even though the total amounts of

pollutants are lower. In contrast, mass-based

34 For Cxmple, most EPA grant funds are tied to single media permitting and inspection.

35 me Natio@ Advisory COIUICil for Environmental Policy and Technology, Improving Technology Di@sion for Environmental

Protection, U.S. Environmental Protection Agency, October 1992.

36 Discussion wi~ HowmdKlee, AmOCO Corporation, April 1993.
Chapter 9-Regulations and Economic Incentives in a Competitive Context 273

standards that measure total pollutants may better

promote pollution prevention.37

The current permitting system also affects

industry’s cost-effectiveness in meeting regulations, Permitting is time-consumin g, procedurally intricate, and technologically complex, both

for industry and government. This is evidenced

by the fact that nearly 50 percent of States’

permitting resources are used for the routine

reissuance of permits.38 Moreover, the trend

toward more specific operating permits risks loss

of firm proprietary information.

Most significantly, the regulatory system sometimes has the effect of requiring control of those

sources of emission that are the most expensive to

control. It is often difficult for government to

know what sources at a plant pollute the most, and

it is virtually impossible for government to

identify which emission sources in a plant cost

more to control than others. Facilities in the same

industry can differ in terms of pollutants because

of use of different materials, equipment, products,

and practices.

For example, the joint Amoco-EPA study of

the cost of environmental control at Amoco’s

Yorktown, Virginia refinery found that marginal

control costs differed significantly by source, and

that regulations mandated control of the highest

cost sources while allowing the lowest cost

sources (which in this case could have been dealt

with through pollution prevention options) to be

significantly uncontrolled.39 The Benzene Waste

Operations National Emission Standards for Hazardous Air Pollutants (NESHAP) focuses on one

emission source to one medium-benzene emissions to air from wastewater treatment operations.

Yet, by measuring emissions to air from all

sources, the joint EPA/Amoco team concluded

that seven times more benzene reductions could

have been achieved for one-eighth the costs of

mandated controls by such actions as controlling

marine loading losses and installing secondary

seals on tanks. Significantly, the required controls

reduce air emissions, but also create other wastes

in the form of spent activated carbon and regenerator waste gases.

40 In part this stems from the fact

that rules are developed for particular sources and

applied to all facilities, rather than based on

facility-specific plans that try to reduce pollution

most cost-effectively.

Some other countries approach permitting

differently. For example, Japanese and Swedish

plants are often subject to discharge limits for the

plant as a whole, not specific discharge points.

Many Dutch plants are subject to only three

permits, one each for air, water, and hazardous

wastes, and within a few years may be subject to

one permit for discharges from all media. Some

argue that inspectors and permit writers in some

European countries have more technical experience and as a result are able to provide flexibility

and not require adherence to strict standards with

a tight timetable. This flexibility allows European

firms to cut costs they might otherwise bear with

enforcement of more inflexible standards.

37 For ~xmple, if~ ~mlt ~~the pH of ~sc~ge Wata, f~mys~ply add water ti order to dilute the chemicals until the pH reaches

permitted levels. (The National Advisory Council for Environmental Policy and Technology, Tramforrning Ernironmental Permitting and

Compliance Policies to Promote Pollution Prevention, op. cit., foomote 14, p. 34.)

38 E1gh~.five ~rCent of New York’s NPDES pefifi~g r~o~ces were used to review petit ~newals Wth no significant Chnge (Ibid,

pp. 54 and 67.

39 AmoC&,S. EpA po~lutio~ pre~~~tion PrO@: Yorktown, Virginia, Project SUmmU~ (mcago, nhlOiS: hlOCO COrpOra[iO13, and

WashingtoXL DC: U.S. Environmental Protection Agency, June 1992). A similar study was done in Sweden of several petrochemical plants,

which came up with similar results. Don HinrichserL “Integrated Permitting and Inspection in Sweden, ” Integrated Pollution Control in

Europe and North Amen”ca, ed. Nigel Haigh and Frances Irwin (Washington DC: The Conservation FoundatiorL 1990).

40 me Souce r~uction Optiom ~d ~ average cost of $650/ton of pollut~t recover~ Wtile the other options (kirgely treatment and

disposal) had an average cost of $3,200/ton, nearly five times higher. It is important to note that these are Amoco, and not EPA, cost estimates,

although EPA and Amoco did generally agree on the results.
274 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Some U.S. States are experimenting with

alternative permitting. Also there are some limited efforts at the State and Federal levels to move

toward true performance standards and facility

discharge limits. Under the 1990 Clean Air

Amendments, firms that reduce emissions of air

toxics 90 percent get a 6-year extension on having

to implement Maximum Achievable Control

Standards (MACT). But many in industry are

dubious as to whether this is an advantage, since

they will have already reduced emissions substantially and prior to the regulatory deadlines (although reducing the first 90 percent should be

marginally cheaper than further reductions). Moreover, there is concern that approval for this

extension will be onerous and complex.

The 1990 Amendments also include some

provisions that move in the direction of bubbles.

For example, in the air toxics programs, the

MACT regulation of Hazardous Organic

NESHAP (HON) allows firms to either control all

points with reference MACT technologies, or use

alternative controls at selected points, so long as

total emissions equal the sum of all emissions that

would occur if each point source were controlled

using the MACT technology. However, this does

not allow averaging across source categories and

emissions credits obtained through averaging are

discounted.

In a Minnesota pilot program, a 3M plant has

been given one air permit for 5 years, and can

change the process with little or no approval, as

long as total emission levels are not exceeded (see

box 9-B). As discussed above, the advantage to

industry of such a system is being able to choose

what sources to control and how. The advantage

to the regulatory agency is not having to spend

scarce resources approving small permit modifications and instead being able to focus on

significant violators.

It is not practical to control all sources with

performance standards, particularly sources that

are difficult to measure. In these cases, installation of reference control technology may be the

only way to ensure compliance. However, with

better monitoring and compliance strategies it

may be possible to move more in the direction of

facility emission caps and performance standards.

In addition, prescribing a number of alternative

means of compliance (including pollution prevention or substitute materials), in addition to a

reference end-of-pipe technology, would give

industry more options in how they meet regulatory requirements. Finally, potentially large costs

of collecting information and measuring releases

could occur with these approaches. However,

emphasizing performance standards and facility

bubbles, as opposed to source-specific technology standards, might provide more than offsetting

savings, and could better enable both industry and

regulatory agencies to reduce pollution at the

lowest possible cost.

1 Regulatory Flexibility

Manufacturing firms differ greatly in their

level of environmental awareness, ability to meet

environmental objectives, and commitment to

pollution prevention. However, the same regulatory procedures govern both firms seeking exemplary solutions to environmental problems and

laggards resisting regulations.41 Moreover, permit writers and inspectors have little incentive or

information to make the system more flexible.

Instead, they often rely on strict interpretation of

statutes and preference for prescribed methods

and technology, generally in the name of creating

a level playing field. As a result, companies have

little leeway to try solutions that are potentially

more risky, yet more environmentally and economically sound, including pollution prevention.

Pollution prevention often entails significant

learning, engineering modifications, and changes

in the production process before the best solutions

41 me Nation~ Advisory Council for Environmental Policy and Technology, Transforming Environmental per~”tting ad Compliance

Policies to Promote Pollution Prevention, op. cit., footnote 14, p. 27.
— —

Chapter 9–Regulations and Economic Incentives in a Competitive Context 275

Box 9-B—Flexible Permitting Systems: 3M and the Minnesota

Pollution Control Agency

Under the current regulatory system, environmental regulatory agencies often tell industry how to

control their pollution rather than letting industry determine how to best operate its plants within the

confines of emission Iimits in a permit. The result is both large work overloads for the regulatory agencies

with the incumbent delays, and increased costs and delays for industry. With shorter product Iifecycle

times and increased manufacturing flexibility, the ability to adjust the manufacturing process is

increasingly critical for manufacturing competitiveness. The current regulatory system does little to

recognize this new need for speed.

A new flexible permit recently issued to a 3M plant by the Minnesota Pollution Control Agency offers

an alternative approach. 3M operates a Tape Manufacturing Division plant in St. Paul, Minnesota, that

produces over 2,000 different pressure-sensitive tape and label products on 17 different production

lines. These products are primarily manufactured by coating various solutions containing proprietary

solids and solvents onto a substrate of paper or film. The major source of pollution is from evaporating

volatile organic compounds (VOCs) from the coatings. In order to remain competitive in specialty tape

markets, the Division will need to continuously upgrade and modernize its coating and mixing equipment

and provide better and more timely service to its customers.

The area in which the plant is located meets EPA ozone standards; source modifications fall under

the Prevention of Significant Deterioration (PSD) requirements. Many changes potentially could require

lengthy analysis by the Minnesota Pollution Control Agency (MPCA), EPA, and 3M to determine

applicability of PSD rules. While the PSD regulations allow 3M to “net-out” of PSD requirements,

determination of whether 3M qualifies is time-consuming and complicated. It can take from 4 to 12

months or longer to obtain a PSD permit or determination, and this time may increase as new permit

applications require more information. Moreover, changes to individual lines would normally require

separate permit modifications.

3M proposed that MCPA issue a 5-year, full facility permit (a cap) for VOC emissions for the entire

facility (rather than the current individual process permits currently used). Under the permit, 3M is

allowed less total emissions from the plant than before, but 3M can modify processes as long as t he cap

is not exceeded. The permit requires 3M to notify MCPA 10 days before beginning construction of the

modifications authorized by the permit. 3M has anticipated a host of modification categories it may wish

to implement. If the State does not respond within 10 days, 3M can proceed.

Compliance with the VOC emissions cap will be determined daily. A sophisticated emissions

tracking system and Continuous Emission Monitoring (CEM) system will be used to factor daily

emissions into a rolling annual total.

3M benefits from the flexible permit as it will be able to make needed changes in production lines

without delays. In addition, near real time compliance determination reduces environmental liability

resulting from regulatory or legal action, The State regulatory agency benefits because the system frees

up permitting resources that can be devoted to other environmental and administrative priorities. Finally,

the environment benefits because of the lower cap on emissions, and because the heightened

monitoring allows quicker responses to problems.

3M is looking to expand this system to other plants in Minnesota. MCPA is viewing it as a possible

model for regulation for other emission sources in the State. However, this model may work best for

larger facilities with the resources to cost-effectively monitor releases.
276 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

are found.42 In the process, firms may technically

be in violation and may have no assurance that the

solution will meet the standards. This is particularly true in cases where regulations are promulgated with limited time allowed for implementation. It is common for regulations to require

implementation within 6 months to 3 years of

promulgation. Not surprisingly, firms often rely

on tried-and-true, but more expensive, end-ofpipe treatment methods that ensure compliance,

even though these may be neither environmentally nor economically preferable.43

Moreover, the permit system itself is cumbersome and impedes flexibility. If firms change

their production process, even sometimes to

reduce pollution, they are often required to obtain

anew permit, which often takes over 6 months for

approval. 44 Efforts to streamline the permitting

process have been limited. Permit writers often do

not have clear instructions or manuals on what

regulations and rules require from particular

sources. In addition, as State permitting decisions

are sometimes challenged or overriden by EPA,

States are hesitant to make decisions that might

lengthen the permit process.

When U.S. manufacturing was

by long runs of mass-produced

changed slowly, such a permitting

characterized

products that

system would

have only incidental impacts on competitiveness.

However, in the new manufacturing environment,

with more rapid changes in production processes,

shorter product life cycles, and more rapidly

changing market demands, the permitting system

can inhibit needed flexibility.

Some specific regulatory measures impede

flexibility and, in turn, pollution prevention. In

particular, the regulatory process of defining and

managing waste limits pollution prevention.45

One of the principal barriers to reusing some

wastes stems from a RCRA-derived rule that

designates as hazardous waste “any solid waste

generated from the treatment, storage, or disposal

. . . of a hazardous waste. The rule makes it

difficult and costly for firms to employ reuse/

recycling approaches to these wastes.% Regulations governing storage, transportation, and reuse

can all impede pollution prevention and recycling.

47 While firms can apply to have wastes

delisted under RCRA, this process is expensive

42 o~ ~~ feud ~tre@toWflexibili~ is also impofiant ~ p~moting ~een desi~ of products and new processes. U.S. Congress, Office

of Technology Assessment, Green Products By Design, op. cit., footnote 3.

43 For exmple, ac~rding to one study, one reason why metal finishers in a number of cities did not develop centralized treatment and

recycling facilities was because they were under the gun to comply with metal finishing rules under the Clean Water Act and would technically

be out of compliance for a year or two until centralized facilities could be put in place. Valjean McLenigham Sustainable Manufacturing

(Chicago: Center for Neighborhood Technology, 1990).

44 For e~ple, one pbceutic~ mandacm facility has more than 200 permits just for air eIIIkiOnS. TO get a tIeW PWld tO modify

their process takes signit3cant time. The state employs one person to process regulatory agency air permits for companies in the region. Because

competitiveness in the drug industry is increasingly related to development of new generations of drugs, using new processes that lower-wage

competitors can’t duplicate, such delays impede the ability to compete.

45 Fore~ple, see R. Lee Beyers, ‘‘RegulatoryBarriers to Pollution Prevention” Pollution Prevention Review, Winter, 1991-92, p. 19-29;

also SRI International, The Role of Recycling in Hazardous Waste Management, report prepared for The Business Roundtable (New York

Mmc@ l~); ASO Jack H. Goldman and Jefhey S, Hol~ “Regulatory Impediments to the Reclamation and Reuse of Spent Podiner from

*Muminum productio~’ in Proceedings: International Conference on Pollun”on Prevention: Clean Technologies and Clean Products

(WashingtorL DC: U.S. Environmental protection Agency, Gffke of Researeh and Development September 1990).

46 WCUIW weinberg, Gregory Eyring, Joe I@uso, and David Jense% “Industrial Ecology: the Role of Governmen~” in Greening

lndusm”al Ecosystems (Washington DC: National Academy of Engineering Press, forthcoming, 1993).

47 Rob~ A. Frosch, bcbdusti~ EcoIo~: A Philosophical Introduction” Proceedings of the National Academy Of science, Feb. 1992, p.

802; R. tie Byers, op. cit., footnote 46.
—

Chapter 9–Regulations and Economic Incentives in a Competitive Context 277

and time-consuming,

cess.

48 EPA resources

tions are limited and

single site, rather than

and has had limited sucto consider delisting petisuch petitions apply to a

to the waste wherever it is

generated. No consensus exists about how to

regulate or encourage the recycling of industrial

wastes. 49

There are several approaches regulators could

take to increase regulator-y flexibility without

reducing environmental protection. Regulators

could employ fail-soft strategies to go easy on

innovators who come close to standards but fail.50

Similarly, firms could be granted innovation

waivers that allow limited noncompliance while

developing new approaches .51 Fail-soft and waivers would still need to protect health and environment, but would allow near-misses for a limited

period of time.

These waivers and greater flexibility might be

granted to those firms with good records, similar

to how firms are treated under the Occupational

Safety and Health Administration’s Star program,

where good performers are given incentives or

allowed to use flexible approaches. These incentives might expedite permitting, exempt some

changes resulting in pollution reductions, and

provide for more efficient inspections, streamlined paperwork requirements, and flexibility on

timing and technology. In some cases, the possibility of moving to single permit, whole-facility,

performance-based permits could be pursued.

Safeguards, including strong monitoring systems,

would have to be in place to avoid abuse of the

system. Moreover, if it was demonstrated that

firms were abusing the flexibility, regulators

could impose the conventional system on them.

A number of States have begun to provide

increased flexibility to good performers, although

they cannot grant exemptions from Federal requirements. Some States are more lenient with

firms that commit to work with the state pollution

prevention technical assistance organizations to

solve problems. California and Texas expedite

permit reviews for businesses that implement

pollution prevention. At the Federal level, EPA

has recently proposed an environmental excellence program, but one with very few tangible

incentives for industry participation.52

Finally, EPA rules often do not concisely or

clearly State compliance needs. This makes it

difficult not only for firms, especially small and

medium-sized businesses, but also for inspectors

and permit writers, to understand regulatory

requirements .53

INCENTIVE-BASED REGULATIONS

Many economists make the case for giving

firms incentives to look for more cost-effective

~~ Energet]cs, Incorporated, Fdera/Legislative and Regulatory Incentives and Disincentives for Industrial Waste Reducfi”on, p=pared for

the U.S. Department of Energy, Office of Industrial Technologies, Industrial Waste Reduction program (J%shingtonj DC: 1991).

4V Scc U.S, Congress, Office of Technology Assessment, Managing Industrial Solid Wastes From Manufactun”ng, Mining, Oil and Gas

Prodliction, and Utility Coal Combustion-Background Paper, OTA-BP-O-82 (Washington DC: U.S. Government Printing Office, February

1992).

so The Natloti Advisory Comcil for Environmental Poticy and Technology, Pem”tting and Compliance poiicy: Barn”ers to U.S.

En\rironmenfa/ Technology innovation (Wastigtou DC: U.S. Environmental Protection Agency, Office of the Administrator, 1992).

51 NiCklolas Ashford, Christine Ayers, and Robert F. Stone, “Using Regulation to Change the Market for Innovation,” Harvard

Environmental LauI Review, vol. 9, 1985, pp. 419-466.

52 Environment~ Protection Agency, ‘‘Environrnentat Leadership Program,” FederaZ Register, vol. 58, No. 10, January 15, 1993. This

proposal, at least in its current fo~ may be dead.

53 For example, the rule for the Hazardous Organics NESHAP is 700 Pages.

54 OTA IS conducting a separate assessment on the impact of alternative forms of re~lation, including incentive approaches, on

environmental protection.
278 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

ways of controlling pollution.55 The marginal

costs of pollution control usually differ between

firms and between processes within the same

firm. These variations in compliance cost stem

from differences in size, age, and kind of technology, cost of substituting inputs, location, management practices, and other factors.56 Therefore,

requiring equivalent pollution reductions by both

high-cost and low-cost sources can be an expensive way to control pollution.

The argument is that market incentives, while

theoretically producing the same aggregate amounts

of pollution control, would do so more cheaply by

achieving more reductions from the sources that

can do it for less, and fewer reductions from the

sources that face higher marginal control costs.

While incentive systems offer the opportunity to

lower compliance costs, and in so doing reduce

the competitive impact of regulations on U.S.

manufacturers, they cannot be applied in all cases,

and hence are best seen as a supplement, rather

than a replacement, of the present regulatory

system. This section discusses incentive approaches principally in relation to their role in

more cost-effectively reducing pollution from

industrial sources.

S Types of Incentive Systems

There are two major incentive approaches that

apply principally to pollution from industrial

sources: marketable permits, and taxes and fees.

With marketable permits, firms are allocated

permits to release a certain amount of pollution,

specified by statute or regulation. Firms that wish

to release more pollutants than their permits allow

are able to buy allowances from firms that have

reduced their releases below the level of their

permits. In theory, firms facing high control costs

could buy allowances from firms facing low

control costs and comply more cheaply than they

could by reducing the pollutants themselves.57

This is the approach taken in the 1990 Clean Air

Act with respect to utilities’ sulfur dioxide

emissions. Another example is the bubble concept, where a facility could trade emission credits

among various sources within a facility. This

approach is discussed above in the section on

regulatory reform. With fees, firms are charged

for each unit of pollution they release.58 Ideally,

the fee would be set at a level equal to the

marginal costs caused by the pollution. Theoretically, this would lead firms with low cost control

options to cut emissions and firms with high cost

control options to pay the fee, while achieving

sufficient overall reductions to meet environmental objectives.

There are several other incentive systems.59

Deposit-refund approaches have been used to

ensure recycling or proper disposal of certain

products, such as batteries or packaging materi55 For ~ Oveniew of incentive approaches, see Robert N. Stavins (cd.) Project 88- Harnessing MarketForces to Protect Our Environment:

Initiatives for the New President, A Public Policy Study sponsored by Senator Timothy E. Wix@ Colorado, and Senator John Heinz,

Pennsylvania (Washingto~ DC: December 1988). Also Project 8Mound II, Incentives for Action: Designing Market-Based Environmental

Strategies (Washington DC: May 1991).

56 me EPA New .%-XMW perform~ce Standards (NSPS) were originally developed from a concept that the eIIVkOIMIIeINd COnEOk on a new

unit can be installed mom cheaply than on an existing unit.

57 For ~xmple, ~der me Nox ~ding S&eme in he clem Air Act, Wisconsin Power and Light sold CrtXiitS to Tennessee ~d Pennsylvania

utilities, It was able to do so, because Wisconsin law is more strict than national law, and it had already installed abatement technology that

allowed it to exceed the national guidelines. (Internationcd l?nvironmental Reporter, May 20, 1992.)

58 For ex~ple, see U.S. Congress, Gener~ Accounting Office, Environmental Protection: Implicah”ons of Using polluh”on Taxes to

Supplement Regulation (Gaithersburg, MD: U.S. General Accounting OffIce, February 1993).

59 For a discussion of a wide v~ety of incentive approaches to protect the environment see: Alan Casli.n, The United Stares Experience With

Economic Incentives To Control Environmental Pollution (Washington, DC: U.S. Environmental Protection Agency, Office of Policy,

Pkmning and Evaluation, July 1992); Economic Incentives Task Force, Economic Incentives: Options for Environmental Protection

(Washington, DC: U.S. Environmental Protection Agency, OPPE, March 1991); John L. Moore, et. al, Using Incentives for Environmental

Protection: An 01’erview (U.S. Congress, Congressional Research Service, June 2, 1989).
Chapter 9–Regulations and Economic Incentives in a Competitive Context! 279

als. They have also been proposed to reduce the

generation of hazardous waste .

60 Buyers of a

toxic chemical would pay a deposit at the time of

purchase and receive it back when they took the

chemical to a certified recycler or, in cases where

recycling is not possible, to a certified disposal

site. Making information on discharges public,

such as through EPA’s Toxic Release Inventory

reporting requirements, can lead to public pressure on polluters, which induces them to reduce

pollution. Liability rules, such as the strict and

several liability conditions under Superfund,

encourage polluters to reduce wastes, since they

may be held liable for future cleanup. Finally,

removal of government subsidies for practices

such as below-cost timber sales and agricultural

price supports are often advocated as a way to

increase economic efficiency.61

1 Past Experience With Incentive Systems

Limited versions of marketable permit systems

have been in place since the 1970s, when EPA

introduced its emission trading program for

certain air pollutants (see table 9-l). The first

trading scheme, developed by EPA in 1974,

concerned trades within plants that were expanding. Rather than stringently control new sources

of emissions, plants could reduce sources of

pollution in other parts of the plant so that no net

increase in emissions occurred. A firm using

netting must obtain the necessary emission reduction credits from its own sources within the plant.

In 1976, EPA developed its offset policy to

allow major new sources or source modifications

to be sited in nonattainment areas (under the

Clean Air Act), so long as best control technology

is applied and total emissions reductions are

achieved. The new emissions have to be offset by

Table 9-l—EPA Market-Based Environmental

Incentives

Incentive Program Date

Offset Program

Offset Banking Program

Bubble Program

Netting Program

Point Source Trading in Water

Wetland Mitigation Banking

Steel Industry Effluent Bubble in Water

Lead in Gasoline Phasedown: Trading Program

Point-NonPoint Source Trading in Water

Lead in Gasoline Phasedown: Banking Program

Heavy Duty Truck Engine Emissions Averaging

Emissions Trading Policy

New-Source-Performance-Standards Compliance

Bubble Policy

Stack Height Emissions Averaging

CFC Trading Program

Extended Heavy Duty Truck Engine Emissions

Averaging (Banking and Trading)

Acid Rain Industrial Source Opt-in Program

Acid Rain NOX Averaging Program

Air Toxics Early Reductions Program

Air Toxics Offsets Program

Oxygenated Fuels: Averaging and Trading

Reformulated Gasoline: Averaging and Trading

Economic Incentives Rules Expansion

Mobile-Stationary Source Trading Guidance

Air Toxics MACT Averaging

Scrappage of Old Cars

Point-Nonpoint Source Trading

Privatization of Wastewater Systems

Safer Pesticides Incentives

Streamlining Regulations of Premature Notification

Municipal Solid Waste Pricing

State Grants for Air Incentives

1976

1977

1979

1980

1981

1981

1982

1983

1984

1985

1985

1986

1987

1987

1988

1990

1991

1991

1991

1991

1991

1991

1992

1992

1992

1992

1992

1992

1992

1992

1992

1992

SOURCE: Council on Environmental Quality, Environmental Ouality,

1992, p. 56.

emissions reductions from other sources in the

area. Since 1976 there have been approximately

2,500 offset trades.62

Offsets and netting apply only to new sources.

In 1979 EPA developed its bubble policy to

provide benefits to existing sources. The name

60 Molly K. Macauley, Michael D. Bowes, and Karen L. Palmer, Using Incentives to Regulafe Toxic Substances (WaShingtOrL DC: Resoums

for the Future, 1992).

61 Robert W. Hahn and Robert N. Stavins, “Incentive-Based Environmental Regulation: A New Era tiom an Old Idea?” Ecology bw

Quurterly, vol. 18, No. 1, 1991, pp. 1-42.

62 BW S. Elman, Tom Tyler, and Michael Doonan, ‘‘Economic Incentives Under the New Clean Air Act’ (Washington DC: Regulatory

Innovations Branch OffIce of Policy, Planning and Evaluation, U.S. EPA, May 1992).
280 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

derives from the placing of an imaginary bubble

over a group of sources within a plant and treating

all emission sources as one. Bubbles give plant

managers the option of proposing an alternative

configuration of emissions controls for a particular pollutant, as long as the configuration is

adequately enforceable and equivalent reductions

are achieved.

Finally, emissions banking allows firms to

store emission reduction credits for future use in

the offset, netting, or bubble programs, or for sale

to others. The development of banking rules and

administration of banking programs has been left

up to the States. These programs were codified in

EPA’s Final Policy Statement on Emissions

Trading in 1986, but, as discussed below, their

use, particularly of the bubble policy, has been

less than expected by some analysts.

More recently, EPA used trading and banking

to achieve a nine-fold reduction of lead in

gasolines between 1982 and 1987. The purpose of

the provisions was to allow gasoline refiners

greater flexibility while the amount of lead in

gasoline was being reduced. Refineries were

allocated credits based on the amount of gasoline

they refined. EPA estimated that the savings to

refineries from banking alone would be $228

million, but savings may have been greater

because of high participation rates.63 This program was much closer to the notion of a true

marketable-permit system than the more limited

efforts discussed above, which in part accounts

for its effectiveness. The acid rain control systems

in the 1990 Clean Air Act Amendments incorporate tradable permits that may save an estimated

$1 billion annually, compared with a baseline cost

of $6 billion.64 EPA is promulgating new rules

allowing States and firms to get credits for

generating extra reductions from motor vehicles

(e.g., by scrapping old, high-polluting cars), and

to use these credits to meet reduction requirements in the stationary source sector. EPA also

instituted some effluent trading schemes. The

frost was used for in-plant trading (between two

outfalls of the same plant) in the iron and steel

effluent guidelines EPA issued in 1982.65

Some regions, States and localities are developing trading programs. The South Coast Air

Quality Management District in California has

proposed a NOx trading program (see box 9-C).

Massachusetts plans to issue rules for a NOX

trading system. Other States are considering such

approaches, as well.

The savings achieved under EPA’s trading

programs, particularly netting, have been moderate, although trading has been applied to only a

small share of pollution control efforts. Use of and

savings generated by bubbles and banking, however, have been more limited relative to their

potential. Because trading is not allowed under

the bubble policy, actual savings are below

potential savings.66 (Table 9-2 lists the number of

trades and estimated savings from these policies.)

Other incentives to control industrial pollution

include taxes on hazardous waste, established by

a number of States, increased tipping fees for

disposal of waste, and sewarage discharge fees,

63 us. Environmental Protection Agency, “Costs and Benefits of Reducing Lead in Gasoline, Final Regulatory Impact Analysis, ”

(Washington DC: EPA, Office of Policy Analysis, February, 1985).

@ Robefl W. HahII and Robert N. SEWhS, “Economic Incentives for Environmental Protection: Integrating Theory and Practice,” The

American Economic Review, vol. 82, No. 2, May, 1992, pp. 464-468.

65 See Mahesh Podar and Mark Lutmer, U.S. Environmental protection Agency, OffIce of Water, ‘‘Economic Incentives in the Clean Water

Act: Some Prelimhary Results, ” paper presented at the 86th Annual Meeting of the Air and Waste Management Association Denver,

Colorado, April 12, 1993.

66 Robin W. Hahn and Gordon L. Hester ‘Where Did All the Markets Go? An Analysis of EPA’s Emission Trading ~OgTWU’ Yde~OUrd

of Regulation, vol. 6, No. 1, pp. 109-153, 1989; Daniel J. Dudek and John Palmisano, “Emissions Trading: Why is This Thoroughbred

Hobbled?” Columbia Journal of Environmental Law, 13:2, 1988, pp. 218-56; Scott Atkinson and Tom Tietenberg, “Market Failure in

Incentive Based Regulation: The Case of Emissions Trading’ ’Journal ofEnvironnwntalEconomics andiUanagement, vol. 21, 1991, pp. 17-31.
Chapter 9–Regulations and Economic Incentives in a Competitive Context! 281

Box 9-C-RECLAIM: Marketable Permits in Southern California

In 1992, the South Coast Air Quality Management District (AQMD), the regulatory agency

responsible for air pollution in the Los Angeles region, proposed a major new approach to regulating air

emissions. The Regional Clean Air incentives Market (R ECLAIM) is a proposal to allow firms to generate

and trade emission reductions credits.’

Air quality in Los Angeles violates the national standard and improvement will require dramatic

emission reductions through 2010.2 On the other hand, the region’s economy has been suffering from

recession, defense cuts, and outmigration of industry to other States and Mexico. This means that air

pollution needs to be reduced, but at the lowest possible cost. Moreover, because drastic reductions

are necessary, innovative approaches to reach these goals are needed. Because of this, AQMD

proposed to progressively ratchet down permissible air emissions by 85 percent over the next 20 years,

while allowing firms to meet these tougher standards by installing add-on controls, reformulating their

production process, purchasing excess emissions reductions from other sources, and/or reducing

mobile source emissions, including retiring old cars.

All major stationary sources with NOX (488 facilities) and SO2 (47 facilities) emissions, generally

greater than 4 tons per year, will receive an emissions cap and an annual rate of reduction.3 In turn, the

emission reduction requirements of more than 30 adopted rules and over 12 future rules are replaced

by a single permit that encompasses all NOX or SO2 emission sources at the facility.

The District developed rule language in May 1993 and proposes to fully implement the program

by January 1994. There will be two separate markets in the program, for NOX and SO2

. Mobile sources

and companies emitting less than 4 tons of the pollutants are exempt from the program.

In some ways RECLAIM represents a significant departure from the command and control

approach. While facilities will still be required to obtain permits to pollute, the new permits encompass

all NOX or SO2 emission sources at the facility, rather than individual pieces of equipment. Each facility

will have an overall declining emissions cap that it must meet. However, if a firm believes that it can meet

1 So@h ~ast~r @ality Management District, F?ECbVMRules (Diamond Bar, CA: SCAQMD, May 1~3).

2 APPr~~mately 50 ~ermnt of air poll~ion in the ~s~geles area ~mes from mobile sources (e.g., cars and

trucks), 30 percent from area sources (e.g., dry cleaners) and consumer products (e.g., perfume), and 20 percent

from stationary sources (e.g., industry).

3 SCAQMD is considering separately the develop~nt of markets for reactive organic compounds (ROCS).

(continuedon next page)

Tipping fees have increased significantly since havior. Incentive approaches have also been

the early 1980s, although in some places tipping proposed for a wide range of environmental

fees do not makeup for the total government cost. problems, including global warming,

67 municipal

The city of Phoenix recently instituted a toxic- solid waste, and nonpoint source water pollution.

based fee on the dischargers to the local POTW. While the U.S. incentive approaches have

However, these fees may not always be high concentrated on marketable permits, some Euroenough to encourage significant changes in be- pean countries have more experience using fees

67 Robert W.~ and Robert N. Stavim, ‘Trading in Greenhouse Permits: A Critical Examination of Design and hnplementation Issu~, ”

prepared for Giobal Ciimate Poiicy, edited by William Clark and Henry be (Cambridge, MA: John F. Kennedy School of Government,

Harvard University, March 18, 1993).
282 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Box 9-C-RECLAIM: Marketable Permits in Southern California-Continued

its cap more cheaply by purchasing emission reduction credits from other firms, it can do this. It is hoped

that RECLAIM will spur innovative control technologies and other new ways of reducing pollution, and

will allow AQMD to avoid the battles over what is and is not technologically possible. Moreover, by

reducing emission limits significantly, RECLAIM hopes to force the development of technology to meet

the new limits.

An important component to the success or failure of the program will be the accuracy of monitoring.

AQMD proposes to monitor SO2 and NOX through continuous emission monitors attached to air

emission sources. One advantage of the monitoring program is t hat it will result in a better understanding

of emissions and air quality.

Compliance costs under RECLAIM, as opposed to a conventional approach, are expected to be

lower. While it would cost $346 million to reduce emissions over the period of 1994 to 1999 under a

command and control approach, AQMD estimates that under RECLAIM costs wouldbe$182 million,

or 47 percent less. Part of these savings are expected to come from advancements in pollution control

technology stimulated by the RECLAIM incentives. RECLAIM also provides more flexibility for industry

and gives facilities the ability to better engage in long-term planning and have more control over

managing their emissions.

There are, however, a number of limitations in the program that might limit savings. To be

consistent with Federal and State regulations, new, relocated, and modified (resulting in emission

increases) sources must still meet Best Available Control Technology requirements, as do existing

equipment currently permitted under BACT. Facilities that purchase credits to install a new source or

increases above their annual allocation must obtain an amendment to their facility permit, and some

facilities can only buy credits from facilities in the same geographic zone. Finally, because the future

emission targets are so low, in some cases below currently available technology, firms may bank

emission credits to meet future reductions.

Moreover, it is possible that the program could exacerbate the migration of industry out of the

region, since firms in the program that relocate or shut down can obtain credits to sell. An additional

possible problem is that the program could penalize firms that have already significantly cut pollutants.

If emission baselines and credits are allocated to firms based on current emission levels, firms that have

cleaned up get fewer credits than firms that haven’t. AQMD is proposing to deal with this by basing

credits on emission Ievels for the years 1989 to 1991. Facilities that today operate below their emission

potential will receive a starting allocation commensurate with their emissions in 19870r 1988. However,

these credits cannot be traded and can only be used by the firm to offset emissions increases from

increased output in the first 3 years of the program.

or taxes on releases, particularly for water pollu- ronment agency (ADEME) charges large emitters

tion.68 However, the purpose of these fees is often of SO2

, NOX, and hydrochloric acid a tax of

to raise revenues, rather than to induce industry to approximately $30 per ton, while France’s six

control pollution. For example, the French envi- river basin agencies charge fees on effluents of

68 orgafiution for Economic” cooperation and Development, Environmental Policy: HOW M Apply Econonu”cln~trument~(pfis: OECD,

1991); Huppes, et. al. New Market-Oriented Instruments for Environmental Policies, (London: Graham and Trotma4 for The Commission of

the European Communities, 1991); Mikael Skou Anderso~ “GreenTaxes and Regulatory Reform: Dutch and Danish Experiences in Curbing

Surface Water Pollution, ’ working paper, (Berlin: Wissenschaftszentrum Berlin (WZB), 1991); Gardner M. BrowrL Jr. and Ralph W. Johnsom

“Pollution Control by Effluent Charges: It Works in the Federal Republic of German

Journal, VO1. 24, No. 4, October 1984, pp. 929-966;

Y, WY Not iU tie United States?’ Natural Resources
Chapter 9–Regulations and Economic Incentives in a Competitive Context 283

Table 9-2—Estimates of Cost Savings From

EPA Emissions Trading

Number Amount of savings

Type of trades ($millions)

Offsets 2,500 $25*

Bubbles 132 $435**

Banking 100 very small**

Netting 5,000-12,000 $525-12,000’”

SOURCES: “ Daniel J. Dudek and John Palmisano, “Emissions

Trading: Why is This Thoroughbred Hobbled?” Co/umbia Journal of

Erwironrnenta/ Law, 13:2, 1988, pp. 218-256. ● * Robert W. Hahn and

Gordon L. Hester “Marketable Permits: Lessons for Theory and

Practice,” Eco/ogy Law CWarfer/y, VOI 16, 1989, pp. 361-406.

BOD and suspended solids. However, in both

cases the taxes are too low to have significant

effects on firm behavior.69 In a few countries, the

fees are higher and may affect behavior, Holland

charges higher fees on water pollution, which

appear to have had an impact on reducing

discharges. 70 Since 1974, Japan has charged a fee

on SO2 that may have encouraged some sources

to install SO2 scrubbers.

E Advantages of Incentive Systems

There are several potential advantages of

incentives in the regulatory system (see table

9-3).

COST SAVINGS

Many studies suggest that the total savings

from using incentives rather than traditional

regulations alone could be considerable, primarily because differences in compliance costs between sources can be substantial. For example,

OTA estimated that the average costs for reducing

volatile organic compounds (VOCs) may range

from about $500 per ton for limits on fuel

volatility to about $39,000 per ton for using

methonal as a vehicle fuel,71 and that the costs of

reducing SO2 emissions from eastern power

plants by requiring wet scrubbers would cost

between 40 and 110 percent more than allowing

each utility to choose the lowest cost control

option (coal washing, low sulfur fuels, and wet

and dry scrubbers) .72

A number of studies have estimated that

incentive systems could be two to five times less

expensive than command-and-control.73 However, many of these estimates, particularly those

based on more theoretical models, may significantly overstate the savings from incentive approaches, in part because theoretically pure incentive schemes are unlikely to be workable in

practice. 74 First, many firms with high control

costs have already invested in abatement and

therefore cannot reap savings available if they

buy credits. Second, perfect markets for tradable

permits may not develop. If firms are prohibited

69 @e French ~nvkoment~ Official ~~~ hat fie ties would&veto be 20 to 30 times ti@er in order to serve as an effective iIICentiVe

for fms to reduce pollution.

70 Rob~ W, Hfi, $ ‘fionomic pre5criptio~ for EnvironrnenM Problems: How the Patient Followed the Doctor’s Orders, ~ournd of

Economic Perspectives, 3, 1989, pp. 95-1 14; also Hans Bressers, “The Role of Effluent Charges in Dutch Water Quality Policy,” in

Inrernutional Comparisons In Implementing Pollution Luws, ed. by Paul B. Downing and Kenneth Hanf (Boston: K1uwer-Nijhoff, 1983),

71 ()~y tie upper estimtes we relevm~ however, ~cause most of tie 1ower.cost options me already re@red, U.S. Congress, Office of

Technology Assessment, Urban Ozone and the Clean Air Act: Problems and Proposals for Change, (Washington, DC: U.S. Government

Printing Office, April 1989), pp. 106-108.

72 us. Conpess, Office of Tw~olom Assessment, AcidRain a~Tran~portedAir Pollutant8: /mp/icationsfor public policy, 0~-0-z04

(Washington, DC, U.S. Government Printing Office, June 1984).

73 For ~ discussion of tie ~wretic~ estimates of savings from emissions, see T.H. Tietenberg, ‘‘Emission Tradkg: An Exemlse in

Reforming Pollution Policy” (Washington: DC: Resources for the Future, 1985; T.H. Tietenberg, Economic Instruments for Environmental

Regulation’ Oxford Re-view of Economic Policy, 1990, vol. 6, No. 1, 17-33; and Robert W. Hahn and Robert N. Stavins, “Economic Incentives

for Environmental Protection: Integrating Theory and Practice, ” The American Economic Review, vol. 82, No. 2, May, 1992, pp. 464-468.

74 Robert N. SlaVtiS, “Transaction Costs and the Performance of Markets for Pollution Control,” unpublished paper (Cambridge, MA:

Harvard University, Kennedy School of Government, May 23, 1993).
284 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Table 9-3—Advantages and Disadvantages of Different Regulatory Approaches

Type of

Regulation Advantages Disadvantages

Uniform Easier to ensure compliance More difficult to focus efforts on low-cost sources

technology- Able to set overall release targets for facility and within or between plants

based region Reduces incentives for pollution prevention and techstandards Ensures large market for producers of best available nology development

technology

Source-based Some incentives for pollution prevention and tech- More difficult to focus efforts on low-cost sources

performance nology development within or between plants

standards Able to set overall release targets for a facility and Monitoring may be difficult

(sources region

within a plant)

Greater flexibility to use low-cost approaches on

regulated sources

Plant-based Can focus efforts on low-cost sources within a plant Monitoring may be difficult

performance Moderate incentives for pollution prevention and

standards technology development

(facility bubbles,

no trading) Able to set overall release targets for a facility and

region

Tradable Can focus efforts on low cost sources within a facility Monitoring may be difficult

pollution or between facilities Can lead to regional/local pollution concentrations

permits Stronger incentive for pollution prevention and May not be appropriate for emissions with threshold

technology development damage functions

Able to set overall release targets for a region Early reducers can be penalized

Greater flexibility regarding when and to what Potentially large transaction costs, which may didegree reductions are made minish cost savings

If permits are auctioned, can raise total compliance

costs

Pollution Can focus efforts on low-cost sources within a Monitoring may be difficult, if the tax is placed on

taxes facility or between facilities outputs rather than input purchases

Stronger incentive for pollution prevention and Can lead to regional/local pollution concentrations

technology development May not be appropriate for emissions with threshold

Greater flexibility regarding when and to what damage functions

degree reductions are made Difficult to set overall release levels

Require few regulatory approvals Firms may choose to pay tax rather than cut pollution

Set marginal costs of control Because of increased taxes, can raise total compliSource of government revenues ance costs

Potentially less new source bias

SOURCE: Office of Technology Assessment, 1993.

from banking emissions credits for future use or Third, transaction costs, particularly with tradable

sale they may engage in early, suboptimal sale of permits, may be high. Firms may have to pay

credits. The number of firms in the market maybe consultants to identify sellers or buyers, pay

small, especially when the bulk of pollution brokers to facilitate transactions, and spend time

comes from a small number of widely dispersed negotiating. In addition, for fees or tradable

sources or where a few large sources dominate. permits, firms may have to pay to document and
Chapter 9–Regulations and Economic Incentives in a Competitive Context 285

monitor emission reductions, develop applications for a permit revision, and keep detailed

records. Finally, environmental safeguards and

other regulatory constraints can diminish the

workability of incentives. In some cases firms

have to wait up to 2 years to get certification that

their reductions are legitimate and can in fact be

sold, Requiring new sources to satisfy new source

performance standards, rather than allowing them

to install less stringent control technology and

buy credits to make up the shortfall, reduces

trading potential.

States and localities can further undercut trading as an option. For example, Illinois passed a

law requiring some utilities to buy scrubbers so

utilities would not buy low-sulfur coal from

Western States and instead buy high-sulfur Illinois coal.75 Atkinson and Tietenberg suggest that

in reality, savings achieved would probably be 20

to 50 percent of the estimated ideal.76 Notwithstanding these limitations, incentive systems can

lower compliance costs, although not nearly as

much as theory might suggest.

GREATER OPERATING FLEXIBILITY

The development and implementation of a new

pollution control or prevention method entails

certain regulatory risks for the business. One

advantage of incentive approaches is that if firms

choose to invest in a new control technology or a

clean process solution that is low cost, but falls

slightly short of meeting the regulation, or requires additional time to work out problems, they

can buy credits (or pay a fee) to make up for the

shortfall.

INCENTIVES FOR INNOVATION IN

POLLUTION CONTROL

Under command-and-control, firms have little

incentive to reduce releases below the required

level since they receive no economic benefit.

Moreover, regulated firms have limited interest in

developing more efficient technologies for pollution control since, once developed, these technologies are likely to be mandated by regulators as

standard for other sources in the future. Finally,

designation of technology standards make it more

difficult for firms to get alternative approaches

accepted. As a result, command-and-control systems, particularly technology-based standards,

can freeze the development of technology that

could provide control at greater levels or lower

costs. 77

A potential benefit of incentive approaches is

that they could provide firms with financial

rewards for developing and adopting new pollution abatement and prevention technologies and

other innovative control strategies that reduce

releases below required levels.78 Firms adopting

innovative technologies that reduce pollution

more than required would benefit financially,

either through lower pollution taxes or saleable

pollution rights.

While incentives may stimulate new ways of

controlling pollution, these may not always lead

to development of new technology. For example,

firms may decide to use more straightforward

approaches, such as fuel-switching or substitution

of materials. Thus in some cases, in contrast to a

technology-based standard that may force the

development of a new technology, incentives

could produce less technological innovation,

7S EnergF, Daily, Sept. 3, 1992! P 2“

.

lh Scott A&inson and Tom Tietenberg, “Market Failure in Incentive Based Regulation: The Case of Emissions Trading” Journal of

En\ironmcntul Economics and Management, 21, 1991, pp. 17-31.

77 For example SW, Malt Mdley, “How to Smother Innovation,” The Wall Sfreef .lournal, June 9, 1993.

T~ paul B, Downing and ~~ence J. White, “Innovation h Pollution COn@Ol, ’ Journal of Environmental Economics and Management,

VO1. 13, 1986, pp. 18-29.

7!l A final ~~vantage of incentives is mat hey provide ~addition~ set of re@ato~ tools to address problems or po~ution sOUSCeS dllit I)My

not bc effectively addressed using traditional regulatory tools. See Michael H. Levin and Barry S. Elm~ ‘ ‘The Case for Environmental

Incentlvcs, ’ The En\’ironmental Forum, January/February 1990, pp. 7-11.
286 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

even though they produce lower cost means of

control. 79

1 Limitations and Disadvantages of

Incentive Systems

There are limits to incentive systems. Incentives seldom eliminate the need for regulations.

Indeed, incentive systems must generally be

implemented within a clear regulatory framework. An incentive-based approach, however,

may offer more compliance options than a traditional regulatory system.

One key to incentive approaches is accurate

and timely monitoring and enforcement. Unlike

many conventional command and control standards where adoption (and proper operation) of a

certified control technology ensures compliance,

incentive systems normally require accurate monitoring of emissions over a period of time. While

current monitoring procedures and technology

appear adequate for some types of processes and

pollutants, they are less so for others. As a result,

the application of incentives may be limited to

cases where adequate monitoring and enforcement are feasible.80 It is one thing to monitor

utilities trading sulfur dioxide emissions under

the Clean Air Act’s acid rain provisions, since

there is a manageable number of facilities in the

program and technology for continuous stack

emission monitoring is available.81 It is quite

another thing to adequately monitor a vast number of smaller sources and releases associated

with a wide array of industrial processes. However, advances being made in new continuous

emissions monitoring processes are likely to

increase the potential of incentive approaches.82

Regardless, incentive approaches will generally

increase the need for and complexity of detailed

modeling, monitoring, and enforcement, which

could increase the administrative cost to government and industry. Monitoring is more complex

when emissions output is regulated and less

complex when materials input is taxed (e.g.,

carbon taxes in fuels).

Geographical constraints can limit applicability of incentives. For some pollutants (e.g., air

toxics) the market may have to be defined quite

narrowly, so that trades do not significantly

reduce environmental quality in an area. Safeguards would be necessary under a tax or trading

system to protect the interests of persons living in

a place where polluters chose to pay the fee or buy

the rights, rather than control pollution. However,

even with small trading areas, potential savings

might be significant.83

In cases where environmental damage is severe, there may be a need to use all feasible means

of control and to limit the ability of firms to buy

pollution rights. For example, in Los Angeles,

which has major environmental problems, achieving ambient standards may require strict controls

on almost all sources of ozone-causing emissions.

In this case, the cost advantage of market-based

approaches over command-and-control will be

less, but still may be significant (see box 9-C).

79 A ~advan~ge of ~centives is that they provide an additional set of regulatory tools to ZiddreS5 problems Or pOhtiOn SOUrCes tit my

not be effectively addressed using traditional regulatory tools. See Michael H. LevirI and Barry S. Elrmq ‘‘The Case for Environmental

Incentives,” The Environmental Forum, January/February 1990, pp. 7-11.

so k some cases, thoug~ tradab]eperrnits and taxes may be easier to monitor and enforce, particularly in the ref@atiOn of tie uSe of pti~a

chemicals, such as CFCS. Robert Rabiq “EPA Regulation of Chlorofluorocarbons, “ in Making Regulatory Policy, edited by Keith Hakins

and John M. Thomas (Pittsburgh: University of Pittsburgh Press, 1989).

81 Most lwge souNe emissions of NOX and SOX in Japan are monitored by Continuous Emission Monitors (CEMS) and ~s info~tion

is automatically fed to local, governmentally controlled monitoring stations by telemetry,

82 However, fi some Cmes, ~went CEMs can ~pede indus~~ perfo~ance. See Gunsefl S. Stief, et. ~., ‘ ‘Selective CaM@c Reduction

NOX Control for Small Natural Gas-Fired Prime Movers, ’presented at the 85th Annual Meeting and Exhibitio~ Air and Waste Management

Association Kansas City, June 21-26, 1992,

83 T.H. Tietenberg, “Economic Instruments for Environmental Regulation” op. cit., foomote 73.
Chapter 9–Regulations and Economic Incentives in a Competitive Context! 287

Taxes or fees make it difficult to predict the

amount and pace of pollution reductions. More

importantly, as discussed below, because managers may not optimize and choose low-cost options, firms may choose to pay the fee and

continue to pollute, even if reducing pollution

would save them money.84 Unlike fees and taxes,

tradable permits allow regulators to ensure an

overall level of pollution reduction. It is difficult

for government to set fees at the correct level to

produce the desired change at the lowest cost.

Moreover, taxes and fees or the auctioning of

permits could raise total compliance costs for

industry, even if abatement expenditures were

reduced. 85 However, fees and auction income can

be rebated back to industry to be revenue neutral.

For example, Sweden is planning to initiate a NOX

fee on 150 to 200 of the largest sources. In order

to not discriminate against these, the revenues

will be returned to the affected facilities through

a rebate based on the amount of energy they

produce. 86 Fees could also be returned to firms to

help pay for the cost of pollution control equipment. For example, the revenues from the French

air pollution charge are returned to those adopting

pollution control equipment.87 The revenue raised

from fees can be used to offset other taxes (on

industry or the general public), as well.

Assignment of credits or allowances can be

inequitable. Depending on how these rights are

allocated, firms that cleaned up early may be

penalized. Similar to the current command-andcontrol system, a marketable permits program

may penalize new firms and reward existing firms

by making the former buy permits to enter the

market. In addition, marketable permit systems

may exacerbate industrial relocation, since firms

moving out of areas with marketable permits may

be able to sell their pollution permits, making it

more profitable for them to leave. One way to deal

with this would be to have closing and moving

firms hand over credits to the local government,

which can sell them or give them to firms

relocating to the area.

Finally, under some systems, firms may get

credit for reductions that they have already made,

or for things they would have done anyway, such

as shutting down an obsolete production line. In

addition, existing permits under some State implementation plans may allow some sources

many more releases than they are using. These

excess releases have in some cases been available

for trade; the results have been called paper

trades. 88 The existence of historic emissions

inventories can reduce this problem of measurement as can the assignment of more realistic

emission caps. In addition, if the regulatory

system explicitly accounts for the use of these

paper credits by requiring lower emission limits

from all sources, mandated reductions could

likely be achieved.

Some oppose incentive systems because they

feel that industry should not be given the right to

pollute, and that every single reduction in releases

possible is necessary, particularly in nonattainment areas.89 But incentive systems can be

designed to permit no more pollution than an

equivalent command-and-control system.

S4 some have ~Ocd tit slfilm results OCCUr tith regard to adoption of industrial energy conservation practices. There 1S considemble

evidence that there are proven, cost-effective, energy conservation technologies not widely used by industry. As in the case of pollution taxes,

industry has market incentives (in the form of energy expenditures) to invest.

‘s T H Tictenberg, “Emissions Trading: An Exercise in Reforming Pollution Policy, ” op. cit., footnote 74.

u~ U S. Env~onmental protection Agency, Economic Incentives. Options for Environrnenral Protection, (Washington DC: EPA policy,

Planning and Evaluatio~ March 1991).

87 T.H. Tietenberg, ‘ ‘Economic Instruments for Environmental Regulation,’ op. cit., footnote 74.

88 peter B~hm and Clifford S. Russell, “Comparative Analysis of Alternative PoIicy hMrurnents,” op. cit., footnote 10.

‘y David Domgcr, ‘ ‘The Dark Side of the Bubble, ’ The Environmental Forum, July 1985, pp. 33-35.
288 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

I Why Have Incentives Not Become

More Widespread?

Despite their potential to reduce compliance

costs, incentive programs have not been widely

used as a pollution control strategy. Moreover,

when the programs have been adopted, they have

been used less frequently than expected. Most

trades have been inside firms and, with the

exception of the lead-trading program for gasoline and the mandatory offset trading, there have

been few trades between fins. There are several

reasons for the limited adoption of incentive

programs.

First, with the notable exceptions of the 1990

Clean Air Act Amendments, Federal legislation

has not encouraged incentives.90 For example,

while the Clean Water Act contains provisions

that suggest that trading is allowed, it does not

explicitly authorize its use. This has limited

trading, because of the perceived risk that trades

will be overturned by the courts or disallowed by

regulators. 91 While the Clean Air Act authorizes

a variety of incentives, the effects of these

provisions are only beginning to be felt.92

Second, because incentive systems are the

exception rather than the rule, it is much easier

from an administrative standpoint for firms and

regulatory agencies to work within the traditional

regulatory system than to get new incentive

programs up and running. Procedures for approving trades can further impede the process. For

example, in the water pollution trading scheme on

the Wisconsin Fox River, firms that entered into

trades were required to either modify or receive

new permits.93 Because firms that applied for

bubbles were subject to in-depth reviews of plant

facilities, many were reluctant to use this tool.94

Provisions in the 1990 Clean Air Act Amendments will, in some cases, reduce the need for

indepth case-by-case reviews.

Third, clear and consistent leadership in support of incentives has been lacking. While the air

office within EPA has been somewhat supportive

of incentive approaches, other media program

offices have not done as much .95 As a result, State

and local agencies have not received the guidance

and support needed to put in place incentive

approaches, nor has EPA aggressively sought to

identify situations where incentives might be

fruitfully applied. Finally, support from industry

and environmental groups for incentive approaches

has been sporadic.

There are also reasons why industry has not

used existing programs more extensively. First,

transactions costs have been high, particularly for

nonuniformly mixed pollutants (e.g., air toxics

and some particulate), where extensive air dispersion modeling has been required. Moreover,

the practice that EPA, instead of the States,

approve trades involving dispersion modeling,

hindered trading in the early 1980s as few trades

requiring modeling were approved.

Second, firms may not know about the programs or may prefer the security of command and

control where regulatory agencies essentially tell

them what device to buy and how to monitor it.

~ A n~ber of bills recently have considered the use of incentives, See Regulatory Innovations Branch Office Of poIicY, Plming and

Evaluation Economic Zncentzves in Environmental Bills Introduced in the Z02nd Congress (Washingto% DC: U.S. Environmental Protection

Agency, February 1993).

91 US. Congess, Gener~ Accounting Offtce, Water Pollution: Pollutant Trading Could Reduce Compliance Costs if Uncertain fi”es Are

Resolved, RCED-92-153 (Gaithersburg, MD: U.S. General Accounting Office, June 1992), p. 5.

92 EPArecently issue a proposed de providing guidance to the states on economic incentive programs. EPA, ‘ ‘Economic Incentive Progrm

Rules,” Federal Register, vol. 58, No. 34, February 23, 1993. pp. 11110.

93 Robert W. H@4 ‘Economic Prescriptions for Environmental Problems: How the Patient Followed the Doctor’s Orders, ” Op. cit.,

footnote 70. The major reason, however, for the failure of this program was that the marginal costs of reducing emissions did not differ

significantly between the plants, reducing the benefits of trading to the firms.

% For exaple, SW BOX 8-G discussing 3M’s experience wi~ bubbl~.

95 Robert Rabin, “EpA Regulation of Ch.lorofluorocarbons, ” op. cit., footnote 80.
Chapter 9–Regulations and Economic Incentives in a Competitive Context 289

Industry may also worry that they will be required that their use may be more limited. Notwithstandto install control technologies even after they ing these limitations, the potential for incentivehave purchased credits. Finally, some firms may based approaches to cut costs (and stimulate

not want to be seen as polluters for fear of innovation) has not been reached.

damaging their image with the public.96

Incentive approaches promise much in theory,

but their application in the real world suggests

96 Some fm feti tit ~ey my be ~=n ~~ buying ~e~ way out of con~ol~g pollution+ Some o~er ~are concerned about profit@

from controlling pollution. For example, 3M has a corporate policy that they will not profit horn any money made by selling permits.
PART IV.

Government

Support for

Environmental

Technology

Development,

Here and Abroad
Research,

Development, and

Demonstration 10

R

esearch and development (R&D) on environmentally

preferable technologies is important not only for solving

environmental problems, but also for ensuring that U.S.

environmental firms maintain competitive positions in

world markets. R&D directed at lowering the costs of meeting

and in some cases going beyond regulatory requirements can

help both the environmental goods and service (EGS) and

regulated sectors. But commercial benefits from much of the $1.8

billion the U.S. Government spends each year on R&D for the

energy and environmental technologies covered in this report are

limited.

Several factors are key. First, several agencies have missionoriented programs, but there has been little strategic direction and

coordination to Federal R&D efforts. Funding agencies generally

have not worked closely with each other to identify critical

environmental problems and common technology priorities,

although the Clinton administration is making efforts in this

direction.

Second, except for various cooperative R&D agreements

(CRADAs) and a number of R&D and demonstration programs

for cleaner energy technologies, individual programs pay scant

attention to commercial applications. For example, a significant

share of Federal environmental technology funds (over $650

million in fiscal year (FY) 1993) support R&D related to

hazardous waste remediation technologies for Federal site

cleanup. While these efforts could produce commercially relevant remediation technologies, their export potential is likely to

be modest relative to other areas (see ch. 4 and ch. 5).

Comparatively little R&D goes for pollution control, cleaner

production, and recycling, which are of greater relevance to

291
292 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

regulated industries and offer greater export

potential. If recent legislation is vigorously implemented and new administration initiatives are

pursued, this picture could change toward more

government-wide coordination and commercial

orientation; several pending bills before Congress

aim in this direction (ch. 2).

Third, while CRADAs and other industrygovernment partnerships (e.g., SEMATECH) are

becoming more prominent, programs operated

principally by government agencies often have

had only limited dialogue with industry. When

industry is involved, it is often through single

companies rather than through broad-based industry consortia. In such cases, government has

not effectively leveraged and mobilized industrywide resources, experience, and commitment to

develop and deploy the most important environmental technologies for industrial application.

The picture is somewhat different in other

nations. Government support for environmental

technology R&D in Europe and Japan tends to

center in agencies with industrial policy missions,

such as Japan’s Ministry for International Trade

and Industry and Germanys Ministry of Research

and Technology. In some cases, particularly in

Japan, these missions are carried out by less

bureaucratic quasi-public organizations, with industry involvement and governance, that usually

focus on subjects and technologies with domestic

and international commercial promise. R&D is

also carried out in a manner designed to facilitate

usefulness to industry; for example, Japan’s New

Energy and Industrial Technology Development

Organization (NEDO) borrows industry researchers, who then return to their companies when the

work is done, Moreover, industry-government

cooperation in developing environmental technology is common, with emphasis on increasing

communication of innovations among firms, including the use of industry research consortia. For

example, Japanese steel producers formed the

Steel Industry Foundation for the Advancement

of Environmental Conservation Technology in

1973 to conduct joint R&D on pollution control

and energy conservation technology in the steel

industry. The Dutch and the Danish governments

have focused their environmental technology

policies on increasing successful cooperation

between user companies, suppliers, developers,

and consultants.1 Such collaborative approaches

appear promising in advancing technologies suited

to industry environmental needs.2

In addition, at least one country, the Netherlands, has begun to think strategically about

long-term technology development which supports principles of sustainable development. Its

Sustainable Technology Development Program,

funded at $2.9 million a year by five agencies,

attempts to boost the capacity of Dutch institutions (industry, government, academia) to integrate environmental goals into technology development.3 Througha‘‘backcasting process where

they look at the demands which technology must

meet in the future (e.g., low levels of resource

use), the program attempts to identify and achieve

consensus over sustainable technology goals in a

variety of areas, including transportation, energy

production, and manufacturing,

] Johln W. Scot, “Constructive Technology Assessment and Technology Dynamics: The Case of Clean Technologies, ” Science,

Tt ch? !,,:> ond Human Values vol. 17, No. 1, winter 1992, pp. 36-56.

z FOreXample, tie Canadian Government Operated its Cooperative Pollution Abatement Research program in the 1970s to develop pOllUtiOn

control and prevention technologies for the pulp and paper industry. Development and guidance of the program were the responsibility of a

joint industry-government committee, including representatives horn Federal departments, pulp and paper companies, and the industry trade

association and industry research organization, (Although many view the program as a success, it was eliminated in 1979 due to lack of

government funds.)

J J.L.A, Jansen and P,J. Vergragt, “Sustainable Development: A Challenge to Technology” (Leidschendam, Netherlands: Ministry of

Housing, Physical PIarming and Environment, Directorate-General for Environmental Protection June 10, 1992).
Chapter 10--Research, Development, and Demonstration! 293

Table 10-1—National Government Funding For Selected Categories of Environmental

Technology R&D in Most Recent Fiscal Year ($ million)a

United States

Clean coal

Renewable energy

Energy efficiency

Remediation

End-of-pipe and prevention

Total

Japan

Clean coal

Renewable energy

Energy efficiency

Environment

Total

Percent of total government R&D funds .—15”

12

9“

6

3

0

—

$375

230

365

650

150

1,770

85

175

310

130

700

_ Environment

~ Energy

I I

I I

EC Germany Japan Netherlands United

States

European Community

Energy

Environment

Total

Germany

Clean coal

Renewables and efficiency

Environment

Total

The Netherlands

Energy

Environment

Total

0.12

0.09

0.06

0.03

0

Percent of GDP

_ Environment

m Energy

255

55

310

47

250

230

527

198

175

373

——.—

Germany Japan Netherlands

u

Unded

States

a Estimates are for environmental t~hnology categories emphasized in this report, but the estimates may nOt include ~!l national government

expenditures. State and local and private spending are not included. Estimates ccwerenvironmentally preferable energy (e.g., renewabbs, energy

efficiency, and dean coal); end-of-pipe technologies; pollution prevention; and remediation. Spending on sdence and technology related to

environmental science and modelllng, nuclear waste handling, agriculture, and manufacturing not primarily related to environmental aims were not

included. Most U.S. and Japanese expenditures are for FY 1993, most spending by other nations is for ~ 1992.

SOURCE: See Tables 10-3,4,5,6 and 7. GDP figures and exchange rates are from International Monetary Fund, /nterrratlor?a/F7nar?citilStafLsrks,

selected issues.

There are some broad similarities in national In addition, in many nations, including Japan and

support for environmental technology R&D (see the United States, energy agencies or programs

table 10-1). The majority of funding in all have major responsibility

countries examined goes for environmentally nology development.

preferable energy technologies (e.g., renewable, This chapter examines

efficiency, clean coal). With the exception of the ogy R&D by the United

Netherlands, much less is spent on end-of-pipe or trading partners.

cleaner manufacturing technology development.

for environmental techenvironmental technolStates and some major
294 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

UNITED STATES

Fragmentation makes it difficult to quantify

Federal support for environmental technology

R&D. Not only is it difficult to identify all of the

programs, but there is no standard definition of

‘‘environmental. OTA estimates that the major

R&D programs pertinent to environmental technologies covered in this report amount to approximately $1.8 billion, divided among energy ($1

billion), remediation ($650 million), pollution

prevention ($70 million), and end-of-pipe technology ($80 million). Other studies offering

higher estimates have defined environmental

technology more broadly, to include spending on

items such as mass transit, nuclear waste transportation and storage technology, chemical toxicity assessment, and climate modeling R&D. Also,

agricultural, forestry, fisheries, biodiversity, and

land use related technologies, which are not

examined in this assessment, may be included in

some definitions. For example, a 1992 Congressional Research Service (CRS) study identified

$2.2 to $2.5 billion in FY 1992 Federal appropriations for environmental technology development.4 The Carnegie Commission on Science,

Technology, and Government estimated that Federal spending for environmental R&D was $5

billion in FY 1992, but much of that is for basic

science and global monitoring technologies for

“Mission to Planet Earth” rather than for technologies that prevent, control, or repair environmental damage.5

Most Federal support for R&D on environmental technologies is devoted to cleaner energy

technologies and hazardous waste remediation

technologies. The latter technology is supported

in large part to serve agencies’ mission requirements of cleaning up contaminated sites. With

some exceptions (e.g., clean coal and renewable

energy R&D, programs often shared with industry), export promotion potential has not been a

major consideration in setting R&D priorities.6

Some technologies with stronger export potential

now, particularly cleaner production processes

and end-of-pipe pollution control technologies,

receive relatively little Federal R&D support.7

Cleaner energy and production technologies may

come to have an advantage in international trade

since they almost always provide a lower cost

means of environmental protection than end-ofpipe or remedial clean up.

There has been little coordination of Federal

environmental technology R&D. So far, EPA and

other agencies that support environmental and

energy technology development have not developed the necessary dialogue on the interplay

between environmental problems, future environmental regulations, and needed technologies.

Cooperation is critical, since EPA’s regulatory

process will dictate not only the technological

needs of many industries, but also the approaches

that might be taken.

This situation may be changing. With the end

of the Cold War and the reorientation of the

Federal science and technology system toward

civilian technology, the Federal Government may

have opportunities to integrate environmental

technology concerns into new civilian technology

4 John D. Moteff (coordinator), U.S. Library of Congress, Congressional Research Service, The Current State of Federal R&D in

Environmental Technologies, 92-675 -SPR, Aug. 25, 1992.

5 Mission to Planet Earth consists of programs and projects to better understand the biological, chemical, and physical processes that

influence and control the Earth’s environment. Monitoring, modeling, and analytic technologies are key was of technical development.

Carnegie Commission on Science, Technology, and Governmen4 Environmental Research and Development: Strengthening the Federal

lnfiastructure (New York NY: Carnegie Commissio~ December 1982), pp. 35-37, 115-129.

6 See Trade Promotion Coordinating Committee, Towarda National E~orf Strategy, Report to the United States Congress, Sept. 30, 1993,

p. 43.

7 Office of Conservation and Renewable Energy, Office of Industrial Technologies, Federal Agencies Active in Waste Minin”zation and

Pollution Prevention (Washington DC: U.S. Department of Energy, July 31, 1992); also The Massachusetts lbxics Use Reduction Institute,

Toxics Use Reduction Research Directory Owen, MA: University of Massachusetts Lowell, 1992).
Chapter 10-Research, Development, and Demonstration 295

initiatives. Recent and pending legislation call for

more commercial orientation of federally funded

environmental technology R&D (ch. 2), although

funding and implementation are uncertain.

Both the Bush and Clinton administrations

have taken steps to coordinate Federal R&D. At

the end of the Bush administration, a Subcommittee on Environmental Technology was established within the Committee on Earth and Environmental Sciences of the Federal Coordinating

Council on Science, Engineering, and Technology (FCCSET), an interagency group chaired by

the President’s science adviser.8 The Subcommittee is taking inventory of Federal environmental

technology R&D, and considering how it might

be better coordinated and ranked.9 Pursuant to

President Clinton’s 1993 Earth Day address, the

Commerce Department established an interagency

Working Group on Environmental Technology

and Trade, chaired by the Chief Scientist in

DOC’s National Oceanographic and Atmospheric

Administration (NOAA). The working group,

whose report was scheduled for release at press

time, addresses environmental technology development, diffusion, and exports. It is working

closely with the Environmental Trade Working

Group of the interagency Trade Promotion Coordinating Committee (see ch. 6). FCCSET’s Manufacturing Committee is also examining the place

of environmental factors in federally supported

manufacturing R&D.

The administration also established an Environmental Technology Initiative led by EPA to

foster links with the Department of Agriculture,

DOC, DOE, National Science Foundation (NSF),

National Aeronautics and Space Administration

(NASA), and other agencies. The Initiative seeks

to promote an interagency approach to identify

environmental problems and work toward potential technical solutions.10 EPA is still in early

stages of implementing the initiative. It remains

to be seen whether EPA will develop a systematic

and strategic process, involving other Federal

agencies and industry, to best target these funds.

Industry involvement is critical for identifying

the most relevant technological needs and opportunities for a specific industry, particularly cleaner

production technologies.

The FCCSET efforts and the export report are

being advanced by a high-level interagency

working group, formed by the Office of Science

and Technology Policy (OSTP) and other White

House offices. That group is working “with the

research agencies to ensure that all technology

programs, not just those focused on environmental technologies, are considering the environmental applications of the technologies they are

developing." 11 OSTP is developing an environmental technology strategy to guide near-term

and long-term Federal policies. Whether these

coordinating bodies can bring coherence to Federal policy for environmental

trade, and integrate regulatory

issues into the policy process,

question.12

technology and

and technology

is still an open

g < ‘Chmer: Subcommittee on Environment Technology, Committee on Earth and Environmental Sciences, Federal Coordinating CoUncil

on Science, Engineering, and Technology, ’signed by D. Allan Bromley, Chairman, Federal Coordinadng Council for Science, Engineering,

and Technology, Jan. 4, 1993. The Subcommittee includes, among other agencies, NSF, EPA, DOE, NASA, the U.S. Department of Agriculture

(USDA), and the Department of Health and Human Services (HI-IS).

9 John H. Gibbons, Assistant to the President for Science and Technology, Director, Office of Science and Technology Policy, testimony

at hearings before the House Committee on Science, Space, and Technology, Subcommittee on Technology, Environmen~ and Aviation, July

15, 1993, p. 8.

‘

0 Ibid.

11 Ibid.

IZ me fiesident, s Council on sust~mble Development might also address how to prioritize Federal environment~ tmhno108Y ‘ffons.
296 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

9 Public-Private and Private-Private

Cooperation

The usefulness of Federal environmental technology R&D to industry depends to a large degree

on the nature and extent of Federal/industry

cooperation. Such cooperation is largely limited

to some joint technology development at Federal

labs and some direct funding of individual firms.

DIRECT FUNDING OF INDIVIDUAL PROJECTS

One common model for Federal-industry interaction is for the Government to directly fund

specific industry projects proposed in response to

a Federal solicitation. In many cases, industry

must finance part of the research. A number of

programs follow this model. The National Institute of Standards and Technology’s (NIST) Advanced Technology Program (ATP) makes project specific grants for half of the cost of R&D. In

ATP’s first 3 years, NIST awarded $187 million

in grants; 7 percent was for "energy and environment."

13 Many DOE programs, including the

Clean Coal Technology Program, the Office of

Industrial Technology’s industrial waste minimization and energy conservation programs, the

Photovoltaic Manufacturing Technology Program,

and several other renewable energy R&D programs, also fund specific industry projects.

Such efforts can provide companies with funds

to conduct research on specific projects that might

be too risky to undertake alone. The programs

fund promising projects—whether proposed by

one firm or many. However, research by one firm

does not necessarily diffuse through the industry.

This is a drawback for many environmental

technologies, for which wide industrial participation is often a key to effective diffusion. Moreover, funding of individual projects may not be

enough to catalyze broader action on a longer

term research agenda.

FEDERAL LABORATORY TECHNOLOGY

COOPERATION AND TRANSFER

Since 1980, Congress has passed laws to

promote the transfer of technology from Federal

laboratories to industry .14 Mechanisms include

licensing of patents, industry use of laboratory

facilities, researcher exchange programs, research

for hire by companies, and research collaboration

between a laboratory and industry, either informally or through work agreements.

One kind of formal agreement is the CRADA.15

CRADAs have one major restriction: while the

partner may contribute both money and in-kind

resources (personnel, facilities, etc.), the lab may

contribute only in-kind resources. Because industry puts up resources, it is likely to support only

technology with commercial promise. This cooperative arrangement enables industry to tackle

risky, long-term, or expensive projects that it

might not be able to afford on its own. This

leveraging of a fro’s R&D resources is multiplied when the labs work with an industry

consortium rather than just one firm.

It is difficult to accurately determine how much

environmental R&D, including CRADAs, the

laboratories do. One survey of the labs reported

13 “T~~ologies Fuded by ATP: As a percent of $187 M Awarded: ATP Competitions 90-01, 91-01, 92-01,” chart in presentation by

George Uriano, NIST, entitled ‘‘The ATP: Current Status and Strategic Plan for Expansio~’ printed in Institute of Electrical and Electronics

Engineers, Inc., United States Activities, “1993 National Forum: Conversion Modernization% and Restructuring of U.S. Resources: Goals,

Strategies and Incentives: Proceedingraphs [sic]: June 29-30, 1993.”

14 See u.S. Con9e55, Office of Technology Assessment Defense Conversion: Redirecting R&D, OTA-ITE-552 (wash@ou ~: U.S.

Government Printing Off3ce, May 1993), pp. 97-99; U.S. Congress, Office of Technology Assessment, Making Things Better: Competing in

Manufacturing, OTA-ITE-443 (Washington, DC: U.S. Government Printing Office, February 1990), pp. 184, 193.

IS Con~es5explicit~y pe~tt~ CRADAS in 1986 for governrnent-oprated Feder~ laboratories and in 1989 for contractor-operated Federal

laboratories (e.g., DOE’s national labs). See Office of Technology Assessmen~ Defense Conversion: Redirecting R&D, op. cit., footnote 14.
—

Chapter 10-Research, Development, and Demonstration ! 297

environmental technology CRADAs and funding

for some labs, but not others.16 For example, the

Army’s Edgewood Research, Development and

Engineering Center reported spending $1.8 million and signing four environmental technology

R&D CRADAs in 1992. EPA reported having 50

active CRADAs in FY 1993, with over $5 million

of total Federal funding (although $3.1 million is

for a CRADA with Exxon for oil spill cleanup

research).17 Some of these CRADAs may be for

technologies not covered in this report, such as

climate modeling.

OTA found that of the 382 CRADAs signed by

DOE through April 1993, with Federal funding

totaling $321 million, 18 ($6 million) were in the

areas of environmental restoration and waste

management, and 68 ($24 million) were in the

areas of energy efficiency and renewable energy

(some of those, such as for superconductivity and

bulk power transmission technologies, are beyond the scope of environmental technologies

considered in this report).

18 DOE’s Office o f

Industrial Technology also relies on the DOE

laboratories to conduct joint research with industry on some clean technology and energy conservation technologies.

While CRADAs provide an opportunity to link

the government’s expertise in environmental

technology with industry-they have proven to be

cumbersome to negotiate, particularly at DOE’s

large weapons laboratories (Los Alamos, Sandia,

and Lawrence Livermore). 19

GOVERNMENT SUPPORT OF INDUSTRY

CONSORTIA

Perhaps the model that brings industry and

government in the closest partnership is government support of industry consortia. A well-known

example is SEMATECH, a government-industry

partnership to develop semiconductor manufacturing technology. Its industry members, including semiconductor manufacturers, contribute $100

million a year, matched by DOD’s Advanced

Research Projects Agency (ARPA), formerly the

Defense Advanced Research Projects Agency

(DARPA). While ARPA exercises some supervision over SEMATECH’s operations, industry

members are largely free to choose how to spend

SEMATECH’s budget. The conference report on

SEMATECH’s FY 1993 funding authorization

states that at least $10 million of the $100 million

in government funds ‘‘should be utilized for

development of pollution-preventing, environmentally safe microchip manufacturing processes. ’ ’20 SEMATECH believes that more than

$20 million of its calendar year 1992 R&D

spending met this requirement. This figure takes

into account both projects with environment as

the sole or principal motivation (e.g., alternatives

to the use of CFCs), and an appropriate share of

funding for projects with environment as a

subordinate motivation (e.g., efficiency improvements that reduce the waste generated).

The National Center for Manufacturing Sciences (NCMS), funded by industry and the

Federal Government, established its environmentally conscious manufacturing program in 1991

‘c “Cooperative Technology RD&D Report,’ Federal Technologies Profile Series, Profile 02: Federal Environmental Technologies and

R&D Programs, issues January 1993, vol. 3, No. 1 through June/July 1993, vol. 3, No. 6.

17 Discussion wi~ Larry Fdkin, Federal Technology Transfer Act Coordinator, EPA, Office of Research and Development, offla of

Science, Plannlng an(i Regulatory Evatuatiom October 1993.

I ~ Office of Techno]o~ Assessment, Defense Conversion. Redirecting R&D, op. cit., footnote 14, pp. 103-105 (en~ for ~tigso~ce

“ER’ m tables 4-1 and 4-2). The tables mistakenly report these amounts as $321,000 and $6,000. However, the amounts represented are

millions, not thousands, as indicated by the text on p. 103.

19 Ibid; a]SO Don Walkovicz, Executive Director, U.S. CAR, personal communication, J~e 18, 1993.

2° N:itiooal Defense Authorization Act for Fiscal Year 1993 [Public Law 102-484], Conference Repofi to Accompany H.R. 5006, House

Report 102-956, p 633.
298 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Table 10-2—R&D Consortia Formed by the

United States Council for Automotive Research*

1. Automotive Composites Consortium

2. Auto OII/Air Quality Improvement Research Program

3. United States Advanced Battery Consortium

4. CAD/CAM Partnership

5. High Speed Serial Data Communications Research and

Development Partnership

6. Environmental Science Research Consortium

7. Vehicle Recycling Partnership

8. Low Emissions Technologies Research and Development Partnership

9. U.S. Automotive Manufacturers Occupant Safety Research Partnership

10. Low Emissions Paint Systems Consortium

11. Automotive Materials Partnership

12. Supercomputer Automotive AppIications Partnership

● Items listed in boid type are concerned entirely or in substantial part

with environmental technology

SOURCE: United States Council for Automotive Research.

and developed a list of clean technology projects

where increased collaboration and sharing would

produce significant benefits. NCMS has funded

approximately 35 projects to date, about half on

ozone-depleting substitutes and solvent free alternative processes, and others on technologies

including sensor development for better process

control, plating emissions controls, reduced lead

use in electronics manufacturing, and waste

remediation. NCMS also established a program to

help companies build environmental concerns

into the design process.

The United States Council for Automotive

Research (USCAR), an umbrella organization

serving the big three U.S. automobile manufacturers (General Motors, Ford, and Chrysler), was

formed in June 1992 to promote U.S. automobile

manufacturing competitiveness, to monitor and

coordinate cooperative R&D efforts, and to recommend further areas for cooperation.21 Twelve

R&D consortia are under this umbrella (see table

10-2).

For example, the Low Emissions Paint Systems Consortium will conduct research on alternatives to reduce volatile organic compound

(VOC) emissions, including electrocoating, powderbased primers, surface coats, clear-coat paint

systems, and water-based base coats (see ch. 7).

Some consortia have Federal or State participation and funding, The Environmental Research

Consortium, for example, cooperated with the

Michigan Department of State’s Bureau of Automotive Regulations and U.S. EPA to evaluate the

effectiveness of remote vehicle emissions sensing

devices and to measure the impact of routine

maintenance on exhaust emissions.

The auto consortium with the most significant

government funding is the Advanced Battery

Consortium (ABC). Through ABC, industry funds

are matched equally by DOE money. Total

funding (industry plus DOE) for the ABC is $264

million. DOE’s share is spent primarily through

research contracts to participating companies;

also, five DOE laboratories have signed a total of

eight CRADAs with ABC.22

Although USCAR has not surveyed foreign

country participation in its consortia, it is reportedly not very large.

23 At times, however, participation of a foreign firm with a key technology is

deemed necessary. For example, the French fir-m

Saft Batterie is participating in ABC because it

holds the rights to a technology (lithium polymer

battery) that is necessary for the progress of the

project.

The Clinton administration recently announced

a partnership with the Big Three automakers

(through USCAR) aimed at strengthening U.S.

competitiveness, in part by developing technologies for a new generation of vehicles up to three

21 hp~,info~tionabout U.S. CAR comes from Don Waikovicz, Executive Director, USCAR, personal cornmunicatiou June 18, 1993.

22 ~ additio~ C~S~ a non-profit coIIsofi~ desi~ed to foster the development of an electric vehicle industry k Cdiforni% received $4

million in Federal funds under the 1991 Intermodal Surface Transportation Efficiency Act.

23 Don Wawovicz, op. cit., footnote 21.
Chapter 10-Research, Development, and Demonstration I 299

times more fuel efficient than today’s car. The

proposal relies heavily on the capabilities of the

national laboratories to conduct the research in

partnership with the automakers, and will be

managed by the Undersecretary of Commerce for

Technology.

Although not specifically intended to do so,

coordination among U.S. auto manufacturers

through US CAR has facilitated cooperation with

Federal entities such as DOE’s national laboratories. It is easier for those laboratories to work with

an industry consortium than individual fins,

because issues such as fairness and intellectual

property are easier to address. (U.S. subsidiaries

of foreign auto companies are not members of the

consortium.) USCAR estimates that the number

of CRADAs in which its consortia participate lies

somewhere in the teens.24

Several other industry technology organizations cooperate with the government on R&D and

demonstration projects.

25 The Electric Power and

Research Institute (EPRI) and Gas Research

Institute (GRI), which are supported by member

utility companies but receive some Federal funds,

are well-known examples. EPRI’s 1993 R&D and

demonstration plan includes $56 million for

management of air and water quality and utility

wastes; $30.4 million for improved energy-use

technologies (including electric vehicles); and

over $36 million for environmentally significant

nonnuclear energy supply and storage technologies. 26 EPRI also supports research germane to

manufacturing industry, in part to develop electrotechnologies. These include Brayton-cycle heat

pumps to recover solvents in air, reverse osmosis

for reusing water in the food products industry,

and thermal reclamation of foundry sand.27 GRI

budgeted $39.3 million for environmental R&D

in its 1993 plan, and much of the $64.9 million

allocated for gas-use technology R&D might also

be environmentally beneficial.28 The American

Water Works Association (AWWA), an organization of U.S. and Canadian water supply utilities,

funded about $6 million of R&D related to

drinking water quality and water conservation in

1993.29 The Water Environment Research Foundation of Water Environmental Federation (WEF)

funded approximately $2.6 million in research in

1993.30

EPRI, GRI, AWWA, and WEF all conduct or

fund R&D jointly with Federal and State agencies, member firms, and each other in order to

leverage their resources. As utility associations

(except for WEF, which also includes manufacturers and services providers), these organizations

may be better positioned to conduct cooperative

R&D than some other kinds of industry associations. This is because utility companies do not

usually compete directly against one another for

business. In other industries, disputes over sharing technical data and patent rights could be more

of an issue. However, such disputes may be less

2J Ibid.

‘s Individual utilities also conduct environmental R&D relevant to their own operations and to help their customers meet envumnmental

requirements. For example, Southern Co., an electric utility holding company, has funded the development of several electro-technologies

important to industrial customers.

z~ Electric power Research Instimte, Research, Development& Delivery Plan 1993-1997 (Pa10 Alto, CA: Electic Power Research ~timte,

January 1993), p. 21.

27 John Svobada, Foundry Techno/ogy--+in Overview (Pittsburgh, PA: The EPRI Center for Materials productio~ Carnegie Mellon

Research Institute, January 1991).

‘s Gas Research Institute, 1993-1997 Research & Development Plan and 1993 Research & Development Program (Chicago, IL: Gas

Research Institute, April 1992), p. 40.

29 J:mes F ~nwaring, Executive Director, American water works Association Research Foundation, perSOMl comm~catiom Sept. 21,

1993.

~0 water Environment Res~ch Foundation, 199.?-19$26 Research & Development Plan (Alexandria, VA: Water Environment Research

Foundation, 1992), p. 13.
300 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

prominent for environmental technologies, particularly add-on technologies, than for nonenvironmental product or process technologies

closer to core areas of business.

Some consortia receive little or no government

money, but could possibly serve as institutional

vehicles for government to support environmental technology. For example, the Center for

Waste Reduction Technologies of the American

Institute of Chemical Engineering, which includes most of the leading U.S. chemical manufacturers, spends over $1 million a year principally to support university-based and industrial

R&D on pollution prevention related to the

chemical industry. Research projects include

ultrafiltration, mass exchange networks, VOC

emissions recovery, and total water reuse. It

recently received a $25,000 grant from EPA to

promote the development and dissemination of

innovative pollution prevention technologies.31

The Center also promotes transfer of cleaner

technology to industry and supports educational

and training efforts in pollution prevention.

Through the Petroleum Environmental Research Forum (PERF), 24 petroleum companies

have privately funded a small number of environmental research projects, many addressing pollution prevention.32 Member companies can fund

specific projects. PERF projects so far have not

involved government funding.

Channeling government research funds

through industry consortia and associations has

several advantages. First, industry members are

more likely to know more about which of the

many technical options for addressing environmental matters have the most promise for commercialization. Second, industry consortia can

speed deployment of new technologies, due to

strong internal communication links. Third, consortia can help avoid duplication in research, thus

conserving funds. Fourth, working with a broad

coalition, the government avoids favoring individual fins. Finally, the consortium can own the

intellectual property developed on terms that give

all members access. This lessens the possibility

that the owner will not commercialize it or license

it to others.

1 Specific Agency Programs

DEPARTMENT OF ENERGY

DOE supports more than $1.3 billion in R&D

pertinent to environmental technologies covered

in this report; most focus on energy and remediation. See table 10-3 for a list of selected U.S. Government environmental technology programs.

Remediation and Waste Management—DOE’s

Environmental Restoration and Waste Management Technology Development program supports R&D to cleanup environmental contamination from DOE facilities such as those for

manufacture of nuclear weapons, and to manage

radioactive and other hazardous waste generated

at such facilities.33 Funded at $362 million in FY

1993, this is one of DOE’s largest environmental

technology R&D programs. Almost half the

funding goes to demonstration, testing, and evaluation of new technologies. Developing more cost

effective ways to clean up contaminated Federal

sites is likely to be a key Federal environmental

priority for many years to come-given the tens

of billions of dollars expected to be spent on this

Federal responsibility. While these technologies

have potential for use in other cleanup efforts in

the United States, foreign efforts for cleanup are

now much more limited than here. Even though

the need for cleanup in areas such as Central and

Eastern Europe and the former Soviet Union is

high, it is unclear the amount of effort that will be

devoted to this. Similarly, many developing

nations are placing a higher priority on prevention

31 At one the it WaS Slattxj to receive close to $500,000, but EPA reduced the ~@ avtible.

32 III 1$)92, 18 s~dies had been completed or were in progress, and 19 others were expected tCI bm shortly.

33 DOE M 3,700 kardous, radioactive, and mixed waste release sites, although many are quite stil.
Chapter 10-Research, Development, and Demonstration 301

Table 10-3-Selected Federal Programs for the Development of

Environmental Technologies

Public Funding

Program ($ millions) Period

Department of Energy

Clean Coal Demonstration Program 225 1994

Coal R&D pertinent to cleaner coala

142 1994

Solar and Renewable Energies 233 1993

Environmental Restoration Technology Development Program 362 1993

Energy Efficiency—supply and use (includes waste reduction) 316b

1993

Fuel Cells 51c

1993

National Industrial, Competitiveness through Efficiency

Environment, Energy and Economics (NICE3) 2 . 5

d

1993

Department of Defense

Defense Environmental Restoration Program

(DERP) Technology Program 26 1993

R&D in Environmental Compliance 129 1993

Strategic Environment R&D Program (SERDP) 170 1993

SEMATECH (supervised by ARPA)--environmental component 10e

1993

National Defense Center for Environmental Excellence 5’ 1992

Environmental Protection Agencyg

Superfund Innovative Technology Evaluation Program (SITE) 17 1993

Environmental cleanup (excluding SITE) 19 1993

Global change and air pollution 24 1993

Pollution prevention, exploratory grants, and special projects 16 1993

Water and waste management 18 1993

Other Departments/Agencies

Bureau of Mines -Environmental Technology 17 1993

National Science Foundation, environmental technology R&D 25h

1992

a Share of Coa[ R&D devoted to cleaner burning, more efficient coal combustion; does not include liquefaction.

b Includes funding on energy efficient bulldlng technologies, industrial technologies including WaSte r~uction,

transportation technologies.

c Addltlonal funds are spent on gas turbines and advanced en9ines.

d EPA also contributes a share of funds to the program.

e National Defense Auth~ri~ation Act for Fi~lYear 1993 [public Law 102-~4], Conference Report to Accompany

H.R. 5006, House Report 102-956, p. 633. At least $10 million is earmarked for environment; actual spending on

environmental R&D could be greater.

f NDCEE is a nonprofit organization separate from DOD.

9 EPA figure only includes activities funded through EPA’s R&D account. Ofthetotal listed, $39 million is for technology

related regulatory support acitivltes. Technology related regulatory support activities separately funded through media

offices are not included.

h Estimates derived from U,S Congress, Congressional Research Service, The Currenf State of Federal R&D

Envrronrnenfa/ Technology (Washington, DC: CRS, August 25, 1992).
302 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

and control of current sources of pollution than on

clean-up of contaminated sites. However, there is

growing concern in Western Europe and Japan

over contaminated sites.

Fossil Fuels--DOE’s Clean Coal Technology

Program (CCTP), started in FY 1986, aims to

develop and commercialize technology to burn

coal with increased efficiency and reduced emissions from its use, including through end-of-pipe

treatment and prevention. CCTP’s funding grew

to $415 million by FY 1992, making it DOE’s

largest program for environmental technology

R&D, and one of the largest such Federal

programs. The administration requested $250

million for FY 1994; funding beyond that year is

uncertain. CCTP is oriented toward commercializing technology for sale at home and abroad. For

example, it emphasizes demonstration projects,

some aimed at foreign buyers; a subprogram, the

Coal and Coal Technology Export Program,

emphasizes development of technologies with

export potential. In addition, DOE supports clean

coal R&D that is not directly linked to CCTP

demonstration projects ($141 million was requested in FY 1994). DOE R&D for improved

engines and turbines and for fuel cells could allow

fossil fuels to be used more cleanly and efficiently.

Renewable Energy—34DOE received $233 million for renewable energy R&D in FY 1993 ($327

million was requested for FY 1994).35 Most of the

money went to solar energy technology, including photovoltaics (PV), solar thermal energy,

biofuels, and wind energy. The rest went to

geothermal energy, electric energy systems and

storage, and hydropower. Funding of renewable

energy R&D has been quite uneven. It was

highest in FY 1979 ($1.24 billion in 1992 dollars)

under President Carter, at the height of the oil

crisis, much lower under Presidents Reagan and

Bush ($92 million in FY 1990 in 1992 dollars),

before recently rising again, as environmental

concerns increased and the Gulf War heightened

energy security concerns.

The National Renewable Energy Research

Laboratory in Golden, CO is the major Federal

renewable energy laboratory, although other DOE

labs, including Sandia and Los Alamos, have

long-standing renewable energy research programs. Several R&D programs jointly funded by

industry and DOE aim at improving commercial

prospects for solar, wind, and geothermal energy.

In 1992, the Photovoltaic Manufacturing Technology Program matched $20 million from seven

companies with $30 million of DOE funds to

improve PV manufacturing processes.36 The Photovoltaics for Utility Scale Applications (PVUSA)

program seeks to promote demand of PV technology by bringing together government, utilities,

and suppliers of PV systems and components to

field-test systems and identify initial utility markets. A multiyear $75 million program to lower

wind energy costs to 5 cents per kilowatt-hour by

the mid-1990s awarded its first $5 million (half

from industry, half from DOE) to eight companies

in late 1991 .

37 DOE funds geothermal R & D

jointly with industry.

The unevenness in Federal renewable R&D

funding has made potential investors wary, Although funding is now increasing, there is no

guarantee that it will not be reduced once again.

Energy Efficiency—DOE’s Energy Efficiency

(EE) (formerly called Conservation) budget for

R&D in FY 1993 was $316 million, including

$140 million for the transportation sector, $117

million for the industrial sector (including waste

34 Anotier OW proj~t, Renewable Energy Technology: Research, Developmentt and Commercial Prospects, due for completion in ~ly

1994, will examine this area extensively.

35 U.S. Dep~ment of Energy, Budger Highlights: FY /994 (Washington DC: DOE, APfi 1993), p. 31.

36 Wk c~wford, “seven Companies Awarded DOE Solar Grants, ’ Energy Daily, Apr. 24, 1992, p. 3.

37 “NREL hmches Solar Projects, ” Energy Daily, NOV. 4, 1991, p. 4.
Chapter 10-Research, Development, and Demonstration 303

DEPARTMENT

OF

ENERGY

Direct Current, Closed Furnace Silicon

INDUSTRIAL WASTE REDUCTION PROGRAM

Technology

;/

00 017

99 QQ

Silicon production technology demonstration supported by the U.S. Department of Energy, Office of Industrial

Technology. OIT supports the development of cleaner and more energy efficient industrial production processes.

minimization, discussed below), $53 million for separations, sensors and controls, and materials

the buildings sector, and $5 million for the processing. These programs constitute the major

utilities sector.

38 The FY 1994 funding request is Federal industrial clean technology effort. More-

$427 million. 39 Improving energy efficiency in over, unlike most other Federal and State clean

these sectors has the potential to make them both technology efforts targeted at the less-polluting

less polluting and more competitive. assembly and fabrication industries, much of

OIT’s effort addresses the more-polluting process

Waste Minimization—Pollution prevention ac- industries.

tivities at DOE are directed at reducing wastes at OIT’s industrial waste minimization program

both Federal weapons production sites and in was funded at $17 million in FY 1993, with

private industry. The latter effort is centered in expected funding of $23 million for FY 1994.

DOE’s Office of Industrial Technologies (OIT). Slightly over half is for waste reduction, while the

OIT focuses principally on energy conservation remainder is for waste utilization. Costs for

in industry, but also addresses waste minimiza- technology R&D are split evenly with industry;

tion, particularly in such technological areas as industry interest in participation exceeds supply

38 B~get of the united states Got,ertvnent, Fiscal Year 1994 (Washingto~ DC: U.S. Government Wttig Office, 1993), APP.-58O.

39 Ibid.
304 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

of DOE funds. Some of the projects involve

companies and DOE labs. For example, Hughes,

Boeing, IBM, Inland Technologies, Honeywell,

and other companies have CRADAs with Los

Alamos, Sandia, and Pacific Northwest Laboratories for supercritical CO2 cleaning. Six technologies have been commercialized so far, including

an ultrasonic tank cleaning process with Dupont

and Merck and a no-clean soldering process

developed by Motorola with Sandia and Los

Alamos National Laboratories. The program has

also investigated waste data needs and institutional barriers to pollution prevention, and has

conducted R&D needs assessments.

DOE and EPA jointly manage the National

Industrial Competitiveness Through Efficiency:

Energy, Environment and Economics program

(NIC E

3

), which provides small research grants to

develop technologies that save energy, reduce

waste, and improve competitiveness. Funding is

modest; $2.5 million was appropriated in FY

1993, but funding for FY 1994 is will likely

exceed $7 million, with most of the funds

provided by DOE. Other OIT programs have

pollution prevention aspects. For example, a

number of projects in DOE’s Metal Initiative

have significant environmental and energy efficiency benefits. DOE has provided over $25

million and the American Iron and Steel Institute

has provided over $7.6 million to develop direct

steelmaking that would eliminate the highly

polluting and energy-intensive cokemaking process. DOE’s Metal Casting Competitiveness Research Program supports two applied R&D centers, which are partly funded and administered by

industry. One of the projects involves reuse of

waste foundry sand. 40

The Energy Policy Act of 1992 (EPACT,

Public Law 102-486) authorizes DOE to expand

its industrial energy efficiency and waste reduction programs. For example, it authorizes a 5-year

program aimed at cost-effective pollution prevention in industry and a 5-year program on advanced

pulp and paper technologies. Several provisions

of the Act are directed at improving energy

efficiency in industry through advanced technology, thereby reducing adverse environmental

impacts of manufacturing. In addition, DOE is

investigating a more comprehensive role in promoting cleaner technology .41

Several factors limit the effectiveness of DOE’s

industrial energy efficiency and waste minimization programs. First, DOE has not integrated and

coordinated waste programs directed at industrial

problems and those directed at Federal weapons

facilities problems. The labs’ waste programs are

more visible within DOE than the industrial waste

reduction program efforts.

DOE’s energy conservation mission requires

its waste reduction projects to provide some form

of energy savings .

42 While other factors are

considered, such as wastes reduced, cost savings,

and resource use reduction, the emphasis on

energy savings may cause some high toxicity but

low volume waste projects to be overlooked or

left to other agencies such as EPA. EPA involvement in the program has been relatively limited,

although efforts to increase cooperation are being

attempted.

Finally, DOE funds projects principally with

individual firms or small groups of companies.

Even though some industry organizations have

worked with the program to identify technology

needs and solutions, the program has not funded

ongoing industry consortia to cooperatively develop clean technologies. As a result, widespread

industrial involvement and commitment has been

harder to attain. However, the program is inter-

~ “profitable Recycling, ” EPRIJournal, March 1992.

4] For example, see “National Clean Industry Initiative Lrnplementation PlaIL Draft, ’ U.S. Department of Energy, June 8, 1993.

12 Nation~ Materi~s Advisory Board, National Research Council, Industrial Waste Reduction and Utilization (W@hington ~: Natiomd

Academy Press, 1993).
Chapter 10-Research, Development, and Demonstration 305

ested in working more with consortia on industry

directed longer term projects. 43

DEPARTMENT OF DEFENSE

DOD has several environmental technology

R&D programs aimed at addressing the environmental impacts of its own activities, particularly

remediation of contaminated sites. The Defense

Environmental Restoration Program (DERP) provided about $26 million in FY 1993 to develop

technology to assess and clean up contaminated

DOD sites.

A program with broader relevance to industry

is the Strategic Environmental Research and

Development Program (SERDP), which supported $170 million of R&Din FY 1993. Created

by the National Defense Authorization Act for FY

1991,44 SERDP supports not only environmental

restoration and waste management R&D, but also

pollution prevention technologies. Technology

transfer is an explicit part of SERDP’s mission.

As SERDP is authorized to apply industrial

technology to DOE and DOD environmental

problems, the program could increase U.S. Government purchases of innovative environmental

technology from U.S. fins.

ARPA supports some environment-related R&D,

although it is unclear how much. In 1992 ARPA

issued a solicitation for up to $12.8 million in

clean technology projects related to defense

manufacturing. ARPA funds the government’s

share of SEMATECH as discussed above. ARPA

includes environmental technology as one of 11

broad R&D areas that it emphasizes in the

Technology Reinvestment program, which in

part attempts to put defense technology to commercial use. In particular, ARPA will emphasize

environmentally conscious electronic systems

manufacturing and environmental monitors.45

U.S. Air Force ion vapor deposition R&D. Although

most DOD environmental R&D is for remedial cleanup of contaminated sites, some work is dedicated to

developing advanced manufacturing processes that

lessen environmental impacts.

Many Army, Navy, and Air Force units dealing

with materials, construction, and maintenance

have pollution prevention R&D programs. Other

DOD technology development programs, including the Manufacturing Technology Program (MANTECH) and the Industrial Modernization Incentives Program (IMIP), include modest funding for

clean technology projects.

In 1990, DOD established the National Defense

Center for Environmental Excellence (NDCEE) a

private non-profit organization in Johnstown, PA,

to lead and support DOD facilities and the

associated industrial base in adopting pollution

prevention and addressing other high priority

environmental issues. NDCEE identifies, evaluates, demonstrates and transfers environmentally

acceptable manufacturing processes to its client

base and provides related information services.

Issues addressed included waste minimization,

air and water pollution control, and waste management and remediation. It also operates a

185,000 sq. ft. demonstration factory to perform

43 ~ pm, ~5 stem5 from ~~tiom in Fe&~ a~sition regulations governing contracts and from the fact Wt OIT does not have ~ds

set aside for unsolicited proposals.

44 ~bfic ~w 101-510,” sec. 1801 (a), ~~~~ at 10 USC. 2N1.2904.

45 ARPA, “RoWm ~omtionpac~e for Defense Technology Conversion, Reinvestment, and Transition Assistance, ’ h’iru. 10, 1993,

pp. A-1, A-4. The Technology Reinvestment project is an interagency project with ARPA as the lead agency.
306 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

process demonstrations, and training. DOD funded

NDCEE initially at $5 million a year, and

between 1994 and 1998 plans to provide $150

million.

ENVIRONMENTAL PROTECTION AGENCY

EPA’s expenditures for technology development are modest. The CRS study discussed

above

46 found that EPA was spending $330

million on R&Din FY 1992, but $240 million of

this was for monitoring, assessing health and

environmental risks, ecological assessment, and

university-based exploratory research. As shown

in table 10-3, EPA estimates that it spent $94

million on technology related activities funded

through its R&D account in FY 93. (This figure

does not include separately funded media program technology related regulatory support activities.)

As discussed in ch. 2, the Clinton administration has proposed a major increase in EPA’s role

in developing environmental technology. The

administration requested $36 million for fiscal

year 1994 and plans $80 million for fiscal year

1995 for an EPA-led interagency Environmental

Technology Initiative.47 Up to half (based on

Appropriations Report language) of first year

funding would be for R&D conducted through

other government agencies. But, EPA is still in

the early stages of developing a planning an d

decision process that involves other Federal

agencies as well as industry. The initiative is also

linked to administration objectives to reduce

impediments to technology development and to

support export promotion, and to U.S. Technology for International Environmental Solutions for

provision of technical assistance and adaptation

of U.S. technologies abroad.

EPA is focusing increased attention on the

relationship between regulations and technological innovation. An internal Innovative Technology Council has broad agency participation. An

outside advisory group to the EPA’s administrator, the Technology, Innovation and Economics

Committee of the National Advisory Council for

Environmental Policy and Technology, has produced several reports and recommendations on

the subject.

Most of the SITE program’s funds ($17 million

for fiscal year 1993) are for demonstrating

innovative remediation and monitoring technologies on Superfund sites. Technology vendors

operate the technology at their own expense, but

EPA bears the costs of preparing sites for the

demonstration, evaluating the results, and disseminating the information through bulletins,

48 The Municipal reports and electronic data bases.

Innovative Technology Evaluation program (MITE-

$1 million for fiscal year 1993) conducts similar

evaluations of innovative technologies for recycling or disposing of municipal solid waste. EPA

also conducts some R&D through CRADAs with

industry (see above).

EPA, along with other agencies, provide a total

of $15 million to Hazardous Substance Research

Centers at universities, for basic research, technology development, and technology transfer.49

While most of the centers concentrate on treatment and remediation, the Center for Clean

Industrial and Treatment Technologies at Michi-

~ Jok D. Moteff, The Current State Of Fe&ral R&D in Environmental Technologies, Op. Cit., fOOIIlOte 4, Pp. 4749.

47 Gibbom, op. cit., fOOtnOte 9.

48 U.S. Environmental Protection Agency, “The Superfimcl Innovative Technology Evaluation (SITE) Program: An Evaluation of Program

Effeetiveness” (Washington DC: EPA Sept. 1992), p. ES-1.

@ D~e w~, EPA Mce of Exploratory ReseacIL personal COIIllIluniUtiO14 Sept. 29, 1993.
Chapter 10-Research, Development, and Demonstration ! 307

gan Technological University partly addresses

pollution prevention.5o

EPA support for clean technology development is modest, but could grow as part of the

priority placed on pollution prevention by the

Administrator. EPA’s R&D program has focused

on developing tools for assisting pollution prevention implementation, such as opportunity

assessment guides and life cycle analysis techniques, and has evaluated pollution prevention

technologies. EPA’s Office of Pollution Prevention and Toxics manages a design for environment program that has developed collaborative

effort with specific small business sectors. (EPA

also has a series of ‘Green Programs’ focused on

voluntary adoption by industry of more efficient

lighting, computers, appliances, etc.)

Although not an EPA R&D institution per se,

the National Environmental Technology Applications Corp. (NETAC), a nonprofit corporation

affiliated with the University of Pittsburgh Trust,

was established by EPA to support environmental

technology commercialization. Starting with $9

million of initial EPA funding but now financed

through contracts with private, Federal, and State

clients, NETAC provides independent technology evaluation services, and offers technical,

marketing, and regulatory assistance to environmental technology innovators.

NATIONAL SCIENCE FOUNDATION (NSF)

CRS identified $36.6 million of NSF support

for environmental technology in FY 1992.51

Through a partnership with the chemical industry’s Council for Chemical Research, NSF established the Environmentally Benign Chemical

Synthesis and Processing program to stimulate

university pollution prevention research.52 The

program allocates only about $2 million annually

in research grants. Industrial participation in the

research is required.

In addition, some of NSF’s Industry/University

Cooperative Research Centers (I/U Centers) and

Engineering Research Centers (ERCs) investigate environmental technology. The I/U Center

for Hazardous and Toxic Substances includes

NJIT, Princeton University, Rutgers University,

and the University of Medicine and Dentistry of

New Jersey, and conducts research principally on

waste treatment and remediation. Rutgers also

houses a plastics recycling I/U Center.53 One

ERC based at the University of California at Los

Angeles is dedicated to research on hazardous

materials. The Advanced Combustion ERC at

Brigham Young University is another center

directly relevant to environmental technology.

Some I/U Centers and ERCs, while not focused

explicitly on environment, could contribute to

pollution prevention in areas such as improved

process monitoring, thin films, steelmaking, and

automation. For example, the Center for Process

Analytical Chemistry at University of Washington studies problems of chemical process monitoring and analysis. This area is important to

improved chemical process control and efficiency

and environmental performance.

OTHER AGENCIES

Several other agencies fund R&D for environmentally related technologies pertinent to this

assessment. They include the Department of

Commerce (including the activities of NIST

described above), NASA, and the Bureau of

Mines. Within DOC, at least three of the seven

NIST Manufacturing Technology Centers (MTCs)

provide technical assistance to help industry

address environmental concerns, including pollution prevention (see ch. 8).

W Some of tiese EPA Centers receive funds from other agmcies. For instance, the New Jessey Institute of T=hnolon ~~is Pm of ~~

an EPA center and a National Science Foundation Industry/University Cooperative Research Center for hazardous and toxic substances.

31 John D. Moteff, The Current State of Fe&ra[ R&D in Environmental Technologies, op. tit., foo~ote 4, pp. 3942.

52 Ivan Amato, “The Slow Birth of Green Chemistry,” Science, vol. 259, Mar. 12, 1993.

53 The New JHWy commission on Science and Technology also funds these centers.
308 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

STATE AND LOCAL PROGRAMS

Many States fund environmental technology

through broader technology programs designed to

commercialize new technologies and create jobs.

Often these programs fund technologies for

energy conservation and renewable energy. For

example, the New Jersey Corp. for Advanced

Technology was recently established to support

development and commercialization of environmental technologies. The California Environmental Technology Partnership is another example of a new State environmental technology

initiative. In addition, a number of States have

coal development programs, some of whic h

concentrate on clean coal technology.

Some programs provide a small amount of

support to small business for clean technology

R&D. California, Illinois, New Mexico, New

York, North Carolina, and Washington fund the

development of pollution prevention or industrial

waste recycling technologies. The programs concentrate on areas such as metals recovery in

plating, painting, and alternative cleaning. California’s South Coast Air Quality Management

District provides $25 million a year for a wide

variety of technology projects, including technologies related to reduced mobile source pollution

(e.g., electric cars, electrically heated catalytic

converters, natural gas vehicles) and pollution

prevention (e.g., low VOC coatings).

I U.S. Private Sector R&D

It is difficult to measure private-sector environmental technology R&D, partly because of the

definitional issues already discussed. Pollution

abatement R&D is only a small share of total

industrial R&D. According to the Commerce

Department’ s Bureau of Economic Analysis (BEA),

private environmental R&D amounted to about

$2.4 billion in 1991 (and $2.2 billion in 1990). 5 4

To make these estimates, however, BEA assumed

that the same ratio existed between total industrial

R&D and pollution abatement R&D in 1991 as in

1978, the last year for which this data was broken

out by media (e.g., air, water). The ratio of

environmental R&D to total R&D probabl y

declined between 1978 and 1991 ,

55 hence the

share of environment R&D in 1991 could be

less than the figures reported by BEA. According

to NSF, industry R&D for pollution control

(including product and process R&D and excluding energy-related R&D) was $950 million in

1990, or approximately 1.28 percent of total R&D

expenditures by industry.56 As discussed below,

industry estimates of pollution control R&D

(including product and process R&D and excluding energy-related R&D) are higher, suggesting

that perhaps as much as 50 to 100 percent more

than the NSF estimate is being spent.

The NSF data shows wide variation among

sectors. In the electrical equipment industry (SIC

36), which has relatively low environmental

compliance costs, pollution control R&D is less

than one-tenth of 1 percent of total R&D.

However, in the petroleum industry, which has

relatively high compliance costs, pollution control R&D in 1992 ($72 million) accounted for 3.4

percent of total R&D. In the pulp and paper

industry, which also has relatively high compliance costs, pollution control R&D ($18 million)

accounted for 2.4 percent of total R&D. Data

generated by industry associations indicate a

higher share of R&D arising from environmental

considerations. The American Petroleum InstiS4 Gw L, RUd~ge ~d ~L. ~~d, 4 ‘pollution Abat~ent ~d Control ~wndi~s, 1987 -91,’ Survey Of Current Business, May

1993, pp. 60-61. This compares with about $43 billion in 1991 total private sector environmental compliance costs, including R&D (table 7-l).

55 ~ lwge pm ~my~ due t. ~u~~Pn&~= (in com~t doll~s) by auto~ers on R&JJ [O reduce vehicle emissions. h 1978

(the last year data was separately available from NSF), automakers accounted for 55 percent of environmental R&D.

56 NSF ~~ ~@ ~pfiM~~t~ t. &@@ pollution abat~ent products or p~duct CmCteriStiCS or to designing pollution

abatement features into processes. Presumably, this would include R&D performed by environmental goods and services f-, clean product

R&D (e.g., reformulated gasoline), and cleaner process R&D performed by regulated industry (either end of pipe or pollution prevention),

National Science FoundatioIL Survey of Industrial Research and Development (Washington, DC: NSF, various years),
Chapter 10-Research, Development, and Demonstration 309

tute reports that the petroleum industry spent

$175 million on environmental R&D in 1990,

including an estimated $50 million on reformulated gasoline. Nonproduct pollution control R&D

amounted to about 6 percent of total R&D.57

Similarly, the pulp and paper industry reports

spending $32.3 million in 1990 on environmental

R&D (most nonproduct) or about 4.4 percent of

total R&D.58

Finally, one source concluded that industry

spends approximately 13 percent of R&D funds

on environmental technology, or roughly $10

billion; however, the conclusion apparently was

based on inaccurate interpretation of a survey by

the Industrial Research Institute (IRI). Pollution

control R&D is probably closer to the 1 to 2

percent figure .59

The limited evidence that is available suggests

that half or more than half of U.S. private

environmental R&D is conducted by regulated

industry rather than by environmental fins. It

appears that environmental firms as a whole are

less research-intensive than manufacturing as a

whole, which spends approximately 3.3 percent

of sales on R&D.60,61

Some estimates for environmental equipment

firms show R&Din the range of 1 to 2 percent of

sales. Research-Cottrell, an air pollution equipment manufacturer, spent between $3 and $5

million on R&D in 1992, or 1.1 to 1.9 percent of

sales. Members of the Manufacturers of Emission

Controls Association (MECA) expect to perform

R&D on catalytic converters and diesel falters

amounting to about 1.8 percent of sales of those

items.62 Ionics, a maker of membranes and falters

and a designer and builder of water filtration

units, spent 2.1 percent of sales on R&D. The

Institute of Clean Air Companies, which includes

both equipment and service providers, estimates

R&D at 3.2 percent of sales, based on a survey of

half of its 50 members. (For turnkey system

suppliers, the estimate was about 1 percent.)63

The 18 firms on the board of the Water and

Wastewater Equipment Manufacturers Association informally estimated that they spent about 4

percent of sales on R&D.64 Allied-Signal’s Engineered Materials Division, which produces environmental catalysts for vehicles and fixed sites,

spent $117 million or 4.8 percent of 1991 sales on

57 ~~is ~~ti t. tie ~~~ tie ~ly 1980s, when nonpr~uct env~onmen~ R&D in tie petroleum ref~ and extraction indus~

(SIC 13 and 29) accounted for approximately percent of total R&D. American Petroleum Institute, EnvironmentaZE~enditures of the United

States Petroleum Industry, 1975-19&$ (Washington DC: API, 1985); API, Petroleum Industry Environmental Peflormance, 1992

(Washington DC: API, 1992); National Science Foundation Survey of Industrial Research and Development, op. cit., footnote 56.

58 Natio~ Comcll of tie pa~r ~du~ for ~~d s~~ Improvemen~ kc., A s~~ey of pu/p and paper ]ndu.rtry Environmental

Protection Expenditures-1990 (New Yora NY: NCASI, October 1991).

59 Bfin Rushto~ ‘‘HOW Hotechg the Environment Impacts R&D in the Unitd SWteS, ’ Research Technology Management, May-June

1993, p. 13. The IRI sumey asks 246 fm to list the 10 process-related R&D areas expected to be the most important over the next 5 years.

Sixty-nine fms responded, listing an average of about 6 areas per fm. Of 416 total listings, 47 (1 1.4 percent) were in environmental areas.

Firms were also asked to report what areas the government should fund, and 13 percent of the responses were for environmental technology.

However, the responses do not allow inferences to be made about the relative importance of environmental R&D to fms or the amount spent

in industry. Moreover, even if the 11.4 percent figure represents the share of funds, it is as a share of process R&D, not total R&D, and would

total approximately $1.9 billiow not the $10 billion reported by Rushton.

60 uwubhsh~ ~~, Natjoti Science Foundation.

61 D~ me not av~~le on o~er ~tiom’ enviromen~ ~(j~~ R&D ~tens@. However, OEcll ~pofiti tht h 1981, the G~

pollution control industry was 33 percent more R&D-intensive than the rest of German indusby in terms of R&D spending per employee.

“Clean Technologies: A Dilemma For Industry,” OECD Observer, November/December, 1987.

62 MECA metiers exwct to spend $200 million in R&D related to these products “in the 1990s, ” and expect domestic sales of these items

to ‘approach $8 billion between now and the end of the decade, ” with foreign sales of $250 to $450 million a year. MECA press relwse titled

“Clean Air Act Spurs Growth of U.S. Motor Vehicle Emission Control Industry,” April 1993.

63 Jeff Smi@ Ex~utive Director, Institute of Clean Air Companies, pmSOXKd COmmtiUttiOU J~Y 21, l~s.

64 Dam fistoff, Water and WasteWater Equipment ~n~acmmrs Associatio~ pasod comIllUUkatiOIl, Jdy 12, 1993.
310 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

R&D, a high percentage for U.S. manufacturing. 65 Instrument manufacturers probably spend

more on R&D than other environmental equipment manufactures. Thermo Instrument Systems,

a subsidiary of Thermo Electron that manufacturers analytical and monitoring instrument widely

used in environmental applications, dedicates

nearly 7 percent of sales to R&D.66

Environmental service fins, including waste

management firms, appear to spend much less

than manufacturers. For example, Waste Management of North America (the solid waste subdivision of WMX Technologies) spent less than 0.25

percent of its $4.3 billion in sales on R&D in

1992. However, some other WMX divisions do

spend more for R&D and may transfer technology

to Waste Management.67 Some environmental

companies do not conduct formal R&D, but work

on product and service development with customers and suppliers. For example, Safety Kleen has

been working with other companies in developing

better chemical recovery and recycling processes

and alternative solvents, although there is no

formal R&D division in the company.

Small, R&D-intensive start-up firms might

spend more as a share of sales, although total

expenditures are likely to be small. These firms

are a source of new technology for larger firms

that often either acquire the firm or license the

technologies. Because of this, formal R&D expenditures by large environmental firms may

understate their efforts in obtaining new technology.

Assuming that the U.S. pollution control equipment sector has annual sales of around $30 billion

annually and that it spends 2.5 percent of sales on

R&D, and that the service sector (excluding water

supply, resource recovery, and environmental

energy sources) has sales of around $60 billion

and spends around 0.2 percent on R&D, then the

environmental industry sector would be spending

on the order of $750 million to $870 billion per

year on R&D. While this figure is just a guess, it

does suggest, together with the estimates above,

that regulated industry, as opposed to environmental firms, may conduct half or more of the

private environmental technology R&D in the

United States.

JAPAN

Within the Japanese Government, the Ministry

for International Trade and Industry (MITI) has a

lead role in supporting energy and environmental

technology R&D, although the Environment Agency

also funds a small amount (see table 10-4). Most

of MITI’s effort is managed by the New Energy

and Industrial Technology Development Organization (NEDO), a quasi-government organization

that funds industry R&D directly. The vast

majority of government support for environmental technology R&D is for energy technology, including renewable energy. MITI also

supports R&D for more productive manufacturing process technologies that also have related

environmental benefits. With the exception of

work to develop CO2 recovery technologies,

relatively little is spent on technologies related

directly to pollution control and waste remediation.

H Mill Programs

MITI’s Agency for Industrial Science and

Technology and its Bureau of Environmental

Protection and Industrial Location manage at

least two pertinent R&D organizations: NEDO,

and Research Institute of Innovative Technology

for the Earth (RITE). MITI’s involvement in these

programs could enhance potential commercial

65 step~n Lip- ‘‘U.S. lhv~n.men~ Companies’ Competitive Strate@s: Eleven Case Stu~” ccmtractor RPOrt -for tie

OfIlce of Technology Assessment, April 1993.

a Ibid.

67 For ~~ple, ~~l~~tor, a subsidi~ of WMX that develops and operates wastf3tm~, b PCdhN.ioxl CO-L~W@eWilter

treatment facilities, spent about 1.7 percent of 1992 sales on R&D.
Chapter 10--Research, Development, and Demonstration I 311

Table 10-4--Selected Japanese Environmental Technology R&D Programs

Ministry/program Funding ($ million)

Ministry for International Trade and Industry

New Energy and Industrial Development Organization (1993)a

Clean coal 85

Renewable energy 170

Energy efficiency 265

Environmental technologiesb 20

Research institute of Innovative Technology for the Earth (1993) 88

Agency for Industrial Science and Technology

Pollution control projects (1992) 10

Direct steelmaking (1993) 50

Environment Agency

Pollution control projectsc (1 990) 14

a ~~ *)o~~ingdir-r~at~ to environmental or environmentally related energy was included. Industrial

technology funding, coal resources development and industry rationalization, and production of alcohol was not

included.

b $~ miflim ~~et~for 91WI environmental projects, but $60 million was in turn allocated to R~E.

c ~ 1 ~.

NOTE: Exchange rate for 1993 is 110 yen_ $1; 1992120 yen_ $1, 1990145 yen_ $1. See table 10-1 for technologies

included in this table.

SOURCES: M310 and RITE, personal communication, October 1993; Agency of Industrial Sdence and Technology,

“program brochure” 1993; Research and Development Corp. of Japan, “National Laboratones and Public Research

Organizations in Japan” (Tokyo: JRDC, 1992).

benefit, and after new technologies are developed, MITI has the capacity to promote exports of

resulting goods and services. This can facilitate

technology transfer to developing countries

through MITI's Green Aid Plan, which is separate

from Japan’s general development assistance

program.

68

NEDO

NEDO, a quasi-government agency, governmentfunded and under MITI’s supervision, was established in 1980 in response to the 1979 oil shock

to promote the development of non-oil energy

technologies. As the central organization responsible for coordinating energy and some industrialrelated technologies in Japan, NEDO administers,

coordinates, and funds research, development,

demonstration, and testing of technologies related

to its mission. Much of the work is carried out by

industry through contracting, although the national laboratories play a small role. Governed by

a board of industry representatives, one third of

NEDO’s employees are corporate employees

assigned to the agency for 2 to 3 years, during

which time their salaries are paid by the government. 69

NEDO’s FY 1993 budget amounted to about

$1.76 billion. Approximately $255 million was

for clean coal and renewable energy technologies,

including solar, wind, geothermal, ocean energy,

alcohol, and biomass.70 A similar amount was for

energy conversion and storage technologies, including superconducting technology for electric

power, advanced batteries, ceramic gas turbines,

= s U.S. congess, Offii of Technology AS sessrnen~ Development Assistance, Export Promotion, and Enw”ronmental Technology

Backgrou.nd Puper, OTA-BP-ITE-1CY7 (%kMngtou DC: U.S. Government Printing Office, August 1993).

69 -A.Moore and Alan S. MiIler, The Technology Clearinghouse, ‘‘Environmental Technologies and Policies of Japa~’ contractor

report prepared for the Offk of Technology Assessment, February 1992, p. 24.

m ~~ communication with NErx3 officiaL Octobex, 1993.
312 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Tokyo Electric Power Company’s 11 megawatt

phosphoric acid fuel cell is the largest fuel cell

installation in the world. Most of Japan’s

environmental R&D concentrates on improving

energy technologies.

and fuel cells.71 Another $339 million was for

industrial technology, of which $77 million was

for environmental technologies ($60 million of

this went to RITE) .72

Because NEDO seeks to develop new energy

technologies to a level where private industries

can take over and commercialize them, it funds

both development and demonstration projects.

NEDO also supports several foreign energy

demonstration projects, principally in the AsiaPacific region, including fuel cells in Thailand

and photovoltaics in Australia.

Fuel cells have been a particular focus of

NEDO’s R&D. Fuel cells, which convert fuel into

electricity through chemical oxidation rather than

combustion, emit less pollution and are quieter,

more compact, and more energy-efficient than

combustion engines. Thus, some believe that they

will become an important source of electricity in

the next century, both in central generating

stations and in smaller applications that use both

the electricity and the heat generated by the fuel

cell. Vehicle applications are also possible.73

NEDO has funded many fuel cell demonstration

projects, including a 4.5-megawatt generator built

for Tokyo Electric Power Co. in the early 1980s,

and an 1 l-megawatt unit-the world’s largest—

put into operation in 1990.74

The industrial technology program is oriented

toward developing advanced technologies that

are of use to industry but ‘have high development

risks and require long lead times. ’ ’75 Most of

these projects, such as new materials, precision

material processing, biotechnology, manufacturing technology, and medical equipment, are in

areas not directly related to the environment.

However, because advanced industrial process

technologies will become increasingly important

in pollution prevention, a number of the projects

will have environmental implications. For example, large scale advanced chemical processing

technology for high purity separations processes,

research on ion implantation of metals, and high

temperature materials for heat exchangers have

potential to lead to cleaner production processes.

Because of an increased concern for global

environmental problems, NEDO’s industrial technology mission was expanded in 1990 to include

technology that protects the global environment.

To facilitate this work, RITE was established to

fund and conduct research in this area, as a

foundation more oriented to the private sector

than NEDO (see below).

Many of NEDO’s energy and environment

programs were grouped into the Sunshine Project

(developing new and renewable energy sources),

the Moonlight Project (energy conservation), and

the Global Environmental Technology Program;

now, all three are rolled into the New Sunshine

71 ~0, Research um. il)evelopmertt Project Plansfor FY 1992 [1] ~kyo: ~~, 192).

72 me ~e~d~ ~m for ~on.env~omen~ly re~~ cod tec~ology d~elopm~t and NO s~arate NEDO missions, rationalization of

the cmal industry and production of industrial alcohol.

73 me went ~inton atismation initiative to produce a clean car CX@MS* fiel w~s.

74 MS A. M~re and Alan s. ~~er, “Enviro~~~ TW~OIO@W and policies of Japan, ” op. Cit., fOOfIIOte 70.

75 NEDO, op. cit., footnote 71, p. 7.
Chapter 10--Research, Development, and Demonstration 313

Program, with a planned budget equivalent to

$13.6 billion over 27 years, from 1993 to 2020 (an

average of $500 million per year).76 This program

aims in large part to reduce carbon dioxide

emissions, and thus contributes to MITI’s New

Earth 21 Concept, a 100-year plan to reduce and

stabilize carbon dioxide emissions.

RITE

RITE is a public foundation which is commissioned by MITI, related prefectures, and the

private sector to fund and conduct R&D, most of

it related to global warming.

77 With a budget of

$88 million in FY 1993 (about two-thirds provided by NEDO) RITE funds environmental

projects, the largest being carbon dioxide separation, recovery, and fixation technologies, and

CFC-substitutes, particularly non-CFC refrigerants.78

RITE projects typically involve a large number

of corporate partners. For example, a project to

increase use of scrap in steelmaking involves nine

of the largest Japanese steelmaker as well as the

Japan R&D Center for Metals. Industry researchers work on RITE projects for about 2 years; they

remain at their firms, which continue to pay their

salaries, but are given the title of ‘‘RITE researcher and matching funds to support the

research. RITE also makes matching grants for

research by firms, universities, and other nonprofit organizations ($12 million FY 1991).

International participation in RITE projects is

encouraged, although only one such project (with

Italian collaborators) is underway.

OTHER MIT! GROUPS

Some MITI institutes and laboratories conduct

a small amount of environmental technology

R&D. 79 AIST administers the National Institute

for Resources and Environment (NIRE), partly

dedicated to environmental technology. Other

laboratories, including the National Institute of

Materials and Chemical Research and the Government Industrial Research Institute, conduct

some work on environmental technology. In 1992

AIST supported 40 pollution control projects at

laboratories, spending the equivalent of $9.4

million .80 However, funding for these projects has

declined by approximately half (unadjusted for

inflation) since its peak in the 1970s. AIST has

helped organize several private research consortia

to work with its laboratories on environmental

technology, including biodegradable plastics and

emission reduction methods. AIST is spending

$425,000 in FY 1993 to develop an eco-factory

concept, essentially industrial processes to facilitate disassembly and recycling of manufactured

goods. 81 Finally, AIST Spent approximately ’50

million in 1993 on a project to support development of direct ironmaking.

Another MITI agency, the Agency of Natural

Resources and Energy (ANRE), funds relevant

research, sometimes in coordination with AIST.

For instance, both AIST and ANRE support clean

coal and advanced combustion R&D. The Electric Power Development Corp., Center for Coal

Utilization Japan, and the Central Research Institute of Electric Power Industry (Japan’s equivaT6 person~ Cornmunlcation with NEDO official, October, 1993.

77 “RITE: Rese~ch Institute of Innovative Technology for the Earth, ” program pamphlet, ~dated.

78 sma~er projectsinclude:biorea~tion~roces~es(0 produce ch~c~s; ca~ys~ ~pable of reducing unwant~ byproducts k chemical

processing; biodegradable plastics; steelrnaking processes capable of using larger amounts of scrap with less energy consumed; and catalytic

NOX removal from combustion. New Energy and Industrial Technology (lrganizatio~ The lnnovafi”on of New T’echnoZogy (Tokyo: NEDO,

October 1992).

79 MITI, “AIST: Agency of Industrial Science and Technology, ” program brochure, 19%.

80 *’MST ~oz Indus~ial pollutlon R&D @tl~~,” as cited in Foreign Broadcast Information Semice, JPRS Report: Environmental

Zssues, JPRS-TEN-93-025, Sept. 21, 1992.

81 Hisayoshi Sate, “Ecofactory--Concept R&D Themes, ” New Technology Japan, FY 1992, special issue published by the Japanese

External Trade Organization, 1992.
314 ! Industry,

lent to EPRI)

supervision.

Technology, and the Environment: Competitive Challenges and Business Opportunities

are organizations under ANRE’s

AIST has also supported at least two large scale

research projects related to environmental technology. 82 Between 1966 and 1971, AIST spent

approximately $55 million (1992 dollars) on the

desulfurization project, in large part focused on

development of technology related to efficient

removal of SO2 contained in exhaust gases from

power plants and other large-scale combustion

sources. As discussed in ch. 5, the Japanese are

now strong competitors in this technology. More

recently, AIST spent approximately $70 million

between 1985 and 1990 on the Aqua Renaissance

project to develop new technologies for treatment

of wastewater. Technologies included microorganisms and high-performance membranes. However, technologically this project did not appear

successful and did not achieve its technical

objectives.

83 However, interaction between Participating companies was facilitated and some of

the project teams generated commercially useful

equipment.

Environment Agency and Other ProgramsJapan’s Environment Agency funds research in

national research institutes and government ministries. In FY 1990 the Environment Agency

funded the equivalent of $13.8 million of R&D in

45 research institutes and 13 ministries. This

included work on traffic pollution by the National

Police Agency, SO2 and NOx sensors by the

Science and Technology Agency, and nonpolluting ship hull painting by the Ministry of

Transport.

The Japan Sewage Works Agency supports

research and technology development ($5 million

in FY 1991) in sewage treatment technologies,

including advanced wastewater treatment, sewage sludge handling, and small-flow wastewater

technologies. 84 Finally, the Clean Japan Center, a

quasi-public organization, funds demonstration

of recycling and resource recovery technologies.

EUROPEAN PROGRAMS

In Western Europe, environmental technology

R&D is supported and encouraged at different

governmental levels. The European Commission

(EC) supports and encourages cross-border R&D

collaborations through the Framework program,

while over 20 European countries, including the

EC, are involved in the Eureka program. Both

programs support environmental technology.85

Some countries, including the Netherlands and

Germany, have substantial environmental technology R&D programs. In all of these cases,

environmental technology R&D is supported as

part of a broader competitiveness strategy.

1 International Programs

EC PROGRAMS

The EC funds some R&D, primarily to increase

industrial competitiveness.86 The R&D is international in character, either involving a central EC

82 The ~ge Scale ProgTam was develo~d by MrTl in 1966 to provide government support for l~ge teCbOIOgy prOJeCtS of pti~m

national importance. MI’r I’s 5th generation computer project is an example.

83 C. Judson King et. al., J’TEC Panel Report on Sepurafi”on Technology in Japan (Baltimore, MD: Japanese TeckoIogy Evaluation Cmter,

Iayola College, March, 1993), p. 141.

84 Reseal-ch and Development Corporation of Jap~ “National Laboratories and Public Research Orgatitions in Japan’ (Tokyo: ~,

1992).

85 For ~ more complete discussion of EC t~hnology and industrial policy see U.S. Congress, OfflCe of Techology Assessmen4 ComPetin8

Economies: America, Europe, and the Pacific Rim, OTA-ITE-498 (Washington, DC: U.S. Government Printing Office, October 1991), ch. 5,

especially pp. 209-226.

13S See Commission of the European Communities, EC Research Funding (3d ed. 1992), pp. 3-8. EC-level support ~S increased from 2

percent of the civil R&D budgets of EC member states in 1980 to 5 percent in 1990. Ibid., p. 10.
— ..-

Chapter 10-Research, Development, and Demonstration 315

Table 10-5-European Community R&D Programs Supporting

Environmental Technologies

Estimated annual spending Estimated percent

on environmental of funds costtechnology ($ million) shared with

Years industry or

covered total per yeara

other partiesb

Framework programs

Non-nuclear Energiesc

1991-1994 290d

85 86

Environment 1991-1994 170 50 59

Measurements and Testingf1992-1994 20 6.5 36

Other programs

Thermie

(energy technology demonstration

and dissemination projects) 1990-1994 NA 170 100

a Thermie figure is for 1993, For the other programs, the figure shown is the total figure in the previous column, divid~

by the whole or fractional number of years the program is in effect. Two programs started mid-year: Non-nuclear

Energies (Sept. 9, 1991), and Environment (July 16, 1991).

b For the program as a~ole (not just the environmental technology part). For the Framework Pm9ramS! this ‘timate

assumes that the revisions in Council Decision 93/167/Euratom, EEC, Mar. 15, 1993, printed in Officia/Journa/otthe

European Communities, vol. L 69/45 (Mar. 20, 1993), which kept Framework’s total Joint Research Center funding

constant, also kept the Joint Research Center funding constant for the specific programs listed. This estimate also

assumes that 87 percent of the non-Joint Research Center funding for each program is for cost-shared research (87

percent is the approximate Framework-wide average).

c This program’s predecessor Was JOULE.

d Iwludes an estimated $37 million out of a $61 million sup@ement to Framework energy prOgl’SmS.

e This program’s predecessor w= STEP/EPOCH.

f ~is prqram)s predecessor was ‘CR.

NOTE: The figures for spending on environmental technology are rough estimates: OTA estimated the share of each

program devoted to the environmental technologies within the scope of this report, based on the EC’s program

descriptions containing limited or no budget breakdowns. The following shares were used: 95 percent of Non-nuclear

Energies, 30 percent of Environmental, 10 percent of Measurements and Testing, and 80 percent of Thermie. See table

10-1 for technologies included in this table. An approximate exchange rate of 1 ECU -$1.22 is used. “NA” denotes not

available.

SOURCE: Office of Technology Assessment. Estimates based on Commission of the European communities, EC

Research Funding (3d ad., January 1992); EC Council decision of Mar. 15, 1993, 93/167/Euratom, EEC, printed in

Officia/ Journal of the European Communities, vol. L 69/45 (Mar. 20, 1993) (increasing funding levels); EC Council

decisions establishing particular programs.

facility or collaborations involving entities from administered by all of the EC’s Directorateat least two member states.87 (See table 10-5.) Generals, in practice Directorate-General XII

Much of the EC’s R&D is conducted through (Science and Technology) plays the lead role.

its Third Framework program, an umbrella R&D Within Framework, the program for non-nuclear

program with a total budget of $8 billion, energies provides the majority of funds for

generally covering mid- to late 1991 through the environmental technology (an estimated $85

end of 1994.88 While this program is jointly million annually). The program supports renew87 The EC seeks projects tit can be pfo~ed more efficiently at the EC level. Ibid., p. 7. To some extent, the EC considers cross-border

collaboration as also a good in itself (independent of competitiveness effects), because it promotes the EC’S economic and social cohesion.

88 Fo~ally, the Third Framework Program covers 19W1994. However, mOSt Of tie Progams b eeame effective during the third quarter

of 1991. See Commission of the European Communities, EC Research Funding, op. cit., pp. 69-100. The Third Framework Program overlapped

with the Seeond Framework Program during all of 1990 and 1991, and will overlap with the Fourth Framework Program during all of 1994.
316 [ Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

able energies, including solar, biomass, and

geothermal; fuel cells; more efficient industrial

processes; more efficient energy generation from

fossil fuels, including fluidized bed combustion;

and CO2 recovery technologies. Much of the

environmental technology program focuses on

climate monitoring, modeling, and environmental

and socioeconomic assessment, areas not considered in this report. However, a share of the

program concentrates on environmental technologies directed at reducing pollution (estimated at

$50 million annually). For example, the program

supports some research on technologies for treating toxic wastes and cleaner production technologies,

Some other Framework programs (not listed in

table 10-5) incorporate environmental considerations into their goals. For example, the program

for industrial and materials technologies reports

that ‘‘environment aspects of products and processes’ are included as a ‘‘strategic element. . . in

all parts of the program.”89 That program is, for

example, coordinating consortia to develop environmentally preferable polymers, e.g., biodegradable plastics.

Framework spending is heavily oriented to

helping fins, universities, and research institutes. About 80 percent goes to cost-sharing R&D

done by such entities.90 Projects must be in a

“pre-competitive" stage (prior to industrial development).91

EC’s Thermie program, administered by Directorate-General XVII (Energy), funds energy technology demonstration and dissemination projects

(an estimated $170 million in FY 1992). Thermie’s goals are to improve efficiency in energy

production, distribution, and use; promote renewable energy technologies; develop cleaner ways

to use coal and other solid fuels; and develop

technologies for oil and gas exploration, transport, and storage. Thermie will fund up to 40

percent of the costs of a first full-scale demonstration, and up to 35 percent for further dissemination of technology already demonstrated.92 For

example, Thermie made an initial award of$183

million toward a demonstration of Integrated

Gasification Combined Cycle (IGCC) electricity

cogeneration technology providing low emissions of SO2

, NOx, and CO2. Six electricity

companies (four from Spain, and one each from

Portugal and France) were to build a plant in

Spain. The project called for a demonstration

period during which many types of coal would be

tested, after which the plant would operate on

locally available coal.93

EUREKA

Like the EC’s Framework Program, Eureka

aims to promote competitiveness through crossborder collaboration. Eureka is driven less by

government policymakers and more by participating firms and universities, and projects do not

have to be precompetitive. Public funding for

Eureka projects comes from national governments. However, in addition to funding, Eureka

provides its research participants with access to

financing sources and to national and international bodies that make standards or promulgate

regulations that could affect a project’s commercial success.

89 Coucil Decision of Sept. 98, 1991, ‘‘adopting a s~ctilc Pmg amrne of research and technological development in the field of industrial

and materials technologies (1990 to 1994), ” 91/506/EEC, pubLished in Oji”cia/ .lournal of the European Conununifies, No. L. 269/30, Sept.

25, 1991. (See p. 269.)

90 Comission of the European Communities, EC Research Funding, op. cit., pp. 24-25. For firms, the EC normally pays 50 pmcent of the

cost including overhead; for universities, the EC normally pays the entire additional costs related to the researc~ excluding overhead and most

salaries.

91 Ibid., p. 41.

92 Commission of the Europ~n Communities, Directorate-General XVII-D, “Thermie” (brochure, not dated).

93 ~id. ne Commission is funding the development of an electricity generation technology which reduces C02 emissions by 20%. “Press

Release”, Dec. 5, 1991.
Chapter 10--Research, Development, and Demonstration 317

Table 10-6—German Federal Environmental Technology R&D Spending, 1992

Environmental

technology Total Percent of

portion BMFT funds BMFT funds

(estimate) a

as percent of cost-shared

Budget category ($ million) total funds with industry

Environmental technology excluding energy 230 68 36

Renewable energy and energy efficiency 250 100 31

Fossil fuels (includes clean coal) 47 100 39

a OTAIS estimated the Share of R&D spending on environmental technologies covered in this WpOd based on program

descriptions without budget breakdowns. The following percentages were used: 100 percent of renewable and

energy efficiency; 90 percent of environmental technologies; and 60 percent of fossil energy.

NOTE: Exchange rate used: $1 = 1.5617 DM. International Monetary Fund, International Financial Statisths, March

1993, p. 236. See table 10-1 for technologies included in this table.

SOURCE: OTA, based on the German Federal Ministry for Research and Technology (BM~), Bundesbericht

Forschung 1993 (Bonn: BMt7, July 1993), pp. 71-72 (table 11/5), pp. 74-75 (table n/6), pp. 97-98 (table 11/16), pp.

172-177.

In 1992, Eureka had 562 ongoing projects, with

a total value of $10.8 billion. Of these, 130

projects, with a total value of $1.2 billion, were

classified as environmental. Of these, 29 projects

are for cleaner production processes; other categories include environmental monitoring and

waste water treatment. Some of the environmental projects are beyond the scope of environmental technologies treated in this report, such as

restoration of ancient monuments, and a $250

million project in atmospheric science.94 A n

additional 23 projects, with a total value of $610

million, were classified as energy technology. Of

these, two were for more efficient power plants,

eight for efficiency in energy use, and seven for

renewable energy (including five on photovoltaic

cells). The rest were for fossil fuel exploration and

transportation applications, beyond the scope of

this report.

I National Programs

GERMANY

The German Federal Government spent an

estimated $230 million for environmental technologies, $250 million for renewable energy and

energy efficiency, and $47 million for clean coal

in 1992 (see table 10-6). Virtually all of the

energy-related funding, and most of the rest, went

to the Ministry for Research and Technology

(BMFT), whose central mission is promoting

industrial competitiveness .95

Germany attempts to link technology development to technology needs, based on regulatory

targets. Many of the energy and environmental

technology projects involve applied research and

development, as opposed to more basic research.

Roughly a third of BMFT’s funds go for costsharing industrial R&D. BMFT funds technologies for prevention, control and cleanup. Areas of

prevention research include optimization of processes, CFC-substitutes, no-chlorine pulp bleaching, and utilization of industrial wastes, including

reprocessing of waste acids, alkaline solutions

and salts. BMFT also funds air and water treatment technologies. In the past, BMFT supported

research directed at removing inorganic pollutants from exhaust gases, including flue-gas desulphurization, denitrification, and fluidized bed

combustion. Increasingly, BMFT focuses on

technologies for removal of organic contami94 Eureka 1992: Annual Progress Report 1992, pp. 4. ~ ~.

95 Germany’s ~der (s[ates) f~d some environment-rela[ed R&D, but figures are not readily available.
318 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Table 10-7—Environmental Technology Budget for Selected Programs

in the Netherlands, 1992 ($ million)

Research and development

- Innovation-oriented Environmental Technology Research Programme $6

- Program to promote environmental technology In industry 21

- Scheme to Promote the Development of Environmental Technology 8

- National Research Programme Into the Re-use of Waste Substances 4

- Water pollution technology 6

- Energy saving/substainable energy/NOVEM programmed 58

- Cleaner exhaust gases 2

Subtotal 105

Dissemination

- Environment & energy advisory scheme 2

- General provision of information to environmental technology 1

Subtotal

Demonstration/Application

- Hydrocarbons 2000

- Accelerated depreciation for innovative environmental technology

- CFC action programme

- Grants scheme for clean and low noise lorries and buses

- Various demonstration schemes to reduce nitrogen oxide emissions (NO,)

- Tender for industrial energy saving

- Scheme for an environmental premium for wind energy

- Investment subsidy for wind

- Subsidy scheme for demonstration projects

- Investment subsidy energy saving techniques

3

6

47

4

53

12

18

1

18

3

103

Subtotal 265

Total 373

NOTE: Exchange rate used: $1 -1.7 guilders. See table 10-1 for technologies included in this table.

SOURCE: Technology and Environment (The Hague, the Netherlands: Ministry of Economic Affairs, Technology

Policy Directorate, April 1991).

nants, including selective high performance absorbents, catalytic systems, and biofilters.96

NETHERLANDS

The Netherlands relies heavily on incentives

and subsidies to industry to help them meet

environmental requirements, Spending on technology development is significant, given the

small size of the country. In 1992, the government

spent an estimated $375 million on environmental technologies covered in this report. If

multiplied on a per-capita basis, this would be

equivalent to over $6.7 billion in the United

States97 (see table 10-7). Moreover, relative to the

United States, a greater share of this spending is

devoted to environmental technologies, as opposed to energy, and about half of funding on

environmental technologies advances pollution

prevention.

The National Environmental Policy Plan (NEPP)

and NEPP Plus, environmental strategic plans for

the Netherlands, have as objectives reducing

emissions of pollutants to between 10 and 30

percent of their 1985 levels by the year 2010. The

% Feder~ Ministry for Rese~chand Technology, Environmental Research and Technology, Programme 1989-1994 (Bonn: BMFL 1989).

W me Ne~erl~ds has a population of approximately 14 million people, about 1/18th of the size of the U.S. population. Totaf environmental

technology expenditures, including on environmentally sound agricultural technologies, exceeded $500 miUion.
Chapter 10-Research, Development, and Demonstration 319

Dutch Government believes that a key factor in

meeting that goal will be the development and

diffusion of environmental technologies. Toward

that end, the Economic and Environment Ministries developed a plan, Technology and Environment, to lay out technology goals and objectives.

A key feature is close cooperation between

government and industry sectors. The environment ministry has appointed a liaison director for

each of several industrial sectors with significant

impact on the environment, such as steel, chemicals, paper, and agriculture. Representatives from

the targeted industry sectors meet with representatives from several government ministries. The

meetings are used to apportion responsibilities for

carrying out the plan, developing a schedule,

working out government assistance, and establishing organizational provisions for cooperation

and management. A similar joint process is used

to develop a strategy to address specific problems, such as waste stream reduction. These

collaborative processes help identify technology

needs and opportunities. The Sustainable Technology Development program, funded at $2.9

million a year by five agencies, was developed to

promote the integration of environmental goals

into longer term technology development (discussed above),

The plan also features programs to promote

development, demonstration, and diffusion of

environmental technologies, including cleaner

production technologies. A number of these

programs are run by the Netherlands Agency for

Energy and the Environment (NOVEM), a quasipublic organization created in the early 1980s to

develop and promote energy conservation technologies. Its mission was recently expanded to

include environmental technology. NOVEM is

governed by a board with representatives from

industry, government, and academia and therefore has close ties to industry. Government’s role

tends to be limited to policy, strategy, and

funding; industry tends to choose and structure

individual projects.

The environment ministry manages the Stimulation of the Development of Environmental

Technology program, which provides $7.6 million per year to industry and research institutions.

About half supports development of cleaner

technologies; the other half supports end-of-pipe

technology development. Roughly 80 percent of

the Ministry of Economic Affairs’ environmental

technology grants ($20.6 million a year, averaging $750,000 per grant) goes to manufacturing

firms to develop technologies that solve environmental problems, including remediation, monitoring, recycling, and packaging. Industry must

pay 60 percent of project costs. The Innovationoriented Environmental Technology Research

program funds researchers at universities and

institutes in the fields of environmental biotechnology, recycling and pollution prevention.

The Dutch Government supports demonstration of environmental technologies, with about

half of these funds committed to demonstration of

pollution prevention technologies.98 The Ministry of Housing, Physical Planning, and Environment supports demonstration projects for new

environmental technology. In addition to initial

demonstrations, the government cofunds some

subsequent demonstrations as the costs decline.

For example, the government picked up about

half the cost of the first flue gas desulfurization

project in Holland (total cost was equal to $61

million) .99 The second project cost $28 million,

with government paying one-quarter. Subsequent

projects were much less (about $14 million) and

had no government support. Demonstration subsidies support other technologies, including wind

power and solar power.

The Netherlands also provides accelerated

depreciation for environmental technologies that

98 Discussion with environment ministry official, December 1991.

5’9 The firm that did this, Esmil (part of the Hoogovenes Steel Works), licensed the technology from Japan and is now selling the tmhnologY

in other countries, such as Spain. (Interview with environment minishy official.)
320 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

have been proven technologically sound but are sonic cleaning, and low-NOX boilers. For the

not yet widely used or required by regulation. technologies on the list, companies may write off

Through negotiations between the Environment the cost of purchases in 1 year rather than the

Ministry and industry, about 120 technologies usual 10. When a technology is used in sufficient

have so far been chosen, including ultrafiltration volume to bring down the price, it is taken off the

membranes, catalytic oxidation devices, ultra- list.
Appendix A: Effects of

Environmental

Regulations on

Economic Growth:

A Review of Research

A

ttempts to assess the impacts of environmental regulation on the economy-including trade flows and foreign investment, Gross

Domestic Product (GDP) growth, and productivity—have been going on at least since the early

1970s, These studies differ in methodology, assumptions, and conclusions. This appendix reviews some of

the studies.

I Effect on

The effect

economy and

GDP and Social Welfare

of environmental regulation on the

social welfare hinges principally on

whether the benefits of regulation outweigh the costs.

Unfortunately, few studies have included the benefits,

primarily because while estimates of compliance costs

are readily available, estimates of benefits are not. 1

Several studies have attempted to evaluate the

impact of environmental regulation on GDP. Most

studies find that while environmental expenditures

may increase economic growth in the short term,

particularly in recessionary periods when economic

stimuli are needed, this stimulus is out-weighed by the

costs in the medium and long term.2 Production cost

increases lead GDP-producing activities to grow more

slowly because an increased share of economic activity

is producing effects that GDP measures do not include

(e.g., clean air). In part, as discussed below, this

reflects a failure of current national income accounting

measures to adequately reflect national welfare.

The majority of studies find that environmental

regulations have had a negative, but relatively small,

impact on GDP growth.3 For example, Denisen found

that, in the absence of environmental regulation from

1973 to 1982, annual U.S. Gross National Product

(GNP) growth would have been 0,07 percent higher.4

Jorgenson and Wilcoxen used a more sophisticated

model and found that the impact on annual GNP

growth to be 0.191 percentage points between 1973

and 1985: real GNP in 1985 would have been 2.59

percent (or about $150 billion) higher.5 They contend

that new regulations, particularly from the 1990 Clean

Air Act Amendments, will slow annual GNP growth

1 If re&wlations precede a sound scientific foundation (as indeed, they sometimes must), the benefits may not be truly ascettaimble, even

though the COS(S mtiy be.

z Gcr Kki;isscri and Andrics Ncntjcs, ‘ ‘Macroeconomic Impacts of an EEC Policy to Control Air Pollution, ” Journaf of Policy Modeling,

VO1. 1 ~, hrO. 3, 1991, pp. 347-366.

s M~asurcs of ~mss natloxlal Pro(iuct (GNP) or gross domestic product (GDP) are not ve~ different. me some s~dies have used GNP

as a measure, recently, government has adopted the convention of using GDP. GDP plus net receipts of facior income from the rest of the world

(e.g., receipts and payments of dividends and interests of foreign affiliates of U.S. corporations and U.S. affiliates of foreign corporations)

equals GNP.

d E.F. Dcn]son, Trends in Ameri( an Economic Grofith, 1929-1982 (Washington, DC: The Brookings Institution, 1985), p. 34.

5 In other words, if GNP grew 2.5 percent a year with environmental regulations, it would grow 2.691 percent a year without them. Dale

W. Jorgenson and Peter J. Wilcoxcn, “Environmental Regulation and U.S. Economic Growth, ’ discussion paper, Harvard University, Energy

and Environmental Policy Center, Novcmber 1989.

321
322 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

by another 0.04 percent by the year 2005 and 0.05

percent by 2020.6

However, due to simplified assumptions made in

modeling the direct effects of environmental regulation on the economy, the results of econometric studies

have to be interpreted with caution, First, some studies

that measure only compliance costs to business are

underreporting the true costs of regulation, since they

are not based on a full equilibrium model of how the

costs work their way through the economy in the long

run. Using these methods, costs are normally higher

than simple measurement of compliance costs.7 Both

Jorgenson and Wilcoxen and Hazilla and Kopp use

such full equilibrium models to measure costs.

However, a second and more serious limitation of all

the studies is that while they include the costs of

environmental regulations, they do not include the

benefits, by definition assuring that their models will

find that regulation lowers GDP. There are a number

of benefits of regulation, both to the polluting firm and

to the rest of society, that if measured might increase

GDP. The polluting firm may benefit from pollution

control, particularly if it involves production process

changes that lead to increased productivity, lower

energy and materials use, and increased worker

welfare. While the extent of the benefits to the industry

is not clear (they are probably not large), not including

them overestimates economic losses.

More sizable benefits occur outside the firm. For

example, increased natural resource productivity from

lower levels of pollution (e.g., increased agricultural

and fisheries yield), reduced health care costs, maintenance costs, and capital expenditures on environmental controls (e.g., public water treatment plants)

would all increase GDP, in part through increased

productivity. 8

Moreover, some benefits are nonmonetary and not

included in GDP measures. For example, enjoyment of

natural resources, reduced nuisance (e.g., odor) from

pollution, and even species diversity might result from

a cleaner environment but would not necessarily be

measured in GDP. Also, there are important flaws in

how national wealth is calculated with respect to

natural resources. While depreciation of man-made

capital assets (plant, equipment, buildings) is subtracted from GNP to calculate net national product

(NNP), depreciation of natural capita-l (soil, forests,

fisheries, minerals), or human capital (illness due to

pollution) is not subtracted as these natural and human

resources are depleted.9 Thus, not all of the results of

defensive activities that slow down the degradation of

natural and human resources would be measured in

GDP, even though they would raise societal welfare.

While it is important to include these benefits in any

assessment of the relationship between regulation and

economic growth, accurate and comprehensive measures of the benefits of environmental regulation have

not been fully developed.10 Some argue that the U.S.

spends significant resources regulating some pollutants that cause little damage to health or environment,

while spending little on abating other pollutants that

cause greater damage (e.g., indoor air pollution) and

that, as a result, regulation lowers GDP.ll In contrast,

others argue that on net, the benefits of environmental

regulations outweigh the costs.12 It remains unclear

whether environmental regulations impose more costs

6 Dale W. Jorgenson and Peter J. Wilcoxe~ ‘‘The Impact of Environmental I@slation on U.S. Economic Grow@ investmen~ and Capital

Costs,’ U.S. Environmental Policy and Economic Growth: How Do We Fare? Monograph Series on Tax and Environmental Policies and U.S.

Capital Costs (Washington DC: American Council for Capital Formation, 1992), pp. 1-39.

7 Michael Hazilla and Raymond J. Kopp, “The Social Cost of Environmental Quality Regulations: A General Equilibrium Analysis, ”

Journal of Political Economy, vol. 98, No. 4, pp. 853-873.

6 For example, lower health care costs could lead to reduced work absences and would also allow revenues formerly going to health care

to go to other economic activities. See Organkmion for Economic Co-operation and Development, Environmental Policy Benefits: Monetary

Valuation (Paris: OECD, 1989).

g Robert Repetto, ‘‘Accounting for Environmental Assets, Scientij% American, vol. 266, No, 6, June 1992.

10 Under tie 1990 Clean Air Act, EPA was required to prepare a report assessing the benefits of the Federal clean air ref@dOnS. me report

is scheduled for release in late 1993. Moreover, EPA is considering doing more detailed work to measure the benefits of regulations in all media.

II Paul R. Portney, ‘‘Policy Watch: Economics and the Clean Air Acq’ The Journal of Economic Perspectives, vol. 4, No. 4, fall 1990; also,

Robert Crandall, “Why is the Cost of Environmental Regulation So High’ policy paper, Center for the Study of American Business,

Washington University, St. Louis.

12 AIV~L.Am‘Ccompctitivcness and Enviromen~l Quality,’ Environmental Science and Technology, vol. 25, No. 12, December, 1991,

p. 1993.
Appendix A–Effects of Environmental Regulations on Economic Growth: A Review of Research! 323

Table A-l—Estimates of the Share of Total Factor Productivity y Decline From

Environmental Regulation

Percent

Study share Period Industry scope

than benefits, and until this question is answered, it is

not possible to accurately measure the impact of

regulations on productivity or GDP.

Finally, even if net benefits from regulations do

exceed costs, those costs normally occur in the present

while the benefits often occur in the future. If other

countries choose to minimize short-term costs by

limiting regulation, they may gain a short-term competitive advantage that can also be translated into a

long-term advantage. Also costs may be concentrated,

affecting certain industries, workers, and communities, while the benefits may be diffuse.

Q Productivity and Environmental

Regulation

A number of studies were done to explain the

slowdown in manufacturing productivity gains in the

1970s. Virtually all the studies found that environmental regulations contributed a small share to the

slowdown in productivity.

13 Manufacturing productivity growth rates in the 1980s, however, regained

pre-1970 levels.14

There are several reasons why environmental regulations could lower productivity .15 First, because

pollution abatement inputs (e.g., capital, labor, energy)

produces pollution reduction, which is not included as

an output in conventional productivity measures, by

definition compliance costs lower total factor productivity. Conventional output indicators measure only

the value of the saleable product and not the negative

value of the environmental damage caused by the

pollution. Therefore, studies find that environmental

compliance expenditures reduce productivity because

their outputs (a cleaner environment than otherwise)

are not included as part of the firms’ outputs.

1~ ~oductivity is generally m~suRd in wo ways, total factor (or multifactor) productivity, which relates o@~U (v~~e of ~ePmduc~ tie

plant or firm produces) to all inputs to the firm, including capital, labor, purchased inputs, energy and raw materials, and single factor

productivity (e.g., labor productivity), which relates outputs to the amount of a single factor (e.g., labor).

14 Wilham Gullickson, “Multifactor Productivity in Mmufacturing Industries,” Monthly Labor Ret’iew, October 1992, pp. 2G29.

15 For CX~mIpIC, see Wayne Gray and Ronald J. Shadbegian, ‘‘Environmental Regulation and Manufacturing Productivity at the Plant Level, ”

Center for Economic Studies DiscussIon Paper (Washington, DC: U.S. Bureau of the Census, March 1993).
324 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Gallop and Roberts found that almost half (44

percent) of the productivity slowdown in the electric

power industry in the 1970s was attributable to

16 Repetto has developed a environmental regulations.

measure to include pollution in productivity measures

for the electric power industry,17 which includes both

electricity and economic damages from pollutants

(e.g., crop losses, morbidity) as outputs from utilities.

Using this expanded measure, Repetto found that

between 1970 and 1985 environmental productivity

(kilowatt hours per unit of emissions) increased more

rapidly than labor, capital, or energy productivity y. 18 As

a result, while electric power productivity declined by

0.38 percent a year between 1971 and 1985 when

measured in conventional terms, Repetto estimates

that it increased by between 0.33 and 0.62 percent a

year when the benefits of a cleaner environment are

included as outputs.

Second, environmental regulation could lower the

productivity of nonabatement resources in producing

measured outputs, if it reduces the efficiency of

existing inputs into production. For example, firms use

large amounts of energy to run smokestack scrubbers

and also must expend substantial effort to maintain

these devices.

Third, if firms change production practices in

response to regulatory demands, these new practices

may be less efficient than the old ones. For example,

companies may switch from cleaning with solvents to

less productive mechanical cleaning. In addition, to

avoid liability and present an image as a clean

company, larger firms may subcontract out some of

their dirtier production processes to smaller firms,

even though it may be more efficient to produce

in-house. 19

Fourth, if firms divert funds from spending on

productive investments (e.g., new capital equipment)

to pay for environmental expenditures, then productivity growth may lag since less new equipment is bought.

It is not clear the extent to which this crowding out

takes place; in fact, at least one study20 found that

among pulp and paper mills, firms that spent more on

productive investments as a share of the plant capital

stock also spent more on environmental investments.21

Fifth, if regulations have a new-source bias, this may

discourage investment in new, more efficient technologies and encourage holding on to older facilities.

Finally, regulations may divert management time and

effort away from issues of production toward issues of

compliance and hence might reduce productivity.

However, there are some reasons why regulations

might increase productivity. First, as discussed in

chapter 8, new production practices developed to

comply with regulations might be more productive

than old. For example, Barbera and McConnell found

that regulations may have resulted in lower production

costs in the non-ferrous metals industry because of the

introduction of new lower polluting production practices that were also more efficient.22 However, even

though aggressive pollution prevention efforts can

reduce compliance costs, particularly when compared

to the current end-of-pipe approach, in most cases they

are not cost effective in the absence of regulation.

Second, regulations could provide a shock to

outdated management practices and encourage management to devote increased attention to production

processes and work practices. Finally, if regulation

16 Fr@M. Gallop and NWk J. RobeIW, “Environmental Regulations and Productivity Growth: The Case of Fossil-fueled Electric Power

Generation,” Journal of Political Economy, vol. 91, No, 4, August 1983, pp. 654-674.

17 Robert Repetto, “Environmental Productivity and Why It Is So Important,” Challenge, vol. 33, No. 5, September-October 1990, pp.

33-38.

la EnvfionmenM productivity is defined as output per unit Of emissions.

19 F.A. Steward COmUltiK]g, ‘‘Environment and Competitiveness in the Metal Finishing Industry,” conmactor report prepared for the Offke

of Technology Assessment, February 1992.

20 WaPe Gray ad Ro~d J. s~dbegia~ $ ‘Envfi~en@ Regulation and ManUfaCtUfig ~OduCtivlty at tie plant ~v~l, ’ op. cit.

21 Many analysts assume mat this crowding out occurs on a one-to-one basis, that is, that for every dollar Spent on pOhtiOn conmol, f~s

spend one dollar less on productive investments. While the empiricat evidence of this is slim it does seem to suggest that this is not the case,

that instead, it crowds out only between 33 and 50 percent. Adam Rose, ‘‘Modeling the Macroeconomic Impact of Air Pollution AbatemenL”

Journal of Regional Science, vol. 23, No. 4, 1983, p. 449.

~ Antiony J. Barbem and Virginia D. McConnelt, ‘‘The Impact of Environmental Regulations on Industry Productivity: Direct and Indirect

Effects, ” Journal of Environmental Economics and Management, winter, 1990, pp. 50-65.
Appendix A–Effects of Environmental Regulations on Economic Growth: A Review of Research I 325

imposes substantial costs on some sectors and forces

some plants to close, it is likely that the plants that

close will be those with the lowest productivity and

profits. 23 To the extent that the remaining production

takes place in U.S. plants with higher productivity,

then industrywide productivity will have increased.

For example, OTA found that environmental regulations accelerated steel industry modernization.24

On balance though, environmental regulations appear to have dampened productivity (narrowly defined

to not include environmental outputs). Most studies

suggest that environmental regulation contributed to

around 10 to 15 percent of the productivity growth

slowdown during the 1970s. Even among industries

bearing the highest pollution abatement costs, environmental regulation did not account for the majority

share of the slowdown in productivity growth in the

1970s. In other words, while spending on environment

has been responsible for some of the deceleration in

productivity growth, other factors (such as technology

changes, investment, and training) were more important. There is some consensus that the impacts of

regulation on productivity in the early 1980s were

somewhat less.25 In addition, productivity growth

rebounded somewhat in the 1980s.26 However, one

study examining regulation from 1979 to 1985 found

that among industries with the highest compliance

costs (pulp and paper mills, steel mills, and oil

refineries), environmental costs were associated with

lower productivity. On average, environmental regulations in these high compliance cost sectors caused a 3

to 7 percent decline in total factor productivity.27

It is not clear how future environmental regulations

will affect productivity. On the one hand, the expected

increase in environmental compliance costs could

inhibit productivity. On the other hand, firms are much

more experienced with implementation of environmental regulations than they were in the 1970s, and

new approaches (such as pollution prevention) could

reduce compliance costs and lower negative productivity effects.

23 &~~ Hm-ig~ Srrategie~for Declining Businesses (Lexingtoq MA: I-mington BOOICS, 1980).

~ U.S. Congress, Office of Technology Assessment, Technology um.f Sreel Industry Cotnpefiriveness, OTA-M-122 (wMhinglom DC: Us.

Government Printing Office, June 1980), p. 83.

2S U.S. Con=ess, Confessional Budget Office, Environmental Regulation and Economic Eficiency Washington, DC: CBO, March 1985).

26 William Gullickson, “Multifactor Productivity in Manufacturing Industries, ” Monthly Labor Review, October, 1992. pp. 20-29.

27 For evew additio~ dollar in env~onmen[~ operatig costs, total factor productivity would drop by $3 to $4. Wayne B. Gray and Ron~d

J. Shadbegian, “Environmental Regulation and Manufacturing Productivity at the Plant Level, ” op. cit.
Appendix B:

List of

ABC

AFBC

ARPA

ASEAN

BAT

BEA

BMFT

BOD

BOTB

CAAA

CCTP

CERCLA

CFCs

CMA

COD

CORECT

CRADA

CTAC

DERP

DOC

—Advanced Battery Consortium

—atmospheric fluidized bed combustion

—Advanced Research Projects Agency

(formerly DARPA)

—Association of Southeast Asian

Nations (members are: Brunei,

Indonesia, Malaysia, Philippines,

Singapore, and Thailand)

—best available technology

—Bureau of Economic Analysis (DOC)

—Federal Ministry for Research and

Technology (Germany)

—biological oxygen demand

—British Overseas Trade Board

-Clean Air Act Amendments

---Clean Coal Technology Program

-Comprehensive Environmental

Response Compensation and Liability

Act

-Chlorofluorocarbons

--Chemical Manufacturers Association

-chemical oxygen demand

-Committee on Renewable Energy

Commerce and Trade

-Cooperative Research and

Development Agreement

--Customer Technology Applications

Center

—Defense Environmental Restoration

Program

—Department of Commerce

DOD

DOE

DSM

EC

EGS

EOP

EPA

EPACT

EPRI

ERCs

ESCOs

Eximbank

FBC

FCCSET

FGD

GAO

GATT

GDP

GNP

GRI

HC

ICETT

IGCC

JETRO

JICA

MACT

Acronyms

—Department of Defense

—Department of Energy

-demand side management

—European Community

environmental goods and services

-end-of-pipe

—Environmental Protection Agency

—Energy Policy Act of 1992

—Electric Power Research Institute

-engineering research centers

-energy service companies

—Export-Import Bank of the United

States

—fluidized bed combustion

—Federal Coordinating Council on

Science, Engineering and Technology

—flue gas desulfurization

—U.S. General Accounting Office

-General Agreement on Tariffs and Trade

—gross domestic product

-gross national product

--Gas Research Institute

-harmonized code

—International Center for Environmental

Technology Transfer (Japan)

—integrated gasification combined cycle

—Japan External Trade Organization

—Japanese International Cooperation

Agency

—maximum achievable control standards

—Municipal Innovative Technology

Evaluation Program

327
328 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

MITI

MNCs

MTCs

NAFTA

NASA

NASDA

NCMs

NEDO

NEPA

NETAC

NGOs

NICs

MST

NOAA

NOX

NSF

NTDB

OECD

OIT

OPIC

OSHA

OSTP

PCBs

PERF

PFBC

POTW

PV

—Ministry of International Trade and

Industry (Japan)

—multinational corporations

—Manufacturing Technology Centers

—North American Free Trade Agreement

—National Aeronautics and Space

Administration

—National Association of State

Development Agencies

—National Center for Manufacturing

Sciences

—New Energy and Industrial

Development Organization (Japan)

—National Environmental Policy Act of

1969

—National Environmental Technology

Applications Corporation

—non-governmental organizations

—newly industrialized countries

—National Institute for Standards and

Technology

—National Oceanic and Atmospheric

Administration

—nitrogen oxides

—National Science Foundation

—National Trade Data Bank

-Organisation for Economic Cooperation and Development

-Office of Industrial Technologies (part

of DoE)

-Overseas Private Investment

Corporation

----Occupational Safety and Health

Administration

-Office of Science and Technology

Policy

—polychlorinated biphenyls

—Petroleum Environmental Research

Forum

—pressurized fluidized bed combustion

—publicly-owned treatment works

—photovoltaic cell

PVUSA —Photovaltaics for Utility Scale

Applications

RCRA —Resource Conservation and Recovery

Act

R&D —research and development

—Research Institute of Innovative

Technologies for the Earth (Japan)

SARA -Superfund Amendments and

Reauthorization Act

SBA -Small Business Administration

SCORE -Service Corps of Retired Executives

SCR —selective catalytic reduction

SEMATECH --Semiconductor Manufacturing

SERDP

SIC

SITE

SMEs

SNCR

SO2

SRRP

TCA

TDA

TPCC

TQM

UNCED

US-AEP

USAID

USCAR

USETI

US&FCS

USTR

VOCs

Technology Consortium

-Strategic Environmental Research and

Development Program

—standardized industrial code

--Superfund Innovative Technology

Evaluation Program

—small and medium sized enterprises

—selective non-catalytic reduction

—sulfur dioxide

-Source Reduction Review Project

—total cost accounting

—Trade and Development Agency

—Trade Promotion Coordinating

Committee

—total quality management

—Toxic Release Inventory

—United Nations Conference on

Environment and Development

—United States - Asia Environmental

Partnership

—U.S. Agency for International

Development

—United States Council for Automotive

Research

—United States Environmental Training

Institute

—U.S. and Foreign Commercial Service

—United States Trade Representative

—volatile organic compounds
Index

ABC. See Advanced Battery Consortium

Accelerated depreciation, 50,209-210

Advanced Battery Consortium, 298

Advanced Research Projects Agency, 297

Advanced Technology Program, 296

Advanced water and wastewater systems, 137-138

AFBC. See Atmospheric fluidized bed combustion

Agency of Industrial Science and Technology, 313-314

Agency of Natural Resources and Energy, 310,313-314

Aggressive policy strategy, 28,41-42

Aid, Trade and Competitiveness Act of 1992,28,42

Air emissions, 273-274, 275, 281-282

Air pollution control

mobile source, 133-135

national differences in standards, 226-227

stationary source, 130-133

U.S. production and export of equipment, 120

AIST. See Agency of Industrial Science and

Technology

American Institute of Chemical Engineers, 53, 300

American Water Works Association, 299

Amoco Yorktown study, 55,267,273

ANRE. See Agency of Natural Resources and Energy

AQMD. See South Coast Air Quality Management

District

ARPA. See Advanced Research Projects Agency

ASEA Brown Boveri, 10

ASEAN. See Association of South East Asian Nations

Asian countries. See also individual countries

as environmental technology markets, 11, 90, 110-

115

Association of South East Asian Nations, 113-114

Atmospheric fluidized bed combustion, 144-145

ATP. See Advanced Technology Program

Automotive manufacturers, 134, 195,238,298-299

pollution control and competitiveness, 204-205

A~A. See American Water Works Association

Bank lending, 261

BAT See Best available technology

BEA. See Bureau of Economic Affairs

Benzene emissions, 273

Best available technology, 33,57

effect on innovation, 123

BFI. See Browning Ferris Industries

Blackstone Project, 271

BMW See Ministry for Research and Technology

BOTB. See British Overseas Trade Board

British Overseas Trade Board, 166-167

Browning Ferris Industries, 138-139

Bubble policy, 279-280

Bureau of Economic Affairs, 186-187, 188-189

Bureau of Mines, 301,307

Business education programs, 52-54

CAA. See Clean Air Act

CAAA. See Clean Air Act Arnendxnents

California

effects of environmental regulation on hs Angeles

economy, 218-219

International Energy Fund, 181

vehicle emissions regulations, 100, 134

329
330 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

CAMP. See Cleveland Advanced Manufacturing

Program

Canada, environmental market, 101

Catalytic converters, 133-135

CCTP. See Clean Coal Technology Program

CEM. See Continuous Emission Monitoring

Census Bureau, 69, 196-197

environmental compliance costs, 188-189

survey data, 38

Center for Applied Technology, 22

Center for Clean Industrial and Treatment Technologies, 306-307

Center for Industrial Services, 22,253

Center for Waste Reduction Technologies, 53,251,300

Central Europe, environmental market, 105-108

Centro Cerarnico, 22,256-257

CERCLA. See Comprehensive Environmental Response, Compensation, and Liability Act

CFCS. See Chlorofluorocarbons

Chemical industry

pollution prevention practices, 231

process modification, 240-241

Chemical Manufacturers Association, 93,260

China, environmental market, 112-113

Chlorofluorocarbons, 75-76,96

CIS. See Center for Industrial Services

Clean Ah Act, 33,57, 133

Clean Air Act Amendments, 100,130,131,274,286,288

Clean coal technologies, 169-170

Clean Coal Technology Program, 131, 144,302

Clean Water Act, 33,57, 100,288

Cleaner energy technologies

coal combustion and conversion technologies, 144-145

end-use energy efficiency, 148

gas turbines, 143-144

overview, 142-143

renewable energy sources, 146-148

research and development, 300-305,311-312,316, 317

Cleaner production technologies. See also pollution

prevention

competitiveness, 149

and engineering services, 13

estimates of market size, 8-9

findings, 4

leadership, 9-10

and manufacturing, 229

Cleveland Advanced Manufacturing Program, 253

Cluster team concept, 33,269

CMA, See Chemical Manufacturers Association

Coal combustion technologies, 144-145

COEECT See Committee on Energy Efficiency Commerce and Trade

Combustion turbines, 143-144

Committee on Energy Efficiency Commerce and

Trade, 155

Committee on Renewable Energy Commerce and

Trade, 36,63, 155

The Competitive Advantage of Nations, 83-84

Competitiveness

conclusions, 149-150

and the environment, 81-83

and environmental design, 75-76

environmental industry, 12-16, 117

environmental trade, 117-121

factors affecting, 121-128

findings, 4-5

impact of environmental regulation, 83-87,214-221

manufacturing industry, 18-25, 183

objectives, 13-14,40

Compliance costs. See also Pollution abatement and

control

comparing U.S. to other countries, 5, 197-207

determining factors, 185-186

differing measures, 188-189

estimates for U. S., 14-15, 19

manufacturing industries, 85

overview, 185-186

use of economic incentives, 6

Comprehensive Environmental Response, Compensation, and Liability Act, 140, 261. See also

Superfund Act

Construction services, 128-130

Contaminated site remediation, 140-142,300

Continuous Emission Monitoring, 275

Cooperative Research and Development Agreements,

41,296-297

CORECT See Committee on Renewable Energy

Commerce and Trade

CRADAS, See Cooperative Research and Development Agreements

Customer Technology Applications Center, 259

CWA. See Clean Water Act

Data needs, 38, 68-69,93, 117

Defense Environmental Restoration Program, 305
——_. .—

Index ! 331

Delisting, 123

Demand side management, 124

Dematerialization, 97

Denmark, technical assistance program, 22

DEP. See Department of Environmental Protection

Department of Commerce, 161-164, 296

Department of Defense, 44, 101, 141,258

environmental technology research and development, 301, 305-306

Department of Energy, 44,48, 101, 141

environmental technology research and development, 300-305

Office of Industrial Technology, 29,303-305

Department of Environmental Protection, 271

Deposit-refund approaches, 278-279

DERP. See Defense Environmental Restoration

Program

Design services, 128-130

Developing countries. See also individual countries

bilateral aid, 61-62

environmental market, 115-116

export promotion options, 35-36

multilateral cooperation for technical assistance,

60-61

pollution abatement and control costs, 20,203,205,

207,210-211

technical assistance options, 34-35

Development assistance programs

feasibility studies, 174-176

multilateral cooperation options, 34-35

promoting exports, 173-174

technology cooperation, 176-177

DOC. See Department of Commerce

DOD. See Department of Defense

DOE. See Department of Energy

Dow Chemical, 234

DSM. See Demand side management

Dutch Sustainable Technology Development

Program, 292

East Asian countries, See also individual countries

environmental market, 113-114

Eastern Europe, environmental market, 105-108

Eastern Germany, environmental needs, 104

EBC. See Environmental Business Council of the

United States

EC. See European Commission

ECD. See Energy Conversion Devices

Ecological and Toxicological Association of the Dyestuffs Manufacturing Lndustry, 260

Economic activities, classi~ing, 75-79

Economic incentives. See also Environmental regulations; Regulatory reform

advantages, 283-286

disadvantages, 284, 286-287

impact on competitiveness, 124-125

incentive-based regulations, 277-278

lowering compliance costs, 6

past experience, 279-283

policy option, 30,49-50,54

principal findings, 264-265

reasons for limited use, 288-289

types of incentive systems, 278-279

Economic policies

ovemiew of issues, 39-40

proposals for U.S. programs, 3

ECOTEC, 94

ECRE. See Export Council for Renewable Energy

EGS, See Environmental goods and services industry

Egypt, environmental market, 115

Electric Power and Research Institute, 299

Electric utilities, 258-259

Electronic Bulletin Board, 165

Employment

effects of environmental regulations, 87

export related, 120-121

findings, 4

End-of-pipe pollution control, 80-81, 244

compared with prevention and recycling, 229

fiiding alternatives to, 246-247

Energy Conversion Devices, 146

Energy Efficiency program, 302-303

Energy Policy Act of 1992,42,46, 62, 304

Energy service companies, 107

Energy use efficiency, 148-149

markets for, 98-99

Engineering education programs, 52-54

Engineering Research Centers, 307

Environment Agency, 314

Environmental Action Program, 142

Environmental activity classification, 75-79

Environmental and Energy Efficient Technology Transfer Clearinghouse, 172

Environmental Business Council of the United States,

159

Environmental Business International, 98-99
332 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Environmental compliance costs. See Compliance

costs

Environmental Export Assistance Officer, 172

Environmental exports. See also Export promotion

programs

awareness and support, 126

estimates of, 118-120

Environmental goods and services industry. See also

Export promotion programs

classifying environmental activities, 75-79

cleaner energy technologies, 142-143

vd combustion and conversion technologies, 144-

145

contaminated site remediation, 140-142

defining the industry, 2,75-82,93-97

design and construction services, 128-130

employment effects, 87

end-use energy efficiency, 148-149

environmental trade competitiveness, 117-121

factors affecting competitiveness, 12-14, 121-128

findings, 4-5

framework of industry, 79-82

gas turbine technologies, 143-144

global markets, 97-116

invisible EGS, 8

market categories, 90-91

market drivers, 91-93

mobile source air pollution control, 133-135

renewable energy, 146-148

revenue estimate for U. S., 14-15

size of market, 8-12, 89, 97-99. See also individual

countries and regions

stationary source air pollution control, 130-133

summary of trends and characteristics, 116

U.S. competitiveness, 12-17

waste industry, 138-140

water and wastewater treatment technologies, 135-

138

Environmental impact costs. See Compliance costs

Environmental industry. See Environmental goods

.]ncl services industry

l~n~ ] ILlflillental issues

classifying environmental activities, 75-79

concerns, 71-72

Environmental Protection Agency, 52, 81, 119,257

bubble policy, 279-280

diffusion of best practices and technologies, 31

Environmental Technology Initiative, 295

integrated permits, 270-272

integrated regulation, 268-269

market-based environmental incentives, 279

pollution abatement and control costs, 186-187,

188-189

regulatory reform, 32-34

research and development, 301, 306-307

technical assistance programs, 252

trading and banking system, 280,283

Environmental regulations. See aZso Economic incentives; Pollution abatement and control

advances in pollution prevention, 21, 23

and competitiveness, 5-6, 83-87, 122-124, 183

compliance costs for U.S. industry, 19, 186-207

economic costs and benefits, 18, 83-87

and employment, 87

enforcement of regulations, 211

and environmental markets, 92-93, 122-124

environmental standards among countries, 210-211

features of current regulatory system, 23-24

foreign environmental requirements, 19-21, 197-

214

future directions for other countries, 214

government assistance for compliance, 20,207-210

and gross domestic product, 321-323

incentive-based, 277-289

and industrial location, 220-221

information disclosure among countries, 213-214

innovative approaches, 25

linkage between regulatory reform and economic

incentives, 265

the Michael Porter hypothesis, 83-84

new forms, 2-3

and productivity, 323-325

regulatory reform, 264, 265-277

regulatory styles among countries, 211-213

and social welfare, 321-323

technical assistance for pollution prevention, 22

and technological innovations, 123, 214-216

and trade, 216-220

Environmental research and development. See Research and development

Environmental Restoration and Waste Management

Technology Development Program, 300

Environmental Services Program, 22,253

Environmental taxes. See Taxes and fees

Environmental technologies. See also Speczfic technologies, Research and development,
appropriate technologies, products and service,

126-127

competitive position of U.S. firms, 4-5

databases for potential customers, 172

overall findings, 1-4

policy issues and options, 26-34,42-58

promotion of techniques and standards, 125-126

research, development and demonstration, 127-128

verification and demonstration, 173

Environmental Technology Export Council, 159

Environmental Technology Initiative, 46,295

Environmental trade, competitiveness, 117-121

Environmental Trade Working Group, 158-159

Environmental trends, 72-75

Environmentally Benign Chemical Synthesis and Processing, 307

EOP. See End-of-pipe pollution control

EPA. See Environmental Protection Agency

EPACT See Energy Policy Act of 1992

EPRI. See Electric Power and Research Institute

ERCS. See Engineering Research Centers

ESCOS. See Energy service companies

ESP. See Environmental Services Program

ETEC. See Environmental Technology Export

Council

Eureka, 316-317

European Community

Directorate-General XII, 16

environmental technology research and development, 314-317

European countries. See also individual countries

environmental market, 101-108

pollution abatement and control costs, 202-203,207

Eximbank. See Export-Import Bank

Export Council for Renewable Energy, 155

Export Enhancement Act of 1992,62, 157, 172, 180

Export-Import Bank, 37,63, 178-181

Export promotion programs. See also Environmental

exports

areas of government policy, 153-154

assistance for planning and marketing, 160-173

bilateral assistance, 61-62

developing U.S. strategy, 154-159

exports as percentage of gross domestic product,

152

financing, 177-181

multilateral technical assistance, 60-61

overview, 58-60, 151-154

Index 333

policy and strategy, 62-65

summary of issues and options, 35-37, 58-64

technology verification and demonstration, 173

U.S. programs in international context, 159-160

use of foreign aid, 173-177

Extension programs, 255-256

External recycling, 242-244

Facility bubbles, 273-274

Facility-wide Inspections to Reduce Sources of Toxics

Initiative, 271

Farkas Berkowitz & Co., 94-95

FBC. See Fluidized bed combustion

FCCSET See Federal Coordinating Council on Science, Engineering, and Technology

Feasibility studies, development assistance, 174-176

Federal Coordinating Council on Science, Engineering, and Technology, 46, 295

Federal policies. See also Environmental regulations

data and information needs, 38,68-69

development assistance, 34-36,58-60,61-62

diffusion of best practices, 30-32,49-54

effect on industries, 3

export promotion, 35-37, 58-60, 61-65

international trade and environment issues, 37-38,

65-68

options summary, 27

overview of options, 6-7

regulatory reform, 32-34, 54-58

research and development, 26, 28-30, 42-49

strategies, 28, 41-42

technical assistance, 34-35, 58-61

trade and environment, 37-38, 65-68

Fees. See Taxes and fees

FGD. See Flue gas desulfbization

Financial Assistance, 207-210,261-262

FIRST. See Facility-wide Inspections to Reduce Sources

of Toxics Initiative

Flue gas desulfurization, 130-131, 132

Fluidized bed combustion, 144

Foreign commercial service, 64

staffing, 171

Foreign Commercial Service Officer, 172

Forest products industry, 95

Former Soviet Union, environmental market, 105-108

Fossil fuels program, 302

Framework programs, 315-316
334 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

France, pollution control costs, 203

Furniture industry, 218-219

Gas Research Institute, 299

Gas turbine technologies, 143-144

GA~. See General Agreement on Tariffs and Trade

GDP. See Gross domestic product

General Agreement on Tariffs and Trade, 65

General Electric, 143-144

Germany, see also Western Europe

amount of exported environmental products, 12

development of cleaner production technologies,

9-1o

environmental needs in eastern Germany, 104

environmental technology research and development, 317-318

Ministry for Research and Technology, 16, 317

pollution abatement and control costs, 199, 202,

206,209

GLMTC. See Great Lakes Manufacturing Technology

Center

Global environmental market, See Environmental

goods and services industry

Global environmental trends, 72-75

Good housekeeping practices, 238

Government policies. See Federal policies

Government procurement, 50, 258

Great Lakes Manufacturing Technology Center, 22,

253

Green Aid Plan, 132

GRI. See Gas Research Institute

Gross domestic product, and environmental regulations, 321-323

Harmonized Code, 93

Hazardous C)rganic NESHAP, 274

Hazardous Substance Research Centers, 306

Hazardous Substance Response Fund, 140. See also

Superfund Act

Hazardous waste

designation, 276

industry, 138-140

national differences in standards, 227-228

HC. See Harmonized Code

Hoechst Celanese, 231,234

HON. See Hazardous Organic NESHAP

House Energy and Commerce Committee, 7

House Foreign Affairs Committee, 7

‘W Centers. See Industry/University Cooperative Research Centers

ICETT. See International Center for Environmental

Technology Transfer

IDBs, See Industrial Development Revenue Bonds

IGCC. See Integrated Gasification Combined Cycle

Illinois Hazardous Waste Research and Information

Center, 81

IMIP. See Industrial Modernization Incentives

Program

Incentive systems. See Economic incentives

Jncome growth, 72-73

Incremental policy strategy, 41

India, environmental market, 112-113

Industrial Development Revenue Bonds, 208

Industrial location, and environmental regulation,

216-221

Industrial Modernization Incentives Program, 305

Industrial consortia, 29-30,4749,297-300

Industrial trade associations, 260

Industry Subsector Analyses, 165

Industry/University Cooperative Research Centers,

307

Innovative Technology Council, 306

Institute for Environmental Cooperation, 58

Integrated Environmental Management Program, 268-

269

Integrated Gasification Combined Cycle, 145,316

Integrated inspections, 271

Integrated permits, 270-272

International Center for Environmental Technology

Transfer, 177

International trade issues, 37-38, 65-68

ISAs. See Industry Subsector Analyses

Italy

Centro Ceramico, 22,256-257

Japan

amount of exported environmental products, 12

cleaner production technologies, 9

environmental equipment production and export,

119

environmental market, 105

environmental requirements, 19-20, 226-228

environmental training program, 177

fiiancial assistance, 207-209

pollution abatement and control costs, 200-205

research and development, 292, 310-314
Index I 335

Japan External Trade Organization, 168, 170-171

Japan Society of Industrial Machinery Manufacturers,

68

Japanese International Cooperation Agency, 175, 177

JETRO. See Japan External Trade Organization

JICA. See Japanese International Cooperation Agency

JIT. See Just-in-time delivery

Just-in-time delivery, 236

LAER. See bwest achievable emission rate

Latin America

environmental market, 11, 108-110

as environmental technology market, 11

LDAR. See hak Detection and Repair programs

Leak Detection and Repair programs, 240

Lowest achievable emission rate, 204

LUZ International, 147

MACT. See Maximum Achievable Control

Technology

Mae Moh power project, 169-170

Management Institute for Environment and Business,

54

MANTECH, See Manufacturing Technology Program

Manufacturers of Emission Controls Association, 133

Manufacturing industries

economic factors, 85

environment and competitiveness, 81-87

environmental design and competitiveness, 75-76

impact of environmental regulation, 18-25

link with environmental technology firms, 2-3

national differences in pollution control standards,

226-228

pollution abatement expenditures, 187, 190-194

Manufacturing Technology Centers, 307

Manufacturing Technology Program, 305

Market research assistance, 165-167

Marketable permits, 25, 265, 278

Massachusetts

Center for Applied Technology, 22

integrated inspections, 271

Massachusetts Institute of Technology, 58

Matchmaker Delegations, 167

Maximum Achievable Control Technology, 269,274

Metal Casting Competitiveness Research Program,

304

Metal finishing indust~

costs of pollution prevention, 235

external recycling, 243

pollution prevention practices, 231-232

Metal Initiative, 304

Mexico

environmental market, 108-110

relocation of furniture manufacturing, 218-219

Ministry for International Trade and Industry, 16, 132

environmental technology research and development, 310-311

Ministry for Research and Technology, 16,317

Minnesota Pollution Control Agency, 275

MITE. See Municipal Innovative Technology

Evaluation

MITI, See Ministry for International Trade and

Industry

Mobile source air pollution, 133-135

Monsanto, 234

MPCA. See Minnesota Pollution Control Agency

MTCS. See Manufacturing Technology Centers

Multilateral aid, 60-61

Multimedia approach, 268-272

Municipal Innovative Technology Evaluation, 52,306

NAFTA. See North American Free Trade Agreement

NASDA. See National Association of State Development Agencies

National Association of Metal Finishers, 260

National Association of State Development Agencies,

154

National Center for Manufacturing Sciences, 297-298

National Defense Authorization Act, 305

National Defense Center for Environmental Excellence, 305-306

National Emission Standards for Hazardous Air Pollutants, 273

National Environmental Policy Plan, 318-319

National Environmental Technology Act of 1993,

proposed, 45-46,52

National Environmental Technology Applications Corp.,

52,307

National Industrial Competitiveness Through Efficiency: Energy, Environment and Economics

program, 304

National Institute for Resources and Environment, 313

National Institute of Standards and Technology, 51,

253,296

National Oceanographic and Atmospheric Administration, 295
336 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

National Renewable Energy Research Laboratory, 302

National Science Foundation, 32,48,53

environmental technology research and development, 307

National Trade Data Bank, 165

NCMS. See National Center for Manufacturing

Sciences

NDCEE. See National Defense Center for Environmental Excellence

Near East, environmental market, 114-115

NEDO. See New Energy and Industrial Technology

Development Organization

Negotiated rulemaking processes, 267

NEPP. See National Environmental Policy Plan

NESHAP. See National Emission Standards for Hazardous Air Pollutants

NETAC. See National Environmental Technology

Applications Corp.

Netherlands

development of cleaner production technologies, 10

environmental technology research and development, 318-320

pollution control expenditures, 199, 202-203,207

technical assistance program, 22

Netherlands Agency for Energy and the Environment,

319

Netherlands Environmental Policy Plan, 212, 318

Netting, 279-280, 283

New Energy and Industrial Technology Development

Organization, 16

research and development, 292, 311-313

New Sunshine Program, 312-313

Newly industrialized countries

compliance costs, 20

pollution abatement and control costs, 203,205,207

NICES. See National Industrial Competitiveness

Through Efficiency: Energy, Environment and

Economics program

NICS. See Newly industrialized countries

NIRE. See National Institute for Resources and

Environment

NIST. See National Institute of Standards and

Technology

Nitrogen oxides, 131-132, 281-282

national differences in control standards, 226

NOAA. See National Oceanographic and Atmospheric

Administration

North American Free Trade Agreement, 37, 66

NOVEM, See Netherlands Agency for Energy and the

Environment

NSF. See National Science Foundation

NTDB. See National Trade Data Bank

OECD. See Organization for Economic Cooperation

and Development

Office of Environmental Education, 53

Office of Industrial Technology, 46,48,303-304

Office of Pollution Prevention and Toxics, 307

Office of Science and Technology Policy, 295

Ohio, environmental services, 253

OIT. See Office of Industrial Technology

One-pipe-at-a-time approach, 267-268

Organization for Economic Cooperation and Development, 65, 74

environmental markets estimate, 8, 10

OSTP. See Office of Science and Technology Policy

Overseas commercial service, 168, 170-172

PACE. See Pollution Abatement and Control

Expenditure

Per capita income, 72-73

PERF. See Petroleum Environmental Research Forum

Performance standards, 272-274,275

Petroleum Environmental Research Forum, 300

PFBC. See Pressurized fluidized bed combustion

Photovoltaic cells, 146, 147-148,302

Photovoltaics for Utility Scale Applications, 148, 302

Policy options. See Federal policies

Polluter pays principle, 186,260

Pollution abatement and control

accuracy of cost estimates, 196-197, 222-225

future costs, 194-196

government measures of costs, 188-189

interaction with pollution prevention, 81

mobile source, 130-133

national differences in standards, 226-228

overview, 183-186

relationship between regulations and competitiveness, 214-221

sources of underreporting of costs, 222-225

stationary source, 130-133

U.S. compliance costs compared with other nations,

197-214

U.S. expenditures, 186-194

Pollution Abatement and Control Expenditure, 69,

222-225
Index I 337

Pollution Control han program, 208

Pollution prevention

capital accounting, 248-249

in the chemical industry, 240-241

cost savings, 232-236

financial assistance, 260-261

financial incentives, 231

in-process changes among countries, 232

interaction with pollution control, 81, 82

investment practices, 248-250

limiting factors, 244-247

options, 6, 237-244

organizational and technological change, 236-237

overview, 229-230

rate of adoption, 231-232

and recycling, 230, 242-244

regulatory barriers, 248

shift from control to prevention, 2

social benefits, 250

technical assistance, 22, 50-51, 251-260

technology development, 149, 230-231, 250-251

Pollution Prevention Act of 1990,229

Pollution Prevention Incentives for the States program,

54, 252

Pollution Prevention Information Clearinghouse, 254

Pollution Prevention Pays program, 234

Population growth, 72-73

Porter, Michael, hypothesis, 83-84

POTWS. see Publicly owned water treatment works

PPIS. See Pollution Prevention Incentives for the

States program

Pressurized fluidized bed combustion, 144-145

Prevention of Significant Deterioration, 275

Private Invest ment and Trade Opportunities Organization, 172

Process industries, compliance costs, 19

Process modifications, 238-242

Procurement policies, 50,258

Product cycles, 77

Product design, and competitiveness, 75-76

Product reformulation, 238

Productivity, and environmental regulation, 323-325

PSD. See Prevention of Significant Deterioration

Public Utility Regulatory Policy Act, 124

Publicly owned water treatment works, 259

Pulp and paper industry

costs of pollution prevention, 234-235

pollution prevention practices, 232

process modifications, 239, 242

PV Manufacturing Technology Program, 148, 302

PVS. See Photovoltaic cells

PVUSA. See Photovoltaics for Utility Scale

Applications

Raw material substitution, 238

RCRA. See Resource Conservation and Recovery Act

R&D. See Research and development

RECLAIM. See Regional Clean Air Incentives Market

Recycling, See also Pollution abatement and control;

Pollution prevention

cost savings, 6, 232-236

external recycling, 242-244

and pollution prevention, 230

rate of adoption, 231-232

Reg-neg. See Negotiated rulemaking processes

Regional Clean Air Incentives Market, 281-282

Regulations, See Environmental regulations

Regulatory reform, 32-34, 54-58. See also CEconomic

incentives

formulation of environmental regulations, 266-267

integrated permitting and inspection, 270-272

integrated regulation, 267-270

linkage with economic incentives, 265

overview, 265-266

performance standards, 272-274,275

policy options, 32-34, 54-58

regulatory flexibility, 274, 276-277

Remedial pollution control, 80-81, 82

Remediation, 140-142

Department of Energy programs, 300, 302

Renewable energy, 146-148

Department of Energy programs, 302

technology exports, 155

Research and development

agency programs, 300-307

coordination and funding, 4647

direct funding of individual firms, 296

European Community programs, 293, 314-317

federal laboratory technology cooperation, 296-297

in Germany, 293, 317-318

goals for federal policy, 43-46

government support of industry consortia, 297-300

environmental industry competitiveness, 127-128

international funding agencies, 16

in Japan, 293, 310-314

national government funding, 293
338 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

in the Netherlands, 318-320

overview, 291-293

partnerships with industry, 4749

private sector, 29,223-224,308-310

state and local programs, 308

summary of federal policy options, 26, 28-30,43

in the United States, 293-310

Research Institute of Innovative Technology for the

Earth, 313

Resource Conservation and Recovery Act, 33,57,139,

227,276

Resource management, 77-78

Responsible Care program, 93

Reverse trade missions, 172

Risk Reduction Laboratory Pollution Prevention Research Branch, 252

RITE. See Research Institute of Innovative Technology for the Earth

S.978, proposed National Environmental Technology

Act of 1993,45-46, 52

Safe Drinking Water Act, 100

Safety-Kleen, 139

SARA, See Superfund Amendments and Reauthorization Act

SBA. See Small Business Administration

Scandinavian countries, pollution prevention, 10

SCORE. See Service Corps of Retired Executives

SCR. See Selective catalytic reduction

Selective catalytic reduction, 131-132

SEMATECH, 297

Semiconductor manufacturing technology, 297

Senate Finance Committee, 7

SERDP. See Strategic Environmental Research and

Development Program

Service Corps of Retired Executives, 164

SITE. See Superfund Innovative Technology

Evaluation

Small and medium-sized enterprises, technical assistance, 50-51

Small Business Administration, 208-209

export financing, 180

SMES. See Small and medium-sized enterprises

Social welfare, and environmental regulation, 321-323

Solar thermal systems, 147

Solid waste industry, 138-140

Source reduction, 244,269

lowering compliance costs, 6

Source Reduction Review Project, 269

South Coast Air Quality Management District, 100,

281-282

South Korea, environmental market, 110-112

Southern California Edison, 259

SRRP. See Source Reduction Review Project

Standard Industrial Classification, 93

State pollution prevention programs, 252

Stationary source air pollution, 130-133

Steel industry, process modifications, 239,242

Strategic Environmental Research and Development

Program, 3-5

Subcommittee on Environmental Technology, 46,295

Sulfur dioxide, 130,281-282

national differences in control standards, 226

Superfund Act, 92, 139, 140-141, 194,224

Superfund Amendments and Reauthorization Act, 92

Superfund Innovative Technology Evaluation, 52,306

Supplier links, 259-260

Sustainable development, 1

Taiwan, environmental market, 110-112

Tax Reform Act, 208

Taxes and fees, 25, 50,265,278

Tax incentives, 207-210

TCA. See Total Cost Accounting

TDA. See Trade and Development Agency

Technical assistance programs

comprehensive industrial service organizations, 255-

256

encouraging other organizations to provide assistance, 258-260

federal procurement, 258

government programs, 251-252

integrating assistance into the permitting and inspection process, 257

limitations of current efforts, 252-255

multilateral cooperation, 34-35, 60-61

sectoral and industrial network approaches, 256-257

for small and medium-sized companies, 50-51

Technological innovations, 73-74

and environmental regulations, 123, 214-216

incentives for, 285-286

process modifications, 239-242

Technology cooperation, 176-177

Technology evaluation, 51-52

Technology policies

coordination and funding, 4647
Index I 339

goals for federal policy, 4346

needed advancements, 2

partnerships with industry, 47-49

summary of options, 26, 28-30, 43

Tennessee, Center for Industrial Services, 22, 253

Thailand power project, 169-170

Thermie program, 316

Third Framework Program, 315-316

3M

flexible permitting systems, 275

pollution prevention program, 234

Tied aid credits, 181

Tied feasibility studies, 174-175

Tipping fees, 280-281

Total Cost Accounting, 248-249

Total quality management, 236-237

Total suspended particulate, 226

Toxic Release Inventory, 92-93, 213

TPCC, See Trade Promotion Coordinating Committee

TQM. See Total quality management

Tradable permits, 25

Trade agreements, 37-38,216-220

Trade and Development Agency, 35-36,62, 130

feasibility studies, 175-176

Trade and environment policy, 37-38,65-68

Trade fairs, 167, 168

Trade Information Center, 157-158

Trade issues, 37-38, 65-68

Trade missions, 167, 169-170

Trade Promotion Coordinating Committee, 36, 62,

157-158

Thailand power project, 169-170

Trading programs, 280, 283

TRI. See Toxic Release Inventory

TSP. See Total suspended particulate

UNCED. See United Nations Conference on Environment and Development

United Nations Conference on Environment and

Development, 65

United Nations Environment Program, 23, 35,60

United Solar Systems Corp., 146

United States

environmental industry competitiveness, 4-5, 12-17

environmental market, 99-101

environmental technology research and development, 294-310

environmental training program, 176-177

exported environmental products, 12

United States & Foreign Commercial Service, 64, 160,

168, 170-171

United States-ASEAN Council for Business and

Technology, 159

United States-Asia Environmental Partnership, 11,36,

61, 154

United States Council for Automotive Research, 134,

205,298-299

United States Environmental Training Institute, 36,61,

154, 176

U.S. Agency for International Development, 107

U.S. Technology for International Environmental Solutions, 306

U.S. TIES, See U.S. Technology for International

Environmental Solutions

US-AEP. See United States-Asia Environmental

Partnership

USAID. See U.S. Agency for International

Development

USCAR, See United States Council for Automotive

Research

USETI, See United States Environmental Training

Institute

USFCS. See United States & Foreign Commercial

Service

US&FCS. See United States & Foreign Commercial

Service

Vehicle emissions controls, 133-135

Vendor Information System for Innovative Treatment

Technologies, 172

VISITT’. See Vendor Information System for Innovative Treatment Technologies

VOCS. See Volatile organic compounds

Volatile organic compounds, 75-76,96,204-205

national differences in control standards, 226

War Chest, 37,63

Waste and Release Reduction Program, 234

Waste Management, Inc., 138

Waste management programs, 300, 302

Waste Minimization Assessment Centers, 54

Waste minimization programs, 303-305

Waste Reduction Always Pays program, 234

Waste service industry, 138-140

Wastewater treatment technologies, 135-138
340 I Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities

Water and Wastewater Equipment Manufacturers Association, 135-136

Water Environmental Federation, 299

Water pollution, 227

Water treatment technologies, 135-138

WEF. See Water Environmental Federation

Western Europe, environmental market, 101-105

Wind turbines, 146-147

WMAC. See Waste Minimization Assessment Centers

WMX Technologies, 138-139

Wood furniture industry, 218-219

Wood @P industry, 235

World Bank, 73

World Environmental Center, 172

WRAP. See Waste Reduction Always Pays program

WWEMA. See Water and Wastewater Equipment

Manufacturers Association