Modeling the Economic Impacts of Pollution Prevention in New Jersey's Chemical Industry (1999)

ABSTRACT This article estimates the statewide economic impacts of voluntary activities in New Jersey's chemical industry. Unlike price researchers, the author includes potential demand losses from declining chemical sector sales as well as indirect and induced impacts. The results suggest that, at the scale currently proposed, should result in small, but significant gains in value added, driven by increased exports. Surprisingly, may actually increase demand for chemicals locally. INTRODUCTION In recent years a growing number of businesses, state regulators, and environmental advocates have promoted a broad set of reforms known collectively as pollution prevention (P2) designed to reduce the use and generation of hazardous chemicals at the plant level. These activities are based on the straightforward idea that it makes more sense to reduce at the than to clean it up after-the-fact. Supporters point out that can eliminate the need for costly investment in control equipment while simultaneously encouraging more efficient production practices by local producers. Given the possibility for win-win outcomes, most states in the U.S. have adopted policies to encourage P2. Past researchers have demonstrated the viability of for a wide variety of firms. However, researchers generally have not attempted to determine how P2-generated cost savings might affect local economic performance. Nor have they considered the regional economic impacts of lost chemical industry sales resulting from P2. In this research the author uses recent survey data from New Jersey to construct high, low, and most likely estimates of direct cost and demand impacts of P2 activities planned by the state's chemical manufacturers (SIC 28). He then uses these direct impact estimates as inputs to an econometric model of the state to calculate their eventual impacts on such critical measures as output, employment, exports, and income. In his most likely scenario, New Jersey's chemical firms are likely to suffer lost sales of $23.3 million between 1994 and 2005 as a result of P2-related reductions in chemical use. However, these losses should be more than offset by increased sales resulting from P2-related production cost reductions. Ultimately, the activities by local chemical firms are expected to increase gross sale product by $37.9 million between 1994 and 2005. Of this total, approximately $30 million should accrue directly to the chemical industry as new value added--the amount actually available to be paid out as increased profits and wages. Given the current small scale of P2 activities planned, the economic stimulus is very small in the overall context of the industry. The underlying cost reductions are also easily matched by competitors elsewhere. The most important, and counterintuitive, result of the research is that may actually increase the demand for chemicals locally. The implication of this finding for environmental quality is unclear. POLICY CONTEXT In the United States, is defined by the federal government and most states to include conservation, spill prevention, substitution of nonhazardous inputs for hazardous ones, and other similar methods of source reduction. Usually it also includes on-site but not off-site recycling. While some details of these policies remain controversial, they have received widespread support. From the industry's perspective, P2 allows firms to shift investment from expensive control equipment to activities with a potential to increase efficiency. From the perspective of environmental regulators, P2 reduces transfers of waste from one media to another frequently occurring as a result of treatment. From the perspective of labor, P2 can reduce the use of hazardous substances in the workplace. …