An International Comparison of Pollution Abatement and Waste Management Costs

Key quote: 

U.S. manufacturing’s annual costs for air pollution and greenhouse gas abatement, waste removal, and wastewater treatment total 1.2% of U.S. manufacturing value-added, or $24.6 billion.

An International Comparison of Pollution Abatement and Waste Management Costs

This study compares the costs of pollution control reduction faced by manufacturers in the U.S. and our largest trading partners in Europe, Latin America, and Asia. We analyzed the abatement costs for greenhouse gas emissions and air pollution that are necessary to meet regulatory reductions and the annual costs of waste disposal and wastewater treatment. The purpose of this analysis was to determine the annual additional cost burden that environmental rules have on manufacturing and determine whether the United States is at a relative cost disadvantage compared with its key trading partners. Of the nine countries, the U.S. ranks second highest for air pollution costs as a percent of sector value-added, fourth for greenhouse gases, and sixth for waste disposal and wastewater treatment.

Summary of Findings

  • U.S. manufacturing’s 2014 costs for air pollution and greenhouse gas abatement, waste removal, and wastewater treatment total 1.2% of U.S. manufacturing value-added, or $24.6 billion.
  • Annual waste disposal and wastewater treatment costs are significantly larger than new air pollution and greenhouse gas abatement costs because waste is properly disposed of and treated each year, while the latter involve the marginal addition to existing equipment.
  • In eight of our competitor countries—Brazil, Canada, France, Germany, Japan, Korea, Mexico, and the United Kingdom—air pollution and greenhouse gas abatement, waste disposal, and wastewater treatment make up an average of 1.2% of manufacturing value-added—the same as in the United States. Canada has the highest cost burden (2.2% of value-added) and Mexico has the lowest (0.8%).
  • U.S. manufacturers’ 2014 costs of $24.6 billion for pollution abatement are roughly double the costs in Japan and triple the costs in Germany.
  • Air emissions regulations vary widely by country and region. In general, European countries have strict limitations on pollutants, the U.S. and Canada have a mix of strict and lenient rules, Japan and Korea are in the middle, and Mexico and Brazil have lax regulation.
  • U.S. manufacturers spend 0.27% of value-added ($5.3 billion in 2014) to reduce air pollution. Only Canada (0.8%) spends a larger share.
  • New greenhouse gas (GHG) abatement cost U.S. manufacturing $1.4 billion in 2014. Canada, Korea, and Japan have met their GHG targets and manufacturers in Mexico and Brazil comply with their relatively lax requirements and thus do not incur these costs. Rigorous abatement costs in Europe, however, are twice the U.S. manufacturing burden.
  • U.S. manufacturing spends 0.9% of value-added ($17.9 billion in 2014) to treat waste and wastewater. The U.S. burden is somewhat below the average of our major trading partners. Mexico (0.6%) has the lowest and Canada (1.5%) has the highest.
  • Steel and paper industries in the United States pay disproportionately more for all types of control—pollution abatement, waste disposal, and wastewater treatment.
  • Within U.S. manufacturing, the petroleum refining industry accounts for 27% of all greenhouse gas abatement costs and the food industry is responsible for 28% of all waste disposal and wastewater treatment costs; both industries have below-average costs for the other types of pollution.

Introduction
This study compares manufacturing’s costs for pollution control in the U.S., Canada, Mexico, Japan, Germany, the UK, Korea, Brazil, and France.The eight countries represent our largest trading partners, minus China. China was excluded because its government and industry data are not considered reliable. The abatement costs for greenhouse gas (GHG) emissions, air pollution, waste disposal, and wastewater treatment are examined in six manufacturing industries—food processing, pulp and paper, petroleum refining, chemicals, iron and steel, and transportation equipment. These six industries account for about 80% of the manufacturing sector’s total air, GHG, and waste mitigation costs. The study scaled up the abatement spending to approximate the figures for the manufacturing sector as a whole.

A bottom-up approach was used to analyze pollution costs.The research approach was to assess newly built manufacturing plants that comply with current pollution control legislative requirements. The history of emissions control or the ability to enforce regulations was not considered. Control technologies for air emissions were determined by matching legislative pollution control requirements and emissions limitations with technology-specific emission factors at the industry level. Technology-specific cost data determined annualized costs per technology, industry, and country. For GHG emissions, waste disposal, and wastewater treatment, the approach focused on industry-specific control technologies. Total pollutant volumes and costs at a plant and industry level were constructed.

Table 1 reveals the overall cost burden for the examined countries. The 2014 costs for air pollution and greenhouse gas abatement, waste removal, and wastewater treatment in U.S. manufacturing totaled about $24.6 billion, or 1.2% of the sector’s value-added.

In the eight other countries, these costs average 1.2% of manufacturing value-added—the same as in the United States. Canada has the highest burden (2.2% of value-added) and Mexico has the lowest (0.8%). Most other countries are close to the average as a percentage of value-added.

Aggregating disparate pollution sources into a total, however, hides important details about the composition. U.S. manufacturers’ 2014 costs of $24.6 billion for pollution abatement are roughly double the burden of Japan ($12.8 billion), which ranks second in the dollar-to-dollar comparison. Manufacturers in Germany come in third ($8.7 billion), followed by Canada ($4.2 billion).

Table 1 – Manufacturing Pollution Costs by Country, 2014

Source(s): MAPI Foundation

Source(s): MAPI Foundation

Air Pollution
Nitrogen oxides (NOx), sulfur dioxide (SO2), particulate matter (PM), and volatile organic compounds (VOCs) were the four types of air pollution examined in this study. Estimates were made for the current state of air pollution levels and countries’ regulatory requirements for reduction.

Air pollution reduction goals vary widely in terms of strictness and the types of regulated pollutants. As seen in Table 2, Europe has aggressive rules for reduction. For example, the average reductions in Germany, France, and the UK are 11% for PM, 33% for NOX, and 19% for SO2. In comparison, the U.S. calls for reductions of 1% for PM, 5% for NOX, and 12% for SO2.

Canada has a mixture of strict and lenient rules. No reduction is required for PM but the nation calls for reductions of 71% for NOX and 60% for SO2. Japan and Korea are in the middle of the road, with a 5% decline in PM and 2% reductions in NOX and SO2. With 5% reductions required in each category, Mexico ranks much lower than Brazil, which has requirements of 15% declines across the board.

Air pollution abatement (in tons) multiplied by the marginal abatement cost finds U.S. manufacturers spend 0.27% of value-added ($5.3 billion in 2014) to reduce air pollution (Table 3). Only Canada (0.8% of value-added) has a higher burden in this area. The three European countries spend 0.09% (France), 0.08% (UK), and 0.02% (Germany) of value-added for additional air pollution reduction. Brazil and Mexico each spend about 0.13% of value-added, which is less than half of the U.S. burden. Japan and Korea spend the least.

On a straight dollar basis, U.S. manufacturers spend more money on air pollution abatement—$5.3 billion in 2014—than manufacturers in the other eight countries combined ($2.9 billion).

Table 2 – Mandated Air Pollution Reduction, 2014

Source(s): MAPI Foundation

Source(s): MAPI Foundation

Table 3 – Manufacturing Costs for Pollution Abatement and Waste Treatment, 2014

Source(s): MAPI Foundation

Source(s): MAPI Foundation

Greenhouse Gas
GHGs such as carbon dioxide, methane, and ozone absorb energy in the atmosphere and slow or prevent the loss of heat to outer space. In this way, GHGs act like a blanket and make the Earth warmer, a process called the “greenhouse effect.”Causes of Climate Change, EPA, www.epa.gov/climatechange/science/causes.html#greenhouseeffect. Many but not all nations regulate GHG emissions. The U.S. has rules that impose costs on manufacturers. Canada, Korea, and Japan have met GHG targets so their additional abatement costs are quite low. Meanwhile, manufacturers in Mexico and Brazil do not have any binding requirements, so these countries do not incur related costs. Europe’s costs for GHG abatements are substantially larger than those that U.S. manufacturers face.

A calculation of GHG abatement (in tons) multiplied by the marginal abatement cost ($11.50 per ton of CO2 reduced) shows that U.S. manufacturers spend 0.07% of value-added ($1.4 billion in 2014) to reduce GHG emissions. The countries in Europe have the highest burden. Europe’s market-based trading system determines a price for GHG abatement ($8.36 per ton CO2 reduced) that is currently lower than the U.S. price; however, European policy sets a stricter standard for reduction. This results in GHG abatement costs that are 0.18% of value-added in Germany, 0.14% in France, and 0.13% in the UK.

In terms of total dollars, U.S. manufacturers spent $1.4 billion in 2014 on GHG abatement, the most of any country in this study. German manufacturers spent the next highest amount, at $1.2 billion. The other countries combined spent $700 million.

Waste and Wastewater
Waste disposal and wastewater treatment costs are calculated differently than air pollution and greenhouse gas abatement. Waste is disposed of or treated each year, while air abatement costs count only the marginal addition to existing equipment necessary to reduce pollution and GHGs to meet new government targets.

U.S. manufacturing spends 0.9% of value-added ($17.9 billion in 2014) to treat waste and wastewater. The U.S. share of manufacturing value-added is somewhat below the average of our major trading partners. Canada (1.48%), Korea (1.25%), Japan (1.13%), Germany (1.07%), and Brazil (0.97%) spend more and France (0.83%), the UK (0.73%), and Mexico (0.64%) spend less.

Canada’s high cost burden is a result of its industry structure. The nation has abundant natural resources and waste- and wastewater-intensive industries such as pulp and paper, steel, and petroleum refining account for a large share of the sector. A high concentration of steel and paper industries explains the above-average costs in Korea, Japan, and Germany.

On a straight dollar basis, U.S. manufacturers spend 43% more on waste and wastewater abatement ($17.9 billion in 2014) than Japan ($12.5 billion), twice as much as Germany ($7.4 billion), and more than the remaining countries combined ($13.9 billion).

Pollution Costs for Major U.S. Industries
Since abatement costs vary by industrial process, this study used an engineering approach to identify pollution and waste byproducts in major industries and reconciled the theoretical findings with mandatory reports and statistics. Food processing, paper and pulp, petroleum refining, chemicals, iron and steel, and transportation equipment account for about 80% of the manufacturing sector’s total emissions abatement and waste costs.

Some industries incur disproportionate costs relative to their value-added in manufacturing. The steel industry is a prime example of an industry that is relatively small within the sector but has significant emissions reduction and waste handling costs. As seen in Table 4, iron and steel makes up about 1.3% of manufacturing value-added but is responsible for 31% of new air emissions costs, 10% of greenhouse gas abatement, and 26% of waste disposal and wastewater treatment costs.

Paper and pulp has relatively high costs in all three categories. It accounts for about 2.6% of manufacturing but pays 5% of the sector’s new air emissions costs and a huge 29% of GHG abatement and annual waste and wastewater costs.

Petroleum refining and food each have one outlier for pollution costs. The petroleum industry is 9.1% of manufacturing yet accounts for 27% of new GHG abatement. The food industry is 11.6% of manufacturing but pays 28% of the sector’s waste disposal and wastewater treatment costs.

Alternatively, chemicals and transportation equipment are very large industries within manufacturing but have relatively lower costs for air emissions and waste handling. Their industrial processes are not water-intensive, they do not generate significant nonrecyclable waste or scrap, and they have a legacy of tight air regulation so the marginal new reductions are small.

Table 4 – Costs Within U.S. Manufacturing, 2014

Source(s): MAPI Foundation

Source(s): MAPI Foundation

Methodology
For this study, pollution abatement and waste disposal and treatment costs were developed using a four-step process:

  1. determine actual emissions levels;
  2. identify current air, waste, and water regulations;
  3. find potential abatement technologies that can be used to comply with the regulations; and
  4. estimate the cost of pollution abatement technologies.

Determine Actual Emissions Levels
Actual emissions levels were found for each country and, if available, by industry. Air emissions data are generally available from government sources but industry-specific waste and wastewater volumes are not available for most countries. In these cases, a production process flowchart of a typical manufacturing plant provided enough detail to calculate product-specific waste and wastewater generation. The calculations were aggregated to total industry waste and wastewater volumes by country.

Identify Current Pollution Control Regulation
Pollution control regulations vary by country and industry. Regulations are determined at the country level for air pollution and air quality standards for particulate matter (PM), nitrogen oxides (NOx), and sulfur dioxide (SO2). For greenhouse gas emissions, countrywide reduction goals and, if available, industry-level reduction goals were found. Table 5 displays the detailed findings.

For waste and wastewater, this study assumed that in all countries, both hazardous and nonhazardous waste has to be treated.The study did not investigate detailed wastewater pollution concentrations. The assumption was that all wastewater has to be treated, either on-site or off-site. Nevertheless, a portion of wastewater that varies by industry is recycled within the industrial production process. This internal recycling was part of the calculations.

Table 5 – Pollution Abatement Regulations for Manufacturing

Note: Orange=stringent regulation; green=lenient regulation Source(s): MAPI Foundation and national regulations

Note: Orange=stringent regulation; green=lenient regulation
Source(s): MAPI Foundation and national regulations

Find Pollution Abatement Technologies
Knowing the pollution limits, the next step was to create a list of technologies that abate pollution. The most common equipment and systems for mitigating polluted air, waste, and wastewater by industry and pollutant type were identified; these technologies must comply with national regulations. Pollution control technologies were then matched with the stages in the industrial process flowchart that generate air emissions, GHG emissions, waste, and wastewater for the industries in the countries studied.

Air Pollution
The approach used for these non-GHG emissions was to identify current regulatory air quality standards in each country for nitrogen oxides, particulate matter, volatile organic compounds, and sulfur dioxide emissions. The industrial process flowchart revealed the standard equipment needed for emissions sources by industry. The appropriate control technologies came from a review of numerous federal and state air emissions permits. For each technology, the standard emission factor in the EPA’s AP-42, Compilation of Air Pollutant Emission Factors, for controlled or uncontrolled emissions was used.

An investigation of state and federal air permits determined the final product-specific air emissions limits per pollutant type by industry and equipment type (in tons of emissions per ton of product). Matching the defined limits with the available control technologies and their emission factors defined a technology meeting the limit.

Outside of the United States, air permits are generally not available. For these countries, the percentage variations in overall ambient air quality standards compared with the U.S. standards for each pollutant type were calculated. Applying the same percentage variations to the plant-level emissions limits defined the complying abatement technology.

Greenhouse Gas Emissions
For greenhouse gas emissions, each country’s legislative requirements defined emissions reduction goals. For most of the countries, reduction targets are broken down into product- or energy-specific benchmarks. Actual average emissions per ton of product produced compared with the required benchmark represented the required reduction needed per ton of product. Multiplying the required product-specific reduction by each industry’s annual production volume determined the entire sector’s annual reduction in volume.

The EPA does not define sector-level or product-specific reduction goals.The Clean Air Act requires new source permits for more than 100,000 tons per year and requires Best Available Control Technology review that would then define the emissions limitations. Rather, they set a national goal of 17% GHG reduction in 2020 below 2005 levels. This study allocated a goal to manufacturing based on its share of total GHG emissions. For example, the U.S. emitted 6,875 million tons of GHGs in 2010 and the aim is to be at 6,021 million tons in 2020. That requires an annual reduction of 854 million tons per year from 2010 onward.Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2012, EPA, April 2014, http://epa.gov/climatechange/Downloads/ghgemissions/US-GHG-Inventory-2014-Main-Text.pdf. The manufacturing sector is responsible for 16.7% of these emissions based on its share of total 2010 emissions.

Waste and Wastewater
The amount of hazardous waste and wastewater for the industries and countries came from an industrial production process analysis of a sample plant in each industry to determine the number of pollutants per ton of produced product. For each industry, the product-specific tons of pollutant multiplied by the overall countrywide production volume yielded the total volume of waste and wastewater by industry and country.

Estimate the Costs of Abatement
Pollution abatement cost analysis includes capital costs, direct and indirect installation costs, and direct and indirect operating and maintenance costs. The calculations in this study used the methodology from the EPA Air Pollution Control Cost Manual, Sixth Edition, EPA/452/B-02-001, January 2002, www.epa.gov/ttn/catc/dir1/c_allchs.pdf. adding in the assumptions that (1) the defined abatement technologies are available in each country and (2) the World Bank’s purchasing power parity conversion factor is the “number of units of a country's currency required to buy the same amount of goods and services in the domestic market as a U.S. dollar would buy in the United States.” reflects the cost differences between countries for the technologies.

Air Pollution Costs
Cost data from U.S. state and federal air permits and other EPA sources quantified the cost per ton of pollutant removed for each control technology. The FY 2011-2015 EPA Strategic PlanFY 2011-2015 EPA Strategic Plan, September 2010, http://nepis.epa.gov/Exe/ZyPDF.cgi/P1008YOS.PDF?Dockey=P1008YOS.pdf. defines the U.S. reduction goals by 2015 for NOx, SO2, PM, and VOCs. The baseline year was 2008 for these reductions and the goal is linear—the annual reduction percentage is the same over the entire period. This study used the 2014 absolute reduction goal (in million tons per year) and allocated it to each industry by applying the percentage share of total emissions.

For other countries, instead of absolute national reduction targets for individual pollutant types, they might have only relative percentage reduction goals compared with a baseline year. The emissions reduction goals convert into an annual absolute emissions level by assuming a linear reduction from the baseline to the target year.

Greenhouse Gas Emissions Costs
For the European countries with an existing emissions cap and trade scheme, the current year’s forward market price represented the marginal cost of reduction. In the U.S. and Canada, the California cap and trade August 2014 priceCalifornia Air Resources Board Quarterly Auction 8, California Environmental Protection Agency, August 2014, www.arb.ca.gov/cc/capandtrade/auction/august-2014/results.pdf. of $11.50 per ton represented the cost of CO2 reduced. This study derived other countries’ costs from GHG abatement cost curves at a country and sector level. In some countries and sectors, measures with negative costs such as energy efficiency were included. Mexico and Brazil currently do not have any GHG reduction requirements for manufacturing and thus their GHG emissions reduction costs are zero.

Waste and Wastewater Management Costs
This study assumed that 30% of wastewater per plant is recycled, 70% of wastewater is treated off-site, and solid waste is treated off-site before going to landfills. Wastewater costs were determined using the average commercial sewer surcharge rate. Nonhazardous waste landfill costs are available for some countries; for the others, this study applied the purchasing power parity conversion factor.

Kristin Graybill