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The whole structure can be turned around to work in favor of the environment, however, by a well-designed system of levies on all wastes being dumped into the environment. The charges would be related to the quantity and kind of polluting substance. In essence, these levies become the price of using the common property resource for waste disposal. If waste charges are properly set, they should serve as a powerful incentive to cut down pollution; that is, if polluters choose to reduce their waste output rather than pay the bill. I believe they will. At least that has been the response where municipal water waste treatment plans have imposed charges on industries that were piping their effluent into the plant. Eluent charges have been an integral part of the successful water pollution abatement strategy in the Ruhr Valley in West Germany for some time.
How is the size of the levy to be decided ? In principle, the charges should reflect the damage that pollution does to all other users of the environment. We do not know enough yet about the financial cost of these damages to design the optional set of charges. But the quality of air and water can be substantially improved, by having federal and state regulating agencies impose waste charges, and fixing the charges on the basis of the costs of treating wastes at various levels. The costs of treatment tend to rise as the degree of treatment and waste removal increases. Higher charges are necessary to induce higher levels of abatement. A regulatory agency or commission would have to determine for each river or air shed how much reduction in discharges would be required to achieve acceptable standards; it would then set charges accordingly. Charges could be raised where experience showed them to be too low.
Is this practical? Here is not the place to discuss the technical details of automatic monitoring and measurement. But we can provide the broad outlines of an answer. In the case of water pollution from industrial and municipal sources, the answer is clearly yes. The measurement systems are available, and most of the points of discharge have already been identified and cataloged by state and local authorities. Pesticide and fertilizer runoff into the rivers is another matter. This is so diffuse that it isn't feasible at present to identify sources and to measure runoff. And there are unsolved technical problems in continuously measuring some emissions into the air. It may be necessary to rely on estimates of quantities, based on records of materials processed and on periodic samples. Another air problem is the multitude of sources, including automobiles and home heating. However, periodic emissions checks may be used to determine a tax factor to be added on to the price of fuels. In both cars and heating this would provide an incentive for individuals to obtain and maintain the most up-to-date, economically feasible control equipment (or shift to nonpolluting energy sources) and to economize on the use of fuel. For solid wastes, from dumped automobiles to beer cans, the diversity of materials and points of discard pose real problems in designing an incentive system based on charges. Yet charges (which raise the cost of consuming goods which generate large quantities of solid wastes) are still the best hope of inducing a shift away from consumption items of high disposability, like elaborate packaging and nonreturnable bottles, toward greater recycling and materials recovery.
In summary, there are three major reasons for moving toward a system of levies on waste as rapidly as possible. First, where the measurement problems have been worked out, charges will be easier to administer and enforce than any alternative approach; the profit motive replace compulsion as the primary enforcement weapon. Second, a system of charges would fundamentally change the rules of the game under which polluters operate; the incentives for delay and for less than full compliance would be replaced by economic rewards for quick compliance and for searches for new control techniques and new processes. Third, a charge system would be equitable in that it would assign responsibility for the damages of pollution to those who cause them, and would make them responsible for finding the most effective and efficient way to prevent those damages.
Mr. FREEMAN. Appended to that statement I have included materials which may be of interest to the committee. One, which was written about 11 years ago, proposes a smog tax on general air pollution emissions from automobiles and the other written by myself explains in more general terms the economic aspects of an effluent charge.
The testimony so far today that I listened to has dealt largely with technical questions such as what can refineries do? What are the sub
stitution possibilities between leaded and nonleaded gasoline? I want to turn attention away from the technical issue and toward what public policy instruments can we use to actually obtain what are the socially desired actions?
Constructing a system of legal or administrative or economic devices to get people to do what they would not ordinarily do is really a tricky business and more often than not we tend to fail at it.
The water and air quality legislation are prime examples of our failure to devise systems adequately.
Broadly speaking, the laws dealing with air and water pollution have created the wrong kind of economic incentives. If I can use an analogy, it is similar to installing a stop sign at an intersection which does not create the incentive to stop or drive slow but rather creates the incentive to watch to see if a patrolman is behind a tree.
Similarly with air and water control, firms have hired lawyers and lobbyists to seek delays in the courts and other legal tactics rather than undertaking pollution abatement-hiring lawyers instead of buying the pollution equipment.
It has sometimes been said that pollution control should be considered a normal cost of doing business but I think this really misses the point. Business men are very good at minimizing the costs of doing business and to the extent that you consider pollution control a cost of doing business I think we would have to admit industrial decisionmakers have been very good at minimizing the cost of pollution control-not doing enough here. I think the answer to this problem is make pollution a cost of doing business—in other words, make pollution control profitable. And the way to accomplish this is to establish systems of charges on pollutants whether they be air or water pollutants.
The net effect of this, if charges were established, would be first to create an incentive to treat waste as long as the costs of treatment were less than the cost of the charge. And, of course, an adequate charge system would have to be designed in this way to meet the pollution control objectives.
But, in addition, a system of charges would create incentives in general to recycle materials, to undertake different processes, to seek process change, and to undertake recovery where appropriate.
I realize some of these remarks are not directly pertinent to the lead tax but the final point is that in addition there would be incentives to undertake real research and development in the area of nonpolluting automobiles or in general nonpolluting or lower polluting products.
Another aspect of the change in incentives that would be brought about by charges is to make products that cause the most pollution relatively more expensive and thus shift patterns of consumption and demand away from things that cause pollution and toward things that are relatively safe environmentally.
In principle, the determination of the charge would be related to the economic damage associated with the pollution that you were trying to avoid.
Unfortunately in many instances, the economics are not worked out to a point that we could put dollar values on these damages, but this does not mean a system of charges could not be used in any event.
In practice, the charge can be used as simply a device to achieve the politically established environmental standards or goals. When they are used in this way they can be administratively simpler. They are essentially self-enforcing because they become part of the normal course of doing business rather than a matter for judicial or administration determination. And they will accomplish pollution abatement in the most effective manner by tapping the profit motive and business incentives and harnessing these to the task of pollution control.
I would like to respond to several points that have been brought out in earlier testimony today and on Monday as I read it in the news. paper. Mr. Biemiller of the AFL-CIO brought up the point that a charge on lead such as this would be a "license to pollute for those who can afford to pay the charge."
But in general this would not be true. Some of the evidence being presented today concerning the low success in marketing nonleaded gasolines that have been brought out thus far suggest that consumers are really quite price conscious when they buy gasoline.
The question here is really not how we are going to get the companies to provide nonleaded gasolines. Rather, the question is how are we going to get the consumers to buy it when it is available and utilize it rather than the leaded and high octane gases.
I think the only way to accomplish this is to make leaded gasoline relatively more expensive which is what the proposed lead tax would accomplish.
I think reliance on good intentions and exhortation is not going to be effective in achieving the shift in consumption of gasoline that we should have.
I think if the tax were passed or something very similar, a tax on leaded additives to gasoline, we would see two kinds of responses on the part of consumers and this is what I want to direct attention to.
We would see some tendency to shift to nonleaded gasolines of the same octane rating and we would probably see shifts to lower octane ratings of low lead or no lead gas. I mention this in my prepared statement, I have come across an unfortunately unpublished study which suggests that the cost of shifting to lower octane with existing cars on the road today would be much lower than might have been suspected heretofore.
In that study they found that a simple change in engine timing of about 4 degrees in retarding the spark would enable a car originally designed to run on 100 octane to run on about 95. A car designed to run on regular 94 or 90 octane would run on 88 or 89 octane with no loss in force, in horsepower.
These were dynamometer tests and the loss was of the order of 2 percent. What I am suggesting is the way consumers and car manufacturers would respond to the tax. This would greatly reduce the use of lead and would not impose costs on the petroleum industry anywhere near the order of magnitude they have been suggesting today— the four and a quarter billion dollars or up to $7 billion in terms of current prices.
I think that figure is based on assumptions which don't reflect what really would be the response of the consumers and manufacturers to such a tax.
The representative of the chamber of commerce on Monday was quoted as saying he thought such a tax would be an undesirable precedent. I want to disagree with this point. From my point of view, and from the point of view of all who are serious about pollution control, I think this would be a very valuable and desirable precedent.
Only partly in jest, I would suggest that the reason the chamber of commerce and other industrial groups have opposed this bill, and every other attempt I have been familiar with, to implement the principle of economic incentives, effluent charges, or emission charges, really they know it will work.
Congressman Rogers, this morning, your first witness, asked if the administration were really serious about using taxes for pollution control, why haven't they proposed tax on any nitrogen oxides, sulfur oxides, and so forth?
I would simply like to repeat the question because, again, as my prepared testimony indicates, the principle of charges could be used or employed in a far wider range of ways to combat pollution than simply the lead tax.
I think the proposed tax is a small step in the right direction but I would certainly hope that appropriate congressional committees would consider using it in other ways as well.
Thank you, Mr. Chairman.
The CHAIRMAN. Thank you, Professor Freeman, for your excellent statement.
We appreciate your coming before the committee today.
Are there any questions of Professor Freeman. If not, we thank you very much for coming before the committee.
The next witness is Mr. J. H. Pittinger. If you will identify yourself for the record, we will be glad to recognize you, sir.
STATEMENT OF J. H. PITTINGER, PRESIDENT, INDEPENDENT
REFINERS ASSOCIATION OF AMERICA; ALSO ON BEHALF OF APCO OIL CORP.; ACCOMPANIED BY EDWIN J. DRYER, WASHINGTON REPRESENTATIVE, INDEPENDENT REFINERS ASSOCIATION OF AMERICA Mr. PITTINGER. I am James Pittinger and the man to my right is Edwin J. Dryer, Washington representative of the IRAA.
I appear here on behalf of the Independent Refiners Association of America, of which I am president. I am also president and appear on behalf of APCO Oil Corp. of Oklahoma City, Okla., a typical medium size, inland, independent refiner, which, like the other independent refiners for whom we speak will be severely and unnecessarily injured by the proposed tax on lead additives in gasoline.
1. THERE IS NO JUSTIFICATION FOR THIS TAX AT THIS TIME
While the Commerce Panel on Automotive Fuels and Air Pollution wants to ensure the availability on an unleaded grade of gasoline in the last half of 1974, this does not require a tax in 1970. Other means, with less potential harm to the industry and consumers, can accomplish this objective.
2. ADVERSE IMPACT OF THIS TAX UPON THE INDEPENDENT REFINER Independent refiners require more lead additives per gallon produced than refiners with very large plants—the major companies. A tax on lead additives will discriminate against independent refiners by assessing them with costs which they cannot fully recover out of product prices; they cannot recover the full amount of the tax on lead because refiners with the lowest requirements for lead—the majors—will set the price which all must match.
To offset this discriminatory effect, some exemption for independent refiners is necessary. The exemption in the proposed legislation can be substantially improved
3. ADVERSE IMPACT ON CONSUMERS
The long-term adverse effects for consumers are even more serious than the indicated price increase estimated by the government–if the effect of the tax is to drive the independent refiner from the market.
There are serious questions of fairness in the application of the tax to consumers in different areas. Why should consumers in rural areas be assessed the cost of pollution control in congested urban areas?
4. THE SOCIAL WASTE IN THE 3-PUMP SYSTEM If national policy has the effect of fostering three grades rather than two basic grades of gasoline, it will cause waste of staggering proportionsrepresented by the investment in additional tanks, pumps, etc., which will not be needed ten years hence. The proposed tax fosters a 3-pump system.
Mr. PITTINGER. I speak for Ashland and Mr. Logan that the tax is not justified at this time.
1. THERE IS NO JUSTIFICATION FOR THIS TAX AT THIS TIME
At the outset, I would like to add our general endorsement to, but avoid duplicating, the testimony which will be recorded with you by other oil companies and oil industry associations in opposition to this proposed tax.
There is one point, however, there, which is so important that I wish to stress it, even at the risk of duplicating the testimony of others.
That point is that there has been absolutely no justification advanced, in the testimony of administration officials thus far, for the imposition, at this time, of a tax with such far-reaching implications.
We urge, therefore, as a very minimum, that steps to impose such a tax be deferred until the earliest date at which such a tax may be necessary 4 years from now. In the interim, it is entirely possible, a possiblity which is conceded by the administration witnesses, that means will be developed to meet 1975 auto emission standards without a lead-free gasoline and without a tax on lead as an offset to the higher price for lead-free gasolines. If such means are not developed, and a tax proves necessary,
the tax need not be effective before the fall of 1974, the time when the devices requiring a lead-free gasoline first become generally available.
This is so important and so overlooked in the composite of administration testimony that I wish to be specific. I recognize that Secretary of the Treasury Kennedy said: “The need for this tax is immediate."
He said that the tax is immediately needed because “The presence of these compounds in the environment is dangerous, both for the present as well as the future.”
Such a sweeping conclusion would be a formidable argument for immediate action, if demonstrably true, but this argument for immediate action is not supported by the special panel of experts, which the President assembled to review this problem, the Commerce Technical Advisory Panel on Automotive Fuels and Air Pollution, headed hy Dr. Ragone.