Industrial Siting and the Environment

The 1970s were a turbulent time for firms siting new facilities. Especially hard hit were some of America's traditional heavy manufacturing industries, which found their proposed new plants confronted not only by complicated new government environmental rules, but also by increasingly vociferous and effective opposition from local citizens. The toll on these projects can be measured by overall statistics—more than a dozen proposed oil refinery projects blocked or canceled on the East Coast alone—or by such individually notable projects as the BASF chemical plant in South Carolina, the SOHIO oil pipeline in southern California, and the Kaiparowits electric generating plant in Utah, all canceled after prolonged siting controversies.

The deep recession that has gripped the economy since early 1980 moved siting controversies out of the headlines. In part, industrial investment projects have been stifled by record high real interest rates. But equally important has been the fact that U.S. manufacturing firms are operating at far below the capacity of their existing plants. In 1982, the Federal Reserve Board's indicator of capacity utilization in manufacturing stood at 69.8 percent, easily the lowest in the series' thirty-five year history.

But recessions, we all hope, eventually come to an end, and the first few months of 1983 saw signs of economic recovery. Assuming that this upturn continues, is the remainder of the 1980s likely to repeat the contentious industrial siting experience of the 1970s?

Controlling the pollution-prone

Perhaps the most important single variable to consider is the number of environmentally problematic facilities likely to be proposed in the decade ahead. Plant-siting controversies are highly concentrated in only a handful of what might be termed pollution-prone branches of manufacturing—steel, primary nonferrous metals, oil refining, pulp and paper, and chemicals. These industries employ 14 percent of all manufacturing workers, but they account for 33 percent of capital expenditures by manufacturing firms. In these sectors processes tend to be dirty, and plants frequently are large and visually obtrusive. The President's Council on Environmental Quality estimated that between 1978 and 1986, these five sectors would have to spend nearly $25 billion on new investments in pollution controls, amounting to 65 percent of the total expenditure required for all manufacturing industries. To these should be added a non-manufacturing sector with rather similar characteristics, the electric utility industry. It, too, has large plants and difficult pollution problems.

Let us examine the medium-term outlook for capacity additions in each of these sectors. Table 1 shows the U.S. Department of Labor's projections of real output growth during the 1980s, with high and low figures that depend on assumptions about the general robustness of the economy. Steel, petroleum refining, and copper are projected to grow at below the rate for the economy as a whole; paper at about the average rate; and chemicals, aluminum, and electric utilities significantly faster than average.

Overall, the share of the economy's total output represented by these sectors is projected to fall from 9.2 percent to 8.7 percent. (Interestingly, the fall in proportion is slightly greater in the scenarios with the highest overall economic growth.) Growth at the rates projected can scarcely be termed negligible, but the figures do not lend much support to the belief that economic recovery will be accompanied by a surge of new proposals for large plants in the traditionally pollution-prone sectors.

Most of these sectors serve mature markets or (as in the case of steel and petrochemicals) are fighting for market share with low-cost foreign producers. Moreover, in several of these sectors there seems to have been a recent tendency to expand or rebuild old plants, rather than seeking entirely new "greenfield" sites. Of the sectors considered, electric utilities appear most likely to require large numbers of new domestic sites. But at the moment (and with some conspicuous local exceptions) most electric utilities have a ratio of peak generating capacity to peak demand that is high by historic standards. Plants conceived during the high-growth 1960s are newly in place or about to come online, despite the fact that the rate of growth in power demand has fallen off sharply since 1973. This is likely to keep reserves high for the next few years and postpone site-seeking by many utilities.

Near-sighted optimism

In a more qualitative vein, one might contrast the present, very sober, industrial outlook with the unbridled optimism of the late 1960s and early 1970s, the period when many of the last decade's controversial projects, including some implemented years later, were first conceived. It was a time when "long-range planning" captured the imagination of American corporation executives, leading them not only to make plans for huge expansions of facilities for the decades to come, but to proudly announce these ambitions to the public.

Ironically, at just that time, policy analysts, state and local governments, and community groups were developing equal capability in planning, and were able as never before to project the fiscal, social, and environmental impacts of the projects that were being announced. Both the proponents of the new projects and their potential opponents consistently made unrealistic assumptions about how much growth was actually likely to occur, and the expansionary fancies of the former became the latter's ecological nightmare. For example, electric utility planners extrapolated a future of 7 to 8 percent compounded growth in power demand and consequent need for hundreds of new nuclear power plant sites, while environmentalists took the highest projections and predicted disaster. It is symptomatic of the times that Alvin Toffler's Future Shock occupied the best-seller lists for much of 1971.

Another reason to expect that the years ahead will be less difficult for industrial siting is society's position on the regulatory learning curve. During the first half of the 1970s, federal and state governments implemented an unprecedented number of new environmental laws, including the National Environmental Policy Act, Clean Air Act, a greatly expanded Clean Water Act, and a host of environmentally oriented state land use restrictions. Most of these laws embodied unfamiliar procedural innovations, such as the Environmental Impact Statement and the greatly expanded role of citizen lawsuits. Moreover, Congress in many cases provided only the vaguest guidance as to how antipollution laws were to be applied in practice, allowing the administering agency wide discretion in writing regulations and all but inviting legal challenge when the regulations were implemented. In some cases it took several years for the Environmental Protection Agency to promulgate specific regulations, then several more until the courts had agreed on what was permissible.

If government had difficulty in learning how to regulate, industry had difficulties in complying. The wave of environmental regulatory activity caught many projects—particularly the largest, which have the longest planning horizon—in mid-stream. Many firms simply barged ahead with environmentally questionable projects, believing that a combination of political power, legal talent, and engineering modifications could make projects conceived in the late 1960s acceptable in the 1970s. In many cases, executives were honestly surprised when such projects were blocked or long-delayed.

In a recently published analysis of the Dow Chemical Company's celebrated (and unsuccessful) attempt in 1975-76 to locate a large petrochemical plant near San Francisco, Conservation Foundation researcher Christopher J. Duerksen emphasizes the inexperience of both the firm and the government's regulatory personnel. "The players in the Dow controversy," writes Duerksen, "were in many ways like a toddler taking its first steps. The baby careens around a room, runs into things, and finally falls down. But the next time around, the trip goes more smoothly."

There is little doubt that both regulators and the regulated are more competent and sophisticated than they were during the last decade. The pace of environmental legislation has slowed, and more attention is being paid to refining old laws than to enacting entirely new ones. The nation's principal air and water laws have been extensively litigated, and many of the regulations are now in place. Regulation of toxic substances is still in its infancy, though even in that case the basic laws have been in place for several years. Most large firms, particularly in the pollution-prone sectors, now have both the technical expertise and the organizational chain-of-command to deal with environmental challenges when they arise. Perhaps most important, both industries and bureaucrats have nearly a decade's worth of projects, some built and some blocked, to examine for specific lessons as to the kinds of problems that are likely to arise and how they might be handled.

Potential problems

Although the factors just discussed point toward considerably less stormy times for industrial siting in the decades ahead, at least three problem areas bear watching:

• Toxic chemicals. The public has become concerned and fearful over the dispersal of toxic industrial chemicals into the environment. The issue's already strong emotional content has been intensified by the widespread, and not unjustified, belief that scientific knowledge of safe levels of exposure is inadequate and that the government is unwilling or unable to protect public health. In the years ahead, it may be as difficult to site small plants posing a threat of toxic pollution as it was in the past decade to site large sources of conventional effluents.
• High-technology plants. Although in the current depressed economy, high-technology plants are eagerly sought by nearly all political jurisdictions, it is not difficult to envision circumstances in which their siting would prove controversial. Some high-technology plants use toxic chemicals, radioactive materials, or biologically active substances. Transporting, storage, and disposal of these materials may prove objectionable to neighboring residents or to local government authorities, particularly if regulatory authority has been preempted by a higher level of government that is perceived to be unresponsive to local needs. High-technology firms also are likely to raise issues of secondary impacts, including induced population growth, water supply, traffic, and municipal infrastructure. High-tech firms tend to cluster together, or "agglomerate," because of their mutual attraction as customers and suppliers, their need for a specialized labor force, and the tendency for entrepreneurial spin-offs to remain close to the "parent" firm. Moreover, the high-tech clusters seem to have a strong attraction to high-amenity areas where skilled and highly mobile workers find the living congenial. In a vibrant economy, these characteristic behaviors of high-technology firms are likely to set the stage for more of the local growth-limitation movements that in years past arose in such places as Boulder, Colorado, and Boca Raton, Florida.
• Small plant concentrations. How should we deal with concentrations of small plants—each a minor source of pollution—that collectively release large amounts of effluent? Thus far, small and medium-sized plants have had to meet pollution control technology standards, but they have been unaffected by requirements that air pollution offsets be secured in "nonattainment areas" or by the "prevention of significant deterioration" rules in relatively unpolluted areas. Small emitters of water pollutants, including toxic substances, also get certain regulatory advantages. This appears to provide an incentive to construct pollution-prone plants at a scale smaller than they might otherwise have been so as to fall under these regulatory thresholds. Thus, it is possible that even as society faces somewhat fewer problems in siting very large scale plants, it may have to find new and innovative ways to cope with the cumulative impacts of many small ones.