Subsidies for Pollution Control2001 1117. Subsidies for Pollution Control7.1 IntroductionFor the purposes of this report, subsidies of interest involve financial support by thegovernment of activities believed to be environmentally friendly. The types ofsubsidies described in this report include grants, low-interest loans, favorable taxtreatment, and procurement mandates for products believed to have environmentaladvantages. Research and development, information dissemination, and otherservices provided by the government that are below their true cost could also beconsidered subsidies. However, such services are too varied and numerous to beincluded in this report.Subsidies are often funded by the fees charged on environmentally harmful productsor activities. Advance disposal fees, for example, provide revenues to subsidize theproper disposal of products after their use. Although it could be argued that suchdisposal activities are not truly subsidized by the government if they are fundedentirely by the fees on the product that are paid by industry or consumers, thischapter includes such mechanisms for the purposes of discussion.Given the variety of subsidies used in environmental management at all levels ofgovernment, this chapter does not attempt to cover the topic in a comprehensive way.Its purpose is, instead, to provide an overview, with illustrative examples of the typesof subsidies and how they have been used to address specific environmentalproblems.The following areas are considered: pollution prevention and control, cleanup ofcontaminated industrial sites, farming and land preservation, consumer product wastemanagement, citizen monitoring of environmental regulations, alternative fuels andlow-emitting vehicles, and municipal wastewater treatment. The chapter concludeswith a discussion of subsidies that have had the unintended effect of promotingenvironmentally harmful activities.Table 7-1 summarizes various subsidy instruments, most of which are discussed inthis chapter. Column 2 shows who pays for the various subsidies. The issue ofwhether the costs of subsidies are passed on to other businesses or consumers insome way is not addressed. Information on funding sources other than generalrevenues is also included in parentheses, where available. Column 3 lists therecipients of these subsidies. Whether these parties pass on the benefits of subsidiesto their customers or others is also not assessed.7.2 Pollution Prevention and ControlThis section discusses the use of tax benefits and loans to promote pollutionprevention and control. It also discusses an EPA program under which fines forenvironmental violations are reduced in exchange for pollution prevention andcontrol activities.The U. S. Experience with Economic Incentives for Protecting the Environment112 JanuaryTable 7-1. The Use of Subsidies in Environmental ManagementSUBSIDY INSTRUMENT WHO PAYS? RECIPIENTSGrantsBrownfields development grants EPA, states Communities, property ownersCost sharing for land conservation Federal government Property ownersConservation easementsFederal, state, and local governments(Land transfer taxes)Property ownersEnvironmental violation reporting rewards States of New Jersey, California Individuals and organizationsWaste management and recycling grantsFederal, state, and local governments(advance disposal fees (ADFs), wastetaxes)Public and private organizationsUnit-based waste collection or reusepaymentsState governments (ADFs, waste taxes) BusinessesUnit-based payments for the use ofalternative fuel vehicles (AFVs)Federal governmentPublic bus systems and smallbusinessesMunicipal sewage treatment plantconstruction grants (replaced by loans)Federal and state governments CommunitiesLoansPollution control loans State governments Small businessesBrownfields development loans State governments (waste taxes) Property ownersRecycling business loans State governments (ADFs, waste taxes) BusinessesMunicipal sewage treatment plantconstruction loans (replaced previous grantprogram)Federal and state governments CommunitiesTax BenefitsPollution control property State governments Private organizationsLouisiana environmental score-carddeductionState of Louisiana BusinessesBrownfields development State governments Property ownersLand use credits State governments Property ownersRecycling benefits State governments BusinessesCredits for ethanol and compressed naturalgasFederal and state governmentsAlternative fuel vehiclemanufacturersCredits for alternative fuel vehicles andequipmentFederal and state governmentsAlternative fuel vehiclepurchasersRenewable electricity generation credits Federal government BusinessesElectric vehicle credits Federal government Businesses or organizationsInterest exemption of pollution controlinvestment debtFederal government Businesses or organizationsProcurement MandatesPublic procurement of recycled products Federal, state, and local governmentsRecycled productsmanufacturersPublic procurement of alternative fuelvehiclesFederal, state, and local governmentsAlternative fuel vehiclemanufacturersRecycled content requirements Private organizationsRecycled productsmanufacturersMandates for the use of alternative fuelvehiclesPrivate organizationsAlternative fuel vehiclemanufacturersSubsidies for Pollution Control2001 113SUBSIDY INSTRUMENT WHO PAYS? RECIPIENTSMiscellaneousReduced fines in return for supplementalenvironmental projectsFederal and state governments BusinessesAccelerated review of applications for newpesticidesFederal government Pesticide manufacturersRelaxed regulatory requirements (e.g.,ethanol Ried Vapor Pressure (RVP) waiver)Federal, state, and local governments Various organizationsResearch & development; public education(technical assistance to participants involuntary programs)Federal, state, and local governments Various organizations7.2.1 Tax BenefitsNumerous states offer favorable tax treatment for the construction and installation of pollutioncontrol equipment. In most states that have such tax incentives, the equipment must havepollution control as its primary purpose. In some states, equipment with other purposes receivestax benefits on a prorated basis. Some states also require environmental regulators to certifyequipment that is eligible for tax breaks.The benefits usually apply to property or sales/use taxes but can apply to income tax in a smallernumber of states. Air and water pollution equipment is commonly given tax benefits. However,New York