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5. Conclusions: Opportunities for Cost Savings

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Savings from Economic Incentives


Economic incentives have long been advocated by environmental economists as a more efficient means to achieve environmental goals than the present predominantly command and control approach. The following savings are projected to occur in air, water, and land pollution control in the year 2000 under existing Federal, state, and local laws, regulations, and programs and the continuation of recent trends in their implementation:

    Medium
Air
Water
Land
Total
    Projected Savings (billions of 1986 dollars annualized at seven percent)
3.9
2.3
0.5
6.7
    Projected Savings (billions of 1992 dollars annualized at seven percent)
4.9
2.9
0.6
8.4
    Projected Savings as a Percentage of Total Costs without Savings
8.0
3.8
1.0
4.3

Although in some cases appropriate changes in the relevant legislation would be required, the following additional savings are estimated to be possible by the year 2000 if the most economically efficient incentive programs were instituted:

    Medium
Air
Water
Land
Total
    Additional Possible Savings (billions of 1986 dollars annualized at seven percent)
14.0
15.0
0.4
29.4
    Additional Possible Savings (billions of 1992 dollars annualized at seven percent)
17.4
18.6
0.5
36.5
    Additional Possible Savings as a Percentage of Total Costs without Savings
28.6
24.8
0.8
18.8


The total additional possible savings of about $29 billion can be placed in perspective by pointing out that they come to about one-half of one percent of gross domestic product. If the projected and the possible additional savings are added together, then the total potential savings would be as follows:

    Medium
Air
Water
Land
Total
    Total Potential Savings (billions of 1986 dollars annualized at seven percent)
17.9
17.3
0.9
36.1
    Total Potential Savings (billions of 1992 dollars annualized at seven percent)
22.2
21.5
1.1
44.8
    Total Potential Savings as a Percentage of Total Costs without Savings
36.6
28.6
1.8
23.1

If the incentives were carefully designed, these savings could be achieved with no change in environmental objectives. The relative size of the projected savings, additional possible savings, and remaining costs are compared to total costs without savings graphically in terms of both percentages and billions of 1986 dollars annualized at seven percent. The total costs without savings are projected to be $156 billion in 1986 dollars or about $194 billion in 1992 dollars.

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