The Effects of Hazardous Waste Taxes on Generation and Disposal of Chlorinated Solvent Waste

In 1989, 30 states levied taxes on the generation or management of hazardous waste. These taxes constitute one of the broadest applications of an emissions tax in U.S. environmental policy and provide a natural experiment for studying the effects of such taxes. This paper examines the impacts on chlorinated solvent waste from metal cleaning, using plant-level data from EPA's 1987-89 Toxic Release Inventories. The results suggest that the taxes have an observable, but small, impact on total generation of solvent wastes. The taxes also reduce the frequency with which land disposal is used relative to incineration or other treatment. 11 would like to thank James Poterba and Paul Joskow for guidance and helpful suggestions. I am grateful to the Center for Energy and Environmental Policy Research at M.I.T. for financial support. Taxes on pollutant emissions have recently attracted attention as a means of implementing environmental policy. Economic theory suggests that such "green taxes" can provide substantial benefits over conventional approaches to environmental regulation. There is little direct evidence about the effectiveness of these taxes in producing environmental improvements in practice, however. This paper examines the effects of one of the most significant applications of an emissions tax in U.S. environmental policy to date state taxes on the generation and management of hazardous waste. In the 1980s, hazardous waste regulation became a major component of U.S. environmental regulation, with compliance costs that are a significant fraction of the total cost of federal environmental programs (Portney, 1991). Like most of U.S. environmental policy, regulation of industrial hazardous waste has traditionally relied upon technology and performance standards. Recently, however, there have been calls for reform of these policies to rely more heavily on price-based policy mechanisms (Hahn, 1988). A national tax on waste generation and disposal was proposed as a funding mechanism for Superfund for the program's reauthorization in 1986 (CBO, 1985; EPA, 1984).2 The cross-sectional variation in state taxes provides a natural experiment for assessing the empirical effects of the proposed taxes. This paper examines the impact of state taxes on one type of waste, spent chlorinated solvents from metal cleaning. These solvents are one of the most common kinds of industrial hazardous waste generated in the United States. Disposal of these solvents may have substantial environmental costs; they are among the most common substances found migrating from Superfund sites and are considered highly toxic (NRC, 1991). EPA's 1987-89 Toxic Release Inventories provide data at the plant level on generation and off-site management of chlorinated solvent wastes. The results suggest that the taxes have in fact altered the generation and management 2In the 1986 Superfund Amendment and Reauthorization Act (SARA), Congress chose not to adopt any of the waste-end tax proposals. Instead, it extended and increased the existing excise taxes on chemical feedstocks, primarily on petrochemicals, and added a corporate income tax as sources of Superfund financing (Mahler, 1992). of chlorinated solvents. Higher taxes in the generator's state and in neighboring states reduce waste generated by plants. Because of the high costs of managing hazardous wastes, however, the effect of the taxes on total waste generation is small. State taxes also alter the management methods used for solvent wastes. Many states impose higher taxes on land disposal than other kinds of management in an attempt to discourage landfilling. The evidence in this paper suggests that they are successful: the taxes significantly reduce reliance on land disposal for wastes falling outside the federal land disposal restrictions. The paper begins with a section that discusses the characteristics of state taxes on hazardous waste from 1987 to 1989. It also describes earlier engineering studies of the influence of these taxes on waste generation and management. The next section provides background on the specific group of wastes that is studied in this paper, chlorinated solvent wastes from cleaning and degreasing of metals. The uses and hazards of these chemicals are discussed briefly. This section also describes the data on these wastes in EPA's Toxic Release Inventory