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How Federal Taxpayer SubsidiesWaste Resources andDiscourage Recycling

WELFARE FORWASTE

GRASSROOTS RECYCLING NETWORKFRIENDS OF THE EARTH

TAXPAYERS FOR COMMON SENSEMATERIALS EFFICIENCY PROJECT

ENDORSING ORGANIZATIONS ON BACK

Welfare for Waste, Page i

This report was made possible by the generous support of the Turner Foundation, the Merck Family Fund and TheFlorence and John Schumann Foundation. Special thanks to Douglas Koplow, Ed Boisson, Jeffrey Morris, ShawnCantrell, Erich Pica, Lance King and Bill Sheehan for reviewing and improving portions of this document. However,all responsibility for the views expressed in this report or for any errors in it rests with the authoring organizations.

Edited by Susan Kinsella (GrassRoots Recycling Network)Research and writing by: John Young (Materials Efficiency Project)Ralph DeGennaro, David Madland (Taxpayers for Common Sense)

Susan Kinsella (GrassRoots Recycling Network)and Erich Pica (Friends of the Earth)

April 1999

© GrassRoots Recycling Network 1999

This report will be made available for free on the Web at http://www.grrn.org.Additional copies of this report are available for $10.00 each from the

GrassRoots Recycling Network (includes shipping and handling).

GRASSROOTS RECYCLING NETWORKPO Box 49283Athens, GA 30604-9283Chair Rick BestNetwork Coordinator Bill SheehanTel 706/613-7121Fax 706/613-7123Email [email protected] http://www.grrn.org

The GrassRoots Recycling Network is a North Americannetwork of recycling and community-based activists whoadvocate policies and practices to achieve zero waste, to endcorporate welfare for waste, and to create sustainable jobsfrom discards. GRRN was founded in 1995 by members ofthe Sierra Club, the Institute for Local Self-Reliance, andthe California Resource Conservation Association.

TAXPAYERS FOR COMMON SENSE651 Pennsylvania Avenue SEWashington, DC 20003Executive Director Ralph DeGennaroCofounders Ralph DeGennaro & Jill LancelotTel 202/546-8500 x110Fax 202/546-8511Email [email protected] http://www.taxpayer.net

Taxpayers for Common Sense (TCS) is a 501(c)(3) non-partisan and politically independent membershiporganization dedicated to cutting wasteful governmentspending, subsidies and tax breaks through research andcitizen education.

MATERIALS EFFICIENCY PROJECT2008 Klingle Road NWWashington, DC 20010Director John YoungTel 202/667-6535Fax 202/986-7183Email [email protected] http://www.cnt.org/materials

The Materials Efficiency Project works to promote dramaticreductions in virgin materials use in the United States andother industrial countries, through research, education,advocacy, and organizing.

FRIENDS OF THE EARTH1025 Vermont Avenue NW, Suite 300Washington, DC 20005President Brent BlackwelderChief Operating Officer Jill DiskinTel 202/783-7400Fax 202/783-0444Email [email protected] http://www.foe.org

Founded in 1969, Friends of the Earth is dedicated toprotecting the planet from environmental degradation;preserving biological, cultural and ethnic diversity; andempowering citizens to have an influential voice in decisionsaffecting the quality of their environment � and their lives.

Layout by Chris Sparnicht and Bill Sheehan (GrassRoots Recycling Network)Printed on Halopaque 100% recycled (20% post-consumer content) paper, with soy-based ink.

Welfare for Waste, Page ii

Welfare for Waste, Page iii

TABLE OF CONTENTS

EXECUTIVE SUMMARY vTable: Federal Taxpayer Subsidies That Undermine Recycling and Reuse vii

PART 1Introduction 1Virgin Materials Subsidies: Wasted Resources 3

Virgin Materials Subsidies Were Established by Now-Outdated Public PoliciesGovernment Virgin Materials Subsidies Discourage RecyclingThe Effects Are Cumulative

The 21st Century Requires A New Public Policy: Materials Efficiency 9Benefits of Increased Materials Efficiency

The Solution: A Four-Stage Process for Eliminating Subsidies for Virgin Materials and Wasting 12

PART 2Selected Direct Federal Tax and Spending Subsidies 13

Timber Subsidies 131. Timber Tax Breaks2. Below-CostCommodity Timber Sale Program3. Forest Roads Construction4. Forest Service Salvage Fund

Hard Rock Mining Subsidies 195. 1872 Mining Law6. Mining Percentage Depletion Allowance7. Expensing of Exploration and Development Costs8. Inadequate Bond Requirements

Energy Subsidies 259. Percentage Depletion Allowance10. Intangible Drilling Costs11. Passive Loss Tax Shelter12. Alternative Fuel Production Credit13. Enhanced Oil Recovery14. Bonneville Power Administration

Waste Facility Subsidies 3115. Private Activity Bonds

Indirect Federal Subsidies That Undermine Recycling, Reuse, andResource Conservation 33

Conclusion 36

Endnotes 37

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Welfare for Waste, Page v

EXECUTIVE SUMMARYAmericans love recycling. It is one of the few ways that citizens believe

their individual everyday actions help protect the environment. More than120 million Americans now recycle more than one quarter of the total U.S.municipal discards.

But, at the same time that citizens take pride in their community recy-cling programs, the federal government is wasting billions of dollars everyyear on programs that directly undermine those efforts. This report showsthat recycling competes with virgin materials and waste disposal industrieson an uneven playing field. Well-financed and politically influential virginmaterials industries receive significant tax breaks and other subsidies. Thiswastes taxpayer money while encouraging environmentaldepletion, pollution, lost job opportunities, and trashing ofrecyclable resources. Meanwhile, resource-efficient recyclingand reuse businesses, which tend to be smaller, community-based and run by entrepreneurs, struggle against subsidizedcompetitors.

Favoritism to virgin materials industries originated in the1800s with federal and state subsidies intended to developthe West, and to spur the transition of the nation from anagrarian to an industrialized society. Many of these subsi-dies still exist and more have been added. However, the soci-ety that these subsidies were intended to develop no longerexists, transformed in part because of the early influence ofsuch policies.

Subsidies for resource extraction have their twin in subsi-dies for waste disposal facilities. Both are integral parts of alinear production model which involves extracting raw ma-terials, making them into products, then discarding them �outof sight, out of mind� in landfills and incinerators. The wastedisposal industry, in fact, competes directly with reuse and recycling busi-nesses for the supply of discarded resources. Moreover, burying, burning orotherwise destroying discarded material simply fuels more resource extrac-tion to make more products.

The 15 subsidies targeted in this report will pour an average of $2.6 bil-lion every year into direct subsidies for resource extractive and waste dis-posal industries, or more than $13 billion over five years.1 This is real moneyto real people who pay taxes. Moreover, while the dollar level may seemrelatively small, that kind of preferential economic treatment is immenselysignificant when compared to its potential impact on the much smaller recy-cling and reuse industries. For example, in the late 1990s, the value of allpostconsumer recyclable materials furnished to recycling manufacturers,including non-ferrous metals, has ranged from $16-19 billion per year.2 Sub-sidies to the raw materials industries that are worth 15% of the recyclingindustry�s feedstock costs are clearly influential.

JIM MACKOVJAKI

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Moreover, the direct subsidies detailed in this report represent just thetip of the iceberg. Billions of dollars more in preferences for resource-wast-ing industries tip the scales farther against recycling and reuse. These in-clude indirect subsidies, such as:

� cheap energy that disproportionately benefits the more energy-intensiveextractive industries,

� road building at taxpayer expense to serve industries remote from met-ropolitan markets, and

� tax policies that favor capital expenditures over labor costs.

Even more substantial are the costs that virgin materials and waste dis-posal industries don�t pay but should. Too often, taxpayers end up payingthese costs, such as:

� impacts of environmental damage,� pollution clean-up, and� waste disposal.

By paying for subsidies to extract virgin resources, taxpayers end up:

� losing money on undervalued,taypayer-owned resources,

� providing welfare for private cor-porations,

� cleaning up pollution, eroded land,silted rivers, damaged ecosystems,and->azardous waste sites in aneven larger number than might>ave been created if subsidies >adnot encouraged more extraction,

� paying for disposal of companies�products when they�re discarded,

� encouraging substitution of capital-intensive processes t>at extractmaterials instead of more labor-in-tensive industries that conservethem, and

� paying more for recycling that could->ave been competitive with or evenless expensive than fairly priced virgin materials production.

If, instead, materials and products reflected their full costs, in part byremoving subsidies that disguise them, it would help recycling and-reuseindustries and-spur more efficient product design and-manufacturing. Thesechanges would make a major contribution to resolving many of today�s criti-cal environmental and resource issues.

This report does not claim that eliminating federal virgin materials sub-sidies will, alone, revolutionize the economics of recycling and-reuse. Afterall, more than a century of subsidies and federal favoritism >as showered

$0 $400 $800 $1,200 $1,600

Annual Subsidy in $ Millions

ENERGY

MINING

TIMBER

Federal Subsidies for Extraction

SPENDING SUBSIDIES TAX BREAKS

Extraction subsidies totalwell over $2.6 billion annually.

Welfare for Waste 1999, partial list

TEDD WARD

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FEDERAL TAXPAYER SUBSIDIES THAT UNDERMINERECYCLING AND REUSE

Average Total Tax orover 1 year over 5 years Spending($ Millions) ($ Millions) Subsidya

DIRECT SUBSIDIESTimber

1. Capital Gains Status For Timber Sales $ 635 $ 3,175 tax2. Below-Cost Forest Service Sales 111 555 spending3. Forest Roads Construction 31 157 spending4. Forest Service Salvage Fund 34 171 spending

Timber Subsidies Subtotal $ 811 $ 4,058Hard Rock Mining

5. 1872 Mining Law $ 200 $ 1,000 resource6. Mining Percentage Depletion Allowance 269 1,345 tax7. Expensing Exploration And Development Costs 27 135 tax8. Inadequate Bond Requirements NA NA tax

Mining Subsidies Subtotal $ 496 $ 2,480Energy

9. Percentage Depletion Allowance $ 276 $ 1,380 tax10. Intangible Drilling Costs (IDCs) 9 45 tax11. Passive Loss Tax Shelter 38 190 tax12. Alternative Fuel Production Credit 543 2,715 tax13. Enhanced Oil Recovery 245 1,225 tax14. BPA: Electric Power Subsidies For Aluminum 200 1,000 spending

Energy Subsidies Subtotal $ 1,311 $ 6,555

Waste Facilities15. Private Activity Bonds NA NA tax

TOTAL DIRECT SUBSIDIES $ 2,618 $13,093

INDIRECT SUBSIDIESEnergy (e.g. unnaturally low prices, cheap feedstocks) Substantial SubstantialWater (e.g. replacement for higher-priced energy) Substantial SubstantialTransportation (e.g. remote highways, inland waterways) Substantial SubstantialTax (e.g. bias towards capital investments) Substantial SubstantialInternational (e.g. Multilateral promotion of extractiveindustries, trade and aid favoritism,transfer pricing) Substantial SubstantialUnfunded External Costs (e.g. avoidance of pollutionclean-ups, environmental damage, failure to incorporatecost of disposal) Substantial Substantial

a Tax subsidies are taken from line items in Table 5-1. �Total Revenue Loss Estimates For Tax Expenditures In The IncomeTax,� in the Budget of the United States Government, Fiscal Year 2000, Analytical Perspectives (Washington, DC: Office ofManagement and Budget, 1999). Calculations of spending subsidies (which in this report include related subsidies forresource giveaways) were carefully developed, in consultation with experts from diverse perspectives, from amounts allocatedin appropriations bills. Some of the spending subsidies were first published in Green Scissors, Friends of the Earth(Washington, DC: Friends of the Earth, 1999).

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virgin materials industries with economic and political benefits. The resultis substantial advantages for extractive and disposal industries in terms ofwealth, pricing, distribution, stability, ability to attract investments, andpolitical clout to continue the subsidies. But eliminating the subsidies willat least give recycling and reuse industries a more even playing field onwhich to compete while also saving taxpayer money.

Current demand for energy and virgin resources, many of which are non-renewable, cannot continue without fostering ever-greater environmental

and economic degradation. Lawmakersand producers must, instead, recognizethe necessity of a new policy for the newcentury � a policy based on the envi-ronmentally and economically sustain-able use of materials, or �materials ef-ficiency.� Recycling and reuse, whichusually use materials, energy and wa-ter more efficiently than virgin mate-rials industries and produce less pol-lution, are essential elements of sucha materials efficient policy.

On the brink of the new millennium,the United States can no longer afford to apply 19th century policies to aworld unimaginable when they were devised. Holding to archaic policiescripples innovations necessary for continued economic health and environ-mental sustainability. Eliminating the subsidies outlined in Welfare for Wasteis an essential start in leveling the playing field to allow the industries bestsuited for the future to develop today.

A FOUR-STAGE PROCESS FOR ELIMINATING SUBSIDIES FOR VIRGIN MATERIALSAND WASTING RESOURCES

1) Congress should cut the directfederal subsidies listed in thisreport.

2) Federal, state and local agenciesshould investigate state and lo-cal subsidies and recommend re-forms to save taxpayer money whilepromoting materials efficiency.

3) Congress and the executivebranch should examine the indi-rect federal subsidies listed in thisreport, such as those for energy andtransportation, and others that nega-tively affect materials efficiency, andidentify opportunities for future cuts.

4) Government should sponsor apublic review to determine policiesto develop a materials-efficienteconomy that requires less taxpayersubsidies.

ECO-CYCLE

Welfare for Waste, Page 1

PART 1

INTRODUCTIONWelfare for Waste describes the impact on the recycling industry of wasteful federal

subsidies. Unnecessary government handouts to wealthy, well-established, resource-in-tensive industries undermine recycling, distort materials markets, contribute to environ-mental damage, thwart the efficient use of materials, lose billions of taxpayer dollars, andprop up a resource extraction system designed in the 19th century that cannot appropri-ately respond to today�s needs. Eliminating this federal waste will save more than$13 billion over 5 years, increase resource conservation through recycling and reuse, andcreate sustainable jobs.

The authors and endorsers of Welfarefor Waste are a unique coalition of recyclingadvocates, businesses, environmentalgroups and taxpayers dedicated to eliminat-ing needless government subsidies. Whileeach organization has different perspectivesand goals, they agree on the report�s rec-ommended subsidy cuts for these reasons:

� Recyclers � many of them small busi-nesses � want to level the playing fieldand allow fair competition with virginmaterials and waste industries.

� Environmentalists want to reduce toxicair and water pollution, slow climatechange, preserve natural habitats, andcurb waste of precious natural re-sources like timber, oil and metals.

� Taxpayer advocates want to save bil-lions of taxpayer dollars, spend taxmoney wisely, and reduce the size andcost of the federal government.

The direct subsidies in this report aredivided into federal tax subsidies and fed-eral spending subsidies. Tax saving figureswere calculated by the Office of Manage-ment and Budget.3 Saving estimates gen-erated from federal spending subsidies(which also include giveaways of taxpayer-owned resources at bargain prices) were

carefully developed through consultationwith a variety of experts and advocates fromdiverse perspectives. They are conservativeestimates using the most current materi-als. Subsidy estimates are expressed bothas average costs per year and as paymentsprojected over five years, which is a stan-dard method of federal budget analysis.

�Subsidy� in this report is used to meanall federal financial benefits, incentives andpolicies that giveone industry acompetitive ad-vantage. By tar-geting �directsubsidies,� Wel-fare for Wastehighlights onlysome of themore obviousfederal hand-outs that under-mine recycling.It demonstrateshow federal poli-cies favor virginresource extraction and waste disposal overmore resource-efficient and environmentallysound recycling and reuse. By no means,however, does this report�s listing representall subsidies that benefit virgin materialextraction and waste industries at the ex-

Eliminating thisfederal waste willsave more than$13 billion over 5years, increaseresourceconservationthrough recyclingand reuse, andcreate sustainablejobs.

ECO-CYCLE


pense of taxpayers and recyclers. There arealso numerous additional �indirect subsi-dies� -- taxpayer-funded benefits favoring vir-gin materials industries -- such as:

� unfunded closure liabilities at oil andgas wells,

� federally-funded energy research anddevelopment,

� tax-advantaged bonds for municipallandfills and incinerators disposing ofproducts and packaging as waste andthereby encouraging more virgin re-source extraction.

� development of transportation systemsthat make long-distance shipping

cheap, to the detriment of locally-basedrecycling industries, and

� taxpayer-funded pollution clean-up.

The Mineral Policy Center estimatesthat taxpayers are already burdened by be-tween $32 and $72 billion in cleanup costsfor more than a half million abandoned minesites alone.4 Some of the largest benefits tovirgin materials industries � externalizedenvironmental costs and indirect energycosts � are difficult to quantify. Some ofthese preferential benefits are briefly de-scribed at the end of this report in the dis-cussion of indirect subsidies and may beexplored in more detail in future versionsof this report.

There are alsonumerousadditional �indirectsubsidies� --taxpayer-fundedbenefits favoringvirgin materialsindustries


Americans vote by their actions as wellas at the ballot box. More people recycle thanvote. With their help, the U.S. has in-creased its official recycling rate to 27% oftotal municipal discards, twice the rate ofa decade ago.5 Hundreds of thousands ofpeople work the recycling and reuse indus-try, which generates tens of billions of dol-lars in economic activity each year.

But, while Americans enthusiasticallysupport recycling at the local level, few re-alize that their federal tax dollars directlyundermine it. These handouts occurthrough a combination of existing federalspending programs, tax breaks and resourcesubsidies � what this report calls Welfarefor Waste. Billions more in indirect subsi-dies � for transportation, energy produc-tion, cleanup of hazardous waste sites, fi-nancing, insurance and other activities �help give virgin materials producers andwaste disposal firms an economic advan-tage not available to recyclers. The resultis:

Environmental Damage and WastedNatural Resources

� The United States meets most of its rawmaterials needs through logging, mining,and oil extraction instead of conservingnatural resources through recycling.

� It continues to bury or burn most ofwhat it calls �waste,� when the realwaste is the resources that should havebeen recycled instead of landfilled orburned � resources that could haveprevented more raw materials frombeing mined, cut, extracted or squan-dered.

� More toxic substances are released toair, water, and land because virginmaterials production results, on aver-age, in greater pollution than recyclingand reuse.

� More energy is used and more green-

house gases are emitted because virginmaterials production is much moreenergy-intensive than recycling.

Taxpayers Pay for Things They ShouldNot

� American tax money is used to directlyreduce production costs for virgin ma-terials firms while recycling companiesget far less comparable support.

� Tax money also supports unnaturallylow virgin materials prices indirectlythrough using government funds tocover costs such as paying for healthand environmental damages created byresource extraction processes or clean-ing up expensive, abandoned hazard-ous-waste sites.

Recycling and Reuse Businesses Are Putat a Disadvantage

� Artificially low virgin materials pricesdiscourage materials-efficient design,recycling, reuse, and other resource-conserving systems and practices.

� Most recycling commodity prices arepegged to be below the level for compa-rable virgin raw materials. Low virginmaterials prices drive down prices forrecyclable materials as well, making itmore difficult for recyclers to cover costsand stay in business.

� Promising opportunities in materials-efficient and environmentally soundproduction methods languish becausemarket incentives continue to directinvestment capital to resource-intensiveindustries instead.

Job Opportunities Are Lost

� Jobs are lost as a result of policies favor-ing extractive and waste disposal indus-tries, because recycling and reuse busi-nesses employ many more people per

VIRGIN MATERIALS SUBSIDIES:WASTED RESOURCES

More people recyclethan vote. ... But,while Americansenthusiasticallysupport recyclingat the local level,few realize thattheir federal taxdollars directlyundermine it.


ton of material processed or managed.� Abundant resources and generous sub-

sidies encourage companies to extractraw materials in the United States, thenship them to other countries for manu-facturing into finished products. Jobs thatcould have been created in domestic re-cycling and reuse businesses are insteadshipped overseas along with the raw ma-terials.

Virgin Materials SubsidiesWere Established By Now-Outdated Public Policies

People in the United States of a hun-dred years ago would find today�s nation to-tally unrecognizable, even though theirswas the seed from which our current com-plex technological society grew. In the late1800s, European-Americans consideredmuch of the continent to be unexplored wil-derness. The population was small and re-sources were perceived as rich and endless.There was little consideration for environ-mental impacts, and the air, rivers and landwere expected to constantly regenerate, toabsorb and heal any damages. Americancompanies were building manufacturingplants, creating jobs and markets withinour borders. Recycling was an integral partof everyday life, but the time�s burgeoningbusinesses were bursting to expand, creat-ing an insatiable appetite for more materi-als.

The federal and state governments re-sponded by enacting laws to spur industrialdevelopment. These laws encouraged re-source extraction through land grants,cheap sales of timber and mineral-bearinglands, below-cost government assistance,advantageous freight rates, and many otherkinds of subsidies. Federal programs weredesigned to speed the conversion of naturalresources such as minerals, timber, andagricultural land into marketable com-modities. They were justified on the theorythat converting America�s natural wealth

into dollars would create a nest egg of capi-tal for the national economy and supportdevelopment of the largely uninhabitedWest.

These turn-of-the-century subsidy poli-cies worked � perhaps too well. Much ofthe natural resources of the American Westwere liquidated within a generation or two,and the frontier became history. Unfortu-nately, the laws that underwrote this ram-pant resource extraction were far more re-silient than the land, with some of thosestatutes still with us, unchanged. The mostobvious example is the 1872 General Min-ing Act, which requires the federal govern-ment to give away valuable public mininglands at nineteenth-century prices that eventhen were very low.

Most other federal natural resource lawsare equally archaic, even when more re-cently enacted. The U.S. continues to makeits publicly-owned resources such as trees,mineral rights, and grazing land availablefor insufficient prices. For example, the U.S.government lost $204 million in taxpayermoney selling trees from U.S. national for-ests in 1996.6 While taxpayers lose money,timber companies get trees for prices wellbelow what they would have paid to statesor to private landowners.

In addition to their undervalued accessto public resources, companies involved inlogging, mining, and oil extraction get spe-cial tax breaks, including percentage deple-tion allowances, expensing of explorationand development costs for minerals, andspecial expensing and capital-gains provi-sions for timber. These tax loopholes lowerextractive industries� costs relative to otherindustries such as recycling.

These natural resource tax incentivesand appropriations are particularly outdatedin today�s global manufacturing economy,where companies subsidized by U.S. taxmoney ship raw materials to other coun-tries for production of finished products.

These turn-of-the-century subsidypolicies worked �perhaps too well. ...Unfortunately, thelaws thatunderwrote thisrampant resourceextraction were farmore resilient thanthe land, with someof those statutesstill with us,unchanged.


Value-added goods are then imported backinto the U.S. at higher prices, adding totrade deficits.

Compounding the impact of federal pro-grams, state policies also subsidize virginmaterials and waste industries. Californiaalone spends over $180 million annually intimber, mining, and oil and gas subsidies.7

While a state study concluded that currentCalifornia subsidies may not significantlyaffect the local recycling market, it recog-nized that the combined effect of federal,state, and local subsidies over time has beensignificant, stating, �One result [of subsi-dies] is that virgin materials industriesthroughout the United States have devel-oped infrastructures that allow economiesof scale and other benefits not generallyenjoyed by producers of secondary materi-als.�8

In fact, after more than a century of ex-plicit subsidies and other federal favoritism,virgin materials industries have gainedeconomic and political advantages un-matched by firms in recycling and reuse.Virgin materials companies are likely to bethoroughly vertically integrated, owning orcontrolling production systems all the wayfrom resource extraction to manufacturingto converting to customer distribution.Their huge economies of scale dwarf mostrecycling businesses, increasing price dif-ferentials, and they have many avenuesavailable for financing. In addition, theireconomic muscle, combined with ample andregular political contributions, helps virginmaterials industries and their trade asso-ciations maintain their industries� loweredcost of doing business through access toelected officials with the power to continuethe subsidies.

Government VirginMaterials SubsidiesDiscourage Recycling

Many of the subsidies highlighted in thisreport are hidden in arcane federal pro-grams which are difficult to understand

even for budget and tax experts. Neverthe-less, they affect Americans and the U.S.materials economy every day, encouragingcontinued investments in inefficient produc-tion systems, discouraging recycling, anddistorting prices and incentives for a widearray of materials. Some examples:

Aluminum Despite the fact that virginaluminum takes so much power to producethat it has been called �frozen electricity,�only about one third of aluminum productsdiscarded in U.S. municipal solid waste arerecycled.9 Recycling aluminum saves 95%of the energy otherwise used to make virginaluminum.10 But U.S. industries have rela-tively little concern about the cost of electric-ity for producing aluminum because for de-cades federal dams have provided cheap elec-tric power to smelters that produce alumi-num from virgin materials. Those subsidiescontinue to encourage this waste of energyand resources. Aluminum smelters get over$200 million each year in subsidies for cut-rate power from federal dams.11 What thatmeans is that for every ton of aluminum12

recycled, taxpayers spend more than $200in subsidies to counteract that recycling.More aluminum would be recycled if alumi-num smelters paid market rates for theirelectricity.

Paper and Wood Products Onlyslightly more than 40 percent of the paperdiscarded in the U.S. is recycled,13 a sig-nificantly lower rate than in European andAsian countries. Among the many factorsaffecting paper recycling are federal subsi-dies for cutting trees, making wood lessexpensive than it would be otherwise. Tim-ber companies get subsidies to cut trees innational forests and also receive special taxbreaks for timber cutting on private lands,even while private landowners have diffi-culty making ends meet because they mustcompete with undervalued timber costs onfederal lands. In addition, landfilling andburning paper are encouraged over recyclingbecause 70% of landfills and incineratorsare financed with �private activity bonds�

In fact, after morethan a century ofexplicit subsidiesand other federalfavoritism, virginmaterialsindustries havegained economicand politicaladvantagesunmatched byfirms in recyclingand reuse.


that earn tax-exempt income even thoughthey primarily benefit private corporationsor individuals. Meanwhile, recycled papermakes up only 6-7% of the printing andwriting paper market, primarily becauseits sometimes higher finished paper costlimits customer acceptance.14 Prices for re-cycled printing and writing paper would bemore competitive and more paper would berecycled if these subsidies were removed.

Timber subsidies discourage wood reuseas well. Deconstructing buildings currentlyis only cost-effective for antique and high-est-value woods (rare because of decades ofunsustainable timber policies). Artificiallylow prices for timber encourage cuttingmore trees for building, framing, furniture,pallets, stakes, crates, and a myriad of otheruses that could be more efficiently metthrough recycling wood and other materi-als.

Plastics Plastics recycling rates are dis-

mal: Even the 5% overall rate of plasticsrecycling reported by EPA in 199615 is re-garded as unrealistically high by most re-cycling professionals with experience in therecycled plastics markets. One of many rea-sons is that taxpayers provide numeroustax breaks for oil and energy. Oil and gasare important feedstocks for plastics, andplastics production requires large amountsof energy, eight times more to make virginplastic than recycled plastic, for some

types.16 More plastics would be recycled iftaxpayers did not subsidize oil and energyprices.

Steel Recycling rates for steel are fairlyhigh, but could be even higher if taxpayersdid not subsidize energy as well as the cok-ing coal that is a feedstock in making vir-gin steel. Recycling provides less than athird of U.S. steel consumption.17 Thehigher the price of virgin steel, the more itis worth devising new technologies and op-tions that reduce impurities and producehigher-quality steel from recovered metal� and the more efficiently steel will beused.

Other metals Recycling rates for othermetals vary. Precious metals like gold, sil-ver, and platinum are recycled at very highrates, while relatively small proportions ofothers, such as zinc, are recovered. Evenrecycling rates for precious metals wouldincrease if subsidies were cut and virginmetal prices increased. It would then be eco-nomic to recover quantities now consideredinconsequential, such as metals containedin circuit boards and other low-volume uses.In contrast, mining companies can acquiretaxpayer-owned land containing deposits ofsuch metals virtually for free through the1872 Mining Act, which also allows compa-nies to extract minerals without paying anysignificant royalty to taxpayers.18

The Effects Are Cumulative

U.S. lawmakers never set out explicitlyto discourage recycling. They did, however,intend to encourage the development of ex-tractive industries at a time when it seemedeconomically logical to do so. Those policiesnow, however, have the unintended effectof impeding today�s national policy goals:recycling, conservation of natural resources,job development and reduction of the na-tional debt.

Since it is unclear exactly how much fed-eral subsidies to extractive industries af-fect the relative prices of virgin and recycledmaterials and products, this report does not

IMAGINE IT!


claim that eliminating federal virgin ma-terials subsidies will, alone, revolutionizethe economics of recycling and reuse. Buteven though a study of disincentives to re-cycling by the U.S. Environmental Protec-tion Agency (EPA)19 was unable to deter-mine specific impacts, the report did state,�Subsidies to virgin industries (which un-doubtedly raise their profit margins) ren-der these industries more attractive to newentrants over the long run. Entry into thevirgin industries becomes more likely andexit less likely in comparison to theunsubsidized world � with the total effectbeing an �over-production� of virgin mate-rial compared to quantities that would re-sult from an undistorted market.�

Although EPA�s report was released in1994, it was actually authored in the late1980s, when many recycling businesseswere in their infancy and many recycledproducts had not yet been developed. Themarket distortions created by federal sub-sidies can only be assumed to have sinceincreased. But even in the 1980s the reportacknowledged, �The overwhelming bias offederal tax policies and program outlaysfavors extractive industries and their ben-eficiaries over recycled markets.�

That favoritism is only the tip of a verylarge iceberg. When combined with all kindsof federal and state policies favoring virginmaterials industries both directly and in-directly, these subsidies put recycling andother materials-efficient practices at a ma-jor economic disadvantage in many ways:

• Small changes add up.Small movements in finished virgincommodity prices can translate intosignificant percentage increases in thecost of scrap materials such as old news-papers. Since prices for many usedmaterials tend to be pegged at a fixedamount below those of virgin commodi-ties, low prices for virgin materials canresult in below-zero prices for recyclablematerials, with devastating effects on

secondary materials processing firms.Low prices for recyclable materials alsodiscourage investments needed to buildmore stability.

• Subsidies may not translate directlyinto price differences.Instead, they may increase profit mar-gins for the favored industries, mak-ing investment and financing more at-tractive. The federal Office of Manage-ment and Budget acknowledges, �Theultimate beneficiaries of tax expendi-tures could be stockholders, employees,customers, or others, depending on eco-nomic forces.�20

• Subsidies distort the economy and di-vert investment.Subsidies for extractive industries dis-tort our economy, making it profitableto invest in companies and processesthat may not be attractive otherwise.According to the Progressive Policy In-stitute, government subsidies that propup inefficient industries can slow de-velopment of those that are more eco-nomically efficient. The conservativeCenter for the Study of American Busi-ness points out that, �When govern-ment attempts to improve on marketforces with tax subsidies, the result isto accelerate the use of natural re-sources while depressing federal rev-enues and increasing the budget defi-cit,� and, instead, calls for rewritinggovernment regulations that discour-age recycling.21

• Subsidies for inefficient resource useare an impediment to building a sus-tainable economy .By perpetuating current wasteful usesand technologies, subsidies for resourceextraction and waste facilities discour-age processes and technologies that con-serve resources and the environment.The Organization for Economic Coop-eration and Development (OECD), theeconomic association of all the major

Those policies nowhave theunintended effect ofimpeding today�snational policygoals: recycling,conservation ofnatural resources,job developmentand reduction ofthe national debt.


industrial nations, has recommendedremoving such subsidies as a crucialstep toward an economy more in tunewith an environmentally sustainablefuture.22 The OECD has also recentlyrecommended that industrial nationswork toward sharp increases in mate-rials efficiency.23

• Subsidies encourage virgin materi-als industries to continue investmentin production capacity even whenmarkets are glutted.For example, virgin plastic resin pro-duction capacity has, in recent years,significantly exceeded demand, depress-ing prices for both virgin and recycledresin. Cheap oil, both as a feedstockand an energy source, has undoubtedlyplayed a role in the continuing economicadvantage of virgin resin facilities andtheir attractiveness to investors.

• U.S. subsidies benefit foreign com-petitors as production becomes glo-bal.U.S. public lands supply raw materi-als for manufacturing in foreign coun-tries, thus harming the U.S. economyin multiple ways, including loss of re-sources and damages from pollution,competition with U.S. jobs, and balanceof trade deficits created by exportingbelow-cost raw materials while import-ing significantly more expensive value-added finished products made in othercountries from those materials.

The conservativeCenter for theStudy of AmericanBusiness points outthat, �Whengovernmentattempts to improveon market forceswith tax subsidies,the result is toaccelerate the use ofnatural resourceswhile depressingfederal revenuesand increasing thebudget deficit.�


As the U.S. approaches the Millenniumand the 21st century, it is increasingly clearthat the demand on virgin resources, manyof which are non-renewable, cannot con-tinue at the pace current production de-mands. Nor can the overproduction fromraw materials that underwrites the mate-rialistic standard of living attained in theU.S. and industrialized nations be expandedaround the globe; there are not enough re-sources to sustain it in its current form.Continuing to subsidize virgin materialsdepletion is therefore irresponsible and de-structive.

However, the goal of a comfortable stan-dard of living in the U.S. and other indus-trial nations, as well as expanding thatstandard to the rest of the world, is feasibleif lawmakers and producers recognize thenecessity of a new policy for the new cen-tury � a policy based on eliminating waste-ful taxpayer subsidies while promoting theenvironmentally and economically sustain-able use of materials, or �materials effi-ciency.� Such a policy saves taxpayersmoney while rewarding the materials pro-duction methods that add up to the mostpositive impact on the environment,economy and society, after taking into ac-count all costs and benefits, including manythat are not now calculated in economicevaluations. In some cases, even productionmay not be the best choice. Instead, reuse,redesign or not producing the product atall may be recognized as the most efficientuse of materials.

Benefits of IncreasedMaterials Efficiency

If the economic playing field is leveled toallow recycling to compete effectively againstvirgin materials, the nation will reap a vari-ety of benefits. Most directly, taxpayers willsave the cost of the subsidies outlined in this

report. But those savings are just the begin-ning. Other benefits include:

• Less Garbage, Less PollutionWith more used materials recognizedas secondary resources rather thantrash, less will go to landfills and in-cinerators, extending their lives andsaving taxpayer money for disposal ofmunicipal discards. Governments willsave on air-pollution-related health carecosts and on hazardous-waste cleanup.

• More JobsWhile extractive industries are aggres-sively promoted by some politicians andtouted for the jobs they create, economicstudies reveal that recycling, reuse,and other materials-efficient practicesgenerally create more, and more sus-tainable, employment. The Institute forLocal Self-Reliance estimates that atypical city of one million people cancreate about 2,000 jobs through recy-cling and waste reduction, and save itsgovernment, businesses, and house-holds $7 million per year.24 A study ofrecycling businesses in North Carolinafound that recycling was supportingover 8,800 private and public sector jobs� about the same number of jobs asthe state�s biotechnology industry.25

The North Carolina report also foundthat recycling is a net job creator forthe state. For every 100 jobs created byrecycling, only 13 jobs are lost in solidwaste collection and disposal and in vir-gin materials extraction. Similar jobsratios are likely for a majority of U.S.states. Recycling is likely to come outon top even in many states where ex-tractive industries are economicallypowerful. For example, a recent studyof the Pacific Northwest26 (includingthe three northwestern U.S. states and

THE 21ST CENTURY REQUIRES A NEW PUBLICPOLICY: MATERIALS EFFICIENCY

If the economicplaying field isleveled to allowrecycling tocompete effectivelyagainst virginmaterials, thenation will reap avariety of benefits.


British Columbia) showed that miningand logging only accounted for 4% oftotal employment in 1993, down from8.4% in 1969. The absolute number ofjobs in the two industries fell by 12.5%over the same period. Fewer people inthis region, famous for its resource in-dustries, work in timber and miningthan in government, services, or trade.Similarly, according to the 1997 Eco-nomic Report of the President, extrac-tive industries in the West �now makeup only a small and declining fractionof economic activity� and provide farless income and employment in the ag-gregate than do recreation, tourism,manufacturing, and finance.27

In the long run, recycling jobs are alsolikely to be more stable than timber ormining jobs, which dry up when thetrees or ore are gone. Since recyclingcreates ongoing resource cycles in localor regional areas, it tends to create per-manent jobs within those areas, whileextractive-industry jobs may shift toother countries that possess moreunexploited virgin resources. Unlikemining and logging, recycling does notleave behind large swaths of denudedor polluted land, which can often detertourists or new residents.

• Environmental Protection and Con-servationVirgin-materials industries account fora disproportionate share of global pol-lution, are major threats to many of theworld�s remaining reserves of biologi-cal and cultural diversity, and areamong the largest users of energy. Byreducing demand for virgin materials,recycling and other materials-efficiencymeasures help reduce such problems.Several studies in recent years havedetailed the systemic environmentalbenefits of recycling, including substan-tial reductions in air and water pollu-tion.

A recent survey of such studies con-cluded that, by recycling municipal dis-carded materials at 27 percent, the U.S.is already reducing its emissions of sul-fur dioxide by 1.5 percent, nitrogen ox-ides by 1.3 percent, and carbon monox-ide by 0.83 percent.28 The same studyfound that recycling is now reducinggreenhouse gas emissions of methaneby 9 percent and carbon dioxide by 1.5percent. A 1997 draft paper by the U.S.Environmental Protection Agency alsoconcluded that recycling discarded ma-terials � or avoiding their productionaltogether � reduces greenhouse gasemissions by much more than eitherincineration or landfilling.29 The meth-ane is saved mostly because recyclingreduces landfilling. Landfills emit sub-stantial amounts of methane as thegarbage in them decomposes. The car-bon dioxide reductions come from avoid-ing the burning of fossil fuels to pro-duce the additional energy needed tomake virgin materials.

Recycling also reduces energy use andincreases energy efficiency. In general,it takes much more energy to producevirgin materials than recycled. On av-erage, it takes 20 times the energy tomake virgin aluminum, eight times theenergy to make virgin plastic, and twotimes the energy to make virgin paperthan to produce their recycled equiva-lents. Recycling is already saving theU.S. more than 1% of its annual use ofcommercial energy.30

• Reduced hazardous wasteBillions of tons of waste, which consum-ers never see, are produced in extract-ing and processing virgin materials. Forexample, 99 tons of mining and smelt-ing waste � much of it toxic � areproduced for every ton of copper takenfrom the earth. In comparison, produc-ing a ton of recycled copper from usedmaterials creates virtually no waste.Ironically, the mining industry gets a

The North Carolinareport also foundthat recycling is anet job creator forthe state. For every100 jobs created byrecycling, only 13jobs are lost in solidwaste collectionand disposal and invirgin materialsextraction.


special exemption from the ResourceConservation and Recovery Act, thenation�s primary law governing wastemanagement, by exempting a largeshare of wastes from regulation as haz-ardous, no matter what their toxicity.

• Economic SavingsTaxpayers end up paying the price forair and water pollution, silted rivers,and accelerated runoff of rainfall andsnowmelt. Future generations will payto clean up today�s mine sites, landfills,and plastics factories that turn intotomorrow�s Superfund sites, when theirclean-up costs should have been incor-porated into the costs of extraction andthe materials produced. The MineralPolicy Center estimates that cleanupcosts for more than a half million aban-doned mine sites already will cost tax-payers between $32 and $72 billion.31

Even so, the direct costs of such clean-ups may never approach the true eco-nomic value of the natural systems thatare disrupted or destroyed. Healthy eco-systems provide a wide variety of natu-ral services, including flood control,clean and consistent drinking watersupplies, and climate regulation, thatare extremely expensive to replace �when they can be � with human-engi-

neered solutions.

Added up, the benefits of materials-effi-cient practices like recycling and reusemake it clear that there is a coherent, work-able alternative to subsidizing endlessgrowth in materials consumption andwaste. A century ago, nations began tomeasure their wealth and strength by theiroutput and consumption of steel or othervirgin commodities. Today, some countries,particularly in Europe, are beginning toconsider high levels of materials consump-tion and waste as a drag on their econo-mies, rather than a boost, and are turningto materials recovery on a large scale.

Resource efficiency is becoming a watch-word for the industrial leaders of the 21stcentury, who are now plotting out manu-facturing systems that reuse the hugequantities of materials that drop out ofAmerica�s economic system each year be-cause they are considered �waste.� Thoserecyclable resources have the potential tosupply a much larger share of Americans�needs, if the U.S. can muster the politicalwill to reorient its materials policies. A goodbeginning is to eliminate the subsidies listedin this report.

On average, it takes20 times the energyto make virginaluminum, eighttimes the energy tomake virgin plastic,and two times theenergy to makevirgin paper thanto produce theirrecycledequivalents.


The $2.6 billion a year ($13 billion overfive years) in subsidies detailed in this re-port may not seem like a lot to those famil-iar with the enormous scale of the federalbudget, or the virgin materials economy asa whole. But it is still real money tohardworking taxpayers. Moreover, it is in-structive to compare it with the hotly-de-bated sums of money requested for munici-pal disposal and recycling programs. Forexample, $2.6 billion could have a majorimpact on increasing the recovery and useof recyclable materials. Instead, with thesubsidies in place now, for every ton of mu-nicipal discards recycled in 1996, $45 isspent on encouraging extractive industriesinstead.32

While the dollar level of these subsidiesmay seem miniscule in the virgin raw ma-terials and waste disposal industries, it isimmensely significant when compared toits potential impact on the much smallerrecycling and reuse industries. In the late1990s, the value of all postconsumer recy-clable materials furnished to recyclingmanufacturers, including non-ferrous met-als, has ranged from $16-19 billion peryear.33 Subsidies to the raw materials in-dustries that are worth 15% of the recy-cling industry�s feedstock costs clearly cantip the scales powerfully against recyclingand reuse.

An important first step towards a sus-tainable materials-efficient economy is for

1) Congress should cut the directfederal subsidies listed in thisreport.

2) Federal, state and local agen-cies should investigate stateand local subsidies and recom-mend reforms to save taxpayermoney while promoting materialsefficiency.

3) Congress and the executivebranch should examine the in-direct federal subsidies listed inthis report, such as those for en-ergy and transportation, and oth-ers that negatively affect materi-als efficiency, and identify oppor-tunities for future cuts.

4) Government should sponsor apublic review to determine poli-cies that will be most effective indeveloping a materials-efficienteconomy in the 21st century thatrequires less taxpayer subsidies.

THE SOLUTION:THE SOLUTION:THE SOLUTION:THE SOLUTION:THE SOLUTION:A FOUR-STAGE PROCESS FOR ELIMINATINGA FOUR-STAGE PROCESS FOR ELIMINATINGA FOUR-STAGE PROCESS FOR ELIMINATINGA FOUR-STAGE PROCESS FOR ELIMINATINGA FOUR-STAGE PROCESS FOR ELIMINATINGSUBSIDIES FOR VIRGIN MATERIALS ANDSUBSIDIES FOR VIRGIN MATERIALS ANDSUBSIDIES FOR VIRGIN MATERIALS ANDSUBSIDIES FOR VIRGIN MATERIALS ANDSUBSIDIES FOR VIRGIN MATERIALS ANDWASTING RESOURCESWASTING RESOURCESWASTING RESOURCESWASTING RESOURCESWASTING RESOURCES

taxpayers to stop paying to waste. To doso, this report recommends a four-stageprocess:

Subsidies to theraw materialsindustries that areworth 15% of therecycling industry�sfeedstock costsclearly can tip thescales powerfullyagainst recyclingand reuse.


Until the Second World War, privatetimberlands produced the majority of thenation�s timber, while the national forestswere largely preserved by the federal gov-ernment as a public trust. But the postwarindustrial boom increased demand for avariety of timber products, which led to therapid expansion of commercial logging ofthe National Forests.

Today, Congress provides large subsidiesfor the commercial timber sales programrun by the Forest Service. Unlike privatetimber companies, the Forest Service doesnot factor such expenses as sales prepara-tion, inventory, and road maintenance intothe prices it charges for trees. This allowsthe agency to sell timber below its true costs.Artificially low prices for timber from fed-eral lands also reduce the sale price a pri-vate timber landowner can expect, despitethe fact that private landowners do need torecover their sales costs as well as costs forreforestation and environmental mitigation.Driving down the prices paid for trees evenoutside the Forest Service expands the ef-fect of lower materials prices for virgin pa-per and wood production industries on re-

cycled paper and deconstructed wood pro-cesses.

In addition, the Forest Service has usedtax dollars to build an extensive network ofroads that should normally be expected tobe paid for by the buyers of publicly-ownedtrees. Even when the road construction andreconstruction is done by timber purchas-ers, the Forest Service generally compen-sates them for the work. In 1991, Forbesmagazine called the Forest Service �theworld�s largest socialized road building com-pany.�34 Once built, the roads require ex-pensive maintenance and create major ero-sion problems. Even the Forest Service ad-mits that nearly 40% of its nearly 440,000miles of roads are below safety standardsand require extensive repairs.

Special tax breaks for timber invest-ments subsidize the production of virginwood at the expense of reuse and recycling.The combination of below-cost timber sales,government financed roads to harvest thattimber, and reduced taxes on profits repre-sents a significant government interventionin the market to support a mature indus-

PART 2

SELECTED DIRECT FEDERAL TAX AND SPENDINGSUBSIDIES THAT UNDERMINE RECYCLING, REUSE,AND RESOURCE CONSERVATION

TIMBER SUBSIDIES

Average Totalover 1 year over 5 years

Subsidy ($ Millions) ($ Millions)1. Timber Tax Breaks 635 3,1752. Below-Cost Timber Sales 111 5553. Forest Roads Construction 31 1574. Forest Service Salvage Fund 34 171

Total 811 4,058


try. Furthermore, the various subsidies actin concert to create market obstacles to com-petition from recycled pulp and paper pro-ducers by diverting investment in capitalas well as research and development (R&D)to existing virgin timber companies.

Paper industry representatives typicallystate that only one-third of trees cut go topulp and papermaking. Forest advocates,however, believe that the percentage ismuch higher, with more than 40% of the

timber harvested na-tionwide ending up aspulpwood and nearly60% of the volume oftimber from nationalforests ending up as ei-ther fuel or furnish forpulp mills.35 Certainlymany corporations that

have papermaking operations also ownmajor lumber and forest products busi-nesses as well. The economic benefits ac-cruing from using forest and sawmill resi-due and smaller trees for papermaking arecritical to evaluating the worth of a timberstand.

The combination of timber subsidies re-duce the cost of cutting wood for lumberand wood products, rather than encouragereuse and recycling. Deconstruction of ex-isting buildings to reuse lumber, flooring,cabinets and other potentially valuable wood

is gaining a foothold in several areas of theU.S. and Canada. But only the most valu-able woods, such as old-growth redwood inNorthern California and the Pacific North-west, first-growth Douglas fir, and somewell-preserved antique wood, are currentlycost-effective to reuse. Today�s newly-cutwood is regarded as inferior in quality towood used for architectural purposes de-cades ago because trees are not allowed togrow as long before cutting. But trees arestill being cut at a prodigious rate for allkinds of building, framing, and furniture,as well as for pallets, stakes, crates, and amyriad of other uses that could be more ef-ficiently met through reusing and recyclingwood as well as other materials.

Industrial forestry management prac-tices are often environmentally unsound,treating forests as if they were farms ratherthan ecosystems. Poor forest managementcan harm habitat, threaten terrestrial spe-cies, increase erosion, and damage streamsand aquatic species through sedimentationand contamination. Communities down-stream from logging operations often suf-fer declines in water quality and increasesin flooding � problems which then createthe need for additional investments in floodcontrol, water purification and storage, andwastewater and stormwater management.Subsidizing the creation of such problemsthrough giveaways of public resources onlyadds insult to injury.

ECO-CYCLE


Under normal tax provisions, the saleof timber would be treated as ordinary in-come and taxed accordingly. But since 1944,private timber owners have been able toclaim capital gains status for much of theircapital or lasting assets, which include tim-ber sales, and pay taxes at a significantlylower rate.

Under normal tax rules, capital costsare written off over time. However, sinceearly this century, private timber ownershave been able to immediately write off capi-tal expenses such as property, equipment,or timber, even though the timber may notbe harvested for decades, essentially pro-viding the timber industry with an inter-est free loan from the government.

In addition, a special annual reforesta-tion tax credit is allowed for clearing landand planting trees for the production of tim-ber, when reforestation should be standardbusiness practice instead.

Impact On Recycling and Reuse

These tax benefits reduce the timberindustry�s business costs at taxpayer ex-pense, encouraging continued investment

in virgin timber operations and in manu-facturing facilities that consume virginwood. The pulp and paper industry is oneof the most capital-intensive industries inthe world. The American Forest & PaperAssociation reports that its ratio of plantand equipment expenses to employee ex-penses is twice the average for all U.Smanufacturing. Recycled paper mills havesimilar facilities and employee expenses,but do not have the advantage of subsidizedfeedstocks. Paper recycling companies arethus at a disadvantage when attempting toattract the capital, as well as research anddevelopment (R&D), investment they need.Artificially low virgin paper prices discour-age higher-priced recycled paper purchases,further inhibiting market development forrecycled paper production.

In addition, the cost of deconstructingstructures to remove reusable lumber is stillconsidered too high for all but the most valu-able woods, but would be much more eco-nomically feasible if new wood were pricedat its true cost. Other wood products suchas pallets would also be more likely to bereused if new wood replacements more prop-erly reflected their costs.

1. Timber Tax Breaks $ 635 Million average per year

$ 3.175 Billion over five years 36

�The U.S.Government is theonly propertyowner that I knowof that paysprivate parties todeplete its ownresources.�Rep. James Leach, R-Iowa

2. Below-Cost Commodity $ 111 Million average per year

Timber Sale Program $ 555 Million over five years 37

The U.S. Forest Service �commodity�timber sale program sells trees to compa-nies at pricing that routinely fails to recoverthe costs of preparing sales and adminis-tering harvests. The result is that timberis commonly sold below sustainable mar-ket value. Although timber companies claimthey pay market rates because the trees aresold at auction, many tracts have only oneor two bidders. Over the past decade, the

U.S. Forest Service has lost billions of dol-lars on its timber program. The Forest Ser-vice itself announced that, even by its owncontroversial accounting standards, the be-low-cost timber sales program lost $88.6 mil-lion in FY97. According to the WildernessSociety�s analysis of the FY97 sales, below-cost timber sales caused 83 of 106 NationalForests with commodity sales to lose $111million.39


The commodity timber sale program isonly one part of the timber sale program,and other groups have estimated consid-erably higher losses for the total program.The Congressional Research Service noted,in response to a Sierra Club report, that �... essentially no timber sales receipts weredeposited in the General Treasury inFY1996 to offset timber program expendi-tures. Thus, one can conclude that $791million is a �reasonable estimate� of the costof the Forest Service�s FY1996 timberprogram to taxpayers.�40


Any company that can purchase the ba-sic material of its business at below mar-ket prices has gained a competitive advan-tage. It can reduce production costs, in-crease R&D, and boost profits, which at-tracts additional investment.

Below-cost timber sales help virgin-fiberproducts depress markets for recycled pa-per and pulp products. When artificially lowprices increase the quantity of timber sold,prices for virgin fiber and pulp can also belower, dragging down the price for recycledpulp which, for market reasons, is gener-ally priced lower than virgin pulp.

To be competitive, recycling companiesneed capital and R&D investment to im-prove existing technologies and develop newones. Considerable research is needed toimprove deinking capabilities in paper re-cycling, and to develop new collection tech-

niques and separation technologies for re-covered paper. Reduced revenues in recycledpaper manufacturing resulting from com-petition with subsidized virgin paper pro-duction hinders incentives for firms to de-velop markets and technologies for collec-tion and processing of recycled paper.

Meanwhile, after decades of subsidies,most virgin paper companies are highlyintegrated. Their ownership or long-termleases on forest lands allow them to adjustprices for raw materials and finished prod-ucts as markets change. Recycled papercompanies, on the other hand, do not ownthe paper collection systems that providetheir feedstock. The costs of a still-develop-ing recovered paper collection system, alongwith newly-capitalized deinking mills, com-pared to the long-established and subsidizedtimber-cutting production system explainssome of the higher cost for some recycledpapers compared to virgin papers.

Below-cost timber also undermines thedevelopment of building deconstruction andtimber reuse, resulting in large quantitiesof construction and demolition (C&D) de-bris nationwide, much of which could havebeen reused if economic factors favoredremilling and recycling instead of cuttingnew wood. Since paper and C&D make upthe majority of materials in communitylandfills, even a small price effect that re-duces the competitiveness of recycled woodand paper products has a large impact onthe viability of markets for local governmentrecycling programs.

�In terms of assets,the agency wouldrank in the top fivein FortuneMagazine�s list ofthe nation�s 500largestcorporations. Interms of operatingrevenues, however,the agency wouldbe only number290. In terms of netincome, the ForestService would beclassified asbankrupt.�Economist Randal O’Toole

38


The U.S. Forest Service timber programassists logging companies in cutting andremoving timber by reimbursing companies�road-building costs through credits towardsadditional timber and sale prices reducedeven below already inadequate prices, andby direct federal spending on road construc-tion. This program uses tax dollars to paythe timber industry�s normal costs of doingbusiness.

These roads destroy habitats, disruptwildlife migration routes, and frequentlycause serious soil erosion and stream sedi-mentation. In 1999, the administrationimposed a freeze on road building in somefederal forests, although it exempted mostof the Northwest and the largest federalforest in Alaska.43 The 18-month morato-rium is expected to prevent construction ofless than 360 miles of road and the har-vesting of less than 4% of annual timberharvests.44


Road construction and upkeep is expen-sive. This subsidy reduces the costs of theforest products industry, increasing profitsand diverting additional investment towardvirgin timber production and away from re-cycling. It also, over decades, has encour-aged the building of paper pulping andmanufacturing facilities in remote areas,near their feedstock, trees. Now, whensustainability concerns should encourage ashift to making recycled paper, these papermills are far from recovered paper sources,which concentrate in urban centers. In ad-dition, many virgin pulping facilities arenot built to accept pulp from sources out-side an integrated tree-pulping mill, suchas recycled pulp. Adding a recycled deinkingmill to a paper mill that already has ad-equate virgin fiber pulp capacity increasescosts for making the recycled paper, result-ing in higher finished paper prices that thendiscourage customers from buying it.

3. Forest Roads Construction $31 Million average per year

$157 Million over 5 years 41

�It�s bad enoughwhen publicofficials fail to stopprivate interestfrom degrading theenvironment. It�seven worse whengovernmentsubsidizes theharm, as it doeswith logging roadsin NationalForests.�Philadelphia Inquirer

42

4. Forest Service Salvage Fund $ 34 Million average per year


The U.S. Forest Service sells insect-in-fested, dead, damaged or downed timber foronly a fraction of the cost of green (com-mercial-quality) wood. Salvage sales rev-enues go into a Salvage Fund, which is notaccountable to Congress and is not returnedto the U.S. Treasury, therefore affordingno revenue to the taxpayer.

Sometimes the Forest Service includessome higher-value timber as part of the low-value salvage sale in order to make the salemore attractive. In fact, the percentage ofhigher-value timber sold as salvage may bequite high. As one Forest Service managerreported, �We were told [at a meeting] that

virtually every sale should include �salvage�in the name. . . . Even if a sale is totallygreen [non-salvage], as long as one boardcomes off that would qualify as salvage onthe Salvage Sale Fund Plan, it should becalled salvage.�46 Allowing forests to keepthe sales receipts instead of returning themto the Treasury creates an incentive to pro-mote salvage sales and enhance sales byadding higher value green trees to the sal-vage offering.

If the Forest Service�s Salvage Fundwere eliminated and all Forest Service ex-penses were required to be Congressionallyappropriated, significant revenues could be


expected to be returned to the U.S. Trea-sury and there would be less incentive topromote timber sales.

Impact on Recycling and Reuse

The unmonitored Salvage Fund struc-ture offers timber companies another formof below-cost materials, discouraging devel-opment of reuse options and placing com-panies that produce recycled paper, recycledpaper products, and recycled timber prod-ucts at a disadvantage.


Federal subsidies for mining began inthe late 1800s, in the era of gold rushes anditinerant prospectors. Congress intended toencourage mineral extraction to speed eco-nomic development and settlement of theWestern frontier. Today, the pick-and-shovel miner is a thing of the past, the fron-tier has been gone for more than a century,and extraction of hard-rock minerals suchas iron, copper, tin, lead, and zinc is mostlythe business of large, multinational corpo-rations. Nonetheless, mining continues tobe heavily subsidized through tax breaks,land giveaways, and taxpayer liability formine-site cleanup. In combination, taxpayersubsidies for mining cut the industry�s taxrate to nearly zero, according to a 1996 Sen-ate Budget Committee report.47

These subsidies reduce capital require-ments for mining, deter investment in moreefficient extractive technologies, and im-prove the economics of extracting mineraldeposits that might otherwise be unprofit-able. By reducing production costs, theyraise the profits of mining companies, at-tract additional investment to the indus-try, and help keep the prices of virgin min-erals low. While they have varied consider-ably from year to year, virgin-mineralsprices have been falling for decades, as min-ers have moved to larger-scale � and oftenmore environmentally damaging � produc-tion methods. Low prices for virgin miner-

als limit the prices recycled materials re-ceive, and fluctuations of virgin mineralmarkets also lead to instability in those forrecycled equivalents. Producers of virginmetals are more likely to weather unpre-dictable market conditions than recycling-industry firms, which tend to be muchsmaller and have more limited reserves ofcapital.

The systematic promotion of mining dis-courages recycling, reuse, and other prac-tices that conserve materials and energy.Recycling firms receive no comparable spe-cial assistance from the federal government.Unlike mining companies, they must writeoff their capital investments at normal de-preciation rates and acquire their raw ma-terials at market prices. Their compara-tively low profitability and instability intheir markets make it difficult for them toattract capital and discourage research anddevelopment investment in recycling andreuse.

While mining firms use huge amountsof subsidized energy, recycling firms get nocredit for the very substantial energy sav-ings that their operations help create. Ifenergy were priced correctly, the avoidedenergy costs would be its own reward.Mines, which cause far more environmen-tal destruction than recycling, benefit fromspecial exemptions from environmentallaws such as the Bevill Amendment to the

HARD ROCK MINING SUBSIDIES


Subsidy ($ Millions) ($ Millions)5. 1872 Mining Law 200 1,0006. Mining Percentage

Depletion Allowance 269 1,3457. Expensing Exploration and

Development Costs 27 1358. Improving Bond Requirements NA NA

Total 496 2,480


Resource Conservation and Recovery Act,which exempts much mining waste fromhazardous waste regulations. Recyclingoperations must comply with the same en-vironmental standards as most other indus-tries.

Mining is among the most damaging ofall human activities. It often results in in-creased erosion, siltation of lakes andstreams, acid drainage, and toxic metal con-tamination. According to the now-closedU.S. Bureau of Mines, 12,000 miles of riv-ers and 180,000 acres of lakes in the U.S.have been polluted by mining damage.48

Mining often wipes out fish populations,destroys habitat for other wildlife, and poi-sons surface and underground drinkingsupplies. In 1987, the most recent year forwhich data are available, the U.S. miningindustry generated 1.7 billion tons of waste49

� nine times more than all the municipal

solid waste generated in the same year. Notall of this waste is hazardous, but the En-vironmental Protection Agency estimatesthat mining alone generates nearly asmuch hazardous waste each year as allother American industries combined. Suchwastes are an enduring legacy. They canremain toxic for thousands of years, longafter mine operators have taken theirmoney and run.

Mining and smelting virgin mineralsalso takes a huge amount of energy, mak-ing the industry a major contributor to acidrain, other types of conventional air pollu-tion, global warming, and other impacts ofenergy production. Mining and smeltingaccounts for 5-10 percent of annual worldenergy use, and about 3 percent of U.S.energy consumption.50


5. 1872 Mining Law $200 Million average per year

$1 Billion over 5 years 51

The 1872 Mining Law that governshardrock mining is an enormous waste oftaxpayer resources. Each year, $2-4 billionworth of minerals are taken from publiclands by miners who pay no royalties forthis wealth yet obtain title by paying $2.50-$5.00 per acre to the federal government.52

Under the law, anyone may explore openpublic lands for hardrock minerals, includ-ing gold, silver, lead, and many others.Anyone filing a claim has an automatic rightto extract minerals found there.

Since the law was enacted, the U.S. gov-ernment has given away more than $245billion worth of mineral reserves throughroyalty-free mining.53 For example, in 1990the Stillwater Mining Company patented2,000 acres of national forest land at thelow cost of $10,000 in order to extract min-erals worth an estimated $35 billion.54 Tax-payers have been left the financial burdenof cleanup costs estimated to be between $32and $72 billion for more than half a millionabandoned mines.55

Instead, taxpayers should be guaranteeda fair market return for publicly-ownedminerals extracted by mining companies.For example, an 8% royalty could raise

roughly $1 billion over five years. Perma-nently eliminating mineral patenting wouldsave an estimated $10 billion from new pat-ents.


The 1872 Mining Law gives mining com-panies a significant economic advantageover recyclers, since subsidies and tax ben-efits result in mine operators paying priceswell below market for raw materials suchas iron, copper, and zinc. They often gettitle to public lands (which may be valu-able for development and other purposes),as well.

Recycling companies, on the other hand,must compete against the artificially lowprices for mining materials. The result isthat prices paid for recyclable materialsrarely cover the full costs of collecting andprocessing them, thus keeping communityrecycling collection systems in a continu-ally jeopardized situation. Although recy-cling would be far more economical and prof-itable than mining if all of the true miningcosts were included in materials and prod-uct prices, mineral extraction continues tobe the more attractive investment.

�I consider [1872Mining Law re-form] the mostegregious thingthat the Senateturns its back onevery year . . . .it isso gross, so egre-gious, that peoplecan�t believe it isfactual, that it isactually happen-ing.�Senator Dale Bumpers (D-AR)

As a result, total deductions frequently ex-ceed original investment costs.

Because the percentage depletion allowancededucts a fixed rate that does not correspond tothe mine�s actual value, mining companies areable to deduct more than the original cost of theinvestment. As a result, taxpayers subsidizethe normal business costs of mining companies.

6. Mining Percentage $269 Million average per year

Depletion Allowance $1.345 Billion over 5 years 56

Percentage depletion allowances werefirst enacted in 1913, and have been modi-fied several times since then. They permitmining firms to deduct a fixed percentage,usually 5-22%, depending on the mineral,from their gross annual income, instead ofdepreciating their actual costs at the ratesrequired for other businesses. Although theannual deduction is capped by law at 50%of taxable income, overall deductions are notlimited to the initial cost of the investment.


The Internal Revenue Code permits min-ing companies to immediately deduct costsassociated with exploration and develop-ment for locating valuable mineral depos-its in the year the costs are incurred ratherthan over time as most other businessesmust do.

Taxpayers give the mining industry at least$27 million each year through this tax loop-hole. Eliminating expensing and capital gainsstatus for mining exploration and developmentcosts would save $135 million over five years.


Expensing reduces the effective tax rateof mining firms relative to all other busi-nesses, including those in recycling andreuse, and thus promotes virgin materialuse. Expensing also has adverse environ-mental consequences by encouraging thedevelopment of raw materials as opposed torecycled.

7. Expensing Of Exploration $27 Million average per year

And Development Costs $135 Million over 5 years 58

�The percentagedepletion allowancepermits mineralproducers tocontinue to claim adeduction evenafter all theinvestment costs ofacquiring anddeveloping theproperty have beenrecovered.�Senate Budget

Committee report 199657

The percentage depletion allowance cre-ates an incentive to keep mines operatingregardless of the potential value of the min-erals to be extracted. Perversely, the moretoxic the mineral, the greater the subsidy:mercury, zinc, and uranium miners, for ex-ample, receive the highest depletion allow-ance, while less toxic substances, such assand and gravel, get lower rates.


Unlike mining companies, recyclingbusinesses do not rely on taxpayers to covertheir normal business costs. Their profitmargins are often razor thin or nonexist-ent, no comparison to capital created by

mining investment costs reimbursed to100% and beyond. Such out-of-balance ac-countings of materials costs put metals re-cycling businesses at a disadvantage interms of financing for research, develop-ment and facilities, as well as for incorpo-rating more of their materials into finishedproduct manufacturing.

Mining subsidies also encourage miningactivity that otherwise would not occur, in-cluding allowing mines to continue operat-ing that would not otherwise survive. Theresulting increased supply of virgin miner-als discourages use of recycled goods andtherefore development of recycling indus-try alternatives to virgin mineral use.


8. Improving Bond Requirements $ NA, substantial per year 59

$ NA, substantial over 5 years

Frequently, as a mine becomes depleted,it is abandoned by its operators to becomethe financial burden of the public. One waythat the federal government has sought tohold mining companies responsible isthrough insurance bonding requirements.This requires that a mine operator possessthe financial resources to pay for any po-tential cleanup costs. Present bonding re-quirements are insufficient and weaklyenforced by the government, often leavingthe taxpayer to pay for cleanup.

For example, on December 3, 1992 theCanadian-owned Summitville ConsolidatedMining Co. declared bankruptcy and aban-doned its mine in Colorado, leaving only a$4.7 million bond for a mine site whose es-timated reclamation cost is $120 million.61

(This is also an example of how century-old policies favoring cheap raw materialsare no longer benefiting the U.S.). The re-cent bankruptcy filing of Pegasus Gold, Inc.has raised similar questions about thecleanup of the environmentally troublesomeZortman-Landusky Mine in Montana.

At present, the Mineral Policy Centercalculates that there are 557,650 abandonedmines in need of reclamation in the UnitedStates and estimates the cost to taxpayersof cleaning them up at $32 to $72 billion.62

This represents a largely unrecoverable costto the public that might have been preventedby improved bonding requirements.

The existing Bureau of Land Manage-ment regulation63 for hardrock miningbonding should be strengthened to requirehard rock miners to post reclamation bondssufficient to pay for complete cleanups costs.Bonding requirements should be extendedto cover usage below five acres.

In 1996, Interior Secretary Bruce Bab-bitt initiated a review of the federal 3809regulations that govern hardrock miningon public lands, but publication of draftrules was postponed by Congress. On Feb-ruary 28, 1997 the Bureau of Land Man-agement published an amendment to thehard-rock mining regulations that requiresbonding of all operations greater than 5acres on public lands but does not specifywhat full reclamation requires nor requirecertification on all bonds by a professionalengineer.


Not requiring adequate site cleanup cov-erage lowers costs, giving the hard rockmining industry a competitive advantageover producers of recycled minerals.

�Americantaxpayers have toolong borne the costof cleaning up afterunscrupulousminers and thebonding rule willensure that the costof cleaning up thedisturbance causedby mining will beplaced squarely onthe miningcommunities�shoulders where itbelongs.�Carlos Romero-Barcelo,

Delegate from Puerto Rico60


Estimates of current federal energy sub-sidies range from the Energy Department�s$14 billion figure64 to the Alliance to SaveEnergy�s value of $36 billion.65 Militarydefense of oil supplies alone is estimated tobe $10.5 to $23.3 billion.66 An Environmen-tal Protection Agency study of disincentivesto recycling concluded that energy subsi-dies were the single most important subsi-dies for primary materials production.67 Bykeeping the prices of oil, gas, coal, and elec-tricity artificially low, energy subsidies pro-vide a major structural advantage to ex-tractive industries, which are generally farmore energy-intensive than recycling andreuse. Making aluminum from used metal,for example, requires only 5% of the energyrequired for smelting ore into brand-newmetal. It takes, on average, about one-eighththe energy to produce recycled plastic thanto produce plastic from virgin inputs, andone-half the energy to produce recycled pa-per (although relative energy-use calcula-tions are complicated by the pulp and pa-per industry�s substantial reliance on en-ergy generated from burning its ownwastes).68

Energy subsidies also reduce the cost ofraw materials for some virgin-materialsindustries, such as steelmaking and themanufacture of plastics and other syntheticmaterials. This direct subsidy is surpris-

ingly important, given the large share ofenergy-bearing minerals these industriesconsume as feedstocks. About two-fifths ofthe energy consumed by plastics and syn-thetic materials manufacturing is actuallyused as feedstocks, rather than fuels.69

Similarly, about a quarter of the energy usedin steelmaking is actually a feedstock: cok-ing coal, used as a source of carbon, whichis an important component of steel.70

Not only do primary resource industriesbenefit from direct subsidies in the form ofartificially low feedstock prices, and thespecial case of federally-subsidized electric-ity for aluminum, but they also receive in-direct subsidies in the form of cheap en-ergy for energy-intensive activities such asmining, smelting, and papermaking. Pri-mary materials industries use more than7% of all the energy consumed in the U.S.each year.71

Energy subsidies encourage continueddependence on fossil fuels and nuclearpower. Most people are familiar with theimpacts associated with the burning of fos-sil fuels � air pollution, greenhouse gasemissions � and those connected with theuse of nuclear power, including the costs oflong-term security to prevent its wastes andfissionable materials from becoming a dan-ger. However, energy extraction also causes

ENERGY SUBSIDIES


Subsidy ($ Millions) ($ Millions) 9. Percentage Depletion Allowance 276 1,38010. Intangible drilling costs (IDCs) 9 4511. Passive Loss Tax Shelter 38 19012. Alternative Fuel Production Credit 543 2,71513. Enhanced Oil Recovery 245 1,22514. BPA: Electric Power Subsidies For

Aluminum 200 1,000Total 1,311 6,555


major environmental problems. Coal stripmining causes acid drainage and toxic con-tamination of land, rivers, and lakes. It cansharply increase erosion and threatennearby and downstream ecosystems anddwellings with landslides and increasedflooding. Oil and gas exploration, develop-ment, and extraction cause major environ-mental problems. These include damage toanimal and plant habitats, contaminationof land with chemicals used in drilling, andpollution of lakes and streams. It is esti-mated that the oil industry loses the equiva-lent of 280 million barrels of oil per yearthrough leaks and spills. Uranium miningand processing have left behind many of theworld�s most dangerous sites, contaminatedwith not only toxic chemicals but deadly,long-lived radiation.

Historically, Congress has provided en-ergy subsidies to promote the growth of do-mestic energy industries, provide securesupplies during wartime (and the Cold War),and reduce U.S. dependence on importedoil. However, production subsidies havehelped keep prices low, removing an impor-tant stimulus for the development of renew-able energy sources and investment in en-ergy-efficient technologies and practices,such as recycling and reuse. Even withenergy subsidies in place, domestic oil pro-duction, for example, has continued to de-cline while U.S. dependence on foreign oilhas increased. In fact, America�s continu-ing heavy dependence on oil has other un-fortunate costs, such as the conduct of warsto protect U.S. access to foreign sources ofoil � a major subsidy not included amongthose listed in this report.

9. Percentage Depletion Allowance $276 Million average per year

$1.38 Billion over 5 years 72

Independent oil companies not substan-tially involved in retailing or refining ac-tivities are granted a special �percentagedepletion� write-off. The percentage deple-tion allowance lets these oil and gas com-panies deduct a flat 15% of their gross in-come to reflect the declining value of thewells as they become unproductive. Becausethe deduction can amount to 100% of anoperation�s net income, for some companiesall profits may come from government taxsubsidies. In fact, in combination with othersubsidies for the oil and gas industry, thepercentage depletion allowance subsidy of-ten exceeds 100% of the actual value of theenergy produced. Eliminating the percent-age depletion allowance for independent oiland gas companies could save $1.38 billionover 5 years.


The percentage depletion allowance en-courages the draining of scarce domesticenergy resources while discouraging thedevelopment of renewable energy and en-ergy efficiency. The subsidy also allows oiland gas companies to deduct more fromtheir taxable income than their actual in-vestment. This distorts the market, divert-ing capital into oil and gas production thatmight be better invested elsewhere. It alsocontributes to lower oil and gas prices,which encourage continuation of energy-intensive types of production rather thanshifting to energy conserving productionmethods such as recycling and reuse.

�The percentagedepletionallowance permitsindependent oiland gas producersto continue toclaim a deductioneven after all theinvestment costs ofacquiring anddeveloping theproperty have beenrecovered.�Senate Budget

Committee report, 199673


Oil and gas producers are permitted un-der the Internal Revenue Code to deduct70% of intangible drilling costs in the yearin which they were incurred, rather thanas the capital assets wear out or the oil isdepleted, which is the normal business prac-tice. These costs include fuel, labor and re-pairs to drilling equipment. In addition, theremaining 30% can be amortized over a pe-riod of five years.


The subsidy reduces oil and gas compa-nies� cost of finding and developing a reserveby 75-90%.76 Since it reduces the effectivetax rate, it also provides a higher initialrate of return on investment. The subsidyreduces potential risks of oil and gas explo-ration and development, attracting addi-tional investment to the industry.

10. Intangible Drilling Costs $9 Million average per year


�There is littleeconomicjustification forthis nonneutral taxtreatment of IDCs.�1996 Senate Budget

Committee report75

11. Passive Loss Tax Shelter $38 Million average per year


Passive loss is the ability of an investorto use losses, deductions, and credits to off-set other income. Congress sought to elimi-nate many similar tax breaks in 1986, butpreserved this loophole, ostensibly to pro-mote domestic oil production. The passiveloss tax shelter was originally designed toprevent the decline of domestic oil and gasproduction, helping limit dependence on for-eign oil. This tax loophole artificially propsup a declining domestic oil industry withtaxpayer dollars. It has not halted the de-cline in domestic oil production, and is cost-ing taxpayers $38 million per year. Elimi-nating the passive loss tax shelter for in-vestors in oil and gas would save $190 mil-lion over five years.


The passive loss provision helps divertinvestment capital into oil and gas and awayfrom cleaner, renewable energy technolo-gies such as solar or wind. It encouragesoverproduction of oil and gas, contributingto the rapid depletion of this strategic natu-ral resource. It also helps reduce the pricesof oil and gas, making recycling of plasticsless attractive as well as reducing energyprices, disproportionately benefiting re-source-intensive industries.

IMAGINE IT!


Section 29 of the Internal Revenue Codeprovides a tax credit for the production ofalternative fuels extracted from suchsources as slate and tar sands, as well asfor synthetic fuels made from coal and gasfrom geo-pressurized brine. In practice,most of the credit has gone to oil and gasproduction. In 1980, the total cost of thesubsidy was initially estimated at $500million to $1 billion over 22 years. To date,the subsidy has already cost taxpayers farmore: $5.4 billion through 1996, and an es-timated $4.6 billion more until its phase-out, according to the U.S. Treasury. Thecredit has promoted production of coalbedmethane over that of conventional naturalgas.

The subsidy has not led to major in-creases in alternative fuels production, itsoriginal goal. According to the Senate Bud-get Committee, �the credit�s effects have,generally, not been sufficient to offset thedisincentive effects of low and unstable oilprices, the high cost of alternative fuelsproduction and the taxpayer�s unawarenessof the availability of the new credit.� In-stead, the credit has been used to developdrilling and production technologies neededfor hard-to-tap oil and gas reserves.

The drilling and production of non-con-ventional fuels frequently causes majorenvironmental damage, such as erosion andcontamination of nearby rivers and lakes.In Michigan alone, the subsidy has led tothe fragmentation of more than 1,000,000acres of public and privately owned forest.Production of such �alternative� fossil fuelsis often highly polluting and can requireconsiderable energy inputs.

Repealing the non-conventional fuel pro-duction credit for oil and gaseous fuels de-rived from alternative energy sources wouldsave an estimated $2.7 billion over fiveyears. The credit was set to expire in 1998,but a �placed-in-service� loophole will extendthe production credit until 2002 for facili-ties already in service by 1996.


Subsidizing hard-to-extract fuels contin-ues the unnecessary waste of energy ratherthan sending a market signal that clearlyrewards production methods such as recy-cling and reuse that dramatically reduceenergy requirements. If energy were prop-erly valued, these hard-to-extract fuelswould not be attractive and investors wouldrecognize the inherent superior stability ofenergy-efficient industries.

12.Alternative Fuel Production Credit $543 Million average per year

$2.7 Billion over 5 years 78

There has beenlittle, if any,growth inalternative fuelsproduction since1980, generatingunnecessary lossesin the Federal taxrevenue.1996 Senate Budget

Committee report75


Oil companies investing in tertiary en-hanced oil recovery operations are alloweda tax credit equal to 15% of their costs. Ter-tiary recovery methods include the use ofchemical or thermal fluids, steam, or alka-line flooding to extract otherwise inacces-sible oil. Immediate deductions for theinjectants used in enhanced recovery arealso allowed. Tax credits and immediateexpensing for enhanced oil recovery encour-age overproduction of domestic oil at tax-payer expense. Without this tax incentive,the recovery of this oil would be prohibi-tively expensive.

In general, it is environmentally desir-able to extract all of the oil in a well to avoidwaste and seepage. However, much greaterenergy savings could be gained by elimi-nating current waste in the oil and gas in-

dustry. In addition, chemicals used in en-hanced oil recovery methods often lead tocontamination of drinking water, soil, andwetlands which kills animal and plant life.

Eliminating the preferential tax creditfor enhanced oil recovery would save an es-timated $245 million over five years.


The various tax subsidies for the oil andgas industry have not reversed the contin-ued decline in domestic oil production or cutthe country�s dependence on foreign oil. Butthey have obscured the financial attractive-ness of energy-conserving industries suchas recycling and reuse.

13.Enhanced Oil Recovery $245 Million average per year$1.2 Billion over 5 years 80

14.Bonneville Power Administration: $200 Million average per year

Electric Power Subsidies For $1 Billion over 5 years 81

Aluminum Smelters

The Bonneville Power Administration(BPA) is a Department of Energy agencythat sells subsidized electricity from a net-work of 29 federally owned dams on theColumbia and Snake rivers, and from onenuclear power plant. Its low power rateshave attracted over 30% of U.S. aluminumproduction to its service area. To meet pro-jected growth in Pacific Northwest electric-ity demand that never materialized, BPAspent billions on a nuclear power programthat has encumbered it with massive debtand four defunct nuclear power plants thatwere abandoned when only partially built.Only one of the five nuclear power plantsplanned for the project was completed, withactual costs running far over projections.Changes in federal law permitting indepen-dent power suppliers have opened the re-gion to market-savvy competitors. As a re-

sult, Bonneville has increasingly found itdifficult to compete in the open marketwhile facing scrutiny of its heavily subsi-dized, debt-ridden operation.

BPA wastes taxpayer money by sellingsubsidized electricity at preferential ratesto aluminum smelters and other users. Forexample, according to the BPA, the aver-age U.S. residential rate from a public util-ity in 1996 was 8.4 cents per kWh and itsown average Northwest residential rate was5.4 cents per kWh. But its wholesale powerrate for Direct Service Industries (DSIs)(primarily aluminum smelters) was usu-ally near 2.26 cents per kWh.

Furthermore, DSIs do not pay all of thecosts that BPA incurs to serve them. Thesubsidy to the aluminum industries in the

�A three monthreview ofBonneville�sdecision making bythe Oregonianfound a deliberateattempt by theagency to favoraluminumcompanies.�Portland Oregonian

82


Northwest is conservatively figured to be$214 million a year.83 In fact BPA set theDSI power and transmission rates in 1996based on a study provided by DSI Indus-tries Inc., the trade group which representsthe industry.84

To finance its capital programs, BPAhas received discounted loans from the fed-eral Treasury, with a current debt of ap-proximately $17 billion,85 along with gen-erous repayment schedules. From FY 1992to 1996, the General Accounting Office es-timates that Treasury loans to BPA costtaxpayers nearly $2 billion,86 with one thirdof its power going to aluminum smelters.For FY 1996, GAO estimates the net costto U.S. taxpayers at $400 million in costsfor loans that allow BPA to pay interest farlower than normal, with generous repay-ment terms.87

Over 30% of domestic primary alumi-num production is in the BPA service area.Some of the other 70% of production receivessubsidized electricity from publicly-ownedpower plants, as well.

Below-cost sales of electricity encourageunnecessary electrical consumption, requir-ing additional power sources such as thefiasco nuclear power project that producedonly one working nuclear reactor out of thefive planned, burdening taxpayers in theregion with the remaining debt of $7 bil-

lion.88 Furthermore, many of the BPA�s 29federal dams obstruct the migration ofsalmon, leading to a steady decline in theirruns, some of which are nearly extinct. TheBPA estimates that it will need to spend $1billion through 2001 on fish and wildlifeprograms to try to mitigate the impacts ofpower generation.

Eliminating preferential electrical ratesfor aluminum smelters would save approxi-mately $200 million a year or $1 billionover 5 years.89


Electricity sold below cost disproportion-ately benefits virgin aluminum production.Aluminum recycling requires far less en-ergy than the production of virgin alumi-num and therefore is disadvantaged by en-ergy subsidies. The average energy requiredto process virgin aluminum is 250.7 mil-lion Btu/ton while the average energy nec-essary for recycled aluminum is 11.8 mil-lion Btu/ton, according to a 1994 EPA re-port.90 The Aluminum Association statesthat recycling aluminum requires onlyabout 5% of the energy used in making vir-gin aluminum.91

Furthermore, this subsidy is availableonly to existing smelters. It therefore actsas a barrier to entry for new smelters us-ing only recycled aluminum.


After materials are made into products,distributed to consumers, and then reachthe end of their useful product life, they thenrequire some method of disposal. Mostcould be collected and recycled into newproducts, saving resources, energy, andwater, plus reducing pollution. However,even at this end of the cycle, recycling com-petes with federally subsidized industries� incinerators and landfills. Capital-inten-sive waste disposal facilities, rather thanrecycling, qualify for tax-breaks such asPrivate Activity Bonds, which patently dis-criminate against recycling. Further, be-cause waste disposal facilities tend to be farmore capital-intensive than recycling, theybenefit disproportionately from all subsi-dized financing mechanisms, even whenrecycling does qualify for the subsidy. Inthat case, subsidies are often underwritingthe less efficient choice, one that would proveless attractive if costs were fully incorpo-rated. Other subsidies embedded in currentout-of-sight, out-of-mind waste disposal poli-cies are less direct and more difficult toquantify, although still important.

The Public Utilities Regulatory PolicyAct of 1978 established guaranteed marketsfor certain high-priced electricity fromwaste-to-energy incineration plants. In ad-

dition to federal electricity subsidies for in-cinerators, cities and states have in manycases supported incineration at the expenseof recycling. Though recently repealed, theIllinois Retail Rate Law would have coststate taxpayers $10 billion over 20 years,according to the Illinois Commerce Com-mission, by requiring state utilities to pur-chase over-priced electricity generated at in-cinerators.

Deeper, more-structural subsidies are soingrained that many people forget that thereis an alternative to the $36 billion taxpay-ers annually pay for waste disposal. Thecosts of disposing of what is generallythought of as �waste� are often hidden inproperty taxes and other obscure, less-di-rect forms of taxation. Few people pay fordisposal costs per trash can, but in com-munities that do, refuse costs have gonedown and recycling rates have increased.Further, communities often incorrectly viewrecycling as an additional expense, ratherthan as a cheaper alternative to currentwaste disposal practices, because it is oftensimply added onto, rather than substitutedfor, existing collection of discarded materi-als.

WASTE FACILITIES

ECO-CYCLE


Currently, 70% of all bonds used to fi-nance solid waste facilities are Private Ac-tivity Bonds (PABs),92 but most recyclingfacilities do not qualify for the bonds. The�private activity� refers to the substantialportion of their benefits that are reaped byindividuals or businesses rather than thegeneral public. Federal law treats incomeearned on PABs as tax-exempt, even thoughthey primarily benefit private individualsand entities, on the theory that infrastruc-ture development serves the public inter-est through providing needed services tolocal jurisdictions and possibly offsetting theneed for public investment.

Before the Tax Reform Act of 1986, stateand local governments issued an unlimitedamount of PABs. After the Tax Reform Actof 1986, PABs issued for privately-ownedsolid waste facilities were subject to a per-state limit of $150 million or $50 per capita.However, PABs used to finance government-owned disposal facilities have no such vol-ume cap.

There are more than 124 municipal solidwaste incinerators in the United States.They often emit harmful levels of toxic sub-stances into our air and water, such as cad-mium, lead, mercury and dioxins as wellas substantial amounts of conventional pol-lutants, posing threats to human health andthe environment. The more than 3,000municipal solid waste landfills in the UnitedStates present current and future threatsto groundwater and to climate stability be-cause landfills are a substantial source ofmethane, a significant greenhouse gas.


The use of private activity bonds to fi-nance new private and governmentallyowned solid waste facilities should be elimi-

nated. PABs distort investment decisionsbecause interest from the bonds is tax-free.Investors buy them to shelter income fromtaxes rather than buying taxable corporatebonds or stocks. The lack of taxes on inter-est from PABs allows issuers such as solidwaste facilities to obtain capital at belownormal market interest rates, at the ex-pense of taxpayers.

PABs subsidize the financing of landfillsand incinerators, making it cheaper to dis-pose of materials than to recycle them. Le-gally, most recycling facilities do not qualifyfor PAB financing. Most recyclable materi-als, such as paper, plastic and cardboard,have commodity prices that prevent themfrom being classified as �valueless� � a cri-terion for PAB eligibility. Although somerecycling facilities are eligible to use PABs,most of the bonds go to landfills and incin-erators, since they are generally more capi-tal-intensive than recycling facilities.

Waste facilities are critical to continuedresource extraction. In order to justify con-tinued resource-intensive production, prod-ucts that are no longer wanted must be�thrown away� � somewhere. Resource ex-traction is based on a linear productionmodel, with virgin materials industriesnever being required to concern themselveswith the end results of their production.Recycling and reuse, on the other hand,employ a circular production model. Theyinherently incorporate their materials� �dis-posal� method into their processing andproduct manufacturing, as the source oftheir feedstock. However, so long as facili-ties that waste resources, such as incinera-tors and landfills, are favored by govern-ment subsidies, the environmental and eco-nomic value added by materials-efficientindustries will not be recognized and re-warded.

15.Private Activity Bonds $ NA


In addition to the $13 billion in directsubsidies identified in this report, many in-direct subsidies also provide a substantialeconomic advantage to virgin materials in-dustries.

Indirect Energy Subsidies

Energy subsidies are a pervasive sourceof bias. Because recycling generally requiresmuch less energy than production of virginmaterials, low energy prices disproportion-ately benefit extractive industries. Esti-mates of annual federal energy subsidiesrange from the Energy Department�s $14billion figure to the Alliance to SaveEnergy�s value of $36 billion. Taxpayershave paid more than $800 billion in energysubsidies over the past 80 years, accordingto the U.S. Department of Energy.93

Indirect Water Subsidies

Just as recycling industries use signifi-cantly less energy than virgin materialsindustries, they also use significantly lesswater, often yielding water savings as highas 58%.94 EPA�s study on disincentives torecycling even extends the potential impactof water subsidies to include ways that in-creased water use can reduce energy re-quirements, pointing out that, �primarypetroleum refineries, utilities and miningoperations are able to reduce energy costsand capitalize on what may be an indirectfederal subsidy by consuming large volumesof water. This substitution of less costlywater for more costly energy could furtherhinder the competitiveness of recyclables.�95

Large water consumers, however, suchas paper mills, petroleum refining and steelmanufacturing, tend to locate their facili-

ties adjacent to bodies of water so that theycan take the water in as part of their op-erations. Usually they must have a permitto access the water. In the past, companiesoften dumped their wastes into the water,but now discharge permits are required tocontrol potential pollution problems. How-ever, paper mills continue to be a persis-tent source of toxic dioxins and organochlo-rines from bleaching operations.

When using water from municipal sys-tems, industries often pay less than nor-mal for the true cost of the water plus theassociated wastewater treatment. More of-ten, large industries draw their water di-rectly from streams or lakes with no directpayment for the right, yet the very act ofwithdrawing the water and returning it ina slightly different state can affect riverecology. If water were priced according toconsumption, the significant environmen-tal and economic savings afforded by recy-cling businesses would be more obvious toinvestors, producers and customers. Accu-rate economic reflections of water use wouldalso tend to make energy prices more real-istic.

Indirect Transportation Subsidies

Transportation subsidies are also likelyto benefit extractive industries more thanrecycling. The federal government doesn�tjust build logging roads in national forests� it also builds and maintains a large shareof major highways. Virgin materials oftencome from remote areas, where major high-ways would less likely be built were it notfor trucking of logs and minerals.

Shipping distances for virgin materialsare also likely to be longer than those ofrecycled materials, which are more often

INDIRECT FEDERAL SUBSIDIES THATUNDERMINE RECYCLING, REUSE, ANDRESOURCE CONSERVATION


processed close to where they are collected.Shipping distances for recyclables wouldlikely be even shorter if they constituted amuch higher share of manufacturing feed-stocks. This is because paper mills andmetal smelters would tend to move, overtime, closer to cities, the source of mostused materials. Already, new deinkingmills, which process used paper into newpapermaking pulp, have located near largeurban centers, where discarded paper isabundant.

In addition, heavy trucks, likely to betraveling longer distances with virgin ma-terials, pay less than 65% of the federal andstate costs associated with their use of theroadway system, according to the FederalHighway Administration. Some resources,such as oil, are transported by barge oninland waterways in certain parts of theU.S. Costs to operate, maintain and developthe inland waterway system were estimatedto cost $700 million in 1990, borne typicallyby taxpayers, not the users.

Indirect Tax Subsidies

Federal tax policies that discourage thehiring of additional workers and encouragecapital expenditures also hurt recycling,since recycling is generally more labor-in-tensive than virgin production. Significantwrite-offs for capital equipment encouragelogging, mining, and waste disposal, all ofwhich employ relatively few workers butrequire substantial capital investments.Favorable federal tax treatment for munici-pal bonds also favors more capital-intensiveincinerators and landfills over recycling.

The interaction of state and federal taxcalculations compounds the impact of fed-eral tax policies favorable to virgin materi-als and waste industries. Because moststates assess state tax liability on the basisof federal taxable income, industries thatbenefit from federal tax breaks receive anincremental subsidy at the state level. TheInstitute for Local Self Reliance estimated

in 1996 that this interaction augments fed-eral tax subsidies by about three percent.

Indirect International Subsidies

Also important, but difficult to quantify,are international economic factors. TheWorld Bank, the International MonetaryFund, and other multilateral institutionshave promoted extractive industries inmany countries, particularly in the devel-oping world, as have bilateral trade and aidsubsidy programs.

U.S. policies are not alone in favoringextractive industries at the expense of re-cycling and reuse. A wide variety of nationalsubsidies and international market factorstend to favor virgin-materials production.International development policies, as wellas funding from multilateral developmentbanks, tend to encourage poor countries tofocus on extracting and selling their natu-ral resources to obtain foreign exchange,even when markets for such commoditiesmay be depressed. The cumulative effect ofmany countries simultaneously pursuingsuch policies tends to keep prices of virginminerals and timber low. Markets for manymaterials are international, so that subsi-dies in one country can easily affect mate-rials prices in many others.

For example, in 1996-98, virgin paper-making pulp shipped from countries thatare liquidating their forests for cutthroatprices undercut pulp prices in the U.S.While both virgin and recycled deinkingpulp markets suffered, recycling mills werehardest-hit, both because they peg theirprices below virgin pulp and because theirfacilities are newly-capitalized. Several newhigh-grade paper deinking mills were builtin 1994-1996, but many closed not long af-ter opening, crippled by economic problemsexacerbated by the world pulp markets.96

Multinational firms have used their eco-nomic leverage to obtain highly favorableterms on nationally-owned resources, have


used transfer pricing and other mechanismsto avoid taxation, and have often avoidedhaving to clean up their mine sites or re-forest their clearcuts. All told, such factorscertainly have a significant downward ef-fect on virgin materials prices.

Aluminum production is perhaps themost dramatic example of a virgin materi-als industry that receives heavy subsidiesaround the world. The Canadian provinceof Quebec has given huge subsidies to alu-minum smelters in the form of extraordi-narily cheap hydropower. The province haseven shared the risk of constructing smelt-ers, in order to encourage their construc-tion. The effective subsidy of such practiceshas been calculated by Canadian research-ers at $171,000 (U.S.) per worker � peryear! � employed in the province�s alumi-num industry.97 The dams that powerQuebec�s smelters are among the most con-troversial in the world. They threaten oneof North America�s most critical waterfowlhabitats and inundate lands inhabited forthousands of years by the area�s Cree andInuit peoples, who vehemently oppose thepower projects. Other countries � notablyGhana, Australia, and Brazil � offer simi-larly subsidized electric power to aluminumproducers. All told, such practices exert asharp downward effect on the price of vir-gin aluminum, which sets the upper limitfor recycled metal prices.

Indirect Subsidies From UnfundedExternal Costs

A very important economic advantagefor extractive industries is what they don�tpay for � especially the cost of pollutioncleanup. Even when they comply with ex-isting environmental laws, the hidden coststhat extractive industries pass on to tax-payers and other economic sectors can behuge. Mining and logging firms don�t paythe real costs of the damage they inflict,such as denuded forests, eroded land, anddammed and polluted rivers. It is impos-sible to precisely quantify all such costs,but they are certainly orders of magnitudehigher than the subsidies discussed in thisreport.

Recycling also incorporates full-cycle pro-duction costs by providing upfront an alter-native to disposal when it obtains materialsfor new production. Virgin materials produc-tion, however, is based on a throw-away con-cept, with no incorporation of costs nor as-sumption of responsibility for the eventualdisposal costs the products will incur.


CONCLUSIONTo be truly successful, policies must grow and change with the society

they produce. Subsidies designed to stimulate development of resourceextraction and industrialization may have been well-considered solutionsto problems one hundred years ago. They have no place in the U.S. todayon the verge of the Millennium and the 21st century.

Appropriate policies today should promote the most efficient use of re-sources, both primary and secondary, along with the most minimal im-pacts on the environment and taxpayers. In most cases, such policies willhighlight and reward recycling and reuse industries, as well as promotesource reduction � preventing waste from being created in the first placeby redesigning products and manufacturing systems to eliminate unnec-essary resource demand.

Virgin resource extraction industries still have a place. Some recycledproducts such as paper require a continued infusion of a percentage ofvirgin fibers to maintain their strength and high quality, since recycledfibers shorten and shred, and a percentage of fibers are lost, in repeatedrecyclings. Other materials such as steel, aluminum and glass have nosuch requirement. But in evaluating federal subsidies, virgin resourceextraction should be considered a production means of last resort, not theprimary way of doing business that it is today, with its already substan-tial wealth increased by showers of taxpayer and government benefits.

It is time for the U.S. government to revamp its antiquated tax andspending policies that favor virgin materials extraction and waste facili-ties. The new Millennium requires eliminating government subsidies thatfail to help to resolve current and future issues and concerns, not onesthat are throwbacks to the previous century. Today�s critical concerns areglobal, environmental, and sustainable. Materials-efficient industries suchas recycling and reuse are specifically designed to address them. Elimi-nating the 15 subsidies listed in this document will make a start on allow-ing the industries best suited for the future to develop today.


1 A standard method of federal budget analysis

2 Jerry Powell, Editor-In-Chief, Resource

Recycling, personal communication. Resource

Recycling calculates the value of post-consumer recyclable materials each year.

3 Table 5-1. �Total Revenue Loss Estimates ForTax Expenditures In The Income Tax,� in theBudget of the United States Government,

Fiscal Year 2000, Analytical Perspectives

(Washington, DC: Office of Management andBudget, 1999), p. 107. This report uses thesemore conservative government estimates,rather than those listed in Table 5-5. �OutlayEquivalent Estimates For Tax Expenditures Inthe Income Tax,� p. 117, which offers anotherfinancial perspective on the same subsidies.�Outlay equivalents� are �the amount thatwould be required to provide the taxpayer thesame after-tax income as would be receivedthrough the tax preference,� allowing acomparison of the cost of the tax expenditurewith that of a direct Federal outlay (RevenueLoss Estimate). �The measure is larger thanthe revenue loss estimate when the taxexpenditure is judged to function as aGovernment payment for service. This occursbecause an outlay program would increase thetaxpayer�s pre-tax income.� (Analytical

Perspectives, p. 116)

4 James S. Lyon, Thomas J. Hilliard, andThomas N. Bethell, Burden of Gilt (Washing-ton, D.C.: Mineral Policy Center, 1993)

5 Characterization of Municipal Solid Waste in

the United States: 1997 Update, Office of SolidWaste, Municipal and Industrial Solid WasteDivision, U.S. Environmental ProtectionAgency, Report No. EPA530-R-98-007,(Washington, DC: EPA, 1998)

6 Double Trouble: The Loss of Trees and Money

In Our National Forests (Washington, DC:The Wilderness Society, 1998)

7 The Tellus Institute, California�s Incentives

for Production of Virgin and Secondary

Materials (Sacramento, CA: CaliforniaIntegrated Waste Management Board, 1993),Publication # 503-93-002

8 ibid.


the United States: 1997 Update, U.S. EPA

10 John E. Young, Mining the Earth (Washing-ton, D.C.: Worldwatch Institute, 1992), p. 12

11 Friends of the Earth, Seattle, WA

12 EPA reports one million tons of aluminumrecycled in 1996, according to Characterization

of Municipal Solid Waste in the United States:

1997 Update, U.S. EPA

13 ibid.

14 Kinsella, Susan, �Recycled Paper Buyers:Where Are You?,� Resource Recycling,November 1998, p. 18-21


the United States: 1997 Update, U.S. EPA.This 5% estimate is regarded as unrealisticallyhigh by most recycling professionals withexperience in the recycled plastics markets.

16 Morris, Jeffrey, �Recycling vs. Incineration: AnEnergy Conservation Analysis,� Journal of

Hazardous Materials, 47 (1996), p. 277-293

17 Mineral Commodity Summaries, U.S. Geologi-cal Survey, Dept. of Interior, 1998

18 James S. Lyon and Nicole Rinke, �The LastAmerican Dinosaur,� fact sheet, Mineral PolicyCenter, Washington, D.C., 1998.

19 Douglas Koplow and Kevin Dietly, Federal

Disincentives: A Study of Federal Tax

Subsidies and Other Programs Affecting

Virgin Industries and Recycling, Temple,Barker & Sloane, Inc. (Washington, DC: EPA,1994)

20 Budget of the United States Government,


(Washington, DC: Office of Management andBudget, 1999), p. 106

21 Weidenbaum, Murray, Christopher Douglass,and Michael Orlando, Toward A Healthier

Environment and a Stronger Economy: How

to Achieve Common Ground, Policy StudyNumber 137, Center for the Study of Ameri-can Business, January 1997

22 "Improving the Environment ThroughReducing Subsidies. Part I: Summary and

ENDNOTES


Conclusions; Part II: Analysis and Overview ofStudies,� OECD, Paris 1998

23 "OECD Environment Ministers Shared GoalsFor Action,� OECD News Release, Paris, 3April 1998

24 David Morris and Brenda Platt, The Economic

Benefits of Recycling (Washington, DC:Institute for Local Self-Reliance, 1993)

25 David Kirkpatrick, North Carolina Recycling

Business Study, for the NC RecyclingBusiness Assistance Center and Self-Help,July 1995

26 �Northwest Employment Depends Less OnTimber and Mining,� Northwest EnvironmentWatch, November 1994

27 1997 Economic Report of the President,Council of Economic Advisors, Washington,DC, 1997

28 Richard A. Denison, �Environmental Life-Cycle Comparisons of Recycling, Landfillingand Incineration: A Review of RecentStudies,� Annual Review of Energy and the

Environment, Volume 21, Chapter 6, (PaloAlto, CA: Annual Reviews, 1996), pp. 191-237

29 Inventory of U.S. Greenhouse Gas Emissions

and Sinks: 1990-1996, Office of GlobalWarming, U.S. Environmental ProtectionAgency, March 1998

30 John Young, calculations based on U.S.commercial energy consumption and Morris,Jeffrey, �Recycling vs. Incineration: AnEnergy Conservation Analysis,� 1996



the United States: 1997 Update, U.S. EPAreports 57.3 million tons of municipal solidwaste recovered in 1996.

33 Jerry Powell, Editor-In-Chief, Resource

Recycling, personal communication. Resource

Recycling calculates the value ofpostconsumer recyclable materials each year.

34 Forbes, December 9, 1991

35 David Assmann, �Recycled Paper SavesForests,� ESP Fact Pack 5:5, Conservatree

Paper Company, September/October 1992,based on An Analysis of the Timber Situation

in the U.S., 1989-2040, USDA Forest Service,December 1990.



(Washington, DC: Office of Management andBudget, 1999), Table 5-1, �Total Revenue LossEstimates,� p. 107, line items �Capital gainstreatment of certain timber income,� �Expens-ing of multiperiod timber growing costs,� and�Investment credit and seven-year amortiza-tion for reforestation expenditures.�

37 �The Price Isn�t Right: Money-Losing TimberSales,� Green Scissors 99 (Washington, DC:Friends of the Earth, 1999)

38 Randal O�Toole, The Thoreau Institute.

39 �The Price Isn�t Right: Money-Losing TimberSales,� Green Scissors 99 (Washington, DC:Friends of the Earth, 1999)

40 Report by Ross Gorte, Congressional ResearchService, on August 22, 1997, in response to areview of a joint Sierra Club and John MuirProject/Earth Island Institute report, titled�Ending Timber Sales on National Forests:The Facts� by Chad Hanson. 40 SusanKinsella, �Why Do Some Recycled Papers CostMore?�, Conservatree�s Greenline, May 1997

41 �The Great Tree Robbery: Timber RoadsConstruction,� Green Scissors 99 (Washington,DC: Friends of the Earth, 1999)

42 Editorial, Philadelphia Inquirer, September,1997

43 �Freeze on Road Building In Forests Imposedby Clinton,� Associated Press, February 12,1999

44 ibid.

45 �Freeze the Slush: U.S. Forest Service SalvageFund,� Green Scissors 99 (Washington, DC:Friends of the Earth, 1999)

46 �Freeze the Slush: U.S. Forest Service SalvageFund,� Green Scissors 98 (Washington, DC:Friends of the Earth, 1998)

47 Tax Expenditures: Compendium of Back-

ground Material on Individual Provisions,Committee on the Budget, United StatesSenate, prepared by the Congressional


Research Service (Washington, DC: U.S.Government Printing Office, 1997)

48 Carlos D. Da Rosa and James S. Lyon, Golden

Dreams, Poisoned Streams (Washington, D.C.:Mineral Policy Center, 1997), p. 4.

49 Managing Industrial Solid Wastes From

Manufacturing, Mining, Oil and Gas Produc-

tion, and Utility Coal Combustion�Back-

ground Paper, U.S. Congress, Office ofTechnology Assessment (Washington, D.C.:U.S. Government Printing Office, 1992), p. 10

50 Young, John E., Mining the Earth,Worldwatch Paper 109 (Washington, DC:Worldwatch Institute, 1992)

51 �Granddaddy of Subsidies: 1872 Mining Law,�Green Scissors 99 (Washington, DC: Friends ofthe Earth, 1999)

52 James S. Lyon and Nicole Rinke, �The LastAmerican Dinosaur,� fact sheet, Mineral PolicyCenter, Washington, D.C., 1998

53 Statement of Stephen D�Esposito, President,Mineral Policy Center, before the Subcommit-tee on Forests and Public Land Management,Committee on Energy and Natural Resources,U.S. House of Representatives, Washington,D.C., April 28, 1998

54 ibid.




(Washington, DC: Office of Management andBudget, 1999), Table 5-1, �Total Revenue LossEstimates,� p. 107, �Excess of percentage overcost depletion, nonfuel minerals�


ground Material on Individual Provisions,Committee on the Budget, United StatesSenate, prepared by the CongressionalResearch Service (Washington, DC: U.S.Government Printing Office, 1997)



(Washington, DC: Office of Management andBudget, 1999), Table 5-1, �Total Revenue LossEstimates,� p. 107, �Expensing of explorationand development costs, nonfuel minerals.�

59 Estimated to be over $1 billion annually forvirgin material and energy extraction overall,of which an estimated 15-25% accrues tovirgin materials. Doug Koplow, IndustrialEconomics, Inc., private communication, 2/2/99

60 Testimony, June 19, 1997

61 Mineral Policy Center, Washington, DC


63 43 CFR, 3809.1-9

64 Federal Energy Subsidies: Direct and Indirect

Interventions in Energy Markets, U.S.Department of Energy, Energy InformationAdministration (Washington, D.C.: 1992)

65 Douglas N. Koplow, Federal Energy Subsidies:

Energy, Environmental, and Fiscal Impacts

(Washington, D.C.: Alliance to Save Energy,1993)

66 Douglas Koplow and Aaron Martin, Fueling

Global Warming: Federal Subsidies to Oil in

the United States (Washington, DC:Greenpeace, 1998)

67 Koplow, Federal Disincentives, U.S. EPA,August 1994

68 Morris, Journal of Hazardous Materials

69 1994 Manufacturing Energy Consumption

Survey, U.S. Department of Energy, EnergyInformation Administration, Washington,D.C., 1998

70 ibid.

71 1994 Manufacturing Energy Consumption

Survey, Energy Information Administration,U.S. Department of Energy(Washington, D.C.,1998); Annual Energy Review 1997, EnergyInformation Administration, U.S. Departmentof Energy (Washington, D.C.: 1998); 1992

Census of Mineral Industries, Subject Series,Bureau of the Census, U.S. Department ofCommerce (Washington, D.C.: 1996)



(Washington, DC: Office of Management andBudget, 1999), Table 5-1, �Total Revenue LossEstimates,� p. 107, �Excess of percentage over


cost depletion, fuels�


ground Material on Individual Provisions,Committee on the Budget, United StatesSenate, 1997



(Washington, DC: Office of Management andBudget, 1999), Table 5-1, �Total Revenue LossEstimates,� p. 107, �Expensing of explorationand development costs, fuels�



76 ibid.



(Washington, DC: Office of Management andBudget, 1999), Table 5-1, �Total Revenue LossEstimates,� p. 107, �Exception from passiveloss limitation for working interests in oil andgas properties�

78 ibid., �Alternative fuel production credit�





(Washington, DC: Office of Management andBudget, 1999), Table 5-1, �Total Revenue LossEstimates,� p. 107, �Enhanced oil recoverycredit�

81 Friends of the Earth, Seattle, WA.

82 Portland Oregonian, September 17, 1997, p 1.

83 River of Red Ink, Friends of the Earth,(Seattle: Friends of the Earth, 1996), p. 6

84 Brent Walth and Jim Barnett, �BPA Favorit-ism Costs Consumers Millions�, The Orego-

nian, September 14, 1997

85 GAO Report, September 1997, FederalElectricity Activities: The FederalGovernment�s Net Cost and Potential ForFuture Losses, p. 25.

86 ibid. p. 10

87 ibid. p. 3

88 On the Brink: Subsidies, Nuclear Debt, and

the Future of BPA, American Rivers, May1996, p. 2, Seattle

89 River of Red Ink, Friends of the Earth

90 Koplow and Dietly, Federal Disincentives, U.S.EPA, 1994

91 Aluminum Industry Technology Roadmap,

Aluminum Association, (Washington, D.C.:1997).

92 Environmental Infrastructure Effects of

Limits on Certain Tax Exempt Bonds, U.S.GAO report, October 1993, GAO/RCED-94-2

93 Federal Energy Subsidies: Direct and Indirect

Interventions in Energy Markets, EnergyInformation Administration, U.S. Departmentof Energy (Washington, D.C.: 1992)

94 Koplow and Dietly, Federal Disincentives, U.S.EPA, 1994

95 ibid.

96 Kinsella, Susan, �Recycled Paper Buyers:Where Are You?,� Resource Recycling,November 1998, p. 18-21

97 Gerard Belanger and Jean-Thomas Bernard,�Aluminium ou Exportation: de l�Usage del�ectricitie Quebecoise,� Canadian Public

Policy�Analyse de Politiques, vol. 17, no. 2, p.197 (1991)

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