Introduction

By 1989, the North Texas and TXI cement companies were burning tens of thousands of tons of
hazardous waste at their Midlothian, Texas plants. To be able to burn more, both companies decided they
needed huge on-site tank farms to receive and mix incoming wastes. When they applied for their first federal
permits to build these storage tanks, the law required that they label their activities for what they in fact were-
the storage of hazardous waste. This was the first indication of what had already been occurring for several
years. It is this 1989 request for a federal permit which is currently being contested before state administrative
judges.

According to state documents, the four heavy industries based in Midlothian are among the top air
polluters in all of North Texas, with TXI Cement ranking as the single largest source of air pollution in Dallas/
Forth Worth. Holnam ranked second, North Texas Cement third and Chaparral Steel was sixth. Combined
these four industrial plants released over 48 million pounds of pollution into the Southwest air in 1995 alone.
The pollutants released by these plants, particularly TXI are in some cases also harmful to the ozone layer,
particularly nitrogen oxide. By itself, TXI releases the same amount of nitrogen oxide as some 275,000 cars.

The pollution produced by the TXI cement company has angered many residents of the surrounding
area. Currently, TXI’s Midlothian plant is one of the largest incinerators of hazardous waste in the nation, as
well as the largest in Texas. As a result waste is often transported from across the country to TXI and then
burned by the company for profit by their massive cement kilns while they produce cement. A permit which is
being debated would allow the plant to incinerate even more waste, although notice of any increases would be
published in the local paper. According to many Midlothian residents, such a permit would mean that TXI
may burn twice as much hazardous waste. This potential problem is exacerbated by the fact that TXI is
already the leading source of complaints about industry by residents in the Dallas/ Fort Worth region.

A final consequence of the pollution caused by TXI is on the local ecosystem, particularly Joe Pool
Lake, which is as little as two and a half miles from the plant. Joe Pool Lake is a major recreational site for the
area and has suffered greatly from the emissions emanating from TXI. Furthermore, depending on the wind
direction, several vicinities other than Dallas/ Fort Worth may suffer adversely from these emissions,
particularly the cities of Arlington, Cedar Hill, DeSoto, Duncanville, Mansfield, and the rest of growing
southern Tarrant and Dallas counties.

Market Failures
The problems of pollution discussed above are the result of several significant market failures
characterized mainly by the negative externality of TXI failing to internalize its effects on the surrounding
area. The TXI plant in Midlothian, Texas, is rated the most significant source of air pollution in the Dallas/
Fort Worth metropolitan area because it releases over 24 million pounds of five hazardous contaminants into
the atmosphere every year. In order to process cement for industrial and commercial construction around the
southwest, TXI burns hazardous materials resulting in excessive waste release into the atmosphere. This has
substantial effects on the area which are not accounted for in the current costs of operating the cement plant,
creating a sizable market failure.

Before we discuss the externalities caused by the plant, we wish to mention market conditions which led
to the initial existence of TXI construction. First, the area around the cement plant is relatively
underdeveloped and has cheaper labor readily available than other locations in the region. As a result, TXI
was able to take advantage of these conditions to create a less expensive cost of production, both in terms of
labor and land costs. Competition in the cement industry acts as an exacerbating factor in the search for
cheaper production costs by providing an added incentive to produce goods as cheaply as possible. At the
same time, it should also be pointed out that the presence of this industry provides much needed jobs for the
area. Thus, the area around Midlothian must consider which it values more: industry or clean air, or some
combination of both such that the costs and benefits of both can be considered fairly and appropriately
balanced.

Our discussion of externalities associated with TXI begins with the fact that the southwestern vicinity of
the Dallas area where the plant is located is the least developed portion of the metropolitan area. At least part
of the reason that the Dallas/ Fort Worth metropolitan area is so unevenly developed on the northern side of
the city is because of the existence of so much heavy industry in the southern districts of Dallas. As a result,
people in general find the southern portion of the city to be less attractive to live, largely due to the high
visibility of the very unsightly factories throughout much of the area. Additionally, the air quality near the
plant is frequently significantly lower, enhancing the undesirability of living in its vicinity. In helping to create
such a situation, TXI indirectly contributes to the under development in the southwestern quadrant of Dallas.
Due to the fact that it hurts residential developers interested in the area and its current residents, these
undesirable factors can be considered a negative externality caused by the company’s inability to account for
them in its costs of production.

A second negative externality caused by TXI is its effects on Joe Pool Lake, a major recreation area for
the Dallas/ Fort Worth region. This is the only major lake in the underdeveloped southwestern side of the
city, and would normally help attract commerce and residents as well as recreators to the area. Additionally,
some parts the area have large hills and are very wooded, with many arguing that they are among the most
aesthetically pleasing portions of Dallas. Alongside the lake and in the hills exists the Dallas Nature Center,
which provides a great deal of recreational enjoyment for hikers and nature lovers, as well as a habitat for
native animals in the area. However, on some summer days, the TXI plant emissions can quite literally be seen
near and above this large recreational area, causing great discomfort for visitors. In addition to decreasing the
beauty of these recreational areas, the air pollution caused largely by TXI is beginning to cause the natural
wildlife and plant life to suffer ill effects. Again, because these effects are not internalized by TXI, a market
failure exists which can only be solved if TXI somehow is forced to include them in its cost of production.

A third important market failure results from the typical weather patterns in the Dallas area, with winds
typically coming from the south and southwest. This means that the pollution form the TXI plant, which is
southwest of the city, affects a greater number of people than it normally would, as it travels through all of
Dallas and Fort Worth, causing the air quality of the entire region to decrease substantially. Furthermore,
during the warmer months, when the wind is almost always from the south or southwest, the pollution mixes
with hot air causing even greater ozone pollution, which is the most important air quality concern of Dallas and
Fort Worth. As a result, it is not only the immediate vicinity of the TXI plant which suffers, but also the entire
Dallas/ Fort Worth area must cope with the almost daily pollution being transported through and above the
city. The fact that its production potentially affects up to five million people in an adverse manner is yet
another negative externality constituting a market failure with regard to TXI’s cement production and waste
burning.

One final market failure regarding the plant concerns other industries and commerce in the entire
metropolitan area. For example, the Dallas/ Fort Worth area currently is threatening to exceed federal air
quality regulations due to excessive air emissions by large heavy industry such as TXI. This makes the area
less desirable to future businesses who could discontinue their relocations and expansions in the Dallas/ Fort
Worth area due to the area’s potential reputation for poor air quality. Obviously, this would hurt the local
economy, as well as curtailing residential growth. If the federal government chooses to increase its regulation
of pollution in Dallas and Fort Worth, other businesses may in turn even choose to relocate to less regulated
areas, further hurting the local economy. The cost to other businesses and the local economy is a final market
failure which should be internalized by TXI to solve the pollution problem which it causes.

Conjoint Analysis
In order to better determine the effects of the pollution caused by TXI Cement, we developed two
surveys intended to discover the ways in which that pollution affects the everyday life of the population in
the region, as well as what that population would be willing to do to reduce that pollution. One questionnaire
would be sent to a random sample of residents within a five mile radius of the TXI Cement plant in order to
obtain information regarding the direct local effects of the plant. A second questionnaire would be sent to
another random sample of residents throughout the Dallas/ Fort Worth metropolitan area who live at least five
miles from the TXI cement plant. The first sections of the two surveys would be the same, and are as follows:

Background
The area around Midlothian, Texas is one of the fastest growing residential and industrial districts in the
entire Dallas/ Fort Worth metropolitan area. Midlothian lies only 25 miles southwest of downtown Dallas and
28 miles southeast of downtown Fort Worth. Located in Midlothian, the TXI cement plant is in a prime
development tract, and emits more air pollution than any other source in the area, resulting from the burning of
hazardous waste. As a result, the TXI plant is a major contributor to poor air quality in the area. This may in
turn lead to diminished health for some residents, decreased visibility, and diminished local wildlife.

Scenarios
Because the TXI plant contributes to local air pollution, we seek to find the most effective and efficient
means of dealing with the issue of TXI’s emissions. Following are several scenarios which suggest possible
means of handling TXI’s pollution. The first scenario is the status quo, while the other three suggest feasible
alternatives to current emissions patterns. Included in the categories to be analyzed are the increase in
average local property taxes as a result of the policy, the average change in visibility, the amount of air
pollution, and the number of ozone action days in the Dallas/ Fort Worth area. Local taxes may need to be
increased in order to effect emissions control, while visibility would increase due to the reduction in emissions
of various pollutants, somewhat enhancing the visual attractiveness of the area. The amount of pollution is a
measure of parts per million (PPM) contributed on a daily average to local air makeup. Finally, ozone action
days are days in which the area is likely to face unhealthy air quality due to excessive pollution. Please rate
the scenarios on a scale from 1 to 10 based on your preference for local conditions. One is considered very
undesirable, while 10 is considered very desirable.

In addition to your rating of the above scenarios we ask that you please answer a few short, strictly
confidential questions. These are gauged to help us gather a closer understanding of the needs of the local
community with regard to the TXI cement plant’s air pollution contribution. We ask questions about your
specific family and financial characteristics merely to gain an understanding of how different groups of people
may be affected by the plant. This information will allow us to better understand how different groups of
people are affected by TXI Cement.

Questions for Local Residents (5 mile radius of TXI)
1. What is your age?
2. What is your marital status? Single___ Married___ Divorced___ Widowed____
3. Do any children live in your household? If yes, how many?
4. What is the highest level of education you have received?
5. Are you aware of the TXI cement plant in your area?
6. Do you have any direct connections with, or are you directly affected by the plant?
If yes, please explain:
7. Do you feel the plant has any effect on the health of you or your family? Explain.
8. Do you feel the plant has affected your property value? Explain.
9. Do you feel the plant has an effect on local wildlife? Explain.

Questions for Metropolitan Residents (Outside of 5 miles)
1. What is your age?
2. What is your marital status? Single___ Married___ Divorced___ Widowed____
3. Do any children live in your household? If yes, how many?
4. What is the highest level of education you have received?
5. Are you aware of the TXI cement plant in your area?
6. Do you feel the plant has any affect on the air quality in your area? Explain.
7. Do you feel the plant has affected the health of you or your family? Explain.
8. Do you feel the plant has an effect on your property value? Explain.

These last questions will allow us to learn something about the demographics of the area, as well as how
residents perceive they are being affected by the cement plant. Additionally, they will allow us to control for
several variables, giving a better understanding of how the median individual in the population is affected.
For instance, an individual with children may have an exaggerated perception of the problem, while a single or
elderly individual may be more willing to ignore the problem in order to avoid paying higher taxes. Finally,
individuals with higher education levels will likely have a better perception of the damage actually caused by
TXI’s pollution.

Policy Options
As a result of the pollution caused by the TXI plant, it would appear that some sort of policy would be
needed to force TXI to internalize the environmental problems for which it is responsible. Because the plant is
the largest source of nitrogen dioxide emissions in the area, and the second largest source of sulfur dioxide, it
is these two pollutants which should be targeted first. One direct way of achieving this goal would be to force
TXI and other polluters in the area to emit less of these two substances to a level which would be acceptable
by the local population. This level could be approximated on the basis of the results from our above survey.
The best way to do this directly would be to limit the amount of emissions, particularly for sulfur dioxide and
nitrogen dioxide, which can emanate from the general area where TXI is located. Should TXI or other
industries fail to meet these standards, it would face massive fines or, possibly, being forced to close
permanently. The best technologies could and should be employed to lower emissions levels in the most
efficient way possible.

When attempting to place these emissions restrictions on area-wide industries, several problems arise.
One such problem is that factories which currently do not emit excessive amounts of pollution may complain
of unfair treatment, since they would essentially be punished for the excesses of TXI and a handful of other
industries. Another, perhaps more significant problem, is that some area factories may be better able to
reduce their pollution, creating an inefficiency problem, since everyone would be expected to cut back by
approximately the same percentage. Basically, businesses that could curtail their emissions by a larger amount
lack the incentive to do so, while those that are required to spend a greater amount on average to reduce their
pollution would have to excessively curtail their production.

As a result of these problems, the best policy option seems to be to implement a system of transferable
emissions permits for the Dallas/ Fort Worth area. Such a plan would best balance marginal costs and
marginal benefits by allowing those who are able to curtail their emissions the most to profit from doing so by
selling their extra permits to other companies, who benefit from not having to excessively reduce their
emissions. This policy has the effect of creating an efficient market result whereby the overall reduction in
emissions is achieved at the lowest overall price to the factory owners. Additionally, this policy would force
corporations to internalize their pollution since polluting more will have a definite cost to the producer, while
polluting less will have a similar benefit.

This policy could be enhanced if it followed the model of Los Angeles, in which industries downwind
from the city would not be allowed to trade permits with industries upwind of the city. By keeping a greater
percentage of the pollution upwind of Dallas, less air pollution would reach that particularly large center of
population.

While this policy would certainly reduce the amount of pollution in the Dallas area, and would also force
TXI construction, as well as other heavy industries, to internalize the effects of its pollution, the policy could
have some adverse effects on the local economy despite the fact that it may encourage the relocation of light
industries or commerce. The introduction of emissions controls, even if done with transferable permits, still
amounts to increased regulation of industry. This regulation could lead to the complete relocation of the
industry to other areas, or to severe cutbacks in the overall production in those industries. Obviously, such a
situation would cost many area residents jobs in the factories. This possibility means that the potential
positive and negative effects of any policy on the local economy must be analyzed before it is implemented. If
it is found that, on the whole the local economy will suffer, at least in the short run, then those economic
interests must be balanced with the environmental and quality of life interests of the area’s population as a
whole.

Additionally, one can expect that any policy aimed at reducing industrial emissions will meet with
significant resistance from area industry. This resistance will likely include intense lobbying of local and state
governments on behalf of the industries affected such that the passage of any proposed policy will be
somewhat difficult to obtain. Thus, one must balance political interests in addition to local economic and
residential interests in deciding the specifics of the policy implemented. These specifics include such factors
as the price of any permits, the method by which these permits will be issued, and precise amount of emissions
which should be considered allowable.