Economic Impact Analysis of Metal Can
MACT Standards: Final Report
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EPA-452/R-03-10
July 2003
Economic Impact Analysis of Metal Can MACT Standards
By:
RTI International*
Health, Social, and Economic Research
Research Triangle Park, North Carolina 27711
Prepared for:
US. Environmental Protection Agency
Office of Air Quality Planning and Standards
Innovative Strategies and Economics Group, C339-01
Research Triangle Park, NC 27711
*RTI International is a trade name of Research Triangle Institute.
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CONTENTS
Section Page
1 Introduction 1-1
1.1 Agency Requirements for Conducting an EIA 1-1
1.2 Scope and Purpose 1-2
1.3 Organization of the Report 1-2
2 Industry Profile: Metal Can Manufacturing 2-1
2.1 Production 2-1
2.1.1 Sheet Manufacturing 2-2
2.1.2 Can End Manufacturing 2-2
2.1.3 One- and Two-Piece Can Body Manufacturing 2-2
2.1.4 Three-Piece Can Body Manufacturing 2-3
2.1.5 Coatings and Emissions 2-3
2.1.6 Costs of Production 2-7
2.2 Uses, Consumers, and Substitutes 2-9
2.3 Industry Organization 2-14
2.3.1 Market Structure 2-14
2.3.2 Facilities 2-17
2.3.3 Companies 2-17
2.4 Market Data and Trends 2-19
3 Engineering Costs 3-1
3.1 Methodology 3-1
3.1.1 Monitoring, Recordkeeping, and Reporting Costs 3-1
3.1.2 Material Costs 3-2
3.1.3 Add-On Control Devices 3-2
3.2 Engineering Cost Summary 3-3
iii
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4 Economic Impact Analysis: Methods and Results 4-1
4.1 Markets Affected by the Proposed NESHAP 4-1
4.2 Conceptual Approach 4-2
4.2.1 Supply 4-2
4.2.2 Demand 4-2
4.2.3 Foreign Trade 4-4
4.2.4 Baseline and With-Regulation Market Equilibrium 4-4
4.2.5 Supplementary Impact Analysis for Facilities
Excluded from the Market Model 4-6
4.3 Economic Impact Results 4-6
4.3.1 Market-Level Impacts 4-7
4.3.2 Industry-Level Impacts for Primary Market Segments 4-8
4.3.3 Closure Estimates 4-9
4.3.4 Total Industry-Level Impacts 4-11
4.3.5 Social Costs 4-12
4.3.6 Sensitivity Analysis 4-13
4.4 New Source Analysis 4-14
4.5 Energy Impact Analysis 4-14
5 Small Business Analysis 5-1
5.1 Identifying Small Businesses 5-1
5.2 Screening-Level Analysis 5-2
5.2.1 Results 5-2
5.3 Economic Analysis 5-3
5.4 Assessment 5-4
References R-l
Appendix A: Model Data Set and Specification A-l
Appendix B: Sensitivity Analysis B-l
IV
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LIST OF FIGURES
Number Page
2-1 Two-Piece Draw-and-Iron Aluminum Beverage Can Manufacturing
Process 2-4
2-2 Three-Piece Can Sheet Base Coating Operation 2-5
2-3 Three-Piece Can Fabrication Process 2-6
2-4 Distribution of Metal Can Shipments by End Use: 1997 2-11
2-5 Distribution of Soft Drink Packaging Mix by Type: 1997 2-12
2-6 Distribution of Metal Can, Sheet, or End Manufacturing Facilities
by State 2-18
3-1 Summary of Costs to Seven Industry Subcategories 3-4
4-1 Market Equilibrium without and with Regulation 4-5
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LIST OF TABLES
Number Page
2-1 Spot Prices for Steel and Aluminum Sheet and Plate: 1997-2001 2-8
2-2 Historical Cost of Production Statistics for the Metal Cans Industry:
1992-1997 2-10
2-3 Metal Can Uses by Material and Type 2-11
2-4 Measures of Market Concentration for the Metal Cans Industry
(NAICS 332431): 1997 2-15
2-5 Measures of Market Concentration for the Glass Containers Industry
(NAICS 327213): 1997 2-15
2-6 Measures of Market Concentration for the Plastic Bottle Industry
(NAICS 326160): 1997 2-16
2-7 Domestic Metal Can Shipments by Market: 1993-1999
(million cans) 2-20
2-8 Prices for Beverage Containers: 1993-2000 ($71,000 cans or bottles) 2-21
2-9 Apparent Consumption of Metal Cans (NAICS 332431): 1993-1999
(million cans) 2-22
3-1 Summary of Costs to Industry Subcategories/Segments 3-4
4-1 Market-Level Impacts of the Metal Can MACT for Primary Market Segments:
1997 4-7
4-2 National-Level Industry Impacts of the Metal Can MACT on the Beverage, Food,
and Packaging Can Markets: 1997 4-8
4-3 Distributional Impacts Across Facilities of the Metal Can
MACT: 1997 4-9
4-4 Impacts for Facilities Not Included in the Market Model: 1997 4-10
4-5 Total Industry-Level Impacts of the Metal Can MACT: 1997 4-11
4-6 Potential Impacts of the Metal Can MACT on Plant Closure 4-12
4-7 Distribution of Social Costs for the Metal Can MACT: 1997 4-13
5-1 Summary Statistics for SBREFA Screening Analysis: 1997 5-3
5-2 Small Business Impacts of the Metal Can MACT: 1997 5-4
VI
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SECTION 1
INTRODUCTION
The U.S. Environmental Protection Agency (referred to as EPA or the Agency) is
developing an air pollution regulation designed to reduce emissions generated by the metal
can manufacturing industry. In the baseline for this analysis, the U.S. metal can
manufacturing industry was comprised of 202 establishments, which were owned by 30
domestic and foreign companies and employed more than 160,000 workers.1 Of these
facilities, 142 are classified as major sources of hazardous air pollutant (HAP) emissions,2
primarily due to emissions occurring during the coating process. Under Section 112 of the
1990 Clean Air Act (CAA) Amendments, EPA is currently developing national emission
standards for hazardous air pollutants (NESHAP) to limit these emissions. This report
presents the results of an economic impact analysis (EIA) in which a market model was used
to evaluate the economic impacts associated with the proposed regulation.
1.1 Agency Requirements for Conducting an EIA
Congress and the Executive Office have imposed statutory and administrative
requirements for conducting economic analyses to accompany regulatory actions. Section
317 of the CAA specifically requires estimation of the cost and economic impacts for
specific regulations and standards proposed under the authority of the Act. In addition,
Executive Order (EO) 12866 and the Unfunded Mandates Reform Act (UMRA) require a
more comprehensive analysis of benefits and costs for proposed significant regulatory
actions.3 Other statutory and administrative requirements include examination of the
'These establishments include those that produce steel or aluminum cans, metal sheets used for can production,
and/or can ends. Metal cans are primarily used in packaging foods and beverages. They are also used in
general packaging applications for products such as paint and aerosol cans.
2A major source of HAP emissions is defined as a facility that emits, or has the potential to emit, 10 or more
tons of any HAP or 25 or more tons of any combination of HAPs.
3Office of Management and Budget (OMB) guidance under EO 12866 stipulates that a full benefit-cost analysis
is required when the regulatory action has an annual effect on the economy of $100 million or more.
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composition and distribution of benefits and costs. For example, the Regulatory Flexibility
Act (RFA), as amended by the Small Business Regulatory Enforcement and Fairness Act of
1996 (SBREFA), requires EPA to consider the economic impacts of regulatory actions on
small entities. The Agency's Economic Analysis Resource Document provides detailed
instructions and expectations for economic analyses that support rulemaking (EPA, 1999).
1.2 Scope and Purpose
The CAA's purpose is to protect and enhance the quality of the nation's air resources
(Section 101(b)). Section 112 of the CAA Amendments of 1990 establishes the authority to
determine a NESHAP. This report evaluates the economic impacts of pollution control
requirements placed on metal can manufacturing establishments under these amendments.
These control requirements are designed to reduce releases of HAPs into the atmosphere.
To reduce emissions of HAPs, the Agency establishes maximum achievable control
technology (MACT) standards. The term "MACT floor" refers to the minimum control
technology on which MACT standards can be based. For existing major sources, the MACT
floor is the average emissions limitation achieved by the best performing 12 percent of
sources (if there are 30 or more sources in the category or subcategory). For new sources,
the MACT floor must be no less stringent than the emissions control achieved in practice by
the best controlled similar source. The MACT can also be chosen to be more stringent than
the floor, considering the costs and the health and environmental impacts. This report
analyzes the economic effects of the metal can manufacturing MACT floor on existing
sources.
1.3 Organization of the Report
The remainder of this report is divided into four sections that describe the metal can
manufacturing industry, present the methodology used for the analysis, and summarize the
results of this EIA:
• Section 2 provides a summary profile of the metal can manufacturing industry. It
describes the affected production process, inputs, outputs, and costs of
production. It also describes the market structure and the uses and consumers of
metal cans.
• Section 3 reviews the regulatory control alternatives and the associated costs of
compliance. This section is based on EPA's engineering analysis conducted in
support of the proposed NESHAP.
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• Section 4 outlines the methodology for assessing the economic impacts of the
proposed NESHAP and the results of this analysis, including market, industry,
and social welfare impacts. In addition, this section describes the economic
impacts specific to new sources in the metal can manufacturing industry and
economic impacts on the energy sector.
• Section 5 addresses the proposed regulation's impact on small businesses.
In addition to these sections, Appendix A further details the economic model used to predict
the economic impacts of the NESHAP and Appendix B presents the results of sensitivity
analyses performed for the demand and supply elasticities used in the economic model.
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SECTION 2
INDUSTRY PROFILE: METAL CAN MANUFACTURING
Cans are one of the most widely used containers in the world. Industry estimates that
more than 200 million cans are used each day in the United States (Can Manufacturers
Institute [CMI], 1999a). Consumers use metal cans for a variety of purposes, including the
storage of food, beverages, and many other products (e.g., paint). During the production
process, a variety of surface coatings are applied to these cans. Interior coatings prevent
corrosion and protect the contents from being contaminated by the can. Exterior coatings are
applied for decoration, to protect printed designs, or to facilitate handling by reducing
friction. Traditional coatings used in this industry have a high concentration of solvents,
which results in the emission of volatile organic compounds (VOCs) and HAPs. Currently,
the U.S. Environmental Protection Agency (EPA) is developing national emissions standards
for these HAPs.
This section provides an economic overview of the metal can industry. Section 2.1
describes the production processes with emphasis on surface coatings. Section 2.2 identifies
uses, consumers, and substitutes. Section 2.3 summarizes the organization of the U.S. metal
can industry, including a description of the manufacturing facilities and the companies that
own them. In addition, we identify small businesses potentially affected by the proposed
rule. Finally, Section 2.4 presents market data for the industry, including U.S. production,
prices, foreign trade data, and trends.
2.1 Production
The can manufacturing process has changed dramatically since its beginnings in the
early 19th century. Today's automated processes have replaced the once labor-intensive
process and produce an estimated 139 billion cans per year (CMI, 2001a). Metal can
manufacturers purchase two primary raw material inputs for the production of cans: steel
and aluminum. In 1999, almost three-quarters of all metal cans produced were aluminum
(CMI, 2001a). These two raw material inputs are used to produce one-, two-, and three-piece
can bodies and can ends. During the production process, the steel or aluminum (in the form
of sheets or coil) is shaped, coated, quality checked, and prepared for shipment to a variety of
consumers across the United States and the world. The following sections describe
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individual manufacturing processes in greater detail. Much of the information in these
sections was taken from EPA (1998).
2.1.1 Sheet Manufacturing
The process of manufacturing metal sheets for use in metal can manufacturing begins
by cutting a large coil of metal into pre-scrolled sheets. An inside protective coating is then
placed on the sheets and cured. At this point the sheets can be decorated. An over coat of
varnish is placed on the decorated sheet and cured again. A second inside protective coating
is placed on the sheets and cured. These pre-scrolled sheets are then cut into small scroll
sheets which can be fed into the end or body making process (CMI, 200 Ib).
2.7.2 Can End Manufacturing
The production of can ends varies by end use. Aluminum beverage can ends are
made from precoated coil that is stamped and scored to produce an oval pattern, and an end
tab is attached. This end is attached to the can with a solvent- or water-based compound, and
the seal is allowed to dry. The production process of ends for food cans and other sheet-
coated ends is similar to beverage cans with the exception that food can and other sheet-
coated ends are typically coated on metal sheets rather than coils.
2.7.3 One- and Two-Piece Can Body Manufacturing
The one- and two-piece can manufacturing process involves forming a can body,
creating an end (for the two-piece can), and applying coatings to the open can and can top.
Two fabrication processes are used to produce these cans: the draw-redraw process and the
draw-and-iron process. Manufacturers of one-piece can bodies use the draw-and-iron
process, while two-piece can manufacturers use both processes.
During the draw-redraw process, aluminum or steel coil is fed into a processor called
a cupper that stamps shallow metal cups. The coil may be stamped one or two additional
times to create a deeper can. This process typically uses pre-coated coils and if no additional
coating steps are required, the cans are tested and stored. However, some manufacturers use
an uncoated coil and perform sheet coating similar to the three-piece can body coating
operation described in Section 2.1.4.
In contrast, the draw-and-iron process involves the following additional steps after
the shallow cup is created. Full-length can bodies are created from shallow cups through an
extrusion process (aluminum cans) or "ironing" process (steel cans). The can bodies are then
trimmed, cleaned, and dried in preparation for the application and curing of exterior base
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coats, printing inks, and protective overvarnish coats (aluminum beverage cans) or corrosion-
resistant wash coats (steel food cans). Once the coatings are dry, the can necks are flanged
(beverage) or beaded (food cans). A leak tester applies air pressure to each can and tests for
any holes or cracks and rejects any inadequate cans. In addition, the coating thickness may
be tested by a random electrical resistance spot check. After passing these tests, the finished
cans are then stacked for storage or shipment. Figure 2-1 provides a detailed example of a
two-piece draw-and-iron aluminum beverage can production process.
2.1.4 Three-Piece Can Body Manufacturing
Three-piece cans are typically made of steel sheets. The manufacturing process
involves two operations: sheet coating and can fabrication (see Figures 2-2 and 2-3). The
sheet coating operation includes the application of a base coat, inks, and overvarnish. After
application, the sheet passes through an oven for curing and drying. The can fabrication
begins with the processor slitting these coated sheets and feeding them into a "body maker"
where the seams are welded or cemented together. The seam along the side of the can is
welded or cemented and then coated in a process called "side seam stripe application." This
seam may be coated with an interior spray or an exterior spray, or on both sides. The side
seam stripe protects exposed metal along the seam. At this stage of the production process,
the cans are flanged for proper can end assembly and the diameter of the wall may be
reduced (necked-in) according to end-use requirements. In addition, if the can will be used
to store beverages, the can's interior is sprayed with a protective coating and then baked or
cured. After curing, the end seamer attaches one end to the can in a process called "double
seaming" where end seal compounds are applied and used as a gasket material to provide an
airtight seal. Afterwards, the leak tester checks for leakage. The finished can is stacked and
prepared for shipment.
2.7.5 Coatings and Emissions
Coating is an integral part of the production processes of cans and can parts. Without
the specialized interior coatings, cans could potentially contaminate their contents and render
them dangerous to consumers. Exterior coatings enhance the can's appearance, protect the
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CANS
COIL
CUPPER
WALL
IRONER
WASHER
EXTERIOR BASE COATER Qv
'if
CANS I W
COLOR 4
COLORS
MANORE?)
PRINTER AND OVER-VARNISH
COATER
l^*J VARNISH TRAY
OVEN INTERIOR BODY SPRAY
AND EXTERIOR END SPRAY
AND/OR ROLL COATER
LEAK
TESTER
NECKERAND
FLANGER
OVEN
Figure 2-1. Two-Piece Draw-and-Iron Aluminum Beverage Can Manufacturing Process
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L/T
COATING
TRAY
S~\
/^\-*T*-PRESSURE
\l \l ROLLER
SHEET (PLATE)
FEEDER
BASE COATER
WICKET OVEN
SHEET (PLATE)
STACKER
Figure 2-2. Three-Piece Can Sheet Base Coating Operation
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ON
BODY MAKER
SIDE SEAM
SPRAY
PALLETIZED LOAD
LEAK TESTER
Figure 2-3. Three-Piece Can Fabrication Process
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can from corrosion, and protect printed designs. However, the traditional coatings used in
the metal can industry have a high concentration of solvents, which results in the emission of
VOCs and HAPs. Several types of coating technologies exist:
• Conventional solvent-borne coatings—Conventional coatings offer good abrasion
resistance and ease of application. However, they have high concentrations of
VOCs and HAPs.
• High-solid coatings—The most widely used high-solid coating is polyurethane.
These coatings are used as exterior bases, some interior sheet coatings, decorative
inks, and end seal compounds.
• Waterborne coatings—These coatings are used extensively in beverage can
manufacturing.
• Ultraviolet radiation-cured (UV-cured) coatings—UV-cured coatings offer
advantages of rapid curing, low process temperatures, and low VOC and HAP
content as well as lower energy costs because drying ovens are eliminated.
However, UV coatings are expensive and require specialized equipment.
• Powder coatings—These coatings offer excellent resistance to chemicals,
abrasion resistance, and barrier qualities. The application process for these
coatings is currently not fast enough for can coating line operating speeds, and
only limited numbers of colors, finishes, and textures are available for can
manufacturers (EPA, 1998).
Coatings are applied to both interior and exterior can bodies and ends. Emissions are
generated during coating application, during transportation to the oven (evaporation), and
during curing. However, approximately 50 to 80 percent of emissions occur during the
drying and curing process (EPA, 1998).
2.1.6 Costs of Production
Raw material and energy costs account for the largest share of the variable costs of
metal can production. In 1997, the cost of materials and energy totaled $8.6 million, or 72
percent of the metal can industry's value of shipments. Steel and aluminum purchases
totaled $8.1 million, or 94 percent of the cost of materials.
Recently, prices for steel and aluminum sheet, plate, and coil have fluctuated given
the changes in market conditions for these inputs. For 2001, Purchasing Online (2001)
reported spot prices for a cold-rolled steel sheet at $320 per ton, coiled-steel plate at $288 per
ton, and aluminum common alloy sheet at $1,720 per ton (see Table 2-1). The data show the
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price of steel has dropped significantly since 1997 as foreign steel imports have surged. For
September 1997, spot prices for cold-rolled steel sheet and coiled steel plate were quite a bit
higher than more recent levels at $480 and $390 per ton, respectively. In 1995, a shortage of
aluminum led to significant raw material price increases, forcing beverage canners, such as
Coca-Cola and Pepsico, to increase the use of alternative packaging containers such as
plastic bottles (Sfiligoj, 1995). However, aluminum prices decreased significantly in 2001.
Table 2-1. Spot Prices for Steel and Aluminum Sheet and Plate: 1997-2001
Year 1997 1998 1999 2000 2001
Cold-rolled steel sheet (Midwest, $/ton) $480 $410 $390 $380 $320
Coiled steel plate (Midwest, $/ton) $390 $400 $300 $320 $288
Aluminum (common alloy sheet 3003, $2,200 $1,920 $2,040 $2,240 $1,720
$/ton)
Source: Purchasing Online. September 15, 1998. "Transaction Prices." Purchasing Online.
Purchasing Online. September 16, 1999. "Transaction Prices." Purchasing Online.
Purchasing Online. September 20, 2001. "Transaction Prices." Purchasing Online.
Labor is used throughout the production process as well as during transportation of
the product. However, labor costs account for only a small share of variable production costs
in the metal cans industry. In 1997, payroll represented only 10 percent of the value of
shipments.
In 1995, industry estimated that approximately 20 million gallons of coating
materials were consumed annually by two-piece beer and beverage can manufacturers
(Sfiligoj, 1995). A more recent estimate shows that two-piece beverage manufacturing
facilities used 26 million gallons of coating in 1997 (Reeves, 1999). Using data on the
volume and value of coatings shipped to the metal coil coating industry, the Agency
estimates the average cost of coatings for 1997 at $15.60 per gallon (Bourguigon, 1999).
However, it is likely that some specialty coatings sell for substantially more—as high as $50
per gallon.
The U.S. Bureau of the Census (Census Bureau) and U.S. Bureau of Labor Statistics
(BLS) publish historical statistics for costs of materials (i.e., materials, fuels, electricity) and
labor for the metal can industry using the following classification systems:
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• North American Industrial Classification System (NAICS)—beginning with the
1997 Economic Census, the metal cans industry was classified under NAICS code
332431, Metal Can Manufacturing.
• 1987 Standard Industrial Classification (SIC) codes—prior to 1997, the metal
cans industry was classified under SIC 3411, Metal Cans.
As shown in Table 2-2, the cost of materials averaged 72 percent of the industry's value of
shipments between 1992 and 1997, while payroll represented roughly 10 percent of the value
of shipments. Wages for production workers ranged from $15.86 to $17.34 per hour during
this period.
2.2 Uses, Consumers, and Substitutes
Historically, steel cans were primarily used to store prepared raw food products.
During the 1970s and 1980s, the use of metal cans expanded to the beverage market, and
aluminum cans subsequently captured a significant share of the market (Hillstrom, 1994).
Today, it is estimated that Americans use approximately 200 million cans each day. Metal
cans are used for a wide variety of products, such as soft drinks, food products, and aerosol
cans. Table 2-3 lists selected end uses for metal cans.
In 1997, the baseline year selected for this analysis based on data availability, more
than 130 billion metal cans were shipped to three primary market segments—beverage, food,
and general packaging (CMI, 1999b). Figure 2-4 shows the distribution of shipments of
metal cans by market for 1997. As shown, the beverage market accounts for the largest share
of metal cans (73.4 percent), followed by food (23.4 percent) and general packaging (3.2
percent).
CMI reports that nearly all beverage cans are made of aluminum. A recent survey
conducted by the aluminum beverage can industry identified characteristics of aluminum
cans that consumers found attractive compared to other packaging alternatives (CMI, 1999c).
These include
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Table 2-2. Historical Cost of Production Statistics for the Metal Cans Industry:
1992-1997
Year
1992
1993
1994
1995
1996
1997
Total/Average
Value of
Shipments
($106)
$12,112
$11,498
$11,610
$12,326
$12,273
$12,007
$71,825
Cost of
Materials
($106)
$8,798
$8,360
$8,306
$9,084
$8,624
$8,598
$51,770
Cost of
Materials
Share (%)
72.6%
72.7%
71.5%
73.7%
70.3%
71.6%
72.1%
Payroll
($106)
$1,262
$1,212
$1,256
$1,183
$1,194
$1,183
$7,485
Average Earnings
Payroll of Production
Share ( % ) Workers ($/hr)
10.4%
10.5%
10.8%
11.2%
9.6%
9.8%
10.1%
$15.86
$16.23
$16.50
$16.74
$16.98
$17.34
$16.61
Sources: U.S. Department of Commerce, Bureau of the Census. 1999a. 7997 Census of Manufacturing
Industry Series: Metal Can Manufacturing, .
U.S. Department of Commerce, Bureau of the Census. 1998. 1996 Annual Survey of Manufactures
Statistics for Industry Groups and Industries, .
U.S. Department of Commerce, Bureau of the Census. 1997. 7995 Annual Survey of Manufactures
Statistics for Industry Groups and Industries, .
U.S. Bureau of Labor Statistics. National Employment, Hours, and Earnings—Metal Cans: Series ID
eeu31341106. . As obtained on August 27, 1999.
• less spillage or breakage,
• ease of storage at home or when traveling,
• maintenance of soft drink carbonation, and
• ease of recycling.
The ability to recycle aluminum cans is one reason why they continue to dominate
other packaging alternatives in the carbonated soft drink (CSD) market, one of the largest
segments of the market. CMI estimated that in 1998, two out of every three manufactured
aluminum beverage cans were recycled as new cans, a process that takes approximately 60
days (CMI, 1999d). In 1997, aluminum cans accounted for 75.7 percent of the soft drink
packaging mix followed by
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Table 2-3. Metal Can Uses by Material and Type
Type
Material Used
Products Contained
Three-Piece Can Body Steel
Food, juices, spices, aspirin, paints, glue, aerosols
(includes decorative tins)
Two-Piece Can Body
Draw-iron
Draw/redraw
Aluminum Beer, carbonated beverages, juices
Steel Food, other nonfood
Steel, aluminum Food, shoe polish, sterno, fuel, car wax, other
nonfood products
Source: U.S. Environmental Protection Agency. 1998. "Preliminary Industry Characterization: Metal Can
Manufacturing — Surface Coating." .
1997
135,468 Million Cans
Beverage
73.4%
General
Packaging
3.2%
Figure 2-4. Distribution of Metal Can Shipments by End Use: 1997
Source: Can Manufacturers Institute (CMI). "Domestic Can Shipment 1997." . Obtained August 31, 1999c.
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plastic (19.9 percent), glass (2.3 percent), and other (2.1 percent) (see Figure 2-5). Despite
the current dominance of aluminum beverage containers, the use of polyethylene
terephthalate (PET) bottles has recently experienced growth due to the widespread
availability of the polymer and its low cost (O'Neill, 1998). Aluminum cost increases in the
mid-1990s encouraged soft drink canners to substitute bottles made of PET. The glass CSD
container share, on the other hand, is small and declining. For example, the Census Bureau
(1999a) reports shipments of glass bottles fell 14 percent from 1997 to 1998.
Metal Can
75.7% ~\ I Glass
\ / 2.3%
Figure 2-5. Distribution of Soft Drink Packaging Mix by Type: 1997
Source: Can Manufacturers Institute (CMI). "1997 Retail Sales Prove It's Better in Cans." Canline 1(2).
. As obtained on August 31, 1999a.
Another important beverage segment is the beer market. Aluminum beer containers
accounted for approximately one-third of metal can beverage shipments in 1999 (CMI,
2001a). Small aluminum cans (60 percent) and glass bottles (27 percent) dominate the beer
market, with bulk packages such as kegs accounting for the remaining 13 percent (Brody and
Marsh, 1997). Recently, plastic containers have entered the single-service beer market.
A variety of alternative packaging methods in the food/general packaging containers
market exist. The primary factors in deciding which type of material to use in packaging are
temperature control, counterpressure, and shelf-life, but in most cases plastic or glass can be
substituted for metal (Brody, 2001).
Plastic containers have enjoyed widespread use since the 1970s, but this use has been
concentrated in the beverage market. In 1998, only about 1 billion plastic containers were
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used in food packaging versus 32 billion metal containers (Brody, 2001). Steel food can
manufacturers have primarily been affected by the increasing use of plastic in a limited
number of food market segments as they face increased competition from microwave and
frozen food products using plastic packaging (Hillstrom, 1994). Plastic also has the
advantage of being impact resistant, heat resistant, and transparent. PET is often used as a
glass replacement in both food and beverage bottles (Brody and Lord, 2000).
Glass is also used in food packaging. It is usually found in the form of wide mouth
containers (i.e., jars). Approximately one half of glass containers are used for baby food.
Glass is much more prevalent in the food packaging industry than is plastic (approximately
nine times more glass containers are used) (Brody, 2001). Although consumers desire the
transparency of glass, it might be less than desirable from the perspective of food
preservation because light can accelerate reactions in the food. Although it can be
substituted for metal or plastic it is very heavy, breakable, and energy intensive to produce
(Brody and Lord, 2000).
Paper and paperboard are the most widely used package materials in the world.
However, in order to protect food from moisture, gas, odors, or microorganisms, they must
first be coated with plastic. For this reason, they are infrequently used as substitutes for
glass, plastic, and metal in the food and beverage industry (Brody and Lord, 2000).
Prices of raw materials can significantly influence beverage producers' choice of
container material because containers represent a large share of the product's cost and
because several substitute materials exist.1 For example, aluminum can prices increased
nearly 14 percent between 1994 and 1995, leading several manufacturers to consider
expansion of plastic packaging methods (Sfiligoj, 1995).
In addition to this anecdotal evidence, there is some quantitative data suggesting
substitution between container materials based on relative prices. Aluminum can shipments
in the beverage market declined by 5 billion units, or 4.6 percent, from 1994 to 1995, as
'Economic theory suggests the elasticity of the derived demand for an input is a function of the cost share of the
input in total production cost and the elasticity of substitution between this input and other inputs in
production (Hicks, 1966). Because the cost share of containers is relatively large and there are good
substitutes available, we may infer an elastic demand for aluminum beverage cans. Containers used in food
or general packaging applications (e.g., steel cans) typically have much smaller cost shares than those used
for beverages (because the products contained in them often have far higher values than beverages) and
would be expected to face less elastic demand curves.
2-13
-------
aluminum can prices rose relative to PET bottles. Since 1995, the price of aluminum cans
has fallen relative to PET, and shipments of aluminum cans have risen close to 1994 levels.
A simple regression of the ratio of aluminum and PET prices on shipments of aluminum cans
provides an elasticity estimate of -0.6.2 In other words, a 1 percent increase in the price of
aluminum cans relative to PET bottles is estimated to reduce the quantity of aluminum cans
demanded by 0.6 percent.
Although the cost of steel cans has remained constant over this period, sharp
reductions in raw steel prices in 2000 and 2001 suggest lower costs of steel cans in the
future. However, in addition to declines in metal prices, plastic resin costs have fallen since
1995, which makes plastic containers more attractive (O'Neill, 1998). In fact, all of the
major materials used in food and beverage packaging (aluminum, steel, plastic, and glass)
have been declining in price over the last few years in inflation-adjusted terms.
2.3 Industry Organization
This section provides an overview of the market structure of the metal can
manufacturing industry, including the facilities, the companies that own them, and the
markets in which they compete.
2.3.1 Market Structure
Market structure is of interest because it determines the behavior of producers and
consumers in the industry. If an industry is perfectly competitive, then individual producers
are not able to influence the price of the output they sell or the inputs they purchase. This
condition is most likely to hold if the industry has a large number of firms, the products sold
and the inputs purchased are homogeneous, and entry and exit of firms are unrestricted.
Entry and exit of firms are unrestricted for most industries except, for example, in cases
where government regulates who is able to produce, where one firm holds a patent on a
product, where one firm owns the entire stock of a critical input, or where a single firm is
able to supply the entire market.
p
2The model estimated was lnQA1 = a + b ln| —— I, where QAJ is the quantity of aluminum cans; PPET and PA
V A\ J
are inflation-adjusted price indices of PET bottles and aluminum cans, respectively; and a and b are
parameters to be estimated.
2-14
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Four- and eight-firm concentration ratios (CR4 and CR8, respectively) and
Herfindahl-Hirschmann indexes (HHIs) can provide some insight into the competitiveness of
an industry. The U.S. Department of Commerce reports these ratios and indices by NAICS
codes for 1997, the most recent year available. Values for the metal can industry, glass
containers industry, and plastic bottle industry are reported in Tables 2-4, 2-5, and 2-6,
respectively.
Table 2-4. Measures of Market Concentration for the Metal Cans Industry (NAICS
332431): 1997
Value of Shipments
($106) CR4 CR8 HHI
$11,930 58% 87% 1,180
Notes: CR4 denotes four-firm concentration ratio.
CR8 denotes eight firm concentration ratio.
HHI denotes Herfindahl-Hirschmann index for 50 largest companies.
Source: U.S. Department of Commerce, Bureau of the Census. 2001. Concentration Ratios in Manufacturing.
.
Table 2-5. Measures of Market Concentration for the Glass Containers Industry
(NAICS 327213): 1997
Value of Shipments
($106) CR4 CR8 HHI
$4,198 91% 98% 2960
Notes: CR4 denotes four-firm concentration ratio.
CR8 denotes eight firm concentration ratio.
HHI denotes Herfindahl-Hirschmann index for 50 largest companies.
Source: U.S. Department of Commerce, Bureau of the Census. 2001. Concentration Ratios in Manufacturing.
.
2-15
-------
Table 2-6. Measures of Market Concentration for the Plastic Bottle Industry (NAICS
326160): 1997
Value of Shipments
($106) CR4 CR8 HHI
$6,335 33% 52% 425
Notes: CR4 denotes four-firm concentration ratio.
CR8 denotes eight firm concentration ratio.
HHI denotes Herfindahl-Hirschmann index for 50 largest companies.
Source: U.S. Department of Commerce, Bureau of the Census. 2001. Concentration Ratios in Manufacturing.
.
The criteria for evaluating the HHIs are based on the 1992 Department of Justice's
Horizontal Merger Guidelines. According to these criteria, industries with HHIs below
1,000 are considered unconcentrated (i.e., more competitive), those with HHIs between
1,000 and 1,800 are considered moderately concentrated (i.e., moderately competitive), and
those with HHIs above 1,800 are considered highly concentrated (i.e., less competitive). In
general, firms in less-concentrated industries are more likely to be price takers, while firms
in more-concentrated industries are more likely to be able to influence market prices.
In the metal can industry, the CR4 was 58 percent, while the CR8 was 87 percent.
The HHI for this industry was 1,180. Based on the criteria above, the metal can industry can
be classified as moderately concentrated.
With only 11 companies, the glass container industry was concentrated with a CR4 of
91 percent and a CR8 of 98 percent. The HHI for this industry implies that it was highly
concentrated.
In the plastic bottle industry, the CR4 was 33 percent and the CR8 was 52 percent.
With an HHI of 425, the plastic bottle industry can be classified as unconcentrated.
Although the metal can industry appears to fall at the lower end of the moderately
concentrated range, the close substitutability of alternative materials such as glass and plastic
makes it likely that metal can producers behave as price-takers. Thus, based on the CR4,
CR8, HHI, and the available substitutes, an assumption of perfect competition for the metal
can industry appears reasonable for modeling purposes.
2-16
-------
2.3.2 Facilities
In the baseline for this analysis, 202 potentially affected facilities manufactured metal
cans, sheets, or ends in the United States.3 These facilities can be classified as one of two
types of producers: independent can manufacturers and captive can manufactures.
Independent can producers coat and fabricate cans based on the customer's specified end use.
Several of these plants manufacture cans solely for one customer (EPA, 1998). Captive can
producers coat and fabricate cans as part of the vertical operations of a parent corporation.
The great majority of metal cans are produced by independent can producers rather than for
captive use (see Section 2.3.2 for more information).
The size of can manufacturing plants varies depending on the number and types of
production processes performed. Some plants coat only the metal sheets, while others may
fabricate a particular type of can body or end from the coated sheets. Others both coat and
fabricate the metal can.
Metal can manufacturing facilities are generally located near sources of material
supply (i.e., steel or aluminum plants) or near the customers based on the costs associated
with transporting raw materials and final products. Figure 2-6 shows the distribution of these
facilities across the United States. California contains the most metal can, sheet, or end
manufacturing facilities (29), followed by Ohio (19), Illinois (15), and Wisconsin (13).
2.3.3 Companies
Thirty parent companies own the 202 metal can manufacturing facilities. These
companies report an average (median) annual sales of $3.8 billion ($336 million). This
figure includes revenue from operations other than metal can manufacturing. The average
(median) employment for these companies was 17,400 (2,566) workers. Three of the largest
companies, based on annual sales, produce containers as part of the company's vertical
operations (i.e., Nestle S.A.—$52.1 billion, Con Agra—$23.8 billion, and HJ. Heinz
Company—9.3 billion). However, these companies own a total of only seven facilities, or
3.5 percent of the establishments. Ward's Business Directory (Gale Research, 1999)
identifies the top metal can manufacturing companies (i.e., those with
3That is, there were 202 facilities classified in the metal can manufacturing industry. However, eight of these
facilities are classified as synthetic minor sources and 52 as area sources, neither of which incur any
compliance costs under this regulation.
2-17
-------
oo
TOTAL: 202
Figure 2-6. Distribution of Metal Can, Sheet, or End Manufacturing Facilities by State
-------
NAICS 332431 as a primary SIC) as Crown Cork and Seal Company ($8.3 billion), Ball
Corporation ($2.8 billion), and American National Can Company ($2.4 billion), all of which
are independent metal can manufacturers. These companies own 82 facilities, or 43 percent
of the total. Additionally, Silgan Holdings Company is a major independent metal can
manufacturer in this market: they own 34 facilities (annual sales are $1.7 billion).
Metal can coating companies can be classified as small or large businesses using
Small Business Administration (SBA) general size standard definitions for NAICS codes.
For NAICS 332431, the SB A defines a business as small if it employs 1,000 or fewer
employees. Using this guideline and available secondary data, the Agency identified 13
small businesses, or 43.3 percent of the metal can companies. For these small businesses, the
average (median) annual sales for companies reporting data were $27 ($24) million, and the
average (median) employment was 178 (175) employees. Appendix A lists individual metal
can companies and includes sales and employment data reported by secondary sources,
including Dun & Bradstreet (1999), Hoover's Inc. (1999), and company and industry
websites.
2.4 Market Data and Trends
Growth in the metal can industry during the 1990s has slowed as a result of a mature
domestic market for aluminum and steel cans. As shown in Table 2-7, domestic shipments
were reported at 137 billion cans in 1997 (baseline year), a small increase of 1.2 percent over
1996. During the period 1993 to 1999, total metal can shipments increased at an average
annual rate of 1 percent.
There are a variety of metal can products, and prices vary by size and end-use
application. The Agency conducted a search for can price data by type of can and found that
this information is not published in a statistical annual. However, an industry trade journal
did report spot prices for aluminum and steel beverage cans as well as plastic bottles for
1995 (Sfiligoj, 1995). Using these spot prices and the producer price indexes published by
the BLS, the Agency computed a historical price time series for these selected cans for the
period 1993 through 2000. As shown in Table 2-8, the average prices per 1,000 units during
this period were as follows: aluminum cans ($62.47), steel cans ($65.28), and plastic bottles
($68.51).
2-19
-------
Table 2-7. Domestic Metal Can Shipments by Market: 1993-1999 (million cans)
Year
1993
1994
1995
1996
1997
1998
1999
1993-1999
Beverage
97,605
103,119
98,116
99,136
100,680
102,789
102,253
1%
Food
30,465
31,907
31,313
31,971
31,998
31,782
32,349
Average Annual Growth
1%
General
Packaging
4,072
4,228
4,275
4,361
4,375
4,404
4,457
Rates
2%
Total
132,142
139,254
133,704
135,468
137,137
138,975
139,059
1%
Source: Can Manufacturers Institute (CMI). "Historical CMI Can Shipments." .
As obtained on December 6, 200la.
Currently, foreign trade does not represent a significant share of metal can shipments.
For 1996, the value of imports and exports as a share of the total value of shipments for
NAICS 332431 was less than 1.5 percent. However, foreign interest in the benefits of
aluminum can packaging is growing and this is expected to benefit U.S. producers of
aluminum cans (Hillstrom, 1994). There has been growth in exports since 1992, although
exports peaked in 1995 and have generally been declining since then (see Table 2-9).
Similarly, imports (primarily from Canada) have risen between 1992 and 2000 but peaked in
1996 and have been on a downward trend. It is unclear why trade spiked in the mid-1990s
and has since been falling. Even in the peak years, trade was a very small fraction of total
production and consumption of metal cans. Because imports and exports are such a small
percentage of total shipments, apparent consumption of metal cans in the U.S. does not differ
greatly from total shipments by domestic producers (see Table 2-9).
2-20
-------
Table 2-8. Prices for Beverage Containers: 1993-2000 ($71,000 cans or bottles)
Year
1993
1994
1995
1996
1997
1998
1999
2000
Average:
Aluminum Cans
$63.99
$61.01
$70.58
$63.02
$60.94
$61.01
$59.14
$60.04
$62.47
Steel Cans
$64.78
$64.78
$65.66
$65.81
$65.76
$65.76
$65.30
$64.37
$65.28
PET Bottles
NA
$65.23
$70.68
$68.57
$68.63
$67.73
$67.99
$70.75
$68.51
Sources: Sfiligqj, Eric. June 1995. "At What Price?" Beverage World.
U.S. Bureau of Labor Statistics. Producer Price Index—Commodities: Aluminum Cans—Series ID
wpul03103. . As obtained on December 6, 2001a.
U.S. Bureau of Labor Statistics. Producer Price Index—Commodities: Steel Cans—Series ID
wpu!03102. . As obtained on December 6, 200Ib.
U.S. Bureau of Labor Statistics. Producer Price Index Revision—Current Series: Plastic
Bottles—Series ID pcu3085#. . As obtained on December 6, 2001c.
In the domestic market, the aluminum container has become widely used because of
its relative advantages in price and weight as well as opportunities consumers have to recycle
it. The beverage market grew rapidly during the 1980s and 1990s and began to dominate the
entire can industry. Aluminum has a 75 percent market share in the beverage segment,
experiencing rapid growth along with the beverage industry. As beverage industry growth
has leveled off, so have sales of aluminum cans. Although steel represents a declining share
of the beverage market, steel cans still dominate the food and consumer product markets.
However, they face increased competition from food product packaging using plastic
materials. Exports of both food and beverage products are anticipated to increase based on
2-21
-------
Table 2-9. Apparent Consumption of Metal Cans (NAICS 332431): 1993-1999 (million
cans)
Shipments by Domestic
Year Manufacturers Imports
1992
1993
1994
1995
1996
1997
1998
1999
2000
N/A
132,142
139,254
133,704
135,468
137,137
138,975
139,059
N/A
1%
335
461
711
559
1,454
627
334
691
634
Average Annual Growth
28%
Exports
395
568
1,390
2,196
899
861
967
624
674
Rates
21%
Apparent
Consumption
N/A
132,035
138,575
132,067
136,023
136,903
138,342
139,126
N/A
1%
Sources: U.S. International Trade Commission. ITC Trade Data Web. Version 2.4 [computer file].
. As obtained on December 7, 2001.
Can Manufacturers Institute (CMI). "Historical CMI Can Shipments." .
As obtained on December 6, 200la.
trends established during the 1990s. For example, between 1990 and 1992 soft drink and
carbonated water exports increased 63 percent and fruit and vegetable exports increased
approximately 32 percent (Hillstrom, 1994). However, it is not clear that these trends will
lead to increased exports of metal cans. Because of the low value-to-weight ratio of metal
cans, it appears unlikely that foreign trade in cans will develop to a significant degree. On
the other hand, an increase in food and beverage exports may lead to an increase in demand
for metal cans since they may be used to package the exported items.
2-22
-------
SECTION 3
ENGINEERING COSTS
This section presents the Agency's estimates of the compliance costs associated with
the regulatory alternatives developed to reduce HAP emissions during metal can coating
operations. This NESHAP will limit the amount of organic HAP emitted relative to the
volume of coating applied. To meet the requirements of this regulation, most facilities will
add control devices, with some facilities substituting low- or no-HAP coatings for their
current coatings. The tabular costs associated with making these changes to the metal can
production process were estimated for the 142 major source facilities operating in the U.S. in
the baseline year, 1997. These costs are defined as the annual recordkeeping and reporting,
material, capital, and monitoring costs assuming no behavioral market adjustment by
producers or consumers. The engineering costs will serve as an input to the economic
model, which incorporates behavioral adjustments, presented in Section 4. An overview of
the methodology used to develop the engineering cost estimates is provided below. A more
detailed discussion of this methodology and the assumptions used for the calculations can be
found in Icenhour (2003).
3.1 Methodology
EPA identified three potential types of costs associated with pollution abatement:
(1) monitoring, recordkeeping, and reporting (MR&R) costs, (2) material costs, and (3)
capital costs related to the purchase and installation of add-on capture and control devices.
Each of the cost components is briefly described below.
3.1.1 Monitoring, Recordkeeping, and Reporting Costs
MR&R costs are divided into six types, including the cost of labor to track material
usage and to compile data for compliance reports; the cost of buying and maintaining
computer equipment to track coating and solvent material usage; the cost associated with
buying and maintaining continuous parameter monitoring systems for the add-on control
devices; the cost of photocopying and mailing the reports and notifications; the cost of
purchasing filing cabinets for recordkeeping purposes; and the cost of hiring a contractor to
conduct performance testing of the add-on control devices and monitoring systems. The
average annual total facility cost associated with MR&R activities is estimated to be
3-1
-------
$60,200, for an industry total of $8.4 million. Facilities that are subject to multiple
subcategories have this MR&R cost divided evenly among the subcategories such that their
total facility cost is $60,200.
3.1.2 Material Costs
This cost component characterizes the of costs of substituting low- or no-HAP
coatings for the coatings currently being used. For this analysis, EPA assumed that facilities
in well-controlled subcategories such as two-piece beverage cans, two-piece food cans, and
sheetcoating operations will meet HAP emission limits by installing a new regenerative
thermal oxidizer (RTO) rather than incurring material costs. In addition, three facilities that
are within 10 percent of the organic HAP emission rate for the well-controlled coating type
segments were assumed to meet the limits by improving the existing capture device. All
other subcategories, except for one-piece aerosol can facilities, are assumed to reformulate
the coatings to limit surface coating HAP emissions.
Because reformulation costs vary by type of coating, the Can Manufacturers Institute
(CMI) was consulted for accurate cost ranges. Based on these data, an average cost was
estimated for each specific coating type segment. Costs were calculated using the
assumption that each facility will use the same amount of coatings that were consumed in the
baseline year of 1997 and that there will be a greater cost per gallon for low- or no-HAP
coatings compared to the cost per gallon for higher HAP-content coatings. This incremental
cost increase is assumed to be $2.00 per gallon for inside sprays and $5.00 per gallon for side
seam stripes, which are used in three-piece food can assembly and three-piece nonfood can
assembly subcategories, and $2.00 per gallon for non-aseptic end seal compounds, which are
used in the end lining operations subcategory. The total estimated impact for material costs
is estimated to be $4.1 million per year for the three impacted subcategories.
3.1.3 Add-On Control Devices
In general, the two-piece beverage cans, two-piece food cans, and sheetcoating
subcategories are well-controlled in terms of air emissions. Therefore, EPA assumed that all
facilities in these subcategories will require an RTO to meet the emission limit with two
exceptions. First, if the facility has an organic HAP emission rate that is less than or equal to
the organic HAP emission rate for the coating type segment, the amount of control is
considered sufficient. Second, if the facility has an organic HAP emission rate that is less
than 10 percent above the organic HAP emission rate for the coating type segment, it is
assumed that the facility can meet the limit by adding equipment to the existing capture
equipment. The capital cost for this investment is estimated to be $400,000, which, when
annualized over 10 years at 7 percent, is an annual cost of $98,000. For all other major
3-2
-------
source facilities, facility-specific capital equipment costs were estimated that include
purchase, installation, and operation of an RTO. Capital investment costs were annualized
over a 10-year period with an interest rate of 7 percent. The total annualized capital cost for
all facilities is estimated to be $46.2 million.
3.2 Engineering Cost Summary
The Agency's facility level engineering cost estimates are summarized in Table 3-1
for each of the 142 major sources and 8 synthetic minor sources in the metal can
manufacturing industry. The nationwide total cost is estimated at $58.7 million per year
divided across 142 major source facilities. This cost is divided among MR&R costs of $8.4
million, material costs of $4.1 million, and capital costs for add-on control devices of $46.2
million.
3-3
-------
Table 3-1. Summary of Costs to Industry Subcategories/Segments
Blind
FACID
26
137
84
89
65
48
130
112
118
144
140
108
101
V" 58
4--
117
106
37
163
158
30
70
83
83
59
59
190
190
190
Annual
Floor Synthetic Small Number of Material Annualized Annual Total Annual
Subcategory Facility Minor Business APCDs Costs Capital Costs MR&R Costs Costs
Nonaseptic side seam stripe (food) Yes
Nonaseptic side seam stripe (food) Yes
Nonaseptic end seal compounds
Beverage can coatings
Beverage can coatings
Beverage can coatings
Beverage can coatings
Beverage can coatings
Beverage can coatings
Beverage can coatings
Nonaseptic end seal compounds
Beverage can coatings
Beverage can coatings
Beverage can coatings
Beverage can coatings
Beverage can coatings
Beverage can coatings
Beverage can coatings Yes
Beverage can coatings
Beverage can coatings
Beverage can coatings
Aseptic side seam stripe (Food) Yes
Nonaseptic side seam stripe (Food)
Aseptic side seam stripe (Food)
Nonaseptic side seam stripe (Food)
Aseptic end seal compounds Yes
Nonaseptic side seam stripe (Food)
Sheetcoatings
$0
$0
$141,316
$0
$0
1 $0
$0
1 $0
$0
$0
$0
$0
$0
$0
$0
2 $0
1 $0
1 $0
$0
$0
$0
$6,071
$66,831
$57,150
$71,693
$0
$74,100
1 $0
$0
$0
$0
$373,051
$373,051
$751,899
$373,051
$298,715
$373,051
$373,051
$0
$373,051
$373,051
$400,316
$373,051
$453,579
$343,590
$0
$373,051
$373,051
$354,874
$0
$0
$0
$0
$0
$0
$329,824
$0
$0
$60,200
$60,200
$60,200
$60,200
$60,200
$60,200
$60,200
$60,200
$0
$60,200
$60,200
$60,200
$60,200
$60,200
$60,200
$60,200
$60,200
$60,200
$60,200
$30,100
$30,100
$30,100
$30,100
$20,067
$20,067
$20,067
$0
$0
$201,516
$433,251
$433,251
$812,099
$433,251
$358,915
$433,251
$433,251
$0
$433,251
$433,251
$460,516
$433,251
$513,779
$403,790
$60,200
$433,251
$433,251
$415,074
$36,171
$96,931
$87,250
$101,793
$20,067
$94,167
$349,890
(continued)
-------
Table 3-1. Summary of Costs to Industry Subcategories/Segments (Continued)
<_>->
Blind
FACID
121
121
47
47
47
22
22
80
80
78
67
67
67
162
159
123
72
32
32
32
66
66
66
66
183
183
43
Floor Synthetic
Subcategory Facility Minor
Aseptic side seam stripe (Food) Yes
Nonaseptic side seam stripe (Food)
Aseptic end seal compounds Yes
Aseptic side seam stripe (Food)
Nonaseptic side seam stripe (Food)
Nonaseptic end seal compounds
Sheetcoatings
Beverage can coatings
Nonaseptic end seal compounds Yes
Beverage can coatings
Beverage can coatings
Food can coatings
Nonaseptic end seal compounds Yes
Beverage can coatings
Beverage can coatings
Beverage can coatings
Beverage can coatings
General line side seam stripe (nonfood)
Nonaseptic end seal compounds
Sheetcoatings
Aerosol side seam stripe (nonfood)
Aseptic end seal compounds
Nonaseptic end seal compounds
Sheetcoatings
General line side seam stripe (nonfood)
Sheetcoatings Yes
Sheetcoatings Yes
Annual
Small Number of Material Annualized Annual Total Annual
Business APCDs Costs Capital Costs MR&R Costs Costs
$0
$0
$0
$12,360
$28,095
$751,936
2 $0
$0
$0
$0
$0
$0
$0
1 $0
1 $0
1 $0
$0
$0
$34,916
1 $0
$5,505
$0
$2,202
3 $0
$0
1 $0
3 $0
$0
$0
$0
$0
$0
$0
$702,920
$400,316
$0
$400,316
$200,158
$200,158
$0
$420,219
$347,655
$373,051
$373,051
$0
$0
$233,924
$0
$0
$0
$364,562
$0
$0
$0
$0
$0
$20,067
$20,067
$20,067
$30,100
$30,100
$30,100
$30,100
$60,200
$20,067
$20,067
$20,067
$60,200
$60,200
$60,200
$60,200
$20,067
$20,067
$20,067
$15,050
$15,050
$15,050
$15,050
$30,100
$30,100
$60,200
$0
$0
$20,067
$32,427
$48,162
$782,036
$733,020
$430,416
$30,100
$460,516
$220,225
$220,225
$20,067
$480,419
$407,855
$433,251
$433,251
$20,067
$54,983
$253,991
$20,555
$15,050
$17,252
$379,612
$30,100
$30,100
$60,200
(continued)
-------
Table 3-1. Summary of Costs to Industry Subcategories/Segments (Continued)
ON
Blind
FACID
16
16
16
16
115
44
189
62
200
200
200
200
110
56
136
136
12
164
164
164
124
202
202
28
145
145
145
Subcategory
Inside spray
Nonaseptic end seal compounds
Nonaseptic side seam stripe (Food)
Sheetcoatings
Aerosol can coatings
Beverage can coatings
Beverage can coatings
Nonaseptic end seal compounds
Aseptic end seal compounds
Inside spray
Nonaseptic side seam stripe (Food)
Sheetcoatings
Aerosol side seam stripe (nonfood)
Sheetcoatings
Beverage can coatings
Nonaseptic end seal compounds
Food can coatings
Aerosol side seam stripe (nonfood)
Nonaseptic end seal compounds
Sheetcoatings
Beverage can coatings
Inside spray
Nonaseptic side seam stripe (Food)
Beverage can coatings
Aerosol side seam stripe (nonfood)
Aseptic end seal compounds
Nonaseptic end seal compounds
Annual
Floor Synthetic Small Number of Material Annualized Annual Total Annual
Facility Minor Business APCDs Costs Capital Costs MR&R Costs Costs
Yes Yes Yes 1 $0
Yes Yes $0
Yes Yes 1 $0
Yes Yes 1 $0
Yes 2 $0
$0
$0
$249,447
$0
$19,250
$22,275
1 $0
Yes $0
Yes 3 $0
Yes 2 $0
$77,420
Yes $0
Yes $0
Yes $0
1 $0
Yes 1 $0
Yes $7,040
$26,443
Yes 2 $0
$8,700
$0
Yes $0
$0
$0
$0
$0
$0
$373,051
$373,051
$0
$0
$0
$0
$296,661
$0
$97,556
$0
$0
$373,051
$0
$0
$284,305
$309,017
$0
$0
$395,507
$0
$0
$0
$0
$0
$0
$0
$60,200
$60,200
$60,200
$60,200
$15,050
$15,050
$15,050
$15,050
$0
$60,200
$30,100
$30,100
$60,200
$20,067
$20,067
$20,067
$60,200
$30,100
$30,100
$60,200
$12,040
$12,040
$12,040
$0
$0
$0
$0
$60,200
$433,251
$433,251
$309,647
$15,050
$34,300
$37,325
$311,711
$0
$157,756
$30,100
$107,520
$433,251
$20,067
$20,067
$304,372
$369,217
$37,140
$56,543
$455,707
$20,740
$12,040
$12,040
(continued)
-------
Table 3-1. Summary of Costs to Industry Subcategories/Segments (Continued)
Blind Floor Synthetic
FACID Subcategory Facility Minor
145
145
88
54
122
27
178
204
204
204
204
107
107
107
107
206
206
172
172
172
134
134
134
134
132
36
40
Nonaseptic side seam stripe (Food) Yes
Sheetcoatings
Beverage can coatings
Beverage can coatings
Sheetcoatings
Beverage can coatings
Beverage can coatings
Aseptic end seal compounds Yes
Inside spray Yes
Nonaseptic side seam stripe (Food)
Sheetcoatings
Aerosol side seam stripe (nonfood) Yes
Inside spray
Nonaseptic end seal compounds Yes
Sheetcoatings
Inside spray Yes
Nonaseptic side seam stripe (Food)
Aseptic end seal compounds Yes
Nonaseptic end seal compounds
Sheetcoatings
Aseptic end seal compounds Yes
Inside spray
Nonaseptic end seal compounds
Nonaseptic side seam stripe (Food)
Sheetcoatings
Sheetcoatings
Aerosol side seam stripe (nonfood) Yes
Annual
Small Number of Material Annualized Annual Total Annual
Business APCDs Costs Capital Costs MR&R Costs Costs
$275
2 $0
$0
$0
1 $0
$0
$0
$0
$0
$20,120
2 $0
$0
$4,180
$0
1 $0
$21,560
$31,900
$0
$1,970
2 $0
$0
$35,200
$3,441
$29,425
1 $0
1 $0
$0
$0
$615,408
$373,051
$373,051
$346,084
$354,874
$373,051
$0
$0
$0
$296,661
$0
$0
$0
$420,219
$0
$0
$0
$0
$584,240
$0
$0
$0
$0
$320,137
$265,772
$0
$12,040
$12,040
$60,200
$60,200
$60,200
$60,200
$60,200
$15,050
$15,050
$15,050
$15,050
$15,050
$15,050
$15,050
$15,050
$30,100
$30,100
$20,067
$20,067
$20,067
$15,050
$15,050
$15,050
$15,050
$60,200
$60,200
$20,067
$12,315
$627,448
$433,251
$433,251
$406,284
$415,074
$433,251
$15,050
$15,050
$35,170
$311,711
$15,050
$19,230
$15,050
$435,269
$51,660
$62,000
$20,067
$22,037
$604,307
$15,050
$50,250
$18,491
$44,475
$380,337
$325,972
$20,067
(continued)
-------
Table 3-1. Summary of Costs to Industry Subcategories/Segments (Continued)
Annual
Blind Floor Synthetic Small Number of Material Annualized Annual Total Annual
FACID Subcategory Facility Minor Business APCDs Costs Capital Costs MR&R Costs Costs
40
40
52
63
8
8
8
8
92
18
179
179
<->-> 20
°° 165
126
173
127
127
127
85
21
21
23
203
97
53
61
Nonaseptic end seal compounds Yes
Sheetcoatings
Sheetcoatings Yes
Beverage can coatings Yes
Aseptic end seal compounds
Nonaseptic end seal compounds
Nonaseptic side seam stripe (Food) Yes
Sheetcoatings
Beverage can coatings
Nonaseptic end seal compounds
Beverage can coatings
Nonaseptic end seal compounds
Sheetcoatings
Nonaseptic side seam stripe (Food) Yes
Nonaseptic end seal compounds
Food can coatings
Inside spray
Nonaseptic end seal compounds
Sheetcoatings
Beverage can coatings
Nonaseptic end seal compounds
Sheetcoatings
Sheetcoatings
Sheetcoatings
Sheetcoatings
Beverage can coatings
Beverage can coatings
$0
2 $0
$0
1 $0
$0
$0
$9,010
2 $0
$0
$86,954
$0
$93,866
1 $0
$32,540
$102,338
$0
$25,120
$44,770
3 $0
$0
$0
3 $0
2 $0
2 $0
4 $0
1 $0
$0
$0
$263,721
$0
$0
$0
$0
$0
$265,772
$373,051
$0
$373,051
$0
$327,551
$0
$0
$373,051
$0
$0
$339,906
$400,316
$0
$630,477
$615,449
$690,227
$489,964
$479,913
$373,051
$20,067
$20,067
$0
$60,200
$15,050
$15,050
$15,050
$15,050
$60,200
$60,200
$30,100
$30,100
$60,200
$60,200
$60,200
$60,200
$20,067
$20,067
$20,067
$60,200
$30,100
$30,100
$60,200
$60,200
$60,200
$60,200
$60,200
$20,067
$283,787
$0
$60,200
$15,050
$15,050
$24,060
$280,822
$433,251
$147,154
$403,151
$123,966
$387,751
$92,740
$162,538
$433,251
$45,187
$64,837
$359,973
$460,516
$30,100
$660,577
$675,649
$750,427
$550,164
$540,113
$433,251
(continued)
-------
Table 3-1. Summary of Costs to Industry Subcategories/Segments (Continued)
<_>->
Blind
FACID
79
198
133
82
57
147
2
171
171
201
55
175
175
105
135
150
77
91
191
177
120
34
149
149
199
199
142
Floor Synthetic Small Number of
Subcategory Facility Minor Business APCDs
Beverage can coatings 1
Beverage can coatings
Beverage can coatings
Beverage can coatings
Beverage can coatings 1
Beverage can coatings Yes 1
Nonaseptic end seal compounds Yes
Aseptic end seal compounds Yes Yes
Nonaseptic end seal compounds Yes Yes
Sheetcoatings Yes
Aerosol can coatings Yes Yes 12
Aseptic end seal compounds Yes Yes
Nonaseptic end seal compounds Yes Yes
Beverage can coatings 1
Beverage can coatings
Beverage can coatings
Beverage can coatings 1
Beverage can coatings
Nonaseptic end seal compounds
Beverage can coatings Yes 1
Beverage can coatings
Beverage can coatings
Beverage can coatings
Nonaseptic end seal compounds
Beverage can coatings 1
Nonaseptic end seal compounds
Beverage can coatings
Annual
Material Annualized Annual Total Annual
Costs Capital Costs MR&R Costs Costs
$0
$0
$0
$0
$0
$0
$22,166
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$298,570
$373,051
$400,316
$373,051
$452,146
$97,556
$0
$0
$0
$0
$0
$0
$0
$418,057
$373,051
$373,051
$404,774
$373,051
$0
$0
$373,051
$373,051
$373,051
$0
$418,057
$0
$354,874
$60,200
$60,200
$60,200
$60,200
$60,200
$60,200
$60,200
$0
$0
$60,200
$60,200
$0
$0
$60,200
$60,200
$60,200
$60,200
$60,200
$60,200
$60,200
$60,200
$60,200
$30,100
$30,100
$30,100
$30,100
$60,200
$358,770
$433,251
$460,516
$433,251
$512,346
$157,756
$82,366
$0
$0
$60,200
$60,200
$0
$0
$478,257
$433,251
$433,251
$464,974
$433,251
$60,200
$60,200
$433,251
$433,251
$403,151
$30,100
$448,157
$30,100
$415,074
(continued)
-------
Table 3-1. Summary of Costs to Industry Subcategories/Segments (Continued)
Blind
FACID
75
194
194
194
160
160
160
160
167
167
139
139
129
205
205
205
161
161
161
157
157
95
95
192
192
192
184
Floor Synthetic
Subcategory Facility Minor
Beverage can coatings
Aseptic end seal compounds
Inside spray
Nonaseptic side seam stripe (Food)
Aseptic end seal compounds
Inside spray Yes
Nonaseptic side seam stripe (Food)
Sheetcoatings
Nonaseptic side seam stripe (Food)
Sheetcoatings Yes
Food can coatings
Nonaseptic end seal compounds
Sheetcoatings
Nonaseptic end seal compounds
Nonaseptic side seam stripe (Food) Yes
Sheetcoatings
Nonaseptic end seal compounds
Nonaseptic side seam stripe (Food)
Sheetcoatings
Nonaseptic side seam stripe (Food)
Sheetcoatings
Nonaseptic end seal compounds
Sheetcoatings
Aseptic side seam stripe (Food) Yes
Nonaseptic end seal compounds
Nonaseptic side seam stripe (Food) Yes
Sheetcoatings
Annual
Small Number of Material Annualized Annual Total Annual
Business APCDs Costs Capital Costs MR&R Costs Costs
$0
$0
$19,620
$34,825
$0
$0
$5,950
1 $0
$0
2 $0
$0
$73,988
1 $0
$41,884
$105,730
$0
$183,710
$8,935
2 $0
$0
1 $0
$0
1 $0
$0
$85,594
$34,515
1 $0
$354,874
$0
$0
$0
$0
$0
$0
$354,874
$0
$97,556
$373,051
$0
$419,481
$0
$0
$354,874
$0
$0
$346,084
$0
$654,676
$0
$299,802
$0
$0
$0
$312,088
$60,200
$20,067
$20,067
$20,067
$15,050
$15,050
$15,050
$15,050
$30,100
$30,100
$30,100
$30,100
$60,200
$20,067
$20,067
$20,067
$20,067
$20,067
$20,067
$30,100
$30,100
$30,100
$30,100
$20,067
$20,067
$20,067
$60,200
$415,074
$20,067
$39,687
$54,892
$15,050
$15,050
$21,000
$369,924
$30,100
$127,656
$403,151
$104,088
$479,681
$61,951
$125,797
$374,940
$203,777
$29,002
$366,151
$30,100
$684,776
$30,100
$329,902
$20,067
$105,661
$54,582
$372,288
(continued)
-------
Table 3-1. Summary of Costs to Industry Subcategories/Segments (Continued)
Blind
FACID
143
143
25
25
25
195
195
195
193
193
93
148
148
148
148
148
71
71
71
71
151
151
151
151
197
9
Floor Synthetic
Subcategory Facility Minor
Nonaseptic end seal compounds
Nonaseptic side seam stripe (Food)
Food can coatings
Nonaseptic end seal compounds
Sheetcoatings
Aseptic side seam stripe (Food) Yes
Nonaseptic side seam stripe (Food)
Sheetcoatings
Nonaseptic end seal compounds
Sheetcoatings
Food can coatings
Aseptic side seam stripe (Food) Yes
Food can coatings Yes
Nonaseptic end seal compounds
Nonaseptic side seam stripe (Food)
Sheetcoatings
Food can coatings Yes
Nonaseptic end seal compounds
Nonaseptic side seam stripe (Food)
Sheetcoatings
Aseptic end seal compounds
Food can coatings Yes
Nonaseptic side seam stripe (Food)
Sheetcoatings
Nonaseptic end seal compounds
Sheetcoatings
Annual
Small Number of Material Annualized Annual Total Annual
Business APCDs Costs Capital Costs MR&R Costs Costs
$57,644
$7,685
$0
$37,980
1 $0
$0
$26,180
2 $0
$52,466
2 $0
$0
$0
1 $0
$345,200
$179,500
1 $0
1 $0
$41,884
$11,970
$0
$0
1 $0
$11,970
$0
$80,356
4 $0
$0
$0
$137,418
$0
$137,418
$0
$0
$338,791
$0
$375,817
$373,051
$0
$365,047
$0
$0
$0
$0
$0
$0
$274,835
$0
$0
$0
$274,835
$0
$1,681,074
$30,100
$30,100
$20,067
$20,067
$20,067
$20,067
$20,067
$20,067
$30,100
$30,100
$60,200
$12,040
$12,040
$12,040
$12,040
$12,040
$15,050
$15,050
$15,050
$15,050
$15,050
$15,050
$15,050
$15,050
$60,200
$60,200
$87,744
$37,785
$157,484
$58,047
$157,484
$20,067
$46,247
$358,858
$82,566
$405,917
$433,251
$12,040
$377,087
$357,240
$191,540
$12,040
$15,050
$56,934
$27,020
$289,885
$15,050
$15,050
$27,020
$289,885
$140,556
$1,741,274
(continued)
-------
Table 3-1. Summary of Costs to Industry Subcategories/Segments (Continued)
Blind
FACID
196
100
119
185
96
96
96
7
68
68
68
68
19
99
11
11
11
103
103
103
103
181
Annual
Floor Synthetic Small Number of Material Annualized Annual Total Annual
Subcategory Facility Minor Business APCDs Costs Capital Costs MR&R Costs Costs
Sheetcoatings
Nonaseptic end seal compounds
Food can coatings
Nonaseptic end seal compounds
Food can coatings Yes
Nonaseptic end seal compounds
Sheetcoatings
Sheetcoatings Yes
Aerosol side seam stripe (nonfood) Yes
General line side seam stripe (nonfood) Yes
Nonaseptic end seal compounds
Sheetcoatings
Sheetcoatings
Sheetcoatings
General line side seam stripe (nonfood) Yes Yes
Nonaseptic end seal compounds Yes
Sheetcoatings Yes
Aerosol side seam stripe (nonfood) Yes
General line side seam stripe (nonfood) Yes Yes
Nonaseptic end seal compounds Yes
Sheetcoatings Yes
Sheetcoatings
4 $0
$148,008
2 $0
$148,008
1 $0
$54,774
$0
1 $0
$11,000
$2,595
$0
2 $0
$0
1 $0
$0
$0
$0
$0
$0
$0
1 $0
1 $0
$679,812
$0
$657,062
$0
$0
$0
$645,421
$0
$0
$0
$0
$683,530
$373,051
$283,107
$0
$0
$0
$0
$0
$0
$0
$513,712
$60,200
$60,200
$60,200
$60,200
$20,067
$20,067
$20,067
$60,200
$15,050
$15,050
$15,050
$15,050
$60,200
$60,200
$0
$0
$0
$0
$0
$0
$0
$60,200
$740,012
$208,208
$717,262
$208,208
$20,067
$74,841
$665,488
$60,200
$26,050
$17,645
$15,050
$698,580
$433,251
$343,307
$0
$0
$0
$0
$0
$0
$0
$573,912
(continued)
-------
Table 3-1. Summary of Costs to Industry Subcategories/Segments (Continued)
Blind Floor Synthetic Small
FACID Subcategory Facility Minor Business
42
42
42
42
116
41
180
180
180
141
154
38
109
155
Aerosol side seam stripe (nonfood)
General line side seam stripe (nonfood) Yes
Nonaseptic end seal compounds
Sheetcoatings
Sheetcoatings Yes
Sheetcoatings
General line side seam stripe (nonfood) Yes
Nonaseptic end seal compounds
Sheetcoatings
Sheetcoatings
Sheetcoatings Yes
Sheetcoatings
Sheetcoatings
Sheetcoatings Yes
Totals 56 18 13
Number of
APCDs
1
1
12
1
1
1
3
3
1
144
Annual
Material Annualized Annual Total Annual
Costs Capital Costs MR&R Costs Costs
$34,650
$0
$0
$0
$0
$0
$7,530
$0
$0
$0
$0
$0
$0
$0
$4,081,736
$0
$0
$0
$527,591
$0
$1,800,500
$0
$0
$508,646
$459,652
$538,203
$786,716
$580,427
$317,359
$46,209,063
$15,050
$15,050
$15,050
$15,050
$60,200
$60,200
$20,067
$20,067
$20,067
$60,200
$60,200
$60,200
$60,200
$60,200
$8,367,800
$49,700
$15,050
$15,050
$542,641
$60,200
$1,860,700
$27,597
$20,067
$528,713
$519,852
$598,403
$846,916
$640,627
$377,559
$58,658,598
Icenhour, M., RTI. Memorandum to P. Almodovar, EPA/ESD/CCPG and V. Brown, ESD/ISEG. June 13, 2003. Tabular costs for metal can (surface coating)
NESHAP after proposal, metal can surface coating MACT rule development.
-------
SECTION 4
ECONOMIC IMPACT ANALYSIS: METHODS AND RESULTS
The underlying objective of the EIA is to evaluate the effect of the proposed
regulation on the welfare of affected stakeholders and society in general. Although the
engineering cost analysis presented in Section 3 represents an estimate of the resources
required to comply with the proposed rule under baseline economic conditions, that analysis
does not account for the fact that the regulations may cause the economic conditions to
change. For instance, producers may elect to reduce output in response to cost increases or
even discontinue production rather than comply, thereby reducing market supply. Moreover,
the control costs may be passed along to other parties through various economic exchanges.
The purpose of this section is to develop and apply an analytical structure for measuring and
tracking these effects as they are distributed across the stakeholders tied together through
economic linkages.
4.1 Markets Affected by the Proposed NESHAP
The determination of markets potentially affected by the rule requires identifying the
products produced at the affected facilities and linking them to markets where they are
exchanged. Based on the Information Collection Request (ICR) and data provided by the
Can Manufacturers Institute (CMI), EPA divided the metal can market into three separate
markets:
• beverage cans,
• food cans, and
• general packaging containers.
The economic impacts of the rule on the identified industries and related product
markets are examined in the following sections using both a conceptual approach and
operational model. The conceptual approach is described in Section 4.2, while Section 4.3
presents the economic impact results based on the operational model.
4-1
-------
4.2 Conceptual Approach
The Agency developed three national partial equilibrium models to estimate the
economic impacts on society resulting from the proposed regulation. The large number of
metal can producers and the close substitutability of alternative materials such as glass and
plastic for metal cans in many packaging applications lends support for the notion that metal
can producers will behave as if they operate in perfectly competitive markets. As a result,
we assume that the number of buyers and sellers is large enough that no individual buyer or
seller has market power (i.e., influence on market prices). Under this condition, producers
and consumers take the market price as a given when making their production and
consumption choices.
4.2.1 Supply
After critical review, the Agency determined that the level of detail of facility survey
and compliance cost data is sufficient to support a facility-level characterization of supply.
EPA assumed each plant has some fixed factors of production (e.g., plant and equipment)
that are augmented with variable factors inputs (e.g., materials, labor) to produce metal cans.
These fixed factors are the source of diminishing marginal returns, hence, increasing
marginal costs. Therefore each supply segment (beverage cans, food cans, general
packaging containers) can be characterized by an upward-sloping supply curve.
An important measure of the magnitude of this response is the price elasticity of
supply, computed as the percentage change in quantity supplied divided by the percentage
change in price. Absent empirical estimates of the supply elasticity, we use assumed values
of the supply elasticity in each of the relevant markets and perform a sensitivity analysis on
those assumptions. The supply elasticity used to generate the primary impact estimates,
which are presented in Section 4.3, is 1.0 for all three markets modeled. The sensitivity
analysis presented in Appendix B examines the effects of varying the supply elasticity
between 0.5 and 2.0.
4.2.2 Demand
Consumption choices are a function of the price of the commodity, income, prices of
related goods, tastes, and expectations about the future, among other variables. In this
analysis, we will consider how purchases of metal cans change in response to higher prices
resulting from regulation, holding other variables constant. The demand for metal cans is a
derived demand, meaning that the quantity of cans demanded is directly dependent on
consumer demand for the final products metal cans are used to produce. In this case,
4-2
-------
consumer demand for products such as beverages, food, and paint influences the number of
containers (e.g., metal, glass, or plastic) that will be purchased for packaging those products.
Nonetheless, the price of factors of production, such as metal cans, is still an important
determinant of the derived demand for that factor because of substitution possibilities among
factors of production. The economic model assumes a downward sloping demand curve
(i.e., the quantity demanded for a good falls when price rises), consistent with the Law of
Demand. Thus, an increase in the price of metal cans, as is expected to occur following
regulation, is expected to result in a decrease in the number of metal cans demanded by final
product industries. The buyers of metal cans are likely to switch to containers made from
alternative materials (e.g., plastic, glass) to some degree and/or reduce their total output in
response to this increase in metal can costs.
EPA modeled the demand for metal cans in each of the three markets defined above
based on using reasonable assumptions for the price elasticity of demand in each market.
The primary consideration that will influence the choice of demand elasticity in each market
is the availability of substitutes for metal cans in that market. Other things being equal, the
more close substitutes are available for a given product, the more elastic the demand for that
product. The more elastic demand arises because, with many close substitutes available,
consumers can easily switch to alternative products in response to a price increase. As a
results, manufacturers may have little ability to pass costs onto consumers in the form of
price increases. In contrast, firms in industries with few close substitutes are likely to be able
to pass a higher proportion of regulatory costs to consumers of their products.
Based on information contained in the metal cans industry profile, it appears that both
metal food cans and metal beverage cans have fairly strong substitutes available (primarily
plastic bottles for beverages and glass bottles for foods), while there are fewer substitutes for
metal general packing containers in the markets where they are generally used (e.g., paint
cans). In addition, the demand for aluminum beverage cans is likely to be more elastic than
the demand for steel food cans because the cost share of cans in the beverage market is lower
than in the food and general packaging markets and plastic bottles seem to be more generally
substitutable for aluminum beverage cans than glass bottles for steel food cans. Consistent
with this notion, Palmer, Sigman, and Walls (1996) report demand elasticities of-1.4 for
aluminum beverage cans and -0.63 for steel cans (including both food cans and general
packaging containers). EPA used these elasticities as the primary elasticity values for the
economic analysis. However, because of the inherent uncertainty involved in selecting point
estimates of demand elasticities, a sensitivity analysis was performed that examines the
effects on the economic impact estimates of different assumptions concerning the demand
4-3
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elasticities. We examined a range of demand elasticities from -0.5 to -2 for each of the
three affected markets as part of the sensitivity analysis, the results of which are presented in
Appendix B.
4.2.3 Foreign Trade
A review of the international trade data shows that foreign trade is a very small share
of the domestic metal can market. Based on recent data, imports account for about 0.24
percent of 1998 U.S. metal can consumption and exports account for about 0.71 percent of
1998 U.S. metal can production. In addition, there is no information available to inform the
allocation of imports and exports between the three markets defined above for the analysis.
As a result, we provide a qualitative description of the foreign trade impacts rather than
developing quantitative estimates. For example, foreign imports may become more
attractive to U.S. consumers and U.S. exports may become less attractive to foreign
consumers as a result of the change in relative prices resulting from regulation in the U.S. In
addition, domestic facilities could potentially relocate to foreign countries with less stringent
environmental regulations if domestic production costs increase.1 However, the cost impacts
are unlikely to be large enough to cause significant trade impacts.
4.2.4 Baseline and With-Regulation Market Equilibrium
A graphical representation of the competitive model of price formation, as shown in
Figure 4-1 (a), posits that market prices and quantities are determined by the intersection of
the market supply and demand curves. Under the baseline scenario, a market price and
quantity (p,Q) are determined by the downward-sloping market demand curve (DM) and the
up ward-sloping market supply curve (SM) that reflects the sum of the domestic supply
curves. EPA's model includes both affected and unaffected domestic supply.
With the regulation, the costs of production increase for affected domestic suppliers.
The imposition of these regulatory control costs is represented as an upward shift in the
affected facility supply curve. As a result of the upward shift in this supply curve, the market
supply curve for metal cans will also shift upward as shown in Figure 4-l(b) to reflect the
increased costs of production.
'However, empirical studies in the literature have generally found little evidence of environmental regulations
having a significant influence on industry location decisions (e.g., Levinson, 1996).
4-4
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Affected Facilities
P'
P
S'
Affected Facilities
+ P
= P
Unaffected Facilities
a) Baseline Equilibrium
Market
P'
P
J I
Unaffected Facilities
b) With-Regulation Equilibrium
Figure 4-1. Market Equilibrium without and with Regulation
DM
Q
SM7 SM/
Q' Q
Market
4-5
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In baseline without the proposed standards, the industry produces total output, Q, at
price, p, with domestic producers supplying the amount qa and imports accounting for Q
minus qd, or qu. With the regulation, the market price increases from p to p', and market
output (as determined from the market demand curve, DM) declines from Q to Q'. This
reduction in market output is the net result of reductions in affected domestic supply and
increases in unaffected supply.
4.2.5 Supplementary Impact Analysis for Facilities Excluded from the Market Model
After review of the available data, the Agency determined that 13 facilities
manufactured unique metal can commodities that did not fall within the market definitions
above (e.g., commemorative tins). Five small firms own six of these facilities. However, the
Agency concluded data limitations did not support the development of similar partial
equilibrium models for these commodities. As a result, the Agency employed a financial
analysis to estimate impacts, which takes the form of the ratio of compliance costs to the
value of sales (cost-to-sales ratio or CSR). To compute these ratios, EPA collected revenue
data and calculated a CSR for each of the firms as follows:
CSR = Total Annual Compliance Costs/Total Plant Revenue (4.1)
One drawback of this approach is that it does not consider interactions between
producers and consumers in a market context. The analysis simply assesses the burden of
the rule by assuming the affected firms fully absorb the control costs, rather than at least
partially passing them on to consumers in the form of higher prices. Therefore, it likely
overstates the impacts on facilities affected by the rule and understates the impacts on
consumers. However, the approach can provide a quantitative measure of the economic
impacts for these facilities and has the advantages of simplicity and relatively limited data
requirements.
4.3 Economic Impact Results
To develop quantitative estimates of these impacts, we developed a computer model
using the conceptual approach described above.2 Using this model, EPA characterized
supply and demand of three affected commodities for the baseline year, 1997; introduced a
policy "shock" into the model by using control cost-induced shifts in the domestic supply
functions of these markets; and used the market model to determine a new with-regulation
2Appendix A includes a description of the model's baseline data set and specification.
4-6
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equilibrium in each metal cans market. We report the market, industry, and societal impacts
projected by the model below.
4.3.1 Market-Level Impacts
The increased cost of production due to the regulation is expected to increase the
price of metal cans and reduce production/consumption from baseline levels. As shown in
Table 4-1, the price increases in all three metal can markets included in the market model are
similar in magnitude and are each less than 0.5 percent. Domestic production of metal cans
is estimated to decline by a total of 410 million cans, or 0.32 percent. The beverage can
market accounts for 80 percent of this decline, which is approximately proportionate to its
share of metal cans produced.
Table 4-1. Market-Level Impacts of the Metal Can MACT for Primary Market
Segments: 1997a
Market
Beverage
Price ($/can)
Quantity (106)
Food
Price ($/can)
Quantity(106)
Packaging
Price ($/can)
Quantity (106)
Totalb
Price ($/can)
Quantity(106)
Baseline
$0.061
100,680
$0.115
24,332
$0.440
4,375
$0.084
129,387
Absolute Change
$0.000
-336
$0.000
-62
$0.002
-13
$0.000
^10
Relative
Change
0.24%
-0.33%
0.40%
-0.26%
0.46%
-0.29%
0.46%
-0.32%
a Market-level impacts are presented for the beverage, food, and packaging sectors of the metal cans industry.
Markets for specialty metal cans (e.g., decorative tins) were not included in the market model due to
insufficient data.
b The prices reported for the total impacts on the metal can manufacturing industry are weighted averages of the
prices in the three submarkets above.
4-7
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4.3.2 Industry-Level Impacts for Primary Market Segments
Revenue, costs, and profitability of the directly affected industry also change as
prices and production levels adjust to increased costs associated with compliance. For metal
can producers, pre-tax earnings are projected to decrease by a total of about $16.4 million
across all three submarkets included in the economic model (see Table 4-2).3 These losses
are the net result of three effects:
• Increases in revenue ($1.49 million, or 0.01 percent)—based on the elasticities
used in the model, revenue increases slightly because the average price of metal
cans increases by a larger percentage than the quantity falls.
• Reductions in production costs as output declines ($32.7 million, or 0.33
percent)—production costs fall as firms reduce their output.4
• Increased control costs ($50.6 million)—we have assumed total annual
compliance costs vary with the level of output. Therefore, the compliance costs
being incurred with regulation are smaller than the engineering compliance costs
Table 4-2. National-Level Industry Impacts of the Metal Can MACT on the Beverage,
Food, and Packaging Can Markets: 1997a
Revenues ($106/yr)
Costs ($106/yr)
Compliance
Production
Pre-tax earnings ($106/yr)
Plants (#)
Employees (#)
Baseline
$10,848.12
$10,030.25
$0.00
$10,030.25
$817.87
156
20.846
Absolute
Change
$1.49
$17.89
$50.58
-$32.69
-$16.41
0
-180
Relative
Change
0.01%
0.18%
NA
-0.33%
-2.01%
0.00%
-0.86%
Market-level impacts are presented for the beverage, food, and packaging sectors of the metal cans industry.
Markets for specialty metal cans (e.g., decorative tins) were not included in the market model due to
insufficient data.
3Note that there are only 156 facilities included in the market model after excluding the facilities that did not fit
into the three metal can markets modeled and allocating costs assigned to facilities that only manufacture
sheets or ends to their sister facilities that manufacture the cans. This adjustment was made because the
facilities producing only sheets or ends do not compete directly in the can market, although changes in the
costs of producing these inputs will affect company-level can output.
4Note that this does not imply that production costs per unit are falling, only that total production costs will tend
to fall as less output is produced. For example, fewer raw materials are needed as output declines.
4-8
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presented in Section 3 because the estimated reductions in output imply lower
compliance costs.5
The national-level results also highlight important distributional impacts of the rule
across facilities, as shown in Table 4-3. Approximately one-third of the modeled facilities
experience an increase in pre-tax earnings totaling about $10.5 million as a result of
increases in price that exceed their compliance costs per unit. In contrast, the remaining two-
thirds of metal can facilities experience losses in pre-tax earnings totaling $27.0 million. As
expected, facilities who are better off with regulation have relatively lower per-unit
compliance costs than their competitors.
Table 4-3. Distributional Impacts of the Metal Can MACT: 1997a
Pre-Tax Earnings
Loss Gain Total
Plants (#) 97 59 156
Baseline Production
Total (units/yr)
Average (units/facility)
Baseline Compliance Costs
Total ($106/yr)
Average ($/unit)
Change in Pre-tax Earnings ($106/yr)
Change in EniDlovment (# employees)
86,117,362,896
887,807,865
$47,341,344
$0.0005
-$26.95
-317
35,843,620,632
607,518,994
$4,426,249
$0.0001
$10.54
137
121,960,983,528
781,801,176
$51,767,593
$0.0004
-$16.41
-180
a Impacts are presented for the beverage, food, and packaging sectors of the metal cans industry. Specialty
metal cans (e.g., decorative tins) plants were not included in the market model due to insufficient data.
4.3.3 Impacts for Facilities Excluded from the Market Analysis
The Agency also examined impacts on the 13 facilities6 not included in the market
model. By assumption, these producers experience reductions in profit equal to the total
5Total compliance costs are expected to be lower, on average, as output falls because many types of compliance
costs are typically assumed to vary with output.
6Five small firms own six of these plants.
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annual compliance costs estimated to fall on those facilities ($4.7 million), an average of
$360,000 per facility (see Table 4-4). Revenues for these companies were estimated based
on data collected from Dun & Bradstreet, Reference USA, Thomas Regional, and the Census
Bureau. Reference USA provides facility-level sales ranges, but this data was not available
for all 13 facilities. Therefore, we used Census estimates of the average revenue per metal
can manufacturing establishment for the employment size category that the facility falls into
as an estimate of facility-level revenue for those facilities where Reference USA data were
not available. Because Reference USA provides fairly wide ranges in its sales estimates,
EPA chose to use a conservative estimate of facility revenue by using the minimum of:
• Total company sales (from Dun & Bradstreet or Thomas Regional),
• Midpoint of facility-level sales range reported by Reference USA, and
• Census estimates of the average revenues per establishment for the metal can
industry for the state in which the facility is located.
Table 4-4. Impacts for Facilities Not Included in the Market Model: 1997
Total Number of Facilities
Total Annual Compliance Costs (TACC) ($106)
Average (TACC) per Facility ($106)
Facilities with Sales Data
Compliance costs are < 1% of sales
Compliance costs are > 1% and < 3% of sales
Compliance costs are > 3% of sales
Compliance Cost-to-Sales Ratios
Average
Median
Minimum
Maximum
13
$4.7
$0.36
Number
9
3
r
1.42%
0.44%
0.00%
10.79%
Share
69%
23%
8%
This facility is owned by a small firm.
This was done to ensure that we were not using facility-level sales that were greater than
total company sales and that the Reference USA estimate was not far out of line with the
standard industry output for an establishment with a given employment range. Relative to
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estimated baseline sales for these facilities, nine facilities are impacted less than one percent,
three are impacted between 1 and 3 percent of sales, and one facility is impacted at a level
above 3 percent of sales.
4.3.4 Total Industry-Level Impacts
As noted earlier, our impact analysis includes two components. The first is a market
analysis of metal can plants in the beverage, food, and packaging sectors. The second is an
impact analysis for the specialty metal can plants that did not fit into one of these three
categories and were not included in the market analysis. Combining the impacts from these
analyses shows the total industry impact for all metal can manufacturing plants. As shown in
Table 4-5, industry profits fall by 17.5 million, or 2 percent with the MACT standard.
Table 4-5. Total Industry-Level Impacts of the Metal Can MACT: 1997
Revenues ($106/yr)
Costs ($106/yr)
Compliance
Production
Pre-tax earnings ($106/yr)
Plants (#)
Employees (#)
Baseline
$11,612.3
$10,737.0
$0.0
$10,737.0
$875.2
169
23,088
Absolute
Change
$1.49
$18.93
$54.88
-$35.95
-$17.45
-1
-242
Relative
Change
0.01%
0.18%
NA
-0.33%
-1.99%
-0.59%
-1.05%
4.3.4.1 Closure Estimates
The Agency estimates the rule may result in one to two plant closures (see Table
4-6). The market analysis shows 0-1 plant closures, depending on the elasticity parameters
used in the economic model. In addition, the cost-to-sales analysis for the plants excluded
from the market model shows that one facility has a CSR exceeding 10 percent. This is well
above the profit rate for SIC group 34 (Fabricated Metal Products) and suggests this plant
will become unprofitable under the rule. For 1997, the U.S. Census Bureau reports income
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Table 4-6. Potential Impacts of the Metal Can MACT on Plant Closure
Impact Analysis Closure Estimate Comment
Market Analysis 0-1 No plants are projected to close using the reference case
elasticity assumptions. Under alternative elasticity values
used in the sensitivity analysis, there were some
combinations of parameters where one plant would
become unprofitable and close because of the regulation.
Cost-to-Sales Analysis 1 EPA used a cost-to-sales analysis for plants not included
in the market analysis. These plants manufacture
specialty metal cans (i.e. decorative tins) and market-level
data was not sufficiently available for model
development. One plant had a cost-to-sales ratio above
the average profit ratio for this industry and was assumed
to become unprofitable and close under the regulation.
Total 1-2
before income taxes (pre-tax earnings) are 7.6 percent of sales. For smaller firms, (i.e. firms
with assets less than $25 million) this rate is 6.9 percent7 (U.S. Bureau of the Census, 1998).
4.3.4.2 Employment Impacts
Reduction in domestic production and closures lead to changes in industry
employment. Facility-level changes in employment were estimated by multiplying the
change in production by baseline employment:
AEt = [AQ/Q] E0 (4.2)
Employment is projected to decline by 379 employees at plants with profit losses and
increase by 137 employees at facilities with profit gains. EPA estimates the net employment
change resulting from the rule is a reduction of 242 employees, or -1 percent.
4.3.5 Social Costs
The value of a regulatory action is traditionally measured by the change in economic
welfare that it generates. The regulation's welfare impacts, or the social costs required to
achieve environmental improvements, will extend to consumers and producers alike.
7In the short run, a plant would be presumed to continue to operate as long as variable profits are positive. The
Agency considered QFR's income before income taxes measure to be an reasonable approximation of plant-
level variable profit rate.
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Consumers experience welfare impacts due to changes in market prices and consumption
levels associated with the rule. Producers experience welfare impacts resulting from changes
in profits corresponding with the changes in production levels and market prices. However,
it is important to emphasize that this measure does not include benefits that occur outside the
market, that is, the value of reduced levels of air pollution with the regulation.
The economic analysis accounts for behavioral responses by producers and
consumers to the regulation (i.e., shifting costs to other economic agents). This approach
provides insights on how the regulatory burden is distributed across stakeholders. As shown
in Table 4-7, the EPA estimates the total social cost of the rule at $55.7 million. As a result
of higher prices and lower consumption levels, consumers (domestic and foreign) are
projected to lose $34.6 million, or 60 percent of the total social costs of the rule. Beverage
market consumers experience over one-third of these losses, or $14.6 million. Producer
surplus declines by $21.1 million, or 40 percent of the total social costs.
Table 4-7. Distribution of Social Costs for the Metal Can MACT: 1997
Value ($106/yr)
Change in Consumer Surplus -$34.6
Beverage -$14.6
Food -$11.3
Packaging -$8.8
Change in Producer Surplus -$21.1
Market model -$16.4
Not modeled -$4.7
Total Social Cost -$55.7
4.3.6 Sensitivity Analysis
As a result of uncertainty involved in selecting point estimates of supply and
demand elasticities, EPA also conducted sensitivity analysis to explore the effect of different
elasticity values. Detailed results of this sensitivity analysis are presented in Appendix B.
The social costs of the rule remain essentially unchanged in the sensitivity analysis. As
expected, changes in elasticities that make the consumer more responsive to marginal
4-13
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changes in price relative to producers results in lower consumer surplus losses and higher
producer surplus losses. Conversely, changes in elasticities that make the producer more
responsive to marginal changes in price relative to consumers results in higher consumer
surplus losses and lower producer surplus losses. As noted earlier, closure estimates for the
market analysis range from zero to one facility depending on the elasticity parameters used.
The cost-to-sales analysis shows an additional plant closure. Therefore total closure
estimates range from one to two facilities.
4.4 New Source Analysis
Potential new suppliers of metal cans have an investment decision concerning
whether or not to enter the market (or to build new facilities in the case of current market
participants). Economic theory tells us that investors are only expected to invest in projects
that are expected to have a positive net present value (NPV), that is, an internal rate or return
higher than the opportunity cost of capital. Therefore, to the extent that the metal can
manufacturing NESHAP will result in a decrease in the expected NPV of investing in new
plants, it could potentially reduce the number of new entrants. However, EPA has estimated
that there would most likely be no new entrants in the metal can manufacturing industry over
the next few years even in the absence of this NESHAP. Thus, EPA concludes that there
will be no impacts on new sources as a result of this regulation.
4.5 Energy Impact Analysis
Executive Order 13211, "Actions Concerning Regulations that Significantly Affect
Energy Supply, Distribution, or Use" (66 Fed. Reg. 28355, May 22, 2001), requires federal
agencies to estimate the energy impact of significant regulatory actions. The proposed
NESHAP will trigger both a small increase in energy use due to the operation of new
abatement equipment as well as a decrease in energy use due to a small decline in the
production of metal cans. These impacts are discussed below.
Based on information from the industry survey responses, it is not expected that the
substitution of low HAP coatings and thinners for the materials currently used would result
in any change in energy usage. However, because many metal can manufacturing facilities
use add-on emission control devices to meet existing limits, it is expected that these facilities
would use additional add-on controls to comply with the MACT standard. Facilities are
expected to add RTOs to reduce HAP emissions, which require electricity and the
combustion of natural gas to operate and maintain operating temperatures. EPA estimates
that electricity consumption will increase by 34,453,427 kilowatt-hours (kWh) per year and
4-14
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fuel energy consumption resulting from burning natural gas will increase by 1,008,000
million British thermal units (MMBtu) per year, which roughly corresponds to 1.2 billion
cubic feet of natural gas. The total electricity generation capacity in the U.S. in 1999 was
785,990 MW (DOE, 1999a). Thus, the electricity requirements associated with the new
abatement capital likely to be added to comply with this NESHAP represents a very small
fraction of domestic generation capacity. Similarly, the natural gas requirements associated
with the NESHAP are very small relative to the 23,755 billion cubic feet of natural gas
produced in the U.S. in 1999 (DOE, 1999b).
In addition, as described in Section 4.3, the economic model predicts that increased
compliance costs will result in a reduction in annual output of 0.3 percent for the metal can
manufacturing industry. This small decline in production is expected to result in an
approximately proportionate reduction in energy consumption for this sector and will
partially offset the increased consumption to operate add-on control devices.
Overall, both the increases and decreases in energy consumption expected to result
from implementation of the metal can manufacturing NESHAP are projected to be extremely
small relative to national energy markets (and will at least partially offset each other). Thus,
it is extremely unlikely that the proposed NESHAP will have any significant adverse impact
on energy prices, distribution, availability, or use.
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SECTION 5
SMALL BUSINESS ANALYSIS
This regulatory action will potentially affect the economic welfare of owners of metal
can manufacturers. These individuals may be owners/operators who directly conduct the
business of the firm or, more commonly, investors or stockholders who employ others to
conduct the business of the firm on their behalf through privately held or publicly traded
corporations. The legal and financial responsibility for compliance with a regulatory action
ultimately rests with plant managers, but the owners must bear the financial consequences of
the decisions. Although environmental regulations can affect all businesses, small
businesses may have special problems complying with such regulations.
The Regulatory Flexibility Act (RFA) of 1980 requires that special consideration be
given to small entities affected by federal regulations. The RFA was amended in 1996 by the
Small Business Regulatory Enforcement Fairness Act (SBREFA) to strengthen its analytical
and procedural requirements. Under SBREFA, the Agency must perform a regulatory
flexibility analysis for rules that will have a significant impact on a substantial number of
small entities.
This section focuses on the compliance burden of the small businesses within the
metal can manufacturing industry and provides a screening analysis to determine whether
this proposed rule is likely to impose a significant impact on a substantial number of the
small entities (SISNOSE) within this industry. The screening analysis employed here is a
"sales test" that computes the annualized compliance costs as a share of sales for each
company. In addition, it provides information about the impacts on small businesses using a
market analysis that accounts for behavioral responses to the proposed rule and the resulting
changes in market prices and output.
5.1 Identifying Small Businesses
The Small Business Administration (SBA) released guidelines effective October
2000 that provide small business thresholds based on NAICS codes that replace the previous
thresholds based on SIC codes. Under these new guidelines, SBA establishes 1000 or fewer
employees as the small business threshold for Metal Can Manufacturing (i.e., NAICS
5-1
-------
332431). Using this guideline and available secondary data, the Agency identified 13 small
businesses, or 43.3 percent of the metal can companies. For these small businesses, the
average (median) annual sales for companies reporting data were $27 ($24) million, and the
average (median) employment was 178 (175) employees.
5.2 Screening-Level Analysis
To assess the potential impact of this rule on small businesses, the Agency calculated
the share of annual compliance costs relative to baseline sales for each company. This type
of analysis does not consider interaction between producers and consumers in a market
context. Therefore, it likely overstates the impacts producer impacts and understates the
impacts on consumers. When a company owns more than one affected facility, EPA
combined the costs for each facility owned by that company to generate the numerator of the
cost-to-sales ratio. Annual compliance costs include total annualized capital costs and
operating and maintenance costs imposed on these companies.
5.2.1 Results
Small businesses are expected to incur only 2 percent of the total industry compliance
costs of $58.7 million (see Table 5-1).1 The average total annual compliance cost is
projected to be about $90,000 per small company. The mean (median) cost-to-sales ratio for
the 13 small businesses is 1.17 (<0.001) percent, with a range of 0 to 10.79 percent. EPA
estimates that 10 of the 13 small businesses experience an impact less than 1 percent of total
company sales, two small firms have CSRs between one and 3 percent, and one firm has a
CSR greater than 3 percent of sales.
Large businesses are expected to incur 98 percent of the total industry compliance
costs. The average total annual compliance cost is projected to be $3.4 million per large
company. The mean (median) cost-to-sales ratio for the 17 large businesses is 0.29 (0.15)
percent, with a range of 0 to 1.35 percent. EPA estimates that 16 of the 17 large businesses
experience an impact less than 1 percent of total company sales and one large firm has a CSR
between 1 and 3 percent.
disproportionately small impact is primarily due to the fact that relatively few small businesses in the
metal can manufacturing industry are major sources.
5-2
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Table 5-1. Summary Statistics for SBREFA Screening Analysis: 1997
Total Number of Companies
Total Annual Compliance Costs (TACC) ($106)
Average (TACC) per Company ($106)
Small
13
$1.2
$0.09
Large
17
$57.5
$3.38
Total
30
$58.7
$1.96
Number Share Number Share Number Share
Companies with Sales Data
Compliance costs are < 1% of sales
Compliance costs are >1% and < 3% of sales
Compliance costs are > 3% of sales
Compliance Cost-to-Sales Ratios
Average
Median
Minimum
Maximum
13 100%
10 77%
2 15%
1 8%
1.17%
0.00%
0.00%
10.79%
17 100%
16 94%
1 6%
0 0%
0.29%
0.15%
0.00%
1.35%
30 100%
26 87%
3 10%
1 3%
0.67%
0.06%
0.00%
10.79%
5.3 Market Analysis
The Agency also analyzed the economic impacts on small businesses who own
facilities included in the market model under with-regulation conditions expected to result
from implementing the NESHAP. Unlike the screening analysis, this approach examines
small business impacts in light of the behavioral responses of producers and consumers to
the regulation. As shown in Table 5-2, the economic model projects pre-tax earnings to
marginally increase by approximately $2.06 million, or 0.48 percent, for the eight small
businesses2 included in the market model. As noted earlier, small firms only bear 2 percent
of the total annual control costs and the per-unit costs of control are smaller relative to other
affected firms, leading to an estimated increase in the level of pre-tax earnings. This increase
is the net result of three effects:
The eight small businesses included in the market model own a total of nine plants. The remaining five small
businesses own six plants.
5-3
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Table 5-2. Small Business Impacts of the Metal Can MACT After Market
Adjustments: 1997a
Baseline Absolute Change
Revenues ($106/yr)
Costs ($106/yr)
Compliance
Production
Pre-tax Earnings ($106/yr)
Plants
Employment
$560.87
$132.06
$0
$132.06
$428.80
9
1,205
-$0.20
-$2.26
$0.06
-$2.32
$2.06
0
-21
Relative Change
-0.04%
-1.71%
NA
-1.76%
0.48%
0.00%
-1.75%
This table only presents results for those small firms included in the market model. There are an additional
six plants owned by five small firms that manufacture speciality products and were therefore not included in
the market model.
• Decrease in revenue ($0.20 million, or -0.04 percent)—revenue declines as
output declines. This is offset to some degree by increases in the market price of
metal cans (i.e., each metal can is sold at a higher market price).
• Decrease in production costs ($2.32 million, or 1.8 percent)—production costs
decline as output falls.
• Increased pollution control costs ($0.06 million)—these costs increase with the
rule, although the estimated costs after allowing for behavioral adjustments are
smaller than those estimated by the engineering cost analysis because these costs
are assumed to vary with output. Given that output declines, pollution control
costs also decline relative to the costs estimated by the engineering analysis.
5.4 Assessment
After considering the economic impacts of the proposed rule on small entities. EPA
certifies that there will not be significant impacts on a substantial number of small entities.
We provide the following factual basis for certification:
• The parent company screening analysis shows only one of the 13 small firms is
impacted greater than 3 percent of total parent company revenues and is expected
to become unprofitable and close prematurely.
• The primary market analysis identifies no additional facilities that are expected to
close due to the regulation (the sensitivity analysis shows that a second plant may
close under certain elasticity assumptions).
5-4
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• After taking into account behavioral responses of producers and consumers to the
regulation, some plants owned by small businesses experience an increase in pre-
tax earnings. This is because small firms have lower average per-unit control
costs than large firms under this regulation.
• EPA does not anticipate that small firms will be disproportionately affected
relative to large firms. Small firms are only expected to incur approximately 2
percent of the total annual costs. In addition, the average total annual compliance
costs are $90,000 per small firm compared to $3.4 million for large firms.
Finally, a comparison of the cost-to-sales estimates shows small firms have a
lower median CSR relative to large firms (<0.01 percent compared to 0.15
percent for the large firms, and 0.06 percent across all affected firms).
Although this proposed rule will not have a significant economic impact on a substantial
number of small entities, EPA continues to be interested in the potential impacts of the
proposed rule on small entities and welcome comments on issues related to such impacts.
5-5
-------
REFERENCES
Bourguignon, Edward W. 1999. "Growth Accelerating for Coil Coating." Paint &
Coatings Industry 15(3):44-45.
Brody, Aaron L., and Kenneth S. Marsh, eds. 1997. The Wiley Encyclopedia of Packaging
Technology, Second Edition. New York: John Wiley & Sons, Inc.
Brody, Aaron L., and John B. Lord (eds.). 2000. Developing New Food Products for a
Changing Marketplace. Lancaster: Technomic Publishing Co., Inc.
Brody, Aaron. November 27, 2001. Personal communication with Julia Wing, RTI.
Can Manufacturers Institute (CMI). "1997 Retail Sales Prove It's Better in Cans." Canline
1(2). . As obtained on August
31, 1999a.
Can Manufacturers Institute (CMI). "Consumers Vote Yes for Aluminum Cans." Canline
1(2). . As obtained on August
31, 1999b.
Can Manufacturers Institute (CMI). "Domestic Can Shipment 1997."
. Obtained August 31, 1999c.
Can Manufacturers Institute (CMI). "History of the Can." . As obtained on December 6, 200la.
Can Manufacturers Institute (CMI). "How Cans are Made." .
As obtained on December 17, 200Ib.
Chambers. R.G. 1988. Applied Production Analysis: A Dual Approach. Cambridge, UK:
Cambridge University Press.
Dun & Bradstreet. Dun's Market Identifier Electronic Database. 1999.
R-l
-------
Gale Research, Inc. 1999. Ward's Business Directory of U.S. Private and Public
Companies. Detroit, MI: Gale Research, Inc.
Hicks, J.R. 1966. The Theory of Wages. 2nd Ed. New York: St. Martin's Press.
Hillstrom, Kevin. 1994. Encyclopedia of American Industries. Volume 1: Manufacturing
Industries. Detroit, MI: Gale Research, Inc.
Hoover's Incorporated. 1999. Hoover's Company Profiles. Austin, TX: Hoover's
Incorporated, .
Icenhour, M., MRI. Memorandum to P. Almodovar, EPA and L. Pope, EPA. April 9, 2002.
Tabular costs for metal can (surface coating) NESHAP.
Icenhour, M., RTI. Memorandum to P. Almodovar, EPA/ESD/CCPG and V. Brown,
ESD/ISEG. June 13, 2003. Tabular costs for metal can (surface coating) NESHAP
after proposal, metal can surface coating MACT rule development.
Nicholson, W. 1998. Microeconomic Theory: Basic Principles and Extensions. 7th Ed. Fort
Worth: The Dryden Press.
O'Neill, Martin. 1998. "Polyethylene Terephthalate: In Packaging: Low Price and High
Growth Rates." Modern Plastics Jan:64.
Palmer, K., H. Sigman, and M. Walls. 1996. "The Cost of Reducing Municipal Solid
Waste." Resources for the Future Discussion Paper 96-35.
Purchasing Online. September 15, 1998. "Transaction Prices."
Purchasing Online. September 16, 1999. "Transaction Prices."
Purchasing Online. September 20, 2001. "Transaction Prices."
Reeves, Dave. "Metal Can (Surface Coating) MACT Floor Analysis." EPA Presentation by
Dave Reeves of Midwest Research Institute, June 10, 1999.
Sfiligoj, Eric. 1995. "At What Price?" Beverage World June:46-50.
Thurman, W.N., T.J. Fox, and T.H. Bingham. 2001. "Imposing Smoothness Priors in
Applied Welfare Economics: An Application of the Information Contract Curve to
Environmental Regulatory Analysis." The Review of Economics and Statistics
83(3):511-522.
R-2
-------
U.S. Bureau of Census. 1998. Quarterly Financial Report for Manufacturing, Mining and
Trade Corporations. U.S. Bureau of the Census.
U.S. Bureau of the Census. 1999. 7997 Census of Manufacturing Industries: Metal Can
Manufacturing. Core Business Statistics Series. EC97X-CS3. Washington, DC:
Government Printing Office.
U.S. Bureau of Labor Statistics. National Employment, Hours, and Earnings—Metal Cans:
Series ID eeu31341106. . As obtained on August 27, 1999.
U.S. Bureau of Labor Statistics. Producer Price Index—Commodities: Aluminum
Cans—Series ID wpul03103. . As obtained on December 6,
2001a.
U.S. Bureau of Labor Statistics. Producer Price Index—Commodities: Steel Cans—Series
IDwpul03102. . As obtained on December 6, 200Ib.
U.S. Bureau of Labor Statistics. Producer Price Index Revision—Current Series: Plastic
Bottles—Series ID pcu3085#. . As obtained on December 6,
2001c.
U.S. Department of Commerce, Bureau of the Census. 1997. 7995 Annual Survey of
Manufactures Statistics for Industry Groups and Industries.
.
U.S. Department of Commerce, Bureau of the Census. 1998. 1996 Annual Survey of
Manufactures Statistics for Industry Groups and Industries.
.
U.S. Department of Commerce, Bureau of the Census. 1999a. 7997 Census of
Manufacturing Industry Series: Metal Can Manufacturing, .
U.S. Department of Commerce, Bureau of the Census. 2001. Concentration Ratios in
Manufacturing, .
U.S. Department of Energy. 1999a. Electric Power Annual, Volume I. Table A2: Industry
Capability by Fuel Source and Industry Sector, 1999 and 1998 (Megawatts).
R-3
-------
U.S. Department of Energy. 1999b. Natural Gas Annual. Table l:Summary Statistics for
Natural Gas in the United States, 1995 - 1999.
U.S. Environmental Protection Agency. 1993. Economic Impact and Regulatory Flexibility
Analysis of Proposed Effluent Guidelines and NESHAP for the Pulp, Paper, and
Paperboard Industry. EPA-821-93-021. Washington, DC: Government Printing
Office.
U.S. Environmental Protection Agency. 1998. "Preliminary Industry Characterization:
Metal Can Manufacturing—Surface Coating." .
U.S. Environmental Protection Agency. 1999. Economic Analysis Resource Document.
RTF, NC: EPA.
U.S. International Trade Commission. ITC Trade Data Web. Version 2.4 [computer file].
. As obtained on December 7, 2001.
R-4
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APPENDIX A
MODEL DATA SET AND SPECIFICATION
The primary purpose of the EIA for the proposed metal can manufacturing MACT is
to describe and quantify the economic impacts associated with the rule. The Agency used a
basic framework that is consistent with economic analyses performed for other rules to
develop estimates of these impacts. This approach employs standard microeconomic
concepts to model behavioral responses expected to occur with regulation. This appendix
describes the spreadsheet model in detail and discusses how the Agency
• collected the baseline data set for the model,
• characterized market supply and demand for three submarkets of the metal can
industry—beverage cans, food cans, and general packaging containers.
• introduced a policy "shock" into the model by using control cost-induced shifts in
the facility-level supply functions, and
• used a solution algorithm to determine a new with-regulation equilibrium for each
market.
A.I Baseline Data Set
EPA collected the following data to characterize the baseline year, 1997 (see Tables
A-l and A-2):
• Baseline Quantity—EPA collected facility-level production and mapped facilities
to appropriate markets using ICR survey responses. We estimated facility-level
production for plants without ICR data using the following approach:
/ Collected secondary data on market-level output for each of the three
categories of metal cans modeled from a publicly available source
provided by the CMI (see Table 2-7).
A-l
-------
Table A-l. Baseline Data Set, 1997
Domestic
Average Price Production
Market ($/can) (106 cans)
Beverage $0.06 100,680
Food $0.12 24,332
Package $0.44 4,375
Sources: Sfiligoj, Eric. June 1995. "At What Price?" Beverage WorWJune:46-50.
U.S. Bureau of Labor Statistics. Producer Price Index—Commodities: Aluminum Cans—Series ID
wpu!03103. . As obtained on December 6, 200la.
Can Manufacturers Institute (CMI). "Historical CMI Can Shipments." .
As obtained on December 6, 200la.
Table A-2. Primary Supply and Demand Elasticities for Metal Can Market Models
Market Supply Demand
Beverage 1 -1.4
Food 1 -0.63
Package 1 -0.63
Sources: Palmer, K., H. Sigman, and M. Walls. 1996. "The Cost of Reducing Municipal Solid Waste."
Resources for the Future Discussion Paper 96-35.
Computed the difference between total market output for each of the
three categories modeled and total reported output calculated from
summing ICR responses for each market (i.e., total production-total
reported ICR production = total unknown production)
A-2
-------
Distributed unknown production across facilities that did not provide production
data1 using ICR plant-level employment responses. Using this approach, the facility-level
model is consistent with secondary market data.
• Baseline Prices—EPA computed 1997 baseline prices for the beverage can
market using data from Sfiligoj (1995) and price indexes from BLS (2001a). For
the food can and general packaging container markets, the Agency employed the
following approach:
/ First, we estimated total revenue for the beverage can market using
price2 and total output.
/ Next, we collected value of shipment data from the U.S. Census
Bureau for Metal Can Manufacturing (NAICS 332431) to obtain an
estimate of total industry revenue. We then subtracted revenue from
the beverage market (as calculated above) from total revenue to
approximate the total revenue in the food can and general packaging
container markets.
/ Using census data, CMI, and ICR data, we estimated the average
revenue per employee for the food can and general packaging
container markets. We multiplied this value by total plant-level
employment for each market to derive an estimate of total revenue for
each market.
«/" Finally, we divided these two revenue estimates by their respective
market quantities to compute a market price. Using this approach, the
facility-level revenue totals are consistent with the value of shipments
for the industry reported by the Census Bureau (i.e., does not
significantly understate or overstate total industry revenues).
• Domestic supply and demand elasticities—The primary demand elasticities used
for this analysis are drawn from Palmer, Sigman, and Walls (1996). They report
demand elasticities of-1.4 for aluminum beverage cans and -0.63 for steel cans.
'These are primarily area sources. In general less information was collected from area sources than major
sources because major sources are the focus of the rule. However, it is important to capture production from
all sources to accurately develop the baseline and estimate post-regulation market conditions.
2EPA used the price of aluminum cans ($0.061/can) for the beverage market because the overwhelming majority
of beverage cans are made from aluminum.
A-3
-------
Because no empirical estimates of the supply elasticity were identified, the
primary supply elasticity was assumed to be equal to 1. Because of the inherent
uncertainty associated with choosing point estimates of elasticities, a sensitivity
analysis was conducted where the supply elasticity was varied from 0.5 to 2 and
the demand elasticity was varied from -0.5 to -2.
A.2 Supply of Metal Cans
The market supply of metal cans in each of the three defined submarkets (Qs) may be
expressed as the sum of affected and unaffected producers, that is,
where qa is the affected supply of a particular can type and qu is the unaffected supply.
A.2. 1 Metal Can Facilities
Producers of metal cans have some ability to vary output in the face of production
cost changes. Production cost curves, coupled with data on market prices, can be used to
determine the facility's optimal production rate, including zero output (shut-down). EPA
used the a Generalized Leontief profit function to characterize metal can facility supply
curves.
A.2. 1.1 Using the Generalized Leontief Profit Function to Derive Output Supply
The specification of a facility's profit function given by the generalized Leontief is
as follows:3
(A.2)
Eq. (A.2) is an empirical model to estimate facilities' profit, where Pn is the net market price
for product n manufactured by facility], Ijn is one variable proportion input (characterized by
a cost index described below), P0, px, and p2 are model parameters, j indexes producers (i.e.,
affected facilities), and n represents the three commodities included in the market model. By
applying Hotelling's lemma to the generalized Leontief profit function, the following general
form of the product n supply function for facility] is obtained:
3For additional details, see Chambers (1988) for a discussion of this functional form (pages 172-173).
A-4
-------
571.
P,
(A.3)
where qjn is the quantity of product n produced by facility], Pn is the net market price for
each product, Ijn is the variable proportion input, yjn = p0 and pn = px are model parameters, j
indexes producers (i.e., affected facilities), and n represents the three markets. The
theoretical restrictions on the model parameters that ensure up ward-sloping supply curves are
Yjn > 0 and pn < 0.
Figure A-l illustrates the theoretical supply function for product n represented by Eq.
(A.3). As shown, the up ward-sloping supply curve is specified over a productive range with
Pn
a lower bound of zero that corresponds with a shutdown price equal to — -Inand an upper
bound given by the productive capacity of qjM that is approximated by the supply parameter
Yjn. The curvature of the supply function is determined by the pn parameter.
Supply function parameters: The p parameter is related to the facility j's supply
elasticity for product n, which can be expressed as
A-5
-------
dq^ ^ Pn
W ~q
« -*-Jn
(A.4)
Taking the derivative of the facility supply function (Eq. [A.3]) with respect to price shows
(A.5)
P.
2
X'
p;
Multiplying this expression by Pn/qn results in the expression for the supply elasticity:
(A.6)
By rearranging terms, pn can be expressed as follows:
P. = - 2 q,
(A.7)
Values for the p parameter can be computed in two ways: econometric estimation using
facility survey data4 or substitution of an econometrically estimated or assumed market
supply elasticity for product n (£jn), the average annual production level of facilities (qjn), the
variable production cost index (ip, and the market price of the product n (Pn). Note that
unlike the product-specific p, the facility supply elasticity is not constant but varies with q, p,
4For a discussion, see EPA (1993) and Thurman, Fox, and Bingham (2001).
A-6
-------
and I. For this analysis, we used the calibration approach because facility-level data
available from the Information Collection Request (ICR) did not support econometric
estimation. Using this approach, the remaining supply function parameter, Yjn> approximates
the productive capacity and varies across products at each facility. This parameter does not
influence the facility's production responsiveness to price changes as does the p parameter.
Thus, the parameter yjn is used to calibrate the model so that each facility's supply equation
replicates the baseline production data.
Variable production cost index: The cost-share weighted variable production cost
index, Ij, was constructed with the following data from the U.S. Bureau of Census:
• state-level wages paid by the metal can industry (NAICS 332431) divided by
value of shipments (w) and
• state-level materials purchased by the metal can industry (NAICS 332431)
divided by the value of shipments (m).
Note, the Ij variable varies across facilities due to the two state-level variables (w, m).
Before computing the cost-share weighted index, the wage and materials variables
were converted into indexes normalized to the average value of each variable. This
conversion allows each variable to be measured in terms of a relative index. The state
specific index was computed as follows:
T =a. materials + (1_o). wages
value of shipments value of shipments
where a is the national cost share of materials for the metal can industry (NAICS 332431)
and 1-a is the national cost share of wages. Table A-3 summarizes the normalized cost
index values computed for states with available data.
Regulatory Response: The production decisions at these facilities are affected by the
total annual compliance costs, Cj as provided by EPA's engineering analysis of capital costs,
annual operating and maintenance costs, record keeping and reporting costs, and applicable
monitoring costs required to comply with the metal can MACT. The supply equation of
A-7
-------
Table A-3. Variable Cost Indexes, 1997
State
AL
CA
CO
FL
GA
IL
IN
MO
NJ
NY
NC
OH
OK
PA
TN
TX
WA
WI
Labor Indexa
1.01
1.02
0.89
1.00
0.94
1.35
0.63
1.08
1.42
0.94
0.97
1.15
0.93
0.93
0.82
0.88
1.10
0.94
Materials Indexb
0.71
1.03
0.99
1.14
0.97
0.96
0.95
1.03
0.82
1.06
1.10
0.97
1.20
1.03
1.07
0.98
0.95
1.04
Variable Cost Indexc
0.74
1.03
0.98
1.12
0.97
1.00
0.92
1.03
0.88
1.05
1.08
0.99
1.18
1.02
1.05
0.97
0.97
1.03
a Computed as follows: (State wages/State value of shipments)/(U.S. wages/U.S. value of shipments).
b Computed as follows: (State cost of materials/State value of shipments)/(U.S. cost of materials/U.S. value of shipments).
0 Computed as follows: 0.90*Materials Index + 0.10*Labor Index; shares were computed as follows: materials share =
0.90 = U.S. cost of materials/sum(U.S. cost of materials+ U.S. wages) and labor share = 1-0..90.
Source: U.S. Bureau of the Census. 1999. 1997 Census of Manufacturing Industries: Metal Can Manufacturing. Core
Business Statistics Series. EC97X-CS3. Washington, DC: Government Printing Office.
each facility will be directly affected by the regulatory control costs, which enter as a net
price change (i.e., pj - Cj). Thus, the supply function presented in Eq. (A.3) becomes:
A-8
-------
The total annual compliance costs per can, cj? are estimated given the annual production per
facility and the regulatory cost estimates for each facility provided by the engineering
analysis. Under this approach, we assume all regulatory costs vary to some degree with
output.
Closure Decisions: One of the most sensitive issues to consider in the EIA is the
possibility that the regulation may induce a producer to shut down operations rather than
comply with the regulation. The data (i.e., direct observations of plant-level costs and
profits) necessary to make definitive projections of these impacts are unavailable from the
survey data. Therefore, the Agency developed a method of identifying firm closure
decisions using industry measures of profitability. The plant closure criterion used for this
analysis is:
TR - TVPC - TFPC - TACC < 0 then q. = 0. (A. 10)
where
• TR= Total Revenue
• TVPC = Total Variable Production Costs (area under the supply function)
• TFPC = [(1-profit rate)*TR] - TVPC. This accounts for production costs that do
not vary with output (i.e., "fixed") and can be avoided by ceasing production.
• TACC = Total Annual Compliance Costs.
Note that all of these variables are with-regulation values (i.e., they account for market
adjustments).
The U.S. Bureau of Census reports industry group financial ratios in their Quarterly
Financial Report for Manufacturing, Mining and Trade Corporations (U.S. Bureau of the
Census, 1998). For 1997, the Census Bureau reports that income before income taxes (pre-
A-9
-------
tax earnings) for SIC group 34 (Fabricated Metal Products) was approximately 7.6 percent.5
For smaller firms (i.e., firms with assets under $25 million) this ratio is 6.9 percent. Given
the estimated 1997 values of revenue and variable production costs, EPA developed an
estimate of the total fixed production costs so that the pre-tax profit rate for each facility
exactly matches the rate reported by the Census.
A.3 Demand for Metal Cans
Domestic demand for metal cans may be expressed by the following general formula
for each product:
qd=Bdpnd (A. 11)
where p is the market price for the product, r|d is the domestic demand elasticity, and Bd is a
multiplicative demand parameter that calibrates the demand equation for each product, given
data on price and the domestic demand elasticity to replicate the observed 1997 level of
domestic consumption.
A.4 With Regulation Market Equilibrium Solution
Producer responses and market adjustments can be conceptualized as an interactive
feedback process. Plants facing increased production costs due to compliance are willing to
supply smaller quantities at the baseline price. This reduction in market supply leads to an
increase in the market price that all producers and consumers face, which leads to further
responses by producers and consumers and thus new market prices, and so on. The new
with-regulation equilibrium is the result of a series of iterations in which price is adjusted
and producers and consumers respond, until a set of stable market prices arises where total
market supply equals market demand (i.e., Qs = QD). Market price adjustment takes place
based on a price revision rule that adjusts price upward (downward) by a given percentage in
response to excess demand (excess supply).
The algorithm for determining with-regulation equilibria can be summarized by nine
recursive steps:
1. Impose compliance costs.
5In the short run, a plant would be presumed to continue to operate as long as variable profits are positive. The
Agency considered QFRs income before income taxes measure as a reasonable approximation of plant-level
variable profit rate.
A-10
-------
2. Use supply functions to derive marginal responses given the base price.
3. Check if TR>TC (i.e., Eq. [A.7]); if not set qj=0.
4. Compare aggregate supply and demand.
5. Revise prices using the Walrasian auctioneer approach.
6. Use supply functions to derive marginal responses given the revised price.
7. Check if TR>TC (i.e., Eq. [A.7]); if not set qj=0.
8. Compare aggregate supply and demand.
9. Go to Step #5 and continue until convergence is obtained (i.e., the difference
between supply and demand is arbitrarily small).
A-ll
-------
APPENDIX B
SENSITIVITY ANALYSIS
As noted in Section 4, EPA's analysis is based on the best point estimates available
of the responsiveness of supply and demand for metal cans to changes in their prices. This
appendix examines the impact on the estimated results of varying these model parameters.
The key results are discussed below:
• The social cost estimate remains essentially unchanged under all scenarios—As
shown in Table B-l and B-2, the social costs vary by 0.1 percent or less in each
scenario.
• The distribution of costs across producers and consumers depends on the relative
supply and demand elasticities—As consumers become more (less) responsive to
marginal changes in price relative to producers, they will bear less (more) of the
regulatory burden. Similarly, as producers become more (less) responsive to
marginal changes in price relative to consumers, they will bear less (more) of the
regulatory burden. We can see why these changes occur by examining a very
simple mathematical model of tax incidence:1
dp0 es
~T~ = 1 (B.la)
S
(B.lb)
'Derivation of this result can be found in intermediate microeconomic textbooks such as Nicholson (1998).
B-l
-------
dp!
dc rf
-^T t (B-1C)
dc
where
dp0 = price paid by consumers
dps =price received by suppliers
dc = per-unit control costs
es = market elasticity of supply
r|d = market elasticity of demand
For example, holding market elasticity of supply constant at one and varying the
demand elasticity from -0.5 to -2.0 shows consumer losses fall as they become more
responsive to price changes declining from (-$45.1 million to -$22.5 million) (see
Table B-l).
• Closure projections slightly increase—one closure may occur in each market if
we reduce the supply elasticity to 0.5 under all demand elasticity scenarios.
B-2
-------
Table B-l. Sensitivity Analysis Result Matrix
Supply Elasticity
0.5 Change in consumer surplus
Change in producer surplus
Social cost
Plant closures
1.0 Change in consumer surplus
Change in producer surplus
Social cost
Plant closures
1.5 Change in consumer surplus
Change in producer surplus
Social cost
Plant closures
2.0 Change in consumer surplus
Change in producer surplus
Social cost
Plant closures
Demand Elasticity
-0.5
-$36.0
-$20.0
-$56.0
-1
-$45.1
-$10.6
-$55.8
0
-$49.7
-$5.9
-$55.6
0
-$52.4
-$3.0
-$55.5
0
-1.0
-$24.0
-$32.0
-$56.0
-1
-$33.8
-$21.9
-$55.7
0
-$39.7
-$15.8
-$55.5
0
-$43.6
-$11.8
-$55.4
0
-1.5
-$18.0
-$38.0
-$56.0
-1
-$27.0
-$28.6
-$55.7
0
-$33.1
-$22.4
-$55.5
0
-$37.4
-$18.0
-$55.4
0
-2.0
-$14.4
-$41.6
-$56.0
-1
-$22.5
-$33.1
-$55.7
0
-$28.4
-$27.1
-$55.5
0
-$32.7
-$22.6
-$55.3
0
B-3
-------
TECHNICAL REPORT DATA
(Please read Instructions on reverse before completing)
i. REPORT NO.
EPA-452/R-03-010
3. RECIPIENT'S ACCESSION NO.
4. TITLE AND SUBTITLE
Economic Impact Analysis of Metal Can MACT Standards: Final Report
5. REPORT DATE
July 2003
6. PERFORMING ORGANIZATION CODE
7. AUTHOR(S)
Robert Beach and Brooks Depro, RTI International
8. PERFORMING ORGANIZATION REPORT NO.
9. PERFORMING ORGANIZATION NAME AND ADDRESS
U.S. Environmental Protection Agency
Office of Air Quality Planning and Standards
Research Triangle Park, NC 27711
10. PROGRAM ELEMENT NO.
11. CONTRACT/GRANT NO.
None
12. SPONSORING AGENCY NAME AND ADDRESS
Director
Office of Air Quality Planning and Standards
Office of Air and Radiation
U.S. Environmental Protection Agency
Research Triangle Park, NC 27711
13. TYPE OF REPORT AND PERIOD COVERED
Final regulation
14. SPONSORING AGENCY CODE
EPA/200/04
15. SUPPLEMENTARY NOTES
16. ABSTRACT
Pursuant to Section 112 of the Clean Air Act, the U.S. Environmental Protection Agency (EPA) is developing National Emissions
Standards for Hazardous Air Pollutants (NESHAP) to control emissions released from Metal Can Manufacturing. This report analyzes
the economic impacts of the rule.
The estimated total annual cost for these facilities to comply with the proposed MACT standard is approximately $58.7 million. Due to
the total annual cost of compliance, an economic impact model estimates that production of metal cans will decline by 410 million cans,
or 0.3 percent. The estimated price change due to the regulation ranges from 0.2 percent in the beverage can market to 0.5 percent in the
general packaging market. The Agency estimates pre-tax earnings for the companies owning the facilities in this source category will
decline by about 2 percent. In addition, EPA concludes that the rule may potentially result in one to two premature plant closures.
According to the Small Business Administration size standards, thirteen companies owing facilities in this source category are considered
small. Based on the results from the screening and market analysis, EPA certifies that there will not be significant impacts on a
substantial number of small entities.
17.
KEY WORDS AND DOCUMENT ANALYSIS
DESCRIPTORS
b. IDENTIFIERS/OPEN ENDED TERMS
c. COSATI Field/Group
air pollution control, environmental regulatioi
economic impact analysis, maximum achieval
control technology, metal cans
18. DISTRIBUTION STATEMENT
Release Unlimited
19. SECURITY CLASS (Report)
Unclassified
21. NO. OF PAGES
84
20. SECURITY CLASS (Pag
Unclassified
22. PRICE
EPA Form 2220-1 (Rev. 4-77) PREVIOUS EDITION IS OBSOLETE
-------
United States Office of Air Quality Planning and Standards Publication No. EPA-452/R-03-10
Environmental Protection Air Quality Strategies and Standards Division July 2003
Agency Research Triangle Park, NC
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