EPA-450/3-86-007
     Projected Impacts of Alternative
Sulfur Dioxide New Source Performance
Standards for Industrial Fossil-Fuel-Fired
                     Boilers
             Emission Standards and Engineering Division
             U. S. ENVIRONMENTAL PROTECTION AGENCY
                  Office of Air and Radiation
              Office of Air Quality Planning and Standards
             Research Triangle Park, North Carolina 27711

                     March 1985

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This report has been reviewed by the Emission Standards and Engineering Division of the Office of Air Quality Planning
and Standards, EPA, and approved for publication. Mention of trade names or commercial products is not intended to
constitute endorsement or recommendation of use. Copies of this report are available through the Library Services
Office(MD-35), U.S. Environmental Protection Agency, Research Triangle Park, N.C. 27711, or from National Technical
Information Services, 5285 Port Royal Road, Springfield, Virginia 22161.

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                             TABLE OF CONTENTS
                                                                        Page
1.  INTRODUCTION  	  1-1

2.  METHODOLOGY	  2-1
    2.1  Analytical Approach «	  2-1
    2.2  Key Modeling Assumptions  	•	  2-2
    2.3  Evaluation Criteria •	«	  2-11
    References 	•	  2-13

3.  PROJECTED IMPACTS OF ALTERNATIVE SOa EMISSIONS STANDARDS  	  3-1
    3.1  Regulatory Baseline and Alternative  SOg
         Emissions Standards •	•	  3-1
    3.2  Projected National Impacts of the Alternative
         SOg Emissions Standards 	•	  3-4
    3.3  Projected Regional SOa Emissions Forecasts ••••	  3-12

4.  ECONOMIC IMPACTS	•	  4-1
    4.1  Introduction 	  4-1
    4.2  Industry Economic Profiles 	  4-2
    4.3  Economic Impact Analysis  	  4-9

APPENDIX A:  OVERVIEW OF IFCAM •	  A-l

APPENDIX B:  PROJECTED FUEL PRICES:  REFERENCE PRICE SCENARIO 	  B-l

APPENDIX C:  PROJECTED FUEL PRICES:  HIGHER OIL AND GAS
             PRICES SCENARIO •••	  C-l

APPENDIX D:  CHARACTERISTICS OF INDUSTRIAL COAL TYPES IN IFCAM 	  D-l

APPENDIX E:  DELIVERED INDUSTRIAL COAL PRICE FORECAST 	  E-l

APPENDIX F:  IFCAM PROJECTIONS FOR 1990 BY BOILER SIZE CLASS 	  F-l

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                               LIST OF TABLES
2-1   Industrial Boiler Pollution Control Equipment
      Options in IFCAM 	  2-3
2-2   Projected Industrial Fossil Fuel Demand  		  2-5
2-3   World Oil Price Forecasts 	•	  2-9

3-1   Regulatory Baseline NSPS Assumptions 	  3-2
3-2   Alternative SOg NSPS Emissions Standards for New
      Industrial Fossil Fuel-Fired Boilers 	  3-3
3-3   Projected Fuel Demand in 1990 From Large New
      Industrial Fossil Fuel-Fired Boilers 	  3-6
3-4   Comparison of Total Projected S02 Emissions in 1990
      From New Large Industrial Fossil Fuel-Fired Boilers  	  3-8
3-5   Comparison of Projected Costs ••••««	  3-11
3-6   Projected Solid and Liquid Waste Disposal Requirements  	  3-13
3-7   Projected Regional S02 Emissions in 1990 	  3-14
3-8   Projected Regional S0£ Emissions in 1990 	  3-15
3-9   Projected Regional S02 Emissions in 1990 	  3-16
3-10  Projected Regional S0£ Emissions in 1990 ••••	  3-17
3-11  Projected Regional SOg Emissions in 1990 	  3-18
3-12  Projected Regional S02 Emissions in 1990 	  3-19

4-1   Fossil Fuel Consumption Characteristics of the
      Major Steam Users "	«• •	  4-4
4-2   Major Steam Users Economic Impacts •	  4-12
4-3   Summary of Key Economic Impacts of S02 Control
      Level VI on Selected Industries 	  4-17
4-4   Model Firm and Plan Configuration:  Beet Sugar
      Industry Alternative 	•	  4-18
4-5   Economic Impacts of Alternative Control Level VI
      for Beet Sugar Refining	•••	•	4-20
4-6   Model Firm and Plant Configuration:  Rubber
      Reclaiming Industry	••	4-22
4-7   Economic Impacts of Alternative Control Level VI
      for Rubber Reclaiming	•	  4-24

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                         LIST OF TABLES (continued)
                                                                       Page

4-8   Model Firm and Plant Configurations:  Automobile
      Manufacturing 	 	 4-26

4-9   Economic Impacts of Alternative Control Level VI
      for Automobile Manufacturing	*••	4-28

4-10  Model Firm and Plant Configuration:  Petroleum
      Refining Industry	•	•	 4-29
4-11  Economic Impacts of Alternative Control Level VI
      for Petroleum Refining 	•	 4-31
4-12  Model Firm and Plant Configuration:  Iron and
      Steel Industry	•	 4-33
4-13  Economic Impacts of Alternative Control Level VI
      for Iron and Steel ••••	 4-34
4-14  Model Firm and Plant Configuration:  Liquor
      Distilling Industry	•	 4-36

4-15  Economic Impacts of Alternative Control Level VI
      for Liquor Distilling 	 4-37
4-16  Small Plants in Selected Industries  	•	4-39
4-17  Industrial Boiler NSPS:  Small Business Impact Analysis
      to Study Need for Regulatory Flexibility Analysis  	 4-40


A-l   Industrial Boiler Pollution Control Technologies in  IFCAM  	 A-7

A-2   IFCAM Industrial Boiler Size/Type Assumptions 	•	 A-ll
A-3   FGD Technology Constraints in IFCAM  	 A-12
A-4   PM Emissions Pollution Control Technology
      Constraints in IFCAM 	 A-13


B-l   World Oil Price Forecast:  Reference Price Scenario  	 B-2

B-2   Projections of Industrial 3.0 Percent Sulfur
      Residual Fuel Oil Prices 	•	 B-3
B-3   Projections of Industrial 1.6 Percent Sulfur
      Residual Fuel Oil Prices 	 B-4
B-4   Projections of Industrial 0.8 Percent Sulfur
      Residual Fuel Oil Prices 	•	-.8-5
B-5   Projections of Industrial 0.3 Percent Sulfur
      Residual Fuel Oil Prices 	•	 B-6

B-6   Projections of Industrial Natural Gas Prices 	'•••	 B-7  .

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                         LIST OF  TABLES (continued)
                                                                       Page

C-l   World Oil Price Forecast:  Higher Oil and Gas
      Prices Scenario 	 C-2
C-2   Projections of Industrial 3.0 Percent Sulfur
      Residual Fuel Oil Prices 	•	 C-3

C-3   Projections of Industrial 1.6 Percent Sulfur
      Residual Fuel Oil Prices 	 C-4
C-4   Projections of Industrial 0.8 Percent Sulfur
      Residual Fuel Oil Prices ••••	 C-5
C-5   Projections of Industrial 0.3 Percent Sulfur
      Residual Fuel Oil Prices 	 C-6
C-6   Projections of Industrial Natural Gas Prices  	 C-7


D-l   Sulfur Dioxide Emission Rates by Coal Type  	 D-2

D-2   Average Ash Content by Region (Bituminous Coal Types)  	 D-3

D-3   Average Ash Content by Region (Subbituminous  Coal Types)  	 D-4
D-4   Average Heat Content by Region (Bituminous  Coal Types)  	 D-5
D-5   Average Heat Content by Region (Subbituminous Coal Types)  	 D-6


      Delivered Industrial Coal Price Forecast 	 E-l


F-l   Comparison of IFCAM Projections for 1990 	 F-2
F-2   Regulatory Baseline Projections for 1990 by
      Boiler Size Class 	 F-3
F-3   Alternative Control Level I  Projections for 1990
      by Boiler Size Class	•	 F-4
F-4   Alternative Control Level II Projections for  1990
      by Boiler Size Class	•	 F-5
F-5   Alternative Control Level III Projections for 1990
      by Boiler Size Class	•	 F-6
F-6   Alternative Control Level IV Projections for  1990
      by Boiler Size Class 	 F-7
F-7   Alternative Control Level V  Projections for 1990
      by Boiler Size Class ••	 F-8
F-8   Alternative Control Level VI Projections for  1990
      by Boiler Size Class 	•	 F-9

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                              LIST OF FIGURES
1    Federal Regions of the United States
2    Change in Product Price Due to Regulatory Option
A-l  IFCAM Model Structure
Page
2-6

4-11

A-5

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                              1.   INTRODUCTION
     This report presents projected environmental, cost, and energy impacts
of alternative sulfur dioxide (S02) air emission standards for new industrial
fossil fuel-fired boilers.  These draft standards would supersede the emis-
sion regulations that currently exist in Subpart D of 40 CFR Part 60.  The
effects of the alternative S02 emission standards are assessed in this
report.  The methodology-used to examine environmental, cost, and fossil
fuel results projected under current and alternative emission regulations
also is discussed.
     For individual boilers, air emission regulations can play a signifi-
cant role in determining boiler fuel choice and the levels of air emissions.
Air emission regulations can result in measureable national and regional
environmental, cost, and energy impacts, including changes in the types of
fossil fuels combusted and changes in the level of air pollutant emissions
generated by new industrial fossil fuel-fired boilers.
     The analysis of alternative regulations is designed to highlight poten-
tial environmental, cost,  and energy impacts.  These impacts are measured
in terms of the projected change under current versus alternative air emis-
sion regulations.  The analysis of environmental impacts focuses on changes
in levels of air emissions.  Cost impacts are evaluated in terms of incre-
mental changes in the total annualized costs for boiler and pollution
control equipment capital, operating, and fuel costs.  Energy impacts are
evaluated in terms of shifts in the demand between fuel types (e.g., coal
or residual fuel oil versus natural gas).
     Current SOg emission regulations serve as the base case, from which
all impacts are measured.   Briefly, S02 emission control regulations in the
base case for new industrial boilers are the current New Source Performance
Standards (NSPS) for boilers with heat input capacity greater than 73 MW
(250 MMBtu/hr).  Current S02 emission regulations for all smaller boilers
— and for boilers larger than 73 MW (250 MMBtu/hr) heat input if more
stringent than NSPS — are State Implementation Plan regulations (SIP's).
                                     1-1

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     This analysis examines projected impacts in the fifth year following
proposal of standards.  It was assumed that the recommended standards would
be proposed in 1985 and that the impact analysis should, therefore, focus
on projected results for new industrial fossil fuel-fired boilers installed
in the five-year period between 1985 and 1990.  The emissions and energy
demand projections from new industrial fossil fuel-fired boilers presented
in this report represent annual estimates for calendar year 1990.
     This report addresses only fossil fuel (coal, oil and natural gas)
consumption in large new industrial boilers.  It does not analyze commercial-
institutional boilers or nonfossil fuel-fired steam-generating units (i.e.,
wood or municipal solid waste combustion).
     The balance of this.report is presented in four parts.  Section 2
presents the modeling approach employed to analyze the alternative standards
and describes key assumptions and inputs.  The potential 1990 national and
regional impacts for the alternative standards are presented in Section 3.
Section 4 summarizes the national 1990 economic impact results for the most
stringent regulatory alternative examined.
                                     1-2

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                              2.  METHODOLOGY
     The methodology for assessing the environmental, cost, and energy
impacts of the alternative air emission standards is described briefly in
this section.  The first part describes the model used to project the mix
of industrial boiler fossil fuel demand, the level of air emissions, and
the annualized cost of generating steam.  The second part summarizes key
modeling assumptions and-model inputs used in this analysis.  The third
part briefly describes the criteria used to evaluate emission, cost, and
energy impacts of alternative regulations.
2.1  ANALYTICAL APPROACH
     This analysis is based upon results from the Industrial Fuel Choice
Analysis Model (IFCAM), an energy demand model developed by Energy and
Environmental Analysis, Inc. (EEA).  In addition to generating fuel mix
estimates, IFCAM projects levels of air emissions and steam generating
costs.
     IFCAM is a disaggregated process engineering model; models of this
type simulate the effects of specific policies on new and existing techni-
cal alternatives, including innovative boiler designs and new pollution
control equipment.  IFCAM is designed to assess the impact of several
factors on fuel choice decisions in the industrial sector, including fuel
prices, energy and environmental policies, and capital and annual operating
and maintenance (O&M) costs of firing alternative fossil fuels.
     The U.S. Department of Energy (DOE) is the primary source for projec-
tions of overall industrial fossil fuel demand by region.  IFCAM disaggre-
gates DOE industrial fossil fuel demand forecasts into nine industrial sub-
sectors.  Energy use in each of these industrial subsectors then is divided
into boiler and process heat applications.
     Industrial boiler fossil fuel use is subdivided further to reflect the
amount of fuel that will be used in new and existing boilers of different
sizes and capacity utilization rates.  Existing boilers are classified
according to the type of fuel they are designed to fire and whether they
                                     2-1

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can be retrofitted to fire alternative fuels.  Eight size classes and five
capacity utilization rate categories are delineated for both new and exist-
ing boilers.
     Each new boiler is sited in an Air Quality Control Region (AQCR).  New
boilers are located within each AQCR according to historical siting patterns.
Because State environmental regulations for existing and new boilers often
vary by AQCR, IFCAM applies current regulations on an AQCR. basis.  These
regulations are based on State air laws for existing fossil fuel-fired
boilers.
     The boilers represented in IFCAM are fired by one of several types of
fossil fuels:  coal, distillate fuel oil, residual fuel oil, or natural
gas.  IFCAM provides a choice between nine coal types that vary by sulfur,
ash, and Btu content.  Additionally, four residual fuel oil types that vary
by sulfur content are available.  The price of each fuel type can vary by
region.
     The pollution control equipment options available in IFCAM are present-
ed in Table 2-1.  For each fuel type (i.e., coal, oil, and gas), the least
cost pollution control strategy that meets the alternative standard is
calculated.  The least cost strategy includes finding the lowest cost
option in terms of the boiler, pollution control equipment, and annual fuel
costs.
     Based on the characteristics of each combustor (e.g., size, operating
rate, pollution control requirements), capital and operating costs are
generated for each fuel type.  The fuel type associated with the lowest
after-tax present value (including expected fuel expenses and boiler and
pollution control equipment capital and O&M costs) of the total cost of
generating steam over the boiler's investment period is selected.
     The structure of IFCAM is summarized in Appendix A of this report.
2.2  KEY MODELING ASSUMPTIONS
     This section presents the approach used in this analysis to model
variables that could affect significantly the mix of fossil fuels demanded
by industrial boiler owners.*  These variables are:
*0ther assumptions are summarized in Appendix A.
                                     2-2

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              TABLE 2-1.   INDUSTRIAL BOILER POLLUTION CONTROL
                        EQUIPMENT OPTIONS  IN IFCAM
          Pollutant
         Technology
             S02
             PM
             NO,
Flue gas desulfurization
  dual alkali3
  lime spray drying'5
  sodium

Single mechanical collector
Dual mechanical collector
Side stream separator
Electrostatic precipitator
Fabric filter

Combustion modification
  low excess air
  staged combustion air
 Tray type  scrubber.

Combined S02/PM control  system;  includes  a  fabric filter.
                                    2-3

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  *  Regional industrial fossil fuel demand projections
  •  Energy policies
  •  Fuel price forecasts
  •  Environmental policies
2.2.1  Regional Industrial Fossil Fuel Demand Projections
     DOE is the primary source of projections of total industrial fossil
fuel demand.  The rate of projected growth in industrial fossil fuel demand
is a significant parameter because it determines, to a large extent, the
expected demand for new industrial fossil fuel-fired boilers.
     DOE does not project regional estimates of fuel consumption in indus-
trial boilers.  DOE does, project regional estimates of total industrial
fossil fuel demand for heat and power using the Energy Information Adminis-
tration's (EIA's) Intermediate Future Forecasting System (IFFS).  IFFS
includes an econometric industrial energy demand model, the Purchased Heat
and Power System (PURHAPS).1'2
     The EIA regional industrial fossil fuel demand forecasts are summarized
in Table 2-2.  The ten Federal regions are illustrated in Figure 1.  These
projections are assumed to remain the same for regulatory baseline and alter-
native regulations examined in Sections 3 and 4 because the cost impacts
are not expected to be sufficiently high to alter total projected energy
demand.
     The projections shown in Table 2-2 are a function of macroeconomic
variable projections.  For example, real growth in the Gross National Product
between 1985 and 1990 is assumed to average 2.9 percent per year and real
growth in manufacturing output between 1985 and 1990 is assumed to average
3.3 percent per year.  The Federal Reserve Board industrial production index
is expected to increase at a rate of 3.7 percent annually between 1985 and
1990.3
     Not all of the projected net increase in industrial fossil fuel demand
shown in Table 2-2 is attributable to new industrial boilers.  A significant
portion of this net increase is attributable to new process heat equipment.
2.2.2  Energy Policies
     Energy policies contained in the National Energy Act of 1978 and the
Omnibus Reconciliation Act of 1981 are key modeling assumptions in this
analysis.  These bills contain sections relevant to industrial boiler fuel
choice, including:

                                     2-4

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           TABLE 2-2.  PROJECTED INDUSTRIAL FOSSIL FUEL DEMAND*
                               PJ (K>12 Btu)

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
U.S.
Region
New England
New York /New Jersey
Middle Atlantic
South Atlantic
Midwest
Southwest
Central
North Central
West
Northwest
Total
1985
Refinery
0
(0)
48
(43)
62
(59)
46
(44)
107
(101)
509
(482)
26
(25)
34
(32)
127
(120)
33
(31)
992
(937)
1990
Refinery
0
(0)
43
(41)
57
(54)
43
(41)
99
(94)
473
(448)
25
(24)
32
(30)
117
(HI)
30
_J28)
919
(871)
1985
Industry'5
207
(196)
512
(485)
946
(897)
1,615
(1,531)
2,339
(2,217)
2,915
(2,763)
628
(595)
557
(528)
733
(695)
442
(419)
10,894
(10,326)
1990
Industryb
224
(212)
541
(513)
1,017
(964)
1,728
(1,638)
2,499
(2,369)
3,180
(3,014)
668
(633)
627
(594)
817
(774)
510
(483)
11,811
(11,194)
 U.S.  Department of Energy,  Energy Information Administration.  1982
 Annual  Energy Outlook,  Middle World Oil  Price (Case A).  The regional
 distribution is unofficial  and has not been reviewed by EIA.  Sum of non-
 metallurgical coal, natural gas,  distillate and residual fuel oil.
 Excludes petro-chemical feedstocks and natural gas consumed as lease and
 plant fuels.  Includes  total  boiler and  process heat fossil fuel demand.

•"Excludes fuel consumption in  petroleum refineries.  Includes construction,
 mining, agriculture, fishing, forestry,  and other manufacturing sectors.
                                     2-5

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                                        2-6

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  •  The Energy Tax Act of 1978 (ETA)
  t  The Economic Recovery Tax Act of 1981 (ERTA)
     The ETA provides several tax incentives for the use of coal and alter-
native fuels.  Additional investment tax credits (ITC's) are granted for
coal and alternative fuel commercial investments.  Under the ETA, ITC's and
accelerated depreciation alternatives are denied for oil and gas investments.
     The ETA authorizes a 10 percent tax credit (in addition to the standard
10 percent ITC) for coal and alternative fuel investments made between
October 1, 1978 and December 31, 1982, including investments in the follow-
ing:
  •  Boilers and other combustors that use coal or an alternative fuel
  t  Equipment to produce alternative fuels
  •  Pollution control equipment
  •  Equipment for handling and storage of alternative fuels
Because authorization for the additional ITC expires in 1982, this provision
has not been modeled for this analysis of projected new industrial boiler
installations from 1986 to 1990.
     In IFCAM, these provisions are modeled for the calculation of after-
tax boiler and pollution control equipment capital cost cash flows.   Invest-
ments  in new industrial coal-fired boilers receive the standard 10 percent
ITC and qualify for an accelerated depreciation method, whereas no ITC's
and straight line depreciation  are calculated for new industrial oil-and
gas-fired boiler investments.
     The ERTA revises the depreciation schedules for captial  investment and
thus improves the tax incentives for new industrial boilers.  The deprecia-
tion period for new coal-, oil-, and natural  gas-fired  industrial boilers
is reduced to five years.
     The Tax Equity and  Fiscal  Responsibility Act  (TEFRA)  of  1982 revised
the Accelerated Cost Recovery System (ACRS) annual recovery percentages for
five-year period recovery property  acquired after  1985.  TEFRA  also reduced
the basis for depreciation by 50 percent of the  ITC taken  when  the regular
ITC  (10 percent for five-year recovery period property  placed in service
after  1980)  is selected.  These TEFRA Federal tax  code  revisions are  not
reflected  in this  analysis.  They do not  apply  to  new  industrial oil  and
                                     2-7

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gas boiler investments because they are not permitted to be depreciated
using the ACRS accelerated depreciation schedule and they do not qualify
for the ITC.  The TEFRA Federal tax code revisions do apply to new indus-
trial coal boiler investments, but they are not expected to significantly
alter the projected impacts of the alternative NSPS which are presented in
Sections 3 'and 4 of this report.
     In addition, provisions of the Powerplant and Industrial Fuel Use Act
of 1978, which prohibit the use of oil or natural gas in large new indus-
trial boilers, are an available feature in IFCAM but currently are not
utilized in the analysis of the potential impacts of the recommended NSPS.
2.2.3  Fuel Price Forecasts
     Fuel choice decisions in IFCAM are based on selecting the alternative
with the lowest total after-tax net present value of capital, annual O&M
and fuel expenses over a 15-year period.  In this analysis, the fuel
expenses are estimated based on projected regional delivered fuel prices
from 1987 to the year 2001.
     Naturally there is uncertainty related to energy market conditions
over the next fifteen years.  Two regional forecasts of industrial residual
fuel oil and natural gas prices were developed in order to evaluate the
sensitivity of IFCAM results (projected impacts of alternative NSPS) to
this key exogenous assumption, industrial fuel price differences.
     Table 2-3 presents the two world oil price forecasts.  Both forecasts
are based on DOE's (Office of Policy, Planning and Analysis) WOIL forecast-
ing model.  EEA estimated regional industrial residual fuel oil and natural
                                                4
gas prices for both world oil price projections.   These forecasts are
presented in Appendices B and C.  Distillate fuel oil price forecasts were
not prepared because it is expected that natural gas prices will remain
lower than distillate fuel oil prices and, therefore, natural gas (or
residual fuel oil) will be a lower cost new industrial boiler fuel type.
     Only one set of projected industrial coal prices were used in this
analysis.  Therefore, the two fuel price scenarios have different projected
industrial residual fuel oil and natural gas prices but identical projected
industrial coal prices.
                                     2-8

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                  TABLE 2-3.  WORLD OIL PRICE FORECASTS*
                               (1982 $/bbl)
Year
1985
1990
1995
2000
Reference
price
scenario"
25.00
28.00
32.00
37.00
Higher oil and
gas prices
scenario0
25.90
31.90
46.50
57.40
 Average refiner acquisition cost of imported crude oil.

3Energy and Environmental  Analysis,  Inc.

:Case B of the fourth National  Energy Policy Plan (NEPP-IV or NEPP-1983).
 Energy Projections to the Year 2010.  U.S.  Department of Energy, Office
 of Policy, Planning and Analysis.  DOE/PE-0029/2.  October 1983.
                                    2-9

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     The industrial coal types in IFCAM have been defined by ICF Incorporated
in terms of coal type (bituminous or subbituminous) and sulfur, ash, and
Btu content.  There are up to nine distinct coal types per region in IFCAM:
6 sulfur classes for bituminous coals and 3 sulfur classes for subbituminous
coals.  The tables in Appendices D and E summarize the key characteristics
and projected prices for the industrial coal types in IFCAM.
2.2.4  Environmental Policies
     Environmental policies embodied in the 1970 Clean Air Act (CAA) and
the subsequent 1977 amendments define the regulatory context for this analy-
sis.  The Act gave the EPA the authority to establish National Ambient Air
Quality Standards (NAAQS) that would protect the health and welfare of the
population.  There are currently NAAQS for six "criteria pollutants":  sulfur
oxides, PM, NQX, lead, carbon monoxide (CO), and ozone.  Industrial sources
are subject to two classes of environmental regulations adopted to ensure
compliance with ambient air standards:  State Implementation Plan (SIP's)
and Nonattainrnent (NA)/Prevention of Significant Deterioration (PSD).  The
CAA gave the EPA the authority to promulgate NSPS regulations governing the
emissions of pollutants from specific categories of newly constructed
sources.  Each new source must meet requirements of all of these programs.
     For purposes of this analysis, no attempt was made to predict the impact
of NA, PSD, or local regulations not part of SIP's.  Therefore, each new
boiler is assumed to be subject to a SIP or NSPS, whichever may be more
stringent.  The SIP's in IFCAM are characteristic of those regulations for
existing industrial fossil fuel-fired boilers.
     The CAA stipulates that each State must prepare a SIP that provides
for the implementation, maintenance, and enforcement of the NAAQS within
its geographic area.  SIP's vary substantially among States, both in the
severity of the standards and the way they are expressed.  States specify
standards in a variety of forms including pounds of pollutant per energy
content of the fuel (Ib/MMBtu), pounds of pollutant emitted per 1,000 pounds
of steam, or pollutant content of the fuel, by weight, in percentage terms.
In many States, SIP requirements also vary by fuel type and boiler size.
                                    2-10

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     A set of SIP regulations reflecting the regional diversity of air
emission limits has been compiled for use in IFCAM.  These SIP's are
identified by pollutant, fuel type, boiler size, and AQCR and are converted
to pounds of pollutant per million Btu.
     The SIP file is current as of July 1980 for particulate matter and
nitrogen oxide emission standards.  The SIP file has been updated to March
1983 for S02 emission regulations.
     The CAA requires that SIP's include provisions designed to upgrade
areas of air quality not in attainment with NAAQS.  To the extent that NA
provisions are reflected in the SIP's, NA-related SIP revisions are
incorporated into the IFCAM SIP file.
     PSD requires that States maintain the air quality of their areas
attaining NAAQS.  Each PSD area is subject to provisions of one of three
PSD classes that specify allowable incremental increases in ambient air
pollutant concentrations.  Construction of individual stationary sources is
reviewed to ensure that expected emissions from these new facilities will
not increase an  area's ambient air pollution concentration greater than
allowed  increments such that it exceeds the NAAQS.  Because PSD provisions
are applied by States to individual facilities on a case-by-case or site-
specific basis,  PSD has not been modeled.
     Because, only a limited number of  NA SIP revisions  are modeled in
IFCAM,  and PSD regulations have not been addressed, the  stringency of  local
regulations may  be understated.   Consequently, the  impact of the
alternative emission  regulations may be overstated  because a number of
boilers  may be subject  to more stringent local regulations than  are
reflected  in  IFCAM.
2.3  EVALUATION  CRITERIA
     Throughout  the development of alternative emission  regulations for  new
industrial boilers, a set of key  output parameters  has  been  considered to
be particularly  useful  in comparing projected aggregate impacts  of  alterna-
tive regulations.  This set  of criteria  includes  the  following three  para-
meters :
   t  Level  of emissions
   •  Cost of generating steam
   •  Coal  and residual  fuel  oil  demand
                                     2-11

-------
These criteria are used to evaluate impacts of the alternative standards
for distinct boiler size classes and are described in this section.
     The level of S0£ emissions projected under alternative regulations is
a primary criterion by which to evaluate these regulations.  The level of
emissions is a function of both the regulatory scenario and the mix of fuels
demanded.
     In addition, the effect of alternative regulations on the total expect-
ed cost of generating steam in new industrial boilers is evaluated.  Steam
costs include capital and operating costs for the boiler, capital and operat-
ing costs for any required pollution control equipment, and fuel costs.
The cost impact of the alternative standards is the change from the base
case in the total cost of generating steam.  For this analysis, aggregate
costs for the least-cost fuel types are presented on a before-tax annualized
basis using a 10 percent discount rate and a 15-year investment period.
     Coal penetration is projected coal demand expressed as a percentage of
total projected fossil'fuel demand (coal, fuel oil, and natural gas) for
new industrial boilers.   The impact of alternative standards on coal pene-
tration is then examined.  The potential for increased coal use in the
industrial sector is partly a function of environmental regulations
applicable to industrial facilities.  In particular, air emission regulations
can increase significantly the cost of burning coal compared to the
alternative of burning a relatively clean type of fossil fuel such as
natural gas.
     The potential for increased residual fuel oil combustion in the indus-
trial sector is also partly a function of environmental regulations.
Proposed air emission standards may affect projected residual fuel oil
demand in new industrial boilers.
                                    2-12

-------
                                REFERENCES
1.  1982 Annual Energy Outlook.  U.S. Department of Energy, Energy
    Information Administration.  DOE/EIA-0383(82).  April 1983.

2.  Supplement to the 1982 Annual Energy Outlook.  U.S. Department of
    Energy, Energy Information Administration.  DOE/EIA-0408(82).  July
    1983.

3.  Reference 1, p. 126; Reference 2, p. 53.

4.  Regional Forecasts of Industrial Residual Fuel Oil and Natural Gas
    Prices.  Energy and Environmental Analysis, Inc.  Arlington, Virginia.
    Prepared for the U.S. Environmental Protection Agency.  July 1984.
                                    2-13

-------

-------
                    3.   PROJECTED IMPACTS OF ALTERNATIVE
                          SOg EMISSIONS STANDARDS
     This section describes the regulatory baseline NSPS air emissions
standards and alternative S02 emissions regulations for new industrial
fossil fuel-fired boilers.  Projected emissions, cost and energy demand
effects of the alternative standards, relative to the regulatory baseline,
are summarized.
3.1  REGULATORY BASELINE'AND ALTERNATIVE S0£ EMISSIONS STANDARDS
     The regulatory baseline is represented by current and proposed air
emissions standards:  the current S02 NSPS, the proposed PM and NOX NSPS
and current SIP's.  Table 3-1 presents the current S02 NSPS and the
proposed PM NSPS.  New industrial boilers are assumed to be subject to a
SIP if the SIP is more stringent than the applicable NSPS.shown in this
table.
     All new industrial oil- and gas-fired and spreader stoker coal-fired
boilers larger than 29 MW (100 MMBtu/hr) are assumed to employ low excess
air to control NOX emissions.  If the residual fuel oil burned in the new
large industrial boiler has a nitrogen content greater than 0.35 percent,
staged combustion air is required to control NOX emissions.  All new
pulverized coal-fired industrial boilers larger than 29 MW (100 MMBtu/hr)
require staged combustion air to control NOX emissions.  These assumptions
for new large industrial residual fuel oil and coal boilers are consistent
with the proposed NOX NSPS (49 FR 25103).
     The proposed NOX NSPS for new large industrial natural gas and distil-
late fuel oil boilers is based on the low NOX burner technology, not a cur-
rent pollution control option in IFCAM.  This difference in assumptions
will not significantly affect the expected impacts of alternative S02 NSPS
for new industrial coal and residual fuel oil boilers.
     The alternative S02 emissions standards are presented in Table 3-2.
These alternatives are applicable for new industrial residual  fuel oil and
coal boilers larger than 29 MW (100 MMBtu/hr).  The applicable regulation
                                     3-1

-------
             TABLE  3-1.   REGULATORY  BASELINE  NSPS ASSUMPTIONS
                              ng/0 (Ib/MMBtu)
Fuel type
Natural gas
Distillate fuel oil
Residual fuel oil
Coal
Boiler size
category
MW (MMBtu/hr)
<73
>73
<73
>73
<73
>73
<29
29-73
>73
(<250)
(>250)
(<250)
(>250)
(250)
(100-250)
(>250)
S02
—
340 (0.8)*
SIP
340 (0.8)a
SIP
SIP
520 (1.2)a,d
PM
43 (O.l)a
43 (O.l)a
SIP
43 (O.l)a
SIP
22 (0.05)b,c
22 (0.05)b
aCurrent NSPS (40 CFR Part 60, Subpart D for fossil fuel-fired steam
 generators).
Proposed NSPS (49 FR 25103).
C86 ng/J (0.20 Ib/MMBtu) if the annual capacity utilization rate is less
 than 30 percent.
 30-day rolling average.
                                     3-2

-------















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is either an emissions ceiling (i.e., alternative control levels I through
IV) or a fixed (i.e., alternative control level VI) or variable (i.e.,
alternative control level V) percentage reduction.
     Compliance with the alternative S0£ NSPS emissions standards is
achieved by burning a low sulfur fuel type (with an uncontrolled emission
rate equal to or lower than emissions ceiling in Table 3-2) or scrubbing a
medium or high sulfur fuel type.  When scrubbing, the controlled SOg
emission rate must remain lower than the ceiling presented in Table 3-2.
     For alternative control levels III through VI, all coal types must be
scrubbed.  For alternative control level V, all coal types must be scrubbed
with a 90 percent SOg emissions removal rate; if the controlled emission
rate is lower than 260 n'g SOe/J (0.6 Ib SOg/MMBtu), the percentage
reduction rate may be reduced to (but no lower than) 70 percent.
Alternative control level V represents the level of control currently
required under Subpart Da for new electric utility coal-fired steam
generating units.
3.2  PROJECTED NATIONAL IMPACTS OF THE ALTERNATIVE SOa EMISSIONS STANDARDS
     This section presents IFCAM projections of total S0£ emissions and
fuel demand by fuel type in 1990 from new industrial fossil fuel-fired
boilers larger than 29 MW (100 MMBtu/hr) and installed between 1985 and
1990.  This section also presents IFCAM projections of total capital and
annualized costs for these new industrial boiler investments.  IFCAM
projections for the regulatory baseline NSPS assumptions are compared with
IFCAM forecasts for the alternative S02 NSPS emissions standards.  Results
by boiler size class are presented in Appendix F.
3.2.1  Fuel Demand Impacts
     IFCAM projects that 604 new industrial fossil fuel-fired (coal, fuel
oil, or natural gas) boilers, each larger than 29 MW (100 MMBtu/hr), will
be installed during this period in the United States.  They are expected to
consume a total of 525 PJ (498 trillion Btu) in 1990.  This projected
"population" of large new industrial boilers is based on:
  •  The assumed rate of growth in total industrial fossil fuel demand
     (see Table 2-2)
                                    3-4

-------
  •  Estimates of how much of this projected increase will be consumed
     in industrial boilers versus process heaters
  •  Estimates of the retirements of existing industrial boilers during
     the 1985-1990 period
  •  Estimates of the distribution of fuel demand in new large versus
     small industrial boilers
This forecast of new large industrial fossil fuel-fired boiler installa-
tions is held constant in this analysis and is not altered as a function of
other input assumptions (e.g., projected oil and gas prices or alternative
    NSPS assumptions).
     Table 3-3 presents the projected fossil fuel mix by fuel price scenario,
    NSPS assumption, and fuel type.  The fuel mix is not fixed; it is a
function of the fuel price scenario, the S02 NSPS assumptions, and many
other model parameters (i.e., boiler and pollution control equipment cost
estimates).
     The projected demand for coal in new industrial boilers is very low
under the reference price scenario.  Coal is not selected because the
projected industrial natural gas and residual fuel oil prices are not large
enough to offset the relatively high coal capital and annual non-fuel O&M
expenses.
     The projected coal market share is significantly higher for the higher
oil and gas prices scenario.  Projected natural gas and residual fuel oil
prices are much higher under the higher oil and gas prices scenario than
they are under the reference price scenario (reference Appendices B and C).
The fuel choice decision criteria in IFCAM for new industrial boilers is
based on a comparison of projected after-tax capital, O&M and fuel expenses
over a 15-year period.  Therefore, higher projected oil and gas prices are
expected to increase the projected demand for coal.
     In general, coal may be an economical fuel type when the new industrial
boiler sizes and/or expected annual capacity utilization rates are large.
Coal is never selected in IFCAM as a new industrial boiler fuel type if the
expected annual capacity utilization rate is lower than 30 percent.  There-
fore, the expected annual capacity utilization rate for each new unit is an
important factor in the fuel choice decision process in IFCAM.
                                      3-5

-------
          TABLE 3-3.  PROJECTED FUEL DEMAND IN 1990 FOR LARGE NEW
                   INDUSTRIAL FOSSIL FUEL-FIRED BOILERS*
                               PJ (1012 Btu)
Fuel price
scenario
Reference






Higher Oil and
Gas Prices





Alternative
control
level
Baseline
I
II
III
IV
- V
VI
Baseline
I
II
III
IV
V
VI
Natural
gas
160 (152)
161 (153)
237 (225)
245 (232)
282 (267)
282 (267)
310 (294)
218 (207)
250 (237)
264 (250)
364 (345)
364 (345)
364 (345)
370 (351)
Residual
fuel oil
341 (323)
347 (329)
271 (257)
271 (257)
217 (206)
217 (206)
188 (178)
8 (7)
0 (0)
0 (0)
0 (0)
0 (0)
0 (0)
0 (0)
Coal
24 (23)
18 (17)
18 (17)
9 (9)
27 (26)
27 (26)
27 (26)
300 (284)
275 (261)
262 (248)
151 (153)
161 (153)
161 (153)
155 (147)
aEach larger than 29 MW (100 MMBtu/hr)  and installed between 1985 and 1990.
 Total  fossil fuel  demand in 1990 is 525 PJ (498 trillion Btu).
                                     3-6

-------
     Another key factor  is the  location of  the  new  unit.   SIP's  and  project-
ed fuel prices vary by region.
     Residual fuel oil demand in new  industrial boilers  is  very  small  under
the higher oil and gas price scenario.  In  general, the  projected  natural
gas prices are lower than the projected residual fuel oil  prices in  this
scenario (reference Appendix C).  As  a result,  natural gas  is  a  lower  cost
alternative than residual fuel  oil.
     Under the reference price  scenario, a  significant amount  of residual
fuel oil is projected.   In this case, the projected natural  gas  prices are
not lower than the projected residual fuel  oil  prices (reference Appendix
B).  They are similar to .the projected medium or low sulfur  residual fuel
oil prices.  Since the projected industrial natural gas  and  residual fuel
oil prices are somewhat  "competitive" in the reference price scenario,  there
is a significant amount of natural gas and  residual fuel oil demand.   The
actual projected natural gas/residual fuel  oil mix  is a  function of  SIP's
and the S02 NSPS assumptions for residual fuel oil.
     The projected demand for natural gas is higher under the  alternative
standards than it is under the regulatory baseline  in Table  3-3.   The
alternative S02 emissions standards increase the costs of burning  residual
fuel oil and coal in large new  industrial boilers.  Some new units (which
selected coal or residual fuel oil under the regulatory  baseline)  select
natural gas under the alternative standards as the  least-cost  alternative.
     Under the reference price scenario/regulatory baseline, the new
industrial boiler population has selected residual fuel oil  as the primary
fuel type.  Under the higher coal and gas prices/regulatory  baseline,  the
new industrial boiler population has chosen coal as the primary  fuel type.
3.2.2  Projected $02 Emissions Impacts
     Table 3-4 presents the projected S02 emissions for the  alternative
standards.  The total projected S02 emissions reduction  in 1990  is projected
to range from 68-281 Gg (75-310 thousand short tons).  The total projected
S02 emissions reductions are relatively large (up to 95 percent).
     Some portion of the total projected S02 emissions reductions  presented
in Table 3-4 is due to the fact that the fuel mix is not held constant
between the regulatory baseline and the alternative standards.   A  portion
                                     3-7

-------
        TABLE 3-4.  COMPARISON OF TOTAL PROJECTED SOg EMISSIONS IN
         1990 FROM NEW LARGE INDUSTRIAL FOSSIL FUEL-FIRED BOILERS*
                            Gg (103  short  tons)
Alternative
control level
Baseline
I
II
III
IV
V
VI

Reference
253 (279)
185 (204)
96 (106)
93 (102)
35 (39)
43 (47)
15 (16)
Fuel price scenario
Higher oil and
gas prices
296 (326)
134 (148)
103 (114)
42 (46)
31 (34)
27 (30)
15 (16)
lEach  larger  than  29  MW (100 MMBtu/hr)  and  installed  between  1985  and  1990.
                                     3-8

-------
of the new industrial boilers,, that select coal or residual fuel oil  under
the regulatory baseline, choose natural gas under the alternative  standards
(see Table 3-3).
     Compliance fuel types (as opposed to scrubbing non-compliance fuel
types) are the primary control strategy selected for the regulatory baseline
and alternative control levels I and II.  Compliance fuel types are also
selected as the primary compliance strategy for new large industrial
residual fuel oil boilers for alternative control level III.
     Industrial residual fuel oil-fired boilers can burn a very low sulfur
fuel type (less than 0.3 percent sulfur) or scrub emissions from the  combus-
tion of a medium or high sulfur fuel type under alternative control levels
IV and V.  Under the reference price scenario/alternative control  levels  IV
and V, 188 new industrial residual fuel oil boilers select scrubbers  and  57
new industrial residual fuel oil boilers select a very low sulfur  fuel type.
In many cases, it is less expensive to scrub a 1.6-percent sulfur  residual
fuel oil than it is to burn a very low sulfur fuel type.  This occurs because
the projected residual fuel oil sulfur premiums (0.3 percent sulfur residual
fuel oil price less the 1.6 percent sulfur residual fuel oil price) are
larger than the annualized scrubber capital and O&M costs.  Scrubbers are
not selected on all new industrial residual fuel oil boilers under the
alternative control levels IV and V because scrubbers are not an economical
compliance .alternative for new units with low annual capacity utilization
rates..
     Sodium-scrubbers are the only FGD technology selected in IFCAM.  Lime
spray drying and dual alkali FGO technologies are options in IFCAM which
are not selected because they are more expensive than sodium scrubbing
systems.
     The projected S02 emissions reductions presented in Table 3-4 are due
to scrubbing, switching to lower sulfur coal or residual fuel oil types,
and to switching from coal or residual fuel oil combustion under the
regulatory baseline to natural gas combustion under the alternative control
level.  Accordingly, the average cost-effectiveness of S02 emissions
                                     3-9

-------
control on large new industrial fossil fuel-fired boilers (derived from
these aggregate IFCAM projections) reflect several types of pollution control
strategies and do not match estimates of the average cost-effectiveness of
any single technology.
3.2.3  Projected Cost Impacts
     The projected increase in total annualized costs is projected to range
from $8 million to $133 million (reference Table 3-5).  The total annualized
cost increases are larger for the reference price scenario than for the
higher oil and gas prices scenario for two reasons:
  •  There is more total demand for residual fuel oil and coal in the
     reference price scenario/regulatory baseline (365 trillion Btu)
     than under the higher oil and gas prices/regulatory baseline (307
     trillion Btu).
  •  A significant number of new industrial coal-fired boilers under
     the higher oil and gas prices/regulatory baseline choose natural
     gas under the alternative standards (see Table 3-3).  This type
     of "switching" from a capital- and annual non-fuel O&M-intensive
     investment (coal) to a fuel cost-intensive alternative (natural
     gas) can result in small (or sometimes negative) increases in
     total before-tax annualized costs.*  If the fuel mix was held
     constant (that iss if the fuel mix under the higher oil and gas
     prices/alternative standards was identical to the fuel mix under
     the higher oil and gas-prices/regulatory baseline), then the range
     of the total projected annualized cost increase under the higher
     oil and gas prices scenario would be significantly higher than
     $10-33 million.
     Table 3-5 shows that the total projected capital costs are much higher
under the higher oil and gas prices scenario than under the reference price
scenario.  This is because coal is a capital-intensive investment and the
projected coal demand is much higher under the higher oil and gas
*Recall that IFCAM makes fuel choice decisions based on a comparison of
 after-tax costs.
                                     3-10

-------
                  TABLE 3-5.  COMPARISON OF PROJECTED COSTS*
                          (millions of 1982 dollars)
        Alternative
       control  level
                                                Fuel  price scenario
Reference
Higher oil and
  gas prices
 Total annualized costs'3'0

          Baseline
              I
             II
             III
             IV
              V
             VI

Increase  in total  annualized
  costs over  the Baseline

              I
             II
             III
             IV
              V
             VI

    Total  capital  costs0   -
  3,349
  3,357
  3,406
  3,408
  3,476
  3,474
  3,482
      8
     57
     59
    127
    125
    133
    3,725
    3,735
    3,743
    3,754
    3,757
    3,758
    3,757
       10
       18
       29
       32
       33
       32
Baseline
I
II
III
IV
V
VI
2,588
2,468
2,479
2,391
2,649
2,652
2,653
5,925
5,562
5,350
4,077
4,066
4,078
3,986
  New industrial fossil fuel-fired boilers larger than 29 MW (100 MMBtu/hr)
  and installed between 1985 and 1990.

  Capital costs x 0.13147 (a capital recovery factor based on a 10 percent
  interest rate and a 15-year period) plus annual non-fuel O&M costs plus
  levelized fuel costs.
 «
 'Includes total boiler and pollution control equipment expenses.
                                      3-11

-------
prices scenario than under the reference price scenario.  Total projected
capital costs are lower under most of the alternative standards than under
the regulatory baseline because the projected coal demand in new industrial
boilers is lower under the alternative standards than under the regulatory
baseline (see Table 3-3).
3.2.4  Other Impacts
     Sodium scrubbing is the only FGD technology selected in IFCAM.  It
generates a liquid effluent.  Table 3-6 indicates that the projected increase
in liquid waste due to the alternative standards is as large as 5.4 million
cubic meters.
     The projected solid-waste disposal requirements are larger under the
higher oil and gas prices scenario because there is a much larger demand
for coal in this case versus the base case fuel prices.  Under the higher
oil and gas prices scenario, the projected total solid waste disposal
requirements drop due to the alternative standards because total projected
coal demand declines (see Table 3-3).
3.3  PROJECTED REGIONAL SOa EMISSIONS FORECASTS
     IFCAM projects regional large new industrial fossil fuel-fired boiler
SOg emissions.  Figure 1 presents the ten Federal regions.
     Tables 3-7 through 3-12 present the regional S0£ emissions forecasts
for the regulatory baseline and the six alternative control levels.  Most
of the projected SOg emissions reductions are located in Federal regions 4,
5, and 6.
                                     3-12

-------
               TABLE 3-6.  PROJECTED SOLID AND LIQUID WASTE
                           DISPOSAL  REQUIREMENTS
     Alternative
    control level
    Coal boiler
    solid waste3
Gg (103 short tons)
    Scrubber
  liquid wasteb
103 cubic meters
  Reference fuel prices

         Baseline
            I
            II
           III
            IV
            V
            VI
       97  (107)
       66  (73)
       69  (76)
       38  (42)
      115  (127)
      115  (127)
      115  (127)
       811
       732
     1,154
     1,262
     4,409
     4,205
     4,944
Higher oil and gas prices
Baseline
I
II
III
IV
V
VI
1,228 (1,345)
1,111 (1,225)
1,046 (1,153)
701 (773)
681 (751)
701 (773)
651 (718)
667
699
826
5,584
5,719
6,080
6,062
New  industrial coal-fired boilers  installed between  1986  and  1990 which
are  larger than 29 MW  (100 MMBtu/hr).   Includes coal boiler bottom  ash and
fly  ash collected by particulate matter emissions control  equipment.

New  industrial coal and residual fuel oil boilers installed between 1986
and  1990 which are larger than 29  MW  (100 MMBtu/hr).   Includes  sodium
scrubbing treated effluent.
                                   3-13

-------
           TABLE 3-7.  PROJECTED REGIONAL S02 EMISSIONS IN 1990*
                            Gg (103 short tons)
Reference price scenario
Alternative control

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Federal region
New England
New York/New Jersey
Middle Atlantic
South Atlantic
Midwest
Southwest
Central
X
North Central
West
Northwest
U.S.
Regulatory
baseline
2.8
4.6
19.1
48.4
58.2
77.1
17.1
7.4
6.6
12.1
253.5
(3.
(5.
(21.
(53.
(64.
(85.
(18.
(8.
(7.
(13.
(279.
1)
1)
0)
3)
1)
0)
9)
2)
3)
3)
4)

2
4
18
37
43
44
12
5
6
11
186

.8
.4
.1*
.2
.7
.6
.0
.4
.2
ii
.1
I
(3
(4
(20
(41
(48
(49
(13
(6
(6
(12
(205

.1)
.8)
.0)
.0)
.2)
.2)
.2)
.0)
•8)
±8)
.1)

2.4
3.7
12.9
24.9
29.8
b
1.7
3.5
5.4
11.4
95.9
level
II
(2.
(4.
(14.
(27.
(32.
b
(1.
(3.
(6.
(12.
(105.


7)
1)
2)
4)
9)

9)
9)
0)
6)
8)
aNew industrial fossil fuel-fired boilers installed between 1985 and 1990
 and larger than 29 MW (100 MMBtu/hr).

 Less than 50 Mg (55 short tons).* The projected S02 emission reduction
 is 99 percent because natural gas is the only fuel type selected in this
 region under alternative control level II.
                                     3-14

-------
           TABLE 3-8.   PROJECTED REGIONAL SOa EMISSIONS IN 1990*
                            Gg (103 short tons)
Reference
price scenario
Alternative control

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Federal region
New England
New York/New Jersey
Middle Atlantic
South Atlantic
Midwest
Southwest
Central
North Central
West
Northwest
U.S.
Regulatory
baseline
2.8
4.6
19.1
48.4
58.2
77.1
17.1
7.4
6.6
12.1
253.5
(3
(5
(21
(53
(64
(85
(18
(8
(7
(13
(279
.1)
•1)
.0)
.3)
.1)
.0)
.9)
.2)
.3)
.3)
.4)

2.
3.
12.
24.
29.
b
b
1.
5.
11.
92.

4
7
9
9
8


5
4
4
2
III
(2.
(4.
(14.
(27.
(32.
b
b
(1.
(6.
(12.
(101.
level

IV
7)
1)
2)
4)
9)


6)
0)
i)
7)
0.8
1.6
5.3
9.9
9.1
b
b
0.8
2.6
5.0
35.1
(0.
(1.
(5.
(10.
(10.
b
b
(0.
(2.
(5.
(38.
9)
8)
8)
9)
0)


9)'
9)
5)
7)
 New industrial  fossil  fuel-fired boilers installed between 1985 and 1990
 and larger than 29 MW  (100 MMBtu/hr).

JLess than  50 Mg (55 short tons).  The  projected S02 emission reduction
 is  99 percent because  natural  gas is the only fuel type selected in this
 region under alternative control levels III and  IV.
                                    3-15

-------
           TABLE 3-9.   PROJECTED REGIONAL SOa EMISSIONS IN 1990*
                            Gg (103 short tons)
Reference
price scenario
Alternative control

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Federal region
New England
New York /New Jersey
Middle Atlantic
South Atlantic
Midwest
Southwest
Central
North Central
West
Northwest
U.S.
Regulatory
baseline
2.8
4.6
19.1
48.4
58.2
77.1
17.1
7.4
6.6
12.1
253.5
(3
(5
(21
(53
(64
(85
(18
(8
(7
(13
(279
• 1)
.1)
.0)
•3)
.1)
.0)
.9)
.2)
.3)
.3)
.4)

0.
1.
6.
10.
12.
b
b
0.
3.
6.
42.

9
7
7
9
1


8
4
1
7
V
(1.
(1.
(7.
(12.
(13.
b
b
(0.
(3.
(6.
(47.
level

VI
0)
9)
4)
0)
3)


9)
8)
7)
1)
0.2
0.5
2.6
3.3
5.3
b
b
0.3
Oo8
1.7
14.8
(0.
(0.
(2.
(3.
(5.
b
b
(0.
(0.
(1-
(16.
2)
6)
9]
6)
8)


3)
9)
9)
3)
 New industrial  fossil  fuel-fired boilers installed between 1985 and 1990
 and larger than 29 MW  (100 MMBtu/hr).

JLess than 50 Mg (55 short tons).  The  projected SOg emission reduction
 is  99 percent because  natural  gas is the only fuel type selected in this
 region under alternative control levels V and VI.
                                    3-16

-------
          TABLE 3-10.  PROJECTED REGIONAL S02 EMISSIONS IN 1990*
                           Gg  (103 short tons)
Higher oil and gas prices
Alternative control level

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Federal region
New England
New York/New Jersey
Middle Atlantic
South Atlantic
Midwest
Southwest
Central
North Central
West
Northwest
U.S.
Regulatory
baseline
b
5.2
25.4
73.5
74.1
70.7
22.9
13.3
2.8
7.8
295.7
b
(5
(28
(81
(81
(77
(25
(14
(3
18
(325

.7)
.0)
• 0)
•7)
.9)
.2)
.7)
• 1)
.6)
.9)

b
2
15
32
32
27
4
10
2
5
133


.0
.8
.4
.3
.9
.1
.8
.8
.8
.9
I
b
(2
(17
(35
(35
(30
(4
(11
(3
(6
(147
II

•2)
.4)
• 7)
.6)
•8)
• 5)
.9)
.1)
.4)
.6)
b
1.
11.
23.
22.
25.
3.
8.
2.
3.
103.

8
2
5
8
6
4
7
8
8
7
b
(2.0)
(12-4)
(25.9)
(25.1)
(28.2)
(3.7)
(9.6)
(3.1)
(4.2)
(114.3)
aNew industrial  fossil  fuel-fired  boilers  installed  between  1985  and  1990
 and larger than 29  MW  (100 MMBtu/hr).

3Less than  50 Mg (55 short  tons).
                                  3-17

-------
          TABLE 3-11.  PROJECTED REGIONAL SOe EMISSIONS IN 1990^
                            Gg (103  short  tons)
Higher oil
and gas prices
Alternative control

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Federal region
New England
New York/New Jersey
Middle Atlantic
South Atlantic
Midwest
Southwest
Central
North Central
West
Northwest
U.S.
Regulatory
baseline
b
5.2
25.4
73.5
74.1
70.7
22.9
13.3
2.8
7.8
295.7
b
(5.
(28.
(81.
(81.
(77.
(25.
(14.
(3.
(8.
(325.

7)
0)
0)
7)
9)
2)
7)
1)
6)
9)
III
b
1.
7.
7.
10.
6.
1.
2.
0.
_3_.
41.

2
3
2
8
9
2
4
6
_7
4
b
(1
(8
(7
(11
(7
(1
(2
(0
(4
(45

.3)
.1)
.9)
.9)
.6)
.3)
.7)
.7)
.1)
.6)
level

IV
b
0.8
5.1
6.2
7.3
6.0
0.7
1.6
0.5
2.4
30.6
b
(0.
(5.
(6.
(8.
(6.
(0.
(1.
(0.
(2.
(33.

9)
6)
8)
0)
6)
8)
8)
5)
7)
7)
aNew industrial fossil fuel-fired boilers installed between 1985 and 1990
 and larger than 29 MW (100 MMBtu/hr).

bLess than 50 Mg (55 short tons).
                                   3-18

-------
          TABLE 3-12.  PROJECTED REGIONAL SOg EMISSIONS IN 1990*
                           6g  (103 short tons)
Higher oil and gas prices
Alternative control

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Federal region
New England
New York/New Jersey
Middle Atlantic
South Atlantic
Midwest
Southwest
Central
North Central
West
Northwest
U.S.
Regulatory
baseline
b
5.2
25.4
73.5
74.1
70.7
22.9
13.3
2.8
7.8
295.7
b
(5.7)
(28.0)
(81.0)
(81.7)
(77.9)
(25.2)
(14.7)
(3.1)
(8.6)
(325.9)

b
0.8
5.1
4.4
7.3
4.2
0.8
1.6
0.5
2.4
26.9
V
b
(0.9)
(5.6)
(4.8)
(8.0)
(4.6)
(0.9)
(1.8)
(0.5)
(2.7)
(29.7)
level
VI
b
0.5
3.4
1.5
6.7
1.0
o-1
0.5
0.2
0.5
14.5
b
(0.6)
(3.8)
(1.6)
(7.4)
(1.1)
(0.1)
(0.6)
(0.2)
(0.5)
(16.0)
 New  industrial  fossil fuel-fired boilers  installed between 1985 and 1990
 and  larger  than 29 MW (100 MMBtu/hr).

Yess than 50 Mg (55  short tons).
                                  3-19

-------

-------
                           4.  ECONOMIC IMPACTS
4.1   INTRODUCTION
      This section presents economic impacts for one of the alternative
S02 emission standards for new industrial fossil fuel-fired boilers.
The alternative control level selected reflects an upper bound on the
stringency of emission standards which have been studied by EPA.  S02
alternative control level VI (reference Table 3-2) requires scrubbing on
all new industrial residual fuel oil and coal boilers with a heat input
capacity larger than 29 MW (100 MMBtu/hr).
      In determining if potentially severe economic impacts could occur
to industrial users of steam, the impact analysis examines both cost-
related impacts and capital availability issues.  Cost related impacts
include impacts on product price, value added, and return on assets for
selected industries.  Capital availability issues refer to the ability
of a  firm to obtain capital to finance the costs of control required by
an alternative SOg standard.
      A detailed description of the methodology and background informa-
tion  used in the impact analysis is contained in the draft EIS Fossil
Fuel-Fired Industrial  Boilers - Background Information, Volume 1, (EPA-
450/3-82-006a) published in March, 1982.  The following discussion pre-
sents a summary of the analytical framework and industry profiles in-
cluded in the draft EIS document.  The impact results' have been revised
to reflect the current national  cost impacts generated by EEA's Indus-
trial Fuel  Choice Analysis Model  (IFCAM).
      Because the number of industries that could be affected by the pro-
posed standard is large, a two-fold approach has been used to assess the
level and nature of the economic impact without undertaking a detailed
analysis of every industry.  The first component is performed on the
general industry level (i.e., food or steel  industries) for major steam-
using industries.  Eight industry groups, which account for approxi-
mately 70 percent of total  industrial  steam consumption are examined.
     The second component of the user impact analysis focuses on the
economic "impact of selected four-digit Standard Industrial  Classifi-
cation (SIC) industries.  This  focus is necessary since the major
                                   4-1

-------
steam user analysis utilizes industry averages to assess economic
impact.  Because each two-digit SIC industry grouping is composed of
many four-digit SIC industries, the industry average may not capture the
impact of regulatory options on specific four-digit SIC industries.   In
addition, four-digit SIC industries that are not part of the eight
industry groups analyzed under major steam users may be affected
severely.  To remedy the situation, the economic impact on selected
four-digit SIC industries is examined.  The industries chosen for this
component of the analysis were selected by a screening process designed
to identify the four-digit SIC industries most likely to experience
adverse economic impacts.  By evaluating the economic impact on
industries most likely to be affected adversely, the impact on other
industries groups can be inferred to be less severe.
     The remainder of this section is divided into two parts.  Section
4.2 presents an overview of the profiles for industries that will  be
covered in the economic impact analysis.  Section 4.3 covers the results
of the impact analysis.
4.2  INDUSTRY ECONOMIC PROFILES
4.2.1  Major Steam Users Profile
     The major steam users consist of the following eight industry
groups:
  •  Food
  •  Textiles
  •  Paper
  •  Chemicals
  •  Petroleum refining
  •  Stone, clay, and glass
  •  Steel
  •  Aluminum.
These industries are examined because together they will bear most of
the cost burden of an alternative S02 standard.   Except for steel and
aluminum, the industries examined are identified by a two-digit SIC
code.
                                   4-2

-------
     These eight  industries  generally use approximately 50  percent or
more of their energy consumption to generate  steam and/or have stean£^\
costs that comprise a major  percentage of production costs.  Table 4-1  /'
shows 1976 total  fossil fuel consumption (excluding raw materiafv^an,d--"'X
feedstock uses) and the percent of total consumption accounted for by
boilers in each of the major steam user groups.  Approximately 48 per-
cent of all industrial non-feedstock fossil fuel consumption in 1976 was
in boilers.  The  paper, food, and textiles industries consumed signifi-
cantly more of their fossil  fuel in boilers than in other uses; the
paper industry consumed approximately 87 percent of its fossil fuel in
boilers, the food industry 83 percent, while  the textile industry used
80 percent.  The  chemicals and aluminum industries also were well above
the average for industrial boiler fossil fuel consumption.
4.2.2  Selected Industries Profile
     This section contains profiles of the seven four-digit SIC indus-
tries selected for analysis.  Due to the large number of four-digit SIC
industries, screening criteria were used to target those industries most
likely to experience cost-related impacts and/or capital availability
constraints.
     Industries most likely to experience cost-related impacts are those
with a high steam cost to production cost ratio.  A high ratio usually
stems from one of two factors:  1)  the production process is steam-
intensive or 2) the firm or industry has cyclic steam requirements,
resulting in a low capacity utilization of the boiler equipment.   Low
capacity utilization causes the capital  cost component of steam costs to
rise, yielding high annualized costs^per unit of steam.  Therefore,
capacity utilization and percentage of steam costs to total  product
costs are used as selection criteria.
     Capital  availability constraints  occur when the cost of acquiring
funds is so high that a firm considers a project to be uneconomic or
financially unattractive.   Capital  availability is most often a problem
for relatively small  firms.  Although  some  large"firms may have exces-
sive debt burdens, lack of access  to organized capital  markets  is more
often characteristic of small firms.  Thus,  size is used to  identify
firms with potential  capital  availability problems.
                                  4-3

-------





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     The following six four-digit SIC industries have been selected for
the economic impact analysis and are briefly described in this section.
  •  Beet sugar refining
  •  Rubber reclaiming
  •  Automobile manufacturing
  •  Petroleum refining
  «  Iron and steel manufacturing
  •  Liquor distilling
     The fruit and vegetable canning industry, initially profiled for
potential economic impacts, has not been included in this report because
it is anticipated that its new steam generating equipment would burn
natural gas as the primary fuel type and not be affected by an alterna-
tive S0.2 NSPS standard.
     Beet Sugar Refining Industry:  The U.S. beet sugar refining indus-
try (SIC 2063) is characterized by relatively few producers.  As of mid-
1982, 10 companies operated 40 plants generally located in the mid-
western and Pacific States.
     Refining operations are highly seasonal, usually commencing in mid-
September and ending by mid- to late March.  The length of the refining
season varies from 120 to 220 days, depending on beet crop conditions.
During the average refining season of 180 days, plants operate seven
days a week, 24 hours a day.  Annual capacity utilization of boilers at
a plant is typically in the range of 30 to 45 percent.
     In recent years, the annual  total  output of the beet sugar industry
has been decreasing.  The number of plants in the industry also has de-
creased; firms have closed less profitable plants,  run operations as a
cooperative (i.e., where the firm is owned by the sugar beet farmers)
or, as a last resort, entirely terminated operations.  The major
explanation for decreased production is the increasing level  of cane
sugar imports and the use of concentrated fructose  as a substitute for
sugar.
     Due to declining sales, most domestic producers are not considering
expansion.  Instead, they are focusing  on plant (and boiler)  maintenance
                                  4-5

-------
and/or replacements as well as company consolidations when economically
practical.  Due to the industry's small profit margin, only the larger,
more profitable firms that benefit from economies of scale would con-
sider investing in a boiler replacement.
     Rubber Reclaiming Industry;  The rubber reclaiming industry (SIC
3031) consists of eight producers operating eight manufacturing establish-
ments.  Although the bulk of reclaiming occurs in Ohio, manufacturing
plants are located throughout the eastern States.
     Rubber reclaimers buy old rubber tires, inner tubes, and other
scrap rubber materials and recycle them into a reusable form of rubber,
notably tires and floor mats.  Approximately 60 percent of all  reclaimed
rubber is used in tire manufacturing.  For several manufacturers, un-
molded reclaimed rubber is the sole output, while for others, especially
the larger integrated firms, unmolded recycled rubber is not a primary
product but part of an internal subprocess producing various rubber
goods.
     For the past decade, the rubber reclaiming industry has suffered
from volatile sales, production fall-offs, and plant reductions.  A
series of external factors account for these conditions.  Most stringent
ceilings on the amounts of reclaimed rubber allowed in car tires have
been the largest obstacle to the industry's expansion.  With the in-
creasing popularity of radial tires, which contain a much smaller per-
cent of reclaimed rubber than standard ply tires, reclaimed rubber con-
sumption has decreased.
     With production dropping, selling prices fluctuating, and produc-
tion costs mounting, the industry is not considering expanding produc-
tive capacity, but instead is using available funds to replace existing
capital assets.
     Automobile Manufacturing Industry;  The U.S. automobile manufac-
turing industry (SICs 3711, 3713, and 3714) consists of four firms en-
gaged in manufacturing and assembling "American-made" vehicles.  These
vehicles are produced in many States (and sometimes in other countries),
with the majority of production occurring in Michigan, Missouri, Ohio,
California, New Jersey, and Wisconsin.  In addition to producing
automobiles, the four manufacturing firms produce light trucks,
commercial trucks, buses, and other motor vehicles.
                                   4-6

-------
      Except for the industry leader,  the market  shares  of domestic  manu-
 facturers declined between 1978 and  1983 due to  the  increased market
 share of the dominant domestic  producer as  well  as the  increased  sales
 of imported automobiles.   The share  of total  sales accounted for  by im-
 ports increased by about  one-third between  1977  and  1984, from  18.3 per-
 cent to 23.5 percent.
      Petroleum Refining  Industry:  The petroleum refining industry  (SIC
 2911) consists of 153 companies operating 289 domestic  refineries.  Of
 these firms, 19 control over 70 percent of  the U.S.  refining capacity.
      Although refineries  operate in  41 States, approximately 27 percent
 of the crude distillation capacity is concentrated in Texas.  California
 and Louisiana, the second and third  largest petroleum refining  States,
 respectively, jointly account for another 27  percent of crude distilla-
.tion capacity.
      The U.S. petroleum refining industry has suffered  from an  operating
 cost disadvantage when compared to foreign  oil companies.  U.S. oil
 companies face higher taxes  and labor costs than their  foreign  counter-
 parts.  This partially explains why  the United States imports a signifi-
 cant share of its oil  requirements in the form of refined  products  (as
 opposed to crude).  Consequently, the United  States  accounts for  less
 than one percent of the world refinery capacity  additions.
      Iron and Steel  Manufacturing Industry:   The iron and  steel industry
 (SIC 3312) consists of integrated establishments that produce basic
 steel  shapes in the form  of  semi-finished products such  as ingots,
 billets, blooms, and slabs or finished products  such as  steel strips,
 bars, shapes, heavy structurals, and  rails.   Establishements primarily
 engaged in producing finished products form purchased iron and  steel
 (e.g., non-integrated) are considered separate industries and are
 classified under SIC codes 3315, 3316, and  3317.
      Typically, operations at integrated  steel works involve manufac-
 turing iron from raw materials9 refining  the  iron into  steel, casting
 and milling the steel  into semi-finished  shapes,  and either selling the
 shapes to non-integrated  finishing facilities  or hot rolling into
                                   4-7

-------
finished products at the works.  Integrated steel  works range in size
from large plants using several steel-making processes and finishing
mills to small plants using a single process and selling a semi-finished
product.
     Over the last decade, the steel industry has  suffered from  reces-
sionary trends rooted in the 1950's.  Spiraling costs and restrained
prices have reduced industry profits to low levels, leaving major steel
producers with little capital for maintenance or expansion.  As  a
result, domestic steel producers have been postponing large capital  com-
mitments, closing or selling unprofitable operations, reducing produc-
tion levels, and merging with other companies.
     Most of the capital investments made in recent years have been
piece-meal expansions and replacements rather than large-scale capacity
additions or new plants.  Projects have attempted  to cut costs by im-
proving productivity, or boosting yields through modernization.   It  is
likely that future investments will follow the same route of piece-meal
expansions and replacements unless present market  conditions improve.
     Liquor Distilling Industry:  The liquor distilling industry (SIC
2085) is made up of those establishments that manufacture liquor by  dis-
tillation or rectification.  They produce cordial  and alcoholic
cocktails by blending processes or by mixing liquors and other in-
gredients.  All liquors except brandy are included in this category.
     The liquor distilling industry is comprised of approximtely 50
firms that operate 100 distilleries.  The greatest concentrations of
distilling plants is located in the east south central States (Federal
Region 4.)  While distilleries are located in 25 States, Kentucky has 27
percent of the total number of domestic plants.  California follows
second with 11 percent of the total.
     The number of plants that these firms operate has decreased in  the
past decade.  In 1972, 121 distilleries were operating; by 1977, this
sum had fallen to 104, a loss of 17 distilleries in five years.   Appar-
ently, no new facilities have been constructed in  recent years.   Several
factors may explain the decreasing number of operating distilleries:
some plants are old, inefficient, and not equipped for the major
                                   4-8

-------
nroduction modifications often necessary to  satisfy the  demands  of a
changing market; furthermore, large firms -often  find operating  fewer
plants more efficient.
     The major inter-industry competition to the distilled  spirits
industry arises from the beer and wine industries.   Beer and  wine  con-
sumption has grown at the expense, to some degree,  of "hard"  liquors.
Intensive advertising campaigns and brand proliferation  has helped beer
consumption grow.  Wine, especially white wine,  once just a dinner
beverage, has become a cocktail beverage as  well.
4.3  ECONOMIC IMPACT ANALYSIS
     This section presents the analysis of economic impacts of  an   S02
alternative control leve] VI on industrial users of steam.  The  economic
impact analysis is designed to determine if  alternative  S0£ emission
regulations for new industrial boilers will  severely affect either major
steam users or selected industries.
4.3.1  Major Steam Users Impacts
     The economic analysis of the major steam users focuses on  cost-
related impacts.  Capital availability considerations are best  examined
on a firm level and, therefore, are covered  only in the  analysis of the
six selected industries.
     The analysis of major steam users consists  of  four  steps:
  •  Step One — Evaluate price impacts of alternative regulatory
     options on a general industry level  assuming the costs of  the
     regulatory option are passed completely to  the consumer  (i.e.,
     full cost pass-through).
  •  Step Two « If price impacts are significant,  evaluate the
     ability of the industry to pass through the entire  costs.
  •  Step Three « If industry is able to pass through costs,
     assess the macroeconomic impacts of the price  increase.  If
     industry is unable to pass on the additional costs, assess  the
     ability of the industry to absorb the additional  costs.
  •  Step Four — If cost impacts are significant and the industry
     is unable to absorb the costs, further  analysis is  warranted
     for the impact on both the other industries (non-major steam
     users) and two-digit SIC industries.
                                   4-9

-------
     The first step of the analysis evaluates the price impacts of
alternative regulatory options on major steam users.  When price impacts
are determined to be significant, they are evaluated in terms of the
conditions contained in Steps Two through Four.
     The effect of a regulatory option on product price is calculated by
finding the product of the change in the cost of new steam, the share of
steam affected by the regulatory option, and the amount of steam
consumed per dollar of output, as illustrated in Figure 2.  The cost
impacts are stated in real terms.  The only real cost increase is
assumed to be due to new boiler, pollution control, and fuel  costs.   All
other production costs are held constant in real terms.
     A summary of the product price impact for S02 alternative control
level VI is found in Table 4-2.  For each of the major steam users,  the
table shows:
  •  The industry's ratio of steam consumption to dollar of product
     shipments (in MMBtu/$ of shipment)
  •  Amount of total steam affected by the alternative S02 emission
     standard
  •  The change in the. cost of steam for the reference fuel price
     scenario and  higher oil and gas prices scenario
  •  The estimated change in the product price under each fuel
     price scenario.
     The ratio of annual steam consumed (per unit output) to annual
dollar value of shipment (per unit output) is computed by finding the
quotient of annual steam consumption and the value of shipments.  The
ratio of annual steam consumed to annual dollar value of shipment by
industry is assumed to remain constant over time.  The estimated percent
of steam affected by the alternative SOg standard is based on the amount
of-new steam demand projected for the 1986-1990 period as a fraction of
total steam demand for each industry group.  This percentage gradually
increases over time as more new boilers become operational.
     The alternative SOg standard examined does not affect product price
significantly.  As Table 4-2 shows, the product price increase is less
than 0.1 percent for all industries.  This result is due primarily to
the relatively small fraction of total product value accounted for by
new steam.
                                  4-10

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     The major steam users in aggregate will not experience a signifi-
                                          *
cant impact.  This does not mean, however^ that a component of the major
steam user industry group will not be affected adversely.  The selected
industries study focuses both on industries from within the major steam
users and from other manufacturing groups to assess whether smaller in-
dustry groups may be affected.
4.3.2  Selected Industries Impacts
     The analysis of selected four-digit SIC industries forms the second
part of the economic impact analysis.  The major focus is the effect of
the alternative NSPS on product cost, profitability, and capital  avail-
ability for the firm.  A small business analysis is also presented to
evaluate the need for further review of the impacts under the Regulatory
Flexibility Act.
4.3.2.1  Cost and Profitability Impacts Methodology
     The following three steps are used to estimate the cost impact of
regulatory options on a selected industry:
  •  Step One — Define a model plant for the selected industry
  •  Step Two — Evaluate the cost impacts for the model  plant,
     assuming full cost absorption
  •  Step Three — Evaluate the impacts on the profitability of the
     model plant
Each step is described below.
     Model plant.  The selected industries analysis focuses on model
plants to measure the economic impact of S02 alternative control  level
VI on each industry.  The model plant represents a typical  plant  for the
segment of each industry that might be considering a boiler investment
either as boiler expansion or replacement.  A model plant is used since
it is difficult to obtain precise details about the expansion and
replacement plans of actual  firms.
     This analysis presents economic impacts for the model  plant  as-
suming the decision has already been made in the base case  to expand  or
to replace its existing boilers.  However, decisions regarding plant
investments, including new steam generating capacity, ultimately  depend
on the market conditions faced by.each firm.  If it appears that  it
would be too costly for a firm with declining sales or a  low profit mar-
gin to invest in a new boiler(s) and the necessary pollution control
equipment, the firm could elect to defer the investment.  A decision  to
                                  4-13

-------
defer the new boiler investment may be more attractive to the firm  until
the point at which it becomes too expensive to maintain the plant's ex-
isting boilers compared to replacing them with new units.  The cost of
installing and operating additional pollution control  equipment to  com-
ply with the S02 alternative control level might also  contribute to the
possibility that the firm would defer the new boiler investment. How-
ever, the decision concerning new steam generating units is expected to
depend more on the investment in new boiler equipment  than the pollution
control equipment due to the relative magnitude of their respective
costs.
     The fuel type burned in the existing boiler(s) of the model plant
is determined by industry sources.  The fuel  type of the replacement or
expansion boilers is based on industry trends and projections from  IFCAM
based on the combustor's size, location, and applicable energy and
environmental regulations.
     The following production characteristics for the  model plant are
supplied:
  •  Plant Output/Year — average product output per year in those
     plants more likely to invest in new boilers.
  •  Price (Cost)/Unit of Output — the historic, average selling
     price per unit, in real 1982 dollars.
  •  Plant Sales/Year — plant output per year multiplied by price
     per unit of output.
  •  Plant Earnings/Year — plant sales per year multiplied by a
     derived profit margin (percent return on sales).   This figure
     estimates the profitability of the model plant.
     Product Cost Impacts:  The effect of regulatory options on product
cost is calculated by finding the product of the change in the cost of
new steam, the share of steam affected by the new regulation, and the
amount of steam consumed per dollar of output.  The cost impacts are
stated in real terms.  The only real cost increase is  due to new boiler
and fuel costs; all other real production costs are held constant.
     It should be noted that the effect of the cost impact on product
price is related to the market conditions for each firm and to what
degree the firm behaves as a price-taker vs.  a price-setter.  The price
impact is thus dependent on the extent that the firm is able to pass on
the increased cost through increases in the price of its product(s).
                                  4-14

-------
     The impact on a plant's value added Is also determined.  Value
added represents the portion of the total product value that can be at-
tributed to the plant's non-raw material costs of manufacturing the pro-
duct.  It covers the remaining product value after the cost of all
material inputs have been deducted.  The value added per dollar of pro-
duct for each selected industry has been calculated nationally using
U.S. Census of Manufacture's data on a four-digit SIC basis.
     Profitability Impacts.  The additional costs due to a regulatory
option will affect the profitability of an industry.  This impact will
be assessed by examining the following two financial indicators for the
model plant:
  •  Net Profit After TcLxes (Net Income).  Profit after all  costs
     and taxes have been deducted.
  0  Return on Assets.  Net income divided by total  assets,
     converted to a percent form.
The change in these indicators due to regulatory options is  a measure of
the ability of the model plant to absorb the additional  costs of a
regulatory option.
4.3.2.2  Capital Availability
     Capital availability constraints may result if a regulatory option
creates a need for financing additional  pollution control  investments.
The firm is the focus of the capital  availability analysis because  deci-
sions involving large capital  expenditures are made at the corporate
level.  Depending upon the state of corporate cash reserves  and the
relative costs of various financing tools, a firm will  choose a
combination of internal and external  financing instruments to meet  the
additional  investments required to comply with regulatory  option.
     The capital availability analysis focuses on the following two
financial indicators, which ensure each  industry's financing ability:
  •  Coverage Ratio ~ the number of times operating income
     (earnings before taxes and interest expenses) covers  fixed
     obligations (annual interest on  debt instruments and  long-term
     leases)
  •  Debt/Equity Ratio « a measure of the relative  proportions of
     two types of external  financing.
     These two indicators are  analyzed for both the  base case and the
regulatory options.  The change in indicators due to the regulatory
                                  4-15

-------
option is analyzed to determine how difficult it will be for the firm to
meet financial requirements for the pollution control equipment invest-
ment.
     The cash flow coverage ratio is calculated by dividing operating
income by fixed obligations, both of which could change as a result of
alternative regulatory options.  If the coverage ratio remains above the
3.0 standard benchmark, the cost of capital can be assumed.to be above
"acceptable" levels.  However, as the coverage ratio falls, the cost of
obtaining capital will rise.
     The debt/equity ratio is calculated by dividing total debt by total
equity of the firm (book values).  The incremental debt incurred from
financing the pollution control required by the regulatory option is
added to the base case debt.  A new debt/equity ratio then is calculated
and the change is analyzed to assess the effect of the regulatory option
on the firm's capital structure.
4.3.2.3  Summary of Selected Industry Economic Impacts
     A summary of the key economic impacts results for selected indus-
tries is shown in Table 4-3.  The impact on product cost and value added
1s less than 1.0 percent for all industries, except for beet sugar re-
fining.  The larger impact on the beet sugar refining model  plant
reflects the relatively large portion of product costs attributable to
generating steam for the refining process.  However, as discussed
further below, this impact is not expected to have a significant effect
on the beet sugar refining industry.  The impact on the model firms re-
turn-on-assets for the selected industries is a decrease of 0.1 to 2.8
percentage points.  The largest impact on return-on-asset occurs for the
model firm in the rubber reclaiming industry.
     A summary discussion of the impacts for each selected industry is
presented below.
4.3.2.4  Beet Sugar Refining Industry
     Model firm and plant description.  The major characteristics of the
model plant and firm for the beet sugar refining industry are listed in
Table 4-4.  The model firm is made up of four plants, which are located
in the north central  United States (Federal Region 8).  Each plant is
identical in its steam use and product output.
                                  4-16

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4-17

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             TABLE  4-4.  MODEL FIRM AND PLANT CONFIGURATION:
                            BEET SUGAR  INDUSTRY
 Model  firm

          Financial  data3

          Average  bond  rating:
          Coverage ratio:
          Debt/equity ratio:

 Model  plant

          Production data3

          Plant output/year:
          Price/unit output:

          Plant sales/year:
          Plant earnings/year:

          Boiler configuration

          Total firing  rate:
          No. of boilers:
          Federal  region:
Baa
12.3
0.25
74,000 megagrams (81,000 tons)b
$68.60/hundred kilogram wt.c
  ($31.20/hundred pound wt.)
$50.5 million c
2.22 millionc»d
114 MW (390 MMBtu/hr)
  3
  8
          Characteristics of individual boilers
Capacity, MW
(MMBtu/hr)
Fuel type
Annual capacity utili-
zation, percent
Replacement, expansion
or existing

	 1_
51
(175)
coal
45
Boiler
2
51
(175)
coal
45
replacement

3
12
(40)
residual
fuel oil
25
existing
3Based upon 1981 values.
bBased upon the average production of the portion of the industry most
  likely to invest in a new boiler.
cExpressed in 1982 dollars.
"Based upon the 1981 average return on sales ratio of 4.4 percent.
                                  4-18

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     Total annual  firm  production is 294,000 megagrams  (324,000 tons) of
 sugar, with annual  sugar sales at $207 million, assuming that beet sugar
 sells for $63.60 per hundred kilograms ($31.20 per hundred pounds) and
 that none of this  sugar is added to existing inventories.  Annual pro-
 fits are 4.4 percent of total sales or about $2.2 million.
     The model plant boiler house consists of three fossil fuel-fired
 boilers with a total heat input capacity of 114 MW (390 MMBtu/hr).
 Table 4-4 describes the individual boilers.  The two boilers being re-
 placed have a heat  input capacity of 51 MW (175 MMBtu/hr) and an annual
 capacity utilization of 45 percent.  Approximately 90 percent of total
 steam generated for the plant is from these new boilers.  The two new
 boilers are primarily used for process heat and electricity generation.
     Regulatory Impacts.  In the base case, all the plant's boiler re-
 placements are subject to an S02 SIP emission regulation and the pro-
 posed PM/NOX NSPS for industrial boilers.  Industry representatives ex-
 pect that any new boilers of this size will fire coal.  IFCAM projects
 that coal is the least-cost fuel type and that a low sulfur western coal
 is the least-cost coal type.  A fabric filter will be installed to en-
 sure that particulate emissions do not exceed the proposed PM standard
 in the base case.
     The projected economic impacts for the beet sugar model  plant and
 firm are shown on Table 4-5.  As a result of installing FGD equipment to
 comply with the alternative S02 standard, beet sugar production costs
 for the model  plant are estimated to increase 1.5 percent.  The impact
 on the plant's value added portion of total production costs  is 5.0 per-
 cent (using a value added-to-value of shipments ratio of 0.3).   Based on
 a threshold standard of 5.0.percent for measuring the cost impact of a
 regulatory option, the impact on total  plant production costs is within
 the range where adverse impacts are not expected to become significant.
 Since the product cost and value added  impacts occur at only  one of the
 firm's four plants, these costs could actually be factored into the
 firm's total  beet sugar production and  actually result in a lower over-
all price impact.
     The impact on the firm's net income, as  shown in Table 4-5, reduces
 its annual  income from $1.1 million to  $0.7 million.   This decrease in
net revenues  is estimated to lower the  model  firm's return-on-assets
                                  4-19

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  TABLE  4-5.  ECONOMIC IMPACTS OF S02 ALTERNATIVE CONTROL LEVEL VI FOR
                           BEET SUGAR REFINING
     Percent Increase in plant's product cost:

     Percent increase in value added cost:

Model firm;

     Net income after taxes (106 1982 $)
          Base Case:
          Alternative co'ntrol  level VI:

     Return on assets for firm (percent):
          Base Case:
          Alternative control  level VI:  •

Capital availability impacts:
Coverage ratio:

     Base Case:
     Alternative control level VI

Debt/equity ratio:

     Base Case
     Alternative control level VI
1.5

5.0
1.1
0.7
2.3
1.5
                                                Percent financed by debt

                                                 0%                100%
12.33
12.33
0.217
0.217
9.07
8.95
0.361
0.366
                                   4-20

-------
from 2.3 percent to 1.5 percent.  Many beet sugar plants have been able
historically to operate with low profit margins, since beet sugar
growers in many cases cooperatively own the plant and maintain its
operation to process their sugar beets.  Beet sugar firms have been in-
creasing their use of coal in their plants to help reduce energy costs
and help maintain their profit margins.  Even with the FGD requirement
to meet the alternative S02 standard, it is expected that the cost of
using oil and gas over the long-run will be higher than installing coal-
fired boilers and the necessary pollution control equipment.  Thus the
lower rate of profits due to the alternative SOg standard is expected to
be less severe than if the plant continues to use its existing oil- or
gas-fired boilers.
     The effect of the alternative S02 standard on the model firms
coverage ratio and debt/equity ratio are also presented in Table 4-5.
There is a small decrease in the coverage ratio from 9.07 to 8.95 when
100 percent debt financing is assumed.  The ratios are well  above the
3.0 acceptable benchmark.  The debt/equity ratio increases  in the base
case from 0.217 to 0.361 when comparing zero percent to 100 percent debt
financing.  However, the impact of increased debt financing due to the
S0£ alternative standard has minimal  effect on the debt/equity ratio and
will not change this firm's ability to secure financing for the addi-
tional  capital  investment for S0£ pollution control  equipment.
     It should be noted that the proposed standard is not expected to be
the primary criterion in the decision to install  a new steam plant.  The
firm will need to evaluate the investment as being cost-effective with
or without more stringent emission regulations.   Given the low rate of
return  in these firms, the major issue is whether any capital  investment
is justified, even with the intent of reducing energy costs  by in-
stalling a coal-fired boiler.   Under the alternative S02  standard, the
firm still  would save energy costs in the long-term by installing the
coal-fired boiler, although savings would be less than in the  base case.
4.3.2.5  Rubber Reclaiming Industry
     Model  firm and plant description.  Table 4-6 presents the model
plant and firm for the rubber  reclaiming industry.   Each  plant within
the industry is  assumed to be  identical  in its production process;  each
produces the same amount of output with equal  amounts of  steam.   The
                                  4-21

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             TABLE   4-6.   MODEL  FIRM AND  PLANT CONFIGURATION:
                       RUBBER RECLAIMING INDUSTRY
Model firm

          Financial data5

          Average bond rating:
          Coverage ratio:
          Debt/equity ratio:

Model plant

          Production data5

          Plant output/year:
          Price/unit output:
          Plant sales/year:
          Plant earnings/year:

          Boiler configuration

          Total firing rate:
          No. of boilers:
          Federal region:
N.A.b
9.9
0.24
18,100 megagrams (20,000 tons)c
$0.53/kilogram ($0.24/pound)d
$9.3 million d
$0.49 milliond»e
66.8MW (224 MMBtu/hr)
 3
 8
          Characteristics of individual boilers
Capacity, MW
(MMBtu/hr)
Fuel type
Annual capacity utili-
zation, percent
Replacement, expansion
or existing
Boiler
1 2
29 18.2
(100) (62)
coal oil /gas
45 45
replacement existing

3
18.2
(62)
oil /gas
45

a!978 values.
&N.A. s Not available.
cAverage of plant output/year for 1974 - 1978.
dExpressed in 1982 dollars.
eBased upon the 1978 return on sales ratio of 5.2 percent.
                                  4-22

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typical plant operates in the midwestern United States and has a yearly
output of 18,100 megagrams (20,000 tons).  The typical producer selling
price is $0.53 per kilogram ($0.24 per pound), yielding sales of $9.3
million.  Applying an industry-wide profit margin of 5.2 percent of
sales, the model plant earns $480,000 in profit.
     The typical plant's boiler house contains three boilers that have a
combined firing capacity of 66 MW (224 MMBtu/hr).  All boilers are
assumed to operate at 45 percent of annual rated capacity.
     Regulatory Impacts.  The replacement boilers under both the base
case and the S02 alternative standard is assumed to burn coal.  In the
base case, in order to meet the proposed PM/NOX emission regulation, the
plant will install a fabric filter on the boiler.
     A summary of the economic impacts is presented in Table 4-7 for the
rubber reclaiming industry model firm.  The increase in the model
plant's product costs and value added costs due to the S02 control on
the 100 MMBtu/hr boiler are both less than 1.0 percent.
     Table 4-7 includes the change in net income due to the alternative
S02 standard.  The impact on profits assumes that sales are constant in
real terms and that expenses rise only due to the new boiler investment
for the 100 MMBtu/hr unit.  Assuming a 50 percent corporate income tax,
net income decreases from $210,000 in the base case to $60,000.  Return
on assets for the model plant decreases from 3.8 percent for the base
case to 1.0 percent under the alternative S02 standard.
     Table 4-7 also lists the rubber reclaiming industry's coverage
ratio and debt/equity ratio for two financing options for the additional
capital investment.  The coverage and debt/equity ratios do not change
significantly between the base case and the S02 alternative standard
case.  These ratios do vary, however, depending on the financing
strategy.  For example, the coverage ratio decreases from 9.9 to 6.7 in
the base case.  While this represents a 32 percent decrease, the average
ratio is still above the 3.0 standard benchmark.  The debt/equity ratio
for the alternative S02 standard varies from 0.24 to 0.32 which is well
below the 1.0 threshold level.  The low long-term debt proportion sug-
gests that the industry may have unused debt capacity.  Assuming that
the firm will finance externally, the majority of the external funds may
come from debt instruments.
                                   4-23

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  TABLE  4-7.  ECONOMIC IMPACTS OF SOa ALTERNATIVE CONTROL LEVEL VI FOR
                            RUBBER RECLAIMING
     Percent increase in plant's product cost:  0.5
     Percent increase in value added cost:

Model firm:

     Net income after taxes (106 1982 $)
          Base Case:
          Alternative control  level VI:

     Return on assets for firm (percent):
          Base Case:
          Alternative control  level VI:

Capital availability impacts:
Coverage ratio:

     Base Case:
     Alternative control  level  VI

Debt/equity ratio:

     Base Case
     Alternative control  level  VI
0.9
0.21
0.06
3.8
1.0
                                                Percent financed by debt

                                                 0%                100%
9.9
9.9
.24
.24
6.7
6.6
.31
.32
                                  4-24

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     The results of the analysis indicate that the regulatory option
cause percentage increases in product cost of one percent or less.   Pro-
fits remain positive, although relatively low,  under the alternative
S02 standard.  Data on capital availability suggest that the firm will
be able to finance the new boiler and. control  equipment investment  under
the alternative SOg standard.
     The firm may elect to defer its investment in new boiler and pollu-
tion control  equipment until  its profit margin improves.  But, as noted
earlier, the installation of a new coal-fired boiler should reduce
energy costs in the long-term, even though those savings would be re-
duced by the added cost of complying with the alternative S02 standard.
4.3.2.6  Automobile Manufacturing Industry
     Model firm and plant description.  The model firm and plant
configuration for the automobile manufacturing industry is presented  in
Table 4-8.  The plant that operates in Federal Region 5 is assumed  to  be
part of a 26-plant firm.  Total firm production is 2,340,000 vehicles,
with annual car and light truck sales of $20.4 billion, assuming an
average price (1982 dollars)  of $8,670 per vehicle.  These production
statistics do not include foreign-made cars (such as the Dodge colt or
the Chevrolet Sprint) normally part of the United States automobile
companies' fleets.  Because these cars are not produced in this country,
their production costs would not be affected by alternative regulatory
options.  Net profit for the model firm is assumed to be 4.28 percent of
total sales, or $873 million.
     The model plant boiler house consists of four coal-fired boilers
with a total  heat input capacity of 106 MW (361 MMBtu/hr).  The boiler
investment decision is to replace one of these units with a similarly
sized new coal-fired boiler.
     Regulatory Impacts.  In the base case, the plant's boiler replace-
ment must comply with S02 SIP air emission limits and the proposed
PM/NOX NSPS.  Based on historical industry trends, the fuel for the new
boiler is projected to be coal.  In the base case, the plant will
install a fabric filter for PM control.  A once-through sodium FGD  will
be installed to comply with the alternative S0£ standard.
                                   4-25

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             TABLE  4-8.  MODEL FIRM AND PLANT CONFIGURATION:
                    AUTOMOBILE MANUFACTURING  INDUSTRY
Model firm

          Financial data3

          Average bond rating:
          Coverage ratio:
          Debt/equity ratio:

Model plant

          Production data3

          Plant output/year:
          Price/unit output:
          Assembly plant sales/yr:
          Assembly plant earnings/
            year:

          Boiler configuration

          Total firing rate:
          No. of boilers:
          Federal region:
Aaa/B
20.17
0.11
90,130 automobiles'5
$8,686 automobilec
$782.9 million0

$33.5 millionc»d
106 MW (361 MMBtu/hr)
  4
  5
          Characteristics of individual boilers
                                                   Boiler
Capacity, MW
(MMBtu/hr)
Fuel type
Annual capacity utili-
zation, percent
Replacement, expansion
or existing
	 1_
25.5
(87)
coal
Oe


	 2_
25.5
(87)
coal
25
existing

3
25.5
(87)
coal
25


4
29
(100)
coal
25
replacement
31978 values.
''Based upon average industry estimates.
Expressed in 1982 dollars.
dBased upon the 1978 return on sales ratio of 4.28 percent.
eBoiler number one is used as a standby boiler.
                                  4-26

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     The estimated economic impacts for the auto industry model  firm are
summarized in Table 4-9.  Production cost and value added impacts are
negligible (i.e., less than 0.1 percent).
     Table 4-9 shows the change in profit margin for the automotive
industry.  Because the boiler investment is such a small fraction of
total expenses, the net income changes due to a regulatory option are
small compared to the base case.  The alternative SOg standard results
in a less than one percent decline in net income compared to the base
case.  Return on assets remains constant at 9.17.
     The coverage and debt/equity ratios for the autombile manufacturing
industry are also shown in Table 4-9.  The coverage ratio declines
slightly from 20.17 to 2.0.10.  The debt/equity ratio remains at  0.11.
Neither of these ratios suggests problems in obtaining capital in either
of the regulatory options.  Since these rates show a low percentage of
debt, future investments could be funded largely from debt, depending
upon the interest rate and the industry's inclination toward debt
financing.
     The results of the analysis indicate that the alternative S02 stan-
dard does not significantly affect any of the above financial
parameters.  The impact on product cost is negligible due to the low
ratio of new steam cost to total dollar output.  Capital availability is
not constrained by any of these cases, suggesting that the firm will be
able to finance a new boiler replacement.
4.3.2.7  Petroleum Refining Industry-
     Model firm and plant description.  Table 4-10 presents the model
firm and plant for the petroleum refining industry.  This plant,
operating in the Southwest (Federal Region 6), is assumed to be part of
a seven-plant firm.  Total production for the model firm is 112.93
million barrels of refined product per year.  Assuming a  price of
$33.65 per barrel and an annual net profit margin of 4.51 percent, the
firm realizes annual sales of $3.8 billion and annual profits of $171.4
million.  Comparing these figures to 1978 U.S. refined product
consumption, this firm satisfies approximately two percent of total
demand and accounts for about four percent of the domestically refined
petroleum products market.
                                   4-27

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  TABLE  4-9.  ECONOMIC  IMPACTS OF S02 ALTERNATIVE CONTROL LEVEL VI FOR
                         AUTOMOBILE MANUFACTURING
     Percent increase in plant's product cost:   .004
     Percent increase in value added cost:

Model firm;

     Net income after taxes (106 1982 $)
          Base Case:
          Alternative control level VI:

     Return on assets for firm (percent):
          Base Case:
          Alternative control level VI:

Capital availability impacts:
Coverage ratio:

     Base Case:
     Alternative control level  VI

Debt/equity ratio:

     Base Case
     Alternative control level  VI
 .012
37.8
37.6
9.17
9.14
                                                Percent financed by debt

                                                 0%                100%
20.17
20.17
.11
.11
20.10
20.10
.11
.11
                                  4-28

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            TABLE  4-10.  MODEL FIRM AND PLANT CONFIGURATION:
                       PETROLEUM REFINING  INDUSTRY
Model firm

          Financial data3

          Average bond rating:
          Coverage ratio:
          Debt/equity ratio:

Model plant

          Production dataa

          Plant output/year:
          Price/unit output:
          Plant sales/year:
          Plant earnings/year:

          Boiler configuration

          Total firing rate:
          No. of boilers:
          Federal region:
Aaa/A
14.12
 0.32
16,133 barrels
$33.65 per barrelb»c
$543.9 million0
$24.5 mil1ionc»d
381.0 MW (1300 MMBtu/hr)
  4
  6
          Characteristics of individual boilers
                                                  Boiler

Capacity, MW
(MMBtu/hr)
Fuel type

Annual capacity utili-
zation, percent
Replacement, expansion
or existing
	 1_
95.2
(325)
refinery
gas

75



	 2_
95.2
(325)
refinery
gas

75

existing

3
95.2
(325)
natural
gas

75



4
95.2
(325)
coal


75

replacement
a!978 values.
^The price per unit output is based upon the average price for all
  refined products.
Expressed in 1978 dollars.
dBased upon the 1978 return on sales ratio of 4.51 percent.
                                   4-29

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     The model plant boiler house consists of four boilers, with a total
heat input capacity of 381 MW  (1,300 MMBtu/hr).  Each boiler has a
firing capacity of 95 MW  (325 MMBtu/hr) and is used at 75 percent of
heat input capacity. 'Three of the boilers are existing units, firing
refinery and natural gas.  The fourth unit, firing a mixture of
petroleum coke and residual oil, will be replaced by a new coal-firing
boiler in 1990.  Approximately 25 percent of boiler steam .generation for1
this plant will be provided by the new coal-firing boiler.
     Regulatory Impacts.  Historically, a significant share of the
boiler fossil fuel demand in the petroleum refining industry has been
met with the use of liquid, solid, and gaseous waste by-products of
refinery operations.  Because the focus of this analysis is on the
choice between coal, oil, and gas, the fuel type for the new boiler is
limited to these fuels.  The new boiler under both the base case and the
alternative SOg standard is assumed to burn coal.
     Table 4-11 presents the change in product cost and value added for
the refining plant due to the alternative S0£ standard.  Assuming 100
percent cost pass-through, the price impact is less than 0.1 percent.
This small percentage is due primarily to the small fraction that new
steam costs comprises of total product cost.  Table 4-11 also shows that
net income for the refinery company decreases about one percent to $33.3
million.
     The coverage and debt/equity ratios for the model  petroleum
refinery indicate that neither the regulatory option nor the financing
strategy affect these ratios significantly.  The coverage ratio
decreases from 14.12 to 14.08, or less than 0.3 percent.  The
debt/equity ratio remains at 0.32 under all financing options.
     The results of the analysis  indicate that the alternative  $03 stan-
dard does not result in significant cost impacts on the petroleum
refining industry.  Profitability is affected only slightly by  the
incremental  expenses due to new boiler investment.   Return on assets,
however, remains at 5.9 percent under the base case and alternative S02
standard.
     Capital  availability appears to be stable for the  petroleum
refining industry.  The coverage  ratio is sufficiently  high to  assume
                                  4-30

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 TABLE  4-11.  ECONOMIC  IMPACTS OF SOa ALTERNATIVE CONTROL LEVEL VI FOR
                           PETROLEUM REFINING
     Percent increase In plant's product cost:
     Percent increase in value added cost:
Model firm;
     Net income after taxes (106 1982 $)
          Base Case:
          Alternative control  level  VI:
     Return on assets for firm (percent):
          Base Case:
          Alternative control  level  VI:
Capital availability impacts:
Coverage ratio:
     Base Case:
     Alternative control level VI
Debt/equity ratio:
     Base Case
     Alternative control level VI
.02
.14
33.6
33.3
5.98
5.93
                                                Percent financed by debt
                                                 0%                100%
14.12
14.12
.32
.32
14.08
14.08
.32
.32
                                   4-31

-------
that the refinery will not have problems obtaining external funds for
the boiler investment.
4.3.2.8  Iron and Steel Manufacturing Industry
     Model firm and plant description.  Table 4-12 depicts the model
firm and plant for the integrated iron and steel industry.  This plant
is assumed to be part of a five-plant firm, located in the midwestern
States.  Total production for the model firm is 8.2 million megagrams
(9.0 million tons) of raw steel per year.  Assuming a real price of $534
per megagram ($480 per ton) and an annual net profit margin of 2.9 per-
cent, the firm realizes annual sales of $4.3 billion and annual profits
of $126.4 million.
     The model plant boi-ler house consists of four boilers with a total
heat input capacity of 216 MW (736 MMBtu/hr).  Three of the boilers have
a capacity of 40 MW (137 MMBtu/hr) and the fourth has a capacity of 95
MW (325 MMBtu/hr).  All the boilers currently fire blast furnace gas and
have an annual capacity utilization of 55 percent.  The three 40 MW
boilers are retired and assumed to be replaced by three similarly sized
coal-fired boilers.  Approximately 55 percent of boiler steam generation
for this plant will be provided by the new coal-fired boilers.  To
comply with the alternative S02 standard, a once-through sodium F6D
system is installed.
     Regulatory Impacts.  Table 4-13 indicates that there is  no signifi-
cant change in product cost, value added, or profitability for the
industry as a result of the changes in cost of new steam.  The
profitability analysis for the base case and alternative S02  standard
assumes that sales are held constant in real  terms and that expenses
increase only as a result of new boiler investment.  This incremental
expense is assumed to be absorbed by the firm and is  not passed on to
the consumer.  Given this assumption, net income is $24.0 million in the
base case and $23.4 million in the alternative S02 standard case.
Return on assets decreases from 3.36 percent to  3.28  percent.   Because
of the relatively large sales and expense base for the industry, the
incremental  expense brought about by the increase in  new steam cost of
the alternative S02 standard does not significantly affect the firm's
profitability.
                                  4-32

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            TABLE  4-12.  MODEL FIRM AND PLANT CONFIGURATION:
                  IRON AND STEEL MANUFACTURING INDUSTRY
Model firm

          Financial data3

          Average bond rating:
          Coverage ratio:
          Debt/equity ratio:

Model plant

          Production data3

          Plant output/year:
          Price/unit output:
          Plant sales/year:
          Plant earnings/year:

          Boiler configuration

          Total firing rate:
          No. of boilers:
          Federal region:
  N.A.b
  6.09
  0.52
  1,632,600 megagrams  1,800,000 tons)
  $534 megagram (484 per ton)c
  $870.7 million c
  $25.3 millionc.d
  215 MW (736 MMBtu/hr)
    4
    5
          Characteristics of individual boilers
Boiler
Capacity, MW
(MMBtu/hr)
Fuel type

1
40.1
(137)
coal

2
40.1
(137)
coal

3
40.1
(137)
coal

4
95.2
(325)
blast
furnace
gas
          Annual capacity utili-
            zation, percent

          Replacement, expansion
            or existing"
55
55
     replacement
55
55
                 existing
31978 values.
bN.A. = Not available.
Expressed in 1982 dollars.
dBased upon the 1978 return on sales ratio of 2.9 percent.
                                  4-33

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  TABLE  4-13.   ECONOMIC IMPACTS  OF S0£  ALTERNATIVE  CONTROL  LEVEL  VI  FOR
                              IRON  AND STEEL
     Percent increase in plant's product cost:  0,1
     Percent increase in value added cost:

Model firm:

     Net income after taxes (106 1982 $)
          Base Case:
          Alternative ccrntrol  level VI:

     Return on assets for firm (percent):
          Base Case:
          Alternative control  level VI:

Capital availability impacts:
Coverage ratio:

     Base Case:
     Alternative control level VI

Debt/equity ratio:

     Base Case
     Alternative control level VI
0.25
24.0
23.4
3.36
3.28
                                                Percent financed by debt

                                                 0%                100%
6.09
6.09
.52
.54
5.82
5.80
.52
.54
                                  4-34

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     Table 4-13 also shows that coverage and debt/equity ratios  do not
vary significantly as a function of the regulatory option.   The  coverage
ratio decreases from approximately 6.09 with zero percent debt financing
to approximately 5.82 with 100 percent debt in the base case.  The
alternative S02 standard will  reduce the coverage ratio to  5.82  under
the 100 percent debt financing case.  The debt/equity ratios vary from
0.52 to 0.54 for the various financing strategies.
     The results of the analysis indicate that the regulatory options
cause low percentage increases in product cost.  New steam costs for the
regulatory options comprise a relatively small portion of average
product cost.  Profitability likewise is affected slightly by the
incremental expenses due. to new boiler investment.
     With regard to financing capability, the analysis of coverage
ratios indicates that new boiler investment can be funded with up to 100
percent debt.  The 3.0 coverage benchmark is always exceeded even when
total debt financing is assumed.  This firm's solvency position remains
stable even when total debt financing is undertaken.  Due to the
industry's large equity base, the debt ratios do not exhibit wide
variances as a result of the two financing options.
4.3.2.9  Liquor Distilling Industry
     Model firm and plant description.  The model plant and boiler con-
figuration of the liquor distilling industry is shown in Table 4-14.  It
is assumed that the typical firm operates three plants.  The model plant
is located in a southeastern State and produces 17 million liters (4.5
million gallons) of distilled liquor annually.
     The model plant operates two boilers, one rated at 29 MW (100
MMBtu/hr), the other at 18 MW (62 MMBtu/hr), with a total firing
capacity of  47 MW  (162 MMBtu/hr) and 45 percent capacity utilization.
The model  plant elects to replace the larger natural gas/oil-fired
boiler with  an identically configured coal-fired boiler.
     Regulatory Impacts.  The model plant replacement boilers for the
liquor distilling  industry are assumed to be coal-fired.  To meet the
proposed PM/NOX NSPS in the base case, a fabric filter is installed for
PM control.
     Table 4-15 illustrates the changes in product cost, va.lue added,
and  profitability  due  to  the S02 alternative  standard.  Sales are
                                   4-35

-------
             TASUt  4-14.   HODS. FIRM AND  PLANT CONFIGURATION:
                         LIQUOR DISTiLLING IflDUSTRY
           Financial 
5.44
•3.2?2
Model  plant
           "">i it O'jtput-'y^ar:
           Y- :e/un-T o-iuj-ut:
           ••-. iit s-i'-s-'year:
           i-la-it earnings/year:

           EOT 1 er .:on-'1 cgra t i on

           Tcta'; r'-r'ing nie:
           So. o^ boi'-ers:
           Federal  region:
1" .0 miTi ic
JC.31 Ifier
$.29.2 irmi
$1.58 milli  -
47-3 W  (16i:  •'
 2
 4
                       ic'S of •'(•?.•'. r^Jael bcT.ers
                                                 Bo:'. .
           Cc.picit", MW
           cuel  type
                  capacity uti'r-
             zation, percant
          Replecsnient.
             o.- exist-ag
   2-}


  co-il


   4-i


replacement
                        -'4.5  mil : i-.jr gel t-)ns
                           on ) c
                       2

                     ,2.2
                     4..
-. • s v.i • ;?.s.
b'l  '  -  <•« -  = i/a i"!  - •
 • I . . ~  •• ^ .  a vc, I i. , :.-.
cE.xps-essfed in  1SSL  ..o

       upo«^  the  1978 return en salts  j-atic- of 2.9 parser:.

-------
 TABLE  4-15.  ECONOMIC  IMPACTS OF S02 ALTERNATIVE CONTROL LEVEL VI FOR
                            LIQUOR DISTILLING
     Percent increase in plant's product cost:  0.12
     Percent increase in value added cost:

Model firm;

     Net income after taxes (106 1982 $)
          Base Case:
          Alternative control  level VI:

     Return on assets for firm (percent):
          Base Case:
          Alternative control  level VI:

Capital availability impacts:
Coverage ratio:

     Base Case:
     Alternative control level VI

Debt/equity ratio:

     Base Case
     Alternative control level VI
0.24
0.29
0.17
.68
.37
                                                Percent financed by debt

                                                 0%                100%
5.44
5.44
.29
.29
4.32
4.26
.36
.37
                                   4-37

-------
 assumed to  be constant  in  both  regulatory  options, and expenses  increase
 only as a result of the new  boiler  investment.   Net  income level
 decreases from $290,000 in the  base case to  $170,000 under the S0£
 alternative standard.   Return on assets is 0.68  percent  in the base case
 and  0.37 percent under  the alternative S02 standard.
      Table  4-15 also presents comparative  coverage and debt/equity
 ratios  for  the alternative S02  standard.   These  results  show the
 coverage ratio in the base case decreasing from  5.44 with zero percent
 new  debt to 4.32 with 100 percent debt.  The coverage ratio decreases
 from 5.44 to 4.26 for zero and  100  percent financing under the
 alternative S02 standard.  However,  both coverage ratios are still above
 the  3.0 coverage benchmark.
      The results of the analysis indicate  that product cost is expected
 to increase by slightly over one-half of a percent.  New steam costs for
 the  alternative S02  standard comprise a relatively small  portion of
 average product cost.  Profitability shows a decline as a result of the
 S02  regulatory option when compared to the base case.  Return on assets
 decreases from 0.68  percent in the  base case to 0.37 percent.
      The firm  may elect to defer its investment in new boiler and pollu-
 tion  control equipment until  its profit margin improves.   But, as noted
 earlier, the installation of a new coal-fired boiler should reduce
 energy  costs in  the  long-term, even though those savings  would be
 reduced  by  the  added cost of complying with the alternative SOg
 standard.
      With regard to  financing capability,  the analysis  of coverage
 ratios  indicates that new boiler investment can be funded totally by
debt while  still meeting the  3.0 coverage  benchmark.   The industry
maintains a relatively stablized solvency position even when  100 percent
debt  financing  is assumed.
4.3.3  Small Business Analysis
     The effects of S02 standards  on small  businesses are considered in
this section.  For six of the seven  industries, small plants  are char-
acterized in Table 4-16.
      For beet sugar, iron and steel, distilled  liquor,  and petroleum
refining, average-size small  plants  are examined.  Using  1977  Census
data on plant sales and  the Small  Business  Administration's definition
                                  4-38

-------
                        TABLE 4-15.  SMALL PLANTS
                          IN  SELECTED  INDUSTRIES
                                Small plant characteristics
          SIC)
                 Average sales'3
Max. employees3       (10&)
(MMBtu/hr)
Beet sugar (1063)
Iron and steel (3312)
Distilled liquor (2085)
Petroleum refining
(2911)
Auto manufacturing
(3711)
Reclaimed rubber (3031)
Fruit and vegetable
canning (2033)
750
1,000
750
1,500
„
1,000

750
500
23.1
14.2
22.7
224.1

252. ld

9.3e
NAf
175
125
125
100

100d

224e
NAf
aSmall Business Size Standards, SBA Rules and Regulations.   July 15,  1980
 45FR47415.  Schedule A.  Definition of Small Business for  the Purpose of
 Pollution Control Guarantee Assistance under PL94-305.  Section 121.3-16.

^Except as noted, small plant sales represent the average sales of small
 plants in the 1977 Census of Manufacturers, converted to 1982 dollars using
 the 6NP price deflator.

GBoiler sizes for small plants are estimated using the same heat intensities
 as at the large plants in each industry.

dThe small plant shown is that which would need a 100 MMBtu/hr boiler.

eThe average plant in this industry is a small  plant.
     applicable.  Plants are fired by natural  gas and are consequently not
 likely to be affected by the S02 standards.
                                   4-39

-------
 of small  plants  in each industry (a  maximum of 750  to  1,500  employees),
 the average sales  per plant was  calculated  among  all plants  classified
 as small  in each industry.   In turn, sales  were converted  to 1982
 dollars using  the  GNP price deflator.
      Corresponding boiler capacities were estimated  for  such small
 plants by using  the boiler  heat  intensities per dollar of  product
 described earlier  for large plants in  the same industries.
      The  same  procedure was followed to  estimate  the size  of a small
 automobile manufacturing plant;  however, the average small plant would
 have only a three  HHBtu/hr  boiler.   The  small  plant used instead in this
 analysis  is scaled up to the  size that uses a  100 MMBtu/hour boiler;
 this is still  within  SBA-'s  definition of small  for that  industry.
      In the case of reclaimed rubber, it was found that the  average
 plant analyzed in  Section 4.3.2.5 was already  a small  plant,  and that
 further analysis of this industry is not needed in this section.
      Fruit and vegetable canning plants also are not analyzed in this
 section,  because they burn  natural gas in their boilers and  therefore
 would not  be affected by standards for S02  emissions.
      Potential impacts  for  small plants  in  the  first five  industries are
 summarized  in  Table  4-17.   The results show how small  plants would be
 affected and address  EPA's  four guideline criteria for determining
 whether a  Regulatory  Flexibility Analysis is needed:
   •   Annual compliance  costs are compared to base case production
      costs  (sales, less  net income and taxes);
   •   Annual compliance  costs as a percentage of sales are compared
      for small versus large plants (model plants from the BIDs);
   •   The debt-to-equity  ratio with control  equipment outlays
      financed  entirely  from debt is compared with the base case
      ratio  to assess  capital adequacy;
   0   Net income as a  percent of sales is measured to determine
      plant  profitability (or closure) with  full absorption of the
      annualized compliance costs.

      Results for small plants in each of the five industries  showed that
no industry would need a formal  Regulatory  Flexibility  Analysis.
Annualiz'ed compliance costs  range from 0.1  to 2.9 percent of production
                                   4-40

-------


















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costs at the five Industries, below EPA's guideline threshold of five
percent.  Annualized compliance costs as a percentage of sales at small
versus large plants similarly do not exceed EPA's guidelines.  The
differential for small plants ranges from 0.1 to 2.7 percentage points,
below EPA's guideline level of 10 percentage points.
     The debt-to-equity ratio remains below 1.0, the benchmark used in
the BID.  Assuming that capital investments for S02 emissions control
are financed 100 percent by debt, the debt ratios of the controls range
from 0.12 to 0.69.  This shows residual  capital availability for small
plants even after compliance with the standards.
     Finally, no small plants would likely close due to the recommended
standards.  Net income w-ith full  absorption of compliance costs would
remain positive.  New income as a percent of sales ranges from 0.5 to
4.4 percent of sales.
     In sum, none of EPA's guidelines for a formal Regulatory
Flexibility Act Analysis is triggered in the analysis  of small  plant
impacts.
                                  4-42

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                                 APPENDIX  A
                             OVERVIEW OF IFCAM
A.I  PURPOSE
     The Industrial Fuel Choice Analysis Model (IFCAM) is an energy demand
model developed by Energy and Environmental Analysis, Inc. (EEA) to evaluate
fuel choice decisions in the industrial sector over a five to 15-year fore-
casting horizon.  IFCAM is a highly disaggregated process engineering model*
designed to analyze factprs affecting fuel choice decisions in industrial
boiler energy applications.
     IFCAM assesses the impacts of four sets of factors affecting  industrial
fuel choice:  fuel prices, State and Federal energy and environmental policy
proposals, the costs associated with firing alternate fuels, and other key
model parameters such as the expected size distribution of new industrial
boilers.  The model i.s capable of estimating the energy, environmental,  and
cost impacts of alternative air emission regulations for new industrial
boilers.
A.2  ANALYTICAL FRAMEWORK
A.2.1  Summary of Approach
     IFCAM focuses on boiler fuel choice decisions between coal, oil, and
natural gas.  The model determines fuel choices for boilers  in each of the
10  Federal regions using projected industrial  fuel prices  and total fossil
 *Process  engineering  models  simulate  the effects  of specific policies on
  new and  existing  technical  alternatives through  the application of direct
  engineering information.  Other types  of models  are:   econometric
  (mathematical  equations solved simultaneously with coefficients estimated
  statistically  from historical  data); optimization (derivation of "best"
  solutions by means of algebraic procedures such  as linear programming);
  simulation or  systems dynamics (mathematical  equations solved recursively
  with coefficients estimated from modeler's experience and intuition).
                                      A-l

-------
fuel demand that primarily have been  generated by the U.S.  Department of
Energy  (DOE).   IFCAM does not consider feedstock energy uses such  as
metallurgical coal or raw materials derived from petroleum  or natural gas
in the  chemical industry.
     A  very disaggregate representation of industrial energy uses  is incor-
porated in IFCAM.  Energy use is disaggregated into nine industrial subsec-
tors having different growth rates and regional dispersions.  Each of these
industrial subsectors is further divided into boiler and process heat appli-
cations.
     Industrial boiler energy use is  disaggregated by new and existing
boilers of different sizes and capacity utilizations rates.  New and
existing boilers are classified on the basis of the type of fuel they were
designed to fire and whether they can be retrofitted to fire alternative
fuels.  Eight size classes are delineated for boilers.  There are five
capacity utilization rate categories for boilers.
     The final  level of disaggregation incorporates regional detail.  Indus-
trial boiler fuel use is divided among Air Quality Control Regions (AQCR's).
Since a large number of regions are considered by IFCAM, the model can por-
tray the variability in the environmental control costs of using the various
fuels to fire boilers located throughout the country.
     Current modeling capabilities for pollution control systems include
only conventional technologies.  The mid-term time horizon of IFCAM pre-
cludes  significant market penetration of many of the advanced technologies
still in the development stage.
     Based on the characteristics of each combustor (size, operating rate,
pollution control requirements, etc.), capital and nonfuel operating costs
are generated for the options of choosing oil, gas,  or coal.  The fuel  type
associated with the lowest after-tax present value (including expected fuel
expenses) of the total  cost of generating energy over the investment period
is selected.
     The model generates energy, environmental, and  cost impacts.  Outputs
include regional industrial boiler fossil energy demands by fuel type,  air
emissions, solid waste  disposal requirements,  energy penalties associated
                                     A-2

-------
with the operation of pollution control equipment, demand for new pollution
control equipment and boilers by size and type, and total costs (capital,
annual operating, maintenance and fuel expenses) of using fossil energy to
generate steam.
A.2.2  Capabilities
     Four classes of energy policy measures can be analyzed with IFCAM:
fuel taxes, investment incentives, energy regulatory policies, and environ-
mental regulatory policies.  A variety of tax credits and changes in the
tax treatment of capital proposed to provide incentives to invest in coal-
related equipment can be analyzed using the model.
     Energy regulatory policies that target specific types of industrial
energy uses to burn coal including new boilers and existing boilers designed
to fire coal are modeled.  Economic feasibility of complying with the  Power-
plant and  Industrial Fuel  Use Act (FUA) is an option in  IFCAM that deter-
mines whether or not the cost of using coal substantially exceeds the  cost
of burning  imported oil.   The provisions of FUA are not  applied  in this
impact analysis of New Source Performance  Standards (NSPS) for  industrial
boilers.
      Environmental regulatory policies that could affect fuel choice deci-
sions  also  can  be considered  in  IFCAM.  These regulations can affect fuel
choice by altering the relative  costs  of burning  alternative fuels.  Regu-
 lations  relating to  particulate  matter (PM),  sulfur dioxide  (SOe), and
nitrogen  oxide (NOX)  emissions from fuel-burning  sources include State and
 local  regulations  and  Federal  NSPS.
      IFCAM is  capable of modeling  alternative  industrial boiler NSPS.
 IFCAM can simulate the use of various types  of flue  gas  desulfurization
 (F60)  systems  (some  with combined  S0£/particulate matter emissions control),
 various  types  of post-combustion particulate matter  emissions  control, and
 two types of combustion modifications to  control  NOX  emissions.  IFCAM's
 scrubber cost estimates are unique for each  coal  type and S02 emission
 regulation.
      Several types of alternative NSPS specifications of S02 emissions
 control for industrial residual  fuel  oil  and coal-fired boilers can  be
 analyzed.  For example, the regulation can vary by boiler size and can be
 specified as:
                                     A-3

-------
  •  A ceiling emission rate  (ng of pollutant/Joule  (Ib of pollutant/
     MMBtu) of fuel burned)
  •  A recommended percentage removal  (e.g., 90 percent removal of
     uncontrolled S02 emissions)
  •  A recommended percentage removal  and a "floor"  emissions rate
     (e.g., 90 percent removal but no  lower than 258 ng/J (0.6
     lb/MMBtu))
  •  A minimum percentage removal to be applied if the recommended
     percentage removal results in controlled emission rates lower
     than the "floor"
     IFCAM can simulate the impact of  alternative fuel price scenarios on
industrial fuel mix.  Regional fuel prices for distillate fuel oil,
residual fuel oil (four sulfur classes), natural gas, and coal (9 types)
are considered in the model.
     The fuel choice decision is sensitive to non-fuel costs of burning
alternate fuels.  While the best available cost data are used, the model
can evaluate the impact of any alternative cost estimates.
     In addition to these three sets of factors, many other key variables
affect fuel use.  The model is designed, for example, to evaluate the
effects of varying industrial production growth rates, and to alter the
distribution of size and operating characteristics of new boilers.
A.2.3  Model Logic
     Figure A-l outlines the model structure and identifies key inputs,
outputs, and major analytical steps.
     Inputs 1. 2, and 3 - Energy Demand and Industrial Production;  The
level of industrial fossil fuel demand and nine industrial production growth
rates by region are critical inputs to IFCAM.  Although such inputs can be
derived from many sources, in the past they have been taken from the Energy
Consumption Data Base (ECDB), DOE projected industrial energy use, and the
macroeconomic model that drives the DOE modeling framework.
     Model Step #1 - Characterize Industrial Energy  Use:  This initial step
breaks down the projected fossil fuel use by industrial sector, new and
existing facilities, type of combustor (e.g., boiler versus process heater),
size of boiler, and a variety of other classifications.  These factors,
discussed below, are significant because they:
                                     A-4

-------
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                                                  A-5

-------
   t  Alter  the  costs  of  using  alternate  fuels  (e.g.,  fuel  costs  vary
     according  to  industrial  location)
   •  Determine  the economics of  fuel  choice  (considering  such  factors
     as  the boiler's  capacity  utilization  rate)
   •  Distinguish elements  of energy use  specifically  targeted  by
     energy policy measures  (e.g.,  new boilers  above  a  cutoff  size).
     Inputs 4 and  5 - Geographic and  Boiler  Size/Capacity  Utilization
Distributions;  The geographic and  boiler  size/capacity utilization  distri-
butions  are based  on  historical  data.
     Model  Step #2 -  Create and  Site  Individual Combustors;  Energy  uses
from Step #1 are disaggregated into classes  of  individual  boilers prior to
further  analysis.   Boilers then  are sited  in AQCR's according  to historical
patterns of industrial location.
     Input  6 - Environmental Regulations:  A file of  State and Federal air
emissions regulations applicable to boilers  is  an important  input to deter-
mine baseline costs and  emissions.  The file contains current  regulations
that vary by boiler size and fuel type on  an AQCR basis.
     Model  Step #3  -  Identify  Environmental  Regulations and  Pollution
Control  Strategies;   Emission  limits for S02, PM, and NOX  applicable to
individual  boilers  are assigned  based on State and Federal regulations.
Environmental regulations may  increase the capital, operating, and fuel
costs of a  boiler  by  increasing  the environmental control  required or quality
of fuel  burned.  Available pollution control technologies  are  identified in
Table A-l.   Compliance options are  identified for each fuel  type.
     Inputs  7, 8,  and 9  - Fuel Prices. Energy Policy, and  Financial
Parameters;  Specifications for  a particular model run and projection year
are incorporated at this step.  Specifications include the fuel price
scenario, financial parameters, and energy regulatory policies.
     Fuel price variations are used in IFCAM to model fuel taxes, natural
gas price deregulation,  or variations in price trajectories.  Fuel prices
can be varied for distillate fuel oil, residual fuel oil (four sulfur
classes), coa'l (9 coal types), and natural  gas.  The price of each fuel
type can differ by region.
     Investment incentives considered have focused primarily on differen-
tial depreciation methods for coal-, oil-,  or gas-fired units and on
                                       A-6

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       TABLE A-l.  INDUSTRIAL BOILER POLLUTION CONTROL TECHNOLOGIES
                                 IN IFCAM
         Pollutant
     Technology options
            PM
            NOy
Flue gas desulfurization
  -  dual alkali3
  -  lime spray drying13
  -  sodium

Single mechanical collector
Dual mechanical collector
Side stream separator
Electrostatic precipitator
Fabric filter

Combustion modifications
  -  low excess air
  -  staged combustion air
aTray type scrubber.

^Combined S02/PM emissions control  system; includes a fabric filter.
                                     A-7

-------
 Increased investment tax credits (ITC's) for coal-derived fuel firing.  The
 impacts of different depreciation methods and investment incentives are
 handled within the scope of the main model logic.
      The coal conversion regulatory program established under the FUA targets
 boilers whose rated capacity is greater than 29 MW (100 MMBtu/hr) heat input.
 An economic test compares the total cost (capital, annual O&M and fuel) of
 burning coal to the total cost of burning imported oil to simulate legisla-
 tive provisions related to economic exemptions.   This procedure projects
 the level of increased coal use under the program, excluding any implementa-
 tion problems.  As noted earlier, the coal conversion economic test option
 in IFCAM is not currently utilized in evaluating alternative NSPS's for
 industrial  boilers.
      Input  10 - Capital and O&M Cost Data:  Capital  and O&M cost data rela-
 tive to the range of boiler and pollution control equipment modeled in IFCAM
 are derived from numerous sources.   Engineering  cost data is revised on an
 as-needed basis when current estimates are refined or new estimates become
 available.
      Model  Step #4 - Evaluate Economics of Fuel  Choice:   Based on the charac-
 teristics of each boiler (size,  operating rate,  pollution control require-
 ments,  etc.),  capital  and non-fuel  operating  costs are estimated for the
 options of  choosing oil,  gas,  or coal.   The fuel  type associated with  the
 lowest  after-tax present value (including capital  and annual  O&M and fuel
 expenses) of the cost  of generating energy over  the  investment period  then
 is  selected.
     The  components  of  Net  Present  Value (NPV) can be divided  into  three
 major subsets:   policy  inputs,  standard  model assumptions,  and  key  model
 variables.   Policy inputs are  depreciation life  and method,  ITC,  and fuel
 prices.  Standard  model  assumptions  are  construction  period  and  corporate
 tax rate.  These elements do not vary by boiler characteristics  and  repre-
 sent standard  investment  assumptions.  Key model  variables  — capital  costs,
 investment period, discount rate, annual fuel consumption by capacity  utili-
 zation rate and size, and operation and maintenance (O&M) costs —  all vary
with factors considered in the model (e.g., new or existing classification
or environmental regulation).
                                        A-8

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A.3  KEY DATA INPUTS
     This section summarizes key assumptions used in this analysis.  These
estimates may be revised in future model runs.
A.3.1  Cost Algorithms
     The capital and operating costs of new boilers and associated pollu-
tion control equipment have been developed by several contractors.  These
costs were generalized to be expressed as algorithms.  The algorithms  are
functions of a number of significant parameters.
     The capital cost estimates include all installation costs  (which  are
assumed not to vary by region) and indirect charges such as contingencies,
land, and working capital.  The boiler costs  include auxiliary  equipment
such as the powerhouse and fuel and ash handling  facilities.  The  annual
non-fuel O&M cost estimates include labor, materials, parts,  solid waste
disposal and utility and commodity costs.  The  capital  and annual  non-fuel
O&M cost estimates are assumed not to  increase  in real  terms  over  time.
A.3.2   Financial Parameters
     The fuel  choice decision framework in  IFCAM  is based on  the premise
that  industry  will try to minimize the total  costs of generating energy
over the useful  life of  the facility.   Specifically,  industrial managers
will  select the  fuel type with the  lowest after-tax NPV of cash outflows
for  operating, fuel, and capital  costs.
      IFCAM models  the  key elements  of  the Energy  Tax  Act of  1978 (ETA) and
the  Economic Recovery  Tax Act  of  1981  (ERTA).  The  ETA  influences  after-tax
NPV  calculations by  permitting  investments in coal  facilities to be depre-
ciated using accelerated methods  while requiring  investments in new gas or
oil  boilers to be depreciated  using a straight line method.   Both  new coal
 and  oil/gas boilers  are depreciated over  5 years.  New coal-fired  boilers
 qualify for the regular 10  percent investment tax credit (ITC), but new
 oil/gas boilers are excluded from the regular ITC.   Special  energy tax
 credits are not incorporated because they expired on  December 31,  1982 for
 conventional coal systems.
      IFCAM assumes an investment period of 15 years for new boilers.  The
 corporate income tax rate is assumed to be 50 percent and includes Federal
 and local  tax liabilities.
                                      A-9

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     The discount rate  in  IFCAM represents the average real  (not  nominal)
after-tax cost of capital.  The real, after-tax discount rate  is  eight per-
cent for new units.
A.3.3  Boiler Characteristics
     IFCAM uses eight standard boiler sizes.  Table A-2 summarizes key
assumptions in each boiler size class.  Costs and emission rates  vary
significantly with the  boiler type and firing method.  All new firetube
boilers are single-fuel fired.  All new watertube oil and gas boilers are
dual-fuel fired.
A.3.4  Technology Limits
     There are limits on the capability of control technology to  remove air
pollutants.  The estimates used in this analysis for new coal-fired indus-
trial boilers are listed in Tables A-3 and A-4.
 A.3.5  Air Emissions Calculations
     IFCAM projects air emissions for three pollutants:  S02, PM, NOX.  The
level of air emissions  is a function of fuel type, boiler type, and the
emission regulation.  If the applicable regulation requires no emission
reductions, the uncontrolled emission rates are the level of air  emissions.
     If the applicable regulation requires emission reductions in coal-
fired boilers for S02, then the level of emissions is the following:
         Controlled S02 emissions = (R x S x (1-Sc)) + ((1-R) x A)

     where:  S = uncontrolled annual average S02 emissions from
                 coal combustion, ng/J (Ib/MMBtu)
            Sc = reduction required to meet standard (fraction)
             R = 0.90 for lime spray drying F6D
               - 0.95 for dual alkali and sodium FGD
             A = uncontrolled S02 emissions from natural gas
                 combustion (backup fuel)

     This calculation assumes a reliability factor (R) for scrubbers and a
low sulfur fuel standby option in the event of pollution control equipment
malfunction.
                                    A-10

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        TABLE A-2.  IFCAM INDUSTRIAL BOILER SIZE/TYPE ASSUMPTIONS
Boiler size category,
MW (MMBtu/hr) heat input
Representative
Range size
3-9
(10-30)
9-15
(30-50)
15-22
(50-75)
22-29
(75-100)
29-44
(100-150)
44-58
(150-200)
58-73
(200-250)
Greater than 73
(greater than
250)
6
(20)
12
(40)
18
(62)
26
(87)
37
(125)
51
(175)
66
(225)
95
(325)

Coal
Package, water -
tube, underfeed
stoker
Package, water-
tube, underfeed
stoker
Field-erected,
watertube,
spreader stoker
Field-erected,
watertube,
spreader stoker
Field-erected,
watertube,
spreader stoker
or pulverized
coalb
Field-erected,
watertube,
spreader stoker
or pulverized
coalb
Field-erected,
watertube,
spreader stoker
or pulverized
coalb
Field-erected,
watertube,
pulverized coal
Type
Residual oil/
natural gasa
Package,
firetube
Package,
watertube
Package,
watertube
Package,
watertube
Package,
watertube
Package,
watertube
Two package,
watertube0
Two package,
watertube0

Distillate oil/
natural gasa
Package,
firetube
Package,
watertube
Package,
watertube
Package,
watertube
Package,
watertube
Package,
watertube
Two package,
watertube0
Two package,
watertube0
aFiretubes are single-fuel fired.  Watertubes are dual-fuel fired.
 A mix is assumed in this size class.
cEach one-half of the "representative size" in the second column.

                                    A-ll

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              TABLE A-3.  FGD TECHNOLOGY CONSTRAINTS IN IFCAM^
          Technology
               Limits
      Dual alkali


      Lime spray drying
      Sodium
90 percent13 removal of uncontrolled
S02 emissions for all coal types

90 percent13 removal of uncontrolled
S02 emissions for low sulfur coal
types (less than 1.67 Ib S02/MMBtu
annual average); not applicable to
higher sulfur coal types regardless
of the required sulfur removal rate

90 percent13 removal of uncontrolled
S02 emissions for all coal types
aU.S. Environmental Protection Agency.

 30-day, rolling average basis.
                                    A-12

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               TABLE A-4.  PM EMISSIONS POLLUTION CONTROL
                    TECHNOLOGY CONSTRAINTS  IN  IFCAM*
            Technology
      Minimum PM
   emission standard
    Single mechanical collector

      stoker/bituminous
      stoker/subb i tumi nous
      pulverized/all

    Dual mechanical collector

      stoker/bituminous
      stoker/subb i tumi nous
      pulverized/all

    Side stream separator

      stoker/bituminous
      stoker/subbituminous
      pulverized/all

    Electrostatic precipitator

    Fabric filter

    Lime spray drying F60b

    Dual alkali FGD/single
    mechanical collector

      high sulfur coal  (greater
      than 3.5 Ib SO£/MMBtu)

      other coal  types  (less
      than 3.5 Ib S02/MMBtu)
172 ng/J (0.40 Ib/MMBtu)
344 ng/J (0.80 Ib/MMBtu)
430 ng/J (1.00 Ib/MMBtu)
129 ng/J (0.30 Ib/MMBtu)
258 ng/J (0.60 Ib/MMBtu)
344 ng/J (0.80 Ib/MMBtu)
 64 ng/J (0.15 Ib/MMBtu)
129 ng/J (0.30 Ib/MMBtu)
172 ng/J (0.40 Ib/MMBtu)

 21 ng/J (0.05 Ib/MMBtu)

 21 ng/J (0.05 Ib/MMBtu)

 21 ng/J (0.05 Ib/MMBtu)
 129 ng/J  (0.30  Ib/MMBtu)
  42 ng/J  (0.10  Ib/MMBtu)
aU.S.  Environmental  Protection  Agency.

Includes a fabric filter.
                                    A-13

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APPENDIX B.  PROJECTED FUEL PRICES:
    REFERENCE  PRICE  SCENARIO
                    B-l

-------
                 TABLE B-l.  WORLD OIL PRICE FORECAST:
                      REFERENCE PRICE SCENARIO3
                             (1982 $/bbl)
         Year
Average refiner acquisition
cost of imported crude oil
         1985
         1990
         1995
         2000
            25
            28
            32
            37
Energy and Environmental Analysis, Inc.
                                    B-2

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                 TABLE B-2.   PROJECTIONS OF INDUSTRIAL

              3.0 PERCENT SULFUR RESIDUAL FUEL OIL PRICES3
                            (1982 $/MMBtu)


1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Region
New England
New York/New Jersey
Middle Atlantic
South Atlantic
Midwest
Southwest
•Central
North Central
West
Northwest
1985
3.94
3.93
3.93
3.91
4.08
3.93
4.05
3.74
3.55
3.50
1990
4.43
4.42
4.42
4.40
4.57
4.42
4.54
4.23
4.03
3.99
1995
4.99
4.98
4.98
4.96
5.12
4.98
5.09
4.79
4.57
4.53
2000
5.66
5.65
5.65
5.62
5.79
5.65
5.75
5.47
5.23
5.19
Energy and Environmental Analysis, Inc.    Reference  price  scenario.
                                   B-3

-------
                  TABLE B-3.  PROJECTIONS OF INDUSTRIAL

               1.6 PERCENT SULFUR RESIDUAL FUEL OIL PRICES3
                             (1982 $/MMBtu)

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Region
New England
New York/New Jersey
Middle Atlantic
South Atlantic
Midwest
Southwest
Central
North Central
West
Northwest
	
1985
4.21
4.20
4.20
4.17
4.34
4.19
4.31
4.00
3.82
3.77
1990
4.73
4.72
4.72
4.70
4.86
4.72
4.83
4.53
4.33
4.29
1995
5.32
5.31
5.31
5.29
5.45
5.31
5.42
5.13
4.91
4.87
— •
2000
6.04
6.03
6.03
6.01
6.17
6.03
6.14
5.85
5.61
5.57
Energy and Environmental Analysis, Inc.   Reference price scenario.
                                   B-4

-------
                  TABLE B-4.  PROJECTIONS OF INDUSTRIAL

               0.8 PERCENT SULFUR RESIDUAL FUEL OIL PRICES3
                             (1982 $/MMBtu)

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Region
New England
New York/New Jersey
Middle Atlantic
South Atlantic
Midwest
Southwest
Central
North Central
West
Northwest
1985
4.51
4.50
4.50
4.48
4.65
4.50
4.61
4.31
4.15
4.11
1990
5.07
5.06
5.06
5.03
5.20
5.06
5.17
4.87
4.70
4.65
1995
5.71
5.70
5.70
5.68
5.84
5.70
5.81
5.51
5.33
5.29
2000
6.49
6.48
6.48
6.46
6.63
6.48
6.59
6.30
6.09
6.05
^Energy and Environmental  Analysis,  Inc.    Reference price scenario.
                                    B-5

-------
                  TABLE B-5.   PROJECTIONS OF INDUSTRIAL

               0.3 PERCENT SULFUR RESIDUAL FUEL OIL PRICES3
                             (1982 $/MMBtu)

1.
2.*
3.
4.
5.
6.
7.
8.
9.
10.
Region
New England
New York/New Jersey
Middle Atlantic
South Atlantic
Midwest
Southwest
Central
North Central
West
Northwest
1985
4.81
4.80
4.80
4.78
4.95
4.80
4.92
4.61
4.43
4.38
1990
5.41
5.40
5.40
5.37
5.55
5.40
5.51
5.21
'5.00
4.96
1995
6.10
6.09
6.09
6.07
6.24
6.09
6.20
5.90
5.68
5.64
2000
6.94
6.93
6.93
6.91
7.08
6.93
7.04
6.75
6.50
6.45
Energy and Environmental Analysis, Inc.    Reference price scenario.
                                   B-6

-------
                 TABLE B-6.  PROJECTIONS OF INDUSTRIAL
                          NATURAL GAS PRICES3
                            (1982 $/MMBtu)

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Region
New England
New York/New Jersey
Middle Atlantic
South Atlantic
Midwest
Southwest
Central
North Central
West
Northwest
1985
4.38
4.29
4.16
4.57
4.32
4.02
3.86
3.68
4.02
4.44
1990
5.21
5.21
5.17
5.46
5.34
4.95
4.91
4.47
4.94
5.23
1995
6.25 .
6.27
6.22
6.47
6.38
5.75
5.92
5.27
5.96
5.85
2000
7.49
7.30
7.25
7.40
7.27
6.75
6.81
6.12
6.56
6.63
Energy and Environmental Analysis, Inc.     Reference price scenario.
                                  B-7

-------

-------
APPENDIX C.  PROJECTED FUEL PRICES:
HIGHER OIL AND GAS PRICES SCENARIO
                 C-l

-------
                  TABLE C-l.   WORLD  OIL  PRICE  FORECAST:
                   HIGHER OIL  AND  GAS  PRICES SCENARIO3
                              (1982  $/bbl)
           Year
Average refiner acquisition
cost of imported crude oil
           1985
           1990
           1995
           2000
          •25.90
           31.90
           46.50
           57.40
     B* *ESer?y Pr°J'ect1ons to the Year 2010.  U.S. Department of Energy,
Office of Policy, Planning and Analysis.  DOE/PE-0029/2.  October 1983.
                                   C-2

-------
                 TABLE C-2.  PROJECTIONS OF  INDUSTRIAL

              3.0 PERCENT SULFUR RESIDUAL FUEL OIL PRICESe
                             (1982 $/MMBtu)

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Region
New England
New York/New Jersey
Middle Atlantic
South Atlantic
Midwest
Southwest
Central
North Central
West
Northwest
1985
4.07
4.05
4.05
4.03
4.18
4.05
4.15
3.89
3.72
3.68
1990
5.05
5.04
5.04
5.02
5.17
5.04
5.14
4.87
4.68
4.64
1995
6.93
6.91
6.91
6.90
7.05
6.91
7.02
6.75
6.47
6.44
2000
8.40
8.38
8.38
8.37
8.51
8.39
8.52
8.24
7.90
7.87
Energy and Environmental Analysis, Inc.  Higher oil  and gas prices
scenario.
                                   C-3

-------
                 TABLE C-3.  PROJECTIONS OF  INDUSTRIAL

              1.6 PERCENT SULFUR RESIDUAL  FUEL OIL PRICES*
                             (1982 $/MMBtu)

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Region
New England
New York/New Jersey
Middle Atlantic
South Atlantic
Midwest
Southwest
Central
North Central
West
Northwest
1985
4.34
4.33
4.33
4.30
4.46
4.33
4.42
4.16
3.99
3.96
1990
5.40
5.39
5.39
5.37
5.52
5.39
5.48
5.22
5,03
5.00
1995
7.41
7.40
7.40
7.39
7.53
7.40
. 7.50
7.24
6.96
6.93
2000
9.00
8.99
8.99
8.98
9.14
8.99
9.10
8.83
8.51
8.48
Energy and Environmental Analysis, Inc.  Higher oil and gas prices
scenario.
                                    C-4

-------
                 TABLE C-4.  PROJECTIONS OF INDUSTRIAL

              0.8 PERCENT SULFUR RESIDUAL FUEL OIL PRICES9
                            (1982 $/MMBtu)


1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Region
New England
New York/New Jersey
Middle Atlantic
South Atlantic
Midwest
Southwest
Central
North Central
West
Northwest
1985
4.65
4.64
4.64
4.63
4.77
4.64
4.74
4.47
4.33
4.29
1990
5.79
5.79
5.79
5.77
5.91
5.79
5.89
5.63
5.45
5.42
1995
7.98
7.98
7.98
7.96
8.09
7.98
8.07
7.80
7.58
7.54
2000
9.70
9.69
9.69
9.67
9.82
9.69
9.80
9.52
9.29
9.25
Energy and Environmental Analysis, Inc.   Higher oil  and gas prices
scenario.
                                   C-5

-------
                  TABLE  C-5.   PROJECTIONS  OF  INDUSTRIAL

               0.3 PERCENT SULFUR  RESIDUAL FUEL  OIL  PRICES3
                             (1982 $/MMBtu)

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Region
New England
New York/New Jersey
Middle Atlantic
South Atlantic
Midwest
Southwest
Central
North Central
West
Northwest
19S5
4.96
4.96
4.96
4.94
5.09
4.96
5.05
4.79
4.63
4.58
1990
6.19
6.18
6.18
6.17
6.31
6.18
6.28
6.01
5.81
5.77
1995
8.55
8.54
8.54
8.52
8.67
8.54
8.63
8.37
8.09
8.06
2000
10.41
10.40
10.40
10.38
10.54
10.40
10.50
10.24
9.91
9.87
Energy and Environmental Analysis, Inc.  Higher oil and gas prices
scenario.
                                   C-6

-------
                 TABLE C-6.  PROJECTIONS OF INDUSTRIAL

                          NATURAL GAS PRICES3
                            (1982 $/MMBtu)

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Region
New England
NeW York/New Jers.ey
Middle Atlantic
South Atlantic
Midwest
Southwest
Central
North Central
West
Northwest
1985
4.43
4.35
4.29
4.63
4.42
4.08
3.92
3.72
4.05
4.45
1990
5.56
5.54
5.52
5.85
5.69
5.41
5.27
4.73
5.23
5.45
1995
7.37
7.36
7.36
7.69
7.55
6.96
7.08
6.19
6.91
7.03
2000
9.29
9.01
9.00
9.19
8.95
8.57
8.54
7.52
8.19
8.15
Energy and Environmental  Analysis, Inc.   Higher oil  and gas  prices
scenario.
                                  C-7

-------

-------
APPENDIX D.  CHARACTERISTICS OF
INDUSTRIAL COAL TYPES IN IFCAM
               D-l

-------
          TABLE D-l.  SULFUR DIOXIDE EMISSION RATES BY COAL TYPE*
Coal Type
Bituminous
Subbituminous
Range
ng/J
<464
464-718
718-1,075
1,075-1,432
1,432-2,150
>2,150
<464
464-718
718-1,075
(lb/MMBtu)
(1
11
(3
a
(<1.08)
.08-1.67)
.67-2.50)'
.50-3.33)
.33-5.00)
(>5.00)
(<1.08)
.08-1.67)
.67-2.50)
Average

ng/d llb/MMBtu)
408
593
894
1,225
1,784
2,382
(0.95)
11.38)
2.08)
2.85)
4.15)
5.54)
408 (0.95)
593 (1.38)
894 (2.08)
a
 ICF Incorporated.  Average annual  (not 30-day, rolling-average)  values.
                                     D-2

-------






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D-3

-------
TABLE D-3.  AVERAGE ASH CONTENT BY REGION

       (SUBBITUMINOUS COAL TYPES)3
           (percentage, moist)

Ib $02/MMBtu
Kegion <1.08 1.08-1.67
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
aICF
New England
New York/New Jersey
Middle Atlantic
South Atlantic
Midwest 6.9 6.9
Southwest 7.3 7.3
Central 6.0 6.0
North Central 8.4 6.9
West 7.3 7.3
Northwest 10.0 10.0
Incorporated.

1.67-2.50
-
-
-
-
6.9
7.3
6.0
6.9
7.3
10.0

                    D-4

-------








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D-5

-------
               TABLE D-5.  AVERAGE HEAT CONTENT BY REGION

                       (SUBBITUMINOUS COAL TYPES)3
                          J/g (MMBtu/short ton)

Region
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
New England
New York/New Jersey
Middle Atlantic
South Atlantic
Midwest
Southwest
Central
North Central
West
Northwest
Ib S02/MMBtu
<1.08
-
-
-
-
20.53
(17.65)
19.93
(17.14)
19.77
(17.00)
20.40
(17.54)
21.52
(18.50)
22.10
(19.00)
1.08-1.67
-
-
-
-
20.53
(17.65)
19.93
(17.14)
19.77
(17.00)
20.05
(17.24)
21.52
(18.50)
22.10
(19.00)
1.67-2.50
-
-
-
-
20.53
(17.65)
19.93
(17.14)
19.77
(17.00)
20.05
(17.24)
21.52
(18.50)
22.10
(19.00)
ICF Incorporated.
                                    D-6

-------
                 APPENDIX E.  DELIVERED INDUSTRIAL
                        COAL PRICE FORECAST
•  Reference:  Memorandum from C. Ebert (ICF Incorporated) to J.
               Greenwald (EPA).  Revised Industrial  Coal Prices for
               Industrial NSPS Analyses.  May 31, 1984.   Attach-
               ment A.

«  Converted from January 1983 dollars to 1982 dollars using the average
   annual 1982 and fourth quarter 1982 GNP implicit  price deflators.
                                 E-l

-------
                     DELIVERED INDUSTRIAL COAL PRICE FORECAST2
                                  (1982 $/MMBtu)
Sulfur content
Region Coal type (lb S02/MMBtu)
1. New England Bituminous <1.08
1.08 - 1.67
1.67 - 2.50
2.50 - 3.33
3.33 - 5.00
>5.00
2. New York/
New Jersey Bituminous <1.08
1.08 - 1.67
1.67 - 2.50
2.50 - 3.33
3.33 - 5.00
>5.00
3. Middle Atlantic Bituminous • <1.08
1.08 - 1.67
1.67 - 2.50
2.50 - 3.33
3.33 - 5.00
>5.00
4. South Atlantic Bituminous <1.08
1.08 - 1.67
1.67 - 2.50
2.50 - 3.33
3.33 - 5.00
>5.00
1985
3.35
3.21
3.19
3.09
2.67
2.84

3.18
3.03
2.90
2.77
2.34
2.43
2.75
2.49
2.42
2.37
1.99
1.99
2.66
2.47
2.45
2.40
2.44
2.32
1990
3.62
3.58
3.52
3.33
2.96
3.11

3.39
3.31
3.17
3.01
2.63
2.69
3.01
2.82
2.74
2.66
2.27
2.25
3.07
2.83
2.82
2.73
2.67
2.48
1995
3.75
3.71
3.65
3.44
3.23
3.25

3.48
3.45
3.28
3.12
2.91
2.89
3.14
2.96
2.88
2.77
2.45
2.43
3.23
3.05
3.03
2.93
2.81
2.62
2000
3.87
3.86
3.75
3.54
3.46
3.48

3.60
3.57
3.41
3.21
3.10
3.05
3.26
3.10
2.98
2.86
2.68
2.62
3.35
3.21
3.17
3.08
2.93
2.79
ICF Incorporated.
                                         E-2

-------
                    DELIVERED INDUSTRIAL COAL PRICE FORECAST3
                                 (1982 $/MMBtu)
                                   (Continued)
Sulfur content
Region Coal type (Ib S02/MMBtu)
5. Midwest Bituminous <1.08
1.08 - 1.67
1.67 - 2.50
2.50 - 3.33
3.33 - 5.00
>5.00
Subbituminous <1.08
1.08 - 1.67
1.67 - 2.50
6. Southwest Bituminous <1.08
1.08 - 1.67
1.67 - 2.50
2.50 - 3.33
3.33 - 5.00
>5.00
Subbituminous <1.08
1.08 - 1.67
1.67 - 2.50
7. Central Bituminous <1.08
1.08 - 1.67
1.67 - 2.50
2.50 - 3.33
3.33 - 5.00
>5.00
Subbi tumi nous < 1 . 08
1.08 - 1.67
1.67 - 2.50
1985
2.91
2.69
2.67
2.53
2.30
2.19
3.19
3.15
3.13
2.85
2.75
2.75
2.85
2.77
2.68
3.21
3.09
3.04
2.81
2.77
2.78
2.55
2.44
2.25
2.59
2.53
2.63
1990
3.18
3.04
2.97
2.82
2.56
2.39
3.26
3.22
3.19
3.18
3.05
3.05
3.05
2.96
2.84
3.35
3.26
3.20
3.01
2.95
2.94
2.78
2.52
2.35
2.62
2.58
2.62
1995
3.33
3.21
3.08
2.94
2.69
2.50
3.32
3.27
3.26
3.38
3.26
3.25
3.19
3.10
2.93
3.46
3.34
3.29
3.14
3.04
3.01
2.93
2.58
2.44
2.71
2.66
2.68
2000
3.44
3.37
3.18
3.04
2.80
2.63
3.38
3.32
3.27
3.56
3.42
3.35
3.33
3.18
3.05
3.57
3.46
3.39
3.22
3.15
3.05
3.07
2.63
2.57
2.78
2.72
2.67
ICF Incorporated.
                                        E-3

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                     DELIVERED INDUSTRIAL COAL PRICE FORECAST8
                                  (1982 $/MMBtu)
                                    (Continued)
Sulfur
Region Coal type (Ib SOp
8. North Central Bituminous
1.08 -
1.67 -
Subbituminous
1.08 -
1.67 -
9. West Bituminous
1.08 -
1.67 -
Subbituminous
1.08 -
1.67 -
10. Northwest Bituminous
1.08 -
1.67 -
Subbituminous
1.08 -
1.67 -
content
/MMBtu)
<1.08
1.67
2.50
<1.08
1.67
2.50
<1.08
1.67
2.50
<1.08
1.67
2.50
<1.08
1.67
2.50
<1.08
1.67
2.50
1985
1.76
1.61
1.70
1.22
1.17
1.19
2.54
2.39
2.40
2.62
2.52
2.48
2.92
2.63
2.59
2.38
2.40
1.93
1990
1.90
1.74
1.81
1.32
1.32
1.21
2.69
2.64
2.64
2.71
2.61
2.56
3.06
2.80
2.72
2.59
2.48
1.99
1995
1.98
1.90
1.88
1.41
1.42
1.28
2.75
2.90
2.81
2.83
2.72
2.60
3.13
2.99
2.83
2.62
2.59
2.08
2000
2.07
2.01
1.86
1.52
1.45
1.33
2.91
3.05
2.92
2.92
2.84
2.69
3.27
3.18
2.88
2.71
2.67
2.19
ICF Incorporated.
                                        E-4

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                                APPENDIX F
              IFCAM PROJECTIONS FOR 1990 BY BOILER SIZE CLASS
     This appendix summarizes IFCAM forecasts of total S0£ emissions,
annualized costs, and fossil fuel demand in 1990 from new industrial fossil
fuel-fired boilers installed between 1985 and 1990 and each larger than 29
MW (100 MMBtu/hr) heat input capacity.  Results are presented for both fuel
price scenarios (reference Section 2.2.3) and for each alternative SOg NSPS
emissions standard (reference Section 3.1).
     In these tables, "gas"
is natural gas and "oil" is residual fuel oil.
                                     F-l

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           TABLE F-l.  COMPARISON OF  IFCAM PROJECTIONS  FOR  1990*
Fuel price
scenario
Alternative control level
Baseline I II III IV V VI
Reference

  S0j> emissions
1§3
  (103 Short tons)

  Annualized costs**
  (10° 1982 $)

  Fuel (10*2 Btu)
    coal
    oil
    gas

Higher oil and
gas prices

  SOg emissions
  (103 short tons)

  Annualized costsb
  (106 1982 $)

  Fuel (10*2 Btu)
    coal
    oil
    gas
  279


3,349
                      23
                     323
                     152
                     326


                   3,725
                     284
                       7
                     207
204     106     102     39     47
             17
            329
            153
         17
        257
        225
            148     114
                 46
                      16
                             3,357   3,406   3,408  3,476  3,474  3,482
  9     26     26     26
257    206    205    178
232    267    267    294
        34     30     16
          3,735   3,743   3,754  3,757  3,758  3,757
            261     248     153    153    153    147
              0       0       0000
            237     250     345    345    345    351
 New industrial fossil fuel-fired boilers installed between 1985 and 1990
 and each larger than 29 MW (100 MMBtu/hr) heat input capacity.

'includes capital, operating, maintenance and fuel costs for the boiler
 and pollution control equipment.
                                     F-2

-------
           TABLE  F-2.   REGULATORY  BASELINE PROJECTIONS FOR 1990
                           BY BOILER SIZE CLASS*
Boiler size class, MW (MMBtu/hr)
Fuel price
scenario
29-44
(100-150)
44-58
(150-200)
58-73
(200-250)
>73
(>250)
Total
Reference

  S02 emissions
  (103 short tons)

  Annualized costsb
  (106 1982 $)

  Fuel (1012 Btu)
    coal
    oil
    gas

Higher oil and gas prices
  SOg.emissions
  (103 short tons)

  Annuali zed costs'3
  (106 1982 $)

  Fuel (1012 Btu)
  105
  901
    4
   99
   26
   74
1,008
 82


729
  1
 86
 24
108


838
 52


445
  6
 46
 15
 86


493
   41      279


1,275    3,349
   13
   92
   87
   59
 23
323
152
326
1,386    3,725
coal
oil
gas
40
7
82
70
0
41
48
0
19
126
0
65
284
7
207
aNew industrial fossil fuel-fired boilers  installed  between  1986  and  1990.

  Includes capital, operating, maintenance  and  fuel costs  for the  boiler
  and pollution control equipment.
                                      F-3

-------
            TABLE F-3.  ALTERNATIVE CONTROL LEVEL I PROJECTIONS
                       FOR  1990  BY  BOILER  SIZE CLASS*
Boiler size class, MW (MMBtu/hr)
Fuel price
scenario
29-44
(100-150)
44-58
(150-200)
58-73
(200-250)
>73
(>250)
Total
Reference

  S02 emissions            69
  (103 short tons)

  Annualized costsb      . 906
  (100 1982 $)
                                      59


                                     733
 35



444
   40
204
1,275    3,357
Fuel (1012 Btu)
coal
oil
gas
Higher oil and gas prices
SOg emissions
(103 short tons)
Annual ized costsb 1
(106 1982 $)
Fuel (1012 Btu)
coal
oil
gas

3
100
26

24

,013


37
0
92

1
86
24

37

836


55
0
56

0
51
16

29

500


43
0
24

13
92
87

58

1,387


126
0
65

17
329
153

148

3,735


261
0
237
 New industrial  fossil  fuel-fired boilers installed between 1985 and 1990.

'includes  capital,  operating,  maintenance and fuel  costs for the boiler
 and pollution control  equipment.
                                     F-4

-------
           TABLE F-4.  ALTERNATIVE  CONTROL  LEVEL II  PROJECTIONS
                       FOR  1990  BY BOILER SIZE CLASS*
Boiler size class, MW (MMBtu/hr)
Fuel price
scenario
29-44
(100-150)
44-58
(150-200)
58-73
(200-250)
>73
(>250)
Total
Reference

  SOg emissions
  (103 short tons)

  Annual i zed costsb
  (106 1982 $)
Fuel
  coal
  oil
  gas
             Btu)
                         28
                        926
                            3
                           70
                           56
Higher oil and gas prices
  S02 emissions
  (103 short tons)

  Annualized costsb
  (106 1982 $)

  Fuel (1012 Btu)
                         11
                      1,009
 24


749
  1
 60
 50
 25


844
 14


456
  0
 34
 33
 20


504
   40      106


1,275    3,406
   13
   92
   87
 17
257
225
   58      114


1,387    3,743
coal
oil
gas
23
0
105
55
0
56
43
0
24
126
0
65
248
0
250
aNew industrial fossil fuel-fired boilers  installed  between  1985  and  1990.

 Includes capital, operating, maintenance  and fuel costs  for the  boiler
 and pollution control equipment.
                                     F-5

-------
           TABLE F-5.  ALTERNATIVE CONTROL LEVEL III PROJECTIONS
                       FOR 1990 BY BOILER SIZE CLASSa
Boiler size class, MW (MMBtu/hr)
Fuel price
scenario
29-44
(100-150)
44-58
(150-200)
58-73
(200-250)
>73
(>250)
Total
Reference
      emissions
  (103 short tons)
  Annual ized costs^
  (100 1982 $)
  Fuel (1012 Btu)
   27
.  927
 23

749
 14

456
   38
102
1,276    3,408
coal
oil
gas
Higher oil and gas prices
SOp-emissions
(103 short tons)
Annual ized costs'5 1
(106 1982 $)
Fuel (1012 Btu)
coal
oil
gas
1
70
58

4

,011


12
0
117
0
60
51

7

832


23
0
88
0
34
33

5

500


17
0
50
9
92
91

30

1,411


101
0
90
9
257
232

46

3,754


153
0
345 •
 New industrial fossil fuel-fired boilers installed between 1985 and 1990.
 Includes capital, operating, maintenance and fuel costs for the boiler
 and pollution control equipment.
                                     F-6

-------
           TABLE F-6.  ALTERNATIVE CONTROL  LEVEL  IV  PROJECTIONS
                      FOR 1990 BY BOILER  SIZE CLASS^
Boiler size class, MW (MMBtu/hr)
Fuel price
scenario
29-44
(100-150)
44-58
(150-200)
58-73
(200-250)
>73
(>250)
Total
Reference

  SOg emissions
  (103 short tons)

  Annual i zed costsb
  (106 1982 $)
  Fuel
    coal
    oil
    gas
             Btu)
                          943
                            0
                           57
                           72
Higher oil and gas prices
  S02 emissions
  (103 short tons)

  Annualized costsb
  (106 1982 $)

  Fuel (1012 Btu)
                        1,011
  9


762
  0
 57
 54
  5


833
  5


461
  0
 33
 34
  4


501
   15       39


1,310    3,476
   26
   59
  107
 26
206
267
   22       34


1,412    3,757
coal
oil
gas
12
0
117
23
0
88
17
0
50
101
0
90
153
0
345
aNew industrial fossil fuel-fired boilers installed between 1985 and 1990.

 Includes capital, operating, maintenance and fuel costs for the boiler
 and pollution control equipment.
                                      F-7

-------
            TABLE F-7.  ALTERNATIVE CONTROL LEVEL V PROJECTIONS
                       FOR 1990 BY BOILER SIZE CLASS*
Boiler size class, MW (MMBtu/hr)
Fuel price
scenario
29-44
(100-150)
44-58
(150-200)
58-73
(200-250)
>73
(>250)
Total
Reference

  S02 emissions
  (103 short tons)

  Annualized costs'3
  (106 1982 $)

  Fuel (1012 Btu)
   13
.  942
 13


761
  8


460
   13
47
1,311    3,474
coal
oil
gas
Higher oil and gas prices
S02 emissions
(103 short tons)
Annual ized costs^ 1
(IQo 1982 $)
Fuel (1012 Btu)
coal
oil
gas
0
57
72

3

,011


12
0
117
0
57
54

5

833


23
.0
88
0
33
34

3

501


17
0
50
26
59
107

19

1,414


101
0
90
26
206
267

30

3,758


153
0
345
aNew industrial fossil fuel-fired boilers installed between 1985 and 1990.

 Includes capital, operating, maintenance and fuel costs for the boiler
 and pollution control equipment.
                                     F-8

-------
           TABLE  F-8.  ALTERNATIVE  CONTROL LEVEL VI  PROJECTIONS
                       FOR  1990  BY BOILER SIZE CLASS*
Boiler size class, MW (MMBtu/hr)
Fuel price
scenario
29-44
(100-150)
44-58
(150-200)
58-73
(200-250)
>73
(>250)
Total
Reference

  S02oemissions             4
  (103 short tons)

  Annualized costsb       945
  (106 1982 $)

  Fuel (1012 Btu)
    coal                    0
    oil                    44
    gas                    85

Higher, oil and gas prices
  SO? emissions
  (103 short tons)

  Annual ized costs'3
  (106 1982 $)

  Fuel (1012 Btu)
1,011
               4


             763
               0
              51
              60
  2


829
              3


            461
              0
             32
             35
  2


501
             6       16


         1,313    3,482
            26       26
            52      178
           113      294
                                     10
            16
1,415    3,757
coal
oil
gas
12
0
117
17
0
94 .
17
0
50
101
0
90
147
0
351
aNew industrial fossil fuel-fired boilers  installed  between  1985  and  1990.

 Includes capital, operating, maintenance  and fuel costs  for the  boiler
 and pollution control equipment.
                                      F-9

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-------
                                   TECHNICAL REPORT DATA
                            (Please read Instructions on the reverse before completing)
1. REPORT NO.
    EPA 450/3-86-007
                                                            3. RECIPIENT'S ACCESSION NO.
4. TITLE AND SUBTITLE  Projected  Impacts of Alternative  Sulfur
 Dioxide New Source Performance Standards for Industrial
 Fossil-Fuel-Fired Boilers
             5. REPORT DATE
                 March 1Q85
             6. PERFORMING ORGANIZATION CODE
7. AUTHOR(S)
  Energy and Environmental Analysis, Inc.
  Arlington. VA  22209	
                                                            8. PERFORMING ORGANIZATION REPORT NO.
9. PERFORMING ORGANIZATION NAME AND ADDRESS
  Office of Air Quality Planning and Standards
  U.S.  Environmental Protection Agency
  Research Triangle Park, N.C.   27711
                                                            10. PROGRAM ELEMENT NO.
             11. CONTRACT/GRANT NO.
12. SPONSORING AGENCY NAME AND ADDRESS
 DAA for Air Quality Planning and Standards
 Office of Air and Radiation
 U.S.  Environmental Protection Agency
 Research Triangle Park,  N.C.   27711	
             13. TYPE OF REPORT AND PERIOD COVERED
                 Final	
             14. SPONSORING AGENCY CODE
                  EPA/200/04
15. SUPPLEMENTARY NOTES
16. ABSTRACT
 This  report presents projected environmental,  cost,  and energy impacts  of alternative
 sulfur dioxide (S0») air  emission standards for  new industrial fossil-fuel-fired steam
 generating units.  These  impacts are measured  in terms of the projected change under
 current versus alternative  air emission regulations.   The analysis of environmental
 impacts focuses on changes  in levels of air emissions.  Cost impacts are evaluated in
 terms of incremental changes in the total annualized costs for boiler and pollution
 control equipment capital,  operating, and fuel costs.  Energy impacts are evaluated
 in terms of shifts in  the demand between fuel  types  (e.g., coal or residual fuel oil
 versus natural gas).
17.
                                KEY WORDS AND DOCUMENT ANALYSIS
                  DESCRIPTORS
                                              b.lDENTIFIERS/OPEN ENDED TERMS  C. COSATI Field/Group
 Air pollution
 Standards of performance
 Steam generating units
 Environmental impacts analysis
 Impacts analysis
 Air pollution control
                                 13 B
18. DISTRIBUTION STATEMENT
  Release unlimited
19. SECURITY CLASS (ThisReport}
 Unclassified
                           21. NO. OF PAGES
                                               20. SECURITY CLASS (This page/
                                               Unclassified
                                                                          22. PRICE
EPA Form 2220-1 (Rev. 4-77)   PREVIOUS EDITION is OBSOLETE

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