-------
TABLE 15. AVERAGE AFTER-TAX PROFIT MARGIN
IN THE INDUSTRIES USING DECREASING
EQUIPMENT: 1990
Average After-
Tax Profit
SIC Code Industry Name Margin
25 Furniture and 4.8%
Fixtures
33 Primary Metals 2.6%
Industries,
34 Fabricated Metal 3.4%
Products
35 Industrial 4.4%
Machinery and
Equipment .
36 Electronic and 3.0%
Other Electric
Equipment
37 Transportation 1.3%
Equipment
38 Instruments and 6.6%
Related Products
39 Misc. N.A
Manufacturing
Industries
401 Railroads - N/A
Maintenance
458 Air Transport - N/A
Maintenance
753 Auto Repair 6.0%
Misc. - Miscellaneous.
N/A - Not available.
Sources: Dun and Bradstreet Information Services.
Industry Norms & Kev Business Ratios
1990-1991; U.S. Department of Commerce,
Bureau of the Census. Quarterly
Financial Reportf First Quarter 1991.
35
-------
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example, the range of annual averages in SIC 33, (Primary
Metals Industry, SIC 34, Fabricated Metal Products, except
Machinery and Transportation Equipment) , and SIC 35
(Industrial and Commercial Machinery and Computer
Equipment), is 0.94 percent to 3.16 percent, 0.39 percent to
3.15 percent, and 2.97 percent to 9.64 percent.
Industries with exceptionally high average growth
rates are SIC 357 Electronic Components and Accessories,
with a rate of 9.64 percent, and SIC 367, with a rate of
8.45 percent. Those with very low growth rates are SIC 332
Iron and Steel Foundries, with a rate of 0.94 percent, and
SIC 348, Ordnance and Accessories, n.e.c., with a rate of
0.39 percent.
I-5 Automotive Repair
Almost 50 percent of the establishments identified as
users of degreasing equipment is accounted for by SIC 753,
Automotive Repair Shops. The industry ranks fifth-highest
in terms of employment. For these two reasons and the fact
that auto repair shops are labor-intensive, low-margin
operations, it may be that firms in this industry will
experience disproportionate economic impacts. Thus, it
necessary to profile the industry in order to assess the
magnitude of the impacts resulting from the NESHAP.
SIC 753 is a heterogenous industry 'consisting of
seven four-digit SIC industries. These industries are Top,
Body, and Upholstery Repair Shops and Paint Shop (SIC 7532),
Automotive Exhaust System Repair Shops (SIC 7533), Tire
Retreading and Repair Shops (SIC 7534), Automotive Glass
Replacement Shops (SIC 7536), Automotive Transmission Repair
Shops (SIC 7537), General Automotive Repair Shops (SIC
7538), and Automotive Repair Shops,. Not Elsewhere Classified
(SIC 7539) . Statistics concerning all seven four-digit
industries are presented in Tables 17 through 20.
38
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TABLE 17. DISTRIBUTION OF ESTABLISHMENTS
AND FIRMS IN SIC 753 BY FOUR-DIGIT
INDUSTRIES, 1987
SIC Code Industry Name Establishments Firms
7532 Top, Body, and 32,951 32,233
Upholstery
Repair Shops
and Paint
Shops
7533 Automotive 4,910 3,654
Exhaust System
Repair Shops
7534 Tire 1,930 1,763
Retreading and
Repair Shops
7536 Automotive 3,534 2,510
Glass
Replacement
Shops
7537 . Automotive 6,335 6,131
Transmission
Repair Shops
7538 General 55,348 54,419
Automotive
Repair Shops
7539 Automotive 9,593 9,229
Repair Shops,
Not Elsewhere
Classified
753 Automotive 114,601 109,939
Repair Shops
Sources: Gale Research, Inc. Service Industries USAf Detroit
MI, 1992; U.S.. Department of Commerce, Bureau of the'
Census. 1987 Census of Service Industries.
39
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Of the seven industries, SIC 7538 accounted for the
largest number of establishments (55,348) and the largest
number of firms (55,419) in 1987 (Table 17). These figures
represent 48.3 percent and 49.4 percent respectively of the
totals for SIC 753. The next largest four-digit industry is
SIC 7532 with 32,951 establishments operated by 32,233
firms. The smallest number of establishments (1,930) and
firms (1,763) are in SIC 7534. Establishments are defined
•as the physical location at which business is conducted.
Firms are business organizations or entities consisting of'
one or more establishments under common ownership.
The various types of firms in SIC 753 are presented
in Table 18. Approximately 50 percent of all firms in SIC
753 were individual proprietorships in 1987. Corporations
accounted for 42 percent of all firms, partnerships 7
percent, and other types of firms one percent.
As can be seen in Table 19, the largest number of
personnel were employed in SIC 7538 in 1987. However, the
average number of employees per establishment was highest in
SIC 7534. SICs 7532 and 7538 accounted for 75 percent of
total employment in SIC 753. .
These two SIC industries also accounted for 74
percent of revenue in 1987 for SIC 753 (Table 20). The
largest average revenue per establishment occurred in SIC
7534 where the figure was $572,021.
Though only SIC 753 was identified as an automotive
repair industry using degreasing equipment, it is one of
three industries identified by the Standard Industrial
Classification Manual as performing automotive repair
services. SIC 551, Motor Vehicles Dealers, New and Used,
and SIC 554, Gasoline-Service Stations, also do such work.
These three industries, which in essence comprise the
automotive repair industry, are part of the broader
40
-------
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43
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TABLE 20„ DISTRIBUTION OF REVENUE IN SIC 753 BY
FOUR-DIGIT INDUSTRIES, 1987
SIC Code
Industry Name Revenue (106$)
Average
Revenue Per
Establishment
($)
7532
7533
7534
7536
7537
7538
7539
Top, Body, and
Upholstery
Repair Shops
and Paint
Shops
Automotive
Exhaust System
Repair Shops
Tire
Retreading and
Repair Shops
Automotive
Glass
Replacement
Shops
Automotive
Transmission
Repair Shops
General
Automotive
Repair Shops
Automotive
Repair Shops,
Not Elsewhere
Classified
9,312.3
1,466.8
1,104.0
1,278.0
. 1,394.0
11,872.5
2,236.7
282,611
298,737
572,021
361,630
220,047
214,506
233,160
753
Automotive
Repair Shops
Sources:
28,664.2
250,122
Gale Research Inc. 'Service Industry Analysis
Detroit, MI, 1992; U.S. Department of Commerce, Bureau
of the Census. 1987 Census of Service Industries
44
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automotive aftermarket. The aftermarket consists of part-
producing firms and outlets that service and repair the more
than 180 million vehicles in the U.S. in 1992.33 Data for
all three industries are presented in Tables 21 through
9-24.
In Table 21, the number of establishments and firms
in each industry is shown. The 114,601 automotive repair
shops accounted for 58.9 percent of all establishments in
the three industries in 1987. These establishments were
owned by 109,939 firms. SIC 551 accounted for 14.6 percent
of all establishments and SIC 554 26.5 percent.
The various legal forms of firms in the three
industries are listed in Table 22.. The majority of gasoline
service stations and automotive repair shops were individual
proprietorships. Eighty-eight percent of motor vehicle
dealers were corporations. For SICs 554 and 753,
corporations accounted for 33.7 percent and 42.4 percent of
all firms. ..
As can be seen in Table 23, SIC 551 employed,
approximately 1.9 times more personnel than SIC 753 in 1987;
it employed 3.1 times more than SIC 554. These differences
in part account for the larger average number of employees
in SIC 551 in comparison to the other two industries.
Motor vehicle dealers also had much higher revenues
in 1987 than the other' two automotive service sectors (Table
24). In that year, revenue for SIC 551 was $280,529.2
million. It is important to note, however, that much of
this revenue is attributable to motor vehicle sales. it.is "
not known what percentage was accounted for by service "
operations. The same is true of gasoline service stations
which derive income from gasoline sales.
More recent data concerning the average repair and
service dollar volume earned in 1990 by selected parts of
45
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TABLE 21. NUMBER OF ESTABLISHMENTS AND FIRMS IN SICS
551, 554, AND 753, 1987
SIC Code
Industry
Name
Establishments
Firms
551
Motor
Vehicle
Dealers (New
and Used)
28,320
26,997
554
753
Gasoline
Service
stations
Automotive
Repair Shops
Total
51,682'
114,601
194,603
N/A
109,939
N/A
Includes only those establishments with automotive
service bays. These establishments account for
approximately 45 percent of the total number of
gasoline service stations (114,748).
N/A - Not available.
Sources: U.S. Department of Commerce, Bureau of the
Census. 1987 Census of Retail Trade.1987
Census of Service Industries.
46
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SIC
Code
551
554
753
TABLE 22. LEGAL FORMS OF FIRMS IN SICS
551, 554, AND 753, 1987
Indivi-
dual
Total Pro-
Industry Number Corpor- prietor- Partner-
Name of Firms ations* ships'1 ships6
Motor
Vehicle
Dealers
(New and-
Used)
Gasoline
Service
Stations
Automo-
tive
Repair
Shops
26,997 23,626
2,365
660
76,041* 25,632* 44,141* 5,570*
109,939 46,665 55,342 7,856
Other
346
698*
76
Total 212,977 95,923 101,848 14,086 1,120
'These figures apply to all establishments in SIC 554
reaardi«M «f whether or. not they have an automotive
Corporations are business firms that have the legal status of a
fictional individual, which is owned by stockholders and run
by a set of elected officers and a board of directors
5a"rtni;«hrShiPS *£* business fi™s ™ned by a single person.
SSi n^ISF8 ^ business firms whos* owenrship is shared by a
iixeo. numoer of proprietors.
Sources: US Department of Commerce, Bureau of the Census.
1987 Census of Retan T^a^ 1987 Census nf
Industries. : ^±-
47
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TABLE.23. EMPLOYMENT STATISTICS FOR SICS
551, 554 and 753, 1987
Average Number
of Employees
Employment Per
SIC Code Industry Name (103) Establishment"
551 Motor Vehicle 939.9 33
Dealers (New
and Used)
554
753
Gasoline
Service
Stations
Auto Repair
Shops
Total
307.2*
485.6
2,172.2
6a
4
These figures apply only to those gasoline service
stations with automotive service bays.
Sources: U.S. Department of Commerce, Bureau of the
Census. 1987 Census of Retail Trade. 1987
Census of Service Industries.
48
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TABLE 24. REVENUE STATISTICS FOR SICS
551, 554 and 753, 1987
SIC Code
Industry Name Revenue (106)
Average
Revenue Per
Establishment
551
554
753
Motor Vehicle
Dealers (New
and Used)
Gasoline
Service
Stations
Auto Repair
Shops
280,529.2s
37,939.1s'b
28,664.2
9,905,692s
734,087a-b
250,122
"Not all revenue is attributable to motor vehicle
•servicing.
""These figures apply only to those gasoline service
stations with automotive service bays.
Sources: U.S. Department of.Commerce, Bureau of the
Census. 1987 Census of Retail Trade, 1987
Census of Service Industries.
49
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TABLE 25. AVERAGE ANNUAL REPAIR AND '
SERVICE DOLLAR VOLUME AND
AVERAGE NUMBER OF BAYS FOR
SELECTED AUTOMOTIVE SERVICE
INDUSTRIES
Industry
Average Annual
Repair and Service
Dollar Volume, 1990
Average
Number of
1990
Repair Shops
Service
Stations
Body Shops
Car/Truck
300,000
151,000
359,000
1,640,000
5.2
2.8
8.8
17.2
Dealerships
Tire Dealers
195,000
3.9
Source: Service Station Manacremen-h
pp. 1-TAP - 34-TAP.
October 1990,
50
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the service industry are contained in Table 9-25. Car/Truck
Dealerships earned more than four times the service revenue
of the second ranked industry, Body Shops. They almost had
twice as many service bays on average as body shops. Repair
shops, tire dealers, and service stations were ranked third,
fourth, and fifth, respectively.
These statistics, however, do not address the market
share controlled by each automotive service industry. The
market share controlled by each industry is a function of
both average revenue per establishment and the number of
establishments in an industry. It should also be noted that
some consumers do their own maintenance work. Standard and
Poor's Corporation reported total service market shares for
1990 using a slightly different format for describing the
industries. General and Specialty Repair Shops controlled
28 percent of the market, Service Stations 27 percent, New
Car Dealers 21 percent, Auto Discount and Department Stores,
16 percent, and Tire Stores 8 percent.34 So while the
Car/Truck Dealership industry earns much more service
revenue on average, it ranks only third in market share
•because it has less establishments than-the other
industries.
The automotive repair industry's output growth has
historically followed the trend for the overall economy.35
Factors influencing the industry's output include changes in
disposable income, the number of miles driven, and the
quality and durability of vehicles and their parts.
Conventional wisdom holds that fewer vehicle sales result in
increased aftermarket sales because consumer's spend more on
repair instead of new cars.36 However, as the economy
contracts, disposable income declines. Thus, consumers tend
to delay scheduled and discretionary maintenance. This
lengthening of the "repair cycle" has the effect of reducing
the total number of service establishments.37
51
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The aforementioned factors caused the growth in
aftermarket sales to fall in 1991.38 Many people delayed
maintenance work due to the economic downturn. At the same
time, there was a decline in the growth rate of the number
of miles driven in 1991. However, the aftermarket is
expected to return to its average annual growth rate of
about two percent; the demand for scheduled repairs and
maintenance is expected to improve.39
Beyond these business cycle effects, average annual
growth in the aftermarket has slowed since 1980.*° Three
factors have contributed to this decline:
• A greater number of new vehicles are on the road,
as the number .of vehicles scrapped annually has
been increasing.
• Original parts are increasingly well-designed and
engineered, and are lasting longer.
• Specific diagnostic technologies more accurate;u
identify parts that are likely to fail, reducing
the practice of routine parts replacement.
Thus, average annual growth is not expected to exceed
two percent in the 1990s.
The single largest growth potential for the
aftermarket products and services is the "untapped"
aftermarket according to the Motor and Equipment
Manufacturers Association (MEMA) .41 The "untapped" market
represents unperformed maintenance. Currently, it is
estimated that $47.4 billion is the size of this market.
Making consumers aware of the need for preventive vehicle
maintenance should help open the market. However, this
phenomenon has-lexisted for decades, and cannot be expected
to significantly alter growth rates in the industry.42
52
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2.0 METHODOLOGY
2.1 Introduction
This section presents the methods for estimating the
economic impacts of the degreasing NESHAP limiting
halogenated solvent emissions from organic solvent cleaners
(degreasers).
Degreasing equipment using the following solvents .
falls within the scope of the NESHAP: methylene chloride,
perchloroethylene, 1.,!,.! trichloroethane.,... and.
trichloroethylene. 1,1,1 trichloroethane is subject to
regulation as an ozone depleter under the Montreal Protocol,
and is assumed to be phased out before the degreasing NESHAP
effect.
Degreasing equipment- can be categorized into three
broad types of cleaners: cold cleaners, open top vapor
cleaners (OTVCs), and in-line (conveyorized) cleaners. Only
the latter two are subject to the NESHAP, as cold cleaners
are thought to be adequately controlled in the baseline.
Impacts will be calculated for two categories of
degreasers: existing and new. New degreasers will be
purchased over the course of compliance, both for
replacement of old machines and as a result of industry
growth. It is assumed that degreasers have, on average, a
service life of 15 years. Thus, it follows that the current
stock of degreasers will be replaced by new degreasers at a
rate of one fifteenth, or 6.7 percent annually.
The most direct impact of the NESHAP will be on those
facilities that manufacture products which require organic
solvent cleaning. These facilities will experience changes
in their costs resulting from the need to modify existing
organic cleaning systems, or from the purchase of already
modified systems (i.e. new degreasers).
There are 39 SIC classifications that contain
facilities which are likely to be impacted. These industry
groups were initially identified in a study performed by
53
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Eureka Laboratories in 1976 of air emissions from organic
solvent cleaning operations in California. The results of
the study were extended to cover organic solvent cleaning
operations throughout the United States. According to data
collected for the industry profile, in 1987 these SICs
included 255,499,establishments, generating just over $1
trillion in combined total revenue.
Because organic solvent cleaning spans so many
industries, it is not within, the.scope .of ..this analysis.to
identify all of the specific establishments and products
that would be affected by a degreasing NESHAP. Therefore,
organic solvent cleaning operations will be modelled
generically.
Degreasing is an essential factor of production for
those industry groups examined. Of particular importance
for this analysis is the baseline cost of degreasing. If
machines are retrofitted, degreasing costs will increase by
the cost of the retrofit. The size of this cost increase
will directly impact firm decisions regarding system
modification, as well as industry prices, output levels, and
employment. Section 2.2 outlines how baseline costs will be
calculated for the model degreasers.
Cost increases stemming from compliance to the NESHAP
will also be evaluated by the firm as they relate to the
total production costs of affected facilities. This process
requires creating model facilities with requisite economic,
technological, and financial parameters. Section 2.3
delineates how model facilities are constructed.
Section 2.4 explains how impacts will be estimated at
the facility level.
With an increase in compliance costs, firms will have
the choice of retrofitting existing machines or installing
alternative systems. Section 2.5 describes how impacts on
the market for alternative systems will be evaluated.
54
-------
Facilities which manufacture degreasing equipment
.will be affected as well. Section 2.6 discusses the nature
of the analysis with respect to equipment manufacturers.
In addition, manufacturers "of halogenated solvents
will be impacted by compliance with the NESHAP. Section 2.7
focuses on the market adjustments that are likely to occur
here.
Finally, Section 2.8 discusses small business
impacts.
2-2 Estimating Baseline Decreasing Costs
The objective of this section is to demonstrate how
baseline degreasing costs have been estimated for facilities
operating degreasers. Because there are so many different
types of degreasers, a model degreaser approach is used to
capture the range of technical characteristics associated
with degreasing. RADIAN Corp. has defined five types of
model degreasers, based on their average solvent/air
interface." Model OTVCs have the designated sizes of small
(4.5 sq. ft.), medium (8.6 sq. ft.), large (16 sq. ft.), and
very large (38 sq. ft.). in-line cleaners have one
designated size — very large (38 sq. ft.). it is assumed
that technical characteristics are the same for both
existing and new model degreasers. The method by which
costs are computed is composed of the following tasks:
1. Set the technical characteristics of the model
degreasers in terms of fixed equipment and the
most important variable inputs: These have been
identified as capital costs, production labor,
maintenance labor, solvent requirements, energy
requirements, and additional miscellaneous costs.
detailed treatment of model cleaner selection and
S£S?J °?Sr ^ t?e RADIAN CorP- Memorandum entitled
Summary of Costs and Post Ef^-M.,oness Ag.c:o,^ated WJ7?
Emission Reduction* f»r select rontrol Tg^njJ^L fJ
Organic Solvent ciMm.>.g| -"
55
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2. Apply the Radian estimates of model degreaser
total fixed (capital) costs, annualized by a
capital recovery factor: This requires a
straightforward application of the cost recovery
formula:
where CCm is the annualized capital cost of model
degreaser m, Pra is the purchase price of degreaser
m, r is an annual interest or discount rate, and t
is the system's lifetime in years. Purchase
prices of the model degreasers are as follows:
small = $20,000; medium = $40,000,* large =
$70,000;-very large = $140,000; in-line =
$139,000.
Generate estimates of the annual quantities of the
variable inputs for each of the model sizes:
These estimates come from a combination of
engineering data from RADIAN and from actual
facility data collected by JACA. The estimates
are calculated using the following assumptions and
data: Production labor costs assume that labor is
performed for 1464 hours annually with an hourly
wage rate of $13.69. This number of hours is the
total number of annual labor hours (1560) minus
downtime for maintenance. Maintenance labor,
which is utilized for cleaning the degreaser, is
assumed to be performed once monthly for eight
hours "at a wage rate of $15.04. Solvent
requirements are based on the actual amount of
solvent used at Precision Tube Inc. for their 45
sq. ft. degreaser. Precision consumes 33,052
56
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kg/yr. Given the amount of solvent and the size
of the degreaser, and assuming a solvent price of
$1.42/kg, the dollar value of solvent per sq. ft.
is $1,035.63. This value is then applied to the
five model degreasers to arrive at annual solvent
cost. Miscellaneous expenditures, which include
taxes, insurance, and administrative costs, have
been estimated by RADIAN Corp. to be 4 percent of
annualized capital cost. Energy costs are derived
from the RADIAN approach for calculating energy
costs associated with degreasing control
equipment.
4. Combine total fixed costs and total variable costs
to arrive at total baseline costs of the model
degreasers. Table 26 shows the estimated fixed,
variable, and total costs for the five model
degreasers.
2.3 Model Facilities
Since compliance costs are provided for model
degreasers only, it is necessary to allocate these costs
among impacted facilities. This involves allocating
compliance costs to user industries. While all facilities
which perform organic solvent cleaning will be impacted in
some way, the economic impact analysis will estimate only
the worst-case impacts. Thus, cost allocations will be
performed for the most costly regulatory alternative, and
applied to facilities which will be impacted most severely.
Control costs for new and existing model degreasers
are provided by the engineering contractor. ' For each model
57
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degreaser, control costs are estimated for a range of
regulatory alternatives. Regulatory alternatives relate to
the level of emissions reduction. The model degreaser with
the highest cost of control will be chosen from among the
model degreasers and regulatory alternatives. Thus, two
figures will be used as estimates of maximum control costs;
one for existing cleaners and one for new cleaners.
When installing pollution control equipment, it is
often the smaller -.facilities in an industry that are
impacted the most severely. This prevalence, which can be
referred to as diseconomies of scale in pollution control,
directs the focus of the analysis to the development of
model facilities which capture the economic, technological,
and financial attributes of small facilities.
Small model facilities are developed for each of the
39 SIC codes which will experience impacts. Economic
parameters for these facilities will be taken directly from
the census of manufacturers. A small model facility is
defined here as having between one and nineteen employees.
The revenue basis attached to small model facilities is
calculated as the total revenue generated by facilities with
between one and nineteen employees, divided by the total
number of establishments in that employment class.
The range in the number of degreasers per
establishment is based on observations from site visits and
the results of a survey conducted by Dow Chemical Co. in
1976.43 Dow found the average number of open-top and
conveyorized vapor degreasers to be 1.43 in facilities with
from 20-100 employees, and 3.76 in facilities with 500 or
more employees. It is likely that the majority of small
model facilities employ only one degreaser. If they do
indeed use two degreasers, they are probably not both small,
as this would be redundant. Thus, worst case impacts will
be estimated assuming small facilities use one degreaser.
59
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A final step in defining model facilities is to
estimate their total baseline production costs. This
involves computing the percentage contribution of total
costs to revenue, which equal one minus the profit rate.
Before tax profit rates will be used, as pollution control
costs are tax deductible. Profitability data is obtained
from the Commerce Department's' Quarterly Financial Reportr
and from RMAs' Annual Statement Studiesf 1992.
2.4 Calculation of Impacts
Now that model facilities have been defined and
baseline and control costs have been measured, it is
possible to proceed with the calculation of impacts.
The analysis begins by computing the increase in
degreasing costs above baseline degreasing costs. This
increase is a useful measure of the incentive degreasing
operators will have for switching to alternative systems.
The greater the increase in degreasing costs, the greater is
the incentive for substitution. In some cases, the
incremental cost of compliance will be large enough to make
the existing system "marginal,»-i.e. no longer the least
cost method of cleaning. These calculations will be used in
support of the substitution analysis that follows.
Increases in degreasing costs alone do not account
for the entire range of impacts. Decisions as to whether to
substitute or retrofit will also depend on the contribution
of degreasing costs to total costs of production. The ratio
of control costs to total costs will be used in conjunction
with degreasing cost increases when analyzing the likelihood
of substitution.
2.5 Substitution Opportunities
As an alternative to implementing controls and
incurring compliance costs, regulated facilities have the
option of substituting for their existing solvent cleaning
systems. Substitution possibilities include using an
alternative solvent, or using an alternative degreasing
60
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system. Since the use of alternative solvents and systems
is well established in degreasing, it is necessary to
evaluate substitution opportunities.
The primary approaches to solvent substitution are
the reformulation of halogenated solvents and the
substitution of non-halogenated solvents.
In terms of reformulation, one example is in the
automobile repair industry.** This industry has
reformulated carburetor cleaner compound to exclude the use
of TCA, which had typically been used in five percent
concentrations with MC and cresylic acid.
__„ Substitution possibilities include terpene cleaners
and aqueous cleaners. Terpene cleaners are available
commercially in neat form or as water solutions with
surfactants, emulsifiers, rust inhibitors, and other
additives, and can be utilized in cold cleaners. Terpenes
have tested favorably as substitutes for halogenated
solvents for removal of heavy greases, oily deposits, and
carbonized oils. One reported disadvantage of terpenes is
the inability to separate long-chain aliphatic oils for
recycling of the cleaning solution.
Aqueous cleaners comprise a wide range of methods
that use water, detergents, acids, and alkaline compounds to
displace soil rather than dissolving it in organic solvent.
Aqueous cleaning has been found to be a viable substitute
for cold-cleaning operations currently using halogenated
solvents. Its primary drawback is that parts are wet after
cleaning, creating rust problems.
Non-halogenated solvents in some cases do not clean
as efficiently as halogenated solvents. Thus, the necessity
of meeting minimum cleaning standards in many applications
It should.be noted that automobile repair shops will
not be regulated by this NESHAP. This presentation
is used merely as an example.
61
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may preclude the use of an alternative non-halogenated
solvent. Non-halogenated solvents can be substituted for
halogenated solvents only to the extent that they satisfy
the specific technical requirements of the applications.
Since non-halogenated solvents are already used far more
extensively in cold-cleaning operations, substitution where
it is technically feasible and cost-effective may have
already taken place.
In order to-assess the extent of substitution
generated by the NESHAP, three aspects of the market for
alternatives will be analyzed. First, the magnitude of non-
halogenated systems in the baseline will be identified.
Second, the ability of organic solvent cleaning users to
switch to' alternative systems will be gauged. Third, the
growth rate of alternative systems will be estimated.
2< 6 Impacts on Manufacturers of Decreasing Equipment
The demand for degreasing equipment can be thought of
as derived from the demand for degreasing equipment in end-
use markets. Thus, if the cost of compliance for end users
has the effect of shifting up the end users' market supply
curve, the ensuing reduction in output will lead to a
reduction in demand for inputs, which include degreasing
equipment. This will not necessarily lead to a contraction
in the degreasing equipment manufacturing industry. This
industry could well be in the position to manufacture
control equipment and install retrofits, in addition, end-
users could well substitute alternative cleaning systems,
e.g. aqueous systems, which are also produced by firms which
manufacture halogenated-solvent systems. In sum, it is not
at all clear that the impacts of the degreasing NESHAP on
equipment manufacturers will be negative. In fact, a net
gain could be realized.
Since demand for-degreasing equipment is derived from
the demand for "degreased products," the growth.rate in this
product market will have an impact on the size of the
62
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equipment manufacturing industry. Thus, growth rates will
be used to estimate changes in demand in this market.
(Growth rates are provided in the Industry Profile.) In
addition, increases in the manufacture of alternative
systems will affect manufacturers. Trends in this market
will be examined as they impact equipment manufacturers.
2.7 Impacts on Solvent Manufacturers
Four halogenated solvents will be affected by the
decreasing NESHAP. They are: methylene chloride (MC),
perchloroethylene (PCE), 1,1,1-Trichloroethane (TCA), and
Trichloroethylene (TCE). Manufacturers of these solvents
will be impacted by the degreasing NESHAP in a variety of
ways. First, demand for solvents will decline as degreasing
machines recover fugitive emissions of solvent and reduce
their solvent consumption. Also, demand for solvents will
decline as end-users substitute alternative cleaning
systems, e.g. aqueous systems, and reduce their solvent
consumption. In addition, it is possible that intra-
industry impacts will result from the NESHAP-. Since
1,1,1 TCA is being phased out, it is likely that at least
some facilities will move into using another regulated
solvent. This will have the affect of increasing demand for
the other solvent, and possibly putting upward pressure on
solvent prices.
Demand for all types of cleaning fluids, i.e.
halogenated and non-halogenated is derived from the demand
for "degreased" products. Thus, growth in demand for these
products will drive growth in demand for cleaning fluids.
In addition, retrofitting existing machines will lead
to a reduction in fugitive emissions as solvent is
recovered. It is assumed here that.solvent-recovery data
can be obtained from the engineering contractor. This
information will be' incorporated into the market analysis of
cleaning fluids.
63
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2-8 Small Business
flexibility analysis will be
:
recommended.
3.0 ECONOMIC IMPACTS
3-1 Jntrod»o>*r»n
«,„« ..,„„,
,.„.„.„
-- extensive analysis, if the.
-•
3.2 Control^ ^—•»•-
64
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chloride, with an emissions reduction level of 60 percent.
The net annualized control cost per year is $1,812.
3.3 Economic Parameters of Model Facilities
Economic parameters of the model facilities for
estimating worst-case economic impacts have been developed
and are presented in Table 27. Each model facility is
assumed to operate one small degreaser. Model facility
revenues range from $346,222 for SIC 348 to $34,817,810 for
SIC 376. However, .data, for SIC. 37.6 can be considered an
outlier in this analysis as it deviates greatly from the
other averages. Impacts on SIC 376 are extremely small, and
will not be analyzed here. Thus, the revenue for SIC 335,
which is $1,412,769 is representative of the upper bound of
average facility revenue. Employment per facility is fairly
clustered, ranging from 5.2 employees to 8.2 employees.
This clustering is to be expected, as the sample includes
only facilities with from one to nineteen employees.
Operating costs are estimated from industry profitability
data, and are computed as facility revenue minus facility
before-tax net income.
3.4 Impacts
3-4.1 Full-Cost Absorption. For calculating worst-
case, impacts it is assumed that facilities will have to
absorb the entire incremental cost of control above the
baseline. This conservative scenario posits that facilities
will not be able to recover control costs through price
increases. For the broad range of industries that will be
impacted, actual price increases are difficult to predict.
Assuming full-cost absorption assures that impacts will not
be understated.
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control costs are divided into average total revenue for
each facility. Table 28 presents these quotients, in
percentage terms, for existing and new degreasers.
As shown, control costs as a percentage of facility
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3.5.2 Earnings Impacts
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income.
Table 29 lists annualized control costs as a percent
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impacts appear to be significant, in all other cases, they
fall below the twenty percent threshold.
It is important to point out that significant
earnings impacts alone do not necessarily imply closure of
those facilities. All impacts are based on worst-case
assumptions. Recall that the percent cost increases for
SICs 254 and 259 are 0.23% and 0.26%, respectively. These
are small indeed, and it is quite possible that such modest
costs can be recovered through small price increases.
Nevertheless, if there are meaningful impacts resulting from
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