United States
         Environmental Protection
         Agency
Office of Air Quality
Planning and Standards
Research Triangle Park, NC 27711
EPA-453/D3W358
November 1993
        Air
ERA   Economic Impact Analysis of the
         Halogenated Solvent Cleaning NESHAP
         DRAFT

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                        TABLE OP CONTENTS


Section                                                     Page

1.0       INDUSTRY PROFILE  .  .	     1

          1.1  Introduction	     1
          1.2  Degreasing Equipment 	     1
          1.3  Halogenated Solvents Used in
                 Degreasing 	     4
          1.4  Industries Using.Degreasing .Equipment   .     15
          1.5  Automotive Repair Industry  	     38


2.0       METHODOLOGY	     53

          2.1  Introduction	-	     53
          2.2  Estimating Baseline Degreasing Costs .  .     55
          2.3  Model Plants	     57
          2.4  Calculation of  Impacts  .........     60
          2.5  Substitution Opportunities  	     60
          2.6  Impacts on Manufacturers of Degreasing
                 Equipment	     62
          2.7  Impacts on Solvent Manufacturers ....     63
          2.8  Small Business  Impacts  	     64
                                              •

3.0       ECONOMIC IMPACTS  	     64

          3.1  Introduction	     64
          3.2  Control Costs	     64
          3.3  Economic Parameters of Model Facilities      65
          3.4  Impacts	     65

                 3.4.1  Full-Cost Absorption  	     65
                 3.4.2  Earnings Impacts   	     68
                 3.4.3  Substitution Opportunities  .  .     73
                 3.4.4  Capital  Availability  	     78
                 3.4.5  Impacts  on Manufacturers
                          of Degreasing Equipment ...     84
                 3.4.6  Impacts  on Solvent
                          Manufacturers	  .  .     85
                 3,4.7  Small  Business Impacts  ....     87


4.0       REFERENCES	     92

     Appendix A - Aggregate Changes in the Industries
                  Using Degreasing Equipment  	    A-l


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                          LIST OP TABLES

 Table                                                       Page

 1         U.S. Producers of Methylene Chloride  (MC) ,
          Perchloroethylene  (PCE),  1,1,1-Trichloroerhane
          (TCA), Trichloroethylene  (TCE),  1992   ....     5

 2         U.S. Production of Methylene  Chloride  (MC) ,
          Perchloroethylene  (PCE),  1,1,l-Trichloroethane
          (TCA), and Trichloroethylene  (TCE), 1980-1990     7

 3         Uses of Methylene Chloride (MC) ,	
          Perchloroethylene  (PCE),  1,1,l-Trichloroethane
          (TCA), and Trichloroethylene  (TCE), 1992   .  .     8

 4A        U.S. Consumption of Methylene Chloride  (MC),
          Perchloroethylene  (PCE),  1,1,l-Trichloroethane
          (TCA), Trichloroethylene  (TCE)  in Degreasing
          Applications, 1980-1991	     9

 4B        Consumption of Methylene Chloride  (MC),
          Perchloroethylene  (PCE),  1,1,l-Trichloroethane
          (TCA),  and Trichloroethylene  (TCE) by
          Degreaser Type, 1991	     11

 5         Average Realized Price of Methylene Chloride
          (MC), Perchloroethylene (PCE),  1,1,1-
          Trichlorbethane (TCA) ,  and Trichloroethylene?
          (TCE) ,  1980-1989	     12

 6         U.S. Imports of Methylene Chloride (MC),
          Percyhloroethylene (PCE),  1,1,1-
          Trichloroethane (TCA),  Trichloroethylene
          (TCE),  1980-1989	!.     13

 7         Industries Using Degreasing Equipment,
          by 1972 and 1987 Basis	     16

 8         Revenues for the Industries Using Degreasing
          Equipment,  1987 and 1982	     19

9         Number of Establishments,  Employment,  and
          Revenue for the Industries Using Degreasing
          Equipment,  1987	     21

10        Distribution of Establishments by Employment-
          Class Size for the Industries Using
          Degreasing Equipment,  1986	    24
                              -11-

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                           LIST OP TABLES
                             (Continued)

 Table                                                      Page

 11        Distribution of Revenue by Employment-Class
           Size for the Industries Using Degreasing
           Equipment, 1986	    26

 12        Capacity Utilization Rates for the Industries
           Using Degreasing Equipment, 1985-1988 (From
           the- Fourth Quarter of Each Year)	    28

 13        Export and Import Data for the Industries
           Using Degreasing Equipment, 1990  ......    31

 14        Exports as a Percentage of Revenue for the
           Industries Using Degreasing Equipment, 1990 .    33

 15        Average_After-Tax Profit Margin in the
           Industries Using Degreasing Equipment:  1990     35

 16        Output Forecasts of Industries Using
           Degreasing Equipment  .  	     36

 17        Distribution of Establishments and Firms
           in  SIC 753  by Four-Digit Industries,  1987  .  .     39

 18        Legal  Forms of Firms in  SIC 753,  1987 ....     41

 19        Distribution of Employment in  SIC 753 by
           Four-Digit  Industries, 1987  	     43

 20        Distribution of Revenue  in SIC 753 by
           Four-Digit  Industries, 1987  	     44

 21        Number  of Establishments and Firms in SICs
           551, 554, and  753,  1987	     46

 22     -    Legal Forms  of  Firms  in SICs 551, 554, and
           753, 1987	-	     47

 23         Employment Statistics for  SICs 551, 554 and


24        Revenue Statistics for SICs 551, 554 and
          753, 1987 .	 .	     49

25        Average Annual Repair and Service Dollar
          Volume and Average Number of Bays for Selected
   ;       Automotive Service Industries 	     50

   •••                     '      -iii-

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                          LIST" OF TABLES
                            (Continued)

Table                                                      page

26        Model Cleaner Baseline Degreasing Costs  ...    58

27        Economic Parameters of Small Model Plants  .  .    66

28        Annualized Control Costs and Percent Cost
          Absorption for Small Model Plants 	    69

29        Impact of Control Costs on Earnings 	    71

30        Impact of Control Costs on Total Costs
          of Production 	  .....    75

31        Financial Profiles of Small Model Plants   .  .    79

32        Per-Facility Capital Costs as a Percent  .  .  .
          of Net Income and Total Assets	    81

33        Comparison of Cost Absorption for Small
          and Large Model Plants  	    89
                              -iv-

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 1.0    INDUSTRY PROFILE
 1.1    Introduction
        This industry profile details the various market
 characteristics of the industries potentially affected by
 the NESHAP limiting halogenated solvent emissions from
 organic solvent cleaners (also called degreasers).*  The
 industries include manufacturers of degreasers,
 manufacturers of halogenated solvents used in degreasing,
 arid industries..that use degreasers.
        Industries that use  degreasers will be directly
 impacted by the NESHAP because they will incur control
 costs.   Manufacturers of solvents used in degreasing and
 manufacturers of degreasing equipment will be indirectly
 impacted by the regulation.   For example,  demand for
 solvents and degreasing equipment will decrease  if  output  in
 the user industries decreases  in response to  an  attempt  to
 recover  control  costs by increasing  prices.   The
 substitution of  alternative  cleaning systems  or
 nonhalogenated  solvents  for  cleaning methods  using
 halogenated solvents  would also  affect both halogenated
 solvent  and degreasing  equipment  manufacturers.
       The  profile  will  first examine  the manufacture  of
 degreasing  equipment  and halogenated  solvents.
 Subsequently, there will be an examination of the industries
 using degreasers.
 1« 2  Degreasina Equipment
       Degreasers are used to remove water-insoluble soils
 such as grease, waxes, carbon deposits, oils,  fluxes, and
tars.  Among the surfaces cleaned are plastics, metals,
fiberglass, and printed circuit boards.  Degreasing takes
*Though the degreasing NESHAP may also limit HAP
 emissions, it has not yet been determined which HAPs
 will be regulated.  Thus, the profile only addresses
 halogenated solvents.

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 pla.ce prior to production processes such as painting,
 plating, inspection, repair, assembly, heat treatment, and
 machining.  To remove the soils, degreasers use a variety of
 solvents.
        Besides varying in size, from bench-top models to
 industrial-size models, degreasers also vary in
 technological sophistication, from a simple tank containing
 solvent to an automated, multi-stage system.1  However,.
 degreasers are usually categorized, into three, groups.: ._cold.
 cleaners,  open top vapor cleaners (OTVCs),  and in-line
 (conveyorized) cleaners.
        Used most often for maintenance cleaning and the
 routine cleaning of small parts, cold cleaners use room
 temperature solvent to clean equipment and  parts.   These
 solvents  are primarily aliphatic petroleum  distillates,
 alochol blends,  or napthas.2  Only a certain type — the
 carburetor cleaner — uses halogenated solvents.3
 Cold cleaners are batch-operated;  this means that  their
 operation  is  discontinuous and  on  an  as-needed basis.
        An  OTVC cleans parts  and equipment by suspending  them
 in the  heated vapors  of  a solvent.  OTVCs,  like  cold
 cleaners,  are batch-operated.   Unlike  cold  cleaners,  they
 are  rarely  used  for maintenance cleaning because cold
 cleaners are  less  expensive  to  operate  for  this type  of
 work.4  Exceptions include the maintenance cleaning of
 electrical  components, small equipment  parts, and aircraft
 parts, where the degree of cleanliness  provided by an OTVC
 is necessary.  OTVCs  are widely  used in metalworking
 operations.5
       The  final type of degreaser is the in-line or
conveyorized  (vs. batch) cleaner.  The  five types of in-line
cleaners using halogenated solvents are cross-rod,  monorail,
belt, strip, and printed'circuit board processing equipment
 (including photoresist strippers, flux cleaners,  and

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 developers).6  In-line cleaners  can use either a cold-
 cleaning process or a vapor-cleaning process; the majority
 use vapor cleaning.7  An  in-line cleaner is  used mainly in
.manufacturing facilities where there is a constant stream of
 parts to be cleaned.  In these situations the advantages of
 a conveyorized system outweigh the lower capital cost of a
 batch-operated OTVC.8   One of these advantages is that an
 in-line cleaner greatly reduces manual parts handling
 associated ;With7cold cleaners and OTVCs. -Another advantage
 is that in-line cleaners  are usually tailored to the
 specific production environment rather than  being of a
 generic design.
        The manufacture•of degreasers is part of the broad
 SIC 3559,  Special Industry Machinery,  Not Els.ewhere
 Classified.9  There is little published  information
 concerning the  manufacturers of  degreasers.   The most recent
data available  are from a 1987  survey  of producers  of cold
cleaners and  OTVCs by  the JACA Corporation of Fort
Washington, PAl10-11  The survey identified about 50 companies
that in 1986  supplied  cold cleaners to  metal cleaning
operations. Among these,  some of the major producers  were
Safety-Kleen, Phillips  Manufacturing (a wholly-owned
subsidiary of Safety-Kleen), Kleer-Flo,  Graymills, Build-
All,  R&D/Kamas  (a division of Fountain  Industries), and
Crest Ultrasonics.
        Cold cleaner units ranged  in price from $100 to
$5,000  in  1986.   Between 25,000 and 50,000 cold cleaners
were  estimated to have been sold  in 1986, over half of which
were  carburetor or immersion cleaners sold to  automotive
repair shops.
       Approximately 75 companies manufactured OTVCs in
1986.  TWO companies, Detrex and Baron-Blakeslee, accounted
for 50 percent of 1986 production.  Other major producers
included Phillips Manufacturing,  Crest Ultrasonics,  Delta

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 .Industries-,  and Cooper Company.   Between 1,000 and 2,000
 OTVCs were sold in 1986,  ranging approximately in price from
 $1,500 to $340,000.
         There are a number of SIC industries which use
 degreasing equipment.   These user industries are discussed
 in Section 1.4.
         The most  recent data  concerning the  number of
 degreasers using halogenated solvents are from 1987.n  in
 that year  there  were approximately ,100,000  cold cleaners,
 25,000  to  35,000  OTVCs, 2,000 to  3,000 in-line  vapor
 cleaners,  and 500 to 1,000 in-line cold cleaners  using
 halogenated solvents.
        Though .there are no published forecasts  available for
 the production of halogenated solvent cleaners, it can be
 assumed that demand will to some extent be influenced by the
 degree of substitution of alternative cleaning systems.
 1«3  Halocrenated Solvents Used In Deareasing
        There are five halogenated solvents used by
 degreasers.13  They are methylene chloride (MC) ,
 perchloroethylene (PCE), trichloroethylene (TCE), 1,1,1-
 trichloroethane  (TCA),  and trichlorotrifluoroethane (CFC-
 113),.   The first four have been  designated for regulation by
 the degreasing NESHAP.
        The manufacture  of  solvents used in degreasing  is
 classified in SIC 2842,  Specialty Cleaning,  Polishing,  and
 Sanitation Preparations.14   Table  1 lists the manufacturers
 of the  four solvents.   Dow Chemical U.S.A. currently
 manufactures  all  four solvents.   Both PPG Industries,  Inc.
 and Vulcan  Materials Company  produce three of  the  four
 solvents.   TCA has the  largest amount of capacity  dedicated
 to its production  (47V million kilograms per year) while TCE
has the smallest  (145 millions kilograms per year).

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TABLE 1.  U.S. PRODUCERS OF METHYLENE CHLORIDE
            (MC) , PERCHLOROETHYLENE  (PCE) , 1,1,1-
            TRICHLOROETHANE (TCA), TRICHLOROETHYLENE
            (TCE), 1992
  Chemical
                       Company
 Capacity
(!ortgTr  January 20,
         1992, January  27, 1992,  February 3,  1992,
         March 2, 1992.

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         Table 2 presents production data for the four
  solvents.  Production levels in the mid to latter 80s were
  down from the beginning of the decade for MC, PCE, and TCE.
  This trend resulted from decreased demand, particularly for
  metal degreasing applications.15  in response to rising
  disposal costs,  users of the solvents-began recycling them,
  contributing to  this decreased demand.18-17  The largest drop
  in production from 1980 to 1990 was the 50 percent decrease
  in PCE production,   TCA- experienced increased production ._
  from 1987  to 1989;  the chemical was being  substituted for
  trichlorotrifluoroethane (CFC-113)  and a number  of voc
  compounds.I8
        The various  end uses  of  the  four solvents are  listed
  in Table 3.   It  is  apparent  that TCE is the most reliant  on
 degreasing end-uses; 90 percent of  1992 consumption is
 accounted for by vapor degreasing applications.  Degreasing
 applications  (vapor degreasing, cold cleaning, and
 electronics cleaning) account for the majority, 52 percent,
 of TCA consumption.  Fifteen percent of MC consumption
 involves degreasing applications.  PCE is the least reliant
 on degreasing applications, which only currently consume 13
 percent of output.
        Historical data concerning the domestic consumption
 of the four halogenated solvents in  degreasing applications
 are contained in  Table 4A.   As shown,  PCE,  TCE,  and TCA
 were,  in  recent years,  the  major commercial solvents,
 accounting for 90 to 95 percent  of  the  markets for  solvents
 used  in metal degreasing.19   The  consumption of all  four
 chemicals  edged downward throughout  the decade.   Demand was
 stagnant  in recent years, particularly  from 1984  to 1987.
Not until the period of 1987  to  1989 did the consumption"of
MC, PCE^ and  TCE recover.   In 1991,  the consumption for

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 TABLE 2.
U.S. PRODUCTION OF METHYLENE CHLORIDE  (NO
  PERCHLOROETHYLENE (PCE), 1,1,1-
  TRICHLOROETHANE (TCA), AND
  TRICHLOROETHYLENE (TCE), 1980-1990
                          Quantity (lo6 kg)

1990
1989
"" 1988
1987
1986
1985
1984
1983
1982
. 1981
1980
MC
213
213
:- :230
233
254
262
250
265
241
269
256
PCE
174
215
'•"••••• 227
215
184
225
231
248
265
313
347
TCA
355
352
- 317
315
294
268
303
266
270
279
314

76
50
50
88
75
77
88
91
86
117
121
Sources:  Facsimile.  Risotto, S., Halogenated Solvents
          Industry Alliance, to Jenkins, A., JACA Corp.
          March 12, 1992.  Information concerning
          halogenated solvents.

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       TABLE 3.  USES OF METHYLENE CHLORIDE  (MC),
                   PERCHLOROETHYLENE  (PCE),
                  1,1,1-TRICHLOROETHANE (TCA), AND
                  TRICHLOROETHYLENE (TCE), 1992
                                     Percent of Total
	     Consumption

 MC:  paint removal/stripping              31%
      plastics                             16%
      flexible polyurethane foam          . 14%
      Pharmaceuticals  „•	          .      11%
      metal cleaning/degreasing            11%
      aerosols                              8%
      electronics                           4%
      miscellaneous                         5%

 PCE: dry cleaning/textile                 50%
        processing
      chemical intermediate                27%
      metal cleaning                       13%
      miscellaneous                        10%

 TCA: vapor degreasing                     31%
      cold cleaning                        18%
      aerosols                             12%
      adhesives                            10%
      chemical Intermediates               10%
      coatings and inks                     7%
      textiles                              4%
      electronics                           3%
      miscellaneous                         5%

 TCE: vapor degreasing                     90%
      chemical intermediate                10%
        and miscellaneous
Sources:  Chemical Marketing Reporter. January 20,
          1992, January 27, 1992, February 3, 1992,
          March 2, 1992.

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    TABLE 4A:   U.S.  CONSUMPTION OF METHYLENE CHLORIDE
                 (MC),  PERCHLOROETHYLENE (PCE),
                 1,1,1-TRICHLOROETHANE (TCA),
                 TRICHLQROETHYLENE (TCE)  IN
                 DECREASING APPLICATIONS8, 1985-1991
Quantity (lo6 kg)

1991
.1989
1987
1985
MC
18.8
13.9
22.4
23.4
PCE
16.2
-31.4 '
N/A
30.6
TCA
123. 8b
.169,5
N/A
163.5
TCE
42.0
17.5
56.0
73.3
 Include metal cleaning and electronics cleaning by
 vapor decreasing or cold cleaning.
'Estimate.
N/A - Not available

Sources:  Chemical Marketing Reporter-r Chemical
          Profiles from: March 2, 1992, February 3,
          1992, January 27, 1992, January 20, 1992,
          January 23, 1989, February 6, 1989,  July 1
          1989, July 8, 1989;  Halogenated Solvents
          Industry Alliance, "White Paper —
          Perchloroethylene," June 1991, "White Paper -
          ~ 1,1,1-Trichloroethane," May 1991; "White
          Paper — Methylene Chloride,  February 1989,
          "White Paper - Trichloroethylene," April
          1989, "White Paper — 1,l,1-Trichloroethane "
          June 1987,  "White Paper - Methylene
          Chloride,"  May 1987,  "White Paper —
          Trichloroethylene," November 1986,  "White
          Paper — Perchloroethylene,"  August 1987;
          Facsimile.   Risotto,  S., Halogenated Solvents
          Industry Alliance,  to Jenkins,  A.,  JACA Corp.
          March 12, 1992.   Information  concerning
          halogenated solvents.
                          .9

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  all the solvents  fell drastically.   The consumption of
  PCE in  metal  degreasing dropped 48  percent from 1989 to
  1991.   Consumption has dropped  as there has been more
  solvent recycling and switching to  alternative  solvents
  in  response to environmental regulations and sharply
  rising  disposal costs for waste solvents.
         Table  4B shows the 1991  consumption of the four
  solvents in degreasing applications by  degreaser type.
  40.4 percent  (.8,1.2 .million kilograms)...of...total  solvent
  consumption was accounted for by batch  vapor  cleaners.
 Batch cold cleaners consumed 37.5 percent  (75.4  million
 kilograms)  of the solvents.  Overall, batch cleaners
  (cold cleaning and vapor cleaning)  accounted  for 77.9
 percent of solvent consumption in degreasing
 applications.
       .The historical average realized prices of the
 four halogenated solvents are listed in Table 5.
 Halogenated solvent prices are influenced by the level
 of imports,  raw material costs,  and  capacity.21  The
 price of MC reached a decade-high of 52  cents per
 kilogram in 1984,  and settled at 46  cents per kilogram
 by 1990, 6  cents below the  1980  price.   The price of
 PCE  fluctuated throughout the period,  reaching a
 decade-high  of 49  cents per kilogram in  1989 then
 falling  to  33  cents in 1990.  in 1985  the price  of TCA
 was  a decade-high  of  69 cents per kilogram,  and
 subsequently fell  to  59 cents by 1990.   In 1988,  TCE
 climbed  to its decade-high of-66 cents per kilogram.
       Of the  four solvents PCE  is the most heavily  imported
 (Table 6).  MC imports  peaked in 1984, and  declined  through
1991 to  3.2 million kilograms.  The peak year.for PCE
imports  occurred in 1986 when 72.2 million kilograms, were
imported.  Imports of PCE subsequently fell to 31.8 million
                             10

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 TABLE 5.  AVERAGE REALIZED PRICE OF METHYLENE
           •  CHLORIDE (MC) ,  PERCHLOROETHYLENE (PCE),
             1,1,1-TRICHLOROETHANE (TCA),  AND
             TRICHLOROETHYLENE (TCE), 1980-1989

1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980

MC
46
47
40
N/A
38
N/A
N/A
42
N/A
N/A
49
Price
PCE
33
49
44
37
36
4,2
N/A
37
N/A
N/A
35
«Vkg)
TCA
59
62
62
70
64
68
N/A
55
N/A
N/A
53
i
TCE
N/A
N/A
66"
60"
60a
64"
N/A
N/A
N/A
N/A
43
•Estimated
N/A - Not available.
Sources:
U.S. International Trade Commission. Synthetic
Organic Chemicalsr 1983, 1986, 1988, 1989, 1990-
Mannsville Chemical Products Corporation,
"Chemical Products Synopsis — Perchloroetliylene »
February, 1989; Mannsville Chemical Products
Corporation, "Chemical Products Synopsis-
Trichloroethylene," February, 1989, Mannsville
Chemical Products Corporation, "Chemical Products
Synopsis — 1,1,1-Trichloroethane," October, 1990.
                             12

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      TABLE 6.   U.S.  IMPORTS OF METHYLENE CHLORIDE (MC),
                  PERCHLOROETHYLENE (PCE),  1,1,1-
                  TRICHLOROETHANE (TCA),
                 -TRICHLOROETHYLENE (TCE),  1980-1989

Year
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980

MC
8.8
7.4
12.4
18.4
16.8
25.6
28.9
19.9
18.0
14.2
11.5
Quantity
PCE
24.9
20.5
27.0
24.5
27.5
10.3
' 13.1
24.7
20.0
35.5
34.0
(I06/kg)
TCA
2.8
6.0
7.1
8.8
8.8
5.5
2.0
0.0
0.0
0.0
0.0

TCE
31.4
26.7
6.0
8.8
17.3
19.8
14.0
15.0
6.2
8.3
3.5
Sources:  Facsimile.  Risotto, «., Halogenated Solvents
          Industry Alliance, to Jenkins, A., JACA Corp.
          March 12, 1992.  Information concerning
          halogenated solvents.
                             13:

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 kilograms  in  1991.  TCA- experienced increased imports from
 1984 to  1988;  imports  fell  in  1991.  After  19.8   million
 kilograms  were imported in  1985,  imports  of TCE  fell  to  1.4
 million kilograms in 1991.
        The growth prospects for halogenated solvents  are
 unfavorable.   In June  1991, Chemical Engineering reported
 that the Freedonia Group, a Cleveland-based market research
 firm, forecast that over the 1990s the production of
 halogenated solvents would drop by,approximately three
 percent.22  There will be technological improvements in vapor
 degreasers, making more efficient use of solvent.23  Emission
 control equipment will also reduce fugitive emissions.24  The
 recycling of halogenated solvents will become more
 prevalent.25  Finally,  alternative solvents may be
 substituted.   These include water or aqueous-based
 detergents, nonhalogenated solvents (e.g., terpenes,
 Stoddard solvents,  mineral spirits), and newly developed
 solvents that  are partially hydrogenated CFCs  or blends' of
 partially hydrogenated  CFCs and nonhaldgenated solvents.26
        More recent forecasts by Chemical Marketing Reporter-
 predict negative growth of consumption  for MC, TCA,  and
 TCE.  '28>29  The demand for domestically produced MC will be
 depressed by increased  environmental regulation,  including
 OSHA's  revised PEL  (permissible exposure level) proposal,
 and EPA's  dry  cleaning  NESHAP.   Growth  in  consumption  is
 forecast to decline 3 percent per  year  through 1996.
 Environmental  regulation,  specifically  the Clean  Air Act  and
 Montreal Protocol, are  forcing  the phase out of TCA
 production.  Consumption  is  forecast to decline 11.6 percent
 per year through 1996.  TCE consumption is .forecast to
 decline 2.6 percent per year through 1996; it  is  being
 regulated because it helps create  smog.  Only  PCE
 consumption is expected to grow  (7% per "year through 1996)
because of  its use in dry cleaning applications.30
                             14

-------
 Consumption of PCE is expected to grow despite increased
 regulation by OSHA and EPA.
        One final point is that all four solvents are
 regulated by the Hazardous Organics NESHAP (HON)  under the
 Clean Air Act.   Thus,  besides any control costs imposed by
 the degreasing NESHAP,  there will also be additional, control
 costs due to the HON.
 1.4  Industries Using  Decreasing Equipment
        Degreasing is-per formed---in- a variety-of industries-.-
 Because the process is  so widespread,  it is not possible to
 identify the specific  establishments and products that would
 be  affected by  a degreasing  NESHAP.  The economic analysis
 must instead rely on a  definition of the industries  that use
 degreasing equipment and any associated data available.
        In a 1976 study,  Eureka Laboratories identified 38 3-
 digit and one 2-digit SIC industries that use degreasers.31
 In  Table 7,  the 39  user industries  are  listed according  to
 the 1972  SIC classification  system  used in the Eureka
 Laboratories.   The  table also indicates which codes  were
 redefined in the SIC classification  system.   It should be
 noted that  two  other industries perform the same  services as
 SIC 753,  Automotive Repair shops.  These industries  are  SIC
 551,  Motor  Vehicle Dealers and SIC  554,  Gasoline  Service
 Stations.   Because they  were not  identified by  the Eureka
 Laboratories  study, they  are discussed  only in  section 1.5.
 Industry  Structure
       In 1987,  the classification system was reorganized.
 Sixteen industries were  affected by this reorganization.
However,  in four industries the. changes were only
redis^ributive within the 3-digit grouping, which does not
affect the aggregate data for that industry. These four
industries were SICs 336, 349, 353, and 361.
                             15

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          TABLE 7.  INDUSTRIES USING DECREASING EQUIPMENT
                      BY 1972. AND 1987  BASIS             '
          s=ss=ss=s=s=s=s=
 SIC  Code,                                             e^
   1972                                               SIC Code
  Ra«?ic:                  T ^  ^                       Redefined
—aasis		 Industry Name                 in 1987

   254     Partitions and Fixtures
   259     Misc.  Furniture  and Fixtures

   332     Iron and Steel Foundries
   335     Nonferrous Rolling and Drawing
   336     Nonferrous Foundries	,.
   339     Misc. Primary  Metal Products

   342     Cutlery, Handtools, and Hardware
   343     Plumbing and Heating,  Except Electric
   344     Fabricated Structural Metal Products
   345     Screw Machine Products, Bolts, Etc.
   346     Metal Forgings and Stampings
   347     Metal Services, n.e.c.
   348     Ordnance and Accessories,  n.e.c.
   349     Misc.  Fabricated Metal Products
                                                        ***
                                                        ***
 351     Engines and Turbines
 352     Farm and Garden Machinery
 353     Construction and Related Machinery
 354     Metalworking Machinery
 355     Special Industry Machinery                   ***
 356     General Industrial Machinery                 ***
 357     Office and Computing Machines                ***
 ,ff     Refrigeration and Service Machinery
 359     Misc.  Machinery,  Except Electrical           ***

 361     Electric Distributing Equipment              ***
 362     Electrical Industrial Apparatus              ***
 364     Electric Lighting and Wiring Equipment       ***
 366     Communication Equipment                      ***
 Ifil     Electronic Components and Accessories         ***
 369     MISC.  Electrical  Equipment and  Supplies       ***


 371     Motor  Vehicles and  Equipment
 372     Aircraft and  Parts
 376     Guided Missiles,  Space  Vehicles, Parts
 379     Misc.  Transportation  Equipment

 ?«J     Engineering and Scientific  Instruments        ***
 382      Measuring and Controlling Devices             ***

 39      Misc. Manufacturing Industries

401     Railroads - Maintenance

458     Air Transport - Maintenance
                                16

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                         TABLE 7.   (CONTINUED)
                                                       SIC
                          -r xi  ^                       Redefined
                          Industry Name                 in 1937
    753 _ Auto Repair
Misc. - Miscellaneous."

n.e.c. - Not elsewhere classified.


Sources:  U.S. Department of Commerce, Bureau of the Census,  1982

          Census of .Manufactures.,. 198.7 Census, of. Manufactures. .....
                                 17

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        Eleven 3-digit industries did change in aggregate
 terms.  These eleven were SICs 354, 355, 356, 357, 359, 362,
 364, 366, 369, 381, and 382.  For more specific information
 on how these industries changed refer to Appendix A.  There
 were changes in SIC 367, but it is not known whether they
 were merely redistributive or affecting the aggregate.
 Table 8 compares 1987 and 1982 revenues for the user
 industries.  Revenues are reported in nominal dollars.  The
 two years are comparable except for those industries whose
 redefinition in 1987 resulted in aggregate changes.   These
 include SICs 354,  355,  356,  357,  359,  362,  364,  366,  369,
 381 and 382.  SIC 371,  Motor Vehicles  and Equipment,  had
 revenues of $205.9 billion in 1987,  the highest  among the
 industries under consideration.   It also had the most
 revenue in 1982.   Sic 339, Miscellaneous Primary Metal
 Products,  had the  least  revenue,  $2.9  billion, in 1987.
        Table 9  lists the number of  establishments,
 employment,  and  revenue  in 1987 of  the  industries  using
 degreasing equipment,  it  is  evident from the table that the
 114,601  establishments in SIC 753, Auto  Repair, were  the •
 most  in  any  industry.  This total was comparable to the
 140,880  establishments of the 36 industries  in
 manufacturing.  The  second largest industry  in terms  of
 total establishments  is  SIC 359, Industrial Machinery, Not
 Elsewhere  Classified, with 22,348.  The fewest number of
 establishments, 141, were in  SIC 376, Guided Missiles, Space
 Vehicles,  Parts.
       Employment in the user industries ranged from 31,800
 in SIC 339, Miscellaneous Primary Metal Products, to 751,400
 in SIC 371.  Revenue ranged from $2.9 billion in Sic 339 to
the $205.9 billion in SIC'-371.
       To provide a more detailed picture of the  number of
establishments and revenue,  Table 10 and Table 11
                             18

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 disaggregate these two statistics by the employment-size
 class of the establishments in each user industry.  In Table
 10 the distribution of establishments is addressed.  The
 auto repair industry,  SIC 753, had the greatest percentage
 (98%)  of establishments employing zero to 19 employees.  In
 contrast,  only 23 percent of the establishments in SIC 376
 had 19 or fewer employees.   For establishments with 20 to 99
 employees,  SIC 332,  Iron and Steel Foundries,  had the
 highest concentration  (39%); only two percent of the
 establishments in SIC  753 had that number of employees.
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 employed more than 100 people.  In SIC 753,  no
 establishments existed which fell into this  category.
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 user industries by employment-size class.  Some data were
 not disclosed,  or were unavailable.  In many  cases,  the user
 industries  had the greatest percentage of revenue being
 generated by the establishments  with the most  employees.   A
 marked example of this phenomenon is SIC 372,  Aircraft and
 Parts;  97 percent of this industry's revenue was  earned by
 establishments employing  more  than 100  people.  Exceptions
 include SICs 347  and 359; establishments  with  20  to  99
 employees had  the most revenue for these  two industries.
        Table 12  lists  the capacity utilization  rates for  the
 industries  from  1985 to 1988.  These-utilization  rates  are
 practical rates,  derived  by dividing actual  output by the
 engineering  capacity.  The trends  in each industry vary both
 by percentage of  capacity utilized and in which year the
 highest utilization rate  occurred.  SIC 379,  Miscellaneous
 Transportation Equipment, typically had the  lowest
utilization rates over the four-year period.   The highest
utilization rates on average were achieved by SIC 342,
Cutlery, Handtools, and Hardware.
                             23

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         Exports,  imports,  and the balance of  trade for each
 user industry are  listed  in  Table 13.   SIC 371,  Motor
 Vehicles  and  Equipment, had  a trade deficit  of  -$47.5
 billion,  the  largest  of any  of the 39  industries.  The
 largest trade surplus was $25.3  billion in SIC  372, Aircraft
 and  Parts.
         This industry's exports as  a percentage  of revenue,
 42 percent, is the highest among the user  industries  (Table
 14).  At the  other extreme,  less than one  percent of  SIC
 376's revenue came from exports.
        Profitability data are not available at the 3-digit
 SIC level.  Therefore, Table 15 lists the average after-tax
 income of the two-digit categories in which the user
 industries in manufacturing are contained.  SIC industries
 401,  458,  and 753 are the only exceptions.  The
 profitability data are survey data taken from Dun and
 Bradstreet's Industry Norms  and Kev Business  Ratios as well
 as the Bureau of the Census'  Quarterly Financial pftpn»H..
 For SICs 33 through 38 the average income after  taxes  is  the
 average of the sum of quarterly ratios for 1990.   The
 average income after taxes for each four-digit industry
 comprising SICs 25  and 753 were averaged to come up with  a
 ratio for  the  two industries.   The profitability ratios
 ranged from 6.6 percent in SIC 38,  Instruments and Related
 Products,  to 1.3  percent in SIC 37, Transportation
 Equipment.
        Output  forecasts for industries using degreasing
 equipment are  presented in Table  16.32  Average annual  rates
 between  1992 and  1997  range from  0.39 percent  in SIC 348,
 ordnance and Accessories,  n.e.c. to 9.64 percent in SIC 357,
 Computer and Office Equipment.
       The growth rates in output underscore the diversity
of industries engaged*in degreasing operations.  For
                             30

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-------
         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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          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

-------
 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.
                             65

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         To  measure full-cost absorption impacts,  annualized
  control costs are divided  into average total revenue  for
  each  facility.  Table  28 presents these quotients,  in
  percentage terms,  for  existing and new degreasers.
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  total facility revenue.  Since control costs lead to  such
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 percent of total facility revenue appear to be negligible.
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        While it appears that facilities will be faced with  .
 modest compliance cost burdens, those facilities with small
 profit margins in the baseline could still be adversely
 impacted if they are unable to achieve price increases to
 offset control costs.  It is assumed that  threshold  for
 significant earnings impacts is a  level of annualized
 control costs  that exceeds  twenty  percent  of before-tax net
 income.
        Table 29  lists annualized control costs  as a  percent
 of  before-tax  net  income.   For  SICs  254 and  259,  earnings
 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
                             68

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                                              72

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 this NESHAP, they are likely to occur within these two
 industries.
        3.5.3  Substitution Opportunities  In this section,
 the likelihood of substituting alternative solvents and/or
 processes, rather than retrofitting existing ones, will be
 assessed.  Substitution away from halogenated solvents is
 not mandated by the Clean Air Act, nor is it a. regulatory
 option.  Facilities can comply by simply retrofitting their
 machines with emission control devices.   However, the trend
 of substituting away from organic solvent use is well
 established.  Costs associated with the  degreasing NESHAP,
 although modest,  are certain to provide  further incentive
 for the development of alternative cleaning methods.
        The primary approaches to solvent substitution are
 the reformulation of halogenated solvents and the
 substitution of non-halogenated solvents.  In terms of
 reformulation,  most of the applications  have been to  cold
 cleaners.   In terms of OTVCs,  alternatives have generally
 been in the  form  of non-halogenated solvents —• primarily
 aqueous.
        Aqueous  systems have already made significant  inroads
 into cleaning operations  in recent years.   In a 1976  survey,
 Dow Chemical Corp.  found  that  56 percent of  metalworking
 establishments  with twenty or  more employees use an alkaline
 wash system.44  By 1987, another study indicated that  aqueous
 systems were being  used in 89  percent of  lie  four-digit SIC
 industries that have metal cleaning operations.45  Catalogues
 from each of ten  equipment manufacturers  received  offer off-
 the-shelf and customized  aqueous systems. '
       Environmental regulations at  the local, state and
 federal level have been the primary  impetus behind the
 advent of aqueous systems,  and is appropriate to assume that
 the degreasing NESHAP will  foster continued growth in the
market for aqueous-based cleaners.
                             73

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        An important factor in  choosing a  solvent  and/or
 process  is costs.   For  a  given level  and  quality  of  output,
 firms will tend to  choose the  lowest  cost combination  of
 inputs.   Table 30 presents baseline cleaning costs as  a
 percent  of total costs  of production,  the increase in
 cleaning costs over baseline cleaning costs, and  the
 increase in cleaning costs as  a percentage of total costs of
 production for small model degreasers.  In all cases,
 baseline cleaning costs as  a percent  of production costs is
 below ten  percent.   Since  degreasing  costs occupy a fairly
 small share of total production costs  (for small model
 facilities), the incentive for substitution is not likely to
 be great.  As shown, the percentage change in cleaning costs
 is identical across SIC codes,  as the same model degreaser
 and control costs are used for each SIC code.   The increase
 in cleaning costs as a percentage of production costs varies
 with each model facility's level of operating costs.   The
 percentage change in cleaning costs is 6.4 percent for
 existing degreasers, and 6.0 percent for new degreasers.
 The increase in production costs is no higher  than .61
 percent  (.SIC 359).   Thus,  based on cost alone,  the increase
 in costs  resulting  from  the degreasing NESHAP  do not  appear
 to provide significant stimulus for substitution.
 Nevertheless,  since  substitution has already occurred in
 those industries which perform  degreasing, further
 examination is warranted.
       In degreasing, technical considerations, such as
 degree of cleanliness, material compatibility, and space
 restrictions, are paramount in  choosing a  cleaning system.
 Costs factor in only after  technical requirements are met.
 If parts  cannot be cleaned  adequately  by a chosen system,
 its dollar  cost is irrelevant.
       With the use  of aqueous  systems comes the need for
process changes.  Aqueous solvents cannot be used with
                             74

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 existing organic solvent cleaners.  A completely new
 cleaning system is required.  For those firms that have not
 already switched to aqueous systems, the transition will be
 encumbered by technical and cost considerations, which are
 outlined below.
        •  Rust - For cleaning steel parts,  aqueous systems
           are subject to rust,  which does not occur, when
           organic solvents are used.
        •  Tarnish - Brass, bronze and copper parts can in
           some cases tarnish when cleaned with aqueous
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           organic solvent cleaning.
        •  Military Specifications - In some cases,  aqueous
           compounds leave residues which don't conform to
           military specifications.
        ••  Space - Aqueous cleaning systems  require  a  three
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           rust preventative  and/or drying stage.  These
           multi-stage cleaning  systems require substantially
           more floor space than traditional organic-solvent
           based systems.
        •   Energy requirements - Organic  solvents  have
           specific  heats  which  can be  as  little  as  twenty
           percent of that of water.  Thus,  aqueous  systems
           usually require much  higher  energy  inputs for
           heating than do organic-solvent based systems.
        •   Research  and Development - In many  cases, the use
           of aqueous  systems requires  a significant amount
           of research and  development  to assure that
           technical requirements are being met.
       These are not the only determining factors in the
choice of  cleaning  systems.  They are, however, some of the
most important considerations when choosing to move away
from halogenated solvent use.
                             77'

-------
        Due to the impediments stemming from technical and
 cost considerations,  substitution away from organic solvent
 cleaning will difficult.   Those most likely to do so are
 larger firms with the ability to shoulder the required
 short-run cost increases,  and which don't exhibit the space
 limitations that small facilities tend to have.
        3.5.4  Capital Availability.   Sections 3.5.1,  3.5.2,
 and 3.5.3 have expressed,  respectively,  that impacts on
 revenue and earnings  will  for the most part be small,  and
 that there will be minimal substitution into aqueous
 alternatives.   While  costs as a percentage of revenue seem
 moderate,  it still might be necessary to finance  the capital
 costs associated with the  installation of control equipment.
 Thus,  it is necessary to evaluate the availability of
 capital.   Financial profiles of small model facilities  have
 been compiled  to facilitate capital  availability  impacts.
 These profiles,  which include before-tax profit margins,
 before-tax net. income, total assets,  and total liabilities,
 are  presented  in Table 31.
        Capital availability impacts  are  captured  in Table
 9-32.   Capital costs  for small  model  degreasers total
 $11,219, and are the  same  for both existing  and new
 cleaners.   Shown in Table  32  are  the  ratio  of capital costs
 to before-tax  net  income (BTNI),  and  the ratio of capital
 costs to total  assets.  Before-tax net income is used as a
proxy for  cash  flow before taxes, which can be used to
service debt.  The ratio of  capital costs to BTNI gives an
 indication  of the extent to which capital costs can be
financed from one year's cash flow.  Of course, capital
costs do not have to be paid  from cash flow, but the ability
to do so in one year suggests that either external financing
is not needed, or will not be difficult to obtain.  If the
                             78

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 ratio exceeds 100 percent, it is possible that debt will
 have to be issued.  Ratios in excess of 100 percent do not,
 however, necessarily indicate- that capital costs are
 unwieldy.  For example, a ratio of 500 percent simply
 signifies that it would take five years of cash flow to
 finance the capital costs.  A ratio of 100 percent is used
 as a conservative threshold of the potential need for
 external financing.
        The ratio of capital costs to total assets is also
 the ratio of the change in liabilities (i.e.  the additional
 liability of purchasing pollution control equipment)  to
 total assets.   In this case,  the total asset base is assumed
 to be constant.   Implied by a constant asset base is that
 the purchase of  pollution control equipment is a non-
 productive investment.   Since the installation of control
 equipment can  in some cases lead to net savings as emissions
 are reduced, control equipment does .in some cases add to  the
 firms productive capacity.  However,  only  those situations
 in which annualized control costs  are positive will  be
 examined here.
       The ratio  of capital costs  to  total  assets  gauge the
 impact on a  facility's  capital structure.   If  the  ratio of
 capital  costs to  total  assets is greater than  10 percent,  it
 may be difficult  to  obtain  financing  for at least  some
 facilities.  Clearly, there will be some highly leveraged
 firms which will  be  limited to expanding liabilities by this
 much, and others  which  can take on even greater amounts of
 debt.  However, 10 percent  is assumed here to be an
 appropriate average where some facilities have difficulty
 obtaining external financing.
       As shown,   facilities in SICs 254, 259, and 367 have
ratios of capital costs to BTNI in excess of 100 percent.
For each of these facilities,  the ratio of• capital costs to
total assets is less than 10 percent (in fact,  it is less
tha| six percent).  Thus, it is concluded here that the
                             83

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  average small  facility will not be inhibited  from obtaining
  the  external financing necessary to cover  capital costs.
         3-5.5   Impacts  on Manufacturers of  Decreasing
  Equipment,  in contrast to  the  negligible  impact  the
  degreasing NESHAP will have on  degreasing  user industries,
  the  impacts on degreasing equipment be more significant.  In
  all  likelihood, degreasing  equipment manufacturers will
  experience increases in demand  for  their products as a
  result  of the  NESHAP.
         Demand  for degreasing equipment will come in three
  areas.  First,  demand  for organic solvent cleaners, (i.e.
 OTVCs and in-line cleaners)  will remain as users replace old
 machinery and as firms  enter user industries.   These
. cleaners will differ from many cleaners currently in use in
 that they are already equipped with emissions  control
 devices.  While this replacement demand is probably no
 larger than the demand that  would exist in the absence of
 the regulation, the machines have more value-added than
 older machines.  The second  market niche  for equipment
 manufacturers is  in the need for add-on control  equipment.
 Firms with existing equipment not in compliance will have to
 retrofit.   The  third area  of growth for equipment
 manufacturers is  in alternative  systems —  primarily
 aqueous.  Alternative systems can be thought of as
 replacement demand  as well.   However,  the replacement of  an
 organic-solvent system  with  an aqueous  system  signifies a
movement from a one-stage system to  a three to four stage
 system.   The senior  engineer at  Precision tubes estimated
that  replacing  their forty-five  square foot organic solvent
cleaner  with an aqueous system would cost approximately one
million  dollars.  For these,  reasons,  demand for degreasing
equipment is apt to  grow at  rates faster than  the demand for
degreasing users products.        "      "
       Control  equipment manufacturers may actually be hard
pressed to meet_the  increased demand for control equipment.
                             84

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 In a telephone survey conducted by JACA Corp.  in  1987,  two
 major suppliers of degreasing equipment who also  manufacture
 control equipment were both found to be operating at more
 than 80 percent of control equipment capacity.  One of  the
 respondents said they could accommodate a "gradual switch"
 to controlling degreasing equipment.  If current  capacity is
 not sufficient to meet a sudden increased demand  for control
 equipment, additional capacity will have to be added, which
 could take one or two years.45
        3-5.6  Impacts on Solvent Manufacturers.  While the
 net effect of the degreasing NESHAP on equipment
 manufacturers will be positive,  the impact on solvent
 manufacturers is 'less clear.
        It is apparent at the outset .that the demand for
 organic solvents should  decrease,  all else equal,  since
 emissions will be  reduced.   However,  all else is not equal.
        It first must  be  noted  that demand  for the regulated
 solvents  is only in part derived  from degreasing end-users'
 products.   For TCE, TCA,  MC, and  PCE,  degreasing end-uses
 account for 90 percent,  52 percent,  15 percent,  and  13
 percent of total solvent  consumption,  respectively.  Thus,
 if demand  for  each of these solvents  were  reduced  by the
 same percentage, TCE would be the most adversely affected.
 Several factors temper such a conclusion.
       1,1,1,  trichloroethane  (TCA) is being phased out
 under the  Montreal Protocol, and will not be available for
 use in degreasers.  Thus, it can be said that the  degreasing
 NESHAP will have no impact on the TCA market, as it will  not
 be available in the baseline.
       Trichloroethylene  (TCE), due to its reliance on
degreasing end-uses,  will indeed .experience reduced demand
by users already consuming TCE.  Already, TCE has been
experiencing declining growth of about two percent annually
in vapor degreasing.   However,  due to its chemical
                             85

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  similarity to TCA (e.g.  similar specific gravities,  similar
  boiling points),  TCE is  the most likely halogenated  solvent
  candidate to replace TCA in existing degreasers.   In
  addition,  TCE is  being used as a feedstock for CFC
  alternatives,  which  could also boost TCE growth.   Also,
  increased demand  for TCE could lead  to  upward  price
  pressure.   Thus,  TCE can be expected to experience renewed
  growth  by the  mid-1990s."
         The extent of this growth will be determined  largely
  by the  substitution  choices made by  the user industries.  A
 portion will surely  move away  from halogenated  solvent use
  altogether and into  aqueous systems.  In  a survey  conducted
 by the  Alliance of Metal  Working Industries, the National
 Screw Machine  Products Association reported that their
 members were already moving towards aqueous use in favor of
 halogenated solvents,  of those firms with less than $5
 million in annual sales,   eighty-four percent had indicated
 they were investigating alternatives to halogenated solvents
 (sixty percent were looking to aqueous systems).  For firms
 earning over $5 million in annual sales, eighty-three
 percent were looking at alternatives  (seventy-seven percent
•aqueous) ,47
        As with the other  regulated solvents,  methylene
 chloride will exhibit diminished growth  stemming from
 reduced emissions. Unlike TCE, MC is not seen  as  an  ,
 effective substitute  for  TCA.   However,  discussions with
 Precision Tube Inc. indicate that they plan to  replace their
 Freon based cleaner with  MC.  Thus, there could be  some
 substitution into  the MC  market as a  result of  the  Montreal
 protocol.   Nonetheless, in most end-uses,  MC demand is
 shrinking.   The degreasing NESHAP is  likely to  accelerate
 this trend  to some extent.
       Perchloroethylene  (PCE) .is the  least dependent of the
 regulated solvents on degreasing end-uses.  Again,
                             36

-------
 degreasing end-uses will be reduced as a result of emissions
 reduction.  However, unlike MC, PCE does have end-uses that
 should exhibit growth by mid-decade, most notably as a
 feedstock for CFC replacement.  Reduced demand for
 degreasing consumption could be offset by increased demand
 for CFC feedstock consumption.  In addition, PCE holds more
 than 75 percent of the market for solvent use in dry
 cleaning.  Therefore, on the whole PCE demand is likely to
 remain relatively strong.
        3'5'7  Small Business Impacts.    The RFA (Public Law
 (96-354,  September 19,  1980)  requires  Federal agencies to
 give special consideration to the impact of regulation on
 small businesses.   The RFA specifies that a regulatory
 flexibility analysis must be prepared  if a proposed
 regulation will have (l)  a significant economic impact on
 (2)  a substantial  number  of small entities.   Regulatory
 impacts are considered  significant if:
    -   • Annual  compliance costs  increase total  costs  of
        production by more than  5  percent
       • Annual  compliance costs  as a percent of  sales  are at
        least 10 percent  (percentage points)  higher for
        small entities
       • Capital cost  of compliance represent a significant
        portion of capital  available to small entities
    *   • The requirements  of the  regulation are likely to
        result in closures  of small entities
A "substantial number" of small  entities is  generally
considered to be more than  20 percent of the  small entities
in the affected industry.    since this analysis deals only
with small entities, conclusions can be drawn from the above
sections.   Each of the criteria for significant impacts will
be considered in turn.
     Table 30 in section 3.5.3 presented control costs as a
percent of total costs of  production for impacted facilities
in the relevant sics.  Recall that the  largest cost increase
                             87

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 was 0.61 percent for SIC 359.  This figure is well below the
 significant-impact threshold of five percent.
      Assessing the differential impacts, measured by a
 comparison of compliance costs as a percent of sales for
 small and large entities, is more problematical as large
 model facilities were not modelled in this analysis.
 Treatment of this small business impacts criterion involves
 creating two large model facilities and employing the data
 from Precision Tubes Inc. to serve as a third,  "actual"
 case.
      If it is assumed that large facilities use large
 degreasers,  than compliance costs for large facilities are
 actually savings,  as estimated by RADIAN Corp.   To be
 conservative,  it is assumed here that large model facilities
 possess five very large degreasers,  so that a "maximum
 savings" case is modelled.   This case is important as it
 models  the maximum cost differential between large and small
 entities.  The selection of five degreasers  as  a
 conservative number is  based on the  1976 Dow Chemical study
 referenced earlier,  which found that the average number of
 open-top and conveyorized degreasers in  facilities  with 500-
 or more employees was 3.76.
     Large model facilities  were  created for  SICs  359  and
 254.  SIC  359  was chosen  because  the small model  facilities
 in this  group  experience  the highest cost absorption  impact
when compared with other  small model  facilities,  in  SIC
254, firms with greater than 100 employees had the smallest
average per-facility revenue when compared with firms of
greater than 100 employees in other  SICs.  Thus, if firms in
SIC 254 incur the same dollar- value of savings as other
large firms in .other SICs, their savings as a percent of
avergae per-facility revenue will be the higher than the
                             38

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 other large firms.  Finally,  the actual case of Precision
 Tubes Inc.  is used.   Precision tubes reports to SIC 335.
      Table 33 displays the comparison of cost absorption  for
 small and large model facilities.   Presented are the average
 per-facility revenues, the percent cost absorption (negative
 for the large facilities as they incur savings), and
 thepercentage point  differential of cost absorption between
 small and large facilities.   As shown,  the cost
 differentials are in no case  larger than one percentage
 point,  much less ten percentage points.   Thus,  by this
 criterion,  small business impacts  are not deemed
 significant.
      The third criterion alludes to the amount  of capital
 available to  small businesses.   This analysis does not
 calculate the amount of capital available to impacted
 facilities.   It does,  however,  calculate the ability of
 facilities  to obtain capital  if needed  in section 3.5.4.   It
 was concluded that the assets of small  facilities will not
 be  so adversely affected as to  prohibit the  procurement of
 outside financing.   It is assumed,  then,  that capital
 availability  will  not  be an obstacle for small entities in
 complying with the regulation.
      Criteria number four stipulates that small  business
 impacts  are significant if compliance leads  to closure.   The
 only  implication of  closure in  this  analysis  is  found  in
 section  3.5.2  concerning earnings impacts.   Here  it was
 found that, under  worst-case  assumptions,  closures might
 occur in  SICs  254  and  259, given their low rate of
 profitability  in the baseline.   If this  indeed occurs,   the
 question  of whether  or  not these closures make up a
 substantial portion  of  small  facilities must be addressed.
     The total number of facilities  in each of the 39
potentially impacted SICs  is known, but 'the number of firms
which have uncontrolled degreasers in each SIC is not known.
One way to estimate the percentage of impacted small
                             90

-------
 facilities  is to  assume that, all SICs are affected  in  the
 same proportion  (i.e. equal proportions of the facilities  in
 each SIC will be  impacted by the NESHAP.)  Given this
 assumption, a proxy for the share of impacted small
 facilities  in SICs 254 and 259 is the total number of  small
 facilities  in these SICs as a share of the total number of
 small facilities  in. all 39 SICs.  SICs 254 and 259 hold a
 combined 3,194 small facilities.  All 39 SICs hold a total
 of 93,121 small facilities.  Thus, SICs 254 and 359 make up
 3.4 percent of the total number of small facilities.
 Therefore, in the extreme case that some closures result,
 the number of closures is estimated to be far less than the
 amount required for substantial number of impacted firms
 (recall that a substantial number is 20 percent.)
     In conclusion,  it seems highly unlikely that the impact
of the degreasing NESHAP will be significant for a
substantial number of small entities.
                            91

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 4.0  REFERENCES

  1.  U.S.. Environmental Protection Agency.  Alternative
      Control Technology Document-Haloaenated Solvent
      Cleaners, Research Triangle Park, NC, August 1989, p.
      «""* J* •

  2.  Reference 1, p. 3-23.

  3.  Reference 1, p. 3-23.

  4.  Reference 1, p. 3-3.

  5.  Reference 4-   ..                           •

  6.  Reference l, p. 3-13.

  7.  Reference 6.

  8.  Reference 6.

  9.  Executive Office  of the President,  Office of Management
      and Budget.   Standard Industrial Classification Manual.
      1987.  p.  211.~	

 10.  U.S.  Environmental Protection  Agency.   "Profile for the
      Degreasing NSPS and NESHAP," EPA 68-02-4320,  Number 22,
      April  13,  1987, pp.  9-36 -  9-37.

 11.  Reference 4.

 12.   Reference 1, p. 3-1.

 13.   Reference 9, p. 140.

 14t   Chemical  Marketing Reporter, chemical Profiles  from:
      January 23,  1989,  February  6,  1989, July 1,  1989, July
      8,  1989.                                              J

 15.   Mannsville Chemical Products Corporation,  "Chemical
      Products  Synopsis-Trichloroethylene," February, 1989.

 16.   "Chemical Profile  — Trichloroethylene."   chemical
     Marketing Reporterr July 1, 1989.

 17;   "U.S. Regs Catalyze Changes in Solvents."  Chemical
     Marketing Reporterr January 21, 1991,  p. 5."

18.   Reference 16.

19.   Reference 17.
                             92

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20.   "The Recycling Loop Closes For Solvents."
      Chemical Engineering. June 1991, p.  43.

21.   Reference  18.

22.   Reference  18.

23.   Reference  18.

24.   Reference  1, p. 4-66.

25.   Chemical Marketing Reporter. January 27, 1992.

26.   Chemical Marketing Reporter. February 3,- 199-2.

27.   Chemical Marketing Reporter, March 2, 1992.

28.   Chemical Marketing Reporter-,, January 20, 1992.

29.   U.S. Environmental Protection Agency.  Organic Solvent
      Cleaners-Background Information for  Proposed Standards,
      Research Triangle Park, NC, October  1979.

30.   "U.S. Industrial Analysis Service,"  Wharton Econometric
      Forecasting Associates.  Growth rate data are in the
      form of indices of industrial output.  The average
      annual growth rate is compounded.  These forecasts were
      revised in mid-September, 1991.

31.   U.S. Department of Commerce, International Trade
     Administration.  U.S. Industrial Outlook 1992.
     Washington, D.C. p. 36-17.

32.   Standard and Poor's Corp.  Industry  Surveys "Auto-Auto
     Parts — Basic Analysis."  New York, NY, January 30,
      1992, p. A95.

33.  Monthly Labor Review.  "Productivity in Automotive
     Repair Shops".  March 1988 p. 23.

34.  Reference 33.

35.  Reference 33.

36.  Reference 33.

37.  Reference 33, p. 36-19.

38.  Reference 33.

39.  Reference 33.
                             93

-------
40.  Telseon.  Holmes, C., JACA Corp., with Reiss,  D., Motor
     and Equipment Manufacturers Association. April 20,
     1992.  Discussion of the aftermarket industry.

41.  Suprenant, K.S. and D.W. Richards, Dow Chemical
     Company.  Study to Support New Source Performance
     Standards for Solvent Metal Cleaning Operations.
     Prepared for U.S. Environmental Protection Agency.
     Research Triangle Park, NC.  Contract No. 68-02-1329,
     Task Order No. 9.  June 1976.

42.  Reference 43.

43.  Confidential report on chlorinated solvents.   Prepared
     for U.S. Environmental Protection Agency.  Washington,
     DC.  Contract No. 68-02-4235.  March 13, 1987.

44.  Telecon.  Donato, S.A., JACA Corp.,  with
     representatives of eight manufacturers of solvents and
     three manufacturers of degreasing equipment.  November
     11-18,  1987.   Telephone survey.

45.  National Screw Machine Products  Association,
     Chlorinated Solvent Emissions Survey.  Summary Letter,
     May 28,  1993, p.  2.
                            94

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Appendix A:  Aggregate Changes In the Industries Using
              Decreasing Equipment:
     In 1987, the SIC classification system was reorganized,
and eleven of the 3-digit industries using degreasing
equipment changed in aggregate terms.  The eleven industries
were SICs 354, 355, 356, 357, 359, 362, 364, 366, 369, 381,
and 382.
     The changes were as follows.  What was, formerly SIC
3623, Welding Apparatus, Electric, was added to SIC 354,
Metalworking Machinery.  SIC 355, Special Industry
Machinery, now includes two 4-digit industries formerly
identified as SICs 3549, Metalworking Machinery, Not
Elsewhere Classified, and 3636,  Sewing Machines.  SIC 356,
General Industrial Machinery, now includes the former SIC
3551, Food Products Machinery. Computer and Office
Equipment, SIC 357, added the former SIC 3661, Telephone and
Telegraph Apparatus, and SIC 3662, Radio and Television
Communication Equipment.  The former SIC 3561, Pumps and
Pumping Equipment, and SIC 3563,  Air and Gas Compressors,
are now part of SIC 359, Industrial Machinery, Not Elsewhere
Classified.  Electrical Industrial Apparatus, SIC 362,
picked up the former SIC 3613, Switchgear and Switchboard
Apparatus.  SIC 364, Electric Lighting and Wiring Equipment,
acquired the old 3699,  Electrical Equipment and Supplies.
The former 3573,  Electronic Computing Equipment, was added
to SIC 366, Communications Equipment.  SIC 369,
Miscellaneous Electrical Equipment and Supplies, added four
old 4-digit industries including 3573,  Electronic Computing
Equipment, 3679,  Electronic Components,  Not Elsewhere
Classified, 3549,  Metalworking Machinery,  Not Elsewhere
Classified, and 3662, Radio and Television Communication
Equipment.  SIC 3662 was also added to SICs 381 and 382.
SIC 382 also includes the former 3811,  Engineering and
Scientific Instruments, and 3832, Optical Instruments an
Lenses.
                            . 95

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                                   TECHNICAL REPORT DATA
                           (Please read Instructions on the reverse before completing)
 REPORT NO.
1PA 453/D-93-058
                             2.
                                                           3. RECIPIENT'S ACCESSION NO.
 TITLE AND SU8TITUE
   Economic Impact Analysis of the Halogenated
   Solvent Cleaning NESHAP
             5. REPORT DATE
              November  1993
             6. PERFORMING ORGANIZATION CODE
. AUTHOR(S)
                                                           8. PERFORMING ORGANIZATION REPORT NO.
 PERFORMING ORGANIZATION NAME AND ADDRESS
 U.-S.  Environmental Protection Agency
 Office of Air Quality  Planning and Standards
 Research Triangle Park,..NC  27711	
                                                            1O. PROGRAM ELEMENT NO.
             11. CONTRACT/GRANT NO.
                                                               68-D1-0143
2. SPONSORING AGENCY NAME AND ADDRESS
Director
Office of Air Quality  Planning and Standards
Office of Air and Radiation
U.  S.  EPA, Research  Triangle Park, NC   27711
                                                            13. TYPE OF REPORT AND PERIOD COVERED
             14. SPONSORING AGENCY CODE

                EPA/200/04
5. SUPPLEMENTARY NOTES
6. ABSTRACT
 Under authority of  the  1990 Clean Air Act  Amendments,  a  National Emission Standard
 of Hazardous Air Pollutants (NESHAP) is  being proposed to control methylene  chloride,
 perchloroethylene,  Trichloroethylene, trichloroethane, and CFC-113 emissions from
 facilities with halogenated solvent cleaners.  Thirty-eight (38) 3-digit and one. (1)
 2-digit SIC industries  were evaluated.   This report analyzes economic and financial
 impacts at the selected regulatory alternatives for facilities with positive costs as
 a result of complying with the proposed  standard.
                                KEY WORDS AND DOCUMENT ANALYSIS
                  DESCRIPTORS
                                              b.lDENTlFIERS/OPEN ENDED TERMS
                                                                          c. COSATI Field/Group
 Air pollution
 Halogenated solvent cleaning
 Hazardous air pollutants
 Emission controls
 Economic impact
Air  pollution control
18. DISTRIBUTION STATEMENT
19. SECURITY CLASS (This Report)
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