SEPA
Environmental Protection
Agency
of the
for the &
April 2002
Pj|> Printed on paper containing at least 30% postconsumer recovered fiber.
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Economic Analysis of Final Effluent Limitations
Guidelines and Standards for the
Iron and Steel Industry
Christine Todd Whitman
Administrator
Tracy Mehan
Assistant Administrator, Office of Water
Sheila E. Frace
Director, Engineering and Analysis Division
William Anderson
Project Manager
William Anderson
Economist
Engineering and Analysis Division
Office of Science and Technology
U.S. Environmental Protection Agency
Washington, D.C. 20460
EPA-821-R-02-006
April, 2002
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ACKNOWLEDGMENTS AND DISCLAIMER
This document was prepared with the support of Eastern Research Group, Incorporated under
Contract Numbers 68-C6-0022 and 68-C-01-073.
Neither the United States government nor any of its employees, contractors, subcontractors, or
other employees makes any warranty, expressed or implied, or assumes any legal liability or
responsibility for any third party's use of, or the results of such use of, any information, apparatus,
product, or process discussed in this report, or represents that its use by such a third party would
not infringe on privately owned rights.
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CONTENTS
Page
FIGURES vi
TABLES vii
EXECUTIVE SUMMARY ES-1
ES.l Background ES-1
ES.2 Industry Overview ES-1
ES.3 Data Sources ES-2
ES.4 Economic Impact Methodology ES-3
ES.5 Results ES-5
ES.5.1 Regulatory Options and Costs ES-5
ES.5.2 Impacts ES-5
CHAPTER 1 INTRODUCTION 1-1
1.1 Scope and Purpose 1-1
1.2 Data Sources 1-2
1.3 Report Organization 1-3
1.4 References 1-4
CHAPTER 2 INDUSTRY PROFILE 2-1
2.1 Overview of Industry Processes 2-4
2.1.1 Cokemaking 2-4
2.1.2 Sintering 2-9
2.1.3 Ironmaking 2-9
2.1.4 Steelmaking 2-12
2.1.5 Ladle Metallurgy/Vacuum Degassing 2-14
2.1.6 Casting 2-14
2.1.7 Hot Forming 2-15
2.1.8 Acid Pickling/Salt Descaling 2-15
2.1.9 Cold Forming 2-17
2.1.10 Finishing 2-17
2.2 Site Classification (Integrated/Non-Integrated/Stand-Alone) 2-18
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CONTENTS (continued)
Page
2.3 Products 2-19
2.4 Subcategorization 2-20
2.5 Environmental Protection Issues 2-20
2.6 Production 2-22
2.7 Specialization and Coverage Ratios 2-22
2.8 Major Markets 2-23
2.8.1 Service Centers 2-23
2.8.2 Construction 2-24
2.8.3 Automotive 2-24
2.8.4 Remaining Markets 2-25
2.9 Patterns forthe Industry 1986-2000 2-25
2.9.1 Raw Steel Production 2-25
2.9.2 Steelmaking Capacity and Capacity Utilization 2-25
2.9.3 Raw Steel Production by Furnace Type 2-28
2.9.4 Continuous Casting 2-30
2.9.5 Imports/Exports 2-30
2.9.6 Employment 2-34
2.9.7 Industry Downturn: 1998-2000 2-34
2.10 International Competitiveness of the Industry 2-39
2.10.1 Exports/Imports 2-39
2.10.2 Trade Cases 2-39
2.11 References 2-46
CHAPTER 3 EPA SURVEY 3-1
3.1 Site-Level Information 3-1
3.1.1 Geographic Distribution 3-2
3.1.2 Assets 3-6
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CONTENTS (continued)
Page
3.1.3 Capital Investment 3-6
3.1.4 Value of Shipments 3-6
3.1.5 Exports 3-16
3.1.6 "Captive Facilities" 3-16
3.1.7 Employment 3-19
3.2 Company-Level Information 3-19
3.2.1 Companies in the Sample 3-19
3.2.2 Type of Ownership 3-20
3.2.3 Number of Sites per Company 3-21
3.2.4 Financial Characteristics 3-21
3.3 References 3-25
CHAPTER 4 ECONOMIC IMPACT METHODOLOGY 4-1
4.1 Cost Annualization Model 4-1
4.2 Site Closure Model 4-4
4.2.1 Assumptions and Choices 4-7
4.2.2 Present Value of Future Earnings 4-9
4.2.3 Projecting Site Closures As A Result Of The Rule 4-15
4.3 Community and National Impacts 4-17
4.3.1 National Direct and Indirect Impacts 4-17
4.3.2 Community Impacts 4-18
4.4 Corporate Financial Distress Analysis 4-18
4.4.1 Airman Z'-Score 4-19
4.4.2 Survey Data Preparation 4-22
4.4.3 Evaluation of Pre-regulatory Altaian Z' Scores 4-23
4.4.4 Implications of aZ' Score Below The Cut-off 4-24
4.5 Market Model 4-25
4.6 References 4-27
in
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CONTENTS (continued)
Page
CHAPTER 5 REGULATORY OPTIONS: DESCRIPTIONS, COSTS,
AND CONVENTIONAL POLLUTANT REMOVALS 5-1
5.1 Description 5-1
5.2 Subcategory Costs 5-5
5.3 Cost-reasonableness 5-7
5.4 Cost Combinations 5-8
5.5 References 5-8
CHAPTER 6 ECONOMIC IMPACT RESULTS 6-1
6.1 Best Available Technology/Pretreatment Standards For Existing
Sources (BAT and PSES) 6-1
6.1.1 Subcategory Costs and Projected Site Closures 6-1
6.1.2 Aggregated Subcategory Costs and Projected Site Closures 6-2
6.1.3 Corporate Financial Distress 6-3
6.1.4 Market and Trade Impacts 6-4
6.1.5 Direct and Community Impacts 6-4
6.1.6 National Direct and Indirect Impacts 6-7
6.1.7 Summary of Impacts on Existing Sources 6-7
6.2 New Source Performance Standards (NSPS) and Pretreatment Standards
For New Sources (PSNS) 6-7
6.3 References 6-8
CHAPTER 7 SMALL BUSINESS ANALYSIS 7-1
7.1 Initial Assessment 7-1
7.2 Small Business Identification 7-2
7.2.1 Classification 7-2
7.2.2. Number of Small Entities 7-11
7.3 Impacts from Promulgated Rule on Sites Owned by Small Entities 7-11
IV
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CONTENTS (continued)
Page
7.4 References 7-11
CHAPTER 8 ENVIRONMENTAL BENEFITS 8-1
8.1 Overview 8-1
8.2 Comparison Of In-stream Concentrations With Ambient Water Quality Criteria
(AWQC) and Impacts at POTWs 8-2
8.2.1 Methodology 8-2
8.2.2 Findings 8-2
8.3 Human Health Risks and Benefits 8-3
8.3.1 Methodology 8-3
8.3.2 Findings 8-4
8.4 Economic Productivity Benefits 8-4
8.5 Pollutant Fate and Toxicity 8-4
8.6 Summary of Potential Effects/Benefits from Final Effluent Guidelines 8-5
8.7 Reference 8-5
CHAPTER 9 COST-BENEFIT COMPARISON AND
UNFUNDED MANDATES REFORM ACT ANALYSIS 9-1
9.1 Cost-Benefit Comparison 9-1
9.2 Unfunded Mandates Reform Act Analysis 9-1
9.3 Reference 9-3
APPENDIX A COST ANNUALIZATION MODEL A-l
APPENDIX B CROSS-REFERENCE BETWEEN NAICS AND SIC CODES B-l
APPENDIX C COST-EFFECTIVENESS ANALYSIS C-l
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FIGURES
Figure
2-1 Iron and Steelmaking Operations 2-5
2-2 Forming and Finishing Operations 2-16
2-3 Raw Steel Production in the United States: 1986-2000 2-26
2-4 Steelmaking Capacity and Capacity Utilization in the United States: 1986-2000 2-27
2-5 Percent Raw Steel Production by Furnace Type in the United States: 1986-2000 2-29
2-6 Percent Continuously Cast Steel in the United States: 1986-2000 2-31
2-7 Percent Imports of Steel Industry in the United States: 1986-2000 2-32
2-8 Iron and Steel Import/Export Tonnage in the United States: 1986-2000 2-33
2-9 Average Number of Employees Engaged in the Production and Sale of
Iron and Steel Products in the United States: 1986-2000 2-35
3-1 Cokemaking Sites 3-3
3-2 Integrated Steel Manufacturing Sites 3-4
3-3 Non-integrated Steel Manufacturing Sites 3-5
3-4 Net Cash Flow and Depression for the Steel Industry in the United States: 1986-2000 . . 3-22
3-5 Steelmaking Capacity Utilization and Cash Flow in the United States: 1986-2000 3-24
4-1 Cost Annualization Model 4-2
4-2 Interrelationship Among Cost Annualization and Other Economic Analyses 4-5
4-3 Forecasting Methods 4-13
VI
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TABLES
Table Page
ES-1 Description of Regulatory Options by Subcategory ES-6
ES-2 Regulatory Option Costs by Subcategory (in Millions of $1997) ES-6
ES-3 Industry Costs for the Promulgated Rule (in Millions) ES-7
2-1 Scrap Steel Substitutes Summary of Characteristics of Direct Reduction Processes .... 2-11
2-2 Iron and Steel Manufacturing Subcategories 2-21
2-3 Specialization and Coverage Ratios 2-23
2-4 Selected Steel Company Changes Since 1997 2-37
2-5 Imports and Exports of Iron and Steel (in Tons) 2-40
2-6 Imports by Countries of Origination and Exports by Countries of Destination for
Iron and Steel Products (in Tons) 2-41
2-7 Recent Steel Products Trade Cases 2-44
3-1 1997 Assets by Site ($ Millions) 3-7
3-2 1997 Capital Intensity for Sites in the Iron and Steel Industry (Value of
Fixed Assets Per Employee) 3-8
3-3 Carbon Steel Product Groups by EPA Survey Code 3-9
3-4 Alloy Steel Product Groups by EPA Survey Code 3-12
3-5 Stainless Steel Product Groups by EPA Survey Code 3-13
3-6 Value of Shipments by Products Code ($ Millions) 3-14
3-7 Value of Shipments ($ Millions) 3-17
3-8 Value of Shipments Exported (Partial Data) ($ Millions) 3-17
3-9 Percentage and Value of Industry Production Shipped to Sites Under Same
Ownership (Partial Data) ($ Millions) 3-18
3-10 Number of Employees in 1997 3-20
3-11 Industry Cash Flow (in Millions) 3-23
3-12 Income Statement Data for Corporations Included in SIC Industry Groups
331, 2, 9, and 333-6: Iron and Steel (in SMillions) 3-26
3-13 Balance Sheet Data for Corporation Included in SIC Industry Groups 331, 2, 9
and 333-6: Iron and Steel (In SMillions) 3-27
4-1 Scaling Factors 4-11
5-1 Iron and Steel Manufacturing Subcategories 5-2
5-2 Description of Regulatory Options by Subcategory 5-3
5-3 Regulatory Options Costs by Subcategory (in Millions of $1997) 5-6
5-4 Cost Reasonableness Ratio 5-8
5-5 Cost Combinations 5-9
5-6 Industry Costs for Promulgated Rule (in Millions $ 1997) 5-10
6-1 Market Impacts 6-5
6-2 Reported Typical Expenditures by Income-Level for Steel-Containing Products 6-6
7-1 SIC Codes in Iron and Steel Database 7-5
7-2 Cross-reference Between NAICS and SIC Codes: Size Standard Changes 7-7
8-1 Summary of Potential Effects/Benefits from the Final Effluent Guidelines
for the Iron and Steel Industry 8-6
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EXECUTIVE SUMMARY
ES.l BACKGROUND
The U.S. Environmental Protection Agency (EPA) is promulgating effluent limitations guidelines
and standards for cokemaking, sintering and other subcategories in the iron and steel manufacturing point
source category. EPA is proposing Best Practicable Control Technology Currently Available (BPT), Best
Available Technology Economically Achievable (BAT), Pretreatment Standards for Existing Sources
(PSES), New Source Performance Standards (NSPS), and Pretreatment Standards for New Sources
(PSNS). This Economic Analysis (EA) summarizes the costs and economic impacts of technologies that
form the bases for setting limits and standards for the iron and steel industry.1
ES.2 INDUSTRY OVERVIEW
The United States is the third largest steel producer in the world with 12 percent of the market, an
annual output between 100 and 115 million tons per year, and nearly 150,000 employees. Major markets
for steel are service centers and the automotive and construction industries. A service center is an
operation that buys finished steel, processes it in some way, and then sells it. Together these three markets
account for about 61 percent of steel shipments. The remaining 39 percent is dispersed over a wide range
of products and activities, such as agricultural, industrial, and electrical machinery; cans and barrels; and
appliances. The building of ships, aircraft, and railways and other forms of transport are included in this
group as well.
The iron and steel effluent guideline would apply to approximately 254 iron and steel sites. Of
these 254 sites, approximately 211 can be analyzed for post-regulatory compliance impacts at the site level.
Based on EPA survey data (see next section), the 254 sites are owned by 115 companies and
approximately 60 sites are owned by small business entities. The global nature of the industry is illustrated
lrThe industry, however, is free to use whatever technology it chooses in order to meet the limit.
ES-1
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by the fact that 18 companies have foreign ownership. Twelve other companies are joint entities with at
least one U.S. company partner. Excluding joint entities and foreign ownership, the data base contains 85
U.S. companies, more than half of which are privately owned. Responses to the EPA survey are the only
sources of financial information for these privately-held firms.
The EPA survey collected financial data for the 1995-1997 time period (the most recent data
available at the time of the survey). This three-year time frame marks a period of high exports (six to eight
million tons per year). This high point in the business cycle allowed companies to replenish retained
earnings, retire debt, and take other steps to reflect this prosperity in their financial statements. Even so, an
initial analysis of the pre-regulatory condition of companies in the EPA survey indicated that twenty-seven
of them would be considered "financially distressed" for reasons ranging from start-up companies and
joint ventures to established firms that still showed losses.
The financial situation changed dramatically between 1997 and 1998 due to the Asian financial
crisis and slow economic growth in Eastern Europe. When these countries' currencies fell in value, their
steel products fell in price relative to U.S. producers. While the U.S. is and has been the world's largest
steel importer (and a net importer for the last two decades), the U.S. was nearly the only viable steel
market to which other countries could export during 1998. Imports reached a high of 54.3 million tons in
1998 and high levels of imports persisted in 1999 and 2000, with 49.3 million tons and 52.2 million tons,
respectively. At least partly due to increased competition from foreign steel mills, the financial health of
the domestic iron and steel industry also experienced a steep decline after 1997. This decline is not
reflected in the survey responses to the questionnaire, which covered the years 1995 through 1997 and
which were the most recent data available at the time EPA administered the questionnaire in 1998. This
decline, however, is incorporated in four of the five forecasting models, see Section ES.4.
ES.3 DATA SOURCES
EPA used its authority under Section 308 of the Clean Water Act to collect information not
available otherwise, such as site-specific data, and financial information for privately-held firms and joint
entities (called the Collection of 1997 Iron and Steel Industry Data or the "EPA Survey"). EPA could not
ES-2
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use Census or industry data, such as the American Iron and Steel Institute's annual statistics because both
sources contain data for a mix of sites in two EPA categories: (1) iron and steel and (2) metal products and
machinery. Hence, the survey is the only source for information crucial to the rulemaking process.
Particularly for the post-1997 period, EPA supplemented the survey information with sources such as trade
journal reports, Security and Exchange Commission filings, and trade case filings with the U.S.
Department of Commerce and the U.S. International Trade Commission.
ES.4 ECONOMIC IMPACT METHODOLOGY
EPA considered nine major components for the Economic Analysis:
# an assessment of the number of facilities that this rule could affect;
# an estimate of the annualized aggregate cost for these facilities to comply with the rule
using site-level capital, one-time non-capital, and annual operating and maintenance
(O&M) costs;
# a site-level closure analysis to evaluate the impacts of compliance costs for operations in
individual subcategories at the site;
# a second site-level closure analysis to evaluate the impacts of the combined cost of the
options for all subcategories at the site;
an evaluation of the corporate financial distress incurred by the companies in the industry
as a result of combined compliance costs for all sites owned by the company;
# an industry-wide market analysis of the impacts of the compliance costs;
# an evaluation of secondary impacts such as those on employment and economic output;
# an analysis of the effects of compliance costs on small entities; and
# a cost-benefit analysis pursuant to E.O. 12866.
#
The industry profile provides an estimate of the 254 sites potentially affected by the regulation.
ES-3
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A starting point for the rest of the economic analysis is a cost annualization model that calculates
the present value and annualized cost of the capital, one-time non-capital, and operating and maintenance
costs associated with each option for improved waste water treatment. The model incorporates company-
specific cost of capital (discount rates) and tax rates. Tax shields are calculated according to IRS rules.
The subcategory, site, company, and industry analyses use the cost outputs from the annualization model.
EPA developed a site closure model in which a site was considered closed as a result of the
regulation if it showed a neutral to positive present value of future cash flows before the regulation and a
negative value after the regulation. At proposal, EPA analyzed three forecasting methods, two of which
specifically addressed the post-1997 industry downturn and cyclicality in the industry. All methods
incorporate a "no-real-growth assumption." In response to comments and new data submitted in response
to the proposed rule, EPA (1) added two more forecasting methods that incorporated current industry
conditions (i.e., for the final rule, EPA analyzed five forecasting methods, four of which specifically
address the industry downturn), and (2) incorporated updated financial information for those sites and
companies that submitted them. For the subcategory analysis, EPA ran the closure model with only the
subcategory costs. For the site analysis, EPA aggregated the costs for upgrading all operations in all
subcategories at the site and ran the closure model.
EPA reviewed the last ten years of economic literature to evaluate methods of identifying
corporate financial distress and chose the Airman Z'-score model (a weighted average of financial ratios).
EPA calculates the Z'-score for each company with the 1997 survey data to estimate pre-regulatory
conditions. EPA recalculates the Z'-score after incorporating the effects of the pollution control costs into
the balance sheet and income statement. All companies whose Z'-score changes from "good" or
"indeterminate" in the pre-regulatory analysis to "distressed" in the post-regulatory analysis are considered
to bear an impact.
Every projected closure has direct impacts on lost employment and output. These direct impacts
have repercussions throughout the rest of the economy. The U.S. Commerce Department maintains an
input-output model of the national economy. EPA uses the input-output multipliers for the iron and steel
industry with the direct impacts to evaluate secondary impacts on the nation's economy as a whole. EPA
ES-4
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used county or metropolitan statistical area unemployment data to examine the regional effects of each
projected site closure.
EPA investigated the industry-wide market and trade effects of the regulation. EPA performed a
3-stage non-linear least-squares econometric estimation of a single-product translog cost model based on 20
years of U.S. Census and industry data. The market supply relationship is derived from the cost function
and accounts for the effect of imperfect competition in the steel market. The model also incorporates
international trade. The model estimates the supply shift, and the resulting changes in: domestic price,
domestic consumption, export demand, and import supply. The model results may be used to estimate a
"cost pass-through" factor indicating the portion of the increased cost that the iron and steel industry can
pass through to the customers.
ES.5 RESULTS
ES.5.1 Regulatory Options and Costs
Table ES-1 summarizes the pollution control options selected for final promulgation while Table
ES-2 lists the associated costs. Table ES-3 presents the costs for the final rule in both 1997 dollars and
2001 dollars to allow the reader to tie the EA (1997 dollars) with the preamble to the rule (2001 dollars).
The rule has an estimated pre-tax annualized cost of $11 million (1997 dollars).
ES.5.2 Impacts
For the promulgated rule, EPA projects:
# no site closures due to subcategory costs
# no site closures due to aggregated subcategory costs for all operations at a site
# no company moves into financial distress
ES-5
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Table ES-1
Description of Regulatory Options by Subcategory
Subcategory
Cokemaking
Sintering
Other
Operations
Discharge
Status
Direct
Indirect
Direct
Indirect
Direct
Regulatory
Option
BAT1
PSES 1
BAT1
PSES 1
BAT1
(DRI)
BAT1
(Forging)
Description of Regulatory Option
# Tar/oil removal, ammonia stripping, and biological
treatment with clarification
# Liquid/solid separation and heat exchanger
# Tar/oil removal, equalization, and ammonia
stripping
# Solids removal, high rate recycle, metals
precipitation, alkaline chlorination, and mixed-
media filtration for blowdown wastewater
# Same as BAT 1
# Solids removal, clarifier, sludge dewatering, and
high rate recycle
# Filtration for blowdown wastewater
# High rate recycle, oil/water separator for blowdown
wastewater, and mixed-media filtration
Table ES-2
Regulatory Options Costs by Subcategory
(in Millions of $1997)
Subcategory
Segment
Cokemaking
Sintering
Other
Sinter
DRI
Forging
Regulatory
Option
BAT1
PSES 1
BAT1
BAT1
BAT1
Capital
Costs
O&M
Costs
One-Time
Non-
Equipment
Costs
Post-Tax
Annualized
Costs
Pre-Tax
Annualized
Costs
$24.18 $4.18 $0.27 $6.09 $6.49
$6.14 $1.46 $0.09 $1.82 $1.93
$11.05 $1.30 $0.00 $1.75 $2.57
$0.00 $0.00 $0.05 $0.005 $0.005
$0.12 $0.02 $0.03 $0.03 $0.03
ES-6
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Table ES-3
Industry Costs for Promulgated Rule
(in Millions)
Capital Costs
Operating and Maintenance Costs
One-Time Non-Equipment Costs
Post-Tax Annualized Costs
Pre-Tax Annualized Costs
Promulgated Rule
$1997
$41.5
$7.0
$0.4
$9.7
$11.0
$2001
$45.2
$7.6
$0.5
$10.6
$12.0
# less than one-tenth of one percent impact on domestic price, domestic consumption,
domestic production, imports, and exports.
Because of these findings, EPA projects no significant impacts on small entities, communities, regions, or
the nation. The benefits associated with the rule are estimated to range from $1.3 million to $6.7 million
(1997 dollars). In 2001 dollars, the estimated benefits range from $1.4 million to $7.3 million.
ES-7
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CHAPTER 1
INTRODUCTION
1.1 SCOPE AND PURPOSE
The U.S. Environmental Protection Agency (EPA) proposes and promulgates water effluent
discharge limits (effluent limitations guidelines and standards) for industrial sectors. This Economic
Analysis (EA) summarizes the costs and economic impacts of technologies that form the bases for setting
limits and standards for the iron and steel industry.1
The Federal Water Pollution Control Act (commonly known as the Clean Water Act [CWA, 33
U.S.C. § 1251 et seq.1) establishes a comprehensive program to "restore and maintain the chemical,
physical, and biological integrity of the Nation's waters" (section 101(a)). EPA is authorized under
sections 301, 304, 306, and 307 of the CWA to establish effluent limitations guidelines and standards of
performance for industrial dischargers. The standards EPA establishes include:
# Best Practicable Control Technology Currently Available (BPT). Required under section
304(b)(l), these rules apply to existing industrial direct dischargers. BPT limitations are
generally based on the average of the best existing performances by plants of various sizes,
ages, and unit processes within a point source category or subcategory.
# Best Available Technology Economically Achievable (BAT). Required under section
304(b)(2), these rules control the discharge of toxic and nonconventional pollutants and
apply to existing industrial direct dischargers.
# Best Conventional Pollutant Control Technology (BCT). Required under section
304(b)(4), these rules control the discharge of conventional pollutants from existing
industrial direct dischargers.2 BCT limitations must be established in light of a two-part
cost-reasonableness test. BCT replaces BAT for control of conventional pollutants.
# Pretreatment Standards for Existing Sources (PSES). Required under section 307(b).
Analogous to BAT controls, these rules apply to existing indirect dischargers (whose
discharges flow to publicly owned treatment works [POTWs]).
lrThe industry, however, is free to use whatever technology it chooses in order to meet the limit.
2 Conventional pollutants consist of biochemical oxygen demand (BOD), total suspended solids
(TSS), fecal coliform, pH, and oil and grease.
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# New Source Performance Standards (NSPS). Required under section 306(b), these rules
control the discharge of toxic and nonconventional pollutants and apply to new source
industrial direct dischargers.
# Pretreatment Standards for New Sources (PSNS). Required under section 307(c).
Analogous to NSPS controls, these rules apply to new source indirect dischargers (whose
discharges flow to POTWs).
The current iron and steel rule, 40 CFR Part 420, was promulgated in May 1982 (U.S. EPA,
1982), and was amended in May 1984 as part of a Settlement Agreement among EPA, the iron and steel
industry, and the Natural Resources Defense Council (U.S. EPA, 1984). In promulgating Part 420 in
1982, aside from the temporary central treatment exclusion for 21 specified steel facilities at 40 CFR
420.01(b), EPA provided no exclusions for facilities on the basis of age, size, complexity, or geographic
location as a result of the remand issues. EPA also revised the subcategorization from that specified in the
1974 and 1976 regulations to more accurately reflect major types of production operations and to attempt
to simplify implementation of the regulation by permit writers and the industry. The factors EPA
considered in establishing the 1982 subcategories were: manufacturing processes and equipment; raw
materials; final products; wastewater characteristics; wastewater treatment methods; size and age of
facilities; geographic location; process water usage and discharge rates; and costs and economic impacts.
Of these, EPA found that the type of manufacturing process was the most significant factor and employed
this factor as the basis for dividing the industry into the twelve process subcategories presented in the 1982
regulation.
1.2 DATA SOURCES
The economic analysis rests heavily on the site- and company-specific data collected under
authority of the CWA Section 308 (U.S. EPA, 1998). Other data sources used in the economic analysis
include:
# Census data.
# Trade data and information from the International Trade Commission and the U.S.
International Trade Administration (Commerce Department).
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# Industry data, such as the American Iron and Steel Institute statistics.
# Industry j ournals.
# General economic and financial references (these are cited throughout the report).
1.3 REPORT ORGANIZATION
This EA Report is organized as follows:
# Chapter 2—Industry Profile
Provides background information on the facilities, companies, and the industry from
publicly available sources.
# Chapter 3—Survey Data
Summarizes information collected in the EPA survey. The data cover the period 1995
though 1997 and reflect the sites to which the final rule is applicable.
# Chapter 4—Economic Impact Methodology
Presents the economic methodology by which EPA examines incremental pollution control
costs and their associated impacts on the industry.
# Chapters—Regulatory Options: Descriptions, Costs, and
Conventional Pollutant Removals
Presents short descriptions of and cost estimates for the regulatory options considered by
EPA. More detail is given in the Technical Development Document (U.S. EPA, 2002).
# Chapter 6—Economic Impact Results
Using the methodology presented in Chapter 4, EPA examined projected impacts for all
options considered on a subcategory basis. The chapter presents the projected impacts
from the final regulation on site, company, and industry basis.
# Chapter 7—Small Business Analysis
EPA is certifying that the final rule will not have a significant economic impact on a
substantial number of small businesses. However, EPA did prepare a small business
analysis.
# Chapter 8—Benefits Analysis
Summarizes the methodology and findings by which EPA identifies, qualifies, quantifies,
and—where possible—monetizes the benefits associated with reduced pollution.
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# Chapter 9—Benefit Comparison and Unfunded Mandates Reform Act Analysis
Compares the benefits and costs of the final regulation and shows how the analysis meets
the requirements of the Unfunded Mandates Reform Act.
1.4 REFERENCES
U.S. EPA. 2002. Development Document for the Final Effluent Limitations Guidelines and Standards for
the Iron and Steel Manufacturing Point Source Category. EPA-821-R-02-004. Washington, DC: U.S.
Environmental Protection Agency, Office of Water.
U.S. EPA. 1998. Collection of 1997 iron and steel industry data: Part A: Technical data. Part B:
Financial and economic data. Washington, DC OMB 2040-0193. Expires August 2001.
U.S. EPA. 1984. Part II: Environmental Protection Agency; Iron and Steel Manufacturing Point Source
Category Effluent Limitations and Standards. Federal Register 49:21036f£. May 17.
U.S. EPA. 1982. Part II: Environmental Protection Agency; Iron and Steel Manufacturing Point Source
Category Effluent Limitations and Standards. Federal Register 47:23258ff. May 27.
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CHAPTER 2
INDUSTRY PROFILE
The industry profile provides background information for those unfamiliar with the iron and steel
industry. As such, it sets the baseline against which to evaluate the economic impacts of increased
pollution controls. The rulemaking effort covers sites with manufacturing operations in Standard Industrial
Classification (SIC) codes:1
# 3312: Steel works, blast furnaces (including coke ovens), and rolling mills
# 3315: Steel wiredrawing and steel nails and spikes
# 3316: Cold-rolled steel sheet, strip, and bars,
# 3317: Steel pipes and tubes
# 3479: Electroplating, plating, polishing, anodizing, and coloring; Coat/engrave/allied
services not elsewhere classified.
Today, steel spans rivers, forms the bodies of our automobiles and appliances, serves as structural
skeletons for buildings, protects food, and supplies a host of different objects in everyday life. But iron and
steel have a technological history of over 5,000 years. Based on beads found at Jirzah, Egypt, meteoric
iron was worked as early as 3,500 B.C. Smelted iron, dated 2,700 B.C., in the form of a dagger was found
at Tall el-Asmar, Mesopotamia (ancient Iraq). Iron served as a flux for copper in earlier objects.
Historical texts indicate that archaeological finds are not common because metals were regularly recycled
(Moorey, 1988). Different regions (Europe, the Mediterranean, Asia, and Africa) developed ironmaking of
different types but with relatively similar technologies. Furnaces were holes in the ground where the draft
was introduced through a pipe and bellows. Shaft furnaces, however, relied on natural drafts. Both
furnace types involved creating a bed of red-hot charcoal to which a mixture of iron ore and charcoal was
added. Chemical reduction of the ore occurred and a "bloom" of iron was produced. The iron was heated
and hammered into shape (wrought iron). Wrought iron was more common except in China where cast
lrThe United States is changing from the SIC system to the North American Industrial
Classification System (NAICS). Appendix B cross-references these two systems for the iron and industry.
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iron implements dominated (Taylor and Shell, 1988). Carburization may have occurred by allowing the
artifact to remain in the forge long enough to render the edges steel (Stech and Maddin, 1988). Steel was
known in the Classical Greek and later periods.
Iron-making technology changed very little until medieval times. The blast furnace appeared in
Europe in the 15th century when it was realized that cast iron could make one-piece guns with good
pressure-retaining properties. Increased iron production led to a scarcity of wood for charcoal. Abraham
Darby in 1709 is credited with the realization that coal in the form of coke could be substituted for
charcoal. Because of coke's greater strength, it could support larger amounts of ore for processing. The
fundamental technology for converting iron ore into iron has been essentially unchanged for the last two
centuries. However, the performance of the technology has been remarkably improved. The principal
reasons are the mechanization of materials handling and charging, the improvement of furnace design and
the increase of furnace size, the improvement of tapping and removal of hot metal, and the recovery and
recycle of waste products. Since World War II, dramatic increases in productivity have been achieved
using high top pressure, burden beneficiation, wind beneficiation, and supplemental fuel injection. Burden
beneficiation techniques have included the firing of iron ore fines, coal dust and lime in a grate-kiln to form
uniform pellets, the firing of iron ore fines and other recovered iron units with coke breeze and a flux to
form sinter, and the screening of coke to yield uniform size. Wind beneficiation techniques have included
the injection of steam and oxygen enrichment of the blast. The last new blast furnace constructed in the
U.S. was blown-in (started production) in 1980.
Unlike ironmaking, steelmaking technology has been marked by continual change. The
introduction of the pneumatic Bessemer process, which first allowed mass production of steel occurred
simultaneously in the 1850s in the United States by William Kelly and Britain by Henry Bessemer. The
acid Bessemer process and the related basic Bessemer (or Thomas) process, introduced some years later,
replaced two very low productivity production processes (the crucible process and the cementation
process). The Siemens regenerative open hearth process was developed in the 1860s and introduced in the
U.S. as early as 1868. An open hearth furnace with a basic bottom, rather than the previous acid bottom,
went into commercial production in 1888 in Homestead, Pennsylvania. The open hearth process
superseded the Bessemer process as the predominant means of steel production in the U.S. in 1908, due to
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the flexibility of the process and the improved quality of the steel. The electric arc steelmaking furnace was
placed in operation in France in 1899 and introduced to the U.S. in 1906.
Until the early 1950s, the open hearth furnace remained the unchallenged premier steel production
unit in the U.S. and the world, with the electric arc furnace playing a role in the production of alloy and
special steels. The Bessemer converter slowly declined in importance, being surpassed in output by the
electric arc furnace in 1948, and with the last new converter shop being built in 1949 (in Lorain, OH) and
the last converter being shutdown in 1969 (in Ambridge, PA). In 1952, and 1953, the pneumatic basic
oxygen process (BOP) started commercial production in Linz and Donawitz, Austria. The basic oxygen
process was introduced in the U.S. in 1954 by McLouth Steel in Detroit. The last new open hearth shop
was constructed in 1958. The output of the basic oxygen process surpassed the output of the open hearth
process in the U.S. in 1970, after surpassing the electric arc furnace output in 1964. The basic oxygen
process provided substantially shorter production times, lower capital and operating costs, and at least
equivalent quality. Meanwhile, the electric arc furnace had experienced substantial technological
improvements in the 1960s and early 1970s leading to increased output of both carbon and specialty steels,
while the open hearth process sharply declined, despite marked technical improvements. The output of
electric arc furnaces exceeded the output of open hearth furnaces in 1975 and the final open hearth furnace
shop closed in 1991. The basic oxygen process remains the largest producer of steel in the U.S. today with
approximately 60 percent of output, even though the number of BOF shops has declined since 1980 and the
last new BOF shop was completed in 1991 (the shop actually incorporated used furnaces from another
shuttered mill). The electric arc furnace accounts for the remainder of steel production, with a growing
output share and new furnaces being added regularly.
Pollution concerns about coke-making are leading to new approaches, one of which involves no
coke in the iron-making process. Section 2.1 provides a brief overview of current industry practices; the
Development Document accompanying the final rule contains more detailed information (U.S. EPA, 2002).
Given the long history of the manufacture and use of iron and steel, the industry profile presents
only a snapshot of the domestic industry against which to evaluate the potential impacts of increased
pollution control costs. The industry profile includes:
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# Overview of industry processes (Section 2.1)
# Site classification (Section 2.2)
# Products (Section 2.3)
# Subcategories (Section 2.4)
# Environmental protection issues (Section 2.5)
# Production (Section 2.6)
# Specialization and coverage ratios (Section 2.7)
# Major markets (Section 2.8)
# Patterns for the industry 1986-2000 (Section 2.9)
# International competitiveness of the industry (Section 2.10)
2.1 OVERVIEW OF INDUSTRY PROCESSES
A more detailed description of industry processes and technologies may be found in the
Development Document accompanying this EA (U.S. EPA, 2002) and AISE, 1985. The text in this section
draws heavily on AISE, 1985, and EPA's Preliminary Study and Sector Notebook for the iron and steel
industry (U.S. EPA, 1995a and b). Figure 2-1 is a schematic of iron and steelmaking operations from the
iron ore to the casting of blooms, billets, and slabs.2
2.1.1 Cokemaking
Coke is made by heating pulverized coal in the absence of oxygen. A coke oven is a tall and
narrow oven with a charging port on the top side and doors on each of the narrow sides. A coke battery is
2Blooms and billets both may be square in cross-section or be less than twice as wide as thick.
Blooms are usually more than 36 square inches in cross-section; billets are usually less than 36 square
inches. A slab has a width as least twice its thickness.
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o
o.
O
M
OS
a
"3
•o
OS
=
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a series of 10 to 100 individual ovens arranged side by side with a heating flue between each oven pair.
The cokemaking process begins with charging the oven with pulverized coal through ports at the top of the
oven. After charging, the ports and doors are sealed and the coal is heated in the absence of oxygen Hogan
and Koelble, 1996). The heat drives off the volatile components, leaving a relatively pure carbon-rich fuel
that burns with high temperature and a relatively small amount of emissions. When the heating cycle is
complete, the doors are opened and the coke is pushed from the oven into a rail quench car. The quench
car takes the coke to a tower where the coke is cooled with a water spray. Finally, the coke is screened.
Coke pieces too small to use in the blast furnace generated during quenching, handling, and screening are
called coke fines or coke breeze and are generally used in other manufacturing processes (see Section
2.1.2).
Cokemaking operations can be subdivided several ways:
# what is made (furnace coke or foundry coke, see Section 2.1.1.1)
# who makes it (integrated or merchant producer, see Section 2.1.1.2)
# how it is made (by-product recovery, non-by-product recovery, or direct injection (see
Section 2.1.1.3)
2.1.1.1 Types of Coke
The two main types of coke produced in the U.S. are furnace coke and foundry coke. Furnace
coke is traditionally used in blast furnaces as part of the steelmaking process. It provides heat, carbon, a
reducing agent (carbon monoxide), and structural support within the blast furnace for the reduction of iron
ore to iron. Furnace coke accounts for approximately 93 percent of U.S. coke production and is mainly
produced in captive operations at integrated steel mills. Some steelmakers may also purchase furnace coke
from independent producers as well.
Foundry coke is the other important subgroup of metallurgical coke accounting for approximately
5 to 7 percent of annual U.S. coke production. Foundry coke is primarily used in cupolas as a heat and
carbon source for melting scrap, iron and other additives to produce gray iron or ductile iron. The molten
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iron is then used in the production of castings. Metal castings are used extensively in automotive parts,
pipe fittings, and various types of machinery.
The differences between the two types of coke include coke size, coking time, and temperature.
Furnace coke is typically made by baking a 10 to 30 percent low-volatile coal mix for 16 to 18 hours at
2200 °F. The coke size produced by this method is about 0.75 to 3 inches. Foundry coke is produced by
heating the coking coal to 1800°F for 27 to 30 hours. The heating process for the production of foundry
coke is lower than for furnace coke, the length of cooking time is longer, and the resultant foundry coke is
also relatively larger than furnace coke, 4 inches or larger in diameter (FR, 200 Ic). Foundry coke must
also have good strength and low ash content (ITC, 2000a).
The EPA survey (see Chapter 3) collected information on 21 by-product recovery coke sites.
Fifteen sites produce blast furnace coke for steelmaking, three sites that produce only foundry coke, and
three sites that produce both furnace and foundry coke.
2.1.1.2 Types of Producers
Integrated steel producers manufacture coke for consumption within their own iron- and
steelmaking operations.3 In contrast, "merchant coke facility" is one that exists to process coke solely for
the purpose of selling the product to customers on the open market. Customers of merchant facilities
include integrated steel producers that buy the furnace coke for use in their plants and iron foundries that
consume foundry coke.
The 21 by-product recovery coke sites mentioned in the previous section are owned by 18
companies. While foundry coke is made only by merchant producers, furnace coke is made by both
integrated and merchant producers. In general, cokemaking operations run by merchant producers tend to
be on a smaller scale than those operated by integrated producers (Kaplan and Poppiti, 2001). Three
merchant coke producers are classified as small businesses based on the Small Business Administration
Integrated producers will sell excess coke to other steelmakers but only after their own
consumptive requirements are met.
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(SBA) size definitions for NAICS codes, while none of the integrated producers are classified as small
(U.S. EPA, 2000). However, size does not correlate with financial health which lenders certainly examine
when evaluating whether to extend credit. Although merchant facilities are smaller than integrated
companies, this distinction has no bearing on the ability of a site to raise capital for investment.
Reacting to a slowdown in the demand for steel in the seventies and eighties, several integrated
producers shut down coke making operations and this decreased the production of furnace coke in the
nineties. Combined with the aging of coke batteries and the expense of rebuilding batteries, integrated
producers increased the purchase of furnace coke from merchant producers and ceased producing coke at
their captive operations. Such trends in the coke industry have led to an increase in the share of furnace
coke production by merchant facilities and an increase in the volume of imports as well (U.S. EPA, 2000).
2.1.1.3 Cokemaking Processes
By-Product Recovery Cokemaking
Moisture and volatile components of the coal are about 20 to 35 percent by weight. In by-product
recovery cokemaking, these components are collected and processed to recover coal tars, crude light oil,
anhydrous ammonia or ammonium sulfate, naphthalene, and sodium phenolate. Coke oven gas is used as a
fuel for the coke oven. Until 1998, nearly all U.S. coke was produced with by-product recovery. Air
emissions and water effluents from by-product cokemaking processes are of environmental concern, see
Section 2.5. With the promulgation of National Emission Standards for Hazardous Air Pollutants
(NESHAP), coke oven batteries are subject to increasingly stringent standards. In response, some aging
batteries have shut down, while plants using non-by-product recovery cokemaking methods have opened
(see Section 2.1.1.2). Furthermore, other non-coke methods of making iron are being developed (see
Section 2.1.3.2).
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Non-By-Product Recovery Cokemaking
In non-by-product recovery cokemaking, all volatile gases are incinerated; sulfur is the only
remaining pollutant. As such, it is considered a more environmentally-friendly process. The first non-by-
product coke plant was Jewell Coal & Coke, which opened in the late 1970s. Not until mid-1998, in light
of rising environmental costs, was a second facility built. In 1998, the Sun Coal and Coke Company
(Jewell's parent company) opened a newly-built non-recovery coke manufacturing plant at Inland Steel's
complex in East Chicago, Indiana. In 1993, Inland ISPAT Steel shut and dismantled its by-product coke
ovens largely because of the Clean Air Act regulations. Inland ISPAT Steel has a long term obligation to
purchase 1.2 million tons of coke per year. The plant has a capacity of about 1.3 million tons per year.
The new coke plant is combined with a waste heat recovery and cogeneration facility (i.e., the excess coke
oven gas will generate electricity from steam; Hogan and Koelble, 1996; New Steel 1997; and ENR,
1998).
2.1.2 Sintering
Sintering is a process that recovers iron and agglomerates fine-sized particles ("fines") from iron
ores, coke breeze, mill scale, processed slag, wastewater treatment sludges, and pollution control dust into
a porous mass for charging to the blast furnace. The materials are mixed together, placed on a slow-
moving grate (also called a sinter strand), and ignited. Windboxes under the grate draw air through the
materials to enhance combustion. In the process, the fine materials are fused into the clinkers (sinter
agglomerates) which can be charged to the blast furnace (U.S. EPA, 1995a and b).
2.1.3 Ironmaking
2.1.3.1 Blast Furnace
Coke, iron ore, limestone and sinter are fed into the top of the blast furnace. Heated air (the blast)
is blown into the bottom of the furnace through a pipe and openings (tuyeres) around the circumference of
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the furnace. The iron-bearing material is supported by the coke and reduced to molten iron and slag as it
descends through the furnace. The carbon monoxide from the burning coke reduces the iron ore to iron
while the acid part of the ore reacts with the limestone to form slag. The slag floats on top of the molten
iron. Slag and iron are tapped periodically through different sets of runners. The term "pig iron"
originated in the 15th Century. The iron was tapped down a long channel to which short, straight molds
joined at right angles. The layout reminded the ironworkers of a sow suckling piglets, hence the name.
Today the 2,800 to 3,000° F iron is tapped into refractory-lined cars for transport to the steel making
furnaces while the slag may be used as railroad ballast, as cement aggregate, or for other construction uses
(Britannica, 1998; U.S. EPA, 1995aand 1995b).
2.1.3.2 Direct Injection of Pulverized Coal and/or Natural Gas
The injection of pulverized coal and/or natural gas at the tuyeres (openings into the bottom of the
blast furnace) reduces coke consumption. Some sites inject oil, tar, or other fuels. Some high-quality coke
is still needed in the blast to provide a permeable, high mechanical strength support for hot-metal
production. Injection techniques have reduced coke consumption from about 1,000 pounds/ton of hot metal
(thm) in 1990 to about 800 pounds/thm in 1995 (Agarwal, et al., 1996). U.S. Steel and National Steel
have sites that co-inject both coal and natural gas. Not only is coke usage reduced, but natural gas
injection—when combined with proper oxygen enrichment—can boost hot-metal output (Woker, 1998).
2.1.3.3 Alternative Processes
Industry has been developing iron-making alternatives to the blast furnace partly in response to the
emissions associated with cokemaking and partly to respond to high scrap steel prices. A steel scrap
substitute is a high-iron material in which the iron has been extracted from the ore with natural gas or
steam coal as the reductant, i.e., without the use of coke (WSD, 1996a). Table 2-1 is a summary of
alternative processes, taken from WSD, 1997a. The most common iron substitutes are directly reduced
iron (DRI, where the iron is reduced at temperatures below the melting point of the iron produced ), hot-
briquetted iron (HBI), and iron carbide (Barnett, 1998). With the industry downturn in 1998-1999, the
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Table 2-1
Scrap Steel Substitutes
Summary of Characteristics of Direct Reduction Processes
Process
AREX
Circofer
Circored
Davy DRC
FASTMET
FINMET
HYLIII
Iron Carbide
Inmetco
MIDREX
SL/RN
Feedstock
Pellet/lump
Fines
Fines
Pellet/lump
Fines
Fines
Pellet/lump
Fines
Fines
Pellet/lump
Pellet/lump
Reductant
Gas
Carbon
Gas
Carbon
Carbon
Gas
Gas
Gas
Carbon
Gas
Carbon
Reducer
Shaft
Fluid bed
Fluid bed
Kiln
Hearth
Fluid bed
Shaft
Fluid bed
Hearth
Shaft
Kiln
Temperature
Medium
High
Low
High
Very high
Medium
Medium
Low
Very high
Medium
High
Pressure
Low
Medium
Medium
Atmosphere
Atmosphere
High
Medium
Medium
Atmosphere
Low
Atmosphere
Source: WSD, 1997a
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prices for alternative iron dropped, making the viability of some of the projects questionable (Woker,
1999).
Alternative iron sources have been used in the United States for more than a quarter century. GS
Industries, Georgetown, SC has used DRI since the 1970s. GS Industries teamed with Birmingham Steel
to build a new DRI plant in Convent, LA (American Iron Reduction) that started in the beginning of 1998.
Nucor Corporation began operations at an iron-carbide plant in Trinidad in 1994 but shut the plant five
years later because of technical difficulties and low pig iron prices (New Steel, 1999a). Corus' DRI shop
in Mobile, AL began operations in December 1997 and barges DRI to the Tuscaloosa steelmaking plant.
Iron Dynamics, Inc. (IDI)—a subsidiary of Steel Dynamics, Inc. (SDI)—opened a DRI facility in
November 1998 that transports the liquid metal across the street to SDI. IDI's start-up has been plagued
with breakouts through the refractory wall and the technical difficulties are limiting the metal shipped to
SDI in 1999 (Bagsarian, 1998; Woker, 1999; WSD 1996b). Qualitech opened an iron carbide facility in
Texas in 1997 and declared bankruptcy less than a year later. A joint venture of LTV and Cleveland Cliffs
Inc. in Trinidad uses Lurgi's Circored process to produce HBI.
Although DRI projects are becoming more frequent, DRI needs more careful handling, transport,
and storage than HBI or iron carbide. Exposure to moisture may lead to violent reoxidation; in 1996,
Russian DRI caught fire during shipping to the U.S. when it improperly came into contact with moisture
(WSD, 1997a).
2.1.4 Steelmaking
All steel in the United States is made either in basic oxygen furnaces (BOFs) or electric arc
furnaces (EAFs). Both are batch processes with tap-to-tap (batch cycle) times ranging from 45 minutes to
3 hours. The last open hearth furnaces in the United States stopped operating in 1991.
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2.1.4.1 Basic Oxygen Furnace
Molten iron from the blast furnace, flux, alloy materials, and scrap are placed in the basic oxygen
furnace, melted, and refined by injecting high-purity oxygen. The charge to the EOF is typically about
two-thirds molten iron and one-third scrap. Oxygen is injected either through the top of the furnace (top
blown), bottom of the furnace (bottom blown), or both (combination blown). Slag is produced from
impurities removed by the combination effluxes with the injected oxygen. Various alloys may be added to
produce different grades of steel. Residual sulfur is controlled by managing furnace slag properties. EOF
slag can be processed to recover high metallic portions for use in sintering or blast furnaces, but its
applications as saleable construction material are more limited than blast furnace slag.
2.1.4.2 Electric Arc Furnace
Scrap steel is the charge to an electric arc furnace. It is melted and refined using electric energy.
During melting, oxidation of phosphorus, silicon, manganese, and other materials occurs and a slag forms
on the top of the molten metal. Oxygen is used to de-carburize the molten steel and to provide thermal
energy.
Because of the absence of cokemaking and blast furnace operations coupled with the ability to be
economically scaled for smaller batches, these sites were termed "minimills." The first use of the term
"minimi!!" seems to be in a 1969 Wall Street Journal article on wiremakers (Depres, 1998). Traditionally,
the term "integrated mill" referred to sites with all processes from cokemaking through finishing. Because
of recent closures in coke oven batteries, there are integrated mills both with and without cokemaking. The
term "minimill" is relative only to a fully integrated mill; minimill EAFs may melt up to 200 to 300 tons
per heat. At one point, it might have been common to contrast integrated and minimills in a straight
forward manner, e.g., integrated mills had iron-making operations (blast furnaces and BOFs), minimills did
not. BOFs are typically used for high tonnage production of carbon steels while EAFs are used to produce
carbon steels and low tonnage alloy and specialty steels. When EAF technology first came into operation,
it produced typical "long" products where quality was less important than for other products such as
reinforcing bars (rebar), beams, and other structural materials.
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The distinction is blurring, however. Beginning in 1989, Nucor opened its first EAF-based sheet
mill in Crawfordsville, Indiana. Minimills therefore began making the higher-quality sheet products.
Nucor is now joined by Gallatin Steel, Steel Dynamics, Trico, North Star, and possibly IPSCO (WSD,
1997b). With Trico, a joint venture of LTV, British Steel, and Sumitomo Metals, traditionally integrated
producers began EAF operations. These assets, however, are scheduled to be sold to Nucor, a traditional
EAF operator (Nucor, 200 Ic). With the start up of Iron Dynamics and iron carbide operations in Trinidad,
Steel Dynamics and Nucor are "integrating" by controlling these sources of steel scrap substitutes. Iron
Dynamics, Inc. is located adjacent to a Steel Dynamics site, indicating the integrated nature of the
relationship.
2.1.5 Ladle Metallurgy/Vacuum Degassing
Molten steel is tapped from the EOF or EAF into ladles large enough to hold an entire heat. At
this stage, the metal is subjected to temperature control, composition control, deoxidation (O2 removal),
degassing (H2 removal), decarburizaton to remove other impurities from the steel.
2.1.6 Casting
2.1.6.1 Ingots
After the ladle metallurgy stage, the molten iron is poured (teemed) into ingot molds. The cooled
and solidified steel is stripped from the mold, transported to forming operations, reheated, and roughly
shaped. Although this was the traditional method of steelmaking, it is being replaced by continuous casting
(see below) due to the latter's economic efficiencies.
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2.1.6.2 Continuous Casting
Continuous casting methods bypass several of the conventional forming steps by casting steel
directly into semifinished shapes. Molten steel is poured into a reservoir (tundish) from which it is released
to a water-cooled mold at controlled rates. The steel solidifies as it descends through the casting machine
mold, emerging from the mold with a hardened shell. The steel feeds onto a runout table where the center
solidifies sufficiently to allow the cast to be cut into lengths. Blooms, billets, round, and slab-shaped pieces
may be continuously cast.
2.1.7 Hot Forming
With hot-forming operations, the flow diagram changes from Figure 2-1 to Figure 2-2. The semi-
finished steel shapes are re-heated to about 1,800° F and passed between two rolls revolving in opposite
directions where the mechanical pressure reduces the steel's thickness. While a single rolling stand feeds
the steel through in one direction, the hot rolling mill may be a reversing mill that adjusts the space between
the rolls and feeds the steel back in the opposite direction. Or, a site may have a series of rolling stands
where each stand in the series progressively reduces the thickness of the steel. A 40-foot slab entering a hot
rolling mill may exit as a 5,000 foot strip. The final shape, thickness, and characteristics of the steel
depends on the rolling temperature, rolling profile, and the cooling processes after rolling.
2.1.8 Acid Pickling/Salt Descaling
In this step, steel is immersed to remove oxide scale from the surface of the semi-finished product
prior to further processing. The process may be batch or continuous. In the latter cases, coils may be
welded end-to-end at the start of the line and cut by torch at the end of the line. Sulfuric acid, hydrochloric
acid, or a combination of the two are common pickling solutions. In salt descaling, the aggressive physical
and chemical properties of molten salts are used to remove heavy scale from selected specialty and high-
alloy steels. Two proprietary baths are available, one oxidizing (Kolene) and one reducing (Hydride).
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STRUCIURAL MAPES
Beams,AngIes, Tees, Zees,
Chmrels, KKng
RAILSAND JOINT BARS
Staidard Rails, Crane Rails,
Joint Bars
COLDFMISHEDBARS
Round,Square, Hexagonal, Octagonal,
Flat, Triangular, Half Round
H
1 HEATING
FURNACES
w
'
^.
ROD MILLS
SEAMLESS
PTPF AND
^^ Round, Square, Hexagonal, Octagonal,
Flat, Triangular, Half Round
^
PICKLING,
CLEANING
>,
-w
r
|*
•w
r
WIREAND WIRE PRODUCTS
Wire,Wire Rope,Nails,Wire Fabric
ILECTROPLATING
GALVANIZING
FINISHED WIRE &
WIRE PRODUCTS
Wire,Wire Rope,Nails,
Wire Fabric
Sheets, Coils
ALKALINE
CLEANING
>,
ANNEALING
FINISHED
SHEETS, COILS
F^ure2-2: Forming and Finishing Operations
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2.1.9 Cold Forming
Cold forming involves the rolling of hot rolled and pickled steel at ambient temperature. The
reduction in thickness is small compared to that in hot rolling. Cold rolling is used to obtain improved
mechanical properties, better machinability, special size accuracy, and thinner gages than can be
economically produced with hot rolling. Cold rolling is generally used to produce wire, tubes, sheet, and
strip steel products. During cold rolling, steel becomes hard and brittle. The steel is heated in an annealing
furnace to make it more ductile.
2.1.10 Finishing
One of the most important aspects of a finished product is the surface quality. Several finishing
processes are in current use: alkaline cleaning, hot dip coating, galvanizing, and electroplating. Qualities
desired in the final product will determine which process or combination of processes is used.
2.1.10.1 Alkaline Cleaning
Alkaline cleaning typically occurs after cold forming and prior to hot coating or electroplating.
The purpose is to remove mineral oils and animal fats and oils from the steel surface, i.e., preparing a
surface that will accept a later coating. Alkaline cleaning involves baths that are less aggressive than
pickling operations.
2.1.10.2 Hot Dip Coating
Hot dip coating operations involve immersing cleaned steel into molten baths of:
# Tin
# Zinc (galvanizing)
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# Zinc and aluminum (galvalume coating)
# Lead and tin (terne)
Sometimes coating operations have a final step such as chromium passivation. Hot coating is usually
performed to improve corrosion resistance and/or appearance (U.S. EPA 1995a and 1995b).
2.1.10.3 Electroplating
Electroplating involves covering the steel product with a thin layer of metal through chemical
changes induced by passing an electric current through an ionic solution. The food and beverage market
uses tin and chromium electroplated projects. Zinc electroplated (electro-galvanized) steel is used in the
automotive market. The latter market has been increasing in recent years due to automobile manufacturers
demand. New coatings, such as combinations of iron, nickel, and other metals, are under development and
refined in response to market specifications.
2.2 SITE CLASSIFICATION (INTEGRATED/NON-INTEGRATED/STAND-ALONE)
Not all sites have all the operations described in Section 2.1. For the purpose of designing the
CWA section 308 survey, EPA uses three terms to generally classify iron- and steelmaking sites:
# Integrated. Traditionally, integrated steel mills performed all basic steelmaking operations
from cokemaking through finishing. Today, the term refers to a site that has a blast
furnace or EOF, many of the integrated sites having closed their cokemaking and sintering
operations.
# Non-integrated. Also known as "minimills," these sites have EAFs and do not have blast
furnaces or BOFs.
# Stand-alone. A stand-alone site has no melting capability. Stand-alone facilities cover a
wide range in operations. There are stand-alone coke plants ranging in capacity from 615
tons/day (Tonawanda Coke) to 12,280 tons/day (U.S. Steel Clairton Works; Hogan and
Koelble, 1996). Stand-alone sites with finishing operations typically process hot rolled
steel into finished steel products by pickling, cold-rolling, cleaning, hot coating, or
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electroplating. Other stand-alone facilities manufacture tube and pipe or wire from semi-
finished steel.
The general categories may be broken down further by facilities that manufacture or finish carbon, alloy,
and/or stainless steels (see Section 2.3). Stand-alone facilities may be located near or adjacent to other
steelmaking operations but typically have separate wastewater treatment systems and discharge permits.
2.3 PRODUCTS
The three principal steel types produced in the United States are carbon, alloy, and stainless (U.S.
EPA, 1998). They are defined as:
# Carbon. Carbon steel owes its properties chiefly to various percentages of carbon without
substantial amounts of other alloying elements. Steel is classified as carbon steel if it
meets the following conditions: (1) no minimum content of elements other than carbon is
specified or required to obtain a desired alloying effect, and (2) the maximum content for
any of the following do not exceed the percentages noted: manganese (1.65%), silicon
(0.60%), or copper (0.60%).
# Alloy. Steel is classified as alloy when the maximum range for the content of alloying
elements exceeds one or more of the following: manganese (1.65%), silicon (0.60%), or
copper (0.60%), or in which a definite range or definite minimum quantity of any of the
following elements is specified or required within the limits of the recognized field of
constructional alloy steels: aluminum, boron, chromium (less than 10%), cobalt, lead,
molybdenum, nickel, niobium (columbium), titanium, tungsten, vanadium, zirconium, or
any other alloying element added to obtain a desired alloying effect.1
# Stainless. Stainless steel is a trade name given to alloy steel that is corrosion and heat
resistant. The chief alloying elements are chromium, nickel, and silicon in various
combinations with possible small percentages of titanium, vanadium, and other elements.
By American Iron and Steel Institute (AISI) definition, a steel is called "stainless" when it
contains 10% or more chromium.
Specialty steel is a steel containing alloying elements added to enhance the properties of the steel
when individual alloying elements (e.g. aluminum, chromium, cobalt, columbium, molybdenum, nickel,
titanium, tungsten, vanadium, zirconium) are more than 3%, or the total of all alloying elements exceeds 5
percent.
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Carbon steels have diverse uses and are produced in much greater quantities than alloy and stainless steels.
Alloy steels are used where enhanced strength, formability, hardness, weldability, corrosion resistance, or
notch toughness is needed for specific applications. Stainless steels are designed for corrosion-resistant
applications or where surface staining is not desired.
2.4 SUBCATEGORIZATION
EPA proposed re-subcategorizing in December 2000 but, due to the small number of subcategories
affected by the final rule, the Agency has decided to retain the 1982 subcategory structure with the addition
of an "other operations" subcategory. To assist the reader in comparing the Economic Assessments for
proposal and promulgation, Table 2-2 summarizes the changes in subcategorization, see also U.S. EPA,
2002.
2.5 ENVIRONMENTAL PROTECTION ISSUES
EPA promulgated NESHAP for coke oven emissions (doors, lids and offtakes charging and leaks)
in 1993. Cokemaking sites are faced with three choices:
# Meet the Maximum Achievable Control Technology (MACT) limits in 1995 and more
stringent limits in 2003. The 2003 limits are either MACT limits more stringent than the
1995 values or residual risk standards (RRS) that limit the risk to public health in the
surrounding communities, depending upon whichever is more stringent (known as the
"MACT track").
# Meet a series of three increasingly stringent emissions limits consistent with the Lowest
Achievable Emissions Rate (LAER). The first deadline was November 1993, the second
deadline was January 1998, and the third deadline is January 2010. Full compliance with
RRS must occur in 2020. (known as the "Extension track").
# Cokemakers may choose to "straddle" the tracks until 1998. If this option is chosen, the
site must meet the interim standards under both the MACT and Extension tracks until
1998. At that time, a cokemaker could decide to forgo RRS compliance for a battery. If
so, the battery may operate until 2020 before it must meet residual risk standards (known
as the "Straddle track").
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Table 2-2
Iron and Steel Manufacturing Subcategories
1982
A. Cokemaking
B. Sintering
C. Ironmaking
D. Steelmaking
E. Vacuum Degassing
F. Continuous Casting
G. Hot Forming
H. Salt Bath Descaling
I. Acid Pickling
J. Cold Forming
K. Alkaline Cleaning
L. Hot Coating
Proposed 2000
A. Cokemaking
B. Ironmaking
C. Integrated
Steelmaking
E. Integrated and
Stand- Alone Hot
Forming
D. Non-
Integrated
Steelmaking
and Hot
Forming
F. Steel Finishing
G. Other Operations
Final 2002
A. Cokemaking
B. Sintering
C. Ironmaking
D. Steelmaking
E. Vacuum Degassing
F. Continuous Casting
G. Hot Forming
H. Salt Bath Descaling
I. Acid Pickling
J. Cold Forming
K. Alkaline Cleaning
L. Hot Coating
M. Other Operations
If a coke battery could not meet the January 1998 LAER limits, it must either close or rebuild (Hogan and
Koelble, 1996). This deadline occurs just as the survey period ends, so the cokemaking profile may need to
be adjusted to address these changes. The second deadline for the MACT sites is 2003. EPA proposed
MACT standards for coke pushing and quenching on July 3, 2001 and for integrated iron and steel on July
13,2001 (FR2001cand2001d).
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2.6 PRODUCTION
There are potential difficulties with both the Current Industrial Reports (Census) data and
American Iron and Steel Institute (AISI) data for the EPA analysis. First, the sites in the Census and AISI
data span two EPA effluent guideline subcategories—iron and steel and metal products and machinery.
Because the regulated community examined in this analysis is a subset of that presented in secondary data,
EPA relies on the survey data when evaluating impacts. Second, EPA surveyed the iron and steel industry
in the Fall of 1998, requesting data for fiscal years 1995, 1996 and 1997. During this period, the
government was changing from the Standard Industrial Classification (SIC) to the North American
Industry Classification System (NAICS). The 1997 Current Industrial Report (MA33B(97)) presents data
by product code related to SIC codes (DOC, 1998). The 1997 Census, however, presents data by NAICS
code. The Small Business Administration noted that it intends to convert business size standards to NAICS
effective 1 October 2000 (FR, 1999). This industry profile, then, reports some information via SIC code
(see beginning of Chapter 2) and some by NAICS code (see Section 2.7) depending on the form in which
the data are available.2 For the two reasons listed above, production data for the regulated community is
based on EPA survey data, presented in Chapter 3.
2.7 SPECIALIZATION AND COVERAGE RATIOS
A specialization ratio represents a comparison between primary products shipped and total
products shipped by establishments classified within the industry. A coverage ratio represents the ratio of
primary products shipped by establishments classified in the industry to total shipments of such products
by all manufacturing establishments, wherever classified (DOC, 1999a).
The ratios retrieved from the Census for the purpose of our analysis include the following product
categories: NAICS 331111 iron and steel mills, NAICS 331210 steel pipes and tubes, NAICS 331221 cold
finishing of steel shapes, and NAICS 331222 steel wire and related products. Table 2-3 displays the
specialization and coverage ratios for the above product categories from the 1997 Census data. Each
Appendix B cross-references the NAICS and SIC codes for the iron and steel industry.
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Table 2-3
Specialization and Coverage Ratios
NAICS
331111
331210
331221
331222
Description
Iron and Steel Mills
Pipes and Tubes Manufactured from
Purchased Steel
Cold Rolled Steel Shape Manufacturing
Steel Wire Drawing
Specialization
Ratio
97%
96%
83%
96%
Coverage Ratio
98%
93%
90%
91%
Sources: DOC, 1999b through 1999d.
product category, with the exception of cold finishing of steel shapes, has a specialization ratio of 96
percent or higher. The high specialization ratios indicate that the establishments within the industry have
total production that consists mostly of their primary products. The coverage ratios range from 90 percent
to 98 percent. These coverage ratios indicate that the total production of these particular categories is
generated by establishments within the industry and not by other manufacturing establishments outside of
the industry.
2.8
MAJOR MARKETS
2.8.1 Service Centers
Service centers and distributors are the largest domestic market for steel shipments. A service
center is an "operation that buys finished steel, often processes it in some way and then sells it in a slightly
different form" (SSCI, 1999). Service center staff alter the steel (e.g., slit, cut to length, pickled, annealed,
etc.) and sell the product at a higher value. Products, processes, and markets may vary by service center.
In general, service centers sell the refined product to either fabricators, manufacturers, or the construction
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industry. In 2000, steel mills shipped about 30.1 million tons of steel to service centers and distributors,
accounting for about 28% of the market (AISI, 2000). The more than 5,000 service centers are located
mainly in the northeastern United States with a smaller concentration in the southeast. Service centers are
less capital-intensive than steel mills and compete with steel mills for providing finished products to the end
market.
2.8.2 Construction
Construction is the second largest market for steel industry with 2000 steel shipments amounting to
about 20.3 million tons (19% of the market). Between 1991 and 2000, shipments for construction
increased by 8.8 million tons (AISI, 2000). This results from an increase in commercial and residential
building with steel. From 1992 to 1994, the number of homes built with steel increased from 500 to 75,000
(Cyert and Fruehan, 1996). Steel offers advantages in strength and stability during adverse weather
conditions (e.g., rot resistance without chemicals) and natural disasters. With "aggressive marketing,
changes to building codes, and instruction to home builders," the steel industry has a goal of reaching one-
quarter of the market by 2000 (Cyert and Fruehan, 1996).
2.8.3 Automotive
Motor vehicles are the third largest market for steel in the United States. In 2000, the automotive
industry had more than 16 million tons of steel shipments (about 15% of the market). The sales increase of
the heavier sport utility vehicles helped fuel an overall increase in steel shipments of 6 million metric tons
from 1991 to 2000 (AISI, 2000). Recently, however, other materials compete for an increasing share of
motor vehicles. Plastic and aluminum have become more popular with the demand for lower-weight and
more gas-efficient automobiles. Steel is heavier than these materials, but it is more durable, safer, and
easier to recycle. Steel producers and the automobile industry are working together to improve the steel
efficiency in today's cars. The leading world steel producers have joined together to form the UltraLite
Steel Autobody-Advanced Vehicle Concepts (ULSAB-AVC) program (Ulsab, 2000). This is an auto
design and engineering program intended to exhibit that steel can reduce weight, increase safety, and lower
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cost. Using these ideas, Porsche vehicle weight has decreased 25% with the continued use of steel. The
use of more advanced steels such as corrosion-resistant and stainless steel increased in the 90's as well.
2.8.4 Remaining Markets
Service centers, automotive, and construction markets account for about 61 percent of steel
shipments. The remaining 39 percent is dispersed over a wide range of products and activities, such as
agricultural, industrial, and electrical machinery, cans and barrels, and appliances. The building of other
transportation means such as ships, aircraft, and railways are included in this group as well.
2.9 PATTERNS FOR THE INDUSTRY 1986-2000
2.9.1 Raw Steel Production
Figure 2-3 traces the domestic production of raw steel from 1986 through 2000. The time series
begins in 1986 with 81.6 million tons and climbs to nearly 100 million tons in 1988. After stabilizing for a
few years, production drops to 88 million tons in the 1991 recession. From 1991, steel production has
increased annually to 112 million tons.
2.9.2 Steelmaking Capacity and Capacity Utilization
Figure 2-4 shows both steelmaking capacity (left axis, black squares) and capacity utilization
(right axis, shaded diamonds). Because steelmaking is a capital intensive industry with high fixed costs,
capacity utilization is a measure of the industry's ability to run profitably. There is an ebb and flow in
capacity utilization overtime as industry tries to balance supply and demand. In 1986, the United States
had its highest steelmaking capacity and lowest production in the fifteen-year period, resulting in a dismal
capacity utilization rate of 64 percent. The industry reduced its capacity sharply in 1987 by about 15
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Figure 2-3
Raw Steel Production in the United States: 1986-2000
115
110
105
§
o
H
g
O
f/3
.0 95
90
85
80
r
/*^^
1 *^~~ ^\ f
- \ /
/ \ /
— / \ /
m
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Data A
*
Year
Source: AISL 2000, 1998, 1995
2-26
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Figure 2-4
Steelmaking Capacity and Capacity Utilization in the United States: 1986-2000
135
130
125
Millions of Net Ton
i
us
no
105
A
~\ / "^/^
\ i /
A •— —"*^ V\ n
; /i-^x
A "V
1986 1987 1988 1989 199O 1991 1992 1993 1994 1995 1996 1997 1998 1999 2OOO
Year
I Capacity A Capacity Utilization
100
90
"s
80 g
70
fc
Source: AISI, 2000, 1998, 1995
2-27
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million tons. This, coupled with an increase in steel production, increased capacity utilization to nearly 80
percent. Further growth in production in 1988 pushed capacity utilization to 89 percent.
With the improving market, individual companies added capacity in 1989. Steel production leveled
off and capacity utilization slipped to 85 percent, where it stayed for the next year. (1990 capacity
increases were offset by increased production.) 1991 brought small continuing capacity additions but a
sharp drop in raw steel production, resulting in a capacity utilization rate of 75 percent.
From 1991 through 2000, domestic steel production increased (see Figure 2-3). Perhaps in
response to the conditions in 1991, the industry closed capacity over the next three years. This resulted in a
climb in the utilization rate that peaked in 1994 at 93 percent. There was a slight increase in utilization in
1995 (93.3 percent) but the industry began adding capacity again. From 1995 through 2000, the industry
added nearly 18 million tons of capacity. The robust economy—with its increasing steel use—absorbed
much of this increase, but capacity utilization began a slow, consistent decline, reaching 86 percent in
2000.
The fluctuations in capacity utilization imply that steel is a cyclical industry, in terms of profits,
even when steel consumption shows a monotonic increase (see Figures 2-3 and 2-4, 1991-2000). The
fluctuating possibility for profits has implications for the revenue forecasting model used in the site
financial analysis (see Chapter 4).
2.9.3 Raw Steel Production by Furnace Type
Figure 2-5 shows the relative production of steel by open hearth, basic oxygen process (BOP), and
electric arc furnaces (EAF). Open hearth production ceased in 1991. From 1992 through 2000, the
percentage of steel made with BOP furnaces declined while that for EAF production rose. In effect, Figure
2-5 illustrates the growing strength of the minimills versus integrated producers.
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Figure 2-5
Percent Raw Steel Production by Furnace Type in the United States: 1986-2000
60
50
40
1
Si
53
PH
30
20
10
0
^w — — -___^_
o
^*^-±
A ^-^^^^ A ^^ ^-^^
-
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Year
Open Hearth
Basic Oxygen Process
Electric Arc
Source: AISI, 2000, 1998, 1995
2-29
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2.9.4 Continuous Casting
As described in Section 2.1.6, once the metallurgy of the steel is finalized, the ladle pours the liquid
metal either into ingots or to a continuous caster. Ingots may be used on-site or sold as a commodity. In
the first case, the ingot must be "soaked" in a temperature-controlled pit to equalize the temperature
throughout the cross-section. (When cast, the exterior of the ingot cools faster than the interior.) In the
second case, the ingot must be heated until it reaches a temperature at which it can be rolled into a
semifinished shape (e.g., slabs, billets, or blooms). In continuous casting, the metal is cast directly to a
semifinished shape, thus condensing three steps into one (ingot casting, heating, and rolling) with
concomitant energy and time savings. Continuous casting began in the United States in the 1960s (AISE,
1985). By 1986, more than half of the steel produced in the United States was continuously cast. The
percentage continued to climb over the years, with slightly more than 96 percent of the steel being
continuously cast in 2000 (see Figure 2-6). The importance of continuous casting as a technological
impact on the steel industry is reflected in the market model, see Chapter 4.
2.9.5 Imports/Exports
The United States is one of the three largest raw steel producers in the world, accounting for 11 to
12 percent of total world production during 1986 to 2000. (Japan and the People's Republic of China are
the other two countries; OECD, 1999, AISI, 2000, and AISI, 1999.) This is a notable drop from the
market share held by the U.S. industry in the early 1970s. The period from 1973 to 1982 saw U.S. market
share drop in half from nearly 20 percent to 10 percent. The turmoil in the industry during this period
explains the industry's sensitivity to imports and its willingness to fight what it considers unfair practices
through international trade cases (see Section 2.10 for a more detailed discussion of recent trade cases).
Figure 2-7 illustrates the percentage of imports in the United States steel industry. From 1986 to 2000 the
percentage of imports has varied from a low of 15 percent in 1993 to a high of just more than 26 percent in
1998.
Import and export tonnage for 1986-2000 is illustrated in Figure 2-8. The U.S. has been a
consistent net importer during this period. Import tonnage ranged from 20 to 26 million net tons from 1986
2-30
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Figure 2-6
Percent Continuously Cast Steel in the United States: 1986-2000
100
90
80
1
8
fin
70
60
50
^ " " "
/
s
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Data A
Year
Source: AISI, 2000, 1998, 1995
2-31
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Figure 2-7
Percent Imports of Steel Industry in the United States: 1986-2000
30
25
g 20
(£
15
10
•
A
- / \
/ \
• / \
- N , J ''
v_ / ^
—• / v^
^x /
— \^/
1986 1987 1988 1989 199O 1991 1992 1993 1994 1995 1996 1997 1998 1999 2OOO
Year
Data A
Note: Data for 1998 excludes semi-finished imports.
Source: AISI, 2000, 1998, 1995
2-32
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Figure 2-8
Iron and Steel Import/Export Tonnage in the United States: 1986-2000
60
50
40
Millions of Net Tons
UJ
0
20
10
0
/ ....
1
/
A A - A A A
A -^ ^^ , , , \
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Imports
Exports
A
Year
Source: AISI, 2000, 1998, 1995
2-33
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through 1993. Although U.S. raw steel production increased by about twelve percent from 100.6 million
tons in 1994 to 112.2 million tons in 2000 (Figure 2-3), domestic production could not keep pace with
increased demand. Imports jumped to 38 million tons in 1994 and jumped again to 54 million tons in 1998,
a 43 percent increase. In 1999, imports declined slightly to 49 million tons, increasing again in 2000 to 52
million tons.
2.9.6 Employment
Employment peaked about 1974 when the industry had slightly over half a million jobs (both wage
and salaried). As mentioned in the previous section, the industry contracted severely during the late 1970s
and early 1980s. In 1986, total employment was approximately 175,000 with 128,000 employees receiving
wages (Figure 2-9). By 2000, total employment dropped to fewer than 100,000 and wage-based
employment dropped to 74,000 employees.
A reduced number of jobs does not coincide completely with a constriction in the industry. Part of
the loss in employment reflects technological advances, such as continuous casting, that allow steel to be
made faster and with fewer people. Raw steel production increased (Figure 2-3) while employment
decreased (Figure 2-9). In 1986, it took 174,783 employees to make 81,606 thousand tons of raw steel or
about 467 tons per employee per year or 4.5 hours per ton. In 2000, it took 99,536 employees to make
112,242 thousand tons of raw steel or about 1,128 tons per employee per year or 1.9 hours perton. That
is, the labor required to produce a ton of steel in 2000 is slightly more than 40 percent of the labor required
fifteen years earlier. Technological change, then, is a driving factor in this industry. (See Chapter 4 for a
further discussion of the role of technological change in the market model.)
2.9.7 Industry Downturn: 1998-2000
The EPA survey collected financial data for the 1995-1997 time period (the most recent data
available at the time of the survey). This three-year time frame marks a period of high exports (six to eight
million tons per year, see Section 2.10.1). This high point in the business cycle allowed companies to
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Figure 2-9
Average Number of Employees Engaged in the Production and Sale
of Iron and Steel Products in the United States: 1986-2000
i8o
160
140
Employment
Thousands
O\ 00 O 10
o o o o
A
_ x-^^-*
A
A
- ' ' ^ ' "*"~- - .
^ •______
1986 1987 1988 1989 199O 1991 1992 1993 1994 1995 1996 1997 1998 1999 2OOO
Year
~~B~ Employees Receiving Wages A All Employees Receiving Wages & Salaries
Source: AISI, 2000, 1998, 1995
2-35
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replenish retained earnings, retire debt, and take other steps to reflect this prosperity in their financial
statements.
The financial situation changed dramatically between 1997 and 1998 due to the Asian financial
crisis and slow economic growth in Eastern Europe.3 When these countries' currencies fell in value, their
steel products fell in price relative to U.S. producers. While the U.S. is and has been the world's largest
steel importer (and a net importer for the last two decades), the U.S. was nearly the only viable steel
market to which other countries could export during 1998. U.S. imports jumped by 13.3 million tons from
41 million to 54.3 million tons—a 32 percent increase—from 1997 to 1998 (see Section 2.10.1). About one
out of every four tons of steel consumed in 1998 was imported. The situation somewhat improved in 1999
as imports feel back to 49 million tons, but increased again in 2000 to 52 million tons. At least partly due
to increased competition from foreign steel mills, the financial health of the domestic iron and steel industry
also experienced a steep decline after 1997. This decline is not reflected in the survey responses to the
questionnaire, which covered the years 1995 through 1997 and which were the most recent data available at
the time the questionnaire was administered in 1998.
EPA compiled public information about steel company bankruptcies since 1997. The information
is summarized in Table 2-4. Nineteen companies are in bankruptcy, at least three of which have ceased
operations (Acme Metals, Qualitech Steel, and Gulf States Steel). Geneva recently idled its hot end
operations. Five companies merged with healthier ones. Companies that were financially healthy before
the down turn are finding opportunities to expand their market share. For example, Nucor acquired
Auburn Steel in March 2001, and agreed to purchase Trico's assets in November 2001 (Nucor, 200la
through 200 Ic). Other companies filed trade cases with the International Trade Commission and the
International Trade Administration of the Commerce Department (see Section 2.10.2).
The Clinton Administration launched an initiative to address the economic concerns of the steel
industry in 1999. The Steel Action Plan includes initiatives focused on eliminating unfair trade practices
that support excess capacity, enhanced trade monitoring and assessment, and maintenance of strong trade
laws (DOC, 2000a).
3Although the industry downturn is discussed here in general terms, details on imports, exports,
and trade cases are discussed in more detail in Section 2.10.
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Table 2-4
Selected Steel Company Changes Since 1997
Company
Acme Metals
Laclede Steel
Geneva Steel
Qualitech Steel Corp
Gulf States Steel
J&L Structural
Wheeling-Pittsburgh Steel
Northwestern Wire and Steel
LTV
American Iron Reduction
CSC Limited
GS Industries
Trico Steel
Republic Technologies
Precession Specialty Metals
Standard Steel/Freedom Forge
Bethlehem Steel
Sheffield Steel
National Steel
Bankruptcy and Other Events
Bankruptcy
Began liquidation of Acme Steel Company
Bankruptcy
Emerged from bankruptcy
Bankruptcy
Bankruptcy
Emerged from Bankruptcy
Bankruptcy
Bankruptcy (ceased operations)
Bankruptcy
Liquidation
Bankruptcy
Bankruptcy
Bankruptcy
Bankruptcy
Bankruptcy
Bankruptcy
Bankruptcy
Bankruptcy
Nucor to purchase assets
Bankruptcy
Bankruptcy
Bankruptcy
Bankruptcy
Bankruptcy
Bankruptcy
Date
September 1998
October 2001
November 1998
December 2000
July 2001
February 1999
January 2001
January 2002
March 1999
July 1999
August 2000
June 2000
November 2000
December 2000
December 2000
January 2001
January 2001
February 2001
March 2001
November 2001
April 2001
July 2001
July 2001
October 2001
December 2001
March 2002
Sources: Acme, 2001; AISE, 2001; Geneva, 2001; Gulf States, 2001; Laclede, 2001; New Steel 2001a,
2001c, and 2001d; Nucor, 2001a; Steel Profiles, 2001; USWA, 2002; and Coyne, 2002.
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Further, in a separate action on August 17, 1999, President Clinton signed into law an act
providing authority for guarantees of loans to qualified steel companies. The Emergency Steel Loan
Guarantee Act of 1999 (Pub L 106-51) established the Emergency Steel Guarantee Loan Program (13
CFR Part 400) for guaranteeing loans made by private sector lending institutions to qualified steel
companies. The Program will provide guarantees for up to $1 billion in loans to qualified steel companies.
These loans will be made by private sector lenders, with the Federal Government providing a
guarantee for up to 85 percent of the amount of the principal of the loan. A qualified steel company is
defined in the Act to mean: any company that is incorporated under the laws of any state, is engaged in the
production and manufacture of a product defined by the American Iron and Steel Institute as a basic steel
mill product, and has experienced layoffs, production losses, or financial losses since January 1998 or that
operates substantial assets of a company that meets these qualifications. Certain determinations must be
made in order to guarantee a loan, including that credit is not otherwise available to a qualified steel
company under reasonable terms or conditions sufficient to meet its financing needs, that the prospective
earning power of the qualified company together with the character and value of the security pledged must
furnish reasonable assurance of repayment of the loan to be guaranteed, and that the loan must bear interest
at a reasonable rate. All loans guaranteed under this Program must be paid in full not later than December
31, 2005 and the aggregate amount of loans guaranteed with respect to a single qualified steel company
may not exceed $250 million.
According to a March 1, 2000 press release from U.S. Department of Commerce, thirteen
companies have applied for loan guarantees totaling $901 million (DOC, 2000b). Of these, the
Emergency Steel Loan Guarantee Board approved loans to seven companies:
# Geneva Steel Company, $110 million (DOC, 2000c).
# GS Technologies Operating Company, $50 million (DOC, 2000c).
# Northwestern Steel and Wire Company, $170 million (DOC, 2000c).
# Wheeling-Pittsburgh Steel Corporation, $35 million (DOC, 2000c).
# Acme Steel, $100 million (DOC, 2000d).
# Weirton Steel Corporation, $25.5 million (DOC, 2000d).
# CSC, Ltd., $60 million (DOC, 2000e.)
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Since then, four of the above companies, Northwestern, GS Technologies, CSC Ltd., and Wheeling-
Pittsburgh have entered bankruptcy and would need to file a new application for the loans (New Steel,
200 Ib). Of the seven companies, only one remains out of bankruptcy (see Table 2-4). On October 18,
2000, the Emergency Steel Loan Guarantee Board announced a second window from November 1, 2000
until March 31, 2001 for applications (DOC, 2000f). In light of the resurgence of imports in 2000 from
countries other than those named in the trade cases (MetalSite, 2000), the future financial health of some
members of the iron and steel industry is far from certain.
2.10 INTERNATIONAL COMPETITIVENESS OF THE INDUSTRY
2.10.1 Exports/Imports
Table 2-5 lists U.S. steel industry's imports and exports from 1986 through 2000. Even though
the U.S. exported anywhere from 1.5 million to 8.6 million tons of steel in any given year, its imports far
outweighed its exports. In 1998, the year after the data represented in the EPA survey, net imports
skyrocketed by nearly one-third from 33 million tons to 47 million tons. Not only did imports surge, the
price of the imported steel was so low due to currency fluctuations and the Asian fiscal crisis that U.S.
companies could not sell at a profit. Several companies declared bankruptcy (see Table 2-4) and layoffs
occurred at other sites. Steel is clearly a global commodity where the U.S. is severely affected by financial
conditions half a world away. Table 2-6 provides greater detail on import and export changes between
1997 and 2000 by country or region of origin. All regions except for the EU show a tremendous increase
in imports from 1997 to 2000. One recourse for the industry was to file legal action alleging unfair trade
practices. These are discussed in Section 2.10.2.
2.10.2 Trade Cases
In response to the flood in imports, the domestic steel producers filed several lawsuits alleging
unfair trade practices by foreign producers. These cases have arisen as a consequence of supposed
dumping of iron and steel products or alleged unfair subsidization of foreign firms by their governments.
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Table 2-5
Imports and Exports of Iron and Steel (in Tons)
Year
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
Imports
24,237,800
23,836,367
25,659,253
22,056,070
21,882,058
20,237,275
21,872,600
25,644,394
38,135,623
33,243,871
38,327,538
41,048,045
54,303,217
49,346,398
52,201,896
Exports
1,451,254
1,707,717
2,757,389
5,374,332
5,308,667
7,376,114
5,340,066
5,048,552
5,210,419
8,568,271
6,576,860
7,826,559
7,335,029
7,090,427
8,108,479
Trade Deficit
22,786,546
22,128,650
22,901,864
16,681,738
16,573,391
12,861,161
16,532,534
20,595,842
32,925,204
24,675,600
31,750,678
33,221,486
46,968,188
42,255,971
44,093,417
Sources: AISI, 2000, 1998, and 1995.
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Table 2-6
Imports by Countries of Origination and Exports by Countries of Destination
for Iron and Steel Products (in Tons)
Country/World Region
Canada
Mexico
Other Western Hemisphere
European Union
Other Europe
Oceania
Africa
Total Asia
Total
1997
Imports
6,041,758
3,778,389
7,246,876
7,943,483
7,371,736
683,337
971,807
7,010,659
41,048,045
Exports
4,550,711
1,467,806
646,635
349,026
38,162
34,760
154,646
584,804
7,826,550
2000
Imports
6,694,263
4,024,761
10,168,985
7,594,096
8,817,258
1,040,460
1,549,595
12,312,479
52,201,897
Exports
4,936,676
1,876,565
328,167
397,010
80,726
36,252
55,044
398,041
8,108,481
Sources: AISI, 2000 and 1998.
Section 2.10.2.1 provides background material to trade cases, how they are filed, the parties involved, and
the sequence of decisions that may or may not lead to penalties on the exporting countries. Section
2.10.2.2 focuses on recent steel trade cases.
2.10.2.1
Background
Dumping occurs when a foreign producer sells a product in the United States at a price that is
below that producer's sales price in the country of origin. Dumping may also occur if the producer sells
the product at a price below the cost of production. Price discrimination is a result of dumping because the
firm is charging different prices for the same product in different markets. Ultimately, if a foreign producer
is dumping, the home market will not experience perfectly competitive conditions. Likewise, if the threat of
sanctions results in a country voluntarily reducing exports to the U.S. (before a determination is reached) or
if sanctions are levied, the market will not be operating under competitive conditions.
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Another action that may lead to unfair market conditions for home producers is subsidization of
foreign producers by foreign governments. Foreign governments subsidize industries by providing financial
assistance to benefit the production, manufacture, or exportation of goods. Subsidies may take many
forms, including cash payments, credits against taxes, and loans at terms that do not reflect the market
condition. United States statutes and regulations provide standards to establish if a subsidy is unfair to
producers in the U.S.
Industries in the United States may request that antidumping or countervailing duties be issued by
filing a petition with both Commerce Department and International Trade Commission (ITC). The Import
Administration of the Commerce Department determines if dumping or unfair subsidization has occurred.
ITC decides whether the industry producers in the United States are suffering material injury as a result of
the dumped or subsidized products. Generally, the final steps of the investigation is completed within
twelve to eighteen months of the date the petition was initiated. Both the Import Administration and ITC
must confirm findings of dumping or unfair subsidization and injury in order to proceed with the issuance
of duties against imports of a product into the United States.
The Department of Commerce's Import Administration calculates dumping margins by comparing
the difference between the price of the product in the U.S. to the price of the product in the firm's home
market or the cost of production. The Import Administration adjusts the value to account for differences in
price resulting from physical characteristics, levels of trade, quantities sold, circumstances of sale,
applicable taxes and duties, and packing and delivery costs. The dumping margin is the result of the
difference between the two prices. Subsidy rates are determined by the value of the benefit provided by
subsidies on a company-specific basis. The amount of subsidies that a foreign producer receives from its
government provides a basis by which the subsidy is offset or countervailed through higher import duties.
2.10.2.2 Recent Steel Trade Cases
The industry filed numerous countervailing duty and antidumping cases with the U.S. DOC and the
U.S. ITC charging various countries with unfair trade practices concerning carbon and stainless steel
products. The countries commonly named in the trade cases are in the Pacific Rim (Japan, S. Korea, and
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Taiwan), and Europe (France, Germany, Italy, Czech Republic, and Russia). ITC decisions may
determine that imports from some, none, or all of the countries listed in the petition caused injury.
Due to the surging imports of hot-rolled steel and other products, the Department of Commerce
shifted resources to its Import Administration to expedite investigations, thus shortening the time required
for decisions. The Department of Commerce also determined that it could make an early critical
circumstances determination, thereby putting importers on notice that they might be liable retroactively for
up to 90 days of duties prior to the preliminary dumping determination. Russia decided to negotiate with
the United States to restrict exports of hot-rolled steel and 15 other steel products by 64 percent rather than
incur trade remedies. Imports of hot-rolled steel (sheet, strip, and plate) surged to nearly 1.5 million metric
tons in November 1998, the same month many of the early critical circumstances determinations were
made. December 1998 imports of hot-rolled steel fell 65 percent compared to the previous month (DOC,
2000g and New Steel, 1999b). The combination of trade case decisions and recession had January through
October 2001 imports down 25 percent compared to the same period in 2000 (ITA, 200 Ib).
Table 2-7 summarizes the findings of recent trade cases. The ITC found for the U.S. industry in
most, but not all, cases; this means that it determined that the domestic industry was materially injured or
threatened with material injury by the imports. The aggressive pricing by the foreign steel exporters
resulting in substantial dumping margins, see 185 percent for hot-rolled flat carbon products (Russia), 164
percent for cold-rolled flat carbon products (Slovakia), and 106 to 108 percent for carbon seamless pipe
(Japan).
2.10.2.3 Recent Coke Trade Cases
In August 1999, the House Committee on Ways and Means requested ITC to review the foundry
coke industries in the U.S. and the People's Republic of China and to provide various market information
for 1995-1999. That report appeared in July 2000 (ITC, 2000a). Among other observations, the report
notes that China is now the world's largest exporter of foundry coke while it imports none and the U.S. is
the largest importer of Chinese foundry coke. In September 2001, the ITC made a final determination that
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Table 2-7
Recent Steel Products Trade Cases
Product
Stainless steel plate in coils
Stainless steel round wire
Stainless steel sheet and strip in coils
Carbon hot-rolled steel flat products
Carbon-quality cut-to-length plate
Carbon quality cold-rolled flat products
Carbon/alloy seamless pipe (over 4.5")
Carbon alloy seamless pipe (4.5" or less)
Structural steel beams
Tin mill products
Circular stainless steel hollow products
Carbon quality cold-rolled flat products
Stainless steel bar
Steel wire rope
Stainless steel angle
Steel rebar
Hot-rolled steel products
Structural steel beams
Countries
6 AD, 4 CVD
6 AD
8 AD, 3 CVD
3 AD, 1 CVD
8 AD, 6 CVD
12 AD, 4 CVD
2 AD
4 AD
4 AD, 1 CVD
IAD
IAD
IAD
6 AD, 1 CVD
2 AD
3 AD
12 AD
9 AD, 4 CVD
SAD
Range of
Margins
(percent)
2-45
3-36
0-59
6-185
0-72
7-164
11-106
20-108
26-65
32-95
0
47-63
0-126
0
24-115
17-133
0-91
P
AD or
CVD
Orders
9
0
11
4
11
0
2
4
1
1
0
1
P
0
3
8
12
P
Negative DOC
orlTC
Decisions
0*
6
0
0
3
16
0
0
2
0
1
0
P
2
0
4
0
P
AD = antidumping. CVD - countervailing duty. P = Preliminary determination.
*The ITC split the case into two like products and went affirmative with respect to stainless hot-rolled plate
in coils.
Sources: DOC, 2000g; FR, 2000; FR2001a; FR2001b; FR 200le through 200Ij; ITA 200la; ITC,
2000a through 2000c; ITC 2001a though 200If; and ITC 2001h though 20011.
2-44
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the domestic foundry coke industry is materially injured by imports from the People's Republic of China
(ITC, 2001J). The anti-dumping margins for specific manufacturers/exporters range from 48 percent to
106 percent. For all other manufacturers/exporters, the margin is 215 percent. The antidumping duties are
effective as of 8 March 2001 (FR, 20011). Since China is the only country that exports foundry coke to the
United States (ITC, 200 Ij), the domestic industry should improve its financial performance as a result of
this trade case.
In August 2001, the ITC made a preliminary determination that there was no reasonable indication
of injury from imports of blast furnace coke from China and Japan (ITC, 2001g).
2.10.2.4 Section 201 Steel Trade Case
On June 22, 2001, the Office of the United States Trade Representative requested the initiation of
an investigation by the ITC of certain steel imports under the Section 201 of the Trade Act of 1974. A
later request from the Senate Finance Committee was consolidated under the same investigation.
Investigations under this law may be requested when increased imports of a product from all countries are
alleged to be a substantial cause of serious injury, or threat of serious injury, to a U.S. industry. The
investigation does not require the finding of an unfair trade practice. The investigation is composed of two
phases, the injury phase and, if an affirmative injury determination is made, the remedy phase. In the
remedy phase, the ITC recommends a remedy to the President, who decides what relief, if any, will be
imposed. The remedy may consist of tariffs, quantitative restrictions, orderly marketing agreements, and
trade adjustment assistance. In addition, the ITC may recommend that the President initiate international
negotiations to address the underlying cause of the increase in imports or that he implement any other
action authorized under the law that is likely to facilitate positive adjustment to import competition.
On October 22, 2001, the ITC affirmatively determined that 12 products (or product categories)
are being imported into the U.S. in such increased quantities that they are a substantial cause of serious
injury or threat of serious injury to the U.S. industry. On an additional four products (or product
categories), the ITC was evenly divided, meaning they will continue to be included in the investigation. The
imported products covered by the investigation accounted in year 2000 for 27 million tons of steel valued at
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$10.7 billion. The products included carbon steel slabs, plate, hot rolled sheet, cold rolled sheet, coated
sheet, tin mill products, hot rolled bar and light structural shapes, cold finished bar, rebar, welded tube,
stainless bar, stainless rod, tool steel, and stainless wire.
The ITC voted on remedy recommendations on December 7, 2001 and submitted its determinations
and recommendation to the President on December 19, 2001. On March 5, 2002, President Bush imposed
a three-year set of quotas and tariffs. For flat-rolled, tin-mill, and bar (hot rolled and cold finished), tariffs
are 30 percent the first year, 24 percent the second year, and 18 percent the third year. For rebar, pipe
(welded tubular), stainless rod, and stainless bar, tariffs are 15 percent the first year, 12 percent the second
year, and 9 percent the third year. The tariff for stainless wire is 8 percent for the first year and drops to 6
percent in the third year. A 30 percent tariff is imposed on steel slabs after a 5.4 million-ton quota. (ITC,
2001k; FR 2001k; and FR 2002).
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CHAPTER 3
EPA SURVEY
EPA used the Collection of 1997 Iron and Steel Industry Data (hereinafter referred to as the
"EPA Survey") to obtain detailed technical and financial information from a sample of iron and steel
facilities potentially affected by the rule. EPA used its authority under Section 308 of the Clean Water Act
to collect information not available otherwise, such as:
# site-specific data
# financial information for privately-held firms and joint entities.
EPA could not use Census or industry data, such as the American Iron and Steel Institute's annual
statistics because both sources contain data for a mix of sites in two EPA categories: (1) iron and steel and
(2) metal products and machinery. Hence, the survey is the only source for information crucial to the
rulemaking process. EPA sent out two versions of the survey, a "detailed" and a "short (so-called because
of their relative lengths and complexity). Section 3.1 summarizes the site-level information while Section
3.2 reviews the company-level information.
3.1 SITE-LEVEL INFORMATION
The EPA Survey collected information on site-level and company-level bases for a sample of the
iron and steel industry. The site-level information forms the basis for the economic impact analysis for the
site closure and direct impact analysis. The EPA Survey is the only source for this information. The
company information forms the basis of the corporate financial distress analysis. The EPA Survey is the
only source of information for privately-held firms and joint entities. (See Chapter 4 for more details on the
economic impact methodology.)
EPA developed a sampling frame of 822 sites divided into 12 strata. Of these, 402 sites were
drawn in the sample to receive a survey. Some strata were censused (i.e., all sites in the stratum were sent
3-1
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a survey) while others were randomly sampled. On investigation of the data, many of the sites were
determined to be more appropriately covered by the proposed MP & M rulemaking (See Technical
Development Document for more detailed discussion). The national estimates are:
# 254 iron and steel sites
# 127 direct dischargers
# 65 indirect dischargers
# 6 sites with both direct and indirect discharges
# 56 zero dischargers (includes sites that do not discharge process wastewater as well as
sites that are completely dry).
The sum of direct, indirect, and zero dischargers does not equal the total number of sites because sites may
both directly and indirectly discharge wastewater. (See U.S. EPA, 2000 for more details on the survey.)
3.1.1 Geographic Distribution
Figure 3-1 shows the location of the 25 sites with cokemaking operations. The map is divided into
EPA regions. All but one of the sites occur east of the Mississippi River in EPA regions 2 through 5. Due
to the cost of transportation, the sites are clustered around the Great Lakes, along river systems or near the
coal beds of West Virginia/Western Pennsylvania. The exception is Geneva Steel in Utah in EPA region 8.
The integrated steel sites follow a geographical pattern similar to that for cokemaking sites, see
Figure 3-2. The sites occur in EPA Regions 3, 4, 8, and the heaviest concentration in Region 5. The latter
is also a major location of the automobile manufacturing industry, one of the steel industry's largest clients.
The non-integrated sites have a much wider distribution across the United States (Figure 3-3).
Because the major raw materials are scrap and electricity, the sites are less reliant on water transport. All
EPA regions but Region 1 have at least one non-integrated steel manufacturing site. The stand-alone sites-
such as cold-forming and pipe and tube operations—are more numerous than the non-integrated sites and
are dispersed throughout the United States (not shown).
3-2
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3.1.2 Assets
EPA collected facility-level and company-level asset data for 190 iron and steel producing sites. A
site may not have facility-level information for several reasons, including: the company may not record
assets at the facility level, the company may keep records for some facilities on a combined basis, or the
mill may have changed ownership. Table 3-1 summarizes the minimum, maximum, average and total
facility-level assets in 1997 for those sites that do record such data at this level. The differences among the
site types is evident. Integrated, non-integrated, and stand-alone sites average $423, $162, and $69 million
in non-current assets respectively. In the aggregate, cash forms roughly 5, 21, and 22 percent of non-
current assets.
3.1.3 Capital Investment
To examine capital investment, EPA determined capital intensity at the site-level for each facility
surveyed in the iron and steel industry for the year 1997. Capital intensity is calculated by dividing the net
value of fixed assets at the site by the number of employees at the site. The average capital intensity for
facilities belonging to sites classified as integrated is $151,682, while facilities classified as non-integrated
show an average capital intensity of $328,387 (Table 3-2). Facilities classified as stand-alone exhibit an
average capital intensity of $427,415. The maximum capital intensity for non-integrated sites is
$3,068,880. EPA found that the higher the capital intensity, the newer the facility. Fixed assets are greater
for new facilities than for older facilities because newer facilities show less depreciation. Larger fixed
assets per employee convey a larger capital intensity.
3.1.4 Value of Shipments
EPA collected facility-level data for value of shipments for iron and steel producing sites for the
years 1995, 1996, and 1997. Tables 3-3 through 3-5 describe the product codes in the EPA survey as well
as Census and American Iron and Steel Institute product codes for reference (DOC, 1998; AISI, 1995).
Table 3-6 illustrates this data by EPA Survey product code. Product codes forty-four through forty-six
exceed all other values for shipments by far for each year. Hot-rolled sheet and strip and cold-rolled sheet
and strip are represented by product codes forty-four and forty-five respectively. Product code forty-six is
3-6
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Table 3-1
1997 Assets by Site ($ Millions)
Minimum
Current Assets
(Cash): ($1,412.34)
Inventories: $0.04
Non-Current
Assets: $0.02
Minimum
Current Assets
(Cash): $0.38
Inventories: $0.93
Non-Current
Assets: $1.39
Minimum
Current Assets
(Cash): ($0.28)
Inventories: $0.06
Non-Current
Assets: $1.03
Integrated Iron and
Maximum Average
$856.32 $28.53
$485.57 $113.70
$3,108.81 $422.72
Non-Integrated Iron and
Maximum Average
$253.76 $36.17
$129.74 $38.74
$1,294.29 $161.62
Stand-Alone Iron and
Maximum Average
$101.77 $16.73
$119.43 $17.69
$435.52 $69.06
Steel Producers
Total
$941.34
$4,320.59
$16,063.33
Steel Producers
Total
$2,242.43
$2,517.94
$10,828.26
Steel Producers
Total
$1,003.56
$1,167.31
$4,627.01
3-7
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Table 3-2
1997 Capital Intensity for Sites in the Iron and Steel Industry
(Value of Fixed Assets per Employee)
Site
Classification
Capital Intensity
Minimum
Maximum
Average
Integrated
Non-Integrated
Stand-Alone
$36
$8,984
$22,234
$557,594
$3,068,880
$8,460,500
$151,682
$328,387
$427,415
3-S
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Table 3-3
Carbon Steel Product Groups by EPA Survey Code
EPA Survey
Code
30
31
32
33
34
35
36
37
38
39
40
41
Census
Code
33122 11
33122 13
3312220
33122 19
33124 15
33124 17
33124 18
33124 13
33124 14
3312C--
3312422
3312424
3312426
33168 11
3317027
3317029
33170 19
33170 14
33170 15
3317021
3317022
3317023
3317024
Census and Survey, Appendix A
(Product Categories) Description
Ingots
Blooms, billets, sheet bars, tin mill bars,
rounds, and skelp
Slabs
Wire rods
Structural shapes:
Wide flange
Standard (heavy)
Sheet piling and bearing piles
Plates (cut lengths)
Plates (in coils)
Rails, wheels, and track accessories
Bars:
Hot rolled, except concrete reinforcing
Light structurals, under 3 inches
Bars (Concrete reinforcing)
Bars (Cold rolled)
Pipe:
Structurals
Miscellaneous, including standard pipe
Pipe (Oil country goods)
Pipe (Line)
Pipe (Mechanical and Pressure)
AISI Product Description
Ingots and steel for casting *
tube Blooms, slabs, billets
Wire Rods
Structural shapes (3" & over) *
Steel piling *
Plates - Cut Lengths
Plates - In Coils
Total Rails and Accessories *
(Standard, All other and
Railroad accesories)
Bars -
- Hot rolled
- Size light shapes
Bars - Reinforcing
Bars - Cold finished
Pipe and Tubing - *
- Structural
- Standard Pipe
- Pipe for piling
Pipe - Oil country goods
Pipe and tubing - Line *
Pipe and tubing - *
- Mechanical
- Pressure
3-9
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Table 3-3 (continued)
EPA Survey Census
Code Code
42
3315501
3315502
3315503
3315504
3315505
3315506
33155 13
33155 14
33155 15
33155 17
33155 18
3315521
3315221
3315951
3315621
3315955
33151 13
3315133
3315135
3315771
43
3312324
3312326
3312328
3312329
44 33123 11
33123 19
45 33167 11
33167 15
46 33123 13
47 33123 15
Census and Survey, Appendix A
(Product Categories) Description
Wire:
Flat wire
Under 1.5 mm in diameter
1.5 mm or above in diameter
Under 1.5 mm in diameter
1.5 mm or above in diameter
Other shape wire
Plated or coated with zinc:
Round wire:
Under 1.5 mm in diameter
1.5mm or above in diameter
Other shape wire, including flat
Other coated wire:
Flat wire
Round wire
Other shape wire
Wire products:
Nails and staples
Barbed and twisted wire
Wire fence, woven and welded
Bale ties
Wire rope and cable
Wire strand:
For prestressed concrete
Other
Woven wire netting
Tin mill products:
Black plate
Electrolytic and hot dipped tin plate
Tin free steel
All other tin mill products, including short
ternes and foil
Sheet and strip (Hot rolled)
Sheet and strip (Cold rolled)
Sheet and strip (Galvanized - hot dipped)
Sheet and strip (galvanized - electrolytic)
AISI Product Description
Wire-Drawn and/or Rolled *
Tin mill products - *
Black plate
Tin plate
Tin free steel
Tin coated sheets
Sheets - Hot Rolled
Strip - Hot rolled
Sheets - Cold Rolled
Strip - Cold rolled
Sheets & Strip - Galvanized - Hot
dipped
Sheets & Strip - Galvanized -
3-10
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Table 3-3 (continued)
EPA Survey
Code
Census Census and Survey, Appendix A
Code (Product Categories) Description
AISI Product
Description
Electrolytic
48
49
33123 18 Sheet and strip
(All other metallic coated, including long
ternes)
33 123 17 Sheet and strip (Electrical)
Sheet & Strip
coated *
Sheets & Strip
- All other metallic
- Electrical
* Variation may exist in Survey code product group(s) because of differences in product descriptions from Census
and AISI data.
3-11
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Table 3-4
Alloy Steel Product Groups by EPA Survey Code
EPA
Survey
Code
50
51
52
53
54
55
56
57
58
59
60
61
62
63
Census
Code
3312231
3312237
3312241
3312239
3312433
3312436
3312438
3312441
3316831
3312448
3312449
3317048
3317032
3317043
3317045
3315537
3312331
3312339
3316731
3316735
3312335
33123 37
Census and Survey, Appendix A
(Product Categories) Description
Ingots
Blooms, billets, sheet bars, rounds, and skelp
Slabs
Wire rods
Plates, cut lengths
Plates, in coils
Structural shapes, 3 inches and under
Bars (Hot rolled)
Bars (Cold finished)
Tool steel
Pipe (miscellaneous, including standard and
structural)
Pipe (oil country goods)
Pipe (mechanical and pressure)
Wire
Sheet and strip (hot rolled)
Sheet and strip (cold rolled and finished)
Sheet and strip (galvanized, hot dipped)
Sheet and strip (all other metallic coated,
including
electrolytic)
AISI Product Description
Ingots and steel for casting *
Blooms, slabs, billets
Wire Rods
Plates - Cut Lengths
Plates - In Coils
Bars - Hot rolled
Bars - Cold finished
Tool Steel
Pipe and tubing - Standard Pipe,
Structural *
Pipe and tubing - Oil country
Pipe and tubing - Pressure
Pipe and tubing - Mechanical
Wire-Drawn and/or Rolled *
Sheets - Hot rolled
Strip - Hot rolled
Sheets - Cold rolled
Strip - Cold rolled
Sheets & Strip - Galvanized -
dipped
Sheets & Strip -
- All other metallic coated
- Electrolytic
goods
Hot
* Variation may exist in Survey code product group(s) because of differences in product descriptions from Census
and AISI data.
3-12
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Table 3-5
Stainless Steel Product Groups by EPA Survey Code
EPA Survey
Code
70
70
71
72
73
74
75
75
75
75
75
76
76
76
76
77
78
Census Code
3312251
3312256
3312259
3312453
3312461
3316851
3317061
3317062
3317063
3317064
3317065
3315552
3315553
3315554
3315557
33123 57
3316757
Census and Survey, Appendix A
(Product Categories) Description
Ingots
Blooms, billets, slabs, sheet bars, tube
rounds,
and skelp
Wire rods
Finished products:
Plates and structurals
Bars:
Hot rolled
Cold finished
Pipe and tubes:
Pressure tubing:
Seamless
Welded
Mechanical tubing:
Seamless
Welded
Other pipe and tubes
Wire:
Round wire:
Under 0.75 mm in diameter
0.75 mm to under 1.5 mm in diameter
1.5 mm and above in diameter
Other shape wire, including flat wire
Sheet and strip:
Hot rolled
Cold rolled
AISI Product Description
Ingots and steel for casting *
Blooms, slabs, billets
Wire Rods
Total Shapes and Plates *
Bars - Hot rolled
Bars - Cold finished
Pipe and tubing - Pressure *
Pipe and tubing - Mechanical *
Wire - Drawn and/or Rolled *
Sheets and Strip - Hot rolled *
Sheets and Strip - Cold rolled *
* Variation may exist in Survey code product group(s) because of differences in product descriptions from Census
and AISI data.
3-13
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Table 3-6
Value of Shipments by Product Code ($ Millions)
Product Code
Coke and Coke Byproduct
10
20
21
22
23
24
25
Carbon Steel Products
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
Alloy Steel Products
50
51
52
53
54
55
56
57
58
59
60
61
62
1995
$1,212
$48
$52
$53
$12
$7
$13
$1,410
$1,478
$2,295
$2,019
$318
$2,190
$1,026
$37
$271
$388
$330
$540
$361
$2,200
$9,689
$7,006
$5,621
$2,245
$1,192
$263
$877
$85
$629
$826
$152
$46
$17
$423
$469
$22
$203
$130
$52
1996
$1,209
$48
$46
$65
$16
$8
$13
$1,449
$1,391
$2,544
$1,932
$346
$2,060
$1,096
$34
$313
$523
$293
$517
$336
$2,294
$9,423
$7,339
$5,981
$2,325
$1,141
$641
$1,002
$90
$671
$817
$135
$39
$20
$373
$549
$25
$194
$138
$67
1997
$1,120
$44
$40
$55
$21
$7
$15
$1,477
$1,521
$2,601
$1,977
$404
$2,435
$1,279
$37
$282
$639
$343
$597
$297
$2,340
$9,579
$7,672
$6,404
$2,364
$1,146
$613
$1,043
$117
$679
$931
$150
$45
$23
$554
$506
$34
$323
$147
$231
3-14
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Table 3-6 (continued)
Product Code
63
Stainless Steel Products
70
71
72
73
74
75
76
77
78
Other Products
90 Sinter
92 Pig Iron/ Hot
Metal
93 Scrap
94 Conversion
Costs
98 Aggregate Costs
99 Miscellaneous
Total:
1995
$176
$159
$82
$381
$268
$288
$11
$77
$498
$2,477
$22
$39
$12
$12
$26
$236
$50,973
1996
$185
$296
$68
$243
$259
$271
$13
$73
$341
$2,774
$18
$46
$14
$14
$26
$252
$52,395
1997
$185
$351
$80
$255
$224
$289
$10
$77
$350
$2,806
$2
$44
$14
$10
$30
$24
$54,841
3-15
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galvanized hot-dipped sheet and strip. From 1995 to 1997, the total value of shipments increased by
approximately $2 million each year. Additionally, Table 3-7 compares shipment data among integrated,
non-integrated, and stand-alone sites. Again, the relative scale of integrated, non-integrated, and stand-
alone sites is apparent.
3.1.5 Exports
Table 3-8 displays the value of shipments classified as exports from 152 iron and steel producing
sites (only the detailed survey asks about exports). The total value of shipments exported by integrated
sites decreases dramatically from 1995 to 1996 by over 640 million dollars. From 1996 to 1997, the value
of exports increase to over 1,000 million dollars. Non-integrated sites illustrate a different perspective.
While the average value of shipments exported by non-integrated sites increases by over a million dollars,
the total value of exports increases by almost 150 million dollars. Stand-alone facilities were more stable
than integrated and non-integrated sites. For stand-alone facilities, 1996 was the lowest surveyed year for
exports with approximately 146 million dollars and 1997 was the high point with 156 million dollars.
3.1.6 "Captive Facilities"
A site is classified as "captive" when a certain percentage of its production is shipped to other sites
under the same ownership. EPA collected production data for 1995, 1996 and 1997 for 152 sites (only the
detailed survey asks the applicable questions, see Table 3-9). For these years, between seven and nine sites
shipped all of their products to sites under the same ownership, i.e., approximately one percent of total
industry production. These sites exist solely to provide products to other sites owned by the same
company. Sites that shipped more than fifty percent of their production to sites under the same ownership
account for approximately four percent of total industry production. There were 16 sites that shipped more
than half of their production to sites under the same ownership in 1995, 18 sites in 1996, and 19 sites in
1997. Generally, however, production at most sites is not dependent on other sites under the same
ownership in the iron and steel industry. For the most part, sites producing iron and steel output are
independent producers even though they may be owned by the same company.
3-16
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Table 3-7
Value of Shipments ($ Millions)
1995
1996
1997
Integrated Sites
Average:
Total:
Non-Integrated Sites
Average:
Total:
Stand-Alone Sites
Average:
Total:
Total of All Sites:
$728
$28,386
$221
$13,249
$141
$9,338
$50,973
$707
$28,262
$242
$15,015
$134
$9,118
$52,395
$704
$28,874
$246
$16,704
$134
$9,263
$54,841
Table 3-8
Value of Shipments Exported (Partial data) ($ Millions)
Integrated Sites
Average:
Total:
Non-Integrated Sites
Average:
Total:
Stand-Alone Sites
Average:
Total:
Total of All Sites:
1995
$77
$1,534
$11
$467
$9
$150
$2,150
1996
$45
$892
$10
$460
$9
$146
$1,498
1997
$51
$1,024
$12
$615
$10
$156
$1,796
Note: Data includes only "Detailed" survey information. The pertinent questions were not asked in the "Short"
survey.
3-17
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Table 3-9
Percentage and Value of Industry Production Shipped to Sites Under the Same Ownership (Partial Data)
($ Millions)
Value of Total Industry
Production Shipped to Sites
Number of Sites Under Same Ownership
Percentage of Site
Production Shipped to Sites 199f. 19% 199? 199f. 19% 199?
Under Same Ownership
100% 789 $527 $515 $588
>90% 10 11 12 $978 $896 $982
>75% 12 14 15 $1,659 $1,678 $1,797
>50% 16 18 19 $2,239 $2,148 $1,971
Percentage of Total Industry
Production Shipped to Sites Under
Same Ownership
1995 1996 1997
1.03% 0.98% 1.06%
1.91% 1.70% 1.78%
3.25% 3.18% 3.25%
4.38% 4.07% 3.57%
Note: Data includes only "Detailed" survey information. The pertinent questions were not asked in the "Short" survey.
3-18
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3.1.7 Employment
The total number of employees at iron and steel producing sites surveyed by EPA for the year 1997
is 144,981. Integrated facilities employ the most workers with 79,802 people. Non-integrated and stand-
alone facilities employ 44,825 and 20,354, respectively for a total of about 145,000 employees in the
regulated community. The average number of employees at integrated sites exceed the average number of
employees at stand-alone sites by more than a factor of six. See Table 3-10 for a detailed look at
employment data for sites surveyed by EPA.
3.2 COMPANY-LEVEL INFORMATION
3.2.1 Companies in the Sample
The companies in the iron and steel industry fall into three coarse categories, similar to those used
for classifying the sites (Section 2.2):
# Integrated. Traditionally, integrated steel companies performed all basic steelmaking
operations from cokemaking through finishing. Today, the term refers companies owning
blast furnaces or BOFs, many of the companies having closed their cokemaking and
sintering operations.
# Non-integrated. Also known as "minimills," these companies have EAFs and do not have
blast furnaces or BOFs. Note that the reverse is not true. For example, Bethlehem
Steel—an integrated producer—owns EAF based plants in Coatsville, PA and Steelton,
PA.
# Stand-alone. Companies with stand-alone sites have no melting capability. This category
of companies is more heterogeneous than the first two categories because stand-alone sites
cover a wide range in operations from cokemaking to tube and pipe manufacture.
3-19
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Table 3-10
Number of Employees in 1997
Integrated Sites
Non-Integrated Sites
Stand-Alone Sites
Minimum Maximum Average
54 8,426 1,900
20 3,099 650
16 1,652 283
Total
79,802
44,825
20,354
3.2.2 Type of Ownership
The 188 sites in the iron and steel database are owned by 115 companies. The global nature of the
industry is illustrated by 22 sites with foreign ownership; four of these sites are joint entities with U.S.
partners. Twelve other sites are joint entities with only U.S. partners. Excluding joint entities and foreign
ownership, the data base contains 85 U.S. companies. Among these 85 U.S. companies,
# 73 are C corporations
# 8 are S/limited liability corporations
# 3 are limited partnerships
# 1 is a utility, public charitable trust
Approximately 55 percent of these 85 U.S. companies are privately owned; the EPA Survey is EPA's only
source of financial information for these privately-held firms.
3-20
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3.2.3 Number of Sites per Company
The public may believe the "Steel Industry" consists only of big multi-site firms; however, the vast
majority of the surveyed population are single site firms. In the surveyed population, only 3 firms have 10
or more sites and 10 firms have from 5 to 9 sites. Not including joint entities, the most common
arrangement is a one site company (i.e., both the median and mode firms have one site).
3.2.4 Financial Characteristics
EPA examined three data sources for financial characteristics for the iron and steel industry:
# Industry (AISI)
# Census (Quarterly Report for Manufacturing, Mining, and Trade Corporations)
# EPA Survey
Figure 3-4 and Table 3-11 summarize the net cash flow and depreciation from 1986 to 2000 from AISI
data. These data represent companies that account for about two-thirds of the raw steel production in the
U.S. Depreciation is relatively stable, ranging from $1.3 billion to $2.2 billion per year. Net cash flow,
on the other hand, swings widely from a loss of $2.8 billion in 1986 to a profit of $3.4 billion in 1993. A
comparison of 1992 and 1993, when the industry went from a loss of $2.6 billion to a profit of $3.4 billion
illustrates how rapidly conditions can change. Moreover, net cash flow hovers around the three billion
mark till 1998, after which it declines to $1.1 billion. Figure 3-5 overlays capacity utilization rate (Figure
2-4) with cash flow from Figure 3-4. There is a general concordance between the time series, with the
exception of 1992 and 2000 when cash flow continued to decline while capacity utilization rate recovered.
The increasing capacity utilization rate, however, is a factor in the sharp increase in cash flow seen in
1993. The years 1986 and 1992 are nadirs in the series. A six-year earnings cycle seems too short,
however, given the 1992 to 1998 data. The forecasting method used to project facility earnings, then, needs
to address this cyclicality and the cycle should be no shorter than six years and possibly seven to eight
years in length (see Section 4).
3-21
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Figure 3-4
Net Cash Flow and Depreciation for the Steel Industry in the United States: 1986-2000
$4
$3
$2
$1
§
3 $0
($1)
($2) -
($3)
($4)
A
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Year
Depreciation A Net Cash Flow
Source: AISI, 2000, 1998, 1995
3-22
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Table 3-11
Industry Cash Flow (in Millions)
Year
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
Depreciation,
Depletion &
Amortization
$1,301
$1,294
$1,311
$1,320
$1,337
$1,286
$1,435
$1,532
$1,564
$1,636
$1,664
$1,695
$1,899
$2,044
$2,186
Net Income
($4,150)
$1,077
($567)
$1,597
$54
($2,042)
($4,068)
$1,870
$1,285
$1,534
$442
$1,031
$1,110
($464)
($1,085)
Cash Flow
(Net Income Plus
Depreciation)
($2,849)
$2,371
$744
$2,916
$1,391
($756)
($2,633)
$3,402
$2,849
$3,170
$2,106
$2,726
$3,009
$1,580
$1,102
Source: AISI, 2000, 1998, 1995
3-23
-------
Figure 3-5
Steelmaking Capacity Utilization and Cash Flow in the United States: 1986-2000
T"
$3
$2
$1
„
— £n
^3 3>"
($1)
($2)
($3)
($4)
•— •,
A ""*"' ^"^ Q "\
A A ^"\ M
•— — • A
F 1 A
/ V A \ /
r \
IT \ / 1
1 \ /
- 1 * /
/ /
// /
// \ /
// ^
- H
II 1 1 1 1 1 1 1 1 1 1 1 II
yj
90
85
80 ^
s
g
P-I
75
70
65
60
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Year
~~B~ Capacity Utilization (percent) A Net Cash Flow (millions of dollars)
Source: AISI, 2000, 1998, 1995
3-24
-------
Table 3-12 presents income statement data from the Quarterly Financial Report (QFR) for SIC
Industry Groups 331, 332, and 339. It therefore includes more industry operations than those covered in
the EPA Survey but excludes nonferrous industries included in Primary Metal Industries (SIC 33). The
cash flow information for the four quarters of 1999 shows information consistent with that in Figure 3-5,
i.e, an increase in the second quarter and a steady decline thereafter. The separation of the data into
companies with assets under $25 million or $25 million or more highlights some differences between the
two groups. The smaller companies show higher rates of return on assets and equity than the larger
companies. The data in Table 3-12 do not show a dramatic effect on financial conditions. This is because
the data include businesses that use semi-finished products as an input. That is, the increase in lower
priced imports would improve their financial condition by lowering input costs. This mix of companies
indicates that the QFR data are too aggregated to use in the forecasting models (see Adams, 1999;
Bagsarian, 1999).
Table 3-13 presents balance sheet data for the same set of companies. The smaller companies
show higher current ratios than the larger companies but lower absolute amounts of working capital. (The
first variable—current ratio—is current assets divided by current liabilities. The second
variable—working capital—is current assets minus current liabilities.) Financial analysts sometimes use a
combination of financial ratios to gauge the health of a company. The baseline condition of the industry is
discussed in more detail in the economic methodology, Section 4.
3.3 REFERENCES
Adams, Chris. 1999. Geneva steel co. files for protection under Chapter 11. Wall Street Journal. 2
February, p. B5.
AISI. 2000. Annual statistical report. American Iron and Steel Institute. Washington, DC.
AISI. 1998. Annual statistical report. American Iron and Steel Institute. Washington, DC.
AISI. 1995. Annual statistical report. American Iron and Steel Institute. Washington, DC.
Bagsarian, Thomas. 1998. New DRI in the U.S. and Trinidad. New Steel. July. pp. 62-66.
3-25
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Table 3-12
Income Statement Data for Corporations Included in
SIC Industry Groups 331,2,9, and 333-6: Iron and Steel (in SMillions)
Iron and Steel
Income (or loss) from operations
Income(or loss) before taxes
Income(or loss) after taxes
Net income retained in business
Retained earnings at end of
quarter
Iron & Steel
Assets Under $25 Mil
Income (or loss) from operations
Income(or loss) before taxes
Income(or loss) after taxes
Net income retained in business
Retained earnings at end of
quarter
Iron & Steel
331, 2 and 9
Assets Over $25 Mil
Income (or loss) from operations
Income(or loss) before taxes
Income(or loss) after taxes
Net income retained in business
Retained earnings at end of
quarter
First
Quarter
$415
$47
($36)
($164)
$7,376
$63
$46
$42
$28
$1,538
$351
$1
($78)
($195)
$5,838
Second
Quarter
$853
$573
$361
$180
$7,462
$136
$124
$117
$65
$1,399
$716
$449
$244
$104
$6,063
Third
Quarter
$607
$283
$99
($65)
$7,450
$63
$46
$39
($16)
$963
$544
$238
$60
$37
$6,486
Fourth
Quarter
$555
$195
$31
($122)
$8,359
$92
$72
$56
$30
$1,441
$463
$123
($25)
($142)
$6,918
1999
Total
$2,430
$1,098
$455
($171)
$30,647
$354
$288
$254
$107
$5,341
$2,074
$811
$201
($196)
$25,305
First
Quarter
$920
$621
$391
$212
$8,131
$91
$84
$73
$21
$1,367
$830
$537
$318
$193
$6,764
Second
Quarter
$1,137
$371
$166
($53)
$7,524
$182
$161
$142
$93
$1,394
$955
$210
$24
($127)
$6,130
Third
Quarter
$667
$269
$77
($66)
$7,610
$78
$64
$62
$7
$1,256
$589
$206
$16
($73)
$6,354
Fourth
Quarter
($9)
($1,060)
($1,309)
($1,454)
$7,138
$34
($43)
($58)
($82)
$1,196
($43)
($1,017)
($1,251)
($1,040)
$5,941
2000
Total
$2,715
$201
($675)
($1,361)
$30,403
$385
$266
$219
$39
$5,213
$2,331
($64)
($893)
($1,047)
$25,189
Source: Quarterly Financial Report on Manufacturing, Mining and Trade Corporations, US Census
3-26
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Table 3-13
Balance Sheet Data for Corporations Included in
SIC Industry Groups 331,2,9, and 333-6: Iron and Steel (in $ Millions)
Total
Iron and Steel
cash on hand and in U.S. banks
Total cash
Total current assets
Net property, plant, and equipment
Total Assets
Total current liabilities
Total liabilities
Stockholders' equity
Total Liabilities and Stockholders'
Total
Equity
Current Assets
Working Capital
Iron & Steel
Assets Under $25 Mil
cash on hand and in U.S. banks
Total cash
Total current assets
Net property, plant, and equipment
Total Assets
Total current liabilities
Total liabilities
1999:
1Q
$1,316
$3,044
$26,376
$33,819
$73,170
$14,899
$49,240
$23,930
$73,170
1.77
$11,477
$247
$277
$1,697
$1,285
$3,183
$790
$1.312
2Q
$1,316
$3,053
$26,378
$33,767
$72,680
$14,463
$48,890
$23,790
$72,680
1.82
$11,915
$248
$291
$1,698
$1,131
$2,996
$730
$1.351
3Q
$1,378
$3,183
$27,644
$35,036
$76,270
$15,506
$51,677
$24,592
$76,270
1.78
$12,138
$158
$230
$1,574
$1,087
$2,918
$937
$1.613
4Q
$1,283
$2,801
$28,309
$37,165
$81,352
$16,800
$55,632
$25,720
$81,352
1.69
$11,509
$252
$354
$1,916
$1,160
$3,207
$906
$1.555
2000:
1Q
$1,028
$2,308
$29,018
$38,306
$83,582
$17,802
$58,025
$25,557
$83,582
1.63
$11,216
$220
$307
$1,725
$1,087
$2,928
$852
$1.351
2Q
$1,296
$2,370
$29,742
$38,292
$83,276
$17,704
$58,504
$24,772
$83,276
1.68
$12,038
$227
$313
$1,918
$1,145
$3,259
$948
$1.593
3Q
$1,069
$2,074
$28,568
$38,114
$81,831
$17,380
$57,406
$24,425
$81,831
1.64
$11,188
$211
$264
$1,673
$939
$2,777
$816
$1.314
4Q
$1,296
$2,481
$27,772
$37,844
$81,476
$16,942
$57,360
$24,115
$81,476
1.64
$10,830
$297
$382
$1,654
$964
$2,779
$789
$1.334
3-27
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Table 3-13 (continued)
Total
Stockholders' equity
Liabilities and Stockholders'
Equity
Current Assets
Working Capital
Iron & Steel
331, 2 and 9
Assets Over $25 Mil
Total cash on hand and in U.S. banks
Total cash
Total Receivables
Total current assets
Net property, plant, and equipment
Total
Total Assets
Total current liabilities
Total liabilities
Stockholders' equity
Liabilities and Stockholders'
Equity
Current Assets
Working Capital
1999:
1Q
$1,871
$3,183
2.15
$907
$1,072
$2,768
$8,160
$24,679
$32,533
$69,987
$14,109
$47,928
$22,059
$69,987
1.75
$10,570
2Q
$1,645
$2,996
2.33
$968
$1,069
$2,763
$8,185
$24,680
$32,635
$69,684
$13,733
$47,538
$22,146
$69,684
1.80
$10,947
3Q
$1,305
$2,918
1.68
$637
$1,222
$2,953
$8,752
$26,070
$33,949
$73,352
$14,569
$50,064
$23,287
$73,352
1.79
$11,501
4Q
$1,653
$3,207
2.11
$1,010
$1,031
$2,447
$8,750
$26,392
$36,005
$78,145
$15,894
$54,077
$24,068
$78,145
1.66
$10,498
2000:
1Q
$1,578
$2,928
2.02
$873
$814
$2,001
$9,657
$27,293
$37,219
$80,653
$16,950
$56,674
$23,979
$80,653
1.61
$10,343
2Q
$1,665
$3,259
2.02
$970
$1,073
$2,057
$9,902
$27,824
$37,147
$80,017
$16,756
$56,911
$23,106
$80,017
1.66
$11,068
3Q
$1,463
$2,777
2.05
$857
$861
$1,810
$9,390
$26,895
$37,175
$79,053
$16,564
$56,091
$22,962
$79,053
1.62
$10,331
4Q
$1,445
$2,779
2.10
$865
$1,000
$2,099
$8,592
$26,118
$36,880
$78,696
$16,153
$56,026
$22,670
$78,696
1.62
$9,965
Source: Quarterly Financial Report on Manufacturing, Mining and Trade Corporations, US Census
3-28
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DOC. 1998. Department of Commerce. 1997 Current Industrial Reports. Steel mill products - 1997.
Document No. MA33B(97)-1. Washington, DC: U.S. DOC, Bureau of the Census. Issued 8 September.
U.S. Bureau of the Census, Quarterly Financial Report for Manufacturing, Mining, and Trade
Corporations. First Quarter, 2001, Series QFR-01-Q1, U.S. Government Printing Office, Washington,
DC, 2001.
U.S. Bureau of the Census, Quarterly Financial Report for Manufacturing, Mining, and Trade
Corporations. Fourth Quarter, 1999, Series QFR-99-Q4, U.S. Government Printing Office, Washington,
DC, 1999.
U.S. Bureau of the Census, Quarterly Financial Report for Manufacturing, Mining, and Trade
Corporations. First Quarter, 1999, Series QFR-99-Q1, U.S. Government Printing Office, Washington,
DC, 1999.
U.S. EPA. 2000. U.S. Environmental Protection Agency. Development document for the proposed
effluent limitations guidelines and standards for the iron and steel manufacturing point source category.
Washington, DC. EPA 821-B-00-011.
U.S. EPA. 1998. Collection of 1997 iron and steel industry data: Part A: Technical data. Part B:
Financial and economic data. Washington, DC OMB 2040-0193. Expires August 2001.
3-29
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-------
CHAPTER 4
ECONOMIC IMPACT METHODOLOGY
This section provides a brief overview of the methodology used in the economic impact, regulatory
flexibility, and environmental justice analyses. The discussion follows the sequence from the smallest scale
(costs for specific configurations of option, subcategory and site) to the largest scale (market analysis):
# cost actualization model, Section 4.1
# site closure model, Section 4.2
# community and national impacts, Section 4.3
# corporate financial distress, Section 4.4
# market model, Section 4.5
The results of these analyses are presented in Chapter 6.
4.1 COST ANNUALIZATION MODEL
The beginning point for all analyses is the cost annualization model, see Figure 4-1. Inputs to the
cost annualization model come from three sources—EPA's engineering staff, secondary data, and the 1997
EPA Survey. The capital, one-time non-equipment1, and operating and maintenance (O&M) costs for
incremental pollution control were developed by EPA's engineering staff. The capital cost, a one-time cost,
is the initial investment needed to purchase and install the equipment. The one-time non-equipment cost is
incurred in its entirety in the first year of the model. The O&M cost is the annual cost of operating and
maintaining the equipment; the site incurs it each year.
1A one-time non-equipment cost is best explained by example, such as an engineering study that
recommends improved operating parameters as a method of meeting effluent limitations guidelines. One-
time non-equipment costs cannot be depreciated because the product is not associated with property that
wears out, nor is it an annual expense.
4-1
-------
Data Sources
Inputs
Outputs
Engineering
Incremental
Pollution Control
Costs
Secondary
Sources
Questionnaire
Capital Costs
One-Time
Non-Equipment Costs-
Annual Costs
Cost Deflator to
$1997
Depreciation
Method (MACRS).
Federal Tax Rate_
State Tax Rate
Discount Rate •
Taxes Paid
(Limitation on Tax
Shield)
Tax Status
(Corporate or
Personal)
Cost
Annualization
Model
Present Value
of
Expenditures
Annualization
Cost
Figure 4-1
Cost Annualization
4-2
-------
There are two reasons for the annualization of capital, one-time non-capital, and O&M costs.
First, the capital cost is incurred only once in the equipment's lifetime; therefore, initial investment should
be expended over the life of the equipment. The Internal Revenue Code Section 168 classifies an
investment with a lifetime of 20 years or more but less than 25 years as 15-year property. The cost
annualization model uses a 15-year depreciable lifetime for the capital cost. Second, money has a time
value so expenditures incurred at the end of the equipment's lifetime or O&M expenses in the future are not
the same as expenses paid today. A mid-year depreciation convention is used, i.e., an assumption of a six-
month period between purchase of equipment and time of operation. As such, the model covers a 16-year
period with a six-month period in the first year and a six-month period in the sixteenth year.
Secondary data provides the average inflation rate from 1987 to 1997 as measured by the
Consumer Price Index. The depreciation method used in the cost annualization model is the Modified
Accelerated Cost Recovery System (MACRS). MACRS allows businesses to depreciate a higher
percentage of an investment in the early years and a lower percentage in the later years. The average
inflation rate is used to convert the nominal discount rate to the real discount rate. Tax rates are
determined by the national average state tax rate plus the Federal tax rate.
The 1997 EPA Survey data provides a discount rate or interest rate (the weighted average cost of
capital or the interest rate supplied by the site). If the site supplied neither a discount rate nor an interest
rate, EPA assigned the median discount rate of all sites for this value. Taxable income, or earnings before
interest and taxes (EBIT), is also supplied by the EPA Survey. The value of EBIT determines the tax
bracket for the site. Average taxes paid is calculated from EPA Survey data using taxes for the years
1995, 1996, and 1997. The model ensures that the tax shield cannot be greater than the average taxes paid
in these years. Corporate structure estimates tax shields. A C corporation pays federal and state taxes at
the corporate rate, an S corporation or a limited liability corporation pays taxes at the individual rate (since
EPA has no way of determining how many individuals receive earnings or their tax rates, these rates are set
to zero), and all other entities pay taxes at the individual rate.
A sample cost annualization spreadsheet is located in Appendix A of this document. Section A.3
of Appendix A describes the calculations used to determine annualized costs (before and after taxes) and
present value of costs (before and after taxes) in detail.
4-3
-------
The cost annualization model calculates the present value of the pre- and post-tax cost streams.
Then it calculates the annualized cost based on the site-specific discount rate. Thus, the model calculates
four types of compliance costs for each site: present value of expenditures (pre- and post-tax) and
annualized cost (pre- and post-tax). The latest year for which financial data is available from the survey is
1997, hence, the model uses 1997 dollars.
The cost annualization model outputs feed into the other economic analyses, see Figure 4-2. From
top to bottom, the pre-tax annualized cost for all sites costed provides an initial estimate of the shock to the
market model (Section 4.5). An output of the market model is an estimate of the percentage of increased
costs that a producer could pass to its customers. The post-tax present value and the cost-pass-through
factor are inputs to the site closure model (Section 4.2). The results of the site closure model allow EPA to
identify sites with complete site-level data and no confounding factors (e.g., start-up site, captive site, or
unusual ownership such as joint entity or foreign ownership) that are projected to close before the
regulation is implemented (i.e., for reasons unrelated to the regulation). The site closure model also
identifies sites projected to close as a result of the regulation. Direct, regional, and national-level direct and
indirect impacts flow from the sites projected to close (Section 4.3). The pre-tax costs are inputs to the
corporate financial distress model (Section 4.4), compliance cost share of revenue, and as a refined estimate
of the shock to the market model. Pre-tax costs also figure in the cost-effectiveness analysis (see Appendix
C; not part of economic achievability).
4.2 SITE CLOSURE MODEL
EPA developed a financial model to estimate whether the additional costs of complying with the
final regulation rendered an iron and steel site unprofitable. If so, the site is projected to close as a result of
the regulation, leading to site-level impacts such as losses in employment and revenue. Hence, the site
financial model is also called the closure model within the report. The model is based on site-specific data
from the detailed questionnaire (U.S. EPA, 1998) because such data are not available elsewhere.
In terms of perspective, the closure model focuses on the site. It attempts to answer the question
"does it make financial sense to upgrade this site?" using data and methodology available to corporate
4-4
-------
Cost Annualization
Model
Present Value of
Expenditures
Post-tax
i
Pre-tax
Site Closure
Model
Annulization
Cost
r
Post-tax
1
Pre-tax
Market Model
I Cost Pass-Through
1
Sites Protected to
Close Before
Implementation
i
Sites Affected
by Regulation
b 1
*|
Cost of Regulation
Corporate Financial Distress Model
Compliance Cost
Share of Revenue
I Cost-Effectiveness
(not part of economic achievability) "
Small Business Analyses
Figure 4-2
Interrelationship Among Cost Annualization and Other Economic Analyses
4-5
-------
financial analysts. The closure model interacts with the market model (Section 4.5); the latter estimates the
industry proportion of costs that the steel manufacturer passes through to its customers via price increases.
In contrast, the corporate financial distress model evaluates whether a company could afford to upgrade all
of its facilities (Section 4.4). In other words, each model provides a different perspective on the industry
and the impacts potentially caused by the effluent limitations guidelines requirements.
The model turns the question "does it make sense to upgrade this site?" into a comparison of future
cash flows with and without the regulation. The closure decision is modeled as:
Post-regulatory status = Present value of future earnings
(Present value of after-tax incremental pollution control costs
* (1-percent cost pass-through))
The model calculates the long-term effects on earnings reduced by the added pollution control costs. If the
post-regulatory status is less than zero, it does not make economic sense for the site owner to upgrade the
site. Under these circumstances, the site is projected to close.2 Although simple in concept, the model
incorporates numerous choices, including:
# Whether or not to include salvage value
# Net income or cash flow for the basis of projecting future earnings
# Time frame for consideration
Section 4.2.1 reviews the decisions and their bases for the steel site financial model. Section 4.2.2
describes the data preparation and forecasting methods used in this analysis. Section 4.2.3 presents EPA's
methodology for determining site closure when evaluating multiple approaches for estimating future
earnings.
2 When a site is liquidated, EPA assumes that it no longer operates and that closure-related impacts
result. In contrast, facilities that are sold because a new owner presumably can generate a greater return
are considered transfers. Transfers cause no closure-related impacts, even if the transfer was prompted by
increased regulatory costs. Transfers are not estimated in this analysis.
4-6
-------
4.2.1 Assumptions and Choices
4.2.1.1 Salvage Value
The closure decision equation can be modified to include consideration of the salvage value of the
site. That is, the post-regulatory status is zero if the present value of post-regulatory earnings exceeds the
salvage value of the site.
For the iron and steel industry, however, EPA determined that it was not appropriate to include
salvage value in the site financial model. First, individual pieces of equipment tend to be designed for
specific sites due to their scale. Because it is highly unlikely that individual components of a site could be
sold, there is no market value to fixed assets.3 An exception is if the entire plant could be transferred to a
new location, as was done for Tuscaloosa Steel. In these cases, the salvage value is still zero because the
owner paid to break down, transport, and reassemble the site elsewhere. Second, it is not appropriate to
calculate a salvage value based solely on current assets because the value of cash, cash-equivalents, and
inventory are sufficiently liquid that the owner would not base a long-term decision on them. (That is, an
owner would not liquidate the site because it shows a relatively high cash position on the balance sheet.
The cash could be transferred to other corporate operations without such a drastic step as closing down
operations.)
Third, excluding salvage value brings the site financial model into greater consistency with
econometric modeling approaches. That is, a site is assumed to remain in operation as long as its revenues
meet or exceed its operating costs. Sunk—i.e., capital—costs are not considered.
4.2.1.2 Net Income Versus Cash Flow
EPA examined two alternatives for estimating the present value of future plant operations:
3Bethlehem Steel, for example, could have torn down everything at its home town location along
the Lehigh River but chose to develop part of the site into an industrial museum (Wright, 1999).
Liquidating part or all of the site was not mentioned as a possibility.
4-7
-------
# Net income from all operations, calculated as revenues less operating costs; selling,
general, and administrative expenses; depreciation; interest; and taxes (as these items are
recorded on the site's income statement).
# Cash flow, which equals net income plus depreciation.
Depreciation reflects previous, rather than current, expenditures and does not actually absorb incoming
revenues. Brigham and Gapenski, 1997 note that—in capital budgeting—it is critical to base decisions on
cash flows or the actual dollars that flow into and out of the company during the evaluation period. The
Financial Accounting Standards Board, in SFAS Nos. 105, 107 and 119 recommends the present value of
future cash flows as a means of identifying market value (FASB, 1996). EPA, therefore, selected cash
flow as the basis for measuring the present value of future site operations.4
4.2.1.3 Time Frame for Consideration
EPA uses a 16-year time period for forecasting future income to correspond to the time period used
in the cost annualization model (see Appendix A). Although it might be appropriate to use the estimated
actual lifetime of the equipment rather than the depreciation period, the extended lifetime results in a lower
estimated annualized cost because of the greater number of years over which to spread the capital
investment. EPA preferred to use the more conservative (shorter) time frame. The first year's data are not
discounted, again to keep the cost annualization and forecasting projections on a consistent basis.
4EPA performed a sensitivity analysis based on net income with the costs and forecasting
methodology at proposal (Motwane and Kaplan, 2001). The largest effect is an increase in the number of
sites presumed to fail prior to the incurrence of incremental pollution control costs. Subcategories that
showed no incremental impacts from the proposed costs based on cash flow projections also showed no
incremental impacts under net income projections. Subcategories that showed an impact based on cash
flow, i.e., cokemaking, also showed an impact under net income projections. For cokemaking, the site
projected to close as a result of the regulation under the cash flow assumption was a baseline closure under
the net income assumption. A different site was projected to close under the net income assumption as a
result of the rule. So although the facilities changed, the number and magnitude of the impacts remained
consistent across the sensitivity analyses, particularly when all subcategory costs were aggregated for the
site closure analysis.
4-8
-------
4.2.2 Present Value of Future Earnings
4.2.2.1 Adjusting Questionnaire Data for Projections
Adjusting Earnings to an After-Tax Basis
Depending on the corporate hierarchy for the site, the earnings reported in the questionnaire may
have to be adjusted for taxes. A site may fall into one of several categories:
# It is (1) part of a multi-site corporation, (2) interest and taxes are not passed back to the
site, and (3) earnings are taxed at the corporate rate.
# It is (1) part of a multi-site organization, and (2) income is taxed at the rate for individuals
(e.g., partnerships, sole proprietorships, etc.).
# The site is, or is part of, an S Corporation or Limited Liability Corporation.
# The site is the business entity; therefore, the complete income statement data is supplied
for the site. Because net income is presented on an after-tax basis, no adjustments need to
be made. These facilities have corporate hierarchy type "F" in the detailed questionnaire.
For sites that received the short form, the site was presumed to be the business entity if the
data for the site and company were identical.
# The site has a foreign owner. In these cases, the business entity information is not
appropriate to use because GAAP may differ from country to country. These sites are
treated as if they were independent companies, i.e., the site is the business entity.
# It is (1) part of a multi-site corporation, and (2) interest and taxes are passed back to the
site.
Adjusting Earnings to After-Tax Cash Flow
For the first two categories (multiple facilities under the same ownership), cash flow is calculated
as:
Cash Flow = [(EBIT) * (1 - (federal + state tax rates))] + depreciation
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where the federal and state tax rates are dependent on corporation type and income at the business entity
level, see Section A.I for more details. That is, EPA reduces operating earnings by estimated taxes. EPA
does not make a similar adjustment for interest because the respondents themselves do not allocate interest
to the site.
S corporations and limited liability corporations (the third category) do not pay taxes. They
distribute income to the partners and tax is paid by the partners at each partner's personal tax level.
(That is, the company doesn't pay taxes, the partners pay taxes.) Therefore, no adjustment is needed.
For the fourth through sixth categories—single site businesses or sites with allocated interest and
taxes, cash flow is calculated as:
Cash Flow = net income + depreciation
4.2.2.2 Forecasting Methods for Future Cash Flow
Site cash flow must be forecast over the 16-year project lifetime. All forecasting methods
examined for and used in the closure analysis incorporate the following assumptions and procedures:
# No growth in real terms.
# Constant 1997 dollars. Data from 1995 and 1996 are inflated using the change in the
Consumer Price Index (CEA, 1999).
The "no growth" assumption is made so that a site is not assumed to grow its way out of an economic
impact associated with additional pollution control costs; essentially, sites are assumed to be running at or
near capacity and significant growth is assumed to be unlikely without a major capacity addition.
Section 2.10 indicates that earnings in the steel industry sometimes show pronounced year-to-year
variations as well as an underlying cyclicality, see Figure 2-10. Table 4-1 summarizes AISI data for
industry cash flow from 1986 through 2000 (AISI, 2000). The cash flows are adjusted to 1997 dollars via
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Table 4-1
Scaling Factors
Year
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Cycle 1
Proposal
0.62
-0.32
-1.09
1.37
1.12
1.21
0.78
1.00
0.97
0.06
-1.51
1.21
0.37
1.37
0.62
-0.32
Now
-1.53
1.23
0.37
1.38
0.63
-0.33
-1.10
1.39
1.13
1.22
0.79
1.00
1.09
0.56
0.38
-1.53
Cycle 2
Proposal
1.21
0.78
1.00
0.97
0.06
-1.09
1.37
1.12
1.21
0.78
1.00
0.97
0.06
-1.09
1.37
1.12
Now
1.39
1.13
1.22
0.79
1.00
1.09
0.56
0.38
-1.10
1.39
1.13
1.22
0.79
1.00
1.09
0.56
Sources: AISI, 2000 and CEA, 2001
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the Consumer Price Index (CPI). The last column in the table calculates the ratio of the cash flows to the
1997 value. The scaling factors are used in the forecasting model to adjust each site's earnings to the
projected value.
Methods used for proposal. EPA developed three forecasting models for proposal: (1) a three-
year average based on 1995-1997 survey data,5 (2) a time-varying cash flow that adjusted 1998 and 1999
data to account for the industry downturn and followed the 1988-1999 industry pattern, and (3) a time-
varying cash flow that adjusted 1998 for the industry downturn and assumed that the industry followed the
1992-1999 industry pattern (U.S. EPA, 2000a). That is, two of the three methods adjusted for the industry
downturn and cyclicality.
Changes to forecasting methodology in response to comments and data submitted on the
proposed regulation. EPA made several revisions in the methodology:
# EPA revised the industry scaling factors for 1998 and 1999 based on AISI data. The
original values overestimated the actual downturn in the industry.
# EPA added an industry scaling factor for 2000 based on AISI data.
# EPA incorporated 1998-2000 financial data where it was submitted by the respondents.
This primarily affected the merchant cokemaking sites.
# EPA added two new forecasting methods
S a six-year average (1995-2000 data)
S 2000 year data
As a result, four of the five forecasting methods incorporate the industry downturn.
Figure 4-3 illustrates the different forecasting methods. From left to right, the figure has three
sections representing the period for the survey data (1995-1997), the rulemaking period (1998-2001), and
5EPA requested three years of data in the questionnaire to mitigate the uncertainty in the analysis
resulting from a single datum point. For new or newly-acquired facilities, however, one year of data may
be all that is available for analysis. For facilities with a trend in income, the most recent year may be the
more conservative estimate of future cash flow. If only two years of data are available, the model calculates
the average of the two values. If only 1997 data are available, that year's data are used.
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Figure 4-3
Forecasting Methods
1 1
•s §
u H
200
100
0
-100
-200
—
—
M
/ \
/ \
Survey
Implementation Period
A, • * A,
\l 1 1
fc~---~^ A
\
\
A
1995 1997 1999 2001
1996
\<
A /
\. /
\ / \
\ ^A 1 "•""
\ *^- — ^K. 1 i 1 1
' \ ^'•^^ '\ ' /'
;
i
*
\
•
2003
1998 2000 2002
/
~ ZV 1
\ M
\ i \
\ 1 \ 1
/ \ /
\ / \ /
i \
\i V
• A
A
^~~~~~^\ A _A
I
/ ' \ .x— \ ' \ ,xn i \ i
\,
».^
A
2005 2007 2009 2011
2004
-•- Survey A Cycle 2-R -&~ Cycle 2-1
1 3-Year Ave-R — 1— 3-Year Ave-I -*- 2000 Data
-•- Cycle 1-R
• Cycle 1-1 ~^~ 6-Year Ave
2006 2008 2010
Year
\
\
*
2013 2015 2017
2012 2014 2016
R: Rulemaking Period
I: Implementation Period
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promulgation and implementation (2002 through 2017).6 The section of data on the left-hand side of the
graph shows the actual 1995-1997 cash flow from the survey data. Series labeled "R" are in the
rulemaking period while those labeled "I" are in the implementation period.
The forecasting methods begin during the rulemaking period. The horizontal line with diamonds is
the 3-Year Average forecast. The line continues at the same level throughout the 2002-2017 period. The
cyclical forecasting methods have the same data points for 1998, 1999, and 2000 because they are based on
recent industry data. The methods begin to differ in 2001. Cycle 1 (circle) assumes that 2001 looks like
2000 but begins a downturn as severe as 1986 in 2002. That is, the three-year average value is multiplied
by the 1986 scaling factor in Table 4-1 for 2002. The remaining forecast is based on the 1987-2000
scaling factors with the value for 2017 repeating the start of the cycle with the 1986 scaling factor. That
is, years 2002 and 2017 have the same value. Cycle 1 has the industry hitting a severe downturn when the
rule goes into effect.
Cycle 2 (triangle) assumes that 2001 reflects a downturn as severe as 1992, that is, the value is the
product of the three-year average and the 1992 scaling factor shown in Table 4-1. This forecasting method
assumes the industry has learned from its 1989-1992 experience and will file trade cases rapidly once it
determines that imports play an important role in the downturn. The 2002-2009 forecast is based on the
1993-2000 scaling factors. Because of the shorter cycle, the forecast for 2010 begins the cycle again with
the 1992 scaling factor. Cycle 2 has the effect of the industry hitting an upturn when the rule is
promulgated.
The forecasting methods added after proposal—the 6-Year Average and 2000 Data—are shown in
Figure 4-3 by horizontal lines with inverted triangles and stars, respectively. For sites that supplied 1998-
2000 data, those data are used in the forecasting methods. The combination of all five forecasting methods
covers a wide range in possible future industry financial behavior.
6 EPA chose the 16-year period in the forecasting model marked by years 2002 through 2017 to
coincide with the 16-year period used in the cost annualization model. It is unrelated to the statutory
deadline for compliance.
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4.2.2.3 Discount Rate
The final step in estimating each site's pre-regulatory present value is to discount the cash flow
stream back to the first year in the time series. This step does not adjust the stream for inflation because
the projections are in constant dollars. Thus, the discount rate used for discounting must be a real
discount rate, obtained by adjusting the nominal discount rate for the expected annual rate of inflation (see
Appendix A). The same site-specific real discount rate is used in both the cost annualization and closure
models.
4.2.3 Projecting Site Closures As A Result Of The Rule
With five forecasting methods, there are five ways to evaluate a site's status. If a site's post-
regulatory status is less than zero, the site is assigned a score of "1" for that forecasting method. A site,
then, may have a score ranging from 0 to 5.
Closure is the most severe impact that can occur at the site level and represents a final, irreversible
decision in the analysis. The decision to close a site is not made lightly; the business is aware of and
concerned with the turmoil introduced into its workers' lives, community impacts, and how the action might
be interpreted by stockholders. The business will likely investigate several business forecasts and several
methods of valuing their assets. Not only all data, assumptions, and projections of future market behavior
would be weighed in the corporate decision to close a site, but also the uncertainties associated with the
projections. When examining the results of several analyses, the results are likely to be mixed. Some
indicators may be negative while others indicate that the site can weather the current difficult situation. A
decision to close a site is likely to be made only when the weight of evidence indicates that this is the
appropriate path for the company to take.
EPA emulated corporate decision-making patterns when determining when a site would close. A
score of 1 or 2 may result from an unusual year of data. When the score is 3, 4, or 5, however, EPA
deemed that weight of the evidence now indicates poor financial health. EPA believes that this scoring
approach represents a reasonable and conservative method for projecting closures.
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4.2.3.1 Incorporation of Proposed MACT Costs in Pre-Regulatory Analysis
EPA responded to comments on the proposed rule by incorporating the costs for the proposed
MACT requirements on pushing, quenching, and battery stacks for coke ovens (U.S. EPA, 2000b and FR,
2001a) and for integrated steel operations (U.S. EPA, 2000c and FR, 2001b).
4.2.3.2 Pre-Regulatory Conditions
The closure analysis begins with an evaluation of the pre-regulatory status of each site. Several
conditions may lead to a site having a score of 3, 4, or 5 under pre-regulatory conditions:
# The company does not record sufficient information at the site-level for the closure
analysis to be performed.
# The company does not assign costs and revenues that reflect the true financial health of the
site. Two important examples are cost centers and captive sites, which exist primarily to
serve other facilities under the same ownership. Captive sites may show revenues, but the
revenues are set approximately equal to the costs of the operation. (Cost centers have no
revenues assigned to them).
# The site appears to be in financial trouble prior to the implementation of the rule.
Under the first two conditions, the impacts analysis defaults to the company level because that is the
decision-making level. For example, earnings data are held at the company level, not the site level or the
company has intentionally established facilities that will not show a profit but exist to serve the larger
organization. In either case, EPA does not have sufficient information to evaluate impacts at the site level
as a result of the rule.
The third condition identifies a site with complete site-level financial information and no
confounding factors (i.e., it is not a captive site, a start-up site, or a site with joint or foreign owners) to
obscure the financial condition of the site. If the site is unprofitable prior to the regulation, the company
may decide to close the site. This is likely to occur before the implementation of the rule to avoid
additional investments in an unprofitable site. The projected closure of a site that is unprofitable prior to a
regulatory action should not be attributed to the regulation.
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4.2.3.3 Estimation of Site Closures as a Result of the Rule
EPA changed its decision criteria from proposal in response to comments on the fragile health of
the iron and steel industry at this time. In the economic analyses for promulgation, EPA considered any
change from the baseline score as an impact of the regulation. For example, a change in score from 0 to 1
is considered an impact in the economic analyses presented in Chapter 6. Formerly, at proposal, a change
in score from 0 to 1 would not have been considered an impact.
4.2.3.4 Direct Impacts
Closure represents a final, irreversible decision in the analysis.7 EPA estimates direct impacts
from site closures as the loss of all employment, production, exports, and revenue associated with the site.
This is an upper bound analysis, i.e., illustrating the worst effects because it does not account for other
sites increasing production or hiring workers in response to the closure of the first site.8 The losses are
aggregated over all sites to estimate the national direct effect of the regulation.
4.3 COMMUNITY AND NATIONAL IMPACTS
4.3.1 National Direct and Indirect Impacts
Impacts on the steel industry are known as direct effects, impacts that continue to resonate through
the economy are known as indirect effects (effects on input industries), and effects on consumer demand are
known as induced effects. The U.S. Department of Commerce, Bureau of Economic Analysis (BEA)
tracks these effects both nationally and regionally in massive "input-output" tables, published as the
Regional Input-Output Model (RIMS II) multipliers. For every dollar in a "spending" industry, these
7Sites that are sold because a new owner presumably can generate a profit when the current owner
cannot are considered transfers. Transfers are not assumed to incur closure-related impacts.
8The market model, however, accounts for this effect.
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tables identify the portion spent in contributing or vendor industries. For this analysis, EPA calculates
direct and indirect impacts with the national-level final-demand multipliers for
# output (2.993 dollars per dollar) and
# employment (24.131 full-time equivalents per $1 million in output in 1992 dollars9)
for BEA industry 37.0101 blast furnaces and steel mills (DOC, 1996).
4.3.2 Community Impacts
As mentioned in Section 4.2.2, all employment is considered lost if a site is projected to close.
EPA evaluates the community impacts of site closure by examining the increase in 1997 unemployment
rate for the county or metropolitan statistical area in which the site is located (Le Vasseur, 1998 and BLS
2000).
4.4 CORPORATE FINANCIAL DISTRESS ANALYSIS
The closure analysis focuses on the question whether it makes financial sense to upgrade a given
site. It does not examine whether the company can raise the capital to make that investment. The
corporate financial distress analysis examines whether a company can afford the aggregate costs of
upgrading all of its sites.10 EPA selected a weighted average of financial ratios to examine the impacts of
increased pollution control on companies. Many banks use financial ratio analysis to assess the credit
worthiness of a potential borrower. If the incurrence of regulatory costs causes a company's financial
Employment multipliers are based on 1992 data, hence the loss in output needs to be in 1992
dollars.
10For a single-site company, the results of the closure analysis take precedence. That is, if the site
is determined likely to bear an impact based on the comparison of profitability before and after the
regulation, the company is not included in the corporate distress analysis.
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ratios to move into an unfavorable range, the company will find it more difficult to borrow money. Under
these conditions, EPA considers the company to incur financial distress.
Financial ratios are calculated at the business entity or corporate parent level because:
# Accounting procedures maintain complete financial statements (balance sheet and income
statement) at the business entity or corporate level, but not necessarily at the site level.
The survey data indicate that many companies do not keep complete financial statements at
the site level.
# Significant financial decisions, such as expansion of a site's capacity, are typically made
or approved at the corporate level.
# The business entity (or corporate parent) is the legal entity responsible for repayment of a
loan. The lending institution evaluates the credit worthiness of the business entity, not the
site.
The analysis includes both public and private entities. EPA's survey of the industry is the only source of
financial data for private companies (U.S. EPA, 1998). Section 4.4.1 describes the Airman Z'-score, a
weighted average of financial ratios used to assess financial distress. Section 4.4.2 summarizes the
preparation of the survey data for the analysis. Section 4.4.3 reports the pre-regulatory status of the
industry.
4.4.1 Altman Z'-Score
EPA performed a literature search to review bankruptcy prediction literature from 1990 to 1998
(Kaplan, 1999). Although new approaches have been developed (such as, neural networks, logit models,
and multiple discriminant analyses), there is no one method that is clearly superior and no consensus on
what is the best approach. EPA determined that—for the purposes of selecting a methodologically sound,
reproducible, and defensible approach—a multiple discriminant analysis of financial ratios was
appropriate.
EPA selected a multidiscriminant function (e.g., a weighted-average) of financial ratios, called the
Altman Z-score, to characterize the baseline and post-regulation financial conditions of potentially affected
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firms. The Altaian Z-score is a well accepted standard technique of financial analysis with nearly two
decades of use (see Brealy and Meyers, 1996, and Brigham and Gapenski, 1997). The Z-score has
advantages over consideration of an individual ratio or a collection of individual financial ratios:
# It is a simultaneous consideration of liquidity, leverage, profitability, and asset
management. It addresses the problem of how to interpret the data when some financial
ratios look "good" while other ratios look "bad."
# There are defined threshold or cut-off values for classifying firms in good, indeterminate,
and poor financial health. "Rules of thumb" are available for some financial ratios, such
as current ratio and times interest earned, but these frequently vary with the industry (U.
S. EPA, 1995).
Altaian (1993) developed several variations on the multidiscriminant function. EPA selected the
Z'-score because it was developed to evaluate public and private manufacturing firms. The model is:
Z' = 0.717XJ + 0.847X2 + 3.107X3 + 0.420X4 + 0.998X5
where the pre-compliance components are:
Z' = overall index
Xj = working capital/total assets
X2 = retained earnings/total assets
X3 = earnings before interest and taxes (EBIT)/total assets
X4 = book value of equity (or net worth)/total debt
X5 = sales/total assets
The iron and steel survey requested each piece of information for the analysis. (Working capital is equal to
current assets less current liabilities.) Book value of equity is also called net worth (i.e., total assets minus
total debt). Total debt is the sum of current and non-current liabilities.
Taken individually, each of the ratios given above (X] through X5) is higher for firms in good
financial condition and lower for firms in poor financial condition. Consequently, the greater a firm's
distress potential, the lower its discriminant score. An Altaian Z'-score below 1.23 indicates that distress is
likely; a score above 2.9 indicates that distress is unlikely. Z'-scores between 1.23 and 2.9 are
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indeterminate. In order to focus on marginal firms that are most likely to be affected by the regulation, EPA
has chosen to consider an Airman Z'-score of 1.21 and below to indicate that distress is likely.11
EPA estimates financial distress based on changes in the Airman Z'-score as a result of pollution
control costs. Capital costs are those developed by the engineering staff for use in the cost annualization
model. The annualized pollution control costs for each option were calculated from the engineering
estimates of capital and operating and maintenance costs in the cost annualization model (see Appendix A).
The estimates of post-compliance scores are calculated as follows:
Z' = overall index
X] = working capital/(total assets + capital costs)
X2 = retained earnings/(total assets + capital costs)
X3 = (EBIT - pre-tax annualized compliance costs)/(total assets + capital costs)
X4 = book value of equity (or net worth)/(total debt + capital costs)
X5 = sales/(total assets + capital costs)12
nThis is consistent with Altaian's observation that the average U.S. firm has a lower Z-score today
than in the past and he has chosen to adjust cutoff scores or build new models rather than revising the
original weightings (Airman, 1993, pp. 179-180). The reader should be aware that Airman developed
several Z-score models, i.e., Z, Z', and Z". Each model has a different set of variables, coefficients, and
distress thresholds. The Z-score model is for publicly held firms and uses a threshold value of 1.81. The
iron and steel analysis uses the Z'-score because it examines a mix of public and private firms.
12Although the annualized compliance cost incorporates capital expenditures, one-time non-capital
expenditures, and yearly operations and maintenance costs, EPA performed a sensitivity analysis to
evaluate whether the one-time costs provided an extra shock to the company. In the sensitivity analysis, the
post-compliance X3 parameter is calculated as (EBIT - pre-tax annualized compliance costs - one-time
costs)/(total assets + capital costs). The change made no difference to the post-regulatory status of any
company.
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4.4.2 Survey Data Preparation
4.4.2.1 Baseline Year
The most recent year for which survey collected data is 1997. This is the baseline year for the
economic analysis. The iron and steel industry is cyclical. Therefore the pre-rulemaking condition of the
industry varies year-by-year. However, the intent of the economic analysis is to have a "snapshot in time"
of the industry and to examine the changes wrought by the imposition of additional pollution control costs,
rather than focus on the baseline value itself. The use of 1997 as the baseline year for the analysis does not
mean that EPA ignores the events of 1998 and 1999 (see Section 2); its focus, rather, is on the change
caused by the incremental costs.13
4.4.2.2 Ownership Changes from 1997
EPA tracks changes in the industry since the survey. Site ownership changes since 1997 are
reflected in the aggregate costs for the new owner. That is, if a business entity had three iron and steel sites
in 1997 but purchased two more since (and these sites were surveyed), the aggregate costs for the business
entity reflects all five sites.
4.4.2.3 Determination of Which Level in the Corporate Hierarchy for Data to Use in Analysis
Corporate ownership in the iron and steel industry is frequently complex, reflecting mergers and
acquisitions that occurred over the years. EPA examined the survey data site-by-site to ensure that all sites
that could ultimately be tied to the same corporate parent were analyzed with the same data whether it
might have been entered as the business entity or the corporate parent. For all joint entities, the corporate
financial analysis was performed with Section 2 (site/joint entity) survey data rather than any of the owning
entities. Section 3 survey data were used if they represented aggregate U.S. holdings of a foreign business
13EPA explicitly addresses the 1998 and 1999 industry downturn in the forecasting methods for the
site financial analysis, see Section 4.3.
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entity. EPA did not use financial information for foreign firms due to differences in generally accepted
accounting principals among countries.
4.4.2.4 Aggregation Of Site-lev el Regulatory Cost Data
EPA estimated costs on a site basis. EPA then aggregated site-level regulatory costs to the
business entity level in order to assess the impact of the total costs incurred by the business entity.
4.4.3 Evaluation of Pre-regulatory Altman Z' Scores
EPA calculated the pre-regulatory condition of the industry in order to evaluate the post-regulatory
impacts on an incremental basis. As with the site closure analysis, EPA included the costs of the proposed
MACT rules on coke ovens and integrated steelmaking operations prior to evaluating the impacts of
increased water pollution control costs. Of the 115 companies in the initial Altman Z' analysis:
# 27 fall into the "distress likely" zone
# 56 are in the indeterminant zone
# 32 are in the "distress unlikely" zone.
Of the 27 companies in the "financial distress likely" zone,
# 2 have ceased operations
# 7 took Chapter 11 since 1997 (i.e., declared bankruptcy). One was in Chapter 11 before
1997.
# 4 changed ownership.
# 5 had just begun operations in 1997. These show all the startup costs, little revenues, and
no retained earnings.
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# 6 are non-startup joint entities. The Airman Z' calculation is based on the joint entity's
financial statements rather than those of any of the businesses that share ownership of the
site.
# 11 are owned by a foreign company. Because generally accepted accounting principles
(GAAP) differ from country to country, the Airman Z' was calculated on the site financial
data rather than the owning company. It appears that some distortion may still be present
in the data.
Some companies may fall into two or more categories. The financial statements of other companies in the
"financial distress likely" zone frequently indicate various stages of financial distress such as shareholder
deficits, inability to pay dividends, certain (unspecified) operating problems, and not being compliant with
debt covenants. In other words, for a multitude of reasons, the Airman Z'-score identifies a reasonable set
of companies that might be considered distressed.
4.4.4 Implications of a Z'-score Below The Cut-off
What does it mean for a company to have its Z'-score fall below the cut-off for "distress likely"?
It should be noted that Airman used the phrase "bankruptcy likely" rather than "distress." First, this does
not mean that a company will immediately declare bankruptcy once its score falls into that danger zone. It
is a warning flag. A company has the opportunity to change its behavior during this warning period to
avoid the projected bankruptcy. The Chrysler Corporation is an example; Airman, 1993 cites other
examples.
Second, taking Chapter 11 (bankruptcy) is not the same as taking Chapter 7 (liquidation). A
company that takes Chapter 11 is protected from its creditors for a period of time while it reorganizes
itself. A company can continue to operate while it is in Chapter 11. Geneva Steel filed for Chapter 11 on
February 1, 1999 but continued to operate through the next year (Geneva Steel, 2000). Shenango Coke
went into Chapter 11 in 1992. A company has the chance to emerge from Chapter 11. In contrast, a firm
is liquidated when there is no hope for rehabilitation. Airman notes, "Economically, liquidation is justified
when the value of the assets sold individually exceeds the capitalized value of the assets in the
marketplace." (Altman, 1993, p. 33).
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Third, other forms of response are possible and seen in the initial evaluation of the steel industry.
Shedding non-productive assets, merging with another company, or being purchased by another company
are all possible responses to financial distress.
What this means for the economic analysis is that:
# a company that moves into the distress likely category as a result of added pollution
control costs is considered to be distressed as a result of the regulation. It does not mean
that EPA expects the company to liquidate immediately upon promulgation. The
company, however, will have to change the way it operates to respond to the regulation
and remain out of bankruptcy.
a company in the distress likely category before the rulemaking cannot be evaluated for a
change in status. It does not mean that EPA expects the company to liquidate in the very
near future.
#
near future
4.5 MARKET MODEL
With the market model, the analysis moves to the larger-scale industry-wide impacts. When EPA
evaluates site closure impacts as the loss of all production at the site, this is a possible overestimate
because other sites could step up their production in response. The output from the market model,
however, incorporates such effects. In contrast, while the market model developed for the steel industry
may estimate the reduction in production due to higher costs, it does not specify at which sites the
reductions might occur. So the results from the various models are related but not necessarily identical.
A market model is a set of equations designed to represent the behavior between steel producers
and steel consumers. Increased pollution control generally adds to the cost of production.14 Steel
producers then ask for a higher price to cover their higher costs. Steel consumers may respond to higher
prices by buying less domestic steel and/or increasing imports. If consumers buy less steel, then producers
14However, this is not always the case. See Table 5-4. The regulatory options for stainless steel
finishing operations that include acid recovery lead to annual savings in material costs.
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may cut back production, thereby leading to job losses. A purpose of a market model is to estimate the
supply and demand for steel in order to quantify these regulatory impacts.
EPA's approach to modeling the steel industry is to specify a cost function that can be estimated
econometrically and derive the market supply relationship from the cost function (Applebaum, 1982;
Considine, 1991; Kwack, 1991). EPA specified the cost function with the following characteristics:
# translog function
# one good
# two production factors (capital and materials)
# subject to technological change (continuous casting)
The steel market supply relationship is derived from the translog cost function and equilibrium conditions
for profit maximization. In general, a firm maximizes profits when the cost to produce an additional unit
(i.e., marginal cost) equals the revenue earned from selling that unit (i.e., marginal revenue). Marginal cost
is derived by differentiating the cost function with respect to output. The marginal revenue, however, will
vary with the competitiveness of the market in which the firm sells. The formula expressing marginal cost
incorporates a parameter that measures the degree of market competitiveness.
The U. S. demand for steel is modeled as the sum of U.S. demand for domestic steel plus imports
(i.e., U.S. demand for imported steel). It is calculated as a function of the prices of domestic steel,
imported steel, and steel substitutes and measures of activity in major steel-using industries. Conversely,
the total demand for U.S. steel is modeled as the sum of U.S. demand for domestic steel plus exports (i.e.,
foreign demand for U.S. steel). For the purpose of this study, EPA aggregated all other countries into a
single entity that trades steel with the U.S. EPA used the relations between key elasticities in the
Armington specification trade model (Armington, 1969a; Armington, 1969b) to estimate the elasticity of
demand for imported steel with respect to a change in the price of U.S. steel and the elasticity of demand
from the rest of the world for U.S. steel with respect a change in the price of U.S. steel.
The steel market model consists of five equations:
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# a translog cost function
# two conditional factor demand functions (capital and materials) derived from the cost
function,
# a supply relationship, and
# a domestic demand function.
EPA estimated all equations using nonlinear three-stage least-squares (NL3SLS). NL3SLS is a "full
information" econometric technique; all equations are estimated simultaneously, which allows the cross-
equation restrictions (e.g., between the cost function and the conditional factor demand equations) to
improve estimates of the parameters.15 EPA used 20 years of Census and industry data from 1977 to 1997
as its sample time frame. The model estimates the supply shift, and the resulting changes in: domestic
price, domestic consumption, export demand, and import supply. A detailed discussion of the theoretical
foundation for the model, data sources, and indices is located in the rulemaking record.
4.6 REFERENCES
AISI. 2000. Annual statistical report. American Iron and Steel Institute. Washington, DC.
Altaian. 1993. Edward Altaian. Corporate financial distress and bankruptcy. New York: John Wiley
and Sons.
Applebaum, Elie, 1982. The estimation of the degree of monopoly power. Journal of Econometrics,
19:287-299.
Armington, Paul S. 1969a. A theory of demand for products distinguished by place of production.
International Monetary Fund Staff Papers, 16(1): 159-177.
Armington, Paul S. 1969b. The geographic pattern of trade and the effects of price changes. International
Monetary Fund Staff Papers, 16(2): 179-199.
BLS. 2000. Local Area Unemployment Statistics. 1997 data by Metropolitan Statistical Area. Bureau of
Labor Statistics, data extracted on 2 October.
15A "limited information" technique such as two stage least squares estimates each equation
separately; the "information" in the conditional factor demand equations, for example, has no effect on the
parameter estimates for the cost function.
4-27
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Brealy and Meyers. 1996. Brealy, Richard a. and Stewart C. Myers. Principles of corporate finance
(5th ed.). New York: The McGraw-Hill Companies, Inc.
Brigham and Gapenski. 1997. Brigham, Eugene F. and Louis C. Gapenski. Financial management:
theory and practice (8th ed.). Fort Worth: The Dryden Press. Pp. 428-431.
CEA. 1999. Council of Economic Advisors. Economic report of the president. Washington, DC.
Table B-60.
Considine, Timothy J., 1991. Economic and technological determinants of the material intensity of use.
Land Economics, 67(1):99-115.
DOC. 1996. U.S. Department of Commerce. Bureau of Economic Analysis. Regional input-output
modeling system (RIMS II). Total multipliers by industry for output, earnings, and employment.
Washington, DC. Table A-24.
FR. 200la. Environmental Protection Agency. 40CFR63. National Emission Standards for hazardous
air pollutants for coke ovens: pushing, quenching, and battery stacks. Proposed rule. Federal Register.
66:35326-35357. July 3.
FR. 200 Ib. Environmental Protection Agency. 40 CFR 63. National Emission Standards for hazardous
air pollutants: Integrated iron and steel manufacturing. Proposed rule. Federal Register. 66:36836-36868.
July 13.
Financial Accounting Standards Board. 1996. Financial Accounting Standards: Explanation and
Analysis. SFAS No. 105 (Disclosure of information about financial instruments with off-balance sheet risk
and financial instruments with concentrations of credit risk), No. 107 (Disclosures about fair value of
financial instruments), and No. 119 (Disclosure about derivative financial instruments and fair value of
financial instruments). Bill D. Jarnagin, ed. 18th edition. CCH Incorporated. Chicago, IL. pp. 564-586.
Geneva Steel. 2000. Geneva Steel announces first quarter 2000 results. Press release.
downloaded 6 April.
Kaplan. 1999. Kaplan, Maureen F. Review of recent bankruptcy prediction literature. Memorandum to
William Wheeler, U.S. EPA, dated 12 February 1999.
Kwack, Mahnsoon, 1991. Measuring the market power of the U.S. steel industry. Unpublished Ph.D.
dissertation. The Pennsylvania State University.
Le Vasseur, 1998. State and County 1997 Annual Unemployment Rates. Electronic file sent to Carrie
Marotta, Eastern Research Group from Ken Le Vasseur, Bureau of Labor Statistics. 8 December.
Motwane and Kaplan. 2001. Motwane, Reetika and Maureen F. Kaplan. Iron and steel closure analysis
sensitivity analysis—net income rather than cash flow. Memorandum to William Anderson, U.S. EPA,
dated 12 April. (Confidential).
4-28
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U.S. EPA. 2000a. Economic analysis of the proposed effluent limitations guidelines and standards for the
iron and steel manufacturing point source category. EPA-821-B-00-009. Washington, DC: U.S.
Environmental Protection Agency, Office of Water. October.
U.S. EPA. 2000b. Economic Impact Analysis of Proposed Coke ovens NESHAP: Final Report. Office of
Air Quality Planning and Standards. EPA-452/R-00-006. December 2000.
U.S. EPA. 2000c. Economic Impact Analysis of the Proposed Integrated Iron and Steel NESHAP.
Office of Air Quality Planning and Standards. EPA-452/R-00-008. December 2000.
U.S. EPA. 1998. Collection of 1997 iron and steel industry data: Part A: Technical data. Washington, DC
OMB 2040-0193. Expires August 2001.
U.S. EPA. 1995. Interim economic guidance for water quality standards: workbook. EPA-823-B-95-
002. Washington, DC: U.S. Environmental Protection Agency, Office of Water.
Wright, Andrew G. 1999. Bethlehem rebuilds on its steel foundation. Engineering News-Record. 8
November, pp. 30-33.
4-29
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CHAPTER 5
REGULATORY OPTIONS:
DESCRIPTIONS, COSTS, AND CONVENTIONAL POLLUTANT REMOVALS
Table 5-1 summarizes the subcategories as promulgated in 1982, the re-subcategorization as
proposed in 2000, and the promulgated subcategories. For continuity with the information presented at
proposal, the costs are presented for 2000 subcategories. That is, when the text refers to "ironmaking," it
refers to both blast furnace and sintering operations. The term "sinter" refers to the subset of facilities with
sintering operations. Section 5.1 describes the technological bases for the proposed standards.1 Section 5.2
identifies the cost associated with each option while Section 5.3 summarizes associated conventional
pollutant removals and cost per pound removed. A site may have operations in more than one subcategory;
combined costs are discussed in Section 5.4 below. All costs discussed in this chapter are in 1997 dollars.
Cost-effectiveness results are presented in Appendix C.
5.1 DESCRIPTION
Table 5-2 presents the regulatory options for each subcategory: Cokemaking, Ironmaking,
Integrated Steelmaking, Integrated and Stand-Alone Hot-Forming, Non-Integrated Steelmaking and Hot-
Forming, Steel Finishing, and Other Operations. The final column describes the treatment components for
each option. More information on the regulatory options is located in the Development Document (U.S.
EPA, 2002).
JEPA proposed no modifications from existing BAT for the stainless steel segment of the
Integrated Steelmaking and Stand-alone Hot Forming subcategory. EPA proposed no modifications from
existing PSES for the Integrated Steelmaking, Integrated Steelmaking and Stand-alone Hot Forming (all
segments), Nonintegrated Steelmaking (carbon and alloy steel segment), Finishing (all segments). EPA did
not propose PSES for Other Operations (DRI and forging).
5-1
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Table 5-1
Iron and Steel Manufacturing Subcategories
1982
A. Cokemaking
B. Sintering
C. Ironmaking
D. Steelmaking
E. Vacuum Degassing
F. Continuous Casting
G. Hot Forming
H. Salt Bath Descaling
I. Acid Pickling
J. Cold Forming
K. Alkaline Cleaning
L. Hot Coating
Proposed 2000
A. Cokemaking
B. Ironmaking
C. Integrated
Steelmaking
E. Integrated and
Stand- Alone Hot
Forming
D. Non-
Integrated
Steelmaking
and Hot
Forming
F. Steel Finishing
G. Other Operations
Final 2002
A. Cokemaking
B. Sintering
C. Ironmaking
D. Steelmaking
E. Vacuum Degassing
F. Continuous Casting
G. Hot Forming
H. Salt Bath Descaling
I. Acid Pickling
J. Cold Forming
K. Alkaline Cleaning
L. Hot Coating
M. Other Operations
5-2
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Table 5-2
Description of Regulatory Options by Subcategory
Subcategory
Cokemaking
Ironmaking
(Sintering and
Blast Furnace)
Integrated
Steelmaking
Integrated and
Stand-Alone
Hot Forming
Non-
Integrated
Steelmaking
and Hot-
Forming
Steel
Finishing
Other
Operations
Discharge
Status
Direct
Indirect
Direct
Indirect
Direct
Direct
Direct
Indirect
Direct
Direct
Regulatory
Option
BAT1
BATS
PSES 1
PSES3
BAT1
PSES 1
BAT1
BAT1
(Carbon)
BAT1
(Carbon)
BAT1
(Stainless)
PSES 1
(Stainless)
BAT1
(Carbon)
BAT1
(Stainless)
BAT1
(DRI)
BAT1
(Forging)
Description of Regulatory Option
# Tar/oil removal, ammonia stripping, and biological
treatment with clarification
# Liquid/solid separation and heat exchanger
# BAT 1 + break-point chlorination
# Tar/oil removal, equalization, and ammonia stripping
# PSES 1 + biological treatment with clarification
# Solids removal, high rate recycle, metals precipitation,
alkaline chlorination, and mixed-media filtration for
blowdown wastewater
# Cooling tower (blast furnace operations only)
# Same as BAT 1
# Solids removal and high rate recycle
# Cooling tower(s)
# Metals precipitation for blowdown wastewater
# Scale pit with oil skimming, roughing clarifier, mixed-
media filtration, cooling tower, and high rate recycle
# Solids removal, sludge dewatering, mixed-media
filtration, cooling tower, and high rate recycle
# Solids removal, sludge dewatering, mixed-media
filtration, cooling tower, and high rate recycle
# Same as BAT 1
# Diversion tank, oil removal, hexavalent chrome
reduction, equalization, metals precipitation,
sedimentation, and sludge dewatering
# Diversion tank, oil removal, hexavalent chrome
reduction, equalization, metals precipitation,
sedimentation and sludge dewatering, and acid
purification
# Solids removal, clarifier, sludge dewatering, and high
rate recycle
# Filtration for blowdown wastewater
# High rate recycle, oil/water separator for blowdown
wastewater, and mixed-media filtration
5-3
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The cokemaking subcategory has two segments—one where the cokemaking by-products are
recovered and the second where they are not. The cokemaking subcategory does not have subsegments.
EPA considered two regulatory options for direct dischargers and two options for indirect dischargers.
BAT 1 includes tar removal, heat exchanger, ammonia stripping, biological treatment, and liquid and solid
separation. BAT 3 adds break-point chlorination to BAT 1. PSES 1 utilizes tar removal, equalization, and
ammonia stripping. PSES 3 adds biological treatment to PSES 1; that is, it is comparable to BAT 1.
EPA considered one regulatory option each for direct and indirect dischargers in the ironmaking
subcategory. The treatment unit is the components listed in the first bullet while the second bullet describes
the cooling tower applicable only to blast furnace operations. EPA also considered regulating sintering
operations, a subset of the ironmaking subcategory.
EPA considered one regulatory option for direct dischargers in the integrated steelmaking
subcategory. Cooling towers are necessary only if a site employs vacuum degassing or continuous casting.
Hot forming operations are found at both integrated sites and stand-alone sites. EPA proposed
modifcations only for direct dischargers with carbon and alloy steel. The regulatory option includes a scale
pit with oil removal, a roughing clarifier with oil removal, mixed-media filtration, cooling, and high rate
recycle.
Non-integrated steelmaking uses an electric arc furnace (EAF) rather than a basic oxygen
furnace. The technologies do not vary by whether the sites process carbon steel or stainless steels, but the
costs and pollutant removals do vary.
Both carbon and stainless steel options in the finishing subcategory include a diversion tank, oil
removal, hexavalent chrome reduction, equalization, metals precipitation, and sedimentation and sludge
dewatering. The stainless steel segment has an added step of acid purification.
The other operations subcategory, is further subdivided into DRI operations and forging
operations. (All briquetting operations are zero discharge.) For DRI operations, BAT 1 require solids
removal, a clarifier, high rate recycle, and blowdown treatment. For forging operations, BAT 1 requires
high rate recycle, an oil-water separator for blowdown wastewater, and mixed-media filtration.
5-4
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5.2 SUBCATEGORY COSTS
Table 5-3 summarizes the capital, annual operating and maintenance (O&M), and one-time non-
equipment costs for each of the regulatory options considered2. Cokemaking costs are presented in Table
5-3 for both direct and indirect dischargers. For direct dischargers, the capital cost range is $24 million to
$54 million while the post-tax annualized cost ranges from $6.1 million to $9.6 million. For indirect
dischargers, the capital costs range from $6 million to $23 million while the post-tax annualized costs range
from nearly $2 million to $6 million. EPA proposed BAT 3 for cokemaking but subsequently found it not
to be economically achieveable.
Ironmaking costs for direct and indirect dischargers are $50 million in capital costs while the post-
tax annualized cost is $9.6 million. Sintering costs, however, total $11 million in capital cost and $1.8
million in post-tax annualized costs.
Integrated steelmaking costs for direct and indirect dischargers are $43 million in capital costs
while the post-tax annualized cost is $9.5 million. For these subcategories, costs are presented on a
combined basis because there are three or fewer indirect dischargers in each subcategory.
Integrated and stand-alone hot forming costs are the largest of any subcategory examined. The
capital costs for direct dischargers are $137 million and the post-tax annualized costs are $25.2 million.
Non-integrated steelmaking and hot forming costs differ by whether the site processes carbon or
stainless steel. For carbon steel processors who are direct dischargers, the capital costs for BAT Option 1
are $28.2 million while the post-tax annualized cost is $4.6 million. For direct discharging stainless steel
processors, the capital costs for BAT Option 1 are $4 million while the post-tax annualized cost is $0.5
million. For indirect dischargers, the post-tax annualized cost for sites with stainless steel operations is
$0.2 million.
2Consultant mill services to conduct an evaluation of the water management practices and
operations is an example of a one-time non-equipment cost.
5-5
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Table 5-3
Regulatory Options Costs by Subcategory
(in Millions of $1997)
Subcategory
Segment
Cokemaking
Ironmaking
Sinter
and
Blast
Furnace
Sinter
Integrated Steelmaking
Integrated
and Stand-
Alone Hot-
Forming
Non-
Integrated
Steelmaking
and Hot-
Forming
Steel
Finishing
Carbon
Carbon
Stainless
Stainless
Carbon
Stainless
Regulatory
Option
BAT1
BATS
PSES 1
PSES3
BAT 1 and
PSES 1
BAT1
BAT 1 and
PSES 1
BAT1
BAT1
BAT1
PSES 1
BAT1
BAT1
Capital
Costs
$24.18
$54.34
$6.14
$23.44
$49.97
$11.05
$43.02
$137.19
$28.17
$4.00
$1.06
$21.25
$5.78
O&M
Costs
$4.18
$5.45
$1.46
$5.08
$7.43
$1.30
$8.29
$19.09
$3.36
$0.48
$0.15
$4.81
$1.58
One-Time
Non-
Equipment
Costs
$0.27
$0.27
$0.09
$0.27
$0.30
$0.00
$0.25
$0.23
$1.65
$0.10
$0.10
$33.58
$35.47
Post-Tax
Annualized
Costs
$6.09
$9.60
$1.82
$6.05
$9.61
$1.75
$9.51
$25.24
$4.64
$0.49
$0.16
$7.89
$3.24
Pre-Tax
Annualized
Costs
$6.49
$10.60
$1.93
$7.07
$12.59
$2.57
$12.86
$33.77
$6.03
$0.78
$0.25
$10.18
$4.95
5-6
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Steel finishing is the second subcategory where costs differ according to the type of steel
processed. For direct dischargers, the capital costs are $21 million for carbon steel sites and $5.8 million
for stainless steel sites. The post-tax annualized costs are $7.9 million for carbon steel sites. The post-tax
annualized costs are $3.2 million for stainless steel sites.
The other subcategory consists of DRI, forging, and briquetting operations. No comments were
received on the proposed options for Other operations. No costs are shown in Table 5-3 for two reasons.
First, none of the sites with briquetting operations discharge process wastewater. Second, for DRI and
forging, the costs for wastewater pollution control are BPT costs. Costs are presented on a combined basis
due to the small number of sites with these operations. Capital costs are less than $0.2 million; post-tax
annualized costs are less than $0.05 million.
5.3 COST REASONABLENESS
EPA is evaluating technology options for the DRI and forging segments of the Other Operations
Subcategory for the control of only conventional parameters at BPT. CWA Section 304(b)(l)(B) requires
a cost-reasonableness assessment for BPT limitations. In determining BPT limitations, EPA must consider
the total cost of treatment technologies in relation to the effluent reduction benefits achieved by such
technology. This inquiry does not limit EPA's broad discretion to adopt BPT limitations that are
achievable with available technology unless the required additional reductions are wholly out of proportion
to the costs of achieving such marginal reduction.
The cost-reasonableness ratio is average cost per pound of pollutant removed by a BPT regulatory
option. The cost component is measured as pre-tax total annualized costs. In this case, the pollutants
removed are conventional pollutants although in some cases, removals may include priority and
nonconventional pollutants. For the DRI segment, the evaluated BPT option 1 removes approximately
1,400 pounds of conventional pollutants with a cost-reasonableness ratio of $3, see Table 5-4. For the
forging segment, the evaluated BPT option 1 removes approximately 3,500 pounds of conventional
pollutants with a cost-reasonableness ratio of $9. EPA considers the cost-reasonableness ratio to be
acceptable and the proposed option to be cost-reasonable in both segments.
5-7
-------
Table 5-4
Cost Reasonableness Ratio
Subcategory
Other
Other
Segment
DRI
Forging
Selected
Option
1
1
Removal of
Conventional
Pollutants (Ibs.)
1,386
3,561
Pre-tax
Annualized
Cost (Millions)
$0.005
$0.03
Cost Per Pound of
Conventional Pollutant
Removed
$3.3
$9.4
5.4 COST COMBINATIONS
EPA examined three cost combinations to evaluate the impact of the combined cost of all
operations at a site, see Table 5-5. Combinations A and B correspond to the co-proposed options.
Combination C corresponds to the promulgated rule, i.e., effluent limitations guidelines and standards for
cokemaking, sintering, and other operations. The pre-tax annualized cost for Combination C is $11 million
in 1997 dollars and $12 million in 2001 dollars, see Table 5-6. This is well below the $100 million
criterion for considering the iron and steel effluent guideline a major rule under Executive Order 12866.
5.5
REFERENCES
U.S. EPA. 2002. U.S. Environmental Protection Agency. Development document for the final effluent
limitations guidelines and standards for the iron and steel manufacturing point source category.
Washington, DC. EPA-821-R-02-004.
-------
Table 5-5
Cost Combinations
Sub category
Cokemaking
Ironmaking
Integrated
Steelmaking
Non-integrated
Steelmaking
(Carbon)
Hotforming
(Carbon)
DRI
Forging
Discharge
BAT
PSES
BAT
PSES
BAT
BAT
BAT
BPT
BPT
Cost Combinations
A
Co-proposed
1
1
iron
1
1
1
1
1
1
B
Co-proposed
1
3
iron
1
1
1
1
1
1
C
Promulgated
1
1
sinter
no regulation
no regulation
no regulation
no regulation
1
1
Notes:
1.
2.
Options for Finishing, Non-integrated Steelmaking (stainless) and Integrated Steelmaking and
Hotforming Operations (stainless) categories were included at proposal but not for promulgation
for technical reasons.
The term "iron" means ironmaking and sintering costs. "Sinter" means that limitations are
considered for sintering operations segment but not the blast furnace segment.
5-9
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Table 5-6
Industry Costs for Promulgated Rule
(in Millions)
Capital Costs
Operating and Maintenance Costs
One-Time Non-Equipment Costs
Post-Tax Annualized Costs
Pre-Tax Annualized Costs
Promulgated Rule
$1997
$41.5
$7.0
$0.4
$9.7
$11.0
$2001
$45.2
$7.6
$0.5
$10.6
$12.0
5-10
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CHAPTER 6
ECONOMIC IMPACT RESULTS
Chapter 6 describes the economic effects resulting from the costs for implementing the selected
model technologies that form the basis for the final iron and steel industry rule. The impacts are estimated
with the models discussed in Chapter 4 and the costs presented in Chapter 5. Section 6.1 reports the
estimated impacts from the final BPT, BAT, and PSES costs for existing sources. The impacts are
examined from the smallest scale (site closure by subcategory costs) to industry-wide impacts (market and
trade effects). EPA reports the results of the subcategory (Section 6.1.1), site (Section 6.1.2), and
company (Section 6.1.3) analyses for the selected options and for other options considered but not selected
by EPA. For the market (Section 6.1.4), direct and community (Section 6.1.5), and national (Section
6.1.6) analyses, EPA presents the finding for the promulgated rule. EPA reports its findings for NSPS and
PSNS for new sources in Section 6.2.
6.1 BEST AVAILABLE TECHNOLOGY/PRETREATMENT STANDARDS FOR EXISTING
SOURCES (BAT AND PSES)
6.1.1 Subcategory Costs and Projected Site Closures
6.1.1.1 Selected Options
EPA selected Cokemaking BAT 1, Cokemaking PSES 1, Sintering, and Other for promulgation.
EPA examined whether the cost of upgrading pollution control in any subcategory was sufficient to result
in site closure1. No closures are projected for any of the promulgated options.
lrThe site closure methodology is presented in Section 4.2. The methodology has been revised in
response to comments and data submitted on the proposed options. For a site to be considered closed
rather than upgraded as a result of the regulation, its projected present value of future cash flow is neutral
or positive prior to regulatory costs and negative after inclusion of regulatory costs. Section 4.2.1.1
explains why EPA did not include an estimate of salvage value in the calculation.
6-1
-------
6.1.1.2 Other Options Considered
EPA examined additional options for the subcategories for which it promulgated regulations as
well as options for subcategories for which the Agency decided not promulgate revised effluent limitations
guidelines (see Table 5-2). The subcategory costs, in isolation, are sufficient to project closure for six
sites— two in cokemaking BAT 3, two in cokemaking PSES 3, one in ironmaking BAT, and one in
integrated and stand-alone hot-forming (carbon) BAT. Due to the small number of sites, the results are
presented in aggregated form to protect confidentiality of the data. The projected closures represent up to
4500 job losses. For reasons of confidentiality, no details are presented on the loss of production, exports,
and revenues.
6.1.2 Aggregated Subcategory Costs and Projected Site Closures
A site may have multiple operations—e.g., cokemaking, ironmaking, steelmaking, hot-forming, and
finishing—with regulatory costs associated with each option. EPA examined cost combinations
corresponding to the proposed and final rules, see Table 5-5.
6.1.2.1 Selected Options
EPA examined whether the cost of upgrading pollution control for all selected operations at a site
was sufficient to result in site closure. No closures are projected for Cost Combination C from Table 5-5,
the selected options.
6.1.2.2 Other Options Considered
Cost Combination A results in two projected closures. Cost combination B results in four
projected site closures. The four closures results in an estimated employment loss of almost 4,000 jobs.
For reasons of confidentiality, no details are presented on the loss in production, exports, and revenues.
6-2
-------
6.1.3 Corporate Financial Distress
The level above the site is the company that owns one or more iron and steel sites. The corporate
financial distress analysis identifies situations where it might make financial sense to upgrade each
individual site but the company cannot bear the combined costs of upgrading all of its sites. As mentioned
in Section 4.4, taking Chapter 11 (bankruptcy) is not the same as taking Chapter 7 (liquidation). EPA does
not expect a company projected to move into financial distress to liquidate immediately upon promulgation.
The company, however, will have to change the way it operates to respond to the regulation and remain out
of bankruptcy. An analogy might be that the estimated costs move a sickly patient into intensive care. The
patient may or may not return to health but much effort will be spent in the attempt.
6.1.3.1 Selected Options
No company moves into financial distress as a result of the final rule.
6.1.3.2 Options Considered
One or more large companies move into the distressed category as a result of the added pollution
control with both cost combinations A and B. These companies report a total employment in excess of
14,000 people. The analysis incorporates both public and private entities; hence the analysis is based on
1997, the most recent supplied in the EPA survey.2
2Updating the corporate financial distress analysis to 2000 or 2001 would result in limiting the
analysis to public companies. Private steel companies form a significant portion of the industry and EPA
wanted to evaluate impacts on this group.
6-3
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6.1.4 Market and Trade Impacts
Table 6-1 summarizes the market impacts for the promulgated effluent limitations guidelines. The
first row lists the pre-tax annualized cost (see also Table 5-6). Imports increase by less than one-tenth of
one percent (approximately $1.3 million), domestic prices increase by less than one-tenth of one percent,
and exports fall by less than one-tenth of one percent (approximately $1.9 million). For reference, 1997
imports are estimated to have totaled $6.5 billion in value while exports are estimated to have totaled
approximately $3.8 billion.
Pursuant to Executive Order 12898, EPA examined the effects of increased prices on low-income
consumers. EPA calculated the percentage of average expenditures per consumer unit spent on steel
products by income group using the Consumer Expenditure Survey. No category for steel products exists
in the survey; instead EPA determined which products were potentially constructed of steel. The items
include the following: packaging for processed fruits, processed vegetables, and miscellaneous foods; major
appliances; small appliances; and vehicles. See Table 6-2.
There are no significant differences among the percentage of average expenditures for all income
groups with the exception of the lowest income group—under $5,000. According to the Consumer
Expenditure Survey, this income group spends almost 69 percent of its income on vehicle purchases. This
income group, then, may be adversely affected by the rule because the automobile manufacturers may pass
on the higher steel cost to the consumers. The effluent limitations guidelines promulgated by EPA lead to
less than one-tenth of one percent price increase (see Table 6-1), EPA does not consider low-income
populations to be disproportionately affected.
6.1.5 Direct and Community Impacts
There are no closures associated with the estimated costs for the promulgated guideline. Hence,
there are no direct or community impacts. Because there are no impacts, there are no disproportionately
high adverse impacts on minority and low-income populations. That is, EPA has addressed the
requirements of Executive Order 12898.
6-4
-------
Table 6-1
Market Impacts
Parameter
Pre-tax Annualized Cost
(Millions, $1997)
Supply Shift (annualized cost as a percentage of
baseline price)
Domestic Price
Domestic Consumption
Domestic Production
Import Supply
Export Demand
Final Rule
$11
0.02%
0.02%
-0.02%
-0.03%
0.02%
-0.05%
6-5
-------
Table 6-2
Reported Typical Expenditures by Income-Level for Steel-Containing Products
Item
Number of
Consumer units
Average Income
Before Taxes
Average Income
After Taxes
Total Average
Expenditures:
Processed
Fruits:
% of Income (after)
Processed
Vegetables:
% of Income (after)
Miscellaneous
Foods:
% of Income (after)
Major
Appliances:
% of Income (after)
Small
Appliances:
% of Income (after)
Vehicle
Purchase:
% of Income (after)
Total
84,115
$41,622
$38,358
$37,260
$104
0.27%
$78
0.20%
$408
1.06%
$172
0.45%
$87
0.23%
$3,043
7.93%
Less
than
$5,000
4,259
$1,888
$1,738
Average
$17,502
$63
3.62%
$36
2.07%
$237
13.64%
$89
5.12%
$29
1.67%
$1,193
68.64%
$5,000
to
$9,999
8,143
$7,735
$7,636
$10,000
to
$14,999
8,469
$12,375
$12,155
$15,000
to
$19,999
7,352
$17,464
$16,951
$20,000
to
$29,999
12,621
$24,648
$23,596
$30,000
to
$39,999
10,123
$34,473
$32,393
$40,000
to
$49,999
7,654
$44,289
$40,890
$50,000
to
$69,999
11,300
$58,516
$53,802
$70,000
and
over
14,193
$108,257
$97,419
Expenditures Per Consumer Unit
$14,838
$59
0.77%
$49
0.64%
$235
3.08%
$72
0.94%
$35
0.46%
$829
10.86%
$19,958
$70
0.58%
$55
0.45%
$261
2.15%
$146
1.20%
$37
0.30%
$1,724
14.18%
$22,810
$81
0.48%
$64
0.38%
$280
1.65%
$121
0.71%
$45
0.27%
$1,876
11.07%
$27,941
$88
0.37%
$78
0.33%
$344
1.46%
$136
0.58%
$68
0.29%
$2,411
10.22%
$33,616
$100
0.31%
$78
0.24%
$413
1.27%
$195
0.60%
$75
0.23%
$2,588
7.99%
$39,934
$120
0.29%
$80
0.20%
$473
1.16%
$144
0.35%
$91
0.22%
$3,274
8.01%
$49,376
$123
0.23%
$101
0.19%
$535
0.99%
$246
0.46%
$139
0.26%
$4,664
8.67%
$73,786
$169
0.17%
$109
0.11%
$627
0.64%
$268
0.28%
$171
0.18%
$5,732
5.88%
Source: U.S. Census, Bureau of Labor Statistics, Consumer Expenditure Survey, 1998
6-6
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6.1.6 National Direct and Indirect Impacts
If a site is projected to close, there are directs effects such as the loss in employment and output at
the closed facility. The impacts resonate through the economy. EPA used the Department of Commerce's
national final demand multipliers from the Regional Input-Output Modeling System to estimate these
effects (see Section 4.3). For the selected options, there are no closures, hence, there are no national direct
and indirect impacts.
6.1.7 Summary of Impacts on Existing Sources
EPA projects no adverse economic impacts as a result of the promulgated effluent limitations
guidelines.
6.2 NEW SOURCE PERFORMANCE STANDARDS (NSPS) AND PRETREATMENT
STANDARDS FOR NEW SOURCES (PSNS)
For cokemaking indirect dischargers, EPA evaluated the technologies for PSES 3 but estimated
costs for new sources rather than existing sources. EPA deemed PSES 3 as economically unachievable
because the estimated costs are projected to result in two site closures (see Section 6.1.1.2 above). EPA
then estimated the costs for the PSES 3 technologies but for new sources. Three of eight sites already have
biological treatment (i.e., the technology that distinguishes PSES 3 from PSES 1), indicating that it is not a
barrier to entry. For the remaining five sites, estimated PSNS costs are equal to or lower than those for
PSES 3 (e.g. lower capital costs related to flow reduction, lower O&M costs related to operation of
ammonia stills, or both). Based on data from existing sources, the estimated PSNS costs result in no
projected closures. Hence, EPA deems it economically achievable for new sources to meet the limitations
while the Agency does not consider the same limitations economically achievable for existing sources.
The technology options EPA considered for new sources in the other subcategories are identical to
those it considered for existing dischargers. Engineering analysis indicates that the cost of installing
pollution control systems during new construction is less than the cost of retrofitting existing facilities.
6-7
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Because EPA projects the costs for new sources to be less than those for existing sources and limited or no
impacts are projected for existing sources, EPA expects no significant economic impacts for new sources.
Because EPA projects no impacts for new sources, the regulation cannot be considered a barrier to entry.
6.3 REFERENCES
DOC. 1998. U.S. Census. Bureau of Labor Statistics, Consumer Expenditure Survey, 1998.
downloaded 23 May 2000.
6-8
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CHAPTER 7
SMALL BUSINESS ANALYSIS
The Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq., Public Law 96-354) as amended by
the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA) (Public Law 104-121)
requires agencies to analyze how a regulation will affect small entities. The purpose of the RFA is to
establish as a principle of regulation that agencies should tailor regulatory and informational requirements
to the size of entities, consistent with the objectives of a particular regulation and applicable statutes. If,
based on an initial assessment, a regulation is likely to have a significant economic impact on a substantial
number of small entities, the RFA requires a regulatory flexibility analysis. The requirement to prepare a
regulatory flexibility analysis does not apply if the head of the agency certifies that the promulgated rule
will not have a significant impact on a substantial number of small entities.
EPA performed an initial assessment and a small business analysis of impacts. The first steps in
an initial assessment are presented in Section 7.1. Section 7.2 describes the methodology for the small
business analysis and Section 7.3 presents the results of the analysis.
7.1 INITIAL ASSESSMENT
EPA guidance on implementing RFA requirements suggests four issues should be addressed in an
initial assessment—notice-and-comment requirements, profile of affected small entities, an evaluation of
whether the rule would affect small entities, and a determination whether the rule would have a significant
impact a substantial number of small entities (U.S. EPA, 1999). First, EPA determined that effluent
limitations guidelines and standards regulations were subject to notice-and-comment rulemaking
requirements and met those requirements. Second, EPA developed a profile of the affected universe of
entities—both large and small— in Chapter 2. Section 7.2 describes the data and procedures that EPA
used to identify the number of small entities and estimate the number of sites owned by small entities.
Third, EPA determined that the rule would affect small entities. Fourth, EPA determined whether the rule
7-1
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would have a significant economic impact on a substantial number of small entities. Chapter 4 presents the
economic methodology while Section 7.3 summarizes the findings for small entities.
7.2 SMALL BUSINESS IDENTIFICATION
7.2.1 Classification
The Small Business Administration (SBA) sets size standards to define whether a business entity is
small and publishes these standards in 13 CFR 121. The standards are based either on the number of
employees or receipts. Prior to October 1, 2000, SBA set size standards according to the Standard
Industrial Classification (SIC) system. Accordingly, the EPA survey requested the respondents to identify
different levels in a site's corporate hierarchy by SIC code. The rule, however, was proposed after October
1, 2000, when SBA set size standards according to the North American Industry Classification System
(NAICS; FR, 1999). EPA examined both classification systems when identifying sites owned by small
entities. The remaining subsections walk the reader through the methodology steps to identify small entities
in the iron and steel industry.
7.2.7.7 SBA Guidance
When making classification determinations, SBA counts receipts or employees of the entity and all
of its domestic and foreign affiliates (13 CFR.121.103(a)(4))). SBA considers affiliations to include:
# stock ownership or control of 50 percent or more of the voting stock or a block of stock
that affords control because it is large compared to other outstanding blocks of stock (13
CFR121.103(c)).
# common management (13 CFR 121.103(e)).
# joint ventures (13 CFR 121.103(f)).
7-2
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EPA interprets this information as follows:
# Sites with foreign ownership are not small (regardless of the number of employees or
receipts at the domestic site).
# The definition of small is set at the highest level in the corporate hierarchy and includes all
employees or receipts from all members of that hierarchy.
# If any one of a joint venture's affiliates is large, the venture cannot be classified as small.
EPA determined ownership from survey responses and determined affiliates not specified
in the survey from secondary sources. Corporate ownership of sites in the iron and steel
database is based on January 2000.
7.2.1.2 Data Used for Business Size Classification
EPA requested the respondent to identify the SIC code for the site, business entity that owns the
site, and the corporate parent that owned the business entity (or for as many levels in the corporate
hierarchy that exist). Determining the level in the corporate hierarchy at which to define whether a business
entity is a small business is site-by-site assessment because, in some cases, the respondent entered the
number of employees literally at the corporate headquarters and not for the entire company. The guidelines
used to determine the level in the corporate hierarchy by which to classify the site is summarized here:
# If a corporate parent exists,
If it is foreign, classify the site as such and remove from further analysis.
If the parent's classification depends on the number of employees and the number
for the parent exceeds that for the company, use the parent's data for
classification.
If the parent's classification depends on revenues, use the parent's data for
classification.
If none of the above applies to the site, use the company information for
classification.
# If a site is a joint entity,
If any of the joint owners is a large business, classify the site as such
and remove from further analysis.
If any of the joint entity partners are foreign, remove from further consideration.
7-3
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# At the company level,
If it is foreign, classify as such and remove from further consideration.
If a company's classification depends on the number of employees and the number
of employees is the same as or exceeds that for the site, use the company's data
for classification.
If a company's classification is determined by revenues, use the company's data
for classification.
# If the site is the company, no other levels in the hierarchy exist, the site data are used for
classification.
7.2.1.3 SIC Codes Reported in EPA Survey
Table 7-1 is a summary of the 28 4-digit SIC codes in EPA Survey data listed for the level at
which the size classification is made. Although the sampling frame for the EPA Survey focused on four
SIC codes: 3312, 3315, 3316, and 3317, the SIC codes extend beyond iron and steel operations because
corporate parents hold operations in other sectors.
Several sites appear to be classified at the industry group level (3-digit code) and one site is
classified at the major group level (2-digit code). Entries with a final zero are presumed to be classified at
the 3-digit level (e.g., 1520, 2870, 3310, 3370, 3440, 3470, and 3490) and an entry with a final double
zero is assumed to be classified at the 2-digit level (i.e., 3300).
Several of the 4-digit SIC codes provided by the respondents, however, do not exist in the 1987
SIC classification Manual (i.e., 1516, 2998, and 6749). For these sites, EPA classified the site at the 2- or
3- digit level. Table 7-1 lists the standards for each SIC code used in the small business analysis.
7.2.1.4 Updated Site Ownership Information
EPA searched secondary data to verify corporate ownership for each site and updated ownership to
January 2000. The supporting material is in the rulemaking record.
7-4
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Table 7-1
SIC Codes in Iron and Steel Database
SIC
Code Short Name
1221 Bituminous Coal and Lignite Surface Mining
1516 15:Building Construction-General Contractors and Operative Builders
1520 152: General Building Contractors-Residential Buildings
2865 Cyclic Organic Crudes and Intermediates, and Organic Dyes and Pigments
2911 Petroleum Refining
2998 299 Miscellaneous Products of Petroleum and Coal
330033: Primary Metal Industries
3310331: Steel Works, Blast Furnaces, and Rolling and Finishing Mills
3312 Steel Works, Blast Furnaces (Including Coke Ovens), and Rolling Mills
3315 Steel Wiredrawing and Steel Nails and Spikes
3316 Cold-Rolled Steel Sheet, Strip, and Bars
3317 Steel Pipe and Tubes
3321 Gray and Ductile Iron Foundries
3351 Rolling, Drawing, and Extruding of Copper
3356 Rolling, Drawing, and Extruding of Nonferrous Metals, Except Copper and
Aluminum
337033: Primary Metal Industries
3440 344: Fabricated Structual Metal Products
3470 347: Coating, Engraving, and Allied Services
3471 Electroplating, Plating, Polishing, Anodizing, and Coloring
3479 349: Coating, Engraving, and Allied Services, NEC
3490 Miscellaneous Fabricated Metal Products
3562 Ball and Roller Bearings
3674 Semiconductors and Related Devices
4925 Mixed, Manufactured, or Liquefied Petroleum
505 1 Metals Service Centers and Offices
5093 Scrap and Waste Materials
5153 Grain and Field Beans
6749 67: Holding and Other Investment Offices
Totals
Size
Standard* Short
500
$17
$17
750
1,500
500
500 x
1,000
1,000 x
1,000
1,000 x
1,000 x
500
750 x
750
500
500
500 x
500 x
500 x
500 x
750
500
$5
100 x
100
100
$5
10
Detailed
Parent Company
x
x
X
X
X X
X X
X
X X
X X
X
X
X
X
X
X
X
X
X
X
X
X
10 15
Site
X
X
X
3
Notes: Standards are either the number of employees or millions of dollars in revenue. If 4-digit SIC code is not listed in Standard Industrial Classification
Manual, 1987, size standard is taken from the 3-digit or 2-digit level. For SIC 3310, a size standard of 1,000 employees is used because all steel-related
codes in the 331 industry group have a size standard of 1,000 employees is used. SIC 3313 has a different size standard but it excludes steel.
7-5
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7.2.7.5 NAICS Standard
The North American Industry Classification System (NAICS) replaces the Standard Industrial
Classification (SIC) as of January 1, 1997. The Small Business Administration converted business size
standards to NAICS effective October 1, 2000 (FR, 2000). Appendix B cross-references the SIC codes
with the NAICS codes and size standards.
Table 7-2 is a subset of Appendix B, listing only those SIC codes that change size standards when
considered under NAICS. The following industries are potentially affected by the shift:
# SIC 4925 is part of NAICS 22121. The size standard changes from $5 million to 500
employees.
# Stand-alone coke ovens, formerly part of SIC 3312 (steel works, blast furnaces, and
rolling mills), are now classified in NAICS 324199. The size standard replaces 1,000
employees with 500 employees.
# SIC 2865 is divided between NAICS 32511 and 325132. If the company shifts to the first
NAICS category, the size standard changes from 750 to 1,000 employees.
# SIC 3399, with a size standard of 750 employees- is split among four NAICS categories:
331111, 331492, 332618, and 332813. Only the first and last categories concern steel. If
the company shifts to NAICS 331111, the size standard becomes 1,000 employees. If the
company shifts to NAICS 332813, the size standard becomes 500 employees.
# SIC 3315 is split between NAICS 33122 and 332618. If the company shifts to the second
NAICS category, the size standard changes from 1,000 to 500 employees.
# SIC 3699- with a size standard of 750 employees- is split among NAICS categories
333319 and 333618. If the company shifts to the first category, the size standard becomes
500 employees. If the company shifts to the second category, the size standard becomes
1,000 employees.
EPA examines each site whose company's status could change as a result of the shift from SIC to NAICS.
No site changed classifications with the shift from SIC to NAICS.
7-6
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Table 7-2
Cross-reference Between NAICS and SIC Codes
Size Standard Changes
1997
NAICS
code
1997 NAICS
industry
description
New,
Existing or
Revised
Industry
Size
standard
($ million
or emp #)
for NAICS
industry
Size
standard
($
million
or emp
#)for
SIC
activity
1987 SIC
code (* =
part of
SIC code)
1987 SIC
industry
Sector 22 - Utilities
Subsector 221 - Utilities
22121
Natural Gas
Distribution
R
500
$5.0
500
$5.0
$5.0
$5.0
$5.0
*4923
4924
4925
*4931
4932
*4939
Natural Gas
Transmission and
Distribution
(distribution)
Natural Gas
Distribution
Mixed,
Manufactured, or
Liquefied Petroleum
Gas Production
and/or Distribution
(natural gas
distribution)
Electronic and Other
Services Combined
(natural gas
distribution)
Gas and Other
Services combined
(natural gas
distribution)
Combination
Utilities, NEC
(natural gas
distribution)
Subsector 324 - Petroleum and Coal Products Manufacturing
324199
All Other
Petroleum and
Coal Products
Manufacturing
R
500
500
2999
Products of
Petroleum and Coal,
NEC
7-7
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Table 7-2 (continued)
1997
NAICS
code
1997 NAICS
industry
description
New,
Existing or
Revised
Industry
Size
standard
($ million
or emp #)
for NAICS
industry
Size
standard
($
million
or emp
#)for
SIC
activity
1,000
1987 SIC
code (* =
part of
SIC code)
*3312
1987 SIC
industry
Blast Furnaces and
Steel Mils (coke
ovens)
Subsector 325 — Chemical Manufacturing
32511
Petrochemical
Manufacturing
N
1,000
325132
Synthetic
Organic Dye and
Pigment
Manufacturing
N
750
750
1,000
750
*2865
*2869
*2865
Cyclic Organic
Crudes and
Intermediates, and
Organic Dyes and
Pigments
(aromatics)
Industrial Organic
Chemicals, NEC
(aliphatics)
Cyclic Organic
Crudes and
Intermediates, and
Organic Dyes and
Pigments (organic
dyes and pigments)
Subsector 331 — Primary Metal Manufacturing
331111
Iron and Steel
Mills
N
1,000
331222
Steel Wire
Drawing
R
1,000
1,000
750
1,000
*3312
*3399
*3315
Steel Works, Blast
Furnaces (Including
Coke Ovens), and
Rolling Mills
(except coke ovens
not integrated with
steel mills)
Primary Metal
Products, NEC
(ferrous powder,
paste, flakes, etc.)
Steel Wiredrawing
and Steel Nails and
Spikes (steel wire
drawing)
7-8
-------
Table 7-2 (continued)
1997
NAICS
code
331492
1997 NAICS
industry
description
Secondary
Smelting,
Refining, and
Allying of
Nonferrous Metal
(except Copper
and Aluminum)
New,
Existing or
Revised
Industry
N
Size
standard
($ million
or emp #)
for NAICS
industry
750
Size
standard
($
million
or emp
#)for
SIC
activity
750
500
750
1987 SIC
code (* =
part of
SIC code)
*3313
*3341
*3399
1987 SIC
industry
Electrometallurgical
Products, Except
Steel (except Copper
and Aluminum)
Secondary Smelting
and Reining of
Nonferrous Metals
(except Copper and
Aluminum)
Primary Metal
Products, NEC
(except Copper and
Aluminum)
Subsector 332 - Fabricated Metal Product Manufacturing
332618
Other Fabricated
Wire Product
Manufacturing
R
500
332813
Electroplating,
Plating,
Polishing,
Anodizing and
Coloring
R
500
500
1,000
750
500
750
*3499
*3315
*3399
3496
*3399
Fabricated Metal
Products, NEC (safe
and vault locks)
Steel Wiredrawing
and Steel Nails and
Spikes (nails, spikes,
paper clips and wire
not made in
wiredrawing plants)
Primary Metal
Products, NEC
(nonferrous nails,
brads, staples, etc.)
Miscellaneous
Fabricated Wire
Products
Primary Metal
Products, NEC
(laminating steel)
7-9
-------
Table 7-2 (continued)
1997
NAICS
code
1997 NAICS
industry
description
New,
Existing or
Revised
Industry
Size
standard
($ million
or emp #)
for NAICS
industry
Size
standard
($
million
or emp
#)for
SIC
activity
500
1987 SIC
code (* =
part of
SIC code)
3471
1987 SIC
industry
Electroplating,
Plating, Polishing,
Anodizing, and
Coloring
Subsector 333 — Machinery Manufacturing
333319
Other
Commercial and
Service Industry
Machinery
Manufacturing
R
500
333618
Other Engine
Equipment
Manufacturing
R
1,000
500
500
500
750
1,000
750
*3559
3589
*3599
*3699
*3519
*3699
Special Industry
Machinery, NEC
(automotive
maintenance
equipment)
Service Industry
Machinery, NEC
Industrial and
Commercial
Machinery and
Equipment, NEC
(carnival amusement
park equipment)
Electrical
Machinery,
Equipment and
Supplies, NEC
(electronic teaching
machines and flight
simulators)
Internal Combustion
Engines, NEC
(except stationary
engine radiators)
Electrical
Machinery,
Equipment and
Supplies, NEC
(outboard electric
motors)
Source: Federal Register, 5 September 2000
7-10
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7.2.2 Number of Small Entities
EPA evaluates the number of small entities as the number of sites belonging to small businesses.
EPA conducted a survey, not a census, of the iron and steel industry. That is, the Agency sent
questionnaires to some but not all sites in the iron and steel industry. Because EPA drew the sample on the
basis of site characteristics, the Agency could develop statistical weights for sites but not for companies.
EPA identified 115 companies in the survey of which 35 are small. Based on the statistical
weights for the sites owned by these companies, EPA estimates that approximately 61 sites nationwide are
owned by small entities. Because the number of companies cannot exceed the number of sites, the
approach is conservative.
7.3 IMPACTS FROM PROMULGATED RULE ON SITES OWNED BY SMALL ENTITIES
The Agency evaluated the annualized compliance cost for the final rule as a percentage of 1997
revenue. No small entity incurs costs in excess of one percent of revenues.
EPA projects no site closures from subcategory costs or combined subcategory costs; hence, there
are no impacts on small entities. No business is projected to move into financial distress; hence, no small
entities are adversely affected.
7.4 REFERENCES
U.S. EPA. 1999. U.S. Environmental Protection Agency. Revised Interim Guidance for EPA
Rulewriters: Regulatory Flexibility Act as amended by the Small Business Regulatory Enforcement
Fairness Act. Washington, DC. 29 March.
FR. 2000. Small Business Administration. 13 CFR Part 121. Small business size regulations; size
standards and the North American Industry Classification System. Correction. Federal Register
65:53533-53558. 5 September.
7-11
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FR. 1999. Small Business Administration. 13 CFR Part 121. Small business size regulations; size
standards and the North American Industry Classification System. Proposed Rule. Federal Register
64:57188-57286. 22 October 1999.
7-12
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CHAPTER 8
ENVIRONMENTAL BENEFITS
8.1 OVERVIEW
An environmental assessment quantifies the water quality-related benefits associated with
achievement of the Best Available Technology (BAT) and Pretreatment Standards for Existing Sources
(PSES) promulgated by the U.S. Environmental Protection Agency (EPA) to regulate iron and steel
facilities (U.S. EPA, 2002, summarized here). This environmental assessment bases its conclusion of the
water quality-related benefits on aggregate site-specific analyses of current conditions and of changes
expected to result from compliance with the final iron and steel effluent guidelines and standards for Best
Available Technology Economically Achievable (BAT) and Pretreatment Standards for Existing Sources
(PSES). The final regulations limit the discharges of pollutants into navigable waters of the United States
and the introduction of pollutants into POTWs from existing sources and from new sources in two iron and
steel subcategories. These categories are cokemaking and sintering. Only loadings from the two
subcategories are aggregated to estimate the combined environmental effects of the final rule.
Using site-specific analyses of current conditions and changes in discharges associated with the
promulgated regulation, EPA estimated in-stream pollutant concentrations for 50 priority and
nonconventional pollutants using stream dilution modeling. EPA assessed the potential impacts and
benefits to aquatic life by comparing the modeled in-stream pollutant concentrations to published EPA
aquatic life criteria guidance or to toxic effect levels (Section 8.2). EPA projected human health benefits
by (1) comparing estimated in-stream pollutant concentrations to health-based water quality toxic effect
levels or criteria, and (2) estimating the potential reductions of carcinogenic risk and noncarcinogenic
hazard (systemic) from consuming contaminated fish or drinking water (Section 8.3).
The assessment also evaluated potential inhibition of operations (i.e., inhibition of microbial
degradation processes) at publicly owned treatment works (POTWs), and sewage sludge contamination
(here defined as a sludge pollutant concentration in excess of that permitting land application or surface
disposal of sewage sludge), at current and final pretreatment levels (Section 8.4). In addition, this report
8-1
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presents the potential fate and toxicity of pollutants of concern associated with iron and steel wastewater on
the basis of known characteristics of each chemical (Section 8.5). Section 8.6 provides a summary of the
findings.
8.2 COMPARISON OF IN-STREAM CONCENTRATIONS WITH AMBIENT WATER
QUALITY CRITERIA (AWQC) AND IMPACTS AT POTWS
8.2.1 Methodology
EPA employed stream dilution modeling techniques to assess the potential impacts and benefits of
the final effluent guidelines and standards. Using site-specific analyses, EPA estimated in-stream pollutant
concentrations for 50 priority and nonconventional pollutants1 under current (baseline) and final treatment
levels. EPA analyzed the effects on water quality from direct and indirect discharge operations separately.
EPA had sufficient data to analyze water quality impacts for 22 of 25 of the iron and steel facilities being
evaluated. EPA combined the impacts for the cokemaking and sintering subcategories to estimate water
quality effects as a result of the final rule.
8.2.2 Findings
EPA compared modeled in-stream pollutant concentrations to ambient water quality criteria
(AWQC)2 or to toxic effect levels before and after the regulation. EPA estimates that current discharge
loadings contribute to in-stream concentrations in excess of AWQC in 82 cases at 15 receiving streams.
1 Evaluations do not include the impacts of 3 conventional and 7 nonconventional pollutants when
modeling the effects of the final rule on receiving stream water quality and POTW operations or when
evaluating the potential fate and toxicity of discharged pollutants. The discharge of these pollutants may
adversely affect human health and the environment.
2 In performing this analysis, EPA used guidance documents published by EPA that recommend
numeric human health and aquatic life water quality criteria for numerous pollutants. States often consult
these guidance documents when adopting water quality criteria as part of their water quality standards.
However, because those State-adopted criteria may vary, EPA used the nationwide criteria guidance as the
most representative values.
8-2
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The final rule is expected to reduce the number of in-stream concentrations exceeding AWQC to 72 at 14
receiving streams, allowing one stream to obtain "contaminant-free" status.
EPA estimates that, under current (baseline) conditions, the 22 iron and steel facilities discharge
approximately 4.4 million pounds per year (Ib/year) of priority and nonconventional pollutants. The final
rule is expected to reduce this pollutant loading by 22 percent to 3.4 million Ib/year.
EPA assessed improvements in aquatic habitats using its findings of reduced occurrence of in-
stream pollutant concentrations in excess of both aquatic life and human health criteria or toxic effect
levels. EPA expects that these improvements in aquatic habitats will improve the quality and value of
recreational fishing opportunities and nonuse (intrinsic) values of the receiving streams. EPA monetizes the
attainment of the contaminant-free status based on improvements in recreational fishing opportunities and
on the nonuse (intrinsic) value of the streams. The estimated monetized benefit of this improvement ranges
from $0.11 million to $0.40 million (1997 dollars).
8.3 HUMAN HEALTH RISKS AND BENEFITS
8.3.1 Methodology
EPA projected human health benefits by (1) comparing estimated in-stream pollutant
concentrations to health-based toxic effect values or criteria derived using standard EPA methodology, and
(2) estimating the potential reductions of carcinogenic risk and noncarcinogenic hazard (systemic) from
consuming contaminated fish and drinking water. The assessment estimated upper-bound individual cancer
risks, population risks, and systemic hazards using modeled in-stream pollutant concentrations and
standard EPA assumptions. The assessment evaluated modeled pollutant concentrations in fish and
drinking water to estimate cancer risk and systemic hazards among the general population (drinking water
only), sport anglers and their families, and subsistence anglers and their families.
8-3
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8.3.2 Findings
EPA estimates that carcinogens in the current discharge loadings from the 22 iron and steel
facilities could be responsible for 0.9 total excess annual cancer cases from the consumption of
contaminated fish. The final rule is expected to reduce the carcinogenic loadings and the estimated excess
annual cancer cases to 0.4. The estimated monetized benefit of these reductions in human health effects
ranges from $1.2 million to $6.3 million (1997 dollars). In addition, EPA projects that the final rule will
not eliminate the hazard to approximately 5,000 people potentially exposed to systemic toxicant effects
from consumption of contaminated fish. EPA, therefore, projects no potential economic benefits from
reduced systemic effects.
8.4 ECONOMIC PRODUCTIVITY BENEFITS
The environmental assessment also evaluated the potential inhibition of POTW operations and
potential contamination of sewage biosolids (which limits its use for land application) based on current and
final pretreatment levels. EPA estimated inhibition of POTW operations by comparing modeled POTW
influent concentrations to available inhibition levels. EPA assessed the potential contamination of sewage
biosolids by comparing projected pollutant concentrations in sewage biosolids to available EPA regulatory
standards for land application and surface disposal of sewage biosolids.
EPA estimates that none of the seven publicly owned treatment works (POTWs) considered in this
assessment are experiencing inhibition problems or impaired biosolid quality due to iron and steel
wastewater discharges. EPA, therefore, projects no potential economic benefits from reduced biosolid
disposal costs.
8.5 POLLUTANT FATE AND TOXICITY
EPA identified a total of 60 pollutants of concern (22 priority pollutants, three conventional
pollutants, and 35 nonconventional pollutants) at treatable levels in waste streams from the 22 iron and
8-4
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steel facilities. EPA evaluated 50 of these pollutants with sufficient data to assess their potential fate and
toxicity on the basis of known physical-chemical properties, and aquatic life and human health toxicity
data.
Most of the 50 pollutants have at least one known toxic effect. EPA determined that 20 exhibit
moderate to high toxicity to aquatic life, 19 are classified as known or probable human carcinogens, 36 are
human systemic toxicants, 16 have drinking water values, and 22 are designated as priority pollutants. In
terms of projected partitioning among media, 17 of the evaluated pollutants are moderately to highly
volatile (potentially causing risk to exposed populations via inhalation), 25 have a moderate to high
potential to bioaccumulate in aquatic biota (potentially accumulating in the food chain and causing
increased risk to higher trophic level organisms and to exposed human populations via consumption of fish
and shellfish), 20 are moderately to highly adsorptive to solids, and seven are resistant to biodegradation or
are slowly biodegraded.
8.6 SUMMARY OF POTENTIAL EFFECTS/BENEFITS FROM FINAL EFFLUENT
GUIDELINES
EPA estimates that the annual monetized benefits resulting from the effluent guidelines will range
from $1.3 million to $6.7 million (1997 dollars). Table 8-1 summarizes these effects/benefits. The range
reflects the uncertainty in evaluating the effects of this rule and in placing a monetary value on these
effects. The reported benefit estimate understates the total benefits expected to result under this rule.
Additional benefits, which cannot be quantified in this assessment include improved ecological conditions
from improvements in water quality, improvements to other recreational activities, and reduced discharge
of conventional and other pollutants.
8.7 REFERENCE
U.S. EPA. 2002. Environmental Assessment of the Final Effluent Limitations Guidelines and Standards
for the Iron and Steel Industry. U.S. Environmental Protection Agency. Washington, DC. EPA-821-R-
02-005.
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Table 8-1
Summary of Potential Effects/Benefits from the
Final Effluent Guidelines for the Iron and Steel Industry3
Loadings (million Ib/yr) b> °
Number of Instream
Excursions for Pollutants
That Exceed AWQC
Excess Annual Cancer
Cases6
Population Potentially
Exposed to Other
Noncarcinogenic Health
Risks6
POTWs Experiencing
Inhibition
Improved POTW Biosolid
Quality
Total Monetized Benefits
Current
4.4
82 at 15
streams
0.9
5,000
none of 7
0 metric tons
Final Rule
3.4
72 at 14
streams
0.4
5,000
none of 7
0 metric tons
Summary of Benefits
22 percent reduction
one stream becomes
"contaminant-free" d
Monetized benefits
(recreational/nonuse) =
$0.11 to $0.40 million
Reduction of 0.5 case each year
Monetized benefits =
$1.2 to $6.3 million
Health effects to exposed population
not eliminated
No baseline impacts
No baseline impacts
$1.3 to $6.7 million (1997 dollars)
a. Modeled results from 15 direct and 8 indirect facilities.
b. Loadings are representative of 50 priority and nonconventional pollutants evaluated; 3 conventional pollutants
and 7 nonconventional pollutants are not included.
c. Loadings do not account for POTW removals.
d. "Contaminant-free" from iron and steel discharges; however, potential contamination from other point source
discharges and nonpoint sources is still possible.
e. Through consumption of contaminated fish.
8-6
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CHAPTER 9
COST-BENEFIT COMPARISON AND
UNFUNDED MANDATES REFORM ACT ANALYSIS
9.1 COST-BENEFIT COMPARISON
The pre-tax annualized cost is $11 million in 1997 dollars for the final rule (see Table 5-6). The
pre-tax cost is a proxy for the social cost of the regulation because it incorporates the cost to industry
(post-tax costs), and costs to State and Federal governments (i.e., lost income from tax shields).1 In other
words, the cost part of the equation is well-identified and estimated.
The estimated quantified and monetized benefits of the rule range from $1.3 million to $6.7 million
(see Table 8-1). This, however, is an underestimate because EPA can fully characterize only a limited set
of benefits to the point of monetization. Chapter 8 focuses mainly on identified compounds with
quantifiable toxic or carcinogenic effects. This potentially leads to an underestimation of benefits, since
some significant pollutant characterizations are not considered. For example, the analyses do not include
the benefits associated with reducing the particulate load (measured as TSS), or the oxygen demand
(measured as BOD5 and COD) of the effluents. TSS loads can degrade an ecological habitat by reducing
light penetration and primary productivity, and from accumulation of solid particles that alter benthic
spawning grounds and feeding habitats. BOD5 and COD loads can deplete oxygen levels, which can
produce mortality or other adverse effects in fish, as well as reduce biological diversity. Therefore, the
reported benefit estimate understates the total benefits of this rule.
9.2 UNFUNDED MANDATES REFORM ACT ANALYSIS
Title II of the Unfunded Mandates Reform Act of 1995 (Public Law 104-4; UMRA) establishes
requirements for Federal agencies to assess the effects of their regulatory actions on State, local, and tribal
'All sites are currently permitted and permits are reissued on a periodic basis, so incremental costs
administrative costs of the regulation are negligible.
9-1
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governments as well as the private sector. Under Section 202(a)(l) of UMRA, EPA must generally
prepare a written statement, including a cost-benefit analysis, for proposed and final regulations that
"includes any Federal mandate that may result in the expenditure by State, local, and tribal governments, in
the aggregate or by the private sector" of annual costs in excess of $100 million.2 As a general matter, a
federal mandate includes Federal Regulations that impose enforceable duties on State, local, and tribal
governments, or on the private sector (Katzen, 1995). Significant regulatory actions require Office of
Management and Budget review and the preparation of a Regulatory Impact Assessment that compares the
costs and benefits of the action.
The final iron and steel industry effluent limitations guidelines are not an unfunded mandate on
state, local, or tribal governments because industry bears the cost of the regulation. The cost estimate to
industry does not exceed $100 million/year; hence, the rule is not an unfunded mandate on industry. EPA,
however, is responsive to all required provisions of UMRA. In particular, the Economic Analysis (EA)
addresses:
# Section 202(a)(l)—authorizing legislation (Section 1 and the preamble to the rule);
# Section 202(a)(2)—a qualitative and quantitative assessment of the anticipated costs and
benefits of the regulation, including administration costs to state and local governments
(Sections 5 and 8);
# Section 202(a)(3)(A)—accurate estimates of future compliance costs (as reasonably
feasible; Section 5);
# Section 202(a)(3)(B)—disproportionate effects on particular regions or segments of the
private sector. EPA projects no impacts as a result of the rule, hence there are no
disproportionate impacts (Chapter 6);
# Section 202(a)(3)(B)—disproportionate effects on local communities. EPA projects no
impacts as a result of the rule, hence there are no disproportionate impacts (Chapter 6) .
# Section 202(a)(4)—estimated effects on the national economy (Chapter 6);
# Section 205(a)—least burdensome option or explanation required (this Chapter).
2 The $100 million in annual costs is the same threshold that identifies a "significant regulatory action"
in Executive Order 12866.
9-2
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The preamble to the Rule summarizes the extent of EPA's consultation with stakeholders including
industry, environmental groups, states, and local governments (UMRA, sections 202(a)(5) and 204).
Because this rule does not "significantly or uniquely" affect small governments, section 203 of UMRA does
not apply.
Pursuant to section 205(a)(l)-(2), EPA has selected the "least costly, most cost-effective or least
burdensome alternative" consistent with the requirements of the Clean Water Act (CWA) for the reasons
discussed in the preamble to the rule. EPA is required under the CWA (section 304, Best Available
Technology Economically Achievable (BAT), and section 307, Pretreatment Standards for Existing
Sources (PSES)) to set effluent limitations guidelines and standards based on BAT considering factors
listed in the CWA such as age of equipment and facilities involved, and processes employed. EPA is also
required under the CWA (section 306, New Source Performance Standards (NSPS), and section 307,
Pretreatment Standards for New Sources (PSNS)) to set effluent limitations guidelines and standards based
on Best Available Demonstrated Technology. EPA determined that the rule constitutes the least
burdensome alternative consistent with the CWA.
9.3 REFERENCE
Katzen. 1995. Guidance for implementing Title II of S.I., Memorandum for the Heads of Executive
Departments and Agencies from Sally Katzen, Ad, OIRA. March 31, 1995.
9-3
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APPENDIX A
COST ANNUALIZATION MODEL
Figure A-l provides an overview of the cost annualization model. Inputs to the model come from
three sources: 1) the capital, one-time non-equipment, and operating and maintenance (O&M) costs for
incremental pollution control developed by EPA, 2) financial data taken from the Collection of 1997 Iron
and Steel Industry Data, PartB: Financial and Economic Data (1997 Questionnaire; U.S. EPA, 1998),
and 3) secondary sources. The cost annualization model calculates four types of compliance costs for a
site:
# Present value of expenditures—before-tax basis
# Present value of expenditures—after-tax basis
# Annualized cost—before-tax basis
# Annualized cost—after-tax basis
There are two reasons why the capital and O&M costs should be annualized. First, the initial
capital outlay should not be compared against a site's income in the first year because the capital cost is
incurred only once in the equipment's lifetime. That initial investment should be spread over the
equipment's life. Second, money has a time value. A dollar today is worth more than a dollar in the future;
expenditures incurred 15 years from now do not have the same value to the firm as the same expenditures
incurred tomorrow.
The cost annualization model is defined in terms of 1997 dollars because 1997 is the most recent
year for which financial data are available from the survey. Pollution control capital and operating and
maintenance costs are estimated in 1997 dollars and used to project cash outflows. The cash outflows are
then discounted to calculate the present value of future cash outflows in terms of 1997 dollars. This
methodology evaluates what a business would pay in constant dollars for all initial and future expenditures.
Finally, the model calculates the annualized cost for the cash outflow as an annuity that has the same
present value of the cash outflows and includes the cost of money or interest. The annualized cost is
analogous to a mortgage payment that spreads the one-time investment of a home into a defined series of
monthly payments.
A-l
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Data Sources
Inputs
Outputs
Engineering
Incremental
Pollution Control
Costs
Secondary
Sources
Questionnaire
Capital Costs
One-Time
Non-Equipment Costs
Annual Costs
Cost Deflator to —
$1997
Depreciation Method
(MACRS)
Federal Tax Rate
State Tax Rate
Discount Rate
Cost Annualization
Model
Taxes Paid
(Limitation on Tax Shield)
Tax Status
(Corporate or Personal)
Present Value
of Expenditures
Annualized Cost
Figure A-l
Cost Annualization Model
A-2
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Section A. 1 discusses the data sources for inputs to the cost annualization model. Section A.2
summarizes the financial assumptions in the model. Section A.3 presents all steps of the model with a
sample calculation.
A.1 INPUT DATA SOURCES
A. 1.1 EPA Engineering Cost Estimates
The capital, one-time non-equipment, and operating and maintenance (O&M) costs used in the
cost annualization model are developed by EPA's engineering staff. The capital cost is the initial
investment needed to purchase and install the equipment; it is a one-time cost. Unlike capital costs, a one-
time non-equipment cost cannot be depreciated because it is not associated with property that can wear out.
An example of such a cost is an engineering study that recommends improved operating parameters as a
method of meeting effluent limitations guidelines. No capital cost is associated with the plan's
implementation. Such one-time costs are expensed in their entirety in the first year of the model. The
O&M cost is the annual cost of operating and maintaining the equipment. O&M costs are incurred every
year of the equipment's operation.
A. 1.2 Questionnaire Data
The discount/interest rate is the either the weighted average cost of capital or the interest rate that
a site supplied in the 1997 Questionnaire—whichever is higher (as long as it falls between 3 and 19
percent). It is used to calculate the present value of the cash flows. The discount rate represents an
estimate of a site's marginal cost of capital, i.e. what it will cost the site to raise additional money for
capital expenditure whether through debt (a loan), equity (sale of stock), or working capital (opportunity
cost). The discount rate or weighted cost of capital is calculated as:
Discount rate = (interest rate * % of capital raised through interest) +
(equity rate * % of capital raised through equity [stock])
A-3
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For companies that do not use a discount rate, or provide a discount rate less than 3 percent or greater than
19 percent, the interest rate is used in the calculations. If no information was provided or if both the
discount and interest rates fall outside the 3 percent to 19 percent range,1 the median discount rate is used
in the cost annualization model. The discount rate is assumed unaffected by the need to finance the
purchase of pollution control equipment in order to comply with the regulation; in other words, the capital
structure of the firm is assumed to be unchanged by the regulation (Brigham, 1997). Nineteen sites did not
report either a discount or an interest rate. These sites finance expenditures through working capital. For
these sites, we assign the median discount rate as the opportunity cost of capital.
Corporate structure is derived from survey data for the purpose of estimating tax shields on
expenditures. A C corporation (corporate structure = 1) pays federal and state taxes at the corporate rate.
An S corporation or a limited liability corporation (corporate structure = 3) distributes earnings to the
partners and the individuals pay the taxes. Unfortunately, we do not know either the number of individuals
among whom the earnings are distributed or the tax rate of those individuals. For the purpose of the
analysis, the tax rate for S corporations and limited liability corporations is presumed to be zero.2 All other
entities (corporate structure = 2) are assumed to pay taxes at the individual rate.
Taxable income is the business entity's earnings before interest and taxes (EBIT). The value sets
the tax bracket for the site.
Average taxes paid is calculated from the 1995, 1996, and 1997 taxes paid by the business entity.
It is used to limit the tax shield to the typical amount of taxes paid in any given year.
1 A rate less than 3 percent is suspiciously low given that, in 1997, banks charged a prime rate of 8.44
percent and the discount rate at the Federal Reserve Bank of New York was 5 percent (CEA, 1999). A
rate greater than 19 percent is more likely to be an internal "hurdle" rate—the rate of return desired in a
project before it will be undertaken. All but one of sites provided a discount rate that fell into the accepted
range.
2The effect of this assumption is to assume there is no tax shield for S corporations and limited liability
corporations (LLCs). S corporations and LLCs will see no change in tax shield benefit because they do not
pay taxes. The persons to whom the income is distributed, however, will see the change in earnings due to
incremental pollution control costs; there is no tax shield benefit.
A-4
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A. 1.3 Secondary Data
The cost annualization model is developed in terms of constant 1997 dollars, so the
discount/interest rate must be adjusted for inflation before used in the model. That is, we need to change
the discount rate from the nominal value supplied in the questionnaire to the inflation-adjusted real value.
Table A-l lists the average inflation rate from 1987 to 1997 as measured by the Consumer Price Index.
The 10-year average inflation rate of 3.5 percent is used in the cost annualization model as the expected
average inflation rate over the 15-year life of the project to convert the nominal discount rate to a real
discount rate. The nominal discount rate is deflated to the real discount rate using the following formula
(OMB, 1992):
Real Discount Rate =
(1 + Nominal Discount Rate)
(1 + Expected Inflation Rate)
1
The median nominal discount rate for the industry (8.2 percent) is equivalent to a real discount rate of 4.5
percent using this formula.
Table A-2 lists each state's top corporate and individual tax rates and calculates national average
state tax rates (CCH, 1999a). The cost annualization model uses the average state tax rate because of the
complexities of the industry; for example, a site could be located in one state, while its corporate
headquarters are located in a second state. Given the uncertainty over which state tax rate applies to a
given site's revenues, the average state tax rate—rounded to three decimal points—is used in the cost
annualization model for all sites, i.e., 6.6 percent corporate tax rate and 5.6 percent personal tax rate.
The cost annualization model incorporates variable tax rates according to the type of business
entity and level of income to address differences between small and large businesses. For example, a large
business might have a combined tax rate of 40.6 percent (34 percent Federal plus 6.6 percent State). After
tax shields, the business would pay 59.4 cents for every dollar of incremental pollution control costs. A
small business, say a small sole proprietorship, might be in the 20.8 percent tax bracket (15 percent Federal
plus 5.8 percent State). After tax shields, the small business would pay 79.2 cents for every dollar of
A-5
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Table A-l
Inflation Rate 1987-1997
Year
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
Average Inflation Rate
Consumer
Price
Index
113.6
118.3
124.0
130.7
136.2
140.3
144.5
148.2
152.4
156.9
160.5
Change
4.1%
4.8%
5.4%
4.2%
3.0%
3.0%
2.6%
2.8%
3.0%
2.3%
3.5%
Source: CEA, 1999, Table B-60.
A-6
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Table A-2
State Income Tax Rates
State
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
Florida
Georgia
Hawaii
[daho
[llinois
Indiana
[owa
ECansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
STebraska
Nevada
STew Hampshire
New Jersey
STew Mexico
New York
STorth Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
lennesee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Average:
Corporate Income
Tax Rate
5.00%
9.40%
8.00%
6.50%
6.65%
4.75%
7.50%
8.70%
5.50%
6.00%
6.40%
8.00%
4.80%
3.40%
12.00%
4.00%
8.25%
8.00%
8.93%
7.00%
9.50%
2.20%
9.80%
5.00%
6.25%
6.75%
7.81%
0.00%
8.00%
7.25%
7.60%
7.50%
7.50%
10.50%
8.50%
6.00%
6.60%
9.99%
* 9.00%
5.00%
6.00%
6.00%
0.00%
5.00%
* 9.75%
6.00%
0.00%
9.00%
7.90%
0.00%
6.58%
Basis for States
With Graduated
Tax Tables
$90,000+
$100,000+
$100,000+
$250,000+
$250,000+
$200,000+
$250,000+
$10,000+
$50,000+
$lMillion+
$50,000+
$50,000+
$250,000+
Personal Income Tax
Upper Rate
5.00%
0.00%
5.04%
7.00%
9.30%
4.75%
4.50%
6.40%
0.00%
6.00%
8.75%
8.20%
3.00%
3.40%
8.98%
6.45%
6.00%
6.00%
8.50%
4.80%
5.95%
4.40%
8.00%
5.00%
6.00%
11.00%
6.99%
0.00%
0.00%
6.37%
8.20%
6.85%
7.75%
12.00%
7.30%
7.00%
9.00%
2.80%
10.40%
7.00%
0.00%
0.00%
0.00%
7.00%
9.45%
5.75%
0.00%
6.50%
6.77%
0.00%
5.59%
Basis for States
With Graduated
Tax Tables
$3,000+
$150,000+
$25,000+
$47,000
$10,000+
$60,000+
$10,000+
$40,000+
$20,000+
$52,000+
$30,000+
$8,000+
$50,000+
$33,000+
$3,000+
$50,000+
$10,000+
$9,000+
$71,000+
$27,000+
$75,000+
$42,000+
$20,000+
$60,000+
$50,000+
$200,000+
$5,000+
$250,000+
$12,000+
$7,500+
$250,000+
$17,000+
$60,000+
$15,000+
Notes: Basis for rates is reported to nearest $1,000.
Personal income tax rates for Rhode Island and Vermont based on federal tax (not taxable income).
Tax rates given here are equivalents for highest personal federal tax rate.
Source: CCH, 1999a. 2000 State Tax Handbook. Chicago, IL: CCH.
A-7
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incremental pollution control. The net present value of after-tax cost is used in the closure analysis
because it reflects the long-term impact on its income the business would actually experience.
All costs will be deflated to 1997 dollars, if necessary, for the cost annualization model. The
Construction Cost Index published by the weekly Engineering News Report, is the indexed used for this
purpose (ENR, 2000).
A.2 FINANCIAL ASSUMPTIONS
The cost annualization model incorporates several financial assumptions:
# Depreciation method is the Modified Accelerated Cost Recovery System (MACRS).3
MACRS applies to assets put into service after December 31, 1986. MACRS allows
businesses to depreciate a higher percentage of an investment in the early years and a
lower percentage in the later years.
3EPA examined straight-line depreciation, Internal Revenue Code Section 169 and 179 provisions as
well as MACRS for depreciation. Straight-line depreciation writes off a constant percentage of the
investment each year. MACRS offers companies a financial advantage over the straight-line method
because a company's taxable income may be reduced under MACRS by a greater amount in the early years
when the time value of money is greater.
Section 169 provides an option to amortize pollution control equipment over a 5-year period (RIA,
1999). Under this provision, 75 percent of the investment could be rapidly amortized in a 5-year period
using a straight-line method. The 75 percent figure is based on the ratio of allowable lifetime (15 years) to
the estimated usable lifetime (20 years) as specified in Section 169, Subsection (f). Although the tax
provision enables the site to expense the investment over a shorter time period, the advantage is
substantially reduced because only 75 percent of the capital investment can be recovered. Because the
benefit of the provision is slight and sites might not get the required certification to take advantage of it, the
provision was not included in the cost annualization model.
EPA also considered the Section 179 provision to elect to expense up to $24,000 if the equipment
is placed into service in 2001 or 2002 (RIA, 1999). The deduction increased to $25,000 if the equipment is
placed into service in 2003 or later. EPA assumes that this provision is applied to other investments for the
business entity. Its absence in the cost annualization model may result in a slightly higher estimate of the
after-tax annualized cost for the site.
A-8
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# There is a six-month lag between the time of purchase and the time operation begins for
the pollution control equipment. A mid-year depreciation convention may be used for
equipment that is placed in service at any point within the year (CCH, 1999b, 1(1206).
EPA chose to use a mid-year convention in the cost annualization model because of its
flexibility and the likelihood that the equipment considered for pollution control could be
built and installed within a year of initial investment. Because a half-year of depreciation
is taken in the first year, a half-year needs to be taken in the 16th year of operation.
Consequently, the cost annualization model spans a 16-year time period.
# The pollution equipment has an operating lifetime or class life between 20 and 25 years. It
is considered 15-year property.
The depreciable life of the asset is based on, but is not equivalent to, the useful life of the asset.
The Internal Revenue Service (IRS) establishes different "classes" of property. For example, a race horse
is 3-year property. The Internal Revenue Code Section 168 classifies an investment as 15-year property if
it has a class life of 20 years or more but less than 25 years. Section 168(e)(3)(E) lists a municipal
wastewater treatment plant as an example of 15-year property (CCH, 1999b, 1(1240; RIA, 1999). The cost
annualization model, therefore, incorporates a 15-year depreciable lifetime. Thus, for the purpose of the
calculating depreciation, most components of the pollution control capital costs considered in this analysis
would be 15-year property. According to IRS requirements, pollution control equipment can be
depreciated, but the total cost of the equipment cannot be subtracted from income in the first year. In other
words, the equipment must be capitalized, not expensed (CCH, 1999b, 1(991; and RIA, 1999, Section 169).
A.3 SAMPLE COST ANNUALIZATION SPREADSHEET
In Table A-3, the spreadsheet contains numbered columns that calculate the before- and after-tax
annualized cost of the investment to the site. The first column lists each year of the equipment's life span,
from its installation through its 15-year depreciable lifetime.
Column 2 represents the percentage of the capital costs that can be written off or depreciated each
year. These rates are based on the MACRS and are taken from CCH (1999b). Multiplying these
depreciation rates by the capital cost gives the annual amount the site may depreciate, which is listed in
Column 3. Depreciation expense is used to offset annual income for tax purposes; Column 4 shows the
potential tax shield provided from the depreciation expense—the overall tax rate times the depreciation
amount for the year.
A-9
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o -H _H-H
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-------
Column 5 is the annual O&M expense and the one-time non-equipment cost. In this example, Year
1 shows the one-time non-equipment investment cost ($10,000) plus six months of O&M ($1,000 + 2 =
$500) for a total of $10,500. Year 1 andYear 16 show only six months of O&M expenses because of the
mid-year convention assumption for depreciation. For Years 2 through 15, O&M is a constant amount.
Column 6 is the potential tax shield or benefit provided from expensing the O&M costs.
Column 7 lists a site's annual pre-tax cash outflow or total expenses associated with the additional
pollution control equipment. Total expenses include capital costs, assumed to be incurred during the first
year when the equipment is installed, any one-time non-equipment cost, plus each year's O&M expense.
Column 8 is the adjusted tax shield. The potential tax shield is the sum of the tax shields from
depreciation (Column 4) and O&M/one-time costs (Column 6). If the potential tax shield for any year
exceeds the 3-year average taxes paid, the tax shield is limited to the average taxes paid by the company.
In Table A-3 example, the potential tax shield in Year 1 is $1,080 plus $2,268 = $3,348. The exceeds the
average taxes paid over the last three years ($2,333). Hence, the tax shield is limited to $2,333. The limit
is not invoked in any of the remaining years in the cost annualization model. This approach is conservative
in that the limit is applied every year when a company may opt to carry losses forward to decrease tax
liabilities in future years. An alternative approach is to limit the present value of the tax shield to the
present value of taxes paid for the 15-year period. Should the first approach appear to overestimate cost
impacts, the second approach may be examined as a sensitivity analysis.
Column 9 lists the annual cash outflow less the adjusted tax shield (Column 7 minus Column 8);
a site will recover these costs in the form of reduced income taxes. The sum of the 16 years of after-tax
expenses is $125,000 (1997 dollars), i.e., the sum of the capital expense ($1,000,000), the one-time
expense ($10,000) and 15 years of O&M ($15,000). The present value of these payments is $121,811 The
present value calculation takes into account the time value of money and is calculated as:
" cash outflow, year.
Present Value of Cash Outflows =
1=1 (1 + real discount rate)
i-l
A-ll
-------
The exponent in the denominator is i-1 because the real discount rate is not applied to the cash outflow in
Year 1. The present value of the after-tax cash outflow is used in the closure analysis to calculate the post-
regulatory present value of future earnings for a site.
The present value of the cash outflow is transformed into a constant annual payment for use as the
annualized site compliance cost. The annualized cost is calculated as a 16-year annuity that has the same
present value as the total cash outflow in Column 9. The annualized cost represents the annual payment
required to finance the cash outflow after tax shields. In essence, paying the annualized cost each year and
paying the amounts listed in Column 8 for each year are equivalent. The annualized cost is calculated as:
A I-J/^+D +i fu+fl real discount rate
Annualized Cost = Present value or cash outflows
1 - (real discount rate + 1) n
where n is the number of payment periods. In this example, based on the capital investment of $100,000, a
one-time expense of $10,000, O&M costs of $1,000 per year, atax rate of 21.6 percent, and anominal
discount rate of 7 percent, the site's annualized cost is $9,983 on a pre-tax basis and $8,254 on a post-tax
basis.4
The pre-tax annualized cost is used in calculating the cost of the regulation. It incorporates the
cost to industry for the purchase, installation, and operation of additional pollution control equipment as
well as the cost to federal and state government from lost tax revenues. (Every tax dollar that a business
does not pay due to a tax shield is a tax dollar lost to the government.) Post-tax annualized costs are used
to shock the market model because they reflect the cost to industry.
4 Note that post-tax annualized cost can be calculated in two ways. The first way is to calculate the
annualized cost as the difference between the annuity value of the cash flows (Column 7) and the adjusted
tax shield (Column 8). The second way is to calculate the annuity value of the cash flows after tax shields
(Column 9). Both methods yield the same result.
A-12
-------
A.4 REFERENCES
Brigham. 1997. Brigham, Eugene, F and Louis C. Gapenski. Financial management: theory and
practice. 8th edition. Chicago, IL: The Dryden Press.
CEA. 1999. Council of Economic Advisors. Economic report of the president. Washington, DC. Tables
B-60andB-73.
CCH. 1999a. Commerce Clearing House, Inc. 2000 State tax handbook. Chicago, IL.
CCH. 1999b. Commerce Clearing House, Inc. 2000 U.S. master tax guide. Chicago, IL.
ENR. 2000. Engineering News Record. Construction cost index.
OMB. 1992. Guidelines and discount rates for benefit-cost analysis of federal programs. Appendix A.
Revised circular No. A-94. October 29. Washington, DC: Office of Management and Budget.
RIA. 1999. The Research Institute of America, Inc. The complete internal revenue code. New York, NY.
July 1999 edition.
U.S. EPA. 1998. Collection of 1997 iron and steel industry data. OMB No. 2040-0193. Washington,
DC: U.S. Environmental Protection Agency, Office of Water.
A-13
-------
-------
Appendix B
Cross-reference Between NAICS and SIC Codes
1997 NAICS
code
1997 NAICS
industry
description
New,
Existing or
Revised
Industry
Proposed
size
standard
($ million
or emp #)
for NAICS
industry
Existing
size
standard
($ million
or emp #)
for SIC
activity
1987 SIC
code (* =
part of
SIC code)
1987 SIC
industry
Sector 21 — Mining
Subsector 212 — Mining (except Oil and Gas)
212111
21221
Bituminous Coal
and Lignite
Surface Mining
Iron Ore Mining
E
E
500
500
500
500
1221
1011
Bituminous Coal and
Lignite Surface
Mining
Iron Ores
Sector 22 - Utilities
Subsector 221 - Utilities
22121
Natural Gas
Distribution
R
500
$5.0
500
$5.0
$5.0
$5.0
*4923
4924
4925
*4931
4932
Natural Gas
Transmission and
Distribution
(distribution)
Natural Gas
Distribution
Mixed,
Manufactured, or
Liquefied Petroleum
Gas Production
and/or Distribution
(natural gas
distribution)
Electronic and Other
Services Combined
(natural gas
distribution)
Gas and Other
Services combined
(natural gas
distribution)
B-l
-------
Appendix B (cont.)
Cross-reference Between NAICS and SIC Codes
1997 NAICS
code
1997 NAICS
industry
description
New,
Existing or
Revised
Industry
Proposed
size
standard
($ million
or emp #)
for NAICS
industry
Existing
size
standard
($ million
or emp #)
for SIC
activity
$5.0
1987 SIC
code (* =
part of
SIC code)
*4939
1987 SIC
industry
Combination
Utilities, NEC
(natural gas
distribution)
Sector 23 — Construction
Subsector 233 — Building, Developing and General Contracting
23321
Single Family
Housing
Construction
R
$17.0
$17.0
$17.0
1521
*1531
General contractors-
Single-Family
Houses
Operative Builders
(single-family
housing
construction)
Subsector 324 — Petroleum and Coal Products Manufacturing
32411
324199
Petroleum
Refineries
All Other
Petroleum and
Coal Products
Manufacturing
1,500
500
1,500
500
1,000
2911
2999
*3312
Petroleum Refining
Products of
Petroleum and Coal,
NEC
Blast Furnaces and
Steel Mils (coke
ovens)
Subsector 325 — Chemical Manufacturing
32511
Petrochemical
Manufacturing
N
1,000
750
*2865
Cyclic Organic
Crudes and
Intermediates, and
Organic Dyes and
Pigments (aromatics)
B-2
-------
Appendix B (cont.)
Cross-reference Between NAICS and SIC Codes
1997 NAICS
code
1997 NAICS
industry
description
New,
Existing or
Revised
Industry
Proposed
size
standard
($ million
or emp #)
for NAICS
industry
25132
Synthetic Organic
Dye and Pigment
Manufacturing
N
750
Existing
size
standard
($ million
or emp #)
for SIC
activity
1,000
750
1987 SIC
code (* =
part of
SIC code)
*2869
*2865
1987 SIC
industry
Industrial Organic
Chemicals, NEC
(aliphatics)
Cyclic Organic
Crudes and
Intermediates, and
Organic Dyes and
Pigments (organic
dyes and pigments)
Subsector 331 — Primary Metal Manufacturing
331111
Iron and Steel
Mills
N
1,000
33121
331221
331222
Iron and Steel
Pipe and Tube
Manufacturing
from Purchased
Steel
Cold-Rolled Steel
Shape
Manufacturing
Steel Wire
Drawing
E
E
R
1,000
1,000
1,000
1,000
750
1,000
1,000
1,000
*3312
*3399
3317
3316
*3315
Steel Works, Blast
Furnaces (Including
Coke Ovens), and
Rolling Mills (except
coke ovens not
integrated with steel
mills)
Primary Metal
Products, NEC
(ferrous powder,
paste, flakes, etc.)
Steel Pipe and Tubes
Cold-Rolled Steel
Sheet, Strip and Bars
Steel Wiredrawing
and Steel Nails and
Spikes (steel wire
drawing)
B-3
-------
Appendix B (cont.)
Cross-reference Between NAICS and SIC Codes
1997 NAICS
code
331421
331491
331492
1997 NAICS
industry
description
Copper Rolling,
Drawing and
Extruding
Nonferrous Metal
(except Copper
and Aluminum)
Rolling, Drawing
and Extruding
Secondary
Smelting,
Refining, and
Allying of
Nonferrous Metal
(except Copper
and Aluminum)
New,
Existing or
Revised
Industry
E
R
N
Proposed
size
standard
($ million
or emp #)
for NAICS
industry
750
750
750
331511
Iron Foundries
R
500
331512
331513
Steel Investment
Foundries
Steel Foundries,
(except
Investment)
E
E
500
500
Existing
size
standard
($ million
or emp #)
for SIC
activity
750
750
750
500
750
500
500
500
500
1987 SIC
code (* =
part of
SIC code)
3351
3356
*3313
*3341
*3399
3321
3322
3324
3325
1987 SIC
industry
Rolling, Drawing,
and Extruding of
Copper
Rolling, Drawing
and Extruding of
Nonferrous Metals,
Except Copper and
Aluminum
Electrometallurgical
Products, Except
Steel (except copper
and aluminum)
Secondary Smelting
and Reining of
Nonferrous Metals
(except copper and
aluminum)
Primary Metal
Products, NEC
(except copper and
aluminum)
Gray and Ductile
Iron Foundries
Malleable Iron
Foundries
Steel Investment
Foundries
Steel Foundries,
NEC
B-4
-------
Appendix B (cont.)
Cross-reference Between NAICS and SIC Codes
1997 NAICS
code
1997 NAICS
industry
description
New,
Existing or
Revised
Industry
Proposed
size
standard
($ million
or emp #)
for NAICS
industry
Existing
size
standard
($ million
or emp #)
for SIC
activity
1987 SIC
code (* =
part of
SIC code)
1987 SIC
industry
Subsector 332 - Fabricated Metal Product Manufacturing
332117
332439
Powder
Metallurgy Part
Manufacturing
Other Metal
Container
Manufacturing
N
R
500
500
33251
Hardware
Manufacturing
R
500
500
500
500
500
500
750
500
500
*3499
3412
*3429
*3444
*3499
*3537
*3429
*3499
Fabricated Metal
Products, NEC
(powder)
Metal Shipping
Barrels, Drums,
Kegs, and Pails
Hardware, NEC
(vacuum and
insulated bottles,
jugs, and chests)
Sheet Metal Work
(metal bins and vats)
Fabricated Metal
Products, NEC
(metal boxes)
Industrial Trucks,
Tractors, Trailers,
and Stackers (metal
air cargo containers)
Hardware, NEC
(hardware, except
hose nozzles, and
vacuum and
insulated bottles,
jugs and chests)
Fabricated Metal
Products, NEC (safe
and vault locks)
B-5
-------
Appendix B (cont.)
Cross-reference Between NAICS and SIC Codes
1997 NAICS
code
332618
1997 NAICS
industry
description
Other Fabricated
Wire Product
Manufacturing
New,
Existing or
Revised
Industry
R
Proposed
size
standard
($ million
or emp #)
for NAICS
industry
500
332812
332813
Metal Coating,
Engraving
(except Jewelry
and Silverware),
and Allied
Services to
Manufacturers
Electroplating,
Plating,
Polishing,
Anodizing and
Coloring
R
R
500
500
332991
Ball and Roller
Bearing
Manufacturing
E
750
Existing
size
standard
($ million
or emp #)
for SIC
activity
1,000
750
500
500
750
500
750
1987 SIC
code (* =
part of
SIC code)
*3315
*3399
3496
*3479
*3399
3471
3562
1987 SIC
industry
Steel Wiredrawing
and Steel Nails and
Spikes (nails, spikes,
paper clips and wire
not made in
wiredrawing plants)
Primary Metal
Products, NEC
(nonferrous nails,
brads, staples, etc.)
Miscellaneous
Fabricated Wire
Products
Coating, Engraving,
and Allied Services,
NEC (except jewelry,
silverware, and
flatware engraving
and etching)
Primary Metal
Products, NEC
(laminating steel)
Electroplating,
Plating, Polishing,
Anodizing, and
Coloring
Ball and Roller
Bearings
B-6
-------
Appendix B (cont.)
Cross-reference Between NAICS and SIC Codes
1997 NAICS
code
1997 NAICS
industry
description
New,
Existing or
Revised
Industry
Proposed
size
standard
($ million
or emp #)
for NAICS
industry
Existing
size
standard
($ million
or emp #)
for SIC
activity
1987 SIC
code (* =
part of
SIC code)
1987 SIC
industry
Subsector 333 — Machinery Manufacturing
333319
Other
Commercial and
Service Industry
Machinery
Manufacturing
R
500
333618
Other Engine
Equipment
Manufacturing
R
1,000
500
500
500
750
1,000
750
*3559
3589
*3599
*3699
*3519
*3699
Special Industry
Machinery, NEC
(automotive
maintenance
equipment)
Service Industry
Machinery, NEC
Industrial and
Commercial
Machinery and
Equipment, NEC
(carnival amusement
park equipment)
Electrical
Machinery,
Equipment and
Supplies, NEC
(electronic teaching
machines and flight
simulators)
Internal Combustion
Engines, NEC
(except stationary
engine radiators)
Electrical
Machinery,
Equipment and
Supplies, NEC
(outboard electric
motors)
Subsector 334 — Computer and Electronic Product Manufacturing
334413
Semiconductor
and Related
Device
E
500
500
3674
Semiconductors and
Related Devices
B-7
-------
Appendix B (cont.)
Cross-reference Between NAICS and SIC Codes
1997 NAICS
code
1997 NAICS
industry
description
New,
Existing or
Revised
Industry
Proposed
size
standard
($ million
or emp #)
for NAICS
industry
Existing
size
standard
($ million
or emp #)
for SIC
activity
1987 SIC
code (* =
part of
SIC code)
1987 SIC
industry
Subsector 339 — Miscellaneous Manufacturing
339911
Jewelry (except
Costume)
Manufacturing
R
500
500
500
*3469
*3479
Metal Stamping,
NEC (stamping
coins)
Coating, Engraving,
and Allied Services,
NEC (jewelry
engraving and
etching, including
precious metal)
Sector 42 - Wholesale Trade
Subsector 421 — Wholesale Trade, Durable Goods
42151
42193
Metal Service
Centers and
Offices
Recyclable
Material
Wholesalers
E
E
100
100
100
100
5051
5093
Metals Service
Centers and Offices
Scrap and Waste
Materials
Subsector 422 — Wholesale Trade, Nondurable Goods
42251
Grain and Field
Bean Wholesalers
E
100
100
5153
Grain and Field
Beans
Sector 55 — Management of Companies and Enterprises
Subsector 551 — Management of Companies and Enterprises
551111
551112
Offices of Bank
Holding
Companies
Offices of Other
Holding
Companies
E
E
$5.0
$5.0
$5.0
$5.0
6712
6719
Offices of Bank
Holding Companies
Offices of Holding
Companies, NEC
Source: Federal Register, 22 October 1999
B-8
-------
APPENDIX C
COST-EFFECTIVENESS ANALYSIS
C.I INTRODUCTION
This cost-effectiveness (CE) analysis presents an evaluation of the technical efficiency of pollutant
control options for the final effluent limitations guidelines and standards for the iron and steel
manufacturing point source category based on Best Available Technology Economically Achievable (BAT)
and Pretreatment Standards for Existing Sources (PSES). BAT standards set effluent limitations on toxic
and nonconventional pollutants for direct dischargers prior to wastewater discharge directly into a water
body such as a stream, river, lake, estuary, or ocean. Indirect dischargers send wastewater to publicly
owned treatment works (POTW) for further treatment prior to discharge to U.S. surface waters; PSES set
limitations for indirect dischargers on pollutants which pass through a POTW.
Section C.2 discusses EPA's cost-effectiveness methodology and identifies the pollutants included
in the analysis. This section also presents EPA's toxic weighting factors for each pollutant and discusses
POTW removal factors for indirect dischargers. Section C.3 presents the cost-effectiveness analysis.
Section C.4 contains supplementary data tables while Section C.5 lists references.
C.2 COST-EFFECTIVENESS METHODOLOGY
C.2.1 Overview
Cost-effectiveness is evaluated as the incremental annualized cost of a pollution control option in
an industry or industry subcategory per incremental pound equivalent of pollutant (i.e., pound of pollutant
adjusted for toxicity) removed by that control option. EPA uses the cost-effectiveness analysis primarily to
compare the removal efficiencies of regulatory options under consideration for a rule. A secondary and less
effective use is to compare the cost-effectiveness of the promulgated options for the iron and steel
manufacturing industry to those for effluent limitation guidelines and standards for other industries.
C-l
-------
To develop a cost-effectiveness study, the following steps must be taken to define the analysis or
generate data used for calculating values:
# Determine the pollutants effectively removed from the wastewater.
# For each pollutant, identify the toxic weights and POTW removal factors. (The first
adjusts the removals to reflect the relative toxicity of the pollutants while the second
reflects the ability of a POTW or sewage treatment plant to remove pollutants prior to
discharge to the water. These are described in Sections C.2.2 and C.2.3.)
# Define the regulatory pollution control options.
# Calculate pollutant removals for each pollution control option.
# Calculate the product of the pollutant removed (in pounds), the toxic weighting factor, and
the POTW removal factor. The resultant removal is specified in terms of "pound-
equivalents" removed.
# Determine the annualized cost of each pollution control option.
# Rank the pollution control options in order of increasing pound equivalents removed.
# Identify and delete from consideration ineffective options.
# Calculate incremental CE for remaining options.
Table C-l presents the pollutants, their toxic weights, and POTW removal factors used in the CE
calculations.
C.2.2 Toxic Weighting Factors
Cost-effectiveness analyses account for differences in toxicity among the pollutants using toxic
weighting factors. Accounting for these differences is necessary because the potentially harmful effects on
human and aquatic life are specific to the pollutant. For example, a pound of zinc in an effluent stream has
a significantly different, less harmful effect than a pound of PCBs. Toxic weighting factors for pollutants
are derived using ambient water quality criteria and toxicity values. For most industries, toxic weighting
factors are developed from chronic freshwater aquatic criteria. In cases where a human health criterion has
C-2
-------
Table C-l
Toxic Weighting Factors and POTW Removal Factors for Pollutants
Pollutant Name
1,2,3,4,6,7,8-Heptachlorodibenzofuran
1,2,3,4,7,8-Hexachlorodibenzofuran
1,2,3,6,7,8-Hexachlorodibenzofuran
1,2,3,7,8-Pentachlorodibenzofuran
2-Methylnaphthalene
2-Phenylnaphthalene
2,3,4,6,7,8-Hexachlorodibenzofuran
2,3,4,7,8-Pentachlorodibenzofuran
2,3,7,8-Tetrachlorodibenzofuran
2,4-Dimethylphenol
4-Nitrophenol
Acetone
alpha- Terpineol
Aluminum
Ammonia As Nitrogen (NH3-N)
Aniline
Antimony
Arsenic
Barium
Benzene
Benzo(a)anthracene
Benzo(a)pyrene
Benzo(b)fluoranthene
Bis(2-ethylhexyl) Phthalate
Boron
Cadmium
Chromium
Chromium, Hexavalent
Chrysene
Cobalt
Copper
Dibenzofuran
Fluoranthene
Fluoride
Hexanoic Acid
Iron
Lead
Magnesium
Manganese
Mercury
Molybdenum
Naphthalene
n-Dodecane
n-Eicosane
n-Hexadecane
Nickel
Nitrate/Nitrite (NO2 +NO3-N)
n-Octadecane
o-Cresol
p-Cresol
Phenanthrene
Phenol
Pyrene
Pyridine
Selenium
Silica Gel Treated-HEM (SGT-HEM)
Thallium
Thiocyanate
Tin
Titanium
Total Cyanide
Vanadium
Zinc
Toxic
Weighting
Factor
6.70E+005
6.70E+006
6.70E+006
3.30E+006
8.00E-002
1.50E-001
6.70E+006
3.30E+007
6.70E+006
5.30E-003
9.40E-003
5.00E-006
1.10E-003
6.40E-002
1.80E-003
1.40E+000
4.80E-003
3.50E+000
2.00E-003
1.80E-002
1.80E+002
4.30E+003
4.20E+002
9.50E-002
1.80E-001
2.60E+000
7.60E-002
5.10E-001
2.10E+000
1.10E-001
6.30E-001
2.00E-001
8.00E-001
3.50E-002
3.70E-004
5.60E-003
2.20E+000
8.70E-004
7.00E-002
1.20E+002
2.00E-001
1.50E-002
4.30E-003
4.30E-003
4.30E-003
1.10E-001
6.20E-005
4.30E-003
2.70E-003
4.00E-003
2.90E-001
2.80E-002
1.10E-001
1.30E-003
1.10E+000
l.OOE+000
1.20E-001
3.00E-001
2.90E-002
1.10E+000
6.20E-001
4.70E-002
POTW
Removal
Factor
0%
0%
0%
0%
28%
85%
0%
0%
0%
51%
0%
84%
94%
91%
39%
93%
67%
66%
55%
95%
98%
95%
95%
60%
24%
90%
80%
6%
97%
10%
84%
98%
42%
54%
84%
82%
77%
14%
36%
90%
19%
95%
95%
92%
71%
51%
90%
71%
53%
72%
95%
95%
84%
95%
34%
87%
50%
70%
43%
92%
70%
8%
79%
C-3
-------
also been established for the consumption offish, the sum of both the human and aquatic criteria are used
to derive toxic weighting factors. The factors are standardized by relating them to a "benchmark" toxicity
value, which was based on the toxicity of copper when the methodology was developed.1
Examples of the effects of different aquatic and human health criteria on freshwater toxic
weighting factors are presented in Table C-2. As shown in this table, the toxic weighting factor is the sum
of two criteria-weighted ratios: the former benchmark copper criterion divided by the human health
criterion for the particular pollutant and the former benchmark copper criterion divided by the aquatic
chronic criterion. For example, using the values reported in Table C-2, four pounds of the benchmark
chemical (copper) pose the same relative hazard in freshwater as one pound of cadmium because cadmium
has a freshwater toxic weight four times greater than the toxic weight of copper (2.6 divided by 0.63 equals
4.13).
C.2.3 POTW Removal Factors
Calculating pound equivalents for direct dischargers differs from calculating for indirect
dischargers because of the ability of POTWs to remove certain pollutants. The POTW removal factors are
used as follows: If a facility is discharging 100 pounds of chromium in its effluent stream to a POTW and
the POTW has a 80 percent removal efficiency for chromium, then the chromium discharged to surface
waters is only 20 pounds (1 minus 0.8 equals 0.2). If the regulation reduces chromium discharged in the
effluent stream to the POTW by 50 pounds, then the amount discharged to surface waters is calculated as
50 pounds multiplied by the POTW removal factor (50 pounds times 0.2 equals 10 pounds). The cost-
effectiveness calculations then reflect the fact that the actual reduction of pollutant discharged to surface
water is not 50 pounds (the change in the amount discharged to the POTW), but 10 pounds (the change in
the amount actually discharged to surface water). A pollutant discharge that is unaffected by the POTW
has a removal factor of 1.
1 Although the water quality criterion has been revised (to 9.0 (jg/1), all cost-effectiveness analyses for
effluent guideline regulations continue to use the former criterion of 5.6 (jg/1 as a benchmark so that cost-
effectiveness values can continue to be compared to those for other effluent guidelines. Where copper is
present in the effluent, the revised higher criterion for copper results in a toxic weighting factor for copper of
0.63 rather than 1.0.
C-4
-------
Table C-2
Examples of Toxic Weighting Factors
Based on Copper Freshwater Chronic Criteria
Pollutant
Copper*
Cadmium
Naphthalene
Human Health
Criteria
(ns/l)
1,200
84
21,000
Aquatic
Chronic
Criteria (jig/1)
9.0
2.2
370
Weighting Calculation
5.6/1,200 + 5.6/9.0
5.6/84 + 5.6/2.2
5.6/21,000 + 5.6/370
Toxic
Weighting
Factor
0.63
2.6
0.015
* The water quality criterion has been revised (to 9.0 (Jg/1). Formerly, the weighting factor calculation led
to a result of 0.47 as a toxic weighting factor for copper.
Notes: Human health and aquatic chronic criteria are maximum contamination thresholds. Units for
criteria are micrograms of pollutant per liter of water.
C-5
-------
C.2.4 Pollutant Removals And Pound-equivalent Calculations
The pollutant loadings have been calculated for each facility under each regulatory pollution
control option for comparison with baseline (i.e., current practice) loadings. Pollutant removals are
calculated simply as the difference between current and post-treatment discharges. These pollutant
removals are converted into pound equivalents for the cost-effectiveness analysis. For direct dischargers,
removals in pound equivalents are calculated as:
Removals e = Removals ounds x Toxic weighting factor
For indirect dischargers, removals in pound equivalents are calculated as:
Removals = Removals ds x Toxic weighting factor x POTW removal factor
Total removals for each option are then calculated by adding up the removals of all pollutants included in
the cost-effectiveness analysis for a given subcategory.
C.2.5 Calculation Of Incremental Cost-effectiveness Values
Cost-effectiveness ratios are calculated separately for direct and indirect dischargers and by
subcategory. Within each of these many groupings, the pollution control options are ranked in ascending
order of pound equivalents removed. The incremental cost-effectiveness value for a particular control
option is calculated as the ratio of the incremental annual cost to the incremental pound equivalents
removed. The incremental effectiveness may be viewed primarily in comparison to the baseline scenario
and to other regulatory pollution control options. Cost-effectiveness values are reported in units of dollars
per pound equivalent of pollutant removed.
For the purpose of comparing cost-effectiveness values of options under review to those of
other promulgated rules, compliance costs used in the cost-effectiveness analysis are adjusted to 1981
C-6
-------
dollars using Engineering News Record's Construction Cost Index (CCI), see ENR 2000. The adjustment
factor is calculated as follows:
Adjustment factor = 1981 CCI/1997 CCI = 3535/5826 = 0.607
The equation used to calculate incremental cost-effectiveness is:
ATC, - ATC, ,
CEk = ± ti
where:
CEk= Cost-effectiveness of Option k
ATCk= Total annualized treatment cost under Option k
PEk= Pound equivalents removed by Option k
Cost-effectiveness measures the incremental unit cost of pollutant removal of Option k (in
pound equivalents) in comparison to Option k-1. The numerator of the equation, ATCk minus ATCk.1; is
simply the incremental annualized treatment cost in moving from Option k-1 (an option that removes fewer
pound equivalents of pollutants) to Option k (an option that removes more pound equivalents of pollutants).
Similarly, the denominator is the incremental removals achieved in going from Option k-1 to k.
C.3 COST-EFFECTIVENESS ANALYSIS
Chapter 5 presents the options and costs for each of the subcategories considered by EPA.
Pre-tax annualized costs are used in the CE calculations. Section C.4 contains the supplementary pound
and pound-equivalent tables for the analysis. The total pounds removed in these tables may differ from
those presented in the Technical Development Document because the costs and removals for sites projected
to close prior to the implementation of the rule have been deleted from the analysis. For a site which is
projected to close as a result of the rule, the compliance costs are included but the removals are the entire
discharge of the site.
C-7
-------
C.3.1 Subcategory Cost-effectiveness
Table C-3 shows the incremental CE tables for direct (BAT) and indirect (PSES) dischargers
in all subcategories that regulate toxic and nonconventional pollutants. That is, the "other operations"
subcategory considers the removal of only conventional pollutants and is not included in Table C-3. For
PSES cokemaking, the CE ranges from $45 to $61 per pound-equivalent. All other subcategories have one
BAT and one PSES option.
C.3.2 Industry Cost-effectiveness
Tables C-4, and C-5 list the incremental annualized cost and the incremental removals for the
final options for each subcategory. The incremental values are totals to provide the industry cost-
effectiveness ratios. For BAT, the industry CE ratio is $21 per pound-equivalent. For PSES, the industry
CE ratio is $45 per pound-equivalent.
Tables C-6 and C-7 summarize the cost-effectiveness of the final rule for the iron and steel
manufacturing industry relative to that of other industries for direct and indirect dischargers, respectively.
C.4 SUPPLEMENTAL TABLES
Tables C-8 to C-13 present pollutant removals for all options for direct dischargers. Tables C-
14 and C-15 show pollutant removals for indirect dischargers. Baseline loads for each subcategory are
illustrated in Tables C-16 through C-23. All tables in this section present pounds removed and pound
equivalents removed.
C.5 REFERENCE
Engineering News Record. 2000. Construction cost index history, 1907-2000. Engineering News Record.
March 27.
C-8
-------
Table C-3
Results of Cost-Effectiveness Analyses by Subcategory
Subcategory
Segment
Cokemaking
Sintering
Integrated Steelmaking
Integrated and
Stand-Alone
Hot-Forming
Non-Integrated
Steelmaking and
Hot-Forming
Carbon
Carbon
Stainless
Stainless
Regulatory
Option
BAT1
BATS
PSES 1
PSES3
BAT1
BAT1
BAT1
BAT1
BAT1
PSES 1
Pre-Tax
Annualized
Costs
(Millions of
$1997)
$6.49
$10.60
$1.93
$7.07
$2.57
$12.86
$33.77
$6.03
$0.78
$0.25
Pollutant
Removals (Pound
Equivalents)
185,441
228,889
26,251
77,783
14,515
94,494
247,280
3,891
230
78
Pre-Tax
Incremental Cost-
Effectiveness
($1981 Per Pound-
Equivalent
Removed)
$21
$58
$45
$61
$107
$83
$83
$941
$2,069
$1,970
C-9
-------
Table C-4
Incremental Cost-Effectiveness of Pollutant Control Options
Iron and Steel Manufacturing Point Source Category
Direct Dischargers
Sub category
Segment
Cokemaking
Sintering
Industry Total
Incremental
Pre-Tax
Annualized Cost
(Millions of
$1997)
$6.49
$2.57
$9.06
Pound
Equivalents
Removed
185,441
14,515
199,956
Cost-Effectiveness
($1981/Pound
Equivalents)
$21
$107
$27
Table C-5
Incremental Cost-Effectiveness of Pollutant Control Options
Iron and Steel Manufacturing Point Source Category
Indirect Dischargers
Sub category
Segment
Cokemaking
Industry Total
Incremental
Pre-Tax
Annualized Cost
(Millions of
$1997)
$1.93
$1.93
Pound
Equivalents
Removed
26,251
26,251
Cost-Effectiveness
($1981/Pound
Equivalents)
$45
$45
C-10
-------
Table C-6
Industry Comparison of BAT Cost-Effectiveness
For Direct Dischargers
(Toxic and Nonconventional Pollutants Only; Copper-Based Weights"; S 1981)
Industry
Aluminum Forming
Battery Manufacturing
Canmaking
Centralized Waste Treatment0
Coal Mining
Coil Coating
Copper Forming
Electronics I
Electronics II
Foundries
Inorganic Chemicals I
Inorganic Chemicals II
Iron & Steel
Leather Tanning
Metal Finishing
Metal Products and Machinery0
Nonferrous Metals Forming
Nonferrous Metals Mfg I
Nonferrous Metals Mfg II
Oil and Gas: Offshoreb
Coastal— Produced Water/TWC
Drilling Waste
Organic Chemicals
Pesticides
Pharmaceuticals0 A/C
B/D
Plastics Molding & Forming
Porcelain Enameling
Petroleum Refining
Pulp & Paper0
Textile Mills
TEC: TB/CHEM&PETR
TT & RT/CHEM&PETR
Pound Equivalents Currently
Discharged
(thousands)
1,340
4,126
12
3,372
BAT=BPT
2,289
70
9
NA
2,308
32,503
605
1,053
259
3,305
140
34
6,653
1,004
3,809
951
BAT = Current Practice
54,225
2,461
897
90
44
1,086
BAT=BPT
61,713
BAT=BPT
BAT=BPT
1
Pound Equivalents
Remaining at Selected
Option
(thousands)
90
5
0.2
1,261-1,267
BAT=BPT
9
8
3
NA
39
1,290
27
853
112
3,268
70
2
313
12
2,328
239
BAT = Current Practice
9,735
371
47
0.5
41
63
BAT=BPT
2,628
BAT=BPT
BAT=BPT
ND
Cost-Effectiveness of
Selected Option(s)
($/ Pound Equivalents
removed)
121
2
10
5-7
BAT=BPT
49
27
404
NA
84
<1
6
27
BAT=BPT
12
50
69
4
6
33
35
BAT = Current Practice
5
14
47
96
BAT=BPT
6
BAT=BPT
39
BAT=BPT
BAT=BPT
323
aAlthough toxic weighting factors for priority pollutants varied across these rules, this table reflects the cost-effectiveness at the time of regulation.
bProduced water only; for produced sand and drilling fluids and drill cuttings, BAT=NSPS.
ND: Nondisclosed due to business confidentiality.
C-ll
-------
Table C-7
Industry Comparison of PSES Cost-Effectiveness
For Indirect Dischargers
(Toxic and Nonconventional Pollutants Only; Copper-Based Weights"; S 1981)
Industry"
Aluminum Forming
Battery Manufacturing
Canmaking
Centralized Waste Treatment0
Coal Mining
Coil Coating
Copper Forming
Electronics I
Electronics II
Foundries
Inorganic Chemicals I
Inorganic Chemicals II
Iron & Steel
Leather Tanning
Metal Finishing
Metal Products and Machinery0
Nonferrous Metals Forming
Nonferrous Metals Mfg I
Nonferrous Metals Mfg II
Organic Chemicals
Pesticide Manufacturing
Pesticide Formulating
Pharmaceuticals0
Plastics Molding & Forming
Porcelain Enameling
Pulp & Paper0
Transportation Equipment Cleaning
Pound Equivalents
Currently Discharged (To
Surface Waters)
(thousands)
1,602
1,152
252
689
NA
2,503
934
75
260
2,136
3,971
4,760
91
16,830
11,680
1,115
189
3,187
38
5,210
257
7,746
340
NA
1,565
9,539
81
Pound Equivalents
Discharged at Selected
Option (To Surface
Waters)
(thousands)
18
5
5
328-330
NA
10
4
35
24
18
3,004
6
64
1,899
755
234
5
19
0.41
72
19
112
63
NA
96
103
43
Cost-Effectiveness of
Selected Option(s)
Beyond BPT
(S/Pound Equivalents
removed)
155
15
38
70-110
NA°
10
10
14
14
116
9
<1
45
111
10
127
90
15
12
34
18
<3
1
NA
14
65
148
"Although toxic weighting factors for priority pollutants varied across these rules, this table reflects the cost-effectiveness at the time of regulation.
''No known indirect dischargers at this time for offshore oil and gas and coastal oil and gas.
°Proposed.
C-12
-------
Table C-8
Pollutant Removals
Cokemaking Subcategory
Direct Dischargers
Pounds
Removed
Chemical Name
2,4-Dimethylphenol
2-Methylnaphthalene
2-Phenylnaphthalene
Acetone
Ammonia As Nitrogen (NH3-N)
Aniline
Benzene
Benzo (a) anthracene
Benzo(a)pyrene
Benzo(b)fluoranthene
Chrysene
Dibenzofuran
Fluoranthene
Mercury
n-Eicosane
n-Octadecane
Naphthalene
Nitrate/Nitrite (NO2 + NO3-N)
o-Cresol
p-Cresol
Phenanthrene
Phenol
Pyrene
Pyridine
Selenium
Thiocyanate
Total Cyanide
Total
Option 1
o
J
53
4
24
411,340
5
11
20
28
3
19
4
37
1
4
4
22
0
23
5
3
121
30
6
1,461
298,710
19,009
730,951
Option 3
11
62
11
58
431,440
12
15
11
35
8
11
11
11
1
11
11
32
76,100
31
12
11
136
11
13
1,759
299,421
32,915
842,157
Toxic
Weighting
Factor
5.3E-003
8.0E-002
1.5E-001
5.0E-006
1.8E-003
1.4E+000
1.8E-002
1.8E+002
4.3E+003
4.2E+002
2.1E+000
2.0E-001
8.0E-001
1.2E+002
4.3E-003
4.3E-003
1.5E-002
6.2E-005
2.7E-003
4.0E-003
2.9E-001
2.8E-002
1.1E-001
1.3E-003
1.1E+000
1.2E-001
1.1E+000
Pound Equivalents (PE)
Removed
Option 1
0.0
4.2
0.6
0.0
740.4
7.6
0.2
3,659.9
121,341.7
1,100.8
39.9
0.8
29.9
145.3
0.0
0.0
0.3
0.0
0.1
0.0
1.0
3.4
3.3
0.0
1,606.7
35,845.2
20,909.9
185,441
Option 3
0.1
4.9
1.6
0.0
776.6
17.3
0.3
1,916.0
148,608.0
3,272.2
22.4
2.2
8.5
174.1
0.0
0.0
0.5
4.7
0.1
0.0
3.2
3.8
1.2
0.0
1,934.5
35,930.5
36,206.5
228,889
C-13
-------
Table C-9
Pollutant Removals
Sintering Subcategory
Direct Dischargers
Chemical Name
1,2,3,4,6,7,8-Heptachlorodibenzofuran
1,2,3,4,7,8-Hexachlorodibenzofuran
1,2,3,6,7,8-Hexachlorodibenzofuran
1,2,3,7,8-Pentachlorodibenzofuran
2,3,4,6,7,8-Hexachlorodibenzofuran
2,3,4,7,8-Pentachlorodibenzofuran
2,3,7,8-Tetrachlorodibenzofuran
2,4-Dimethylphenol
4-Nitrophenol
Aluminum
Amenable Cyanide
Ammonia As Nitrogen (NH3-N)
Arsenic
Boron
Cadmium
Chromium
Copper
Fluoranthene
Fluoride
Iron
Lead
Magnesium
Manganese
Mercury
Molybdenum
Nickel
Nitrate/Nitrite (NO2 + NO3-N)
o-Cresol
p-Cresol
Phenanthrene
Phenol
Pyridine
Selenium
Thallium
Thiocyanate
Titanium
Total Cyanide
Zinc
Total
Pounds
Removed
Option 1
0.0003
0.0002
0.0001
0.0002
0.0001
0.0003
0.0003
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0014
Pound Equivalents (PE)
Toxic Removed
Weighting
Factor
6.7E+005
6.7E+006
6.7E+006
3.3E+006
6.7E+006
3.3E+007
6.7E+006
5.3E-003
9.4E-003
6.4E-002
O.OE+000
1.8E-003
3.5E+000
1.8E-001
2.6E+000
7.6E-002
6.3E-001
8.0E-001
3.5E-002
5.6E-003
2.2E+000
8.7E-004
7.0E-002
1.2E+002
2.0E-001
1.1E-001
6.2E-005
2.7E-003
4.0E-003
2.9E-001
2.8E-002
1.3E-003
1.1E+000
l.OE+000
1.2E-001
2.9E-002
1.1E+000
4.7E-002
Option 1
182.0
1,080.7
791.9
502.3
440.8
9,296.1
2,221.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
14,515
C-14
-------
Table C-10
Pollutant Removals
Integrated Steelmaking Subcategory
Direct Dischargers
Chemical Name
Aluminum
Ammonia As Nitrogen (NH3-N)
Cadmium
Chromium
Copper
Fluoride
Iron
Lead
Magnesium
Manganese
Molybdenum
Nitrate/Nitrite (NO2 + NO3-N)
Tin
Titanium
Vanadium
Zinc
Total
Pounds
Removed
Option 1
46,900
15,985
206
526
812
2,080,790
235,988
3,186
1,825,000
12,947
22,134
0
342
380
674
37,599
4,283,467
Toxic
Weighting
Factor
6.4E-002
1.8E-003
2.6E+000
7.6E-002
6.3E-001
3.5E-002
5.6E-003
2.2E+000
8.7E-004
7.0E-002
2.0E-001
6.2E-005
3.0E-001
2.9E-002
6.2E-001
4.7E-002
Pound Equivalents (PE)
Removed
Option 1
3,002
29
535
40
512
72,828
1,322
7,009
1,588
906
4,427
0
103
11
418
1,767
94,494
C-15
-------
Table C-ll
Pollutant Removals
Integrated and Standalone Hot Forming Subcategory
Direct Dischargers - Carbon Segment
Chemical Name
Ammonia As Nitrogen (NH3-N)
Fluoride
Iron
Lead
Manganese
Molybdenum
Zinc
Total
Pounds
Removed
Option 1
637,974.1
4,171,246.1
7,009,176.7
19,357.7
63,932.7
52,564.8
70,451.6
12,024,704
Toxic
Weighting
Factor
1.8E-003
3.5E-002
5.6E-003
2.2E+000
7.0E-002
2.0E-001
4.7E-002
Pound Equivalents (PE)
Removed
Option 1
1,148.4
145,993.6
39,251.4
42,587.0
4,475.3
10,513.0
3,311.2
247,280
C-16
-------
Table C-12
Pollutant Removals
Non-Integrated Steelmaking and Hot Forming Subcategory
Direct Dischargers - Carbon Segment
Chemical Name
Ammonia As Nitrogen (NH3-N)
Boron
Copper
Fluoride
Iron
Lead
Manganese
Molybdenum
Nitrate/Nitrite (NO2 + NO3-N)
Zinc
Total
Pounds
Removed
Option 1
0.0
0.0
0.0
15,687.2
97,106.6
677.9
13,214.0
1,213.4
0.0
2,953.1
130,852
Toxic
Weighting
Factor
1.8E-003
1.8E-001
6.3E-001
3.5E-002
5.6E-003
2.2E+000
7.0E-002
2.0E-001
6.2E-005
4.7E-002
Pound Equivalents (PE)
Removed
Option 1
0.0
0.0
0.0
549.1
543.8
1,491.4
925.0
242.7
0.0
138.8
3,891
C-17
-------
Table C-13
Pollutant Removals
Non-Integrated Steelmaking and Hot Forming Subcategory
Direct Dischargers - Stainless Segment
Chemical Name
Aluminum
Ammonia As Nitrogen (NH3-N)
Antimony
Boron
Chromium
Chromium, Hexavalent
Copper
Fluoride
Iron
Lead
Manganese
Molybdenum
Nickel
Nitrate/Nitrite (NO2 + NO3-N)
Titanium
Zinc
Total
Pounds
Removed
Option 1
0.0
0.0
52.1
0.0
140.2
0.0
65.5
0.0
3,023.8
0.0
277.0
0.0
637.3
0.0
5.7
1,509.6
5,711
Toxic
Weighting
Factor
6.4E-002
1.8E-003
4.8E-003
1.8E-001
7.6E-002
5.1E-001
6.3E-001
3.5E-002
5.6E-003
2.2E+000
7.0E-002
2.0E-001
1.1E-001
6.2E-005
2.9E-002
4.7E-002
Pound Equivalents (PE)
Removed
Option 1
0.0
0.0
0.2
0.0
10.7
0.0
41.2
0.0
16.9
0.0
19.4
0.0
70.1
0.0
0.2
71.0
230
C-18
-------
Table C-14
Pollutant Removals
Cokemaking Subcategory
Indirect Dischargers
Pounds Removed
Chemical Name
2,4-Dimethylphenol
2-Methylnaphthalene
2-Phenylnaphthalene
Acetone
Ammonia As Nitrogen (NH3-N)
Aniline
Benzene
Benzo(a)anthracene
Benzo(a)pyrene
Benzo(b)fluoranthene
Chrysene
Dibenzofuran
Fluoranthene
Mercury
n-Eicosane
n-Octadecane
Naphthalene
Nitrate/Nitrite (N02 +N03-N)
o-Cresol
p-Cresol
Phenanthrene
Phenol
Pyrene
Pyridine
Selenium
Thiocyanate
Total Cyanide
Weak Acid Dissociable Cyanide
Total
Option 1
1,211.8
44.0
4.3
5.2
194,504.6
123.5
0.6
0.7
4.3
2.0
1.4
0.5
78.7
0.1
11.2
226.2
3.9
28.1
2,420.5
40,947.2
3.4
0.0
15.2
13.9
228.6
20,880.0
2,842.2
28.0
263,630
Option 3
2,592.6
66.7
27.8
13.0
294,160.3
612.7
1.1
3.8
9.5
8.3
6.3
1.7
135.1
0.5
44.4
330.4
6.3
67.2
17,297.8
59,836.1
7.5
15,206.0
29.0
23.1
1,673.0
191,559.9
5,156.7
88.5
588,965
Toxic
Weighting
Factor
5.3E-003
8.0E-002
1.5E-001
5.0E-006
1.8E-003
1.4E+000
1.8E-002
1.8E+002
4.3E+003
4.2E+002
2.1E+000
2.0E-001
8.0E-001
1.2E+002
4.3E-003
4.3E-003
1.5E-002
6.2E-005
2.7E-003
4.0E-003
2.9E-001
2.8E-002
1.1E-001
1.3E-003
1.1E+000
1.2E-001
1.1E+000
O.OE+000
Pound Equivalents (PE)
Removed
Option 1
6.4
3.5
0.6
0.0
350.1
172.9
0.0
129.1
18,604.0
844.4
2.9
0.1
62.9
16.1
0.0
1.0
0.1
0.0
6.5
163.8
1.0
0.0
1.7
0.0
251.5
2,505.6
3,126.5
0.0
26,251
Option 3
13.7
5.3
4.2
0.0
529.5
857.8
0.0
679.6
40,804.4
3,483.9
13.2
0.3
108.1
63.5
0.2
1.4
0.1
0.0
46.7
239.3
2.2
425.8
3.2
0.0
1,840.3
22,987.2
5,672.4
0.0
77,783
C-19
-------
Table C-15
Pollutant Removals
Non-Integrated Steelmaking and Hot Forming Subcategory
Indirect Dischargers - Stainless Segment
Chemical Name
Aluminum
Ammonia As Nitrogen (NH3-N)
Antimony
Boron
Chromium
Chromium, Hexavalent
Copper
Fluoride
Iron
Lead
Manganese
Molybdenum
Nickel
Nitrate/Nitrite (NO2 + NO3-N)
Titanium
Zinc
Total
Pounds
Removed
Option 1
0.0
0.0
18.1
0.0
31.3
0.0
11.4
0.0
611.4
0.0
190.0
0.0
332.9
0.0
0.5
319.2
1,515
Pound Equivalents (PE)
Toxic Removed
Weighting
Factor
6.4E-002
1.8E-003
4.8E-003
1.8E-001
7.6E-002
5.1E-001
6.3E-001
3.5E-002
5.6E-003
2.2E+000
7.0E-002
2.0E-001
1.1E-001
6.2E-005
2.9E-002
4.7E-002
Option 1
0.0
0.0
0.1
0.0
2.4
0.0
7.2
0.0
3.4
0.0
13.3
0.0
36.6
0.0
0.0
15.0
78
C-20
-------
Table C-16
Baseline Pollutant Discharges
Cokemaking Subcategory
Direct Dischargers
Pounds of Pollutants
Discharged
Chemical Name at Baseline
2,4-Dimethylphenol
2-Methylnaphthalene
2-Phenylnaphthalene
Acetone
Ammonia As Nitrogen (NH3-N)
Aniline
Benzene
Benzo(a)anthracene
Benzo(a)pyrene
Benzo(b)fluoranthene
Chrysene
Dibenzofuran
Fluoranthene
Mercury
n-Eicosane
n-Octadecane
Naphthalene
Nitrate/Nitrite (NO2 + NO3-N)
o-Cresol
p-Cresol
Phenanthrene
Phenol
Pyrene
Pyridine
Selenium
Thiocyanate
Total Cyanide
Total
154.0
215.6
163.2
811.0
452,520.0
163.9
78.6
177.8
164.1
138.3
176.3
162.5
198.5
4.7
162.5
162.5
184.5
1,738,200.0
180.0
159.6
154.0
320.5
189.8
164.7
4,799.4
311,713.0
74,488.0
2,586,007
Pound
Toxic Equivalents (PE)
Weighting Discharged
Factor at Baseline
5.3E-003
8.0E-002
1.5E-001
5.0E-006
1.8E-003
1.4E+000
1.8E-002
1.8E+002
4.3E+003
4.2E+002
2.1E+000
2.0E-001
8.0E-001
1.2E+002
4.3E-003
4.3E-003
1.5E-002
6.2E-005
2.7E-003
4.0E-003
2.9E-001
2.8E-002
1.1E-001
1.3E-003
1.1E+000
1.2E-001
1.1E+000
0.8
17.2
24.5
0.0
814.5
229.5
1.4
32,002.2
705,501.0
58,102.8
370.1
32.5
158.8
565.8
0.7
0.7
2.8
107.8
0.5
0.6
44.7
9.0
20.9
0.2
5,279.3
37,405.6
81,936.8
922,631
C-21
-------
Table C-17
Baseline Pollutant Discharges
Sintering Subcategory
Direct Dischargers
Chemical Name
1,2,3,4,6,7,8-Heptachlorodibenzofuran
1,2,3,4,7,8-Hexachlorodibenzofuran
1,2,3,6,7,8-Hexachlorodibenzofuran
1,2,3,7,8-Pentachlorodibenzofuran
2,3,4,6,7,8-Hexachlorodibenzofuran
2,3,4,7,8-Pentachlorodibenzofuran
2,3,7,8-Tetrachlorodibenzofuran
2,4-Dimethylphenol
4-Nitrophenol
Aluminum
Amenable Cyanide
Ammonia As Nitrogen (NH3-N)
Arsenic
Boron
Cadmium
Chromium
Copper
Fluoranthene
Fluoride
Iron
Lead
Magnesium
Manganese
Mercury
Molybdenum
Nickel
Nitrate/Nitrite (NO2 + NO3-N)
o-Cresol
p-Cresol
Phenanthrene
Phenol
Pyridine
Selenium
Thallium
Thiocyanate
Titanium
Total Cyanide
Zinc
Total
Pounds of Pollutants
Discharged
at Baseline
0.0017
0.0016
0.0015
0.0016
0.0015
0.0017
0.0006
288.7
1,492.6
16,806.0
685.1
1,722,900.0
135.0
10,583.4
184.5
427.6
243.9
285.1
403,720.0
74,255.0
1,087.1
775,370.0
9,730.4
6.3
1,076.2
448.5
206,722.0
284.9
285.6
286.3
289.0
645.6
212.9
1,794.5
3,318.8
49.1
1,938.1
18,309.0
3,253,861
Toxic
Weighting
Factor
6.7E+005
6.7E+006
6.7E+006
3.3E+006
6.7E+006
3.3E+007
6.7E+006
5.3E-003
9.4E-003
6.4E-002
O.OE+000
1.8E-003
3.5E+000
1.8E-001
2.6E+000
7.6E-002
6.3E-001
8.0E-001
3.5E-002
5.6E-003
2.2E+000
8.7E-004
7.0E-002
1.2E+002
2.0E-001
1.1E-001
6.2E-005
2.7E-003
4.0E-003
2.9E-001
2.8E-002
1.3E-003
1.1E+000
l.OE+000
1.2E-001
2.9E-002
1.1E+000
4.7E-002
Pound
Equivalents (PE)
Discharged
at Baseline
1,135.7
10,610.1
10,328.7
5,199.2
9,977.6
56,268.3
4,135.1
1.5
14.0
1,075.6
0.0
3,101.2
472.3
1,905.0
479.8
32.5
153.7
228.1
14,130.2
415.8
2,391.6
674.6
681.1
761.2
215.2
49.3
12.8
0.8
1.1
83.0
8.1
0.8
234.2
1,794.5
398.3
1.4
2,131.9
860.5
129,965
C-22
-------
Table C-18
Baseline Pollutant Discharges
Integrated Steelmaking Subcategory
Direct Dischargers
Chemical Name
Aluminum
Ammonia As Nitrogen (NH3-N)
Cadmium
Chromium
Copper
Fluoride
Iron
Lead
Magnesium
Manganese
Molybdenum
Nitrate/Nitrite (NO2 + NO3-N)
Tin
Titanium
Vanadium
Zinc
Total
Pounds of Pollutants
Discharged
at Baseline
62,809
24,046
249
813
1,120
2,713,069
279,083
3,643
2,555,442
15,971
33,232
103,637
523
571
1,134
41,196
5,836,539
Toxic
Weighting
Factor
6.4E-002
1.8E-003
2.6E+000
7.6E-002
6.3E-001
3.5E-002
5.6E-003
2.2E+000
8.7E-004
7.0E-002
2.0E-001
6.2E-005
3.0E-001
2.9E-002
6.2E-001
4.7E-002
Pound
Equivalents (PE)
Discharged
at Baseline
4,019.8
43.3
646.2
61.8
705.6
94,957.4
1,562.9
8,014.9
2,223.2
1,118.0
6,646.3
6.4
157.0
16.6
703.2
1,936.2
122,819
C-23
-------
Table C-19
Baseline Pollutant Discharges
Integrated and Standalone Hot Forming Subcategory
Direct Dischargers - Carbon Segment
mds of Pollutants Toxic
Chemical Name
Ammonia As Nitrogen (NH3-N)
Fluoride
Iron
Lead
Manganese
Molybdenum
Zinc
Total
Discharged
at Baseline
699,670.1
4,432,669.7
7,331,536.9
20,402.5
69,340.2
55,755.8
75,939.4
12,685,315
Weighting
Factor
1.8E-003
3.5E-002
5.6E-003
2.2E+000
7.0E-002
2.0E-001
4.7E-002
Pound
Equivalents (PE)
Discharged
at Baseline
1,259.4
155,143.4
41,056.6
44,885.5
4,853.8
11,151.2
3,569.2
261,919
C-24
-------
Table C-20
Baseline Pollutant Discharges
Non-Integrated Steelmaking and Hot Forming Subcategory
Direct Dischargers - Carbon Segment
Chemical Name
Ammonia As Nitrogen (NH3-N)
Boron
Copper
Fluoride
Iron
Lead
Manganese
Molybdenum
Nitrate/Nitrite (NO2 + NO3-N)
Zinc
Total
Pounds of Pollutants
Discharged
at Baseline
37,662.9
10,651.2
11,078.4
57,038.1
361,864.5
2,472.8
43,109.2
4,422.1
27,847.5
11,389.6
567,536
Toxic
Weighting
Factor
1.8E-003
1.8E-001
6.3E-001
3.5E-002
5.6E-003
2.2E+000
7.0E-002
2.0E-001
6.2E-005
4.7E-002
Pound
Equivalents (PE)
Discharged
at Baseline
67.79
1,917.21
6,979.36
1,996.33
2,026.44
5,440.26
3,017.64
884.42
1.73
535.31
22,867
C-25
-------
Table C-21
Baseline Pollutant Discharges
Non-Integrated Steelmaking and Hot Forming Subcategory
Direct Dischargers - Stainless Segment
Chemical Name
Aluminum
Ammonia As Nitrogen (NH3-N)
Antimony
Boron
Chromium
Chromium, Hexavalent
Copper
Fluoride
Iron
Lead
Manganese
Molybdenum
Nickel
Nitrate/Nitrite (NO2 + NO3-N)
Titanium
Zinc
Total
Pounds of Pollutants
Discharged
at Baseline
872.6
1,168.8
126.0
1,800.8
295.8
143.3
129.5
82,093.2
6,129.1
64.0
538.3
13,634.4
1,251.1
4,272.0
12.1
2,816.3
115,347
Toxic
Weighting
Factor
6.4E-002
1.8E-003
4.8E-003
1.8E-001
7.6E-002
5.1E-001
6.3E-001
3.5E-002
5.6E-003
2.2E+000
7.0E-002
2.0E-001
1.1E-001
6.2E-005
2.9E-002
4.7E-002
Pound
Equivalents (PE)
Discharged
at Baseline
55.8
2.1
0.6
324.1
22.5
73.1
81.6
2,873.3
34.3
140.7
37.7
2,726.9
137.6
0.3
0.4
132.4
6,643
C-26
-------
Table C-22
Baseline Pollutant Discharges
Cokemaking Subcategory
Indirect Dischargers
Chemical Name
2,4-Dimethylphenol
2-Methylnaphthalene
2-Phenylnaphthalene
Acetone
Ammonia As Nitrogen (NH3-N)
Aniline
Benzene
Benzo(a)anthracene
Benzo(a)pyrene
Benzo(b)fluoranthene
Chrysene
Dibenzofuran
Fluoranthene
Mercury
n-Eicosane
n-Octadecane
Naphthalene
Nitrate/Nitrite (NO2 + NO3-N)
o-Cresol
p-Cresol
Phenanthrene
Phenol
Pyrene
Pyridine
Selenium
Thiocyanate
Total Cyanide
Weak Acid Dissociable Cyanide
Total
ounds of Pollutants
Discharged
at Baseline
2,603.5
92.5
33.2
41.6
300,644.6
615.5
2.0
4.6
11.3
9.8
7.5
2.4
161.2
0.6
47.1
341.1
8.0
15,610.5
17,311.4
59,841.4
9.1
15,206.9
35.9
24.9
2,398.0
192,758.4
8,142.9
411.0
616,377
Toxic
Weighting
Factor
5.3E-003
8.0E-002
1.5E-001
5.0E-006
1.8E-003
1.4E+000
1.8E-002
1.8E+002
4.3E+003
4.2E+002
2.1E+000
2.0E-001
8.0E-001
1.2E+002
4.3E-003
4.3E-003
1.5E-002
6.2E-005
2.7E-003
4.0E-003
2.9E-001
2.8E-002
1.1E-001
1.3E-003
1.1E+000
1.2E-001
1.1E+000
O.OE+000
Pound
Equivalents (PE)
Discharged
at Baseline
13.8
7.4
5.0
0.0
541.2
861.7
0.0
823.9
48,519.1
4,135.7
15.7
0.5
129.0
74.2
0.2
1.5
0.1
1.0
46.7
239.4
2.7
425.8
3.9
0.0
2,637.8
23,131.0
8,957.2
0.0
90,574
C-27
-------
Table C-23
Baseline Pollutant Discharges
Non-Integrated Steelmaking and Hot Forming Subcategory
Indirect Dischargers - Stainless Segment
Chemical Name
Aluminum
Ammonia As Nitrogen (NH3-N)
Antimony
Boron
Chromium
Chromium, Hexavalent
Copper
Fluoride
Iron
Lead
Manganese
Molybdenum
Nickel
Nitrate/Nitrite (NO2 + NO3-N)
Titanium
Zinc
Total
Pounds of Pollutants
Discharged
at Baseline
43.6
421.7
19.7
748.8
32.9
72.2
12.0
20,532.5
658.2
9.4
203.8
6,573.6
357.1
288.3
0.5
334.5
30,309
Toxic
Weighting
Factor
6.4E-002
1.8E-003
4.8E-003
1.8E-001
7.6E-002
5.1E-001
6.3E-001
3.5E-002
5.6E-003
2.2E+000
7.0E-002
2.0E-001
1.1E-001
6.2E-005
2.9E-002
4.7E-002
Pound
Equivalents (PE)
Discharged
at Baseline
2.8
0.8
0.1
134.8
2.5
36.8
7.5
718.6
3.7
20.8
14.3
1,314.7
39.3
0.0
0.0
15.7
2,312
C-28
------- |