Economic Analysis of
Final Effluent Limitations
Guidelines and Standards for the
Pesticide Formulating, Packaging, and Repackaging Industry
Dr. Lynne G. Tudor, Economist
Economic and Statistical Analysis Branch
Engineering and Analysis Division
Office of Science and Technology
U.S. Environmental Protection Agency
Washington, DC 20460
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Acknowledgements
The most credit must be given to Shari Zuskin for her leadership, flexibility, and willingness to do
something differently. Her enthusiasm made working on the project fun. Credit must also be given to Janet
Goodwin for her knowledge and willingness to help, and to the whole pesticide project team for their
professional manner, conscientious effort, and contributions.
Credit must also be given to Abt Associates for their assistance and support in performing the
underlying analysis supporting the conclusions detailed in this report. Their study was performed under
contracts 68-CO-0080,68-C3-0302, and 68-C4-0060.
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Table of Contents
Executive Summary ES. 1
Introduction ES. 1
Changes to the Final Rule from the Proposed Rule ES. 1
Analysis of Facility Impacts for the Final PSES Subcategory C Regulation ES.3
Analysis of Facility Impacts for the Final PSES Subcategory E Regulation ES.5
Regulatory Flexibility Analysis ES.5
Analysis of Impacts on Small Business Entities ES.6
Analysis of Impacts on Other Small Entities ES.7
Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA) ES.8
Unfunded Mandates Reform Act ES.8
Executive Order 12866 ES.9
New Source Dischargers ES.9
Chapter 1: Introduction and Overview 1.1
1.1 Overview and Definitions 1.1
1.2 Summary of the Final Regulation 1.2
1.2.1 BPT 1.2
1.2.2 BAT/BCT 1.3
1.2.3 PSES 1.4
1.2.4 NSPS/PSNS 1.4
1.3 Structure of the Economic Analysis 1.5
1.4 Organization of the Economic Analysis Report 1.6
Chapter 2: Changes to the Final Regulation from the Proposed Regulation 2.1
2.1 Introduction 2.1
2.2 Public Comments on the Proposed Rule 2.1
2.3 Supplemental Notice 2.2
2.4 FinalRule 2.4
2.5 Revised Estimates in the Number of Facilities Subject to Regulation 2.5
2.6 Cumulative Effect of the Changes in Facility Counts and Regulatory Scope on Estimated
Pollutant Removals 2.7
Chapter 3: Facility Impact Analysis 3.1
3.1 Introduction 3.1
3.2 Facilities Covered by the Regulation 3.2
3.3 Economic Model 3.4
3.3.1 Generalized Model of the PFPR Industry 3.4
3.3.2 AppliedModel of the PFPR Industry 3.6
3.4 Impact Measures 3.19
3.4.1 Baseline 3.19
3.4.2 Post-Compliance Impacts 3.20
3.5 Calculation of Impacts 3.23
3.5.1 Facility Closure 3.23
3.5.2 Product Line Conversion 3.27
3.5.3 Comparison of Annualized Compliance Costs to Revenue 3.31
3.5.4 Employment Losses 3.31
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3.6 Estimated Facility Economic Impacts and Finding of Economic Achievability 3.31
3.6.1 Baseline Analysis 3.31
3.6.2 Estimated Costs and Impacts of Compliance with the Final Regulation 3.32
Chapter 4: Regulatory Flexibility Analysis and Other Regulatory Requirements 4.1
4.1 Introduction 4.1
4.2 Impacts upon Small Entities 4.1
4.2.1 Analysis of Impacts on Small Business Entities 4.3
4.2.2 Analysis of Impacts on Other Small Entities 4.7
4.3 Summary of Findings from the Small Entity Impact Analysis 4.8
4.4 Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA) 4.8
4.5 Unfunded Mandates Reform Act 4.9
4.6 Executive Order 12866 4.10
Chapter 5: Impacts on New Sources 5.1
5.1 Introduction 5.1
5.2 Subcategory C 5.1
5.2.1 New Source Performance Standards 5.1
5.2.2 Pretreatment Standards for New Sources 5.1
5.3 Subcategory E 5.1
Appendix A: Economic Impacts on Subcategory C Facilities Under BPT/BAT A.I
A.1 BPT A.1
A.I.I PFPR/Manufacturingfacilities '.... A.1
A.1.2 PFPR stand-alone facilities A.2
A.2 BAT A.2
Appendix B: Methodology for Extrapolating Subcategory C 272 Facility Results to Facilities Using
Non-272PAIs B.I
B.I Extrapolation Methodology Developed for Proposal B.I
B. 1.1 Facilities Using Both Original 272 PAIs and Additional Non-272 PAIs B.I
B.1.2 Facilities Using Only the Additional Non-272 PAIs B.I
B.2 Modifications to the Extrapolation Methodology for the Final Rule B.3
B.3 Re-estimated'Facility Counts, and the Costs and Impacts of the Proposed Rule B.4
B.4 Costs and Impacts of the Final Rule B.7
Appendix C: Additional Impacts Not Re-estimated Since the Proposed Rule C.I
C.I Introduction C.I
C.2 Community Impact Analysis C.I
C.2.1 Methodology for Assessing Community Impacts C. .2
C.2.2 Findings.From the Community Impact Analysis C.6
C.2.3 Community Impacts of the Proposed Option (3/S') C. 10
C.3 Foreign Trade Impacts C. 12
C.3.1 Methodology for Assessing Foreign Trade Impacts C. 13
C.3.2 Estimated Changes in Pesticide Exports and Imports Under Worst-Case and
Proportional Case Assumptions C. 19
C.3.3 Significance of the Estimated Decreases in the Net Trade Balance C.20
C.3.4 Foreign Trade Effects Under the Proposed Option (3/S') C.22
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C.4 Assessment of Firm-Level Impacts C.22
C.4.1 Methodology for Assessing Firm-Level Impacts C.23
C.4.2 Estimated Firm Impacts * C.35
C.4.3 Firm-Level Impacts of the Proposed Option (3/S') C.35
C.5 Labor Requirements and Potential Employment Benefits C.37
C.5.1 Estimating the Direct Labor Requirements of the PFPR Rule C.38
C.5.2 Estimating the Indirect and Induced Labor Requirement Effects
of the PFPRRule C.42
C.5.3 Potential Labor Requirements of Complying with the Proposed
Option (3/S') C.43
Appendix C References C.45
Appendix D: Additional Savings from Pollution Prevention Under the Proposed Rule D.I
D.I Overview of Compliance Cost Savings Opportunities D.3
D. 1.1 Direct cost savings D.4
D.1.2 Indirect Cost Savings D.4
D.2 Direct Cost Savings From Recovery and Reuse of PAIs D.5
D.2.1 Methodology for Estimating PAI Cost Savings D.6
D.2.2 Estimated PAI Recoveries and Potential Cost Savings D.7
D.3 Cost Savings From Reduced Water Use and Water Discharge D.8
D.3.1 Methodology for Estimating Cost Savings from Reduced Water Use and Water
Discharge D.8
D.3.2 Estimated Cost Savings from Reduced Water Use and Discharge D. 13
D.4 Indirect Cost Savings from Reduced Costs of Permitting and Fees D.15
D.4.1 Review of Permit-Related Cost Savings Opportunities D.15
D.4.2 Examples of Possible Permit-Related Savings D. 19
D.4.3 Possible National Savings from Reduced Permitting Costs D.20
D.5 Indirect Cost Savings from Reduced Insurance Premiums D.21
D.5.1 Mechanisms by Which Pollution Prevention Reduces Environmental Risk ... D.21
D.5.2 Outlook for Favorable Consideration of Pollution Prevention by the Insurance
Industry D.23
D.6 Cost Savings from Reduced Cost of Capital D.23
D.7 Attaining Compliance Through Pollution Prevention Versus Combustion D.25
D.7.1 Difficulties in Siting a New Combustion Facility D.25
D.7.2 Difficulties and Costs from the RCRA Permitting Process D.26
D.7.3 Other Changes in the Regulatory Environment D.27
Appendix D References D.29
Appendix E: Compliance Costs as a Percentage of Revenue for Facilities Failing the Baseline Cash
Flow Criterion E.I
Appendix F: Sensitivity Analysis of the Return on Asset Value Used in the
Line Conversion Analysis F.I
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Executive Summary
Introduction
This Economic Analysis (EA) assesses the economic impact of final effluent limitations guidelines and
standards for the Pesticide Formulating, Packaging and Repackaging (PFPR) industry. The final regulation will
apply to an estimated 3,900 facilities that engage in this activity nationwide. About 2,600 of these facilities
engage in PFPR activities involving pesticide active ingredients (PAIs) that are considered within the scope of
the final rule. The scope of the final regulation includes facilities that use the 272 PAIs originally considered for
the regulation at proposal and facilities that use other in-scope PAIs (referred to as "non-272 PAIs").
For the regulation, EPA divided the existing PFPR subcategory into two subcategories: (1)
Subcategory C: Pesticide Chemicals Formulating, Packaging and Repackaging; and Subcategory E: Repackaging
of Agricultural Chemicals Performed at Refilling Establishments. Of the roughly 2,600 PFPR facilities using
in-scope PAIs, an estimated 1,134 fall under Subcategory E, while the remainder are in Subcategory C. This
regulation includes limitations for Best Conventional Pollutant Control Technology (BCT), Best Available
Technology Economically Achievable (BAT), New Source Performance Standards (NSPS), Pretreatment
Standards for Existing and New Sources (PSES and PSNS) and amends Best Practicable Control Technology
(BPT).
This executive summary reviews the major elements of the EA, including: (1) changes to the final rule
from the proposed rule, as a result of both additional information developed by EPA and public comment on the
proposed rule and supplemental notice; (2) facility impacts analysis, focusing on the final PSES regulation;
(3) Regulatory Flexibility Analysis; (4) the Agency's compliance with the Unfunded Mandates Reform Act; and
(5) the expected effects of the regulation on new source dischargers. Because the aggregate costs and facility
impacts of the final regulation are substantially lower than those of the proposed regulation, which the Agency
judged to be economically achievable, EPA did not devote resources to estimating these additional impacts under
the final rule. The Agency believes that the level of these additional impacts under the final regulation will be
lower than those estimated at proposal, by virtue of the lower aggregate compliance costs and facility-level
impacts of the final rule.
Changes to the Final Rule from the Proposed Rule
The final regulation and certain elements of its analysis differ from the proposed rule, as motivated by
two events. First, EPA modified the rule in response to comments on the proposed rule. EPA issued a
Supplemental Notice following consideration of the comments, and further modified the rule in response to
comments on the Supplemental Notice.
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Second, EPA revised its estimates of the number of PFPR facilities that would be potentially affected
by the PFPRregulatioa The revised estimates result from two factors: change in the estimated number of PFPR
facilities using only non-272 PAIs, and changes in the PAIs and wastewater streams covered by the regulation.
The Supplemental Notice discussed two general categories of changes in scope of the PFPR regulation
for Subcategory C facilities: (1) changes in the list of PAIs subject to regulation; and (2) changes in the
definitions of wastewater streams subject to regulation. With regard to the PAIs subject to regulation, EPA
considered expanding the sanitizer exemption to include additional PAIs. With regard to wastewater streams,
EPA considered excluding from regulatory coverage additional wastewater sources.
In the Supplemental Notice, the Agency also presented a new regulatory option, the Zero
Discharge/Pollution Prevention Alternative Option. The regulatory option would permit facilities to choose
between two compliance approaches: (1) achieving zero discharge; or (2) implementing specific pollution
prevention (P2) practices in combination with treatment, in most cases, followed by a de minimis discharge. EPA
estimated compliance costs for each facility to comply with the Zero Discharge option and the P2 Alternative.
For the Supplemental Notice as originally presented, EPA estimated total annualized compliance costs for
facilities covered under PSES at $39.3 million, in 1995 dollars, or 42 percent less than the costs of the proposed
regulation. Under the Zero Discharge/P2 Alternative Option, no facilities were assessed as closures as the result
of the compliance requirements, while 162 facilities were assessed as incurring moderate impacts. The
comparable values for the proposed regulation as originally presented were two facility closures and 250 facilities
incurring moderate impacts.
The final PFPR regulation for Subcategory C facilities largely follows the structure of the Zero
Discharge/P2 Alternative Option presented in the Supplemental Notice. Specifically, the final regulation permits
PFPR facilities to achieve regulatory compliance by two alternative compliance approaches: (1) zero discharge
or (2) use of specified P2 measures followed by treatment of residual discharges (in most cases). Also, the final
regulation specifies certain PAIs that are not subject to the regulation. The regulation also exempts certain
wastewater sources from regulation.
From its continuing review of the structure of the PFPR industry, EPA has increased its estimates of the
number of facilities using only non-272 PAIs that would be potentially subject to regulation. As a result of these
changes, EPA's now estimates that the number of affected facilities and the costs and impacts of tiae proposed
regulation are higher than those presented at proposal. For example, at proposal, EPA estimated that
Subcategory C included 1,479 water-using facilities that were potentially subject to regulation. Using the newer
population estimates, EPA now estimates that a total of 2,018 water-using facilities are potentially subject to
regulation. The increase in this estimate comes entirely from the increased estimate of the number of facilities
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using only non-272 PAIs. The increase in number of non-272 PAI-using PFPR facilities results in modest
increases in the total estimated cost and facility impacts of the proposed regulation relative to the values reported
at proposal. The total annualized cost of compliance would rise from $67.5 million to $71.9 million ($1995)
while facility closures and moderate impacts increase from two to three and 250 to 327, respectively.
In addition to the change in facility counts based on revised estimates of the number of non-272 PAI-
using facilities, EPA has also revised the estimates of the number of facilities expected to be affected by the PFPR
regulation based on changes in the PAIs and wastewater sources as covered by the final regulation. As described
above, the final regulation exempts specific PAIs and wastewater sources that had been covered by the proposed
regulation. The effect of these exemptions is to reduce the number of facilities that are within the scope of the
final regulation based on PAIs and wastewater sources, and in turn the number of facilities that are expected to
incur costs under the regulation. The Agency estimates that 506 facilities will incur costs under the final rule,
compared to 1,142 under the proposed rule. Excluding estimated baseline failures from the cost analysis reduces
the number of facilities expected to incur costs to 421 facilities.
Analysis of Facility Impacts for the Final PSES Subcategory C Regulation
The analysis supporting the determination of economic achievability for the final regulation centers on
a facility-level impact analysis, which assesses how facilities are expected to be affected financially by the
regulation. The facility impact analysis included a pre-compliance test to identify facilities that are financially
weak independent of the PFPR regulation. Approximately 18 percent of facilities failed this test and were
removed from the impact analysis. To assess facility impacts, the pre-compliance financial statements were
adjusted to reflect the estimated capital and operating costs of the final regulation. Facilities were assumed to
select the compliance choice, either zero discharge or the P2 Alternative, with the lowest total annualized cost.
Financial tests based on cash flow, return on assets, and the ratio of compliance cost to facility revenue were used
to identify facility impacts in terms of facility closures, which entail a full loss of facility employment, or
moderate impacts, which include product line conversions to non-PFPR activities or compliance costs exceeding
five percent of revenue. Product line conversions were conservatively assumed to involve loss of all PFPR-related
employment in a facility, although EPA believes it likely that the employment would shift into non-PFPR
operations.
Table ES. 1 compares the estimated number of facilities incurring costs, total annualized cost, average
cost per facility and estimated impacts of the final regulation with those of the proposed regulation and
Supplemental Notice regulation, based on EPA's current estimates of the number of PFPR facilities. As shown
in the table, the expected burden of the regulation has fallen considerably from proposal through Supplemental
Notice to the final regulation. From proposal to final, the number of Subcategory C facilities expected to incur
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costs has fallen from 1,142 to 506 facilities, or 56 percent. The estimated drop in total annual compliance cost,
from $71.9 million to $29.9 million ($1995), represents an even greater reduction from proposal, at 58 percent.
In addition, among the facilities estimated to incur costs, the average total annual cost per facility is also
decreased, from $63,000 at proposal to $59,000 for the final regulation, or a decline of six percent.
Table ES.l: Estimated Costs and Impacts of the Final, Proposed and
Supplemental Notice PSES Regulations for Subcategory C Facilities
Number of
Facilities Total Annualized Average Cost
Incurring Compliance Cost per Facility
Costs (S1995, millions) ($1995)
Maximum
Potential
Severe Moderate Employment
Impacts^ Impacts* Loss*
Proposed Regulation
Supplemental Notice
Regulation
Final Regulation
Costs Including
Baseline Closures
Costs Excluding
Baseline Closures
1,142
709
506
421
$71.9
$43.4
$29.9
$24.2
$63,000
$61,000
$59,000
$57,500
3
0
0
327
208
150
890
634
458
Severe impacts are defined as facility closures. All facility employment is assumed to be lost as the result of a
facility closure.
* Moderate impacts are defined as line conversions and/or total annual compliance costs exceeding 5 percent of total
facility revenue. EPA does not expect that employment losses would generally accompany line conversions;
however, for this analysis, EPA assessed the maximum potential loss based on the assumption that all employment
associated with PFPR activities would be lost as a result of a line conversion.
* Employment loss for the proposed regulation includes the estimated employment loss in facility closures and the
worst case estimate of employment loss in facilities with line conversions. The reported employment loss for the
Supplemental Notice and Final Regulation reflects no facility closures and includes only the worst case employment
loss in facilities with line conversions.
Source: U.S. Environmental Protection Agency
In terms of facility impacts, no facilities were assessed as incurring facility closures (a severe impact)
under the final regulation. A total of 150 moderate impacts were estimated among facilities incurring costs. A
moderate impact is defined as either a possible conversion to non-pesticide formulating operations, or compliance
cost exceeding five percent of facility revenue. All 150 of the estimated moderate impacts were associated with
possible PFPR line conversions. Only 11 of these 150 facilities were estimated to have compliance costs
exceeding five percent of facility revenue. No facilities were estimated to incur costs exceeding five percent of
revenue without also incurring possible line conversions.
EPA does not generally expect that line conversions will result in employment losses. However, to be
conservative in its analysis, EPA estimated the maximum potential employment loss associated with the
regulation by assuming that all PFPR employment would be lost in facilities estimated to undergo line conversion
as a result of the regulation. From this assumption, the upper bound employment loss for the regulation is
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estimated at 458 full-time employment positions (FTEs). In light of the modest impacts estimated for the final
regulation, EPA finds that the final PSES regulation for Subcategory C facilities is economically achievable.
Analysis of Facility Impacts for the Final PSES Subcategory E Regulation
The final regulation for Subcategory E facilities is unchanged from that presented at proposal, except
that stormwater is not covered by the final regulation, and the analysis at proposal stands as previously presented.
For Subcategory E facilities subject to PSES regulations, EPA is promulgating the regulation identified
at proposal as Option 1. Option 1 is based on reuse of all contaminated wastewater, and assumes that the
contaminated wastewater is used as make-up water in application of pesticide chemicals to the field in accordance
with the product label. Of the estimated 1,134 Subcategory E facilities that are potentially subject to the
regulation, EPA's data indicate that 98 percent, or 1,115 facilities, are already in compliance. Therefore, they
would incur no costs to comply with the regulation. In addition, the remaining 19 facilities are expected to be
able to achieve compliance with the regulation at nearly zero additional cost.1 Because compliance is estimated
to be achievable at nearly zero additional cost, EPA finds that the final PSES Subcategory E regulation is
economically achievable.
Regulatory Flexibility Analysis
Pursuant to section 605(b) of the Regulatory Flexibility Act, 5 U.S.C. 605(b), the Administrator certifies
that this rule will not have a significant economic impact on a substantial number of small entities. EPA analyzed
the potential impact of the rule on both small businesses and small local governments.
Under the Regulatory Flexibility Act, an agency is not required to prepare a regulatory flexibility analysis
for a rule mat the agency head certifies will not have a significant economic impact on a substantial number of
small entities. While the Administrator has so certified for the final rule, the Agency nonetheless prepared a
regulatory flexibility assessment equivalent to that required by the Regulatory Flexibility Act as modified by the
Small Business Regulatory Enforcement Fairness Act of 1996.
EPA received many comments regarding the rule (see Section 15.6 of the technical record and Section
IV in the economic record for the rulemaking). A number of commenters raised issues concerning small business
impacts and the need to reduce the regulation's burden on small businesses. Specifically, as a way of reducing
possible adverse impacts on smaller businesses, some commenters requested that EPA broaden its exemption
1 EPA estimated costs for facilities that are currently discharging to POTWs to obtain additional mini-
bulk containers to store wastewater for use as application make-up water. The capital investment required is
estimated to be $500 per facility.
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from the regulation to include all small businesses. In addition, some commenters argued that EPA did not need
to regulate the discharges of small PFPR businesses because the pollutant discharges of such facilities were not
likely to have a consequential environmental impact.
EPA disagrees with this claim and believes it is inappropriate to set small-business and/or small-
production exemptions for all small businesses and/or production volumes because of the substantial toxicity of
many of the PAIs. The size of the business and/or the volume of PAIs processed annually are not a sufficient
basis for determining that a facility should be exempted from regulation. Because of the high toxiciry of many
of the PAIs, the processing of even very small quantities of such PAIs can result in pollutant discharges of
substantial toxicity. In addition, small business size does not necessarily equate with small pesticide production
volume, particularly in terms of toxicity. Some small-business PFPR facilities process a substantial volume of
PAIs and have the potential to discharge substantial volumes of toxic pollutants unless discharges are limited by
the PFPR regulation, (see the Comment Response Documents in the rulemaking record for more information on
these comments and EPA's response to them.)
Taking into account commenters' concerns regarding possible impacts on small entities, EPA introduced
theZero/P2 Alternative Option and made numerous changes to the rule designed to reduce the burden upon all
PFPR facilities, particularly small business entities. As previously discussed, the final rule expands the sanitizer
exemption to exempt additional lower toxicity PAIs from regulatory coverage and gives facilities a Zero/P2
compliance choice on a line by line or process by process basis.
Analysis of Impacts on Small Business Entities
To gauge the impact of the final regulation on small business, EPA analyzed the impact of the final
regulation on Subcategory C facilities according to the business size of the owning firms and compared the
findings for the final regulation with those for the proposed regulation. Given the large presence of small
business-owned entities in the PFPR industry, EPA exercised substantial care at proposal and throughout
development of the final regulation, to ensure that the final regulation would not impose a significant impact on
a substantial number of small business-owned facilities. This effort results in the modest incurrence of both costs
and impacts by small business entities under the final regulation.
EPA estimates that 1,513 (75.0 percent) of the 2,018 PFPR facilities potentially subject to a Subcategory
C PSES regulation are owned by small entities. Of the 506 facilities estimated to potentially incur compliance
costs under the final rule (including baseline failures), 357 (70.6 percent) are estimated to be owned by small
entities. Excluding projected baseline failures, 421 facilities are expected to incur costs, of which 274, or 65.1
percent are small business-owned facilities.
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No small business-owned facilities are estimated to close as a result of regulation. Less than 10% of
small business-owned facilities (137 facilities) are estimated to incur a moderate impact that is, a line
conversion or annualized compliance cost exceeding 5 percent of facility revenue. The average compliance cost
burden among small business-owned facilities is also small in relation to facility revenue: on average, annualized
compliance costs amount to 2.7 percent of facility revenue for small business-owned facilities.
Finally, the number of small business-facilities incurring costs, and the numbers of small business-
facilities incurring severe or moderate impacts are substantially less than estimated for the proposed regulation.
For the proposed regulation (re-estimated), 859 small business-facilities were estimated to incur costs, 3 facilities
were assessed as potential closures (severe impacts), and 275 facilities were assessed as moderate impacts; the
comparable values for the final regulation are 357 small-business facilities incurring costs, zero severe impacts,
and 137 moderate impacts. The substantial reduction in impacts among small business-owned facilities from
proposed to final regulation reflects EPA's efforts to moderate the burden of the regulation by introducing a new
option which gives facilities the two compliance alternatives, by reducing the PAIs and wastestreams subject to
the regulation, and by providing facilities with greater flexibility in deciding how to achieve regulatory
compliance. In light of these findings, EPA certifies that the final regulation does not impose significant impacts
on a substantial number of small business-owned facilities.
Analysis of Impacts on Other Small Entities
In addition to considering the impact of the final regulation on small business-owned facilities, EPA also
considered the regulation's likely effects on two other categories of small entities that will be affected by the
regulation: (1) Publicly Owned Treatment Works operated by small governments, which may be responsible for
implementing the regulation at the local level; and (2) small communities, which may contain businesses that are
adversely affected by the regulation. EPA concluded that the final regulation would not impose significant
impacts on either of these additional small entity categories.
In the course of developing the final regulation, EPA solicited comments on regulatory implementation
issues from 76 POTWs that had been identified as receiving PFPR facility discharges. Fifteen of these
arePOTWs are considered small that is, POTWs that are located in smaller jurisdictions (less than 50,000
population) or that are small POTWs on the basis of daily treatment volume (less than or equal to 1 million
gallons per day). Comments were requested on such matters as the burden of implementing the pollution
prevention/treatment alternative element of the regulation. Although small entity POTWs were afforded the
opportunity to comment on the implementation requirements of the proposed regulation, none chose to do so.
However, in response to the request for comment on the supplemental notice, EPA received responses from eight
POTWs. Several of these comments indicated that POTWs might face modestly higher burdens from
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administering a regulation with the compliance flexibility offered by the P2 Alternative than from administering
a regulation strictly based on zero discharge. However, none indicated that such a regulation would be expected
to impose a significant additional burden beyond the requirements that POTWs already face in administering
permits and compliance programs for industrial facilities. In addition, POTWs also indicated that the modest
additional burden seemed reasonable given the regulation's expected discharge reductions and its innovative
structure, which gives facilities greater flexibility in designing a compliance approach and which encourages use
of pollution prevention as a compliance method. In view of these responses and given the fact that no small entity
POTWs responded to the request for comments, EPA certifies that the regulation will not impose a significant
impact on a substantial number of small entity POTWs.
EPA also considered the regulation's effect on small communities in which PFPR facilities might be
located. Specifically, in the community impact analysis performed for the proposed PFPR regulation, EPA
examined the impact of possible employment losses, including multiplier effects, in communities in which PFPR
facilities with moderate or severe impacts were located. Using the criterion that an estimated aggregate
employment loss exceeding one percent of community employment is significant, EPA found no significant
community employment impacts for the proposed regulation as originally analyzed. At the same time, the final
regulation is estimated to have substantially fewer facility and employment impacts than those estimated for the
original proposed regulation. Given that no significant community impacts were found among any communities
for the original proposed regulation regardless of community size and that the final regulation's impacts
are expected to be substantially less than those of the proposed regulation, EPA finds that the final regulation will
not'impose a significant burden on small communities.
Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA)
Under 5 U.S.C. 801(a)(l)(A) as added by the Small Business Regulatory Enforcement Fairness Act of
1996, EPA submitted a report containing this rule and other required information to the U.S. Senate, the U.S.
House of Representatives and the Comptroller General of the General Accounting Office prior to publication of
the rule in the Federal Register. This rule is not a "major rule" as defined by 5 U.S.C. 804(2).
Unfunded Mandates Reform Act
Title E of the Unfunded Mandates Reform Act of 1995 (Pub .L. 104-4) (UMRA), establishes
requirements for Federal agencies to assess the effects of then- regulatory actions on State, local, and tribal
governments and the private sector. Under Section 202 of the UMRA, EPA generally must prepare a written
statement, including a cost-benefit analysis, for proposed and final rules with "Federal mandates" that may result
in expenditures to State, local, and tribal governments, in the aggregate, or to the private sector, of $ 100 million
or more in any one year. Before promulgating an EPA rule for which a written statement is needed, Section 205
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of the UMRA generally requires EPA to identify and consider a reasonable number of regulatory alternatives and
adopt the least costly, most cost-effective or least burdensome alternative that achieves the objectives of the rule.
EPA has determined that the final rule does not contain a Federal mandate that may result in expenditures
of $ 100 million or more for State, local, and tribal governments, in the aggregate, or the private sector in any one
year. Thus, the rule is not subject to the requirements of Sections 202 and 205 of the UMRA.
Although not subject to the UMRA because the cost of the rule to all parties that would be affected is
well below $100 million, EPA has complied with numerous provisions of the UMRA. In particular, the final
regulation is the least costly, least burdensome alternative that was considered.
hi keeping with the provisions to inform, educate, and advise small governments, EPA will publish a
Guidance Manual prior to the compliance deadline of the rule to inform, educate, and advise interested facilities,
permit writers, and POTWs on pollution prevention processes and procedures applicable to the PFPR industry.
It will also serve as guidance for the implementation of and compliance with the P2 Alternative requirements.
Executive Order 12866
Pursuant to Executive Order 12866, it has been determined that this rule is a "significant regulatory
action" and was submitted to the Office of Management and Budget for review. However, because EPA
estimated the regulation's costs to be well less than $ 100 million per year, the regulation is not subject to certain
additional analytic requirements of the Executive Order. In particular, the Agency did not prepare a Regulatory
Impact Analysis for this regulation.
New Source Dischargers
EPA considered the effects of New Source Performance Standards (NSPS) and Pretreatment Standards
for New Sources (PSNS) final regulations on new discharge sources. New facilities have the opportunity to
incorporate the best available demonstrated technologies, including process changes, in-plant controls, and end-
of-pipe treatment technologies, and to use facility site selection to ensure adequate treatment system installation.
As a result, the impacts of the final regulations on new sources are expected to be less burdensome than the
impacts of the BAT/PSES regulations on existing sources. Designing a new technology before facility
construction is typically less expensive than retrofitting a facility for a new technology.
For Subcategory C, EPA is setting NSPS limitations that are equivalent to the limitations for BPT and
BAT. Because EPA found the Zero/P2 Alternative to be economically achievable for existing facilities under
BPT and BAT on a facility basis and because new facilities will be able to choose between zero discharge and
the P2 Alternative on a product family/process line/process unit basis, EPA believes that this NSPS standard does
not create a barrier to entry.
ES.9
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EPA is setting PSNS standards for Subcategory C that are equivalent to the standards for PSES (i.e., zero
discharge with a compliance alternative for a P2 allowable discharge). EPA believes that the standards
established for PSNS will not create a barrier to entry as they are equivalent to PSES that were found to be
economically achievable.
EPA did not set PSNS equal to PSES at proposal. At proposal, PSNS was set at zero discharge. For
the final rule, EPA is setting PSNS equivalent to the Zero/P2 alternative of PSES. EPA believes that it is
appropriate to give new facilities the opportunity to use the P2 Alternative to meet PSNS because of the
associated estimated reductions in cross-media impacts.
For Subcategory E, EPA is setting PSNS standards that are equivalent to the limitations for PSES (i.e.,
zero discharge). In addition, BPT, BAT andNSPS also require zero discharge of process wastewater pollutants,
and 98 percent of the existing refilling establishments already achieve zero discharge; thus, EPA believes an
equivalent technology basis is appropriate for PSNS and will not create a barrier to entry.
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Chapter 1: Introduction and Overview
1.1 Overview and Definitions
The Federal Water Pollution Control Act Amendments of 1972 established a comprehensive program
to "restore and maintain the chemical, physical, and biological integrity of the Nation's waters" (Section 101 (a)).
To implement these amendments, the U.S. Environmental Protection Agency (EPA) issues effluent limitations
guidelines and standards for categories of industrial dischargers. The regulations that the EPA establishes are:
Best Practicable Control Technology Currently Available (BPT). These rules apply to
existing industrial direct dischargers, and generally cover discharge of conventional pollutants.1
Best Available Technology Economically Achievable (BAT). These rules apply to existing
industrial direct dischargers and the control of priority and non-conventional pollutant
discharges.
Best Conventional Pollutant Control Technology (BCT). BCT rules are an additional level
of control beyond BPT for conventional pollutants.
Pretreatment Standards for Existing Sources (PSES). These rules apply to existing indirect
dischargers (i.e., facilities whose discharges enter Publicly Owned Treatment Works, or
POTWs). They generally cover discharge of toxic and non-conventional pollutants that pass
through the POTW or interfere with its operation. They are analogous to the BAT controls.
New Source Performance Standards (NSPS). These rules apply to new industrial direct
dischargers and cover all pollutant categories.
Pretreatment Standards for New Sources (PSNS). These rules apply to new indirect
dischargers and generally cover discharge of toxic and non-conventional pollutants that pass
through the POTW or interfere with its operation.
This Economic Analysis (EA) assesses the economic impact of final effluent limitations guidelines and
standards for the Pesticide Formulating, Packaging, and Repackaging (PFPR) subcategories of the Pesticide
Chemicals Point Source Category (40 CFR 455). This rulemaking sets limitations for Best Conventional
Pollutant Control Technology (BCT), Best Available Technology Economically Achievable (BAT), New Source
1 Conventional pollutants are defined as biochemical oxygen demand (BOD), total suspended solids
(TSS), oil and grease, and pH. Other pollutants may also be regulated at the BPT level.
1.1
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Performance Standards (NSPS), Pretreatment Standards for Existing and New Sources (PSES and PSNS) and
amends Best Practicable Control Technology (BPT).
BPT limitations were promulgated for three subcategories of the pesticide chemicals point source
category in 1978. Two of the three subcategories regulated the pesticide manufacturing of active ingredients,
while the third regulated the formulating and packaging of pesticide products. On September 28,1993, additional
effluent limitations guidelines and standards were issued for the pesticide manufacturing subcategories
(Subcategory A and Subcategory B).
The promulgated BPT regulation required zero direct discharge for pesticide chemicals formulating and
packaging facilities. In 1985, EPA promulgated zero discharge pretreatment standards (along with BAT
limitations and new source standards to implement the BPT requirements). This regulation was challenged by
industry, and EPA voluntarily withdrew the regulation in 1986.
The final regulation analyzed in this document will apply to facilities that formulate, package, and
repackage pesticide chemicals. An estimated 3,900 facilities engage in this activity nationwide. About 2,600
of these facilities engage in PFPR activities involving PAIs that are considered within the scope of the final rule.
The scope of the final regulation includes facilities that use the 272 PAIs originally considered for regulation
(which represent the population of surveyed facilities) and facilities that use other in-scope PAIs (referred to as
"non-272" PAIs).
For the final regulation, EPA divided the existing Subcategory for these facilities into two subcategories:
(1) Subcategory C: Pesticide Chemicals Formulating, Packaging, and Repackaging (hereinafter, Subcategory
C or PFPR Facilities); and (2) Subcategory E: Repackaging of Agricultural Chemicals Performed at Refilling
Establishments (hereinafter, Subcategory E or Refilling Establishments). Of the roughly 2,600 PFPR facilities
using in-scope PAIs, 1,134 fall under Subcategory E, while the remainder are in Subcategory C. This rule is
being promulgated in accordance with EPA's Effluent Guidelines Plan issued under Section 304(m) of the Clean
Water Act
1.2 Summary of the Final Regulation
1.2.1 BPT
For Subcategory C, EPA has amended and clarified the BPT limitations for PFPR facilities that also
manufacture PAIs (PFPR/manufacturers), as well as for the stand-alone PFPR facilities (i.e., PFPR facilities
where no pesticide manufacturing occurs or where pesticide manufacturing process wastewaters are not
commingled with PFPR process wastewaters). hi addition to clarifying the use of "zero allowance" for zero
1.2
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discharge for PFPR/manufacturers, EPA is providing both the PFPR/manufacturers and the stand-alone PFPR
facilities with the opportunity to use the P2 Alternative.
Under the final rule, EPA is amending the 1978 BPT standard by establishing a zero discharge limitation
with a compliance alternative which provides for the P2 allowable discharge to surface waters. EPA is also
establishing a zero discharge limitation (without the use of a "zero allowance" permitting mechanism) with a
compliance alternative for a P2 allowable discharge for the stand-alone PFPR facilities.
The existing BPT regulations did not cover refilling establishments. As discussed at proposal, the
practice of refilling minibulks did not begin until the late 1980's, after the original BPT regulation was
promulgated in 1978. Based on the PFPR survey, 98 percent of the existing refilling establishments achieve zero
discharge. EPA proposed zero discharge of process wastewater pollutants as the BPT limitations for refilling
establishments.
In the final regulation EPA is establishing a BPT limitation for existing refilling establishments at zero
discharge. This limitation is based on collection and storage of process wastewaters, including rinsates from
cleaning minibulk containers and their ancillary equipment; and wastewaters from secondary containment and
loading pads. The collected process wastewater would be reused as make-up water for application to fields in
accordance with the product label. Since greater than 98% of these facilities already achieve zero discharge and
the remaining facilities discharge to POTWs, the costs associated for BPT have been estimated to be nearly zero.
1.2.2 BAT/BCT
EPA has established BAT limitations that are equivalent to the limitations established for BPT for
PFPR/manufacturers and stand-alone PFPR facilities. Under the proposed rule, existing direct discharge
PFPR/Manufacturers were expected to treat (for reuse) their PFPR wastewaters in a separate treatment system
from their pesticide manufacturing wastewater treatment systems. EPA estimated the compliance costs for these
facilities by costing them for separate PFPR universal treatment systems.
Under the final rule, existing direct discharging Subcategory C facilities will have a choice of either
complying with a zero discharge limitation or the P2 Alternative. However, the rule clarifies that in meeting the
zero discharge limitation, permitting authorities may authorize the commingling of pesticide manufacturing and
PFPR process wastewaters to meet the pertinent BAT limitations for pesticide manufacturers with a zero
allowance for PAIs in PFPR wastewaters. EPA believes that an overestimate of the costs would result if EPA
included costs for separate treatment systems when the facilities' current controls, used for treating PFPR
wastewaters (i.e., prior to commingling with pesticide manufacturing wastewater) and/or treating commingled
wastewater (i.e., their pesticide manufacturing treatment systems), already achieve the BAT limitation of zero
1.3
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discharge or "zero allowance." Therefore, EPA does not include BAT costs and removals in the total industry
estimate. However, EPA made a determination of economic achievability even if these costs would be incurred.
1.2.3 PSES
For Subcategory C facilities, the final PSES regulation permits facilities to achieve regulatory compliance
by two alternative compliance approaches: (1) zero discharge or (2) use of specified pollution prevention
practices followed by pre-treatment of residual discharges (in most cases), i.e., the P2 Alternative. Both
compliance alternatives apply to all registered PAIs and wastewater streams except those specifically exempted
by the regulation. The pollution prevention and treatment alternative does not set specific numeric limits but does
require implementation of certain pollution prevention and discharge practices that are expected to reduce
discharges to acceptable levels.
Certain PAIs are not subject to the regulation. These exempted PAIs include: PAIs contained in certain
sanitizer products whose labeled use results in discharge to a POTW, including pool chemicals and indirect food
additives cleared by FDA (21 CFR 178.1010); micro-organisms that are classified as pesticides; certain product
mixtures that are generally recognized as safe (GRAS) by FDA (12 CFR 170.30,182,184,186) or are common
foods, food constituents or non-toxic household items or exempt from FIFRA regulation under 40 CFR 152.25;
and certain inorganic chemicals that are used in wastewater treatment. These PAIs are exempted by use of a
definition. Also, another group of mixtures (Group 2 Mixtures) are exempt by use of a list (see Table 9 of part
455 of the final rule).
In addition, certain wastewater streams are not subject to the regulation. These exempted wastewater
sources include: on-site employee showers and laundries; test water for fire protection equipment; DOT test bath
water in a batch bath where no cans have burst since the last water change-out; laboratory equipment rinsates;
water from the testing and emergency operation of safety showers and eye washes; and storm water.
. For Subcategory E (Refilling Establishments), EPA is setting PSES at zero discharge, as at proposal.
The final regulation requires rinsates, leaks, and spills that have been collected in secondary containment
structures or loading pads to be held until they can be reused (e.g., applied as pesticide on a site compatible with
the product label or used as make-up water in applications of the same or compatible pesticide chemicals to an
appropriate site). Storm water at refilling establishments is not subject to the final regulation.
1.2.4 NSPS/PSNS
For both Subcategory C and Subcategory E facilities, EPA is setting NSPS and PSNS equal to BAT and
PSES, respectively.
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1.3 Structure of the Economic Analysis
This EA describes the methodology used to assess economic impacts of the final regulation and the
results of the analyses. As at proposal, the EA methodology relies foremost on a facility-level impact analysis.
The facility-level economic model estimates post-compliance revenues, costs and profits. The post-compliance
financial data are then used to analyze three potential effects of the increased costs on facilities: facility closure,
conversion of PFPR product lines to alternate non-pesticide FPR activities, and compliance costs in excess of five
percent of facility revenue.2 In addition, the Agency conducted a Regulatory Flexibility Analysis to identify
impacts upon small entities, in particular, facilities owned by small businesses, small communities which might
contain businesses that are adversely affected the regulation, and POTWs operated by small governments.
At proposal EPA analyzed additional impact measures for the PFPR industry. These included:
community impacts; foreign trade impacts; and a firm-level analysis. Because the aggregate costs and facility
impacts of the final regulation are substantially lower than the those of the regulation as originally presented at
proposal, which the Agency judged to be economically achievable, EPA did not devote resources to estimating
these additional impacts under the final rule. The Agency believes that the level of these additional impacts under
the final regulation will be lower than those estimated at proposal, by virtue of the lower aggregate compliance
costs and facility-level impacts of the final rule.
In addition, EPA did not re-estimate the potential cost savings from pollution prevention as a means of
complying with the regulation and the analysis of labor requirements and possible employment benefits of the
manufacturing, installation and operation of equipment needed to comply with the regulation. Because the final
rule has lower aggregate compliance costs and facility-level impacts than the proposed rule, EPA believes the cost
savings and labor requirements have decreased relative to the proposed rule. The chapter from the EIA at
proposal analyzing the labor requirements and possible employment benefits is included here in Appendix C, and
the chapter from proposal on the potential cost savings from pollution prevention is reproduced as Appendix D.
Although EPA revised its estimate of the number of facilities using only non-272 PAIs as discussed in
Chapter 2, the Agency did not devote additional resources to further revising economic and financial profile
%! contrast to facility closures and product line conversions, compliance costs in excess of five percent
of facility revenue are assumed not to lead to an operational change at a facility. Compliance costs that are less
than five percent of facility revenue are commonly judged to be economically achievable (see, for example, the
EIAs for effluent limitations for the OCPSF and pesticide manufacturing industries). Compliance costs equal
to five percent or more of facility revenue, however, do not necessarily indicate a moderate impact. The
comparison of compliance costs with facility revenue was made for all facilities incurring costs.
1.5
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information for the PFPR industry. EPA believes the profile developed for proposal adequately characterizes the
PFPR industry. See Chapter 2 of the proposal EIA for more detailed information on the economic and financial
characteristics of the PFPR industry.
1.4 Organization of the Economic Analysis Report
The remaining parts of the EA Report are organized as follows. The following chapter, Chapter 2,
presents a description of the changes to the final rule from the proposed rule, as a result of both additional
information developed by EPA and public comment on the proposed rule and supplemental notice. Chapter 3
reviews the methodology used to estimate facility impacts. As stated above, facility impacts provide the
methodological foundation for this EA. First defined are the markets to be analyzed and the basic model of
market structure. Baseline and post-compliance costs and after-tax cash flows are then estimated. This chapter
also describes the analyses of facility closures, product line conversions, and compliance costs in excess of five
percent of facility revenue. In contrast to the EIA at proposal, which initially considered impacts upon facilities
using only PAIs from the set of 272 PAIs originally considered for regulation, Chapter 3 estimates impacts upon
facilities using any registered PAI subject to regulation under the final rule. Chapter 4 presents the Regulatory
Flexibility Analysis. Chapter 5 describes the expected effects of the regulation on new source PFPR dischargers.
Appendix A describes the economic impact analysis conducted for facilities regulated under BPT. Appendix B
describes the methodology by which EPA estimates the number of PFPR facilities using only non-272 PAIs, the
impacts upon those facilities, and how that methodology has been revised since proposal based on additional
information available to the Agency. Appendix C presents the chapters from the EIA at proposal discussing
analyses that have not been re-estimated for the final rule. Appendix D restates the savings from pollution
prevention estimated under the proposed rule. Appendix E discusses compliance costs as a percentage of revenue
for facilities failing the baseline cash flow criterion. Finally, Appendix F presents a sensitivity analysis of the
return on asset value used in the facility line conversion analysis.
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Chapter 2: Changes to the Final Regulation from the Proposed Regulation
2.1 Introduction
This chapter explains how the final regulation and certain elements of its analysis differ from that
presented at proposal. The changes discussed in this chapter were motivated by two events:
First, EPA modified the rule in response to comments on the proposed rule. Section 2.2 summarizes the
main comment points and Section 2.3 discusses the Supplemental Notice that EPA issued following
consideration of the comments. Section 2.4 discusses the further changes that have been made in the
final rule.
Second, EPA revised its estimates of the number of PFPR facilities that would be potentially affected
by the PFPR regulation. The revised estimates result from two factors: change in the estimated number
of PFPR facilities using only non-272 PAIs, and changes in the PAIs and wastestreams covered by the
regulation. Because of the change in the estimated number of facilities using only non-272 PAIs, EPA
has revised its estimates of the costs and facility impacts for the proposed regulation to allow
comparisons with the final rule. Section 2.5 discusses the changes in estimates of facility counts and
presents revised estimates of the costs and impacts of the proposed regulation. This section also
discusses the changes in number of facilities potentially subject to regulation considering the changes
in both non-272 PAI-using facilities and in regulatory scope.
The final part of the chapter, Section 2.6, summarizes the cumulative effect of the changes in facility counts and
regulatory scope on the estimated pollutant removals of the final rule.
2.2 Public Comments on the Proposed Rule
In response to the proposed regulation, the Agency received public comments on the Subcategory C
regulation, which it grouped in seven major areas, as follows:1
First, commenters were concerned that total reuse is technically impractical because of cross-
contamination concerns.
1 Although EPA considered the comments submitted in these seven areas, EPA did not agree with all the
comments. In particular, EPA did not agree with commenters' argument that storage of rinsates on-site to be
reused in subsequent batches would require RCRA storage permits (the fourth comment category cited).
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Second, commenters believed that zero discharge cannot be achieved through total reuse. Industry would
be forced, they believed, to incinerate substantial quantities of PFPR wastewater. Such incineration
would have negative cross-media impacts.
Third, commenters believed that because PFPR wastewaters are very dilute, the incineration of such
wastewaters would be akin to "burning water".
Fourth, commenters were concerned that storage of rinsates on-site to be reused in subsequent batches
would require RCRA storage permits.
Fifth, commenters requested a "de minimis" discharge allowance when practicing pollution prevention.
Sixth, commenters requested an expansion of the partial sanitizer exemption for more than economic
reasons.
Seventh, commenters requested exclusion of DOT test bath water, lab water, safety water and storm
water from the scope of the regulation.
After considering the public comments, EPA issued a Supplemental Notice (60 FR 30217) on
June 8,1995 in which the Agency sought comment on proposed changes in the scope of the PFPR regulation for
Subcategory C facilities and on an additional regulatory option developed by the Agency. In addition, the Agency
implemented certain changes in the methodology for estimating the costs of regulatory compliance. On the basis
of these proposed changes in the PFPR regulation and the revisions to the cost estimating methodology, the
Agency also presented revised economic impact estimates in the Supplemental Notice.
2.3 Supplemental Notice
The Supplemental Notice discussed two general categories of change in the scope of the PFPR regulation
for Subcategory C facilities: (1) change in the list of PAIs subject to regulation and (2) change in the definition
of wastewater streams subject to regulation. With regard to the PAIs subject to regulation, EPA considered
expanding the sanitizer exemption to include PAIs intended for home use or similar institutional use, pool
chemicals, microorganisms, and mixtures that are food and food constituents generally regarded as safe by the
FDA. The Agency also considered reserving for regulation mixtures with characteristics that cannot be identified,
such as molecular weight, aromaticity and solubility. With regard to wastewaters, the Agency considered
excluding from regulatory coverage the wastewater from the following sources: DOT test bath water from batch
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bathes where no cans have burst since the bath water was last changed; lab rinsates from cleaning glassware or
analytical instruments2; the testing of safety eye wash stations and safety showers; and storm water.
In the Supplemental Notice, the Agency also presented a new regulatory option, the Zero
Discharge/Pollution Prevention Alternative Option. EPA designed this option to address some of the concerns
raised regarding the zero discharge specifications of the original regulatory proposal and to provide facilities with
more flexibility in meeting the regulation's discharge reduction goals. Specifically, the regulatory option would
permit facilities to choose between two compliance approaches: (1) achieving zero discharge or (2) implementing
specific pollution prevention (P2) practices in combination with treatment (in most cases) followed by a de
minimis discharge. Because of limited data, such as long-term monitoring data, on many PAIs, the P2 Alternative
did not specify numerical limits for pollutants. Instead the P2 Alternative specified certain P2 measures combined
with treatment prior to discharge; if facilities were to follow these practices, EPA judges that the residual
pollutant discharges would be within acceptable limits. The P2 Alternative within the option considered two tiers
of P2 practices. Practices in tier one were required, while practices in tier two could be adopted or modified on
a facility-specific basis, based on the justifications listed in the supplemental notice. EPA considered the use of
best professional judgment (BPJ) by pretreatment authorities to provide flexibility for specific situations. For
example, BPJ could be used to modify or update a specific pollution prevention practice listed in the regulation.
The Agency also considered requiring water conservation techniques as well as P2 and reuse/recycle
practices. The Agency expected these water conservation techniques to further reduce pollutant loadings to the
environment by enabling facilities to better reuse these smaller volumes of wastewater. The P2 Alternative
presented in the supplemental notice also contained guidance on the appropriate technologies to be used with the
regulation. Finally, EPA considered implementing the P2 Alternative through self-certification by facilities rather
than through a national requirement for submittal of all required paperwork. EPA expected that the P2
Alternative would be implemented through the use of on-site inspections, including review of self-certifying
paperwork, local requirements for submittal of paperwork, or locally set numerical limitations.
In addition to these proposed changes to the scope and structure of the proposed regulation, the Agency
also implemented certain changes in the cost estimating methodology for the Supplemental Notice. For example,
EPA updated its treatment database, revised the zero discharge costing methodology to assume that greater
volumes of wastewater would need to be incinerated, and revised the treatment system blowdown rate from 0.2
2 Note that "retain" samples and wastewater generated by rinsing retain sample containers were not
considered for exemption at the time of the supplemental notice.
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percent to 5.0 percent EPA also updated its datasets to account for the changes in scope of PAIs and wastewater
sources. These changes were undertaken largely in response to public comments (see section IV of the
supplemental notice.
EPA estimated compliance costs for each facility to comply with the zero discharge option and the P2
Alternative. Each facility was assumed to choose the compliance Alternative that would result in the lower
annualized costs to the facility. For the Supplemental Notice as originally presented, EPA estimated total
annualized compliance costs for facilities covered under PSES at $39.3 million, in 1995 dollars, or 42 percent
less than the costs of the proposed regulation. Under the Zero Discharge/Pollution Prevention Option, no
facilities were assessed as closures as the result of the compliance requirements, while 162 facilities were assessed
as incurring moderate impacts. The comparable values for the proposed regulation as originally presented were
two facility closures and 250 facilities incurring moderate impacts. EPA's estimates of the costs and impacts of
the proposed and Supplemental Notice rules have been revised. The revisions are presented in Section 2.5 below.
2.4 Final Rule
The final PFPR regulation for Subcategory C facilities largely follows the structure of the Zero
Discharge/Pollution Prevention Option presented in the Supplemental Notice. Specifically, the final regulation:
1. Permits PFPR facilities to achieve regulatory compliance by two alternative compliance
approaches: (1) zero discharge or (2) use of specified pollution prevention measures followed
by treatment of residual discharges (in most cases). Both compliance alternatives apply to all
registered PAIs and wastewater streams except those specifically exempted from regulation in
40 CFR 455.40. The P2 Alternative does not contain specific numerical limits on discharges
but requires implementation of certain pollution prevention and treatment practices that, when
implemented, are expected to reduce discharges to acceptable levels.
2. Specifies certain PAIs that are not subject to the regulation. These exempted PAIs include:
PAIs contained in certain sanitizer products whose labeled use results in discharge to a POTW,
.including pool chemicals and indirect food additives cleared by FDA (21 CFR 178.1010);
micro-organisms that are classified as pesticides; certain product mixtures that are generally
recognized as safe (GRAS) by FDA (12 CFR 170.30,182,184, 186) or are common foods,
food constituents or non-toxic household items or exempt from FIFRA regulation under 40 CFR
152.25; and certain inorganic chemicals that are used in wastewater treatment. These PAIs are
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exempted by use of a definition. Also, another group of mixtures (Group 2 Mixtures) are
exempt by use of a list (see Table 9 of part 455 of the final rule).
3. Exempts certain wastewater sources from regulation. These exempted wastewater sources
include: on-site employee showers and laundries; test water for fire protection equipment; DOT
test bath water in a batch bath where no cans have burst since the last water change-out;
laboratory equipment rinsates; water from the testing and emergency operation of safety
showers and eye washes; and storm water.
2.5 Revised Estimates in the Number of Facilities Subject to Regulation
EPA has revised its estimates of the number of PFPR facilities that may be affected by the PFPR
regulation based on two considerations: change in the estimated number of PFPR facilities using only non-272
PAIs, and changes in the PAIs and wastestreams covered by the regulation.3
From its continuing review of the structure of the PFPR industry, EPA has increased its estimates of the
number of facilities using only non-272 PAIs that would be potentially subject to regulation. As a result of these
changes, EPA's now estimates that the number of affected facilities and the costs and impacts of the proposed
regulation are higher than those presented at proposal. For example, at proposal, EPA estimated that
Subcategory C included 1,479 water-using facilities that were potentially subject to regulation. Using the newer
population estimates, EPA now estimates that a total of 2,018 water-using facilities are potentially subject to
regulation. The increase in this estimate comes entirely from the increased estimate of the number of facilities
using only non-272 PAIs. Table 2.1, below, summarizes the effect of the revised estimates of non-272 PAI-using
facilities on the costs and impacts calculated for the proposed regulation. As shown in the table, the increase in
number of non-272 PAI-using PFPR facilities results in modest increases in the total estimated cost and facility
impacts of the proposed regulation relative to the values reported at proposal. The total annualized cost of
compliance would rise from $67.5 million to $71.9 million ($ 1995) while facility closures and moderate impacts
increase from 2 to 3 and 250 to 327, respectively. Throughout the rest of this EA, unless otherwise indicated,
discussions of the proposed regulation will reflect these updated estimates of the numbers of facilities, costs, alnd
impacts.
3 Appendix B discusses, in detail, the analytic framework and assumptions the Agency used in estimating
the number of non-272 PAI-using facilities that are potentially subject to regulation and in extrapolating costs
and impacts from the analysis of 272 PAI-using facilities to the non-272 PAI-using facilities.
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Table 2.1
Recalculation of Facilities Subject to Regulation, Costs and Impacts for the Proposed Regulation
($1995)
Number of Water-Using Facilities
Using In-Scope PAIs
272 PAI using facilities
non-272 PAI-using facilities
Total Annualized Cost of
Compliance with the Proposed
Regulation ($1995)
Economic Impacts:
facility closures
moderate impacts
Values at Proposal
1,479
943
536
$67.5 million1
2
250
Recalculated Values
2,018
943
1,075
$7 1.9 million
3
327
Source: U.S. Environmental Protection Agency
Note: (1 ) The value in 1 988 dollars is $56. 1 million.
In addition to the change in facility counts based on revised estimates of the number of non-272 PAI-
using facilities, EPA has also revised the estimates of the number of facilities expected to be affected by the PFPR
regulation based on changes in the PAIs and wastewater sources as covered by foe final regulation. As described
above, the final regulation exempts specific PAIs and waste water sources that had been covered by the proposed
regulation. The effect of these exemptions is to reduce the number of facilities that are within the scope of the
final regulation based on PAIs and wastewater sources, and in turn the number of facilities that are expected to
incur costs under the regulation. Table 2.2 below compares EPA's estimates of the number of PFPR facilities
in various regulatory classifications at the time of proposal, under the proposed rule as re-estimated using the
updated estimate of the number facilities using only non-272 PAIs, under the Supplemental Notice as re-
estimated, and for the final rule. EPA's estimates of the number of PFPR facilities using in-scope PAIs appear
in the first row of the table. The number of facilities decreases from proposal through the final rule because of
the exemption of certain PAIs and wastewater sources from the supplemental notice and final regulations. The
second row of the table indicates the number of Subcategory C facilities that use water and in-scope PAIs in their
production processes. EPA considers these facilities as potentially subject to regulation, because they may incur
costs under the effluent limitations, depending on their processes, discharge characteristics, and treatment systems
in place. Throughout this EA, EPA uses the estimate of 2,018 Subcategory C facilities that were considered
potentially subject to the proposed regulation as the comparison basis for evaluating how the regulation has
changed from proposal to final in terms of such measures as the percentage of PFPR facilities expected to incur
costs or impacts under the regulation. The 2,018 facilities potentially subject to the proposed regulation reflect
the broadest regulatory scope, in terms of waste streams and PAIs covered, that EPA considered for the PFPR
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regulation. Not all facilities potentially subject to regulation are estimated to incur compliance costs, however.
The final row of Table 2.2 provides EPA's estimates of the number of facilities incurring costs. The Agency
estimates that 506 facilities will incur costs under the final rule, compared to 1,142 under the proposed rule.
Table 2.2: Estimated Number of PFPR Facilities
Total Facilities Using
In-Scope PAIs
Subcategory E
Subcategory C
Subcategory C Facilities
That Use Water and In-
Scope PAIs
Subcategory C Facilities
with Costs
Number of
Facilities at
Proposal
3,914
1,334
2,780
1,479
869
Re-Estimated
Number of Facilities
at Proposal
3,914
1,334
2,780
2,018
1,142
Number of
Facilities at
Supplemental
Notice
3,542
1,334
2,408
N.D.
577
Number of
Facilities at
Final
2,672
1,334
1,538
1,411
506
Note: N.D. = Not Determined
2.6 Cumulative Effect of the Changes in Facility Counts and Regulatory Scope on Estimated Pollutant
Removals
As a result of these changes in the scope of the regulation and its compliance requirements, EPA
estimates that the final regulation will achieve about 62 percent fewer pollutant removals than the proposed
regulation. As shown in Table 2.3, below, the estimated reduction in pollutant removals results almost entirely
from reduced coverage of wastewater sources and PAIs under the final regulation and not application of the
Pollution Prevention Alternative, which allows a de minimis discharge. Specifically, the proposed regulation is
estimated to apply to 505,235 pounds of pollutant discharges while the final regulation applies to 192,789
pounds, a reduction of 61.8 percent. Although the final regulation is estimated to achieve a slightly lower
percentage of pollutant removals (98.5 percent) than the proposed regulation (99.6 percent), this difference is
very small. As a result, the total mass of pollutants estimated to be removed by the final regulation falls by
essentially the same percentage as the decline in mass of pollutants subject to regulation. Specifically, the
proposed regulation is estimated to achieve 503,114 pounds of pollutant removals while the final regulation is
estimated to remove 189,908 pounds of pollutants, a reduction of 62.3 percent. For more information on
estimated pollutant loadings and removals, see the Cost-Effectiveness Analysis of Final Effluent Limitations
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Guidelines and Standards for the Pesticide Formulating, Packaging and Repackaging Industry (Final Cost-
Effectiveness Report).
Table 2.3: Estimated Pollutant Discharge and Removals of the Proposed and Final PSES Regulations
Pollutant Discharges Subject to Regulation,
pounds
Pollutant Removals, pounds
Percentage of Discharges Removed by the
Regulation
Proposed Regulation: Zero
Discharge with Sanitizer
Exemption
505,235
503,114
99.6 %
Final Regulation: Zero
Discharge / Pollution
Prevention Alternative
191,618
188,754
98.5 %
Source: U.S. Environmental Protection Agency
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Chapter 3: Facility Impact Analysis
3.1 Introduction
This chapter presents the methodology used to project impacts of the proposed effluent limitations
guidelines and standards at the facility level, and describes the results of the analysis. As discussed in Chapter 1,
the facility analysis is the principal building block of the entire economic impact assessment. The facility impact
analysis is characterized by the following:
(1) use of economic models to estimate baseline and post-compliance costs and revenues for
individual facilities;
(2) separate models of the decision-making process for three groups of pesticide
formulating/packaging/repackaging (PFPR) facilities: (1) refilling establishments, (2) PFPR
facilities that also manufacture pesticide active ingredients (PAIs) or that receive at least 25
percent of their revenue from PFPR activities, and (3) "other" PFPR facilities;
(3) comparison of annualized compliance cost to facility revenue is used to project significant
economic impacts for all three groups of facilities;
(4) application of a discounted cash flow analysis to project closure of PFPR facilities that also
manufacture PAIs (PFPR/manufacturing facilities) or that receive at least 25 percent of their
revenue from PFPR;
(5) evaluation of the return on assets at "other" PFPR facilities to project conversion of PFPR
operations; and
(6) estimation of worst-case employment loss associated with facility closures and PFPR operations
conversions.
The cost, revenue, and quantity outputs from the first step provide input to the facility closure and PFPR
conversion analyses of the subsequent steps. Facility closure is the most severe of the three impacts evaluated,
while line conversions and annualized compliance costs in excess of five percent of facility revenue represent
more moderate impacts. In contrast to facility closures and product line conversions, compliance costs in excess
of five percent of facility revenue are assumed not to be associated with an operational change at a facility.
Compliance costs that are less than five percent of facility revenue are commonly judged to be economically
achievable. (See, for example, the EIA for effluent guidelines limitations and standards for the OCPSF industry
and the pesticide manufacturers industry). The analysis presents a worst-case scenario of employment losses by
assuming that all facility employment is lost due to closures and that PFPR-related employment is lost under
estimated operations conversions.
The main body of this economic analysis evaluates the economic impacts of a PSES regulation on
facilities discharging to a POTW. A zero direct discharge limit of process wastewater pollutants from PFPR was
promulgated under the 1978 pesticide chemicals BPT regulation. Therefore, for most facilities, no costs
associated with limitations on direct discharge of pollutants are considered. However, 17 facilities that both
3.1
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manufacture PAIs and PFPR have been combining pesticide manufacturing wastewaters with wastewaters
generated from PFPR and discharging these wastewaters directly. These facilities have technically achieved the
limits in their NPDES permits, which provide discharge limitations for pollutants generated in the PAI
manufacturing process but give no allowance for the pollutants present in the PFPR wastewater. These facilities,
however, should already have been complying with the BPT zero discharge requirement for their PFPR
wastewaters. Any additional costs to these facilities of meeting the 1978 BPT zero discharge requirement for
PFPR facilities are not attributable to this PFPR rulemaking. Under the final PFPR rule, existing direct
discharging Subcategory C facilities will have a choice of either complying with a zero discharge limitation or
the P2 Alternative. The rule clarifies that in meeting the zero discharge limitation, permitting authorities may
authorize the commingling of pesticide manufacturers and PFPR process wastewaters to meet the pertinent BAT
limitation for pesticide manufacturers with a zero allowance for PAIs in PFPR wastewaters. EPA believes that
including costs for separate PFPR wastewater treatment systems, when the facilities' current controls used for
treating PFPR wastewater and/or commingled wastewater already achieve the BAT limitation of zero discharge
or "zero allowance", would overstate the costs of the PFPR rule. Nevertheless, for information purposes, EPA
has evaluated the costs to these facilities of complying with the Zero/P2 Alternative for their PFPR wastewaters
using a separate PFPR treatment system (i.e., not accounting for treatment currently in place). The impact
evaluation for these facilities addresses only facility-level impacts and is presented in Appendix A.
The chapter is organized as follows. Section 3.2 discusses the facilities covered by the regulation and
briefly summarizes the extrapolation technique that incorporates facilities using only non-272 PAIs into the
analysis. Section 3.3 presents the economic model that EPA developed to analyze economic impacts, and
section 3.4 presents the facility-level impact measures applicable under that model, while section 3.5 details the
calculations of those impacts. Finally, section 3.6 presents the estimated facility-level impacts of the final
regulation.
3.2 . Facilities Covered by the Regulation
As at proposal, the list of regulated PAIs extends beyond the list on which the original data gathering
effort and regulatory analysis focused. EPA originally collected data and designed its impact analysis approach
based on the same 272 PAIs that had been considered for regulation under the pesticide manufacturers effluent
guideline promulgated in 1993 (these PAIs are referred to as the "original 272 PAIs"). During development of
the proposed regulation, EPA expanded the regulation to include additional PAIs that were not on this original
list of 272 PAIs (the additional PAIs are referred to as "non-272 PAIs").1 Because the original data gathering
1 For the pesticide manufacturers effluent guideline, EPA did not extend the regulation beyond the 272
PAIs because either other regulations already covered the manufacture of these chemicals (e.g., regulations
3.2
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effort focused on facilities using the original 272 PAIs, EPA's detailed technical and economic analysis of the
PFPR regulation also focused on facilities using the original 272 PAIs and on regulation of those PAIs. 2
Correspondingly, less data were available for the analysis of compliance costs and pollutant discharges for
facilities using the non-272 PAIs and the analysis of regulatory impacts for these facilities is less detailed than
that performed for the facilities using the original 272 PAIs.
To estimate the impact on those facilities that formulate, package or repackage only the additional non-
272 PAIs, EPA assumed that these facilities were similar in several ways to those facilities surveyed and analyzed
on the basis of using the 272 PAIs:
The percentage of water dischargers is the same for both sets of facilities;
The percentage of facilities using only the non-272 PAIs and incurring compliance costs under the final
rule is the same as that estimated for facilities analyzed as using only the original 272 PAIs;
Facilities using only the non-272 PAIs will have the same average compliance cost as estimated for those
facilities using only the 272 PAIs; and
The percentage of facilities using only the non-272 PAIs and that are assessed as closures or moderate
impacts is the same as that estimated for facilities analyzed as using only the original 272 PAIs.
EPA incorporated facilities using only non-272 PAIs into the analysis by appropriately increasing the
sample weights of surveyed facilities (which used 272 PAIs and possibly non-272 PAIs). Sample weights were
adjusted for the final rule by a scale-up factor of about 1.49 to include facilities using only non-272 PAIs in the
extrapolation.3 The scale-up factor reflects EPA's estimates that facilities using non-272 PAIs represent an
additional 49 percent of PFPR facilities beyond the set of facilities using 272 PAIs. The discussion of the results
of the impact analysis uses the scaled-up sample weights to estimate national effects on all appropriate PFPR
facilities (i.e., facilities using 272 PAIs and facilities using only non-272 PAIs).
covering OCPSF, Pharmaceuticals or inorganic chemicals) or the PAIs were not manufactured in 1986, the base
year of the pesticide manufacturers census.
2 Many of these facilities also use non-272 PAIs.
3 EPA's methodology for estimating the non-272 PAI scale-up factor has been revised since proposal
to incorporate additional information developed by the Agency about facilities that use only non-272 PAIs.
Appendix B discusses the methodology in detail.
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Although the impact analysis methodology for the final regulation remains the same as that described
at proposal, its application has been changed to accommodate analysis of the Zero Discharge/P2 Alternative.
This regulatory option was analyzed for each sample facility as two separate compliance approaches: (1) zero
discharge and (2) pollution prevention in combination with treatment followed by discharge (see the final cost
and loadings report for further details). Facilities were assumed to adopt the compliance approach with the lower
total annualized compliance cost including both annual operating and maintenance costs and an annual allowance
for capital outlays. Although most facilities were estimated to achieve compliance by using the P2 Alternative,
some were estimated to comply by zero discharge. Thus, the combination of the analyses for the two separate
compliance approaches yields the aggregate analysis for the final regulation for Subcategory C facilities. As
discussed above, national aggregates were estimated from sample results using sample weights, scaled up by a
factor to incorporate facilities using only non-272 PAIs.
3.3 Economic Model
Before presenting the specific model used in the analysis to estimate post-compliance impacts, a brief
overview of the conceptual problem is provided.
3.3.1 Generalized Model of the PFPR Industry
The model of the PFPR industry focuses on the short run. The focus on the short run, by definition,
limits facilities' and firms' options for responding to increased costs for pollution control and is therefore
conservative @.e., it tends to overstate impacts). For example, in the short run, firms cannot register new products
or make major modifications to physical plants. They are free, however, to decrease or increase quantities
produced, or change the production mix when faced with new pollution control requirements.
Each facility must decide the quantity of each registered pesticide product to produce, given certain
technological and capacity constraints. Different pesticide products may be produced easily at the same facility
if, for example, they vary only in concentration. PFPR equipment is typically flexible enough that the facility may
use it to produce a variety of products, perhaps with minor adjustments or modifications. A producer may also
elect to use a facility at a higher level of capacity (perhaps by adding an additional shift), thereby increasing the
production of one or more pesticide products.
In addition to incorporating the short-run options, the model must capture the nature of regulatory
compliance costs and their effect on production decisions. Ideally, these costs are a function of the production
mix. For example, different technological controls may be required if a facility decides to produce product i
instead of product j. A facility may also find that the same controls may be used for two different pesticide
products, so that the incremental control costs of producing product i may be very small as long as product k is
also produced.
3.4
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Given all these considerations, the profit maximizing problem for facility f can be depicted as:
Qif - CjQj - ECif
where:
Ilr
profit of facility f;
price of product i, a function of total industry production of product i (QJ, and industry
production of all products competing with product i;
production of product i by facility f (The sum of the Q^'s, f=l,N equals Qj);
total cost to facility f of producing product i; and
total pollution control costs to facility f required under the proposed option to produce
product i.
Each facility in the industry attempts to maximize profits simultaneously. The equilibrium solution is represented
by the matrix Q (total industry production), whose typical element Q^ represents facility f s production of product
i, that solves the profit maximizing problem for all facilities simultaneously.
Data limitations, however, require that the model be simplified. In particular, the entire production
choice set (of registered products) available to each facility is unknown. Given this limitation, it is assumed that
a facility may respond to a new effluent guideline only by decreasing current production of the pesticide products
currently produced. This assumption neither allows for the production of new products (i.e., those that were not
being manufactured before the guidelines were introduced), nor does it allow one PFPR facility to benefit from
the compliance costs and subsequent decrease in pesticide production of another PFPR facility. Note that this
assumption is extremely conservative, since it severely limits the options available to each facility and thus
overstates the impact of the regulation. A detailed analysis of firm-level pesticide registrations would be
necessary to relax this assumption.
Further, given the extremely large number of registered pesticide products, compliance costs cannot be
allocated to specific products. Rather, compliance costs are derived in aggregate for PFPR operations.4 Facility
decision making processes are modeled for PFPR operations as a whole, not for individual pesticide products.
Built on this generalized model, the applied economic model of the PFPR industry is described below.
4 See the Technical Development Document for a complete discussion of the methodology by which
compliance costs are estimated.
3.5
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3.3.2 Applied Model of the PFPR Industry
The construction of a model of the PFPR industry, and the simulation of the effects of new effluent
limitation guidelines and standards, require the following basic steps:
(1) Define the markets to be analyzed;
(2) Determine the basic model of market structure;
(3) Estimate baseline revenue for each facility;
(4) Estimate baseline costs for each facility;
(5) Adjust baseline costs for other government regulations;
(6) Project facility compliance costs;
(7) Estimate post-compliance prices; and
(8) Calculate post-compliance cash flow for each facility.
These steps are explained below.
Markets to be Analyzed
It would be preferable to analyze the PFPR industry on a formulated product level, analogous to the PAI-
level and cluster-level analyses performed in the pesticide manufacturer effluent limitations EIA. Data
limitations, however, and the desire to limit, industry response burden, do not allow EPA to analyze the PFPR
industry on a formulated product level, for several reasons. First, the PFPR industry formulates PAIs into many
thousands of pesticide products, often combining several PAIs with different functions into one product. It is not
always possible, therefore, to group formulated pesticide products into individual clusters.5 Further, industry.
would have been heavily burdened by supplying cost and price information for each pesticide product. Instead,
revenue information was requested in the Survey from the formulating, packaging, or repackaging of all
pesticides. (Revenue data did distinguish between revenue from pesticides containing one of the 272 PAIs
originally considered for regulation and pesticides containing only other PAIs.) To promote the accuracy and
decrease the burden of industry response, cost data were requested only at the level of the facility.6 Given the
difficulties of analyzing business decisions on the basis of individual PAIs or formulated products, most of the
analysis is conducted for all PFPR operations or for the entire facility.
5 Clusters of PAIs with similar uses were defined by EPA for the Pesticide Manufacturing Industry EIA,
and were discussed in the proposed PFPR EIA.
6 Industry had indicated that some categories of costs, such as labor expenses, are not tracked at either
the PAI or pesticide product level.
3.6
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Basic Model of Market Structure
Assumptions made about market structure have important implications for empirical modeling. For
example, the standard model of supply and demand (i.e., perfect competition) necessarily predicts at least one
facility closure if production costs increase. (When the supply curve shifts up to reflect the cost increase, quantity
must decrease and the marginal facility must close.) Several factors suggest that markets for some pesticide
products are highly competitive. First, the production data obtained from FATES and the Survey indicate that,
for most clusters, multiple facilities sell pesticide products formulated from PAIs with given uses. Second,
numerous facilities may formulate and package products containing the same PAL In contrast, among
manufacturers, a PAI typically is produced by only one manufacturer who can sell that PAI to many different
PFPR facilities. Finally, the existence of contract tolling in the PFPR industry, where small PFPR facilities may
formulate products owned by larger firms to smooth capacity constraints, serves to increase the number of
facilities formulating a given product.
At the same time, other factors suggest that the PFPR industry is less than perfectly competitive,
exhibiting both elements of product differentiation and monopolistic competition. Specifically, firms tend to
produce differentiated products that compete, but that are not perfect substitutes; therefore, product
differentiation exists within even closely competitive markets. For example, different pesticides, produced using
PAIs with the same general use, may be differentially effective on a regional basis due to climate differences.
Pesticides may also vary in their effectiveness on different varieties of pests and on different varieties of crops.
The structure of the pesticide markets can therefore generally be described as competitive with differentiated
products. The PFPR industry also has some monopolistic components. In particular, the existence of vertically
integrated firms that both manufacture PAIs and formulate products containing those PAIs indicates an aspect
of monopolistic competition. In an industry with these characteristics, different prices may exist for similar
products within a single market. Firms must compete for customers in terms of both price and the kinds of
products they sell. Also, new firms may enter the industry with a new product whose differentiation from its
competitors' products may make it profitable.
Baseline Revenue for Each Facility
Baseline revenues, both for the total facility and for only its PFPR operations, are required to evaluate
impacts of the regulation. Facility baseline revenue is calculated as the three-year average (1986, 1987, and
1988) of facility revenue as reported in the PFPR Survey (question 8 of Section B). Revenue from PFPR
operations is similarly calculated as the three-year average of reported Survey data (question 8 minus question
7 of Section B). These revenues include PFPR of all pesticides, pesticide contract work, and revenue from
services that include the provision of pesticide products.
3.7
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Baseline Costs for Each Facility
Baseline facility and PFPR costs are also required for the analysis. Baseline facility costs are calculated
as the three-year average of facility costs as reported in the Survey (question 19 of Part B).7 In contrast to
revenues, facilities were not asked to report costs specific to PFPR operations. Industry comments on the pre-test
of the Survey indicated that some costs, such as labor, are not maintained on a product-specific basis, and that
such cost estimates would be very burdensome to generate and of only limited accuracy. The Information
Collection Request (ICR) for the final PFPR Survey recognized that "some expenses are difficult to allocate to
specific products within a facility." The ICR stated that "information is requested for the entire facility and EPA
will allocate expenses to pesticide and non-pesticide product lines in a uniform manner." The analysis therefore
assumes a constant profit margin across a facility's operations. PFPR costs are calculated as:
PC = FC x
FR
where:
PC
FC
PR
FR
three-year average PFPR-related costs;
three-year average facility costs;
three-year average pesticide revenue; and
three-year average facility revenue.
Baseline Cost Adjustments Due to Other Government Regulations
Since 1988 (the Survey base year), EPA has promulgated three regulations affecting
PFPR/manufacturing facilities whose compliance costs are not reflected in the Survey data. These regulations
are (1) Resource Conservation and Recovery Act (RCRA) land disposal restrictions (40 CFR 268), (2) effluent
limitations for the Organic Chemicals, Plastics, and Synthetic Fibers (OCPSF) industry (40 CFR 414)8, and (3)
effluent limitations for the pesticide manufacturing industry (40 CFR 455). Also, Congress passed the Federal
Insecticide, Fungicide, and Rodenticide Act (FIFRA) Amendments of 1988, most of which became effective in
December, 1988. The costs associated with the amendments therefore may not be included in the Survey
responses. These amendments affected all PFPR facilities. To represent the costs faced by the PFPR industry
1 The PFPR industry Survey is provided in Appendix A of the proposed EIA.
8 Although effluent limitations for the OCPSF industry were promulgated in 1987, the rule was not in
effect prior to the Survey base year of 1988.
3.8
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accurately, the costs associated with each of the above regulations are added to reported facility costs. The
regulations and their costs to the PFPR industry are discussed below.9
Hazardous and Solid Waste Amendments. The 1984 Hazardous and Solid Waste Amendments
(HSWA) to RCRA had several new provisions, some of which went into effect after 1988. In particular, the Land
Disposal Restrictions included in HSWA are likely to have affected manufacturing/PFPR facilities. These
regulations prohibit land disposal of hazardous waste until it has been treated to the level achieved by the Best
Demonstrated Available Technology.
Congress directed the EPA to write the rules in three stages. Stage 1 regulated solvents and dioxin and
was promulgated in 1986. Stage 2, signed July 8, 1987, regulated a group of wastes known as the "California
list." For Stage 3, the remaining hazardous wastes were divided into thirds, and signed into regulation on August
17, 1988; June 23, 1989; and May 8, 1990. Each of these rules became effective shortly after promulgation.
Many PFPR/manufacturing facilities generate RCRA-listed wastes as a result of PAI production, and
will therefore have incurred costs of complying with the land disposal restrictions. Particularly for the Stage 3
wastes, these costs may not be included in the Survey data. For this reason, the compliance costs estimated for
Stage 3 hazardous wastes were added to the baseline fixed costs for manufacturing/PFPR facilities. Because
Stages 1 and 2 of the rule became effective by 1987, the costs associated with these stages are assumed to be
reflected in the Survey data.
The cost estimates were developed from two sources. The 1986 Survey of Hazardous Waste Generators
(GENSUR) conducted by the EPA's Office of Solid Waste (OSW) was used to determine the waste streams for
pesticide manufacturing facilities. These data were combined with cost data from the Regulatory Impact
Analyses (RIAs) for the land disposal rules. Of the 47 manufacturing/PFPR facilities remaining in the PFPR
business as of 1990 that use water, 18 facilities were included in the GENSUR data base. The GENSUR data
are organized by facility and waste stream. For each facility and waste stream, the following data were available:
(1) RCRA waste codes (up to 10 codes per waste stream);
(2) Quantity of waste generated on-site and quantity disposed of off-site;
(3) On-site waste management train (up to 10 waste management procedures); and
9
' Regulations not effective until 1988 are added to the costs of each of the Survey years (1986,1987,
1988). This may overstate 1988 costs in some cases. Conversely, costs resulting from regulations that became
effective in 1987 and 1986 are not added to the baseline; therefore, the analysis may understate the costs in those
years.
3.9
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(4) Off-site disposal train.
For purposes of estimating costs associated with the land disposal restriction rules, the data were first
scanned to select only those components dealing with land disposal (i.e., landfill, surface impoundments, and
waste piles). The RIAs for the first and last third of the Stage 3 Land Disposal Restrictions included total gallons
of waste to be treated and total incremental costs by baseline management practice and RCRA waste code. This
allows calculation of unit (per gallon) costs for each RCRA waste by management practice.10
For each pesticide manufacturing facility and waste stream, management and RCRA waste codes were
matched to the corresponding codes in the RIA to obtain unit costs for each facility, waste stream, and
management combination. These unit costs were then multiplied by the appropriate quantities (i.e., gallons of
each waste at each facility managed, using each relevant method) to estimate a total cost for each RCRA rule.
Costs of complying with the middle third of the Stage 3 rule were not available in similar detail, because
Stage 3 was not considered to be a major rule. The available information included total quantity of covered waste
generated and total incremental costs by baseline management practice (i.e., not broken down by RCRA waste
code). It was necessary, therefore, to assume that the wastes covered by this rule had the same unit costs. Given
the small number of wastes in this group, this assumption is not expected to affect the analysis substantially.
Eighteen PFPR/manufacturing facilities that were in business as of 1990, and use water, were projected
to incur costs due to the RCRA rules described above. Total annualized Stage 3 RCRA after-tax costs for these
facilities are estimated to be $312,000, in 1988 dollars. Not all of these costs may have been borne by the
PFPR/manufacturing facilities, however; a portion may have been passed through to customers in the form of
higher prices. Since there exist no readily available data about the portion of costs likely to be passed through
to consumers, the analysis assumes that the burden of the cost increase is split evenly between the facilities and
the customers. In other words, the facilities are assumed to bear 50 percent of the cost increase.11 These costs,
totalling $156,000, were added to the baseline fixed costs of the affected facilities.
10 The RIA for the first third examined two alternatives and two scenarios within the first alternative.
The costs for Alternative A, Scenario I, were used because this option was closest to the final rule.
" Note that if the facilities were assumed to bear the entire cost increase of these regulations (worst case),
the analysis would yield two results. First, facilities would be more likely to have a significant impact in the
baseline, possibly resulting in fewer facilities impacted by the proposed regulation. Second, facilities not
impacted in the baseline would be more likely to have a significant impact post-compliance. The net effect of
these two results is indeterminate. Assuming that half of the costs are borne by facilities is therefore a more
balanced assumption than assuming that either all or none of the costs are borne by the facilities.
3.10
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OCPSF Effluent Limitations Guidelines and Standards. The final OCPSF Effluent Limitations,
issued November 1987, established effluent limitations guidelines and standards for OCPSF process wastewater.
Compliance with the rule was required by no later than November, 1990.'2 The regulations for direct dischargers
covered about 60 priority pollutants; those for indirect dischargers covered 47 priority pollutants. For purposes
of the regulation, OCPSF process wastewater was defined to include establishments, or portions thereof, whose
products are classified in any one of five SIC codes: SIC 2821 (plastics and resin materials), SIC 2823 (cellulosic
manmade fibers), SIC 2824 (non-cellulosic synthetic fibers), SIC 2865 (tar crudes, cyclic intermediates, dyes and
organic pigments) and SIC 2869 (industrial organic chemicals, not elsewhere classified).
Substantial overlap exists between facilities subject to the OCPSF effluent guidelines and the
manufacturer/PFPR facilities covered by the PFPR effluent guidelines. Of the 47 manufacturing facilities that
are PFPR and use water, 15 also manufacture compounds regulated under the OCPSF rule. The estimated costs
to comply with the PFPR rule will be incremental to those of meeting the OCPSF rule. For this reason, OCPSF
costs for all manufacturing/PFPR facilities affected by both rules are added to the economic baseline. Annualized
OCPSF after-tax costs for these 15 facilities total $10.8 million, in 1988 dollars. Because no data on the portion
of costs likely to be passed through to customers are readily available, the analysis again assumes that the burden
of the cost increase is split evenly between the facilities and the customers. The facilities are assumed to bear
50 percent of the cost increase, resulting in total annualized costs borne by the facilities of $5.4 million.
Pesticide Manufacturer effluent limitations guidelines and standards: PAI price increases. Two
effects of effluent guidelines for pesticide manufacturers are included in the analysis. First, a portion of the
compliance costs resulting from the effluent guidelines are expected to be passed on to the manufacturers'
customers that is, PFPR facilities. The costs to facilities for purchasing certain PAIs are therefore expected
to increase. The average price increase for each PAI is calculated as the sum of the increase in price for that PAI
at each facility that manufactures the PAI multiplied by the proportion of total production of the PAI at each
facility. In other words, the price increase of a PAI is the weighted average of the price increases over all
12 In 1990, the U.S. Fifth Circuit Court of Appeals remanded certain aspects of the rule for further
consideration. The Agency promulgated a revised final rule in July, 1993. Revisions were made to certain of the
19 remanded BAT Subpart J pollutants and 11 of the 13 PSES pollutants. Also, PSES were eliminated for 2,4-
dimethylphenol and phenol due to adequate treatment at POTWs. Independent of the litigation, the EPA
corrected criteria for designating metal- and cyanide-bearing wastewater streams. Facilities subject to these
portions of the rule are required to comply as of July 1996, or when their existing permit comes up for renewal,
whichever data occur later. Costs were not recalculated for the July, 1993, rule due to the advanced stage of the
PFPR analysis. These cost changes would not be expected to affect the conclusions of the analysis.
3.11
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manufacturing facilities producing the PAI, where the weights are each manufacturer's share of total production
of that PAI. Algebraically, the equation is:
API. =
2>'v x PQV
t,PQu
where:
API,
the average price increase per pound of PAI, i;
the price increase per pound of PAI, i, at manufacturing facility, j; and
pounds of PAI, i, produced at manufacturing facility, j.
Increases in costs to each PFPR facility are calculated as the amount of each PAI the facility used multiplied by
the average price increase for each PAI. The equation is:13
CIk =
3
where:
CIk
API,
the total PAI cost increase incurred by PFPR facility, k; and
the average price increase per pound of PAI i,
the quantity of PAI i, used by PFPR facility, k.
The resulting total estimated PAI price increases for the 634 PFPR facilities in business as of 1990 that
use water and that would be regulated under PSES are $3.4 million per year. Consistent with the handling of the
regulatory costs discussed above, half of these costs are assumed to be borne by the facilities.
Pesticide manufacturer effluent limitations guidelines and standards: PFPR facility cost increases.
The second effect of the effluent limitations guidelines for pesticide manufacturers is that pesticide manufacturers
are expected to bear a portion of the compliance costs. Not all of the compliance costs associated with the
13 This calculation of cost increase assumes that all PAIs are purchased domestically and therefore
overstates the impact on PFPR facih'ties.
3.12
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pesticide manufacturer effluent limitations are expected to be passed on to PFPR facilities in the form of higher
PAI prices. These cost increases are calculated for each pesticide manufacturing facility as follows:
Cj - EC,, x(l-PP)
where:
PP;
Annual compliance costs of pesticide manufacturers effluent limitations borne by facility j;
Annual compliance costs for PAI, i, at facility j; and
Percentage of PAI i compliance costs assumed to be passed through to customers.
Additional annualized after-tax costs totalling $5.6 million are added to the baseline costs for the 47
PFPR/manufacturing facilities in business as of 1990 that use water.
FIFRA amendments. The FIFRA Amendments of 1988 strengthened the EPA's authority in several
major areas of pesticide regulation. These new provisions, effective December 24, 1988, affected the costs
incurred by PFPR facilities by requiring pesticide re-registration fees and annual maintenance fees. Re-
registration fees are levied on manufacturers of PAIs. For each active ingredient intended for use on major food
or animal feed crops, registrants are required to pay re-registration fees totalling $150,000. For PAIs not
intended for major food or feed uses, registrants are required to pay a fee between $50,000 and $150,000 (EPA,
1988 "Highlights of the 1988 Pesticide Law"). PAI fees are apportioned among registrants of each PAI based
on market share. Since this is a one-time fee, however, these costs are not added to the baseline.
In contrast, annual maintenance fees are added to the baseline costs. Unlike the re-registration fee, which
is charged to PAI manufacturers, the annual maintenance fee is assessed for each individual pesticide product.
The fee amount paid generally increases with the number of registrations held (see Fee Table A, in "Instructions
to Registrants for Filing 1993 Pesticide Maintenance Fees"). A multi-facility firm may register the products used
by its facilities separately or jointly, at its discretion. Depending on the number of facilities and products, it may
be advantageous for the firm to file a single form listing all of its registrations, or to file separate forms for some
or all of its facilities. For the first registration, the maintenance fee is $650. Each additional registration costs
$1,300, to a maximum of $55,000 for 50 or fewer registrations and $95,000 for any number of registrations.
The FIFRA maintenance fee schedule allows small businesses to pay lower filing fees than other
businesses if they hold more than 30 registrations. The definition of "small" used in FIFRA is a registrant that
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employed 150 or fewer personnel as of December 1, 1992, and during the three-year period ending on December
31,1991 had an average annual gross.revenue from chemical sales that did not exceed $40 million. For purposes
of determining whether it is a small business, a registrant must include its own as well as any corporate parents'
or subsidiaries' employees and chemical sales. Because the Survey does not include any data on chemical sales
at the firm level, and no secondary sources supplying this information were identified, the employment criterion
alone is used in the analysis to assign lower costs to small entities. If the facility is a single-facility firm,
employment data are available from the Survey. Employment data for multi-facility firms were obtained from
The Million Dollar Directory. If employment data for a firm were not known, it was assumed not to be a small
business, providing a conservatively high estimate of FIFRA maintenance fees.
Data on the number of products containing the original 272 PAIs used at each surveyed facility were
obtained from the FATES database and from the Survey. Because the Survey sample does not necessarily contain
all facilities of amulti-faciUty firm, the analysis calculates FIFRA maintenance fees assuming each facility pays
the fees for all products it uses. This may have the effect of overstating FIFRA costs to multi-facility firms, since
multi-facility firms may combine their registrations. Because Survey respondents were asked to confirm the
number of 272 PAI products, not the total number of pesticide products, the estimated FIFRA maintenance costs
may understate the actual costs.
Based on the number of registered products reported by each PFPR facility, the analysis includes the
annual maintenance fees in baseline costs. The estimated FIFRA maintenance costs are deflated to 1988 dollars
using the CPI deflator. Total after-tax FIFRA maintenance fees estimated for the 1,794 PFPR facilities in
business as of 1990 that use water are $6.0 million per year. Consistent with the handling of RCRA and OCPSF,
half of these costs ($3.0 million) are assumed to be bom by the facilities and half are assumed to be passed
through to customers in the form of higher prices.
Estimated Facility Compliance Costs
Full details of the methods by which the costs of complying with the regulatory options were estimated
can be found in the Technical Development Document. A summary of the cost components and the annualization
method are presented below.
Compliance costs were projected at the facility level. For facilities that both manufacture PAIs and
perform PFPR operations, the compliance costs are based only on the PFPR operations of the faculties. These
costs will be incremental to compliance costs for the manufacturing operations of the facility. Cost estimates
14 See the regulatory flexibility analysis in Chapter 4 for additional information on firm counts and
estimating firm-level employment.
3.14
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for both PFPR stand-alone facilities and PFPR/manufacturing facilities are based on the assumption that there
is no existing treatment equipment in place.15
For the regulatory options considered, two categories of compliance costs were evaluated: capital costs
and operating and maintenance costs (including compliance self-monitoring and sludge disposal). The capital
costs are one-time "lump sum" costs; the operating and maintenance costs are projected on an annual basis.
Capital costs were annualized (assuming that the capital equipment has a productive life often years) using the
real weighted average cost of capital (discussed below). The equation for calculation of total annualized costs
ACC = OM
CPT
PVF
where:
ACC
OM
CPT
PVF
RWACC =
annualized compliance costs in 1988 dollars;
estimated annual operating and maintenance costs;
estimated capital costs;
present value factor = £;=uo !/(! + RWACC)'; and
real weighted average cost of capital.
Annualized compliance costs were added to facility baseline costs to perform the post-compliance analyses.
Cost of capital. The cost of capital is the rate at which a firm obtains funds for financing capital
investments. The cost of capital to a particular firm depends on how the investment is financed. One option,
equity financing, is taken when a firm issues stock or retains earnings. A second option involves acquiring
additional debt, through bonds, notes, or short-term commercial paper. Typically, acquiring debt is the less
expensive option. As a firm 'expands its debt holdings, however, the cost of debt increases, forcing the firm to
reach an equilibrium between debt and equity financing. It is assumed in this analysis that firms use some
combination of debt and equity to finance compliance costs. The measure of a firm's overall cost of financing
a capital investment, based on the percentage values of debt and equity used to finance the investment, is termed
the weighted average cost of capital (WACC). Thus, the WACC is the average after-tax cost of all funds used
to finance a capital investment.
15 For the vast majority of PFPR stand-alone facilities, this is a valid assumption. The Survey contained
only a few non-manufacturing facilities that had an effective treatment system in place for the treatment and
removal of PAIs from indirectly discharged wastewater.
3.15
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The WACC can be presented in either nominal (i.e., not adjusted for inflation) or real terms (i.e., the
nominal WACC is adjusted for inflation). This analysis used the real cost of capital to allow for the use of
constant annual compliance costs (i.e., compliance costs that are not inflated over time). The two inputs to
calculating the real WACC nominal WACC and the inflation rate are discussed below.
Nominal WACC. The nominal WACC was calculated by weighting the cost of equity and the cost of
debt by the percentage of the investment expected to be financed by these two methods. The equation used was:
where:
WACC
R
E
I
Y
CT
D
WACC = R(E/I) + Y(l-CT)(D/I)
nominal weighted average cost of capital;
after-tax cost of equity;
amount of investment financed by equity;
total amount of the investment;
pre-tax interest rate on debt;
marginal corporate tax rate; and
amount of investment financed by debt.
The estimates of the nominal WACC vary by firm. The sources of values for the variables in the WACC
equation vary, in some cases, based on whether the firm owns a PFPR/manufacturing facility(ies) or a facility(ies)
that PFPRs but does not manufacture PAIs. The input sources and values are discussed below.
. The percentages of the investment that a firm is assumed to finance through equity (E/I) and debt (D/I)
are assumed to match the firm's historical mix of equity and debt investment. The mix of equity and debt
financing was specified in three different ways, depending upon the facility's ownership and business structure.
First, for all public firms, the mix of debt and equity was gathered from each firm's annual report for 1988.
Second, private firms o\vning PFPR/manufacturing facilities were assigned the median debt and equity mix of
the public firms owning PFPR/manufacturing facilities in the sample. The median values were 52.2 percent debt
financing and 47.8 percent equity financing. Third,^ other private firms, the debt/equity mix was calculated
using the debt/assets and equity/assets ratios from the balance sheet reported by the associated facility in the
3.16
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Survey. If the ratios based on reported data were not bounded by one and zero,16 the median values of the other
private non-manufacturing facilities in the sample were used. These median values are 48.5 percent debt
financing and 51.5 percent equity financing. Data for these "other" private firms were not taken as the average
of the public firms' data because a sharp distinction is expected between the private and public firms due to size
differences. Data from the public firms are not expected to be necessarily representative of data from the private
firms.
The after-tax cost of equity (R) is calculated as follows for all public firms:
R =
where:
(Rm- 1 ) =
p =
the risk free rate of return = 10.01 percent (calculated from the 1982-1991 average interest rate
on 30-year U.S. Treasury Bonds as reported in Statistical Abstract of the United States, Bureau
of the Census, 1989, 1992);17
Typical risk premium, or the rate of return on market portfolio less the rate of return on risk free
investments = 8.0 percent; and
A measure of the risk of an individual firm compared with the market. Beta values are based
directly on 1988 Value Line Investment Survey, Part I Summaries &Indexes specific to each
firm.
For private firms owning PFPR/manufacturing facilities, the cost of equity was calculated as above,
except that the beta value was set equal to the median beta value (i.e., equal to 1 . 1 75) for the publicly-held firms
owning PFPR/manufacturing facilities. For other private firms, cost of equity was estimated using the average
return on the stock market from 1982 to 1991, as estimated from the Standard & Poor's 500 Composite Stock
Price Index, assuming that all dividends are reinvested. This value is 18.08 percent.
16 Negative equity was indicated for one firm undergoing restructuring.
17 The variable, i, represents the risk free component of the return on equity. Since equity has no maturity
date, i is best calculated as the return on long-term Treasury Bonds rather than as the return on 10-year Treasury
Bonds.
3.17
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For all firms, an estimate of the interest on loans was developed using the 1982-1991 average yield on
10-year Industrial Bonds, which equals 10.68 percent (reported in Standard & Poor's Security Price Index
Record)}8 The marginal corporate tax rate was assumed to be 34 percent.
Real WACC. Given the nominal WACC, the real WACC is estimated as:
RWACC =
1 + WACC
1 +8
- 1
where:
RWACC
the real weighted average cost of capital; and
the rate of inflation = 4.02 percent.
This inflation value is the average of the annual percentage changes of the GNP implicit price deflator between
1982 and 1991 (Statistical Abstract of the United States, 1992).
Estimated Post-Compliance Prices
Changes in pesticide prices and demand are determined interactively in the market place. Typically, a
producer will raise prices based on the expected actions of competitors and the extent to which consumers will
decrease demand Consumers will then respond to the increased prices with a drop in demand based on several
factors, including the percent of their production cost contributed by the product and the availability of substitute.
products. Producers then examine the impact of the price increase and demand decrease on profitability and
reevaluate their price. Consumers again react This iterative process continues until producers believe they have
maximized profit.
The analyses of this EA are conducted assuming that facilities are unable to pass any costs of the
proposed regulation through to customers. This is an extremely conservative assumption that yields maximum
projected impacts on PFPR facilities. In fact, this scenario is highly unlikely. For a zero cost pass-through
analysis to represent a realistic scenario, either the supply curves for pesticide markets must be perfectly inelastic
or the demand curves must be perfectly elastic. A perfectly inelastic supply curve is associated with goods for
which there is a fixed supply. This is not the case for pesticide markets. Based on an analysis of the price
18 Because of difficulties in interpreting them, the interest rate data reported in the Survey were not used.
See the memorandum to the Administrative Record for the Proposed Rule entitled "Survey Information on Capital
Investments".
3.18
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elasticity of demand for pesticides conducted for the pesticide manufacturer EIA, demand for pesticide is
generally inelastic.19 Because supply curves for the pesticide markets are not known, however, and compliance
costs are not estimated in a manner that can necessarily be associated with specific pesticide products, projecting
the percentage of the compliance costs that will be passed through to customers is difficult. If the regulation is
economically achievable under an assumption of zero cost pass-through, this serves as assurance that it would
be economically achievable under a more realistic scenario of partial cost pass-through.
Post-Compliance Cash Flow
Facility cash flow consists of facility net income plus noncash expenditures. Baseline, or pre-compliance,
facility cash flow was estimated based on data from the income statement reported in the Survey. Cash flow was
adjusted to account for the estimated costs of complying with Federal pollution control regulations effective after
1988, the base year for the analysis. Post-compliance facility cash flow was calculated by subtracting an
adjustment for compliance costs from estimated baseline cash flow.
3.4 Impact Measures
The following sections present the facility-level impacts evaluated under the baseline and post-
compliance scenarios.
3.4.1 Baseline
The baseline economic analysis evaluates each facility's financial operating condition prior to incurring
compliance costs for meeting effluent limitations. The purpose of the baseline analysis is to identify PFPR
facilities that are currently experiencing or are projected to experience significant financial difficulties regardless
of the promulgation of effluent guidelines. Attribution of all financial impacts to the effluent limitations rather
than to facilities' current financial problems would overstate the burden of effluent limitations.
Facility financial viability is analyzed in the baseline scenario by calculating the three-year after-tax cash
flow from the Survey data, incorporating the costs of EPA regulations effective after the Survey was
administered.20 If a facility has lost cash on average over the three-year period, the facility is not expected to
remain in operation and post-compliance impacts are not evaluated.
19 Estimates of demand elasticities for PAIs were provided in Appendix C of the proposed EIA.
20 As discussed above, the baseline analysis included the estimated costs associated with four
regulations: (1) Resource Conservation and Recovery Act (RCRA) land disposal restrictions, (2) effluent
limitations for the OCPSF industry, (3) effluent limitations for the Pesticide Manufacturing Industry, and (4)
annual maintenance fees set by EPA under the FIFRA Amendments of 1988.
3.19
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3.4.2 Post-Compliance Impacts
The EA projects three categories of economic impacts that may result from regulation: facility closure,
conversion of PFPR product lines to non-pesticide FPR operations, and compliance costs in excess of five percent
of facility revenue. Facility closure is the most severe of the three impacts evaluated, while line conversions and
costs in excess of five percent of facility revenue represent more moderate impacts, hi contrast to facility closures
and product line conversions, compliance costs in excess of five percent of facility revenue are not expected to
be associated with an operational change at a facility. Compliance costs that are less than five percent of facility
revenue are commonly judged to be economically achievable (see, for example, the EIAs for effluent limitations
for the OCPSF and pesticide manufacturers industries). In addition, compliance costs equal to five percent of
facility revenues do not necessarily indicate a significant impact. This measure is counted as a moderate impact
under a conservative standard that considers the possibility of such an impact.
The particular impacts evaluated for a facility are a function of the type of PFPR operations conducted
at the facility and the percentage of the facility's revenue that is derived from PFPR operations. These
characteristics are used as indicators of the options that management will likely consider in response to
compliance costs. The grouping of facilities for evaluation of impacts is based, in part, on subcategories defined
for this regulation. As previously mentioned, two subcategories are considered under this regulation, hi the
(remanded) 1985 effluent guidelines for the pesticide industry, all PFPR facilities were classified under
Subcategory C. This regulation recognizes another subcategory that may have previously existed within
Subcategory C: Subcategory E, applying to wastewater streams generated by Refilling Establishments.21 A
Refilling Establishment is an establishment at which the sole PFPR activity is the repackaging of pesticide'
products into refillable containers for the agricultural market. The application of impact measures to these
subcategories, as well as the motivation for establishing Subcategory E, are discussed below.
Impact Measures for Facilities Regulated Under Subcategory C
Three impact measures were considered for Subcategory C facilities: (1) facility closures; (2) facility
conversions to non-PFPR activities; and (3) compliance costs in excess of five percent of facility revenue.
Facility closures. Two groups of PFPR facilities regulated under Subcategory C would be expected to
consider facility closure as a response to effluent limitations: (1) PFPR facilities that also manufacture PAIs; and
(2) PFPR facilities earning a significant percentage of their revenue from PFPR activities.
PFPR facilities that also manufacture PAIs (hereafter "PFPR/Manufacturing Facilities") generally obtain
a high percentage of their revenue from PFPR activities. Based on responses to the Section 308 Survey, the mean
21 The majority of these facilities began operations in the mid- to late-1980s.
3.20
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percentage of facility revenue from PFPR activities was 66.5 percent for PFPR/Manufacturing Facilities, with
a median value of 90.4 percent. In addition, the manufacturing operations are integrated with the PFPR
operations and additional costs may be incurred in manufacturing operations (e.g., tolling costs) if PFPR
operations are discontinued.
As discussed in the preceding chapter, Other PFPR Facilities with a substantial percentage of revenue
from PFPR operations (and that do not manufacture PAIs) may also consider closing the facility entirely in the
face of burdensome compliance costs. This analysis assumes that these Other PFPR Facilities that obtain at
least 25 percent of their revenue from PFPR activities will consider closing entirely.22 This fairly low
percentage of revenue was chosen so that evaluation of the most severe economic impact facility closure
includes all facilities that might feasibly consider this alternative.
Facility conversions to non-pesticide Formulating/Packaging/Repackaging activities. Facilities
regulated under Subcategory C that do not manufacture PAIs and that obtain less than 25 percent of their revenue
from PFPR activities are expected to face different decisions in response to compliance costs. These facilities
frequently engage in the formulating and packaging of many non-pesticide products as well as pesticide products.
The median percentage of revenue obtained from PFPR activities for these facilities is about five percent, while
the mean is under seven percent. The facilities are typically not dependent on pesticide FPR, but include
pesticides along with many chemical preparations that they formulate, package, and repackage. The production
lines are generally not specific to pesticides, but can FPR a wide range of products. The facilities are therefore
likely to consider converting their PFPR lines to me formulation of non-pesticide products rather than closing the
facility or the lines if PFPR production is discontinued. Alternatively, some facilities may decide to toll out the
pesticide portion of their formulating business, while retaining ownership of the pesticide product. The analysis
evaluates whether these facilities would be expected to convert their pesticide lines to other
formulating/packaging/repackaging operations as a result of the regulation. Because the conversion of pesticide
FPR lines to other FPR operations is not generally expected to result in employment loss, such conversion is
considered to be a moderate impact To ensure that impacts are not overstated, however, EPA presents estimates
of employment losses associated with the closure of PFPR lines of facilities expected to convert their PFPR lines.
22 Ideally, the determination of whether management would consider closing a facility entirely would be
based on the percentage of profit, rather than revenue, derived from PFPR activities. Because costs were not
reported for PFPR activities in the Survey, however, calculation of PFPR profits is not possible.
3.21
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This is a worst case result, and EPA does not believe that such employment losses will actually occur in most
cases.
Ratio of annualized compliance costs to revenue in excess of five percent. As an additional measure
of economic effects on facilities regulated under Subcategory C, the annualized compliance costs are compared
to facility revenue for each facility. As discussed above, costs in excess of five percent of facility revenue are said
to result in a moderate economic impact.
Subcategory E Facilities
For Subcategory E Facilities (or Refilling Establishments), the only economic measure evaluated is
compliance costs as a percentage of revenue. Refilling Establishments constitute a distinct set of facilities within
the PFPR industry. An estimated 36 percent of the facilities potentially covered by the PFPR regulation are
classified as Subcategory E facilities. These facilities do not formulate or package pesticides,.but maintain bulk
storage tanks for pesticides and distribute the formulated product in refillable containers to farmers. Most
Refilling Establishments surveyed reported a primary SIC code of #5191, which characterizes the establishments
as "primarily engaged in the wholesale distribution of animal feeds, fertilizers, agricultural chemicals, pesticides,
seeds, and other farm supplies, except grains."23 In keeping with this line of business, typical ownership of
Refilling Establishments differs from that of other PFPR facilities. An estimated 29 percent of Refilling
Establishments are owned as a cooperative, e.g., a group of farmers who purchase and distribute pesticides among
themselves. In contrast, only two percent of other PFPR faculties have a cooperative form of ownership.
In general, Refilling Establishments have relatively low facility revenue. The estimated mean revenue
for Refilling Establishments is $4.8 million per year, in contrast to $ 16.3 million per year for the remainder of
the industry. Also, Refilling Establishments derive only a small percentage of their revenue from pesticide
repackaging. The mean percentage of revenue from PFPR activities is 15 percent, with a median value of six
percent In contrast, the meanpercentage for Subcategory C facilities is 21 percent, with a median of 12 percent.
Also, the other activities conducted at Refilling Establishments do not depend on pesticide packaging. Therefore,
for this Subcategory, closure of the facility would not be expected in response to compliance costs and no analysis
of facility closure is conducted.
Refilling Establishments have simple production lines, typically consisting of one or more bulk tanks
purchased specifically to hold pesticides. The investment in the "production line" is minimal the average
market value of the production line for the Surveyed facilities is $3,800. Alternative uses of the tank are limited
23 In contrast, the SIC code reported most frequently by Subcategory C facilities as their primary SIC
code was #2879: "Formulation and preparation of pesticides and agricultural chemicals".
3.22
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and unlikely to provide significant profits. Most owners of Refilling Establishments are therefore not expected
to convert their tanks to an alternative use and no analysis of production line conversion is conducted.
The final regulation for Subcategory E facilities is unchanged from that presented at proposal, except
that stormwater is not covered by the final regulation, and the analysis at proposal stands as previously presented.
For Subcategory E facilities subject to PSES regulations, EPA is promulgating the regulation identified
at proposal as Option 1. Option 1 is based on reuse of all contaminated wastewater, and assumes that the
contaminated wastewater is used as make-up water in application of pesticide chemicals to the field in accordance
with the product label. Of the estimated 1,134 Subcategory E facilities that are potentially subject to the
regulation, EPA's data indicate that 98 percent, or 1,115 facilities, are already in compliance. Therefore, they
would incur no costs to comply with the regulation. In addition, the remaining 19 facilities are expected to be
able to achieve compliance with the regulation at nearly zero additional cost.24 Because compliance is estimated
to be achievable at nearly zero additional cost, EPA finds that the final PSES Subcategory E regulation is
economically achievable.
As discussed at proposal, any Subcategory E facilities that are direct dischargers would also be covered
under a zero discharge regulation. EPA's survey of the PFPR industry indicated that no Subcategory E facilities
are direct dischargers. Accordingly, EPA estimates that the PFPR industry will incur no costs for complying with
the Subcategory E BPT requirement in the final rule.
3.5 Calculation of Impacts
This section provides the methods and equations used to analyze facility closure, product line conversion,
and compliance costs in excess of five percent of facility revenue.
3.5.1 Facility Closure
A decision to close a facility is typically made at the firm level. The firm holds pesticide registrations
and can consider transferring both pesticide and other products among facilities. In general, a facility owner (i.e.,
a firm) faced with pollution control requirements must decide whether to make the additional investment in
pollution control, to change the products produced at the facility (pesticide products as well as non-pesticide
products) or between facilities owned by the same firm, or to liquidate the facility. Because data on other
24 EPA estimated costs for facilities that are currently discharging to POTWs to obtain additional
minibulk containers to store wastewater for use as application make-up water. The capital investment required
is estimated to be $500 per facility.
3.23
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products to which a facility may convert are unavailable or limited, this analysis assumes that either the pollution
control investment is made or the facility is liquidated.
The evaluation of whether to close a facility is complex and involves a number of factors including:
(1) Present and expected profitability of the facility;
(2) Required capital investment in pollution control technology equipment;
(3) Expected increase in annual operating costs due to pollution control requirements; and
(4) Expected product price, production costs, and profitability of the facility after pollution control
equipment is installed and operating.
Compliance Cost Adjustment
The calculation used to estimate whether or not a facility will close is intended to model the decision-
making process of the owners of the facility. The calculation compares the pre-compliance profitability of the
facility with the post-compliance profitability. Specifically, this calculation entails a comparison of pre-
compliance after-tax cash flow to post-compliance after-tax cash flow for the facility. In the majority of cases,
a rational owner would not continue long-term operations if a facility's after-tax cash flow is negative.
Facility cash flow consists of facility net income plus noncash expenditures. Baseline, or pre-compliance,
facility cash flow was estimated based on data from the income statement reported in the Survey. Cash flow was
adjusted to account for the costs of complying with the RCRA land disposal restrictions, OCPSF effluent
limitations, pesticide manufacturers effluent limitations, and FIFRA annual maintenance fees. As discussed
above, these rules (or portions thereof) were effective after 1988, the base year for the analysis. The compliance
costs associated with the rules were therefore not reflected in the Survey data. Specifically, cash flow for a facility
was estimated as:
3.24
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CFO = NI + DEP - OC(\-CT)
where:
CFO
NI
DEP
OC
CT
After-tax baseline cash flow;
Net income (i.e., after tax profits calculated from the Census);
Depreciation expenses (taken directly from the Census);
Cost of compliance with other EPA regulations first effective after 1986 (RCRA land
disposal restrictions, OCPSF effluent guidelines, Pesticide Manufacturers effluent
guidelines and FIFRA maintenance fees); and
Marginal corporate tax rate (assumed to be 34 percent).
Post-Compliance Cash Flow
Facilities for which baseline cash flow was negative (i.e., those predicted to be baseline facility closures)
were not considered as potential facility closures in the post-compliance scenario. For the remaining facilities,
however, the post-compliance cash flow was evaluated to project facilities that would close due to the regulation.
Under the assumption of zero cost pass through, the calculation of post-compliance cash flow requires
only an adjustment for compliance costs. The compliance costs have two components: operating/maintenance
costs and capital costs. Full capital costs, funded both by debt and equity are included. An annualized cost of
capital is calculated by dividing the estimated capital and land investment by the present value factor. The
present value factor is based on the WACC, as discussed in the section on cost of capital.25 The facility will pay
25 The real WACC is used to construct a present value factor (PVF). Multiplying annual costs by a PVF
discounts investments over a fixed time period. Correspondingly, dividing present value costs by the PVF gives
annualized costs over a fixed period of time. This analysis divided compliance capital and land costs by the PVF
to annualize these costs. The analysis uses a ten-year discounting horizon as a conservative estimate of the
typical life of the pollution control equipment. The PVF is calculated as:
10
PVF =
i
£i (1 + RWACCj
3.25
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reduced taxes as a result of depreciating capital expenditures. Annual operating and maintenance costs will also
be somewhat offset by the corresponding decrease in taxes the facility will pay due to reduced profit. The
calculation is as follows:
CCadj = (QMx(l-CT)) + (-L-xCP7) -
where:
CCadj = Compliance cost adjustment to cash flow;
OM = Operating and maintenance costs of compliance;
CT = Marginal corporate tax rate;
PVF = Present value factor; and
CPT - Capital costs of compliance.
Post-compliance after-tax cash flow is calculated as baseline after-tax cash flow less the adjustment to
cash flow for compliance costs. The equation is:
where:
PCCFO
CFO
CCadj
PCCFO = CFO - CCadj
Post-compliance after-tax cash flow;
Baseline after-tax cash flow; and
Adjustment to cash flow due to compliance costs.
As previously discussed, a facility with negative three-year average after-tax cash flow in the post-compliance
scenario was assessed as a closure for the economic analysis.
where:
PVF
RWACC
i
present value factor;
the real weighted average cost of capital; and
number of years over which costs are discounted.
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3.5.2 Product Line Conversion
In theory, conversion of PFPR production lines to alternative non-pesticide FPR activities would be
expected to occur at the point that the financial return on the assets employed in an alternative activity exceeds
the return from PFPR. The most lucrative alternative activity and the financial return from that activity
would vary for each facility based on such factors as the local/regional manufacturing activity, capacity
availability, and business connections. In general, however, it is expected that alternative FPR opportunities
exist in the operations characterized by SIC codes #2899 (chemical preparations) and #2842 (manufacturing
furniture, metal, and other polishes). These SIC codes were the most frequently reported primary SIC codes for
PFPR facilities obtaining less than 25 percent of their revenue from PFPR
The analysis of product line conversion is based on comparing the return on assets (ROA) that would
be obtained by continuing PFPR in the post-compliance scenario with the ROA obtained from activities classified
in SIC 2842 (industry financial data on SIC 2899 are not readily available). The analysis assumes that the ROA
achieved by 75 percent of facilities operating in SIC 2842 could reasonably be expected to be achieved by a
converted PFPR line. On average over the three-year period 1986-1988, the lowest quartile ROA (defined as
earnings before taxes divided by assets) was 2.9 percent for SIC 2842.26
The analysis of ROA is conducted in four steps: (1) calculation of baseline ROA; (2) comparison of
baseline ROA to 2.9 percent; (3) calculation of post-compliance ROA; and (4) comparison of post-compliance
ROA to 2.9 percent. If a facility's baseline ROA is below 2.9 percent, no further line conversion analysis is
performed for the facility. If a facility's ROA for PFPR operations falls below 2.9 percent as a result of
compliance costs, given that its baseline ROA is above 2.9 percent, the facility is assessed as likely to convert
its PFPR production lines to other FPR activities.27 These steps are discussed below.
Calculate Baseline ROA
ROA is calculated as earnings before taxes (EBT) from PFPR divided by assets associated with PFPR.
EBT is calculated as revenue from PFPR minus costs from PFPR (excluding taxes). PFPR revenue is calculated
as a three-year average of the sum of Survey questions 3, 4, 5, and 6 in Part B. The PFPR revenue includes
revenue from tolling and services, including provision of pesticide products. As previously discussed, the Survey
26 Robert Morris and Associates (1991). RMA Annual Statement Studies.
27 This comparison basis, although reasonable, is far from definitive. In recognition of the lack of data
regarding the ROA at which facilities would convert the PFPR lines, a sensitivity analysis of the ROA conversion
analysis is presented in Appendix F of the EA.
3.27
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does not provide cost data below the facility level. This report therefore assumes a constant profit margin for all
product lines in a facility and calculates costs proportionately to revenue. Algebraically,
where:
PC
C
PR
TR
PC = C x (PRJTR)
PFPR costs net of taxes;
Three-year average costs for the entire facility net of taxes (including cost adjustments for post-
1988 regulations);
Three-year average revenues from PFPR activities; and
Three-year average total facility revenues.
And,
where:
EBT =
PR
PC
EBT = PR - PC
Earnings before taxes from PFPR operations;
Three-year average revenues from PFPR activities; and
Estimated three-year average PFPR costs net of taxes.
Asset values are also available only for the entire facility. The value of assets associated with PFPR is
calculated by assuming constant asset productivity across all product lines. Algebraically,
3.28
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where:
PA
A
PR
TR
PA = A x (PR/TR)
PFPR assets;
Three-year average assets for the entire facility;
Three-year average revenues from PFPR activities; and
Three-year average total facility revenues.
Using the calculated EBT and PA values, baseline ROA for PFPR operations is calculated as follows:
ROA =
EBT
PA
where:
ROA = Baseline pre-tax return on PFPR assets;
EBT = Earnings before taxes from PFPR operations; and
PA = PFPR assets.
If the baseline PFPR ROA of the facility is less than 2.9 percent, no further line conversion analysis is performed
on the facility.
Post-Compliance Return on Assets
Under the zero cost pass-through assumption, the numerator of the ROA, (i.e., EBT), is adjusted by
subtracting annual operating and maintenance costs, depreciation, and the average annual interest payment due
to the debt component of the capital investment calculated over the ten-year assumed life of the investment.28
The equation is:
^The average annual interest payment over the ten-year horizon is chosen as a typical interest payment.
3.29
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PCROA =
EBT ~ OM ~
" AIP
PA + CPT
where:
PCROA
EBT
OM
CPT
AIP
PA
Post-compliance return on assets;
Earnings before taxes from PFPR operations;
Annual operating and maintenance compliance costs;
Compliance capital costs;
Facility's average annual interest payment on the debt component of compliance capital
outlays for the life of the investment; and
PFPR assets.
Average annual interest payment. The average annual interest payment is calculated as:
AIP = (-P x CPT) x Q.Q64 _ D x CPT
1 - (1 + 0.064)-10 10
where:
AIP =
D
CPT =
Average annual interest payment;
Percent of compliance capital costs assumed to be financed by debt;
Compliance capital costs.
The value of 6.4 percent is the assumed real interest rate and was calculated from the inputs previously
described for the WACC. The nominal interest rate is assumed to be 10.68 percent and the inflation rate is
assumed to be 4.0 percent OMB's recommended real discount rate of 7.0 percent was also used at proposal, with
no significant difference in results. Due to resource constraints, only the real interest value of 6.4 percent is used
in the final EA.
The denominator of the ROA ratio, (i.e., assets), is adjusted by adding the compliance capital outlays
to baseline assets to complete the calculation of post-compliance ROA. If the post-compliance PFPR ROA falls
below 2.9 percent, given that the baseline ROA was above 2.9 percent, the facility is assessed as likely to convert
its PFPR production lines to other non-pesticide FPR activities.
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3.5.3 Comparison of Annualized Compliance Costs to Revenue
The annualized compliance costs are compared to three-year average facility revenue as an indication
of whether moderate economic impacts are likely. Facility revenue is obtained directly from the Survey (question
8, Part B).
3.5.4 Employment Losses
Possible employment losses were assessed for facilities estimated to close as a result of regulation and
for facilities estimated to convert PFPR lines to an alternative business activity. EPA believes that the estimates
of employment loss resulting from this analysis are highly conservative because of the assumption that line
conversions would result in loss of employment for a facility's PFPR-related employment. More realistically,
EPA expects that line conversions will not generally lead to full loss of PFPR-related employment.
3.6 Estimated Facility Economic Impacts and Finding of Economic Achievability
This section presents the facility economic impacts estimated to occur in the baseline analysis and under
the final regulation (post-compliance).
3.6.1 Baseline Analysis
Subcategory C
The analysis of baseline closures remains unchanged from that presented at proposal. At proposal, EPA
estimated that 2,018 water-using facilities were potentially subject to the Subcategory C PSES regulation (943
using the original 272 PAIs and 1,075 facilities using only the non-272 PAIs). Out of these 2,018 facilities, EPA
assessed 432 facilities or 21 percent as baseline closures (i.e., in severe financial condition independent of EPA
action). These facilities were excluded from the analysis of severe and moderate impacts. For assessing the costs
of the final regulation, EPA treated baseline closures in two different ways:
First, to provide a conservative assessment of the possible costs to industry and society of the final PFPR
regulation, EPA included the baseline closures in the analysis for estimating aggregate costs. This
analysis assumes that financially stressed facilities within the industry would incur the regulation's costs.
Second, for a more realistic assessment of the regulation's likely costs, EPA excluded the baseline
closures from the analysis of aggregate costs. This analysis assumes that financially stressed facilities
will not incur the regulation's costs.
The following discussions present aggregate costs as calculated by both methods. However, the
comparisons of costs among the proposal, supplemental and final regulations are all based on the costs including
baseline closures because the analyses originally performed for the proposal and supplemental regulations were
calculated in this way.
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Subcategory E
As under Subcategory C, the analysis of baseline closures remains unchanged from that presented at
proposal. Out of the 830 facilities assessed as being potentially subject to a Subcategory E PSES regulation, 169
facilities or 20 percent were assessed as baseline closures and thus removed from further consideration of
regulatory effects.
3.6.2 Estimated Costs and Impacts of Compliance with the Final Regulation
Subcategory C
Including baseline closures, EPA estimates that 506 facilities, or 25 percent of the 2,018 water-using
Subcategory C facilities, will incur costs in complying with the final Subcategory C PSES regulation. Total
annual costs for these facilities are estimated at $29.9 million, in 1995 dollars (see Table 3.1). Excluding
baseline closures from the cost analysis reduces the number of facilities expected to incur costs to 421 facilities
and total annual costs to $24.2 million ($1995).
Table 3.1: Estimated Costs and Impacts of the Final, Proposed and
Supplemental Notice PSES Regulations for Subcategory C Facilities
Number of
Facilities Total Annualized Average Cost
Incurring Compliance Cost per Facility
Costs (S1995, millions) ($1995)
Maximum
Potential
Severe Moderate Employment
Impacts* Impacts* Loss*
Proposed Regulation
Supplemental Notice
Regulation
Final Regulation
Costs Including
Baseline Closures
Costs Excluding
Baseline Closures
1,142
709
506
421
$71.9
$43.4
$29.9
$24.2
$63,000
$61,000
$59,000
$57,500
3
0
0
327
208
150
890
634
458
Severe impacts are defined as facility closures. All facility employment is assumed to be lost as the result of a
facility closure.
* Moderate impacts are defined as line conversions and/or total annual compliance costs exceeding 5 percent of total
facility revenue. EPA does not expect that employment losses would generally accompany line conversions;
however, for this analysis, EPA assessed the maximum potential loss based on the assumption that all employment
associated with PFPR activities would be lost as a result of a line conversion.
* Employment loss for the proposed regulation includes the estimated employment loss in facility closures and the
worst case estimate of employment loss in facilities with line conversions. The reported employment loss for the
Supplemental Notice and Final Regulation reflects no facility closures and includes only the worst case employment
loss in facilities with line conversions.
Source: U.S. Environmental Protection Agency
To estimate the costs of the final regulation for these cost-incurring facilities, EPA used the methodology
as outlined above: facilities were assigned to the compliance option zero discharge or P2 Alternative with
the lower total annualized compliance cost. From this analysis, 69 percent of the 506 cost-incurring facilities
3.32
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(including baseline closures) were expected to select the P2 Alternative while the remaining 31 percent select
zero discharge.
In terms of facility impacts, no facilities were assessed as incurring facility closures (a severe impact)
under the final regulation. A total of 150 moderate impacts were estimated among facilities incurring costs. As
discussed in section 3.5.2, a moderate impact is defined as either a possible conversion to non-pesticide
formulating operations, or compliance cost exceeding five percent of facilitiy revenue. All 150 of the estimated
moderate impacts were associated with possible PFPR line conversions. Only 11 of these 150 facilities were
estimated to have compliance costs exceeding five percent of facility revenue. No facilities were estimated to
incur costs exceeding five percent of revenue without also incurring possible line conversions.
EPA does not generally expect that line conversions will result in employment losses. However, to be
conservative in its analysis, EPA estimated the maximum potential employment loss associated with the
regulation by assuming that all PFPR employment would be lost in facilities estimated to undergo line conversion
as a result of the regulation. From this assumption, the upper bound employment loss for the regulation is
estimated at 458 full-time employment positions (FTEs).
In addition to presenting the estimated costs and impacts for the final regulation, Table 3.1 also presents
the comparable values for the re-estimated proposed regulation and in the supplemental notice. As shown in the
table, the expected burden of the regulation has fallen considerably from proposal through supplemental notice
to the final regulation. From proposal to final, the number of Subcategory C facilities expected to incur costs has
fallen from 1,142 to 506 facilities, or 56 percent.29 The estimated drop in total annual compliance cost, from
$71.9 million to $29.9 million ($1995), represents an even greater reduction from proposal, at 58 percent. In
addition, among the facilities estimated to incur costs, the average total annual cost per facility is also decreased,
from $63,000 at proposal to $59,000 for the final regulation, or a decline of six percent. As noted above, no
severe impacts are assessed for the final regulation while three facility closures had been estimated at proposal.
Finally, the number of moderate impacts and potential employment losses are also substantially reduced from
proposal, falling by 54 percent and 49 percent, respectively. In summary, under the final regulation, the number
of PAIs covered, the number of facilities estimated to incur costs, the expected cost, the expected cost per facility,
and the facility impacts are considerably less than estimated at proposal.
The foregoing statements are based on comparison of the proposed regulation with the final regulation.
Although the costs and impacts estimated for the supplemental notice regulation were substantially less than those
29
All comparisons with the proposed and supplemental notice regulations are based on the analyses
including baseline closures.
3.33
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estimated for the proposed regulation, the final regulation shows even further reductions in costs and impacts
beyond those estimated for the supplemental notice. Thus, the final regulation is substantially superior to both
the proposed and supplemental notice regulations in terms of costs and impacts.
EPA also judges that the final regulation is superior to the other alternatives considered because of the
flexibility it provides to facilities in deciding how to achieve compliance. In particular, by permitting facilities
to choose the least expensive compliance approach the P2 Alternative or zero discharge the regulation
achieves substantial pollution reductions but at substantially lower cost and impacts than would occur if the
regulation permitted compliance by only one of the possible approaches.30 hi particular, if all facilities were to
choose the P2 Alternative, the regulation's estimated annual costs would increase by $1.9 million ($1995) and
moderate impacts would rise from 150 to 168 facilities. The maximum potential employment loss would also
increase, from 458 to 487 FTEs. The estimated increase in cost and impacts if all facilities were to achieve
compliance by zero discharge are substantially greater. Costs are expected to increase by $67.7 million with two
facilities estimated to incur severe impacts and 173 facilities estimated to incur moderate impacts. Potential
employment losses would rise substantially, from 458 to 663 FTEs.
In summary, by allowing facilities to choose between the P2 Alternative and zero discharge as
compliance approaches, EPA expects that the final regulation will provide an overall less burdensome and costly
approach to achieving the desired discharge reductions than all the alternatives considered. Moreover, EPA notes
that, by encouraging consideration and use of pollution prevention as a compliance approach, the final regulation
will reduce possible cross-media impacts that are more likely to occur under a strict zero discharge requirement.
The regulation achieves these benefits with only a very modest reduction in the expected pollutant removals that
would be achieved under a zero discharge regulation. Specifically, EPA estimates that the final regulation will
eliminate ah1 but about 2,900 pounds, or 1.5 percent, of the estimated 193,000 pounds of pollutant discharges
subject to control by the final regulation.
Finding of Economic Achievability
The final regulation achieves substantial reductions in harmful pollutant discharges at very modest
economic burden to the PFPR industry. Under a conservative assumption that facilities will recover none of their
compliance costs through price increases, the regulation is estimated to impose no severe impacts (i.e., facility
closure), 150 moderate impacts (i.e., line conversion or annualized compliance cost exceeding 5 percent of facility
30 EPA has worded the final regulation to allow facilities to make the choice between zero discharge and
the P2 Alternative on a product family/process unit/process line basis (as opposed to a full facility basis).
However, EPA could not estimate costs on this basis.
3.34
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revenue), and a worst-case employment loss of 458 FTEs. In addition, the final regulation provides industry with
considerable latitude in deciding how to comply with the regulation that is, by zero discharge or the
P2 Alternative. In this regard, EPA's analyses of the selected compliance approach may overstate compliance
costs because the analyses assume application of one approach throughout the facility instead of a more
customized choice of compliance approach by PFPR line. Also, EPA estimates that a relatively small fraction
25 percent of the facilities potentially subject to regulation will likely incur any costs in complying with
the regulation. That such a small fraction of the industry is expected to incur costs reflects in large part EPA's
decision to exclude additional PAIs and wastestreams from coverage under the final regulation. Finally, EPA
notes that the aggregate costs and impacts estimated for the final regulation are substantially less than those
estimated for the proposed regulation, both as analyzed for the original proposal and as analyzed on the basis of
the higher estimate of non-272 PAI-using facilities. In light of these very modest impacts estimated for the final
regulation, EPA finds that the final PSES regulation for Subcategory C facilities is economically achievable.
3.35
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Chapter 4: Regulatory Flexibility Analysis and Other Regulatory Requirements
4.1 Introduction
This chapter considers the expected effects of the final regulation on small entities as required by the
Regulatory Flexibility Act as modified by the Small Business Regulatory Enforcement Fairness Act of 1996.
Also, the chapter documents EPA's compliance with the Unfunded Mandates Reform Act and with Executive
Order 12866. Section 4.2 discusses comments received by EPA on the effect of the proposed rule on small
entities. The section also analyzes the final regulation in terms of its economic impact on small entities and
documents the reduction in impacts from proposal to final regulation on small business-owned PFPR facilities.
Section 4.3 presents EPA's overall finding regarding impacts of the final regulation on small entities. Section
4.4 documents EPA's compliance with the Small Business Regulatory Enforcement Fairness Act of 1996. The
remaining sections, Sections 4.5 and 4.6, discuss other regulatory requirements, namely the Agency's compliance
with the Unfunded Mandates Reform Act and Executive Order 12866.
4.2 Impacts upon Small Entities
Pursuant to the Regulatory Flexibility Act (5 U.S.C. 601 et seq., Pub. L 96-354) (RFA), EPA must
consider whether a regulatory action will have a significant adverse economic impact on small entities. Section
605(b) requires the Agency to either certify that the regulatory action will not have a significant economic impact
on a substantial number of small entities, or prepare a regulatory flexibility analysis. While the Administrator
has certified that the final rule will not have a significant economic impact on a substantial number of small
entities, the Agency has nonetheless prepared a regulatory flexibility assessment equivalent to that required by
the Regulatory Flexibility Act, as modified by the Small Business Regulatory Enforcement Fairness Act of 1996.
Following publication of the proposed rule, EPA received numerous comments regarding the rule. No
comments addressed EPA's methodology for conducting the Regulatory Flexibility Analysis, and no commenters
criticized the Agency's methodology. However, a number of commenters raised issues concerning small business
impacts and the need to reduce the regulation's burden on small businesses. Specifically, as a way of reducing
possible adverse impacts on smaller businesses, some commenters requested that EPA broaden its exemption
from the regulation to include all small businesses. In addition, some commenters argued that EPA did not need
to regulate the discharges of small PFPR businesses because the pollutant discharges of such facilities were not
likely to have a consequential environmental impact (see EPA's Comment Response Document for more
information on these comments and EPA's response to them).
EPA does not agree that discharges from small PFPR businesses can be uniformly regarded as having
an inconsequential environmental impact. In particular, because of the substantial toxiciry of many PAIs, the
processing of even very small quantities of these PAIs can result in pollutant discharges of substantial toxicity.
4.1
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In addition, small business size does not necessarily equate with small PAI production volume, particularly in
terms of toxicity. Accordingly, for this regulation EPA believes that it is inappropriate to set small-business
and/or small-production exemptions for all small businesses and/or production volumes. The size of the business
and/or the volume of PAIs processed annually is not a sufficient basis for determining that a facility should be
exempted from regulation. Some small-business PFPR facilities process a substantial volume of PAIs and have
the potential to discharge substantial volumes of toxic pollutants unless discharges are limited by the PFPR
regulation.
Taking into account commenters' concerns regarding possible impacts on small entities, EPA introduced
the Zero/P2 Alternative Option and made numerous changes to the rule designed to reduce the burden on all
PFPR facilities. As documented later in this chapter, EPA found that these changes particularly benefit small
business entities in terms of reducing the fraction of these facilities that are expected to incur costs or adverse
impacts under the final regulation. As previously discussed, the final rule expanded the partial sanitizer
exemption to exempt additional lower toxicity PAIs from regulatory coverage and has given facilities a
Zero/P2 Alternative choice on a line by line or process by process basis. The net result is that EPA has
significantly reduced the scope of the final regulation relative to the proposed regulation, in terms of the
pollutants covered by the regulation, and the wastewater streams containing those pollutants.
EPA identified three classes of small entities that will likely be affected by the final rule: (1) small
business-owned PFPR facilities, as defined by the Small Business Administration's firm employment criterion;
(2) small jurisdictions or small POTWs that will be responsible for local implementation of the regulation; and
(3) small communities that may contain PFPR facilities adversely affected by the regulation. Note that small
communities could incur two different impacts: the impact on a POTW operated by the small community, and
an employment loss due to reduced operations at an affected PFPR facility within the small community. For the
first class of small entities, EPA estimates that 1,513 (75.0 percent) of the 2,018 PFPR facilities potentially
subject to the Subcategory C PSES regulation are owned by small entities.
For its analysis of the second class of small entities, EPA defined a POTW to be a small entity if its
discharge flow is less than one million gallons per day (MGD) or serves a jurisdiction with less than 50,000
population. Using this criterion, EPA estimated that at least 15 POTWs (19.7 percent of the POTWs associated
with surveyed facilities) receiving discharges from PFPR facilities have a discharge flow of less than one million
gallons per day (MGD) or serve a jurisdiction with less than 50,000 population.
To define small communities, EPA adopted the definition used by the Small Business Administration:
a community with under 50,000 population is defined as small. The Agency believes that a substantial number
4.2
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of small communities contain PFPR facilities, although the methodology by which PFPR facilities were surveyed
does not allow EPA to estimate an accurate number.
EPA analyzed the expected impacts of the final Subcategory C PSES regulation on small entities. This
analysis focused on understanding the regulation's expected impacts on small business-owned facilities within
the PFPR industry. Overall, this analysis showed that impacts among small business-owned facilities for the
Final Regulation are very modest (e.g., no facility closures and only 11 small facilities with compliance costs
exceeding three percent of facility revenue) and are considerably reduced from those estimated at proposal. In
addition to considering the regulation's effect on small business entities, EPA considered its likely effects on the
other small entities that will be affected by the regulation, namely small governments, which will be responsible
for implementing the regulation at the local level, and small communities, which may contain businesses that are
affected by the regulation. From this review, EPA concluded that the final regulation will not have a significant
adverse impact on a substantial number of small governments or small communities.
4.2.1 Analysis of Impacts on Small Business Entities
To gauge the impact'of the final regulation on small business, EPA analyzed the impact of the final
regulation on Subcategory C facilities according to the business size of the owning firms. In addition, EPA
compared the findings from the analysis of the final regulation with the regulatory flexibility analysis findings
presented at proposal.
Distribution of Costs and Impacts by Business Size for the Final Regulation
As discussed in the proposal EIA, EPA estimates that the PFPR industry is dominated by facilities owned
by small business. Specifically, on the basis of Small Business Administration (SBA) firm-employment size
criteria, EPA estimates that 1,513 (75.0 percent) of the 2,018 water-discharging PFPR facilities potentially
subject to the Subcategory C regulation are owned by small business and 505 (25.0 percent) are owned by non-
small, or other, firms. Given the substantial dominance of small business-owned entities in the PFPR industry,
EPA exercised substantial care at proposal and throughout the process of defining the final regulation, to ensure
that the final regulation would not impose a substantial burden on small business-owned facilities.
Of the 2,018 facilities that EPA estimated were potentially subject to the Subcategory C regulation, 506,
or 25.0 percent, were assessed as likely to incur costs under the final regulation. Of these, 357 (70.6 percent) are
owned by small firms and 149 (29.4 percent) by other firms (see Table 4.1). This distribution shows that
although the PFPR industry is dominated by facilities owned by small firms, relatively fewer of them incur costs
under the final regulation than do facilities owned by large firms. Specifically, 23.6 percent of all small-firm-
owned facilities incur costs under the final regulation compared with 29.5 percent of those owned by large firms.
These estimates include facilities that were assessed as baseline failures. Excluding the baseline failures, the final
4.3
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regulation is expected to impose costs on 421 facilities, of which 274, or 65 percent are small business-owned
facilities. The resulting difference in frequency of cost incurrence between small business-owned and large
business-owned facilities is even greater with the baseline failures removed from the cost analysis: 18.1 percent
of small business-owned facilities incur costs under the final regulation compared with 29.0 percent of facilities
owned by large firms. By either calculation, small business-owned facilities are substantially less likely than large
business-owned facilities to incur costs under the final regulation.
EPA also characterized the distribution of impacts and relative compliance cost burden according to the
business size classification of the firms owning PFPR facilities. Significant impacts are defined as 1) severe
impacts, estimated to result in facility closure; and 2) moderate impacts, estimated to result in either a line
conversion as the ROA falls below that attainable in related lines of business, or a total annual cost of compliance
that exceeds five percent of total revenue. Under the final regulation, no facilities are estimated to incur severe
impacts leading to a facility closure while 150 facilities, or 7.4 percent of the population, are estimated to incur
moderate impacts. Of these, 137 (91.3 percent) are owned by small firms and 13 (8.9 percent) by large ones.
Because the fraction of impacts incurred among small business-owned facilities exceeds their share of the total
facility population, impacts under the final regulation are more likely to occur among small business-owned
facilities than among facilities that are not owned by small business. A similar result was found regarding the
relative compliance cost burden as indicated by the ratio of compliance costs to facility revenue. For those
facilities estimated to incur costs under the final regulation, the mean total annual cost of compliance as
percentage of total revenue is 2.01 percent However, this ratio is 2.74 percent for facilities owned by small firms
while only being 0.25 percent for those owned by other businesses (see Table 4.2). Although these measures
suggest that the final regulation imposes a slightly higher burden among small business-owned facilities than
among facilities that are not owned by small business, the aggregate level of impact among small business-owned
facilities remains low and as described in the next section is substantially less than the cost and impact burden
estimated for the PFPR regulation at proposal.
4.4
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Table 4.1: Distribution of Projected Costs and Impacts of the Final Regulation
on Facilities Owned by Small and Other Entities1
Total
Facilities
Owned By
Small Entities
Facilities
Owned By
Other Entities
Estimated Population of Subcategory C Facilities Potentially 2,018
Subject to PSES Regulation
- Percentage by Size Class 100.0%
1,513
75.0%
505
25.0%
Facilities With Costs of Compliance Under the Final Regulation
- Percentage of Facilities Incurring Costs by Size Class
- Facilities Incurring Costs as a Percentage of Population
Potentially Subject to Regulation, by Size Class*
506
100.0%
25.1%
357
70.6%
23.6%
149
29.4%
29.5%
Facilities Projected to Incur Severe Impacts
0
0
0
Facilities Projected to Incur Moderate Impacts 150
- Percentage of Facilities Incurring Impacts by Size Class 100.0%
- Facilities Incurring Impacts as a Percentage of Population 7.4%
Potentially Subject to Regulation, by Size Class*
137
91.3%
9.0%
13
8.7%
2.6%
Mean Total Annual Cost of Compliance to Revenue For
Facilities With Costs Under the Final Regulation
2.01%
2.74%
0.25%
* Percentages are taken with respect to the estimated population of Subcategory C facilities potentially subject to the
PSES regulation, i.e., a total of 2,018 facilities including 1,513 facilities owned by small firms and 505 facilities owned
by other entities.
f The values in this table do not exclude baseline closures and thus overstate the regulation's effect on small business.
Source: U.S. Environmental Protection Agency
Comparison of Distribution of Costs and Impacts: Proposal versus Final Regulation
A comparison of the costs and impacts for the proposed and final regulations shows that the final
regulation is expected to impose a much lower burden among small business-owned facilities than the revised
estimates for the regulation at proposal. Under the proposed regulation, 859 (56.8 percent) of the 1,513 small
business-owned facilities potentially subject to the Subcategory C regulation were estimated to incur costs (these
and the following values include baseline closures). Under the final regulation, this number falls by 58 percent
to 357 facilities or only 23.6 percent of small business-owned facilities (see Table 4.2). Similarly, the final
regulation shows a marked improvement over the proposed regulation in terms of significant impacts among
small business-owned facilities. For the proposed regulation, three facilities, all owned by small firms, are
estimated to incur severe impacts. In contrast, no severe impacts are estimated to occur under the final
regulation, hi terms of moderate impacts, 275 facilities, or 18.2 percent of the population of small business-
owned facilities, are estimated to incur a moderate impact under the proposed regulation. Under the final
regulation, this number falls by 50 percent to 137 facilities, or 9.0 percent of the population of small business-
owned facilities (see Table 4.2).
4.5
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Table 4.2: Distribution of Projected Costs and Impacts of Proposal and Final Regulation
Facilities Estimated to Incur Costs of Compliance
- Percentage of Facilities Incurring Cost by Size Class
- Facilities Incurring Costs as a Percentage of Population
Potentially Subject to Regulation, by Size Class*
Facilities Estimated to Incur Severe Impacts
- Percentage of Facilities Incurring Severe Impacts by Size
Class
- Facilities Incurring Severe Impacts as a Percentage of
Population Potentially Subject to Regulation, by Size Class*
Facilities Estimated to Incur Moderate Impacts
- Percentage Facilities Incurring Moderate Impacts by Size
Class
- Facilities Incurring Moderate Impacts as a Percentage of
Population Potentially Subject to Regulation, by Size Class*
Ratio of Mean Total Annual Cost of Compliance to Revenue
For Facilities With Costs of Compliance
Proi
Total
1,142
100.0%
56.6%
3
100.0%
0.1%
327
100.0%
16.2%
1.73%
>osal
Small
859
75.2%
56.7%
3
100.0%
0.2%
275
84.2%
18.2%
2.18%
Final Regulation
Total
506
100.0%
25.1%
0
150
100.0%
7.4%
2.01%
Small
357
70.6%
23.6%
0
137
91.1%
9.0%
2.74%
* Percentages are taken with respect to the estimated population of Subcategory C facilities potentially subject to the
PSES regulation, i.e., a total of 2,018 facilities, of which 1,513 facilities are owned by small firms.
Source: U.S. Environmental Protection Agency
Finally, although the mean total annual cost of compliance as a percentage of total revenue is slightly
higher for the final regulation (2.74 percent) than the regulation at proposal (2.18 percent) for small business-
owned facilities, this statistic masks the fact that the average cost for facilities estimated to incur costs under both
regulations declines substantially from proposal to final. In particular, markedly fewer small business-owned
facilities are estimated to incur costs under the final regulation (357 facilities) than under the proposed regulation
(859 facilities). As a result, to understand more accurately how costs have changed between the proposed and
final regulations, EPA analyzed the change in compliance costs as a percent of revenue for only those small
business-owned facilities estimated to incur costs under both the proposed and final regulations. In this
calculation, compliance costs incurred by small business-owned facilities were found to decline by 24'.7 percent
between the proposed and final regulations.1 Thus, the final regulation imposes not only a smaller burden in the
number of small business-owned facilities estimated to incur costs and in the aggregate amount of those costs,
but also in a lower average cost for those facilities that are estimated to incur costs under the final regulation.
1 That the average ratio of compliance cost to revenue increases from proposal to final for all small
business-owned facilities while decreasing for the small business-owned facilities incurring costs under both
regulations means that the exemption of additional wastewater streams and PAIs from the final regulation has
tended to exclude from the incurrence of costs those facilities with relatively lower costs under the proposed
regulation.
4.6
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Findings from Analysis of Impacts on Small Business-Owned Facilities
In summary, the Regulatory Flexibility Analysis shows a very modest impact of the final regulation on
small business. Fewer than 24 percent of small businesses potentially subject to the PFPR regulation are
expected to incur any compliance costs and no small business-owned facilities are estimated to close as a result
of regulation. In addition, a modest fraction of small business-owned facilities, 9.0 percent, are estimated to incur
a moderate impact that is, a line conversion or annualized compliance cost exceeding five percent of facility
revenue. The average compliance cost burden among small business-owned facilities is also small in relation to
facility revenue: on average, annualized compliance costs amount to 2.7 percent of facility revenue for small
business-owned facilities. Finally, the number of small business-facilities incurring costs, and the numbers of
small business-facilities incurring severe or moderate impacts are substantially less than estimated for the
proposed regulation. For the proposed regulation, 859 small business-facilities were estimated to incur costs,
three facilities were assessed as severe impacts, and 275 facilities were assessed as moderate impacts; the
comparable values for the final regulation are 357 facilities incurring costs, zero severe impacts, and 137
moderate impacts. The substantial reduction in impacts among small business-owned facilities from proposed
to final regulation reflects EPA's efforts to moderate the burden of the regulation by reducing the PAIs and
wastewater streams subject to the regulation and by providing facilities with greater flexibility in deciding how
to achieve regulatory compliance. In light of these findings, EPA concludes that the final regulation does not
impose significant adverse impacts on small business-owned facilities.
4.2.2 Analysis of Impacts on Other Small Entities
In addition to considering the impact of the final regulation on small business-owned facilities, EPA also
considered the regulation's likely effects on two other categories of small entity that will be affected by the
regulation: (1) Publicly Owned Treatment Works operated by small governments, which may be responsible for
implementing the regulation at the local level; and (2) small communities, which may contain businesses that are
adversely affected by the regulation. EPA concluded that the final regulation would not impose significant
impacts on either of these additional small entity categories.
In the course of developing the final regulation, EPA sought comments on regulatory implementation
issues from 74 POTWs that had been identified as receiving PFPR facility discharges. Fifteen of these POTWs
are considered small that is, POTWs that are located in smaller jurisdictions (less than 50,000 population) or
that are small POTWs on the basis daily treatment volume (less than 1 million gallons per day). Comments were
requested on such matters as the burden of implementing the P2 Alternative element of the regulation. Although
small entity POTWs were given the opportunity to comment on the implementation requirements of the proposed
regulation, none chose to do so. However, in response to this request, EPA received responses from eight
POTWs. Several of these comments indicated that POTWs might face modestly higher burdens from
4.7
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administering a regulation with the compliance latitude offered by the P2 Alternative than from administering
a more traditionally structured regulation based on specific discharge limits. However, none indicated that such
a regulation would be expected to impose a significant additional burden beyond the requirements that POTWs
already face in administering permits and compliance programs for industrial facilities. In addition, POTWs also
indicated that the modest additional burden seemed reasonable given the regulation's expected discharge
reductions and its innovative structure, which gives facilities greater flexibility in designing a compliance
approach and which encourages use of pollution prevention as a compliance method. In view of these responses,
EPA concludes that the regulation will not impose a significant additional burden on small entity POTWs.
In addition to the analysis required by the Regulatory Flexibility Act, EPA also considered the
regulation's effect on small communities in which PFPR facilities might be located. Specifically, in the
community impact analysis performed for the proposed PFPR regulation, EPA examined the impact of possible
employment losses, including multiplier effects, in communities in which PFPR facilities with moderate or severe
impacts were located. Using the criterion that an estimated aggregate employment loss exceeding one percent
of community employment is significant, EPA found no significant community employment impacts for the
proposed regulation as originally analyzed. At the same time, the final regulation is estimated to have
substantially fewer facility and employment impacts no facility closures, 150 moderate impacts, and a
maximum employment loss of 458 FTEs than those estimated for the proposed regulation three facility
closures, 327 moderate impacts, and an employment loss of 890 FTEs. Given that no significant community
impacts were found among any communities for the proposed regulation, regardless of community size and
that the final regulation's impacts are expected to be substantially less than those of the proposed regulation, the
final regulation will not impose a significant burden on small communities. EPA's analysis of community
impacts conducted for the rule as proposed is reproduced here in Appendix C for reference.
4.3 Summary of Findings from the Small Entity Impact Analysis
From the analysis of economic impacts among small business-owned PFPR facilities and the analysis
of impacts and burden on small entity POTWs and small communities, EPA concludes that the final PFPR
regulation will not impose significant adverse impacts on a substantial number of small entities.
4.4 Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA)
Under 5 U.S.C. 801(a)(l)(A) as added by the Small Business Regulatory Enforcement Fairness Act of
1996, EPA submitted a report containing this rule and other required information to the U.S. Senate, the U.S.
House of Representatives and the Comptroller General of the General Accounting Office prior to publication of
the rule in the Federal Register. This rule is not a "major rule" as defined by 5 U.S.C. 804(2).
4.8
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4.5 Unfunded Mandates Reform Act
Title II of the Unfunded Mandates Reform Act of 1995 (Pub .L. 104-4) (UMRA), establishes
requirements for Federal agencies to assess the effects of their regulatory actions on State, local, and tribal
governments and the private sector. Under Section 202 of the UMRA, EPA generally must prepare a written
statement, including a cost-benefit analysis, for proposed and final rules with "Federal mandates" that may result
in expenditures to State, local, and tribal governments, in the aggregate, or to the private sector, of $ 100 million
or more in any one year. Before promulgating an EPA rule for which a written statement is needed, Section 205
of the UMRA generally requires EPA to identify and consider a reasonable number of regulatory alternatives and
adopt the least costly, most cost-effective or least burdensome alternative that achieves the objectives of the rule.
The provisions of Section 205 do not apply when they are inconsistent with applicable law. Moreover, Section
205 allows EPA to adopt an alternative other than the least costly, most cost-effective or least burdensome
alternative if the Administrator publishes with the final rule an explanation why that alternative was not adopted.
Before EPA establishes any regulatory requirements that may significantly or uniquely affect small governments,
including tribal governments, it must have developed under Section 203 of the UMRA a small government agency
plan. The plan must provide for notifying potentially affected small governments, enabling officials of affected
small governments to have meaningful and timely input in the development of EPA regulatory proposals with
significant Federal intergovernmental mandates, and informing, educating, and advising small governments on
compliance with the regulatory requirements.
EPA has determined that the final rule does not contain a Federal mandate that may result in expenditures
of $100 million or more for State, local, and tribal governments, in the aggregate, or the private sector in any one
year. Thus, the rule is not subject to the requirements of Sections 202 and 205 of the UMRA.
Although not subject to the UMRA because the cost of the rule to all parties that would be effected is
well below $100 million, EPA has complied with numerous provisions of the UMRA. In particular, the final
regulation is the least costly, least burdensome alternative that was considered.
Consistent with the intergovernmental consultation provisions, EPA has already initiated consultations
with the Publicly Owned Treatment Works (POTWs) that will be affected by the rule and sought their input as
part of the regulation development process. As discussed above, after publication of the Supplemental Notice
(60 FR 30217), EPA sent a request for comments to over 70 POTWs that had been identified as receiving
discharges from PFPR facilities. This request sought input on several aspects of the PSES regulation, including
allowance of self-certification of compliance by PFPR facilities, use of Best Professional Judgment to revise or
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modify the pollution prevention practices listed in the Supplemental Notice, and the burden on POTWs from
administering the P2 Alternative as part of the regulation proposed in the Supplemental Notice.
In response to this request, EPA received comments from eight POTWs. Four of these included comment
on the expected burden to POTWs from administering the P2 Alternative. The general thrust of these comments
is that administering the P2 Alternative will impose somewhat higher burdens on POTWs than administering a
regulation requiring compliance strictly by zero discharge. POTWs stated that inspection requirements for
verification of compliance will be more difficult and time-consuming because inspectors will have to review
technical plans, equipment, and processes to verify that the specified pollution prevention and treatment measures
have been properly implemented, maintained, and operated by PFPR facilities. In contrast, verification of
compliance with a zero discharge regulation would be more straightforward. POTWs also stated that the option
of relying on Best Engineering Judgment to alter requirements on facilities would increase, rather than reduce,
implementation burdens. However, at the same time, POTWs also noted that the burden of administering the
PFPR regulation did not seem unreasonable in comparison to requirements for other regulations and that the
regulation's implementation requirements are necessary if the regulation is to be effective.
In keeping with the provisions to inform, educate, and advise small governments, EPA will publish a
Guidance Manual prior to the compliance deadline of the rule to inform, educate, and advise interested facilities,
permit writers, and POTWs on pollution prevention processes and procedures applicable to the PFPR industry.
It will also serve as guidance for the implementation of and compliance with the P2 Alternative requirements.
4.6 Executive Order 12866
Under Executive Order 12866 (58 FR 51735 (October 4,1993)), the Agency must determine whether
the regulatory action is "significant" and therefore subject to OMB review and the requirements of the Executive
Order. The Order defines "significant regulatory action" as one that is likely to result in a regulation that may:
(1) . Have an annual effect on the economy of $ 100 million or more or adversely affect in a material way the
economy, a sector of the economy, productivity, competition, jobs, the environment, public health or
safety, or State, local, or tribal governments or communities;
(2) Create a serious inconsistency or otherwise interfere with an action taken or planned by another agency;
(3) Materially alter the budgetary impact of entitlements, grants user fees, or loan programs or the rights and
obligations of recipients thereof; or
(4) Raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the
principles set forth in the Executive Order.
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Pursuant to Executive Order 12866, it has been determined that this rule is a "significant regulatory
action" and was submitted to the Office of Management and Budget for review. However, because EPA
estimated the regulation's costs to be well less than $ 100 million per year, the regulation is not subject to certain
additional analytic requirements of the Executive Order. In particular, the Agency did not prepare a Regulatory
Impact Analysis for this regulation.
4.11
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Chapter 5: Impacts on New Sources
5.1 Introduction
In this chapter, the effects of the New Source Performance Standards (NSPS) and Pretreatment Standards
for New Sources -(PSNS) final regulations on new discharge sources are considered. New facilities have the
opportunity to incorporate the best available demonstrated technologies, including process changes, in-plant
controls, and end-of-pipe treatment technologies, and to use facility site selection to ensure adequate treatment
system installation. As a result, the impacts of the final regulations on new sources are expected to be less
burdensome than the impacts of the BAT/PSES regulations on existing sources. Designing a new technology
before facility construction is typically less expensive than retrofitting a facility for a new technology. The final
NSPS and PSNS regulations, and the reasonableness of the associated costs, are discussed below by subcategory.
5.2 Subcategory C
5.2.1 New Source Performance Standards
EPA is setting NSPS limitations that are equivalent to the limitations for BPT and BAT. Because EPA
found the Zero/P2 Alternative to be economically achievable for existing facilities under BPT and BAT on a
facility basis and because new facilities will be able to choose between zero discharge and the P2 Alternative on
a product family/process line/process unit basis, EPA believes that this NSPS standard does not create a barrier
to entry.
5.2.2 Pretreatment Standards for New Sources
EPA is setting PSNS standards for this subcategory that are equivalent to the standards for PSES (i.e.,
zero discharge with a compliance alternative for a P2 allowable discharge). EPA believes that the standards
established for PSNS will not create a barrier to entry as they are equivalent to PSES that were found to be
economically achievable.
EPA did not set PSNS equal to PSES at proposal. At proposal, PSNS was set at zero discharge. For
the final rule, EPA is setting PSNS equivalent to the Zero/P2 alternative of PSES. EPA believes that it is
appropriate to give new facilities the opportunity to use the P2 Alternative to meet PSNS because of the
associated estimated reductions in cross-media impacts.
5.3 Subcategory E
EPA is setting PSNS standards for this subcategory that are equivalent to the limitations for PSES (i.e.,
zero discharge). In addition, BPT, BAT and NSPS also require zero discharge of process wastewater pollutants,
and 98 percent of the existing refilling establishments already achieve zero discharge; thus, EPA believes an
equivalent technology basis is appropriate for PSNS and will not create a barrier to entry.
5.1
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Appendix A: Economic Impacts on Subcategory C Facilities Under BPT/BAT
EPA has amended and clarified the BPT limitations for PFPR/manufacturing facilities and established
BPT limitations for PFPR stand-alone facilities (i.e., PFPR facilities where no pesticide manufacturing occurs
or where pesticide manufacturing process wastewaters are not commingled with PFPR process wastewaters for
treatment). In addition to clarifying the use of "zero allowance" for zero discharge for PFPR/manufacturing
facilities, EPA is providing both PFPR/manufacturing facilities and PFPR stand-alone facilities with the
opportunity to use the P2 Alternative. Also, the Agency has established BAT limitations that are equivalent to
BPT limitations for PFPR/manufacturing facilities and PFPR stand-alone facilities. This appendix discusses
EPA's analysis of economic impacts on Subcategory C facilities under BPT and BAT in the final regulation.
A.1 BPT
Under the final rule, EPA is amending the 1978 BPT standard by establishing a zero discharge limitation
with a compliance alternative that provides for the P2 allowable discharge to surface waters. EPA is also
establishing a zero discharge limitation (without the use of a "zero allowance" permitting mechanism) with a
compliance alternative for a P2 allowable discharge for PFPR stand-alone facilities.
A.1.1 PFPR/Manufacturing facilities
The zero discharge limitation is based on pollution prevention, recycle and reuse practices and, when
necessary, treatment and reuse for those PAIs that are formulated, packaged and/or repackaged but are not also
manufactured at the facility. The limitation basis also includes some amount of contract hauling of wastewaters
for off-site incineration. The P2 Alternative is based on performing specific pollution prevention, recycle, reuse
and water conservation practices followed by a P2 allowable discharge that requires treatment of all process
wastewaters prior to direct discharge to surface waters.
Zero allowance is established for PFPR/manufacturing facilities for those pesticides that are formulated,
packaged and/or repackaged and manufactured at the facility. Zero allowance is based on pollution prevention,
recycle and reuse practices and treatment and discharge through the manufacturer's wastewater treatment system
within the pesticide manufacturing production-based numeric limitations (i.e., giving no allowance for the PFPR
wastewater or PFPR production). This implementation is consistent with the how the existing 1978 BPT zero
discharge requirements have been implemented by permit writers.
EPA estimates that there are no additional costs or pollution removals associated with the BPT limitation
for PFPR/manufacturing facilities, as these costs have already been absorbed by the industry over the past 18
years as a result of the 1978 BPT regulation.
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A.1.2 PFPR stand-alone facilities
EPA is establishing a zero discharge limitation (without the use of a "zero allowance" permitting
mechanism) with a compliance alternative for a P2 allowable discharge for PFPR stand-alone facilities. EPA
estimates that there are no additional costs for PFPR stand-alone facilities because these facilities are currently
achieving zero discharge. However, some facilities may choose to take advantage of the P2 Alternative to achieve
a decrease in cross-media impacts. Depending on the current means of achieving zero discharge, a facility's costs
may increase or decrease when switching to the P2 Alternative. The costs may increase initially due to the cost
of installing a wastewater treatment system with its associated capital costs; however, EPA believes that over the
long term, the annual costs for facilities selecting the P2 Alternative will be lower than the costs associated with
the zero discharge limitation. EPA assumes that facilities will choose to continue compliance with zero discharge
or to move to the P2 Alternative based, in significant part, on economic considerations. EPA believes that if the
costs associated with the P2 Alternative were significantly higher, the facility would not alter its current means
of compliance. Accordingly, EPA believes that there are no incremental costs as a result of the addition of the
P2 Alternative to BPT for PFPR stand-alone facilities.
A.2 BAT
EPA is establishing BAT limitations that are equivalent to BPT limitations for PFPR/manufacturing
facilities and PFPR stand-alone facilities. Under the final rule, existing direct discharging Subcategory C
facilities will have a choice of either complying with a zero discharge limitation or the P2 Alternative. However,
the rule, clarifies that in meeting the zero discharge limitation, permitting authorities may authorize the
commingling of pesticide manufacturing and PFPR process wastewater to meet the pertinent BAT limitations
for pesticide manufacturing with a zero allowance for PAIs in PFPR wastewaters that are also manufactured.
EPA revised its cost model to account for changes in the final rule due to updated analytical data, changes in
scope and the addition of the P2 Alternative since the proposed rule. However, EPA believes that an overestimate
of compliance costs would result if EPA included costs for separate treatment systems when the facilities' current
controls, used for treating PFPR wastewasters (prior to commingling with pesticide manufacturing wastewater)
and/or treating commingled wastewater, already achieve the BAT limitation of zero discharge or "zero
allowance".
For informational purposes, economic impacts were analyzed for seventeen direct discharging
PFPR/manufacturing facilities to comply with BAT regulations and were found to be insignificant.' None of the
'Sixteen facilities were analyzed under the proposed regulation. The additional facility analyzed under
the final rule is a joint discharger, having both direct and indirect wastestreams. At proposal it was considered
an indirect discharger. The facility's indirect wastewater streams are not within the scope of the final regulation,
A.2
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seventeen facilities had negative three-year average cash flow in the baseline analysis, therefore none is removed
from the post-compliance analysis. Because the facilities are PFPR/manufacturing facilities, they are analyzed
in the post-compliance scenario for severe impacts, as well as moderate impacts and employment losses, using
the methodology discussed in Chapter 3. Total annual costs for the facilities were estimated at $2.8 million in
1995 dollars. No facility closures (severe impacts) are predicted, and no moderate impacts or job losses are
estimated to be incurred due to compliance with the final regulation.
although its directly discharged wastewater streams are in-scope.
A.3
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Appendix B: Methodology for Extrapolating Subcategory C 272 Facility Results to
Facilities Using Non-272 PAIs
The detailed economic data that forms the basis for the final EA was taken from a stratified random
sample of PFPR facilities that use the original set of 272 PAIs in their operations. Results based on these data
are national estimates of effects at facilities using these 272 PAIs. At proposal, EPA developed a methodology
to extrapolate the results from facilities using 272 PAIs to all facilities nationally, including those facilities using
only non-272 PAIs. This methodology used the most accurate information available to the Agency at the time.
Since proposal, the Agency has developed additional information about PFPR facilities that use only non-272
PAIs, and adapted the extrapolation methodology to incorporate this information. This Appendix discusses the
extrapolation method used at proposal as well as the revised method used for the final rule. To facilitate
meaningful comparisons between the proposed rule and the final rule, EPA re-estimated the impacts of the
proposed rule using the extrapolation methodology adapted for the final rule. This has the benefit of more
accurately stating the effects of the proposed rule given the additional data developed by the Agency. The
Appendix is organized in four sections. The methodology developed at proposal is discussed in the first section.
hi the second section, the changes to the methodology are documented. The third section presents the estimated
impacts associated with the proposed rule using the revised extrapolation procedure, while the fourth section
presents the impacts estimated to occur under the final rule.
B.I Extrapolation Methodology Developed for Proposal
The analysis of compliance costs and impacts was conducted on two separate sets of facilities at
proposal: (1) facilities that formulate, package or repackage the original 272 PAIs and that may also use the
additional non-272 PAIs; and (2) facilities that use only the additional non-272 PAIs in the PFPR activities.
These separate analyses were then combined to calculate the aggregate facility-level effects on the PFPR industry.
B.I .1 Facilities Using Both Original 272 PAIs and Additional Non-272 PAIs
EPA estimated costs for this set of facilities for the proposed option, extending the regulation to the
additional non-272 PAIs, using data on non-272 PAI usage from the FATES database. The sample weights
derived from the sampling methodology were used to extrapolate effects to the industry population.
B.I .2 Facilities Using Only the Additional Non-272 PAIs
To estimate the impact on the second set of facilities - those facilities that formulate, package or
repackage only the additional non-272 PAIs - EPA assumed that these facilities were similar in several ways to
those facilities surveyed and analyzed as using 272 PAIs:
The percentage of water dischargers is the same for both sets of facilities;
B.I
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The percentage of facilities using only the non-272 PAIs and that incur compliance costs under the
proposed regulation is the same as that estimated for 272 PAI-using facilities analyzed under the
%
proposed regulation but -when applying only to the original 272 PAIs;
* Facilities using only the non-272 PAIs will have the same average compliance cost under the proposed
regulation as estimated for 272 PAI-using facilities under the proposed regulation but when applying
only to the original 272 PAIs; and
The percentage of facilities using only the non-272 PAIs and that are assessed as closures or moderate
impacts is the same as that estimated for 272 PAI-using facilities analyzed under the proposed regulation
but when applying only to the original 272 PAIs.
In the preceding assumptions, emphasis is given to the distinction between the costs that 272 PAI-using
facilities would incur when regulated for only the original 272 PAIs and when they are regulated for both 272
and non-272 PAIs. In general, the compliance costs that EPA estimated for these facilities were higher for the
proposed regulation applying to only 272 PAIs than for the regulation applying to both 272 and non-272 PAIs.
At proposal, EPA estimated costs for the facilities using only non-272 PAIs based on the costs estimated to be
incurred by 272 PAI-using facilities when regulated for only 272 PAIs. The Agency believed that the costs to
facilities using only non-272 PAIs for complying with the proposed regulation would be similar to the costs
incurred by facilities using 272 PAIs under the proposed regulation but when applying only to the original 272
PAIs. To extrapolate costs on the basis of a regulation covering both 272 and non-272 PAIs at facilities using
272 PAIs would overstate the regulatory effects on facilities using only non-272 PAIs.
At proposal, EPA estimated that 529 of an estimated 2,404 faculties in business would incur costs under
a regulation covering only 272 PAIs. The Agency estimated that these 529 facilities consisted of 22
PFPR/manufacturing facilities and 507 PFPR-only facilities, representing 0.92 percent and 21.09 percent,
respectively, of the facilities in business. Because PFPR/manufacturing facilities tend to incur higher compliance
costs than PFPR-only facilities, EPA extrapolated costs for non-272 only PFPR/manufacturing facilities
separately from non-272 only PFPR-only facilities. From information in the FATES database, EPA estimated
that 1,475 Subcategory PFPR facilities use only non-272 PAIs. Under the assumption that non-272 PAI only
facilities incur costs at the same rate as 272 PAI facilities regulated for using only 272 PAIs, EPA estimated that
13 PFPR/manufacturing and 311 PFPR-only non-272 PAI facilities would incur costs under the proposed
regulation when applied to both 272 and non-272 PAIs.
Costs and impacts were extrapolated to these 334 faculties based on the corresponding facilities analyzed
under a regulation covering 272 PAIs: 507 PFPR/only facilities and 22 PFPR/manufacturing facilities, as
discussed in Table 12.2 of the proposed EIA. EPA developed "non-272 weights" that are conceptually similar
B.2
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to the conventional sample weights. The non-272 weight is the ratio of the national estimate of all facilities (272-
using facilities and non-272 only facilities) to the number of 272 facilities, calculated separately for
PFPR/manufacturing facilities and PFPR-only facilities. For example, the non-272 weight for PFPR-only
facilities at proposal was about 1.613 (= (507+311)7507); the non-272 weight for PFPR/manufacturing at
proposal was about 1.591 (= (22+13)722). These non-272 weights were used to extrapolate effects nationwide
by multiplying the effect (e.g., average facility compliance cost or number of severe impacts) at 272-using
facilities by the non-272 weight.
B.2 Modifications to the Extrapolation Methodology for the Final Rule
For the final rule, EPA modified the extrapolation methodology in the following ways:
(1) For the final rule. EPA extrapolated costs to non-272 PAI-only facilities from analysis of costs at sample
facilities based on the regulation applying to both 272 and non-272 PAIs instead of on the basis of the
regulation applying only to 272 PAIs. as was done at proposal. As stated above, for the proposed rule,
EPA used the estimated costs borne by 272-using facilities to regulate only their 272 PAIs as the basis
for estimating costs borne by facilities using non-272 PAIs. The final rule costs extrapolated to non-272
only facilities are the average costs of 272-using facilities, regardless of whether the 272-using facilities
also use any non-272 PAIs. This is a conservative assumption, in that it tends to over-estimate
compliance costs, relative to the methodology used at proposal.
(2) Some facilities whose costs were directly estimated at proposal on the basis of using 272 PAIs are now
analyzed as using only non-272 PAIs and are assigned costs from the extrapolation of costs to non-272
PAI-using facilities. Because of changes in regulatory scope, some sample facilities that were analyzed
at proposal as using both 272 and non-272 PAIs are estimated to incur costs under the final rule for only
their wastewater streams containing only non-272 PAIs. For these facilities, their 272 PAIs and/or
wastewater streams that contain 272 PAIs are not covered by the final regulation. Because detailed cost
estimates are not available for these facilities, the facilities are estimated to incur costs as other non-272
only facilities, i.e., the facilities are now considered non-272 only for the purpose of estimating cost.
These facilities are therefore estimated to incur the average costs of facilities using 272 PAIs. This does
not affect the number of facilities estimated to incur costs under the final rule, only whether certain
facilities are estimated to incur costs for using 272 PAIs or for using only non-272 PAIs.
(3) For the final regulation, the extrapolation of costs to non-272 PAI-using facilities embodies the
assumption that no Subcateeorv E facilities use only non-272 PAIs. EPA now believes that there are
no Subcategory E facilities using only non-272 PAIs. The estimate of 1,475 facilities that PFPR using
non-272 only PAIs made at proposal included some Subcategory E facilities, because it was based on
B.3
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an extrapolation from EPA's FATES database using all PFPR facilities, in both Subcategory C and
Subcategory E. Therefore, to re-estimate the costs and impacts of the proposed rule, EPA classified all
of the estimated 1,475 PFPR facilities using non-272 PAIs as Subcategory C. This has the effect of
increasing the estimated number of facilities that use only non-272 PAIs for the re-estimated proposed
Subcategory C regulation.
(4) For the final regulation, the extrapolation of costs to non-272 PAI-using facilities embodies the
assumption that no PFPR/manufacturing facilities use only non-272 PAIs. At proposal, EPA including
PFPR/manufacturing facilities in its extrapolation basis, because PFPR/manufacturing facilities appear
in the FATES database, the basis used at proposal. However, EPA now believes that no
PFPR/manufacturing facilities use only non-272 PAIs. Accordingly, with the exception of one
PFPR/manufacturing facility that no longer has any wastewater streams containing 272 PAIs in scope
(see point 2 above), the analysis for the final regulation no longer estimates costs for any non-272 only
facilities at the average level of PFPR/manufacturing facilities' costs.
B.3 Re-estimated Facility Counts, and the Costs and Impacts of the Proposed Rule
EPA re-estimated the number of facilities in the PFPR industry, and the costs and impacts of the
proposed rule for comparison of the final rule with the proposed rule. The modifications described in points (3)
and (4) above increase the number of PFPR facilities for the re-estimated proposed rule. Table B-1 presents the
re-estimated number of non-272 only facilities, and the re-estimated economic impacts of the proposed rule upon
those facilities. The table is analogous to Table 12-2 of the proposed EIA. EPA estimated that 598 facilities
using only non-272 PAIs would incur costs under the proposed rule, with aggregate costs about $19.7 million
in 1988 dollars ($23.6 million in 1995 dollars).1 One severe impact is estimated, with 160 moderate impacts.
The worst case employment loss among the facilities using only non-272 PAIs is 420.
1 The costs are presented in 1988 dollars, the main year of data reported in the Survey. For meaningful
decisions, EPA also presents the costs in 1995 dollars.
B.4
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Re-Estimated National Impacts for PFPR Facilities Using Only Non-272 PAIs
for tbe Regulation as Presented at Proposal
Results from Estimates for
Detailed Analysis Facilities Using
of Facilities Using Only Additional
Original 272 PAI& Non-272 PAJsf
Estimated Number of Sttbcategory C Facilities that PFPR
1,305
1,475
Estimated Number of Facilities that Incur Compliance Costs
- PFPR Stand-alone
-PFPR and Manufacture
507
22
598
0
Estimated Total Annual Compliance Cost {$ MM, 1988)
- PFPR Stand-alone
- PFPR and Manufacture
-Total
$16.7
$9.4
$26.1
$19.7
$0.0
$19..7*
Total Annual Compliance Cost, Average per Facility ($> 1988)
- PFPR Stand-alone
- PFPR and Manufacture
$32,871
$429,065
$32,871
$429,065*
Estimated Number of Facility Impacts
- PFPR only
Closures
Moderate Economic Impacts
-PFPR and Manufacture
Closures
Moderate Economic Impacts
1
136
0
0
1
160
0
0
* All estimates include estimated baseline closures. The estimates of average facility and total annual compliance
cost for non-272 PAI facilities are based on the estimated average facility costs for facilities using only the original
272 PAIs. That is, the average facility annual compliance costs of $32,871 and $429,065, which were calculated
from analysis of only the original 272 PAIs, are assumed to apply also for the non-272 PAI facilities. The
aggregate annual compliance cost values for facilities using only non-272 PAIs were then calculated by multiplying
the average costs per facility by the estimated number of facilities in the relevant non-272 PAI facility category
(e.g., 598 PFPR-only facilities x $32,87 I/per facility = $19.7 million total annual cost for PFPR-only facilities
using only non-272 PAIs).
Table B-2 presents the national impacts of the re-estimated proposed rule for both facilities using 272
PAIs and facilities using only non-272 PAIs. The aggregate costs are $59.8 million in 1988 dollars ($71.9
million in 1995 dollars). EPA estimates that 2.6 facilities would incur severe impacts under the re-estimated
proposed rule (three impacts, rounded to the nearest integer), with 327 moderate impacts. Total worst-case
employment loss is estimated at 890 FTEs.
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Table B-2
National Estimates of Costs and Impacts for the Proposed PSES Option
Including Subcategory C Facilities Using Both. Original and Additional Non-272 PAIs,
and Faculties Using Only Additional Non-272 PAIs
Proposed Option
Facilities Using Both Original 272 PAIs and Additional Non
# of Facilities Projected to Incur Costs
Total Annuaiized Compliance Costs
(million dollars) *
Facility Closures:
(Severe Economic Impacts)
Moderate Economic Impacts
Expected Job Losses (FTEs)
529
$40.1
1.2
167
470
Facilities Using Only Additional Non-
# of Facilities Projected to Incur Costs
Total Annuaiized Compliance Costs
(million dollars)*
Facility Closures:
(Severe Economic Impacts)
Moderate Economic Impacts
Expected Job Losses (FTEs)
598
$19.7
1.4
160
420
All Facilities
# of Facilities Projected to Incur Costs
Total Annuaiized Compliance Costs
(million dollars)*
Facility Closures:
(Severe Economic Impacts)
Moderate Economic Impacts *
Estimated Worst-Case Job Losses (FTEs)
1,127
$59.8
2.6
327
890
* Total annualized compliance costs are in 1988 dollars.
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B.4 Costs and Impacts of the Final Rule
Table B-3 on the following page presents the extrapolation basis and results for the final rule. The first
row of the table indicates the estimated number of Subcategory C PFPR facilities that are within the scope of the
final regulation. These numbers form the basis for extrapolating facility counts, compliance costs and impacts
from the set of surveyed facilities using 272 PAIs to the set of facilities using only non-272 PAIs. The second
row of the table provides estimates of the number of facilities subject to costs, including those facilities that are
estimated to be able to comply for zero cost, and those facilities that are estimated to fail the baseline cash flow
criterion. EPA estimates there are 583 such facilities. (There are an estimated 506 such facilities excluding those
facilities with zero compliance costs.)
The estimated aggregate costs for the final rule are $29.9 million (in 1995 dollars), including costs for
facilities estimated to close in the baseline. The estimated aggregate costs excluding facilities expected to close
in the baseline are $24.2 million (in 1995 dollars). No severe impacts (facility closures) are estimated, with 150
moderate impacts. EPA estimates that worst-case employment loss is 458. These estimated impacts are smaller
than the estimated impacts of the proposed rule as originally presented at proposal, and are substantially smaller
than the impacts of the proposed rule as re-estimated in the previous section.
B.7
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Table B-3 ',,',' ' «!,
National Estimates of Costs and Impacts of the Final Subcafegory C PSES Rule
: *
Estimated Number of Facilities that PFPR
Estimated Number of Facilities
Subject to Costs (including facilities
estimated to comply for zero cost and
estimated baseline failures)
- PFPR Stand-alone
- PFPR and Manufacture
Estimated Average Annual Costs,
per facility (including facilities that can
comply for zero cost and estimated
baseline failures) ($, 1995)
- PFPR Stand-alone
- PFPR and Manufacture
Estimated Total Annual Costs (including
estimated baseline failures)
(SMM, 1995)
- PFPR Stand-alone
- PFPR and Manufacture
-Total
Estimated Number of Facilities
Expected to Incur Costs (not including
estimated baseline failures)
- PFPR Stand-alone
- PFPR and Manufacture
Estimated Average Annual Costs,
per facility (not including estimated
baseline failures) ($, 1995)
-PFPR Stand-alone
- PFPR and Manufacture
Estimated Total Annual Costs (not
including estimated baseline failures)
(SMM, 1995)
- PFPR Stand-alone
- PFPR and Manufacture
-Total
Facilities
Using 272
PAIs
1,084
372
19
$39,900
$372,944
$14.8
$7.1
$21.9
268
15
$42,627
$438,727
$11.4
$6.6
$18.0
Facilities Surveyed
as Using 272 PAIs,
font Having Only
Non-272 PAIs In-
Scope
43
42
1
$39,900
$372,944
$1.7
$0.4
$2.0
30
1
$42,627
$438,727
$1.3
$0.3
$1.6
Facilities
Using Only
Non-272
PAIs
413
149
0
$39,900
$372,944
$5.9
$0.0
$5.9
107
0
$42,627
$438,727
$4.6
$0.0
$4.6
Total
Facilities
1,540
563
20
$39,900
$372,944
$22.5
$7.5
$29.9
405
16
$42,627
$438,727
$17.3
$3.9
$24.2
B.8
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Table B-3
National Estimates of Costs and Impacts of the Final Subcategory BSES Ride
"
Estimated Number of Facility Impacts
-PFPROnly
Severe Impacts
Moderate Impacts
Employment Loss
- PFPR and Manufacture
Severe Impacts
Moderate Impacts
Employment Loss
Faculties
Using 272
PAIs,
0
99
303
0
0
0
Facilities Surveyed
as Using 272 PAfe,
but Having Only
Non-272 fcAIslh-
Scope
0
11
34
0
0
0
Facilities
Using Only
Non-272
PAXs
0
40
121
0
0
0
Total
Facilities
0
150
458
0
0
0
B.9
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Appendix C: Additional Impacts Not Re-estimated Since the Proposed Rule
C.1 Introduction
At proposal, EPA analyzed additional impact measures for the PFPR industry. These included:
community impacts; foreign trade impacts; a firm-level analysis; and the labor requirements and potential
employment benefits of the regulation. Because the aggregate costs and facility impacts of the final regulation
are substantially lower than the those of the regulation as originally presented at proposal, which the Agency
judged to be economically achievable, EPA did not devote resources to estimating these additional impacts under
the final rule. The Agency believes that the level of these additional impacts under the final regulation will be
lower than those estimated at proposal, by virtue of the lower aggregate compliance costs and facility-level
impacts of the final rule. EPA's estimates of the facility-level impacts of the final rule are no facility closures,
150 moderate impacts, worst-case employment losses of 458 FTEs, with aggregate industry costs of $24.9
million in 1988 dollars. The impacts as presented at proposal were two facility closures, 250 moderate impacts,
688 worst-case FTE losses with aggregate industry costs of $56.1 million in 1988 dollars. This appendix
contains the discussion and analysis for these additional impact measures as presented in the proposal EIA.
The additional impacts presented at proposal were estimated in two steps. First, the impacts were
estimated for Option 3/S, which did not extend regulatory coverage to non-272 PAIs. The estimated impacts
resulting from the analysis of Option 3/S were presented in Chapters 6 (Community Impacts), 7 (Foreign Trade
Impacts), 8 (Firm-Level Impacts) and 11 (Labor Requirements and Potential Employment Benefits) of the
proposal EIA. The second step extended the analysis to proposal Option 3/S', which expanded the regulatory
coverage to include non-272 PAIs. The estimated impacts resulting from the analysis of the proposed option
(3/S') were presented in Chapter 12 of the proposal EIA. In this appendix, the discussions of impacts under the
proposed rule are presented immediately following the impact discussion under Option 3/S for each impact.
C.2 Community Impact Analysis
This section examines impacts to communities that may result from effluent limitations guidelines and
standards for the pesticide formulating, packaging and repackaging (PFPR) industry. Community impacts are
evaluated based on estimated employment loss in communities affected by the regulation. Employment losses
are estimated, as applicable, for those facilities found to be affected significantly by the proposed regulation. The
analysis does not consider potential employment increases at non-impacted facilities. If the employment losses
are expected to cause a greater than one percent decline in total employment in the affected community, then the
community impact is deemed significant.
C.I
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This section focuses on impacts for the PSES rule applicable to Subcategory C facilities. Employment
losses are examined for all five PSES regulatory options considered for Subcategory C facilities initially, plus
Option 3/S, a modification to the initial Option 3. Because EPA initially selected Option 3/S and then chose
Option 3/S'as the preferred PSES regulatory approach for the Subcategory C facilities, community impacts are
examined for these two options.
No community impact analysis was undertaken for the PSES regulation proposed for Subcategory E
facilities, Refilling Establishments. In the facility-level impact analysis presented in Chapter 4 of the proposal
EIA, neither of the two regulatory options considered for Refilling Establishments was found to impose any
significant economic impacts. Accordingly, with no employment losses anticipated from the PSES regulation
for Subcategory E facilities, a community impact analysis is not necessary.
Within the Subcategory C facilities subject to PSES requirements, only facilities that use and discharge
water can incur costs and thus be adversely affected by the regulation's requirements. For this reason, the scope
of the community impact analysis is restricted to the 651 Subcategory C facilities that use and discharge water
and are regulated under PSES.
On the basis of the analysis presented in this section, the proposed regulatory option for Subcategory C
facilities (Option 3/S'), is not expected to cause significant community impacts: community-level employment
losses are expected to be well less than one percent.
The remaining sections of this section are organized as follows. Section C.2.1 presents the methodology
for assessing community impacts. Section C.2.2 summarizes the estimated employment losses for each
regulatory option, and assesses the significance of those losses for Option 3/S, and section C.2.3 assesses the
impacts associated with Option 3/S'.
C.2.1 Methodology for Assessing Community Impacts
Facility closures, either totally or in part, may result in employment losses. The significance of such
employment losses at the community level is measured relative to the community's pre-compliance employment.
Typically, a community is defined as the Metropolitan Statistical Area (MSA) in which the facility is located.1
The MSA is assumed to represent the labor market area within which residents could reasonably commute to
work If the facility is not located within an MSA, then the community is defined on the basis of the county, and
county-level employment is used to determine the significance of employment losses. Either way, if the estimated
'MSAs are defined by the U.S. Office of Management and Budget.
C.2
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employment loss from facility impacts is greater than one percent of the pre-regulation community employment,
the community-level employment impact is considered significant.
EPA considers community employment impacts taking into account both primary impacts and secondary
impacts. Primary impacts consist of the employment losses that are expected to occur as a direct result of the
regulation. Secondary economic impacts and associated employment losses occur in other businesses than those
directly affected by regulation and result from two mechanisms. First, reductions in output at directly affected
facilities influence activity and employment levels in linked industries (indirect effects). Second, the losses in
employment and employee earnings in both the directly and indirectly affected facilities result in reduced personal
consumption expenditures, which may further affect employment levels in the community (induced effects). If
the aggregate impacts, including both primary and secondary employment effects, amount to an employment
decline of greater than one percent in an affected community, then community impacts are deemed significant.
Estimating Primary Employment Impacts
As presented in Chapter 4 of the proposed EIA, three measures of significant economic impacts at PFPR
facilities were evaluated: facility closure, conversion of a PFPR product line, and compliance costs in excess of
five percent of facility revenue. Employment losses corresponding to these impact measures are calculated as
follows.
Facility Closure
A facility closure is classified as a severe impact. For a projected facility closure, all employment at the
associated facility is assumed to be lost. The number of employees at a facility is calculated from data provided
in the PFPR Survey (Introduction, question 17). The number of employees is equal to the sum of annual PFPR
production worker hours, all other production worker hours, and all non-production worker hours, divided by
2,000.2 Algebraically,
EMp = FPR + OTH + NPR
2,000
2(50 weeks/year) x (40 hours/week) = 2,000 hours/year.
C.3
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where:
BMP = total facility full-time-equivalent employment;
FPR = total annual worker hours attributable to PFPR production;
OTH = total annual worker hours attributable to other production; and
NPR = total annual non-production worker hours.
Line Conversion
EPA considers a line conversion to be a moderate impact. In general, EPA expects that these facilities
would retain some or all of the employment previously associated with PFPR activities. Production might shift
to non-pesticide formulating, packaging, or repackaging activities or to pesticides for which compliance is less
costly. In contrast, the community impact analysis takes a more conservative, worst-case assessment of the
possible employment effects by assuming that the affected facilities close their PFPR production lines entirely,
with all associated employment assumed lost.
Employment losses associated with 272 PAI-related PFPR3 product line closures are calculated by adding
PFPR production worker hours to the portion of non-production worker hours attributable to PFPR production
(from the Survey Introduction, question 17). Non-production worker hours associated with PFPR were not
reported separately in the Survey. To estimate the non-production worker hours associated with PFPR activities,
non-production worker hours were allocated between PFPR activities and non-PFPR activities in the same ratio
as production worker hours:
FPR
^K x NPR
FPR FPR + OTH
PFPREMP =
2,000 2,000
3"PFPR employment" in this analysis refers to PFPR employment involving the 272 PAIs originally
considered for regulation.
C.4
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where:
PFPREMP = Ml time equivalent employment attributable to PFPR;
and the other variables are as defined above.
Compliance Costs Equal to Five Percent or More of Facility Revenue
Compliance costs equal to five percent or more of facility revenue are also considered by EPA to be a
moderate economic impact As discussed in Chapter 4 of the proposed EIA, this impact measure is not associated
with an operational change. Total annual compliance costs that are less than five percent of facility revenue are
commonly judged to be economically achievable, but compliance costs equal to five percent or more of facility
revenue do not necessarily indicate a significant impact. Accordingly, for this analysis, no employment loss is
estimated to occur in conjunction with compliance costs that are at least five percent of facility revenue.
As a practical matter, the assumption that these facilities will incur no employment losses is of little
consequence to the analysis of community-level employment impacts. Most facilities that are projected to incur
moderate impacts fall in the possible line conversion category, and are therefore assumed to lose all PFPR
employment in the community impact analysis. Specifically, under Options 2,3, and 3/S, fewer than 10 percent
of the projected moderate impacts result from compliance costs equal to five percent or more of facility revenue.
As a result, at least 90 percent of the moderate impacts under these options are associated with employment loss.
Under Option 1, about 88 percent of the moderate impacts are associated with employment loss. Under Options
4 and 5, moderate impacts associated with employment loss constitute 63 percent and 62 percent, respectively.
Estimating Secondary Employment Impacts
Secondary employment impacts are estimated based on multipliers that relate a change hi employment
in a directly affected industry to aggregate employment change including the employment affects in: (1) linked
industries (indirect effects) and (2) consumer businesses whose employment is affected by changes in the earnings
and expenditures of the employees in the directly and indirectly affected industries (induced effects). Even when
based on highly unlikely, worst-case assumptions, the primary employment losses estimated for the PFPR
regulation are very small: under Option 3/S, 355 full-time equivalent job losses are spread over 137 facilities
nationally. Given the minimal character of the expected primary losses nationally, EPA expected that aggregate
community-level employment impacts that is, including both primary and secondary impacts would, in all
likelihood, also be minimal.
C.5
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Table C-l: Estimated National Employment .Losses for Each Regulatory Option ~~
Regulatory
Option
Option 1
Option 2
Option 3
Option 3/S
Option 4
Option 5
Number of Facilities
with Estimated
Employment Losses
179
171
171
137
180
191
FTE Loss due
to Facility
Closures
71
68
68
68
736
736
FTE Loss due
to Line
Conversions
366
358
358
287
377
437
Total
FTE
loss
437
426
426
356
1113
1173
Average FTE
Loss per
Impacted Facility
2.4
2.5
2.5
2.6
6.2
6.1
For this analysis, EPA used a worst-case multiplier scenario to confirm that aggregate community-level
employment impacts are not likely to be significant under Option 3/S. Specifically, EPA used a single, worst-case
multiplier that is likely to substantially overstate aggregate, community-level effects. This analysis is based on
the highest state-level multiplier for the relevant industry, and also assumes that all of the employment losses
associated with a sample facility impact and the facilities that it represents in the underlying PFPR population
occur in the location of the sample facility. Even with both of these relatively extreme assumptions, aggregate
community-level impacts are estimated to be well less than the one percent threshold of significance.
C.2.2 Findings From the Community Impact Analysis
As discussed in the proposed EIA, the main data source for this analysis is the PFPR industry Survey.
National estimates of employment losses for each of the six regulatory options were calculated from the sample
facility impacts and the sample weights applicable to those observations. Table C-l presents the estimates of
national employment losses for each option and the number of facilities at which these job losses are expected
to occur. As summarized in the table, -worst-case estimates of national job losses range from a high of 1,173
FTEs under Option 5 to a low of 356 under the proposed option, Option 3/S. The job losses are distributed over
a large number of facilities, with an average job loss at any single impacted facility ranging from 2.4 FTEs
(Option 1) to 6.2 FTEs (Option 4).
To confirm that Option 3/S would not be expected to result in significant community employment
impacts, EPA analyzed aggregate employment effects using two assumptions that are likely to overstate
C.6
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substantially the possible employment impacts in affected communities. The first assumption involves the
allocation of the employment losses estimated to occur in non-sample, impacted facilities that is, the facilities
in the underlying PFPR facility population that are represented by the sample facilities for which impacts were
assessed. As noted in the introduction, community impacts are considered significant if employment losses are
estimated to exceed one percent of community employment. If data are available for all facilities in an industry,
such changes in MSA employment can be calculated for each facility and location for which a significant impact
is assessed. When the impact analysis is based on a sample of the total facilities in an industry, however, the
assessment of facility impacts among sample observations applies only to the specific locations containing the
affected sample facilities. To extrapolate the impacts from these sample facilities to the population of total
facilities requires using sample weights that have been stratified along analytically relevant dimensions (e.g.,
states or communities for the community impact analysis). The PFPR Survey sample on which this analysis is
based, however, was not stratified to provide statistically valid estimates along such dimensions. It is therefore
not possible to estimate the geographic distribution of national employment losses at a regionally subaggregated
level.
Although a statistically valid analysis of population level employment impacts on a regional or
community level cannot be performed, analyses based on assumptions regarding the locational distribution of
primary employment impacts can demonstrate that compliance with the proposed regulation is unlikely to have
a significant impact on community employment. Under Option 3/S, 115 FTE losses are associated with the 26
sample facilities assessed as incurring economic impacts. Further, these 115 FTEs are distributed over 18 states
and 22 MSAs (see Table C-2). In addition to the 115 employment losses in affected sample facilities, EPA
projects an additional 241 employment losses in 110 facilities in unknown states and MSAs for a total of 356
job losses. These additional facility impacts and employment losses are those that are estimated to occur in the
PFPR facility population that is represented by sample facilities. It is these 241 FTE losses for which location
of employment loss may not be specified for the community impact analysis.
For this analysis, EPA assigned these 241 employment losses that are not directly accounted for by the
affected sample observations to the known locations of the affected sample facilities in proportion to sample
facility weights. Thus, all of the facilities that are represented by an affected sample facility, and their
associated employment loss, are assumed to be located in the same MSA as the affected sample facility. This
assumption regarding the locational distribution of facility impacts is expected to overstate employment losses
in each MSA, because the non-sample facility impacts would likely be distributed among other MSAs that are
unknown.
C.7
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Table C-2: Analysis of Community Ernplojiuent Impacts Assuming Worst-Case
Multiplier and Proportional Distribution of Sample-Weighted Employment Losses
State
CA
CA
CO
CT
FL
GA
IA
LA
MD
MN
MO
MO
OH
OR
PA
SC
TN
TN
TX
TX
UT
WA
Total
Primary Impacts Only
Estimated FIE
Loss in Sample
Facility MSA
19
0.2
0.7
3.8
0.0
0.1
0.1
0.1
0.4
37.2
56.9
1.5
3.7
0.7
2.7
0.8
1.1
0.4
0.3
1.9
0.3
0.1
1148
Implicit
Sample-
Weight
5.0
4.9
1.2
4.9
7.2
4.9
5.0
7.2
4.0
4.9
1.2
4.9
5.1
4.9
7.3
7.2
4.9
4.9
5.7
4.0
7.2
7.2
3 1
Sample-
Weighted
FTELoss
9.7
0.8
0.8
18.6
0.1
0.7
0.3
0.4
1.5
181.0
68.3
7.1
18.5
3.3
19.5
5.5
5.2
2.1
1.8
7.5
2.2
1.0
3557
Primary and Secondary Impacts
Maximum
State
Multiplier
9.2
9.2
9.2
9.2
9.2
9.2
9.2
9.2
9.2
9.2
9.2
9.2
9.2
9.2
9.2
9.2
9.2
9.2
9.2
9.2
9.2
9.2
Multiplier-
Adjusted
FTELoss
89.1
7.0
7.4
171.2
0.9
6.6
2.3
3.4
13.5
1,665.2
628.8
65.4
170.6
30.1
179.0
50.7
47.5
18.9
16.9
68.8
19.8
9.3
32725
Percent Loss
in
Employment
0.0020%
0.0006%
0.0028%
0.0403%
0.0006%
0.0004%
0.0010%
0.0006%
0.0011%
0.1181%
0.0738%
0.0051%
0.0217%
0.0044%
0.0180%
0.0148%
0.0100%
0.0035%
0.0023%
0.0656%
0.0039%
0.0008%
The community-level employment impact values presented in this table provide a worst-case illustration of
possible impacts in the MSAs in which those sample facilities assessed as incurring economic impacts were
located. The employment losses are likely to overstate substantially actual impacts because of the use of a
maximum employment impact multiplier and because impacts in unspecified locations are assumed to occur in
the same MSA in which the sample facility is located. In fact, the unspecified facility employment impacts are
likely to be distributed among these and other unknown MSAs in a way that does not yield as high a concentration
of impacts at the sample facility locations as indicated in this analysis.
The second assumption involves the multiplier used to estimate the aggregate employment impacts
associated with the direct employment losses in impacted PFPR facilities. Specifically, EPA used a worst-case
regional impact multiplier from the Regional Input-Output Modeling System developed by the Bureau of
C.8
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Economic Analysis (BEA) within the Department of Commerce. BEA publishes state-level employment
multipliers by industry classifications. For this analysis, EPA used the highest state-level employment multiplier
applicable to the Chemical and Petroleum Refining Industry, the 2-digit BEA industry that is most likely to
include facilities engaged in PFPR business. The highest total employment impact multiplier reported by BEA
is for the state of Texas and has a value of 9.20. Use of this multiplier is likely to exaggerate possible secondary
employment impacts for the following reasons:
Using a state, as opposed to MSA, multiplier is likely to overstate multiplier effects. The state-level
multiplier registers the expected effect throughout the state resulting from changes in activity levels in
the subject industry within the state. To the extent that some of these effects occur in locations beyond
the MSA in which the primary impacts occur, the state-level multiplier will exaggerate the employment
impacts in the MSA.
The state multiplier value of 9.20 is the highest among those published for the relevant industry. By
comparison, the average value of the state-level multipliers for this industry is 4.42 and the minimum
value is 2.05. Moreover, only 3 of the 26 sample facilities assessed as incurring impacts that could
result in job losses are located in Texas. Using the Texas multiplier therefore exaggerates substantially
the impacts that will occur in other states.
Still, even with these highly unrealistic assumptions, the analysis shows that Option 3/S is unlikely to
result in significant employment impacts at the community level. Specifically, the largest weighted aggregate
employment impact under this analysis is associated with an MSA in the state of Minnesota. The estimated
sample facility-based employment loss in the MSA is 37.2 FTEs. The sample weight associated with this facility
is 4.9, meaning that, in the impact analysis, the facility represents itself plus 3.9 other facilities in the underlying
PFPR facility population whose locations may not be estimated. Applying the sample weight brings foe primary
employment impact to 181.0. Further, applying the industry impact multiplier for Texas of 9.20 brings the
weighted aggregate employment impact to 1,665.2 full-time equivalent employment positions. This
unrealistically high value exceeds all the other simulated MSA-level impacts by nearly a factor of three. Although
this value also yields the highest percentage loss in MSA employment, at 0.1181 percent, it is still less than one-
eighth of the one percent significant impact threshold (see Table 6.2). Moreover, if the employment impact for
this MSA is calculated on the basis of Minnesota's employment multiplier of 3.4 for the subject industry, the
C.9
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calculated decrease in employment would amount to 615 full-time equivalent positions or a 0.0436 percent
employment loss. In all likelihood, this value still substantially overstates the expected employment impacts in
the Minnesota MSA because the non-sample facility impacts associated with the affected facility's weight are
assigned to the same MSA as the sample facility.
The next highest percentage employment impacts are 0.0738 percent, in Missouri, and 0.0656 percent,
in Texas, or approximately l/14th and l/15th of the one percent impact threshold, respectively. Thus, even using
highly unrealistic assumptions, this analysis finds that Option 3/S would not likely cause a significant loss of
employment in any affected MSA.
From this analysis, EPA concludes that the proposed PFPR effluent guideline for Subcategory C
facilities, Option 3/S, should not impose a significant burden, as measured by loss of employment, on any
community.
C.2.3 Community Impacts of the Proposed Option (3/S')
EPA assessed community impacts under the proposed option (3/S') in terms of projected
employment losses using the same analytic procedure as described earlier. Even though the assumptions
underlying this analysis are more conservative than those underlying the community impacts analysis for
regulation of the original 272 PAIs, the estimated maximum MSA-level employment losses are well less than
the one-percent threshold considered significant.
The methodology used in this analysis is essentially the same as that used earlier in section C.2.2,
with an additional conservative assumption to capture the employment losses estimated for facilities using
only the additional non-272 PAIs. As discussed in section C.2.2, a statistically valid analysis of population-
level employment impacts on a regional or community-level cannot be performed because of sample design
limitations. However, analyses based on assumptions regarding the locational distribution of primary
employment impacts can demonstrate that compliance with the proposed regulation is unlikely to have a
significant impact on community employment.
EPA used conservative assumptions that are likely to overstate possible employment losses in any
one MSA. First, EPA assumed that both closure and line conversion impacts would result in the loss of all
PFPR-related employment at affected facilities. As stated above, line conversions are not likely to result in a
full loss of PFPR-related employment in all cases. Second, EPA assumed that all of the direct impact
employment losses that are not directly accounted for by the affected sample observations would occur at
the known locations of the affected sample facilities in proportion to sample facility weights. Third, as
C.10
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before, EPA used the maximum state-level multiplier (9.2) for the applicable industry to estimate the
secondary employment impacts. Thus, the analytic procedure Snd assumptions for addressing impacts within
those facilities using the original 272 PAIS and the additional non-272 PAIs are identical to those earlier.
However, analysis of the employment-related impacts in facilities using only the additional non-272
PAIs required a modification to the analytic procedure described in section C.2.2. The impacts in these
facilities are not associated with specific sample facilities and are thus conceptually similar to those impacts
estimated to occur within the underlying population of PFPR facilities and not in specific sample facilities as
discussed in section C.2.2. That is, EPA knows none of the locations of these facilities using only non-272
PAIs and assessed as incurring impacts. To account for the estimated impacts in these non-272 PAI-only
facilities in the community impact analysis, EPA calculated an impact multiplier that was used to increase the
sample facility weights for those sample facilities assessed as incurring impacts. In this way, the weights for
impacted sample facilities encompassed the impacts among both classes of facilities considered in this
analysis: (1) facilities using the original 272 PAIs and additional non-272 PAIs; and (2) facilities using only
the additional non-272 PAIs.
The multiplier developed to account for facilities using only non-272 PAIs was calculated as the ratio
of the estimated total of impacted facilities among all PFPR facilities (i.e., both classes of facilities defined in
the preceding sentence) to the estimated number of impacted facilities among facilities using the original 272
PAIs and additional non-272 PAIs (i.e., the first class of facilities defined in the preceding sentence). EPA
estimated a total of 252 facility impacts under the proposed option (3/S;): 2 facility closures and 250
moderate economic impacts. Of the 252 impacts, 168 are within facilities using the original 272 PAIs and
additional non-272 PAIs (1 closure and 167 moderate impacts), and 84 are within facilities using only the
additional non-272 PAIs (1 closure and 83 moderate impacts) (see Table 12.3 of the EIA at proposal). Thus,
the ratio of impacts in all facilities to impacts in facilities using the original 272 PAIs and additional non-272
PAIs is 1.5 (252 / 168 = 1.5). Thus, to account for the estimated impacts in the non-272 PAI-only facilities
in the community impact analysis, EPA increased the estimated impacts associated with sample facilities by
multiplying the weights of impacted sample facilities by 1.5.
Use of the 1.5 multiplier to account for impacts among facilities using only non-272 PAIs is yet
another conservative assumption that is likely to overstate community-level employment impacts.
Specifically, use of the multiplier means that MS As in which sample facilities are located are assumed to
incur, in proportion to sample facility weights, the additional employment impacts associated with non-
sample facilities among those analyzed using both the original 272 PAIs and non-272 PAIs and the
C.ll
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employment impacts associated with facilities using only non-272 PAIs. EPA believes that this assumption
further exaggerates the impacts calculated for sample facility MSAs, as these impacts would likely be
distributed among other MSAs that are unknown.
The analysis of sample facility impacts for the proposed option (3/S') found that impacts occur
among 25 MSAs, which is a modest increase above the 22 MSAs incurring impacts under Option 3/S as
discussed in Chapter 6. However, even with the conservative assumptions underlying this analysis, no MSA
is expected to incur a significant loss of employment under Option 3/S'. The largest percentage decline in
employment calculated for any MSA is only 0.2 percent or well less than the significant impact threshold of
one percent. If the impacts in this MSA are assessed on the basis of the state-specific employment multiplier,
the percentage employment loss would be only 0.075 percent. Even this amount exaggerates the likely
impact because of the assignment of all non-sample facility impacts to the same MSA in which the impacted
sample facility(ies) are located.
Accordingly, EPA anticipates no significant community-level impacts under the proposed
option (3/S').
C.3 Foreign Trade Impacts
Products created by pesticide formulators, packagers, and repackagers (PFPR) are traded
internationally. Changes in domestic PFPR production resulting from effluent regulations may therefore
affect the balance of trade. This section considers the potential impacts that compliance with PFPR effluent
limitation guidelines may have on foreign trade.
Specifically, this section examines the changes in both exports and imports that could occur as a
result of a PSES regulation for Subcategory C (PFPR) Facilities. Trade impacts are examined for the six
PSES options considered for Subcategory C (PFPR) Facilities, namely: the five options initially considered
plus Option 3/S, which is a modification of Option 3, and the proposed option (3/S'). Among these options,
the estimated impacts of Option 3, Option 3/S and Option 3/S' are examined more closely within the context
of the current international pesticide market.
EPA analyzed foreign trade impacts under two cases: a proportional case, which assesses trade
impacts based on the relative competitiveness of U.S. and foreign producers in international markets; and a
worst case, which makes severely conservative assumptions regarding U.S. competitiveness. Both analyses
showed relatively minor trade impacts from the proposed regulatory option (3/S'). The proportional case
analysis indicated that the net trade balance would decrease less than two percent under Option 3/S', or
C.12
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substantially less than the average year-to-year fluctuation in the U.S. pesticide trade balance. The worst case
analysis involved very conservative assumptions that are likely to overstate substantially the possible trade
impacts, but serves to illustrate the minimal impact that the regulation is expected to have on foreign trade
even with these highly adverse assumptions. This analysis found that the loss in the net trade balance for
pesticides under Option 3/S' would not exceed five percent of the average trade balance in pesticides over the
period 1980-1990. Moreover, the calculated loss is less than the average year-to-year change in the
pesticides trade balance over this period. For these reasons, EPA expects that the proposed option (3/S')
will not significantly impair the international trade position in pesticides.
The following sections of this section report the analysis on which this conclusion is based. Section
C.3.1 describes the methodology used to estimate possible changes in exports and imports resulting from the
regulatory options. Section C.3.2 summarizes the findings of that analysis, section C.3.3 assesses the
significance of those findings for Option 3 and Option 3/S, and section C.3.4 documents the findings for the
proposed Option 3/S'.
C.3.1 Methodology for Assessing Foreign Trade Impacts
Compliance with effluent limitation guidelines may affect the U.S. trade balance for pesticide
products by reducing exports and increasing imports. Exports may decline because previously exported
products are no longer produced, or because production costs and sales prices for domestic producers are
increased, thus making domestic products less competitive in foreign markets. Imports may increase as
domestic purchasers seek new sources of PFPR products that are no longer offered by affected facilities or
that are offered at higher prices.
This analysis focuses on the possible change in exports and imports associated with reductions in
output in facilities that may be adversely affected by the PFPR rule. These decreases in exports and increases
in imports are derived from facilities that (1) were assessed as a closure or (2) were assessed as a product line
conversion. Facilities falling in the third impact category compliance costs exceeding five percent of
facility revenue are not expected to lose PFPR production and were not considered in this analysis.
Facilities that cease or reduce PFPR production may affect the pesticides trade balance in two ways:
First, their former export sales may be lost, all or in part, to foreign producers thereby reducing total
domestic exports of pesticide products. The impact on the trade balance will depend on the success
of other domestic producers in retaining the export markets formerly served by facilities whose PFPR
production declines or ceases as a result of regulation.
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Second, their former sales for domestic consumption may be lost, all or in part, to imports thereby
increasing total imports of pesticide products. Again, the impact on the trade balance will depend on
the success of other domestic producers in retaining those domestic sales markets and preventing
import sales from capturing them.
For both effects, foreign and remaining domestic PFPR producers are assumed to compete for the
former domestic and export sales markets of those facilities whose PFPR production is lost as a result of
regulation. The outcome of the competition between foreign and domestic producers determines the change
in the two components of the trade balance: exports and imports. The combination of these two changes
that is, increased imports plus the loss in exports yields the decline in the net trade balance for pesticide
products. The two foreign trade analyses presented in this section involve different assumptions regarding
the outcome of the competition between foreign and domestic producers. In the proportional case analysis,
EPA assumed that domestic producers would remain as competitive in domestic and export sales markets at
the margin as they are currently, and therefore would maintain a portion of the markets lost by impacted
faculties. In the worst case analysis, EPA made the unrealistically severe assumption that foreign producers
would fully capture both the former export and domestic sales of facilities whose PFPR production declines
or ceases as a result of regulation. The results of these analyses were then examined relative to the average
U.S. pesticide trade balance and the fluctuations mat exist within this market.
The Survey provides data on the composition of sales for impacted facilities, including total 272
PAI-related PFPR revenue and the percent of PFPR revenues attributable to exports (in 1988).4 Facilities
that are assessed as closures are assumed to cease producing all PFPR products, hi addition, facilities
assessed as incurring a product-line conversion are also assumed to cease production of all PFPR products.
In some instances, facilities considering a product-line conversion may find it financially advantageous to
continue PFPR activities. However, because product-specific revenue and financial performance data are not
available, such product-line comparisons were not possible and the analysis conservatively assumes that a
line conversion means that all PFPR production at the facility ceases. This assumption is expected to
overstate impacts.
4 For this analysis, "PFPR revenues" refers to revenues from PFPR activities involving the 272 PAIs
originally studied for regulation. One impacted facility did not provide a percent of PFPR revenue
attributable to exports; for this facility, the weighted average of all facilities regulated under PSES was used.
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Although the analysis does not consider the possible change in exports or imports resulting from
product price increases, highly conservative assumptions, partic'ularly in the worst-case analysis, underlie the
calculation of net trade effects stemming from output changes in affected facilities. Thus, EPA believes that
the assessed trade effects, even without price increases as a variable, provide a conservative assessment of the
potential trade impacts of the proposed regulation.
Trade Impacts Under Proportional Case Assumptions
hi this analysis, domestic and foreign producers are assumed to compete for the domestic and export
sales of facilities that cease PFPR production as a result of the effluent guideline. Domestic and foreign
producers share in the market on a proportional basis that corresponds to their average participation in
domestic and export markets before regulation. The shares of these markets that are won by foreign
producers reflect the long-run success of foreign and domestic producers in competing for domestic and
export markets.
Estimating Change in Exports
When a facility ceases PFPR production, the markets that it served, both domestic and export, are
assumed to be competed for by other domestic producers and foreign producers. Under the proportional case
it is assumed that domestic producers capture the same share of the lost export production as the average
share of exports to total domestic production, hi other words, domestic producers are assumed to be
approximately as competitive at the margin in recovering lost exports as they are on average in achieving
export sales out of total production. On the basis of export and domestic shipments data for the 1988-1992
period, the share of pesticide exports expected to be captured by domestic producers is 30.2 percent.5
Foreign producers are thus assumed to capture 69.8 percent of the former exports from significantly impacted
facilities.
The calculation is as follows:
EXPDECR. = %EXP. x FPRREV. x (1 -
, v
5 Based upon 1988-1992, the only years for which these data were available. (Source: The
International Trade Commission)
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Where:
EXPDECR;
%EXP;
FPRREV;
EXP/TDP
The calculated decrease in facility export revenue in 1988 dollars;
The percent of PFPR revenue that a facility earned from exports in 1988;
and
The three-year (1986-1988) average facility revenue from PFPR activities
in 1988 dollars.
The average ratio of Exports to Total Domestic Production for pesticide
chemicals (30.2 percent)
Estimating Change in Imports
The decline in PFPR production due to compliance may result in increased imports as foreign
producers acquire a share of the domestic market formerly served by an impacted facility. In the proportional
case, the former sales for domestic consumption are assumed to be split between domestic and foreign
producers based on the average ratio of imports to total domestic consumption. That is, foreign producers
would be approximately as competitive on the margin as they have been historically in gaining a share of the
U.S. market for PFPR products. From data for the 1988-1992 period, foreign producers are assumed to
capture 17.9 percent of the domestic market formerly served by impacted facilities.6 Domestic producers are
therefore assumed to retain 82.1 percent of this market.
The calculation is as follows:
MPINCRt = [FPRKEVt - (%EXPt x FPRREV)] x
IMP
TDC
6 Based upon 1988-1992 data, the only years for which these data were available. (Source: The
International Trade Commission).
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Where:
IMPINCR;
FPKREVj
%EXP;
IMP/TDC
The annual increase in PFPR imports in 1988 dollars;
The three-year (1986-1988) average facility revenue from PFPR activities
in 1988 dollars;
The percent of PFPR revenue that a facility earned from exports in 1988;
The average ratio of Imports to Total Domestic Consumption (17.9
percent)
Estimating the Change in Net Trade Balance
The deterioration in the net trade balance for pesticide products is calculated by adding the increase
in imports and the reduction in exports (expressed as a positive value). The resulting value is the net loss in
the domestic trade balance for pesticide products.
Trade Impacts Under Worst-Case Assumptions
Under the worst-case assumptions, foreign producers are assumed to win completely the competition
for the former export and domestic sales markets of impacted facilities. That is, the sales for domestic
consumption are fully replaced by increased imports and the sales for export are fully replaced by foreign
producers. These assumptions maximize the possible adverse trade impact associated with reduced
production and sales of PFPR products by significantly impacted facilities.
Estimating Change in Exports
In the worst-case analysis, all PFPR production previously exported by impacted facilities is
assumed to be lost to foreign producers. This is a worst-case assumption because it does not allow for other
U.S. facilities to acquire a portion of the affected facilities' export sales. The calculated decline in exports is
therefore expected to overstate the actual change that would result from compliance. The calculation is as
follows:
EXPDECR; = %EXPi x FPRKEVt
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Where:
EXPDECR;
%EXP;
FPRREVj
The calculated decrease in facility export revenue in 1988 dollars;
The percent of PFPR revenue that a facility earned from exports in 1988;
and
The three-year (1986-1988) average facility revenue from PFPR activities
in 1988 dollars.
The total decrease in U.S. exports of pesticide products resulting from compliance is calculated by
summing the sample-weighted losses in facility exports over all affected facilities.
Estimating Change in Imports
In the worst-case analysis, all of the former sales for domestic consumption in impacted facilities is
assumed to be replaced by imports. This assumption is highly conservative in that it does not allow for
domestic producers to replace any of the lost domestic sales. In all likelihood, this assumption provides an
even greater exaggeration of the potential trade impacts of the PFPR regulation than that applied to exports.
This greater exaggeration results from both the larger quantity of product affected (i.e., domestic sales by
affected facilities generally exceed their exports) and the extreme improbability that imports would displace
all of the former domestic sales of affected facilities. The calculation is as follows:
MPINCR. = FPRREVf - (%EXPi x FPRREV)
Where:
IMPINCRj
FPRREVj
°/oEXP;
The annual increase in PFPR imports in 1988 dollars;
The three-year (1986-1988) average facility revenue from PFPR activities
in 1988 dollars; and
The percent of PFPR revenue that a facility earned from exports in 1988.
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The total increase in pesticide product imports resulting from compliance is calculated by summing
the sample-weighted import increases over all affected facilities.
Estimating the Change in Net Trade Balance
Again, adding the increase in imports and the reduction in exports (expressed as a positive value)
yields the net loss in the domestic trade balance for pesticide products.
C.3.2 Estimated Changes in Pesticide Exports and Imports Under Worst-Case and
Proportional Case Assumptions
The findings from the analyses outlined above are summarized below.
Proportional Case Assumptions
Using the methodology outlined above, EPA calculated possible changes in the exports and imports
of pesticide products resulting from the PSES regulations applicable to Subcategory C (PFPR) facilities.
Under the proportional case assumptions, the decrease in exports is expected to range from $2,685,000 per
year under Options 2,3, and 3/S to $6,256,000 under Options 4 and 5. The increase in imports is expected
to range from $6,505,000 under Option 3/S to $35,660,000 under Option 5. The resulting estimated annual
decrease in the Net Trade Balance ranges from $9,190,000 under Option 3/S to $41,916,000 under Option 5.
Option 3/S, the proposed option, results in the lowest projected decline in trade balance among all of the
regulatory options considered (see Table C-3).
Table C-3 Change in Foreign Trade Balance for Subcategory C PSES Options
($000,1988)
Regulatory
Option
Option 1
Option 2
Option 3
Option 3/S
Option 4
Option 5
Proportional Case Assumptions
Increase in
Imports
7,188
7,187
7,187
6,505
34,824
35,660
Decrease in
Exports
2,841
2,685
2,685
2,685
6,256
6,256
Decrease in
Trade Balance
10,029
9,872
9,872
9,190
41,080
41,916
Worst-Case Assumptions
Increase in
Imports
40,155
40,149
40,149
36,338
194,548
199,219
Decrease in
Exports
4,070
3,846
3,846
3,846
8,963
8,963
Decrease in
Trade Balance
44,225
43,995
43,995
40,184
203,511
208,182
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Worst-Case Assumptions
Under the worst-case assumptions, the annual reductions in PFPR exports range from $3,846,000
under Options 2,3, and 3/S to $8,963,000 under Options 4 and 5. Increases in PFPR imports range from
536,338,000 per year under Option 3/S to $199,219,000 per year under Option 5. The resulting decline in
the PFPR trade balance ranges from $40,184,000 per year under Option 3/S to $208,182,000 per year under
Option 5. Overall, the deterioration in the net trade balance under the worst-case assumptions is about 4.5 to
5 times as great as the impact amount calculated under the proportional case assumptions. Option 3/S, the
proposed regulatory option, achieves the lowest deterioration in the net trade balance among the regulatory
options considered (see Table C-3).
C.3.3 Significance of the Estimated Decreases in the Net Trade Balance
EPA assessed the significance of these trade impact findings for Options 3 and 3/S.
Proportional Case Assumptions
To assess the significance of the calculated change in the net trade balance, the calculated values for
Options 3 and 3/S were considered in the context of the international pesticide market. Two comparisons
illustrate the significance of the calculated changes in the international trade balance. First, EPA compared
the calculated change in the net trade balance with the actual trade balance values for pesticides over the
period 1980-1990. As summarized in Table C-4, the net trade balance for the period 1980-1990 averaged
approximately $950 million. Under Option 3, the decline in the net trade balance would constitute a 1.04
percent decrease in the pesticide trade balance. Under Option 3/S, the proposed regulatory option, the
estimated decline in the pesticides trade balance would be less than one percent.
As a second measure of the significance of the calculated losses in the pesticide trade balance, EPA
compared the percentage change in the average trade balance implied by the Options 3 and 3/S calculations
with the actual year-to-year percentage changes in the trade balance that occurred over the ten-year analysis
period. Between 1980 and 1990, the pesticide trade balance fluctuated between a low of $841 million and a
high of $1,143 million. The year-to-year swings were quite wide: six years showed negative changes over
this period ranging from -1.9 percent to -21.3 percent; and four years showed positive changes ranging from
1.7 percent to 19.7 percent. One measure of trade balance volatility is the average of the absolute value of
these year-to-year percentage changes, which is 8.0 percent. That is, on a year-to-year basis, and without
regard to the direction of change, the average change in the net trade balance for the period 1980-1990 was
8.0 percent. As reported above, the implied declines in the average net trade balance calculated for Options 3
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and 3/S are 1.04 percent and 0.97 percent, respectively. Both values are considerably smaller than the 8.0
percent year-to-year fluctuation in the pesticides net trade as observed in recent years (see Table C-4).
Table C-4: U.S. Trade Balance in the Pesticide Market, 1980 -1990
Year
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
Average
Trade Balance
($000,000, 1988)
1,075
935
914
955
1,143
900
943
959
940
857
841
951
Percent
Change
-13.0%
-2.2%
4.5%
19.7%
-21.3%
4.8%
1.7%
-2.0%
-8.8%
-1.9%
Absolute Percent
Change
13.0%
2.2%
4.5%
19.7%
21.3%
4.8%
1.7%
2.0%
8.8%
1.9%
8.0%
Source: United Nations International Trade Statistics Yearbook, 1980-1990.
Worst-Case Assumptions
Under the worst-case assumptions, the estimated decrease in the net trade balance in the pesticide
industry is more significant than that projected under the proportional case assumptions. However, even
these highly unrealistic, worst-case estimates indicate that trade impacts should not be unduly burdensome
when viewed in the context of the U.S. trade balance for pesticides. The conservatively calculated loss in the
trade balance of $44 million for Option 3 amounts to 4.6 percent of the ten-year average value of $950
million. The $40 million loss calculated for Option 3/S represents only 4.2 percent of the ten-year average.
Although these values are higher as a percentage of the 10-year average trade balance than those calculated
for the proportional case analysis, they still remain well below the average 8.0 percent year-to-year
fluctuation observed over the past 10 years.
Taking into account the small effect of the calculated trade balance impacts relative to the existing
pesticides trade balance under both the worst-case assumptions and the more realistic proportional case
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assumptions, EPA judges that Options 3 and 3/S would not be expected to impose a significant impact on the
U.S. pesticides trade balance.
C.3.4 Foreign Trade Effects Under the Proposed Option (3/S')
EPA assessed the foreign trade impacts of the proposed option (3/S') using the same methodology.
As described above in the analysis of community impacts, EPA accounted for the impacts in facilities using
only non-272 PAIs by increasing the facility weights for impacted sample facilities by a factor of 1.5. EPA
analyzed foreign trade impacts under the proportional case, which assesses trade impacts based on the
relative competitiveness of U.S. and foreign producers in international markets. From this analysis, EPA
estimated that the proposed option (3/S') would result in a $16,538,000 decrease in the pesticide trade
balance, or a decline of 1.74 percent This 1.74 percent decrease is well less than the average 8 percent year-
to-year fluctuation in the pesticides trade balance that occurred between 1980 and 1990. Overall, EPA judges
that the foreign trade impacts of the proposed regulation are not likely to be significant.
C.4 Assessment of Firm-Level Impacts
The assessment of economic achievability of the PFPR regulation is based primarily on the facility-
level impact analysis. EPA, however, also conducted a firm-level analysis, as impacts at the level of the firm
may exceed facility level impacts, particularly when a firm owns more than one facility that -will be subject
to regulation. This section examines the impact of Option 3/S and the proposed option (3/S') for
Subcategory C facilities and Option 1 for Subcategory E facilities, on firms owning facilities subject to PFPR
effluent guidelines. All firms that own at least one sample facility using water in its PFPR operations are
included in the analysis.7 The analysis involves aggregating financial and compliance cost data for sample
facilities by firm, and imputing compliance costs for non-sample facilities owned by the firm based on sample
facility compliance costs and firm PFPR revenue not attributable to sample facilities. This analysis also
considers baseline cost adjustments from other regulatory requirements for both sample and non-sample
facilities owned by the firm. Because of sample design considerations, the findings from the firm-level
analysis, which is based on facilities in the sample survey, cannot be extrapolated on a statistically valid
basis to the population level of PFPR industry firms.
7 Facilities which do not use water in their PFPR operations were not required to indicate percent of
firm revenue attributable to PFPR operations in 1988, making this analysis impossible for firms represented
in the sample by only facilities which do not use water in their PFPR operations.
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Firm-level impacts are evaluated based on estimated post-compliance pre-tax return on assets (ROA)
relative to a threshold ROA based on current industry performance. Pre-tax ROA is a measure of the
profitability of a firm's capital assets, independent of the effects of taxes. This financial measure provides
information regarding the competitive position of the firm within the industry, as well as operating margin
and asset management capability. If a firm cannot sustain a competitive ROA when baseline costs and
compliance costs are considered, then the firm will likely have difficulty financing the capital outlays for
complying with the regulation.
After grouping sample facilities by owning firm, EPA initially considered 308 firms that own at least
one water using sample facility. However, 66 of these firms were found to have a baseline ROA of less than
the threshold level, and therefore were not considered for impacts from compliance with the regulatory option.
The remaining 242 firms were analyzed for impacts.
From this analysis, EPA found that only 5 of the 242 firms analyzed would be expected to incur
significant financial impacts as a result of the proposed PFPR regulations. The Agency judges that these
firm-level impacts should not pose a significant burden to the PFPR industry.
The remaining sections are organized as follows. Section C.4.1 presents the methodology for
calculating baseline and post-compliance ROA for the 242 firms, section C.4.2 summarizes the projected
firm-level economic impacts under Option 3/S, while section C.4.3 presents the estimated impacts under the
proposed option (3/S')-
C.4.1 Methodology for Assessing Firm-Level Impacts
The assessment of firm-level impacts involves two separate analyses. First, EPA assessed firm-level
financial performance in the baseline, or before application of the PFPR regulatory requirements. Firms that
were found financially weak in this analysis were excluded from the second analysis. In the second analysis,
firm-level financial performance was assessed taking into account PFPR regulatory requirements.
Analysis 1: Baseline Analysis of Firm-Level Financial Performance
The baseline analysis evaluates each firm's financial operating condition before considering the
compliance costs of the PFPR regulation. This analysis identifies firms that are expected to be financially
weak relative to the overall industry independent of regulatory requirements. Firms that have a baseline ROA
less than the threshold value are not considered for compliance impacts because their financial weakness
results from current circumstances.
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The analysis of firm-level impacts is based on pre-tax ROA, which is defined as pre-tax income or
earnings before taxes (EBT) divided by total firm assets. In the facility-level impact analysis, pre-tax ROA
was calculated at the facility level using data from the PFPR industry Survey. In the firm-level analysis,
however, the relevant income statement and balance sheet data for calculating pre-tax ROA necessarily are
from firm-level financial statements. EPA first assembled the necessary financial statement data for
calculating pre-tax ROA for the year 1988. EPA then adjusted these data to reflect ongoing environmental
regulatory compliance requirements as previously described in the facility-level analysis. The ROA with
baseline adjustments was then compared to the industry threshold to evaluate financial performance on a pre-
compliance basis. The steps in this analysis are summarized below.
Assembling Facilities by Common Firm Ownership and Obtaining Data for Calculating
UnadjustedROA
In the same way as discussed for the analysis of small business impacts (Chapter 5), EPA identified
the ownership of facilities in the PFPR industry Survey and grouped facilities by firm for performing the
firm-level analysis. All firms with at least one water-using facility in the Survey were considered for the
analysis of firm-level impacts. From this grouping, EPA identified 308 firms. These firms fell in three
general categories that are relevant for understanding the data sources and development of the unadjusted
baseline ROA for the analysis:
1. Public-reporting firms. After grouping facilities, EPA found that 97 of the sample facilities
(92 of which use water hi then- PFPR operations) were owned by 36 public-reporting firms.
Firm-level financial data to calculate the unadjusted ROA for these firms were obtained from
annual reports or Standard and Poor's S&P Reports.
2. Private single-facility firms. From Survey data, EPA found that 180 facilities were private
(i.e., non-public-reporting), single-facility firms. In the Survey, these facilities reported
being single-facility firms and also reported firm-level revenues equal to facility-level
revenues. Total firm assets for 1988 was taken directly from the PFPR Survey, and EBT
was calculated using facility-level income statement data from the Survey8.
3- Multiple facility private firms. The remaining 129 facilities (127 of which use water in their
PFPR operations) were grouped into 92 multiple facility private firms. Because the needed
3 EBT = Total Facility Revenue - Total Costs and Expenses + Taxes.
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EBT and assets data were unavailable for these firms, EPA estimated the unadjusted values
using industry-wide ratios developed from the Robert Morris Associates (RMA) publication
Annual Statement Studies. Specifically, EPA calculated an industry aggregate sales-to-
assets ratio and pre-tax profit as a percentage of total sales for use in imputing a firm-level,
unadjusted ROA for these firms. The 1988 median ratio of sales to assets was averaged
over all RMA-reported industries in SIC code 28 (Chemicals and Allied Products), weighted
by total value of shipments within each SIC code.9 The inverse of this value, or the assets-
to-sales ratio (calculated as 48.20), was then multiplied by the 1988 firm revenues reported
in the Survey to yield 1988 total firm assets, the denominator for the firm-level pre-tax ROA
calculation.
EBT was calculated in the same manner using the weighted average of the RMA median
1988 value for pre-tax profit as a percent of sales. The resulting weighted average (4.9187
percent) was multiplied by 1988 firm revenue to yield 1988 EBT, the numerator for the
firm-level pre-tax ROA calculation.
This method of imputing an unadjusted ROA means that all multiple facility, non-public-
reporting firms start with the same unadjusted baseline ROA of 10.2 percent. However, the
baseline adjustments for ongoing compliance requirements reduce this value for all firms by
varying amounts so that the adjusted ROA varies by firm.
Adjusting Baseline ROA for Ongoing Compliance Costs
The estimation of baseline ROA at the firm level is analogous to the calculation of the facility level
baseline ROA described in Chapter 3. As in the facility level calculation, environmental compliance costs
expected to be incurred by firms after the survey was submitted (1988) were included in the baseline analysis.
These include costs from:
1. Resource Conservation and Recovery Act (RCRA) land disposal restrictions;
2. Effluent limitations for the Pesticide Manufacturing Industry, which consists of a) the total
annualized cost of compliance with the rule (including capital and operating and
9 1992 total shipments data were used, as 1988 data were not available for all relevant SIC codes.
(Source: 1992 U.S. Industrial Outlook). The resulting weighted average sales-to-assets ratio was 0.020745.
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maintenance costs), and b) pesticide active ingredient (PAI) price increases to PFPR
facilities as a result of the rule;
3. Effluent limitations for the Organic Chemicals, Plastics and Synthetic Fibers (OCPSF)
industry; and
4. The annual product maintenance fees mandated by the 1988 amendments to the Federal
Insecticide, Fungicide, and Rodenticide Act (FIFRA).
All PFPR facilities are expected to incur costs from FIFRA and PAI price increases resulting from
the Pesticide Manufacturers rule. Half of these costs are expected to be borne by the facility, and the other
half is expected to be recovered through product price increases (see Chapter 3). Only facilities that
manufacture PAIs are expected to incur costs from RCRA, OCPSF, and the cost of complying with the
Pesticide Manufacturers effluent guidelines rule. As in the facility level analysis, EPA expects that half of the
RCRA and OCPSF costs will be borne by the facility, while the other half is passed on to consumers through
higher PAI prices. The portion of the total annual costs of compliance with the Pesticide Manufacturers rule
that is bome by the facility is calculated in the same manner as documented in the EIA for the Pesticide
Manufacturers effluent limitations guideline.10
The adjustments to firm-level baseline ROA account for additional environmental compliance costs
for both PFPR facilities included in the Survey and PFPR facilities owned by a firm but that were not
included in the sample. The estimation of costs for these non-sample facilities is based on the estimated firm
revenue from PFPR activities that is not accounted for by the sample facilities. These non-sample facilities
are expected to incur baseline costs associated only with the FIFRA regulation and PAI price increases
resulting from the Pesticide Manufacturers effluent guideline. The other baseline costs pertain only to . .
manufacturing facilities, all of which are included in the sample if they also engage in PFPR activities. Thus,
the non-sample PFPR facilities are by definition not manufacturers and are therefore not subject to the other
baseline costs.
In addition, some firms included in the analysis own pesticide manufacturing facilities that do not
engage in PFPR activities, and were therefore excluded from the PFPR industry Survey. However, the
identity and ownership of these facilities is known from the analyses that EPA performed for the Pesticide
Manufacturers effluent guideline. The costs of the above rules that apply specifically to manufacturing
10 For details, see Chapter 4 of the Manufacturer's EIA.
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facilities (i.e., OCPSF, RCRA, and the annualized cost of compliance with the Pesticide Manufacturers
effluent guidelines) are included in the adjustments to baseline Values for firms owning such facilities.11
Pre-tax ROA, baseline with adjustments, is calculated as follows:
EBT - COSTSAMPBL - COSTMFGM - OTHCOSTm
T)f)A = "L> oL BL
BL ASSET + OCPSFcap
Where:
ROABL
EBT
COSTSAMPRr =
BL
Firm, pre-tax ROA, baseline with adjustments, in 1988;
Unadjusted pre-tax firm earnings in 1988;
Annual baseline costs attributable to all sample facilities owned by the firm;
COSTMFGBL = Annual baseline costs attributable to facilities owned by the firm which manufacture
PAIs but do not PFPR;
OTHCOSTBL = Annual baseline costs attributable to facilities which PFPR, and are owned by the firm
but not included in the sample;
ASSET = Unadjusted firm assets in 1988; and
OCPSFcap = The sum of capital costs resulting from the OCPSF rule for all facilities owned by the
firm.
The calculation of each of the adjustments to baseline ROA is discussed more fully below.
COSTSAMPBL, is the sum of annual baseline costs for sample facilities owned by the firm. As
previously mentioned, only facilities that manufacture PAIs are subject to baseline costs for RCRA, OCPSF,
and MFGCOMP. Therefore, the costs of these regulations apply only to sample facilities that also
manufacture PAIs. The calculation is as follows:
11 Data for these costs are from the Pesticide Manufacturers' EIA, 1992.
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COSTSAMPBL = £ (RCRA, + OCPSFi + MFGPAIi + FIFRA + MFGCOMP)
1=1
Where :
RCRA
OCPSF
MFGPAI
MFGCOMP
FIFRA
= Baseline additional costs for PFPR facilities owned by the firm and in the Survey;
= Annual costs of RCRA regulation borne by facility i;
= Annual costs of OCPSF regulation borne by facility i;
= Annual cost of PAI price increases from Pesticide Manufacturers regulation borne by
facility i;
- Annual costs of compliance with the Pesticide Manufacturers effluent guidelines for
facility i; and
= Annual costs of FIFRA regulation borne by facility i; and
= The number of PFPR facilities in the Survey owned by the firm.
Each of these cost elements was calculated as part of the facility-level impact analysis documented in
Chapter 3.
COSTMFGBL is the -sum of annual baseline costs for non-PFPR facilities that manufacture PAIs.
These faculties were not included in the PFPR Survey but were analyzed for the Pesticide Manufacturers rule.
Because these facilities are neither subject to the FIFRA regulation, which applies only to final products, nor
to the higher PAI prices from the Pesticide Manufacturers rule, these cost elements are excluded from
COSTMFGsL. The remaining cost elements were taken from EPA calculations for the Pesticide
Manufacturers rule. The calculation is as follows:
"2
COS1MFGBL = £ (RCRA, + OCPSF',. + MFGCOMP)
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Where:
COSTMFGBL
RCRA
OCPSF
MFGCOMP
n.
= Baseline additional costs for non-PFPR facilities owned by the firm that manufacture
PAIs;
= Annual costs of RCRA regulation borne by manufacturing facility i;
= Annual costs of OCPSF regulation borne by manufacturing facility i;
= Annual costs of compliance with the Pesticide Manufacturers effluent guidelines for
manufacturing facility i; and
= The number of non-PFPR manufacturing facilities owned by the firm.
OTHCOSTBL is the additional baseline costs that the firm is expected to incur from non-sample
facilities engaged in PFPR activities. Only costs associated with FIFRA and PAI price increases from the
Pesticide Manufacturers rule are considered in the calculation, as these are the only baseline costs that the
non-sample facilities are expected to incur, as explained above. To estimate these costs, EPA extrapolated
the baseline cost adjustments that were estimated for each firm's facilities that are in the Survey to the
calculated PFPR revenue of the firm that was not covered by the Survey (this amount is referred to as PFPR
residual revenue). This calculation assumes that, within a firm, the additions to baseline cost per dollar of
residual PFPR revenue are the same as the addition to baseline costs per dollar of PFPR revenue calculated
for the firm's facilities in the sample.
To calculate OTHCOSTBL, EPA first calculated each firm's PFPR revenue that is not represented by
facilities in the Survey by subtracting the sum of PFPR revenue for each sample facility from the reported
total PFPR revenue of the firm. EPA also calculated for each firm the amount of the baseline cost
adjustments per dollar of PFPR revenue for the facilities in the Survey. This ratio of additional costs to PFPR
revenue was then multiplied by PFPR residual revenue to yield the estimated amount of baseline cost
adjustments from each firm's PFPR facilities that are not in the Survey. The formula for the calculation is as
follows:
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OTHCOSTBL =
BL
"' (MFGPAI +FIFRA }
' '
FPKREV.
Where:
OTHCOSTBL
FPRREV
FRMPFPR
MFGPAI
FEFRA
= Baseline additional costs that the firm is expected to incur from non-sample PFPR
facilities;
= Reported 1988 revenues from PFPR for facility i;
= Expected firm revenues from PFPR in 1988;12
= Annual cost of PAI price increases from Pesticide Manufacturers regulation borne by
facility i;
= Annual costs of FIFRA regulation borne by facility i; and
= The number of PFPR facilities in the Survey owned by the firm.
The last adjustment needed to calculate firm-level pre-tax ROA in baseline is OCPSFcap, the sum of
capital costs associated with the OCPSF rule. This value is added to the total assets value in the denominator
of the ROA calculation and pertains only to facilities that manufacture PAIs as explained above. The
calculation is as follows:
OCPSFcap^ OCPSFocp{+£ OCPSFcap.
1=1
z=l
12 Calculated by multiplying 1988 firm revenues by percent of firm revenue attributable to PFPR in
1988, as reported in the Survey. If facilities owned by the same firm reported different percentages, EPA
conservatively used the highest reported percentage of firm revenue attributed to PFPR activities. Similarly,
if facilities owned by the same firm reported different firm revenues, the highest reported firm revenue was
used.
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Where:
OCPSFcap
= Capital costs of complying with the OCPSF rule for manufacturing facility i;
= The number of PFPR facilities in the Survey owned by the firm; and
= The number of non-PFPR manufacturing facilities owned by the firm.
Comparing Adjusted Baseline ROA with the Industry Threshold
After applying each of the adjustments to baseline values as described above, EPA compared the
adjusted ROA to an industry threshold value to assess the financial performance of firms before consideration
of PFPR regulatory requirements. EPA calculated the industry ROA threshold using pre-tax ROA data from
Robert Morris Associates (RMA) for 1988. Specifically, EPA calculated the average pre-tax ROA for the
lowest-quartile among respondents for all RMA-reported industries in SIC code 28. In computing the
average, EPA weighted the lowest-quartile ROA reported for each industry group by the total value of
shipments for that SIC code as reported in the 1987 Census of Manufacturers. The resulting threshold ROA
is 2.4 percent.
EPA compared both the unadjusted and adjusted pre-tax ROA values for each of the 308 firms in the
baseline analysis to the threshold ROA value. Of these 308 firms, 63 firms, all of which are non-public-
reporting, single facility firms, have an ROA of less than 2.4 percent before including the baseline cost
adjustments described above. When the baseline cost adjustments are included in the ROA calculation, 3
additional firms fell below the ROA threshold level. These 66 firms are assessed as experiencing financial
weakness independent of the proposed effluent guidelines. Accordingly, attributing their economic hardships
to the regulation would overstate impacts. These 66 firms with a baseline ROA of less than 2.4 percent were
excluded from the remainder of the firm-level analysis.
Analysis 2: Post-Compliance Analysis of Firm-Level Financial Performance
The post-compliance economic analysis evaluates each firm's financial operating condition taking
into account the costs of complying with the proposed regulatory options. EPA analyzed the firm-level
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impact of Option 3/S for Subcategory C facilities and Option 1 for refilling establishments13, based on the
change in pre-tax ROA. The post-compliance ROA includes both the baseline cost adjustments described
above and the costs of compliance under the proposed options. If, as a result of the estimated costs of
complying with the PFPR regulation, a firm's pre-tax ROA fell below the 2.4 percent threshold, then the firm
was assessed as incurring a financial burden as a result of the proposed PFPR regulation.
The estimation of post-compliance ROA is analogous to the calculation of ihe facility-level post-
compliance ROA described in Chapter 4: that is, it takes account of the estimated costs of complying with
the proposed PFPR regulation. Like ihe firm-level baseline ROA analysis, however, the firm-level post-
compliance analysis accounts for costs that the firm is expected to incur from non-sample PFPR facilities
owned by the firm. Lacking information on these facilities, EPA again estimated the additional compliance
costs to the firm associated -with non-sample PFPR facilities based on the calculated residual PFPR revenue
(i.e., the firm PFPR revenue that is not attributable to the sample PFPR facilities). This calculation assumes
that, within a firm, the PFPR compliance costs incurred by non-sample facilities will be the same per dollar of
residual PFPR revenue as the compliance costs per dollar of PFPR revenue calculated for the firm's sample
facilities. Unlike the estimation of baseline ROA, it was not necessary for EPA to consider non-PFPR
manufacturing facilities in this analysis, as these facilities would not be subject to the PFPR regulation. For
clarity in this discussion, the baseline cost adjustments described above that affect the numerator in the ROA
calculation are combined into one variable, COSTBL, as follows:
COSTBL = COSTSAMPBL + COS1MFGBL + OTHCOSTBL
Post-compliance ROA is calculated as follows:
EBT - COSTBL - OMCOMP - (CAPCOMP/10) - INTPMT
ROAPC =
ASSET + OCPSFcap + CAPCOMP
Where:
13 Facilities are expected to meet regulatory requirements with zero cost under Option 1.
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EBT
COSTBL
OMCOMP
CAPCOMP
ASSET
OCPSFcap
INTPMT
; Estimated firm pre-tax ROA, calculated post-compliance;
; Firm earnings before taxes in 198 8;
Firm baseline cost adjustments, as defined above;
Annual firm operating and maintenance costs of complying with the regulatory option;
Total firm capital costs of complying with the regulatory option;
Unadjusted firm assets in 1988;
Total firm capital costs of complying with the OCPSF effluent guideline (a baseline
adjustment); and
Average yearly interest payment over 10 years on the capital costs of compliance,
calculated as follows:
INTPMT = D X CAPCOMP x °-064 _ D x CAPCOMP
0 10
Where:
D = Percent of firm's compliance capital outlays financed by debt;
0.064 = The assumed real interest rate of 6.4 percent (see Chapter 4).
The analysis assumes a straight line depreciation schedule over ten years (CAPCOMP/10).
The percent of compliance capital outlays financed by debt, D, was derived differently for public-
reporting firms, private single entity firms, and private multiple facility firms. For public-reporting firms,
EPA used the ratio of debt to total assets reported in each firms' balance sheet for 1988.14 For private, single
entity firms, the percent of capital financed by debt was calculated using data from the PFPR survey (see
Chapter 3). For private, multiple facility firms, EPA averaged the facility-level ratios of debt to total
14 For all but two foreign-owned firms, these data were obtained from the firms' 10-K statements.
The debt-to-total-assets values for the two foreign-owned firms were calculated using data from S&P
Reports.
C.33
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compliance capital used in the facility-level impact analysis. The individual facility values were weighted by
each facility's capital cost of compliance.
Calculation of firm-level, post-compliance ROA requires estimates of the compliance capital and
operating costs for the share of a firm's PFPR revenue not covered by Survey facilities. As noted above,
EPA estimated PFPR compliance costs for each firm's residual PFPR revenue by extrapolating the costs
calculated for a firm's sample facilities based on the ratio of compliance cost to PFPR revenue. The following
discussion describes the separate calculations for the operating and capital costs.
The equation below summarizes the calculation of the firm's annual compliance operating and
maintenance costs, OMCOMP. The first part of the equation accounts for operating and maintenance costs
among the sample facilities. The second part of the equation accounts for the additional operating and
maintenance costs of those facilities associated with the firm's residual PFPR revenue. In a calculation
similar to that used for the baseline cost adjustments, these costs are estimated based on the amount of firm
PFPR revenue that is not accounted for by the sample facilities and the ratio of sample facility compliance
operating and maintenance costs to sample facility PFPR revenue. The analysis assumes that the compliance
cost-to-revenue ratio among non-sample facilities is the same as that for the sample facilities owned by the
firm, in aggregate. The calculation is as follows:
OMCOMP = Y^ OMCOMP, +
" OMCOMP
FPRREV.
-^ FPRREV)
Where:
OMCOMPj = the annual operating and maintenance costs of complying with the regulation for
sample facility i; and other variables are as defined above.
The total capital costs of the regulatory option to the firm, CAPCOMP, are calculated in a parallel
manner to OMCOMP. Again, the first part of the equation below accounts for capital costs among the
sample facilities while the second part of the equation accounts for the additional compliance capital costs of
those facilities associated with the firm's residual PFPR revenue. Also, the analysis again assumes that the
compliance capital cost-to-revenue ratio among non-sample facilities is the same as that for the sample
facilities owned by the firm, in aggregate. The calculation is as follows:
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CAPCOMP = CAPCOMP
CAPCOMP
1=1 FPRKEV.
x(FRMPFPR-^ FPRREF)
Where:
CAPCOMP,.
- the total capital cost of the regulatory option for facility i; and the other variables are as
defined above.
C.4.2 Estimated Firm Impacts
Among the 308 firms initially considered for the analysis, 66 firms, all single entities, had a baseline
ROA of less than the established threshold, and were therefore not considered for post-compliance impacts.
Of the remaining 242 firms analyzed, EPA found that 5 (2 percent) have a post-compliance ROA less than
the 2.4 percent threshold. These firms may experience some financial hardship as a result of complying with
the proposed PFPR regulation. Two of these firms are private, multiple facility firms and three are private,
single entity firms. All of the private, single entity firms estimated to incur impacts were also found to incur
impacts at the facility level. From these findings, EPA judges that firm-level impacts are not expected to be
significant. The results of these analyses are summarized in Table C-5.
Table C-Ss Sample Firm Financial Impacts
Finn Type
Public-Reporting Firms
Private Multi-Facility Firms
Private Single Entity Firms
Total
Baseline
Number of
Projected
Impacts
0
0
66
66
Number of
Firms
Considered
36
92
180
308
Post-Compliance
Number of
Projected
Impacts
0
2
3
5
Number of
Firms
Considered
36
92
114
242
C.4.3 Firm-Level Impacts of the Proposed Option (3/S')
EPA also examined the potential firm-level impacts of the proposed option (3/S'). As before, the
analysis was conducted for all firms which own at least one sample facility that uses water in its PFPR
C.35
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operations, and therefore for which financial data were available. Because of sample design considerations,
the findings from the firm-level analysis, which is based on facilities in the sample survey, cannot be
extrapolated on a statistically valid basis to the population level of PFPR industry firms. In addition, because
the impacts and compliance costs incurred by facilities using only the non-272 PAIs cannot be associated
with specific sample facilities and owning firms, the firm-level analysis does not include any effects
associated with these facilities. However, the firm-level impact analysis does reflect the higher costs among
sample facilities of controlling discharges from non-272 PAIs that is, the higher costs of complying with
Option 3/S' relative to Option 3/S.
Estimated compliance costs under the proposed option (3/S') were allocated to facilities participating
in PFPR activities owned by the firm but not included in the sample. The firm-level financial impact was
assessed on the basis of the change in pre-tax return on assets (ROA) and compared with a threshold value
based on the lowest quartile data for SIC codes in the 2800 group (Chemicals and Allied Products) of 2.396
percent15
Of the 242 firms considered for impacts under Option 3/S', 9 firms were found to have a post-
compliance ROA of less than 2.396 percent and are therefore assessed as incurring adverse financial impacts
as a result of regulatory compliance. Six of these nine firms are private single entities and three are private
multi-facility firms. No firm impacts were found among public-reporting firms. EPA judges that these firm-
level impacts should not pose a significant burden to the PFPR industry and affirms its conclusion that the
PFPR regulations being proposed will be economically achievable by the industry (see Table C.6).
15 The threshold value ROA (2.396 percent) was calculated by weighting the ROA for all available
SIC codes in the 2800 group by the total value of shipments of that group.
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Table C-6
Estimated Sample Firm Financial Impacts Under Option 3/S'
Firm Type
Public-Reporting Firms
Private Multi-Facility Firms
Private Single Entity Firms
Total.
Baseline
Number of
Projected
Impacts
0
0
66
66
Number of
Firms
Considered
36
92
180
308
Post-Compliance
Number of
Projected
Impacts
0
3
6
9
Number of
Firms
Considered
36
92
114
242
C.5 Labor Requirements and Potential Employment Benefits
Firms will need to install and operate compliance systems to comply with an effluent limitations
guideline for the Pesticides Formulating, Packaging, and Repackaging (PFPR) industry. The manufacture,
installation, and operation of these systems will require use of labor resources. To the extent that these labor
needs translate into employment increases in affected firms, a PFPR rule has the potential to generate
employment benefits. If realized, these employment benefits may partially offset the employment losses that
are expected to occur in facilities impacted by the rule. The employment effects that would occur in the
manufacture, installation, and operation of treatment systems are termed the "direct" employment benefits of
the rule. Because these employment effects are directly attributable to the PFPR rule, they are conceptually
parallel to the employment losses that were estimated for the facilities that are expected to incur significant
impacts as a result of the PFPR rule.
In addition to direct employment benefits, the PFPR rule may generate other employment benefits
through two mechanisms. First, employment effects may occur in the industries that are linked to the
industries that manufacture and install compliance equipment; these effects are termed "indirect" employment
benefits. For example, a firm that manufactures the pumps, piping and other hardware that comprise a
treatment system will purchase intermediate goods and services from other firms and sectors of the economy.
Thus, increased economic activity in the firm that manufactures the treatment system components has the
potential to increase activity and employment in these linked firms and sectors. Second, the increased
payments to labor in the directly and indirectly affected industries will lead to increased purchases from
C.37
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consumer-oriented service and retail businesses, which in turn lead to additional labor demand and
employment benefits in those businesses. These effects are termed "induced" employment benefits.
In view of these possible employment benefits, EPA estimated the labor requirements associated
with compliance with the proposed PSES effluent guideline for Subcategory C (PFPR) facilities, as
represented by Option 3/S and the proposed option (3/S'). This section summarizes the findings from this
effort. Labor requirements and thus the possible employment benefits were estimated in two steps.
EPA first estimated the direct employment effects associated with the manufacture, installation, and operation
of the PFPR compliance equipment. These effects are discussed in section C.5.1. Second, EPA considered
the additional employment effects that might occur through the indirect and induced effect mechanisms
outlined above; these effects are discussed in section C.5.2. The potential labor requirements of complying
with the proposed option (3/S') are discussed in section C.5.3.
On the basis of these analyses, EPA found that the PFPR regulation may yield direct employment
requirements of about 100 full-time equivalent positions on a 10-year annualized basis. When the indirect
and induced employment effects are included, this value increases to a range of 269 to 400 full-time
equivalent positions.
C.5.1 Estimating the Direct Labor Requirements of the PFPR Rule
As discussed above, an effluent guideline for the PFPR industry will create demand for labor services
for manufacturing, installing, and operating compliance equipment. EPA analyzed each of these components
of direct labor requirements separately. The sum of the estimated requirements for the three labor categories
represents the estimated total direct labor requirement, and thus the potential direct employment benefit, from
compliance with the PFPR effluent guideline.
Direct Labor Requirements for Manufacturing Compliance Equipment
EPA estimated the direct labor requirements for manufacturing compliance equipment based on the
cost of the equipment and labor's expected contribution to the equipment's value in its manufacture. Labor's
contribution was estimated in dollars and was converted to a full-time employment equivalent based on a
yearly labor cost Each component of the calculation is discussed below.
Cost of Compliance Equipment
The cost of compliance equipment was estimated as part of the facility-level impact analysis for the
regulatory options. Compliance equipment requirements and associated costs were estimated for each facility
C.38
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in the Survey that was assessed as incurring costs. For the labor requirements analysis, compliance costs and
their associated labor requirements were considered only for those facilities that were not assessed as a
baseline closure, or as a closure or line conversion due to compliance. That is, the analysis considers the
labor requirement effects associated only with those facilities that were assessed as likely to comply with the
rule and continue PFPR production activities. These costs were weighted according to the number of
facilities each sample facility represents in the underlying PFPR industry population and summed to give an
aggregate compliance equipment cost for the PFPR industry. The total estimated capital equipment cost in
1988 dollars for complying with Option 3/S is $41,405,013.16
Labor's Expected Contribution to the Equipment's Value
Input-output tables assembled by the Bureau of Economic Analysis in the Department of Commerce
provide information on the composition of inputs used to produce the outputs of industries in the U.S.
economy.17 The inputs tallied in the input-output tables include the purchase of intermediate goods, materials
and services from other industries as well as the use of labor by the subject industry. In particular, the direct
requirements matrix identifies the value of each input, including labor, that is required to produce a one
dollar value of output for a subject industry. From discussions with PFPR project engineers, the "Heating,
Plumbing, and Fabricated Structural Metal Products Industry" (Bureau of Economic Analysis industry
classification 40) was identified as the industry with output that most nearly matches the kinds of equipment
needed for compliance with the PFPR effluent guideline. From the direct requirements matrix, the labor
input, titled compensation of employees, accounts for $0.31016 of each dollar of output value from the
Heating, Plumbing, and Fabricated Structural Metal Products Industry. Multiplying labor's share of output
value (0.31016) times the value of equipment purchases for complying with the PFPR rule ($41,405,013)
16
The $41.4 million is the one-time outlay for purchasing the capital equipment estimated to be needed
for compliance with the PFPR regulation and is not the annual cost of the capital equipment. In the
economic impact analysis, the capital outlay is annualized over a 10-year period and the resulting value,
which is part of the total annual cost of compliance, is much less than the $41.4 million value.
17 See The 1982 Benchmark Input-Output Accounts of the United States, U.S. Department of Commerce,
Bureau of Economic Analysis, December 1991 and "Benchmark Input-Output Accounts for the U.S.
Economy, 19Z2" in Survey of Current Business, My 1991,U.S. Department of Commerce, Bureau of
Economic Analysis. The 1982 tables are the most current information on the inter-industry input-output
structure of the U.S. economy.
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Table C-7
Analysis of Possible Employment Generation Effects of an Effluent Guideline for the P3EPR Industry
Labor Cost Direct Labor
Weighted production one-tune
annual
one-time annual
Direct Labor Effects From Compliance Equipment:
Manufacturing $41,405,013 31.02% $12,842,179 $1,828,437
Installation $11,560,958 42.23% $4,882,540 $695,164
Operation $916,721
373
142
53
20
27
Total Direct Labor Effects
$3,440,322
100
Notes:
1 Source: U.S. Department of Commerce, The 1982 Benchmark Input-Output Accounts of the United States,
December 1991.
1 Annualized over 10 years at the social discount rate of 7 percent.
3 Number of jobs calculated on the basis of an average hourly labor cost of $17.21 and 2,000 hours per labor-year.
yields labor's contribution to manufacturing the compliance equipment, measured in terms of gross
compensation, $12,842,179 (see Table C-7).
In the economic impact analysis of the PFPRrule, the manufacture of compliance equipment is
considered a one-time event that occurs at the beginning of industry's compliance activities. Accordingly, the
labor requirements for manufacturing compliance equipment should be viewed as a one-time requirement.
Elsewhere in the PFPR economic impact analysis, the labor effects associated with facility impacts are
presented on an annual basis, with the expectation that these job effects would persist over the period of
analysis. Accordingly, to assess consistently the possible labor requirement effects from manufacturing
compliance equipment, it was necessary to annualize the one-time labor effect. Consistent with the
annualization procedures elsewhere in the economic impact analysis, the one-time labor compensation value
was annuah'zed over a ten-year period at the social discount rate of 7 percent. The resulting annual value of
gross labor compensation in manufacturing compliance equipment is $1,828,437.
Conversion to Full-Time Employment Equivalent Basis
To convert the gross payment to labor to a fM-time employment equivalent basis, the payment to
labor was divided by an estimated yearly labor cost. The yearly labor cost is based on the same labor cost,
$17.21 per hour, used in the engineering cost analysis to estimate the cost of operating compliance
equipment. The $17.21 per hour is a comprehensive labor cost including an allowance for fringe benefits
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(e.g., holidays, vacation, and various insurances) and payroll taxes, and was calculated in 1988 dollars.
Assuming a 2,000 hour work-year, the gross annual labor cost per full-time employment position is $35,797.
On a one-time, one-year basis (i.e., not annualized), the outlay for manufacturing compliance equipment is
estimated to require 373 full-time employment positions. On an annualized basis, the $ 1,828,437 of gross
labor cost for manufacturing compliance equipment is estimated to require 53 full-time employment
positions.
Direct Labor Requirements for Installing Compliance Equipment
EPA estimated the direct labor requirements for installing compliance equipment in a parallel manner
to that used for analyzing the labor requirements for manufacturing compliance equipment. Each component of
the calculation is discussed below.
Cost of Installing Compliance Equipment
The cost of installing compliance equipment was estimated in conjunction with estimating the purchase
cost of compliance equipment. Specifically, on the basis of the kind, scale, and cost of compliance equipment
assessed for a facility, PFPR project engineers estimated an installation cost for the equipment. The estimated
installation costs averaged about 28 percent of the purchase cost of the compliance equipment for a total of
$11,560,958.
Labor's Expected Contribution to the Equipment's Value
The Bureau of Economic Analysis industry group that EPA used as the basis for estimating labor's share
of cost in installing compliance equipment is the "Repair and Maintenance Construction Industry" (Bureau of
Economic Analysis industry classification 12). In this industry group, gross payments to labor account for
$0.42233 of each dollar of output value, as recorded in the direct requirements matrix for the national input-
output tables. Multiplying labor's share of value (0.42233) by the estimated total installation cost ($11,560,958)
yields a gross labor cost for compliance equipment installation of $4,882,540. Like the purchase cost of
compliance equipment, the installation cost is a one-time outlay and, accordingly, an annualized value was
calculated using the 10-year amortization period and the 7 percent social discount rate. The resulting annual
value for the labor cost of installing compliance equipment is $695,164.
Conversion to Full-Time Employment Equivalent Basis
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Conversion to a full-time employment equivalent basis is based on the same yearly labor cost, $35,797,
as used in estimating the labor requirements for the manufacturing of compliance equipment. On a one-time, one-
year basis, EPA estimates that 142 full-tune equivalent positions would be required for installing the equipment
needed to comply with the proposed Option 3/S PFPR effluent guideline. Annualized over 10 years, the
corresponding labor requirement for installing compliance equipment is 20 full-time equivalent positions.
Direct Labor Requirements for Operating Compliance Equipment
PFPR project engineers estimated the annual labor hours required to operate compliance equipment as
the basis for assessing the annual operating and maintenance costs of the PFPR regulatory options. On a full-
time equivalent basis, the estimated annual labor requirement for operating compliance equipment is 27 person-
years. This value is assumed to recur annually over the period of analysis. The corresponding total annual
estimated payments to labor is $916,721 (1988 dollars).
Total Direct Labor Requirements for Complying with the PFPR Effluent Guideline
Summing the three components yields the total direct labor requirements for complying with the
proposed PFPR effluent guideline as represented by Option 3/S. On a full-time equivalent basis, the estimated
total annual labor requirement for complying with Option 3/S is 100 person-years. The corresponding total
annual estimated payments to labor is $3,440,322 (1988 dollars). To the extent that these labor requirements
manifest as net new labor needs in the U.S. economy, the 100 full-time employment equivalents have the potential
to offset employment losses that may otherwise occur because of the rule.
C.5.2 Estimating the Indirect and Induced Labor Requirement Effects of the PFPR Rule
In addition to its direct labor effects, the PFPR effluent guideline may also generate labor requirements
through the indirect and induced effect mechanisms described in the introduction to this chapter. The indirect
and induced effects associated with an economic activity are analyzed by use of multipliers. Multiplier estimates
generally vary with the industry in which the direct economic activities are expected to occur and with the
economic characteristics of the location of the direct activities.
A range of multipliers was used in this analysis to illustrate the possible aggregate employment effects
of a PFPR effluent guideline. A recent EPA study used multipliers ranging from 3.5 to 3.9 to calculate the
possible indirect and induced employment effects of direct activity investments in general water treatment and
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pollution control.18 A study of "clean water investments" commissioned by the National Utility Contractors
Association (NUCA) documented total employment effect multipliers ranging from 2.8 to 4.O.19 Using the high
and low values for these multipliers, the indicated aggregate employment effects associated with the direct labor
requirement of 100 full-time positions would range from 280 to 400.
A more conservative assessment of these possible employment effects would recognize that the three
categories of labor requirements analyzed above are likely to have different indirect labor demand effects. In
particular, the direct labor demands for manufacturing and installing compliance equipment result from additional
economic activity in those industries. Accordingly, it is reasonable to expect that the additional economic activity
in manufacturing and installing equipment will translate into increased activity in the industries that are linked
to the direct effect industries and, hence, lead to additional labor demand in those industries through the indirect
effect mechanism. In contrast, the increased labor demand in the PFPR industry for operating compliance
equipment does not result from increased economic activity in that industry. As a result, increased labor demand
in the PFPR industry resulting from the PFPR effluent guideline may not translate into increased labor
requirements in the industries that are linked to the PFPR industry. In this case, the appropriate employment
multiplier for the equipment-operations component of direct labor requirements should exclude the indirect
effect mechanism and include only the induced effect mechanism. Multipliers cited in the NUCA study referenced
above suggest that a multiplier based only on the induced effect mechanism might fall in the range of 2.4 to 2.9.
Using this lower multiplier range for the equipment-operations component of direct labor requirements and the
higher, 2.8 to 4.0 range for the manufacturing and installation components, the estimated aggregate employment
effects of the PFPR effluent guideline would range from 269 to 371 full-time equivalent positions.
C.5.3 Potential Labor Requirements of Complying with the Proposed Option (3/S')
Using the same methodology as described above, EPA estimated an annual direct labor requirement of
200 full-time equivalent positions for complying with the proposed regulation. Of these 200 positions, 139 are
estimated to result from compliance with the proposed option (3/S') among facilities using 272 and non-272 PAIs
and 61 are estimated to occur among facilities using only non-272 PAIs. This labor requirement may partially
offset the estimated 688 employment losses in impacted PFPR facilities (see Table C-8).
18U.S. Environmental Protection Agency, Office of Water (February 1993). Job Creation Fact Sheet,
internal document.
19 Apogee Research, Inc., A Report on Clean Water Investment and Job Creation, prepared for National
Utility Contractors Association, March 1992.
C.43
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TabIeC-8
,,,",, ' ' "
National Estimates of Employment Losses and Possible Offsetting Employment Gains
Based on Analysis of All Subcategory CEacilities Under the Proposed PSES Option (3/S')
Estimated Values
; (Fiji-Time Equivalents)
Estimated Employment Losses Under the Proposed Option (3/S')
Employment Losses from Facility Closures
Employment Losses from Line Conversions
Total PFPR Facility Employment Losses
356
209
688
Estimated Labor Requirements and Possible Offsetting Employment Gains Under Option 3/S'
Labor Requirements for Manufacturing Compliance Equipment 107
Labor Requirements for Installing Compliance Equipment 41
Labor Requirements for Operating Compliance Equipment 52
Total Labor Requirements for PFPR Regulatory Compliance 200
C.44
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Appendix C References
Apogee Research, Inc. (March 1992). A Report on Clean Water Investment and Job Creation, prepared for
National Utility Contractors Association.
Economic Report of The President (1993). Washington, D.C.
EIA: Effluent Limitations Guidelines and Standards for The Pesticide Manufacturing Industry, EPA,
1992.
International Trade Commission, (Telephone Interview 2/2/94). Washington, D.C.
RMA Annual Statement Studies, Robert Morris Associates (1991). Philadelphia, PA.
Slater, Courtenay and Hall, George, (eds.) (1990). 1992 County and City Extra: Annual Metro, City
and County Data Book. Lanham, MD.
S&P Reports, Standard and Poor's (1993, 1994)
United Nations (1980-1990). Statistical Office. International Trade Statistics yearbook. New York.
U.S. Department of Commerce (Feb 1987). National Bureau of Standards, The Federal Information
Processing Standards Guide (FIPS Pub 55-2). Washington D.C.
U.S. Department of Commerce (1990). Bureau of the Census, The 1990 Census of Population and
Housing. Washington, D.C.
U.S. Department of Commerce (1991a). Bureau of Economic Analysis, The 1982 Benchmark Input-
Output Accounts of the United States.
U.S. Department of Commerce (1991b). Bureau of Economic Analysis, "Benchmark Input-Output Accounts
for the U.S. Economy, 1982," in Survey of Current Business, July 1991.
U.S. Department of Commerce (1992). Bureau of Economic Analysis, Regional Multipliers: A User
Handbook for the Regional Input-Output Modeling System (RIMSII). Washington, D.C.
U.S. Environmental Protection Agency, Office of Water (February 1993). Job Creation Fact Sheet, internal
document.
U.S. Industrial Outlook (1992), U.S. Department of Congress, Washington, D.C.
C.45
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Appendix D: Additional Savings from Pollution Prevention Under the Proposed Rule
The final rule explicitly incorporates pollution prevention practices. To highlight
possible savings to PFPR facilities from adopting pollution prevention practices,
EPA is including Chapter 10 of the proposed EM here as Appendix D. The appendix
considered some savings from pollution prevention under Option 3/S of the proposed
rule.
Traditionally, the Environmental Protection Agency has evaluated the economic feasibility of effluent
limitation guidelines and standards by considering the impacts on an industry of projected compliance costs, for
example, the costs of installing and operating a treatment technology. However, facilities may offset some of
their compliance costs by achieving regulatory compliance through use of pollution prevention measures. The
cost analysis of the proposed PSES regulation for Subcategory C facilities (Option 3/S) assumes that, where
possible, facilities will use certain pollution prevention measures to achieve zero discharge. These measures
include, for example, recovery and reuse of rinse waters and other wastewaters that contain reusable PAIs. By
recovering and reusing the PAIs contained in such wastewaters, facilities may save on the purchase cost of PAIs,
water consumption costs, and sewage treatment costs. The cost analyses described in Chapter 4 of the EIA for
the proposed regulation include the costs of implementing such pollution prevention measures and reflect the
pollution prevention-related cost savings from reduced waste management and disposal costs. The cost savings
accounted for in the Chapter 4 analysis of the proposed EIA amount to $4.7 million on an annualized basis.'
The regulatory cost analyses, however, do not include certain additional offsetting cost savings that may accrue
to facilities from pollution prevention.
To provide a more comprehensive accounting of the costs of achieving compliance with the proposed
PFPR regulation, EPA identified and assessed the additional mechanisms by which facilities might achieve cost
savings through use of pollution prevention. This appendix describes some of these additional potential savings.
According to Section 6602(b) of the Pollution Prevention Act of 1990, pollution should be prevented
at the source whenever feasible. EPA has established pollution prevention as the first priority within an
environmental management hierarchy that includes prevention, recycling, treatment, disposal and release.
Pollution prevention means "source reduction," or any practice that, as defined by the Pollution Prevention Act
(1990):
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Reduces the amount of any hazardous substance, pollutant, or contaminant entering any waste
stream or otherwise released into the environment (including fugitive emissions) prior to
recycling, treatment, or disposal;
Reduces the hazards to public health and the environment associated with the release of such
substances, pollutants, or contaminants; and
Increases efficiency in the use of water or other resources.1
Pollution prevention is a means for a facility to achieve optimal industrial efficiency by reducing the use
and generation of hazardous chemicals prior to treatment, storage, control, out-of-process recycling, and
disposal.2 Changes in processes, reduced generation of hazardous components and reagents, improved
housekeeping practices, "in-process" recycling, and reduced water use are all considered effective pollution
prevention. Unlike end-of-pipe risk management efforts, pollution prevention can reduce worker, community,
and environmental exposure to hazardous materials without transferring pollutants from one medium to another
thereby altering the exposure route.
Pollution prevention, recycle, and reuse practices that can be implemented by PFPR facilities fall into
three categories:
Actual production practices (e.g., triple rinsing of shipping containers directly into formulations,
scheduling production to minimize frequency of rinsing, storing rinsewaters for future
formulations, and dedicating equipment and process lines for specific pesticides);
Housekeeping practices (e.g., preventative maintenance, use of spill cleanup water in
formulations); and
Practices employing equipment that by design promote prevention (e.g., use of low flow hoses,
squeegees, and steam cleaners).
The PFPR industry already uses these practices to varying degrees. In some cases, adopting these practices as
a means of regulatory compliance can provide various cost savings and qualitative benefits as enumerated below.
The potential cost savings (over and above the $4.7 million discussed in Chapter 4 of the proposed EIA)
from using pollution prevention as a method of complying with the proposed PFPR regulation were estimated
from responses to the PFPR industry Survey and associated technical and economic analyses. A total of 595
population PFPR facilities are included in this assessment of savings resulting from compliance with the proposed
'Habicht, F. Henry H (1992). Memorandum, EPA Definition of Pollution Prevention, May 28, 1992.
2Anderson, Steven and Herb, Jeanne (1992). "Building Pollution Prevention into Facilitywide Permitting,"
Pollution Prevention Review, Autumn.
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regulatioa This subset of facilities includes all PFPR facilities using 272 PAIs that (1) were reported in business
as of the date of their survey response, 2) completed all parts of the survey as requested (i.e., are "clean") for both
technical and economic information, and 3) are water users who discharge water either directly using the best
practicable technology through a National Pollutant Discharge Elimination Discharge System (NPDES) permit,
or indirectly into a water body through a publicly owned treatment works (POTW). More specific subsets were
identified for particular sections of the analysis.
EPA identified five mechanisms by which facilities may offset some of their regulatory compliance costs
through pollution prevention. Two mechanisms are associated with the direct costs of PFPR activities: recovery
of PAIs, and recovery of water (reducing water and discharge costs). The other three mechanisms, termed indirect
cost savings, arise from reductions in facility and firm costs (or other business-enhancing benefits) that are not
directly associated with PFPR processing of PAIs. These indirect cost savings mechanisms include: reductions
in permitting costs, reductions in business insurance premiums, and reductions in firm cost of capital.
Using Survey data for PFPR facilities subject to regulation, EPA estimated facility-specific savings for
the two direct cost mechanisms listed above. Aggregate annual cost savings from recovery and reuse of PAIs and
from reduced water use and discharge were estimated at about $765,000. Although EPA was not able to
estimate facility-specific savings for the three indirect cost mechanisms, EPA assessed these opportunities on the
basis of discussions with permitting authority and insurance and finance industry personnel and a review of
relevant literature. From these discussions and reviews, EPA concluded that the indirect cost mechanisms would
also offer cost-savings opportunities to PFPR industry firms that adopt pollution prevention measures as part of
their compliance strategy.
Section D.I presents an overview of the two major categories of cost-savings opportunities considered
in this analysis: direct and indirect cost savings. Sections D.2 - D.6 assess five specific cost-savings
mechanisms. The first two are direct cost mechanisms: recovery of PAIs, andrecovery of water (reducing water
and discharge costs). The other three are indirect cost mechanisms: reductions in permitting costs, reductions
in business insurance premiums, and reductions in firm cost of capital. Section D.7 assesses cost savings from
pollution prevention with costs incurred where combustion is the vehicle of regulatory compliance.
D.I Overview of Compliance Cost Savings Opportunities
Conservative compliance cost estimates associated with Option 3/S were presented in the chapters of
the proposed EIA as part of the economic impact analysis of that regulation. Although these cost estimates
incorporated the cost of implementing pollution prevention measures, the estimates recognized only a part of the
potential cost savings that would accompany their implementation. Additional cost savings that can accrue
D.3
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through compliance by pollution prevention are detailed in this appendix. For this analysis, EPA categorized
potential cost savings as direct or indirect.
D.I.I Direct cost savings
Direct cost savings arise from changes in the costs of PFPR activities, including off-site costs. EPA
identified and analyzed two direct cost savings mechanisms:
Recovery of PAIs; and
Recovery of water (reducing water and discharge costs).
During the formulating, packaging, and repackaging of pesticides, various processes can be employed
that recover both PAIs and water. In addition, other pollution prevention practices, such as the use of dedicated
lines for specific PAIs or products, and recovering spills and using them in product formulations, can nominally
increase cost savings. From an analysis of sample facilities' process designs, EPA estimated the potential for PAI
and water recovery. The recovered PAIs, water and potential savings in discharge were then costed or estimated
from current and historical price data.
D.I.2 Indirect Cost Savings
Indirect cost savings arise from reductions in costs that are not directly associated with pesticide
formulating, packaging and repackaging activities. EPA identified and assessed three indirect cost savings
mechanisms:
« Reductions in permitting costs;
Reductions in insurance premiums; and
Reductions in the cost of capital.
A facility that reduces its discharges by pollution prevention can reduce, and in some cases eliminate,
its POTW and NPDES permitting requirements and associated costs. These costs, and potential savings, include
both payments to permitting authorities and internal costs such as staff time for preparing permit applications,
maintaining compliance monitoring programs, and preparing and submitting permitting compliance reports.
Other indirect cost savings stem from the treatment of the firm by liability and business insurers and the
public capital markets. Certain liability and business insurance premiums are based in part on the community
and worker safely risks posed by a facility and the risk of non-compliance with environmental and safety
regulations. As insurers become more aware of the benefits of managing environmental risks through pollution
D.4
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prevention, policies may offer reduced premiums for facilities with rigorous pollution prevention programs. In
addition, reductions in financial and operating risk from pollution prevention programs may reduce the cost of
capital for PFPR industry firms. These indirect cost mechanisms are more difficult to quantify than the direct
cost mechanisms enumerated above. As a result, EPA was not able to estimate facility-specific savings for the
indirect cost mechanisms. Instead, EPA assessed these opportunities on the basis of discussions with permitting
authority and insurance and finance industry personnel and a review of relevant literature. From these discussions
and reviews, EPA concluded that the indirect cost mechanisms would also offer cost-savings opportunities to
PFPR industry firms that adopt pollution prevention measures as part of their compliance strategy. As part of
this assessment, EPA estimated a range of potential savings from reductions in permitting costs.
Some additional indirect cost savings may accrue to those facilities that choose pollution prevention over
combustion as a method of regulatory compliance. Many facilities may initially find combustion to be the most
cost-effective compliance strategy. However, when viewed over a longer time horizon, pollution prevention may
become a less costly option for several reasons. In particular, combustion units face: increased costs and length
of time for permitting; increased regulatory attention; possible capacity constraints due to placing a low priority
on considering permits for new hazardous waste combustion units; and troublesome community relations. These
factors may combine to escalate combustion costs, making it a more expensive compliance method over the long
term. EPA discusses these issues at greater length in the final section of this appendix.
D.2 Direct Cost Savings From Recovery and Reuse of PAIs
Residual Pesticide Active Ingredients (PAIs) that remain in the wastewater stream after cleaning of
equipment (e.g., interior equipment rinsing) can be recovered in many facilities that currently discharge
wastewater, and can be reused in the next batch of formulations requiring that particular PAI or combination of
PAIs and inert ingredients. The dedication of lines for specific PAIs and the recovery of wastewater contaminated
by only a single PAI facilitate PAI savings. When PAIs are commingled in a waste stream, the wastewater may
not be immediately reusable, or may not be reusable at all.
EPA estimated the potential cost savings from recovery and reuse of PAIs from wastewater for 545
facilities. Only water using facilities with compliance costs were analyzed for potential PAI savings. Facilities
using a dedicated line or a single contaminant wastewater process are able to reuse the PAIs present in the
wastewater, thereby requiring the input of fewer new PAIs. For example, a facility using 10 pounds of PAIs in
a formulation with one pound being released into the waste stream would need to use only 9 pounds of new PAIs
the next time the same PAI formulation was required if the facility is able to recover and reuse the one pound
of otherwise discharged PAIs. To estimate the cost savings from reduction in PAI use, EPA estimated the
D.5
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quantity of PAIs that each facility could be expected to recover and reuse. The value of the PAIs recovered was
estimated based on PAI-specific prices from the Pesticide Manufacturers effluent guideline or from manufacturers
and other secondary sources.
D.2.1 Methodology for Estimating PAI Cost Savings
From engineering analyses of the PFPR industry Survey facilities, EPA estimated that complying
facilities would be able to recover and reuse 116 PAIs in the course of complying with the proposed PFPR
regulation. The prices per pound for each of these 116 PAIs were gathered from several sources. The EIA for
the Pesticide Manufacturers effluent guideline gathered price data for PAIs subject to that rule. In cases where
more than one price was reported for a PAL, EPA calculated an average price weighted by the amount of domestic
salesperprice for each PAI. Some PAI prices were constructed from the revenue received for the final pesticide
product at the manufacturing facilities. In addition, chemical product distributors provided some prices. Ten
PAIs lacked any pricing data; however, values were estimated for these PAIs by averaging the available PAI
prices within clusters of PAI use. The prices for all PAIs were converted to 1988 dollars using the Producers
Price Index for chemicals.
To assess the value of savings over the period of compliance with the proposed rule, EPA considered
the possibility that PAI prices might increase in the future at a rate greater than the general rate of inflation.
However, a review of historical data for the Producers' Price Index (PPI) for chemical products and the Consumer
Price Index (CPI) gave no evidence that the PAI prices would be expected to increase at a rate greater than the
rate of inflation. Therefore, EPA chose not to adjust PAI prices for increases beyond inflation.
The quantity of PAIs not used in the product and the amount that could be potentially recovered were
obtained from the PFPR industry Survey. The recoverable PAI quantities (for each facility, by PAI) were
multiplied by the price for each PAL, and summed by PAI to obtain an estimated facility cost savings, as follows:
where:
p.
£ Qt*Pt
the quantity of PAI i saved;
the price of PAI i; and
the number of PAIs used by the facility.
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D.2.2 Estimated PAI Recoveries and Potential Cost Savings
Potential cost savings were estimated for end-of-pipe PAI loadings under Option 3/S. EPA estimates
the average amount of PAI loadings per facility (with potential PAI recoveries) at 336 pounds per year, valued
at $3,042. Over all facilities, EPA estimates total PAI loadings of 118,688 pounds annually with a value of
$1,075,332.
Several factors prevent all of the PAI loadings from being recovered and reused, for example: mixed
wastewater streams, PAIs caught in filters, and accidental contamination. Engineering analyses indicate that 354
PFPR facilities are currently capable of recovering and reusing 116 PAIs. EPA estimates that facilities may
recover, on average, about 220 pounds of PAIs per facility, which represent 77,816 pounds of PAIs per year in
aggregate. As a result, about 65 percent of the aggregate PAI loadings are estimated to be recoverable and
reusable. At the facility level, on average each facility with PAI savings can expect to recover 57.7 percent of
the pounds of PAIs currently being discharged, and 57.6 percent of the dollar value of PAIs currently being
discharged. EPA estimated that on average each facility with PAI savings would save approximately $ 1,777 per
year, with a total value of $628,065 (in 1988 dollars). On average, these savings represent about 0.65 percent
of these facilities' total annual compliance cost. The sample facility with the highest savings is estimated to save
$427,000 per year. To the extent that facilities increase recoveries, for example, by further isolating waste
streams, these recovery percentages and associated gains from pollution prevention will increase.
Table B-l
Summary of Estimated PAI Cost Savings Under Proposed Regulatory Option
Industry Total (354 facilities)
Average Facility Savings
Pounds of PAI Recovered
78,816
220
Total Value of PAIs Recovered
<$1988)
$628,065
$1,777
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To better understand the potential for PAI cost savings from regulatory compliance strategies
incorporating pollution prevention, EPA looked more closely at the distribution of cost savings over facilities,
and specifically at the characteristics of those facilities achieving the highest savings. Overall, most facilities with
savings were estimated to achieve very modest amounts of PAI recoveries and, accordingly, to achieve only
modest financial gains from PAI recovery. Over half of the facilities with estimated savings were found to
achieve less than 10 pounds of recoveries per year with only a few dollars of associated cost savings.
For a few facilities, PAI recovery and associated cost savings will be much higher. On the whole, these
facilities showed few common characteristics with the exception that they tend to be larger PFPR facilities that
also manufacture PAIs. To illustrate, the five sample facilities, which represent approximately 10 facilities in
the overall population, that will realize the greatest savings from PAI recovery are diverse in terms of primary
market and PAIs used. Three of the facilities receive at least 90 percent of their total facility revenue from PFPR
activities, one facility derives about 38 percent of its total facility revenue from PFPR, and one facility depends
upon PFPR activities for only about 9 percent of its total revenue. Four out of the five facilities also manufacture
pesticides. Two of the facilities share the same primary market: the agricultural market. None of the facilities
would experience regulatory relief from the sanitizer exemption. The number of PAIs used by these facilities
ranges from one to twenty-five. One PAI, an insecticide, is used by three out of the five facilities and two PAIs,
an insecticide and a synergist, are used by two of the facilities. Only one of the sample facilities is a direct
discharger; the remainder are indirect dischargers. In sum, these data exhibit little pattern to suggest that only
certain types of facilities could be expected to achieve substantial benefits from recovery and reuse of PAIs.
D.3 Cost Savings From Reduced Water Use and Water Discharge
Wastewater from which PAIs have been recovered can be reused with the same line or processes in a
PFPR facility from which it was taken. Economic benefits can accrue from the reduced demand for new water
as well as from decreased volume of wastewater discharge and associated sewage system costs.
D.3.1 Methodology for Estimating Cost Savings from Reduced Water Use and Water Discharge
The methodology followed by EPA in estimating water-related cost savings involved calculating the
potential reductions in water use and discharges by facility and multiplying these values by estimated water and
sewer rates. Water and sewer rates were obtained from Ernst & Young's Water and Waste-water 1992 Survey
of the monthly rates for the 100 largest metropolitan areas. EPA supplemented this rate information with data
on water rates for facility locations not covered by the Ernst & Young data. Also, EPA adjusted these rates to
reflect expected increases in water and sewer rates at greater than the general rate of inflation.
D.8
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Estimating Reduced Water Use and Discharge Volumes
The potential cost savings to facilities were calculated separately for water and sewer use. In analyzing
sewer cost savings, EPA assumed 100 percent reduction or reuse of water that is currently discharged. However,
not all facilities may be able to achieve complete reduction, especially facilities that do not have dedicated lines.
The estimated volume of discharge savings is based on the current volume of POTW and NPDES discharges as
reported by facilities in the PFPR industry Survey.
Water cost savings were based on the assumption that water currently discharged to a POTW or under
NPDES will be recycled and therefore the amount of new water required for production will be reduced by this
amount. The sum of reported POTW and NPDES discharge volumes therefore represents the water volume for
calculating water consumption savings as well.
The discharge volume may provide a reasonable estimate of the potential change in water consumption.
However, use of the reported discharge volume for calculating the change in water consumption may understate
the potential monetary value of water consumption-related savings because of the typical structure of water
consumption rates. In particular, as discussed more fully in a later section of this appendix, municipalities are
more frequently using increasing block rate structures for water consumption. Under an increasing block
structure, the water consumption unit price increases with the volume of consumption per time period. As a
result, under an increasing block rate formula, the value of cost savings for a given volume of reduced water
consumption will increase as the gross quantity of consumption by a facility increases. For example, a facility
that saves 5,000 gallons per month out of gross consumption of 50,000 gallons may achieve a higher monetary
value of savings than a facility that saves 5,000 gallons out of 10,000 gallons of gross consumption.
The PFPR industry Survey did not require facilities to report either their gross water consumption or the
amount of water that remains in the PFPR product. If either of these values were known, it would be possible
to calculate more accurately the value of water consumption savings based on the marginal price that would
otherwise be charged for the water that is saved through pollution prevention. In the absence of this gross
consumption information, this analysis assumes the pre-compliance discharge volume is the gross consumption
volume, and the price for valuing water use savings is taken from rate schedules accordingly. To the extent that
gross consumption exceeds the discharge volume awrfPFPR facilities face increasing block structures for water
use rates, this assumption may understate the unit price being used to value water use savings, thereby
understating potential cost savings. Furthermore, the Survey only contained information regarding PFPR water
D.9
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use. If a facility also manufactures PAIs, it may save even greater volumes of water by implementing pollution
prevention measures. Therefore potential cost savings may be further understated.
Estimating Rates for Valuing Reduced Water Use and Discharge
Ernst & Young, in The 1992 Water & Waste-water Rate Survey reports water and sewer rates for 100
major metropolitan areas. The rates were reported as monthly water and sewer charges based on volume used
and discharged. Ernst & Young adjusted the actual water and wastewater rates so that comparisons can be made
among cities. Rates were grouped into seven volume categories, beginning with small increments, then shifting
to larger increments with larger water consumption volumes.
Although rates for facilities located in rural areas were not included in the Ernst & Young report, a rate
analyst from the Denver Water Department stated that urban and rural water and sewer rates in the same region
would differ by only small amounts.3 Accordingly, EPA developed an average rate schedule for each state in
which PEPR sample facilities with estimated water savings were located based on the Ernst & Young information
for major cities; some states had listings for as many as 9 cities. All of the rates were adjusted to annual rates
(i.e., multiplied by twelve). As described below, rates were also adjusted to reflect the amount by which growth
in water and sewer rates were estimated to exceed the general rate of inflation. These rates were used to calculate
annual cost savings to PFPR facilities that undertake pollution prevention activities.4
If water and sewage rates are expected to increase at a rate faster than the general rate of inflation, then
using current rates to value reduced water consumption and discharge will understate the potential benefits of
pollution prevention to PFPR facilities. Accordingly, EPA reviewed literature and discussed this issue with water
and sewer industry specialists to understand whether water and sewage rates could be expected to increase at a
3Montoya, Angela, Telephone Interview of March 21, 1994.
4 To verify that the Ernst & Young rates would reasonably approximate rural rates, EPA obtained actual
water and sewer rates from 9 water and sewer offices in rural areas to compare with the urban rates that were
compiled by Ernst and Young. Using these rates, illustrative examples were developed for facilities within
the 9 communities. Annual cost savings for water use and sewer discharge for each example were calculated
using the state-average rates based on the Ernst & Young survey and the actual rates obtained from rural
water and sewer offices. The savings calculated by both methods were not found to vary in a statistically
significant way to suggest that the Ernst & Young survey-based rates would either overstate or understate the
cost savings from reduced water consumption and discharge.
D.10
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rate faster than the general rate of inflation. From this review, EPA identified several factors that are contributing
to water and sewer rates' surpassing the general rate of inflation. These findings, as summarized in the following
paragraphs, lead EPA to adjust the Ernst & Young rates for expected future increases in water and sewer rates.
General trend of water and sewer pricing. Municipalities and towns across the country are reevaluating
water rates and structures to account for conservation pressures, increased financial pressures on utilities resulting
from regulatory requirements, supply and capacity limitations, and financial management issues.5 Distinct
changes in the water rates and structures in regions across the country have resulted. The changes already
realized, as well as ongoing trends, could significantly affect the savings achievable by PFPR facilities that adopt
pollution prevention measures to recover and reuse wastewaters.
Rate structures for water pricing. Water and sewer utilities adopt a variety of rate structures to achieve
revenue requirements while also promoting other public policy objectives (e.g., water conservation). The three
prevalent rate structures include:
1. Declining block rates prices decrease as consumption increases
2. Uniform rates prices do not vary with consumption
3. Increasing block rates prices increase with consumption.
Each of these structures results in significantly different water costs, especially for larger industrial/commercial
users. The decision to adopt a particular structure depends on local considerations including: effects on
consumers, local usage patterns, water supply, local financial practices, state regulatory environment,
conservation, competitiveness with local communities, revenue' stability, legality, and simplicity.6 As a result of
these different factors that may affect a community, the ultimate rate structure and cost to consumers vary widely
from region to region. Increasingly, communities are moving away from the older declining block structure,
which encourages consumption, to the increasing block structure, which encourages water conservation and
reduced sewage discharge.
Regional trends in rates and structures. Water and sewer rates vary by region, reflecting localized
conditions of water availability and quality. The Northeast is undergoing the most significant shift away from
5Duke, Ellen and Montoya, Angela (1993). "Trends in Water Pricing: Results of Ernst and Young's
National Rate Survey," American Water Works Association Journal, May.
6Ibid.
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declining rates. In 1992,44 percent of the utilities used a declining block rate, down from 75 percent in 1986;
the utilities reported shifting mainly to uniform rates, although some are moving to increasing block rates. An
aging infrastructure that is placing greater demand on the total water system, contamination of the groundwater,
and the drought during the 1980s made it difficult for utilities in the Northeast to deliver quantities of water while
maintaining quality during peak periods, leading to use of seasonal or excess use charges. The trend away from
declining block rates to conservation-oriented rates is expected to continue in the Northeast. The shift in the
South away from declining rate structures has been more gradual. However, 25 percent of utilities in the region
are using increasing block rates. Because of substantial economic growth, the South faces the challenge of
protecting surface and groundwater resources as well as periodic water shortages. These factors have resulted,
and will continue to result, in pressures towards increasing block, conservation pricing. Midwestern water users
enjoy a relatively plentiful source of water resources through their geographic proximity to the Great Lakes. Like
the Northeast, the largest problem in the Midwest is the ability to deliver quality water during peak periods,
making excess use and seasonal pricing structures attractive. The region is also increasing its reliance on
increasing block rates. In 1986, no facilities used increasing block rates; in 1992, 10 percent used this approach.
The West has the greatest proportion of increasing block rates at 32 percent. The water supply is so low in some
areas of the West that major cities must rely on "imported" water from other regions. In the West, conservation
measures have become imperative. Because the West has experienced significant rate increase in the recent past,
the incremental change in water rates in the future is not expected to be as great as in other regions (i.e., Northeast
and South).7
Projected increases and impact of water rates on the PFPR industry. On the basis of factors such as those
delineated in the preceding paragraphs, industry experts indicate that water and sewer rates across the nation are
likely to increase at a rate at least as great as the general rate of inflation over the next few years.8 Moreover,
significant variations by region are possible. Although the trend toward conservation pricing has been slower
in the Midwest, where a majority of the PFPR facilities are located, the trend is expected to continue and thus
affect the PFPR facilities in that region. Industry experts indicate that the Northeast and Southern regions are
likely to experience the greatest increase hi water rates in the near future9; a large number of PFPR facilities are
located in the Southern states.
'Duke, Ellen and Montoya, Angela (1993).
"Duke, Ellen and Montoya, Angela (1993).
''Montoya, Angela (1994) Telephone Conversation of March 21.
D.12
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From these considerations, EPA decided to adjust the state-average water and sewer rates by a factor to
account for the likelihood that water and sewer rates will increase at a rate exceeding the rate of inflation over
a ten-year analysis period. Duke and Montoya (1993) state that in the long term, water and sewer rates for
commercial/industrial facilities (across all regions) are likely to increase at a rate somewhat higher than the
increase in the Consumer Price Index. EPA estimates that the real rate of price increases could range from 2 to
4 percent. Over a ten-year period, a 2 percent real rate of price increase translates into an average price that is
11 percent higher in inflation-adjusted terms than the price at the beginning of the period, while the 4 percent
real rate translates into a 22 percent higher average price. For this analysis, EPA calculated water and sewer-
based savings using rates increased at both the two and four percent real rates of price increase.
D.3.2 Estimated Cost Savings from Reduced Water Use and Discharge
Water and sewer cost savings were estimated for the 529 Subcategory C facilities estimated to incur costs
of complying with the PSES regulation. EPA estimated that 519 facilities could be expected to achieve water
and sewer cost savings by use of pollution prevention. For those facilities achieving cost savings, the mean water
and sewer savings is estimated at $227 to $251 per year.10 The maximum annual savings for an individual
facility is approximately $13,000. On average, these savings represent about one percent of the total annualized
compliance costs for the facilities expected to achieve water and sewer cost savings. However, the maximum
percentage of compliance costs estimated to be saved at a specific facility is about 11 percent of total annual
compliance costs. On the basis of the individual facility values, EPA estimates national aggregate annual benefits
from water and sewer savings of $128,013 to $141,477. In general, the sewer cost component of individual
facility savings is approximately two-thirds the water cost savings, although wide variations in pricing do exist.
The combined water and sewer cost savings for average and median facilities as well as for industry totals are
presented in Table D-2.
10-
Range results from use of the 2 percent and 4 percent real rates of price increase for water and sewer
rates.
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Table»-2
Sewer and Wafer Cost Savings Summary Table"
Industry-wide Aggregate
Average Facility Savings
Median Facility Savings
Weighted Cost Savings
(2 percent rate of real price
increase)
$128,013.24
$226.72
$96.76
Weighted Cost Sayings
(4 percent rate of real price
increase)
$141,476.53
$250.57
$106.94
" Includes facilities with cost savings.
Most faciKties are estimated to achieve relatively modest savings: the estimated median facility cost
savings range from $97 to $107 per year. However, some facilities were estimated to achieve substantial savings,
both absolutely and as a percentage of total regulatory compliance costs. Specifically, the maximum total cost
savings for any one facility is estimated at $12,762- 12,976. Although cost savings averageO.81 percent of total
compliance costs, the analysis found that 10 facilities would be expected to achieve water and sewer cost savings
representing between three and eleven percent of their total annual compliance cost. As previously mentioned,
these cost savings only represent the savings due to PFPR operations. Some facilities may save additional water
and sewer costs by using pollution prevention measures in their manufacturing processes as well.
EPA considered whether the sample facilities with the larger savings values exhibited any particular
characteristics. As would be expected, facilities show a greater cost savings the higher the volume of water used.
Many of the facilities that captured the highest cost savings are categorized as manufacturers in our survey. The
manufacturing category includes facilities that have high water use and discharge volumes because they tend to
formulate and package large volumes of PAIs. No regional correlations are apparent. Of the 10 sample facilities
with expected water and sewer cost savings exceeding 3 percent of the total compliance cost, 8 primarily serve
the institutional market The remaining two facilities were categorized as a consumer home products facility and
an industrial facility.
The actual cost savings from reduced water use and discharge could be higher than estimated. As
discussed in the methodology section, the data needed to accurately calculate the cost savings associated with a
change in water consumption were unavailable (i.e., the survey did not require facilities to report total water use
or the amount of water retained in the product). Because water use is priced in block rates, the water cost savings
based on actual pre- and post-compliance water consumption could result in a much higher cost savings than that
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calculated by applying a price based only on the amount of water saved, and manufacturing facilities will likely
save water in their manufacturing processes as well.
D.4 Indirect Cost Savings from Reduced Costs of Permitting and Fees
PFPR facilities may reduce the costs of obtaining and renewing discharge permits by using pollution
prevention measures to comply with the proposed regulatory option. Permitting costs include application fees,
annual maintenance fees, renewal fees, costs of preparing engineering reports, and monitoring and reporting costs.
A review of permitting information from several states with PFPR facilities showed that permitting costs and
payment structures vary considerably from state to state. In general, however, reducing or eliminating discharge
volumes through pollution prevention should permit facilities to save on permitting costs. In most cases, facilities
would have to retain some form of permit, but would be expected to pay lower permitting costs. In some cases,
these savings may be substantial.
D.4.1 Review of Permit-Related Cost Savings Opportunities
To understand the permit-related cost savings that PFPR facilities might achieve, EPA reviewed
information on permitting procedures and costs for several states with PFPR facilities.11 EPA also discussed the
opportunity for permit-related cost savings with permitting authority and POTW personnel in several states.
From this review, EPA found that the permitting costs and payment structures associated with discharging
wastewater vary widely among states and regions. For example, several states vary permit application and
maintenance fees based on facility discharge volumes and complexity of discharge streams. Some states indicated
that their permit fee structures have been explicitly designed, or are being designed, to promote pollution
prevention as a discharge reduction or elimination method. The more common permit-related cost items are as
follows:
Indirect Dischargers
State Permit Application Fees
Annual Compliance Costs
POTW User Fees
Periodic Monitoring Costs
1 'EPA generally contacted states that are assessed as potentially being impacted, and that represent diverse
geographic regions.
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Costs of Preparing Permit Applications
Fines for Exceeding Discharge Limits
Direct Dischargers
NPDES Fees
Permit Application Fees
Annual Compliance Fees
Fines for Exceeding Discharge Limits
Periodic Monitoring Costs
Costs of Preparing Permit Application
From the contacts with state agencies, EPA identified a variety of pricing schemes for each potential
permit-related cost These cost items frequently vary in a way that would allow facilities to reduce expenses by
achieving compliance through pollution prevention, as summarized below.
Discharge permits: indirect dischargers. Some states do not require indirect discharge permits; therefore
no cost is required for obtaining a permit. Of those that do require permits, the payment structure varies
substantially. Several of the ways in which permit costs vary indicate that permit-related cost savings should be
available to facilities that comply with the PFPR regulation by means of pollution prevention:
In some states, the discharge permit fee is based on the complexity of the facility's pretreatment system,
which must be inspected and approved. Pollution prevention should at the very least simplify the
necessary pretreatment system, and perhaps eliminate the need for a pretreatment system altogether, thus
eliminating or reducing this fee component.
One state, New Jersey, based its application fee on the annual volume of pollutant discharges, while
another state, Illinois, based its permit application fee on the amount of water that the facility is expected
to discharge daily. In both cases, achieving zero discharge through pollution prevention would reduce
permit costs.
Florida charged a "zero discharge" fee that was substantially lower in cost than the regular permitting
fee and was expected to cover the cost of inspecting the facility's treatment and recycling systems. In
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some cases, once the facility is proven to be a "zero discharger," the permitting fee is waived for
reapplications and renewals. Pennsylvania, in contrast, does not require zero dischargers to obtain a
permit.
In all these cases, facilities that comply with the PFPR regulation by means of pollution prevention
should be able to reduce or eliminate the permitting fee. Among the states contacted, the fees for a permit
application ranged as high as $1.9 million. Accordingly, the possible dollar savings can be substantial. The
initial permit is typically valid for a period of 5 years. Renewal fees tend to be less than the original application
fee though still substantial.
Discharge permits: direct dischargers. Most states contacted do not have an application fee for direct
dischargers. In one state, however, there is a flat application fee that must be paid every five years, and in another
state the fee charged is $6,850 upon first applying for the five-year permit, and $2,150 for renewals. A facility
that achieved zero discharge through pollution prevention could avoid these charges.
Annual compliance fees: indirect dischargers. One state charges an annual compliance fee, which
provides the permitting authority with additional revenues to run its permitting and monitoring programs. At
$100 per year, this fee was relatively inexpensive compared to permit application fees. Again, achievement of
zero discharge through pollution prevention should eliminate the need to pay this fee.
Annual compliance fees: direct dischargers. The corresponding compliance fee for direct dischargers
in the same state described above ranges from $100 to $5,000, depending on the complexity of the facility's
treatment system for the discharged water. Pollution prevention may eliminate or substantially reduce this fee
amount. ' '
User fees charged by POTWs: indirect dischargers. Most POTWs levy a user fee for industrial
dischargers. These fees can be substantial and typically vary with discharge volume, thus providing an
opportunity for facilities that comply by pollution prevention to achieve cost savings. For example, in some
states contacted, the user fees charged by the POTWs are based on the amount of process water used or
discharged, as well as the level of biological oxygen demand (BOD), total suspended solids (TSS), and other
pollutants such as ammonia or nitrogen that are found in the discharged wastewater. The range of user fees
among the POTWs contacted ranged from $0 to tens of thousands per year, depending on the flow and content
of the discharged water.
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Monitoring costs: direct and indirect dischargers. Most states contacted did not require facilities to pay
an explicit monitoring fee because the POTW user fees were expected to cover that expense. An exception would
be if the facility was found to be out of compliance and therefore required extended monitoring. In most such
cases, facilities would be charged for that expense, hi a few states, facilities are required to pay monitoring fees
on a regular basis. The reported costs varied from $500 to $600 per year. Monitoring and analysis when a
facility is found to be in violation can cost from $150 to thousands of dollars per incident. Thus, in some but not
all cases, facilities would save on monitoring costs by using pollution prevention as the zero discharge compliance
method.
Fines for exceeding discharge limits: direct and indirect dischargers. Most states that were contacted fine
facilities that exceed their discharge limits. One POTW indicated that depending upon the degree of violation,
a facility could pay up to $ 10,000 in fees per discharge violation. The facility could also be held liable for any
damage resulting to the POTW, which could cost tens of thousands of dollars. Excess discharge of pesticide
ingredients in particular may disrupt the balance of POTW process bacteria, which may be quite costly to remedy.
The risk of such costs would be eliminated by achieving compliance through pollution prevention.
NPDES fees: direct dischargers. The NPDES fees for direct dischargers also vary greatly from state to
state. In some states, the NPDES fee was simply a flat amount. However, some states based NPDES fees on the
volume of pollutants discharged. One state contacted bases its NPDES fees on two factors: the threat of the
discharge to water quality, and the complexity of the discharge. Fees for NPDES permits range from $0 to
$73,000 for a five-year permit. In those states in which fees vary with quantity of discharge or risk imposed by
the discharge, use of pollution prevention as a compliance method should enable facilities to reduce or eliminate
fee outlays.
In addition to the permit-related savings enumerated above, permitting authority personnel confirmed
that state policies are changing in a way to promote use of pollution prevention and that permitting procedures
and fee structures are being revised to encourage pollution prevention.
Finally, some permitting authority personnel noted that facilities may not fully eliminate permit-related
fees by use of pollution prevention. Indeed, in some states, facilities may be required to keep discharge permits
even though they technically become zero-discharge operations. However, permitting authority personnel stated
that facilities should generally be able to defray their costs based on the reduced application and maintenance fees
frequently charged to zero dischargers and the reduced time for facility personnel to complete applications.
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D.4.2 Examples of Possible Permit-Related Savings
Although it is not possible to calculate an expected savings per facility from the information obtained
for this study, it is possible to develop illustrative scenarios within the framework of some of the pricing policies
of representative states that will illustrate potential cost savings that from use of pollution prevention measures.
Several examples based on state-specific permitting fee structures are outlined in the following paragraphs.
Example A: A facility operating in Massachusetts and deemed to be a Category I12 Significant Industrial
User'3 that discharges wastewater into the Massachusetts Water Resources Authority sewer system. If this
facility undertakes pollution prevention measures that eliminate its wastewater discharges, the resulting cost
savings to the facility would be:
$1,430 every two years in permitting fees, and
$3,700 per year in monitoring fees14
This facility would save an average of $4,415 each year in monitoring and permit fees.
Example B: A facility operating in California, classified as a category la15 direct discharge facility. If
this facility uses pollution prevention and wastewater recycling measures to eliminate its wastewater discharges,
the facility would save $10,000 each year in NPDES permit costs.
12 A Category 1 SIU facility is "an industrial user subject to Categorical Pretreatment Standards
under 40 CFR 403.6 and 40 CFR, Chapter 1."
13 One criterion for a Significant Industrial User (SIU) is that the facility discharge 25,000 gallons of
process wastewater per day.
"Assuming the facility is one with "medium monitoring point scores", which are facilities with
pretreatment systems which are monitored between two and three times per year, on average.
15Category I describes a facility whose discharges "could cause the long-term loss of a designated
beneficial use of the receiving water", and a complexity "a" category includes "any major NPDES discharger."
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Example C: If the hypothetical facility described in Example B does not eliminate all of its discharge,
but reduces it to become a category ffla16 facility, then the cost of the facility's NPDES permit would decrease
from $ 10,000 per year to $ 1,000 per year. The facility would save $9,000 a year in NPDES permit fees.
Example D: A facility located in New Jersey is charged $28,000 every five years based upon the volume
and toxicity of the loadings discharged to a local POTW, and an annual monitoring fee of $300. After
compliance the facility discharges only very dilute amounts of active ingredient from the laundry and showers.
As a result the facility is only charged $7,000 every five years and an annual monitoring fee of $300. The facility
saves an average of $4,200 per year in permit fees.
The examples above indicate some scenarios that could result in substantial cost savings to facilities
under current pricing schemes. From the interviews conducted for this study, EPA expects that many states,
regions, and POTWs will modify their pricing schemes to further ensure that the permitting process itself does
not discourage pollution prevention and, furthermore, many states hope to encourage facilities to engage in
pollution preventioa States indicate that they plan to use pricing incentives, shorter permit waiting periods, and
a shorter, less complicated permit application to further encourage pollution prevention.
D.4.3 Possible National Savings from Reduced Permitting Costs
Because of the large variation in pricing strategies, it is not possible to estimate accurately the permit-
related savings that facilities may achieve through pollution prevention. However, EPA made broad assumptions
to illustrate the possible magnitude of permit-related savings that facilities might realize through use of pollution
prevention. Because two of the above examples showed annual savings of about $4,000 per year, that amount
was used as a benchmark. Assuming that one-third of PFPR facilities incur no savings, one-third save $4,000
per year from reduced permitting costs, and one-third save $8,000 per year (twice the benchmark amount), the
aggregate cost savings to the industry would be about $2,800,000 each year.
Overall, PFPR facilities have a substantial opportunity to reduce permit-related costs by undertaking
pollution prevention measures. These costs are expected to rise in the future, as states and municipalities modify
their permit pricing structures to encourage pollution prevention.
16 A category ffl facility describes a facility whose discharges could "degrade water quality without
violating water quality objectives, or cause a minor impairment of designated beneficial uses compared with
Categories I and H"
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D.5 Indirect Cost Savings from Reduced Insurance Premiums
Although liability and general business insurance policies do not currently incorporate explicit discounts
for use of pollution prevention, trends in insurance coverage show that reduced chemicals-related risk should be
reflected in reduced insurance premiums. Specifically, the insurance industry has begun to recognize that
pollution prevention efforts can reduce a number of business and liability risks. As a result, insurance firm
representatives indicate that PFPR facilities with wastewater recycling and zero discharge may be charged lower
premiums than facilities that discharge to a POTW. The lower insurance premiums could result from several
mechanisms. Although it is not possible to quantify the value of these savings, EPA finds that PFPR facilities
should benefit from reduced premiums by using pollution prevention to comply with the proposed PFPR
regulation.
D.5.1 Mechanisms by Which Pollution Prevention Reduces Environmental Risk
To understand whether PFPR facilities that use pollution prevention as a compliance method might be
charged lower insurance premiums, EPA discussed this issue with several business insurance representatives.
The discussions with industry representatives reveal a trend to incorporate pollution prevention considerations
into the underwriting process, potentially resulting in a premium credit.
Over the past decade and a half, the insurance industry has established classification criteria to
distinguish increases and decreases in risk in industries using chemicals and with chemical wastes. Ultimately,
liability and business insurance premiums are set to reflect the overall environmental risk at industrial facilities
and take these risk classification criteria into account. Important factors in evaluating facility environmental risk
include:
Determination of exposure rating
Assessment of compliance history
Determination of process/waste constituents
Determination of the concentration of constituents17
Within the risk classification process, pollution prevention as a means of compliance may benefit PFPR facilities
through several mechanisms, as follows:
17Aulisi, Andrew of Commerce and Industry Insurance Company. Written correspondence of May
12,1993.
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Reduced Use ofPAIs Results in Reduced Exposure Risk
PAI recovery and recycling should reduce the volume of PAIs a facility needs to purchase, receive, and
manage during the normal PFPR production process. In turn, a reduced volume of pesticide ingredients shipped
and handled at a facility can result in lower risk of hazardous exposures for workers and the surrounding
community. Insurance industry representatives note, however, that depending on PAI handling and storage
practices, exposure risk might not be reduced. And, in some instances, the storage of recovered PAIs for reuse
could actually increase business facility risk Careful management procedures should offset this potential increase
in risk. Moreover, if the compliance method used by the facility involves hauling waste to an off-site combustion
unit or landfill, transportation of the waste poses a risk that could be avoided by adopting on-site pollution
prevention measures.
Elimination of Discharges Results in Lower Risk of Leaks or Accidental Excess Discharges
Facilities that use pollution prevention to eliminate discharges will reduce the risk of accidental
discharges of polluting materials. No contaminated wastewater would be released into POTWs, resulting in both
a reduced risk of potential accidents or leaks, and a lower risk of excessive discharge into the community. As
noted above, excess discharges of PAIs into a POTW can substantially disrupt POTW processes, exposing firms
to considerable liability. Reduction in, or elimination of, these risks should result in a lower risk rating for a
facility, with the potential for lower insurance premiums.
Reduced Use of PAIs and Elimination of Discharges Reduces the Risk of Exceeding Permit Levels .
For those facilities currently discharging to a POTW or directly under a NPDES permit, compliance by
pollution prevention may result in reduced insurance premiums because of a reduced risk of being found in
violation of discharge limits. With no contaminated wastewater being discharged, the risk of exceeding permit
levels (through accidental leak or facility clean-up) decreases substantially. If those same facilities chose to
comply by contract hauling and combustion of their wastewater, the risk of noncompliance would remain high.
On-site storage of wastes for more than 90 days (or 45 days for facilities storing large volumes of hazardous
wastes) instead of reducing waste through pollution prevention measures requires RCRA permitting, which may
place facilities in a higher risk category for insurance pricing.18 In addition, the risk of exposure increases through
on-site storage and potential transportation risks.
18 Roepe, Wayne. Telephone conversation of March 21,1994.
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D.5.2 Outlook for Favorable Consideration of Pollution Prevention by the Insurance Industry
A representative from the Commerce and Industry Insurance Company (a member company of American
International Group, Inc.) provided insight into the likelihood that the business insurance industry would grant
premium reductions for use of pollution prevention. In evaluating facility risk, the insurance industry relies
heavily on the performance record of technologies and processes in managing the risks that insurance policies
are purchased to insure against. Currently, pollution prevention technologies and processes are not widely used
and not well understood by both process industries (i.e., in this case, the PFPR industry) and the insurance
industry. As a result, the insurance industry might not yet view pollution prevention in a favorable light in
evaluating facility risk. In some instances, as noted above, insurance firms might view wastewater recycling and
PAI recovery activities as adding to, or at least not reducing, facility operating risks.
However, as various aspects of the pollution prevention process become more accepted and their efficient
and effective performance is better established and documented, insurance firms will be more likely to account
for the potential risk-reducing benefits of pollution prevention programs in setting insurance premiums. The
surface impoundments, holding tanks, underground piping, sludge generation, process modifications, and
chemical storage required for wastewater recycling may create risks of operating system failures and pollutant
exposures.19 As these aspects of the pollution prevention process become more widely used, and better
understood and proven, the insurance industry will more likely recognize their broader risk-reduction benefits and
change facility risk ratings accordingly. Reduced insurance premiums could then result.
D.6 Cost Savings from Reduced Cost of Capital
Compliance by pollution prevention under Option 3/S can provide financial benefits to firms by reducing
the cost of capital. Decreases in the amount of pesticides being used can reduce contingent liabilities associated
with worker safety and environmental compliance issues, and may also provide preferential recognition and
valuation in the public capital markets.
The factors that influence the cost of capital to a firm include: the firm's expected financial performance;
the variability of the firm's financial performance; the financial structure of the firm and the associated variability
in the performance of the instruments by which the firm's assets are financed; and the relationship of the
variability in the firm's own financial performance to that of other firms and competing investment opportunities.
These factors determine the overall riskiness of a firm as an investment or lending opportunity. In general,
19 Aulisi, Andrew of Commerce and Industry Insurance Company. Written correspondence of May
12,1993.
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actions that reduce the riskiness or expected variability of a firm's financial performance will reduce its cost of
capital. Adoption of pollution prevention measures may reduce the riskiness of the firm's financial performance
through:
Avoidance of contingent liabilities. For similar reasons to those outlined above for reduced insurance
costs, use of pollution prevention measures by PFPR facilities can reduce contingent liabilities that pose
a risk for creditors and investors. For example, more efficient use of PAIs and the use of dedicated lines
for each PAI and/or product can reduce the overall level of worker exposure to PAIs. In addition, the
reduction or reuse of PAIs can reduce or eliminate pollutant discharges, thereby reducing risks to the
surrounding community from accidental spills or leakage and also reducing the risk of being found in
violation of discharge limits. Risks associated with transporting waste to off-site disposal operations
are also eliminated if pollution prevention is chosen as the method of compliance over off-site disposal.
Each of these contingencies may pose a financial risk to the firm. In a worst-case scenario, a fine or legal
suit in any one of these areas could force a firm into bankruptcy. Elimination or reduction of such
contingent liabilities should reduce uncertainty about future financial performance and result in lower
required returns by creditors and investors.
Increased managerial control of the firm. Facilities that prevent pollution associated with PAI use will
be better able to control the financial impact of environmental regulations. Firms that limit but continue
to discharge effluent are left with the risk of achieving compliance with possibly more stringent
environmental requirements in the future. Firms that implement pollution prevention to eliminate
discharges are proactively avoiding, and therefore controlling, the possibility of these future compliance
costs. The removal of this cost uncertainly should make those firms that adopt pollution prevention less
risky to invest in or lend to.
Preferential recognition and valuation by investors and lenders. Some investors preferentially search for
firms that apply effective and proactive pollution prevention programs. For example, some mutual funds
include a social/environmental responsibility component in their charter. Firms that are perceived as
environmentally responsible may be awarded a higher valuation and lower cost of capital in the public
capital markets.
Improved firm'financial performance. Finally, some consumers may favor products of firms that are
perceived as environmentally responsible (as defined by the individual consumer). To the extent that
a mechanism exists for consumers to be aware that a given firm has undertaken pollution prevention
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programs, consumers may favor that firm's products over those of its competitors and thus improve the
firm's business prospects. '
In summary, although it is not possible to quantify the benefits to a firm from reduced cost of capital,
EPA believes that these benefits may ultimately play a significant role in improving the financial circumstances
of facilities and firms that choose pollution prevention as a means of complying with the proposed PFPR effluent
limitation guideline.
D.7 Attaining Compliance Through Pollution Prevention Versus Combustion
In the short term, some facilities may view pollution prevention as a more expensive option than
combustion for complying with the proposed PFPR regulation. However, over a longer horizon, several factors
may cause combustion, whether on-site or off-site, to become more costly and thereby increase the relative
financial attractiveness of pollution prevention. These factors, which are discussed briefly below, stem from
issues in the permitting, construction, and environmental regulation of combustion facilities.
D.7.1 Difficulties in Siting a New Combustion Facility
EPA has developed a Draft Strategy for Combustion and Hazardous Waste which sets strategic goals
pertaining to combustion facilities. One of the primary goals of this strategy is to "establish a strong preference
for source reduction over waste management, and thereby reduce the long-term demand for combustion and other
waste management faculties".20 The Agency proposes to accomplish this goal in part by enhancing public
participation in the permitting of incinerators and boilers and industrial furnaces (BIFs), enhancing inspection
and enforcement for incinerators and BIFs, and setting stricter emission controls and limits for combustion units.
The strategy specifies that "hazardous waste combustion units should be required...to meet the more stringent
particulate matter standard that is now applicable to municipal waste combusters".21 "Hazardous waste
combustion units" refers to non-incinerator BIFs, which currently bum a significant volume of hazardous waste,
but which, until 1991, faced no RCRA regulation of their air emissions. In addition to the disparity of the air
emission requirements, some non-incinerator combustion units enjoy an exemption from RCRA requirements
on the waste resulting from their combustion activities. More stringent requirements on BIFs, which are currently
20Draft Strategy for Combustion of Hazardous Waste (1993). EPA, May.
2llbid
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less expensive alternatives to incineration22, may ultimately diminish the disparity between the cost of using BIFs
and incinerators. Moreover, in the short term, EPA will give low priority to considering requests for additional
combustion capacity, and in the long term plans to work with states and hazardous waste generators to reduce
the amount of process wastes going to combustion units.
Building new combustion capability (e.g., for on-site destruction of PFPR facility wastewaters) could
take up to 7 years, in large part because of RCRA permitting requirements, according to hazardous waste disposal
experts.23 Preparing a permit application to show compliance with RCRA is especially difficult for cement kiln
operators; some states refuse to issue the air pollution clearances needed to conduct a trial bum as part of the
application procedure.24
In addition, regulations that restrict and monitor the use of BIFs are likely to emerge in the near future.
Additional regulations could mean that BIFs, currently among the least expensive methods for both on- and off-
site waste destruction, may become more expensive. In sum, combustion as a method of waste disposal for PFPR
operations is likely to become more expensive as combustion units face tighter environmental regulation.
D.7.2 Difficulties and Costs from the RCRA Permitting Process
Permits under the Resource Conservation and Recovery Act are required to operate incinerators (and
cement loins, industrial boilers, and furnaces, if these facilities are to be used for waste destruction). Obtaining
and retaining these permits is usually a lengthy and expensive process. Community resistance to permit issuance
and the potential for litigation also add to the time and cost of obtaining permits. These factors further encumber
the development of new combustion capability and are likely to make existing capacity more scarce relative to
demand and more costly in the future. These market pressures will likely cause the price of combustion services
to increase substantially over the next decade. Thus, any short run economic advantage of combustion may
vanish within a few years.
The application process for a new or renewed permit is costly and time-consuming. Similar applications
must be filled out for both the state in which the facility operates and for EPA, but only the state requires an
^"Outlook for Commercial Hazardous Waste Management Facilities: A Nationwide Perspective," (1992).
The Hazardous Waste Consultant, March/April.
23 Gager, Russ (1991). "Hazwaste Landfills Struggle for Growth and Safety," Hazmat World, June.
24 "Outlook for Commercial Hazardous Waste Management Facilities: A National Perspective,"
(1992). The Hazardous Waste Consultant, March/April.
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application fee. State fees are estimated to average $100,000. In addition, facilities incur other costs for
preparing applications. Also, most state applications require that the facility conduct a trial burn to obtain
information required in the application. A trial burn is estimated to cost up to $100,000. Permits must typically
be renewed at least every 10 years.
Factors that affect the cost of a permit application include:
Number of units (e.g., incinerators) at the facility;
Complexity of the waste being burned;
Commercial versus noncommercial facilities;
Cost of the trial burn; and
The extent of community resistance to issuance of new, and renewal of existing, permits.
Recently, EPA and states have focused on conducting a risk assessment of the facility to determine the
potential harm to the surrounding community. Particular attention is given to facilities operating in urban or
agricultural areas.
D.7.3 Other Changes in the Regulatory Environment
Other likely changes in environmental policy and regulation also add to the probability that combustion
will become a less economically attractive compliance method in the future. These concerns apply to both on-site
and off-site combustion. Facilities that choose contract hauling for off-site combustion as a means of compliance
face additional liabilities for the storage and transportation of hazardous wastewaters. On-site combustion can
be subject to significant limitations due to: (1) a potential ban on the issuance of permits for new combustion
units; (2) lengthy and expensive siting and permitting costs; and (3) increasingly negative community reaction
to combustion units. Issues associated with other likely changes in environmental policy and that affect the choice
between combustion and pollution prevention are discussed briefly below.
Environmental management policy is increasingly focused on the issue of cross-media transfers of
pollutants. For example, contaminated wastewater that is incinerated results in hazardous ash that needs to be
disposed, and the airborne release of some pollutants, despite the best available scrubbers and dry filters. Some
PAIs are therefore displaced to other media, resulting in risk to the community and increased risk of exposure to
workers and the community during storage and transfer. Requirements for remedial controls on cross-media
transfers may cause combustion costs to increase, thus making combustion more expensive. Pollution prevention
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aims to prevent cross-media transfers and the risks associated with them by reusing and recycling PAIs instead
of disposing of them.
Another area of increasing concern that may affect the attractiveness of combustion as a compliance
method is the transportation cost and liabilities associated with transporting contaminated waste streams within
a site, and even more so off-site. The cost of hazardous waste management and transportation will likely continue
to rise in the future and lessen the economic attractiveness of combustion.
In summary, compliance with the proposed PFPR regulation through off-site or on-site combustion
presents costs and risks that may not.be apparent in the current economic environment. Facilities that select
combustion as a compliance strategy may reasonably anticipate increased costs from additional regulations and
other environmental policy trends currently at work.
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Appendix D References
Anderson, Steven, and Jeanne Herb. 1992. Building Pollution Prevention into Facilitywide Permitting.
Pollution Prevention Review. Autumn: 415-422.
Bird, Rae Lyn. 1993. DPRA Inc., Manhattan KS. Written Correspondence containing price data for
agricultural chemicals. December 3.
Coeyman, Marjorie. 1993. WTI Battles for the Hearts and Minds of Its Neighbors. Chemicalweek. 50-52.
Commerce and Industry Insurance Company. 1993. Written correspondence from a Andrew Aulisi May 12.
Commerce and Industry Insurance Company. 1993. Telephone discussions with a Andrew Aulisi April/May.
Doane's Marketing. 1988 and 1989 Price Data for Product Active Ingredient.
Duke, Ellen and Angela Montoya. 1993. Trends in Water Pricing: Results of Ernst & Young's National Rate
Survey. American Water Works Association Journal. May.
Ernst and Young, Inc., 1992. Water and Wastewater 1992 Rate Survey.
Gager, Russ. 1991. Hazwaste Landfills Struggle for Growth and Safety. Hazmat World. June. 46-48.
Habicht, Henry. 1992. Memorandum to All EPA Personnel Re: Definition of "Pollution Prevention." May 28.
Hamaguchi, Mikio. 1993. Sumitomo Chemical Corporation of America. New York, NY Telephone interview
on December 12.
MacKerron, Conrad, et al., 1988. Environmental Fears Hinder Incineration Growth. Chemical Engineering.,
September 26. 31-37.'
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Operations. August
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Perspective. The Hazardous Waste Consultant. March/April. 4.1-4.17.
Melody, Mary. 1992. Disposal Options Kindle Cement Kiln, Incinerator Competition. Hazmat World. June.
28-34.
Mester Publishing Company. 1993. Farm Chemicals Handbook 1993. Willoughby, Ohio.
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Miller, Jeff. 1993. Prentice Chemical Company. Mount Vale, NJ. Telephone Interview on December 12.
Montoya, Angela. Denver Water Department, Denver, CO. Telephone interview of March 21, 1994.
"Outlook For Commercial Hazardous Waste Management Facilities: A Nationwide Perspective," The
Hazardous Waste Consultant, March/April 1992.
Roepe, Wayne. U.S. EPA, Washington, D.C. Telephone interview of March 21,1994.
Schneider, Keith. 1993. Administration to Freeze Growth of Hazardous Waste Incinerators. New York Times,
May 18. p. 1, col. 2.
U.S. Department of Commerce, Bureau of Economic Analysis. 1988. Survey of Current Business, March.
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U.S. Department of Commerce, Bureau of Economic Analysis. 1993. Survey of Current Business, October.
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U.S. Environmental Protection Agency, Office of Water. 1993. Economic Impact Analysis of Final Effluent
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September.
U.S. Environmental Protection Agency. 1993. "Draft Strategy for Combustion of Hazardous Waste," May.
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Appendix E: Compliance Costs as a Percentage of Revenue for Facilities Failing the
Baseline Cash Flow Criterion
The facilities which were estimated to fail the baseline cash flow criterion in the facility level analysis
were not be analyzed for post-compliance impacts using the standard methodology, as these facilities had a
negative baseline cash flow before the costs of complying with the proposed regulations were considered (see
Chapter 3). Negative baseline cash flow is the criterion for a severe impact, therefore to classify these facilities
as sustaining impacts prior to incurring compliance costs would overstate the number of severe impacts.
However, EPA did analyze the PSES facilities deemed baseline failures to estimate whether the facilities would
be seriously affected by the final regulation if the facilities were able to remain in business despite their financial
weakness. The methodology used was an examination of the ratio of estimated total annualized compliance costs
under the final rule to the total annual average revenue of the facility. As discussed in Chapter 3, a cost to
revenue ratio of greater than five percent may mean that the facility could face economic hardship as a result of
compliance, although no operational changes are necessarily expected. Such an impact would be a moderate
effect. The Agency found that relatively few facilities, if able to stay in business, would be moderately impacted
by the costs of complying with the proposed effluent guidelines.
EPA estimates that 94 facilities failing the baseline cash flow criterion would potentially incur
compliance costs under the final rule. Among these 94 facilities, although the mean ratio of estimated compliance
costs to revenue is 7.7 percent, the median value is about one-half of one percent. Fifty-three of the 94 facilities
(56 percent) are estimated to have compliance cost to revenue ratios of less than five percent. The Agency does
not expect compliance with the final rule to represent a significant burden to the facilities that are assessed as
failing the baseline cash flow criterion.
E.I
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Appendix F: Sensitivity Analysis of the Return on Asset Value Used in the
Line Conversion Analysis
This appendix provides a sensitivity analysis of the threshold value of return on assets (ROA) used in
the line conversion analysis of facility impacts for PFPR facilities with less than 25 percent of their revenue from
PFPR operations. The ROA threshold value is used as the criterion for projecting that PFPR facilities will
convert their production lines from pesticide operations to other non-pesticide formulating and packaging
activities. If a facility achieves at least the threshold ROA in the baseline analysis, but is projected to have post-
compliance ROA less than the threshold value, the facility is said to incur the moderate impact of a line
conversion.
The EA set the ROA threshold value at 2.9 percent. This value is the lowest quartile value of firms
operating in SIC code 2842 (specialty cleaning, polishing and sanitation preparations), averaged over the three-
year period 1986-1988, as indicated by Robert Morris Associates. SIC 2842 is chosen as being representative
of alternative FPR activities to which impacted facilities could turn. This SIC code was among the most
frequently reported SIC codes for PFPR facilities obtaining less than 25 percent of the their revenue from PFPR
operations.
As a sensitivity analysis to examine the stability of the number of moderate impacts within a range of
plausible thresholds, EPA recalculated impacts using an ROA threshold of 7.2 percent. This value is the median
value reported in SIC code 2842, averaged over the 1986-1988 period. Thus, the analysis assumes that a facility
would convert its production lines from PFPR activities to other FPR activities if the facility could expect to
obtain the return on assets of the median firm performing such activities. Using a higher threshold value will
reduce the number of facilities considered for moderate impacts, because facilities achieving less than the
threshold value in the baseline are not considered for line conversion impacts. The higher threshold, however,
increases the number of impacts for those facilities that are considered for impacts. The net outcome in terms
of the number of moderate impacts from these two effects is indeterminate; the number of facilities projected
to convert PFPR lines may increase or decrease as a result of using a higher threshold value.
The results of this sensitivity analysis indicate that moderate impacts would decrease from 150 to 130
in the facility population under the final rule if the line conversion decision were based on the higher ROA
threshold value. Given this large decrease in impacts, EPA concludes that the line conversion component of the
moderate impacts analysis as presented in Chapter 3 is conservative in the sense of possibly overstating the
magnitude of moderate impacts.
F.I
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