EPA-E30/1-73-OZ4 SEPTEMBER 1973 ECONOMIC ANALYSIS OF PROPOSED EFFLUENT GUIDELINES THE RUBBER PROCESSING INDUSTRY QUANTITY U.S. ENVIRONMENTAL PROTECTION AGENCY Office of Planning and Evaluation Washington, D.C. 20460 I 5 \ o ------- This document is available in limited quantities through the U. S. Environmental Protection Agency, Information Center, Room W-327 Waterside Mall, Washington, D. C. 20460. The document will subsequently be available through the National Technical Information Service, Springfield, Virginia 22151. ------- ECONOMIC ANALYSIS OF PROPOSED EFFLUENT GUIDELINES THE RUBBER PROCESSING INDUSTRY September 1973 EPA-230-1-73-024 ov~i.-- ------- This report has been reviewed by the Office of Planning and Evaluation, EPA, and approved for publication. Approval does not signify that the contents necessarily reflect the views and policies of the Environmental Protection Agency, nor does mention of trade names or commercial products constitute endorsement or recommendation for use. ------- PREFACE The attached document is a contractors' study prepared for the Office of Planning and Evaluation of the Environmental Protection Agency ("EPA"). The purpose of the study is to analyze the economic impact which could result from the application of alternative effluent limitation guidelines and standards of performance to be established under sec- tions 304(b) and 306 of the Federal Water Pollution Control Act, as amended. The study supplements the technical study ("EPA Development Document") sup- porting the issuance of proposed regulations under sections 304(b) and 306. The Develop- ment Document surveys existing and potential waste treatment control methods and technology within particular industrial source categories and supports promulgation of certain effluent limitation guidelines and standards of performance based upon an analysis of the feasibility of these guidelines and standards in accordance with the requirements of sections 304(b) and 306 of the Act. Presented in the Development Document are the investment and operating costs associated with various alternative control and treatment technologies. The attached document supplements this analysis by estimating the broader economic effects which might result from the required application of various control methods and technologies. This study investigates the effect of alternative approaches in terms of produce price increases, effects upon employment and the continued viability of affected plants, effects upon foreign trade and other competitive effects. The study has been prepared with the supervision and review of the Office of Planning and Evaluation of EPA. This report was submitted in fulfillment of Task Order No. 3, Contract 68-01-1541 by Arthur D. Little, Inc. Work was completed as of September 1973. This report is being released and circulated at approximately the same time as publication in the Federal Register of a notice of proposed rule making under sections 304(b) and 306 of the Act for the subject point source category. The study has not been reviewed by EPA and is not an official EPA publication. The study will be considered along with the information contained in the Development Document and any comments received by EPA on either document before or during proposed rule making proceedings necessary to establish final regulations. Prior to final promulgation of regulations, the accompanying study shall have standing in any EPA proceeding or court proceeding only to the extent that it represents the views of the contractor who studied the subject industry. It cannot be cited, referenced, or represented in any respect in any such proceeding as a statement of EPA's views regarding the subject industry. ------- TABLE OF CONTENTS Page List of Tables jjj List of Figures iv EXECUTIVE SUMMARY 1 INDUSTRY SEGMENTATION 5 DESCRIPTION OF SYNTHETIC RUBBER INDUSTRY SEGMENTS 8 DESCRIPTION OF THE TIRE AND TUBE INDUSTRY 15 FINANCIAL PROFILES 17 WATER TREATMENT COSTS 21 ECONOMIC IMPACT ANALYSIS 30 APPENDIX A ESTIMATION OF PLANT COSTS FOR EFFLUENT GUIDELINES 43 APPENDIX B -- SAMPLE CALCULATION OF SYNTHETIC RUBBER PLANT POLLUTION CONTROL COSTS 46 ------- LIST OF TABLES Table No. Page 1 The Synthetic Rubber Industry 3 2 The Tire and Tube Industry 4 3 Comparison of Economic and Technical Segmentation 6 4 Markets 9 5 Capacity of U.S. Synthetic Rubber Plants 14 6 Tire Products and Plant Locations 16 7 1972 Profile - Synthetic Rubber 17 8 1972 Profile - Tires and Inner Tubes 18 9 Rubber and Plastics Products: Financial Ratios 1967-72 19 10 1972 Financial Profile for Segments 20 11 Water Effluent Guidelines Meeting 29 12 B.P.T. Costs 34 13 B.P.T. Costs 35 14 B.A.T. Costs 36 15 B.P.T. Costs and B.A.T. Costs 37 16 Synthetic Rubber Companies 38 17 Tires and Tubes Companies 38 18 Synthetic Rubber + Tires and Tubes 39 19 Synthetic Rubber (SIC 2822) 39 20 Tires and Inner Tubes (SIC 3011) 40 in ------- LIST OF FIGURES Figure No. Page 1 Location of Synthetic Rubber and Tire and Inner Tube Plants (1972) 7 2 Emulsion Synthetic Rubber Plants; Water Treatment Costs versus Waste Water Flow 25 3 Solution Synthetic Rubber Plants; Water Treatment Costs versus Waste Water Flow 26 4 Latex Rubber Plants — Water Treatment Costs versus Waste Water Flow 27 5 Tire Plants — Water Treatment Costs versus Waste Water Flow 28 6 Capital Cost versus Waste Water Flow 44 7 B.P.T. — Yearly Operational Costs versus Waste Water Flow 45 IV ------- EXECUTIVE SUMMARY Tliis final report is submitted in compliance with Phase HI of Contract No. 68-01-1541 with the Environmental Protection Agency on the "Economic Impact of Water Pollution Control on the Rubber Processing Industry." Using the effluent guidelines development document as prepared by Roy F. Western, Incorporated and supplied to us by EPA, we evaluated the economic impact of pollution control costs on the synthetic rubber and tire sectors of the rubber processing industry. Methodology In determining the effects of pollution control on the industry, an estimation was made of the costs that would be likely to be incurred, based on the effluent guidelines document and information received from the industry. Conclusions were drawn from an analysis of the way in which these costs would affect prices, production, employment, profits and other economic variables, based on a 70-100 percent coverage of the manufacturing facilities associated with each category. The Contractor assumed the increased costs will be passed on in the form of higher prices to maintain the companies1 historical return on stockholders' equity. Most of the plants were assumed to be working at their 1972 capacity, except EPDM, which will expand to 80-85 percent of current 1972 capacity by 1977. The industry demand curves for these products are assumed essentially inelastic; there are no substitutes (other than natural rubber) for most of the rubber products. Segmentation The synthetic rubber industry has been segmented by product rather than by process, and tires and tubes was considered as a separate segment. Because of market and price considerations, this segmentation was more useful in considering economic impact. Financial Considerations The Contractor determined the costs associated with meeting the Best Practical Technology and Best Available Technology Economically Achievable for the various seg- ments of the industry. The investment, annualized costs and estimated price increases as a percent of sales are summarized in Tables I and 2, averaged for the synthetic rubber and tire and tube segments. Impacts The Contractor does not expect these additional costs to exert a significant impact on the market and prices of the respective products. It is not expected that any plants will be closed in either the synthetic rubber or tire and tube segments. There are, however, a small ------- number of small latex plants that have not been covered in our analysis. Most currently discharge into municipal systems and represent an insignificant portion of the industry. Industry sources in the tire and tube segment of the study indicate there may be a short period of plant shutdown, particularly in the older plants, while changes are made in order to segregate their effluent lines. The Contractor has no way of evaluating the validity of these statements or the magnitude of the economic consequences. This analysis indicates no adverse effects on the growth of the industry due to B.P.T., B.A.T., and N.S.P.S. In addition, the costs should not significantly affect either the domestic market competitiveness or the international market situation — the dollar deval- uation far overshadows the insignificant price increases involved. However, it is impossible to know what the strength of the United States dollar will be in 1977 and 1983. Limitations When interpreting the findings of this study, it is important to be aware of the limitations of the cost data used for calculating investment and annual operating costs. The Contractor has defined these as direct incremental investment and annual operating costs required to achieve environmental standards. These costs were provided to the Contractor by industry and the effluent guidelines development document, and thus the Contractor cannot verify their accuracy. The scale-up factors used in estimating investment and operating costs for those plants other than those considered in the guidelines are given in Appendix A. The calculated price increases for pollution guidelines (B.A.T. and B.P.T.) are maximum expected increases. Certain companies and certain plants meet B.A.T. guidelines and may not increase their prices at all. Other companies may be constrained to follow suit. ------- TABLE t THE SYNTHETIC RUBBER INDUSTRY (Butyl, EPDM, Neoprene, Nitrite, Polybutadiene, Polyisoprene, SBR Emulsion + Solution) SIC Code: 2822 No. of synthetic rubber operations specifically evaluated for B.P.T. = 36 (90% of industry), for B.A.T. = 39 (98% of industry) I mpacts Costs Investment Total for segment Per plant (average) Percent of average annual investment in segment Annual Total for segment Per plant average Percent of sales Price increase (varies from product to product) Plant closings Percent of total in segment Displaced workers Percent of total in segment Number of community impacts Impact on industry growth Direct balance of payment effects B.P.T. $22.5 x 106 $625,000 N.A. $7.94 x 106 $221,000 0.8% 0-1.5% B.A.T. $9.90 x 106 $254,000 N.A. $4.40x 106 $114,000 0.7% 0-1.5% N.S.P.S. 0 0 0 0 0 None None 0 0 0 0 0 None None - - - None None ------- TABLE 2 THE TIRE AND TUBE INDUSTRY SIC Code: 3011 Number of plants specifically evaluated:49 Percent of total plants: 88% I mpacts Cost Investment Total for segment Per plant (average) Percent of average annual investment in segment Annual Total for segment Per plant (average) Percent of sales Price increase Plgnt closings Percent of total in segment Displaced workers Percent of total in segment Number of community impacts B.A.T. 1977 Standards B.P.T. 1983 Standards N.S.P.S. New Source Standards $31.5 x 106 $790,000 N.A. $12.56 x 106 $310.000 0.3% 0-0.45% 0 0 0 0 impossible to evaluate Impact on industry growth None Direct balance of payments effects None None None ------- INDUSTRY SEGMENTATION The segmentation of the rubber proeessing industry used by the Contractor differs from that described in the effluent guidelines development document. In the guidelines document, industry segmentation was based on technical considerations such as the quan- tity, characteristics, and applicability of control and treatment to the wastewater generated by the specific plants. The technical segmentation of the synthetic rubber industry was based on manufacturing processes. Basically, there are two processes in common use in the industry: emulsion polymerization and solution polymerization. Emulsion polymerization is used to produce both emulsion crumb rubber (dry form) and latex rubber (water-suspended form). According to the effluent guideline development document, however, crumb and latex production should be considered separately both from operational and wastewater points of view. Solution polymerization plants are different from emulsion facilities not only in terms of process, but also in terms of the quantity and character of the wastewater. As a consequence, three segments based on manufacturing process variations were specified in the guideline document: emulsion polymerization to form crumb rubber, solution polymerization to form crumb rubber, and emulsion polymerization to form latex. For the tire and inner tube industry, the guidelines document used age of the production facility as the basis for segmentation. In the effluent guideline development document, it is stated that plants built prior to 1959 tend to be multi-storied, with production lines located on many floors and confined to small areas. In such plants, process, non-process, and domestic wastewater are combined in a common sewer, thus making process contaminants difficult to locate and treat. The document states that the newer plants have the benefit of modern design criteria in both the sanitary and maintenance engineering fields. Sewers are no longer combined, thus making process sewer wastewaters easier to locate and treat. As a consequence, the process wastewater streams from these post-1959 plants are generally smaller in volume and contain lower loadings of both oily and solid materials - thus making treatment less costly than for older plants with similar production. The technical segmentation used in the guideline documents is useful for categorizing processes and pollution, but it is not appropriate for assessing the economic impact of pollution control costs. An assessment of the economic impact of pollution control must take into account the financial and economic characteristics of the business, and similarities in technology do not imply similarities in business. Therefore, to permit an analysis of how pollution control costs would affect produc- tion, employment, profits, prices, and other economic variables that are critical to an industry, the Contractor segmented the synthetic rubber industry by product. The tire and inner tube industry was treated separately. The relationship between segmentation used by the contractor and that used in the guidelines is shown in Table 3. ------- TABLE 3 COMPARISON OF ECONOMIC AND TECHNICAL SEGMENTATION Industry Economic Technical Neoprene Nitrile Polybutadiene Styrene-butadiene (SBR) Synthetic Rubber ] Butyl EPDM Polybutadiene Emulsion crumb Solution crumb Polyisoprene Styrene-butadiene (SBR) Styrene-butadiene (SBR latex) | Latex Nitrile latex j Tires and Inner Tubes Tires and inner tubes "i Old tire and inner tube New tire and inner tube In a preliminary review of the information available on these economic segments, the Contractor concluded that one segment - SBR latex - could not be independently evalu- ated. SBR latex represents about 9?r of the SBR produced. Production is so small, and prices, profitability and outlook are so difficult to estimate that the Contractor deleted SBR latex from further consideration. Plant Locations An analysis of plant locations for the manufacture of synthetic rubbers and tires and tubes shows they are located in heavily industrialized areas. In the case of synthetic rubber they are located near sources of raw materials and refineries. Figure 1 shows the locations of the different plants. ------- FIGURE 1 LOCATION OF SYNTHETIC RUBBER AND TIRE AND INNER TUBE PLANTS (1972) ------- DESCRIPTION OF SYNTHETIC RUBBER INDUSTRY SEGMhNTS Butyl Rubber-Solution Technology. Butyl rubber is a copolymer of isobutylene and isoprcne and contains \.47f to 4.5'/f of isoprene. The rubber is prepared by polymeri/ation in an organic solvent, using aluminum chloride as the catalyst. After polymerization, the rubber, which is in the form of a finely divided slurry, is recovered by vaporizing the organic solvent with hot water and steam. The resulting aqueous slurry of rubber crumb is dewatered and dried by the methods used for the other synthetic rubbers. Plant Location. Sizes and Ages. There are only two domestic producers of butyl rubber. Exxon and Cities Service's Columbian Carbon Division. Exxon operates two widely diversified facilities, one at Baton Rouge with a capacity of 46,000 It/year, and the other at Baytown, Texas, witli a capacity of 80,000 It/year. Synthetic rubber operations in these plants began during World War II. Cities Service began operating their Lake Charles. La.. facility in 1963. They report a capacity of 37,500 It/year. Uses. About 80'/ of total production is used in tires and tire products. This applica- tion is expected to continue to show slow but steady increase. The use of butyl in adlie- sives and sealants is growing well in excess of the overall market but is still small. Ethylene-Propylene Elastomers-Solution Technology. Ethylene-propylene elastomers (EP) arc synthetic polymers prepared by the solution eopolymerization of ethylene and propylene. Two basic forms of the rubber are produced, EPM (a saturated, peroxide vulcanizable polymer) and EPDM (an unsaturated conventional sulfur curable polymer). EPDM accounts for aboul 95% of the total produc- tion of ethylene-propylene elastomers, and has been used by the Contractor to represent the entire class of EP elastomers. Plant Locations, Sizes and Ages. Five plants operated by five different companies are engaged in the production of EPDM. These plants are located in Louisiana (3) and Texas (2), and range from 25-56,000 long tons of annual production capacity. All the plants were built between 1963 and 1971. Uses. Table 4 illustrates the variety of end-use markets in which EPDM is used: ------- TABLE 4 MARKETS Percent of Domestic Consumption Automotive Parts (non-tire) 35.0% Tires and Tire Products 32.0 Wire and Cable Insulation 7.0 Appliance Parts 6.5 Hoses 6.0 Gaskets, Seals, and O-Rings 4.5 Coated Fabric and Sheeting 2.0 Other 7.0 100.0% Source: Chemicals Economic Handbook, Stanford Research Institute, May 1972. Since the introduction of EPDM in 1 963, the forecast of demand for the rubber has consistently exceeded actual demand. As a result production in 1972 averaged only about 50% of capacity. This excess capacity has created a marketing environment where the rubber price is often discounted 10-20% below list (28-30^/lb). However, despite excess capacity, some producers say that EPDM supplies are tight. They explain that they now produce so many different types and grades of the elastomer that their effective capacity is reduced. New emphasis in automotive safety and pollution control equipment has boosted demand for EPDM for such applications as bumpers and high-temperature-stable hoses and belts. These and other growing markets are causing domestic consumption to grow at a brisk 10-15% per year. Neoprene-Emulsion Technology. Neoprene is one of the oldest synthetic rubbers in existence - having been first introduced on a commercial scale in 1931 by Du Pont. Until relatively recently, neoprene was made commercially from chloroprene monomer produced from acetylene feed stock. Today, a more economical butadiene route to the monomer is being utilized. Plant Locations, Sizes, Ages. Only two companies in the United States - Du Pont and Petro Tex — make neoprene. Du Pont presently operates two neoprene plants. The Louisville, Kentucky, facility, with a capacity for 125,000 It/year, is a diversified complex, most of which was constructed during World War II. The chloroprene monomer used here is supplied from a newly constructed plant in Victoria, Texas. ------- Du Font's facility in La Place, La., produces both chloroprcne monomer and neoprene, with a neoprene capacity of 40,000 It/year. This facility went on-stream in 1970. Petro Tex's Houston plant went on-stream-in 1970. Its capacity is estimated* at 44,000 It/year. The Houston facility also contains Petro Tex's butadiene monomer facility, one of the largest in the United States. Uses. Automotive,products (fan belts, hosing, etc.). account for about 45r/ of market; industrial/aerospace/consumer products (conveyor belts, >vet suits, etc.), about 20r/; wire and cable, 10% and declining; adhesives, 12%- with an annual growth rate of 10%. The remaining 13f/f is used in a variety of other products, none of which is large enough to be of interest. Nitrile-Emulsion (Crumb and Latex) Technology. Nitrite rubber, a copolymer of acrylonitrile and butadiene, is produced by emulsion polymerization in a manner similar to that used in making emulsion SBR. The basic steps involved in the manufacture of dry rubbers are polymerization, coagulation, washing and drying. In case a latex is desired, the steps are polymerization, stabilization, and usually concentration Plant Locations, Sizes, Ages. Six companies produce nitrile rubber in nine plants; one is located in Delaware, one in Kentucky, two in Louisiana, four in Ohio, and one in Texas. Nitrile plants have the smallest production capacity of all the plants in the synthetic rubber industry, exhibiting an average annual capacity of less than 15,000 long tons. Most of these plants were built before or during World War II, and very little new technology has been developed since then. Uses. Because of its outstanding resistance to oil and solvent, nitrile rubber is utilized for a number of "under-the-hood" automotive applications; these account for about 25'/<- ot all nitrile produced. Other applications include mechanical goods, belting, rollers, etc. Polybutadiene-Solution/Einulsion Technology. Poly butadiene, a homopolymer of butadiene, accounts for 12% of total U.S. synthetic rubber production. In the commercial production of polybutadiene elastomers, the exact nature of the final product depends on several factors, the most important of which are the catalyst system and the reaction medium (solution or emulsion polymerization). 10 ------- Only one plant - Texas-U.S. in Port Neches, Texas - produces polybutadiene by the emulsion process. This plant accounts for less than 10% of the domestic capacity for the production of polybutadiene. The remainder is accounted for by six other polybutadiene plants producing the rubber by solution polymerization. Plant Locations, Sizes and Ages. At the present time there are seven plants producing polybutadiene: one in Louisiana, one in Kentucky, and five in Texas. There is quite a variation in plant size with the smallest having a capacity of about 20,000 long tons, the largest 110,000 long tons, and the average being about 64,000 long tons. The polybutadiene plants are relatively new, having been built between 1961 and 1963. From 1965 to 1968, the plants increased their capacity at a rate of about \67r per year, through new construction. Over the last years the rate of growth has slowed to about 13.5% per year and has been the result of both new construction and the "dcbottleneck- ing" of existing operations (primarily in the drying and finishing areas). Polyisoprene-Solution Technology. Polyisoprene elastomers are synthetic, predominantly stereoregular, polymers which closely resemble natural rubbers in both molecular structure and properties. Two basic types are currently being produced: cis-polyisoprene and trans-polyisoprene. Cis-polyisoprene is used in many of the same applications as natural rubber: tires and tire products, foam rubber, hoses, gloves, etc. Trans-polyisoprene, on the other hand, has quite different properties and is used in specialty applications such as golf ball covers, cable and wire covering, and adhesives. All polyisoprene elastomers are produced by solution polymerization, in a manner quite similar to that used to produce polybutadiene. The polymers are sold both in dry rubber and latex form. Plant Locations, Sizes, and Ages. There are two polyisoprene plants. The first was built by Goodyear in Beaumont, Texas in 1962. This plant has a capacity of 62,000 long tons. The second was built by Goodrich in Orange, Texas in 1968. The Goodrich plant has a capacity of 62,500 long tons. Uses. The growth of polyisoprene demand has been slow. However, it is believed that a more general acceptance of radial ply tires in the United States would very likely increase the demand for polyisoprene, since good building tack and green strength — qualities of natural rubber — are essential in the construction of radial ply tires. Because of its similarity to natural rubber, polyisoprene could become the logical replacement for this application. 11 ------- SBR-Emulsion/Solution Technology. SBR, a copolymer of styrene and butadiene, typically contains about 25 parts styrene to 75 parts butadiene. SBR accounts for over 607, of all the synthetic rubber manufactured in the United States. Most of the SBR produced is manufactured by the so-called cold emulsion process which was developed just after World War II and is used with few modifications even today. Most process modifications have been concerned with alleviating bottlenecks in the poly- merization, drying and finishing operations and with increasing the volume produced through extension of the rubber with oil and carbon black. The same basic process is used to produce both dry rubber and latex (a suspension of SBR in water). An alternative to the emulsion process is a solution process used by Firestone Tire & Rubber Company, and Phillips Petroleum, Co. Solution SBR exhibits better abrasion and crack resistance than emulsion SBR, but at present is priced 10-1 5% higher than the emulsion type. As far as water pollution is concerned, the emulsion process is by far the more troublesome. Water is used as the suspending medium during the polymeri/ation, and it must ultimately be removed to produce dry rubber. Plant Locations, Sizes, and Ages. The plants in which SBR is made are located either adjacent to butadiene-producing plants or near the markets. For example, during World War II, SBR plants using butadiene derived from petroleum were located in Louisiana, Texas, and California; those using butadiene made from alcohol were located in West Virginia, Pennsylvania, and Kentucky. Those serving specific markets were located in Ohio and Connecticut. At the present time there are eleven plants producing emulsion crumb SBR, with an average annual production capacity of over 140,000 long tons. However, the plants are by no means of uniform size, exhibiting a range of capacity from 28,000 long tons to 410,000 long tons. The newest plant was built in 1957, while the others were built between 1941 and 1945. Us_es. An estimated 65-70% of SBR production goes into the tire industry; 7-8% goes for mechanical goods, 9% for exports, 1-2% for footwear, and 12% for miscellaneous products. Growth in demand for emulsion SBR has slowed to 1-3%/year, reflecting the mature status of this 30-year-old product. 12 ------- Summary of U.S. Synthetic Rubber Capacity Table 5 lists the synthetic rubber production in the plants of concern in this study. Of the 28 plants listed here, 18 produce only one rubber type, 9 produce two types, and one plant produces three different rubber types. In addition, most of the 18 plants producing a single rubber are part of diversified plant complex manufacturing other products such as rubber processing chemicals, plastics, and basic and intermediate organic chemicals. As a consequence, the wastewater effluent from the synthetic rubber operations is generally combined with other plant effluents and treated in a common facility. The implication of this common treatment in regard to pollution cost allocation to the individual products is covered in a later section of this document. 13 ------- TABLE 5 CAPACITY OF U.S. SYNTHETIC RUBBER PLANTS Company Name American Synthetic Rubber Ashland Cities Service Copolymer DuPont Exxon Firestone Gen. Tire Goodrich Goodyear Petrotex Phillips Texas-US Uniroyal Location Louisville, Ky. Baytown Lake Chas., La. Addis, La. Baton Rouge, La. Beaumont, Tex. La Place, La. Louisville, Ky. Baton Rouge, La. Baytown, Tex. Akron, Ohio Lake Chas, La. Orange, Tex. Odessa, Tex. Akron, Ohio Louisville, Ky. Orange, Tex. Port Neches, Tx. Akron, Ohio Beaumont, Tex. Houston, Tex. Houston, Tex. Borger, Tex. Port Neches, Tex. Baton Rouge, La. Geismar, La. Naugatuck, Conn. Painesville, Ohio Production Capacity Butyl EPDM Neoprene Nitrile Polybutadiene Polyisoprene SBR 75,000 125,000 80,000 37,500 25,000 5,500 127,000 56,000 40,000 1 25,000 46,000 35,000 80,000 2,500 50,000 20,000 230,000 emuls. 23,000 sol. 75,000 110,000 35,000 35,000 25,000 87,000 62,500 178,000 1 1 ,000 110,000 65,000 11,000 410,000 44,000 50,000 77,000 emuls. 2,300 sol. 30,000 148,000 15,500 50,000 28,000 15,500 ------- DESCRIPTION OF THE TIRE AND TUBE INDUSTRY Fifty-six plants in the United States produce tire and tube products. Of these, 40 are operated by Firestone, General Tire, Goodrich, Goodyear and Uniroyal. Technology The technology of the production of tires is very similar in all plants. Basically, the raw rubber is compounded with oil, carbon black and various curing ingredients. The compound is then calendered onto fabric which forms the tire plies. Special tough stocks are made into tread stock and sidewall stock and are extruded to shape. The tire is then built up on a drum, one kind of drum for bias and belted bias tires, and another for radial tires. In recent years each change in tire structure has resulted in more costly tires with better wear and stability. Tread wear has been increased by 50% in going from the bias to the belted bias, and by another 5Q'/r in going from the belted bias to the radial tire. Thus the radial tire can be expected to provide from 40,000 miles of tire life versus 20,000 miles for the conventional bias tire. The change from bias to belted tires took place between 1968 and 1970 and required a major investment by the tire companies for new equipment. A rough rule of thumb for switching to radials (as companies are now doing) is that for a 10,000-passenger-tires-per-day plant, an additional investment of about $7-8 million will be required. If there is a 60% replacement to radials in the seventies, this will require a $280 million dollar investment by the industry. PJajitJSize Tire plants vary widely in capacity; the largest produce some 30,000 tires per day, and the smaller ones less than 5,000 per day. Production depends to a great extent on the tire mix. For example, the building of a passenger car tire requires about one minute, while many off-the-road tires require as long as an hour. Plant Age and Location The specific problems of pollution control depend in part on the age and general upkeep of the plant because much of the pollution comes from washdown of facilities and blowdown of cooling water. However, most tire plants have been expanded and modernized since 1967, when the belted bias tires went into production. Table 6 lists the tire plants and their location. The Akron area is a heavily built-up industrial section with little land available for water treatment facilities. Newer plants are located in less confining areas where sufficient land is generally available for ponds and lagoons. 15 ------- TABLE 6 TIRE PRODUCERS AND PLANT LOCATIONS Company Armstrong Rubber Carlisle Rubber Cooper Tire & Rubber Dunlop Tire & Rubber Firestone Tire & Rubber Gates Rubber General Tire & Rubber Goodrich Goodyear Mansfield Tire & Rubber McCreary Tire & Rubber Mohawk Rubber Uniroyal Plant Locations and Annual Passenger Headquarters Car Tire Production (number of tires) W. Haven, Conn. W. Haven, Conn.; Natchez, Miss.; Des Moines, Iowa; Hanford, Calif. Total Production 14,700,000 Carlisle, Pa. Carlisle, Pa. Total Production approx. 1,200,000 Findlay, Ohio Findlay, Ohio; Texarkana, Arkansas, Mississippi Total Production, 8,000,000 Buffalo, N.Y. Buffalo, New York Total Production 2,000,000 Akron, Ohio Akron; Des Moines; Los Angeles; Mem- phis; Nashville; Noblesville, Indiana; Pottstown, Pa.; Dayton Barberton, Ohio; Oklahoma City Total Production 49,100,000 Denver Denver; Nashville Total Production 7,500,000 Akron Akron; Mayfield, Kentucky; Waco, Texas; Byran, Ohio; Charlotte, N.C. Total Production 12,300,000 Akron Akron; Ft. Wayne; Los Angeles; Miami; Oklahoma;Tuscaloosa, Alabama; Valley Forge, Pa. Total Production 21,400,000 Akron Akron; Gadsden, Alabama; Conshohocken, Penn; Jackson, Michigan; Los Angeles; St. Mary's, Ohio; Topeka, Kansas; Cumberland, Maryland Fayetteville, N.C.; Union City, Tenn.; Freeport, III.; Tylor, Texas. Total Production 57,950,000 Mansfield, Ohio Mansfield, Ohio Total Production 3,000,000 Indiana, Penn. Indiana, Pennsylvania Total Production 2,500,000 Akron Akron; West Helena, Arkansas Total Production 6,000,000 N.Y.C. Detroit; Eau Claire, Wisconsin; Indianapolis; Los Angeles,; Ardmore, Oklahoma; Opelika, Alabama, Spring- field, Massachusetts Total Production 32,000,000 16 ------- FINANCIAL PROFILES Most manufacturers are large firms with a high level of integration, and most are committed to the manufacture of synthetic rubber products. The financial position of these companies is relatively strong. There are, however, a few small producers of synthetic rubber, some of which are owned by the petroleum industry, and some of which are not involved in the manufacture of consumer rubber products. These producers would probably shut down if costs increased significantly. In 1 972 the synthetic rubber industry shipped 5,650 million pounds of rubber, having an estimated value of $1.1 billion. Customers for synthetic rubber are mostly manufacturers of components for transportation equipment. While this market has been expanding, synthetic rubber shipments are increasing only moderately because of depressed prices and substitution of plastics for rubber in non-tire uses. Table 7 gives a profile of the synthetic rubber industry in 1972. TABLE 7 1972 PROFILE - SYNTHETIC RUBBER SIC Code 2822 Value of industry shipments (million) $1,125 Number of establishments 50* Total employment (thousands) 13 Exports as percent of product shipments 12.8 Imports as percent of apparent consumption 4.6 Compound annual average rate of growth 1967-72 (percent): Value of shipments (current dollars) 3.9 Value of exports (current dollars) 0.7 Value of imports (current dollars) 19.9 'Contractor data shows 56 plants Source: Bureau of Domestic Commerce. In 1972, the tire industry produced 225 million tires and tubes, valued at an estimated $4.8 billion. Rising business activity and growth in new car sales have been providing impetus to the growth of tire shipments. Original equipment tires on new cars jumped from 38 million tires in 1970 to 49 million in 1971 and to 54 million in 1972. Replacement tires have grown from 129 million tires in 1969 to 135 million in 1971 and to 142 million in 1972. The slower growth rate in replacement tires of 3.5% a year reflects a combination of factors. The comparatively poor year for original equipment tires in 1970 led to a smaller market for replacements in 1972 and 1973. Longer lasting tires are extending the tradi- tional two-year replacement cycle. Growth in snow tire demand has slowed, reflecting maturity in the market. Table 8 gives a profile of the tire and inner tube industry for 1972. 17 ------- TABLES 1972 PROFILE - TIRES AND INNER TUBES SIC Code 3011 Value of industry shipments (millions) $5,625 Number of establishments 200* Total employment (thousands) 115 Exports as a percent of product shipments 2.0 Imports as a percent of apparent consumption 8.2 Compound annual average rates of growth 1967-72 (percent) : Value of shipments (current dollars ) 8.6 Value of exports (current dollars) 6.5 Value of imports (current dollars) 36.8 *Total includes contributions of recappers and tire related products. Source: Bureau of Domestic Commerce. The major producers of synthetic rubber and tires and tubes also produce plastics, and thus the two are considered together in reviews of financial performance. Table 9 shows financial performance of manufacturers of rubber and plastic products from 1967 to 1972. According to the U.S. Industrial Outlook* published by the Department of Commerce, corporate profits after taxes, for manufacturers of rubber and plastics products, rose from $456 million in 1970 to $664 million in 1971 and to almost $900 million in 1972. Profits in 1970 were exceptionally low; ratios of profits to sales and to capital investment returned in 1972 to 4:5 and 7:5, about the levels of the mid-1960's. "Because of the poor financial returns in 1970 and early 1971, new capital expendi- tures for plant and equipment dropped from $857 million in 1969 to $812 million in 1970 and to $726 million in 1971. Rising sales and improved operating ratios in 1972 resulted in a 33% increase in new capital expenditures to $970 million, the largest one-year increase ever recorded for the rubber and plastics industries. Most of the capital spending was for new tire plants to meet increasing demand for tires in general and radial tires in particular, plus new facilities for the rapdily growing plastic products industry." Table 10 gives finan- cial profiles for the various industry segments in this report. *U.S. Industrial Outlook; U.S. Department Commerce. 18 ------- TABLE 9 RUBBER AND PLASTICS PRODUCTS: FINANCIAL RATIOS 1967-72 (Percent) First Half 1967 1968 1969 1970 1971 1971 1972 Ratios: Profit after taxes/sales 4.0 4.5 3.8 2.8 3.6 3.5 4.1 Profit after taxes/investment 7.5 8.5 6.9 4.6 5.9 6.1 7.4 New capital expenditures/gross plant 8.7 10.3 9.7 ' 8.2 6.6 NA NA Depreciation/gross plant 6.8 6.2 5.8 6.0 5.8 6.1 6.2 Depreciation/sales 3.4 3.2 3.1 3.6 3.5 3.5 3.4 Sales/total assets 140 136 133 123 120 126 130 Note — NA — not available. *U.S. Industrial Outlook; U.S. Department Commerce. Sources: Federal Trade Commission, Securities and Exchange Commission, and Bureau of the Census. 19 ------- TABLE 10 1972 FINANCIAL PROFILE FOR SEGMENTS Anticipated Annual Product Butyl E.P.D.M. Neoprene Nitrile Polybutadiene Polyisoprene Estimated Price1 $0.25/lb 0.26 0.35 0.45 0.165 0.19 Relative Product Profitability2 Moderate Variable Moderate - High Moderate - High Low - Moderate Low - Moderate Production as Percent of Capacity3 80% 50% 87% 66% 83% 93% Rate of Growth for Next 5 Years4 2-5% 5-15% 0-4% 3-7% 3-5% 5-8% SBR 0.13 Tires (general 21.24 average) Tires (passenger car tires) 14.43 Low Moderate 85% 85% 0-3% 6-8% 1. The actual prices vary considerably depending on grade, type, and volume purchased. These figures only approximate the average prices and are based on U.S. Tariff Commission data, industry quotations, and Arthur D. Little, Inc., estimates. 2. Comments of industry spokesmen regarding profitability of segments compared to industry as a whole. 3. Industry sources; Chemicals Economic Handbook, Stanford Research Institute (CEH). 4. Industry sources; Rubber World, Feb. 1973, CEH. 20 ------- WATER TREATMENT COSTS Water treatment cost data for a typical plant in each of the technical segments were furnished to the Contractor in the form of two reports: "Development Document for Effluent Limitations Guidelines and Standards of Performance for the Rubber Processing Industry," and "Supplement A" to this document. These documents establish a composite average-sized plant for each segment on the basis of an analysis of EPA documents, applications for Corps of Engineers Permit to Discharge, and individual company treatment data. These documents identify: the raw waste characteristics of these composite plants, the supply and volume of water used in the process, the sources of waste and wastewaters in the plants, the constituents of all wastewaters, and those contaminants which are toxic or result in taste, odor, or color in water or aquatic organisms. The constituents of wastewaters which should be subject to effluent limitations guidelines and standards of performance were established. The range of control and treatment technologies within each segment was also identified and assessed. This involved an evaluation of both in-plant and end-of-pipe technologies which are existent or capable of being designed for each segment. The energy requirements of each of the control and treatment technologies were estimated as well as the cost of the application of such technologies. This information was then evaluated to determine what levels of technology consti- tuted the "best practicable control technology currently available" (B.P.T.), the "best available technology economically achievable" (B.A.T.), and the "best available demon- strated control technology, processes, operating methods, or other alternatives for new sources" (N.S.P.S.). I We concentrated our analysis on an evaluation of those costs associated with the technologies designated as meeting the B.P.T., B.A.T., or N.S.P.S., as appropriate. Less costly, less effective technological alternatives were considered, but these played no role in the ultimate assessment of economic impact. Capital Investment In the derivation of "typical plant" investment costs, the guideline development documents include all capital expenditures required to bring the treatment or control technology into operation. The capital costs were generated on a unit basis, with the following "percent add-on" figures applied to the total unit process costs to develop the total installed capital cost requirements. 21 ------- Percent of Unit Item Process Capital Cost Electrical 12 Piping 15 Instrumentation 8 Site Work 3 Engineering Design and Construction Supervision Fees 10 Construction Contingency 15 Since land costs vary appreciably between plant locations, land costs are not included in the estimates, and must be added on an individual case basis. Annual Costs Annual costs for the technological alternatives include capitalization, depreciation, operating and maintenance, and power costs. Utilizing the base investment supplied by the documents, the contractor assessed the capitalization on an individual company basis, assuming that new investments in pollution control equipment are financed by debt and equity. The ratio of debt to equity was determined by the present capitalization ratios of the companies that own these plants. Interest costs were assumed to be 10% per year on that portion of investment financed by debt. Depreciation was figured on a five-year straight-line basis with zero salvage value, according to currently acceptable practices under Internal Revenue Service Regulations pertaining to pollution control equipment. Operating costs, which include labor and supervision, chemicals, sludge hauling and disposal, insurance and taxes, were computed in the effluent guideline development documents at 2 percent of the capital cost. Maintenance cost was computed at 4 percent of capital cost. Power was based on $0.01 kw-hour for electrical power. Operating, maintenance and power costs were adjusted by the Contractor for treatment facility capacity, as is given below. All costs were computed in terms of August 1971 dollars, which corresponds to an Engineering News Record Index (ENR) value of 1580. Treatment Cost vs Plant Size Table 11 lists the capital investment and operating, maintenance, and power costs associated with the typical plants for the various levels of treatment. Using as a basis the capital investment of the typical plant facility, the corresponding investments for other size treatment units within the range evaluated were derived as follows: T Capacity of Unit X ~| ° -5 Capital Cost of Unit X = Capital Cost of Typical Unit [.Capacity of T ypical Unit J 22 .- ------- where X is the unknown treatment facility. This relationship, which deviates from the well-known "six-tenths pale," was found to provide a better estimation of the capital costs involved in the construction of treatment facilities handling organic wastes. Appendix A details the justification for this relationship. Likewise, an analysis of operating and maintenance costs (see Appendix A) showed them to be related to capacity of the treatment facility as follows: 0.5 8 u Operating and Maintenance _ Operating and Maintenance f Capacity of Unit X Cost for Unit X Cost for Typical Unit [capacity of Typical Unit In the absence of a detailed cost breakdown, the Contractor assumed that the power costs also vary in the same manner as the operating and maintenance costs. The relationships describing the variation of capital investment and operating, mainte- nance, and power costs as a function of treatment capacity were graphed for each technical segment. These graphs are shown in Figures 2 through 5. In the case of tire and tube plants. we have also related the costs to raw material consumption. In the case of synthetic rubber plants, we have related costs to annual rubber production. The primary assumption we made here is that raw material consumption or rubber production is directly proportional to water usage. We realize that water usage is mainly a function of water availability at low cost, and consequently varies significantly with geographic location; nevertheless we believe that firms will be increasingly concerned with water conservation because of the necessity of con- trolling their own waste. As a result, our assumption of a one-to-one relationship should be a good first approximation. Plant Cost Calculations Synthetic Rubber Plants. The estimation of waste treatment costs for synthetic rubber was complicated by the fact that many of the plants in the industry produce more than one rubber type. In addition, a number of synthetic rubber facilities are portions of large diversified plant complexes manufacturing organic chemicals as well as other products. Since, in these cases, the wastes from the synthetic rubber operations are combined and treated in a common waste treatment facility, the pollution control costs allocated to specific rubber products become a matter of corporate policy. The contractor calculated costs on the assumption that the effluents from the synthetic rubber operations were combined and treated independently of the effluents from other plant manufacturing operations. In cases where a single plant contained synthetic rubber operations producing rubber types of more than one technical segment (e.g:, emulsion crumb and solution crumb, emulsion crumb and latex, etc.), costs were estimated by assuming the emulsion crumb and latex effluent streams would first be coagulated independently and then combined with the effluent from any solution polymer operations for further treatment (Table 11). 23 ------- Total pollution control costs for plants were allocated back to the individual products on the basis of production capacity. Tire and Tube Plants. Waste treatment cost estimates for specific tire and tube plants were based on the guideline documents and on data reported to us by the various companies involved. Raw material consumption was used as a basis for cost calculations in lieu of effluent discharge rates, which were typically not available to us. 24 ------- 5.5 5.0 4.5 4.0 = 3.5 o Q 3.0 S2.5 2.0 1.5 1.0 0.0 Legend: © Denotes "Typical" Plant for Segment X / B.A.T. Capital Investment Capital Investment B.A.T. Operating, Maintenance, and Power Costs B.P.T. Operating, Maintenance, and Power Costs ( 1 0.5 1.0 1.5 2.0 2.5 Flow, Millions of Gallons/Day 3.0 i _L 1 50,000 100,000 150,000 200,000 250,000 Production, Long Tons/Years FIGURE 2 EMULSION SYNTHETIC RUBBER PLANTS: WATER TREATMENT COSTS VERSUS WASTE WATER FLOW 25 ------- 2.0 1.8 1.6 1.4 - Q 1.0 0.8 0.6 0.4 0.2 0.0 Legend: 0 Denotes "Typical" Plant for Segment « a/ <^. Capital Investment « * B.P.T. Capital Investment B.A.T Operating, Maintenance, and Power Costs B.P.T. Operating, Maintenance, and Power Costs 0.1 0.2 0.3 0.4 0.5 Flow, Millions of Gallons/Day 0.6 10,000 20,000 30,000 40,000 50,000 Production, Long Tons/Year FIGURE 3 SOLUTION SYNTHETIC RUBBER PLANTS: WATER TREATMENT COSTS VERSUS WASTE WATER FLOW 26 ------- l.U 0.9 0.8 0.7 lo.6 o Q "o V) i §0.4 o 0.3 0.2 0.1 0 0 Legend: y B AT © Denotes / Capital Investment ' "Typicat" Plant / for Segment / / /B.P.T. / / Capital Investment /gf f / j 1 / . - I/ 1 - B.A.T. Operating, ^ ^-^"^ Maintenance, and . -®-***" " Power Costs .^^ B.P.T. Operating, *^^^^.. — "^ Maintenance and --— Power Costs i i i i i i 0 0.04 0.08 0.12 0.16 0.20 0.24 Flow, Millions of Gallons/Day 5,000 10,000 15,000 20,000 Production, Long Tons/Year 25,000 FIGURE 4 LATEX RUBBER PLANTS - WATER TREATMENT COSTS VERSUS WASTE WATER FLOW 27 ------- 1.0 0.9 0.8 0.7 j| 0.6 o Q c 0.5 8 0.4 o 0.3 0.2 0.1 0.0 Legend: 0 Denotes "Typical" Plant for Segment Capital Investment for / Old Tire Plant • (to 1958) / f / 4 / Capital Investment for New Tire Plant (1959 to Present) Operating Cost Old Plants New Plants I | I 20 40 60 80 100 120 140 Process Effluent Flow, Thousands of Gallons/Day I | | | | | 50 100 150 200 250 300 Raw Material Consumption, Metric Tons/Day FIGURE 5 TIRE PLANTS-WATER TREATMENT COSTS VERSUS WASTE WATER FLOW 28 ------- to Daily Raw Material Consumption, metric tons Annual Production, metric tons Estimated Total Effluent Flow, thousands of gallons per day Estimated Process Effluent Flow, thousands of gallons per day Total Capital Investment - Level I Operating and Power Maintenance Cost - Level I Total Capital Investment Level II Operating and Power Maintenance Cost- Level II TABLE 11 WATER EFFLUENT GUIDELINES COSTS Old Tire and Inner Tube Plant 205 - 2,004 86 $ 808,000 $ 56,000 * * New Tire and Inner Tube Plant 205 - 2,004 86 $ 628,000 $ 45,000 * » Emulsion Crumb Plant - 128,000 1,483 $ 2,002,000 $ 250,000 $ 2,993,000 $ 425,000 Solution Crumb Plant - 30,000 353 $ 810,000 $ 72,000 $ 1,182,000 $ 151,000 Latex Plant - 10,000 101 $ 637,000 $ 60,000 $ 784,000 $ 120,000 'Level I and Level II have identical guideline requirements for tire and tube plants. Source: Roy F. Weston, Inc. ------- ECONOMIC IMPACT ANALYSIS Methodology One of the key issues in determining the effect of pollution control costs on the economy is the question of how much of the cost will be passed along in the form of higher prices. In order to determine the relative price increases of the various rubber types and of tires, the contractor assumed that most of the plants studied in this report will be working at their 1972 production levels during the years 1977 through 1983, and that certain plants — e.g., those which are making EPDM — will increase their production to about 80-85% of 1972 capacity by 1977. This better capacity utilization will be due to the expanding demand for EPDM products. (Growth rate estimates for the various products are quoted on the "financial profile" tables in this report.) The Contractor also assumed that the industry demand curves for these products are inelastic. This assumption is based on the facts that there are no substitutes for most of these rubber products (other than natural rubber) and that because of the recent devalua- tion of the dollar there will be little influence of imports on domestic demand for these products. At present, most rubber and tire companies are feeling the pressure of increasing costs. During the last year labor and raw materials costs have increased, and most companies have not been able to pass along these higher costs because of various governmental price regulations. The Contractor has therefore assumed that most of the rubber and tire plants will try to pass along most pollution abatement costs to the consumer; in fact, many companies have told the contractor that they will try to do so. Many companies have stated that they would calculate price increases by looking at the annual pollution control costs, and that they would require a return on their investments in pollution equipment of between 6% and 12% after taxes. By thus capitalizing their investments, many firms would in reality be increasing the return on equity to their stockholders, since their present average return on investment is lower than 6%. In other words, many companies would try to become more profitable because of pollution control equipment than they would be without the pollution control equipment. The contractor considers the maximum price increase to be determined not by return on investment criteria, but by maintaining a constant return on stockholders' equity. A summary analysis of the mathematics of our methodology follows, and it relates different criteria for judging price increases. Price Increases Under Different Assumptions Maintain Return on Stockholders' Equity (ROE). If a company increases its price in order to maintain ROE, this price increase will be given by the following equations, assuming that production remains constant. 30 ------- Profits before pollution control: 1 Profits after pollution control: TT + ATT = [ (pQ + ApQ) - (c + Ac) - (1 + AI) - (d + Ad) ] ( 1-t) = 7r + (ApQ- Ac- Al -Ad) (1-t) In order to maintain ROE: TT TT + Air E +AE AE = N.B. AI = interest rate x x Inv. and after simplification: ApQ Inv. 1 pQ D + E (1-t) ' ir I |"Ac + AH-AD "1 pQj+L PQ J or unit price increase Inv. D + E x [Pre-tax profit margin] + unit cost increase Maintain After-tax Profit Margin Margin before pollution control: profits pQ-c PQ Margin after pollution control: revenues c now denotes total costs, including taxes. profits (p + Ap) Q - (c + Ac) revenues (p + Ap) Q (D (2) (3) (4) (5) (6) (7) 1. 7T = profits after taxes; p = unit price; Q = volume of production; c = total operating costs; I = interest on debt; d = depreciation; t = marginal tax rate; E = stockholders' equity; D = debt; Inv. = new investment in pollution control equipment; A = designates an increment in revenues or cost. 31 ------- After simplification: Ap , Ac - = ~ <8> Prices increase in the same ratio as costs. Satisfy a Specified Return on Investment (ROI) Ap Ac Inv. 1 p ~ pQ (l-t)xpQ X ROI rate (9) c.now denotes total costs, including taxes. Relationship Between the Various Assumptions Return -on Stockholders' Equity and After Tax Profit Margin 1 Inv. Ap If 77-7 '——— = then maintaining ROE or the (10) (1-t) D + E p after-tax profit margin will give us the same price increase 1 Inv. Ap > -»• profit margin will decline (1-t) D + E p 1 Inv. Ap (i-t) 'D + E p profit margin will increase Return on Stockholders' Equity and Return on Investment profits after taxes 1 if = (i D + E ROI rate v then the two assumptions will give us the same price increase. Base Data Annual operating costs due to pollution control equipment were calculated in the following manner: Annual operating and maintenance costs were established for each of the plants in our survey by adjusting the tentative cost estimates given to us in the effluent guidelines development document. Depreciation is straight line over a period of five years. The new investments in pollution control equipment are financed by debt and equity. The ratio of debt to equity was determined by the present debt to capitalization ratios of the companies that own these plants. Interest costs are 10% per year on that portion of the investment financed by debt. 32 ------- The base price for the various synthetic rubbers is based on U.S. Tariff Commission prices, industry source information, and the contractor's own internal data. Most of these prices are substantially below list price because the contractor has taken in account the discounts given by manufacturers. Also, substantial quantities of many synthetic rubbers are sold, not on the open market, but internally within the large tire and rubber manufacturers. The average price of tires (passenger, truck and bus) was established using Bureau of Domestic Commerce data industry sources and estimates. The unit value of a passenger tire in 1972 was $14.43 whereas the average price of all tires was $21.24. Tables 12 through 15 on the following pages summarize product sales, B.P.T., B.A.T. and B.P.T. + B.A.T. investment and annual costs for the various industry segments studied in this report. The last two columns of these tables indicate what the expected annual costs as a percentage of sales will be both for each segment on average, and the range of this ratio for plants in each segment. Tables 16, 17, and 18 summarize investment and annual costs as a percent of sales for various synthetic rubber and tire companies both for B.P.T. and B.A.T. pollution abatement levels. Price Effects The range of calculated price increases by plant for each of the rubber types and for tires is given in Tables 19 and 20. This range is based not only on the effluent guideline document figures, but also on the amount each plant has already invested to attain B.P.T. pollution standards. The probable price increase for each rubber type and for tires was computed by taking into consideration the range of possible price increases, the relative position of the various plants and companies within the industry, whether or not there are any price leaders, and the relative growth of this industry as well as its market position vis-a-vis other rubber types and imports. Our unit price increases were calculated using formula (5) in the methodology. Unit cost increases have been summarized in Tables 12 through 15. The term Inv/D+E (pre-tax profit margin) varied between 0.1 and 0.3% for synthetic rubber manufacturers and between 0.06 and 0.44% for tire and tube manufacturers. The price increases that could be expected to attain B.A.T. pollution control standards for the synthetic rubbers are based on 1972 prices. They were computed by taking into consideration the incremental annual costs over and above B.P.T. costs. However, by 1983, companies will have fully depreciated their 1977 pollution control equipment. This is the basic reason for which we find in Table 19 that the price increases due to attaining B.A.T. standards will not be higher than those necessitated for attaining B.P.T. standards. 33 ------- U) TABLE 12 B.P.T. COSTS (based on effluent guideline document data) Product Butyl E.P.D.M. Neoprene Nitrile Polybutadiene Polyisoprene S.B.R. Tires & Tubes No. of Plants Process in U.S.A. solution solution emulsion emulsion & ( latex \ emulsion solution solution emulsion & ( solution i - 3 5 3 9 1 6 2 11 56 No. of Plants in Sample 3 5 3 8 if 2 11 48 Total Investment ( millions of $) 3.0 3.5 4.0 4.5 6.8 1.4 19.5 35.2 Average Investment per Plant 1.0 0.7 1.3 0.6 1.0 0.7 1.8 0.7 Total Annualized Costs ( millions of $) 0.950 1.100 1.300 1.500 2.400 0.470 7.400 14.400 Average Annualized Cost per Plant 0.320 0.220 0.430 0.210 0.340 0.230 0.670 0.300 Total Product Sales (millions of $) 72 90 142 93 144 51 406 5,069 Total Annualized Costs/ Plants Range Total Sales (%) (%'s) 1.3 1.2 0.9 1.6 1.7 0.9 1.8 0.3 1.2-1.5 0.7-1.5 0.7-1 .2 0.5-2.4 1.2-2.2 0.9 1.3-4.7 0.2-0.5 ------- TABLE 13 B.P.T. COSTS (band on industry incremental costs! Product Butyl E.P.D.M. Neoprene Nitrile Polybutadiene Polyisoprene S.8.R. Tires & Tubes No. of Plants Process in US.A. solution solution emulsion emulsion & / latex ( emulsion solution solution emulsion & ( solution ( - 3 5 3 9 1 6 2 11 56 No. of Plants in Sample 2 5 3 8 l\ 2 10 40 Total Investment (millions of $) 2.7 2.1 4.30 2.6 1.8 0.4 8.6 31.5 Average Investment per Plant 1.3 0.4 1.4 0.3 0.3 0.2 0.9 0.8 Total Annualized Costs (millions of $) 0.850 0.730 1.600 0.840 0.700 0.170 3.050 12.560 Average Annualized Cost per Plant 0.430 0.150 0.530 0.110 0.120 0.090 0.310 0.310 Total Total Product Sales Annualized Costs/ Plants Range (millions of $) Total Sales (%) (%'s) 53 90 142 93 121 51 386 4,681 1.6 0.8 1.1 0.9 0.6 0.3 0.8 0.3 1.2-2.3 0 -2.1 0.3-1.5 0 -3.5 0 -1.4 0 -0.7 0 -7.4 0.2-0.4 ------- ON TABLE 14 B.A.T. COSTS (based on effluent guideline document data) No. of Plants Product in U.S.A. Butyl E.P.D.M. Neoprene Nitrile Polybutadiene Polyisoprene SBR Tires & Tubes 3 5 3 9 7 2 11 No. of Plants in Sample 3 5 3 8 7 2 11 Total Average Total Average Annualized Annualized Total Total Investment Investment Costs Cost per Product Sales Annualized Costs/ Plants Range (millions of $) per Plant (millions of $) Plant (millions of $) Total Sales (%) (%'s) 1.4 1.6 2.0 1.1 3.2 0.6 10.2 0.5 0.3 0.7 0.1 0.5 0.3 0.9 B.A.T. standards are 0.610 0.580 0.750 0.700 1.500 0.300 4.000 the same as B.P 0.200 0.120 0.250 0.090 0.210 0.150 0.360 .T. standards 72 90 142 93 144 51 406 0.9 0.6 0.5 0.8 1.0 0.6 1.0 0.7-1.0 0.4-0.9 0.4-0.7 0.2-1.1 OB-1.5 0.6 0.5-2.6 ------- TABLE 15 B.P.T. COSTS (industry response) AND B.A.T. COSTS (effluent guideline document data) No. of Plants Product in U.S.A. Butyl E.P.D.M. Neoprene Nitrile Polybutadiene Polyisoprene SBR Tires & Tubes 3 5 3 9 7 2 11 No. of Plants in Sample 2 5 3 8 6 2 10 Total Total Average Annualized Investment Investment Costs (millions of $) per Plant (millions of $) 3.6 3.7 6.4 3.6 4.4 1.0 IBS 1.8 0.7 2.1 0.5 0.7 0.5 1.9 B.A.T. standards are 0.740 1.010 1.700 1.120 1.600 0.330 5.000 the same as Average Annualized Total Total Cost per Product Sales Annualized Costs/ Plants Range Plant (millions of $) Total Sales (%) (%'s) 0.370 0.200 0.570 0.140 0.270 0.150 0.500 B.P.T. standards 53 90 142 93 121 51 386 1.4 1.1 1.2 1.2 1.3 0.6 1.3 1.2-1.7 0.4-1.4 1.1-1.4 0.2-2.4 0.9-1.9 0.6-0.7 0.5-4.7 ------- TABLE 16 SYNTHETIC RUBBER COMPANIES Investment as a Percent of Sales Annual Costs as a Percent of Sales Company* 1 2 3 4 5 6 7 8 9 10 11 12 B.P.T. 9.9 3.0 5.1 2.2 3.0 4.3 1.7 0.8 0.4 0 0 0 B.A.T. 2.5 1.4 1.8 1.6 2.6 2.5 2.1 2.5 2.7 3.1 2.4 3.3 B.P.T, 3.1 0.6 1.7 0.7 1.1 2.1 1.0 0.3 0.1 0 0 0 B.A.T. 1.2 0.3 0.8 1.2 1.1 1.0 1.0 1.2 1.1 0.7 0.5 1.3 'Ranked by size of B.P.T. investment. TABLE 17 TIRES AND TUBES COMPANIES Company Investment/Sales Cost/Sales I 0.7 0.2 II 0.8 0.2 III 1.0 0.3 IV 1.3 0.4 V 0.5 0.2 38 ------- TABLE 18 SYNTHETIC RUBBER + TIRES AND TUBES Company A B C D E F G H I J K L B.P.T. Investment (millions of $) 13.6 12.6 10.0 6.0 5.7 4.1 3.5 2.0 1.5 0.3 0.2 0 B.P.T. Investment/Sales 0.9 1.0 0.9 1.2 0.8 3.0 5.1 4.3 1.7 0.8 0.4 0 B.A.T. Investment/Sales 0.2 0.2 0.1 0.2 0.4 1.4 1.8 2.5 2.1 2.5 2.7 2.4 B.P.T. Annual Cost/Sales 0.3 0.3 0.4 0.3 0.2 0.6 1.7 2.1 1.0 0.27 0.1 0 B.A.T. Annual Cost/Sale* 0.1 0.1 0.1 0.1 0.2 0.3 0.8 1.0 1.0 1.2 1.1 0.5 Range1 TABLE 19 SYNTHETIC RUBBER (SIC 2822) Price B.P.T. Probable Effect <1.2% <0.5% 1%-1.5% <0.6% 1%-1.5% <0.6% <0.8% Effects Range1 0-1.6% 0-1.6% 0-1.7% 0-2.5% 0-2.0% 0-0.8% 0-4.7% Other Effects B.A.T. Probable Effect <1.2% <0.5% 1%-1.5% <0.6% 1%-1.5% <0.6% <0.8% Price Effect on Tires No Yes No2 Yes Plant Shutdown None None None None None None None Butyl E.P.D.M. Neoprene Nitrile Polybutadiene Polyisoprene S.B.R. Crumb 1. Based on E.P.A. tentative costs and industry response. 2. Polyisoprene competes with natural rubber, the price of which can be expected to be higher in the U.S.A. than that of polyisoprene in the coming 5 years. 39 ------- TABLE 20 TIRES AND INNER TUBES (SIC 3011) Price Effects Other Effects Based on Revised Based on Industry Probable Plant E.P.A. Figures Response Effect Shutdown Other 0.3-0.6% 0.45-0.6% <0.45% None Lowering of profit margins of small tire manufacturers rela- tive to the large inte- grated companies Secondary Effects Synthetic Rubber Industry (SIC #2822). We do not consider that there will be any major changes in this industry because of the small changes in the relative prices of the synthetic rubbers. However, synthetic rubbers are a major component of tires (SIC #3011), and therefore we expect that tires will increase in price not only because of the costs incurred in controlling the pollution of tire plants, but also because of the increased cost in synthetic rubbers due to pollution control. If the rubber content of a tire is approximately 25 percent of the total value of a tire then we can expect a 1 percent increase in rubber raw material cost and therefore a tire cost increase of 0.25 percent. Tire and Tube Industry (SIC #3011). Within the tire industry there may be certain small changes. Because of plant size, age and already existing pollution abatement equip- ment, the large companies will increase their prices relatively less than the small companies would like to increase their prices. In other words, the profitability of the smaller firms will decrease relative to the larger firms. (It should be noted that this effect is not due to our method of calculating price increases: in equation 5, the term "Investment Over Debt plus Equity," was held constant and equal to 0.02 for all tire plants.) Financial Effects (SIC #2822 and SIC #3011) If prices are raised in order to maintain the return on equity for the various companies and plants, there should not be any major financial effects for the industry as a whole. However, certain of the smaller firms Would like to raise their prices more than their larger competitors would. In other words, their profit margins will decrease as compared to that of their competitors. In the long run this could slightly change the structure of these industries. 40 ------- Capital Availability. Of all the companies that we interviewed for this study, we consider that there is only one that could have problems raising the necessary capital in order to meet pollution guidelines. However, we feel that this company will be in a much stronger financial position by 1976 and that it should not have any problems at that time. Our survey covered all the major tire manufacturers. It is possible that some of the smaller companies will have capital availability problems. Production Curtailment Synthetic Rubber. We do not expect to see any production curtailment in any of the synthetic rubber plants because of the new guidelines. Tires and Tubes. Many tire manufacturers feel that they would have to shut down their plants temporarily in order to segregate their process effluent lines from their other effluent lines. We have no way of evaluating the validity of these statements nor what their true economic consequences may be. Plant Closings Synthetic Rubber (SIC #2822). On the basis of our data and industry response we do not expect any plant to be closed down. Tires and Tubes (SIC #3011). On the basis of our data and industry response we do not expect any plant to be closed down. Community Impacts Synthetic Rubber (SIC #2822). None Tires and Tubes (SIC #3011). If plants have to be temporarily shut down to segregate process effluent lines from other lines, there would probably be lay-offs of workers in the plants thus affected. It is presently impossible to evaluate such effects. Industry Growth (SIC #2822 and SIC #3011) We do not feel that the economic effects of the B.P.T. or of the B.A.T., N.S.P.S. guidelines will adversely affect the growth or the growth potential of either the synthetic rubber or the tire industries. Industry spokesmen have said that their plant expansion decisions will not be affected by the new guidelines. International Trade Effects (SIC #2822 and SIC #3011) The recent devaluations of the U.S. dollar have made U.S. produced tires and synthetic rubbers much more competitive on the international scene. The relatively small increase in 41 ------- prices required to meet pollution guidelines should hardly change this position. The price of natural rubber imported into the United States has increased substantially more than, for instance, polyisoprene, its synthetic substitute. Even if there were large surpluses of synthetic rubbers in other countries, it is doubtful that foreign manufacturers could dump their products on the U.S. market at a competitive price given the recent U.S. devaluations. However, we must qualify these statements by saying it is impossible to know what the position of the United States dollar will be in 1977 and thereafter relative to other currencies. Limits of the Analysis When interpreting the findings of this study, it is important to be aware of the nature and limitations of the cost data specifically as regards B.P.T. guidelines and the key assumptions which were used. The investment costs of pollution control equipment were defined to include the direct incremental investment required to attain environmental standards. The operating costs for pollution control equipment were defined to be incremental costs. The establishment of the pollution standards as well as the determination of the cost basis for investment and operating costs was provided to us in the effluent guideline development document. In the appendix to our report we have listed the cost data as well as the scale-up factors we used in estimating the investment and operating costs for plants with capacities other than those on which the data is based. Additional data input to our study was provided through field interviews with and questionnaires to industry representatives. This data was used to supplement the information. Only water pollution abatement costs associated with Federal standards were con- sidered; and these costs were assumed to be independent of air and solid waste control requirements. The calculated price effects on the various rubber types and tires of the pollution guidelines (B.A.T. and B.P.T.) are maximum expected price increases. Certain companies and certain plants already meet B.P.T. guidelines. Because of this, they may not increase their prices at all. And other companies within the industry may follow suit. 42 ------- APPENDIX A ESTIMATION OF PLANT COSTS FOR EFFLUENT GUIDELINES The typical plant costs given in the effluent guidelines development document do not provide any information indicating how the costs vary as a function of treatment facility capacity. At the recommendation of Dr. David Day of Roy F. Weston, Inc., we utilized the data provided in the "Development Document for Effluent Limitations Guidelines and Standards of Performance for the Organic Chemicals Industry, Supplemental Data." The pollution control technology described in this document was considered to be comparable to that utilized in treating the wastes of the rubber processing industry. In Figures 6 and 7 are plotted the appropriate data points given in the organic chemicals document. Figure 6 shows that a curve generated according to the equation CapitalCostofPlantX = CaPitalCostofBasePlant x [ Waste water flow of Plant X "I 0.5 I Waste water flow of Base PlantJ (where X designates an unknown plant) correlates very well with the actual data. Likewise, Figure 7 shows that the operating, maintenance, and power costs (designated as "Operating Costs" in the figure) vary as a function of capacity according to Operating, Operating, Maintenance, and Maintenance, and Power Costs of = Power Costs of x I" Waste water flow of Plant X "10.58 Plant X Base Plant [Waste water flow of Base Plant] Although specific categories of treatment were chosen for the purposes of illustration in these figures, the equations described above were found to apply for all the categories in the organic chemicals document, and were found to provide reasonable cost estimates for the rubber processing industries. Therefore, the Contractor used these relationships for generating pollution control costs for specific plants. 43 ------- 2.5 •;2.0 03 "o Q "o £ 1.5 o '— rf S1.0 ra "5. 03 0.5 0 0 0 Data Points from "Supplemental Data for Organic Chemicals Guidelines," Roy F. Weston, Inc. A Data Point Representing "Typical" Emulsion ^, Polymerization Plant from Supplement A of ^ ~ Development Document for Rubber .^^"^ Processing Industry „ ' -, -^"^ ^, ****^ , — Q^^ jS* 1 Curve Generated According to ^ — ». ( Flow >j 0 ^ Capital Costs $1.410.000^ ) / ^ . ' Selected 0X^ Data Base o/ i i i i 1 i i i 0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 . — ' 0.5 I 1.8 Flow, Millions of Gallons/Day FIGURE 6 CAPITAL COST VERSUS WASTE WATER FLOW 44 ------- 60 50 o D T3 | 30 o H 6 20 d. O 10 O Data Points from "Supplemental Data for Organic Chemicals Guidelines," Roy F. Weston, Inc. »• Selected v Data BaseX -/ 0 / /* Curve Generated According to t i i 0.2 0.4 0.6 Flow, Millions of Gallons/Day FIGURE 7 B.P.T. - YEARLY OPERATIONAL COSTS VERSUS WASTE WATER FLOW 45 ------- APPENDIX B SAMPLE CALCULATION OF SYNTHETIC RUBBER PLANT POLLUTION CONTROL COSTS The annual B.P.T. pollution control costs, for example, of a plant with the hypotheti- cal production of 100,000 long tons of emulsion crumb, 40,000 long tons of solution crumb, and 8,000 long tons of latex are calculated as follows. Through reference to the information summarized in Figures 2, 3. and 4, we would generate B.P.T. B.P.T. Operating, Investment Maintenance & Power Costs 100,000 It Emulsion crumb $1X,760,000 $215,000 8,000 It Latex 570,000 53,000 And these would be the cost estimates of each if these effluent streams were to be fully treated independently. However, we assume that after pretreatment to chemically coagulate the suspended rubber in these streams they are then combined with the effluent stream from the solution crumb operation (which does not have to be chemically coagulated) for further treatment - thus benefitting from the economies inherent in treating the combined effluents. Thus, instead of sizing the solution crumb waste treatment facility to handle the effluent represented by 40,000 long tons of production, we size it to handle the load represented by 100,000 + 8,000 + 40,000 = 148,000 long tons. From Figure 3 we find the costs associated with such a facility are Operating, Maintenance, Investment and Power Costs $1,780,000 $180,000 We then apportion the various costs developed above according to actual effluent load, as follows: 100,000 40,000 Total Plant Investment = - x $1,760,000 + TTT $1,780,000 Emulsion Crumb Solution Crumb Treatment Treatment 8,000 Latex Treatment - $1,700,000 46 ------- Likewise, Total Operating, Maintenance, and Power Costs (O.M.P.) = 1J}_01OC)CL x $215,000 + x $180,000 148,000 148,000 x $53,000 = $197,000 148,000 A comparison of the costs generated by this technique with those generated by assuming that each of the effluent streams at the plant are treated in separate facilities is given below: Cost Apportionment by Assuming Cost Apportionment by Assuming Combined Effluent Treatment Separate Treatment Investment $1,190,000 480,000 30,800 O.M.P. $145,000 49,000 2,900 Investment $1,760,000 935,000 570,000 O.M.P. $215,000 85,000 53,000 Emulsion crumb Solution crumb Latex Total Plant Cost $1,700,800 $196,900 $3,265,000 $353,000 On the basis of our discussions with industry spokesmen, our assumption of the use of combined treatment is valid, and, as a consequence, we believe our cost estimates based on this assumption are more accurate indications of the costs that will actually be incurred. 47 ------- SBR - LATEX Addendum to the ECONOMIC ANALYSIS OF PROPOSED EFFLUENT GUIDELINES THE RUBBER PROCESSING INDUSTRY INTRODUCTION In the preliminary review of information available on the various synthetic rubbers, the Contractor contended that one segment - SBR - could not be evaluated in a valid fashion. SBR latex represents about 9% of the SBR produced. Production is so small, and prices, profitability and outlook are so difficult to estimate that the Contractor deleted SBR latex in the main report. In the course of his work, the Contractor did, however, gather some information on SBR latex, information which is presented in this addendum to the "Economic Analysis of Proposed Guidelines - Rubber Processing Industry, September 1973, EPA - 230 - 1 - 73 - 024." TECHNOLOGY SBR latex, a copolymer of styrene and butadiene, is produced by the same polymerization process used in the manufacture of SBR crumb rubber. The steps required to produce a latex are polymerization followed by stabilization and usually concentration. PLANT LOCATIONS, SIZES AND AGES Fifteen companies presently produce SBR latex in 23 plants located in 14 different states. The production capacity of the 12 plants for which this data is available ranges from 5,000 to 35,000 long tons per year. Plants vary widely in age. The older plants date from World War II; the latest plant was built in 1972. USES SBR latex is used primarily in carpet backing, dipped rubber goods and adhesives. Approximately 15% of the 1972 U.S. production (158,000 long tons) was exported. Arthur D little hie ------- The projected growth for SBR latex is less than that of most other latices and is expected to be less than 4% per year through 1975 (Chemical and Engineering News, 8/21/72). PRICE AND OTHER EFFECTS Most latex plants belong to large corporations and are but small contributors to overall profits. Because of the lack of data on the SBR industry, the Contractor is not able to make good predictions of how pollution abatement costs will affect this segment of the synthetic rubber industry. In the following tables he has, however, shown the available data in a fashion consistent with that in the main body of the report. The Contractor believes that the conclusions in the main report also apply to SBR latex, although further study would be necessary to validate this opinion. Arthur D Little, Inc ------- I D *•+" «•*• ft R EXHIBIT 1: COSTS OF PROPOSED EFFLUENT GUIDELINES EXHIBIT 1: COSTS OF PROPOSED EFFLUENT GUIDELINES Product Process S.B.R. Latex No. of Plants No of Plants 23 Simple Plants Production as a % of 1972 Totil Production 70% Total Investment (millions of $) Average Investment per Plant Total Annualized Costs (millions of $) Bf.T. Costs (band on effluent guideline document data) 3.6 06 1 21 Average Annualized Coitper Plants 020 Product Sales ImiMiom of t) 373 Total Plant Annuitized Costs/ Range Total Sales <%) (%'s) 32 1552 S.B.R. Latex 23 38% B.P T. Costs (based on industry incremental costs) 1 0 03 038 013 202 19 05.2 S.B.R. Latex S B.R. Latex 23 23 70% 38% B.A.T. Costs (based on effluent guideline data) 18 03 0.56 B.P.T. Costs (industry response) and B.A.T. Costs (effluent guideline document) 1 4 0.5 41 0.19 14 373 202 1 5 20 0424 0448 ------- EXHIBIT 2: PRICE EFFECTS1 B.P.T. B.A.T. Range2 Probable Effect Range2 Probable Effect 5 0-5.4 <2.1 0.6-5.0 <2.2 1. The validity of these price effects is limited due to the small size (3) of the sample. 2. Based on E.P.A. tentative costs and industry response. Arthur D Little Inc ------- j II ( IINKAI Kl POR'I 1 DA'I A I'ACI 1 Ucport No. EPA-230-1 -73-024 4 I ilk- .iiul Subtitle Economic Analysis of Proposed Effluent Guidelines - The Rubber Processing Industry Aiilhoils) John T. Howarth John A. Carter Kenneth R. Sidman ') I'lMhinnmg Organization Name anil Address Arthur D. Little, Inc. Acorn Park Cambridge, Mass. 02140 I J Sponsoring Oigani/alion Name and Addres Office of Planning and Evaluation Environmental Protection Agency Washington, D.C. 20460 3. Recipient's Accession No. 5. Report Dale September 1973 6. 8. Performing Organization Rept No. C-75903 10. Project/Task/Work Unit No. Task Order No. 3 11. Contract/Grant No. 68-01-1541 13. Type of Report & Period Covered Final 14 I *> Supplementary Notes Id Abstracts An initial analysis of the economic impact of proposed water effluent guidelines upon the Rubber Processing Industry (SIC #2822 and SIC #3011) was performed, based on the abatement cost data supplied by EPA. On this basis, with better than 88% coverage of the industry, none of the plants appears to be severely affected in meeting either the B.P.T. or B.A.T. requirements. For the Synthetic Rubber segment, capital investment for pollution control will be an estimated $23 million through 1977, and $10 million from 1977 through 1983. Annual operating costs will be $8 million higher through 1977, and $4 million higher from 1977 through 1983. The Tire and Tube segment will meet both B.A.T. and B.P.T. in one step; investment will be an estimated $32 million, and annual operating costs will be roughly $13 million higher through 1977. The impact on prices will be no greater than 1.5% for B.P.T. and B.A.T. for the Synthetic Rubber segment, and about 0.45% for the Tire and Tube segment. 17. Key Words and Document Analysis. Economic Analysis Effluent Guidelines Rubber Processing Industry Synthetic Rubber Tires and Tubes 17b. Identificrs/Open-Knded Terms 17a. Descriptors I7c COSATI Held/Croup IS. Availability Statement 19. Securitj Class (This Report) IINCI.ASSIHM) 2(1. Security ( lass ( This Paw) UNCLASSiril I) 21. No of Pane 2: Price I ORM NT1S 35 (Rl V. 3-72) USCOMM-IX' 1495 2-l'7 2 ------- |