United States
Environmental Protection
Agency
Office of Air Quality
Planning and Standards
Research Triangle Park, NC 27711
EPA-452/R-96-009 'X
May 1996
Air
EPA Economic Impact Analysis for the
Polymers and Resins IV NESHAP
FINAL
-------
This report has been reviewed by the Air Quality Strategies &
Standards and the Emission Standards Divisions of the Office of
Air Quality Planning and Standards, U.S. EPA, and approved for
publication. Mention of trade names or commercial products is
not intended to constitute endorsement or recommendation for use,
Copies of this report are available through the Library Services
Office (MD-35), U.S. Environmental Protection Agency, Research
Triangle Park, NC, 27711, or from the National Technical
Information Services, 5285 Port Royal Road, Springfield, VA
22161. It is also available through the U.S. EPA's Technology
Transfer Network (TTN).
U.S. Environmental Protection Agency
Region 5, Library (PL-12J)
77 West Jackson Boulevard, 12th Floor
Chicago, IL 60604-3590
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CONTENTS
Page
TABLES vi
FIGURES viii
ACRONYMS AND ABBREVIATIONS ix
EXECUTIVE SUMMARY ES-1
ES.l ECONOMIC IMPACT ANALYSIS OBJECTIVES ES-1
ES.2 INDUSTRY CHARACTERIZATION ES-2
ES.3 CONTROL COSTS AND COST-EFFECTIVENESS ES-4
ES.4 ECONOMIC METHODOLOGY OVERVIEW ES-7
ES.5 PRIMARY REGULATORY IMPACTS ES-11
ES.6 SECONDARY REGULATORY IMPACTS ES-14
ES.7 ECONOMIC COST ES-14
ES.8 POTENTIAL SMALL BUSINESS IMPACTS ES-16
1.0 INTRODUCTION AND SUMMARY OF CHOSEN REGULATORY ALTERNATIVE .... 1
1.1 INTRODUCTION 1
1.2 SUMMARY OF CHOSEN REGULATORY ALTERNATIVE 2
2.0 INDUSTRY PROFILE 5
2.1 INTRODUCTION 5
2.2 PROFILE OF AFFECTED FIRMS AND FACILITIES 5
2.2.1 General Process Description 6
2.2.2 Product Description 6
2.2.3 Affected Resin Facilities, Employment, and Location 9
2.3 MARKET STRUCTURE 20
2.3.1 Market Concentration 20
2.3.2 Industry Integration and Diversification 22
2.3.3 Financial Profile 23
2.4 MARKET SUPPLY CHARACTERISTICS 23
2.4.1 Past and Present Production 23
2.4.2 Supply Determinants 26
2.4.3 Exports of SAN, MBS, PET, ABS, and Polystyrene 28
2.5 MARKET DEMAND CHARACTERISTICS 29
2.5.1 End-Use Markets for MBS, SAN, PET, ABS, MASS, Polystyrene and Nitrile
Resins 29
2.5.2 Demand Determinants 30
2.5.3 Past and Present Consumption 32
2.5.4 Imports of SAN, MBS, PET, ABS, and Polystyrene 34
2.6 MARKET OUTLOOK 34
111
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CONTENTS (continued)
Page
3.0 ECONOMIC METHODOLOGY 39
3.1 INTRODUCTION 39
3.2 MARKET MODEL 39
3.2.1 Partial Equilibrium Analysis 40
3.2.2 Market Demand and Supply 41
3.2.3 Market Supply Shift 42
3.2.4 Impact of the Supply Shift on Market Price and Quantity 46
3.2.5 Trade Impacts 46
3.2.6 Plant Closures 48
3.2.7 Changes in Economic Welfare 48
3.2.8 Labor Input and Energy Input Impacts 51
3.2.9 Baseline Inputs 52
3.3 INDUSTRY SUPPLY AND DEMAND ELASTICITIES 55
3.3.1 Introduction 55
3.3.2 Price Elasticity of Demand 55
3.3.3 Price Elasticity of Supply 61
3.4 CAPITAL AVAILABILITY ANALYSIS 68
4.0 CONTROL COSTS, ENVIRONMENTAL IMPACTS, AND COST-EFFECTIVENESS .... 75
4.1 INTRODUCTION 75
4.2 CONTROL COST ESTIMATES 75
4.3 ESTIMATES OF ECONOMIC COSTS 81
4.4 ESTIMATED ENVIRONMENTAL IMPACTS 83
4.5 COST EFFECTIVENESS 85
5.0 PRIMARY ECONOMIC IMPACTS AND CAPITAL AVAILABILITY ANALYSIS 87
5.1 INTRODUCTION 87
5.2 ESTIMATES OF PRIMARY IMPACTS 87
5.3 CAPITAL AVAILABILITY ANALYSIS 91
5.4 LIMITATIONS 93
5.5 SUMMARY 94
6.0 SECONDARY ECONOMIC IMPACTS 95
6.1 INTRODUCTION 95
6.2 LABOR MARKET IMPACTS 95
6.3 ENERGY INPUT MARKET 97
6.4 FOREIGN TRADE 97
6.5 REGIONAL IMPACTS 97
6.6 LIMITATIONS 98
6.7 SUMMARY 98
IV
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CONTENTS (continued)
i
Page
7.0 POTENTIAL SMALL BUSINESS IMPACTS 99
7.1 INTRODUCTION 99
7.2 METHODOLOGY 99
7.3 SMALL BUSINESS CATEGORIZATION 100
7.4 SMALL BUSINESS IMPACTS 100
APPENDIX A SENSITIVITY ANALYSIS A-l
APPENDIX B ALTERNATIVE PET MODEL B-l
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TABLES
Page
ES-1. SUMMARY OF GROUP IV NESHAP COSTS IN THE FIFTH YEAR BY RESIN
INDUSTRY AND EMISSION POINT ES-5
ES-2. SUMMARY OF GROUP IV NESHAP CAPITAL COSTS BY RESIN INDUSTRY
AND EMISSION POINT ES-8
ES-3. SUMMARY OF PRIMARY ECONOMIC IMPACTS OF POLYMERS AND
RESINS GROUP IV NESHAP ES-12
ES-4. SUMMARY OF SECONDARY ECONOMIC IMPACTS OF POLYMERS AND
RESINS GROUP IV NESHAP ES-15
ES-5. ANNUAL ECONOMIC COST ESTIMATES FOR THE POLYMERS AND RESINS
GROUP IV REGULATION BASED ON EXISTING SOURCE COSTS ES-16
2-1. FACILITIES AFFECTED BY POLYMERS/RESINS GROUP IV NESHAP 10
2-2. MBS MANUFACTURERS BY CAPACITY (1991) 12
2-3. SAN MANUFACTURERS BY CAPACITY (1991) 12
2-4. PET MELT-PHASE RESIN AND PET BOTTLE MANUFACTURERS BY
CAPACITY 13
2-5. PET FILM AND PET FIBER MANUFACTURERS BY CAPACITY 14
2-6. ABS MANUFACTURERS BY CAPACITY 17
2-7. POLYSTYRENE MANUFACTURERS BY CAPACITY 18
2-8. 1991 EMPLOYMENT LEVELS OF POLYMERS AND RESINS GROUP IV FIRMS
19
2-9. DISTRIBUTION OF MANUFACTURERS BY RESIN TYPE AND FACILITY
LOCATION 21
2-10. FINANCIAL STATISTICS FOR AFFECTED FIRMS 24
2-11. HISTORICAL PRODUCTION LEVELS FOR SAN, MBS,AND PET 25
2-12. HISTORICAL PRODUCTION LEVELS FOR ABS AND POLYSTYRENE 26
2-13. PRICE LEVELS FOR MBS, SAN, PET, ABS, AND POLYSTYRENE 31
2-14. SALES LEVELS FOR MBS, SAN, PET, ABS, AND POLYSTYRENE 33
2-15. PLANNED CAPACITY EXPANSIONS THROUGH 1996 BY RESIN TYPE 35
3-1. PRODUCT-SPECIFIC BASELINE INPUTS 53
3-2. BASELINE INPUTS FOR THE POLYMERS AND RESINS GROUP IV
INDUSTRIES 53
3-3. DATA INPUTS FOR THE ESTIMATION OF DEMAND EQUATIONS FOR
GROUP IV INDUSTRIES 58
3-4. DERIVED DEMAND COEFFICIENTS BY RESIN TYPE 60
3-5. DATA INPUTS FOR THE ESTIMATION OF THE PRODUCTION FUNCTION
FOR GROUP IV INDUSTRIES 66
3-6. ESTIMATED SUPPLY MODEL COEFFICIENTS FOR GROUP IV INDUSTRIES .... 67
4-1. SUMMARY OF GROUP IV NESHAP COSTS IN THE FIFTH YEAR BY RESIN
INDUSTRY AND EMISSION POINT 77
4-2. SUMMARY OF TOTAL GROUP IV NESHAP CAPITAL COSTS BY RESIN
INDUSTRY AND EMISSION POINT 79
4-3. ANNUAL ECONOMIC COST ESTIMATES FOR THE POLYMERS AND RESINS
GROUP IV REGULATION BASED ON EXISTING SOURCE COSTS 84
VI
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TABLES (continued)
Page
4-4. ESTIMATED ANNUAL REDUCTIONS IN EMISSIONS AND COST-
EFFECTIVENESS ASSOCIATED WITH THE CHOSEN REGULATORY
ALTERNATIVE 84
5-1. SUMMARY OF PRIMARY ECONOMIC IMPACTS OF POLYMERS AND
RESINS GROUP IV NESHAP 89
5-2. POST-NESHAP EFFECTS ON FIRMS' DEBT-EQUITY RATIOS 92
5-3. POST-NESHAP EFFECTS ON FIRMS' RETURN ON INVESTMENT LEVELS 92
6-1. SUMMARY OF SECONDARY ECONOMIC IMPACTS OF POLYMERS AND
RESINS GROUP IV NESHAP 96
6-2. FOREIGN TRADE (NET EXPORTS) IMPACTS 98
A-l. PRICE ELASTICITY OF DEMAND ESTIMATES A-2
A-2. SENSITIVITY ANALYSIS FOR ESTIMATED PRIMARY IMPACTS: LOW-END
PRICE ELASTICITY OF DEMAND SCENARIO A-2
A-3. SENSITIVITY ANALYSIS FOR ESTIMATED PRIMARY IMPACTS: HIGH-END
PRICE ELASTICITY OF DEMAND SCENARIO A-3
A-4. SENSITIVITY ANALYSIS FOR ESTIMATED PRIMARY IMPACTS: HIGH-END
PRICE ELASTICITY OF SUPPLY SCENARIO A-4
A-5. SENSITIVITY ANALYSIS FOR ESTIMATED PRIMARY IMPACTS: LOW-END
PRICE ELASTICITY OF SUPPLY SCENARIO A-4
B-l. PRIMARY IMPACTS FOR THE PET INDUSTRY ASSUMING THAT ANNUAL
FIXED COSTS ARE EQUIVALENT TO TOTAL ANNUAL COSTS B-2
B-2. SECONDARY IMPACTS FOR THE PET INDUSTRY ASSUMING THAT
ANNUAL FIXED COSTS ARE EQUIVALENT TO TOTAL ANNUAL COSTS B-2
vn
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FIGURES
Page
ES-1. Model Development for Economic Impact Analysis ES-10
3-1 Illustration of Post-NESHAP Market Model 45
vin
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ACRONYMS AND ABBREVIATIONS
ABS acrylonitrile-butadiene styrene
ASM Annual Survey of Manufactures
BCA Benefit Cost Analysis
CAA Clean Air Act
CTG Control Technique Guideline
DuPont E.I. du Pont de Nemours
EIA economic impact analysis
EPA U.S. Environmental Protection Agency
HAPs hazardous air pollutants
HON Hazardous Organic NESHAP
ITC International Trade Commission
MABS methyl methacrylate acrylonitrile butadiene styrene
MACT maximum achievable control technology
MBS methyl methacrylate butadiene styrene
MRR monitoring, recordkeeping, and reporting
NESHAP National Emission Standard for Hazardous Air Pollutants
OMB Office of Management and Budget
PET polyethylene terephthalate
PVC polyvinyl chloride
RFA Regulatory Flexibility Act
SIC Standard Industrial Classification
SAN styrene acrylonitrile
SBA U.S. Small Business Administration
2SLS two-stage least squares
IX
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EXECUTIVE SUMMARY
ES.l ECONOMIC IMPACT ANALYSIS OBJECTIVES
The purpose of this economic impact analysis (EIA) is to evaluate the effect of the control costs
associated with the Polymers and Resins Group IV National Emission Standard for Hazardous Air
Pollutants (NESHAP) on the behavior of the regulated resin facilities. The EIA was conducted based on
the cost estimates for one regulatory option chosen by the U.S. Environmental Protection Agency (EPA)
for the regulation of affected facilities. This analysis compares the quantitative economic impacts of
regulation to baseline industry conditions that would occur in the absence of regulation. The economic
impacts of the regulation are estimated for the industry based on facility-level costs.
Section 112 of the Clean Air Act (CAA) contains a list of hazardous air pollutants (HAPs) for which
EPA has published a list of source categories that must be regulated. To meet this requirement, EPA is
evaluating NESHAP alternatives for the regulation of industries classified within the Polymers and
Resins Group IV source category. The NESHAP alternatives are based on different control options for
the emission points within resin facilities that emit HAPs. This economic analysis analyzes the potential
impacts of regulation on the following seven affected thermoplastic resin industries: styrene
acrylonitrile (SAN), methyl methacrylate butadiene styrene (MBS), polyethylene terephthalate (PET),
acrylonitrile-butadiene styrene (ABS), methyl methacrylate acrylonitrile butadiene styrene (MABS),
polystyrene, and nitrile resins. These seven industries are classified in the Polymers and Resins Group
IV source category and will be collectively referred to as Group IV industries throughout this report.
This report presents the results of the economic analysis prepared to satisfy the requirements of Section
317 of the CAA which mandates that EPA evaluate regulatory alternatives through an EIA.
The objective of this EIA is to quantify the impacts of NESHAP control costs on the output, price,
employment, and trade levels in each of the Group IV resin industries. The probability of resin facility
closure is also estimated, in addition to potential effects on the financial conditions of affected firms. To
comply with the requirements of the Regulatory Flexibility Act (RFA), the EPA Regulatory Flexibility
ES-1
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Guidelines, and the recently enacted Small Business Regulatory Enforcement Fairness Act of 1996,
attention is focused on the effects of control costs on the smaller affected firms relative to larger affected
firms.
ES.2 INDUSTRY CHARACTERIZATION
The firms affected by the Polymers and Resins Group IV NESHAP produce MBS, SAN, PET, ABS,
MABS, polystyrene, and nitrile resins, and are classified in Standard Industrial Classification (SIC) code
2821. The regulation will affect 64 facilities, which are owned and operated by 28 firms. MBS
copolymers are characterized by high impact strength and transparency, and are typically higher in price
than other common monomers. MBS resins are used primarily as an impact modifier for rigid polyvinyl
chloride (PVC), which in turn is used in the production of packaging, building, and construction
products. The MBS industry capacity is shared nearly equally by three producers, and no producer is
clearly dominant in this market.
The SAN copolymers are transparent, amorphous materials with high heat and chemical resistance.
SAN's primary use is as a feedstock to ABS production, which is in turn used to provide weather
resistance for applications including boats, swimming pools, and recreational vehicles. The SAN resins
are most often produced for captive use by ABS producers, although small amounts of SAN resins are
also sold on the merchant market. There are three firms producing SAN at a total of five facilities. No
firm is clearly dominant in this market.
The PET is a high melting point polymer that is clear, and has good gas and moisture barrier
properties. PET is produced in the following four basic forms: melt-phase resins, bottle-grade resins,
PET film, and PET (polyester) fibers. Melt-phase PET resins are used to produce PET film, polyester
fibers, and indirectly as an input to production of the solid state resins used to manufacture PET bottles.
The bottle-grade PET resin industry is more highly concentrated than the other three PET categories,
having only four producers. The PET melt-phase resins and PET film are each produced by nine firms,
and PET fibers are produced by fourteen firms, with fiber production dominated by two major producers.
The ABS is formed by blending SAN with SAN grafted-rubber which increases impact resistance
and, combined with acrylonitrile, produces heat-resistant and solvent-resistant plastics which have
extensive uses. In the automotive industry, ABS has replaced the majority of steel or aluminum parts for
use in interior panels, grilles, wheelcovers, and mirror housings. Consumer goods manufactured with
ES-2
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ABS include household appliances, housewares, luggage, toys, furniture, and sporting goods. In sheet
form, ABS is used as a component of refrigerator door linings and food storage compartments. The ABS
industry is highly concentrated, with 99 percent of total domestic ABS production capacity owned by
three firms.
The MABS is formed from ABS blended with methyl methacrylate which makes a clear ABS resin
capable of uses similar to those listed for ABS. The MABS polymers are utilized by the plastics industry
in applications which require a tough, transparent, and highly impact-resistant material. The primary use
of MABS resins is in the production of both food and non-food containers. There is only one domestic
producer of MABS polymers.
Polystyrene resins are characterized by brittleness, optical clarity, and poor barrier properties to
oxygen and water. Uses of the polystyrene polymer include the manufacture of durable goods, such as
television cabinets, appliances, furniture, and building insulation board. Its most common use is for the
manufacture of foam used in food trays, meat trays and egg cartons, as well as in packaging for
electronics and other delicate items. The polystyrene industry is the least concentrated industry in the
Group IV source category. There are fifteen polystyrene producers, with 40 percent of total domestic
production capacity concentrated in the hands of two producers and the remaining 60 percent of capacity
shared by the thirteen remaining producers.
Nitrile resins are characterized by good abrasion and water-resistant qualities, which makes them
suitable for use in a wide variety of applications. The primary use of nitrile elastomers is in the
manufacture of nitrile rubber, which, in turn, is used to produce components for automobiles. There is
only one domestic nitrile resin producer.
ES.3 CONTROL COSTS AND COST-EFFECTIVENESS
The Polymers and Resins Group IV NESHAP would require sources to achieve emission limits
reflecting the application of the maximum achievable control technology (MACT) to four affected
emission points. This EIA analyzes one regulatory alternative that was chosen by EPA and is based on
the available control options for four emission points within Group IV resin facilities. For existing
sources, the MACT floor was based on the CAA stipulation that the minimum standard must represent
the average emission limitation achieved by the best performing 12 percent of existing sources. For new
sources, costs were estimated based on projected control of new process units and equipment built (or
ES-3
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TABLE ES-1. SUMMARY OF GROUP IV NESHAP COSTS IN THE FIFTH YEAR BY RESIN INDUSTRY AND EMISSION POINT1
Group IV Industry and Emission Point
A. MBS2
Equipment Leaks
Miscellaneous Process Vents
Wastewater Systems
Storage Tanks
Total MBS
B. SAN2
Equipment Leaks
Miscellaneous Process Vents
Wastewater Systems
Storage Tanks
Total SAN
C. PET3
Equipment Leaks
Miscellaneous Process Vents
Wastewater Systems
Storage Tanks
Total PET
D. ABS2
Equipment Leaks
Miscellaneous Process Vents
Wastewater Systems
Storage Tanks
Total ABS
Annual Fifth Year Costs
(1989 Dollars per Year)
Existing
Sources New Construction Total
$23,143 $216 $23,358
$180,603 $239,640 $420,244
$143,239 $0 $143,239
$0 $3,179 $3,179
$346,985 $243,035 $590,021
$66,987 ($6,878) $60,109
$0 $0 $0
$281,018 $0 $281,018
$0 $0 $0
$348,005 ($6,878) $341,127
$892,942 $705,967 $1,598,909
($5,424,619) $758,276 ($4,666,343)
($424,619) ($9,653,905) ($3,904,319)
$64,678 $157,724 $222,402
$1,282,587 ($8,031,938) ($6,749,351)
($110,449) ($214,159) ($324,608)
$1,712,377 $1,779,934 $3,492,311
$0 $0 $0
$0 $59,059 $59,059
$1,601,927 $1,624,834 $3,226,762
Annual
HAP Emission
Reduction
(Mg/yr)
41.5
25.9
5.0
1.7
74.0
123.4
0.0
30.0
0.0
153.4
2,003.6
(5,725.6)
12,621.23
113.33
9,012.6
283.0
330.3
0.0
4.2
617.5
Cost-
Effectiveness
($/Mg)
$563.1
$16,244.4
$28,647.8
$1,926.9
$7,963.3
$487.1
$0.0
$9,367.3
$0.0
$2,223.8
$798.0
$815.0
($309.3)
$1,962.42
($748.9)
($1,147.0)
$10,573.5
$0.0
$14,061.7
$5,225.5
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TABLE ES-1 (continued)
Group IV Industry and Emission Point
E. MABS2
Equipment Leaks
Miscellaneous Process Vents
Wastewater Systems
Storage Tanks
Total MABS
F. Polystyrene2
Equipment Leaks
Miscellaneous Process Vents
Wastewater Systems
Storage Tanks
Total Polystyrene
G. Nitrile2
Equipment Leaks
Miscellaneous Process Vents
Wastewater Systems
Storage Tanks
Total Nitrile
TOTAL FOR REGULATORY ALTERNATIVE
Annual Fifth Year Costs
(1989 Dollars per Year)
Existing
Sources New Construction Total
($64,600) $0 ($64,600)
($79) $0 ($79)
$0 $0 $0
$0 $0 $0
($64,679) $0 ($64,679)
$5,728 ($11,355) ($5,627)
($74,900) ($1,494) ($76,394)
$0 $0 $0
$0 $0 $0
($69,171) ($12,849) ($82,020)
$6,164 $0 $6,164
$767 $0 $767
$0 $0 $0
$0 $0 $0
$6,931 $0 $6,931
Annual
HAP Emission
Reduction
(Mg/yr)
(1.5)
38.0
0.0
0.0
36.5
304.4
198.8
0.0
0.0
503.2
6.8
3.4
0.0
0.0
10.2
$3,452,586 ($6,183,795) ($2,731,210) 10,407.4
Cost-
Effectiveness
($/Mg)
$43,066.7
($2.1)
$0.0
$0.0
($1,772.0)
($18.5)
($384.3)
$0.0
$0.0
($163.0)
$906.5
$225.7
$0.0
$0.0
$679.5
($262.4)
NOTE: 'Costs reflect absolute regulatory costs rather than incremental costs
2Assumes regulatory Alternative 1 is chosen
3Assumes regulatory Alternative 2 is chosen
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ES.4 ECONOMIC METHODOLOGY OVERVIEW
In this study, data inputs are used to construct a separate, pre-control baseline equilibrium market model of each
of the seven affected industries. The baseline models of the markets for these seven resins provide the basic
framework necessary for analyzing the impact of the compliance costs on these industries. The Industry Profile for
the Polymers and Resins IV NESHAP contained industry data that are used as inputs to the baseline models and to the
estimation of price elasticities of demand and supply. The industry profile includes a characterization of the market
structure of each affected industry, provides necessary supply and demand data, and identifies market trends.
Engineering control cost studies provide the final major data input required to quantify the potential impact of
control measures on the affected markets. These economic and engineering cost data inputs were evaluated within
the context of the market models to estimate the impacts of regulatory control measures on each of the Group IV
resin industries, and on society as a whole. The potential impacts include the following:
• Changes in market price and output;
• Financial impacts on affected firms;
• Predicted closure of affected resin facilities;
• Welfare analysis;
• Small business impacts;
• Labor market impacts:
• Energy use impacts:
• Foreign trade impacts: and
• Regional impacts.
The progression of steps in the EIA process is summarized in Figure ES-1.
ES-7
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TABLE ES-2. SUMMARY OF GROUP IV NESHAP CAPITAL COSTS BY RESIN INDUSTRY AND
EMISSION POINT1
Total Capital Costs
(1989 Dollars)
Group IV Industry and Emission Point
A. MBS
Equipment Leaks
Miscellaneous Process Vents
Wastewater Systems
Storage Tanks
Total MBS
B. SAN
Equipment Leaks
Miscellaneous Process Vents
Wastewater Systems
Storage Tanks
Total SAN
C. PET
Equipment Leaks
Miscellaneous Process Vents
Wastewater Systems
Storage Tanks
Total PET
D. ABS
Equipment Leaks
Miscellaneous Process Vents
Wastewater Systems
Storage Tanks
Total ABS
E. MABS
Equipment Leaks
Miscellaneous Process Vents
Wastewater Systems
Storage Tanks
Total MABS
Existing
Sources
$167,426
$93,204
$279,051
$0
$539,681
$498,790
$0
$579,252
$0
$1,078,042
$1,342,491
($84,768,845)
$86,827,321
$266,078
$3,667,045
$224,546
$4,004,211
$0
$0
$4,228,757
$30,000
$89,673
$0
$0
$119,673
New
Construction
$16,252
$405,446
$0
$18,083
$439,781
$176,188
$0
$0
$0
$176,188
$1,089,206
$442,362
$0
$508,750
$2,040,318
$111,161
$3,419,086
$0
$172,276
$3,702,523
$0
$0
$0
$0
$0
Total
$183,678
$498,650
$279,051
$18,083
$979,462
$674,978
$0
$579,252
$0
$1,254,230
$2,431,697
($84,326,483)
$86,827,321
$774,828
$5,707,363
$335,707
$7,423,297
$0
$172,276
$7,931,280
$30,000
$89,673
$0
$0
$119,673
ES-8
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TABLE ES-2 (continued)
Total Capital Costs
(1989 Dollars)
Group IV Industry and Emission Point
F. Polystyrene
Equipment Leaks
Miscellaneous Process Vents
Wastewater Systems
Storage Tanks
Total Polystyrene
G. Nitrile
Equipment Leaks
Miscellaneous Process Vents
Wastewater Systems
Storage Tanks
Total Nitrile
TOTAL FOR REGULATORY ALTERNATIVE
Existing
Sources
$806,120
$243,527
$0
$0
$1,049,647
$0
$8,770
$0
$0
$8,770
$10,691,615
New
Construction
$172,010
$2,045
$0
$0
$174,055
$0
$0
$0
$0
$0
$6,532,865
Total
$978,130
$245,572
$0
$0
$1,223,702
$0
$8,770
$0
$0
$8,770
$17,224,480
NOTE
'Costs reflect absolute regulatory costs rather than incremental costs
ES-9
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Figure ES-1. Model Development for Economic Impact Analysis
Data Inputs
Supply/Demand
Trends
(Industry Profile)
Market Structure
Characterization
(Industry Profile)
Cost Analysis
(Engineering Contractor)
Baseline Industry
Output
(Industry Profile)
Model
Taskl
Baseline
Market Equilibrium Model
Task 2
Price Elasticities
of
Supply and
Demand
TaskS
Per-Unit Control Costs
and
Matching Model Plants
to Industry
Task 4
Post-Control
Market
Equilibrium *
Results
Task 5
Closure
Analysis
Task6
Financial
Impacts
Task?
Balance of
Trade Impacts
TaskS
Small
Business
Impacts
TaskQ
Sensitivity
Analysis
Task 10
Welfare
Analysis
Price and Output Estimates
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ES.5 PRIMARY REGULATORY IMPACTS
Primary regulatory impacts include estimated increases in the market equilibrium price of each of
the Group IV resins, decreases in the market equilibrium domestic output or production of each resin,
changes in the value of domestic shipments, and facility closures. The analysis was conducted separately
for each of the seven affected industries with one exception. Insufficient data were available to analyze
the MABS industry separately. For this reason the MABS impacts have been incorporated into the ABS
analysis. The MABS production and control costs represent a very small portion of the ABS and MABS
totals. The primary regulatory impacts for each affected industry (MABS and ABS combined) are
summarized in Table ES-3.
As shown in Table ES-3, the estimated price increases for Group IV resins range from increases of
$0.0003 to $0.011, based upon 1989 price levels. These predicted price increases represent percentage
increases ranging from a low of 0.1 percent for nitrile to a high of 2.8 percent for SAN. Domestic
production will decrease for each of the resin products by 1.3 million kilograms of MBS, 3.8 million
kilograms of SAN, 122.3 million kilograms of PET, 22.0 million kilograms of ABS/MABS, 5.4 million
kilograms of polystyrene, and 0.03 million kilograms of nitrile annually. This estimated percentage
decrease in annual production for each of the resins varies from a low of 0.2 percent to a high of 4.6
percent.
The predicted change in the dollar value of domestic shipments, or revenue to producers, is expected
to decrease for the seven affected Group IV resin industries. Annual revenues for MBS will decline by
$0.78 million, for SAN by $0.62 million, for PET by $57.42 million, for ABS/MABS by $5.71 million,
for polystyrene by $0.39 million, and for nitrile by $.007 million annually. These revenue decrease
estimates are also based upon 1989 price levels.
ES-11
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TABLE ES-3. SUMMARY OF PRIMARY ECONOMIC IMPACTS OF POLYMERS AND RESINS
GROUP IV NESHAP
Estimated Impacts'
Group IV Industry
MBS
Amount
Percentage
SAN
Amount
Percentage
PET
Amount
Percentage
ABS/MABS
Amount
Percentage
Polystyrene
Amount
Percentage
Nitrile
Amount
Percentage
Price2
$0.008
0.9%
$0.011
2.8%
$0.011
1.5%
$0.007
1 .6%
$0.0004
0.2%
$0.0003
0.1%
Production3
(1.3)
(2.5%)
(3.8)
(4.6%)
(122.3)
(4.1%)
(22.0)
(3.8%)
(5.4)
(0.2%)
(0.03)
(0.2%)
Value of
Domestic
Shipments4
($0.78)
(1.7%)
($0.62)
(2.0%)
($57.42)
(2.7%)
($5.71)
(2.3%)
($0.39)
(0.1%)
($0.007)
(0.1%)
Facility
Closures
None
None
Three
None
None
None
NOTES 'Brackets indicate decreases or negative values
Prices are shown in price per kilogram (1989 dollars)
3Annual production quantities are shown in millions of kilograms
"Values of domestic shipments are shown in millions of 1989 dollars
ES-12
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No predicted facility closures are anticipated for the MBS, SAN, ABS/MABS, polystyrene, or nitrile
resin industries. However, three potential closures are anticipated for the PET industry. These closures
will not likely result in firm closures but may result in facility closures. To the extent that the affected
facilities have the capability to produce alternative products, the facilities may shift production to
products other than PET in response to the incurrence of regulatory costs rather than shut down. Closure
decisions would be based upon many decisions including the ability and associated cost of switching to
production of an alternative product. These facility closures are likely to be overstated for the following
reasons:
• The model assumes that all PET facilities compete in a national market. In reality, some
facilities may be protected by regional or local trade barriers.
• It is assumed that the facilities with the highest control cost per unit of production also have the
highest baseline production costs. This is a worst-case assumption and may not be true in
every case.
• Actual individual 1991 PET production data were unavailable for several affected PET
facilities. In lieu of this information, capacity data per facility for 1991 was used to estimate
the actual facility production based the ratio of total PET industry production to total PET
industry capacity. Each facility was assumed to produce at the same percentage of total
capacity as the utilization rate that occurred at the industry level. These production estimates
may therefore differ from actual 1991 production levels at each facility.
Additionally, PET melt-phase resin production was excluded from annual production amounts
based on the premise that PET melt-phase resin is an intermediate product which is used in the
production of other PET products. If PET melt-phase resin is a marketable commodity that is
traded in the marketplace, this assumption will be correct for industry totals but may not lead
to accurate production estimates for individual facilities. The exclusion of PET melt-phase
resin production from individual facility production totals may understate production estimates
for individual facilities and overstate the per unit control costs on a facility-specific basis.
ES-13
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ES.6 SECONDARY REGULATORY IMPACTS
Secondary impacts of the Polymers and Resins Group IV NESHAP include potential effects of the
regulation on the labor market, energy use, foreign trade, and regional markets. The effects on the labor
market, energy use, and balance of trade are summarized in Table ES-4.
Labor market losses resulting from the NESHAP are estimated to be from 0 to 127 jobs for all of the
Group IV resin industries in total. This estimate reflects the reductions in jobs predicted to result from
the anticipated decreases in annual production of these Group IV resins. No effort has been made to
estimate the number of jobs that may be created as a result of the regulations, however, and as a result,
this estimate of job losses is likely to be overstated.
Annual reductions in energy use as a result of the regulations are expected to amount to a savings of
$3.2 million (1989 dollars) annually. Net annual exports are predicted to decrease by approximately $19
million. This represents a percentage decrease ranging from a low of 0.8 percent for the nitrile industry
to a high of 20.6 percent for the MBS industry.
Regional effects are expected to be minimal. No region is expected to experience economic impacts
of significance.
ES.7 ECONOMIC COST
Air quality regulations affect society's economic well-being by causing a reallocation of productive
resources in the economy. Resources are allocated away from the production of goods and services
(Group IV resins) to the production of cleaner air. Economic costs represent the total cost to society
associated with this reallocation of resources.
The economic costs of regulation incorporate costs borne by all of society for pollution abatement.
The social, or economic, costs reflect the opportunity cost of resources used for emission control.
Consumers, producers, and all of society bears the costs of pollution controls in the form of higher
prices, lower quantities produced, and possible tax revenues that may be gained or lost. Annual
economic costs of $4.3 million ($1989) for existing source controls are anticipated for the regulation and
are shown by industry in Table ES-5.
ES-14
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TABLE ES-4. SUMMARY OF SECONDARY ECONOMIC IMPACTS OF POLYMERS AND
RESINS GROUP IV NESHAP
Group IV Industry
MBS
Amount
Percentage
SAN
Amount
Percentage
PET
Amount
Percentage
ABS/MABS
Amount
Percentage
Polystyrene
Amount
Percentage
Nitrile
Amount
Percentage
Labor Input2
(1)
(2.5%)
(2)
(4.6%)
(110)
(4.1%)
(12)
(3.8%)
(2)
(0.3%)
(0.015)
(0.2%)
Estimated Impacts'
Energy Input3
($0.04)
(2.6%)
($0.05)
(2.5%)
($2.73)
(4.3%)
($0.30)
(1.8%)
($0.04)
(0.3%)
($0.0004)
(0.2%)
Foreign Trade4
(0.20)
(20.6%)
(0.98)
(5.7%)
(10.67)
(7.2%)
(6.51)
(14.9%)
(0.61)
(0.5%)
(0.008)
(0.8%)
NOTES 'Brackets indicate decreases or negative values.
indicates estimated change in number of jobs
3Change in energy use in millions of 1989 dollars.
4Change in net exports (exports less imports) in millions of kilograms
Economic costs are a more accurate estimate of the cost of the regulation to society than the cost of
emission controls to the directly affected industry. The sum of economic costs for existing sources
combined with the engineering estimates of new source annual savings results in an annual gain of
ES-15
-------
approximately $1.9 million (1989$). This value represents an estimate of the economic cost of the
regulation 5 years after promulgation of the regulation.
TABLE ES-5. ANNUAL ECONOMIC COST ESTIMATES FOR THE POLYMERS AND RESINS
GROUP IV REGULATION BASED ON EXISTING SOURCE COSTS
(1989 Dollars)
Estimated Impacts1
Group IV Industry
MBS
SAN
PET
ABS/MABS
Polystyrene
Nitrile
TOTAL
Consumer
Surplus
($397,306)
($683,877)
($29,765,757)
($3,757,059)
($905,538)
($4,726)
($35,514,263)
Producer
Surplus
$31,294
$334,357
$26,802,696
$1,603,303
$659,740
($1,429)
$29,429,961
Residual
Surplus
$44,323
$232,079
$0
$1,069,534
$409,995
($319)
$1,755,612
Total Surplus
($321,688)
($117,441)
($2,963,061)
($1,084,222)
$164,197
($6,474)
($4,328,690)
NOTE
'Brackets indicate economic costs
ES.8 POTENTIAL SMALL BUSINESS IMPACTS
The RFA, the EPA Regulatory Flexibility Guidelines, and the Small Business Regulatory
Enforcement Fairness Act of 1996 requires that a determination must be made as to whether or not the
subject regulation will have an economic impact on small entities (the RFA criteria call for a
determination of if there are "significant economic impacts on a substantial number of small entiles").
Based on available employment data for each of the affected firms, only two firms classify as small
businesses, according to SBA guidelines. Costs expressed as a percentage of sales for these firms and
the rest of the El A do not indicate that the NESHAP will result in adverse economic impacts.
ES-16
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1.0 INTRODUCTION AND SUMMARY OF CHOSEN
REGULATORY ALTERNATIVE
1.1 INTRODUCTION
Section 112 of the CAA contains a list of HAPs for which EPA has published a list of source
categories that must be regulated. EPA is evaluating alternative NESHAPs for controlling HAP
emissions occurring as a result of the production of MBS, SAN, PET, ABS, MABS, polystyrene, or
nitrile resins. These seven industries are categorized within the Polymers and Resins Group IV
source category, and will be collectively referred to as Group IV resins throughout this report. This
report evaluates the economic impact of one standard on these affected industries. This analysis was
conducted to satisfy the requirements of Section 317 of the CAA which requires EPA to evaluate
regulatory alternatives through an El A.
This chapter presents a discussion of the NESHAP alternative under analysis in this report.
Chapter 2 of this report is a compilation of economic and financial data on the seven affected Group
IV industries included in this analysis. Chapter 2 also presents an identification of affected resin
facilities, a characterization of market structure, separate discussions of the factors that affect supply
and demand, a discussion of foreign trade, a financial profile, and the quantitative data inputs for the
EIA model. Chapter 3 outlines the economic methodology used in this analysis, the structure of the
market model, and the process used to estimate industry supply and demand elasticities.
Chapter 4 presents the control costs used in the model, the estimated emission reductions
expected as a result of regulation, and the cost-effectiveness of the regulatory option. Also included
is a quantitative estimate of economic costs and a qualitative discussion of conceptual issues associated
with the estimation of economic costs of emission controls. Chapter 5 presents the estimates of the
primary impacts determined by the model, which include estimates of post-NESHAP price, output,
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Chapter 6 presents the secondary economic impacts, which are the estimated quantitative impacts on
labor inputs, energy use, balance of trade, and regional markets. Lastly, Chapter 7 specifically
addresses the potential impacts of regulation on small affected firms. Appendix A presents the results
of sensitivity analyses conducted to quantify the extent to which the price elasticities of demand and
supply affect the results of the model. Appendix B is an evaluation of the sensitivity of the results of
the PET model to an assumption about the distribution of annual costs between fixed and variable
components.
1.2 SUMMARY OF CHOSEN REGULATORY ALTERNATIVE
The CAA stipulates that HAP emission standards for existing sources must at least match the
percentage reduction of HAPs achieved by either: (1) the best performing 12 percent of existing
sources, or (2) the best 5 sources in a category or subcategory consisting of fewer than 30 sources.
For new sources, the CAA stipulates that, at a minimum, the emission standard must be set at the
highest level of control achieved by any similar source. This minimum level of control for both
existing and new sources is referred to as the MACT floor.
A source within a Group IV resin facility is defined as the collection of emission points in HAP-
emitting production processes within the source category. The source comprises several emission
points. An emission point is a piece of equipment or component of production that produces HAPs.
The definition of source is an important element of this NESHAP because it describes the specific
grouping of emission points within the source category to which this standard applies. The NESHAP
considered in this EIA requires controls on the following emission points in Group IV resin producing
facilities: storage tanks, equipment leaks, miscellaneous process vents, and wastewater collection and
treatment systems. EPA chose one regulatory alternative for each of the seven regulated industries,
and this report presents the results of the detailed economic impact analyses which were completed for
each of the affected industries.
EPA provided cost estimates for controls deemed appropriate as options for Group IV resin-
producing processes at existing facilities. Costs for new facilities were provided for the MBS, SAN,
PET, ABS, and polystyrene industries. Costs represent the impact of bringing each facility from
existing control levels to the control level defined by each regulatory alternative for each emission
point. The Group IV regulatory alternative reflects the application of the Hazardous Organic
NESHAP (HON) rule and the Batch Process Control Technique Guideline (CTG), where applicable.
-------
The provisions of the single regulatory alternative developed for storage tanks and wastewater streams
are equivalent to those required by Part 63, Subpart G of the HON rule. The levels of control for
equipment leaks are identical to the application of the requirements of Part 63, Subpart H of the HON
rule to all components in HAP service.1 The process vent provisions also resemble the HON with the
exception of provisions for some vents. For process vents that operate less than 500 hours per year,
the regulatory alternative is based on EPA's draft CTG for Batch Processes. In either situation, the
applicability of control requirements is based on vent stream characteristics.
For PET processes, costs were provided for new and existing facilities for two regulatory
alternatives. Regulatory Alternative 1 represents the application of the HON rule and the Batch CTG,
where applicable. Regulatory Alternative 2 is the same as Alternative 1, with the addition of
determining whether the water leaving the ejector systems before going to the cooling tower is subject
to the HON wastewater provisions.2 The results of the economic analysis presented in this report for
the PET industry are based on the cost estimates provided for Alternative 2.
-------
-------
REFERENCES
1. U.S. Environmental Protection Agency. Regulatory Alternative Briefing Package on the Polymers
& Resins Group IV Industry. Received from John L. Sorrels, U.S. Environmental Protection
Agency. Research Triangle Park, NC. September 14, 1994.
2. Meardon, Kenneth. Pacific Environmental Services. Letter to Les Evans. U.S. Environmental
Protection Agency. Revised Costs Summary for MBS, SAN, and PET Processes. Research
Triangle Park, NC. July 14, 1994.
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2.0 INDUSTRY PROFILE
2.1 INTRODUCTION
This chapter focuses on the markets for Group IV resins. Sections 2.2 through 2.6 of this chapter
provide an overview of the activities of these seven affected industries. The economic and financial
information in this chapter characterizes the conditions in these industries which are likely to determine
the nature of economic impacts associated with the implementation of the NESHAP. The quantitative
data contained in this chapter represent the inputs to the economic model (presented in Chapter 3) that
were used to conduct the EIA. The general outlook for the Group IV industries is also discussed in this
chapter.
Section 2.2 describes the resin production process, and identifies the unique market characteristics
of each resin. Section 2.2 also identifies the affected resin facilities by industry location and production
capacity. Section 2.3 characterizes the structure of the affected industries in terms of market
concentration and firm integration. Also included in Section 2.3 is a financial profile of affected firms.
Section 2.4 characterizes the suppl> side of the market based on production trends, supply determinants,
and export levels. Section 2.5 presents demand-side characteristics, including end-use markets,
consumption trends, and import levels. Lastly, Section 2.6 presents quantitative estimates of forecasts
for growth in each industry.
2.2 PROFILE OF AFFECTED FIRMS AND FACILITIES
This section reviews the products and processes of the affected resin industries and identifies any
differences among product markets. The affected firms are identified by capacity, employment, and
location of facilities. (In this report, the term firm refers to the company or producer, while the term
facility refers to the actual resin production site or plant.)
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2.2.7 General Process Description
Plastics production involves using hydrocarbons - large molecules derived from petroleum and
natural gas (and to some extent, coal) — which are separated through refining and cracking. The
resultant smaller compounds are monomers, which are used to produce plastics. Polymerization is the
process of linking these monomers in a series to produce long-chain molecules called polymers using
moderate amounts of heat, pressure, catalysts, and reactive agents. The resultant basic plastic
materials, known as resins, are sold by manufacturers in the form of pellets, flakes, powder, or
granules.1 The resins are used as input for many diverse plastic products, including food containers,
appliances, construction materials, and automobile parts.
2.2.2 Product Description
The affected Group IV resins are classified as thermoplastic resins, and have a variety of end
uses. This section describes the properties of each resin individually and identifies its primary uses.
2.2.2.7 Methyl Methacrylate Acrylonitrile Butadiene Styrene (MBS). MBS is a type of styrene
butadiene copolymer that is characterized by high impact strength and transparency. Although higher
in price than many other common monomers, the use of methacrylate includes inputs into products
demanding unique stability characteristics, ease of use, and high quality standards. MBS polymers
are useful as an impact modifier for rigid PVC, which, in turn, is used in the production of
packaging, building, and construction products.
2.2.2.2 Styrene Acrylonitrile (SAN). SAN copolymers are transparent, amorphous materials
with higher heat and chemical resistance than polystyrene. Because of its brittleness, SAN has been
modified in different ways to form thermoplastics with greater impact strength. In terms of end use
markets, SAN resins are most commonly used in consumer products, including dishwasher-safe
housewares and refrigerator shelves. SAN's primary use, however, is as an input for ABS
production, which is then used to provide weather resistance for applications including boats,
swimming pools, and recreational vehicles.
2.2.2.3 Polyethylene Terephthalate (PET). A type of thermoplastic polyester, PET is a high
melting point polymer that is clear, tough, and has good gas and moisture barrier properties. PET is
-------
produced in four basic forms that include PET bottle-grade resins, PET melt-phase resins, PET films,
and PET (polyester) fibers.
PET bottle-grade resins, the most frequently used form, is as an input to the production of soft
drink and liquor bottles. In addition to its light weight, the advantageous qualities of PET include
barrier properties, impact strength, and clarity, which promoted its penetration into the markets for
container applications other than its original use as soft drink bottles. PET has become the resin of
choice for soft drink bottles. The initial benefit to using PET in the production of beverage bottles is
that compared to glass, steel, and aluminum, the weight of the bottle is significantly lower. Because
of this weight reduction, bottlers realize lower labor and energy costs throughout the distribution
chain. In sheet form, PET film, which is manufactured with PET melt-phase resin, is a higher cost
specialty film, as compared to low cost films made from PVC, polyethylene, and polyester. PET
film's primary end uses are in photographic and magnetic film, as well as in packaging and electronic
products.
A third form of PET is melt phase resin that is used in the production of two PET types: PET
film and polyester fibers, and indirectly as an input to production of the solid state resins used to
manufacture PET bottles. The fourth form of PET is a fiber form known as polyester fibers, which
are used in the manufacture of clothing, furniture, carpets, and other industrial uses.
2.2.2.4 Acrylonitrile Butadiene Styrene (ABS). ABS materials are composed of acrylonitrile,
butadiene, and styrene combined by a variety of methods, including copolymerization and physical
blending. ABS is formed by blending SAN with SAN grafted-rubber. When blended with this
polybutadiene rubber component, SAN (which is rigid and chemically resistant) creates ABS (which is
opaque). Blending styrene with polybutadiene rubber increases impact resistance and, combined with
acrylonitrile, produces heat-resistant and solvent-resistant plastics which have extensive uses. The
favorable characteristics of ABS polymers include toughness, dimensional stability, chemical
resistance, electrical insulating properties, and ease of fabrication.2 The range of applications for
ABS plastics is broad, given that ABS meets the property requirements for many plastic parts at a
relatively low per-unit price. Primary end uses of ABS are for the manufacture of automotive parts,
household appliances, and food packaging.
7
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2.2.2.5 Methyl Methacrylate Acrylonltrile Butadiene Styrene (MASS). Like MBS, MABS
resins are characterized by strength and transparency, and are more expensive than many other
common monomers. MABS is formed from ABS blended with methyl methacrylate which makes a
clear ABS capable of uses similar to those listed for ABS. MABS polymers are utilized by the
plastics industry in applications which require a tough, transparent, highly impact-resistant, and
formable material. With the exception of being transparent, MABS polymers are similar to opaque
ABS plastics, and are primarily used in the production of both food and non-food containers. The
primary end use is in packaging for items such as cups, lids, trays, and clamshells for the fast food
industry.3
2.2.2.6 Polystyrene. Polystyrene resins are derived from petroleum by-products and natural
gas, and are low cost resins with easy processability. Polystyrene is characterized by brittleness,
optical clarity, and poor barrier properties to oxygen and water.4 Differentiation in the production of
polystyrene exists through variations of impact strength and chemical resistance. In liquid form,
polystyrene can be easily fabricated into useful articles, which accounts for the high volume with
which it is used in world commerce. Uses of the polystyrene polymer include the manufacture of
durable goods, such as television cabinets, appliances, furniture, and building insulation board.
Polystyrene's most common use is for the manufacture of foam used in food trays, meat trays and egg
cartons, as well as in packaging for electronics and other delicate items.
2.2.2.7 Nitrite Resins. Nitrile resins, also referred to as acrylonitrile copolymer resins, offer a
broad balance of low temperature, oil, fuel, and solvent resistance due to their acrylonitrile content.
These characteristics, combined with their good abrasion and water-resistant qualities, make them
suitable for use in a wide variety of applications with heat-resistant requirements. Different types of
nitrile resins are produced by varying the proportion of acrylonitrile in the blend. The majority of
nitrile elastomers produced are copolymers of acrylonitrile and butadiene. The primary use of nitrile
elastomers is in the manufacture of nitrile rubbers, which, in turn, are used to produce components
for automobiles.
2.2.3 Affected Resin Facilities, Employment, and Location
The NESHAP will affect 75 facilities, which are owned and operated by 28 firms. Table 2-1
shows the relative sizes of the three MBS producers. The percentage of industry capacity owned by
8
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ythese three firms is fairly evenly divided. Kaneka Texas, Rohm and Haas, and Elf Atochem each
own approximately one-third of domestic MBS capacity. Table 2-2 shows the distribution of
operating capacity among the producers of SAN. Because capacity information was not available for
three SAN facilities, the capacity is based on the average facility capacity, given total industry SAN
production capacity. General Electric owns approximately half of domestic SAN production capacity,
followed by Monsanto Chemical, which owns 38 percent of the industry capacity. Dow Chemical
owns 13 percent of the total. It is important to note that all ABS resin producers have SAN resin
production capacity. The SAN resin produced by these firms, however, is normally used for the
manufacture of ABS resins. These companies actually sell relatively small quantities of SAN resin on
the merchant market.
The capacity for producing PET melt-phase resin and PET bottles are presented in Table 2-3.
Hoechst Celanese Corporation owns the highest share of melt-phase capacity with 26.4 percent, and
DuPont owns 26.1 percent of the industry total. Kodak is the other major PET melt-phase resin
producer with 22 percent of capacity. The remainder of PET melt-phase capacity is shared by 6
firms. Kodak dominates the PET bottle market with 52.6 percent of industry capacity, followed by
Goodyear Tire & Rubber with 28.4 percent of industry capacity. As shown in Table 2-4, the capacity
for producing PET film is shared by nine firms. E.I. du Pont de Nemours (DuPont) owns the highest
degree of production capacity with 28.9 percent of the total. The second largest PET film producers
are ICI American Holdings and Bridgestone, each with 15 percent of industry capacity. DuPont also
owns the highest percentage of industry capacity for PET fibers at 34.4 percent, and has the second
highest share of PET melt-phase resin capacity.
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TABLE 2-1. MBS MANUFACTURERS BY CAPACITY (1991)5
:, 6, 7
Company
Kaneka Texas Corporation
Elf Atochem
Rohm and Haas Company
Total
Facility
Location
Pasadena, TX
Mobile, AL
Louisville, KY
Capacity
(million
kilograms)
23
18
23
64
Percentage of Total
(%)
35.9%
28.2%
35.9%
TABLE 2-2. SAN MANUFACTURERS BY CAPACITY (1991)5 6 7
Company
Dow Chemical
General Electric Joint Venture
General Electric
Monsanto Chemical
Monsanto Chemical
Total
Facility
Location
Midland, MI
Bay St. Louis, MS
Selkirk, NY
Muscatine, IA
Addyston, OH
Capacity
(million
kilograms)
30
59*
59*
59*
32
239
Percentage of Total
(%)
12%
25%
25%
25%
13%
100%
NOTES: * Indicates that capacity reflects an average capacity based on total industry capacity.
10
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TOTALS
3,034
100%
929
100%
NOTES: *DuPont facilities' melt-phase resin capacities reflect an industry average based on the firm total of 793 million kilograms.
**Hoechst Celanese's melt-phase resin capacities reflect an industry average based on the firm total of 804 million kilograms.
TABLE 2-4. PET FILM AND PET FIBER MANUFACTURERS BY CAPACITY (MILLION KILOGRAMS) (1991)5- 6- 7
Company**
Allied Signal Inc.
BASF
Bemis Company
Bridgestone/Firestone
DuPont
DUPONT TOTAL
Eastman Kodak
KODAK TOTAL
Foss Manufacturing
Goodyear Tire & Rubber (Shell)
Guilford Mills
Hoechst Celanese Corp.
HOECHST CELANESE TOTAL
1C I Americas
Katema
Martin Color-Fi
Facility Location PET Percentage
Film of Total (%)
Moncure, NC
Lowland, TN
New London, WI 5 1.5%
Hopewell, VA 50 14.9%
Kinston, NC
Parkersburg, WV
Brevard, NC 16
Circleville, OH 33
Florence, SC 48
28.9%
Rochester, NY 45 13.4%
Kingsport, TN
Rochester, NY 23
Haverhill, MA
Scottsboro, AZ
Fuquay-Varina, NC
Shelby, NC
Spartanburg, SC
Greer, SC 41 12.2%
Hopewell, VA 50 14.9%
Calenton, MD
Sumter, SC
PET Percentage
Fiber of Total (%)
63 3.6%
23 1.3%
19 1.1%
609
1
34.4%
72 4.1%
18 1.0%
16 0.9%
6 0.3%
279
279
31.5%
2 0.1%
50 2.8%
12
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North American
Company**
Rayon
Facility
EHzabethton
Location
, TN
PET
Film
Percentage
of Total (%)
PET
Fiber
7
Percentage
of Total (%)
0.4%
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TABLE 2-4 (continued).
Company**
3M Corporation
3M CORPORATION TOTAL
Rhone-Poulenc Inc.
Tolaram Fibers
Wellman
WELLMAN TOTALS
TOTALS
Facility Location PET Percentage
Film of Total (%)
Decatur, AL 20
Greenville, SC 18
11.3%
Holcomb, NY 2
Ansonville, NC
Fayetteville, NC
Florence, SC
Palmetto, SC*
336 100%
PET
Fiber
Percentage
of Total (%)
29
45
165
88
1,774
1.6%
16.8%
100%
NOTES: *Wellman's Palmetto facility is scheduled to enter operation at the end of 1993.
"Facilities in boldface type represent facilities affected by the proposed Group IV regulation.
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Table 2-5 shows the distribution of operating capacity among the four producers of ABS. There
are nine affected facilities owned and operated by 4 firms. The majority of capacity is operated by 3
of these firms. Table 2-6 presents a similar industry breakdown for the affected polystyrene
manufacturers. There are 15 polystyrene producers operating 33 facilities. Dow Chemical and
Huntsman Chemical are the two primary producers, with 19 percent and 18.6 percent of industry
capacity, respectively.
BP Chemicals operates the only nitrile resin facility. Its Lima, Ohio facility had a 1991
operating capacity of 19 million kilograms. Only one producer of MABS was identified, for which
production capacity was not available.
On a firm level, employment data were available for each of the 28 affected firms. Firm-level
employment data will satisfy the requirements of the RFA by identifying the percentage of affected
firms that classify as small businesses. Specifically, the RFA, along with the EPA guidelines for
implementing the Regulatory Flexibility Act, and the recently signed Small Business Regulatory
Enforcement Fairness Act of 1996 requires the examination of the economic impacts of regulations on
"small businesses." A final regulatory flexibility analysis must be prepared if a proposed regulation
will have a significant economic impact on a substantial number of small entities; according to the
EPA guidelines, such an analysis must be prepared if there is any economic impact on small entities.
The first step in the determination of the effect of the Group IV NESHAP on small firms is to
assign the appropriate definition of a small entity in the Polymers and Resins Group IV industry. The
U.S. Small Business Administration (SBA) defines small businesses in SIC code 2821 as employing a
work force of 750 employees or less.8
Table 2-7 lists 1991 employment levels for each of the affected firms. Under the SBA definition,
American Polymers, Kama, Novacor Chemicals, and Kaneka Texas Corporation employ less than 750
workers. Kama and Novacor Chemicals are both subsidiaries of larger firms, and therefore do not
qualify as small businesses by SBA standards. American Polymers and Kaneka Texas Corporation
are the only two firms affected by the Group IV NESHAP which meet SBA's definition of a small
business. Given that the majority of affected firms are subsidiaries of large, chemical corporations, it
is unlikely that there will be significant economic impacts on affected small entities. EPA may adopt
an alternative definition of a small business if an alternative size cutoff can be justified.
15
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TABLE 2-5. ABS MANUFACTURERS BY CAPACITY (1991)
,5, 6, 7
Company
Diamond Polymers
Dow Chemical
General Electric
Monsanto Chemical
Facility Location
Akron, OH
Allyn's Point, CT
Hanging Rock, OH
Midland, MI
Torrance, CA
Dow Total
Ottawa, IL
Washington, WV
GE Total
Addyston, OH
Muscatine, IA
Monsanto Total
Capacity
(million Percentage of Total
kilograms) (%)
11 1.5%
27
32
122
18
199 26.7%
136
109
245 32.7%
204
90
294 39.3%
INDUSTRY TOTAL
749
16
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TABLE 2-6. POLYSTYRENE MANUFACTURERS BY CAPACITY (1992)5
, 6, 1
Company
American Polymers Inc.
Amoco Chemical
ARCO Chemical
BASF
Chevron Chemical
Dart Container Corp.
Dow Chemical
Fina Oil and Chemical Co.
Huntsman Chemical Corp.
GE-Huntsman Joint Venture
Kama Corporation
Monsanto Chemical
Novacor Chemicals
Rohm & Haas
Scott Paper Co.
Totals
Capacity
(million kilograms)
32
357
45
283a
217
32
548
290
527
45
36
72
290
25
41
2,840
Percentage of Total (%)
1.1%
12.6%
1.6%
10.0%
7.5%
1.1%
19.3%
10.2%
18.6%
1.6%
1.3%
2.5%
10.2%
1.0%
1.4%
100.0%
"BASF purchased Mobil's 285-milhon kilogram polystyrene capacity in 1992.
17
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TABLE 2-7. 1991 EMPLOYMENT LEVELS OF POLYMERS AND RESINS GROUP IV
FIRMS9-I0-"
Firm Name Number of Employees
Allied Signal 105,800
American Polymers 45
Amoco 54,524
ARCO Chemical 27,300
BASF 133,759
BF Goodrich 11,892
BP Chemical 118,050
Chevron Chemical 54,028
Dart Container Corporation 3,000
Dow Chemical 62,100
E.I. du Pont de Nemours 143,961
Eastman Kodak Co. 134,450
Fina (American Petrofina) 3,997
General Electric 284,000
Hoechst Celanese Corp. 31,600
Huntsman Chemical 1,277
ICI American Holdings Inc. 9,500
Kama 300*
Kaneka Texas Corporation 160
Metco (Elf Atochem) 4,500
Monsanto Chemical 41,081
Novacor Chemicals 700*
Rohm and Haas Co. 12,872
Scott Paper Co. 29,100
Shell 30,000
3M 88,477
Wellman 2,900
YKK 1,900
Notes: * Kama and Novacor Chemicals are subsidiaries of larger firms which do not classify as small businesses by
SBA standards.
18
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National production capacity by resin type is summarized on a regional and State basis in Table
2-8. (Only EPA regions and States in which at least one resin facility is located are included in the
table.) Certain industry characteristics are evident from the regional categorization in this table.
Forty-three percent of facilities which produce the seven resin types are located in the Southeastern
United States. The geographical distribution of the affected facilities will be critical to the
determination of the regional impacts of the NESHAP. The leading States by total number of
facilities are Ohio, North Carolina, and South Carolina. Table 2-8 also shows the total number of
facilities by resin type. The majority of facilities in the Polymers and Resins IV category produce
polystyrene, followed by PET. In terms of capacity, melt-phase PET resin production accounts for
the highest capacity in Group IV (3,034 million kg), followed by polystyrene (2,840 million kg).
2.3 MARKET STRUCTURE
The purpose of this section is to characterize the market structures in the Group IV resin
industries. Market structure has important implications for the resultant price increases that occur as
a result of controls. For example, in a perfectly competitive market, the imposition of control costs
will shift the industry supply curve by an amount equal to the per-unit control costs, and the price
increase will equal the cost increase. An indication of the market structure of the seven affected
Group IV resin industries is provided by an assessment of the number of firms operating resin
facilities, vertical integration, and diversification.
2.3.1 Market Concentration
Market concentration is a measure of the output of the largest firms in the industry, expressed as
a percentage of total national output. For each of the Group IV resin industries, however, the
necessary production data on a facility level were not available. For this analysis, therefore, the firms
in each of the seven industries were analyzed in terms of production capacity rather than by a specific
measure of resin output. Because MABS and nitrile resins are produced by only one firm, market
concentration is not considered for these two industries. As was shown in Table 2-1, the MBS
industry capacity is shared nearly equally by the three firms with no single firm dominating the
19
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TABLE 2-8. DISTRIBUTION OF MANUFACTURERS BY RESIN TYPE AND FACILITY
LOCATION5 6 7
EPA
Region
I
n
ffl
IV
V
VI
VII
IX
State
Connecticut
Massachusetts
New Jersey
New York
Pennsylvania
Virginia
West Virginia
Alabama
Georgia
Kentucky
Mississippi
North Carolina
South Carolina
Tennessee
Illinois
Michigan
Ohio
Louisiana
Texas
Iowa
California
TOTALS
Total Facilities by Resin Type
ABS
1
1
1
2
1
1
7
SAN
1
1
1
1
1
5
PET
1
1
1
1
1
7
7
3
1
23
MBS
1
1
1
3
MABS
1
1
Polystyrene
1
2
1
1
3
1
1
1
1
5
3
5
1
1
3
30
Nitrile
1
1
State
Total
2
2
1
3
3
2
2
3
2
2
1
7
7
3
6
5
10
1
2
2
4
70
20
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market. GE and Monsanto dominate the SAN industry, although there is not great diversity in the
distribution of SAN capacity. PET production as a whole involves the highest number of producers
of any of the seven resin industries in this analysis. The market concentration in the PET industry is
less concentrated than in the SAN or MBS industries. The PET bottle industry is more highly
concentrated than the other three PET categories, having only four producers. Of these four,
Eastman Kodak owns slightly over half of the industry capacity, followed by Shell with 28.3 percent
of total capacity. The ABS market is highly concentrated, given that 3 of the 4 firms share 98.7
percent of total industry production capacity. General Electric owns the highest share with 40 percent
of the total, followed by Monsanto with 35 percent of ABS capacity, and Dow Chemical with 24
percent of total capacity.
The distribution of polystyrene capacity indicates that the polystyrene industry is the least
concentrated industry in the Group IV source category. Dow Chemical and Huntsman Chemical are
the top two firms by production capacity ownership, with 19.3 percent and 18.6 percent of industry
capacity, respectively. Amoco owns the third highest percentage of polystyrene capacity with 12.3
percent. The remaining 49.8 percent of capacity is shared by the 12 remaining producers.
2.3.2 Industry Integration and Diversification
The majority of firms affected by the Group IV NESHAP are large firms that are vertically
integrated to the extent that the same firm supplies input for several stages of the production and
marketing process. The majority of firms in this industry own segments that are responsible for
exploration and production of crude oil (a major input to chemical production) and for marketing the
chemicals and polymers produced. For the larger firms in this industry, horizontal integration exists
to the extent that these firms operate several resin-producing facilities. The major firms operate
several facilities, and the largest, DuPont, operates seven domestic facilities. Of the 28 affected
firms, 16 operate more than one facility. Diversification indicates the extent to which affected firms
have developed other revenue-generating operations. Given that the majority of the affected firms are
in divisions of large, diversified corporations, the financial resources for capital investment in control
equipment may be more accessible than for an industry characterized by a large number of smaller
firms.
2.3.3 Financial Profile
This subsection presents the available financial data for affected firms. In order to evaluate the
21
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financial condition of the firms, annual reports to stockholders were used as a primary source of data.
Because the El A is conducted on a firm level, it is useful to examine overall corporate profitability a&
a preliminary indicator of the baseline conditions of affected firms in the industry. Corporate-ievrf
data are also useful as an indication of the financial resources available to affected; firms md the
ability of this capital to cover increased compliance costs after promulgation of the NESBAP..
Table 2-9 presents net income to assets ratios that were averaged from 1987 to 1991 fe eacfc of
their firms for which data were available. Also presented are long-term debt to Long-term debt pitas
equity ratios for the most current year for which data were available. These ratios are used to
represent the baseline in the financial impacts analysis, the results of which provide qirantitatrve?
estimates of the effect of NESHAP compliance costs on the financial conditions of affected) firms.
The results of the capital availability analysis are presented in Section 5.3 of this report.
2.4 MARKET SUPPLY CHARACTERISTICS
This section analyzes the supply side of each of the Group IV resin industries. Historical
production data are presented, and the factors that affect production are identified1. The rofe of
foreign competition in this industry is also assessed. The focus of the section is on cweraili industry
supply and the existing conditions in the marketplace.
2.4.1 Past and Present Production
The domestic supply of MBS, SAN, and PET for the past decade are s&own in Table 2-10. Of
these three industries, PET has shown the greatest growth in domestic production. The average
annual growth rate for PET between 1980 and 1991 was 7 percent. SAN's. average annual growth
during this period was only 0.6 percent. Production levels of MBS are shown for 19-85 through
1991. Time-series data on the production of MBS reflect significant yearly fluctuations due in part to
changes in the line item definitions used by the U.S. International Trade Commission to report data.
22
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TABLE 2-9. FINANCIAL STATISTICS FOR AFFECTED FIRMS
10
Company
Allied Signal Inc.
Amoco
ARCO
BP Chemicals
Chevron
E.I. de Nemours DuPont
Dow Chemical
Eastman Kodak
Elf Atochem
Fina
General Electric
ICI
Monsanto
Rohm & Haas
Scott
Shell
3M
Well man
Net Income to Assets Ratio*
1987 to 1991 Average
(%)
6.3
5.5
11.2
4.0
3.9
2.7
8.7
6.6
1.0
4.1
3.1
7.5
6.7
9.8
3.8
4.6
13.0
10.0
Long Term Debt to LT
Debt and Equity
(%)
43.5
28.2
39.8
43.4
28.2
N/A
66.8
61.6
N/A
93.1
58.7
30.2
36.3
35.1
54.1
11.0
10.7
42.5
NOTES: *Net income reflects profits derived from all sources after deductions of expenses, taxes, and fixed charges,
but before any discontinued operations, extraordinary items, and dividend payments.
23
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TABLE 2-10. HISTORICAL PRODUCTION LEVELS FOR SAN, MBS,AND PET
(1980 - 1991)12
Year
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
Production by
SAN
N/A
48.4
41.2
42.1
44.8
39.4
41.6
57.0
67.0
51.0
61.1
51.6
Resin Type
MBS
N/A
N/A
N/A
N/A
N/A
69.8
88.1
42.2
52.0
61.6
N/A
51.0
(million kilograms)
PET*
1,616
1,640
1,781
2,011
2,000
2,019
2,144
2,464
2,623
2,840
2,795
2,987
NOTES: *PET production reflects the production of polyester fibers, PET bottle resins, and PET film.
Historical production trends in the last decade for ABS and polystyrene are shown in Table 2-11.
Relative stability has characterized the markets for ABS and polystyrene during the past decade. The
average annual growth rate for ABS from 1980 through 1992 was 1.2 percent. Polystyrene growth
averaged minus 0.6 percent over this same period. Polystyrene has been the weakest performing
thermoplastic resin in recent years, with production having declined for 3 consecutive years since
1988, due in part to lower packaging demand. Environmental concerns related to the waste disposal
problems associated with packaging products have also restricted growth. Time-series production
information for MABS and nitrile resins were not available.
24
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TABLE 2-11. HISTORICAL PRODUCTION LEVELS FOR ABS AND POLYSTYRENE
(1980-1991)12
Production by Resin Type (million kilograms)
Year
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
ABS
444
461
371
477
552
610
515
571
873
547
521
509
Polystyrene
2,352
2,215
2,372
2,310
2,347
2,163
2,023
2,456
2,562
2,400
2,351
2,190
2.4.2 Supply Determinants
Resin production decisions are primarily a function of input prices, production costs, resin
prices, existing capacity levels, and international trade trends. Decisions made by producers include
identifying which processors and markets to continue to serve and which facilities to continue
operating. The costs of the inputs to production are a major factor in the determination of production
levels. Inputs to production include petroleum, natural gas, and coal, which are subjected to a
refining process yielding petrochemical feedstocks. These basic materials are mixed with other
substances (ammonia and formaldehyde, for example) to yield intermediates, which can then be
catalyzed into monomers and finally to polymers or resins.13
Existing Federal, State, and local regulations can also have an impact on the quantity of resins
supplied by U.S. facilities. Facilities that are already regulated may have previously altered their
production, and may therefore have already altered the industry supply schedule. The industry supply
curve used in the EIA incorporated any changes in production that have occurred as a result of other
25
-------
regulations to the extent that the supply curve accounts for the level of existing controls at companies
in the industry.
Competition in the resin market takes place on two levels: among producers of the same resin
type and among various resins with similar characteristics. In choosing the appropriate resin for a
given application, end users consider polymer properties, fabrication technique, and devices (e.g.,
mold) to be used for manufacturing the final product. Surface appearance and impact resistance are
both of importance. Consequently, resin suppliers are constantly seeking improvements to their
products in order to maintain market share.
In 1992, for example, SAN producers were introducing high-clarity versions of SAN targeted to
replace more costly resins in housewares applications. Overall, the movement in the supply of resins
is toward higher levels of competition as environmental pressures, shifts in global supply via capacity
expansion, and use-specific innovations require suppliers to maintain their competitive edge by
developing resins designed to meet user specifications.
PET can compete effectively with the thermoset resins in certain applications requiring good
electrical properties, better impact strength, and superior processing capabilities.14 Enhancements in
the PET market include the development of thin PET film. PET melt-phase and bottle producers are
refining material properties to achieve benefits, including lighter bottle weight. PET bottles compete
directly with glass bottles and aluminum cans. Thirty-five million kilograms of PET is manufactured
into refillable bottles annually, but this number is projected to exceed 90 million kilograms over the
next 5 years.15
Polystyrene competes with PVC, which is economical also but has marginal heat-distortion
properties in some uses. Polystyrene competes directly with polypropylene and high-density
polyethylene in packaging markets. The two former resins are more than 3.6 cents per kilogram
cheaper than polystyrene, and if this gap continues, polystyrene could lose some market share in the
packaging industry as the low-cost materials increase their use in packaging products. The low cost
of polystyrene and its high thermal stability are important to the use of polystyrene in rigid
thermoplastic foams, which permits its use in most construction applications.
Suppliers in turn are turning attention to developing polystyrene grades with improved properties
for non-packaging applications. One growth area is in the substitution of polystyrene for ABS in
26
-------
refrigerator liners. Polystyrene producers are focusing market development on improving impact
strength and surface appearance.16 Polystyrene could also gain market share in other end-use markets
where ABS could be considered an "overengineered" complex resin choice.17
ABS competes with polystyrene, polypropylene, and the engineered resin polycarbonate on price
and performance. The ability to manufacture ABS with a method called continuous mass processing
is becoming important to ABS producers. This production method allows for enhanced color
consistence, which eliminates the need for painting, making ABS a more attractive option for
applications where the elimination of the finishing step is cost-efficient and environmentally efficient.
This technological development is expected to be the most significant in the automotive market, given
that ABS has a significant share of appearance parts in automobile interiors. Polypropylene is the
nearest competitor in this market. Upgraded commodity resins are "chipping away" at low-end ABS
applications such as disk packaging and videocassettes, although ABS is gaining share in large
markets like automotive interiors and appliances.18
2.4.3 Exports of SAN, MBS, PET, ABS, and Polystyrene
Some measure of the extent of foreign competition can be obtained by comparing exports with
domestic production. The Foreign Trade Division of the U.S. Bureau of the Census collects trade
data by resin type according to a commodity coding system. In 1991, exports of SAN represented 36
percent of domestic production and PET exports represented 7 percent of domestic production.19
(MBS and nitrile resins were not assigned a unique export code during 1991.) Trade data for ABS
and polystyrene were obtained from Modern Plastics.20 In 1991, exports of ABS represented 16
percent of domestic production and polystyrene exports represented 6 percent of domestic production.
2.5 MARKET DEMAND CHARACTERISTICS
The purpose of this section of the chapter is to characterize the demand side of the MBS, SAN,
PET, ABS, MABS, polystyrene, and nitrile resin industries. In the past decade, the overall demand
for plastics has increased, as plastics have been recognized as substitutes for other, more costly
materials. For example, plastics have replaced metals in construction and packaging applications,
paper and glass in packaging, and wood in furniture production. Higher demand for plastics
translates into higher demands for input resins, including those classified in the Polymers and Resins
Group IV source category. The following sections present an examination of the factors that
determine demand levels, including the identification of the end-use markets, an evaluation of
27
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historical consumption patterns, and an assessment of the role that imports play in satisfying domestic
demand.
2.5.1 End-Use Markets for MBS, SAN, PET, ABS, MABS, Polystyrene and Nitrite Resins
The two primary end-use industries for MBS, SAN, and PET resins are the construction,
automotive, and soft drink bottle markets, respectively. In addition to the construction and
automotive markets, other major end use markets include packaging, consumer products, electronics,
and furniture. Demand for packaging, disposables, and low-cost consumer goods usually follows
Gross Domestic Product (GDP) trends. The strongest source of demand for PET resins is from soft
drink bottle makers. Given the high cost savings derived from using plastic rather than glass
containers, this end use market is a strong one.
The most common end use market for ABS in 1992 was the consumer goods market, which
accounted for 19 percent of ABS consumption, followed closely by the automotive market, accounting
for 18 percent of ABS sales. Consumer goods manufactured with ABS include appliances,
housewares, luggage, toys, furniture, and sporting goods. In sheet form, ABS is used as a
component of refrigerator door liners and food storage compartments. In the automotive industry,
ABS replaced the majority of steel or aluminum parts for use in interior panels and trim, grilles,
wheelcovers, and mirror housings. In the business products end-use category, ABS is the most
commonly used material for computer disk housings, and has historically been used to mold
telephones, calculators, and business machines. Certain grades of ABS are made into pipes and rigid
foam insulation for the building and construction market which accounted for 13 percent of ABS sales
in 1992.
The leading uses for polystyrene in 1992 were in food containers and packaging (50.8 percent),
electronics (12 percent), consumer products (15 percent), and construction (6 percent). The benefit to
polystyrene for food service products is that polystyrene containers are sanitary, sturdy, lightweight,
and economical. In sheet form, polystyrene is used for food trays and blister packaging. One
variation of polystyrene is as a replacement material for micro floppy disk casings and television
cabinets. Polystyrene film absorbs little moisture, has favorable dimensional stability, does not
become brittle, and has the ability to pass through packaging machinery at high speeds. These are
central factors in the use of polystyrene film in window envelopes, for example.
28
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MABS polymers are similar to ABS plastics, and are used mainly for the manufacture of food
and nonfood containers. The primary use of nitrile elastomers is in the manufacture of nitrile rubbers
which, in turn, are used mainly to produce rubber hoses and tubes for automobiles, as well as in a
variety of miscellaneous plastics products. Domestic sales of nitrile resins are closely related to the
performance of the domestic automobile industry which is the main end user of this resin.
2.5.2 Demand Determinants
The demand for MBS, SAN, PET, ABS, MABS, polystyrene, and nitrile resins is primarily
determined by price level, the price of available substitutes, general economic conditions, and end-use
market conditions. The degree to which price level influences the quantity of resins demanded is
referred to as the price elasticity of demand, which is explored later in this report. Prices of Group
IV resins affect the willingness of consumers to choose these resins over other substitute resins.
Table 2-12 presents price levels for MBS, SAN, PET, ABS, and polystyrene for the years 1980
through 1991. Time-series price data for MABS and nitrile resins were not available. Increased
competition has put considerable pressure on resin prices over the past decade. High-performance
characteristics, coupled with highly price-sensitive demand for most plastic materials, continues to
encourage material substitution among resins.22
In the market for polystyrene, in which the primary end uses are packaging, disposables, and
low-cost consumer goods, consumption usually follows the trends of GDP. The decreases in demand
for polystyrene are due, in part, to slow economic growth and environmentally induced cutbacks in
packaging and disposables. As the recycling infrastructure develops more fully, demand decreases
may intensify as the demand for polystyrene products weakens further.
29
-------
TABLE 2-12. PRICE LEVELS FOR MBS, SAN, PET, ABS, AND POLYSTYRENE
(1980-1991)21
Price/Kilogram (1990 Dollars)
Year
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
MBS
NP
NP
NP
NP
NP
0.83
1.07
1.06
1.28
0.93
NP
0.45
SAN
NP
NP
0.66
0.67
0.47
0.42
0.61
0.64
NP
NP
NP
NP
PET
0.64
0.60
0.57
0.54
0.82
0.71
0.73
0.75
0.74
0.72
0.64
0.70
ABS
0.46
0.47
0.49
0.49
0.48
0.45
0.39
0.41
0.46
0.44
0.40
0.38
Polystyrene
0.33
0.30
0.26
0.24
0.20
0.18
0.17
0.24
0.29
0.25
0.18
0.18
NOTES: NP indicates that the International Trade Commission did not publish resin as a line item in
that year.
30
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The major end markets for the resin industry have been experiencing low growth rates since
1986. The two primary end-use industries for Group IV resins are the automotive and construction
markets. The construction industry has been in a period of decline since 1986. This trend is
expected to continue as high vacancy rates and loan problems for financial lenders continue.23
Polystyrene sales are sensitive to conditions in the housing market. Housing starts have historically
had a positive effect on polystyrene demand levels. Consequently, as new construction began a
decline in 1988, a concurrent decline in polystyrene sales occurred.
Domestic production of automobiles has been declining since 1985, with the exception of 1988,
which showed a slight rise in production. As discussed in the previous section, the most common use
of ABS and nitrile resins is in the automotive market. The rise in ABS use in automobiles reflects a
desire on the part of automobile manufacturers to decrease the weight and cost of their vehicles. As
automobile production declines, as it has in recent years, ABS and nitrile resin demand from this
sector will decrease.
2.5.3 Past and Present Consumption
Table 2-13 shows the sales of MBS, SAN, PET, ABS, and polystyrene from 1980 through 1991.
The sales data for these five resins illustrate the fluctuations that occur in the resin industry due to
constantly changing product specifications and the state of technology. (MABS and nitrile resins sales
data were not available.) PET demand in the packaging resins and films end uses, however, has not
experienced negative growth due to a slow economy. The ability of PET to remain in high demand
has been attributed to new or expanded uses due to resin substitution and process innovations, in
addition to PET's perceived environmental benefits.
After a peak in 1988, ABS demand has leveled out since 1989, with an average annual growth
rate of 0.4 percent since 1980. The demand for polystyrene has increased slowly, but consistently,
both domestically and worldwide, with an average annual growth rate of 3 percent since 1980.
31
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TABLE 2-13. SALES LEVELS FOR MBS, SAN, PET, ABS, AND POLYSTYRENE
(1980 - 1991)24
Resin Sales by Type
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
MBS
NP
NP
NP
NP
NP
NP
NP
78.2
43.5
61.2
NP
44.8
SAN1
NP
47.5
38.5
41.2
39.8
38.0
39.4
57.5
66.1
48.9
60.6
51.6
(million kilograms)
PET
167
197
229
266
363
388
469
546
624
1,019
969
1,060
ABS
423
417
340
460
501
470
495
562
842
500
519
439
Polystyrene
1,629
1,631
1,448
1,632
1,736
1,859
2,020
2,199
2,275
2,321
2,285
2,207
NOTES: 'Includes SAN sales on the merchant market, in addition to SAN produced for captive use.
Includes sales of PET resins (film, bottle).
32
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2.5.4 Imports of SAN, MBS, PET, ABS, and Polystyrene
Imports as a percentage of domestic consumption range from 1.3 to 11 percent for Group IV
resins. Trade data for MABS and nitrile resins were not available. Imports of PET resins have
increased steadily since 1986 at an average annual growth rate of 12.2 percent, and in 1991, PET
imports were only 2 percent of domestic consumption. As a percentage of domestic consumption,
SAN imports were only 2.5 percent of domestic SAN sales in 1991. In 1991, imports of MBS
copolymers accounted for 6.3 percent of domestic sales. Imports of ABS represented 11 percent of
domestic consumption in 1991, and polystyrene import levels were 1.3 percent of domestic sales.
2.6 MARKET OUTLOOK
This section presents quantitative capacity growth projections available from the literature for
each affected industry. Projections are important to the EIA since future market conditions contribute
to the potential impacts of the NESHAP that are assessed for the fifth year after regulation. Planned
capacity expansions for PET, ABS, and polystyrene are shown in Table 2-14.
TABLE 2-14. PLANNED CAPACITY EXPANSIONS THROUGH 1996 BY RESIN
TYPE25'26'27
Resin
Type
PET
ABS
Polystyrene
Million
1991
Capacity
6,073
839
2,906
Kilograms
Planned Expansion
through 1996
1,387
175
465
The PET market is currently characterized by production capacity that is already operating at
nearly full capacity which, combined with the existing high levels of demand, may restrict growth in
this market. Gains in process technology have permitted a high and an efficient amount of bottle
production and markets with high growth potential have emerged. A likely result of this supply
situation is an increase in price levels, given that demand is up, inventories are down, and raw
materials costs are increasing. PET is also the plastic that is recycled the most as post-consumer
scrap in the United States. Present markets for recycled PET include carpeting, fiberfill, unsaturated
33
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polyester, rigid urethane foam, strapping, and engineering plastics.
Growth projections for PET were available only in the soft drink bottle end use market. Average
annual growth for PET bottles is currently 15 percent. Soft drink producers view PET refillable
bottles as a growth product, which allows them to package their product in large containers in
markets where the use of glass has restricted container size. Due to a high conversion cost, refillable
PET bottles are not expected to be in high demand in the United States. Chemical Marketing
Reporter predicts the bottle-grade PET resin market to grow at a rate of 10 percent per year through
1997.25 In the absence of growth rates for the other 3 PET types, EPA's engineering contractor
assumed an average annual growth rate of 3 percent.28 Combining these two estimates results in
growth of PET capacity by 1,387 million kilograms over the next 5 years.
No quantitative estimates of growth in the SAN industry were available. Given that SAN's
primary use is as an input to the production of ABS, and that three of the four SAN manufacturers
also produce ABS, the outlook for SAN is expected to be in accordance with the ABS outlook in
Table 2-14. Growth projections for the ABS market are 3 to 5 percent per year through 1998.26
Producers report that demand for polystyrene has been fairly steady for the past year.
Polystyrene producers have been repositioning themselves to recreate old markets, including those in
which polystyrene is not perceived as environmentally friendly. One growth market for polystyrene
is in the disposable cutlery market, in which the primary competitor is polypropylene. Another end-
use market that looks promising for output growth is for refrigerator linings, a use for which
polystyrene competes directly with ABS. The outlook for polystyrene is positive, with an average
annual growth rate of 3 percent.27
Quantitative growth estimates were not available for MBS. The uses of MBS are similar to those
of polystyrene, which is estimated to have an average annual growth rate of 3 percent per year
through 1998.27 Because MBS polymers are mainly used as an impact modifier for rigid polyvinyl
chloride, the outlook for this market will be determined mainly by the health of the packaging,
building, and construction markets.
Quantitative growth estimates were not available for MABS and nitrile resins. As presented
earlier in this chapter, the properties and end uses of these two resins are similar to those of ABS.
MABS polymers are also similar to opaque ABS plastics, and are primarily used in the production of
34
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food containers. MABS is formed from ABS and is a clearer form of this resin, capable of uses
similar to those of ABS.
35
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REFERENCES
t
1. Society of the Plastics Industry, Inc. Plastics Engineering Handbook of the SPI. Fifth Edition.
Berins, M.L. (ed.). Van Nostrand Reinhold. New York, NY. 1991.
2. Kirk-othmer. Kirk-othmer Encyclopedia of Chemical Technology. Third Edition. Vols. 1, 15,
18, 21. John Wiley and Sons. New York, NY. January 1978. Vol. I, p. 442.
3. Reference 2. Vol. 15, p. 377.
4. Reference 2. Vol. 21, p. 802.
5. Pacific Environmental Services. Background Information on Polymers and Resins Group IV
Industry. Received from Larry Sorrels. March 1993.
6. SRI International, Inc. 1992 Directory of Chemical Producers. Menlo Park, CA. 1992.
7. Modern Plastics. Resins 1993. New York, NY. January 1993.
8. U.S. Small Business Administration. "Small Business Size Standards; Final and Interim Final
Rules." 13CFR121. Federal Register. December 21, 1989.
9. Pacific Environmental Services. Background Information on Polymers and Resins Group IV
Industry. Received from Larry Sorrels. March 1993.
10. Annual reports of various publicly-owned firms.
11. Dun & Bradstreet. Dun's Million Dollar Directory 1993. Bethlehem, PA. 1993.
12. U.S. Department of Commerce, International Trade Commission. Synthetic Organic Chemicals:
United States Production and Sales, 1970 through 1991. Time Series Data Request.
Washington, DC. March 17, 1993.
13. Reference 2. Vol. 21, p. 770.
14. Reference 2. Vol. 18, p. 567.
15. Modern Plastics. Encyclopedia '93. New York, NY. December 1992. p. 68.
16. Reference 7. p. 62.
17. Reference 7. p. 63.
18. Reference 7. p. 63.
19. U.S. Department of Commerce, Bureau of the Census, Trade Data Inquiries and Control Section.
Data Request. Washington, DC. March 11, 1993.
20. Reference 7. p. 83.
36
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21. Reference 12.
22. Reference 7. p. 62.
23. Standard and Poor's. Industry Surveys: Chemicals. Vol. 160, No. 45, Sec. 1. Novembers,
1992.
24. Reference 12.
25. Chemical Marketing Reporter. Chemical Profile: PET. May 3, 1993.
26. Chemical Marketing Reporter. Chemical Profile: ABS. March 21, 1994.
27. Chemical Marketing Reporter. Chemical Profile: Polystyrene. April 25, 1994.
28. Meardon, Ken. Pacific Environmental Services. Letter to Larry Sorrels, U.S. Environmental
Protection Agency. Cost and Economic Impacts Section. Estimated New Growth for Group IV
Resins. Research Triangle Park, NC. June 30, 1994.
37
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3.0 ECONOMIC METHODOLOGY
3.1 INTRODUCTION
The purpose of this chapter is to outline the economic methodology used in this analysis.
Baseline values used in the partial equilibrium analysis are presented, and the analytical methods used
to conduct the following analyses are described individually in this chapter:
• Partial equilibrium model used to compute post-control price, output, and trade impacts;
• Economic surplus changes;
• Labor and energy impacts; and
• Capital availability.
3.2 MARKET MODEL
The framework for the analysis of economic impacts on each of the seven affected resin
industries is a partial equilibrium model. A partial equilibrium analysis is an analytical tool often
used by economists to analyze the single market model. This method assumes that some variables are
exogenously fixed at predetermined levels. The goal of the partial equilibrium model is to specify
market supply and demand, estimate the post-control shift in market supply, estimate the change in
market equilibrium (price and quantity), and predict plant closures. This section presents the
framework of the partial equilibrium model, baseline equilibrium conditions, the calculation of the
supply curve shift, and the methodology used to calculate impacts on trade, closure, and labor and
energy inputs. The baseline inputs for each of the seven affected industries are also presented.
3.2.1 Partial Equilibrium Analysis
A partial equilibrium analysis was used to estimate the economic impacts of the chosen
regulatory options for each of the seven affected industries. For modeling purposes, it was assumed
that each of the industries is operating in a perfectly competitive market. Perfectly competitive
39
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industries are characterized by the following conditions: the presence of many sellers; production of a
homogeneous product; a small market share owned by each firm in the industry; freely available
information regarding prices, technology, and profit opportunities; freedom of entry and exit by firms
in the industry; and competing sellers which are not considered as a threat to market share by other
firms in the industry.1 The implication of an assumption of perfect competition to this analysis is
that perfect competition constrains firms in the industry to be price takers due to the absence of the
market power necessary to affect market price. Firms which operate in a perfectly competitive
industry are also assumed to minimize costs.
The seven affected Group IV industries in this analysis do not meet the strict definition of perfect
competition particularly when evaluated on the basis of the most widely applied of these criterion -
the number of firms in the market. The number of firms in each of the Polymers and Resins Group
IV industries ranges from one to fifteen. Ignoring other factors, these firms are likely to be
characterized as oligopolistists. However, the products produced by these firms have close
substitutability with other resins produced in the marketplace. Thus, the affected firms producing
Group IV resins face competition not only from other firms producing the same resins, and also from
firms producing other resins which are technically produced by another industry, but are nonetheless
considered to be a reasonable substitute by the consumer (i.e. business firm) using the resin as an
input to production.
The presence of close substitutes in the marketplace yields the option of modeling industries with
few producers as oligopolistic. Further adequate modeling of oligopoly markets requires more in-
depth information on economic behavior than is currently available, given the scope of this analysis.
It is accurate to conclude that the affected Group IV firms will exhibit greater market power (control
over the market price) than is postulated in the perfectly competitive model used in the analysis.
However, if one assumes the most extreme case - that each of these firms is a pure monopolist, the
primary market impacts are likely to be less severe than those estimated in this analysis under the
assumption of pure competition.
The pure monopolist maximizes profits by producing a level of production that equates the firm's
marginal revenue (increase in revenue associated with producing one more unit of a product) with the
firm's marginal cost of production (increase in cost resulting from production of one more unit of a
product). Increases in fixed costs, such as emission control capital costs, will not alter the profit
maximizing monopolist production quantity choice unless these costs force the firm to incur losses and
40
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shut down. Since a significant portion of the emission control cost estimates used in this analysis are
due to the necessary capital investment required by firms, it is likely that the estimated market
impacts under the assumption of a competitive marketplace (i.e. increases in market price and
decreases in market output) would exceed those estimated assuming a monopoly market. From this
standpoint, the assumption of perfect competition may be interpreted as an upper bound on the
estimated market impacts resulting from the NESHAP.
3.2.2 Market Demand and Supply
The baseline, or pre-control levels for each of the Group IV resin markets are each defined with
a domestic market demand equation, a domestic market supply equation, a foreign supply equation
(imports), and a foreign demand equation (exports). It is assumed that each of these markets will
clear, or achieve an equilibrium. The following equations identify the market demand, supply, and
equilibrium conditions for each affected industry:
QD' = aPf
QD> = dPf
Q = QDj + QD< =QSj + Q$1
where:
= the quantity of the Group IV resin demanded by domestic consumers annually,
= the quantity of the Group IV resin demanded by foreign consumers and produced by
domestic producers annually (or exports),
= the quantity of the Group IV resin produced by domestic supplier(s) annually,
= the quantity of the Group IV resin produced by foreign suppliers and sold in the United
States annually (or imports),
P = the price of the Group IV resin,
e = the price elasticity of demand for the Group IV resin, and
41
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7 = the price elasticity of supply for the Group IV resin.
The constants, a, d, @, and p, are parameters estimated by the model, which are computed such
that the baseline equilibrium price is normalized to one. The market specification assumes that
domestic and foreign supply elasticities are the same, and that domestic and foreign demand
elasticities are identical. These assumptions are necessary, since data were not readily available to
estimate the price elasticity of supply for foreign suppliers and the price elasticity of demand for
foreign consumers.
3.2.3 Market Supply Shift
The domestic supply equation shown above may be solved for the price, P, of each of the seven
Group IV resins, respectively, to derive an inverse supply function that serves as the baseline supply
function for each industry. The inverse domestic supply equation for each industry is as follows:
j_
P = (Gsv/3)7
A rational profit maximizing business firm will seek to increase the price of the product it sells
by an amount that recovers the capital and operation costs of the regulatory control requirements over
the useful life of the emission control equipment. This relationship is identified in the following
equation:
[(C • 0 - (V f £»)] (1 - Q + D _ ,
s
where:
C = the increase in the supply price,
Q = output,
V = a measure of annual operating and maintenance control costs,
D = annual depreciation (straight line depreciation is assumed),
t = the marginal corporate income tax rate,
S = a capital recovery factor, and
k = the investment cost of emission controls.
Thus, the model assumes that individual polymer and resin facilities will seek to increase the
product supply price by an amount, C, that equates the investment costs in control equipment, k, to
42
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the present value of the net revenue stream (revenues less expenditures) related to the equipment.
Solving the equation for the supply price increase, C , yields the following equation:
C = ® ~ D + V + D
~ Gd - 0 + Q
Estimates of the annual operation and maintenance control costs and of the investment cost of
emission controls, V and k, respectively, were obtained from engineering studies conducted by an
engineering contractor for EPA and are based on 1989 price levels. Production levels reflect calendar
year 1991 values. The variables for annual depreciation and the capital recovery factor, D and 5,
respectively, are computed as follows:
r(\ + r)T
[(1 + r)M]
where:
r = the discount rate faced by producers, which is assumed to be 10 percent, and
T = the life of the emission control equipment, which is 10 years for most of the proposed
emission control equipment.
Emission control costs will increase the supply price for each Group IV resin by an amount
equivalent to the per unit cost of the annual recovery of investment costs plus the annual operating
costs of emission control equipment, or C, (/ denotes the number of affected facilities in each of the
seven industries). The baseline product cost curve for each of the Group IV resins is unknown
because production costs for the individual facilities are unknown. Therefore, an assumption is made
that the affected facilities in each industry with the highest after-tax per unit control costs are marginal
in the post-control market. In other words, those firms with the highest after-tax, per unit control
costs also have the highest per-unit pre-control production costs. This is a worst-case scenario model
assumption that may not be the case in reality. The assumption, however, results in the upper bound
of possible market impacts occurring as the result of regulation. Based upon this assumption, the
post-control supply function can be expressed as follows:
43
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P = «2 W + C (C , q)
where:
C (C, #) = a function that shifts the supply function to reflect the incurrence of control costs,
C, = the vertical shift that occurs in the supply curve for the z'th facility to reflect the
increased cost of production in the post-control market, and
q, = the quantity produced by the ith facility producing each Group IV resin,
respectively.
This shift in the supply curve is shown graphically in Figure 3-1.
44
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FIGURE 3-1. ILLUSTRATION OF POST NESl IAP MODEL
Price
S.
Per i'MvT
Compliance Cor-:
0,
Q,
Quantity
-------
3.2.4 Impact of the Supply Shift on Market Price and Quantity
The impact of the control standards on market equilibrium price and output is derived by solving
for the post-control market equilibrium and comparing the new equilibrium price and quantity to the
baseline equilibrium conditions. Since post-control domestic supply is assumed to be segmented, or a
step function, a special algorithm was developed to solve for the post control market equilibrium.
The algorithm first searches for the segment in the post-control supply function at which equilibrium
occurs, and then solves for the post-control market price that clears the market.
Since the market-clearing price occurs where the sum of domestic demand and foreign demand of
domestic production equals post-control domestic supply plus foreign supply, the algorithm
simultaneously solves for the following post-control variables:
• Equilibrium market price;
• Equilibrium market quantity;
• Change in the value of domestic production or revenues to producers;
• Quantity supplied by domestic producers;
• Quantity supplied by foreign producers (imports);
• Quantity demanded (domestic production) by foreign consumers (exports); and
• Quantity demanded by domestic consumers.
The changes in these equilibrium variables are estimated by comparing baseline equilibrium values to
post-control equilibrium values.
3.2.5 Trade Impacts
Trade impacts are reported as the change in both the volume and the dollar value of exports,
imports, and net exports (exports minus imports). The price elasticity of demand for each of the
products has been assumed to be identical for foreign and domestic consumers, and the price elasticity
of supply is presumed the same for foreign and domestic producers. As the volume of imports rises
and the volume of exports falls, the volume of net exports will decline. Since each of the resins
being analyzed has elastic demand, it is possible to predict the directional change anticipated in the
dollar value of net exports. As a result of the emission controls, the quantity of exports will decline,
while the price of each of the Group IV resins, respectively, will increase. Price increases for
products with elastic demand result in revenue decreases for the producer. Consequently, the dollar
46
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value of exports is anticipated to decrease as a result of the emission controls. Since the price paid
for imports and the quantity of imports increase, the dollar value of imports will increase. Since the
dollar value of imports rise and the dollar value of exports fall, the resulting dollar value of net
exports will decline in the post-control market.
The following algorithms are used to compute the trade impacts of the proposed regulatory
alternative:
-
-------
control market equilibrium price. Closures in this analysis relate to facilities. Since most of the
affected firms produce diversified products, closure of a facility in the analysis may simply mean that
the firm is likely to cease production of a particular Group IV resin, or to eliminate one line of
production. The firm itself will not shut down; however, an individual facility may close or simply a
line of production be discontinued.
3.2. 7 Changes in Economic Welfare
Regulatory control requirements will result in changes in the market equilibrium price and
quantity of Group IV resins produced and sold. These changes in the market equilibrium price and
quantity will affect the welfare of consumers of products manufactured with Group IV resins,
producers of these products, and society as a whole. The methods used to measure these changes in
welfare are described below.
3.2.7.1 Changes in Consumer Surplus. Consumers will bear a loss in consumer surplus, or a
dead-weight loss, associated with the reduction in the amount of Group IV resins sold due to higher
prices charged for these resins. This loss in consumer surplus represents the amount consumers
would have been willing to pay over the pre-control price for production eliminated. Additionally,
consumers will have to pay a higher price for post-control output. This consumer surplus change for
domestic consumers, AC5d, is given by:
a"
A
CS =
= f
Jn .
The change in consumer surplus is an estimate of the losses of surplus incurred by domestic
consumers only. Although both domestic and foreign consumers may suffer a loss in surplus as a
result of emission controls, this study focuses on the change in domestic consumer surplus only. The
variable, &CSd , represents the change in domestic consumer surplus that results from the change in
market equilibrium price and quantity occurring after the incurrence of regulatory control costs.
3.2.7.2 Change in Producer Surplus. The change in producer surplus is composed of two
elements. The first element relates to output eliminated as the result of emission controls. The
second element is associated with the change in price and cost of production for the new market
equilibrium quantity. The total change in producer surplus is the sum of these two elements. After-
tax measures of surplus changes are required to estimate the impact of air quality controls on
48
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producers' welfare. The after-tax surplus change is computed by multiplying the pre-tax surplus
change by a factor of 1 minus the tax rate, or (1 -1), where t is the marginal tax rate. Every dollar
of after-tax surplus loss represents a corresponding loss in tax revenues of an amount equal to t/(l-t)
dollars.
The lower output levels as a result of control costs cause producers to suffer a welfare loss in
producer surplus. Affected Group IV facilities which continue producing after the incurrence of
control costs realize a welfare gain on each unit of production produced attributable to the incremental
increase in the market price. Producers will also experience a decrease in welfare per unit of
production relating to the increased capital costs and operating cost of emission controls. The total
change in producer surplus is specified by the following equation:
a _!_ M
hj i=l
Since domestic surplus changes are the object of interest, the welfare gain experienced by foreign
producers due to higher prices is not considered. This procedure treats higher prices paid for imports
as a dead-weight loss in consumer surplus. Higher prices paid to foreign producers represent simply
a transfer of surplus from the United States to other countries from a world economy perspective, but
a welfare loss from the perspective of the domestic economy.
3.2.7.3 Residual Effect on Society. The changes in economic surplus, as measured by the
change in consumer surplus and producer surplus, must be adjusted to reflect the true change in social
welfare resulting from the regulations. The additional adjustments relate to differences in tax effects,
and to the difference between the private discount rate and the social discount rate.
Two adjustments are necessary to adjust the estimated changes in economic surplus for tax
effects. The first relates to the per unit control cost, C, that reflects after-tax control costs and is used
to predict the post-control market equilibrium. The true cost of emission controls must be measured
on a pre-tax basis.
A second tax-related adjustment is required because surplus changes reflect the after-tax welfare
impacts of emission control costs on affected facilities. As noted previously, a one dollar loss in pre-
tax surplus imposes an after-tax burden on the affected plant of an amount equal to (1 -1) dollars.
49
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Alternatively, a one dollar loss in after-tax producer surplus causes a complimentary loss of t/(l-t)
dollars in tax revenue.
Economic surplus must also be adjusted because the private and social discount rates differ. The
private discount rate is used to shift the supply curve of firms in the industry since this rate reflects
the marginal cost of capital to affected firms. The economic costs of regulation must reflect the social
cost of capital. The social discount rate reflects the social opportunity cost of resources displaced by
investments in emission controls.
The total adjustment for the two tax effects and the social cost of capital is referred to as the
residual change in economic surplus, or A/?5. This adjustment is specified by the following equation:
*RS = £ (C. - pc)q, + APS • [*/(!-/)]
1-1
where:
pc, = the per unit cost of controls for each facility, assuming a tax rate of zero, and a
discount rate of 7 percent.
All other variables have been previously defined.
3.2.7.4 Total Economic Costs. The total economic costs of the regulations are the sum of the
changes in consumer surplus, producer surplus, and the residual surplus. This relationship is defined
in the following equations:
EC = *CSd + A/>£ + AftS1
where:
EC = the economic cost of the controls.
All other variables have been previously defined.
3.2.8 Labor Input and Energy Input Impacts
The estimates of the labor market and energy market impacts associated with the alternative
standards are based on the baseline input-output ratios and the estimated changes in domestic
production.
50
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3.2.8.1 Labor Input Impacts. The labor market impacts are measured as the number of jobs
lost due to domestic output reductions. The estimated number of job losses are a function of the
change in level of production that is anticipated to occur as a result of the emission controls.
Employment information is not available on a resin-specific basis. For this reason, total production
wages paid and hours worked are based upon the levels reported for SIC code 2821, Plastic
Materials, Synthetic Resins, and Nonvulcanizable Elastomers. The ratio of production wages to total
revenues for SIC code 2821 is calculated. This ratio is then multiplied by the decrease in value of
domestic production to establish the wage decrease that is likely to occur as a result of the NESHAP.
This decrease in production wages is divided by the average 1989 hourly wage and by 2,000 hours
(average number of hours worked annually per employee) to estimate the transitional employee
layoffs that are likely to result from the regulation. The loss in employment expressed in terms of
number of workers is specified as follows:
A£ = (LC0 * (P0 * 02* - <2oS01 / WQ I 2000
where:
AL = the change in the employment level expressed in terms of number of workers,
LC0 = the total production wages based on 1989 price levels and 1991 production levels,
and
W0 = the hourly wage for production workers in SIC code 2821 based on 1989 price
levels.
The number 2,000 in the equation represents the number of hours worked annually by an average
employee, the subscripts 0 and 1 represent pre-control and post-control values, respectively, and
all other variables have been previously defined.
3.2.8.2 Energy Input Impacts. The reduction in energy inputs occurring as a result of the
NESHAP is calculated based on the expected reduction in expenditures for energy inputs attributable
to post-NESHAP production decreases. The expected change in use of energy inputs is calculated as
follows:
where:
A£ = the change in expenditures on energy inputs, and
E0 = the baseline expenditure on energy input per dollar value of output reported for SIC
51
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code 2821.
All other variables are as previously defined.
3.2.9 Baseline Inputs
The partial equilibrium model used in this analysis requires, as data inputs, baseline values for
variables and parameters that have been previously described to characterize each of the Group IV
resin markets. These data inputs include the number of domestic facilities currently in operation, the
annual capacity per facility, and the relevant control costs per facility. Table 3-1 lists the variable
and parameter inputs to the model that vary for each Group IV industry. Some of the data inputs
were unavailable for the individual products, or do not differ across Group IV resin industries. Table
3-2 lists variables and parameters that are assumed to be the same for each of the affected Group IV
resin industries. Data regarding the market price, import ratio, export ratio, and price elasticity of
demand for nitrile were unavailable. It has been assumed that the market price, import ratio, export
ratio, and price elasticity of demand for the ABS industry are representative use in the nitrile
industry.
TABLE 3-1. PRODUCT-SPECIFIC BASELINE INPUTS
Variable/Parameter
Price (P^1
Domestic Output, (Q,,8)2
Imports, (Q0Sf)2
Exports, (Q0Df)2
Demand Elasticity (e)
Values by Group IV Resin Type
MBS
$0.93
50
2.80
3.78
-2.51
SAN
$0.39
82
1.31
18.60
-1.61
PET
$0.72
2,987
43.5
190.8
-2.72
ABS/MABS
$0.44
576
48
91.6
-1.83
Polystyrene
$0.25
2,189.8
27.6
163.1
-1.31
Nitrile
$0.443
15.9
1.43
2.43
-1.83
NOTES: ' Cents per kilogram, excluding taxes (1989$).
2 Millions of kilograms per year (1991 production levels).
3 The market price, import ratio, and export ratio are assumed to be the same as the ABS and MABS industries.
52
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TABLE 3-2. BASELINE INPUTS FOR THE POLYMERS AND RESINS GROUP IV
INDUSTRIES
Variable Value
Supply Elasticity (7) 4.77
Tax rate (t) 35%
Private Discount rate (r) 10%
Social Discount rate 7 %
Equipment life (T) 10 years
Labor Cost Ratio (LC0)' 7.13%
Energy Cost Ratio (Eg)2 3.10%
Wage (W)3 $28.47
NOTES: ' Production wages per dollar value of shipments (1989$).
2 Energy expenditures per dollar value of shipments (1989$).
3 Per hour production wage for SIC code 2821 (1989$).
53
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Tables 3-1 and 3-2 list the baseline parameters and variables used to characterize baseline market
conditions. The baseline market prices and quantities for MBS, SAN, PET, ABS, and polystyrene
were obtained from the U.S. Department of Commerce's International Trade Commission (ITC).2
Imports and exports of MBS, SAN, and PET resins were obtained from the U.S. Department of
Commerce's Bureau of the Census.3 Trade data for ABS and polystyrene were obtained from
Modern Plastics.4 The prices are stated in cents per kilogram excluding taxes, and industry output is
stated in millions of kilograms produced annually. The price elasticities of supply and demand were
estimated econometrically and are discussed in Section 3.3, Industry Supply and Demand Elasticities.
The marginal tax rate of 35 percent, private discount rate of 10 percent, and social discount rate
of 7 percent are rates that have been assumed for the analysis as surrogates for the actual rates in the
economy. The marginal tax rate of 35 percent reflects the 1993 marginal corporate tax rate for the
highest income bracket. Since the affected firms are very large multi-product firms, this tax rate
seems the most appropriate for this analysis. The 1993 Federal corporate tax rates vary from a high
of 39 percent to a low of 34 percent for taxable income levels above $100,000 per year. No attempt
has been made to incorporate State or local taxes into this estimate. The 7 percent social discount
rate is consistent with the most current United States Office of Management and Budget (OMB)
guidance.5 The equipment life of 10 years was obtained from the engineering study of emission
control costs conducted by an engineering contractor for EPA. This equipment life is applicable for
most of the pollution control equipment considered in the analysis. The production wages per dollar
value of shipments (LC), hours worked, wages, and the energy expenditure per value of shipments
(E) were calculated from data obtained from the Annual Survey of Manufactures (ASM)6, for
calendar years 1989 and 1991. Data from the ASM which were used to derive these estimates
include: the 1989 and 1991 annual values for production hours worked and production wages, 1989
and 1991 dollar value of domestic shipments, 1989 and 1991 price indices for value of domestic
shipments, and the 1989 and 1991 total expenditures on energy. All of the data acquired from the
ASM reflect those reported for SIC code 2821.
3.3 INDUSTRY SUPPLY AND DEMAND ELASTICITIES
3.3.1 Introduction
Demand and supply elasticities are crucial components of the partial equilibrium model used to
quantify the economic impact of regulatory control cost measures on the affected Group IV industries.
54
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The price elasticities of demand and supply for each resin were unavailable from published sources.
It was therefore determined that the price elasticity of demand and supply should be estimated
econometrically for this analysis. The following sections present the analytical approach and the data
employed to estimate the price elasticities of demand and supply used in the partial equilibrium
analysis. The techniques utilized to estimate the price elasticity of demand and supply are consistent
with economic theory and, at the same time, utilize the data available.
3.3.2 Price Elasticity of Demand
The price elasticity of demand, or own-price elasticity of demand, is a measure of the sensitivity
of buyers of a product to a change in price of the product. The price elasticity of demand represents
the percentage change in the quantity demanded resulting from each 1 percent change in the price of
the product.
3.3.2.1 Approach. MBS, SAN, PET, ABS, MABS, polystyrene, and nitrile resins are used as
intermediate products to produce final goods. The demand for these products is therefore derived
from the demand for these final products. Information concerning the end uses by resin type is
provided in the Industry Profile For the Polymer and Resins IV NESHAP Revised Report.1 According
to the information contained in this profile report, MBS is used primarily as an input into PVC
(polyvinyl chloride) production, which is then used as an input into production of building,
construction, and packaging products. SAN is used primarily for consumer products including
refrigerator shelves and dishwasher-safe housewares. PET's end uses are primarily as inputs for soft
drink bottles, custom bottling, and magnetic film. ABS and nitrile resins are primarily used to
product automotive parts and housewares. MABS' and polystyrene's primary end uses are as inputs
to the manufacture of food and nonfood packaging. The methodology used to estimate the price
elasticity of demand for each product will consider the relevant end use market for each resin.
The assumption was made that firms using MBS, SAN, PET, ABS, MABS, polystyrene, and
nitrile resins as inputs into their productive processes seek to maximize profits. The profit function
for these firms may be written as follows:
Max TT = PFP * f(Q, I) - (P * Q) - (P0, * 7)
G, /
where:
TT = profit,
55
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-------
PFP = the price of the final product or end-use product,
J(Q, I) = the production function of the firm producing the final product,
P = the price of the Group IV resin,
Q = the quantity input use of the Group IV resin,
P01 = a vector of prices of other inputs used to produce the final product, and
I = a vector of other inputs used to produce the final product.
All other variables have been previously defined.
The solution to the profit function maximization results in a system of derived demand equations
for MBS, SAN, PET, ABS, MABS, polystyrene, and nitrile resins. The derived demand equations
are of the following form:
2 = g(P, PFP, P0)
A multiplicative functional form of the derived demand equation is assumed because of the useful
properties associated with this functional form. The functional form of the derived demand function
is expressed in the following formula:
where:
/? = the price elasticity of demand for the Group IV resin, and
j3FP = the final product price elasticity with respect to the use of the Group IV resin.
All other variables have been previously defined. £, /5FP, and A are parameters to be estimated by the
model, ft represents the own price elasticity of demand. The price of other inputs (represented by
POI) has been omitted from the estimated model, because data relevant to these inputs were
unavailable. The implication of this omission is that the use of MBS, SAN, PET, ABS, MABS,
polystyrene, and nitrile resin production is fixed by technology.
The market price and quantity sold of each Group IV resin are simultaneously determined by the
demand and supply equations. For this reason, it is advantageous to apply a systems estimator to
obtain unbiased and consistent estimates of the coefficients for the demand equations.8 Two-stage
least squares (2SLS) is the estimation procedure used in this analysis to estimate the demand equations
for the Group IV resins. Two-stage least squares uses the information available from the specification
of an equation system to obtain a unique estimate for each structural parameter. The predetermined,
or exogenous, variables in the demand and supply equations are used as instruments. The supply -side
56
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variables used to estimate the demand functions include: the real capital stock variable for SIC code
2821 adjusted for capacity utilization (K), a technology time trend (t), and the weighted-average price
index for the cost of labor and materials for SIC code 2821 (PK>L).
3.3.2.2 Data. Data relevant to the econometric modeling of the price elasticity of demand for
MBS, SAN, PET, ABS, MABS, polystyrene, and nitrile resins, including the variable symbol, units
of measure, and variable descriptions are listed in Table 3-3. Consistent time series price and
quantity sold data for Group IV resins were not available in sufficient detail to estimate the price
elasticity of demand for each product with this information. Time series price data were available for
the ABS and polystyrene industries but were unavailable for the MBS, SAN, and PET industries. In
lieu of this information, annual price and sales quantity data for Styrenic Plastics are considered as the
price and quantity sold for MBS, SAN, and PET, respectively in the econometric estimation of the
price elasticity of demand for each product. Since these Group IV resins are a subset of the Styrenic
Plastics category of products, this price and sales information is relevant to the products being
studied. A time series of domestic price and sales quantities were obtained from the ITC for Styrenic
Plastics and ABS for 1970-1991 and for polystyrene from 1976-1991 to be used in the econometric
estimation.9 The final products produced with each Group IV resin differ, as previously discussed.
A series of prices for these final products were sought. The price of construction and building, the
primary end-product uses for MBS, is relevant to the demand estimation for MBS. A time series of
the price index for building and construction was acquired from the 1992 Statistical Abstract for
building and construction for the period 1970-1991.10 Since SAN is primarily an input to the
production of miscellaneous plastic products and refrigerator shelves, the following two alternative
price indices were considered in the estimation of the price elasticity of demand for SAN: the price
index for value of shipments for SIC code 3079, Plastic Products, Not Elsewhere Classified, and the
price index for SIC code 3632, Household Refrigerators and Home and Farm Freezers. Time series
price indices data were available from the ASM for these variables for the period 1970-1991."
The empirical results for the SAN demand model using SIC code 3079 were not successful and are
neither used in the analysis nor reported.
PET is used as a factor of production in soft drink bottling and magnetic film. A time series of
the price index for value of domestic shipments for SIC code 2086, Bottled and Canned Soft Drink
and Carbonated Waters was acquired from the ASM for the period 1970 through 1991 .n
57
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TABLE 3-3. DATA INPUTS FOR THE ESTIMATION OF DEMAND
EQUATIONS FOR GROUP IV INDUSTRIES
Variable
Unit of Measure
Description
1. Time Trend -1
2. Price (Styrenic Plastics) - P1
3. Sales Volume of Styrenic Plastics - Q1
price per kilogram
millions of kilograms
Annual Average Price
Quantity sold of Styrenic
Plastics
4.
5.
6.
7.
8.
9.
10.
11.
Price Final Goods - PFP
a. Building and Construction2
b. Refrigerators3
c. Soft Drink Manufacturing3
d. Plastic Products, NEC3
e. Plastic Pipe3
f. Motor Vehicle Parts and Accessories3
g. Plastic Foam Products3
h. Household Audio and Video Equip.3
i. Electric Housewares and Fans3
Cost of material inputs3
Price index for material inputs3
Production Worker Wages3
Production Worker Hours3
Real Capital Stock3
Capacity Utilization Factor4
Implicit Price Deflator5
index
index
index
index
index
index
index
index
index
millions of dollars
index
millions of dollars
millions of hours
millions of 1987$
percentage
index
-
SIC code 3632
SIC code 3632
SIC code 2086
SIC code 3079
SIC code 3084
SIC code 3714
SIC code 3086
SIC code 3651
SIC code 3634
SIC code 2821
SIC code 2821
SIC code 2821
SIC code 2821
SIC code 28
Base year is 1987
NOTES: 1. International Trade Commission.
2. 1993 Statistical Abstract.
3. Annual Survey of Manufactures.
4. Federal Reserve Board.
5. Business Statistics 1961-1991.
58
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TABLE 3-4. DERIVED DEMAND COEFFICIENTS
Product
MBS
SAN
PET
ABS/MABS/Nitrile
Polystyrene
Own Price /?'
-2.51
(.803)
-1.61
(.607)
-2.72
(.793)
-1.83
(.277)
-1.31
(.473)
End-Use /V
7.31
(2.222)
-.120
(.179)
7.37
(2.131)
2.28
(.995)
-.46
(.539)
NOTES: Standard errors are shown in parenthesis.
Standard errors are shown in parenthesis. Each of the coefficients reported have the anticipated sign
and are statistically significant with the exception of the end-use product coefficient for SAN and for
polystyrene. These coefficient are not statistically significant and do not have the anticipated sign.
Each of the models were adjusted to correct for first-order serial correlation using the Prais-Winsten
algorithm.
The elasticity estimates for each of the Group IV resins reflect that the demand for each resin is
elastic. Regulatory control costs are more likely to be paid by consumers of products with inelastic
demand when compared to products with elastic demand, all other things held constant. Price
increases for products with elastic price elasticity of demand lead to revenue decreases for producers
of the product. Thus, one can predict that price increases resulting from implementation of regulatory
control costs will lead to a decrease in revenues for firms in the affected Group IV industries.
A degree of uncertainty is associated with this method of demand estimation. The estimation is
not robust since the model results vary depending upon the instruments used in the estimation process,
and as a result of the correction methods for serial correlation. For these reasons, a sensitivity
analysis of the price elasticity of demand estimates is presented using a range of elasticities that differ
by a plus one and minus one standard deviation from those utilized in the analysis. A lower and
upper bound estimate for MBS of -1.71 and -3.31, for SAN of -1.0 and -2.22, for PET of -1.93 and
-3.51, for ABS/MABS/nitrile of -1.55 and -2.10, and for polystyrene of-.84 and -1.79 is assumed in
60
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this sensitivity analysis. The results of the sensitivity analysis are reported in Appendix A.
3.3.3 Price Elasticity of Supply
The price elasticity of supply, or own-price elasticity of supply, is a measure of the
responsiveness of producers to changes in the price of a product. The price elasticity of supply
indicates the percentage change in the quantity supplied of a product resulting from each 1 percent
change in the price of the product.
3.3.3.1 Model Approach. Published sources of the price elasticity of supply using current data
were not readily available. For this reason, an econometric analysis of the price elasticity of supply
for the Polymers and Resins Group IV industries was conducted. The approach used to estimate the
price elasticity of supply makes use of the production function. The theoretical methodology of
deriving a supply elasticity from an estimated production function will be briefly discussed with the
industry production function defined as follows:
Qs = /(L,K,M,0
where:
0s = the quantity of MBS, SAN, PET, ABS, MABS, polystyrene, and nitrile resins
produced by domestic Group IV facilities,
L = the labor input, or number of labor hours,
K = real capital stock,
M = the material inputs, and
r = a time variable to reflect technology changes.
In a competitive market, market forces constrain firms to produce at the cost minimizing output
level. Cost minimization allows for the duality mapping of a firm's technology (summarized by the
firm's production function) to the firm's economic behavior (summarized by the firm's cost function).
The total cost function for a polymer and resin facility is as follows:
TC = h(C,K,t,Q*)
where:
TC = the total cost of production, and
C = the cost of production (including cost of materials and labor).
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All other variables have been previously defined.
This methodology assumes that capital stock is fixed, or a sunk cost of production. The
assumption of a fixed capital stock may be viewed as a short-run modeling assumption. This
assumption is consistent with the objective of modeling the adjustment of supply to price changes after
implementation of controls. Firms will make economic decisions that consider those costs of
production that are discretionary or avoidable. These avoidable costs include production costs, such
as labor and materials, and emission control costs. In contrast, costs associated with existing capital
are not avoidable or discretionary. Differentiating the total cost function with respect to $ derives
the following marginal cost function:
MC = A'CCK.
where MC is the marginal cost of production and all other variables have been previously defined.
Profit maximizing competitive firms will choose to produce the quantity of output that equates
market price, P, to the marginal cost of production. Setting the price equal to the preceding marginal
cost function and solving for Q? yields the following implied supply function:
Q* = (P,PL,PM,K,t)
where:
P = the price of MBS, SAN, PET, ABS, MABS, polystyrene, and nitrile resins,
PL = the price of labor, and
PM = the price of materials input.
All other variables have been previously defined.
An explicit functional form of the production function may be assumed to facilitate estimation of
the model. For this analysis, the Cobb-Douglas, or multiplicative form, of the production function is
postulated. The Cobb-Douglas production function has the convenient property of yielding constant
elasticity measures. The functional form of the production function becomes:
Q,*A1? I* C AC
where:
Q, = the sum of the industry output of MBS, SAN, PET, ABS, MABS,
62
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polystyrene, and nitrile resins produced in year t,
K, = the real capital stock in year t,
L, = the quantity of labor hours used to produce Group IV resins in year t,
M, = the material inputs in year t, and
A, aK, aL,
-------
In Qt = In A + aK In K + A In t + aL In L + aw In Af
3.3.3.4 Data. The data used to estimate the model are enumerated in Table 3-5. This table
contains a list of the variables included in the model, the units of measure, and a brief description of
the data. The data for the price elasticity of supply estimation model includes: the value of domestic
shipments in millions of dollars; the price index for value of domestic shipments (the value of
domestic shipments deflated by the price index represent the quantity variable, Q, or the dependent
variable in the analysis); a technology time variable, /; real net capital stock adjusted for capacity
utilization, K, in millions of dollars; the number of production labor man-hours, L,; the material
inputs in millions of dollars, Mt; and the price index for value of materials. Data to estimate the
production function on a resin-specific basis were unavailable; therefore, data for SIC code 2821 is
utilized for each of the variables previously enumerated with the exception of the time variable and
the capacity utilization factor, which is on a 2-digit SIC code level. The capital stock variable
represents real net capital stock for SIC code 2821 adjusted for capacity utilization using the capacity
utilization factor.
TABLE 3-5. DATA INPUTS FOR THE ESTIMATION OF THE PRODUCTION FUNCTION FOR
GROUP IV INDUSTRIES
Variable
Unit of Measure
Description
a
M,
Millions of dollars
Years
Millions of 1987
dollars
Thousand of labor man hours
Millions of dollars
The value of shipments for SIC code
2821 deflated by the price index for
value of shipments1
technology time trend
Real capital stock for SIC code 2821
adjusted for capacity utilization12
Production worker hours
for SIC code 28211
Dollar value of material input for SIC
code 2821 deflated to real values using
the materials price index1
NOTES: 'Annual Survey of Manufactures.
'Federal Reserve Board.
64
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The capital stock variable was the most difficult variable to quantify for use in the econometric
model. Ideally, this variable should represent the economic value of the capital stock actually used by
each facility to produce Group IV resins for each year of the study. The most reasonable data for this
variable would be the number of machine hours actually used to produce Group IV resins each year.
These data are unavailable. In lieu of machine hours data, the dollar value of net capital stock in
constant 1987 prices, or real net capital stock, is used as a proxy for this variable. However, this
data is flawed in two ways. First, the data represent accounting valuations of capital stock rather than
economic valuations. This aberration is not easily remedied, but is generally considered unavoidable
in most studies of this kind. The second flaw involves capital investment that is idle and not actually
used in production in a particular year. This error may be corrected by adjusting the capital
investment to exclude the portion of capital investment that is idle and does not contribute directly to
production in a given year. In an effort to further refine the data, real capital stock was adjusted for
capacity utilization. This refinement results in a data input that considers the percentage of real
capital stock actually utilized in resin production each year.
3.5.3.5 Statistical Results. A restricted least squares estimator was used to estimate the
coefficients of the production function model. A log-linear specification was estimated with the sum
of the a, restricted to unity. This procedure is consistent with the assumption of constant returns to
scale. The model was further adjusted to correct for first-order serial correlation using the Prais-
Winsten algorithm. The results of the estimated model are presented in Table 3-6. All of the
coefficients have the expected sign, but only the materials coefficient is significantly different from
zero with a high degree of confidence.
65
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TABLE 3-6. ESTIMATED SUPPLY MODEL COEFFICIENTS FOR GROUP IV INDUSTRIES
Variable Estimated Coefficients'
t time .0573
(.0497)
X, Capital Stock .1732
(.2382)
L, Labor .0252
(.1873)
M, Materials .8015
(.1230)
NOTES: 'Standard errors are shown in parenthesis.
Using the estimated coefficients in Table 3-6 and the formula for supply elasticity shown under
Section 3.3.3.1, Model Approach, the price elasticity of supply for the MBS, SAN, PET, ABS,
MABS, polystyrene, and nitrile resins is derived to be 4.77. The calculation of statistical significance
for this elasticity measure is not a straightforward calculation since the estimated function in non-
linear. No attempt has been made to assess the statistical significance of the estimated elasticity. The
corrections for serial correlation and the restricted model results yield the standard measures of
goodness of fit (R2) inaccurate. However the ordinary least squares estimated model that is
unrestricted and unadjusted for serial correlation has an R2 of 0.98.
3.3.3.6 Limitations of the Supply Elasticity Estimates. The estimated price elasticity of supply
for the affected Group IV industries reflects that the resin manufacturing industry in the United States
will increase production of these products by 4.77 percent for every 1.0 percent increase in the price
of these products. The preceding methodology does not directly estimate the supply elasticities for
the individual products due to a lack of necessary data. The assumption implicit in the use of this
supply elasticity estimate is that the elasticities of the individual products will not differ significantly
from the price elasticity of supply for all products classified under SIC code 2821. This assumption
does not seem totally unreasonable since similar factor inputs are used to produce each of these
resins.
The uncertainty of the supply estimate is acknowledged. The results of a sensitivity analysis of
66
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the price elasticity supply is included in Appendix A for a high and low estimate of the price elasticity
of supply of 5.77 and 3.77, respectively.
3.4 CAPITAL AVAILABILITY ANALYSIS
It is necessary to estimate the impact of the emission controls on the affected firms' financial
performance and their ability to finance the additional capital investment in emission control
equipment. The capital availability analysis has been conducted on a firm level, given that sufficient
financial data were available on a firm level to do so.
One measure of financial performance frequently used to assess the profitability of a firm is net
income before interest expense expressed as a percentage of firm assets, or rate of return on
investment. The pre-control rate of return on investment (roi) is calculated as follows:
roi =
1991
1987
/5 • 100
where n, is income before interest payments and a, is total assets. A five year average is used to
avoid annual fluctuations that may occur in income data. The regulations could potentially have an
effect on income before taxes, nh for firms in the industry and on the level of assets for firms in the
industry, a,. The baseline average rate of return on investment for firms in the sample range from 1
percent for Elf Atochem to 13 percent for 3M Corporation. The post-control return on investment
(pro/) is calculated for each firm as follows:
proi =
_
1991
£«,
.-1987
1991
£*,
1-1987
/ 5 + A n
1 5 t- A k
_
•100
where:
proi =
A n
post-control return on investment,
= change in income after taxes and before interest resulting from implementation of
emission controls for each firm in the sample, and
= change in investment or assets for each firm in the sample.
The change in a firm's net income, A n,, is calculated using the results of the partial equilibrium
67
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model. A firm's post-control net income has the following three components: (1) the change in
revenue attributable to the change in price, (2) the change in cost attributable to the firm's incurrence
of compliance costs, and (3) applicable taxes. The net effect of these three components determines
the impact of the NESHAP on firms' net income levels. The change in net income, or A n, for each
firm is calculated as follows:
A/1. = {(A?«
-------
costs. Such costs are not quantifiable and have been omitted from the analysis. This omission tends
to overstate the adverse impacts on these marginal firms.
The ability of affected firms to finance the capital equipment associated with emission control is
also relevant to the analysis. Numerous financial ratios can be examined to analyze the ability of a
firm to finance capital expenditures. One alternative is a measure of historical profitability, such as
rate of return on investment. The approach used to analyze this measure has been previously
described. The bond rating of a firm is another indication of the credit worthiness of a firm, or the
ability of a firm to finance capital expenditures with debt capital. Such data are unavailable for many
of the firms subject to the regulation, and consequently, bond ratings are not analyzed. Ability to pay
interest payments and coverage ratios are two other criteria sometimes used to assess the capability of
a firm to finance capital expenditures. The data available to conduct the capital availability analysis
based on these two criteria were also unavailable.
Finally, the degree of debt leverage or debt-equity ratio of a firm is considered in assessing the
ability of a firm to finance capital expenditures. The pre-control debt-equity ratio is the following:
die =
^1991 1991
where:
die = the debt equity ratio,
d = debt capital, and
e = equity capital.
Since capital information is less volatile than earnings information, it is appropriate to use the latest
available information for this calculation. The baseline debt equity ratio for firms in the sample range
from 11 percent for 3M Corporation to 93 percent for Fina (American Petrofina). If one assumes
that the capital costs of control equipment are financed solely by debt, the debt-equity ratio becomes:
pdle = — _
where:
pdle = the post-control debt-equity ratio assuming that the control equipment costs are
financed solely with debt.
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Obviously, firms may choose to issue capital stock to finance the capital expenditure or to finance the
investment through internally generated funds. Assuming that the capital costs are financed solely by
debt may be viewed as a worse case scenario.
The methods used to analyze the capital availability do have some limitations. The approach
matches 1991 debt and equity values with estimated capital expenditures for control equipment.
Average 1987 through 1991 income and asset measures are matched with changes in income and
capital expenditures associated with the control measures. The control cost changes and income
changes reflect 1989 price levels. The financial data used in the analysis represents the most recent
data available. It is inappropriate to simply index the income, asset, debt, and equity values to 1992
price levels for the following reasons. Assets, debt, and equity represent embedded values that are
not subject to price level changes except for new additions such as capital expenditures. Income is
volatile and varies from period to period. For this reason, average income measures are used in the
study. Annualized compliance costs are overstated from a financial income perspective since these
costs include a component for earnings, or return on investment, which tends to overstate the
financial impacts of emission controls for firms in these industries. To the extent that the partial
equilibrium model results are a worst-case scenario approach, the approach followed for financial
impacts also overstates the negative impact of the emission controls on the financial operations of the
affected Group IV firms.
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REFERENCES
1. Hyman, David N., Economics, Irwin Publishing, Homewood, IL. 1989, pp. 214-215.
2. U.S. Department of Commerce, International Trade Commission. Synthetic Organic Chemicals:
U.S. Production and Sales. Time Series Data Request. Washington, DC. March 17, 1993.
3. U.S. Department of Commerce, Bureau of the Census, Trade Data Inquiries and Control Section.
Data Request. Washington, DC. March 11, 1993.
4. Modern Plastics. Resins 1993. New York, NY. January 1993.
5. U.S. Office of Management and Budget. Guidelines and Discount Rates for Benefit-Cost
Analysis of Federal Programs. Circular Number A-94. Washington, DC. October 29, 1992.
6. U.S. Department of Commerce, Bureau of the Census. Annual Survey of Manufactures.
Washington, DC. 1959-1991.
7. U.S. Environmental Protection Agency. Industry Profile for the Polymers and Resins IV
NESHAP - Revised Draft. August 26, 1993.
8. Robert S. Pindyck and Daniel L. Rubinfeld. Econometric Models and Economic Forecasts, 2nd
Edition. McGraw Hill Publishing. 1981. pp. 174-201.
9. Reference 2.
10. U.S. Department Commerce, Bureau of the Census. Statistical Abstract of the United States:
1992. 112th Edition. Washington, DC. 1992. p. 706.
11. Reference 6.
12. U.S. Department of Commerce, Bureau of Economic Analysis. Business Statistics 1963-1991.
27th Edition. Washington, DC. June 1992.
13. Board of Governors of the Federal Reserve System, Division of Research and Statistics.
Industrial Production and Capacity Utilization. Data Request. August 18, 1994.
71
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4.0 CONTROL COSTS, ENVIRONMENTAL IMPACTS, AND
COST-EFFECTIVENESS
4.1 INTRODUCTION
Inputs to the model outlined in the previous chapter include the quantitative data summarized in
Chapter 2.0 and control cost estimates provided by EPA. This chapter summarizes the cost inputs
used in this EIA that were provided on a facility level for each of the seven affected industries.
A formal Benefit Cost Analysis (BCA) requires estimates of economic costs associated with
regulation, which do not correspond to emission control costs. This chapter presents the progression
of steps which were taken to arrive at estimates of economic costs based on the emission control cost
estimates. The environmental impacts associated with the chosen regulatory option in this analysis are
summarized and the cost-effectiveness of the regulatory option is presented.
4.2 CONTROL COST ESTIMATES
Control cost estimates and emission reductions were provided by EPA's engineering contractor
on a facility level for each affected emission point.1-2 The cost estimates provided by EPA represent
the impact of bringing each facility from existing control levels to the control level defined by each
regulatory alternative. The emission points for which costs were provided include storage tanks,
equipment leaks, wastewater streams, continuous stream process vents, and batch stream process
vents. The control costs estimated for each resin facility can be divided into fixed and variable
components. Fixed costs are constant over all levels of output of a process, and usually entail plant
and equipment. Variable costs will vary as the rate of output changes. Annual and variable cost
estimates include costs for monitoring, recordkeeping, and reporting (MRR) requirements. The costs
were calculated for new and existing emission sources. New source costs represent the control of
new process units and equipment built (or reconstructed or replaced) in the first five years after
promulgation based on available industry growth rates.3
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Table 4-1 presents the national annualized cost estimates for controlling existing sources and
newly constructed emission points in the fifth year after promulgation of the Polymers and Resins
Group IV NESHAP. Emission control costs are the annualized capital and annual operating and
maintenance costs of controls based on the assumption that all affected resin facilities install controls.
Costs are provided by emission point for the MACT floor level of control. The total national
annualized cost for implementation of the regulatory alternative is approximately $3.5 million
(including MRR costs) for existing sources and a savings of nearly $6.2 million for sources built in
the first five years after promulgation of the regulation. There is no new construction projected for
the MABS or nitrile industries. Table 4-1 also presents the HAP emission reductions associated with
control at the four emission points and the calculated cost-effectiveness of each control method. The
HAP emission reductions were calculated based on the application of sufficient controls to each
emission point to bring the point into compliance with the regulatory alternative. The cost-
effectiveness of the predicted HAP emission reduction ranges from a savings of $1,772 to a cost of
$43,067 per megagram, and an average of $262 per megagram for the NESHAP.
Table 4-2 presents the total investment capital costs by emission point associated with the
regulatory alternative for each of the seven industries. Total capital investment costs are estimated to
be $17 million for new and existing sources for the seven affected industries five years subsequent to
promulgation of the regulation.
For use as inputs to the economic model, annualized costs were summed on a facility level for
each of the 75 affected facilities. The control costs associated with each of the industries and
emission points are discussed separately below. SAN costs were provided for continuous and batch
stream process vents, and an AMSAN/ASA facility that produces SAN for captive use in the
production of ABS. PET costs were provided by TPA continuous streams, TPA batch streams, DMT
continuous streams, and DMT batch streams. The costs for controlling ABS and polystyrene facilities
were provided for continuous and batch stream process vents. PET facilities are the only facilities for
which additional control on storage tanks is required by the regulation.
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TABLE 4-1. SUMMARY .OF GROUP IV NESHAP COSTS IN THE FIFTH YEAR BY RESIN INDUSTRY AND EMISSION POINT1
Group IV Industry by Emission Point
A. MBS2
Equipment Leaks
Miscellaneous Process Vents
Wastewater Systems
Storage Tanks
Total MBS
B. SAN2
Equipment Leaks
Miscellaneous Process Vents
Wastewater Systems
Storage Tanks
Total SAN
C. PET3
Equipment Leaks
Miscellaneous Process Vents
Wastewater Systems
Storage Tanks
Total PET
D. ABS2
Equipment Leaks
Miscellaneous Process Vents
Wastewater Systems
Storage Tanks
Total ABS
Annual Fifth Year Costs
(1989 Dollars per Year)
Existing
Sources New Construction Total
$23,143 $216 $23,358
$180,603 $239,640 $420,244
$143,239 $0 $143,239
$0 $3,179 $3,179
$346,985 $243,035 $590,021
$66,987 ($6,878) $60,109
$0 $0 $0
$281,018 $0 $281,018
$0 $0 $0
$348,005 ($6,878) $341,127
$892,942 $705,967 $1,598,909
($5,424,619) $758,276 ($4,666,343)
($424,619) ($9,653,905) ($3,904,319)
$64,678 $157,724 $222,402
$1,282,587 ($8,031,938) ($6,749,351)
($110,449) ($214,159) ($324,608)
$1,712,377 $1,779,934 $3,492,311
$0 $0 $0
$0 $59,059 $59,059
$1,601,927 $1,624.834 $3,226,762
Annual
HAP Emission
Reduction
(Mg/yr)
41.5
25.9
5.0
1.7
74.0
123.4
0.0
30.0
0.0
153.4
2,003.6
(5,725.6)
12,621.2
113.3
9,012.6
283.0
330.3
0.0
4.2
617.5
Cost-
Effectiveness
($/Mg)
$563.1
$16,244.4
$28,647.8
$1,926.9
$7,963.3
$487.1
$0.0
$9,367.3
$0.0
$2,223.8
$798.0
$815.0
($309.3)
$1,962.4
($748.9)
($1,147.0)
$10,573.5
$0.0
$14,061.7
$5.225.5
-------
TABLE 4-1 (continued)
Group IV Industry by Emission Point
E. MABS2
Equipment Leaks
Miscellaneous Process Vents
Wastewater Systems
Storage Tanks
Total MABS
F. Polystyrene2
Equipment Leaks
Miscellaneous Process Vents
Wastewater Systems
Storage Tanks
Total Polystyrene
G. Nitrile2
Equipment Leaks
Miscellaneous Process Vents
Wastewater Systems
Storage Tanks
Total Nitrile
TOTAL FOR REGULATORY ALTERNATIVE
Annual Fifth Year Costs
(1989 Dollars per Year)
Existing
Sources New Construction Total
($64,600) $0 ($64,600)
($79) $0 ($79)
$0 $0 $0
$0 $0 $0
($64,679) $0 ($64,679)
$5,728 ($11,355) ($5,627)
($74,900) ($1,494) ($76,394)
$0 $0 $0
$0 $0 $0
($69,171) ($12,849) ($82,020)
$6,164 $0 $6,164
$767 $0 $767
$0 $0 $0
$0 $0 $0
$6,931 $0 $6,931
Annual
HAP Emission
Reduction
(Mg/yr)
(1.5)
38.0
0.0
0.0
36.5
304.4
198.8
0.0
0.0
503.2
6.8
3.4
0.0
0.0
10.2
$3,452,586 ($6,183,795) ($2,731,210) 10,407.4
Cost-
Effectiveness
($/Mg)
$43,066.7
($2.1)
$0.0
$0.0
($1,772.0)
($18.5)
($384.3)
$0.0
$0.0
($163.0)
$906.5
$225.7
$0.0
$0.0
$679.5
($262.4)
NOTE: 'Costs reflect absolute regulatory costs rather than incremental costs.
'Assumes regulatory Alternative 1 is chosen.
'Assumes regulatory Alternative 2 is chosen.
76
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TABLE 4-2. SUMMARY OF TOTAL GROUP IV NESHAP CAPITAL COSTS BY RESIN
INDUSTRY AND EMISSION POINT1
Total Capital Costs
(1989 Dollars)
Group IV Industry and Emission Point
A. MBS
Equipment Leaks
Miscellaneous Process Vents
Wastewater Systems
Storage Tanks
Total MBS
B. SAN
Equipment Leaks
Miscellaneous Process Vents
Wastewater Systems
Storage Tanks
Total SAN
C. PET
Equipment Leaks
Miscellaneous Process Vents
Wastewater Systems
Storage Tanks
Total PET
D. ABS
Equipment Leaks
Miscellaneous Process Vents
Wastewater Systems
Storage Tanks
Total ABS
E. MABS
Equipment Leaks
Miscellaneous Process Vents
Wastewater Systems
Storage Tanks
Existing
Sources
$167,426
$93,204
$279,051
$0
$539,681
$498,790
$0
$579,252
$0
$1,078,042
$1,342,191
($84,768,845)
$86,827,321
$266,078
$3,667,045
$224,546
$4,004,211
$0
$0
$4,228,757
$30,000
$89,673
$0
$0
New
Construction
$16,252
$405,446
$0
$18,083
$439,781
$176,188
$0
$0
$0
$176,188
$1,809,206
$442,362
$0
$508,750
$2,040,318
$111,161
$3,419,086
$0
$172,276
$3,702,523
$0
$0
$0
$0
Total
$183,678
$498,650
$279,051
$18,083
$979,462
$674,978
$0
$579,252
$0
$1,254,230
$2,431,697
($84,326,483)
$86,827,321
$774,828
$5,707,363
$335,707
$7,423,297
$0
$172,276
$7,931,280
$30,000
$89,673
$0
$0
77
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TABLE 4-2 (continued)
Group IV Industry and Emission Point
Total MABS
F. Polystyrene
Equipment Leaks
Miscellaneous Process Vents
Wastewater Systems
Storage Tanks
Total Polystyrene
G. Nitrile
Equipment Leaks
Miscellaneous Process Vents
Wastewater Systems
Storage Tanks
Total Nitrile
TOTAL FOR REGULATORY ALTERNATIVE
Existing
Sources
$119,673
$806,120
$243,527
$0
$0
$1,049,647
$0
$8,770
$0
$0
$8,770
$10,691,615
Total Capital Costs
(1989 Dollars)
New
Construction
$0
$172,010
$2,045
$0
$0
$174,055
$0
$0
$0
$0
$0
$6,532,865
Total
$119,673
$978,130
$245,572
$0
$0
$1,223,702
$0
$8,770
$0
$0
$8,770
$17,224,480
NOTE: 'Costs reflect absolute regulatory costs rather than incremental costs.
78
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The methodologies used to estimate the costs for the expected regulatory alternative are the same
as the methodologies used to estimate the costs of the HON rule.4 For storage tanks, required control
measures range from floating roofs to closed vent systems routed to a control device. Costs are zero
for each MBS and SAN facility since all tanks are currently meeting the HON requirements.3 For
PET processes, costs for storage tank provisions are identical for each process at a given facility. It
was assumed that the storage tanks are shared among the four types of processes. In determining a
facility's total cost, therefore, storage tank impacts were counted only once to avoid overstating a
facility's compliance cost impacts.5 For equipment leaks, facilities have several compliance options.
Facilities are required to develop and implement leak detection and repair programs or to install
certain types of emission-reducing, or emission-eliminating, equipment. Costs for equipment leak
provisions were based on the calculation used in the HON. For process vents, costs were provided
for continuous streams and for batch streams. For batch processes that vent less than 500 hours per
year, the regulatory alternative is based on EPA's draft CTG for Batch Processes.6 This approach
determines whether control is required based on vent stream characteristics. For wastewater, the
NESHAP provisions require that wastewater be kept in tanks, impoundments, containers, drain
systems, and other vessels that do not allow exposure to the atmosphere until it is recycled or treated
to reduce HAP concentration. Costs for wastewater provisions were developed using HON
methodologies.
4.3 ESTIMATES OF ECONOMIC COSTS
Air quality regulations affect society's economic well-being by causing a reallocation of
productive resources within the economy. Resources are allocated away from the production of goods
and services (MBS, SAN, PET, ABS, MABS, polystyrene, and nitrile resins) to the production of
cleaner air. Estimates of the economic costs of cleaner air require an assessment of costs to be
incurred by society as a result of emission control measures. By definition, the economic costs of
pollution control are the opportunity costs incurred by society for productive resources reallocated in
the economy to pollution abatement. The economic costs of the regulation can be measured as the
value that society places on goods and services not produced as a result of resources being diverted to
the production of improved air quality. The conceptually correct valuation of these costs requires the
identification of society's willingness to be compensated for the foregone consumption opportunities
resulting from the regulation. In contrast to the economic cost of regulation, emission compliance
costs consider only the direct cost of emission controls to the industry affected by the regulation.
79
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Economic costs are a more accurate measure of the costs of the regulation to society than an
engineering estimate of compliance costs. However, compliance cost estimates provide an essential
element in the economic analysis.
Economic costs are incurred by consumers, producers, and society at large as a result of
pollution control regulations. These costs are measured as changes in consumer surplus, producer
surplus, and residual surplus to society. Consumer surplus is a measure of well-being or of the
welfare of consumers of a good and is defined as the difference between the total benefits of
consuming a good and the market price paid for the good. Pollution control measures will result in a
loss in consumer surplus due to higher prices paid for Group IV resins and to the deadweight loss in
surplus caused by reduced output of these seven resins in the post-control market.
Producer surplus is a measure of producers' welfare that reflects the difference between the
market price charged for a product and the marginal cost of production. Pollution controls will result
in a change in producer surplus that consists of three components. These components include:
surplus gains relating to increased revenues experienced by firms in the Group IV industries
attributable to higher post-control prices, surplus losses associated with increased costs of production
for annualized emission control costs, and surplus losses due to reductions in post-control output.
The net change in producer surplus is the sum of these surplus gains and losses.
Additional adjustments or changes in the residual surplus to society are necessary to reflect the
economic costs to society of pollution controls, and these adjustments are referred to as the change in
residual surplus to society. Specifically, adjustments are necessary to consider tax gains or losses
associated with the regulation and to adjust for differences between the social discount rate and the
private discount rate. Since control measures involve the purchase of long-lived assets, it is necessary
to annualize the cost of emission controls. Annualization of costs require the use of a discount rate or
the cost of capital. The private cost of capital (assumed to be 10 percent) is the relevant discount rate
to use in estimating annualized compliance costs and market changes resulting from the regulation.
Firms in the MBS, SAN, PET, ABS, MABS, polystyrene, and nitrile industries will make supply
decisions in the post-control market based upon increases in the costs of production. The private cost
of capital more accurately reflects the capital cost to firms associated with the pollution controls.
Alternatively, the social costs of capital (assumed to be 7 percent) is the relevant discount rate to
consider in estimating the economic costs of the regulation.7 The economic cost of the regulation
represents the cost of the regulation to society, or the opportunity costs of resources displaced by
80
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emission controls. A risk-free discount rate, or the social discount rate, better reflects the capital cost
of the regulation to society.
The sum of the change in consumer surplus, producer surplus and residual surplus to society
constitutes the economic costs of the regulation. Table 4-3 summarizes the economic costs associated
with the regulatory alternative. The economic cost for the seven affected industries combined is $4.3
million for existing sources (1989$). The economic costs for new and existing sources five years
subsequent to promulgation of the regulation may be estimated by adding engineering control costs for
new sources to the economic costs of existing sources. An annual economic gain of $1.9 million is
estimated from compliance with the regulation for existing and new sources (1989$).
4.4 ESTIMATED ENVIRONMENTAL IMPACTS
Table 4-4 reports estimates of annual emission reductions associated with the chosen alternative.
The HAP emission reductions were calculated based on the application of sufficient controls to each
emission point to bring each point into compliance with the regulatory alternative. The estimate of
total HAP emission reductions is 10,407.4 Mg per year.
81
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TABLE 4-3. ANNUAL ECONOMIC COST ESTIMATES FOR THE POLYMERS AND RESINS
GROUP IV REGULATION BASED ON EXISTING SOURCE COSTS1 2
(1989 Dollars)
Group IV Industry
MBS
SAN
PET
ABS/MABS
Polystyrene
Nitrile
TOTAL
Change in
Consumer
Surplus
($397,306)
($683,877)
($29,765,757)
($3,757,059)
($905,538)
($4,726)
($35,514,263)
Change in
Producer
Surplus
$31,294
$334,357
$26,802,696
$1,603,303
$659,740
($1,429)
$29,429,961
Change in
Residual
Surplus
$44,323
$232,079
$0
$1,069,534
$409,995
($319)
$1,755,612
Total Loss
In Surplus
($321,688)
($117,441)
($2,963,061)
($1,084,222)
($164,197)
($6,474)
($4,328,690)
NOTE: 'Brackets indicate economic costs.
TABLE 4-4. ESTIMATED ANNUAL REDUCTIONS IN EMISSIONS AND COST-
EFFECTIVENESS ASSOCIATED WITH THE CHOSEN REGULATORY ALTERNATIVE
HAP Emission Reduction HAP Cost Effectiveness*
Group IV Industry (Megagrams/Yr) ($/Year)
MBS
SAN
PET
ABS/MABS
Polystyrene
Nitrile
TOTAL
74.0
153.4
9,012.6
654
503.2
10.2
10,407.4
$7,631
$721
($562)
$4,142
($352)
$635
($178)
NOTES: "Cost-effectiveness is computed as estimated annualized economic costs for new and existing sources
divided by estimated emissions reduced. Comparisons are made between the regulatory alternative and
baseline conditions.
82
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4.5 COST EFFECTIVENESS
Economic cost effectiveness is computed by dividing the annualized economic costs by the
estimated emission reductions. The NESHAP has a calculated total cost of ($178) per megagram of
HAP reduced for new and existing sources.
Generally, a dominant alternative results in the same or higher emission reduction at a lower cost
than all other alternatives. Because this analysis evaluated only one alternative, however, there is no
basis for comparison.
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REFERENCES
1. King, Bennett. Pacific Environmental Services. Letter to Larry Sorrels. U.S. Environmental
Protection Agency. Revised Draft Costs Impacts for Court-Order Group IV Resins. Research
Triangle Park, NC. September 12, 1994.
2. King, Bennett. Pacific Environmental Services, Inc. Letter to Larry Sorrels, U.S.
Environmental Protection Agency, Office of Air Quality Planning and Standards. Draft Cost
Impacts for Orphan Group IV Resins. Research Triangle Park, NC. November 30, 1994.
3. Meardon, Kenneth. Pacific Environmental Services. Letter to Larry Sorrels. U.S.
Environmental Protection Agency. Estimated New Growth for Group IV Resins Sources.
Research Triangle Park, NC. June 30, 1994.
4. U.S. Environmental Protection Agency. "Hazardous Air Pollutant Emissions from Process Units
in the Synthetic Organic Manufacturing Industry - Background Information for Proposed
Standards. Volume IB: Control Technologies." Draft EIS. EPA-453/D-92-016b. Research
Triangle Park, NC. November 1992.
5. Reference 1.
6. U.S. Environmental Protection Agency. "Control of Volatile Organic Compound Emissions
from Batch Processes." Draft Document. EPA-453/R-93-017. Research Triangle Park, NC.
November 1993.
7. U.S. Office of Management and Budget. Guidelines and Discount Rates for Benefit-Cost
Analysis of Federal Programs. Circular Number A-94. Washington, DC. October 29, 1992.
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5.0 PRIMARY ECONOMIC IMPACTS AND CAPITAL
AVAILABILITY ANALYSIS
5.1 INTRODUCTION
Estimates of the primary economic impacts resulting from implementation of the NESHAP and
the results of the capital availability analysis are presented in this chapter. Primary impacts include
changes in the market equilibrium price and output levels, changes in the value of shipments or
revenues to domestic producers, and plant closures. The capital availability analysis assesses the
ability of affected firms to raise capital and the impacts of control costs on firm profitability.
5.2 ESTIMATES OF PRIMARY IMPACTS
The partial equilibrium model is used to analyze the market outcome of the regulation. As
outlined in Chapter 3 of this report, the purchase of emission control equipment will result in an
upward vertical shift in the domestic supply curve for each of the seven affected Group IV markets.
The height of the shift is determined by the after-tax cash flow required to offset the per unit increase
in production costs. Since the control costs vary for each of the affected facilities, the post-control
supply curve is segmented, or a step function. Since the underlying production costs for each facility
are unknown, a worst case assumption was necessary. The facilities with the highest control costs per
unit of production were assumed to also have the highest pre-control per unit cost of production.
Thus, firms with the highest per unit cost of emission control are assumed to be marginal in the post-
control market.
Foreign demand and supply are assumed to have the same price elasticities as domestic demand
and supply, respectively. The United States had a positive trade balance for MBS, SAN, PET, ABS,
MABS, polystyrene, and nitrile resins in 1991. Net exports are therefore positive for each Group IV
resin in the baseline market models. Foreign and domestic post-control supply are added together to
form the total post-control market supply. The intersection of this post-control supply with market
demand will determine the new market equilibrium price and quantity in each Group IV industry.
85
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Table 5-1 presents the primary impacts predicted by the partial equilibrium model. The
anticipated per kilogram price increases are $0.008, $0.011, $0.011, $0.007, $0.0004, and $0.0003
for MBS, SAN, PET, ABS/MABS, polystyrene, and nitrile resins, respectively. The percentage
increases for each Group IV resin range from a high of 2.8 percent for SAN to a low of 0.1 percent
for nitrile. Production is expected to decrease by 1.3 million kilograms, 3.8 million kilograms, 122.3
million kilograms, 22.0 million kilograms, 5.4 million kilograms, and 0.03 million kilograms for the
MBS, SAN, PET, ABS/MABS, polystyrene, and nitrile industries, respectively. These results
represent an overall decrease in domestic production ranging from 0.2 percent to 4.6 percent.
The value of domestic shipments, or revenues, for domestic producers is expected to decrease for
each affected Group IV industry. The predicted decreases in annual revenues for individual products
are $0.78 million for MBS, $0.62 million for SAN, and $57.42 million for PET, $5.71 million for
ABS/MABS, $390 thousand for polystyrene, and $7 thousand for nitrile resins annually (1989
dollars). The percentage decreases range from a low of 0.1 percent for nitrile to a high of 2.7
percent for ABS/MABS. Economic theory predicts that revenue decreases are expected to occur
when prices are increased for products which have an elastic price elasticity of demand, holding all
other factors constant. This revenue decrease results because the percentage increase in price is less
than the percentage decrease in quantity for goods with elastic demand. The estimated revenue
decreases in each of the Group IV industries follows this theory.
It is anticipated that there will not be any MBS, SAN, ABS/MABS, polystyrene, or nitrile
facility closures as a result of the NESHAP. However, the model predicts that approximately three
PET facilities may cease to produce PET or close. These facilities may close for operation or, if the
firm is a multi-product firm, may cease to produce PET. As stated earlier in this chapter, those
facilities with the highest per unit control costs are assumed to be marginal in the post-control market.
The analysis of the PET industry indicates that the marginal firms are small producers of PET. As a
result, small industry decreases in production will cause these firms to cease to produce PET. Firms
that have post-control supply prices that exceed the market equilibrium price are assumed to close or
cease to produce PET resins. This assumption is consistent with the theory of perfect competition
which presumes that all firms in the industry are price takers. In reality, firms with the highest per
unit control costs may not have the highest underlying cost of production as postulated in the analysis.
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TABLE 5-1. SUMMARY OF PRIMARY ECONOMIC IMPACTS OF POLYMERS AND RESINS
GROUP IV NESHAP
Estimated Impacts4
Group IV Industry
MBS
Amount
Percentage
SAN
Amount
Percentage
PET
Amount
Percentage
ABS/MABS
Amount
Percentage
Polystyrene
Amount
Percentage
Nitrile
Amount
Percentage
Price
Increases'
$0.008
0.9%
$0.011
2.8%
$0.011
1.5%
$0.007
1.6%
$0.0004
0.2%
$0.0003
0.1%
Production
2
(1.3)
(2.5%)
(3.8)
(4.6%)
(122.3)
(4.1%)
(22.0)
(3.8%)
(5.4)
(0.2%)
(0.03)
(0.2%)
Value of
Domestic
Shipments3
($0.78)
(1.7%)
($0.62)
(2.0%)
($57.42)
(2.7%)
($5.71)
(2.3%)
($0.39)
(0.1%)
($0.007)
(0.1%)
Facility
Closures
None
None
Three
None
None
None
NOTES: 'Prices are shown in price per kilogram (1989 dollars).
2Annual production quantities are shown in millions of kilograms.
'Values of domestic shipments are shown in millions of 1989 dollars.
'Brackets indicate decreases or negative values.
87
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This is a worst-case assumption that is likely to bias the results and as a result, overstate the number
of plant closures and other adverse effects of the emission controls.
Of further note is the uncertainty associated with the estimates of facility-level production
quantities for PET facilities. PET melt-phase production has been eliminated from the overall
production of the industry based on the fact that PET melt-phase resin is an intermediate product used
as an input into other PET production. If some firms produce PET melt-phase as a commodity to be
sold to other PET producers, the individual facility production may be understated while industry
totals are correct. Additionally, actual production data on a facility level were unavailable. The
individual facility production levels used in this analysis are based upon facility-level capacity in 1991
and total 1991 industry production. The individual facility production was calculated by multiplying
each facility's production capacity by the ratio of total industry production to total industry capacity
for 1991. To the extent that actual facility capacity utilization differs from that of the whole industry,
the estimated impacts for individual facilities may be either understated or overstated. An alternative
model estimating market impacts based on industry average price increases was considered to offer
additional information regarding the likely primary impacts of regulations for PET producers. The
results of this model are reported in Appendix B.
In addition, industry-specific data were not available for the MASS industry. For this reason,
the MABS and ABS industries are analyzed as one industry. The MABS production and control costs
represent only a fraction of the industry totals for MABS and ABS. Since MABS and ABS have a
high degree of similarity, it is reasonable to model these industries jointly.
The estimated primary impacts reported for the Group IV industries depend upon the set of
parameters used in the partial equilibrium model. Two of the parameters, the price elasticity of
demand and the price elasticity of supply, have some degree of estimation uncertainty. For this
reason, a sensitivity analysis was conducted. The results of these analyses are presented in Appendix
A. Sensitivity analyses were performed for low- and high-end estimates of demand and supply
elasticities, respectively. In general, the sensitivity analysis shows that the estimated primary impacts
are relatively insensitive to reasonable changes of price elasticity of demand and price elasticity of
supply estimates.
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5.3 CAPITAL AVAILABILITY ANALYSIS
The capital availability analysis involves examining pre- and post-control values of selected
financial ratios. The ratios selected for use in this analysis are the rate of return on investment and
the debt-equity ratio. These financial statistics provide insight into the ability of affected firms to
raise the necessary capital to finance the investment in emission control equipment. Data were
available to estimate these ratios for 18 of the 28 affected firms. This analysis does not include the
following firms: American Polymers, BASF, BF Goodrich, Dart Container Corporation, Hoechst-
Celanese, Huntsman Chemical, Kama, Kaneka, Novacor Chemical, and YKK.
For the remaining firms, net income was averaged for the five-year period from 1987 through
1991 to avoid annual fluctuations that may occur in income due to changes in the business cycle.
Debt and equity capital are not subject to annual fluctuations, and, as a result, the most recent data
available (1990 or 1991) was used in this analysis. Tables 5-2 and 5-3 show the estimated impact on
financial ratios for firms in these industries. The total capital investment in control equipment was
applied to current debt-equity ratios for 16 affected firms. Table 5-2 shows the baseline and post-
control debt-equity ratios for each of the firms included in this analysis. The effects of investment in
control equipment on these firms' equity ratios are minimal, and average ratios presented a range of
effects from a decrease of 0.99 percent to an increase of 0.20 percent. Due to the confidentiality of
firm-specific control cost estimates, PET producer financial ratios are presented in the table as an
aggregate average. The percent changes in the debt-to-equity ratio for individual PET firms range
from a decrease of 4.7 percent to an increase of 0.3 percent.
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TABLE 5-2. POST-NESHAP EFFECTS ON FIRMS' DEBT-EQUITY RATIOS
Long-Term Debt-Equity Ratios (%)
Firm
Amoco
ARCO
BP Chemicals
Chevron
Dow Chemical
Fina
General Electric
Monsanto
Rohm & Haas
Scott
Average
PET PRODUCERS'
NOTE: ' Includes 3M
Baseline
28.2%
39.8%
43.4%
28.2%
66.8%
93.1%
58.7%
36.3%
35.1%
54.1%
33.2%
Corporation, Allied Signal,
TABLE 5-3. POST-NESHAP EFFECTS
Post-NESHAP
28.2%
39.8%
43.4%
28.2%
66.8%
93.1%
58.7%
36.3%
35.1%
54.1%
32.9%
Difference
in Ratios
0.00
0.00
0.00
0.00
0.00
0.00
0.01
0.01
0.02
0.00
(0.33)
Percentage
Change (%)
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.01%
(0.03%)
0.02%
0.00%
(0.99%)
Inc., ICI, Kodak, Shell, and Wellman.
ON FIRMS' RETURN
ON INVESTMENT LEVELS
Net Income to Assets Ratio (%)
Firm
Amoco
ARCO
BP Chemicals
Chevron
Dow Chemical
Elf Atochem
Fina
General Electric
Monsanto
Rohm & Haas
Scott
Average
PET PRODUCERS1
Baseline
5.48%
11.19%
3.99%
3.92%
8.74%
1.01%
4.05%
3.06%
6.69%
9.84%
3.78%
7.25%
After Tax
Post-NESHAP
5.48%
11.19%
3.99%
3.92%
8.74%
1.01%
4.06%
3.06%
6.69%
9.84%
3.78%
7.35%
Difference in
Ratios
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.10
Percentage
Change (%)
(0.01%)
0.02%
0.00%
0.00%
0.00%
(0.02%)
(0.08%)
(0.12%)
(0.04%)
(0.02%)
0.00%
1.45%
NOTE: ' Includes, 3M Corporation, Allied Signal, DuPont, ICI, Kodak, Shell, and Wellman.
90
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The effect of the NESHAP on rates of return on investment was analyzed for 18 affected firms.
The results of this analysis are shown in Table 5-3. As described in Section 3.4, the effect of the
regulation on net income includes the net effect of new market prices on revenue and the incurrence
of control costs. For marginal firms, the effect on net income also incorporates the loss in revenue
due to post-NESHAP decreases in production. The effect of the regulation on firms' asset levels is
equal to the capital investment necessary for the purchase of control equipment. The NESHAP is not
expected to have a significant effect on the return on investment for any of the firms in the sample.
The effect of the NESHAP on the rate of return on investment for these firms range from a decrease
of 0.01 percent to an increase of 1.50 percent. The financial ratios for the PET industry are
presented as an aggregate due to confidentiality of firm-specific data. The individual PET firm
financial impact ranges from an decrease of 0.01 percent to a increase of 7.1 percent. Both the debt-
equity ratios and rates of return on investment remain virtually unchanged as a result of the emission
controls.
5.4 LIMITATIONS
Several qualifications of the primary impact results presented in this chapter are required. A
single national market for a homogenous product is assumed in the partial equilibrium analysis.
There may, however, be some regional trade barriers that would protect individual Group IV resin
producers. The analysis also assumes that the facilities with the highest control costs are marginal in
the post-control market. Facilities that are marginal in the post-control market for PET have per unit
control costs that significantly exceed the average. This may either be the result of the engineering
method used to assign costs to individual facilities, or may be due to the uncertainty surrounding the
estimates of PET facility-level production. The result of the foregoing list of qualifications is
overstatement of the impacts of the chosen alternative on the market equilibrium price and quantity,
revenues, and plant closures. Finally, some facilities may find it profitable to expand production in
the post-control market. This would occur when a firm found its post-control incremental unit costs
to be smaller than the post-control market price. Expansion by these firms would result in a smaller
decrease in output and increase in price than would otherwise occur.
The results of the sensitivity analysis of demand and supply elasticities are reported in Appendix
A. These results show slightly less adverse impacts on producers when demand is less elastic, or
when supply is less elastic, in terms of reduction in market output and reduction in value of domestic
shipments. The results of the economic analysis are therefore relatively insensitive to reasonable
91
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variations in the price elasticity of demand or the price elasticity of supply inputs.
The capital availability analysis also has limitations. First, future baseline performance may not
resemble past levels. Additionally, the tools used in the analysis are limited in scope.
5.5 SUMMARY
The estimated impacts of the emission controls are relatively small. Predicted price increases in
Group IV resins range from a low of 0.1 percent for nitrile to a high of 2.8 percent for the SAN
industry. Production decreases range from a low of 0.2 percent for the nitrile industry to a high of
4.6 percent for the SAN industry. The value of domestic shipments, or revenues to domestic
producers, for the MBS, SAN, PET, ABS/MABS, polystyrene, and nitrile resins are anticipated to
decrease $0.78, $0.62, $57.42, $5.71, $0.39, and $0.007 million annually (1989$). Emission control
costs are small relative to the financial resources of affected producers, and on average, Group IV
resin producers should not find it difficult to raise the capital necessary to finance the purchase and
installation of emission controls.
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6.0 SECONDARY ECONOMIC IMPACTS
6.1 INTRODUCTION
In addition to impacts on price, production, and revenue, implementation of emission controls is
likely to have secondary impacts including changes in labor inputs, changes in energy inputs, balance
of trade impacts, and regional effects. The potential changes in employment, use of energy inputs,
balance of trade, and regional impact distribution are presented individually below.
6.2 LABOR MARKET IMPACTS
The estimated labor impacts associated with the NESHAP are based on the results of the partial
equilibrium analyses of the Group IV resin industries, and are reported in Table 6-1. The number of
workers employed by firms in SIC code 2821 is estimated to decrease by up to 127 workers as a
result of the emission controls. These job losses include 1 worker for MBS and 2 for SAN,
respectively, 110 workers in the PET industry, 12 in the ABS/MABS industries, 2 in the polystyrene
industry, and less than one in the nitrile industry. These job losses are considered transitional in
nature. The estimated loss in number of workers results primarily from projected reductions in levels
of production reported in Chapter 5 for each of the seven Group IV resins. Gains in employment
anticipated to result from operation and maintenance of control equipment have not been included in
the analysis due to the lack of reliable data. Estimates of employment losses do not consider potential
employment gains in industries that produce substitute resins. Similarly, losses in employment in
industries that use Group IV resins as inputs or in industries that provide complement goods are not
considered. The changes in employment reflected in this analysis are only direct employment losses
due to reductions in domestic production of the Group IV resins.
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TABLE 6-1. SUMMARY OF SECONDARY IMPACTS OF POLYMERS AND RESINS GROUP
IV NESHAP
Group IV Industry
MBS
Amount
Percentage
SAN
Amount
Percentage
PET
Amount
Percentage
ABS/MABS
Amount
Percentage
Polystyrene
Amount
Percentage
Nitrile
Amount
Percentage
Labor Input2
(1)
(2.5%)
(2)
(4.6%)
(110)
(4.1%)
(12)
(3.8%)
(2)
(0.3%)
(0.015)
(0.2%)
Estimated Impacts1
Energy Input3
($0.04)
(2.6%)
($0.05)
(2.5%)
($2.73)
(4.3%)
($0.30)
(1.8%)
($0.04)
(0.3%)
($0.0004)
(0.2%)
Foreign Trade4
(0.20)
(20.6%)
(0.98)
(5.7%)
(10.67)
(7.2%)
(6.51)
(14.9%)
(0.61)
(0.5%)
(0.008)
(0.8%)
NOTES: 'Brackets indicate decreases or negative values.
'Indicates estimated reduction in number of jobs.
Deduction in energy use in millions of 1989 dollars.
'Reduction in net exports (exports less imports) in millions of kilograms.
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The loss in employment is relatively small in terms of number of jobs lost. The magnitude of
predicted job losses directly results from the relatively small estimated decrease in production and the
relatively low labor intensity in the polymers and resins industry.
6.3 ENERGY INPUT MARKET
The method used to estimate reductions in energy input use relates the baseline energy
expenditures to the level of production. An estimated decrease in annual energy use of $0.04, $0.05,
$2.73, $0.30, $0.04, and $0.0004 million (1989$) annually for the MBS, SAN, PET, ABS/MABS,
polystyrene, and nitrile resin industries, respectively is expected as a result of the emission controls.
The estimated impacts on energy use by Group IV industries are reported in Table 6-1. As
production decreases, the amount of energy input utilized by each affected industry also declines.
The estimated changes in energy use do not consider the increased energy use associated with
operating and maintaining emission control equipment. Insufficient data were available to consider
such changes in energy costs.
6.4 FOREIGN TRADE
The implementation of the NESHAP will increase the costs of production for domestic Group IV
resin producers relative to foreign producers, all other factors being equal. This change in the
relative price of imports will cause domestic imports of Group IV resins to increase and domestic
exports of Group IV resins to decrease. The overall balance of trade for Group IV resins is currently
positive (exports exceed imports). The NESHAP is likely to cause the balance of trade to become
less positive. The estimated impacts on net exports for the seven Group IV industries range from a
decline of 0.008 million kilograms annually for the nitrile industry to 10.67 million kilograms for
ABS/MABS industries. The predicted changes in the trade balance for each Group IV industry are
reported in Table 6-2.
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TABLE 6-2. FOREIGN TRADE (NET EXPORTS) IMPACTS
Group IV Industry
MBS
SAN
PET
ABS/MABS
Polystyrene
Nitrile
NOTES: 1 Brackets indicate
Amount2
(0.20)
(0.98)
(10.67)
(6.51)
(0.61)
(0.008)
reductions or negative values.
Estimated Impacts'
Percentage
(20.6%)
(5.7%)
(7.2%)
(14.9%)
(0.5%)
(0.8%)
Dollar Value of Net
Export Change3
($0.18)
($0.21)
($6.22)
($2.60)
($0.09)
($0.003)
J Millions of kilograms.
3 Millions of dollars ($1989).
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6.5 REGIONAL IMPACTS
No significant regional impacts are expected to result from implementation of the NESHAP. The
estimated impacts of the regulation do not adversely impact one region of the country relative to
another.
6.6 LIMITATIONS
The estimates of the secondary impacts associated with the emission controls are based on
changes predicted by the partial equilibrium model for each of the seven industries. The limitations
described in Section 5.4 of the previous chapter are also applicable to the secondary economic impacts
reported in this chapter. As previously noted, the employment losses do not consider potential
employment gains for operating the emission control equipment. Likewise, the gains or losses in
markets indirectly affected by the regulations, such as substitute product markets, complement
products markets, or in markets that use Group IV resins as inputs to production, have not been
considered. It is important to note that the potential job losses predicted by the model are only those
which are attributable to the estimates of production losses in the MBS, SAN, PET, ABS, MABS,
polystyrene, and nitrile resin industries.
6.7 SUMMARY
The estimated secondary economic impacts are relatively small. As many as 127 job losses may
occur nationwide. Energy input reductions are estimated to be approximately $3.2 million annually
(1989$). A decrease in net exports of 19.0 million kilograms annually of Group IV resin products is
predicted. No significant regional impacts are expected.
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7.0 POTENTIAL SMALL BUSINESS IMPACTS
7.1 INTRODUCTION
The Regulatory Flexibility Act (henceforth referred to as the Act), the EPA guidelines for
implementing the Regulatory Flexibility Act, and the Small Business Regulatory Enforcement Fairness
Act (SBREFA) of 1996 requires that special consideration be given to the effects of all proposed
regulations on small business entities. The Act requires that a determination be made as to whether
the subject regulation will have a significant impact on a substantial number of small entities. Four
main criteria are frequently used for assessing whether the impacts are significant. EPA frequently
uses one or more of the following criteria to determine the potential for a regulation to have a
significant impact on small firms:
• Annual compliance costs (annualized capital, operating, reporting, etc.) expressed as a
percentage of cost of production for small entities for the relevant process or product
increase significantly;
• Compliance costs as a percentage of sales for small entities are significantly higher than
compliance costs as a percent of sales for large entities;
• Capital costs of compliance represent a significant portion of capital available to small
entities, considering internal cash flow plus external financing capabilities; and
• The requirements of the regulation are likely to result in closure of small entities.
7.2 METHODOLOGY
Data are not readily available to compare compliance costs to either production costs or to the
capital available to small firms. The information necessary to make such comparisons are generally
considered proprietary by small business firms. In order to determine if the potential for small
business impacts is significant for the Group IV NESHAP, this analysis will focus on the remaining
two criteria: the potential for closure, and a comparison of compliance costs as a percentage of sales.
EPA's most recent guidance on implementing the Regulatory Flexibility Act provides that any number
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of small entities is considered to be substantial. The potential for closure, and cost-to-sales ratios, are
analyzed for this analysis based on available data. EPA, however, is responsible for determining
whether the results presented in this chapter indicate that further analysis of the impact on small
business affected by the Group IV NESHAP is warranted.
7.3 SMALL BUSINESS CATEGORIZATION
Consistent with SBA size standards, a resin producing firm is classified as a small business if it
has less than 750 employees. A firm must also be unaffiliated with a larger business entity to be
considered a small business entity. Information necessary to determine whether any affected Group
IV firms were small businesses was obtained from national directories of corporations. Based upon
the SBA size criterion, only two firms, American Polymers and Kaneka Texas Corporation, employ
less than 750 workers.
7.4 SMALL BUSINESS IMPACTS
Kaneka Texas is an MBS producer, and since the results of the partial equilibrium analysis lead
to the conclusion that no MBS facilities are at risk of closure, this criterion for adverse small business
effects is not met. American Polymers is a producer of polystyrene pellets. The results of the
analysis estimate that no facilities are at risk of closure.
Information was available to calculate compliance costs to be incurred by American Polymers and
Kaneka Texas as a percentage of sales. In 1992, Kaneka's sales were $71 million. Total compliance
cost estimates for this firm based on 1991 production is $848, or 0.001 percent of total sales. In
1992, American Polymers had sales of $50 million. The cost of controlling American Polymer's
polystyrene facility based on 1991 production is $253, or 0.001 percent of total sales. Because these
two percentages are minimal, the conclusion is drawn that a significant number of small businesses
are not adversely affected by the NESHAP.
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APPENDIX A
SENSITIVITY ANALYSIS
The sensitivity analysis contained in this Appendix explores the degree to which the
results presented earlier in this report are sensitive to the estimates of the price
elasticities of demand and supply which were used as inputs to the model. The analysis
of the price elasticity of demand will presume that the supply elasticity is 4.77 as
hypothesized in the partial equilibrium model. Alternatively, the sensitivity analysis of
the price elasticity of supply will assume that the demand elasticity estimates postulated
in the model and listed under the Elasticity Measure column in Table A-l remain
unchanged for each of the Group IV resins.
The results presented in this report are based upon price elasticities of demand
estimates for MBS, SAN, PET, ABS/MABS, polystyrene, and nitrile resins that differ by
one standard error from those used in the model. Table A-l presents the alternative
measures of price elasticities of demand for each Group IV resin.
The results of the sensitivity analysis relative to demand elasticity estimates are
presented in Tables A-2 and A-3. Table A-2 reports results under the low-end estimate of
the price elasticity of demand scenario, and Table A-3 reports results under the high-end
measure of the price elasticity of demand scenario.
A-l
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TABLE A-l. PRICE ELASTICITY OF DEMAND ESTIMATES
Group IV Industry
MBS
SAN
PET
ABS/MABS
Polystyrene
Nitrile
Elasticity Measure
-2.51
-1.61
-2.72
-1.83
-1.31
-1.83
High Estimate
-3.31
-2.22
-3.51
-2.10
-1.79
-2.10
Low Estimate
-1.71
-1.0
-1.93
-1.55
-0.84
-1.55
TABLE A-2. SENSITIVITY ANALYSIS FOR ESTIMATED PRIMARY IMPACTS:
LOW-END PRICE ELASTICITY OF DEMAND SCENARIO
Group IV Industry
MBS
SAN
PET
ABS/MABS
Polystyrene
Nitrile
Price
1.0%
3.1%
1.7%
1.7%
0.2%
0.1%
Estimated Percentage
Production
(2.0%)
(3.3%)
(3.3%)
(3.5%)
(0.2%)
(0.2%)
Impacts1
Value of Domestic
Shipments
(1.1%)
(0.3%)
(1.7%)
(1.9%)
(0.0%)
(0.1%)
NOTES' ' Brackets indicate decreases or negative values.
A-2
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TABLE A-3. SENSITIVITY ANALYSIS FOR ESTIMATED PRIMARY IMPACTS:
HIGH-END PRICE ELASTICITY OF DEMAND SCENARIO
Group IV Industry
MBS
SAN
PET
ABS/MABS
Polystyrene
Nitrile
Price
0.8%
2.5%
1.3%
1.6%
0.2%
0.1%
Estimated Percentage
Production
(2.9%)
(5.7%)
(4.7%)
(4.1%)
(0.3%)
(0.2%)
Impacts1
Value of Domestic
Shipments
(2.2%)
(3.3%)
(3.5%)
(2.6%)
(0.1%)
(0.1%)
NOTES: ' Brackets indicate decreases or negative values.
The results of the low-end demand elasticity scenario differ very little from the
reported model results presented in Chapter 5. The signs of the changes in price,
quantity, and value of shipments are unchanged, and the relative size of the changes are
not significantly different. The results of this analysis tend to present relatively more
favorable results for the affected industries. The scenario for the high-end elasticity also
does not differ significantly from the previously reported results for price increases and
production decreases.
The results of the sensitivity analyses under high- and low-end price elasticities of
supply scenarios are reported in Table A-4 and Table A-5, respectively. The high-end
estimate used in this analysis was 5.77. and the low-end estimate of the price elasticity of
supply used in this analysis was 3.77. Again, the results do not differ greatly from those
used in the partial equilibrium model. The results under the low-end supply elasticity
scenario are slightly more favorable to the Group IV industries than those previously
reported in Chapter 5.
A-3
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TABLE A-4 SENSITIVITY ANALYSIS FOR ESTIMATED PRIMARY IMPACTS:
HIGH-END PRICE ELASTICITY OF SUPPLY SCENARIO
Group IV Industry
MBS
SAN
PET
ABS/MABS
Polystyrene
Nitrile
Price
0.9%
2.9%
1.6%
1.7%
0.1%
0.1%
Estimated Percentage
Production
(2.7%)
(4.9%)
(4.4%)
(4.2%)
(0.2%)
(0.2%)
Impacts1
Value of Domestic
Shipments
(1.8%)
(2.1%)
(2.9%)
(2.5%)
(0.0%)
(0.1%)
NOTES: ' Brackets indicate decreases or negative values.
TABLE A-5. SENSITIVITY ANALYSIS FOR ESTIMATED PRIMARY IMPACTS:
LOW-END PRICE ELASTICITY OF SUPPLY SCENARIO
Group FV Industry
MBS
SAN
PET
ABS/MABS
Polystyrene
Nitrile
Price
0.8%
2.6%
1.4%
1.6%
0.1%
0.1%
Estimated Percentage
Production
(2.3%)
(4.3%)
(3.7%)
(3.1%)
(0.2%)
(0.2%)
Impacts1
Value of Domestic
Shipments
(1.5%)
(1.8%)
(2.4%)
(1.6%)
(0.1%)
(0.1%)
NOTES: ' Brackets indicate decreases or negative values.
In summary, the results of these sensitivity analyses do not indicate that the model
results are sensitive to reasonable changes in the price elasticities of demand or supply.
This conclusion provides support for greater confidence in the reported model results.
A-4
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APPENDIX B
ALTERNATIVE PET MODEL
Appendix B reports the primary and secondary market impacts of the proposed
regulatory alternative for the PET industry assuming that the most recent revisions to
annual compliance costs are allocated entirely as fixed costs. The results of this
alternative model are presented to address the issue of uncertainty concerning the
distribution of annual cost revisions between fixed and variable components. The primary
and secondary market impacts are not different from the results presented for the PET
industry in Chapters 5 and 6 of this report. The primary market impacts and the
secondary market impacts of this alternative PET model are presented in Tables B-l and
B-2, respectively. As with the previous PET model results, three facility closures are
predicted when the annual cost revisions are assumed to be fixed costs. Based upon the
results of this analysis, it is reasonable to conclude that the results of the PET model are
not sensitive to the assumption that the revisions to annual costs are distributed between
fixed and annual components based on an 80 percent/20 percent allocation.
B-l
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TABLE B-l. PRIMARY IMPACTS FOR THE PET INDUSTRY ASSUMING THAT
ANNUAL FDCED COSTS ARE EQUIVALENT TO TOTAL ANNUAL COSTS
Primary Impact Type
Amount or Percentage Change4
Price1
Amount
Percentage
Quantity - domestic sales2
Amount
Percentage
Value of Domestic Sales3
Amount
Percentage
Facility Closures
$0.011
2.8%
(122.3)
(4.1%)
($57.42)
(2.7%)
Three
Notes: ' Prices are shown in dollars per kilogram (1989$).
2 Quantities are shown in millions of kilograms.
' Value of domestic shipments are shown in millions of 1989 dollars.
4 Negative amounts are shown in brackets.
TABLE B-2. SECONDARY IMPACTS FOR THE PET INDUSTRY ASSUMING THAT
ANNUAL FIXED COSTS ARE EQUIVALENT TO TOTAL ANNUAL COSTS
Secondary Impact Type
Amount or Percentage Change5
Labor market job losses1
Amount
Percentage
Energy expenditure decreases2
Amount
Percentage
Foreign Trade Impacts:
Change in net exports quantity3
Change in the dollar value of net
exports4
llOjob losses
(4.1%)
($2.73)
(4.3%)
(10.67)
($6.22)
Notes: ' Number of job tosses are rounded to the nearest whole number.
2 Energy expenditure decreases are shown in millions of 1989 dollars.
3 Change in net export quantity is shown in millions of kilograms.
4 Change in tie dollar value of net exports is shown in millions of 1989 dollars.
5 Negative values are shown in brackets.
B-2
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TECHNICAL REPORT DATA
(Please read Instructions on reverse before completing)
1. REPORT NO.
EPA-453/R-96-009
3. RECIPIENT'S ACCESSION NO.
4. TITLE AND SUBTITLE
Economic Impact Analysis for the Polymers and Resins IV
NESHAP
5. REPORT DATE
May 1996
6. PERFORMING ORGANIZATION CODE
7. AUTHOR(S)
8. PERFORMING ORGANIZATION REPORT NO.
9. PERFORMING ORGANIZATION NAME AND ADDRESS
U.S. Environmental Protection Agency
Office of Air Quality Planning and Standards
Air Quality Strategies & Standards Division
Research Triangle Park, NC 27711
10. PROGRAM ELEMENT NO.
11. CONTRACT/GRANT NO.
68-D4-0107
12. SPONSORING AGENCY NAME AND ADDRESS
Director
Office of Air Quality Planning and Standards
Office of Air and Radiation
U.S. Environmental Protection Agency
Research Triangle Park, NC 27711
13. TYPE OF REPORT AND PERIOD COVERED
14. SPONSORING AGENCY CODE
EPA/200/04
15. SUPPLEMENTARY NOTES
16 ABSTRACT
An economic analysis of the industries affected by the Polymers and Resins IV National Emissions
Standard for Hazardous Air Pollutants (NESHAP) was completed in support of this promulgated standard.
The industries for which economic impacts were computed for the following seven source categories or
thermoplastic resin industries: styrene acrylonitrile, methyl methacrylate butadiene styrene, polyethylene
terephthalate, acrylonitrile-butadiene styrene, methyl methacrylate acrylonitrile butadiene styrene,
polystyrene, and nitrile resins.
The facilities in these industries must control various HAP emissions by the levels of control required
in the standard. Several types of economic impacts, among them product price changes, output changes,
job impacts, and effects on foreign trade, were computed for the selected regulatory alternatives.
17.
KEY WORDS AND DOCUMENT ANALYSIS
DESCRIPTORS
b. IDENTIFIERS/OPEN ENDED TERMS
c. COSAT1 Field/Group
Control Costs
Industry Profile
Economic Impacts
Air Pollution control
18. DISTRIBUTION STATEMENT
Release Unlimited
19. SECURITY CLASS (Report}
Unclassified
21. NO. OF PAGES
108
20. SECURITY CLASS (Page)
Unclassified
22. PRICE
EPA Form 2220-1 (Rev. 4-77) PREVIOUS EDITION IS OBSOLETE
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