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EPA Economic Impact Analysis for the
Polymers and Resins IV NESHAP
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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.
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 18
2.3.1 Market Concentration 18
2.3.2 Industry Integration and Diversification 20
2.3.3 Financial Profile 21
2.4 MARKET SUPPLY CHARACTERISTICS 21
2.4.1 Past and Present Production 21
2.4.2 Supply Determinants 24
2.4.3 Exports of SAN, MBS, PET, ABS, and Polystyrene 26
2.5 MARKET DEMAND CHARACTERISTICS 27
2.5.1 End-Use Markets for MBS, SAN, PET, ABS, MABS, Polystyrene
and Nitrile Resins 27
2.5.2 Demand Determinants 28
2.5.3 Past and Present Consumption 30
2.5.4 Imports of SAN, MBS, PET, ABS, and Polystyrene 32
2.6 MARKET OUTLOOK 32
111
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CONTENTS (continued)
Page
3.0 ECONOMIC METHODOLOGY 37
3.1 INTRODUCTION 37
3.2 MARKET MODEL 37
3.2.1 Partial Equilibrium Analysis 38
3.2.2 Market Demand and Supply 39
3.2.3 Market Supply Shift 40
3.2.4 Impact of the Supply Shift on Market Price and Quantity 44
3.2.5 Trade Impacts 44
3.2.6 Plant Closures 46
3.2.7 Changes in Economic Welfare 46
3.2.8 Labor Input and Energy Input Impacts 49
3.2.9 Baseline Inputs 50
3.3 INDUSTRY SUPPLY AND DEMAND ELASTICITIES 53
3.3.1 Introduction 53
3.3.2 Price Elasticity of Demand 53
3.3.3 Price Elasticity of Supply 59
3.4 CAPITAL AVAILABILITY ANALYSIS 66
4.0 CONTROL COSTS, ENVIRONMENTAL IMPACTS, AND COST-
EFFECTIVENESS 73
4.1 INTRODUCTION 73
4.2 CONTROL COST ESTIMATES 73
4.3 ESTIMATES OF ECONOMIC COSTS 79
4.4 ESTIMATED ENVIRONMENTAL IMPACTS 81
4.5 COST EFFECTIVENESS 83
5.0 PRIMARY ECONOMIC IMPACTS AND CAPITAL AVAILABILITY ANALYSIS . . 85
5.1 INTRODUCTION 85
5.2 ESTIMATES OF PRIMARY IMPACTS 85
5.3 CAPITAL AVAILABILITY ANALYSIS 89
5.4 LIMITATIONS 91
5.5 SUMMARY ' 92
6.0 SECONDARY ECONOMIC IMPACTS 93
6.1 INTRODUCTION 93
6.2 LABOR MARKET IMPACTS 93
6.3 ENERGY INPUT MARKET 95
6.4 FOREIGN TRADE 95
6.5 REGIONAL IMPACTS 97
6.6 LIMITATIONS 97
6.7 SUMMARY 97
7.0 POTENTIAL SMALL BUSINESS IMPACTS 99
7.1 INTRODUCTION 99
7.2 METHODOLOGY 99
IV
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CONTENTS (continued)
Page
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 TOTAL 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 W 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. MBS MANUFACTURERS BY CAPACITY (1991) 10
2-2. SAN MANUFACTURERS BY CAPACITY (1991) 10
2-3. PET MELT-PHASE RESIN AND PET BOTTLE MANUFACTURERS BY
CAPACITY 11
2-4. PET FILM AND PET FIBER MANUFACTURERS BY CAPACITY 12
2-5. ABS MANUFACTURERS BY CAPACITY 15
2-6. POLYSTYRENE MANUFACTURERS BY CAPACITY 16
2-7. 1991 EMPLOYMENT LEVELS OF POLYMERS AND RESINS GROUP IV
FIRMS 17
2-8. DISTRIBUTION OF MANUFACTURERS BY RESIN TYPE AND
FACILITY LOCATION 19
2-9. FINANCIAL STATISTICS FOR AFFECTED FIRMS 22
2-10. HISTORICAL PRODUCTION LEVELS FOR SAN, MBS,AND PET 23
2-11. HISTORICAL PRODUCTION LEVELS FOR ABS AND POLYSTYRENE .... 24
2-12. PRICE LEVELS FOR MBS, SAN, PET, ABS, AND POLYSTYRENE 29
2-13. SALES LEVELS FOR MBS, SAN, PET, ABS, AND POLYSTYRENE 31
2-14. PLANNED CAPACITY EXPANSIONS THROUGH 1996 BY RESIN TYPE ... 33
3-1. PRODUCT-SPECIFIC BASELINE INPUTS 51
3-2. BASELINE INPUTS FOR THE POLYMERS AND RESINS GROUP IV
INDUSTRIES 51
3-3. DATA INPUTS FOR THE ESTIMATION OF DEMAND EQUATIONS FOR
GROUP IV INDUSTRIES 56
3-4. DERIVED DEMAND COEFFICIENTS 58
3-5. DATA INPUTS FOR THE ESTIMATION OF THE PRODUCTION
FUNCTION FOR GROUP IV INDUSTRIES 63
3-6. ESTIMATED SUPPLY MODEL COEFFICIENTS FOR GROUP IV
INDUSTRIES 65
4-1. SUMMARY OF GROUP IV NESHAP COSTS IN THE FIFTH YEAR BY
RESIN INDUSTRY AND EMISSION POINT 75
4-2. SUMMARY OF TOTAL GROUP IV NESHAP CAPITAL COSTS BY RESIN
INDUSTRY AND EMISSION POINT 77
4-3. ANNUAL ECONOMIC COST ESTIMATES FOR THE POLYMERS AND
RESINS GROUP IV REGULATION BASED ON EXISTING SOURCE
COSTS 82
VI
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TABLES (continued)
Page
4-4. ESTIMATED ANNUAL REDUCTIONS IN EMISSIONS AND COST-
EFFECTIVENESS ASSOCIATED WITH THE CHOSEN REGULATORY
ALTERNATIVE 82
5-1. SUMMARY OF PRIMARY ECONOMIC IMPACTS OF POLYMERS AND
RESINS GROUP IV NESHAP 87
5-2. POST-NESHAP EFFECTS ON FIRMS' DEBT-EQUITY RATIOS 90
5-3. POST-NESHAP EFFECTS ON FIRMS' RETURN ON INVESTMENT
LEVELS 90
6-1. SUMMARY OF SECONDARY IMPACTS OF POLYMERS AND RESINS
GROUP IV NESHAP 94
6-2. FOREIGN TRADE (NET EXPORTS) IMPACTS 96
A-l. PRICE ELASTICITY OF DEMAND ESTIMATES A-l
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-2
A-4. SENSITIVITY ANALYSIS FOR ESTIMATED PRIMARY IMPACTS:
HIGH-END PRICE ELASTICITY OF SUPPLY SCENARIO A-3
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 INDUSTRY
AVERAGE PER UNIT CONTROL COSTS B-2
B-2. SECONDARY IMPACTS FOR THE PET INDUSTRY ASSUMING
INDUSTRY AVERAGE PER UNIT CONTROL COSTS B-2
Vll
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FIGURES
Page
ES-1. Model Development for Economic Impact Analysis ES-10
3-1. Illustration of Post-NESHAP Market Model 43
vin
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ACRONYMS AND ABBREVIATIONS
AJBS 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
ELA 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 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.
ES-1
-------
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), 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 proposed regulation will affect 75 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.
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. 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.
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. PET production as a whole involves the
highest number of producers of any of the six resin industries in this analysis. The bottle-
grade PET resin industry is more highly concentrated than the other three PET
ES-2
-------
categories, having only four producers. PET melt-phase resins and PET film are each
produced by 9 firms, and PET fibers are produced by 14 firms, with fiber production
dominated by 2 major producers.
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 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.
MABS is formed from ABS blended with methyl methacrylate which makes a clear
ABS resin capable of uses similar to those listed for ABS. 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 15 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 13 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, are used to produce
components for automobiles. There is only one domestic nitrile resin producer.
ES-3
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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 reconstructed or replaced) in the first five years after promulgation,
and on the CAA requirement that the MACT floor be set at the level of emission control
that is achieved in practice by the best controlled similar source.
Control costs were developed for the following major emission points within Group IV
resin facilities: equipment leaks, miscellaneous process vents, wastewater collection and
treatment systems, and storage tanks. Cost estimates were annualized for the fifth year
after promulgation of the Polymers and Resins Group IV NESHAP and are expressed in
1989 dollars throughout this report. Economic impacts were estimated based on the
facility-level costs for the proposed alternative, which represent the cost of the MACT
floor option for all four emission points. Table ES-1 presents the national annualized cost
estimates for controlling existing sources and newly constructed emission points. These
costs were prepared by the engineering contractor for use in the EIA. Costs are provided
by emission point for the MACT floor level of control in each Group IV industry. The
total national annualized cost for implementation of the regulatory alternative is
approximately $12.2 million [including monitoring, recordkeeping, and reporting (MRR)
costs] for existing sources and a savings of nearly $3.9 million for sources forecasted to be
built in the first five years after promulgation of the regulation.
Table ES-1 also shows 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
ES-4
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$384 to a cost of $28,648 per megagram, or an average of $413.9 per megagram for the proposed
NESHAP. Table ES-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 approximately $111 million for new and existing sources for the seven affected
industries five years subsequent to promulgation of the regulation.
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 proposed control
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
$174,426
$93,204
$279,051
$0
$546,681
$504,790
$0
$579,252
$0
$1,084,042
$6,076,491
$273,155
$86,827,321
$266,078
$93,443,045
$201,546
$4,004,211
$0
$0
$4,205,757
$0
$89,673
$0
$0
$89,673
New
Construction
$157,174
$106,394
$279.051
$0
$542.619
$0
$0
$259,217
$0
$259,217
$4,876,206
$442,362
$0
$508,750
$5,827,318
$98,161
$3,419,086
$0
$172,276
$3,689,523
$0
$0
$0
$0
$0
Total
$331,600
$199,598
$558,102
$0
$1,089,300
$504,790
$0
$838,469
$0
$1,343,259
$10,952,697
$715,517
$86,827,321
$774,828
$99,270,363
$299,707
$7,423,297
$0
$172,276
$7,895,280
$0
$89,673
$0
$0
$89,673
ES-8
-------
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
$933,194
$243,527
$0
$0
$1,176,721
$0
$8,770
$0
$0
$8,770
$100,554,689
New
Construction Total
$199,010 $1,132,
$2,045 $245,
$0
$0
$201,055 $1,377,
$0
$0 $8,
$0
$0
$0 $8,
$10,519,732 $111,074,
204
572
$0
$0
776
$0
770
$0
$0
770
421
NOTE: 'Costs reflect absolute regulatory costs rather than incremental costs.
ES-9
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ES-10
-------
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. 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 $0.01, based upon 1989 price levels. These predicted price
increases represent percentage increases ranging from a low of 0.07 percent for nitrile to a
high of 2.8 percent for SAN. Domestic production will decrease for each of the resin
products by 1.4 million kilograms of MBS, 3.8 million kilograms of SAN, 72.2 million
kilograms of PET, 23.7 million kilograms of ABS/MABS , 10.2 million kilograms of
polystyrene, and 0.028 million kilograms of nitrile annually. This estimated percentage
decrease in annual production for each of the resins varies from a low of 0.17 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 $0.86 million, for SAN by $0.62 million, for PET
by $33.80 million, for ABS/MABS by $6.17 million, for polystyrene by $0.72 million, and
for nitrile by $.007 million annually. These revenue decrease estimates are also based
upon 1989 price levels.
ES-11
-------
TABLE ES-3. 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
Price
Increases1
$0.009
1.0%
$0.010
2.8%
$0.006
0.9%
Production
Decreases2
(1.4)
(2.8%)
(3.8)
(4.6%)
(72.2)
(2.4%)
Value of
Domestic
Shipments3
($0.86)
(1.9%)
($0.62)
(1.9%)
($33.80)
(1.6%)
Facility
Closures
None
None
Five
ABS/MABS
Amount
Percentage
$0.008
1.8%
(23.7)
(4.1%)
($6.17)
(2.4%)
None
Polystyrene
Amount
Percentage
Nitrile
Amount
Percentage
$0.0008
0.34%
$0.0003
0.07%
(10.2)
(0.47%)
(0.028)
(0.17%)
($0.72)
(0.13%)
($0.007)
(0.10%)
None
None
NOTES: 'Prices are shown in price per kilogram (1989 dollars).
2Annual production quantities are shown in millions of kilograms.
3Values of domestic shipments are shown in millions of 1989 dollars
'Brackets indicate decreases or negative values.
ES-12
-------
No predicted facility closures are anticipated for the MBS, SAN, ABS/MABS,
polystyrene, or nitrile resin industries. However, five 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
-------
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 approximately
85 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 $2.1 million (1989 dollars) annually. Net annual exports are predicted to
decrease by $16 million. This represents a percentage decrease ranging from a low of
0.84 percent for the nitrile industry to a high of 22.7 percent for the MBS industry.
Regional effects are expected to be minimal since there is no specific region of the
country in which facilities will be experiencing a disproportionate burden of the
regulatory costs.
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
ES-14
-------
TABLE ES-4. SUMMARY OF SECONDARY ECONOMIC IMPACTS OF POLYMERS
AND RESINS GROUP IV NESHAP
Estimated Impacts1
Group IV Industry
MBS
Amount
Percentage
SAN
Amount
Percentage
PET
Amount
Percentage
ABS/MABS
Amount
Percentage
Polystyrene
Amount
Percentage
Nitrile
Amount
Percentage
Labor Input2
(2)
(2.8%)
(2)
(4.6%)
(65)
(2.4%)
(13)
(4.1%)
(3)
(0.47%)
(0.015) -
(0:17%)
Energy Input3
($0.04)
(2.85%)
($0.05)
(2.5%)
($1.61)
(1.1%)
($0.32)
(1.93%)
($0.079)
(0.21%)
($0.0004)
(0.18%)
Foreign Trade4
(0.22)
(22.7%)
(0.98)
(5.7%)
(6.3)
(4.4%)
(7.0)
(19.2%)
(1.17)
(0.87%)
(0.008)
(0:84%)
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.
ES-15
-------
for emission control. Consumers, producers, and all of society bear 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 $9.8 million ($1989) for existing
source controls are anticipated for the chosen alternative and are shown by industry in
Table ES-5. 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 costs is $5.9 million (1989$), and represents an estimate of the
economic cost of the regulation five 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 COSTS1
(1989 Dollars)
Group IV Industry
MBS
SAN
PET
ABS/MABS
Polystyrene
Nitrile
TOTAL
Change in
Consumer
Surplus
($437,482)
($681,344)
($17,543,692)
($1,796,680)
($1,732,072)
($4,726)
($22,195,996)
Change in
Producer
Surplus
$43,232
$286,402
$10,084,464
$94,334
$884,124
($1,429)
$11,391,127
Change in
Residual
Surplus
$23,279
$206,606
$0
$232,852
$515,993
($319)
$978,411
Total Loss
In Surplus
($370,971)
($188,336)
($7,459,228)
($1,469,494)
($331,955)
($6,474)
($9,826,458)
NOTE:
'Brackets indicate economic costs.
ES.8 POTENTIAL SMALL BUSINESS IMPACTS
The RFA requires that a determination must be made as to whether or not the
subject regulation would have a significant economic impact on a substantial number of
small entities. The majority of affected Group IV firms are large chemical companies,
and, consequently, significant small business impacts are not expected to result from
implementation of the Polymers and Resins Group rV NESHAP. Based on available
employment data for each of the affected firms, only two firms classify as small
businesses. Costs expressed as a percentage of sales for these firms 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
proposed 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 EIA.
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, and value of
domestic shipments in each of the seven affected industries. A capital availability
analysis is also included in this chapter as well as a discussion of the limitations of the
model. 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 PET industry using an alternative
model based on the assumption that all PET facilities incur equal per unit control costs.
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 TV 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 proposed 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 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, EIB.
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.
-------
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 supply
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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2.2.1 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.
2.2.2.1 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 Styxene 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 house-wares 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.
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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-umt price. Primary end uses of ABS are for
the manufacture of automotive parts, household appliances, and food packaging.
2.2.2.5 Methyl Methacrylate Acrylonitrile Butadiene Styrene (MABS). 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.
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2.2.3 Affected Resin Facilities, Employment, and Location
The proposed 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 these 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
(%)
35.9%
28.2%
35.9%
Total
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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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
requires the examination of the economic impacts of regulations on "small businesses." A
regulatory flexibility analysis must be prepared if a proposed regulation will have a
significant economic impact on a substantial number of 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 a regulatory flexibility analysis is necessary. EPA may adopt an alternative
definition of a small business if an alternative size cutoff can be justified. If EPA
exercised this option, the determination of whether an RFA is necessary would need to be
reconsidered.
14
-------
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
Tor ranee, CA
Dow Total
Ottawa, IL
Washington, WV
GE Total
Addyston, OH
Muscatine, IA
Monsanto Total
Capacity
(million Percentage of
kilograms) Total (%)
11 1.5%
27
32
122
18
199 26.7%
136
109
245 32.7%
204
90
294 39.3%
INDUSTRY TOTAL
749
15
-------
TABLE 2-6. POLYSTYRENE MANUFACTURERS BY CAPACITY (1992)
5, 6,
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-million kilogram polystyrene capacity in 1992.
16
-------
TABLE 2-7. 1991 EMPLOYMENT LEVELS OF POLYMERS AND RESINS
GROUP IV FIRMS9'10' "
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.
17
-------
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 MAKKET 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.
2.3.7 Market Concentration
Market concentration is a measure of the-output of the largest firms iruthe 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
18
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TABLE 2-8. DISTRIBUTION OF MANUFACTURERS BY RESIN TYPE AND
FACILITY LOCATION5'6'7
EPA
Region
I
II
III
IV
V
VI
VII
DC
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
L5
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
19
-------
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 FV 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.
20
-------
2.3.3 Financial Profile
This subsection presents the available financial data for affected firms. In order to
evaluate the financial condition of the firms, annual reports to stockholders were used as
a primary source of data. Because the EIA is conducted on a firm level, it is useful to
examine overall corporate profitability as a preliminary indicator of the baseline
conditions of affected firms in the industry. Corporate-level data are also useful as an
indication of the financial resources available to affected firms and the ability of this
capital to cover increased compliance costs after promulgation of the NESHAP.
Table 2-9 presents net income to assets ratios that were averaged from 1987 to 1991
for each of their firms for which data were available. Also presented are long-term debt
to long-term debt plus 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 quantitative estimates of the effect of NESHAP
control 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
identified. The role of foreign competition in this industry is also assessed. The focus of
the section is on overall 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 shown 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 1985 through 1991. Time-series data on the
21
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TABLE 2-9. FINANCIAL STATISTICS FOR AFFECTED FIRMS10
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
Wellman
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 pavmenls. •
22
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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
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
by 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.
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.
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.
23
-------
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
24
-------
supply schedule. The industry supply curve used in the EIA incorporated any changes in
production that have occurred as a result of other 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
25
-------
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 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.
26
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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
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 Nitrile
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 GNP 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
27
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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.
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
28
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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
29
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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 addition to price, the consumption of Group IV resins is determined by general
economic conditions and the health of end use markets. 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 GNP. 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.
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
30
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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).
31
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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.
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 far PET, ABS, and
polystyrene are shown in Table 2-14.
32
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TABLE 2-14. PLANNED CAPACITY EXPANSIONS THROUGH 1996 BY
RESIN TYPE25'26'27
Resin Type
PET
ABS
Polystyrene
Million Kilograms
Planned Expansion
1991 Capacity through 1996
6,073 1,387
839 175
2,906 465
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 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
33
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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.
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 food containers. MABS is formed from ABS and is a
clearer form of.this resin, capable of uses similar to those of ABS.
34
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REFERENCES
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." 13 CFR 121. 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.
35
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20. Reference 7. p. 83.
21. Reference 12.
22. Reference 7. p. 62.
23. Standard and Poor's. Industry Surveys: Chemicals. Vol. 160, No. 45, Sec. 1.
November 5, 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.
36
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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.
37
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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 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 TV 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
38
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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 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 proposed
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" = aPE
0°' = 6PE
O
S' =
39
-------
O = Q D" + Q°' =O s" + Qs'
where:
QDd = the quantity of the Group IV resin demanded by domestic consumers
annually,
Q°f = the quantity of the Group IV resin demanded by foreign consumers and
produced by domestic producers annually (or exports),
Qsd = the quantity of the Group IV resin produced by domestic supplier(s)
annually,
Qsf = 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
Y = the price elasticity of supply for the Group IV resin.
The constants, a, 6, P, 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:
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:
40
-------
[(C • Q) -(V + D)] (1 -Q +D _k
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 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 kS " D V + °
- 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 S, respectively, are computed
as follows:
s=
[(1
41
-------
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 Cl (i 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:
1
P =(QS
-------
UJ
Q
O
2
X
<
T.
GO
UJ
Z
}—
00
O
CL
O
cc
\~
00
13
UJ
o:
^
O
u.
a
o
o
CD
o
fX
O
43
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3.2.4 Impact of the Supply Shift on Market Price and Quantity
The impact of the proposed 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,
44
-------
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 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:
5> -QS' -Q5'
- ut u0
=( P, • Q,5) - (P0 • Q0Sf)
, r\ D<
' = O1 -
tVX KP, * 0°' ) - (P0 * Q0°' )
r~i c
A/VX = AO ' - A<3 '
= AVX -
where:
AQS/^ = the change in the volume of imports,
AV7M = the change in the dollar value of imports,
^Q°f = the change in the volume of exports,
= the change in the dollar value of exports,
= the volume change in net exports, and
= the change in the dollar value of net exports.
45
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The subscripts 1 and 0 refer to the post- and pre-control equilibrium values, respectively,
and all other variables have been previously identified.
3.2.6 Plant Closures
It is assumed that a Group IV facility will close if its post-control supply price exceeds
the post-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, ACSd, is
given by:
w
= J
_1_
(QD'/a)~ dQD< + P,Q,°a- PQQ°a
o,Dd
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
46
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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 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:
°o" I,
APS = [P, Q*< - P0Q0Sa - J (Q/pr dQ - £ C, qj * (1 -f)
Q,S' "1
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
47
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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 - t) dollars. 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/2S. This adjustment is specified by the
following equation:
M
AflS = £ (C, - pc)q, + APS • [t/(1 -01
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.
48
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3.2.7.4 Total Economic Costs. The total economic costs of the proposed 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 = ACS + APS +
where:
EC = the economic cost of the proposed 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.
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 proposed 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 * (Q,S- - Q0Stf)] / WQ I 2000
where:
tJL - the change in the employment level expressed in terms of number of
workers,
49
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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 proposed 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:
A£ = E0P0(Q*a - Q0Sa)
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 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
50
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TABLE 3-1. PRODUCT-SPECIFIC BASELINE INPUTS
Variable/Parameter
Price (P0)'
Domestic Output, (Q0S)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 pnce, import ratio, and export ratio are assumed to be the same as the ABS and MASS industries.
TABLE 3-2. BASELINE INPUTS FOR THE POLYMERS AND RESINS GROUP
W INDUSTRIES
Variable
Value
Supply Elasticity (y)
Tax rate (t)
Private Discount rate (r)
Social Discount rate
Equipment life (T)
Labor Cost Ratio (LCo)1
Energy Cost Ratio (E0)2
Wage (W)3
4.77
35%
10%
7%
10 years
7.13%
3.10%
$28.47
NOTES: ' Production wages per dollar value of shipments (1989$).
2 Energy expenditures per dollar value of shipments (1989$).
3 Per hour production wage for SIC code 2821 (1989$).
51
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price, import ratio, export ratio, and price elasticity of demand for the ABS industry are
representative use in the nitrile industry.
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.
52
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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. 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 TV
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.
53
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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 n = PFP * f(Q, f) - (P * O) - (POI * I)
O, /
where:
TC = profit,
PFP = the price of the final product or end-use product,
/(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,
POI = 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:
O = 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:
Q = AP*P*?
where:
P = the price elasticity of demand for the Group IV resin, and
PFP = the final product price elasticity with respect to the use of the Group IV
resin.
All other variables have been previously defined. P, PFP, and A are parameters to be
estimated by the model. P represents the own price elasticity of demand. The price of
other inputs (represented by POI) has been omitted from the estimated model, because
54
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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 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 (PKL).
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
55
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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 Annual Average Price
millions of kilograms 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.
56
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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.u 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.u In 1987,
magnetic film production was separated into SIC code 3081, Unsupported Plastic Sheet
and Film. However, insufficient time series data were available for this SIC code to be
used in the model estimation. Prior to 1987, these products were classified as SIC code
3079 Plastic Products, Not Elsewhere Classified. The model estimation with price
information for SIC code 3079 was unsuccessful, as previously discussed, and these
results are neither used in the study nor reported. However, the model using the price
index for value of domestic shipments for SIC code 2086 for the period 1970 through 1991
is utilized to estimate the price elasticity of demand for PET. Time series data were
unavailable for the nitrile and MABS industries. For this reason the results of the
analysis for the ABS industry is assumed to be applicable to these industries. The
primary end product uses for ABS, MABS, and nitrile include consumer products,
automotive components, miscellaneous plastic products, and pipes and fittings. Time
series price data were obtained from the ASM for SIC code 3084, Plastic Pipe, SIC code
3714, Motor Vehicle Parts and Accessories, and SIC code 3079, Plastic Products, NEC.
The models were estimated with each of these end-use products for 1970 through 1991.
The model using prices of automotive parts (SIC code 3714) is used in the analysis. Other
models estimated were unsuccessful. Finally, polystyrene is used primarily in
miscellaneous packaging and electronics. Time series price data were obtained from the
ASM for SIC code 3651, Household Audio and Video Equipment, SIC code 3634, Electronic
Housewares and Fans, and SIC code 3079, Miscellaneous Plastic Products, NEC for 1976
57
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through 1991. Econometric estimates were developed using each of the alternative end-
use product price data. The model utilizing price data for SIC code 3634 is used in the
analysis. Other models estimated were unsuccessful. All price data were deflated to
reflect real values using the Implicit Gross Domestic Price Deflator obtained from
Business Statistics for 1970 through 1991.12 The real capital stock variable was adjusted
to reflect varying annual capacity utilization using the annual capacity utilization rate for
SIC code 28 obtained from the Federal Reserve Board for the years 1970 through 1991.13
3.3.3.2 Statistical Results. Two-stage least square econometric models were
estimated for MBS, SAN, PET, ABS, MABS, polystyrene, and nitrile resins, respectively,
using the previously discussed data and techniques. The model results for the coefficients
of the demand models for these seven Group IV resins are reported in Table 3-4.
TABLE 3-4. DERIVED DEMAND COEFFICIENTS
Product
MBS
SAN
PET
ABS/MABS/Nitrile
Polystyrene
Own Price p1
-2.51
(.803)
-1.61
(.607)
-2.72
(.793)
-1.83
(.277)
-1.31
(.473)
End-Use $FPl
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.
58
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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 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:
59
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Qs = f (L,K,M,t)
where:
Qs = 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
t = 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,Qs)
where:
TC = the total cost of production, and
C = the cost of production (including cost of materials and labor).
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 Q8 derives the
following marginal cost function:
MC =h'(C,K,t,Qs)
60
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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 Q5 yields the following implied supply
function:
QS = (P,PL,PM,K,()
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:
Qt = A <" t* L?L M?"
where:
Qt = the sum of the industry output of MBS, SAN, PET, ABS,
MABS, polystyrene, and nitrile resins produced in year t,
Kt = the real capital stock in year t,
Lt = the quantity of labor hours used to produce Group IV resins in
year t,
Mt = the material inputs in year t, and
A, CCK, aL, a.M, A. = parameters to be estimated by the model.
61
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This equation can be written in linear form by taking the natural logarithms of both
sides of the equation. Linear regression techniques may then be applied. Using the
approach described, the implied supply function may be derived as:
In = P0 + 7 In P + p2 In K +P3 In PL + P4 In PM + (35 In t
where:
PL = the factor price of the labor input,
PM = the factor price of the material input, and
K = fixed real capital.
The P; and y coefficients are functions of the a,-, the coefficients of the production function.
The supply elasticity, y, is equal to the following:
Y =
1 - OLL - a.
M
It is necessary to place some restrictions on the estimated coefficients of the
production function in order to have well-defined supply function coefficients. The sum of
the coefficients for labor and materials should be less than one. Coefficient values for aL
and aM that equal to one result in a price elasticity of supply that is undefined, and
values greater than one result in negative supply elasticity measures. For these reasons,
the production function is estimated with the restriction that the sum of the coefficients
for the inputs equal one. This is analogous to assuming that the polymers and resins
industry exhibits constant returns to scale, or is a long-run constant cost industry. This
assumption seems reasonable on an a priori basis and is not inconsistent with the data.
3.3.3.3 Estimated Model. The estimated model reflects the production function for
the MBS, SAN, PET, ABS, MABS, polystyrene, and nitrile resin industries, using annual
time series data for the years from 1959 through 1991. The following model was
estimated econometrically:
In Qt = In A + a.K In K + X In t + aL In L + aM In M
where each of the variables and coefficients have been previously defined.
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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, Qt or the dependent variable in the analysis); a
technology time variable, t, real net capital stock adjusted for capacity utilization, K, in
millions of dollars; the number of production labor man-hours, Lt; 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
Mt
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 utilization1'2
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.
2Federal Reserve Board.
63
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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.
3.3.3.5 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.
64
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TABLE 3-6. ESTIMATED SUPPLY MODEL COEFFICIENTS FOR GROUP IV
INDUSTRIES
Variable Estimated Coefficients1
t time .0573
(.0497)
K^ Capital Stock .1732
(.2382)
L, Labor .0252
(.1873)
Mt 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 nitnle 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.
65
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The uncertainty of the supply estimate is acknowledged. The results of a sensitivity
analysis of 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 proposed 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
n.
/5 • 100
where nt 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 proposed
regulations could potentially have an effect on income before taxes, nt, 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 (proi) is calculated
for each firm as follows:
proi =
1991
1,1-1987
/ 5 + A n
1991
£«.
1 5 +A k
•100
where:
proi
= post-control return on investment,
66
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An = change in income after taxes and before interest resulting from
implementation of emission controls for each firm in the sample, and
A k = 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 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 proposed NESHAP on
firms' net income levels. The change in net income, or A n, for each firm is calculated as
follows:
A nn = {(A P • qn) - (A cn • qn)} • (1 -t)
where:
A P = the change in market price, or Pl - P0,
qn = the level of output for firm n, and
A cn = total annualized per unit cost of compliance (including taxes) for firm n.
t = tax rate of 35 percent
An adjustment needs to be made for the marginal firm that will experience post-control
changes in production. For each marginal MBS, SAN, PET, ABS, MABs, polystyrene, and
nitrile resin firm, the change in net income is calculated as follows:
AO = {(A P • q, - P0 • A q) - (A cn • q,)} • (1 -t)
where:
ql = firm's post control production, or q0 - (Q^ - Qo86),
P0 = baseline market price, and
A q = decrease in domestic production, or Q^ - Qo5*1.
Some PET firms operate facilities that are predicted to cease producing PET based on
the model results. If the firm ceases to produce PET, then the change in net income is
computed as follows:
67
-------
A n =(-P0 • q0) • (1 -0
where:
q0 = post control production
P0 = the baseline market price
t = the corporate tax rate
The PET firms with facilities that are predicted to close will also experience decreases in
avoidable 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 = dl991
"1991 + 61991
where:
die = the debt equity ratio,
d = debt capital, and
e - equity capital.
68
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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:
pd/e = dl"° + A k
"1990 + ei990 + A "
where:
pd/e = the post-control debt-equity ratio assuming that the control equipment
costs are financed solely with debt.
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 proposed emission controls on the financial operations of the
affected Group IV firms.
69
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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
73
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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
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 $12.2 million (including MRR costs) for
existing sources and a savings of nearly $3.8 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 $384.3 to a cost of $28,647.8 per megagram, and an
average of $413.9 per megagram for the proposed 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 $111 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
74
-------
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Wastewater System;
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Total MABS
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Total Polystyrene
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Total Nitrile
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01
-------
TABLE 4-2. SUMMARY OF TOTAL GROUP IV NESHAP CAPITAL COSTS BY RESIN
INDUSTRY AND EMISSION POINT1
Total Capital Costs
(1989 Dollars)
Group FV 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
$174,426
$93,204
$279,051
$0
$546,681
$504,790
$0
$579,252
$0
$1,084,042
$6,076,491
$273,155
$86,827,321
$266,078
$93,443,045
$201,546
$4,004,211
$0
$0
$4,205,757
$0
$89,673
$0
$0
New
Construction
$157,174
$106,394
$279,051
$0
$542,619
$0
$0
$259,217
$0
$259,217
$4,876,206
$442,362
$0
$508,750
$5,827,318
$98,161
$3,419,086
$0
$172,276
$3,689,523
$0
$0
$0
$0
Total
$331,600
$199,598
$558,102
$0
$1,089,300
$504,790
$0
$838,469
$0
$1,343,259
$10,952,697
$715,517
$86,827,321
$774,828
$99,270,363
$299,707
$7,423,297
$0
$172,276
$7,895,280
$0
$89,673
$0
$0
77
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TABLE 4-2 (continued)
Total Capital Costs
(1989 Dollars)
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
$89,673
$933,194
$243,527
$0
$0
$1,176,721
$0
$8,770
$0
$0
$8,770
$100,554,689
New
Construction
$0
$199,010
$2,045
$0
$0
$201,055
$0
$0
$0
$0
$0
$10,519,732
Total
$89,673
$1,132,204
$245,572
$0
$0
$1,377,776
$0
$8,770
$0
$0
$8,770
$111,074,421
NOTE. 'Costs reflect absolute regulatory costs rather than incremental costs.
78
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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 proposed regulation.
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.5 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
79
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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. 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
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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.' The economic cost of the regulation represents the
cost of the regulation to society, or the opportunity costs of resources displaced by
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 $9.8 million for existing sources (1989$). 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. Economic costs of the regulation in five years are
estimated to be 5.9 million annually 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 20,220.11 Mg
per year.
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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
($437,482)
($681,344)
($17,543,692)
($1,796,680)
($1,732,072)
($4,726)
($22,195,996)
Change in
Producer
Surplus
$43,232
$286,402
$10,084,464
$94,334
$884,124
($1,429)
$11,391,127
Change in
Residual
Surplus
$23,279
$206,606
$0
3232,852
$515,993
($319)
$978,411
Total Loss
In Surplus
($370,971)
($188,336)
($7,459,228)
($1,469,494)
($331,955)
($6,474)
($9,826,458)
NOTE:
'Brackets indicate economic costs.
TABLE 4-4. ESTIMATED ANNUAL REDUCTIONS IN EMISSIONS AND COST-
EFFECTIVENESS ASSOCIATED WITH THE CHOSEN REGULATORY ALTERNATIVE
Group IV Industry
HAP Emission Reduction
(Megagrams/Yr)
HAP Cost Effectiveness*
($/Year)
MBS
SAN
PET
ABS/MABS
Polystyrene
Nitrile
TOTAL
245.8
192.3
17,490.61
779
1,502.2
10.2
20,220.11
$3,245
$1,569
$59
$4,336
$281
$634
$294
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 proposed NESHAP has a calculated total cost
effectiveness of $294 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 proposed
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.
85
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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.
Table 5-1 presents the primary impacts predicted by the partial equilibrium model.
The anticipated per kilogram price increases are $0.009, $0.01, $0.006, $0.008, $0.0008,
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 0.07 percent for nitrile. Production is expected to decrease by 1.4 million
kilograms, 3.8 million kilograms, 72.2 million kilograms, 23.7 million kilograms, 10.23
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 0.17 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 $0.86 million for MBS, $0.62 million for SAN, and $33.8
million for PET, $6.17 million for ABS/MABS, $720 thousand for polystyrene, and $7
thousand nitrile resins annually (1989 dollars). The percentage decreases range from a
low of 0.10 percent for nitrile to a high of 2.43 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 proposed NESHAP. However, the model predicts
that approximately five 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
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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
Increases1
$0.009
1.0%
$0.010
2.8%
$0.006
0.87%
$0.008
1.76%
$0.0008
0.34%
$0.0003
0.07%
Production
Decreases2
(1.4)
(2.8%)
(3.8)
(4.6%)
(72.2)
(2.42%)
(23.7)
(4.12%)
(10.23)
(0.47%)
(0.03)
(0.17%)
Value of
Domestic
Shipments3
($0.86)
(1.9%)
($0.62)
(1.9%)
($33.80)
(1.57%)
($6.17)
(2.43%)
($0.72)
(0.13%)
($0.007)
(0.10%)
Facility
Closures
None
None
Five
None
None
None
NOTES. 'Prices are shown in price per kilogram (1989 dollars).
2Annual production quantities are shown in millions of kilograms.
3Values of domestic shipments are shown in millions of 1989 dollars.
'Brackets indicate decreases or negative values.
87
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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. 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 proposed 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 proposed regulations for PET
producers. The results of this model are reported in Appendix B.
In addition, industry-specific data were not available for the MABS 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.
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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.
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 no change to 0.39 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 low of no percentage change to a high of an increase of 1.5 percent in
the ratio for one firm producing PET.
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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 PRODUCERS1
Baseline
28.2%
39.8%
43.4%
28.2%
66.8%
93.1%
58.7%
36.3%
35.1%
54.1%
33.2%
NOTE: ' Includes 3M Corporation, Allied Signal,
Post-NESHAP Difference
in Ratios
28.2%
39.8%
43.4%
28.2%
66.8%
93.1%
58.7%
36.3%
35.1%
54.1%
33.4%
Inc., ICI, Kodak, Shell, and
TABLE 5-3. POST-NESHAP EFFECTS ON FIRMS'
LEVELS
0.00
0.00
0.00
0.00
0.00
0.00
0.01
0.01
0.02
0.00
0.2
Wellman.
Percentage
Change • %)
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.02%
0.03%
0.05%
0.00%
0.39%
RETURN ON INVESTMENT
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%
0.98%
4.05%
3.06%
6.69%
9.84%
3.78%
7.21%
Difference in
Ratios
0.00
0.00
0.00
0.00
0.00
(0.02)
0.00
0.00
(0.01)
0.00
0.00
(0.04)
Percentage
Change (%)
0.00%
0.03%
0.00%
0.00%
0.00%
(1.84%)
(0.02%)
(0.10%)
(0.11%)
0.02%
0.01%
(0.55%)
NOTE: ' Includes, 3M Corporation, Allied Signal, DuPont, ICI, Kodak, Shell, and Wellman.
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The effect of the proposed 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 proposed 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 proposed regulation on firms' asset levels is
equal to the capital investment necessary for the purchase of control equipment. The
proposed 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 proposed NESHAP on the rate of
return on investment for these firms range from no change to a decrease of 1.84 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 increase of 0.61 percent to a decrease of 1.26 percent. Both the debt-equity ratios
and rates of return on investment remain virtually unchanged as a result of the proposed
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.
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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 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 proposed emission controls are relatively small.
Predicted price increases in Group IV resins range from a low of 0.07 percent for nitrile to
a high of 2.8 percent for the SAN industry. Production decreases range from a low of 0.17
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 $0.86, $0.62, $33.8,
$6.17, $0.72, 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 proposed 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 approximately 85 workers as a result of the proposed emission
controls. These job losses include 2 workers for MBS and SAN, respectively, 65 workers
in the PET industry, 13 in the ABS/MABS industries, 3 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
Estimated Impacts1
Group FV Industry
MBS
Amount
Percentage
SAN
Amount
Percentage
PET
Amount
Percentage
ABS/MABS
Amount
Percentage
Polystyrene
Amount
Percentage
Nitrile
Amount
Percentage
Labor Input2
(2)
(2.8%)
(2)
(4.6%)
(65)
(2.4%)
(13)
(4.1%)
(3)
(0.47%)
(0.015)
(0.17%)
Energy Input3
($0.04)
(2.85%)
($0.05)
(2.5%)
($1.61)
(1.1%)
($0.32)
(1.93%)
($0.079)
(0.21%)
($0.0004)
(0.18%)
Foreign Trade '
(0.22)
(22.7%)
(0.98)
(5.7%)
(6.3)
(4.4%)
(7.0)
(19.2%)
(1.17)
(0.87%)
(0.008)
(0.84%)
NOTES: 'Brackets indicate decreases or negative values.
Indicates estimated reduction in number of jobs.
3Reduction 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, $.005. $1.61. $0.32, $0.079, and $0.0004 (1989$) 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 proposed 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
proposed 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 0.008
million kilograms annually for the nitrile industry to 7.0 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
Estimated Impacts1
Group IV Industry
MBS
SAN
PET
ABS/MABS
Polystyrene
Nitrile
Amount2
(0.22)
(0.98)
(6.3)
(7.0)
(1.17)
(0.008)
Percentage
(20.42%)
(5.7%)
(4.4%)
(19.2%)
(0.87%)
(0.84%)
Dollar Value of Net
Export Change3
($0.20)
($0.21)
($3.63)
($2.81)
($0.18)
($0.003)
NOTES ' Brackets indicate reductions or negative values.
2 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
proposed 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. Approximately 85 job
losses may occur nationwide. Energy input reductions are estimated to be approximately
$2.1 million annually (1989$). A decrease in net exports of 15.7 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 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 proposed Group
IV NESHAP, this analysis will focus on the remaining two criteria: the potential for
99
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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 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. Jn 1992,. Kaneka!s sales were $71
million. Total compliance cost estimates for this firm based on 1991 production is $824,
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
$1,495, or 0.003 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 proposed 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.
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
A-l
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TABLE A-2. SENSITIVITY ANALYSIS FOR ESTIMATED PRIMARY IMPACTS: LOW-
END PRICE ELASTICITY OF DEMAND SCENARIO1
Group IV Industry
MBS
SAN
PET
ABS/MABS
Polystyrene
Nitrile
Market
Price Change (%)
1.1%
3.0%
1.0%
1.8%
0.4%
0.07%
Market
Output Change (%)
(2.2%)
(3.3%)
(1.94%)
(3.8%)
(0.3%)
(0.16%)
Change in the
Value of Shipments
(%)
(1.2%)
(0.3%)
(1.0%)
(2.0%)
(0.03%)
(0.08%)
NOTES: ' Brackets indicate decreases or negative values
TABLE A-3. SENSITIVITY ANALYSIS FOR ESTIMATED PRIMARY IMPACTS: HIGH-
END PRICE ELASTICITY OF DEMAND SCENARIO1
Group IV Industry
MBS
SAN
PET
ABS/MABS
Polystyrene
Nitrile
Market Price
Change (%)
0.9%
2.5%
0.8%
1.7%
0.3%
0.07%
Market Quantity
Change (%)
(3.2%)
(5.7%)
(2.8%)
(4.4%)
(0.6%)
(0.19%)
Change in the
Value of Shipments
(%)
(2.4%)
(3.3%)
(2.0%)
(2.8%)
(0.3%)
(0.12%)
NOTES: ' Brackets indicate decreases or negative values.
A-2
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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.
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
Market Price
Change (%)
1.0%
2.9%
0.9%
1.8%
0.4%
0.08%
Market Quantity
Change (%)
(3.0%)
(4.8%)
(2.4%)
(4.5%)
(0.5%)
(0.2%)
Change in the
Value of Shipments
(%)
(2.0%)
(2.1%)
(1.6%)
(2.7%)
(0.1%)
(0.1%)
NOTES: ' Brackets indicate decreases or negative values.
A-3
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TABLE A-5. SENSITIVITY ANALYSIS FOR ESTIMATED PRIMARY IMPACTS: LOW-
END PRICE ELASTICITY OF SUPPLY SCENARIO
Group IV Industry
MBS
SAN
PET
ABS/MABS
Polystyrene
Nitrile
Market Price
Change (%)
0.9%
2.6%
0.8%
1.6%
0.3%
0.07%
Market Quantity
Change (%)
(2.5%)
(4.3%)
(2.2%)
(3.7%)
(0.4%)
(0.2%)
Change in the
Value of Shipments
(%)
(1.6%)
(1.8%)
(1.4%)
(2.1%)
(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 all facilities face identical
average per unit emission control costs. The results of this alternative model are
presented to address the issue of uncertainty concerning the individual PET facility
production levels. In general, the primary and secondary market impacts are significantly
lowered when the assumption is made that each facility faces the same industry average
per unit emission control costs. The primary market impacts and the secondary market
impacts of this alternative average cost PET model are presented in Tables B-l and B-2,
respectively. No facility closures are predicted when identical average control costs are
assumed. Impacts on price, output, and domestic value of shipment (or revenue)
decreases for the PET industry are less than 1 percent. Employment losses decline to
20 for this industry while energy use reductions and trade effects are minor. Based upon
the results of this analysis, it is reasonable to conclude that the regulatory impacts are
minor when the assumption is made that all producers face identical average per unit
emission control costs.
B-l
-------
TABLE B-l. PRIMARY IMPACTS FOR THE PET INDUSTRY ASSUMING INDUSTRY
AVERAGE PER UNIT CONTROL COSTS
Primary Impact Type
Amount or Percentage Change4
Price1
Amount
Percentage
Quantity - domestic sales2
Amount
Percentage
Value of Domestic Sales3
Amount
Percentage
Facility Closures
$.0019
0.26%
(21.9)
(0.73%)
($10.22)
(0.48%)
None
Notes. ' Prices are shown in dollars per kilogram (1989S).
2 Quantities are shown in millions of kilograms.
3 Value of domestic shipments are shown in millions of 1989 dollars.
' Negative amounts are shown in brackets.
TABLE B-2. SECONDARY IMPACTS FOR THE PET INDUSTRY ASSUMING
INDUSTRY AVERAGE PER UNIT CONTROL 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
20 job losses
( 0.73%)
($0.49)
(0.33%)
(1.89)
($1.09)
Notes: ' Number of job losses 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 the 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/D-95-002
3. RECIPIENT'S ACCESSION NO.
4. TITLE AND SUBTITLE
5. REPORT DATE
March 1995
Economic Impact Analysis for the Polymers and Resins IV
NESHAP
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.
68D40107
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 proposed standard.
The industries for which economic impacts were computed were the epoxy resins and wet strength resins
industries.
The faciities 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. COSATI 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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