oEPA
United States
Environmental Protection
Agency
Office of Water Regulations
and Standards
Washington, DC 20460
EPA 440/2-84-025
December 1984
Water
Economic Impact Analysis of
Effluent Limitations and
Standards for Plastics Molding
and Forming Industry
QUANTITY
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Economic Impact
Analysis of Effluent Limitations
and Standards for the Plastics
Molding and Forming
industry
Prepared for
U.S. Environmental Protection Agency
Office of Analysis and Evaluation
401 M Street, SW
Washington, DC 20460
Meta Systems Ihc
10 Hslworthy Street
Cambridge, MA 02138
December 1984
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\ UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
/ WASHINGTON, D.C. 20460
OFFICE OF
WATER
This document is an economic impact assessment of the recently-issued
effluent guidelines. The report is being distributed to EPA Regional
Offices and state pollution control agencies and directed to the staff
responsible for writing industrial discharge permits. The report
includes detailed information on the costs and economic impacts of
various treatment technologies. It is should be helpful to the permit
writer in evaluating the economic impacts on an industrial facility that
must comply with BAT limitations or water quality standards.
The report is also being distributed to EPA Regional Libraries, and copies
are available from National Technical Information Service (NTIS), 5282 Port
Royal Road, Springfield, Virginia 22161 (703)-487-4650.
If you have any questions about this report, or if you would like additional
information on the economic impact of the regulation, please contact the
Economic Analysis Branch in the Office of Water Regulations and Standards at
EPA Headquarters:
401 M Street, S.W. (WH-586)
Washington, D.C. 20460
(202) 382-5397
The staff economist for this project is Ann Watkins (202/382-5397).
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Table of Contents
Section Bage
Number Number
Section 1. Executive Summary 1-1
1.1 Introduction and Purpose 1-1
1.2 Scope 1-1
1.2.1 Industry Coverage 1-1
1.2.2 Treatment technology Options Considered 1-2
1.2.3 Industry Profile 1-4
1.3 Methodology, Data & Assumptions 1-6
1.3.1 Information Sources 1-6
1.3.2 Overview of Approach 1-7
1.3.3 Baseline Estimates 1-8
1.3.4 Cost Estimates of Treatment technologies 1-8
1.3.5 Liquidity Analysis 1-9
1.3.6 Plant Closure Analysis 1-9
1.3.7 Other Impacts 1-10
1.3.8 Small Business Aialysis 1-10
1.4 Economic Impact Analysis Results 1-11
1.4.1 Existing Sources 1-11
1.4.2 Small Business Analysis 1-13
1.4.3 Economic Impact on New Sources 1-13
1.4.4 Limitations 1-13
1.5 Organization of Study 1-13
Section 2. Industry Profile 2-1
2.1 Industry Overview 2-1
2.2 Industry Structure Reflected in §308 Survey 2-6
2.3 History of the Plastics Molding and Forming industry 2-10
2.4 Growth Rates in the Plastics Molding and Forming Industry . . 2-10
2.5 Financial and Operating Ratios 2-11
2.6 Balance of Trade 2-14
2.7 Markets and Growth ForecastsBase Case 2-14
2.7.1 Plastic Packaging 2-15
2.7.2 plastic Building and construction Products 2-18
2.7.3 Plastic Consumer and Institutional Products 2-18
2.7.4 Plastic Electrical and Electronics Products 2-18
2.7.5 Plastic Transportation Products 2-19
2.7.6 Plastic Furniture and Furnishings Products 2-19
2.8 Baseline Projections 2-19
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Table of Contents
(continued)
Section Page
Number Number
Section 3. Economic Impact Methodology 3-1
3.1 introduction 3-1
3.2 Baseline Estimates 3-2
3.2.1 Production Costs 3-2
3.2.2 Profitability 3-3
3.2.3 Annual investment 3-3
3.2.4 Discount Rate, Time Horizon and Depreciation 3-3
3.3 impact Projections 3-4
3.3.1 Plant-Level Impacts 3-4
3.3.1.1 Changes in Production Costs 3-4
3.3.1.2 Comparison to Annual Investment 3-4
3.3.1.3 Profitability 3-4
3.3.1.4 Liquidity Impacts 3-5
3.3.2 Closure Analysis 3-5
3.3.3 Extrapolation of Impacts of the Closure Analysis. . . . 3-7
3.4 Price increases 3-9
3.5 Employment 3-9
3.6 Impacts on Entire PM&F industry 3-9
3.7 Community Impacts 3-9
3.8 Balance-of-Trade Impacts 3-9
3.9 Small Business Analysis 3-10
3-10 New Sources 3-10
Section 4. Effluent Limitations Options and Compliance Costs .... 4-1
4.1 introduction 4-1
4.1.1 Best Practicable Control Technology
Current Available (BPT) 4-1
4.1.2 Best Available Technology Economically
Achievable (BAT) 4-1
4.1.3 Best Conventional Pollutant Control
technology (BCT) 4-1
4.1.4 New Source Performance Standards (NSPS) 4-2
4.1.5 Pretreatment Standards for Existing Sources
(PSES) and New Sources (PSNS) 4-2
4.2 Treatment Technology Options 4-2
4.3 Current Treatment and Treatment Costs 4-5
4.3.1 Current Treatment 4-5
4'.3.2 Treatment Costing 4-5
4.3.2.1 Plant-Specific Costs 4-5
4.3.2.2 Treatment Costs for New Sources 4-6
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lable of Contents
(continued)
Section Page
Number Number
Section 5. Results of Analysis 5-1
5.1 introduction 5-1
5.2 Impacts on §308 Survey Plants 5-1
5.2.1 Production Oast Changes 5-1
5.2.2 Profitability 5-3
5.2.3 Treatment Investment Costs Compared to Current
Annual Plant Investment 5-3
5.3 Price Changes 5-3
5.4 Impact on Liquidity 5-3
5.5 Closure Analysis 5-5
5.6 Employment 5-5
5.7 Industry Impacts including Closure, Employment
Community, and Foreign Trade 5-5
5.8 New Sources 5-9
5.9 Small Business Analysis 5-11
5.9.1 Definition of a Small Business 5-11
5.9.2 Baseline Conditions 5-12
5.9.3 Economic Bnpacts Upon Small Businesses 5-12
Section 6. Limits of the Analysis 6-1
6.1 Introduction 6-1
6.2 Methodology Limitations 6-1
6.2.1 Cbst Bass-Through 6-1
6.2.2 Closure Analysis 6-1
6.3 Data Limitations and Evaluation 6-2
6.3.1 Profit Rate 6-2
6.3.2 Compliance Costs 6-2
6.3.3 Annualization of Capital Costs 6-2
6.3.4 Salvage ^telue Estimates 6-3
6.4 Sensitivity Analysis 6-3
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List of Tables and Figures
Table Page
Number Number
Table 1-1. PM&F industry Small Plants 1-11
1-2. Summary of Estimated Economic Impacts
of Treatment Costs on Existing Sources 1-12
1-3. Summary of Estimated Economic Impacts of
"Normal" Plant Treatment Costs on New Sources 1-14
2-1. Consumption of Plastics Resins by Plastics
Holders and Farmers by Process 2-4
2-2. Major Plastic Holders and Formers by Company
(Million Ibs.) 2-5
2-3. Summary of 308 Survey Data for Wet-Process Plants
used in Economic Analysis 2-7
2-4. Plastics Molding and Forming Industry Data per Plant . . 2-8
2-5. Frequency Distribution of Wet Manufacturing
Processes by Plant Discharge Status 2-9
2-6. Summary of Sales Dollar Distribution, Plastics
Molding and Forming Industry 2-12
2-7. Summary of Financial and Operating Ratios for PM&F
Plants of Different Sales Levels 2-13
2-8. Growth Rates for Major Plastics Product Markets in
Terms of Sales and Amount of Plastics Materials Used . . 2-17
3-1. PM&F Plants in the §308 Survey Included in
the Economic Analysis and Overall Industry Estimates . . 3-8
3-2. Normal Plant Flow Size Characteristics by Subcategory . 3-11
3-3. Baseline Financial and Operating Ratios
(as Percent of Sales) Existing Sources 3-11
3-4. Financial and Operating Ratios (as Percent
of Sales) New Sources 3-12
4-1. Number of Plants with Wastewater Treatment-in-Place
in §308 Survey 4-6
4-2. Treatment Costs for 102 Direct
Discharge Plants in §308 Survey 4-7
4-3. Treatment Costs for All Direct Discharge Plants in
PM&F industry 4-8
4-5. Treatment Costs for Each Normal New Source
(Direct Dischargers) 4-9
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List of Tables and Figures
(continued)
Table Page
Number Mimbe r
5-1. Industry Production Cost Changes by
Ctmtrol Option 5-2
5-2. Profitability Change by Control Option 5-2
5-3. Treatment Divestment Oasts (tunpared to Current
Average Annual Plant Investment 5-4
5-4. Price Changes by Plant Type 5-4
5-5. Liquidity Impacts 5-6
5-6. Summary of Closure Aialysis for the §308 Survey Plants. . 5-6
5-7. Number of Plant and PM&F Operation Line Closures ..... 5-7
5-8. Plastics Lidustry Employment Loss 5-7
5-9. Performance of New Sources with a Comparison to
Existing Sources 5-10
Figure Page
Number NJmbe r
2-1.
2-2.
Structure of the Plastics Molding
and Forming industry 2-3
Major Econonr'.c Factors Affecting Plastics
Production (1970-1981) 2-16
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PREFACE
This document is a contractor's study prepared for the Office of Water
Regulations and Standards of the Environmental Protection Agency (EPA). The
purpose of the study is to analyze the economic impact which could result from
the application of effluent limitations guidelines and standards issued under
Sections 301, 304, 306, 307, 308, and 501 of the dean Water Act to the
plastics molding and forming industry.
This study supplements the technical study (EPA Development Document)
supporting the issuance of these regulations. The Development Document
surveys existing and potential waste treatment control methods and
technologies within particular industrial source categories and supports
certain standards and limitations based upon an analysis of the feasibility of
these standards in accordance with the requirements of the Clean Water Act.
Presented in the Development Document are the investment and operating costs
associated with various control and treatment technologies. The attached
document supplements this analysis by estimating the broader economic effects
which might result from the application of various control methods and
technologies. This study investigates the effect of effluent limitations
guidelines and standards in terms of product price increases, production and
the continued viability of affected plants, foreign trade, and other
competitive effects.
The study has been prepared with the supervision and review of the Office of
Water Regulations and Standards of EPA. This report was submitted in
fulfillment of Contract No. 68-01-6426 by Meta Systems Inc and completed in
December 1984.
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Section 1
Executive Summary
1.1 Introduction and Purpose
This report presents an analysis of the economic impacts that are likely
to result from the effluent limitations guidelines and standards for the
Plastics Molding and Forming (PM&F) Industry. I/ The regulation includes
effluent limitations guidelines and standards based on Best Practicable
Control Technology Currently Available (BPT), Best Available Technology
Economically Achievable (BAT), Best Conventional Pollutant Control Technology
(BCT), and New Source Performance Standards (NSPS), which are issued under
authority of Sections 301, 304, 306, 307, 308 and 501 of the Clean Water Act
(Federal Water Pollution Control Act Amendments of 1972, 33 U.S.C. 1251 et.
seq.) , as amended by the dean Water Act of 1977 (Public Law 95-217) . EPA is
not promulgating PSES and PSNS for reasons explained in the preamble and the
development document for the final rule. The primary economic impact
variables assessed in this study include the cost of the regulation and the
potential for this regulation to cause plant closures, price changes,
unemployment, community impacts, shifts in the balance of foreign trade,
impacts on new sources, and impacts on small businesses.
1.2 Scope
1.2.1 Industry Coverage
Many of the processes by which plastics are molded and formed use little or
no water; only a small proportion of the PM&F plants use water. The effluent
limitations guidelines and standards primarily affect those plants that use
process water (wet processes) and those plants which are direct dischargers
(not indirect dischargers) . 2.'3/ pOr regulatory purposes, the PM&F industry
I/ This report uses the terms "plastics molding and forming" and "plastics
forming" interchangeably. Also used interchangeably here are the terms
"regulation" and "effluent limitations guidelines and standards."
.?/ The Agency considered establishing categorical pretreatment standards
for new and existing sources discharging pollutants to POTW's. For the
reasons discussed in the preamble to the final rule, the Agency is not
establishing pretreatment standards for the PM&F industry. (The preamble for
the final PM&F rule is found in the Federal Register, 49 FR49026; Dec. 17,
1984.)
3/ The entire PM&F industry potentially is affected by this regulation,
even though only one segment of that industry in this case the wet, direct
discharging plants incurs costs for the installation, operation and
maintenance of any pollution control equipment and practices to meet the
effluent limitations. The other segments of the industry may be indirectly
affected by the economic impacts of the regulation on production costs,
product prices and other competitive factors in the PM&F industry.
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is divided into three subcategories. These are: (1) processes that use
contact cooling and heating water, (2) processes that use cleaning water,
and (3) processes that use finishing water. This subcategorization, based
upon the process (e.g. , cleaning) for which water is used and the associated
wastewater characteristics, is suited to the development of technical
options. HDwever, the economic achievability of effluent limitations
guidelines and standards depends upon the ability of economic entities in
this case PM&F plants to pay for the investment in and maintenance of
pollution control practices and equipment. Therefore, for purposes of the
economic impact analysis of existing sources, the portion of the PM&F
industry bearing the pollution control costs is divided into four industry
groups.
Each industry group represents a type of direct discharging PM&F plant in
the data base that has in common one or more of the PM&F regulatory
subcategories. The four industry groups are: (1) plants with processes only
in the contact cooling and heating water subcategory; (2) plants with
processes only in the cleaning water subcategory; (3) plants with processes
in both the cleaning and contact cooling and heating water subcategories, and
(4) plants with processes in both the cleaning and finishing water
subcategories. Pollution control costs were developed only for the new
source plants that had one PM&F process, not for new source plants with
processes in combination. Thus, the economic impact analysis of new sources
is divided into three industry groups: (1) plants with processes only in the
contact cooling and heating water subcategory, (2) plants with processes only
in the cleaning water subcategory, and (3) plants with processes only in the
finishing water subcategory^i/
1.2.2 Treatment Technology Options Considered
EPA identified and considered three options for each subcategory for BPT,
BAT and NSPS.2/ They are summarized below.
i/ For purposes of brevity throughout the economic analysis, the PM&F industry
groups for existing plants will be referred to as: (1) plants with contact cooling
and heating only; (2) plants with cleaning only; (3) plants with cleaning and
contact cooling and heating; and (4) plants with cleaning and finishing. The three
PM&F industry groups for new sources will be referred to as (1) plants with contact
cooling and heating only, (2) plants with cleaning only, and (3) plants with
finishing only.
£/ EPA is promulgating BAT and NSPS for both the contact cooling and heating and
the finishing subcategories for all pollutants except phthalates. The Agency
believes that activated carbon will effectively control phthalates, but at this
time, the Agency does not have treatability data for phthalates for that treatment
process. EPA plans to study the treatment of phthalates by. the activated carbon
process. Depending on the results of that study, EPA may propose and promulgate
limitations guidelines for phthalates. If limitations guidelines are to be proposed
and promulgated, the Agency will reexamine the costs for phthalate control and, at
that time, analyze the economic impacts of changes if any -- in the costs.
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Contact Cooling and tfeating Water Subcategory
Option 1: NO regulation.
Option 2: Continuation of current good housekeeping practices. Plants
are not required to install any additional treatment nor are
they expected to remove any treatment that is currently in
place. Limitations are based on the pollution concentrations
currently discharged by plants employing good housekeeping
techniques..!/
Option 3: Activated carbon treatment for phthalates only.
Cleaning Water Subcategory
Option 1: pH control and nutrient addition, followed by primary
settling, flow equalization, and final treatment in a package
activated sludge treatment system.
Finishing Water Subcategory
Option 1: No regulation.
Option 2: Settling.
Option 3: Settling followed by activated carbon treatment for
phthalates only.
A more comprehensive description of these treatment technology options and
associated compliance costs is contained in the Development Document.2/
The PM&F effluent limitations guidelines and standards affect the plastics
molding and forming plants in which water comes in contact either with the
surface of the plastic materials or products, or with forming equipment that
are or have been in contact with plastic materials or products. Contact may
occur during the molding or forming processes (e.g., when water is used to
cool the plastic forms), or during the processes of cleaning or finishing
(e.g., when water is used during cleaning or during finishing to wash the
product or the mold).
i/ Although some plants may have minimal costs for this option, they are
represented as zero in this study.
2/ EPA Industrial Technology Division (ITD): "Technical Development
Document for Effluent Limitations Guidelines and Standards for the Plastics
Molding and Forming Point Source Category," December, 1984. Hereafter
"Development Document."
1-3
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The plastics molding and forming industry is composed of three types of
plants. Those that:
o Primarily form and mold plastics products or parts;
o Manufacture resins as well as form or mold plastics parts; and
o Form or mold plastics products, but whose primary products are not
plastics.
The first type of plant is sometimes termed a "custom producer" and has
3079 as a primary SIC while the second and third types are termed "captive
producers" and have 3079 as a secondary SIC. I/ For this study, estimates
of the number of each of the above types of plants are based on EPA's survey
of PM&F plants in the State Industrial Guides. According to that estimate
there are 10,260 PM&F plants in the inited States, of which 7,900 plants have
a primary SIC of 3079, and 2,360 plants have 3079 as a secondary SIC. These
10,260 plants have an estimated annual net sales of $36 billion, 2/
employ about 530,000 persons.
1.2.3 Industry Profile
For purposes of economic analysis, the plastics industry can be described
as using three basic steps to produce a plastics product. The first step is
synthesizing a resin or polymer from various petro-chemical feedstocks. The
second step involves formulating the resin (s) with other materials to produce
an intermediate compound. The final step involves molding and forming these
compounds into specific products using heat and/or pressure. The end forms
are either a final product (such as a plastic bag), or a component of some
larger product (such as a plastic dashboard for a car) . The production of
resins, polymers, and intermediate plastics compounds is regulated by other
categorical effluent limitations guidelines. 3_/ Only the molding and
forming production processes, the final step above, are covered by the PM&F
regulation. 4/ Thus, this study concerns any plastics molding and forming
I/ For definitions of the terms "custom" and "captive", see Section 2 of this
report.
2/ All dollar figures in this report are in 1982 constant dollars unless
otherwise specified.
3_/ The proposed regulation on the organic chemicals, plastics and synthetic
fibers category covers the synthesis of resins and polymers and the formulation of
intermediate plastic compounds.
V Molding and forming processes (e.g., extrusion and pelletizing) used by
plastic resin manufacturers to process crude intermediate plastic material for
shipment off-site are excluded from the PM&F regulation arid are regulated under the
organic chemicals, plastics, and synthetic fibers category. Itowever, plastic
molding and forming processes used by plastic resin manufacturers to process
plastic materials, which are further processed on-site into intermediate or final
plastic products by molding and forming, are controlled by the effluent limitations
guidelines and standards for plastics molding and forming.
1-4
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process that discharges or may discharge pollutants to waters of the United
States. Plastic molding and forming includes processes that blend, mold,
form, or otherwise process plastic materials into intermediate or final
plastic products. They include commonly re'cognized processes such as
extrusion, molding, coating and laminating, thermoforming, calendering,
casting, foaming, and cleaning and finishing. All PM&F processes may use
contact water.
In the 20 year period following World War II, the plastics industry
experienced rapid growth. The versatility and unique properties of plastics
enabled them to penetrate into nearly every major consumer market. Major
markets include transportation, packaging, building and construction,
electrical and electronics, furniture and furnishings, consumer and
institutional, and industrial and machinery. The two largest markets are
packaging (36 percent of plastics consumption) and building and construction
(21 percent). Many of the products within these markets are produced by
extrusion and molding.
During the last few years the growth and development have slowed. These
changes reflect the increasing maturity of the plastics industry (including
saturation of some major product markets) as well as changes in national
business cycles, and increasing materials prices. Cbmpetition from PM&F
imports and from substitutes (e.g., paper) has also affected the industry's
growth, The average growth rate (in terms of pounds of plastics produced)
between 1976 and 1981 was about 6 percent per year. During the same period,
production costs increased and profitability decreased. For 1982, profits
after taxes were barely 3 percent of sales and return on net worth was only 7
percent.
While the industry's rate of growth has slowed compared to previous
decades, the development of new grades and types of. plastics materials and
improved processing technology should allow plastics to continue to penetrate
other markets. The Kline Guide predicts an industry growth rate (in terms of
pounds of plastics produced) of 7.0 percent per year between 1981 and 1986.
Higher growth rates are predicted for two markets within the industry:
11.2 percent for the electrical and electronic market (particularly plastic
housing for protection of electronic instruments and machines) and
9.4 percent in the building and construction market (plastic used in such
items as wire and cable, plumbing, wall covering and flooring). In addition,
a large growth potential exists in some segments of the packaging market.
Ihe Bureau of Alcohol, Tobacco and Firearms, based on safety recommendations
of the Food and Drug Administration (FDA), recently approved the use of
Polyethelene Terephthalate (PET) bottles as liquor containers. Processes to
produce some of the products for these growth sectors such as the extrusion
of plastic coating on wire and cable, the extrusion of plastic pipe and blow
molding of PET bottles, are wet processes and so potentially would be
directly affected by the regulation.
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1.3 Methodology, Data_anj[ Assumptions
This section summarizes the data, methodology, and assumptions used to
analyze the economic impacts of the effluent limitations guidelines and
standards on the plastics molding and forming industry. It describes the
ways in which information on industry characteristics (from published
sources) and from surveys conducted by EPA (under the authority of §308 of
the Clean Water Ace I/) are used together with estimated costs of the
treatment technology or-t?or,s (developed by EPA in a separate study 2/j to
identify plan', o ti d-', < . y r>ol be able to aii'ord the installation of pollution
control equipment, \n<.s section also summarizes the approaches used to
identify potential plant closures, employment, price, and other impacts on
plants in the industry. More detailed descriptions of the analytical
techniques, and assumptions used appear, where appropriate, throughout the
remainder of the report.
1.3.1 Informa_ti£ri_Sour_ce_
This study is based on data from several sources. They include
government reports, text books, trade association data, the trade press,.
discussions with individuals associated with the industry, and, of particular
importance, a plant-level §308 survey conducted by EPA.
The §308 Survey was designed to provide accurate and current information
on the characteristics of the industry's plants. 3_/ jn addition to
technical characteristics (e.g., treatment in place), the §308 Survey
provides information on the economic characteristics of PM&F plants, such as
sales, employment, and the relationship, if any, of the plant to a larger
corporation,
All the survey questionnaires were returned directly to EPA by the
respondents, and procedures were employed to protect the confidentiality of
any data subject to such a claim in accordance with 40 CFR Part 2. These
procedures included removing the plant's identification from each
questionnaire and assigning a code number to each before processing.
V Section 308 of the Federal Water Pollution Control Act, as amended, 33
U.S.C. §1318 provides that: "Whenever required to carry out the objectives of this
Act, including but not limited to ... developing or assisting in the development of
any effluent limitation ... pretreatment standard, or standard of performance under
this Act" the Administrator may require the owner or operator of any point source
to establish and maintain records, make reports, install, use, and maintain
monitoring equipment, sample effluent, and provide "such other information as he
may reasonably require."
2/ EPA Industrial Technology Division (ITD); "Technical Development Document
for Effluent Limitations Guidelines and Standards for the Plastics Molding and
Forming Point Source Category," December 1984. Hereafter "Development Document."
3/ For other details on the §308 Survey design, see the Development Document.
1-6
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Financial data were available for 381 plants in the industry that
completed survey questionnaires. Data from 112 direct discharging plants
(i.e., 20 percent of all direct discharging PM&F plants) were used in the
closure analysis. Of the remaining 269 plants in the economic data base,
data were not used for 100 plants because they do not discharge wastewater
and data were not used from another 169 plants because they are indirect
dischargers and so are not affected by this regulation. A financial profile
was developed for each of the 112 plants included in the closure analysis,
using the questionnaire data and publicly available data. Using §308 survey
data EPA also developed costs of treatment technology options for each of
these 112 plants.
Publicly available data used in this report include financial information
from the Society of the Plastics Industry (SPI), i/ FINSTAT, I/ data from
the U.S. Census of Manufactures, 1982, V State Industrial Guides, the
Kline Guide to the Plastics Industry i/ and various trade publications.
1.3.2 Overview of Approach
In general, compliance with effluent limitations guidelines and standards
imposes added costs on plants in the industry. These costs include capital
expenditures on pollution control equipment (fixed costs) and operating and
maintenance expenses (variable costs), both of which cause the average
production costs of a plant to increase. Under such conditions, plant owners
have the following options:
o Raise the price of their products and pass through the
increased costs to purchasers;
o Absorb the increase in costs; or
o Shut down the operation and go out of business.
The approach of this study is to examine the impact to the industry given
that one of these were to occur. Other impacts such as employment, community,
and foreign-trade effects are evaluated based on impacts of the effluent
regulation on the industry.
I/ The Society of the Plastics Industry, Inc., Financial Operating Ratios,
1978, 1980, 1982, and 1983.
U FINSTAT is financial statistical data, summarized by the firm size, derived
from Dun & Bradstreet's Financial Profiles data base and compiled by Social and
Scientific Systems, Inc., a contractor to the U.S. Small Business Administration's
(SBA) Office of Advocacy. SBA provided summaries of the data for EPA's use.
I/ U.S. Department of Commerce, Bureau of the Census, 1982 Census of
Manufactures.
I/ C. H. Kline & Co., Inc., The Kline Guide to the Plastics Industry,
Fairfield, NJ, 1982.
1-7
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1.3.3 Baseline Estimates
Baseline estimates are used in this analysis to represent the economic
characteristics of the PM&F industry in 1985-86 absent the PM&F effluent
limitations guidelines and standards. The difference between the baseline
estimates and the estimates of the economic characteristics of the PM&F
industry with the regulation represents the incremental impacts that can be
attributed to the regulation.
1.3.4 Cost Estimates of Treatment Technologies
The treatment technology control systems, costs, and effluent limitations
guidelines and standards for the plastics molding and forming industry were
derived in a separate analysis by EPA. A comprehensive description of the
methodology and the recommended technologies and costs are provided in the
EPA's Development Document for Effluent limitations Guidelines and Standards
for the Plastics Molding and Forming Point Source Category. EPA identified
and considered several technology treatment options for BPT, BAT and NSPS as
summarized above.
This report analyzes the economic impact of these costs on four groups of
existing plants in the plastics molding and forming industry that are direct
dischargers. These include: (1) those plants with processes only in the
contact cooling and heating water subcategory; (2) those plants with
processes only in the cleaning water subcategory; (3) those plants with
processes in both the cleaning and the contact cooling and heating water
subcategories; and (4) those plants with processes in both the cleaning and
the finishing water subcategories. This report also analyzes the economic
impacts of the pollution control costs on three groups of new sources: (1)
plants with contact cooling and heating only; (2) plants with cleaning only,
and (3) plants with finishing only.
The EPA estimated wastewater treatment costs for 112 direct discharging
plants based on engineering estimates of treatment costs for each applicable
option. Adjustments were made for those plants with treatment-in-place.
Monitoring costs were added to the treatment system costs to obtain total
costs per plant. The EPA estimates that the monitoring costs are $1200 per
year for plants required to monitor toxic pollutants and $2600 per year for
plants required to monitor conventional pollutants. For toxic pollutants,
plants were assumed to monitor four times per year at a cost of $300 per
sample, and for conventional pollutants, plants were assumed to monitor once
a week, or 52 times per year, at a cost of $50 per sample. Capital costs are
amortized assuming a cost of capital of 10 percent over 10 years for reasons
explained in Section 3. The treatment costs for each industry group have
been extrapolated from the plant-specific costs for direct discharging plants
in the data base to estimate the costs for the all 558 direct dischargers in
the PM&F industry.
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Treatment technology costs for new sources were developed in a manner
similar to that for existing plants. These estimated costs apply to all new
sources regardless of whether they result from major modifications of
existing facilities or are constructed as greenfield sites. Itie technologies
considered for new sources are the same as those for existing sources.
Comparing estimated costs for the treatment technologies to expected
revenues, the Agency developed a "normal" plant for each of the three
subcategories.j/ A normal plant is a theoretical plant that has the
operations covered by the subcategory and production that is the average
level of production in the subcategory. Section XII of the Development
Document presents in detail the composition of the PM&F "normal" new source
plants.
1.3.5 Liquidity Analysis
The liquidity analysis focuses on the ability of plants to finance
capital investment from their current cash flow, without relying on outside
sources of capital. An implicit assumption in this approach is that if a
plant can invest in pollution control and still remain profitable, given the
current cost of capital, the capital market would also be willing to provide
the money for the pollution control investment. The liquidity analysis
estimates pre-tax income before treatment costs and assumes that a pre-tax
income greater than treatment costs enables a plant to pay for treatment
costs from current cash flow.
1.3.6 Plant Closure Analysis
In general, the regulation will force a rational plant owner to decide:
(a) whether to make an additional investment and incur additional fixed and
operating costs or; (b) to sell the plant. The alternatives available to the
owner are to:
o Sell the plant--either as an operating entity or as scrap;
or
o Make the investment and realize the value of the cash flows
expected from remaining open.
Because a plant will remain open for several years if the owner invests
to meet the effluent limitation guidelines and standards, the analysis takes
into account the present value of cash flow over the life of the plant (with
treatment) plus the terminal salvage value (salvage value at the end of a
plant's useful life) and compares that to the current liquidation value of
equity for the plant. if the present value of the cash flow plus the
terminal salvage value is greater than the current salvage value of the
i/ The Agency did not develop a normal plant for new sources with
processes in more than one subcategory.
1-9
-------
plant, then the plant is worth more open and operating than it is closed.
However, if the current salvage value is greater, a rational plant owner will
close the plant and sell it for the salvage value. To estimate salvage
value, the Small Business Administration's PINSTAT data are used to obtain
two ratios for the industry in SIC 3079: (1) total assets to sales; and (2)
total liabilities to total assets. The ratio for the firms in the FINSTAT
data are ranked. For reasons explained in detail in Section 3, the ratio at
the 75th percentile (with a value of .685) is used to represent the
industry-wide assets to sales ratio and the median of the total liabilities
to assets ratio (with a value of .292) is used as the industry-wide value.
1.3.7 Other Impacts
Prices. Price changes are estimated for each of the groups of directly
discharging PM&F plants. It is calculated as the ratio of treatment cost to
plastics sales, this analysis assumes all cost changes are passed through to
consumers. Thus, the price change is the maximum that would be estimated
from this regulation.
Employment. Unemployment is estimated directly from the plant closure
analysis. Community impacts are assumed to occur as a result of employment
losses and plant or process line closures.
foreign Trade. Impacts on the U.S. foreign trade balance are analyzed
based on estimated changes in price and production resulting from treatment
costs.
1.3.8 Small Business Analysis
Public Law 96-354, known as the Regulatory Flexibility Act, requires EPA
to determine if a significant impact on a substantial number of small
businesses occurs as a result of the regulation. If there is a significant
impact, the act requires that alternative regulatory approaches that mitigate
or eliminate economic impacts on small businesses must be examined. This
section addresses these objectives by identifying whether or not small
businesses in the plastics molding and forming industry are significantly
impacted by the regulation.
The definition of a small business is not precise or universal. The
Small Business AJministration (SBA) definition of "small business" generally
means a specific number of employees for each manufacturing industry by
Standard industry classification (SIC) . For non-manufacturing b> finesses,
"small" is limited in SBA regulations by dollar amount of gross s^les. In
this analysis, number of employees is used to determine size.
The plants in this analysis have been ranked by total number of employees
and by number of employees engaged in plastics molding and forming. These
plant rankings are then compared with their corresponding measures of impacts
1-10
-------
due to the regulation to determine whether a significant correlation exists
between size and the seriousness of the economic impacts. For purposes of
this analysis, a small plant is defined as one having 70 or fever PM&F
employees. Table 1-1 shows the characteristics of this plant among the §308
Survey plants.
Table 1-1.
PM&F industry Small Plants
Wimber of DirectjTypical Small PM&F industry Plant
Discharge §308 Survey Plants I (Based on Median Values).!/
Total |
112
1
"Small"
51
(Flow (gpm) |
16.7
1 1
Employment 1
27
i
! Sales ($1,000)
1P470
Source: §308 Survey.
1.4 Economic impact Analysis Results
1.4.1 Existing Sources
The results of this analysis are presented for plant level impacts, price
increases, closure, employment, community impacts, foreign trade, small
businesses, and new sources. The impact of treatment costs at the plant level
are measured by production cost increases, profitability changes, and a
comparison of treatment costs to average annual investment. The results are
shown in Table 1-2.
Only 558 out of an estimated 10,260 plants in the PM&F industry incur
costs for pollution control as required by this regulation. The impacts on
these plants are minimal and show that the regulation is "economically
achievable". Due to the size of the industry, the impact on the entire PM&F
industry is even less significant. The regulation potentially affects only
about 5 percent of the total plants in the industry so that price changes,
unemployment and PM&F operation line closures as a result of the regulation is
minimal relative to the entire industry. Since the impacts are insignificant,
plants are not expected to change discharge status or switch from wet to dry
processes in an attempt to avoid the regulation.
=/ This typical small plant represents the entire industry and is based on
employment.
1-11
-------
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1.4.2 Small Business Analysis
Using the number of plastics employees to define the size of each plant, a
comparison of plant size with the change in return on investment (ROI) due to
compliance costs shows that for all technology options, and for all four industry
groups, smaller plants generally have larger changes in ROI. Defining plant size
as the number of total employees at a plant yields the same results. The closure
analysis indicates that, for the §308 survey industry sample, 1 plant and 2 PM&F
operation lines will close. Using the definition of 140 or more total employees as
a large plant, two of the three affected plants are large. Upon further
investigation, it was found that the third plant, though "small", was owned by a
large company. The relationship between the small plant and the large company that
owns it gives it certain advantages over the typical "small business" as defined by
the SBA, regarding the ability of the plant to finance pollution treatment
facilities. Based on this analysis of the seriousness of the economic impacts,
small businesses in the four industry groups of existing sources that are direct
dischargers do not appear to be significantly impacted. Therefore, a formal
regulatory flexibility analysis of the plastic molding and forming industry is not
pursued.
1.4.3 Economic Impact on New Sources
Since options considered for NSPS are the same as the options for existing
sources, there are no barriers to entry caused by the regulation. The results of
the new source analysis presented in Table 1-3 are indications of how three types
of "normal" plants would perform with the addition of treatment costs under the
regulatory options.
1.4.4 Limitations
The possible limitations of the methodology and data used in this analysis are
reviewed. The magnitude of these possible limitations is examined using
sensitivity analysis. The parameters tested in the sensitivity analysis are the
profit rate, compliance costs, monitoring costs, cost of capital, and salvage value
estimates. From the standpoint of plant closures, the only industry group affected
by the sensitivity analysis is existing plants with cooling and heating under
Option 3. This group is most sensitive to changes in profitability. The changes
to other parameters have only a slight impact on the results.
1.5 Organization of the Study
The remainder of the study is organized in five sections. Section 2 provides a
description of the plastics molding and forming industry as well as of the past and
expected future performance of its firms. The complete methodology of the study is
discussed in Section 3. Section 4 details the costs of the alternative treatment
technologies being considered. Section 5 presents the findings of the economic
impact analysis, and Section 6 summarizes the limitations of the analysis.
1-13
-------
Table 1-3. Summary of Estimated Economic Impacts
of "Normal" Plant Treatment Costs on Ifew Sources
y
Industry Group
1
1
1
Pollution 1
Control |
Opt ion |
1
Normal
Plant
Plow
(gpm)
Production
Cost
Increase
(Percent)
Divestment
Costs
Compared
to Annual
Investment
(Percent)
Profitability
Reduction
(Percent)
Plants with Contact
Cboling and
Heating Only Option 1 35
Option 2* 35
Option 3 35
NA NA
NA NA
0.27 12.9
NA
NA
3.9
Plants with
Cleaning
Only
Plants with
Finishing
Only
1
Option 1* 13.5 1.3 85.2
Option 1 3.15 0 0
Option 2* 3.15 0.62 17.3
Option 3 3.15 1.5 59.3
II II
18.5
0
6.5
15.5
* Selected Option.
i/ Costs for a normal plant with processes in both subcategories were not
developed for the new sources analysis.
Source: EPA estimates.
1-14
-------
Section 2
industry Profile
2.1 Industry Overview
This section examines the structure of the plastics molding and forming
industry and prevailing market conditions for PM&F products because these
factors influence the industry's ability to afford additional capital outlays
for pollution control equipment.
For purposes of economic analysis, the plastics industry can be described
as using three basic steps to produce a plastics product. The first step is
synthesizing a resin or polymer from various chemical feedstocks and
intermediate chemicals such as ethylene, ammonia, or methane. Ihe feedstocks
originate from raw materials such as petroleum, natural gas and coal. The
second step involves formulating the resin(s) with other materials to produce
an intermediate compound. The final step involves molding and forming these
compounds into specific products using heat and/or pressure. The production
of resins, polymers, and intermediate plastics compounds are regulated by
other categorical effluent limitations guidelines. I/ Only the molding and
forming production processes, the final step above, are covered by the PM&F
regulation..?/
This study concerns any plastics molding and forming process that
discharges or may discharge pollutants to waters of the united States.
Plastics molding and forming includes processes that blend, mold, form or
otherwise process plastic materials into intermediate or final plastic
products. They include commonly recognized processes such as extrusion,
molding, coating and laminating, thermoforming, calendering, casting, foaming,
and cleaning and finishing. All PM&F processes may use contact process water.
=j The regulation on the organic chemicals, plastics and synthetic fibers
category covers the synthesis of resins and polymers, and the formulation of
intermediate plastic compounds.
=/ Excluded from the PM&F regulation are plastics molding and forming
processes (e.g., extrusion and pellitizing) used by plastics resin
manufacturers to process crude intermediate plastic material for shipment
off-site. These processes are regulated under the organic chemicals,
plastics, and synthetic fibers category. However, plastics molding and
forming processes used by plastic resins manufacturers to process plastic
materials, which are further processed on-site into intermediate or final
plastics products by molding and forming, are controlled by the effluent
limitations guidelines and standards for plastics molding and forming.
-------
As illustrated in Figure 2-1, the plastics molding and forming industry
is composed of three types of plants. Those that:
1. Primarily form and mold plastics products or parts;
2. Manufacture resins as well as form and mold plastics parts;
3. Form and mold plastics products, but whose primary products
are not plastics.
The first type of plant is sometimes termed a "custom producer"!/ and has
3079 as a primary SIC. The second and third types are termed "captive
producers"!/ and have 3079 as a secondary SIC. Based on a random five
percent sample from State Industrial Guides 2/ there are approximately
10,260 plastics molding and forming plants in the ttiited States, of which
7,900 plants have a primary SIC of 3079, and 2,360 plants have 3079 as a
secondary SIC. These 10,260 plants employ about 530,000 persons and have
estimated annual sales of $36 billion. This economic analysis is based on the
Agency's estimates that 18.5 percent of these plants have wet processes and
29.4 percent of the wet plants are direct dischargers. Thus, the Agency
estimates that 558 PM&F plants have wet processes and are direct dischargers;
these 558 plants may be affected by the limitations and guidelines
standards. I/
Many of these plastics molding and forming plants perform two or more
processes. Based on information from the 1983 EPA §308 Surveys, on average
there are two processes per plant. Extrusion and injection molding were the
most frequently used processes among plants responding to EPA's §308 Survey.
These two processes account for 66 percent of plastic resin consumption (see
Table 2-1). Extrusion and injection molding also appear frequently in
Table 2-2 which presents a list of major plastics molding and forming
companies, including the number of plants they operate and the amount of
resins they use.
Concentration ratios measure the degree to which production in a given
industry is controlled by a few companies. These ratios are calculated in
terms of value of shipments or number of plants. They are available for only
that part of the plastics molding and forming industry which is represented
i/ "Custom" refers to manufacturing a product to a specific order for
anothe r company.
' There is no universally accepted definition of the term "captive
producer". The 1982 Kline Guide identifies "captives" as those plants that
manufacture resins and also produce some plastic parts. The Society of the
Plastics industries (SPI) uses the term "proprietary" instead of "captive."
In this analysis, a "captive" is defined as any plant that forms or molds
plastics, but whose primary product is something other than plastics products.
2/ These Guides list the companies and manufacturing facilities by state.
4/ See the Development Document for a discussion of how these percentages
(18.5% and 29.4%) were derived.
2-2
-------
Figure 2-1. Structure of the Plastics Molding
and Forming Industry
100%
Plastics Materials
85%
15%
\
Merchant
Shipments
\
60%
Captive Molding and
Forming by Basic
Plastic Resins Suppliers
e.g., Dupont Polymer
Products Plant
1
40%
Captive Molding & Forming
by Other End-Product
Industries
e.g., Pord Motor Company's
Milan Plastics Plant!/
Custom Plastics
Molders and Formers
e.g., Westchester
Plastics
±/ In addition to motor vehicles, these plants often are found in
industries which manufacture metalworking machinery, electronic components,
medical instruments and supplies, and toys and sporting goods.
Source: Mapted from C. H. Kline, 1982. The Kline Guide to the Plastics
Industry. Fairfield, New Jersey.
2-3
-------
Table 2-1. Consumption of Plastics Resins
by Plastics Molders and Formers by Process
1
1
1
1
Process |
Extrusion
Injection molding
Blow molding
Reinforced plastics
(open molding)
Other molding
Foaming
Calendering
Casting
laminating
(structural)
Total
1
Percent of
Total Resin
Consumption
44.7
21.7
9.4
4.3
5.2
7.8
2.7
2.1
2.1
10 0 . 0%
1 A/erage
I Annual
I Percent
I Increase
1 1976-81
3.9
2.0
13.8
5.2
8.0
1.3
(0.1)
0.4
1
1
1
1
1 Major a
I Market"
Pk, BC, CI, EE
CI, Pk, T
CI
T, BC, CI
BC, CI
CI
CI, Pk
EE, T, F
1
a/ Major Market Key:
CI = Consumer and institutional
Pk = Packaging
T = Transportation
EE = Electrical and Electronics
BC = Building and (instruction
F = Furniture and Furnishings
Source: C. H. Kline, 1982.
Fairfield, New Jersey.
The Kline Guide to the Plastics Industry.
2-4
-------
lable 2-2. Major Plastics Holders and Formers by Company
(Million Lbs.)
Corporation
(Number of PM&F Plants) I/
General Motors
(11 plants)
Western Electric (8)
Mobil (10)
Ford (7)
Carlon (Indian ftead) (7)
Ethyl (16)
inion Carbide (3)
General Electric (4)
Exxon (4)
General Tire (6)
American tfcechst (5)
Crown Zellerbach (4)
Bemis
St. Regis (5)
Dart & Kraft (6)
Amoco (Standard Oil,
Indiana) (8)
Borden (4)
W.R. Grace (2)
Arco (4)
Owens-Illinois (5)
Firestone
Hancor
Monsanto (2)
Phillips Petroleum (6)
Presto (Cbca-Cbia)
3M
Approximate Annual 1
Consumption of 1
Plastic Polymer I Principal
(million Ibs) I Process
455 Injection
Extrusion
RIM!/
395 Extrusion
370 Extrusion
335 Injection
Calendering
RIM
305 Extrusion
300 Extrusion
Blow molding
Injection
285 Extrusion
190 Injection
180 Extrusion
180 Injection
175 Extrusion
140 Extrusion
135 Extrusion
135 Extrusion
130 injection
120 Blow molding
120 calendering
115 Extrusion
110 Extrusion
105 Blow molding
100 Calendering
100 Extrusion
100 Extrusion
100 Extrusion
100 Extrusion
100 . Casting
1
I
I Principal
I Product
Auto parts
Wire/cable
Film
Auto parts
Conduit
Film
Bottles
Jars, closures
Film
Appliance parts
Film
Auto parts
I&ckaging
Film
Packaging
Film
Btousewares
Bottles
Wall coverings
Film
Film
Bottles
Film
Pipe
Film
Pipe
Film
Film
i/ May not include all plastics forming plants of the listed corporations.
2/ RIM is reaction injection molding.
Source: C. H. KLine, 1982. The Kline Guide to the Plastics Industry.
Fairfield, New Jersey.
2-5
-------
in SIC 3079, custom producers. According to 1982 U.S. Census of Manufactures
data, the custom plastics molding and forming industry is not very concen-
trated: the top four firms account for only 7 percent of shipments and 0.7
percent of all establishments.
2.2 industry Structure Reflected in §308 Survey
The effluent limitations guidelines and standards apply to plastic
molding and forming plants that have wet processes and are direct
dischargers.J/ For regulatory purposes, as described in the Development
Document, the wet process plants are divided into three subcategories based
on water use and the wastewater characteristics. Subcategory 1 consists of
contact cooling and heating water from PM&F processes. Subcategory 2
consists of cleaning water from PM&F processes. Subcategory 3 consists of
finishing water from PM&F processes. Plants may fall into one or more of the
subcategories, depending on the type of PM&F process water used and the
associated wastewater characteristics at the plant.
Information from EPA's §308 Survey on the wet process plants used in the
economic analysis is summarized in liable 2-3. The Development Document
describes the §308 Survey and the sampling procedures used. As shown in the
table, the majority of wet-process plants generate wastewater only from
contact cooling and heating processes; slightly over one-quarter are direct
dischargers; and over one-half attribute all their sales to plastics molding
and forming.
Table 2-4 presents minimum, maximum and average measures of plant
employment, production and sales as well as number of plastics materials
used, processes, and products produced for plants responding to the §308
Survey. On average, each plant employs 119 plastics workers, and produces
between one and two types of plastic products. The value of shipments per
employee during 1982 is $89,000.2/ and is lower than other sectors of the
plastics industry. For example, the capital-intensive plastics materials and
resins industry has a sales to employee ratio which is nearly three times
larger.
A summary of the frequency distribution of manufacturing processes for
the §308 Survey plants is presented in Table 2-5.
i/ The Agency considered establishing categorical pretreatment standards
for new and existing sources discharging pollutants to the POTWs. For
reasons discussed in the preamble to the final rule (49 FR49026; Dec. 17,
1984), the Agency is not promulgating pretreatment standards for the PM&F
industry.
2/ In contrast, SPI (1983) reports that the sales per employee is $63,000
during 1982. This discrepancy may be due to the fact that SPI estimates are
calculated based on median data, while §308 Survey estimates are based on
average data and are only for wet process plants.
2-6
-------
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2-7
-------
Table 2-4. Plastics Molding and Forming Industry Data
per Plant
1
Total Bnployment
Plastic-related
Employment
Ibtal Production
(Thousands Ibs.)
Total Sales
(1,000 1982$)
Plastics Sales
(1,000 19823)
Plastics Sales
per Plastics Employee
(1,000 19823)
No. Plastics Materials
Used
ND. Processes
No. Product Groups
1
Maximum 1
8,672
2,600
450,000
570,216
277,441
107
10
9
6
1
Minimum
2
1
4
106
26
26
1
1
1
1 A/erage
428
119
23,682
32,809
10,586
89
2
1
1
1
.2
.7
.4
Source: Compiled from EPA §308 Survey data on 381 plants in the Plastics
Molding and forming Industry.
2-8
-------
Table 2-5. Frequency Distribution of Wet Manufacturing
Processes by Plant Discharge Status
Process
Calendering
Casting
Coating and lamination
Extrusion
Molding
Th e r mo f o rm i ng
Cleaning
Finishing
Total
1
I Number of
1
I Direct
1
1
2
127
6
3
21
2
163
1
Plants Reporting
I Indirect |
2
5
7
132
18
6
47
14
231
1 1
Use of This
Zero |
0
0
4
105
8
1
3
6
127
1
Process:
Total
3
6
13
364
32
10
71
22
521
Source: Compiled from EPA §308 Survey.
2-9
-------
2.3 History of the Plastics Molding and Forming Industry
Major plastics materials were initially developed in the 1930's and
1940's. The demand for plastics products increased greatly during World
War II because they served as excellent substitutes for materials, such as
natural rubber and copper, that were in short supply. Following the war, the
plastics industry invested enormous sums in research and development of new
and more efficient polymerization processes, new low-cost basic manufacturing
processes, and faster, larger molding and forming equipment. These new
processes and the versatility and unique properties of plastics led to the
development of an array of new plastics products that penetrated major
consumer markets. The major markets include: transportation, electrical and
electronic products, furniture and furnishings, consumer and institutional
products, and industrial products and machinery. Currently, the largest
market for molded and formed plastic products is packaging (e.g., trash bags,
liners, wraps, lids, cushioning and strapping) which accounts for 36 percent
of plastic resin consumption. The second largest market is building and
construction products (e.g., pipes, fittings, and conduits) which account for
21 percent of plastic resin consumption.
2.4 Growth Rates in the Plastics Molding and Forming Industry
During and immediately after World War II, production of plastics grew at
a phenomenal rate. Within this period, the United States had secure access to
ample and relatively inexpensive oil supplies, from which plastic materials
could be synthesized. Plastics products provided stiff cost competition to
products made out of traditional materials such as wood, metal, paper, and
glass.
Growth rates declined during the most recent decade. The compound growth
rate for the period 1956 to 1961 was 11.6 percent, and for the 1961 to 1966
period it was 15.4 percent. However, the compound growth rate fell to
8.3 percent in the next five year period and has been around 6.5 percent since
1971. The changes in the plastic industry's growth rate reflect its
increasing maturity. Some major product markets, such as phenolic adhesives
and coatings for building and construction products, are saturated.
The competition between products is intense. Not only do plastics forming
and molding companies compete with each other for the same markets, but they
compete with other industries producing highly differentiated products for the
same applications. For example, plastic products compete with paper for
packaging uses and with metal in transportation, industrial, and building
construction uses.
i/ These figures are based on production levels for plastic resins and
materials since comparable figures for molded and formed plastic products are
not available. Most of the plastics materials produced are used by the
plastic molding and forming industry, so they have grown at similar rates.
2-10
-------
Some of the change in growth rate is attributable to recent economic
recessions. Two of the major markets for plastic products, (1) transpor-
tation and (2) housing and construction, are very closely tied to national
business cycles. When these two markets decline, the demand for the plastic
products by these sectors also declines. These factors, along with increas-
ing material prices and foreign competitionespecially from Japan, where a
relatively new plastics industry benefits from modern production
facilitiescontributed to decreases in the PM&F industry's growth rate.
Profitability also declined. For 1982, profits after taxes were barely 3
percent of sales and return on net worth was only 7 percent.JL/
2.5 Financial and Operating Ratios
Based on information provided by SPI,2/ plastics molding and forming
companies enjoyed the best performance of recent decades in 1974 and 1977.
Since 1978, profits after taxes have fallen even though sales have continued
to increase, except in 1982 when sales also decreased. Table 2-6 presents the
distribution of the PM&F industry sales dollar by major components for three
years (1978, 1980, and 1982). The largest expense component is material costs
(about 43 percent of sales) , with factory overhead (about 27 percent) and
direct labor (about 13 percent) ranked as second and third. The average
after-tax income is about 2.9 percent of sales for the PM&F industry as a
whole and is higher for captive (3.3 percent) than for custom (2.6 percent)
operations. Aside from showing decreasing profits, the figures of the table
reveal an upward trend in material costs and administrative expenses. Custom
operations have higher direct labor and factory overhead than captive
operations, while selling expenses are higher for captive operations. A
comparison of SPI data on "taxes" and "after-taxes income" shows that the PM&F
industry pays about 36 percent of its income for taxes. 3/
The SPI also reports survey data by plant sales. Table 2-7 highlights
some statistics for plants with sales below $5 million and for plants with
sales of $5 million or more. Although "depreciation and other fixed expenses"
data are not complete, available figures indicate that fixed costs represent
about 4 to 6 percent of sales. Depreciation data are historical costs and,
therefore, must be recapitalized for accurate interpretation. As a first
approximation, assume a 60 percent upward adjustment to account for
inflation!/; this results in fixed costs to sales ratios of about 7 to 10
percent. This indicates that the industry is not capital intensive.
i/ The Society of the Plastics Industry, Inc., Financial and Operating
Ratios, Survey No. 21, 1982, New York, NY, 1983.
o/
' The Society of the Plastics Industry, Inc., Financial and Operating
Ratios, 1978, 1980, and 1982.
£/ The Society of the Plastics Industry, Inc., Financial and Operating
Ratios, 1982.
' 60% is the result of compounding an annual inflation rate of 6% over 8
years.
2-11
-------
Table 2-6. Summary of Sales Dollar Distribution
Plastics Molding and Forming industry
| I Type of Operation
1
Date 1
1978
1
1980
1
1982
1
Average
1
Item
Material Oasts
Direct Labor
factory Overhead
Selling Expenses
Administrative Expenses
Taxes
After Taxes Income
Material Costs
Direct Labor
Factory Overhead
Selling Expenses
Administrative Expenses
Taxes
After Taxes Income
Material Costs
Direct Labor
factory Overhead
Selling Expenses
AJministrative Expenses
Taxes
After Taxes Income
Material Costs
Direct Labor
Factory Overhead
Selling Expenses
AJministrative Expenses
Taxes
After Taxes Income
1 Industry 1
1 as a Whole!
42.3
13.4
26.8
4.2
7.6
1.7
4.0
1 1
43.5
13.3
26.9
4.7
7.7
1.9
2.1
1 1
44.1
12.1
26.6
4.7
8.7
1.3
2.5
1 1
43.3
12.9
26.8
4.5
8.0
1.6
1 2'9 1
1
Captive i/ |
42.4
12.8
23.5
6.9
7.2
2.5
4.7
1
44.4
10.8
26.9
5.0
7.1
1.9
2.1
1
43.0
10.4
27.1
5.0
9.5
1.9
3.1
1
43.3
11.3
25.8
6.2
7.9
2.1
3.3 ,
Custom
41.4
14.6
27.2
4.1
7.9
1.7
3.4
42.9
13.4
27.7
4.4
8.0
1.7
2.4
44.3
13.2
26.3
4.4
8.7
1.1
2.0
42.9
13.7
27.1
4.1
8.2
1.5
2.6
i/ Called proprietary by SPI.
Source:
The Society of the Plastics
Industry, Inc.,
Financial and
Operating
Ratios, 1978, 1980, and 1982.
2-12
-------
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2-13
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Production costs in Tfcble 2-7 are the expenses shown as the first five
items in Table 2-6, except that freight out and warehousing, research and
development, and miscellaneous income and expenses, as defined by the SPI,
are subtracted. Table 2-7 shows that plants with sales of $5 million or more
are less costly to operate and are more profitable than plants with lower
sales.
Return on equity varies between 5.1 and 10.5 percent with an industry-
wide average of 8.5 percent for plants with sales less than $5 million and
10.5 percent for plants with sales of $5 million or more. Overall, the
captive plants are more profitable than custom operations.
2.6 Balance of Trade
In terms of exports and imports of plastics materials, i/ the balance
of trade surplus that has characterized the industry is shrinking as imports
increase at 17 percent per year while exports rise at a rate of 13 percent
per year. 2/ jn 1931, the value of exports of plastics materials and
resins was $2.5 billion, while the value of imports was $285 million. 2/
The United States share of total world production has declined from 41
percent of total production in 1965 to 34 percent in 1980, although it
remains the world's largest producer. Imports of plastic molded and formed
products have risen significantly over the past decade, due in part to
improved industrial technology and low costs of labor in foreign countries.
A large portion of the plastic product imports are coming from Japan, where a
relatively new plastics industry benefits from modern and efficient plant
equipment and operations..!/ Furthermore, increased plastic product imports
from Japan accompanies their market advancements in products in which
plastics are essential components (e.g., automobiles, appliances,
televisions, computers), flnerican automotive and business machine products
appear to face the greatest foreign competition, followed by bags, sheeting,
appliances, and medical equipment.
2.7 Markets and Growth ForecastsBase Case
As discussed earlier in this section, the plastic molding and forming
industry has leveled off from its enormous expansion during the 1950's and
1960's. Many current markets such as certain kinds of packaging, plus areas
of phenolics, building and construction, are saturated, and expansion in new
i/ Export values are not available for specific plastic products.
therefore, exports and imports levels for plastic resins and materials are
presented instead as an indicator of the overall position and trends of the
U.S. in the production of plastics since all plastic material eventually
becomes plastic products.
/ C.H. Kline, 1982. Kline Guide to the Plastics Industry. Fairfield, NJ.
V U.S. Industrial Outlook, 1982.
/ Plastics World, January 1982.
2-14
-------
ones is proceeding at slower rates. The cost advantage of plastics has
diminished, as raw material and production costs have increased and thus the
industry is more susceptible to price competition from other materials (e.g.,
corrugated paper and wood for packaging). There is also intense competition
within the plastics industry itself, such as between the relatively new
polyurethane foams and the older molded forms.
In the past, the plastics industry has been influenced by a variety of
market and financial forces, including materials prices and availability,
inflation rates, inter- and intra-market competition, and buyers' behavior.
These market forces continue to direct and influence the growth of the
industry. Figure 2-2 illustrates the trends since 1970 in some of the major
markets for plastics products. Rar example, as car sales increase so do the
sales of plastic products used in cars. Based on a trend analysis of data
from the past decade, one analyst I/ predicts that the value of domestic
shipments will increase at a rate of 5.6 percent per year, reaching a level
of $165.8 billion in 1986. However, higher growth rates are predicted for
several of the plastic product markets (see Table 2-8) .
Several developments should contribute to future increased growth of the
plastics molding and forming industry. Cne of the more important factors
will be the development of new molding and forming technologies which will
improve the efficiency and precision of production, and which, in turn, will
affect plastics product penetration of the market place through reduced
costs, and improved quality and new uses. Technological developments
include: (1) increased use of high speed, automated processing and forming,
plus on-line equipment automation in smaller plants; (2) new plastic blends
and copolymers, including the ability to blend materials as part of the
injection molding process; and (3) advances in molding and forming processes,
such as improved blow film, blow molding and reaction injector molders
(RIM)..2/ New product developments, contributing to sustained growth
include: (1) plastic products that are superior to other kinds of
insulation; (2) the use of plastic housings for computer terminals and
business machines; (3) plastic foams that replace metal components; (4) the
application of high density foam furniture parts; and (5) the use of the
plastic bottles as liquor and soft drink containers.
Following is a brief discussion of the potential growth for each major
plastics product market.
2.7.1 Plastic Packaging
The predicted growth rate per year for the 1981-1986 period is 4.6
percent, which is lower than the industry average of 7.0 percent because of
saturation of some of the major markets and price competition from wood and
paper. Kiwever, some packaging products will exhibit greater than average
I/ C.H. Kline, 1982. Kline Guide to the Plastics Industry.
Fairfield, NJ.
2/ C.H. Kline, 1982. Kline Guide to the Plastics Industry.
Fairfield, NJ, and Modern Plastics, April 1983.
2-15
-------
Figure 2-2. Major Economic Factors Affecting
Plastics Production 1970-1981
Plastics Sales
and Captive Use
(billions Ibs.J
50
40
35
30
25
20
15 -1
200
\ ' Plastic Sales i
'' and Captive Use
1 I 1 I 1 1
250
150
1.0
1970
1975
1980
Source: The Kline Guide, 1982.
2-16
-------
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-------
growth. These include products used as cushioning and protective packaging,
merchandise bags, and beverage containers. Considerable improvements in
strength-to-weight ratios have enabled disposable packaging, such as plastic
produce and grocery bags, to remain competitive with traditional paper
materials. One analyst!/ states that a major driving force behind growth in
plastic packaging is the demand for protective packaging for electronic
instruments to reduce shipping damage and repair costs. It is estimated that
demand by the electronics industry for plastic packaging will increase by 13
percent per year through 1987. However, cushioning is a relatively small part
of packaging. As discussed previously, a large growth potential exists for
plastic bottles because the recent approval of the use of PET (polyethylene
terephthalate) bottles as liquor containers, the 1.75 liter bottle is
expected to have penetrated the glass-dominated market by 10 to 15 percent by
the end of 1984 and 80 to 90 percent by 1987, assuming widespread consumer
aesthetic acceptance of this non-traditional use of plastics.2/
2.7.2 Plastic Building and Construction Products
The predicted growth rate per year for the 1981-1986 period is 9.4
percent. The use of plastics products in building and construction is very
closely tied to national business cycles, and thus the recent increase in
housing starts, and predicted increases in future years, are major factors in
the predicted sustained growth of the industry. However, plastics have not
deeply penetrated certain parts of this market because plastics products
generally cannot match wood and metal products in meeting heavy load carrying
demands. Therefore, the greatest growth markets exist for pipes, fittings,
and conduits since they are cheaper, lighter in weight and less subject to
corrosion than competing copper and other metal products. However, questions
concerning plastic pipe fire hazards may adversely affect growth in this
area. In addition, expansion into newer markets is expected for insulation
products and institutional equipment such as handrails.
2.7.3 Plastic Ctansumer and institutional Products
The predicted annual growth rate for the 1981-1986 period is 6.9 percent.
Many of the plastics products in this group are items which are used daily
(such as kitchenware, and toys) and thus growth in this market will closely
parallel that of the national economy. The major growth areas of this segment
are expected to be medical-related products (such as plastic I.V.'s),
reinforced dishes, containers for use in microwave ovens, and recreational
items.
2.7.4 Plastic Electrical and Electronics Products
The predicted annual growth rate for the 1981-1986 period is 11.2
percent. The high growth rate predicted for this sector is a function of the
changes in product design which favor plastics parts over other materials,
I/ Plastics World, June 1983.
y Plastics World, January 1983.
2-18
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such as metal and wood, in products such as business machines and office
equipment, communication equipment, and small appliances. One analysti./
expects that business machine use of plastics will grow 16 percent per year
through 1988. This increase is primarily due to the increasing demand for
plastics housings in personal computers, printers, typewriters, and
photocopying machines.
2.7.5 Plastic Transportation Products
The predicted growth rate per year for the 1981-1986 period is 9.0
percent. ever 90 percent of the plastics molded and formed for the
transportation field are used in automobiles. Therefore, the growth of the
PM&P products for the transportation market is very closely tied to the
automobile industry which, in turn, closely follows the national economy. The
demand for smaller, lighter weight, more fuel-efficient cars has been a major
factor in plastics penetration of this once metal-dominated market, and such
demand will continue to significantly affect plastics application. Currently,
plastics are the leading choice for body panels and structural components,
because of their greater corrosion resistance and lower manufacturing costs.
Under-the-hood components include electrical housing and wiring, battery
cases, and fan shrouds. Plastics products will continue to be preferred for
interior uses such as seatbelts, cushioning and dashboards.
2.7.6 Plastic Furniture and Rirnishings Products
The predicted growth rate per year for the 1981-1986 period is 5.1
percent. The majority of plastics in this market are used as flexible foams
for cushioning, carpet backing, and bedding. Consumption of plastics in the
retail furniture market has shown no sustained growth since 1974.2/ This is
a result of the quality image of plastics and stiff competition from wood.
However, some growth is expected because of penetration into newer markets
such as outdoor furniture and institutional furniture for hospitals.
2.8 Baseline Projections
While for the past few years the plastic molding and forming industry has
not shown much growth, the industry studies reported above predict a growth
rate of about 7 percent between 1981 and 1986. (See Table 2-8) Capacity
utilization figures are not available, although the down-turn in recent years
has undoubtedly resulted in decreased capacity utilization. It is assumed
that the financial performance, in terms of profitability, through 1986 will
equal the median profitability for the 1973 to 1982 period, and new sources
will be built in order to meet the increasing demand for plastics products.
V Plastics World, June 1983.
2/ C.H. Kline, 1982, Kline Guide to the Plastics Industry. Fairfield, NJ.
2-19
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These baseline projections of the economic conditions that are likely to
exist in the PM&F industry markets through 1986 provide a benchmark against
which the impacts of the PM&F regulation can be measured. ihe projected
profitability rates are incorporated into the economic impact methodology
presented in Section 3 of this analysis.
2-20
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Section 3
Economic impact Methodology
3.1 Introduction
The economic impact methodology consists of a baseline estimate and a
subsequent impact analysis. The initial baseline values provide a basis
against which the impact of potential treatment costs can be assessed.
Baseline values are calculated for production costs, profitability, annual
plant investment, and salvage (or liquidation) value of equity assets.
The assessment of the impact of treatment costs on specific plants is
performed in a series of steps. The first of these is to estimate wastewater
treatment costs for each plant on the basis of its water use, treatment-in-
place, and subcategorization. Monitoring costs are added to the treatment
costs. The' monitoring costs are $1200 per year for plants required to monitor
toxic pollutants and $2600 per year for plants required to monitor conven-
tional pollutants. The EPA assumes that for toxic pollutants plants will
monitor four times per year at a cost of $300 per sample, and for conven-
tional pollutants plants will monitor once a week, or 52 times per year, at a
cost of $50 per sample. (In the following discussion, unless otherwise
specified, "treatment costs" refer to treatment costs that include monitoring
costs.) N.ext, the increases to production costs and the profitability
reduction due to the treatment costs are determined. Treatment costs are
compared to pre-tax income to assess the impact on liquidity; then a closure
analysis is performed to predict plant or process line closure. This closure
analysis compares the current liquidation (or salvage) value of equity of the
plant's assets with the sum of the present values of cash flow over the life
of the plant (with treatment) plus the salvage value of the plant's assets at
the end of their useful life (terminal salvage value). From the projections
of closures and changes in production cost and prices, the effects of the
treatment costs on employment, foreign trade, production and small businesses
and the effects on the entire PM&F industry, including plants that are not
direct dischargers, are assessed.
As discussed in the previous section, EPA estimates there are 10,260
plants in the PM&F industry. Of these, 1,898 are estimated as wet process
plants. The impacts of the proposed effluent limitations guidelines and
standards are first analyzed on a plant-by-plant basis for the §308 Survey
plants included in the economic analysis. Then, the results are extrapolated
to the 558 direct dischargers and represent the impacts on the PM&F industry
as a whole.
Data from the §308 Survey contains detailed technical and financial
information on each plant's PM&F operations. Even though a plant may produce
-------
other products, this study is concerned with the PM&F operations only.
Therefore, SPI's financial and operating characteristics of custom processors
were applied to the surveyed plants and the results extrapolated to represent
the entire industry impacted by this regulation.
To assess treatment cost impacts on new sources, the Agency developed a
"normal" plant for each of the subcategories using §308 Survey plant data and
assuming no change in wet processes distribution..]/
3.2 Baseline Estimates
Production costs, profitability, and average annual investment, without
additional treatment costs, serve as a baseline against which the impacts of
the regulatory action are determined. Baseline estimates are derived by
applying publicly available data to each plant. The Society of the Plastics
Industry, Inc. (SPI) reports financial and operating ratios of plastics
molding and forming companies.!/ These ratios are the basic data used for
estimating production costs and profitability based on plant sales. The
Census of Manufactures provides information relating annual investment for
capacity expansion to plant sales. Ebr better resolution, SPI divided plants
into two groups, with 5 million dollars annual sales as a point of demarca-
tion. This analysis applied SPI's financial ratios to the survey of plants
according to plant sales.
3.2.1 Production Costs
Production costs included in the calculation are the expenditures for:
1. Direct Materials
2. Direct Labor
3. Indirect labor
4. Utilities
5. Depreciation
6. Other Manufacturing Expenses
7. Ifct on Tool Transactions
8. Selling Expenses
9. Administrative Expenses
10. Interest
11. Engineering Expenses
12 Direct Packaging and Shipping Supplies
13. Lease Expenses
i/ For details on the "normal plant" see Section XII of the Development
Document.
2/ The Society of the Plastics Industry, Inc., Financial and Operating
Ratios, Plastics Processing Companies, Survey No. 17, (1978), No. 19 (1980),
and No. 21 (1982) . Data for 1983 become available after the data collection
portion of this study was completed. Upon comparison it was found that the
1983 data were not significantly different from that which was used in the
analysis.
3-2
-------
The SPI reports these line items regularly as a percentage of plant sales..!/
The baseline data used in this analysis correspond to the Tmedian" condition
between 1973 and 1982.
3.2.2 Profitability
Profitability is an obvious factor in determining economic impacts. It
provides a way to judge the ability of a plant to absorb treatment costs in
order to comply with the effluent limitations guidelines and standards. Plant
level profit is estimated using ratios of profit to sales that represent the
baseline condition. This is equal to the "median" condition between 1973-1982
based on the SPI's data. After-tax profits are used.
3.2.3 Annual Investment
Annual plant investment is used to determine the impact of additional treatment
costs on the annual capital expenditures of a plant. Average annual investment is
estimated from data reported in the 1982 Census of Manufactures at the four digit
SIC level. The most appropriate group to use is SIC 3079 (Miscellaneous Plastics
Products). The ratio of average annual investment to sales is taken as the ratio
of new capital expenditures to the value of shipments from the 1982 Census of
Manufactures data and has a value of 4.451 percent.
3.2.4 Discount Rate, Time t&rizon, and Depreciation
This analysis assumes an 8 percent return on equity and a 13 percent
interest rate on borrowed capital. This return on equity is comparable to
observed values of return in this industry, and the interest rate for capital
is based on forecasts of industrial bond rates. According to FINSTAT
data,2/ the industry generally funds 30 percent of its capital expenditures
from loans and 70 percent from equity. Therefore, the appropriate interest
rate for capital expenditures is a weighted average of the two: (.3)(.13) +
(.7) (.08) = 0.095 or roughly 10 percent. The 10 percent cost of capital rate
is used to amortize capital treatment costs. A discount rate of 8 percent
(about equal to the return on equity)!/ is assumed in the present value
calculation for the closure analysis. The time horizon (or planning period)
is 10 years in all calculations with one exception. The exception is that
four years is used to amortize treatment costs for small plants when liquidity
impacts are being assessed. Pour years is used to take into account perceived
higher risk, and more limited sources of funds available to small plants.
Waste treatment systems are depreciated uniformly over 10 years.
i/ The Society of the Plastics Industry, Inc., Financial & Operating
Ratios, Survey No. 21, 1982.
U FINSTAT is a U.S. Small Business Administration (SBA) data base derived
from Dun & Bradstreet's Financial Profiles data base and compiled by Social
and Scientific Systems, Inc., a contractor to SBA.
/ Based on SPI's survey of 1980 and 1982 Plastics Processing Companies.
3-3
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3.3 Bnpact Projections
The addition of treatment costs affects the cost of production and has an
impact on profitability, liquidity, plant closures, employment and prices.
3.3.1 Plant Level Impacts
The analysis of plant level economic impacts utilizes plant specific
information obtained from the Agency's §308 Survey, such as current PM&F
process water use rate, treatment-in-place, discharge status and sales. From
the values of these variables, the projected impacts of treatment costs of
the regulation are assessed. The methodology focuses on four measures:
changes in production costs, changes in profitability, stress on cash flow
(liquidity), and a comparison of wastewater treatment capital investment with
average annual investment for capacity expansion.
3.3.1.1 Changes in Production Costs
The increases in production costs are calculated for each plant and
summarized by industry group. The increase is calculated as the ratio of
annual treatment costs to production costs.
3.3.1.2 Comparison to Annual Investment
The capital investment portion of treatment costs is compared to the
average annual plant investment. It is calculated as the ratio of capital
treatment costs to annual investment for each plant and summarized by
industry group.
3.3.1.3 Profitability
Change in profitability due to treatment costs is calculated as the ratio
of annual treatment costs to plant profit. When no price change is assumed
(i.e., zero cost pass through), the change in profitability represents the
maximum reduction in profits due to treatment. Plants with treatment costs
greater than 15 percent of profit are considered to have potentially signi-
ficant impacts. Profits after taxes are the focus; likewise treatment costs
estimates used here must include tax consequences. A 40 percent tax rate is
assumed. _V
i/ The Society of the Plastics Industry, Inc., Financial and Operating
Ratios, Survey Nb. 21, 1982. SPI's data shows a PM&F tax rate of about
36 percent. In the economic analysis to estimate after tax profits
conservatively, we have used a 4 0% tax rate.
3-4
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3.3.1.4 Liquidity Inpacts
The purpose of the liquidity analysis is to determine a plant's ability
to finance wastewater treatment from current income. The analysis estimates
pre-tax income before treatment costs and assumes that a pre-tax income
greater than treatment costs enables a plant to pay for annual treatment
costs out of current cash flow. A pre-tax income less than treatment costs
in a particular year does not necessarily mean a plant is unable to pay for
or to finance treatment costs. It is not uncommon for plants to have
negative pre-tax income years from time to time. But if the annual treatment
costs exceed a plant's current cash flow, that may be an indication of the
stress that the plant experiences from incurring treatment costs.
3.3.2 Closure Analysis
A decision to close a plant is extremely complex, involving an array of
factors, many of these subjective. Some of the more important factors to
consider are:
o Present and expected profitability of the plant;
o Current market or salvage value of the plant, i.e., the
opportunity costs of keeping the plant open;
o Required pollution control investment;
o Expected increase in annual costs due to pollution control
requirements;
o Expected product price, production costs, and profitability of
the plant after pollution control equipment is installed and
operating; and
o Other major economic developments expected for the plant
(i.e., change in the competitive position, increase/decrease
in market growth) .
Each of these factors is addressed to some extent in this plant closure
analysis. Our efforts at this stage are aimed at identifying the plants that
may close under the regulatory options.
In general a plant owner faced with pollution control requirements must
decide whether to make the additional investment in pollution control or to
sell the plant. A rational owner would decide to keep the plant if the
before-and-after pollution control cash flows are greater than the salvage
value of the plant's assets. If the expected cash flows are less than the
salvage value of the plant's assets, the owner would be better off selling the
plant. Since the plant will remain open for many years if the investment is
3-5
-------
made in pollution control, the analysis takes into account the cash flow
expected over the life of the plant and equipment plus the salvage value at
the end of the last period. The present value of future cash flows is
calculated discounting the expected income stream by the current return on
equity. The plant will remain open if the present value of the expected cash
flows less the costs of investing in pollution control exceeds the expected
salvage value. if the expected cash flows are less, the owner will sell the
plant.
For salvage value estimation, the Small Business Administration's FINSTAT
data are used to obtain two ratios for the industry in SIC 3079: total assets
to sales; and total liabilities to total assets. The ratios are ranked from
smallest to largest. The ratio at the 75th percentile (with a value of
.685) is used to represent the industry-wide assets to sales ratio. The value
at the 75th percentile is chosen so as to overestimate a plant's assets and
hence give a conservative (high) estimate of salvage value. The median of the
total liabilities to assets ratio (with a value of .292) is used as the
industry-wide value. The median is chosen to insure that assets are not
underestimated.
Using these values, the plant specific salvage values are calculated in
the following manner:
e
where:
S
L
and:
in which:
.685
.292
.60
S - L
salvage value of equity
salvage value of the plant's assets
total liabilities of the plant
(.685 x sales) x .60
(.685 x sales) x .292
industry-wide assets to sales ratio
industry-wide total liabilities to assets ratio
scale factor to reflect the fact that any plant is probably
only 60 percent convertible to another use.J/
L/ Taken from EPA's Industrial Economic Impact Guidance, Draft November
13, 1981, page 18.
3-6
-------
The present value (PV) of cash flow plus the terminal salvage value is the
sum of the cash flow over the life of the plant (with treatment) and the
after-tax discounted liquidation value at the end of the plant's useful life.
It is calculated as follows:
n CF Se. (1-t)
PV (CF) = SUM r +
1=1 (1+r)1 (l+r)n
where n is the life of trie iiv.«-ni orient, CF is the cash flow of the planl wiU)
treatment, and r is the rate of return on the investment. It is assumed that
the terminal salvage value is equal to Se. The life of the investment, n,
is assumed to be 10 years. An eight percent value is used for r. Parameter
t denotes the tax rate charged to the terminal salvage value. It is assumed
that the terminal salvage value will be treated as a long term capital gain
in which case an appropriate tax rate of 0.25 is used in the calculation.
For a valid comparison, Se on the left-hand side must also consider tax
consequences. The cash flow with treatment is approximated as CF = profits
after income taxes -0.6 x (annual treatment costs), in which the factor 0.6
reflects the 40 percent tax rate and shows the treatment costs actually born
by the plant after income tax consideration.
The baseline value of the ratio of salvage value to the present value of
cash flow without treatment is 0.45 for plants with sales of $5 million and
over and 0.51 for plants with sales of less than $5 million.
3.3.3 Extrapolation of Impacts of the Closure Analysis
The results of the plant-by-plant economic impact analysis performed on
the §308 Survey plants is extrapolated to the estimated 558 direct
discharging plants in the PM&F industry. Using the §308 Survey plants
included in the Economic Analysis as an accurate representation of the direct
discharging plants in the PM&F industry, the changes in production costs,
profitability, and the comparison of capital treatment costs to annual plant
investment for the industry, are taken to be proportional to the impacts
calculated for the surveyed plants. The ratio of the total number of direct
discharging plants in each of the four industry groups of PM&F plants to the
number of plants from the §308 Survey is taken to obtain appropriate
extrapolation factors for the industry. The extrapolation of Option 3 costs
for plants with only contact cooling and heating processes is based on the
Agency's estimate that only 6/9ths of such plants will have to treat for
phthalates in their effluent. The estimate is based upon §308 sampling data
showing phthalates detected at or above treatability level in 6/9ths Of the
plants sampled. The extrapolation of costs for plants with cleaning and
contact cooling and heating, however, assumes that all of these plants will
have to treat for phthalates in their contact cooling and heating effluent.
For this industry group, the estimate of total treatment costs is
conservative. A summary of the number of plants by industry group for both
the entire industry and the survey is presented in Table 3-1.
3-7
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Using the extrapolation factors developed above, the impacts on the
plastics molding and forming industry are assessed. PM&F Operation line
closures are assumed to occur if plastic employment is less than 50 percent of
total plant employment. Otherwise the entire plant is assumed to close.
3.4 Price Increases
Price increases are estimated for each industry group as the ratio of
annual treatment cost to plastics product sales. This analysis assumes a full
cost pass through so the result is the maximum expected price increase.
3.5 Employment
Unemployment resulting from plant or process line closures is estimated
directly from the plant closure analysis. Estimates of the employment loss
resulting from price increases and the subsequent production decreases are
beyond the scope of the economic analysis; and in the case of the PM&F
regulation, where price and production changes are expected to be minimal, it
is the fgency's judgment such employment losses are insignificant.
3.6 Impacts on Entire PM&F Industry
The regulation only affects wet direct discharging PM&F plants. These
plants comprise only about 5 percent of the total plants in the industry. The
other 95 percent of the PM&F plants either have dry processes or are indirect
or zero dischargers. Depending upon the severity of the economic impacts,
these plants may be affected by the regulation due to possible production
shifts as a result of price changes and/or plant closures.
3.7 Community Impacts
Community impacts result primarily from employment and earnings losses.
Ebr example, the economic conditions of a geographic area would be potentially
affected if this regulation were to close a PM&F plant that employed a large
percentage of a community's work force. If employment and earnings losses are
important, their secondary effects are assessed relative to a community's
total employment and earnings using data on community employment and earnings
available through the Bureau of the Census and the Bureau of Labor
Statistics.
3.8 Balance-of-Trade Impacts
A regulation may adversely affect the balance-of-trade depending on 1) the
extent the product price increases, and 2) the extent to which the domestic
production losses are replaced by imports. If the changes in these variables
are minimal, then import substitution for domestic products are small, export
losses are also minimal, and balance-of-trade impacts are insignificant.
3-9
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3.9 Small Business Analysis
The Regulatory Flexibility Act (RFA) (PL 96-354) requires Federal
regulatory agencies to consider small businesses throughout the regulatory
process. A small business analysis of the plastics molding and forming
industry is performed to determine if small plants are significantly affected
by the effluent regulations and to ascertain if a regulatory flexibility
analysis is needed for this industry. the economic impact analysis of this
regulation included both small and large PM&F plants and found the impact on
small plants is not significant. Therefore, a formal Regulatory Flexibility
for small PM&F plants is not persued.
3. 10 tfew Sources
The impact of the NSPS regulation on new direct discharge sources is
analyzed by examining the effects of the expected treatment costs on a set of
normal plants. A "normal" plant is a theoretical plant developed by EPA to
represent the anticipated characteristics of typical plants constructed in the
baseline period (i.e., 1986). A normal plant is examined for each of the
three subcategories. The sales and flow values for the three normal plants
are the median values observed in the §308 Survey plants for the three groups
presented in Table 3-2..V
Data on the "More Profitable Plants" as reported by the SPI J/ are
adapted for the normal plants with the following adjustment. It is assumed
that replacement costs are higher than the aging assets at an existing plant;
hence, the depreciation costs of a new plant are more than that of published
data pertaining to existing plants whose median construction date is 1976
(based on §308 Survey plant data) . Assuming new construction starting in 1982
for baseline plants, the GNP deflator is used to update the depreciation costs
from 1976 to 1982. This upward adjustment of depreciation costs is subtracted
from the profits. The resulting financial and operating ratios for these
normal plants are presented in Tables 3-3 and 3-4.
The control options identified for new sources are the same as those for
existing plants. Treatment costs for new sources are estimated in the same
manner as for existing sources by industry group and water use but assume no
treatment-in-place. The impacts, including production cost increases and
profitability reduction, are calculated to determine possible barriers to all
new sources including new "greenfield site" plants entering the market as well
as major modifications to existing plants.
I/ See the Section XII of the Development Document for details on the
"normal" plant.
2/ The Society of the Plastics Industry, Inc., Financial & Operating
Ratios, Survey No. 21, 1982.
3-10
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Table 3-2. Normal Plant Flow Size
Characteristics by Subcategory
1
Subcategory 1
Plants with Contact
Cooling and Heating
Plants with Cleaning
Plants with Finishing
Flow
(gpm)
35.0
13.5
3.15
1 1
I Employment I
83
102
24
Sales
($1,000) y
7,267
6,353
1,068
I/ 1982 dollars.
Source: §308 Survey and Section XII of Development Document.
Table 3-3. Baseline Financial and Operating Ratios
(as lercent of Sales) - Existing Sources
Plant Category
(Annual Plastics Sales)
1
Ra tio |
Production CDsts
Profits Before Taxes
Profits After T&xes
Less Than 5 Million
Dollars
93.2
5.5
3.5
I 5 Million Dollars
I or More
90.0
6.2
4.1
Annual Capital
Investment
4.451
4.451
Sources: The Society of the Plastics industry, Die., Financial and Operating
Ratios, Survey No. 21, 1982; and U.S. Department of Commerce, Bureau of the Census,
1982 Census of Manufacturers.
3-11
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Table 3-4. Financial and Operating Ratios
(as Parcents of Sales)- New Sources
I Plant C&tegory
I (Annual Plastics Sales)
I Less Than 5 Million I 5 Million Dollars
Ratio | Dollars I or More
Production Ct>sts 92.5 91.2
Profits Before Taxes 7.0 6.1
Profits After Taxes . 5.3 . 3.8
Source: The Society of the Plastics industry, inc., Financial and Operating
Ratios, Survey No. 17, (1978), No. 19, (1980), and No. 21, (1982).
3-12
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Section 4
Effluent limitations Options and Compliance Costs
4.1 introduction
The Federal Water Pollution Control Act Amendments of 1972 established a
comprehensive program to "restore and maintain the chemical, physical, and
biological integrity of the Nation's waters" (Section 101 (a)). To implement
the Pet, EPA was to issue effluent limitations guidelines, pretreatment
standards, and new source performance standards for industrial dischargers.
The Pet included a timetable for issuing these standards. Hawever, EPA was
unable to meet many of the deadlines and, as a result, in 1976, was sued by
several environmental groups. In settling this lawsuit, EPA and the
plaintiffs executed a court approved "Settlement Agreement" which required EPA
to develop a program and to adhere to a schedule in promulgating effluent
limitations guidelines, new source performance standards, and pretreatment
standards for 65 "priority" or toxic pollutants and classes of pollutants for
21 major industries. (See, Natural Resources Defense Council, Inc. v. Train,
8 ERG 2120 (D.D.C. 1976) , modified, 12 ERC 1833 (D.D.C. 1979) , modified by
orders dated October 26, 1S82; August 2, 1983, January 6, 1984; and July
5, 1984.)
Many of the basic elements of this Settlement Agreement program were
incorporated into the dean Water Act of 1977. Uider the Act, the EPA is
required to consider several effluent limitations guidelines and standards.
The following is a brief summary:
4.1.1 Best Practicable Control Technology Currently Available (BPT)
BPT applies to existing direct dischargers. The effluent limitations
guidelines are generally based on the average of the best existing performance
at plants of various sizes, ages and unit processes.
4.1.2 Best Available Technology Economically Achievable (BAT)
BAT also applies to existing direct dischargers. These effluent
limitations guidelines, in general, represent the best existing performance in
the industrial sub-category or category.
4.1.3 Best Conventional Pollutant Control Technology (BCT)
BCT is not an additional limitation, but replaces BAT for the control of
conventional pollutants (8005, TSs, oil and grease, and pH). EPA must find
that limitations are reasonable under a two part "cost-reasonableness" test
-------
before establishing them as BCT. The Agency is promulgating BCT effluent
limitations guidelines for the contact cooling and heating subcategory equal
to BPT because EPA could not identify any technology that further reduces the
concentration of conventional pollutants in contact cooling and heating
water. BCT effluent limitations guidelines for the cleaning water subcategory
and the finishing water subcategory are reserved until promulgation of the
final BCT methodology.
4.1.4 New Source Performance Standards (NSPS)
NSPS apply to new facilities that discharge directly into the navigable
waters and are based on the best available demonstrated technology.
4.1.5 Pretreatment Standards for Existing Sources (PSES) and New Sources
(PSNS)
PSES and PSNS control the discharge of pollutant to publicly-owned
treatment works (POTW) which pass-through, interfere with, or are otherwise
incompatible with the operation of a POTW. These limitations are to be
technology-based, with PSES analogous to BAT and PSNS analogous to NSPS. For
the plastics molding and forming industry, the Agency is not proposing to
establish PSES or PSNS.j/ Even though the Agency is not establishing
categorical pretreatment standards for the PM&F industry, indirect dischargers
must comply with the General Pretreatment Regulations (40 CFR part 403) .
4.2 Treatment Technology Options
This report analyzes the economic impact of wastewater treatment costs on
plants in the plastics molding and forming industry. For regulatory purposes,
the PM&F industry is divided into three subcategories based on water use and
wastewater characteristics: (I) processes that use contact cooling and
heating water; (2) processes that use cleaning water; and (3) processes that
use finishing water. This economic impact analysis divides existing wet,
direct discharging PM&F plants into four industry groups based on the
regulatory subcategories: 1) plants with processes only in the contact
cooling and heating water subcategory; 2) plants with processes only in the
cleaning water subcategory; 3) plants with processes in both the cleaning and
contact cooling and heating water subcategories; and 4) plants with processes
in both the cleaning and the finishing water subcategories.2/ The economic
impact analyis regroups the three subcategories of PM&F processes used for the
development of technical options into four industry groups. Each industry
i/See the discussion in the preamble to the final rule (49 FR 49026;
Dec. 17, 1984) .
2/ For purposes of brevity throughout the economic analysis, these four
-PM&F industry groups are referred to as 1) plants with contact cooling and
heating only; 2) plants with cleaning only; 3) plants with cleaning and
contact cooling and heating; and 4) plants with cleaning and finishing.
4-2
-------
group represents wet, direct discharging PM&F plants in the data base that
have in common one or more of the PM&F processes. This regrouping was
necessary because the economic impact analysis is based on the ability of
economic entities to bear the costs of pollution control equipment and
practices, in the PM&F industry, plants, not processes are the economic
entities to be analyzed.
EPA identified and considered several options for each subcategory for
BPT, BAT and NSPS JL/ They are summarized below.
Contact Cooling and Haating Water Subcategory
Option 1: No regulation.
Option 2: Continuation of current good housekeeping practices. Plants are
not required to install any additional treatment nor are they
expected to remove any treatment that is currently in place.
Limitations are based on the pollution concentrations currently
discharged by plants employing good housekeeping techniques.2/
Option 3: Activated carbon treatment for phthalates only.
Cleaning Water Subcategory
Option 1: pH control and nutrient addition, followed by primary settling,
flow equalization, and final treatment in a package activated
sludge treatment system.
Finishing Water Subcategory
Option 1: No regulation.
Option 2: Settling.
Option 3: Settling followed by activated carbon treatment for phthalates only.
I/ EPA is promulgating BAT and NSPS for both the contact cooling and
heating and the finishing subcategories for all pollutants except for
phthalates. The Agency believes that activated carbon will effectively control
phthalates, but at this time, the Agency does not have treatability data for
phthalates for that treatment process. EPA plans to study the treatment of
phthalates by the activated carbon process. Depending on the results of that
study, EPA may propose and promulgate limitations guidelines for phthalates.
If limitations guidelines are to be proposed and promulgated, the Agency will
reexamine the costs for phthalate control and, at that time, analyze the
economic impacts of changesif any--in the costs.
2/ Although some plants may incur costs under this option, they are
considered to be minimal and are represented as zero.
4-3
-------
The technology treatment options for each of the three subcategories are
applied to the four industry groups in the economic analysis of existing
sources as summarized below:
Plants with Contact Cooling and Heating Only
Option 1: No regulation.
Option 2: Continuation of cur tent quod houi-e1,; r ;. g practices.
Option 3: Activated carbon treatment for phthalates only.
Plants with Cleaning Only
Option 1: pH control and nutrient addition, followed by primary settling,
flow equalization, and final treatment in a package activated
sludge treatment system.
Plants with Cleaning and Contact Cooling and Heating
Option (1, 1): Segregation of the waste streams followed by Option 1 for the
cleaning subcategory and Option 1 for the contact cooling and
heating subcategory.
Option (1, 2): Segregation of the waste streams followed by Option 1 for
cleaning and Option 2 for contact cooling and heating.
Option (1, 3): Segregation of the waste streams followed by Option 1 for
cleaning and Option 3 for contact cooling and heating.
Option (1, 1):
Option (1, 2) :
Option (1, 3):
Plants with Cleaning and Finishing
Segregation of the waste streams followed by Option 1 for the
cleaning subcategory and Option 1 for the finishing
subcategory.
Segregation of the waste streams followed by Option 1 for
cleaning and Option 2 for finishing.
Segregation of the waste streams followed by Option 1 for
cleaning and Option 3 for finishing.
For new sources there are three industry groups, one for each of the three
subcategories. The technology treatment options for each of the three
subcategories is the same as the options for each of the three new sources
industry groups. A more comprehensive description of these treatment
technology options and associated compliance costs is contained in the
Development Document.
4-4
-------
4.3 Current Treatment and Treatment Posts
4.3.1 Current Treatment
Of the §308 Survey plants used in the economic analysis, 112 are direct
dischargers. Some direct dischargers have wastewater treatment-in-place as
shown in Table 4-1. Those plants with activated sludge systems are large
integrated plants where PM&F process wastewater is co-treated with wastes from
other industrial processes.
4.3.2 Treatment Posting
The control costs used in the impact assessment consist of two parts:
wastewater treatment costs and monitoring costs. These costs were developed
by EPA's Industrial Technology Division (ITD) and reported in Section IX of
the Development Document.
Monitoring costs are added to the treatment system costs to obtain total
costs per plant. The EPA estimates that the monitoring costs are $1200 per
year for plants required to monitor toxic pollutants and $2600 per year for
plants required to monitor conventional pollutants. For toxic pollutants,
plants were assumed to monitor four times per year at a cost of $300 per
sample, and for conventional pollutants, plants were assumed to monitor once a
week, or 52 times per year, at a cost of $50 per sample. The total annual
costs are the sum of the amortized capital costs, the operation and
maintenance costs (O&M) , and the monitoring costs. Capital costs are
amortized assuming cost of capital of 10 percent and an equipment life of ten
years for reasons discussed in Section 3.
4.3.2.1 Plant-Specific Posts
The analysis of potential economic impacts uses plant-specific treatment
costs developed by EPA's industrial Technology Division (ITD) for each of the
112 direct discharging plants from the §308 Survey used in the economic
analysis. Estimated investment costs for the treatment options are reduced
for those plants with appropriate treatment-in-place (see Table 4-1).
However, the estimated operation and maintenance (O&M) costs are for each
plant's entire PM&F effluent treatment system and include O&M for
treatmen t-i n-place.
The estimated treatment costs for plants in the §308 Survey used in the
economic analysis have been extrapolated for each industry group to estimate
the costs for all 558 direct discharging plants in the PM&F industry in the
manner described in Section 3. These costs are shown in Table 4-2 for §308
Survey plants and in Table 4-3 for all direct dischargers in the PM&F industry.
4-5
-------
Table 4-1. Number of Plants With Wastewater
Treatment-in-Place in §308 Survey
Industry Group
pH | Sedimen- I Activated I
Adjustment | tation I Sludge I Lagoon^'
Plants with Contact Cool-
ing and Heating only
Plants with Cleaning
only
Plants with Cleaning
and Contact
Cooling and Heating
Plants with Cleaning and
Finishing
2
0
2
1
5
1
1
1
3
1
2
1
1
0
0
0
Total
Source: Compilation based on the §308 Survey data.
4.3.2.2 Treatment Costs for New Sources
Treatment costs for the three new source "normal" plants2/ are obtained
using the costs in the same manner as for existing plants. Hawever, existing
source costs are adjusted to reflect the fact that new sources do not have
treatment-in-place. New source treatment costs are summarized in Table 4-4.
' A lagoon is a large settling pond where evaporation and some
biological breakdown takes place.
2/ For definition of "normal" new plants, see section 3-10 above.
4-6
-------
Table 4-2. Treatment Costs (in 1982 $1,000) for
112 Direct Discharge Plants in §308 Survey
Industry
Group
Plants with
Contact Cool-
ing and Heat-
ing only
1
1 Option
Option 1
Option 2*
Option 3
I Capital
I Cost
NA
0
8,640
I O&M
I Cost
NA
0
1,915
I Annual
I Cost
NA
0
3,320
Plants with
Cleaning only
Plants with
Cleaning and
Contact Cooling
and Heating
Plants with
Cleaning and
Finishing
Option 1*
426
Option (1,1) 783
Option (1,2)* 783
Option (1,3) 1,385
Option (1,1) 42.0
Option (1,2)* 58.5
Option (1,3) . 98.5
123
443
443
559
32.8
37.2
192
571
571
785
39.
46.
63.8
* Selected Option.
NA = Not applicable.
Source: EPA estimates.
4-7
-------
Table 4-3. Treatment Costs (in 1982 $1,000} for All
Direct Discharge Plants in PM&F Industry
Industry I
Group
Plants with
Contact Cool-
ing and Heat-
ing only
1
1 Option
Option 1
Option 2*
Option 3
1 Capital I
| Cost
NA
0
28,694
O&M
I Cost
NA
0
6,359
I Annual
1 Cost
NA
0
11,028
Plants with
Cleaning only
* Selected Option.
NA = Not applicable
Source: EPA estimates.
Option 1*
2,123
612
958
Plants with
Cleaning and
Contact Cooling
and Heating
Plants with
Cleaning and
Finishing
Option
Option
Option
Option
Option
. Option
(1
(1
(1
(1
(1
(1
,1)
,2)*
,3)
,1)
,2)*
,3) ,
3
3
6
,902
,902
,900
209
291
490
.5
.3
.8
2,208
2,208
2,786
163
185
. 238
.4
.3
.2
2,
2,
3,
1
843
843
909
197.
232.
318.
5
7
0
4-8
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4-9
-------
Section 5
Results of toalysis
5.1 Introduction
The economic impacts of the effluent limitations guidelines and standards
for the plastics molding and forming industry were analyzed using the
methodology described in Section 3 above. The results of this analysis as
presented here include price changes, liquidity impacts, plant and process
line closures, and impacts on employment and on all PM&F plants as well as
impacts on communities, foreign trade, small businesses, and new sources.^/
5.2 impacts on §308 Survey Plants
The impact of treatment costs at the plant level on 112 direct discharging
plants is measured by production cost changes, profitability changes, and a
comparison of treatment investment costs to current average annual plant
investment.
5.2.1 Production Cost Changes
The changes in production costs due to the addition of annual treatment
costs, for each of the three industry groups are shown in lable 5-1 for each
control option. Production cost changes are generally small. Plants with
cleaning and finishing potentially are affected the most with cost changes
ranging from an increase of 2.0 percent under Option (1,1) to an increase of
3.2 percent under Option (1,3).
' The results reflect the impacts of the effluent limitations guidelines
for the PM&F industry promulgated in December 1984. These limitations
guidelines include BAT and NSPS for both contact cooling and heating and the
finishing subcategories for all pollutants except for phthalates. The agency
believes that activated carbon will effectively control phthalates, but at
this time the agency does not have treatability data for phthalates for that
treatment process. The costs in this document for the treatment of phthalates
by activated carbon are the result of EPA's best estimates of costs and
treatability based on its use for other similar pollutants in other
industries. EPA plans to study the treatment of phthalates by the activated
carbon process. Depending on the results of that study, EPA may propose and
promulgate limitations guidelines for phthalates. At that time the ^ency
will re-examine the costs for phthalate control and, at that time, analyze the
economic impacts of changesif any--in the costs of the third Option for both
the cooling and heating and the finishing subcategories.
-------
Table 5-1. Industry Production Cost Changes by Control Option
! Production Costs increases (percent)
Industry Group
1 Option 1 |
1 (or 1,1) l/\
Option 2
(or 1,2) 1
I Option 3
1 (or 1,3)
Plants with Contact Cool-
ing and Heating only
Plants with Cleaning only
Plants with Cleaning and
Contact Cooling and Heating
Plants with Cleaning
and Finishing
0
0.26 *
0.31
2.0
0 *
NA
0.31 *
2.3 *
0.22
NA
0.43
3.2
Source: EPA estimates.
Table 5-2. Profitability Change by Control Option 2/
Industry Group
Profitability Reduction (percent)
Option 1 | Option 2 | Option 3
(or 1,1) I/I (or 1,2) ! (or 1,3)
Plants with Contact Cool-
ing and Heating only
Plants with Cleaning only
Plants with Cleaning and
Contact Cooling and Heating
Plants with Cleaning and
Finishing
0
6.1 *
11.6
66.6 3/
0
5.1
NA NA
11.6 * 25.6
77.6 *3/ 104.0
Source: EPA estimates.
NA = Not applicable.
* Selected Option.
I/ If plant combines two processes.
2/ No treatment cost pass-through asssumed.
2/ Profitability reduction varies widely between the two plants in
sample, one of which is projected to have a line closure; so mean change may
not accurately reflect the impact on this industry group.
5-2
-------
5.2.2 Profitability
The results of the profitability analysis are presented in Table 5-2 for
each option and each industry group, assuming no pass-through of treatment
costs to consumers. The median profitability reduction for each PM&F plant
group was selected for presentation as an indication of the expected
profitability impacts on the plants by type under each option. The median of
plant profitability reduction due to the addition of treatment costs is the
largest for plants with cleaning and finishing; the greatest median pro-
fitability reduction is 104 percent for plants in this group under Option
(1,3). On an individual plant basis, the changes in profitability range from
-16 percent, to -181 percent. Since there are only two plants in the sample
for this industry group, and the measure of profitability change varies
greatly, the median value may not accurately reflect the impact on this
industry group.
5.2.3 Treatment investment Costs Compared to Current Annual Plant
investment
The ratio of the sum of the capital investment portion of treatment costs
to the sum of the current average annual plant investment is shown in
Table 5-3 for each industry group and each option. These ratios show that of
the dollars plants now spend annually on capital equipment, the treatment
technology options require plants to invest less than 16 percent of it on new
treatment facilities except for the plants with cleaning and finishing. For
this group, the investment ratio is as high as 104 percent. However, this
group is based on a sample of only two plants, one of which is a candidate for
PM&F line closure. Excluding this plant, the investment ratio is only as high
as 24 percent for the selected option. In addition, the Agency estimates that
there are only 10 plants with cleaning and finishing processes that are direct
dischargers among the 10,260 PM&F plants in the Uhited States.
5.3 Price Changes
The results of the maximum price changes possible under the technology
options are shown in Table 5-4. As this table illustrates, the price changes
are small even under this worst case analysis, the highest increase being 3.0
percent for plants with cleaning and finishing under Option (1,3). As noted
above, industry group comprises only 10 plants with cleaning and finishing
processes.
5.4 Impact on Liquidity
The median ratio of the treatment cost to plant pre-tax income for each
type of plant and each option is shown in Table 5-5. The highest median ratio
is 138 percent for plants with cleaning and finishing. However, as mentioned
before, these numbers are distorted because of the small sample size. On an
individual plant basis, the annual treatment cost exceeds the plant's income
in only two instances for all four industry groups in the §308 survey plants
5-3
-------
Table 5-3. Treatment Investment Costs Compared
to Current Average Annual Plant investment
Treatment investment Costs Compared to Current Average
I Annual Plant Investment (percent)
Industry Group
Option 1
(or 1,1)
I Option 2
I (or 1,2)
I
Option 3
(or 1,3)
Plants with Contact Cool- 0 0 *
ing and Heating Only
Plants with Cleaning only 11.6 * NA
Plant with Cleaning and 8.7 8.7 *
Contact Cooling and Heating
Plants with Cleaning and 44.2 i/ 51.5 * V
Finishing
11.5
NA
15.3
104.0 i
Source: EPA estimates.
Table 5-4. Price Changes by Plant Type (percent)
Industry Group
1 Option 1
1 (or 1,1)
I Option 2 |
1 (or 1,2) I
Option 3
(or 1,3)
Plants with Contact Cool- 0
ing and Heating Only
Plants with Cleaning Only 0.23 *
Plants with Cleaning and 0.28 *
Contact Cooling and
Heating
Plants with Cleaning and 1.7
Finishing
0 * 0.21
NA NA
0.28 * 0.39
2.2 *
3.0
Source: EPA estimates.
NA = Not applicable.
* Selected Option.
i' The investment ratio varies widely between the two plants in sample one of
which is projected to have a line closure; so mean change may not accurately
reflect the impact on this industry group.
5-4
-------
under any option (i.e., the ratio is less than 100 percent for all but two
plants). These two plants correspond to eight plants in the industry, all of
which are projected to close in the closure analysis.
5.5 Closure Analysis
The baseline ratio of salvage value to the present value of cash flow is
0.45 for plants with sales of $5 million and over and 0.51 for plants with
sales of less than $5 million (i.e., there are no baseline closures). With
the addition of annual treatment costs under the regulatory options, only one
of the 112 plants in the §308 Survey, a plant with contact cooling and
heating, shows a salvage value exceeding the present value of cash flow under
Option 3, which indicates that this plant is a closure candidate. Other
closures are PM&P operation line closures. The two PM&F operation line, as
opposed to plant, closures are determined to occur at plants where less than
50 percent of the total employees at the plant are engaged in plastic molding
and forming activities. For these plants, plastic molding and forming is
considered a secondary operation and so only the PM&F operation line will
close, not the entire plant. The plant and PM&F operaton line closures are
summarized in Table 5-6.
5.6 Employment
Employment impacts for the 112 PM&F plants in the §308 Survey, estimated
from the results of the closure analysis and calculated as the sum of the PM&F
or total employment at these plants (depending on whether it is a process line
or total plant closure) are as follows:
o For plants with contact cooling and heating only the employment loss
is 26 under Option 3; and
o For plants with cleaning only, no loss of jobs is projected.
o For plants with cleaning and contact cooling and heating, no
employment loss is projected.
o For plants with cleaning and finishing the loss is 5 jobs under
Options (1,1); (1,2); or (1,3).
5.7 Industry Impacts including Closure, Employment, Qprnmunity, and Foreign
Trade
Since the §308 Survey is assumed to be an accurate representation of the
PM&F industry, the industry-wide impacts of treatment costs on production
costs, profitability, annual investment, prices, and liquidity are equal to
the impacts, expressed as percentages, calculated for the §308 Survey plants.
These results are presented in Tables 5-1 to 5-5. The industry-wide closure
of plants and PM&F operation lines and employment impacts scaled up from the
§308 Survey plant impacts are summarized in Tables 5-7 and 5-8.
5-5
-------
Table 5-5. Liquidity Impacts
Industry Group
Plants with Contact Cool-
ing and Heating Only
Plants with Cleaning Only
Plants with Cleaning and
1 Median
I Costs
1 Option 1 |
1 (or 1,1) |
0
6.7 *
12.5
Ratio of Annual
to Plant Income
Option 2 |
(or 1,2) |
0 *
NA
12.5 *
Treatment
(percent)
Option 3
(or 1,3)
6.8
NA
27.3
Contact Cooling and
Heating
Plants with Cleaning and
Finishing
84.7 I/ 100.1* !/ 138 A/
I I
Source: EPA estimates.
Table 5-6. Summary of Closure Analysis
for the §308 Survey Plants
| Number of Plant and PM&F Operation Line Closures
[Option 1 or (1,1) ||Option 2 or (1,2)||Option 3 or (1,3)
I | PM&F | | I PM&F | | | PM&F
I | Operation)I I Operation || (Operation
I Plant | Line I I Plant I Line | | Plant | Line
Industry Group
Plants with Contact Cool-
ing and Heating Only
Plants with Cleaning Only
Plants with Cleaning and
Contact Cooling and
Heating
Plants with Cleaning and
Finishing
Totals ,
0 *
0
0
0 *
0
0 *
NA
0 *
0 *
NA
0 *
NA
0 *
1 *
II
NA
Source; EPA estimates.
NA = Not applicable
* Selected Option
i/ This ratio varies widely between the two plants in sample one of which is
projected to have a line closure; so median change may not accurately reflect the
impact on this industry group.
5-6
-------
Table 5-7. Number of Plant and PM&F Operation Line Closures
(Industry-Wide)
Industry Group
I Number of Plant and PM&F Operation Line Closures _
[Option 1 or (1,1) I [Option 2 or (1,2) I [Option 3 or (1,3 )
I I PM&F | | I PM&F | | | PM&F
I I Operation! I I Operation! I | Operation
I Plant ! line II Plant I Line II Plant I Line
Plants with Contact Cool-
ing and Heating Only
Plants with Cleaning Only
Plants with Cleaning and
Contact Cooling and
Heating
Plants witn Cleaning
and Finishing
Total
0
0 *
0
0 *
0*
NA
0*
NA
0*
5*
3
NA
3
NA
Source: EPA estimates
Table 5-8. Plastics Industry Employment Loss i
(Indus try-wide)
I Option 1 | Option 2 I
Industry Group | (or 1,1) | (or 1,2) I
Plants with Contact Cool- 0 0 *
ing and Heating Only
Plants with Cleaning Only 0 * NA
Plants with Cleaning and
Contact Cooling and Heating 0 0 *
Plants with Cleaning
and Finishing 25 25 *
Total 25 25
1 1 1
Option 3
(or 1,3)
86
NA
0
25
111
Source: EPA estimates.
NA = Not applicable.
* Selected Option.
±/ Employment losses include plastics molding and forming production workers
only when there are PM&F Operation line closures and total plant employment when
there are plant closures.
5-7
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The results of the industry-wide closure analysis show that three plants
and five PM&F operation lines exhibit a current liquidation value exceeding
the present value of the future benefits stream, as summarized in Table 5-7,
and therefore are considered to be closure candidates. These include
plastics molding and forming operation lines in five plants with cleaning and
finishing that are expected to close under all three options. The three
remaining closure candidates are plants with contact cooling and heating only
impacted under Option 3. These three plants represent 0.5 percent of the
total number of wet process direct dischargers in the PM&F industry. The
percentage of projected operation line closures in 0.9 percent.
Employment impacts resulting from the closure analysis show that the
largest employment losses occur under Option 3 (or 1,3) . These losses total
111 jobs, a very small amount when compared to total direct wet process
employment of 32,000 and an even smaller loss when compared to industry
employment of 530,000.
The results of the economic impact show, that for the 558 direct
discharging plants potentially affected by the regulation, the impact on
these plants is minimal. The impact of the regulation on the entire PM&F
industry, which comprises about 10,260 plants, is even less significant. The
price changes are calculated assuming the worst case of 100 percent pass
through to consumers. Even though the estimated price changes are small, the
treatment costs probably cannot be totally passed on to consumers because
products made by the 558 plants affected by the regulation may also be
produced by the other plants in the industry. The impact analysis predicts
for the selected options only five PM&F operation line closure with an
employment loss of 25 jobs. Given the size of the industry, the production
lost from these five lines due to the regulation is easily absorbed by
existing plants in the industry.
The regulation only affects direct discharging plants with wet
processes. The other plants in the industry, which include both indirect and
zero dischargers, incur no additional costs as a result of the regulation.
This is not to say that these plants have no costs associated with wastewater
treatment. Indirect dischargers already bear costs to meet the General
Pretreatment Standards and often are required to pay user fees (these are not
consequence of PM&F regulation so they arent't considered in this analysis).
Also, zero dischargers, in order to attain this status, must have some sort
of on-site treatment system (such as a septic system or deep well injection)
or contract haul their waste, both of which have associated costs. As a
result, direct dischargers are not considered to be at a competitive
disadvantage because of the regulation.
Due to the costs of relocation and the relative insignificance of the
economic impacts, the direct discharging plants affected by the regulation
are not expected to relocate in order to change discharge status as a way to
avoid the regulation. Likewise because of the costs of changing processes
and equipment these wet direct discharging plants are not expected to change
to dry processes.
5-8
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Community impacts caused by any regulatory option are insignificant for
all industry groups as the estimated employment loss is small when compared
to the total community employment level.
No foreign trade impacts are expected as a result of the treatment
costs. Since the estimated production losses and price increases are so
small, the impacts on imports, exports and the balance of trade would be
negligible.
5.8 New Sources
Since options considered for NSPS are the same as the options for exist-
ing sources, there are no barriers to entry caused by the regulation. The
results of the analysis presented in Table 5-9 and discussed below are an
indication of how "normal" new plants I/ would perform with the addition of
treatment costs under the three technology options. The performance of
normal new plants is shown for three industry groups: (1) contact cooling
and heating only, (2) cleaning only, and (3) finishing only.
For normal new plants with contact cooling and heating only, the
production cost increase is 0.27 percent, the reduction in after-tax
profitability is 3.9 percent and the ratio of treatment investment costs to
annual plant investment is 12.9 percent. For normal new plants with cleaning
only, the production cost increase is 1.3 percent, profitability reduction is
18.5 percent and investment ratio is 85.2 percent. R>r plants with finishing
only, production cost increases range from 0.62 to 1.5 percent, profitability
reductions from 6.5 to 15.5 percent and investment ratios from 17.3 to 59.3
percent.
For comparison purposes, Table 5-9 also includes these same impacts for
existing sources by subcategory. The largest difference in impacts occurs in
the cleaning subcategory. The ratio of treatment investment costs to annual
plant investment is 9.8 for existing sources and 85.2 percent for new
sources. This is due to the fact that many of the existing sources have some
degree of treatment-in-place. The significance of this difference is
lessened if you consider the profitability reduction, where the new sources
have the advantage. As this table further indicates, the other new source
impacts are not significantly different from existing sources. Thus, no
barriers to entry in the PM&F industry are posed by this regulation. These
results apply to all new sources whether they are "greenfield sites" plants
entering the market or major modifications to existing sources.
-'/For the definition of a "normal" new plant, see Section 3-10 above.
5-9
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Table 5-9. Performance of New Sources with a
Comparison to Existing Sources
NEW SOURCES
1
1
1
1
1
Industry I
Group
Plants with
Contact
Cooling
and
Heating
Only
Plants with
Cleaning
Oily
Plants with
Finishing
Only (
1
1
1
!
Pollution 1
Control !
Option I
Option 1
Option 2 *
Option 3
Option 1*
Option 1
Option 2*
Option 3
1
1
1
i Production
Plant ! Cost
Flow I Increase
(gpm) 1 (Percent)
35 NA
35 0
35 0.27
13.5 1.3
3.15 0
3.15 0.62
3.15 1.5
I Treatment
1 Investment
I Costs
i Conv'-cired to
! Annual Plant
1 Investment
(Percent)
1
NA
0
12.9
85.2
'
0
17.3
! 59.3
Profitability
Reduction
(Percent)
NA
0
3.9
18.5
0
6.5
15.5
EXISTING SOURCES
Plants with
Contact
Cooling
and Heating
Plants with
Cleaning
Plants with
Finishing
1
Option 1
Option 2*
Option 3
Option 1*
Option 1
Option 2*
Option 3 ,
NA
0
0.21
0.31
0
0.62
1
NA
0
11.0
9.8
0
17.3
59.4
NA
0
4.8
11.0
0
19.0
45.6
Source: EPA estimates.
* Selected option.
NA = Nbt Applicable.
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5.9 Small Business Analysis
Public Law 96-354, known as the Regulatory Flexibility Act, requires EPA
to determine if a significant impact on a substantial number of small busi-
nesses occurs as a result of proposed regulations. If there is a significant
impact, the act requires that alternative regulatory approaches that mitigate
or eliminate economic impacts on small businesses must be examined. This
section addresses these objectives by identifying whether or not small
businesses in the plastics molding and forming industry are significantly
impacted by the proposed regulation.
5.9.1 Definition of a Small Business
The Small Business Act, Section 3, defines a small business in the
following statement:
"... a small business concern shall be deemed to be one which
is independently owned and operated and which is not dominant in
its field of operation. In addition to the foregoing criteria,
the Administration (of the SBA) , in making a detailed definition
may use these criteria, among others: Number of employees and
dollar volume of business."
The definition of a small business is not precise nor universal. The
Small Business Administration (SBA) definition of "small business" generally
means a specific number of employees for each manufacturing industry by
Standard industry Classification (SIC). For service, wholesale, retail, and
other non-manufacturing businesses, "small" is limited in SBA regulations by
dollar amount of gross sales. In this analysis, the number of employees per
plant is used to determine size.
The Society of the Plastics Industries, Inc.,(SPI) uses $5 million of
annual plant plastics sales as a dividing point between small and large
businesses for the purpose of reporting financial and operating ratios for
the plastics industry. Examining the same dividing point here, the PM&F
plant with $5 million of annual plastics sales typically has 70 employees
engaged in plastic molding and forming. The §308 Survey data show that
generally about one-half of the employees in the plants surveyed are engaged
in PM&F activities. So, assuming that plastic molding and forming activities
account for one-half the manufacturing activities at an average integrated or
captive plant, the PM&F activities at the captive plant would be one-half of
$10 million in total sales and one-half of a total of 140 employees. The
other half of sales would be due to non-PM&F products and the other half of
the employees would be engaged in the manufacture of non-PM&F products.
The plants in this analysis have been ranked by total number of employees
and by number of employees engaged in plastics molding and forming. These
plant rankings are then compared with their corresponding measures of impacts
5-11
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due to the regulation to determine whether a significant correlation exists
between size and the seriousness of the economic impacts.
5.9.2 Baseline Conditions
A comparison of plant size to financial and operating ratios shows that
small plants in the PM&F industry generally have a smaller profit to sales
ratio than larger plants. According to 8 years of plastics industry
statistics provided by SPI, plants with less than 5 million dollars in
plastics sales have a median profit after tax equal to 3.5 percent of
sales. J/ Plants with annual plastics products sales greater than $5
million have a median profit after tax equal to 4.1 percent of sales, these
are the baseline conditions assumed to hold for the PM&F industry through
1986 for the small business analysis. The impacts of the regulation are
defined as only the incremental impacts associated with the treatment costs
and are therefore independent of any adverse economic impacts caused by other
factors.
5.9.3 Economic Impacts On Small Businesses
Forty-six percent of the 112 direct discharging wet PM&F plants in the
§308 Survey that were used in the economic impact analysis have less than 140
employees. The comparison of impact measures with plant size shows that for
the impact measures used in Section 5.2, 5.3 and 5.4, such as changes in
production prices and liquidity, smaller businesses are more adversely
affected than larger businesses. For example, a comparison of plant size
with the change in profitability due to compliance costs shows that for all
three regulatory options, smaller plants generally have larger profitability
decreases than larger ones. Thus, for these kinds of impacts, smaller plants
are more heavily impacted due to their generally lower profit to sales
levels, as mentioned above in the discussion of baseline conditions.
The closure analysis, presented in Section 5.5, indicates that, for the
§308 survey industry sample, one plant and the PM&F operation lines in two
plants will close. All of these three affected plants are owned by large
companies (company employment is greater than 140) and plant employment in
two of the three plants is greater than 140. Based on this analysis of the
economic analysis the impact on small PM&F businesses in the four industry
groups do not appear to be significant or different than the impact on large
PM&F businesses. Therefore, a formal regulatory flexibility analysis of the
plastic molding and forming industry is not persued.
The Society of the Plastics Industry, Inc., Financial and Operating
Ratios, Survey No. 21, 1982.
5-12
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Section 6
Limits of the Analysis
6.1 Introduction
The baseline analysis assumes compliance with existing environmental
regulations and OSHA requirements. This section discusses possible
limitations of the data and the methodology used in the analysis. It also
discusses the magnitude of these possible limitations using sensitivity
analysis.
6.2 Methodology Limitations
6.2.1 Cbst Pass-Through
The economic impact analysis assumes no treatment cost pass-through to
consumers in estimating profitability impacts and 100 percent cost
pass-through in assessing product price changes. While in reality the
pass-through levels in both cases are likely to be less than 100 percent,
estimation of the actual amount of pass-through requires the measurement of
the elasticity of supply and demand for the industry. By assuming the
extreme cases of pass-through, the analysis identifies the worst case
impacts. As shown in Section 5, both price increases and profitability
reductions are small and affect a very small percentage of the total number
of plants in the PM&F industry; therefore, impacts calculated using improved
estimates of pass-through would also be insignificant.
6.2.2 Closure Malysis
The closure analysis is based on a comparison between the current
liquidation value of equity assets and the present value of the future time
stream of cash flow including treatment costs. The comparison assumes a
plant owner's decision to close is based upon the factors quantified in this
analysis. But in practice, there are many other reasons that a plant or
process line may close or change its operations. For example, if a more
profitable product or opportunity is developed in the future, operations of a
plant projected to close may be shifted to the new market, and that plant
would remain open.
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6.3 Data Limitations and Evaluation
6.3.1 Profit Rate
The plant-level analysis assumes that the median performance condition
observed between 1973 and 1982 in the industry is prevailing by the year
1985-86. The 1985-86 time period is used for purposes of the economic
analysis to reflect the fact that pollution equipment can not be installed
immediately. Since there are no assurances that any particular plant will
perform as specified, some plants will be better off and others will
underperform; however, on an aggregate level, the assumption is appropriate
for most plants. To evaluate the consequences on the impact analysis of a
recurrence of the poor condition observed in 1982, a sensitivity analysis was
conducted. The performance in 1982 is 21 percent lower than the baseline
performance, as expressed in profits after tax.
6.3.2 Compliance Costs
The economic impact analysis calculates compliance costs in two
components: wastewater treatment costs and monitoring costs. Wastewater
treatment costs are engineering estimates. Their accuracy is normally within
a 20 percent range.
EPA estimates that facilities covered under this regulation will monitor
their effluent for all treatment options. Our analysis reflects EPA's
Industrial Technology Division's estimates of monitoring requirements. These
estimates assume plants with toxic pollutant removals would monitor their
wastewater four times a year at a cost of $1,200 per year and plants with
conventional pollutant removals would monitor their waste streams only once a
week at a cost of $2,600 per year.
Local authorities and permit writers have discretion in specifying
monitoring frequencies. It is possible that the plants with toxic pollutant
removals would be required to monitor their effluent more often, thus
incurring higher costs than were estimated in the study. A sensitivity
analysis was conducted to determine the impacts of higher monitoring costs on
these plants. This analysis assumed that these plants would have to monitor
their waste streams once a month at a cost of $3,600 per year.
6.3.3 Annualization of Capital Costs
The impact analysis has assumed a cost of capital of 10 percent and 10
years to annualize the treatment investment costs. This cost of capital is
based on the assumption that the treatment costs are financed 70 percent by
equity with an 8 percent return on investment and 30 percent by borrowed
capital with a nominal interest rate. If borrowed capital is used to finance
the whole, a 13 percent interest rate and 10 years must be used. Ihe
consequences of this change is evaluated in the sensivitity analysis.
6-2
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6.3.4 Salvage Tfalue Estimates
The closure analysis estimates the current liquidation value of plant
equity and the plant salvage value at the end of the ten year project life.
the estimates are based on observed relationships among financial variables
of plastics processing companies. Based on available information, the
terminal salvage value is assumed to be equal to the current salvage value.
This assumption, as well as the salvage value estimates, involves
uncertainties. To evaluate the importance of these uncertainties to the
closure analysis, the salvage value is increased by 20 percent in the
sensitivity analysis.
6.4 Sensitivity Aialysis
The methodology and data limitations described above are evaluated by
sensitivity analysis. In the sensitivity analysis, each parameter is varied
independently. The results are compared to the estimated impacts for the
selected technology option as presented in Section 5 above. From the
standpoint of plant closures, the only industry group affected by the
sensitivity analysis is the existing plants with contact cooling and heating
under Option 3. This group is most sensitive to the change in profitability,
which results in 13 plant and 6 PM&F process line closures with an employment
loss of 448. This is still only 1.4% of the total direct discharge PM&F
industry employment. The changes to the other parameters have only a slight
impact on the results.
''U.S. GOVERNMENT PRINTING OFFICE 461-221/24040
6-3
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