United States Office of Air Quality EPA-450/3-89-005
Environmental Protection Planning and Standards August 1989
Agency Research Triangle Park, NC 27711
__
vvEPA Economic Impact
of Air Pollutant
Emission Guidelines
for Existing Municipal
Waste Combustors
This document is printed on recycled paper
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ERRATA SHEET
October 12, 1989
Economic Impact of Air Pollutant Emission Guidelines
for Existing Municipal Waste Combustors
Page
Number Error
Correction
1-1 3 This analysis does not incorporate
the impacts of materials separation
requirements and nitrogen oxide
emission reduction requirements
currently being considered as pan
of the Guidelines because of their
late inclusion in the regulatory
structure.
5-21 This is a conservative substitution
criterion for two reasons: 1) the
unit cost of the new plant is
incremented by 15 percent, and
2) the unit cost for the new plant
is computed using a short 15-year
plant life.
7-2 3 (Electrical Use for Reg.
AIL I)
9-6 5.54 (Annualized Social Cost
per Mg MSW for Reg. Alt. I)
3 This analysis does not incorporate
the impacts of materials separation
requirements currently being
considered as part of the
Guidelines because of their late
inclusion in the regulatory structure.
This is a conservative substitution
criterion because the estimated unit
cost of the new plant, increased by
15 percent, must be less than the
unit cost of the model plant for
substitution to be projected.
39.3
3.54
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EPA-450/3-89-005
EPA Contract Number RTI Project Number
68D80073 233U-4300-12-10-FR
Economic Impact of Air Pollutant
Emission Guidelines for Existing
Municipal Waste Combustors
Final Report
August 1989
Prepared for
John Robson
Office of Air Quality Planning and Standards
U.S. Environmental Protection Agency
Research Triangle Park, NC 27711
Prepared by
Glenn E. Morris
Brenda L. Jellicorse
Katherine B. Heller
R Timothy Neely
Tayler H. Bingham
Center for Economics Research
Research Triangle Institute
Research Triangle Park, NC 27709
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This report has been reviewed by the Emission Standards Division, Office of Air
Quality Planning and Standards, Office of Air and Radiation, U.S. Environmental
Protection Agency (EPA), and approved for publication. It is issued by EPA to
report technical data of interest to a limited number of readers. Copies are
available free of charge to Federal employees, current contractors and grantees,
and non-profit organizations—as supplies permit—from the Library Services
S?c~ (M0'35)' U'S- Environmental Protection Agency, Research Triangle Park,
NC 27711, or may be obtained, for a fee, from the National Technical
Information Service, 5285 Port Royal Road, Springfield, VA 22161.
This report was furnished to EPA by the Center for Economics Research
Research Triangle Institute, Research Triangle Park, NC 27709, in fulfillment of
assignments under EPA Contracts 68-02-4321 and 68D80073. The contents are
reproduced herein as received from the Contractor. The opinions, findings and
conclusions expressed are those of the authors and not necessarily those of EPA
Mention of company or product names does not constitute endorsement by EPA.
Publication No. EPA-450/3-89-005
11
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ACKNOWLEDGMENTS
The authors would like to acknowledge the guidance of our EPA Project Officer, John
Robson, who, along with other EPA personnel, provided us with important insights throughout
the preparation of this report. We also appreciate the dedicated editorial and clerical support of
Maria Bachteal, Craig Hollingsworth, Andrew Jessup, and Judy King.
in
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CONTENTS
Chapter Page
1 Introduction and Summary 1-1
1.1 Costs of Regulation 1-3
1.2 Emission Reductions 1-5
1.3 Distribution of Economic Impacts 1-6
1.3.1 MWC Plants and Technologies 1-7
1.3.2 Households 1-8
1.3.3 Government Units 1-8
2 Demand Conditions 2-1
2.1 Generators 2-1
2.2 Generator Behavior 2-3
2.2.1 Household Demand 2-3
2.2.2 Firm Demand. 2-7
2.3 Waste Disposal Services Demand 2-8
3 Supply Conditions 3-1
3.1 Production Processes 3-2
3.1.1 Combustion 3-3
3.1.2 Landfilling 3-10
3.1.3 Collection and Transportation 3-13
3.1.4 Recycling. 3-14
3.2 Production Costs 3-14
3.2.1 Combustion 3-18
3.2.2 Landfilling 3-20
3.2.3 Collection and Transportation 3-20
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CONTENTS (continued)
Chapter Page
4 Municipal Solid Waste Management 4-1
4.1 Public Involvement in the MSW System. 4-1
4.1.1 Local Government 4-1
4.1.2 State Government 4-9
4.1.3 Federal Government 4-11
4.2 MSW Decision Making 4-12
4.2.1 Private Decision Making 4-12
4.2.2 Government Decision Making 4-13
4.2.3 Cost Minimization 4-14
5 Analytical Approach to Estimation of Cost and Emission Impacts 5-1
5.1 Baseline Projections 5-1
5.1.1 Initial Conditions 5-1
5.1.2 Projections 5-4
5.1.3 Baseline Combustioa 5-5
5.2 Scenarios 5-10
5.3 Regulatory Alternatives 5-11
5.3.1 Baseline Emissions. 5-13
5.3.2 Regulatory Alternative 1 5-13
5.3.3 Regulatory Alternative HA. 5-14
5.3.4 Regulatory Alternative IIB 5-14
5.3.5 Regulatory Alternative III 5-14
5.3.6 Regulatory Alternative IV 5-15
5.4 Cost and Emission Reduction Estimation .....5-15
5.4.1 Scenario I: No Substitution 5-15
5.4.2 Scenario II: MWC Substitution 5-20
5.4.3 Scenario III: MWC/Landfill Substitution 5-24
VI
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CONTENTS (continued)
Chapter Page
6 Cost and Price Impacts 6-1
6.1 Model Plants and the Cost of Regulatory Alternatives. 6-1
6.2 National Enterprise Costs of Each Regulatory Alternative 6-11
6.3 Price Impacts. 6-12
6.4 Social Costs 6-14
7 Emission Reductions and Cost-Effectiveness 7-1
7.1 Emission Reductions and Energy Impacts 7-1
7.2 Cost-Effectiveness 7-3
8 Economic Impact on Sectors of the Economy 8-1
8.1 Regulatory Flexibility Analysis 8-1
8.2 Private Business Impacts 8-2
8.2.1 Private Owner Profile 8-3
8.2.2 Private Supplier Profile 8-4
8.3 Impacts on Households and Government Entities 8-9
8.3.1 Household Impacts 8-11
8.3.2 Governmental Impacts 8-13
9 Sensitivity Analysis 9-1
References R-1
APPENDIX
A Estimation of the Real Discount Rate for Private Firms and
Public Entities A-l
VII
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TABLES
Number page
1-1 Guidelines Economic Impact Scenarios 1-2
1-2 Guidelines National Cost Impacts (1987 $) 1-3
1-3 Guidelines National Baseline Emissions and Emissions Reductions (Mg per Yr.) 1-5
1-4 Enterprise Costs of Control for Publicly Owned Guidelines Model Plants (1987 $):
Scenario I, Regulatory Alternative HA 1-7
1-5 Enterprise Cost of Control per Mg for Publicly Owned Guidelines Model Plants
Under Scenario I (1987 $) 1-8
2-1 Materials in the Municipal Waste Stream, 1986 2-2
3-1 Estimated Flows of Municipal Solid Waste to Municipal Waste Combustion
Plants, 1980 Through 1986 3-4
3-2 Characteristics of Guidelines Model Plants 3-8
3-3 Production Characteristics of Guidelines Model Plants 3-9
3-4 Production-Cost Relationships of Guidelines Model Plants ($1987) 3-19
3-5 Production-Cost Relationships of Landfills 3-21
3-6 Costs of Hazardous Waste Landfilling 3-22
3-7 Costs of Collecting and Transporting Municipal Solid Waste 3-22
4-1 Types of Solid Waste Collection (Percent of Generators Served) 4-3
4-2 Methods of Financing Solid Waste Collection by Collection Agency,
1964 (Number of Cities) 4-3
4-3 Methods of Financing Solid Waste Collection by City Size, 1964 (Percent) 4-4
4-4 Ownership of Municipal Waste Combustion Plants, by Size 4-5
4-5 Ownership of Landfills, by Size 4-6
4-6 Total Operating Subsidies as a Share of Total Revenues (Municipal Waste
Combustion Plants Only) 4-7
via
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TABLES (continued)
Number Page
4-7 Grants as a Share of Total Capital Costs (Municipal Waste Combustion,
Plants Only) 4-7
4-8 State Solid Waste Laws Enacted in 1988 4-10
5-la Baseline Plant Capacity and Waste Flow Estimates for Current MWC Plants
Subject to Guidelines 5-7
5-lb Baseline Plant Capacity and Waste Flow Estimates for Transitional MWC
Plants Subject to Guidelines 5-7
5-lc Baseline Plant Capacity and Waste Flow Estimates for Current and Transitional
MWC Plants Subject to Guidelines 5-8
5-2 Maximum Emissions by Regulatory Alternative 5-12
5-3 Air Pollution Controls by Regulatory Alternative 5-16
5-4 Control Options by Guidelines Model Plant for Each Regulatory Alternative 5-17
5-5 Scaling Factors Used to Obtain National Cost Estimates 5-20
5-6 Scenario II Substitution Process: Costs per Mg of Municipal Solid Waste 5-22
5-7 Scenario II Substitution Process: Emissions 5-22
6-1 Guidelines Enterprise Costs of Control for Publicly Owned
Model Plants (1987$) 6-2
6-2 Guidelines Enterprise Costs of Control for Publicly and Privately Owned
Model Plants: Scenario I, Regulatory Alternative IV 6-6
6-3 Guidelines Enterprise Costs for Publicly Owned Model Plants (1987$):
Scenario I Cost per Mg of Municipal Solid Waste and Percentage Changes
in Cost over the Baseline for Each Regulatory Alternative 6-8
6-4 Guidelines Enterprise Costs for Publicly Owned New Plants (1987$):
Scenario II Cost per Mg of Municipal Solid Waste and Percentage Changes
in Cost over the Baseline for Each Regulatory Alternative 6-10
6-5 Guidelines National Cost Impacts: Enterprise Costs for Publicly Owned
Model Plants (1987 $) 6-11
IX
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TABLES (continued)
Number Page
6-7 Guidelines National Cost Impacts (1987 $) 6-16
7-1 Guidelines National Baseline Emissions and Emissions Reductions (Mg per Yr.) 7-2
7-2 Guidelines National Energy Impacts 7-2
8-1 MWC Private Owner Profile 8-4
8-2 Guidelines Enterprise Costs of Control for Privately Owned Model Plants Under
Regulatory Alternative IV: Ordered by Design Capacity 8-7
8-3 Private Supplier Profile: APCD Vendors 8-8
8-4 Ownership of Guidelines Plants 8-10
9-1 Guidelines National Cost Impacts: Social Costs Using a Two-Step Discounting
Procedure (1987 $) 9-2
9-2 Guidelines National Cost Impacts: Social Costs Using a 10 Percent Discount
Rate (1987$) 9-3
9-3 Guidelines National Cost Impacts: Social Costs Using a 3 Percent Discount
Rate (1987$) 9-4
9-4 Scaling Factors Calculated Using a Higher Capacity Utilization 9-5
9-5 Guidelines National Cost Impacts: Social Costs Using a Higher Capacity
Utilization (1987 $) 9-6
9-6 Guidelines National Baseline Emissions and Emissions Reductions (Mg per Year):
Higher Capacity Utilization 9-7
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FIGURES
Number page
1-1 Distribution of Household Impacts Under Guidelines by Number of Service Areas
and Regulatory Alternative 1-9
2-1 Sources of Municipal Solid Waste, 1986 2-2
2-2 Effect of Income Changes on Household Demand for MSW Collection and
Disposal Services 2-4
2-3 Effect of Collection and Disposal Price Changes on the Household Demand
for MSW Collection and Disposal Services 2-6
3-1 Solid Waste Management Options 3-1
3-2a Operating Decisions: Choices Involved with at Least One Fixed Input 3-3
3-2b Investment Decisions: Choices Involved with No Fixed Inputs 3-3
5-1 Solid Waste Flow Projections, 1986 Through 1991 5-2
5-2 Solid Waste Flow Projections, 1986 to 1996 5-6
5-3 Comparison of MWC Capacity Projections, 1986 to 1996 5-9
5-4 Municipal Waste Combustion Response under Scenario I: No Substitution 5-18
5-5 Municipal Waste Combustion Response under Scenario II: MWC Substitution 5-25
8-1 Distribution of Household Impacts Under Guidelines by Number of Service Areas
and Regulatory Alternative: Index 1 8-14
8-2 Distribution of Household Impacts Under Guidelines by Number of Service Areas
and Regulatory Alternative: Index 2 8-15
8-3 Distribution of Household Impacts Under Guidelines by Service Area Population
and Regulatory Alternative: Index 1 8-16
8-4 Distribution of Household Impacts Under Guidelines by Service Area Population
and Regulatory Alternative: Index 2 8-17
8-5 Distribution of Government Impacts Under Guidelines: Preliminary Screening
Results 8-20
XI
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FIGURES (continued)
Number
Page
8-6 Distribution of Government Impacts Under Guidelines by Service Area
Population and Regulatory Alternative: Index 1 8-21
8-7 Distribution of Government Impacts Under Guidelines by Service Area
Population and Regulatory Alternative: Index 2 8-22
8-8 Distribution of Government Impacts Under Guidelines by Service Area Population and
Regulatory Alternative: Index 3 8-23
xn
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CONVERSIONS AND DEFINITIONS
This report uses metric units, as well as acronyms and terms that may not be familiar to
all readers. Following is a short guide to conversions and definitions for a selection of the units,
acronyms, and terms.
CONVERSIONS
To Approximate
Mg
(megagram)
As
Ton
(2,000 Ib)
Multiply by
1.1025
Examples from Text
45 Mg ~ 50 tons
225 Mg - 250 tons
g/dscm
(grams/dry standard
cubic meter)
TJ
(terajoule)
TJ
(terajoule)
km
(kilometer)
gr/dscf 0.44
(grains/dry standard
cubic foot)
106Btu 948
(million British
Thermal Units)
MWh 278
(megawatt
hours)
mile 0.62
0.02 g/dscm
0.18 g/dscm
8.54 TJ
34.2 TJ
0.01 gr/dscf
0.08 gr/dscf
8,100 106Btu
32,400 106Btu
4.32 TJ - 1,200 MWh
13 TJ » 3,600 MWh
10km
25km
50km
100km
5 miles
15 miles
30 miles
60 miles
(°Celsius)
OTHER MEASURES
(°Fahrenheit)
[F = (9/5) C + 32]
150°C
175°C
230°C
300°F
350°F
450°F
hectare 1,000 square meters (m2)
ng Nanogram-one billionth of a gram
Nm3 Normal cubic meter (A normal cubic meter is at 0°C, while a standard
cubic meter is at 20°C; both at 1 atmosphere of pressure.)
103; 106 Thousands; Millions
POLLUTANTS
CDD/CDF
CO
HC1
PM
SO2
Polychlorinated dibenzo-p-dioxins and dibenzofurans
Carbon monoxide
Hydrogen chloride
Paniculate matter
Sulfur dioxide
xin
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GENERAL ACRONYMS
APCD Air pollution control device
FBC Fluidized bed combustion
MSW Municipal solid waste
MWC Municipal waste combustor
RDF Refuse-derived fuel
ECONOMIC TERMS
National The sum of the regulatory costs incurred by each MWC, discounted and
enterprise annualized at market interest rates
cost
National The sum of the regulatory costs incurred by each MWC, discounted and
social cost annualized at interest rates reflecting society's opportunity costs for capital
and consumption
Net present The estimated present value (PV) of the offsetting revenue required to
value (NPV) cover the full cost of the Guidelines.
Net present The sum of PV of capital costs and PV of operating costs net of PV of
cost (NPC) salvage recovery.
1987$ Constant (real) dollars at their fourth quarter 1987 value
Tipping fee The charge for incinerating or landfilling MSW, usually $/Mg, imposed by
MWCs or landfill operators on MSW collectors. Tipping fees, where they
are charged, do not reflect the cost of collecting and transporting MSW to
the disposal site and often fail to reflect the full cost of incineration or
landfilling.
Unit cost The full cost of incinerating MSW, in $/Mg, after subtracting credits for
electricity and steam
WACC Weighted average cost of capital (See Appendix A)
REGULATORY AND LEGISLATIVE TERMS
Baseline Conditions that would exist were there to be no new Clean Air Act
§ 111 (b) and (d) regulation of MWCs
Guidelines Clean Air Act § 111 (d) emission standards for existing sources
Model Plant A hypothetical MWC representative of a class of MWCs; used to analyze
impacts of regulatory alternatives. Five types of model plants are
described in this analysis:
Existing—all plants covered by the Guidelines.
Current—currently operating plants covered by the Guidelines.
Transitional—planned plants covered by the Guidelines.
Initial plants—the current and transitional plants making up the
Scenario I Baseline.
New MWCs—new plants that can be part of the Scenario II
baseline or replace initial plants under the
regulatory alternatives.
xiv
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NSPSs Clean Air Act §11 l(b) new source performance standards
RCRA Resource Conservation and Recovery Act
Regulatory Sets of emission performance standards and related requirements for
Alternatives controlling emissions; used by EPA to help select the stringency of
regulations. (See Tables 5-2 and 5-3.)
RFA Regulatory Flexibility Act; also regulatory flexibility analysis, a study of
the impact of regulations on small entities (businesses, governments, and
organizations)
§ 111 (b) Clean Air Act section governing emission standards for new sources
(NSPSs)
§11 l(d) Clean Air Act section governing emission standards for existing sources
Subtitle C RCRA subtitle governing hazardous waste landfills
Subtitle D RCRA subtitle governing sanitary landfills
xv
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ASSUMPTIONS AND CONVENTIONS
Myriad assumptions, analytical conventions, and underlying calculations form the basis
for projecting the economic impacts of EPA regulations. This page summarizes the principal
assumptions, conventions, and calculated values used in this report. Chapter 9 describes how
projected impacts would be different if some of these assumptions, conventions, and values are
changed.
• Effective date for the § 111 (d) Guidelines: January 1, 1990
• Affected MWCs: All MWCs operating or placed under construction before the effective
date
• Date for which impacts are evaluated: This analysis covers MWCs currently operating or to
be placed under construction through January 1,1990.
• Lifetimes of physical facilities:
- MWCs: Depending on age of MWC, 15 or 30 years after incurring initial compliance
costs
- APCDs: 15 years
• % utilization of daily capacity (There are some exceptions. These percents remain constant
over time.):
- Mass burn: 85%
- RDF: 83%
- Modular: 82%
• Monetary units: Constant (real) 1987 dollars, usually for the 4th quarter
• Capital costs for each MWC and APCD:
- Incurred only at the outset of operation of the MWC or APCD
- Amortized over the lifetime of the MWC or APCD when included in annualized costs
• Annual operating costs and revenues for each MWC or APCD:
- Invariant over the lifetime of the MWC or APCD
- Proportional to MWC capacity utilization (for analysis purposes when alternative
capacity utilization rates are introduced)
• Market interest (discount) rates for computing enterprise costs:
- 8% real WACC for private MWCs
- 4% real municipal revenue bond rate for public MWCs
• Social interest (discount) rates for computing social costs:
- 10% for capital
- 3% for consumption
XVI
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CHAPTER 1
INTRODUCTION AND SUMMARY
The U.S. Environmental Protection Agency (EPA) plans to propose new air pollution
emission Guidelines—sometimes called 11 l(d) Guidelines—for approximately 200 municipal
waste combustors (MWCs) in late 1989.1 These regulations will significantly affect the cost of
owning and operating these MWC plants. Affected plants include both currently operating plants
and those plants under construction when regulations are proposed in the Federal Register.2
This report uses three economic scenarios to examine the economic impact of the five
regulatory alternatives under most active consideration by EPA.3 We order the scenarios to
reflect increasing levels of cost-reducing waste management choices as shown in Table 1-1.
With the exception of Regulatory Alternative III, the regulatory alternatives are ordered to reflect
both increasing stringency of air emission limits and broader industry coverage of more stringent
limits. As shown in Table 1-1, the most stringent paniculate matter and good acid gas controls
apply to small plants in Regulatory Alternatives FIB and IV but not in Regulatory Alternative III.
Table 1-1 also shows that in this analysis we make quantitative estimates of the economic impact
of each regulatory alternative under Scenarios I and II, but only qualitative estimates of impacts
under Scenario HI.
The economic impacts reported here are based on a wide variety of estimates and
assumptions. The major assumptions framing the analysis, ones that tend to boost both the cost
and emission reductions attributed to the regulation, are as follows:
• In the absence of the regulation, emissions from existing MWC plants just meet current
Federal limits.
• All plants that burn municipal solid waste (MSW), however small the fraction of MSW
in the fuel stream, are subject to the Guidelines.
• All states with MWCs will adopt the Guidelines and will not grant exemptions.
1 Regulations covering existing MWC facilities are referred to as 11 l(d) Guidelines because they would be issued
under authority granted by Section 11 l(d) of the Clean Air Act. Section 11 l(d) requires EPA to propose
regulations establishing federal guidelines of performance for existing sources that contribute significantly to air
pollution that may endanger public health or welfare.
2 Concurrent with the Guidelines, EPA plans to propose parallel regulation covering new MWCs under the authority
granted by Section 11 l(b) of the Clean Air Act. Another economic impact analysis (EPA, 1989a) addresses the
effects of these 11 l(b) new source performance standards (NSPSs).
3This analysis does not incorporate the impacts of materials separation requirements and nitrogen oxide emission
reduction requirements currently being considered as part of the Guidelines because of their late inclusion in the
regulatory structure. Also excluded from the analysis are last-minute changes in regulatory structure that relaxed
PM emission reduction requirements for all Guidelines plants and increased acid gas control requirements for
Guidelines plants with design capacity greater than 2,000 Mg/day.
1-1
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TABLE 1-1. GUIDELINES ECONOMIC IMPACT SCENARIOS
Regulatory
Alternatives
Extent and Stringency
of Coverage
Small Plant Large Plant
(<225 Mg/day) (>225 Mg/day)
Economic Impact Scenarios
Scenario I:
Baseline Levels of
MWC Activity
Scenario II: Scenario HI:
Cost-Reducing Choices Cost-Reducing Choices
of MWC Technology of Waste Disposal
I GCPs3
Moderate PMb
IIA GCPs
Moderate PM
HE GCPs
Good Acid Gas
BestPM
HI GCPs
Moderate PM
IV GCPs
Good Acid Gas
Best PM
GCPs
Best PM
GCPs
Good Acid Gasc
Best PM
GCPs
Good Acid Gas
BestPM
GCPs
Best Acid Gasd
Best PM
GCPs
Best Acid Gas
Best PM
#
#
#
#
a Good combustion practices (GCPs) include proper design and operation of the combustor. Exhaust gas temperature control is also
included in all alternatives with GCPs. GCPs are not part of the baseline for most MWC model plants.
b Paniculate matter (PM) control levels are shown in Table 5-2.
c Good Acid Gas control reduces emissions through the use of dry sorbent injection.
d Best Acid Gas control reduces emissions through the use of spray dryers and fabric filters.
Key: "#" = Quantitative analysis
"+/-" = Qualitative analysis
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1.1 COSTS OF REGULATION
Table 1-2 lists the estimated national social costs of these regulatory alternatives under
two of the economic scenarios. Estimated annualized social costs of guidelines increase
substantially with the scope and stringency of regulatory alternatives. The large magnitudes
result from both the substantial cost of installing and operating additional control equipment on
any individual plant and our baseline projection that roughly 200 plants representing capacity of
36 million Mg per year will be affected by the regulation.
TABLE 1-2. GUIDELINES NATIONAL COST IMPACTS (1987 $)
Scenario
and
Regulatory
Alternative
Scenario I
Regulatory Alternative I
Regulatory Alternative ILA
Regulatory Alternative IIB
Regulatory Alternative in
Regulatory Alternative IV
Scenario II
Regulatory Alternative I
Regulatory Alternative IIA
Regulatory Alternative IIB
Regulatory Alternative in
Regulatory Alternative IV
Capital
Costs
($106)»
517
978
1,190
2,370
2,580
275
713
913
1,970
2,170
Annualized
Social Costsb
($10«/yr)
104
269
343
583
657
60.7
228
302
506
580
Annualized
Social Costs
perMg
MSWM
($/Mg)
3.55
9.23
11.70
20.00
22.40
2.19
8.20
10.30
18.20
19.80
Annualized
Enterprise
r
Costs per
Mg MSWc»d
($/Mg)
2.82
7.84
10.00
16.60
18.70
1.78
7.14
9.01
15.30
16.70
1 Capital costs are based on one APCD equipment cycle for existing plants and two APCD
equipment cycles for new plants that replace existing plants under Scenario n. These
assumptions make no difference in the annualized cost impacts (Robson, 1989).
b Annualized social costs are the sum of capital costs, annualized at 10 percent, and annual
operating costs.
c Annualized public enterprise costs are the sum of capital costs, annualized at 4 percent and
annual operating costs.
d Computed by dividing total annualized cost by the estimated amount of MSW processed per
year at the model plant.
1-3
-------
Moving from Scenario I to Scenario II, Table 1-2 shows a 40 percent reduction in total
annualized social cost and capital cost for Regulatory Alternative I due to factoring into the
analysis the anticipated replacement of some of the more out-dated MWC plants with new plants
that use current technologies. Under other regulatory alternatives the cost reductions still apply
to Scenario n but their relative impact on national costs is less dramatic.
Scenario III makes allowance for those communities and private firms that will respond
to the regulation by finding a substitute method of MSW disposal and closing existing MWC
plants. How widespread such a response would be is difficult to say, though.we believe that
costly new landfill regulations and siting difficulties seriously constrain this option. Under such
constraints, it is unlikely that much such substitution will occur, making significant further
reductions in the cost of the Guidelines due to this phenomenon unlikely as well. •
The capital cost reported in Table 1-2 represents the estimated purchase and installation
cost of capital equipment consistent with the Guidelines. These expenditures can be amortized
over a 15-year operating life and have therefore been included in the annualized cost data. The
capital costs of air pollution control device (APCD) equipment, however, also represent a
substantial initial expense. In addition, because APCDs represent from 5.1 to 22.3 percent of
plant cost, they possibly increase the financial risk associated with owning a MWC plant. For
comparison, in 1986 the government enterprise expenditure for fixed capital for air pollution
control (primarily for control of municipally owned power plants) was $330 million (1987
dollars) and the capital cost for all solid waste collection and disposal by local government was
$1,060 million (1987 dollars) (Farber and Rutledge, 1988).
Table 1-2 also presents the average costs of MWC regulation per Mg of waste
(annualized cost divided by the amount of MSW processed by affected plants). Such measures
are often referred to as costs per unit of waste disposed, or "unit costs." The unit social cost is
based on the social costs of the regulation: the cost seen from a social, opportunity cost
perspective. The unit enterprise cost is based on the annualized enterprise cost of the regulation:
the cost as seen in the accounts of the affected entities, in this case municipalities or public
authorities. Because of the difference in the basis for measurement, the unit social costs are
about 20 to 25 percent greater than unit enterprise costs. The unit costs increase substantially
with the regulatory alternatives, indicating the much higher average costs associated with the
broader scope and more stringent conlrols of the higher regulatory alternatives.
To help put these unit costs in rough perspective, the average price for disposing of a Mg
of waste at a MWC that charged a "tipping fee" (a fee paid by the trash hauler for the privilege of
1-4
-------
dumping or tipping trash at the MWC plant) in 1988 was $42.70 (1987 dollars). On this basis,
the unit enterprise cost increases for MWC plants as a whole would range from 4.2 to 39 percent
under Scenario n.
1.2 EMISSION REDUCTIONS
The Guidelines will reduce emissions of a variety of air pollutants. This report provides
estimates of national emission reductions for CDD/CDF, CO, PM, SO2, HC1, and Pb for MWC
plants. The baseline national emissions and emission reductions for Scenarios I and II and each
regulatory alternative are shown in Table 1-3. Baseline emissions for Scenario n are less than
Scenario I because of the retirement of older plants under Scenario II. Consequently, emission
reductions due to the Guidelines for Scenario II are much less than under Scenario I.
TABLE 1-3. GUIDELINES NATIONAL BASELINE EMISSIONS AND EMISSIONS
REDUCTIONS (Mg per yr.)
Scenario and
Regulatory
Alternative
CDD/CDF
CO
PM
SO2
HCI
Pb
Solid
Waste
Residuals3
Scenario I
Baseline Emissions 0.193 25,600 11,300 86,200 108,000 247 7,830,000
Emissions Reductions
Regulatory Alternative I 0.140 10,700 6,520 0 0 154 269,000
Regulatory Alternative HA 0.175 10,700 6,520 30,700 75,500 192 -248,000
Regulatory Alternative HE 0.180 10,700 8,230 34,500 86,300 240 -320,000
Regulatory Alternative HI 0.186 10,700 6,520 69,100 91,600 192 -182,000
Regulatory Alternative IV 0.191 10,700 8,230 72,900 102,000 240 -253,000
Scenario 11
Baseline Emissions 0.120 16,400 7,400 84,600 105,000 169
Emissions Reductions
Regulatory Alternative
Regulatory Alternative
Regulatory Alternative
Regulatory Alternative
Regulatory Alternative
I
HA
HB
HI
IV
0.0719
0.105
0.108
0.115
0.118
3,560
3,560
3,560
3,560
3,560
2,480
2,480
4,350
2,480
4,350
0
30,400
33,900
68,400
71,900
0
74,400
84,100
90,300
99,900
82
120
163
120
163
a Includes bottom ash and fly ash with some residual quench water. Negative values reflect
measures in solid waste residuals relative to the baseline. Scenario fi values were not
estimated because no significant differences between Scenario I and Scenario II solid waste
residuals were anticipated.
1-5
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Under Scenario III, baseline emissions/or MWC plants would be lower, making emission
reductions under Scenario III lower than under the other Scenarios. That qualitative result is
somewhat artificial, however, because it doesn't account for air emissions from the substitute
disposal technologies whose selection can be attributed to the Guidelines. To estimate emission
reductions for Scenario III comprehensively, we need to know how many affected MWC plants
would be replaced by non-combustion disposal technologies and what air pollutants these
substituted alternatives would emit. Without such a broad data base, it is difficult to project how
national emission reductions for Scenario ID compare with Scenario II.
1.3 DISTRIBUTION OF ECONOMIC IMPACTS
Because of the localized nature of solid waste management markets and institutions, it is
difficult to generalize about the economic sectors that would be affected by the Guidelines and
about the magnitudes of those impacts. This analysis, therefore, examines in some detail the
economic impacts on three economic sectors: affected MWC plants, households served by
MWC plants, and government units that own and operate MWC plants.
1.3.1 MWC Plants and Technologies
The regulatory alternatives considered by EPA distinguish between large and small
plants, varying the emission requirements and associated controls for the different size plants
within the same regulatory alternative. At the same time, differences in design capacity,
technology, etc., can contribute to variations between MWC plants in the cost of controlling at
the same level. These differences in cost can be seen in the data of Table 1-4 for Scenario I,
Regulatory Alternative IIA. This table presents estimated control costs for 17 model plants used
in the analysis. It shows that the absolute magnitude of capital and operating costs, as well as
their relative magnitudes, vary considerably by the size and type of plant.
The unit enterprise cost data of the table show these costs after adjustment for the size of
the MWC. For Regulatory Alternative IIA, they range from 0, for small plants that are not
required to control emissions beyond baseline levels or very modern large plants that already
have such controls, to over $19 per Mg for a mid-size modular plant that must install controls. In
general, for plants with non-zero control costs, the smaller the MWC plant, the greater the
economic impact, especially under Regulatory Alternatives IIB and IV in which smaller plants
must meet more stringent emission requirements than under the other regulatory alternatives.
Since modular plants are generally the most cost-competitive small plants, modular technology
will be most affected by the Guidelines.
1-6
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TABLE 1-4. ENTERPRISE COSTS OF CONTROL FOR PUBLICLY OWNED
GUIDELINES MODEL PLANTS (1987$)*: SCENARIO I, REGULATORY
ALTERNATIVE IIA
Model
Plant
#
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
Model Plant
Description11
MB/REF/TG
MB/REF/RG
MB/REF/RK
MB/WW(large)
MB/WW(mid-size)
MBAVW(small)
RDF (large)
RDF (small)
MOD/SA/TR
MOD/SA/G
MOD/EA
MB/RWW
TRANS MOD/EA
TRANS MB/WW
TRANS RDF (large)
TRANS RDF (small)
TRANS MB/RWW
Model
Plant
Capacity
(Mg/day)
680
220
820
2,040
980
180
1,810
540
140
45
180
450
380
180
1,810
540
450
Capital
Costc
($103)
18,500
5,850
8,820
10,500
8160
991
16,400
11,000
270
716
0
5,030
3,220
0
5,500
6,090
4,730
Total
Annualized
Costd
($103/yr)
2,250
987
2,370
3,190
2,270
275
3,450
2,190
155
235
0
1,280
805
0
2,360
1,610
1,270
Cost
of Control
per Mg*
($/Mg)
12.20
17.55
9.39
5.05
7.51
4.90
6.31
13.30
5.73
19.20
0
9.11
7.09
0
4.31
9.78
9.04
a Control costs are costs over the baseline model plant costs of Chapter 3. These costs are
incurred to meet the emission requirements of the Guidelines.
b Definition of terms used to describe model plants contained in Table 3-2.
c Capital costs of control occur only once, at the outset of operation.
d Total annualized costs based on a 15-year equipment life and a real discount rate of 4 percent.
e Computed by dividing total annualized cost by the estimated amount of MSW processed per
year at the model plant.
Table 1-5 provides a broader picture of plant impacts across regulatory alternatives.
These data show that a wide range of unit enterprise costs apply to model plants. While
recognizing that the tipping fee is as much an administrative convention as it is a measure of
cost, data values at the high end of the unit enterprise cost range are from 50 to 100 percent of the
average tipping fee reported in 1988 ($42.70). Disregarding zero values, the low end values
range from 5 to 25 percent of the average 1988 tipping fee.
1-7
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TABLE 1-5. ENTERPRISE COST OF CONTROL PER Mg FOR PUBLICLY OWNED
GUIDELINES MODEL PLANTS UNDER SCENARIO I (1987 $)«
Regulatory Alternative I
Regulatory Alternative IIA
Regulatory Alternative IIB
Regulatory Alternative III
Regulatory Alternative IV
MWC Plant
Small—
<25 Mg/day
($/Mg)
0.00-19.20
0.00-19.20
10.50-48.30
0.00-19.20
10.50-48.30
Capacity
Large —
>225 Mg/day
($/Mg)
0.00-6.80
4.31-13.30
4.31-13.30
12.80-28.00
12.80-28.00
a Cost per Mg based on cash flow analyses of publicly owned plants described in Chapter 3.
1.3.2 Households
By matching Census of Governments and Census of Population data for particular MWC
sites with model plant cost data, we obtained estimates of the economic impact of the regulatory
alternatives on households in the MWC service area. In most cases, the cost per household is
estimated to be under $50 per year and only in a few cases is it estimated to be as high as $100
per year. The distribution of these costs by regulatory alternative is shown in Figure 1-1.
While there is a great deal of variation in a household's solid waste disposal collection
and disposal budget, it probably ranges from $100 to $200 per year. Many of the costs estimated
in this analysis would represent a significant (greater than ten percent) increase in that budget if
passed on to households in their entirety. Even so, because the household budget for solid waste
collection and disposal is so low, these costs do not exceed the threshold criteria for "severe"
impacts recently applied to another regulation affecting solid waste disposal (EPA, 1988b).
1.3.3 Government Units
The Guidelines increase the cost of MWC plants by different amounts depending on the
technology, size, and emission controls of a given plant. A government unit's economic impact,
then, depends on the particular MWC plant they own, or are served by, in conjunction with the
regulatory alternative ultimately selected as the basis for the Guidelines.
1-8
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Number of 50
Service
Areas b>c
Y//\ Regulatory Alternative I
KQfl Regulatory Alternative MA
Op Regulatory Alternative I IB
| | Regulatory Alternative III
!• Regulatory Alternative IV
$0-$10 $10-$20 $20-$30 $30-$40 $40-$50 $50-$60 $60-$70
$80-$90 $90-$10o
Average Cost per
a_ Household per Year a
Costs refer to control costs only; no baseline costs are included.
Service areas with less than 2,500 total population were not included in the sample because census data for these service areas
W6F6 not 3V3M3DI6.
c Service areas with implicit capacity utilization less than 40 percent for modular plants, less than 60 percent for other technologies or
^ greater than 400 percent for all technologies were not included in the sample. See text in Chapter 8 for discussion. '
Household impacts were defined as "severe" if average cost exceeds $220 per household per year.
Figure 1-1. Distribution of Household Impacts Under Guidelines by
Number of Service Areas and Regulatory Alternative
-------
As in the case of households, this this government unit impact analysis matches
communities with cost impacts for particular MWC plants. Because of data limitations, we made
assumptions that, on the whole, amplified the impacts while at the same time limited the number
of matches that could be made. We applied several different criteria for measuring the severity
of impacts on government units. For all but one of these criteria, the impacts were not found to
be severe. For the remaining criterion, 11 of the 15 communities examined showed severe
impacts. We therefore made follow-up phone calls to these communities and found that the
assumptions we used to estimate the population served by the MWC did indeed amplify the
impacts. In most cases, the financial base in our analysis was underestimated. For example, the
combustor plant located in Dayton, Ohio, serves Montgomery County as well as other nearby
counties and municipalities which may dispose of waste at the combustor plant for a fee. When
we corrected the data to better reflect actual site conditions, the impact measures were no longer
severe for these 11 communities.
1-10
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CHAPTER 2
DEMAND CONDITIONS
The demand for municipal waste combustion is derived from the demand for services that
collect and dispose of the large volume and variety of wastes we produce each year. Most, but
not all, of the material burned at municipal waste combustors (MWCs) is classified as municipal
solid waste (MSW). About 130 million Mg of MSW was generated in 1986 (Franklin
Associates, Ltd., 1988). This represents an annual average of one-half Mg per capita based on
the middle-series projection of total population in Statistical Abstract of the U.S. (U.S.
Department of Commerce, 1987).
MSW consists of all the major materials used in the modern industrial state. Table 2-1
presents the estimated quantities and shares of these materials. Paper and paperboard products
comprise over 35 percent of the total. Glass, metals and plastics are each about one-fifth to one-
quarter of the paper and paperboard amount. Yard waste (e.g., grass clippings, tree trimmings,
and leaves) represent the second largest portion of MSW—about 20 percent.
2.1 GENERATORS
Generators of MSW demand services that collect and dispose of MSW. These generators
provide most of the demand, often a "derived demand," for MWC services. As shown in
Figure 2-1, the demand for MSW collection and disposal services can be classified into four
broad source categories:
• Residential: Waste from single- and multiple-family homes.
• Commercial: Waste from retail stores, shopping centers, office buildings, restaurants,
hotels, airports, wholesalers, auto garages, and other commercial establishments.
• Industrial: Waste such as corrugated boxes and other packaging, cafeteria waste, and
paper towels from factories or other industrial buildings. This term does not include
waste from industrial processes, whether hazardous or nonhazardous.
• Other: Waste from public works such as street sweepings and tree and brush trimmings
and institutional waste from schools and colleges, hospitals, prisons, and similar public
or quasi-public buildings. Infectious and hazardous waste from these types of facilities
are managed separately from MSW.
Households are the primary direct source of MSW, followed by the commercial sector.
On average, each U.S. household directly generated 0.79 Mg of solid waste in 1986. The
commercial, industrial, and other sectors each directly generate smaller portions of MSW than
households (see Figure 2-1). In particular, the industrial sector manages most of its own solid
2-1
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TABLE 2-1. MATERIALS IN THE MUNICIPAL WASTE STREAM, 1986
Materials 106 Mg Percent
Paper and Paperboard
Glass
Metals
Plastics
Rubber and Leather
Textiles
Wood
Food Wastes
Yard Wastes
Miscellaneous Wastes
45.6
10.7
11.5
9.4
3.5
2.5
5.3
11.4
25.8
2.5
35.6
8.4
8.9
7.3
2.8
2.0
4.1
8.9
20.1
1.8
TOTAL 128.1 100.0
Source: Franklin Associates Ltd., 1988. Characterization of Municipal Solid Waste in the
United States, 1960 to 2000. Final report prepared for U.S. Environmental Protection Agency.
Other (13.4%)
Industrial (4.2%) ^^/^/^^^^^^^%^^\^\ (54.5%)
Commercial (27.9%)
Figure 2-1. Sources of Municipal Solid Waste, 1986
Source: U.S. Environmental Protection Agency. 1988b. National Survey of Solid Waste
(Municipal) Landfill Facilities. Final Report. Prepared by Westat, Inc. EPA/68-01-7359.
Table 7-3.
2-2
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residuals, whether MSW or industrial process wastes, by either recycling, reuse, or self disposal.
Thus, direct generation of MSW by industry accounts for only a small share of the MSW flows,
although some industrial process wastes do end up being collected and disposed of along with
MSW.
As shown by Bingham et al. (1976), through derived demand relationships, households
and other components of "final demand" (business spending on plants and equipment,
government spending, and exports) indirectly affect the amounts and composition of residuals
discarded to the environment, including solid wastes directly generated by other sectors. For
example, when food items are shipped to the supermarket in cardboard boxes, the boxes are
unpacked and items shelved at the store. When the shipping containers are discarded to the
MSW system, the household has indirectly contributed to the amount and composition of MSW.
Although the waste is attributed to the commercial sector, the store directly generated MSW as a
results of the household's demand for food.
Little empirical evidence is available about the factors that affect waste generation rates.
However, without substantial changes in market conditions or policies that promote more
recycling and the use of less residual-intensive production, packaging, and consumption
methods, increases in economic activity and in the population indicate that MSW will increase in
the future. Franklin Associates (1988) estimates that MSW will increase at an annual rate of
approximately 1.5 percent over the 1984-2000 period. This growth rate is slightly more than the
population growth rate, indicating an increase in expected per-capita waste generation. A recent
Frost and Sullivan report (Coal and Synfuels Technology, July 25,1988) estimates that future
MSW generation will be proportional to population growth.
2.2 GENERATOR BEHAVIOR
The responsiveness of the quantity of MSW generated by each generator is important
because regulatory actions may change the conditions under which households and firms make
MSW generation and collection choices. Little empirical information is available regarding these
choices. However, some conjectures are advanced below. In each case a demand relationship is
hypothesized and used to organize the subsequent discussions.
2.2.1 Household Demand
Final consumption purchases (e.g., food items) and household production activities (e.g.,
yard care) result in the generation of MSW. Since these wastes do not provide the household
with utility they are an economic "bad" whose collection and removal is a service of value to the
2-3
-------
household. A household may be viewed as having a demand for solid waste collection and
disposal services, Qc, just as it has a demand for food and other consumer goods:
where
Qc = /l(Y,Pc,S,C) (2.1)
Y = household income,
Pc= price of waste collection and disposal services,
S = service conditions (e.g., frequency of collection and site of collection, degree of
waste separation required, materials accepted), and
C = cost of self-management (e.g., recycling, incinerating, burying, littering).
Household income changes affect the household's demand for MSW collection and
disposal services. Increases in the household's income increase consumption spending; however,
because of savings, the relationship is not one-for-one. These consumption increases include
increases for commodities that generate solid wastes. Solid waste collection and disposal is
likely a normal good—as income increases, all other arguments in the demand function held
constant, the demand for solid waste collection and disposal services increases (see Figure 2-2).
Wertz (1976) has argued that the income elasticity of demand for collection and disposal
services, (3Qc/Qc)/0Y/Y), is likely to be positive, but small. Goddard (1975), while noting
$/Q.
D' (Y = Y')
Figure 2-2. Effect of Income Changes on Household Demand for MSW
Collection and Disposal Services
2-4
-------
serious data and methodology problems in a study of demand for waste collection in Chicago,
reports an income elasticity of demand estimate of 0.4.
In most communities today, MSW collection and disposal services are financed by
general tax revenues. If increased costs for these services result in increased tax rates, disposable
household income will be reduced. Given a positive income elasticity of demand for waste
collection and disposal services, this would, in turn, reduce the MSW generation. Because both
the income elasticity and the cost of MSW collection and disposal as a share of all taxes are
small, however, this effect is unlikely to be significant.
The relationship between quantity demanded and price is an inverse one—increases in the
price for MSW collection reduce the quantity demanded of these services. This inverse
relationship has been empirically demonstrated for a large variety of commodities; MSW
collection and disposal services should not be an exception to these findings. However, it is
difficult to demonstrate this relationship for MSW collection and disposal services and estimate
the numerical relationship because of
• the variety of MSW collection service arrangements,
• the absence of MSW collection pricing on a per-unit-of-service basis, and
• the lack of adequate micro data on household waste generation rates.
As noted above, in most communities today there is no price mechanism through which
changes in the cost of MSW collection and disposal services provide incentives to households to
adjust their use of collection and disposal services. When households are not charged, the price
of collection and disposal services is zero and the quantity demanded is Q,! in Figure 2-3. In
some communities households are charged a flat fee per week or month for a specified service
(e.g., solid waste collected from four containers twice weekly). At best, this provides a weak link
between the fee (or price of service) and the amount of MSW generated since the fee does not
vary with the amount of waste generated by any given household.
In a few communities, such as Seattle, households are charged on a per-container basis.
In such instances the linkage between price and the quantity of waste generated is strengthened.
Increasing in the price per container certainly encourages households to find ways to reduce the
number of containers used and likely has an effect on the amount of waste generated. As the
containers become small relative to the amount of waste generated, the household demand begins
to resemble that depicted in Figure 2-3. For a price change from P^ to P-?, the quantity of MSW
generated declines from Q£ to Q?.
2-5
-------
Q
Figure 2-3. Effect of Collection and Disposal Price Changes on the
Household Demand for MSW Collection and Disposal Services
In communities where price provides an incentive to adjust the amount of MSW
generated, the household price elasticity of demand for MSW collection and disposal services
(9Qc/Qc)/(9Pc/Pc) is negative but the magnitude is likely to be small. Goddard (1975) reports on
a 1972 cross-section study of California communities that charged their citizens different flat
rates for MSW collection. While again noting data and methodological difficulties in the study,
Goddard reports that the researchers estimated statistically significant coefficients that are akin to
price elasticities for two forms of the demand equation. The point estimates of these values were
-0.7 and -0.5 with 95 percent confidence limits of -0.5 to -1.0 and -0.3 to -0.8, respectively.
Part of the household's costs of MSW collection and disposal services is the household's
implicit cost of storing the waste before it is collected, sorting materials as required by the
collector, and moving the wastes to the place of collection (e.g., front yard, back yard). Wertz
(1976) cites evidence that the frequency of service elasticity (dQc/Qc)/$S/S) is likely to be
positive and high: as collection frequency increases, or collection site convenience is improved,
collection demand increases.
Increasing the inconvenience of disposing of certain wastes (e.g., aluminum containers)
by requiring that they be sorted is likely to reduce generation of those wastes. Households may
substitute products that produce waste that needs to be sorted with ones that do not; the net effect
on total waste generation is uncertain. We have not found any empirically based estimates of the
effect of different sorting requirements or opportunities on total waste generation.
2-6
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Households may self-manage the solid wastes they do generate through recycling,
burying, incinerating, compacting, discarding to the sewer system or to others' collection
systems, or by littering. Further, they may transport their wastes directly to the disposal site.
These activities have costs to the household, either explicit or implicit, and thus by themselves
reduce the household's welfare. However, these activities also offset the costs of MSW
collection. Increases in the costs for any self-management option are expected to lead to greater
use of other such options or to greater use of the MSW collection and disposal services provided
by other parties.
2.2.2 Firm Demand
The firm's derived demand, Qc, for MSW collection and disposal services is
Qc = /2(Pc,Px,S,C) (2.2)
where
Px = price of the firm's output and, other terms are as defined above.
The price elasticity of demand, (3Qc/Qc) / (dPc/Pc). °r simply ec, for collection and
disposal services can be shown to equal
ec = vc (hx -i- sc) (2.3)
where
vc = ratio of collection and disposal cost to all costs of production,
hx = demand elasticity for the output x,
Sc = Allen elasticity of substitution between waste collection and disposal services and
all other inputs in the production of output x.1
Firms' payments for municipal waste collection and disposal services, VQ, likely comprise
a small share of production costs. Product demand elasticities, hx, vary from commodity to
commodity but typically range from -0.5 to -5.0. The elasticity of substitution between waste
collection and all other inputs is positive, but there are no more specific estimates of this value.
However, even if firms have substantial opportunities to make solid waste reducing process
changes, the associated elasticity of substitution is weighted by vc, a value much less than one.
The Allen elasticity of substitution is the ratio of the output-constant cross elasticity of demand for the factors of
production (waste collection and other inputs to production) and the vc of waste collection.
2-7
-------
Thus, in many cases, we expect the product vcsc to be fairly low. This implies an inelastic
demand by many firms for MSW collection and disposal services; that is, a price elasticity of
demand less than 1 in absolute value.
In summary, because of current MSW collection and disposal service financing methods
and demand relationships it seems unlikely that Guidelines affecting the costs of MWC will
significantly influence the overall demand for municipal waste collection and disposal services,
the composition of waste, or the expected increases in MSW generation over time. Even in cases
where increased costs are passed on to waste generators in the form of higher prices for waste
collection and disposal services, price inelasticity will moderate the impact of price changes on
the quantities of waste generated. Most of the important effects are expected in the demand for
disposal services per se, particularly the demand for MWC disposal services, and in the supply
side of the market for these disposal services.
2.3 WASTE DISPOSAL SERVICES DEMAND
It is sometimes helpful to think of waste collection as distinct from waste disposal. Given
such a distinction, waste collectors have a demand for waste disposal services in addition to their
demand for labor, equipment, and other inputs used in the production of the service they provide.
The change in this derived demand in response to changes in the cost of disposal can be analyzed
through use of the general elasticity of demand expression introduced above. This expression,
adapted to examine the determinants of the elasticity of demand for waste disposal, ed, is written
below.
«d = vd (hc + Sd) (2.4)
where
Vd = ratio of the cost of disposal services to the total cost of waste collection and
disposal (the cost share),
he = demand elasticity for collection and disposal services,
Sd = Allen elasticity of substitution between disposal services and all other inputs to
waste collection and disposal.
While historically the cost share of disposal has been a small share of waste collection
service costs, it has been rising very rapidly (Glebs, 1988). A recent report estimates the cost
share of disposal to now be in the neighborhood of 50 percent (Morris, 1987). Consequently, the
share of collection costs represented by disposal services is probably large. The elasticity of
2-8
-------
demand for collection services, as argued above, is likely to be inelastic (small) and, depending
on institutional conditions, virtually zero in some cases. Also, since every unit of collected
wastes must be disposed of, it is difficult to credit the notion of a large elasticity of substitution
between disposal services and other inputs to production of waste collection and disposal. Thus,
while the v
-------
CHAPTER 3
SUPPLY CONDITIONS
Solid waste management today often consists of a set of interrelated activities for the
collection and transport, processing, and disposal of solid wastes. The material flows associated
with most of-these activities are illustrated in Figure 3-1. In light of both the preceding demand
analysis and the regulation in question, this discussion of supply conditions focuses on the supply
of municipal waste combustion and landfilling disposal services. Also examined, but to a lesser
extent, are waste recycling and transportation services.1
Centralized
Recycling
Marketable
Materials
Disposing
Combustion
Processing
I
Nonhazardous
Ash
1
Hazardous
Ash
Sanitary
Landfilling
Hazardous
Waste
Landfilling
Figure 3-1. Solid Waste Management Options
1 Not included in Figure 3-1 are strategies relating to the design, manufacturing, packaging, and
use of products so as to reduce the quantity and toxicity of solid waste, especially MSW.
These "source reduction" activities are technically related to the substitution options that
households and firms would consider if there were an effective price mechanism that provided
an incentive for reductions in solid waste generation. While source reduction is part of EPA's
national strategy for solid waste (EPA, 1989d), it probably will not be pursued under authority
of the Clean Air Act Consequently, we don't address source reduction in this report. To the
extent that source reduction may alter the cost-effectiveness of the air pollution control
devices (APCDs) considered in this report, this exclusion is a shortcoming.
3-1
-------
Landfilling is the predominant method of solid waste disposal in the U.S. today. In 1986
approximately 80 percent of all MSW was directly landfilled, 10 percent recycled, and 10
percent combusted. The percentage of recycled or combusted discards has been growing since
1960, however, and these technologies are expected to have an even greater impact on MSW
disposal in the future (Franklin Associates, Ltd., 1988).
3.1 PRODUCTION PROCESSES
Understanding the production processes involved in solid waste management is the first
step toward understanding its economics. First we examine the production functions. For each
process involved in the management of MSW, production functions describing input and output
relationships can be written in the form
Qlv..,Qm=/(X1,...^Cn), (3.1)
where Qi,...,Qm represent outputs l...m produced and Xj,...^ represent inputs l...n consumed
during the production period. Recognizing multiple outputs is particularly important in this
analysis because many combustors both dispose of waste (into the air with a 20 to 30 percent
solid waste residual) and produce energy.
In a simple setting this relationship reduces to one output and two inputs:
L X2). (3.2)
These production relationships may be examined from two perspectives — the operating
decision and the investment decision. For simplification the analysis assumes that existing firms
concern themselves with the operating decision in the short run, whereas new firms are faced
with the investment decision along with the subsequent operating decision. Existing firms
decide on the operating rate within the constraint of the fixed resource (Figure 3-2a). Owners of
the new firm make decisions regarding scale and resource substitution without the constraint of a
fixed resource (Figure 3-2b). This distinction, too, is important in this analysis since combustor
managers will chose between the best means of operating the existing plant (an operating
decision) and the best new combustor investment (an investment decision).
Figure 3-2a illustrates the choices involved in operating decisions when one of the inputs,
X2, is fixed. The firm must choose the optimum operating rate, Qn, and input rate, Xj. The
specific relationships between inputs and outputs is an empirical issue. Figure 3-2a illustrates a
situation where output increases rapidly as additional Xj is added over some range of input.
3-2
-------
Q
Q = /(Xl»Xother)
Figure 3-2a.
Operating Decisions: Choices Involved
with at Least One Fixed Input
Q = /(Xi,X2)
Figure 3-2b.
Investment Decisions: Choices
Involved with No Fixed Inputs
However, the ability of additional Xt to generate additional output deteriorates as more Xj is
used. Finally, output reaches a maximum level. Beyond this point, additional X^ decreases
output.
Figure 3-2b illustrates the choices involved when both inputs are variable, as is the case
with the investment decision. The output rate Q shown is constant. The curve shows the
alternative combinations of inputs Xl and X2 that produce that rate of output.
We now use the concept of the production function to examine the major components of
MSW management associated with air emission Guidelines for MWCs: combustion, landfilling,
collection and transportation, and recycling.
3.1.1 Combustion
Municipal waste combustion (MWC) is the process of reducing the volume of MSW
through incineration. Because MWC reduces waste volume by as much as 70 to 90 percent, this
method of waste management has the potential to significantly reduce the need for landfills.
Industry Conditions
Combustion was once the principal way of disposing of MSW, especially in the
metropolitan areas of the U.S. These plants were dirty and smelly, however, and virtually all
were closed in the two decades following World War H A renewed interest in the technology,
coincident with reductions in available, convenient landfill capacity and the search for alternative
3-3
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energy sources, occurred in the mid 1970s. In the early and mid-1980s, new MWC capacity was
added rapidly, as shown in Table 3-1. The amount of waste combusted increased by a factor of
three or four from 1980 to 1986.
TABLE 3-1. ESTIMATED FLOWS OF MUNICIPAL SOLID WASTE TO MUNICIPAL
WASTE COMBUSTION PLANTS, 1980 THROUGH 1986
Franklin
Year Associates Radian6
MWC Waste Flows8 MWC Waste Flows
(106Mg/yr) (K^Mg/yr)
1980
1981
1982
1983
1984
1985
1986
2.45
2.09
3.17
4.54
5.90
6.89
8.71
2.47
3.45
4.44
6.02
7.60
9.60
10.20
a Franklin Associates estimates MWC energy recovery waste flows only (Franklin Assoc., 1988,
p.18).
b In a profile of existing facilities, Radian (1988a) reports estimates for non-heat recovery
capacity, heat recovery capacity, and capacity for plants that co-fire MSW with other materials
(e.g. wood, tires, sewage sludge). The values reported above include heat recovery capacity
for plants processing at least but not less than 50 percent MSW. Average capacity utilization
values reported in the 1988-89 Resource Recovery Yearbook were applied to MWC capacity
estimates to calculate waste flows.
Radian Corporation's report, Municipal Waste Combustion Industry Profile-Facilities
Subject to Section lll(d) Guidelines (Radian, 1988a), lists MWC plants that were operating,
under construction, or planned in the mid-1980s. The report identifies 281 plants that might be
affected by Guidelines: 161 plants in actual operation at the report's printing date and another
120 that were projected to begin construction before 1990. While quite a number of new plants
have begun operating in the past few years, construction plans for many of the projected plants
have been deferred or cancelled due to local opposition and/or revisions in community waste
management plans.
The Radian profile report identifies three major classes of MSW combustion technology:
mass burn, modular, and refuse derived fuel (RDF). The distribution of the 161 plants identified
as currently in operation across these technologies is: 48 mass burn, 70 modular, 12 RDF, and
3-4
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31 of unknown or unassigned technology. Radian estimates that up to 64,400 Mg of MSW per
day can be processed by the 161 plants identified as currently in operation. As a percentage of
this MWC capacity, approximately 57 percent of capacity is mass burn, 9 percent modular, 26
percent RDF, and another 8 percent unassigned. For the 120 projected facilities, Radian
estimated capacity to be 103,000 Mg per day with 65 percent mass burn, 3 percent modular, 25
percent RDF, and 7 percent unassigned.
While quite a number of new plants have begun operating in the past few years,
construction plans for many of the projected plants have been deferred or cancelled due to local
opposition and/or revisions in community waste management plans. Consequently, the estimated
number of plants subject to the Guidelines has been revised downward to reflect these changing
market conditions. We used the Radian report as well as other data to construct the baseline
projections for this analysis. We estimate that approximately 200 plants (39 projected plus 161
currently operating plants) representing total capacity of 36 million Mg/year will be affected by
the Guidelines. The development of baseline projections for this analysis is discussed in detail in
Chapter 5.
In 1987 the market for MWC construction services sent mixed signals to suppliers of
those services. According to a Kidder Peabody report (McCoy, 1988), more capacity was
cancelled than was ordered in 1987, with a resulting total scheduled decline in capacity of 10
percent. Public opposition to siting and construction of new plants, combined with the
uncertainty regarding proposed legislation, are thought to be the major obstacles facing the
vendors of MWC systems. These vendors include project developers, manufacturers, and
engineering construction firms. According to the report, 28 companies participate in the
combustion industry with no one firm being dominant. Of the 28 firms, Ogden Martin is the
1987 industry leader in terms of capacity, claiming a 20 percent market share. Wheelbrator is in
second place with 18 percent, ahead of American Ref-Fuel with 8 percent, Combustion
Engineering with 7 percent, and Westinghouse Electric with 5 percent Generally, the capital
services vendors are not the MWC plant owners. Plant ownership has typically been the domain
of state or local governments who find it important to retain control over municipal waste
disposal services.
Technologies
MWC plants range widely in design capacity from less than 25 to more than 2,000 Mg
per day of MSW throughput. As the name suggests, mass burn combustion requires no
processing aside from the removal of oversized items and some mixing to produce a more
3-5
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homogeneous fuel (EPA, 1987). Refuse is moved through the plant through the use of grates
and/or rams. A traveling grate may carry the MSW through the combustor without agitation or a
rocking (reciprocating) grate may be used to agitate the waste as it moves through the combustor.
The rotary design uses a different process to achieve agitation through rotation of the waste.
Agitation allows more waste surface to be exposed, increasing efficiency (Robinson, 1986).
Because mass bum plants are built on site, variation in design and capacity are
characteristic of this type of MWC. Two typical mass burn design technologies are waterwall
and refractory designs. Virtually all waterwall furnaces incorporate energy recovery, but the
same is not true for refractory furnaces. The refractory design is an older, less efficient
technology and, for this reason, most new mass burn plants are expected to have waterwall
boilers.
Modular combustors, like mass burn combustors, require minimal processing of waste.
Modular plants consist of one or more prefabricated combustor units and range in capacity from
approximately 25 to 500 Mg of MSW throughput per day using either grates or rams to move
waste through the combustor. Modular combustors are constructed as "starved air " or "excess
air" designs. Both types use similar design components but differ in the amount of oxygen
present in the combustion chamber. Excess air combustors incinerate waste with no limits on
the amount of oxygen present. Starved air combustors control the amount of oxygen to achieve
pyrolysis of MSW.
The modular combustor has primary and secondary combustion chambers. Partial
combustion of MSW in the primary chamber is followed by more complete combustion in the
secondary chamber assisted by an auxiliary burner and additional air (Robinson, 1986).
The third major category of MWC uses sorted and processed municipal waste referred to
as refuse-derived fuel (RDF). The sorting and separating of waste materials is typically
accomplished by a system of shredders, magnets, screens, air classifiers, and conveyers, which
produce a fuel (waste) that yields a higher heat value, lower ash volume, and more complete
combustion than nonprocessed waste. Processing may vary from shredding of refuse to fine
separation of waste to produce a fuel suitable for cofiring with a fossil fuel.
Other combustion technologies used to process MSW include Fluidized-Bed Gasification
(FBG) and Fluidized-Bed Combustion (FBC). Several refuse entry points are necessary with
3-6
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FBC and FBG to provide even fuel distribution. Combustion chambers use either a waterwall or
refractory design for temperature control and energy recovery. Fluidized bed technology allows
firing a wide variety of fuels with relative insensitivity to the amount and type of ash in the fuel.
By making the waste behave as a liquid or gas, FBG and FBC combustion units burn MSW more
efficiently than mass burn or RDF units. At present, however, fluidized bed technology is
relatively new and still undergoing development.
MWC has two principal products, MSW volume reduction and energy generation, along
with the residual products of ash and emissions to the ambient air. The production function for
MWC can be expressed by the equation
QMWC.Qe,Qa.Qenv = ^(capital services, operating services,QMSW) (3.3)
where QMWC *s ^e volume reduction in MSW, Qe is the quantity of energy produced, Qa is the
quantity of ash residue generated, and QenV is a measure of the environmental impacts, including
air emissions, resulting from incineration. The inputs are capital services (e.g., combustor unit,
land, building, air pollution control devices), operating services (e.g., labor services, maintenance
services, fuel for cofiring, utility services), and QMSW (raw MSW for fuel).
Representative plants, called "model plants," are used extensively in this economic
impact analysis to represent MWC plants nationwide. These model plants are meant to be
representative of most of the plants listed in Radian's profile report (1988a). Radian specifies the
technical features of 17 representative model plants in its retrofit study (EPA, 1989b) and assigns
the plants identified in the profile report to either 1 of these 17 technologies or to a special
"unassigned" category. Table 3-2 provides a list of the model plants and their characteristics
including a description of the energy recovery capabilities.
Table 3-3 shows the relationship between inputs and outputs for the model plants used in
this analysis. MSW input corresponds to QMSW in equation (3.3) and represents design capacity
for each model plant. Waste reduction and energy recovery are the principal products of MWC,
referred to as output. Estimates for MSW reduction were calculated by subtracting the projected
annual volume of residual ash from the projected MSW input per year. Energy recovery figures
are based on energy revenue projections divided by a $/l(X>Btu energy value factor derived by
Radian (1988c). K^Btu's were then converted to TJ using a conversion factor. The volume of
ash and total emission estimates for CDD/CDF, CO, PM, SGi, HC1, and Pb are included as
residual products of MWC.
3-7
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TABLE 3-2. CHARACTERISTICS OF GUIDELINES MODEL PLANTS
oo
Model Abbreviated
Plant* Term
1
2
3
4
5
6
7
g
9
10
11
12
13
14
15
16
17
MB/REF/TG
MB/REF/RG
MB/REF/RK
MB/WW(large)
MB/WW(mid-size)
MB/WW(small)
RDF (large)
RDF (small)
MOD/SA/TR
MOD/SA/G
MOD/EA
MB/RWW
TRANS MOD/EA
TRANS MB/WW
TRANS RDF (large)
TRANS RDF (small)
TRANS MB/RWW
Definition Model Plant
of Term Capacity
(Mg/day)
Mass Burn/Refractory Wall/Travelling Grate
Mass Burn/Refractory Wall/Rocking Grate
Mass Burn/Refractory Wall/Rotary Kiln
Mass Burn/Waterwall (large)
Mass Burn/Waterwall (mid-size)
Mass Bum/Waterwall (small)
Refuse Derived Fuel (large)
Refuse Derived Fuel (small)
Modular/Starved Air/TransferRams
Modular/Starved Air/Grates
Modular/Excess Air
Mass Burn/Rotary Waterwall
Transitional Modular/Excess Air
Transitional Mass Burn/Waterwall
Transitional Refuse Derived Fuel (large)
Transitional Refuse Derived Fuel (small)
Transitional Mass Bum/Rotary Waterwall
680
220
820
2,040
980
180
1,810
540
140
45
180
450
380
180
1,810
540
450
Model Plant
Size
Category8
L
S
L
L
L
S
L
L
S
S
S
L
L
S
L
L
L
Energy
Recovery
none
none
none
electric
electric
electric
electric
electric
steam
none
steam
electric
electric
electric
electric
electric
electric
a Model Plants with design capacity less than or equal to 225 Mg/day are classified as small and plants with capacity greater than 225
Mg/day are classified as large. Specified control technologies are assigned to model plants under various regulatory alternatives
according to this size cl—"=—*:~-
:ation.
-------
TABLE 3-3. PRODUCTION CHARACTERISTICS OF GUIDELINES MODEL PLANTS8
MSW Input
Outputs
Residuals
Model
Plant
Combustor Annual
Type Hours
Operation* (Mg/day)c
(Mg/yr)o
MSW
Reduction*
(Mg/yr)
Energy
Recovery'
(TJ/yr)
Selected Air
Ash Emissions
(Mg/yr) (Mg/yr)8
Mass Burn
6
14
2
12
17
1
3
5
4
MB/WW (small)
TRANS MB/WW
MB/REF/RG
MB/RWW
TRANS MB/RWW
MB/REF/TG
MB/REF/RK
MB/WW (mid-size)
MB/WW (large)
7,420
7,420
62004
7,420
7,420
6,5004
7,420
7,420
7,420
180
180
220
450
450
680
820
980
2,040
55,700
55,700
56,800
139,000
139,000
184,000
254,000
303,000
631,000
37,800
37,800
36,600
96,800
96,800
91,700
178,000
212,000
429,000
0.60
0.60
0
1.50
1.50
0
0
3.24
6.75
17,900
17,900
19200
42200
42200
92300
75,900
91,100
202,000
471
374
689
954
954
1,740
2250
1,190
4,000
Refuse-Derived Fuel
8
16
7
15
Modular
10
9
11
13
RDF (small)
RDF (small)
RDF (large)
RDF (large)
MOD/SA/G
MOD/SA/ER
MOD/EA
TRANS MOD/EA
7,250
7,250
7,250
7^50
6.5004
4,7704
7,160
7,160
540
540
1,810
1,810
45
140
180
380
163,000
163,000
546,000
546,000
12^00
27,800
53,700
113,000
147,000
147,000
465,000
465,000
8,510
19,700
37,400
76,700
2.12
2.12
7.06
7.06
0
0.435
0.579
1.22
16,500
16400
81,100
81,100
3,690
8,140
16300
36300
1,680
1,570
5,130
4,960
95
188
364
731
a Values are rounded to three significant digits. Differences across columns due to rounding. Model plants represent average characteristics for existing MWC
facilities.
b Calculated using average capacity utilization reported in the 1988-89 Resource Recovery Yearbook.
c Based on a 24-hour operating day.
d Reflects special conditions resulting from increased estimated downtime for older plants (model plants 1,2, and 10) and a stand-by unit for model plant 9.
e Calculated by subtracting ash residual from MSW input (Mg/yr).
f Based on energy revenue credits and S/l^Btu reported in a memorandum from Radian (1988c).
8 Represents sum of 6 types of emissions: polychlorinated dibenzo-p-dioxins and dibenzofurans (CDD/CDF), carbon monoxide (CO), paniculate matter (PM) sulfur
dioxide (SO2), hydrogen chloride (HC1), and lead (Pb).
-------
3.1.2 Landfilling
Two types of landfills are used to manage MSW—sanitary landfills and hazardous waste
landfills. Sanitary landfills receive only nonhazardous waste (primarily from household and
commercial sources) with the exception of small quantity generator hazardous waste. Sanitary land-
filling is defined as a method of waste disposal through a process that includes (Robinson, 1986):
(1) spreading the collected waste into thin layers in the landfill,
(2) compacting the waste into the smallest practical volume, and
(3) covering the waste with soil on a daily basis.
The potential environmental impacts of landfilling (e.g., possible groundwater
contamination, air emissions, odor, traffic, dust, and danger of explosion) are becoming widely
known. Likewise, health and safety regulations surrounding landfill design, siting, and operation
are also becoming increasingly stringent, making landfilling more expensive (Glebs, 1988). As a
result of these factors, along with increasing land scarcity, many landfills have closed and
communities are facing increasing difficulty developing new landfill sites.
Since 1980 the number of landfills opening each year has continually declined (Temple,
Barker, & Sloan, Inc., et al., 1987). Approximately three-quarters of all municipal solid waste
landfills currently in operation are expected to close within the next 15 years. Municipalities,
especially those in New Jersey, New York, Connecticut, Florida, and California, have been
forced to look toward other MSW management options such as recycling and combustion that
reduce the quantity of waste to be landfilled.
Landfill sites may be constructed according to various design technologies (Robinson,
1986). The trench method involves excavating soil at a slight angle to facilitate drainage.
Facilities using this type of landfill technology must consider soil depth and groundwater
conditions. MSW is then spread in the trench, compacted, and covered with material taken from
the spoil of excavation with the excess material used for berms or area landfills. The trench
method:
• makes cover material readily available,
• exposes a minimum-size working face,
• gives optimum drainage during filling operations, and
• is easily adapted to wide variation in size of operation.
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In the area method of landfilling, waste is spread on the ground with no prior excavation.
After the waste is compacted, it is covered with imported soil. This method is generally used in
locations with land depressions or gently sloping land. The area method:
• accommodates very large operations (large working face), and
• is acceptable where no below ground excavation is feasible.
Combinations of the trench and area methods allow for the greatest flexibility in adapting
site construction to the particular needs of a community. The progressive slope or ramp method
is one variation in which a small amount of soil is excavated directly adjacent to the working
face and spread over one day's waste. The depression is then filled with a portion of the next
day's waste, which is covered with soil from another adjacent excavation. Using this method
eliminates the need to import cover material and allows a portion of the discarded waste to be
deposited below the original surface.
The state-of-the-art landfill may include clay or synthetic liners, leachate collection and
monitoring, gas collection and monitoring, surface water controls, and groundwater monitoring.
However, the majority of landfills have little environmental protection equipment in place.
Ninety-five percent have no leachate collection, and 85 percent do not have a liner. Only 25
percent monitor groundwater, and only 12 percent practice surface water monitoring. Landfill
gas is monitored even less, with 5 percent of the sites incorporating methane monitoring (Glebs,
1988).
Subtitle D regulations under the Resource Conservation and Recovery Act of 1976
(RCRA) proposed in the August 30,1988, Federal Register may significantly increase the cost
of developing landfill sites. The proposed rule would require existing landfills to incorporate
closure and post-closure care including groundwater, surface water, and gas monitoring and to
provide final cover integrity. Additional regulations for new landfills require that sites be
developed with a liner as well as other detection and monitoring equipment necessary to ensure
the integrity of groundwater and surface water within concentration limits set by the EPA.
As the cost of landfilling rises, the industry may be able to offset some of the costs
through energy recovery. Methane gas is formed as solid waste decomposes. The concentration
and quality of methane vary according to the extent of MS W decomposition, quality of the MS W
being landfilled, climatic conditions, and parameters of the landfill. Typically, the gas collection
system consists of vertical wells and horizontal collection headers distributed over the surface of
the landfill site (Jansen, 1986). After the gas is collected it is either upgraded for delivery to
3-11
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utility companies, used as boiler fuel, or converted into electricity by an internal combustion
engine (Robinson, 1986). Energy recovery through gas collection is generally limited to large,
established landfills since methane formation may take a period of several years and require a
relatively sizable area of land for mining operations.
The production function for landfilling MSW can be expressed by
QL.Qe.Qenv = /s(caPital services, land, operating services,QMSW) (3.4)
where QL is the quantity of MSW landfilled per year, Q,, is the quantity of energy produced per
year from the combustion of methane and other combustible gases generated from decaying
waste, and Qenv is a measure of the environmental impacts per year resulting from landfilling.
The inputs are capital services (e.g., bulldozers, scales, buildings, air pollution control devices),
land, operating services (e.g., labor services, maintenance services, utility services), and QMSW
(municipal solid waste).
The amount of land needed for sanitary landfills depends on the depth of the site, the
degree of waste compaction, and the desired closing height of the landfill. However, a rule of
thumb is that one hectare is required annually for every 12,000 people, or, based on average
waste generation rates, for every 6,200 Mg of MSW generated.
According to the Solid Waste Landfill Survey conducted by the EPA (1988b), 80 percent
of sanitary landfills are owned by local governments. An additional 5 percent are owned by state
and federal governments with the remaining 15 percent privately owned. A correlation between
type of ownership and size of the landfill has been observed, with publicly owned landfills more
likely to be small and privately owned landfills large. Half of the landfills in operation (the
smallest ones) receive less than 2 percent of the waste while 2.6 percent of landfills (the largest
ones) receive 40 percent of the waste (RTI, 1988b).
Hazardous waste landfilling is the placement of hazardous waste in or on land, often in
cells that are subsequently covered with clay, asphalt, or concrete. Hazardous waste landfills are
made leak resistant by the use of combination clay and synthetic liners. Leachate detection and
groundwater monitoring systems alert operators to the existence of a leak (Environmental Law
Institute, 1983). The treatment, storage, and disposal of hazardous wastes are regulated under
RCRA Subtitle C, requiring operators of these landfills to keep a careful account of the types of
wastes disposed and ensure the protection of groundwater and surface water within established
environmental performance standards.
3-12
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Because MWC fly ash has a high heavy metals content, there have been proposals to treat
it as a hazardous waste. The Science Advisory Board, a body of independent scientists, is
currently reviewing an overall approach to the handling, transportation, and disposal of ash from
municipal incineration. Rep. Thomas Luken (D-Ohio) introduced an incinerator ash bill (H.R.
2162) on May 1, 1989, which would mandate EPA regulation of solid waste incineration and
disposal of ash. Under the provisions of this bill, incinerator ash that fails to meet minimum
technical standards would be restricted to a RCRA Subtitle D monofill or codisposal facility
(Hazardous Waste News, May 8,1989).
The production function for hazardous waste landfilling of fly ash can be expressed by
QLA'Qenv = /^capital services, land, operating services.QA) (3.5)
where QLA is the quantity of ash landfilled per year, Q^y is a measure of the environmental
impacts per year resulting from landfilling, and the inputs are capital services (e.g., bulldozers,
scales, building, air pollution control devices, leachate containment systems), land, operating
services (e.g., labor services, maintenance services, utility services), and QA (ash).
3.1.3 Collection and Transportation
Collection and transportation of MSW are common components of every MSW
management system. MSW is collected from generators and transported to the treatment plant or
directly to the landfill. Where recycling or combustion are performed, the residue is
subsequently transported to the ultimate disposal site. Transfer stations are widely accepted in
large metropolitan areas as a means of reducing transportation costs, especially when landfill
sites are remote. A transfer station is a waste holding place located between waste collection
points and disposal plants. When a transfer station is used, transportation is also needed from the
transfer station to the primary management plant. Other advantages of transfer stations include
(Robinson, 1986):
• better haul roads for collection vehicles,
• greater traffic control,
• fewer trucks on the sanitary landfill haul route, and
• improved landfill operating efficiency.
The production function for transporting MSW can be expressed by
QMSW = /i (capital services, operating services) (3.6)
3-13
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where QMswis *e quantity per kilometer of MSW transported per year and the inputs are capital
services (e.g., trucks, buildings, land) and operating services (e.g., labor services, repair services,
fuel, management services).
3.1.4 Recycling
Materials may be recovered from MSW and recycled using one or both of two methods—
generator sorting (sometimes called curbside recycling in a residential context) and centralized
recycling. In the U.S., most materials are first recovered through generator sorting, in which
generators manually separate materials for reuse or recycling from waste for disposal. For
example, in some communities households are required to separate paper, glass, and metals from
thek waste for curbside collection. Centralized recycling plants separate salable materials from
mixed waste after collection, often as part of transfer station operation.
Centralized recycling is often practiced in conjunction with combustion of RDF.
Operators of MWC plants that burn RDF have an interest in promoting the recycling of bottles
and cans to reduce the amount of these materials appearing in the fuel (waste). The sorting and
separating required for plants using RDF couples naturally with recycling programs.
Combustion Engineering agreed in 1987 to build a combination materials recovery plant and
combustion plant for a community in New York (Salimando, 1988). Increased quality of waste,
reduced need for landfill services, and reduced amount of ferrous metal in ash residue are some
of the benefits associated with arrangements of this type.
Recycling increases'landfill life since processed materials tend to require less capacity
than nonprocessed waste. Enhancing the efficiency of existing landfill sites reduces the need for
new site development. However, institutional problems associated with source separation
include reinvestment problems and labor problems. Single compartment collection vehicles are
not efficient for curbside collection of separated materials. In addition, the retraining of a labor
force that has traditionally viewed discarded materials as "waste" further compounds the
difficulties associated with recycling. As a result, recycling programs are often not regarded as
viable options for decision makers who are risk-averse.
3.2 PRODUCTION COSTS
The production function of Equation (3.2) describes the relationship between inputs and
the maximum output rate. Correspondingly, at a given output rate, Q, the minimum input
requirements can be identified as
3-14
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X! ,Xm = g(Q). (3.7)
The cost of production at Q is the sum of the amount of X employed times its price. For each
output, Q, the minimum cost way of producing that output is defined by the cost function
Cmin = f(Xi, ,Xm; Q). (3.8)
This cost-minimizing set of inputs for a given level of Q can be estimated for each of the
waste management processes identified in Section 3.1. The following sections of this chapter
describe production cost estimates developed for three of the four waste management activities
discussed above—combustion, landfilling, and collection and transportation. Costs for recycling
are not developed because this analysis treats changes in the waste stream associated with
recycling or source reduction as exogenous. That is, reductions in the volume or composition of
waste to be transported and disposed by landfills and combustors due to generator sorting and
recycling can be varied but are taken as given in the analysis.
Given input prices, the C variable can be expressed as three cash flows: capital costs,
operating costs, and closure costs or salvage value. In general, the net present cost of producing
a given output of collection and transportation, landfill, or combustion service can be expressed
by the cash flow expression
, Net x , A ^ , B ^ , C ^
Present = Present value of + Present value of - Present Value of I
V Cost J v Capital Costs J ^Operating Costs) \,Salvage Recovery)
In the first portion of the equation, (A), capital costs may be a stream of lumpy
investments or a one-time investment. Operating costs (B) for each period are calculated net of
energy recovery revenue, and salvage value (C) of plant and equipment, if any, is also accounted
for. Actual calculations involve some differences for private and public ownership due to
different cost-of-capital figures and tax obligations for those forms of ownership.
The net present cost equations for the two types of ownership are as follows:
3-15
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Private Financial Cash Flow
NPCp =
*
2 KM (l+rp)'(M)
t=l
(3.9)
Public Financial Cash Flow (municipalities)
A
NPCm =
B
T
E
t=l
- [Sd+rm)-T]
(3.10)
where
Kt_ i = Capital cost at time t-1 (the beginning of period t), including
land, equipment, and structures.
t = Time period with initial construction at t = 0.
Q = Operating costs, including labor, materials and supplies,
interest on debt, management and administration, working
capital, property taxes, and insurance. These occur at the
end of each period t.
S = Salvage value of equipment and land net of
decommissioning costs.
T = Operating life of the plant with T designating the final point
in time for purposes of the analysis.
rp,rm = Private and public real rates of discount (rp = .08; rm = .04).
See Appendix A for a discussion of estimation of these
parameters.
TJ = Expected real inflation rate (rj = .04).
Dt = Depreciation accrued in the tm period. It is calculated as a
straight line over the life of the plant,
xe = Effective tax rate equal to xs + (1 - x^Xf, where xs and Xf are
the state and federal average tax rates (xs = .07; Xf = .35).
R, = Credits from associated sale of electricity and steam.
3-16
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Time periods in the analysis are denoted by t. Capital expenditures are considered
incurred at the beginning of a period. As a consequence, the capital expenditures of the first
period are denoted Kt.j. Cash flows, operating expenditures, and revenues are considered to
occur at the end of a period and are subscripted accordingly. For example, the first period costs
are Cj and the fifth-period revenues are R5.
There are T periods in the analysis, the final point in time designated by T. Salvage value
revenues (S) are shown as occurring at the end of operation, and are thus discounted by the factor
(l+rp)T
Since these expressions are for net present value of "costs," the cost components have
positive signs and the revenue components—sales, tax savings, and salvage value income have
negative signs.
All flows are expressed in real terms or adjusted to be in real terms (e.g., the depreciation
tax saving). The following assumptions were used in formulating and implementing the
equations:
1. The economic life and the engineering life of the plant are both T.
2. Depreciation for tax purposes is "straight line."
3. rp and rm are symmetric with respect to borrowing or investing. There are no
differences in risk or transaction costs between these opportunities.
4. Costs in excess of revenues can be charged against revenues from other activities in a
period to obtain the tax deductibility of current period costs.
5. Marginal tax rates equal average tax rates.
6. Property taxes are included in operating costs.
A major interest in calculating cash flows is to find the increase in tipping fees that would
be needed to offset the after-tax cost. For private firms, the net present value (NPVp) of
offsetting revenue is shown in Equation (3.11).
• frS (3.ii)
The denominator (1-Xg) allows for taxes that the private firm must pay on net revenues. The
"cost," in this context, is the estimated present value of offsetting revenue required by the plant's
owners if the full cost of the regulation to the plant is passed through to users in the form of
3-17
-------
tipping fee increases. This adjustment is not needed for calculating NPVm because public
entities don't pay taxes on net revenues [NPVm = NPCm].
These present value estimates allow for comparison among various management
alternatives facing a single entity. In some situations the equations may not be appropriate for
comparing costs between two entities if those entities are different from each other in financial
structure. For example, two private firms, each with unique reinvestment options and tax
liabilities, require two different equations, each tailored to its firm's financial situation.
Comparisons between public and private firm cost of control made with these equations are
presented in Chapter 6, Table 6-2. Because public and private firms are inherently different in
financial and, perhaps, cost structure, these comparisons must be interpreted with care.
In Chapter 6 the NPV values are used to calculate annualized equivalents for the cost of
control for different model plants as well as for different plant ownership. The latter are then
divided by annual throughputs to obtain annualized $/Mg figures that are convenient for
comparing regulatory alternatives. Again, the same caution applies when comparing $/Mg costs.
The annualized $/Mg cost for a private firm or public entity is an approximation of the amount it
would have to charge in additional tipping fees in order to pass all costs along to MSW collectors
or generators, but there can be quite a bit of variation depending on the circumstances of
individual firms and public entities.
3.2.1 Combustion
Analysis of MWC costs using the cash flow model presented above provides a
framework for comparing costs as among plants and estimating cost impacts of regulatory
alternatives for a given plant For the purposes of depreciation, the life of existing plants is
assumed to equal that of the control equipment—IS years. Salvage value, net of
decommissioning costs, is assumed to be zero in our calculations.
Table 3-4 provides estimated annual and unit costs for Guidelines model plants. As noted
above, these model plants are used in this report as representative of certain types of MWC
plants based on MWC technology and capacity. The model plants and their costs are described
in detail in the Radian retrofit report (EPA, 1989b). The dollar measures used throughout the
report for model plants are December 1987 dollars.
Operating costs for MWC plants in Table 3-4 include ongoing costs related to operation
and maintenance of the combustor unit, ash disposal, and auxiliary fuel use. Not included in the
3-18
-------
TABLE 3-4. PRODUCTION-COST RELATIONSHIPS OF GUIDELINES MODEL PLANTS ($1987)a
UJ
Model
Plant
#
Mass Burn
6&14
2
12&17
1
3
5
4
Refuse-Derived Fuel
8
16
7
15
Modular
10
9
11
13
Operating
MSW Input
(Mg/yr)l>
55,700
56,800
139,000
184,000
254,000
303,000
631,000
163,000
163,000
546,000
546,000
12,200
27,000
53,700
113,000
Costs'
($!<%!•)
2,900
3,560
5310
8,550
9,190
9,800
15300
5,740
11,000
11,000
29,600
292
1,010
1350
4,060
($/Mg)
51.90
63.30
37.80
46.40
36.40
32.50
24.20
35.20
67.60
20.30
54.00
23.80
37.40
25.10
35.80
Revenue
from Energy
Recovery
($l
-------
baseline cost figures are any additional costs associated with the proposed Guidelines.
Annualized $/Mg unit costs of MWC plants decrease as MSW input increases, indicating
economies of scale.
3.2.2 Landfilling
Landfill capital costs have two components—capital equipment and land. By combining
these two costs and treating land resale value as a component of salvage value, the total cost of a
MSW landfill can be represented by the net present cost equation used for combustors. As with
MWC plants, landfill costs can be expressed for the financial conditions of both private and
public ownership (see Table 3-5).
EPA has implemented revisions to Subtitle D criteria for MSW sanitary landfills. These
regulations impose standards that will increase landfill costs because they require landfills to
provide closure and post-closure care including groundwater, surface water, and gas monitoring
systems and final cover integrity. Table 3-5 also presents these Subtitle D control costs for
sanitary landfills. Unit costs decrease with increased throughput, indicating the existence of
economies of scale in MSW landfilling.
The data presented in Tables 3-5, 3-6, and 3-7 have not been estimated using the cash
flow model and parameters discussed previously and applied to combustor model plants. To
provide the reader with a general idea of the costs of these MSW management activities, related
but not strictly comparable data are presented in these tables.
Hazardous waste landfills are more expensive than sanitary landfills. This is due
primarily to the systems designed to prevent and detect groundwater contamination. Closure of
hazardous waste landfills is also highly regulated and much more expensive than closure of
sanitary landfills. The capital, land, and operating costs for hazardous waste landfilling are
presented in Table 3-6. The unit costs decrease with increased throughput, indicating the
presence of economies of scale.
3.2.3 Collection and Transportation
The cost of transporting MSW increases with the distance the waste is hauled and with
the traffic congestion along the haul route (Robinson, 1986). Transportation cost estimates are
presented in Table 3-7 for alternative distances and traffic congestion situations. Costs increase
with distance at a constant rate. Average costs decrease (i.e., cost/Mg/km) due to the presence of
fixed costs.
3-20
-------
TABLE 3-5. PRODUCTION-COST RELATIONSHIPS OF LANDFILLS
K)
MSW
(Mg/day)
10
25
70
160
340
680
1,360
Input
(Mg/yr)
2,360
5,900
17,700
41,300
88,400
177,000
354,000
Capital
Costs
(SIO3)
1,700
3,020
6,200
8,050
11,700
17,000
34,500
Operating
Costs
($103/yr)
44,400
35,800
91,400
95,500
87,600
156,000
229,000
Baseline Annualized
Cost per Mg MSW
Public
($/Mg)
71.90
43.80
31.00
16.70
10.80
7.97
7.83
Private
($/Mg)
92.20
58.20
40.90
22.20
14.50
10.70
10.60
Subtitle D Annualized
Cost per Mg MSW
Public
($/Mg)
18.50
12.90
7.89
5.98
4.33
2.85
2.82
Private
($/Mg)
23.80
17.20
10.40
7.96
5.84
3.83
3.82
Total Annualized
Cost per Mg MSW
Public
($/Mg)
90.40
56.70
3880
22.70
15 10
1080
10.70
Private
($/Mg)
11600
7540
51 30
30 15
2030
14 50
14.40
3 Cost and input numbers are rounded to three significant digits. Details may not add to totals due to rounding.
b Differences in annualized operating costs for privately and publicly owned facilities are due to differences in the discount rate
Public discount rate: 4%; Private discount rate: 8%.
Source: Temple Barker and Sloan Inc ICF Inc., and Pope-Reid Associates. 1987. Draft Regulatory Impact Analysis of Proposed
%Z!slon?*0,Sul>tltle D Criteria for Municipal Solid Waste Landfills. Prepared for the U.S. Environmental Protection Agency
Office of Solid Waste. 5 •y'
-------
TABLE 3-6. COSTS OF HAZARDOUS WASTE LANDFILLING8
Capital
Land
Operating
TOTAL
Small (450 Mg/yr)
($/Mg)
186.80
21.94
383.20
591.94
Large (55,000 Mg/yr)
($/Mg)
8.48
1.08
45.65
55.21
a Values converted to $1987 dollars using the GNP implicit price deflator.
Source: Research Triangle Institute. 1986. A Profile of the Market for Hazardous Waste
Management Services, pp.D-67 to D-68. Draft Report prepared for the U.S. Environmental
Protection Agency.
TABLE 3-7. COSTS OF COLLECTING AND TRANSPORTING MUNICIPAL SOLID
WASTE8
Traffic
100/0/0
($/Mg)
10 kilometers 2.95
25 kilometers 4.90
50 kilometers 7.84
100 kilometers 13.71
Congestion (%rural/%suburban/%urban)
50/25/25
($/Mg)
3.11
5.26
8.48
14.92
25/50/25
($/Mg)
3.15
5.35
8.62
15.19
25/25/50
($/Mg)
3.22
5.50
8.92
15.75
a Costs refer to one-way trips. Values converted to $1987 using GNP implicit price deflator.
Source: Robinson, William D., ed. 1986. The Solid Waste Handbook: A Practical Guide.
Wiley-Interscience.
3-22
-------
CHAPTER 4
MUNICIPAL SOLID WASTE MANAGEMENT
The discussion of demand and supply conditions in Chapters 2 and 3 focuses on the
historic activity levels and technical relationships associated with municipal waste combustion
and, more generally, solid waste management. As that discussion shows, analysis of the
municipal solid waste (MSW) management system is complicated by the many process options
available. In this chapter we examine another complicating feature of the municipal waste
management system: the role that public entities play as both shapers of, and participants in, that
system. In particular, we examine their role in two interrelated exchanges: the exchange
between waste generator and waste collector and that between waste collector and waste
disposer. We then conclude with a discussion of solid waste management decision making by
public and private entities.
4.1 PUBLIC INVOLVEMENT IN THE MSW SYSTEM
Public entities—local, state, and federal—play a large role in regulating and operating
MSW management systems. Their influence, however, is not unlimited. Material, engineering,
geographic, cost, and other technical and economic conditions certainly apply to both public and
private entities.
In addition, all MSW management systems ultimately involve private decision makers
and associated markets. Households and private firms generate MSW, collect and transport
MSW, build and operate MSW disposal systems, provide financing, and provide markets for
recycled material. In some settings these private activities compete with public operations; in
others, they provide factors of production and demand for outputs from public operations.
Whatever the case, these technical and market relationships are important factors in conditioning
the influence of public entities on MSW management generally and the economic impact of
changes in the cost of municipal waste combustion in particular.
Having noted this, however, we now examine in more detail the nature and extent of
public involvement in MSW management and the way this involvement shapes the economic
impact of Guidelines on municipal waste combustors (MWCs).
4.1.1 Local Government
Local communities, especially in more urbanized areas, often take the lead in organizing
MSW management and, in many cases, providing collection and disposal services. A wide
4-1
-------
variety of reasons explain this involvement: concern for the public health threat of uncollected or
improperly disposed MSW, natural economies of scale in organizing and performing MSW
collection and disposal, and a concern for the negative externalities sometimes associated with
private collection and disposal (e.g., litter, noise, smells, traffic) that, while not necessarily
unhealthy, may diminish public welfare.
How extensive is the local government role? Stevens (1978) identifies four market
structures for MSW collection:
• Public monopoly—public agency collects all MSW.
• Private monopoly—private firm(s) collect(s) all MSW in a specific area under a
franchise agreement and is (are) reimbursed by a public entity.
• Competitive—public agency and private firm(s) both collect MSW.
• Self service—generators haul their MSW to disposal sites.
Savas and Niemczewski (1976) estimate that over 80 percent of residential refuse is
collected under the first three market structures. Goddard (1975) estimated the share of public
and private collection from households, commercial, and industrial customers. These data,
presented in Table 4-1, show that public collection is most common for household refuse,
accounting for about 50 percent of collection service. Furthermore, some significant fraction of
private service was probably provided by contractors selected by public entities. In that case, the
public entity played a role in selecting the private collection firm, specifying the terms and
conditions of collection, and paying the private collector for the service.
Local public policy with respect to financing waste collection is important to determining
the economic impact of the Guidelines. First, the price for waste collection paid by generators
may affect their waste generation—higher prices elicit lower generation and vice versa. Second,
where waste generators don't directly pay for collection costs, then others, usually taxpayers, do.
Goddard (1975) presents two tables on financing solid waste collection, which are reproduced
here as Tables 4-2 and 4-3. We observe that half of the municipalities use only general taxes to
pay for collection and that larger cities are more likely to pay the cost of collection out of tax
revenues. Since these data were gathered, however, there has been a trend toward greater
emphasis on user fees as a source of local government revenue. This trend includes MSW
collection. Even so, user fees assigned to individual MSW generators often do not vary with the
amount of MSW produced. Generators are usually charged a flat fee per container or up to a
given number of containers. This type of pricing structure diminishes the impact of any changes
4-2
-------
TABLE 4-1. TYPES OF SOLID WASTE COLLECTION (PERCENT OF
GENERATORS SERVED)
Generator
Household
Commercial
Industrial
Public
50
25
13
Collection Agency
Private
32
(50)
62
(91)
57
(94)
Self
12
13
30
Sources: U.S. DHEW. 1968. The National Solid Wastes Survey: An Interim Report.
Cincinnati, Ohio. U.S. Public Health Service. (Cited in Goddard, 1975.) Estimates in
parentheses are from the National Solid Wastes Management Association. 1972. The
Private Sector in Solid Waste Management. Washington, DC. (Cited in Goddard, 1975.)
TABLE 4-2. METHODS OF FINANCING SOLID WASTE COLLECTION BY
COLLECTION AGENCY, 1964« (NUMBER OF CITIES)
Collection Agency
Method of Finance
General tax&
Service charge
Tax and service charge
Other
M
209
149
69
2
M,C
25
24
10
1
M,P
81
37
29
0
M,C,P
20
4
4
1
C
68
74
8
1
C,P
26
11
4
0
Percent
50
35
14
1
Key: M=Municipal
C=Contract
P=Private
a Sample size is 957.
b Such as property, income, or sales tax.
Source: Goddard, Haynes C. 1975. Managing Solid Waste. New York: Praeger Publishers.
p. 41.
4-3
-------
TABLE 4-3. METHODS OF FINANCING SOLID WASTE COLLECTION BY CITY SIZE, 1964 (PERCENT)
Population
Method
of
Finance
General Tax
Service Charge
Tax and Service Charge
Other
Number of Gties
5,000
to
9,000
47.2
39.0
13.4
0.6
180
10,000
to
24,999
46.0
38.0
16.6
0.0
307
25,000
to
49,999
51.5
32.7
14.2
1.6
190
50,000
to
99,999
58.0
28.0
12.9
1.1
93
100,000
to
999,999
59.6
27.0
13.5
0.0
74
1,000,000
and
Over
66.6
0.0
33.4
0.0
6
TOTAL
50.1
34.9
14.4
0.6
850
Source: Goddard, Haynes C. 197'5. Managing Solid Waste. New York: Praeger Publishers, p. 41.
-------
in the price of collection on the amount of waste generated. Furthermore, to the extent that
control costs for compliance with Guidelines are financed out of general revenues rather than
through charges, called tipping fees, paid by those unloading at the combustor, the additional
costs will not even have a chance to influence waste generation in those jurisdictions with a
system of user fees for collection.
Waste disposal facilities, especially landfills, are more likely to be owned or operated by
government entities than are collection services.1 The EPA survey of 149 existing MWC plants
(EPA, 1988a) requested information on owners and operators. The 106 responses received and
processed to date are tabulated in Table 4-4. The 25 respondents that provided distinct
ownership information reported that 78 percent were publicly owned and 64 percent were
publicly owned and operated.
TABLE 4-4. OWNERSHIP OF MUNICIPAL WASTE COMBUSTION PLANTS, BY SIZE
Waste Received (103 Mg
Ownership
Public
Private
Unknown8
TOTAL
<10 10-30
7 12
5 5
30-50
8
1
50-100
8
4
per year)
100-250
14
0
>250
10
1
ALL
59
16
31
106
Ownership data not currently available.
Source: Research Triangle Institute. 1988. Memo to EPA on responses to Section 114 survey
letters.
A similar table on public and private ownership and operation of landfills was complied
from an EPA survey of nearly 20 percent of the operating landfill units (EPA, 1988b). Table 4-5
shows that over 70 percent of the landfills are publicly owned. In general, local entities feel a
strong responsibility to ensure that MSW generated and collected in their jurisdiction has a
proper place to go. They often believe that owning or operating the disposal facility provides
them with the necessary control. For instance, while several private firms recently submitted
bids to operate the Wake County, NC, landfills, the City of Raleigh substantially underbid its
competition to win the contract. The difference in the bids was not entirely a reflection of
]In waste disposal facilities in particular it is not uncommon for the operator of the facility to be different from the
owner.
4-5
-------
TABLE 4-5. OWNERSHIP OF LANDFILLS, BY SIZE
Waste Received (103 Mg per year)
Ownership
Public
Private
Unknown
TOTAL
<0.9
1,596
198
15
1,809
0.9-9
1,548
178
8
1,734
9-45
1,098
147
28
1,273
45-90
362
112
34
508
90-180
225
24
11
260
>180
222
143
85
450
TOTAL
5,051
802
181
6,034
Source: U.S. Environmental Protection Agency. 1988. National Survey of Solid Waste
(Municipal) Landfill Facilities. Final report prepared by Westat, Inc., under contract 68-
higher operating productivity on the part of the City; it appears to have been all or in large part a
reflection of the City of Raleigh's desire to ensure that its residents have an accessible and
appropriately run disposal site for MSW (Tucker, 1988).
An interesting finding of both surveys is that a sizable fraction of combustors and
landfills are owned or operated by a regional entity. For example, the combustor in Duluth, MN,
is owned and operated by a special service district created by the state legislature. This district
has responsibility for wastewater and MSW treatment of some half dozen municipalities in the
Duluth area. There is a trend—due to economies of scale in certain MSW management
operations and state government policy and legislation—toward forming sanitation authorities
that encompass multiple local government jurisdictions.
Financing of disposal systems owned by a public entity, like financing of MSW
collection, can be based on user fees, general tax revenues, or some combination of the two.
About 25 percent of landfills charge a price or tipping fee for MSW disposal services (Pettit,
1988). In 1988, the average tipping fee at landfills that have this charge was $29.70 per Mg; the
charge at resource recovery (combustion) facilities was $43.96 per Mg (Pettit, 1989). Since
collectors would be indifferent between a landfill or a resource recovery facility, the service
provided must be different at the two types of facilities. The most likely explanation for the fee
difference is that it reflects regional differences. When fees are charged they do not usually
cover all the costs of disposal; general tax revenues make up the difference between revenues and
4-6
-------
costs. When fees are not charged, access to disposal facilities is typically restricted to service
area collection crews and, sometimes, residents.
State and federal grants have also been used to finance some of the cost of publicly
owned disposal facilities, particularly when experimental disposal systems are involved. Tables
4-6 and 4-7 show tabulations of responses related to plant financing as reported to EPA in its
survey of existing facilities. These tables present the reported extent to which MWC owners'
revenues come from sources other than the sale of waste management services, energy, or
recycled materials. Such sources include subsidies and grants from state and federal government
agencies.
TABLE 4-6. TOTAL OPERATING SUBSIDIES AS A SHARE OF TOTAL REVENUES
(MUNICIPAL WASTE COMBUSTION PLANTS ONLY)
Percentage
of Total Revenues Frequency Relative Frequency
0
1-20
20-40
40-60
60-80
80-100
Total
47
2
4
3
5
2
63
.746
.032
.063
.048
.079
.032
1.000
Source: Research Triangle Institute. 1988. Memo to EPA on responses to Section 114 survey
letters.
TABLE 4-7. GRANTS AS A SHARE OF TOTAL CAPITAL COSTS
(MUNICIPAL WASTE COMBUSTION PLANTS ONLY)
Percentage
of Capital Costs
0
1-10
10-20
20-30
30-40
40-100
Total
Frequency
39
1
3
5
7
2
57
Relative Frequency
.683
.018
.053
.088
.123
.035
1.000
Source: Research Triangle Institute. 1988. Memo to EPA on responses to Section 114 survey
letters.
4-7
-------
Table 4-6 shows total operating subsidies as a percentage of total facility revenues. This
is a crude measure of the extent to which facility operations receive support from government,
either at the state or federal level. Only 63 of the 106 facilities in the current Section 114 survey
database answered these questions. Of these 63 respondents, 75 percent reported receiving zero
subsidy. Based on this rough measure, it appears that the owners of MWC facilities do not, in
general, rely heavily on continuing direct payments from the state or federal government to cover
budget shortfalls. Two facilities, however, reported their subsidy revenue was more than 90
percent of their total revenues.
Table 4-7 shows grants as a percentage of total capital costs. This percentage is a crude
measure of the state and federal government support received by facility owners to cover their
capital costs. Again, only a fraction of the facilities responding to the survey answered this
question. Of the 57 facilities responding, 39 (68 percent) stated that they receive no grants.
Again, based on this crude measure, it appears that facility owners do not rely heavily on support
from the state and federal government to meet their capital costs, although a sizable minority
(15.8 percent) received over 30 percent of their capitalization in the form of state and federal
grants.
When a public entity collects MSW for disposal with either a private facility or a facility
owned by another public entity it usually negotiates a long-term contract for disposal with the
entity providing disposal. Private collection firms franchised by public entities also frequently
have such long-term contracts. These MSW disposal contracts usually have provisions for
passing on costs that arise due to circumstances outside the control of the disposal system
operator. Requirements related to air emission control guidelines most likely would fall under
such provisions. As such, where tipping fees are used, the costs of regulation for an existing
facility would be passed on to the collectors that hold long-term rights to dispose of MSW at that
disposal site. Similar terms may also occur in contracts between private waste collectors and
public entities.
Local public entities also participate in MSW management in their capacity as regulators
of land use and guardians of public health and welfare. Siting and operation of private MSW
disposal facilities are usually subject to local government review and approval. Successfully
addressing local citizens' concerns has become very difficult because of awareness of both
hypothesized and actual effects disposal facilities have on local property values, health, and the
environment. Local fear and strident opposition to landfills and combustors are fairly
commonplace (Wall Street Journal, Sept. 4,1987). One, albeit remote, economic impact of the
Guidelines may be reduced costs of defending existing, retrofitted facilities from local criticism,
4-8
-------
reduced threat of closure, and reduced costs of siting new facilities, because MWCs will emit
fewer residuals to the atmosphere.
4.1.2 State Government
In recent years, states have taken a more active role in shaping the MSW management
practices in their jurisdiction. While the nature and level of state initiatives vary tremendously,
many states have become active in providing a framework for organizing and planning local MSW
management (Kovacs, 1988). States most prominent in this area tend to be those confronting
serious MSW management problems due to dense populations (because of the large amount of
waste such populations generate and the limited space for disposal sites) and the vulnerability of
their natural environment (e.g., states with limited water resources and/or high water tables).
Goddard (1975) notes that California and Connecticut were among the leaders in this
regard, setting up a Solid Waste Management Board in California and the Connecticut Resource
Recovery Authority in Connecticut in the early 1970s.
More recent examples include New York State's Department of Environmental
Conservation, which issued solid waste rules covering liner requirements for landfills; disposal of
combustor fly ash; and emission limits on particulates, dioxin, and nitrogen oxide for waste
incinerators (Solid Waste Report, Sept. 12,1988). In June 1988, Florida passed a solid waste law
that, among other things, required each county to initiate a recycling program, set 1994 as the
target date by which 30 percent of the State's waste would be recycled, established qualifications
to be met by operators of waste management facilities, and required owners and operators of
landfills to set fees to ensure the proper closure of landfills (Solid Waste Report, July 11, 1988).
Many other states have either passed legislation that is similar in intent to these examples
or are seriously considering such legislation—for example, Massachusetts (Cowen, 1987). Table
4-8 summarizes state solid waste laws enacted in 1988. Of particular interest are the regulations
regarding general solid waste management, mandatory source separation, and waste-to-energy
facility requirements. Ohio's H592, signed June 24,1988, effectively doubles solid waste
disposal permitting fees and calls for a comprehensive state solid waste management plan (Solid
Waste Report, October 17,1988). In effect, states have become very active in establishing the
terms and conditions under which local governments must operate as they seek to structure their
local MSW management systems.
4-9
-------
TABLE 4-8. STATE SOLID WASTE LAWS ENACTED IN 1988
ISSUES
General solid waste
management
Purchasing preferences
tor recyclabtes
RECYCLING: Waste reduction
program requirements
RECYCLING: Planning and
goals
RECYCLING: Study
RECYCLING: Mandatory
source separation
NONDEGRADABLES: Bans/
restrictions on use
NONDEGRADABLES: Taxes
NONDEGRADABLES:
Incentives to recycle
Labeling of products made
with recyclable/degradable
material
Waste-to-energy facility
requirements
AZ
•
CA
•
•
•
•
CT
'
FL
•
'
•
•
•
•
•
•
HI
•
IL
•
•
•
IA
•
•
LA
•
MD
•
•
MA
•
•
ME
•
'
•
Ml.
•
*
MN
•
•
•
NH
•
NJ
NY
*
•
•
OH
*
OK
•
•
•
•
PA
•
•
•
•
•
Rl
•
*
TN
•
VA
•
•
•
WA
•
•
Wl
•
•
Source: Solid Waste Report, October 17,1988
-------
4.1.3 Federal Government
The Federal Government, by virtue of both legislation and regulation, influences solid
waste management in a variety of ways. Sections of the Resource Conservation and Recovery
Act of 1976 (RCRA), the National Energy Conservation Policy Act of 1978, and the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980 all address
issues of solid waste and MSW management. Under RCRA and subsequent amendments, for
example, regulations requiring stricter control of waste at sanitary landfills, referred to as Subtitle
D regulations, have been proposed and procurement procedures aimed as fostering recycling
initiated.
Two Federal actions that have been especially important to MWC activity have been the
Public Utility Regulatory Policy Act of 1978 (PURPA) and the Tax Reform Act of 1986. Under
PURPA regulations, independent small power generators have better opportunities, under more
favorable financial terms, to provide electricity to electric utilities. This, in combination with
higher electricity prices generally, has spurred the development of MWCs that co-produce steam
and electric energy. The Tax Reform Act of 1986, on the other hand, has reduced the tax and
financing advantages available to private owners of new MWCs (Hilgendorff, 1989). While
Hilgendorff estimates that between 50 and 100 upcoming MWC projects are "grandfathered"
under the Act, "most analysts agree that the eventual effect... will definitely compel municipal
ownership."
Recently, EPA has led a federal effort specifically aimed at reshaping the way in which
solid waste is managed in the U.S. In its reports, The Solid Waste Dilemma: An Agenda for
Action Final Report (1989d) and Background Document (1989e), EPA calls for "integrated
waste management" in keeping with the following preferred hierarchy of processes:
• source reduction (including reuse of products),
• recycling of materials (including composting),
• waste combustion (with energy recovery), and
• landfilling.
The final report and supporting documents go on to discuss obstacles to establishing the
integrated waste management system envisioned and options for overcoming those obstacles
through information, demonstration, and incentive programs.
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4.2 MSW DECISION MAKING
The design and operation of a MSW management system requires decision makers to
make a number of choices. These choices are constrained by technical and economic factors and
will have implications for generators and managers of solid waste as well as suppliers of inputs
of MSW management services (e.g., labor services, MWC suppliers, owners of land) and area
residents.
For example, governments must decide which institutional arrangement to use for waste
collection and disposal. Depending on the institutional arrangements, public and private decision
makers must choose the amount and type of solid waste to generate (the demand side) and
disposal processes to provide—combustion, recycling, and landfilling (the supply side). For each
process they must determine the appropriate location, scale, and design lifetime. Imposition of
the Guidelines will likely affect these choices. To help analyze this effect, we now briefly
discuss the objective(s) that guide the response of private and public decision makers.
4.2.1 Private Decision Making
In conventional economic analysis, households are utility maximizers and firms are profit
maximizers. They are bound together by markets—market supply and demand balance
competing interests given finite resources, limited technical knowledge, and institutional
conditions, including the structure of the markets themselves (e.g., perfect competition,
monopoly). This analysis assumes that the private components of most local solid waste
management systems will follow the conventional economic paradigm. As described in
Chapter 2, households and firms that generate waste respond to increases in the price of waste
collection by reducing their amount of waste generated. The proportionate reduction may not be
large, but if the price increase is large enough, the effect will be noticeable. By the same token,
however, if cost increases in the MWC portion of the management system are not fully reflected
in prices or tied to the amount of waste generated, there will be little or no change in waste
generation attributable to the Guidelines beyond that associated with "income effects" due to
changes in taxes.
Similarly, firms that collect, transport, and/or dispose of waste are assumed to respond to
changes in the cost of production by adjusting their input mix to keep costs down and by passing
as much of the remaining cost increase on to their customers (as price increases) as market
conditions and contractual arrangements allow. As discussed in Chapters 2 and 3, changes in the
cost of MWC disposal will lead owners of MWCs to raise prices. The extent that MWC owners
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can raise prices and the degree to which this is accompanied by a change in the amount of waste
combusted depends on the demand for combustion services in the local market. As noted in
Chapter 2, this demand depends on the share of combustion services used, the availability of
substitutes, and the demand of disposal services generally. While institutional conditions
associated with local, state, or federal policies will affect these determinants of demand, in this
analysis private parties accept such institutional conditions as given and make disposal and
production decisions so as to maximize profit or, the equivalent for price takers, reduce cost.
4.2.2 Government Decision Making
Government decision making is of particular concern in this analysis given the large role
that government plays at every level, but especially the local level, in shaping MSW management
systems. Theoretical and applied literature does not provide much positive guidance on the
behavior of governments (e.g., Rubinfeld, 1987). On the other hand, normative literature on
MSW management decision making, much of it aimed at decision making by public officials,
often assumes that cost minimization, sometimes referred to a "project economics," is the
implicit basis on which decisions regarding MSW management are reached. Consequently, this
literature addresses methods and means by which the decision maker can make the correct, cost-
minimizing choice (Robinson, 1986). Examples also include authors who aren't necessarily
enthusiastic about conventional waste disposal options. Kirshner and Stern (1985) and the
Institute for Local Self-Reliance (Morris, 1987) both couch their arguments against extensive
MSW incineration and for recycling in cost-minimizing terms.
RTI contacted eight communities that had recently made decisions to build MSW
combustors to learn their basis for selecting a particular disposal option and technology (Berry et
al., 1988). While this was not a scientific survey, the individuals contacted in the public works or
a similar department described cost as the over-riding consideration in the community's decision.
The decision was subject to the conditions that they have some means of meeting their
community's MSW disposal requirements and that this means is compatible with environmental
and other considerations. For example, most said either that MWC was more economical than a
landfiU in their circumstances or that they couldn't get a permit to build a new landfill in their
area because of environmental constraints. The exception to this was an individual who noted
that the least costly MWC system was selected even though a landfill might have been a cheaper
way to dispose of MSW per se because the community also had to provide steam to a public
facility and, given the wider scope of the decision, a MWC system was most economical.
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While this evidence is not absolute proof of the proposition, it seems sufficient to justify
that local or municipal MSW system decision making represents cost minimization, subject to
Jthe constraint that all MSW must be collected and properly disposed. It differs from private
decision making in that the minimum cost is assessed based on centralized enterprise of costs of
various combinations of MSW management alternatives, some of which may not be feasible for a
private firm due to institutional or financial constraints.
4.2.3 Cost Minimization
In this analysis cost-minimizing decision making is used as the basis for the enterprise
cost and emission reduction estimates of Scenario I, the substitution analysis and subsequent
enterprise cost and emission reduction estimates of Scenario II, and qualitative discussion of
impacts of Scenario HI. The next chapter provides a detailed discussion of how this
characterization of decision making is used to make these impact estimates.
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CHAPTER 5
ANALYTICAL APPROACH TO ESTIMATION OF COST AND EMISSION IMPACTS
To estimate the impact of MWC Guidelines, levels of activity in relevant markets must be
compared before and after the regulation. First, we project baseline or "without Guidelines"
conditions. Then we compare these conditions with outcomes for five "with Guidelines"
regulatory alternatives under three economic scenarios.
5.1 BASELINE PROJECTIONS
The baseline level of MWC activity depends on how much solid waste is generated and
what other waste handling methods are available and in use, including landfills, materials
recovery, self disposal, and littering. For this reason, we make baseline projections not only for
solid waste combustion but also for solid waste generation and the amount of solid waste
managed by other major methods.
5.1.1 Initial Conditions
We selected 1986 as the initial year (i) for baseline projections because it is the most
recent year for which a wide variety of quantitative data on waste management activities are
available. We used these data to build up a profile of 1986 solid waste flows (Qwi) associated
with MWCs and the major waste management options that are alternatives to combustion. This
procedure is sometimes complicated because of differences in the definition and scope of the
various source documents.
From the results of the 1986 landfill survey (EPA, 1988b) Westat estimated that a total of
189.4 million Mg of waste was landfilled in 1986. This estimate includes the estimated amount
of municipal incinerator ash landfilled in 1986: 1.3 million Mg. We subtracted this value from
the total because other estimates do not include incinerator ash. Thus, the Westat estimate of
waste landfilled in 1986, net of municipal incinerator ash (Qji), equals 188.1 Mg. This value
makes up the first component of 1986 solid waste flows illustrated in Figure 5-1.
A recent Franklin Associates report (1988) provides useful information on 1986
municipal solid waste (MSW) flows. These flows are based on estimates of consumption activity
and include some waste components that are not landfilled or combusted at a municipal
incinerator (such as self-disposed materials, litter, and recycled materials) and exclude some
solid wastes that are landfilled and combusted (such as car bodies, sewerage sludge, industrial
and commercial waste, construction wastes, and foreign import packing materials). Franklin
5-1
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10° Mg/yr
14.4
15.3
1986
1991
Combustion
Materials Recovery
Landfilling
Franklin
Associates
Estimates
Figure 5-1. Solid Waste Flow Projections, 1986 through 1991
5-2
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Associates estimates that 143.0 million Mg of MSW (excluding municipal incinerator ash) was
generated in 1986. They estimate the disposition of this MSW as follows: 15.3 million Mg of
material recovery (recycling), 119.0 million Mg landfilled (net discards), and 8.7 million Mg
combusted (by energy recovery facilities).
The Franklin Associates (1988) materials recovery estimate (Qmi) is added to the waste
flows represented in Figure 5-1. The Franklin Associates MSW flows to landfills and
combustors are shown as components of the landfill and combustion flows estimated in
Figure 5-1. These components are somewhat smaller than the corresponding landfill and
combustion flows used to specify initial conditions in baseline. This is because landfills and
combustors receive more solid waste than included in the definition of MSW used by Franklin
Associates. Still, as Figure 5-1 shows, most waste flowing to these treatment technologies
appears to originate as MSW.
The Radian census of existing municipal waste combustors (EPA, 1989b) is the primary
source for our estimate of baseline solid waste flows to combustors in 1986. This census
includes all combustors that burn MSW and would therefore be subject to the Guidelines. We
estimated waste flows to combustors by applying average capacity utilization factors to each
identified combustor. These factors varied with the combustor technology (mass burn, modular,
or RDF) and heat recovery capability as reported by the 1988-89 Resource Recovery Yearbook
(Gould, 1988) and estimated in Radian's retrofit report (1988a). We also adjusted combustor
solid waste flows to account for the fraction of facilities that co-fired solid waste with another
fuel. As a result of these calculations we estimate that combustors handled 14.4 million Mg of
waste flow (Qci) in 1986. This is higher than the Franklin Associates estimate of MSW flows to
combustors in 1986 partly because Franklin Associates only counts "energy recovery" facilities
among its combustors.
Summing components as shown in Equation (5.1), total non-hazardous solid waste flow
handled by landfills, recycling, and combustion in 1986 is estimated to be 218 million Mg.
Q . = o,. + o • + O • fs 11
^wi vh vrm vci *>:>-1'
This total, along with the component major waste handling methods, is the point of departure for
baseline projections. As can be seen by Equation (5.1), our analysis does not specifically deal
with littering and self-disposal even though our total waste generation estimates do include these
components. These waste flows are even more difficult to estimate accurately and do not
comprise a significant segment of the total waste stream. By the same token, we don't attempt to
estimate or project changes in materials recycling of industrial or commercial waste that would
5-3
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otherwise be landfilled or ash from combustion, net of any ash sent to a dedicated ash landfill,
that is landfilled as MSW.
EPA's goal for the nation is to burn 20 percent and to recycle 25 percent of the MSW
streams by 1992 (EPA, 1989d). The projection of 29.4 and 17.2 million Mg in 1991 for
combustion and recycling, respectively, amounts to 12.5 and 7.3 percent of the MSW stream.
The projection used here is based on a slightly different definition of the composition of MSW
and is only for analytical purposes; it should not be interpreted as an alternative goal. To the
extent the nation recycles more than 7.3 percent of MSW in 1991, there will be a reduced
demand for MWC and landfill services, and the nationwide costs and emissions reductions
associated with the Guidelines will be smaller. On the other hand, to the extent the nation burns
more than 12.5 percent of MSW in 1991, the demand for MWC services will be larger, and the
nationwide costs and emissions reductions associated with the Guidelines will be larger. The
costs and emissions associated with landfills are not analyzed here.
5.1.2 Projections
The baseline projection used in this analysis draws heavily on the assumptions and
projections made by Franklin Associates (1988). In summary, we project future total waste
flows and associated flows to landfills and materials recycling. Projected landfill and materials
recycling flows are then subtracted from the projected total to provide a projection of the flow of
waste to combustors in 1991. This procedure is characterized in Equation (5.2)., where the g
subscript represents baseline projections for Guidelines.
(V (5-2)
We select 1991 as the projection year because all facilities that are under construction
when the proposed Guidelines are published in the Federal Register (anticipated for late 1989)
are expected to be operating in 1991. Plants under construction after the date the Guidelines are
proposed will be subject to a separate New Source Performance Standards (NSPS) regulation to
be published at the same time.
Franklin Associates assumes that "waste landfilled will be relatively constant." Our
baseline projection actually fixes landfilled waste at 188.1 Mg per year. Materials recycling of
MSW is projected to grow at the annual rates estimated by Franklin Associates, reflecting "no
dramatic changes in current practices." This amounts to 17.2 million Mg in 1991. The growth in
total waste flows is based on the annual growth rates in MSW gross discards projected by
Franklin Associates. In making its projection, Franklin Associates relied on documentation of
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"historical production (or consumption) of materials and products that enter the municipal waste
stream."
The total solid waste flows projected for the baseline in this analysis (using Franklin
Associates' projected growth rate for gross discards) is 234.6 million Mg. Equation (5.2) gives a
baseline projection of waste combusted in 1991 of 29.4 million Mg (differences due to
rounding). These projections are shown in Figure 5-1 along with the comparable projections
made by Franklin Associates for MSW flows to landfills and combustors. For the purpose of
illustration and comparison, Figure 5-2 shows longer range projections of total waste flows and
their components based on the procedures described above.
5.1.3 Baseline Combustion
Using the baseline projections of combustor waste flows, QCp, we constructed estimates
of baseline capacity by MWC technology and model plant This was done in two steps. First,
we estimated the waste flow processed by current MWC plants identified by Radian's industry
profile (EPA, 1989a). We calculated this by applying technology-specific capacity utilization
and waste flow coefficients to the annual capacity data for each existing plant. The waste flow to
current plants estimated in this way is 18.6 million Mg. These flows, allocated to combustor
technologies and model plants representing current MWC plants, are displayed in Table 5-la.
Table 5-la also presents corresponding information on capacity for current MWC plants.1
In the second step, waste flows estimated for current plants were subtracted from
estimated total waste flows to combustors, Qcp. The difference, 10.8 million Mg, was then
allocated to MWC technologies and model plants in proportion to Radian's estimates of
transitional plants that might be affected by Guidelines. The projected waste flows to transitional
facilities affected by the Guidelines and their allocation to model plants are shown in Table 5-lb.
Corresponding capacity estimates are also presented in the table.
By summing the waste flows and capacities estimated for current and transitional plants
we calculated total waste flows and capacity projections by model plant consistent with the
baseline projected total waste flows to combustors. These projections are shown on Table 5-lc.
'Some of the plants affected by the Guidelines could not be assigned to a model plant category because of
differences in technology. A scale factor to account for "unassigned" facilities when allocating flows, capacity, or
costs is calculated by dividing total estimated waste flows handled by combustors by waste flows allocated to
assigned plants. This factor is reflected in these calculations in the next to last row of Table 5-1.
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10° Mg/yr
1986
1991
1996
Combustion
| | Materials Recovery
Landfilling
Franklin
Associates
Estimates
Figure 5-2. Solid Waste Flow Projections, 1986 through 1996
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TABLE 5-la. BASELINE PLANT CAPACITY AND WASTE FLOW ESTIMATES FOR
CURRENT MWC PLANTS SUBJECT TO GUIDELINES
Model Plant
Number
1
2
3
4
5
6
7
8
9
10
11
12
Model Plant
Description
MB/REF/TG
MB/REF/RG
MB/REF/RK
MB/WW (large)
MB/WW (mid-size)
MB/WW (small)
RDF (large)
RDF (small)
MOD/SA/TR
MOD/SA/G
MOD/EA
MB/RWW
TOTAL ASSIGNED
UNASSIGNED
TOTAL
Capacity8
(10« Mg/yr)
1.37
1.81
1.42
4.72
2.39
0.62
3.31
2.80
0.79
0.76
0.55
0.40
20.95
2.01
22.96
Waste Flowb
(106 Mg/yr)
1.02
1.28
1.21
4.00
2.02
0.52
2.74
2.32
0.43
0.56
0.45
0.34
16.89
1.66
18.56
aCapacity estimates based on Radian's model plants description and cost report (EPA, 1989c).
bWaste flow estimates based on the annual operating hours reported in Table 3-3. For all but 4 of the model plants,
these hours reflect the average capacity utilization, by plant type, reported in the 1988-89 Resource Recovery
Yearbook, (Gould, 1988). Allowance for increased downtime due to age is made for model plants 1,2, and 10;
and allowance is also made for a stand-by unit for model plant 9.
TABLE 5-lb. BASELINE PLANT CAPACITY AND WASTE FLOW ESTIMATES FOR
TRANSITIONAL MWC PLANTS SUBJECT TO GUIDELINES
Model Plant
Number
4
5
9
10
13
14
15
16
17
Model Plant
Description
MB/WW (large)
MB/WW (mid-size)
MOD/SA/TR
MOD/SA/G
TRANS MOD/EA
TRANS MB/WW
TRANS RDF (large)
TRANS RDF (small)
TRANS MB/RWW
TOTAL ASSIGNED
UNASSIGNED
TOTAL
Capacity8
(10« Mg/yr)
3.51
3.87
0.18
0.01
0.29
0.19
2.79
0.53
0.71
12.09
0.83
12.92
Waste Flowb
(10
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TABLE 5-lc. BASELINE PLANT CAPACITY AND WASTE FLOW ESTIMATES FOR
CURRENT AND TRANSITIONAL MWC PLANTS SUBJECT TO
GUIDELINES
Model Plant
Number
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
Model Plant
Description
MB/REF/TG
MB/REF/RG
MB/REF/RK
MB/WW (large)
MB/WW (mid-size)
MB/WW (small)
RDF (large)
RDF (small)
MOD/SA/TR
MOD/SA/G
MOD/EA
MB/RWW
TRANS MOD/EA
TRANS MB/WW
TRANS RDF (large)
TRANS RDF (small)
TRANS MB/RWW
TOTAL ASSIGNED
UNASSIGNED
TOTAL
Capacity8
(10« Mg/yr)
1.37
1.81
1.42
8.23
6.26
0.62
3.31
2.80
0.97
0.77
0.55
0.40
0.29
0.19
2.79
0.53
0.71
33.04
2.84
35.87
Waste Flowb
(10« Mg/yr)
1.02
1.28
1.21
6.97
5.30
0.52
2.74
2.32
0.53
0.57
0.45
0.34
0.24
0.16
2.31
0.43
0.60
27.00
2.35
29.35
a Capacity estimates based on Radian's model plants description and cost report (EPA, 1989c).
b Waste flow estimates based on the annual operating hours reported in Table 3-3. For 13 of the
model plants, these hours reflect the average capacity utilization, by plant type, reported in
the 1988-89 Resource Recovery Yearbook. (Gould, 1988). Allowance for increased
downtime due to age is made for model plants 1, 2, and 10; and allowance is also made for
a stand-by unit for model plant 9.
Figure 5-3 compares the baseline projections of future combustion developed here with
projections recently made by other organizations. Most alternative projections are made in terms
of capacity, so that is the basis for the comparison adopted in Figure 5-3. The different
projections are adjusted for this comparison to reflect a common scope—that of the Radian
combustor profile. Figure 5-3 shows that projections of combustor capacity for 1991 range from
Franklin Associates' estimate of 17.63 million Mg to Radian's estimate of 60.40 million Mg. In
comparison to the alternative projections of MWC capacity made by other organizations
(excluding Radian), the "Baseline" projection used for this report is exceeded only by Kidder,
Peabody's and ranges 2 to 50 percent higher than the other projections.
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CAPACITY
MILLION 60.00 -f
MG/YR
RADIAN
BASELINE
FROST &
SULLIVAN
FRANKLIN
10.00
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
YEAR
Figure 5-3. Comparison of MWC Capacity Projections, 1986 to 1996
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5.2 SCENARIOS
Analyzing the economic impacts of MWC Guidelines under each regulatory alternative is
especially challenging because of the MSW industry's complicated organizational structure and
decision-making policies. Even assuming that cost minimization is a primary decision criterion,
it is difficult to predict how public and private decision makers—uncertain about the future,
constrained by a wide variety of institutional considerations, and examining a multiplicity of
interrelated waste management options—will respond to tighter air emission Guidelines on
combustors. Will they adopt the air pollution control devices (APCDs) designated in the
engineering analysis for each model plant? Or, confronted by the prospect of potentially
expensive modifications to their existing facility, will they review their entire waste management
program and devise an alternative strategy in light of the Guidelines?
Because of the uncertainty surrounding response to Guidelines, three economic impact
scenarios are considered.
Scenario I No substitution; employ APCD modification as
specified in the model plant analysis.
Scenario n MWC substitution; new MWC replacement for
initial MWC where feasible and cost-minimizing.
Scenario HI Greater substitution; landfill, recycling, or new
MWC for allowed to replace initial MWC.
The scenarios differ in the extent to which decision makers substitute away from the projected
level and mix of initial combustion activity as represented in the Radian retrofit report for
existing MWCs (EPA, 1989b) and the Scenario I baseline. Scenario I assumes that there is no
such substitution: all plants initially projected in the Scenario I baseline continue to operate.
These plants, as represented by their respective model plants, are assumed to make the APCD
modifications corresponding to the regulatory alternative in question and to bear the additional
costs associated with these modifications.
Scenario II assumes that decision makers only consider the possible substitution of a new
MWC plant for the initial plants of the Scenario I baseline. In this scenario substitution is based
on cost and capacity comparisons among the Guidelines and NSPSs model plants (EPA, 1989a).
In some cases, referred to as substitution in the baseline, older plants might be replaced by new
MWCs even without the Guidelines. In such instances, associated costs and emission reductions
are not imputed to the Guidelines. In other cases, plants that appeared to be cost-competitive
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before the Guidelines might be replaced by less costly alternatives after the regulation. In
Scenario II, then, baseline levels of MSW combusted remain the same, but the mix of MWC
plants changes. This change reduces the cost of the regulatory alternatives relative to those of
Scenario I. Because of possible changes in the mix or vintage of MWC plants, emission
reductions may change as well, but the direction of change depends on the particular substitution
mode.
For both Scenarios I and n we provide quantitative estimates of the cost and emission
reductions of each regulatory alternative. This isn't done for Scenario m because of the
complexity of the relationships involved. Under Scenario HI, we examine in a qualitative way
the impact of the Guidelines when decision makers include increased landfills and recycling, as
well as new MWCs, as alternatives to modifying a current plant to meet the Guidelines. Unlike
Scenarios I and n, then, Scenario HI admits the possibility that Guidelines will reduce the
amount of MSW combusted.
5.3 REGULATORY ALTERNATIVES
Six conditions are relevant to estimating the economic impacts of the Guidelines: the
baseline and five regulatory alternatives. The baseline conditions that establish the number and
type of affected Guidelines plants and the amount of MSW combusted in these plants are
described in the previous sections of this chapter. The baseline conditions described here refer to
control technologies and emission levels for MWC plants in the absence of the Guidelines. The
costs of these baseline control technologies have already been presented for model plants in
Chapter 3. The five regulatory alternatives considered in this analysis specify the emission levels
the affected plants would have to comply with.
Table 5-2 outlines the five regulatory alternatives for the Guidelines. The Guidelines
would impose varying emissions limits on MWCs. Air emissions affected include
polychlorinated dibenzo-p-dioxins and dibenzofurans (CDD/CDF), carbon monoxide (CO),
paniculate matter (PM), hydrogen chloride (HC1), sulfur dioxide (SO2), and lead (Pb). In certain
circumstances the residue remaining after combustion is changed due to the APCD changes.
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TABLE 5-2. MAXIMUM EMISSIONS BY REGULATORY ALTERNATIVE
Regulatory Control
Alternative Parameters
I CDD/CDF
PM
Temperature3
IIA CDD/CDF
PM
Temperature3
IIB CDD/CDF
PM
Temperature3
HI CDD/CDF
PM
Temperature3
IV CDD/CDF
PM
Temperature3
Plant Capacity (Mg
Small
<225
500 ng/Nm3
0.1 8 g/dscm
230 °C
500 ng/Nm3
0.1 8 g/dscm
230 °C
125 ng/Nm3
0.02 g/dscm
175 °C
500 ng/Nm3
0.1 8 g/dscm
230 °C
125 ng/Nm3
0.02 g/dscm
175 °C
per day)
Large
>225
500 ng/Nm3
0.02 g/dscm
230 °C
125 ng/Nm3
0.02 g/dscm
175 °C
125 ng/Nm3
0.02 g/dscm
175 °C
5 ng/Nm3
0.02 g/dscm
150°C
5 ng/Nm3
0.02 g/dscm
150 °C
a Outlet temperature at PM control device.
Source: Radian. 1989. Background Paper, Municipal Waste Combustors. Prepared for the U.S.
Environmental Protection Agency, Office of Air Quality Planning and Standards.
Radian and EER have estimated baseline emission levels in a report to EPA on
retrofitting existing MWC facilities (EPA, 1989b). These baseline emissions are the emissions
produced if there are no additional controls or changes in operating conditions at the affected
facilities. The analysis of regulatory impacts requires these data on the emission levels
associated with the baseline and the regulatory alternatives for affected facilities.
Under each of the five regulatory alternatives, each model plant is associated with one of
eight engineering control options examined by Radian and EER in the retrofit study. The eight
control options consist of various combinations of four types of control technologies. The
technologies followed by the emissions they are designed to control are listed below:
• Good combustion practice (GCP)—CDD/CDF and Pb
• Flue gas temperature reduction—CDD/CDF
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• Paniculate matter (PM) control — PM
• Acid gas control (dry sorbent injection/ESP or spray dryers/fabric filters) — HC1, SO2,
and CDD/CDF
PM control is further defined as moderate, good, or best depending on the level of
emission reduction required to meet the relevant regulatory alternative. Acid gas control is also
described as good or best in reference to the level of emissions allowed under each regulatory
alternative. Good acid gas control is achieved through the use of dry sorbent injection.
Reduction of emissions to the level required for best acid gas control is achieved through spray
dryers and fabric filters.
The levels of control reflected by the regulatory alternatives do not follow a straight
forward progression of least to most stringent when moving from Regulatory Alternative I
through Regulatory Alternative IV. Compared to HA, Regulatory Alternative Iffi imposes no
further control over large plants (greater than 225 Mg/day design capacity) but tightens controls
over small plants (less than or equal to 225 Mg/day design capacity). Moving from IIA to HI, on
the other hand, imposes no further control for small plants while bringing greater control over
large plants. The two paths of least to most stringent are characterized below:
xn\
nA I
5.3.1 Baseline Emissions
Baseline combustion practice and emission rates vary from plant to plant. In the baseline,
all model plants meet the federal standards which limit PM emissions to 0.18 g/dscm for MWC
plants with the exception of plants with design capacity of 45 Mg/day or less. As a result, all
model plants in the analysis limit PM emissions to 0.18 g/dscm or less in the baseline except the
two model plants with design capacity of 45 Mg/day or less and model plant 2, which is an older
design.
5.3.2 Regulatory Alternative I
Regulatory Alternative I is the least stringent of all the regulatory alternatives. Under this
alternative, all plants must achieve GCPs and reduce flue gas temperatures to 230 °C. CDD/CDF
emissions would be reduced to 500 ng/Nm3 with these controls in place. Small plants are
required to practice moderate PM control, limiting PM emissions to 0.18 g/dscm, and large plants
5-13
-------
are required to achieve best PM control, limiting PM emissions to 0.023 g/dscm. No acid gas
control is required for plants of any size under this alternative.
5.3.3 Regulatory Alternative IIA
Regulatory Alternative IIA is the next most stringent alternative and also requires GCPs
for all plants. Controls for small plants are no different under Regulatory Alternative I than HA.
Moderate PM control, 230 °C flue gas temperatures, and no acid gas control are required of small
plants. However, large plants are required to further reduce flue gas temperatures to 175°C,
achieve good acid gas control through the use of add-on control equipment, and practice best PM
control. This has the affect of reducing CDD/CCF to 125 ng/Nm3 and PM to 0.023 g/dscm. HC1
and SOi emissions are reduced 80 and 40 percent over the baseline, respectively.
5.3.4 Regulatory Alternative IIB
One progression from least to most stringent regulation is characterized in the move from
IIA to IIB. Regulatory Alternative IIB has the same controls for large plants and more stringent
controls for small plants when compared to Regulatory Alternative IIA. As with Regulatory
Alternative HA, GCPs, 175 °C flue gas temperatures, best PM control, and good acid gas control
are required of large plants. Small plants, however, must also reduce flue gas temperatures to
175 °C, achieve good acid gas control, and practice best PM control under Regulatory
Alternative HE. These controls reduce CDD/CDF to 125 ng/Nm3 and PM to 0.023 g/dscm. An
80 percent reduction in HC1 and a 40 percent reduction in SO2 over baseline emission levels
would result from these control measures.
5.3.5 Regulatory Alternative in
Another progression from least to most stringent occurs when moving from HA to HI.
Regulatory Alternative in imposes the same controls on small plants as IIA while enforcing
tighter controls on large plants. As before, all plants are required to achieve GCPs but small
plants are only required to practice moderate PM and maintain 230 °C flue gas temperatures. No
acid gas control is required for small plants under this alternative. Large plants must meet the
most stringent standards imposed in the progression thus far including GCPs, 150 °C flue gas
temperatures, best PM control, and best acid gas control. Emissions for large plants are reduced
to 5 ng/Nm3 for CDD/CDF and 0.023 g/dscm for PM. HC1 and SO2 emissions are reduced 97
and 90 percent over the baseline, respectively.
5-14
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5.3.6 Regulatory Alternative IV
Regulatory Alternative IV is the most costly and the most stringent. Both small and large
plants are required to practice GCPs and achieve best PM control. Good acid gas control and flue
gas temperature reduction to 175 °C are required of small plants under this alternative. Large
plants must achieve best acid gas control and flue gas temperature reduction to 150 °C. Emissions
for large plants are identical to those under Regulatory Alternative in, and emissions for small
plants are identical to those under Regulatory Alternative IIB for the same size category.
The retrofit technologies employed to control emissions are listed in Table 5-3. Table 5-4
identifies the control option described by Radian and HER in the retrofit report (EPA, 1989b)
used for each plant capacity range as applied to each regulation. For example, large plants can
meet their emission limits under Regulatory Alternative I using Control Option 3. Therefore,
data on costs and emissions for large plants under Regulatory Alternative I are for Control
Option 3.
5.4 COST AND EMISSION REDUCTION ESTIMATION
5.4.1 Scenario I: No Substitution
In this scenario two assumptions are made: (1) model plants are representative of the
many segments of the MWC industry affected by the Guidelines and (2) decision makers in these
industry segments will, on average, respond to each regulatory alternative by modifying their
MWC plant in the manner described by the model plant retrofit study (EPA, 1989b). Figure 5-4
depicts the second assumption of Scenario I. Any model Guidelines plant would incinerate
Qmwc Mg of MSW per year at a baseline operating cost of CBmwc per Mg MSW. Upon
promulgation of the Guidelines, the plant owners would undertake the equipment and operating
changes necessary to meet the Guidelines as estimated in the retrofit study. The associated
capital and operating costs incurred by the operator become the basis for estimation of the
economic impact of the Guidelines under Scenario I.
For example, if the expenditures necessary to meet Regulatory Alternative I at this model
plant increase the per-Mg MSW cost of operation to &mv/c, the annualized cost of the regulation
(from the producer's point of view) is the cross-hatched area of Figure 5-4. If Regulatory
Alternative HA requires more stringent control, the cost per Mg of MSW may rise to C^lAm^
and the incremental cost of Regulatory Alternative HA relative to Regulatory Alternative I is the
shaded area of the diagram. The total cost of this regulation relative to the baseline is the sum of
5-15
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TABLE 5-3. AIR POLLUTION CONTROLS BY REGULATORY ALTERNATIVE
Plant Capacity (Mg per day)
Regulatory Small Large
Alternative <225 £225
Baseline a
I GCPs*> GCPs
Moderate PMC Best PM
IIA GCPs GCPs
Moderate PM Good Acid Gasd
Best PM
IIB GCPs GCPs
Good Acid Gas Good Acid Gas
Best PM Best PM
HI GCPs GCPs
Moderate PM Best Acid Gase
Best PM
IV GCPs GCPs
Good Acid Gas Best Acid Gas
Best PM Best PM
a Model-plant specific.
b Good combustion practices (GCPs) include proper design and operation of the combustor.
Exhaust gas temperature control is also included in all alternatives with GCPs.
c "Paniculate matter (PM)" control levels are shown in Table 5-2.
d Good Acid Gas control reduces emissions through the use of dry sorbent injection.
e Best Acid Gas control reduces emissions through the use of spray dryers and fabric filters.
Source: Radian. 1989. Background Paper, Municipal Waste Combustors. Prepared for the
U.S. Environmental Protection Agency, Office of Air Quality Planning and Standards.
5-16
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TABLE 5-4. CONTROL OPTIONS BY GUIDELINES MODEL PLANT FOR EACH
REGULATORY ALTERNATIVE
Model
Plant
#
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
Model
Plant
Type
MB/REF/TG
MB/REF/RG
MB/REF/RK
MB/WWCarge)
MBAVW(mid-size)
MB/WW(small)
RDF(large)
RDF/(small)
MOD/SA/TR
MOD/SA/G
MOD/EA
MB/RWW
TRANS MOD/EA
TRANS MB/WW
TRANS RDF (large)
TRANS RDF (small)
TRANS MB/RWW
Regulatory Alternative
I
#3
#2
#3
#3
#3
#1
#3
#3
#1
Moderate
#1
#3
#3
Baseline
#3
#3
#3
HA
#5
#2
#5
#5
#5
#1
#5
#5
#1
Moderate
#1
#5
#5
Baseline
#5
#5
#5
Iffi
#5
#5
#5
#5
#5
#5
#5
#5
#5
#5
#5
#5
#5
#5
#5
#5
#5
m
#7
#2
#7
#7
#7
#1
#7
#7
#1
Moderate
#1
#7
#7
Baseline
#7
#7
#7
IV
#7
#5
#7
#7
#7
#5
#7
#7
#5
#5
#5
#7
#7
#5
#7
#7
#7
Sources: U.S. EPA. Municipal Waste Combustors—Background Information for Proposed
Guidelines for Existing Facilities. EPA-450/3-89-27e.
Radian. 1988. Memorandum to U.S. Environmental Protection Agency. August 30.
5-17
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Cost
($/Mg)
c
c
mwc
B
mwc
Existing Model Plant
Annual Throughput
(Mg MSW/yr)
Figure 5-4. Municipal Waste Combustion Response under Scenario I:
No Substitution
5-18
-------
the cross-hatched and shaded areas of Figure 5-4; it is this latter cost that we report as this plant's
contribution to the annualized cost of Regulatory Alternative IIA.
In Scenario I then, the assumption is that the MWC decision makers adopt the controls
(and experience the costs) specified in the retrofit analysis. In economic terms this is equivalent
to specifying the absence of any more attractive substitution possibilities for meeting the
emission requirements of the Guidelines. We also assume a perfectly inelastic demand for the
services each model plant provides. This could be due either to inelastic demand per se or an
institutional arrangement that does not allow any increase in costs to be passed along directly to
waste collectors or, ultimately, to waste generators. Both are extreme assumptions when applied
to all affected plants and probably result in some overestimation of the costs of regulatory
alternatives under Scenario I. These same assumptions also allow us to use the model plant
emission reductions estimated in the retrofit study to estimate incremental and total emission
reductions for each regulatory alternative.
Radian provided basic capital cost, operating cost, and emissions data for the 17 model
plants under baseline and controlled conditions. Using these data, together with baseline
estimates of the amount of MWC capacity in each model plant category, we scaled model plant
costs and emission reductions to cost and emission reduction estimates for each model plant
category. The scale factors represented the number of model plants necessary to match the
amount of MSW estimated to be handled by existing plants in that model plant category. These
scaling factors are shown in Table 5-5. Summing over the 17 model plant categories results in a
national measure of cost or emission reductions.
Before arriving at final national cost or emission reduction estimates, however, we made
an additional adjustment. Some plants affected by the Guidelines do not match well with a
model plant category. Thus, we used an additional factor to correct for this problem and more
completely reflect all affected facilities. This factor is the ratio of total plant capacity affected by
the Guidelines to the sum of all plant capacities that have been assigned to one or another model
plant category. Using the resulting factor, 1.087, we adjusted up to a final estimate of national
annualized cost and emission impacts under Scenario I for each regulatory alternative.
We also use the scale factors to estimate the number of plants in each model plant
category as well as the total number of plants that will be subject to the Guidelines. Because
some plants subject to Guidelines were not assigned to a model plant category, we calculated the
total number of plants affected by multiplying the sum of the model plant scaling factors by
1.087. Based on the scaling factors are shown in Table 5-5, approximately 200 MWC plants will
be subject to the Guidelines.
5-19
-------
TABLE 5-5. SCALING FACTORS USED TO OBTAIN NATIONAL COST ESTIMATES
Model
Plant
#
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
Other
Model
Plant
Type*
MB/REF/TG
MB/REF/RG
MB/REF/RK
MB/WW(large)
MB/WW(mid-size)
MB/WW(small)
RDF (large)
RDF (small)
MOD/SA/TR
MOD/SA/G
MOD/EA
MB/RWW
TRANS MOD/EA
TRANS MB/WW
TRANS RDF (large)
TRANS RDF (small)
TRANS MB/RWW
Model Plant Total
Unassigned
Model Plant
Capacity
(Mg/day)
680
220
820
2,040
980
180
1,810
540
140
45
180
450
380
180
1,810
540
450
—
Scaling
Factorsb»c
5.53
22.75
4.78
11.05
17.51
9.30
5.00
14.10
19.56
46.60
8.38
2.43
2.11
2.91
4.22
2.64
4.27
183.14
1.087
a Tables 3-2 and 3-3 describe each of the model plants listed here.
b These scaling factors are based on the annual operating hours reported in Table 3-3. For 13 of
the model plants, these hours reflect the average capacity utilization, by plant type, reported
in the 1988-89 Resource Recovery Yearbook. Allowance for increased downtime due to age
is made for model plants 1,2, and 10; and allowance is also made for a stand-by unit for
model plant 9.
c These scaling factors are used to estimate the number of MWC plants subject to Guidelines
under Scenarios I and n.
5.4.2 Scenario U: MWC Substitution
When published, the Guidelines will be specified as emission limits, without reference to
a specific abatement technology. This permits operators of affected MWC plants to consider
alternatives to the emission control approach selected in the engineering analysis, especially if
these alternatives reduce the cost of disposing of MSW. In Scenario n the model plant cost data
developed for the economic impact analysis of the parallel NSPSs (EPA, 1989a) are used to
examine whether, for each model plant, constructing a new plant that meets the emission limits is
less costly than modifying the model plant.
5-20
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To determine whether the costs for a new MWC plant are comparable to any of the large
model plants affected by the Guidelines, we used regression methods applied to new plant cost
data for mass burn technologies. Baseline capital cost, operating cost, and energy recovery credit
data were each regressed on plant capacity. Log-linear functional forms were used and a dummy
variable was added to reflect the shift in cost when plants of low capacity utilization were
involved. In all cases, the fit of the cost and credit data to plant size is very good, explaining well
over 90 percent of the variation in the costs or credit with plant size.
To derive an estimate of cost for a new plant comparable to a small model plant of a
given size, capital and operating costs data for new modular plants were regressed on capacity as
described above for mass burn plants. Energy recovery credits for small plants were estimated as
a linear function of capacity based on data for new modular plants with energy recovery
capabilities. Again, we obtained a good fit between estimated and actual values.
These cost functions were then used to estimate the baseline cost per Mg of a new mass
burn or modular plant identical in size to the large and small model plants, respectively. These
costs per Mg were computed using the cash flow model described in Chapter 3 for publicly
owned plants. They were then compared with the baseline costs per Mg for corresponding model
plants using the expression of Inequality (5.3), where CBjg is the baseline cost per Mg of the 1th
model plant in the Guidelines analysis and CBin is the cost per Mg for the corresponding new
plant. In keeping with economic theory and business practice, capital costs of the model plants
are treated as sunk costs and do not enter the costs per Mg of the model plants for this
comparison.2
CBin*(1.15)<;CBig (5.3)
We substitute the new plant for the model plant in the baseline if 1.15 times the cost per
Mg of the new plant is less than the unit cost of the model plant. This is a conservative
substitution criterion for two reasons: 1) the unit cost of the new plant is incremented by 15
percent, and 2) the unit cost for the new plant is computed using a short 15-year plant life.
Given this comparison, we estimate that substitution in the baseline will occur for three
model plants representing older plants without heat recovery capabilities. Consequently,
substitution in the baseline will also occur for the three corresponding model plant categories.
Campbell et al. (1984) document the institutional problems and transactions costs associated with closing an
existing plant in Nashville. Even if a new plant operates at a lower cost, substitution may not prove to be cheaper
due to the presence of these transactions costs.
5-21
-------
These substitutions are listed in Table 5-6. As shown in the table, the new plants have
considerably lower baseline costs per Mg than the model plants. While this substitution reduces
somewhat the cost of regulation, its biggest impact is on emission reduction estimates. On the
whole, the new plants have lower baseline emissions than do the model plants they are replacing.
This means that there is less room for improvement in emission performance due to the
regulation and lower emission reductions attributed to the regulatory alternatives. These original
and revised baseline emissions are shown in Table 5-7.
TABLE 5-6. SCENARIO II SUBSTITUTION PROCESS: COSTS PER Mg OF
MUNICIPAL SOLID WASTE
Model Plant Cost per
Plant Capacity Mg/MSW
Number (Mg/day) ($/Mg)
Before Substitution in the Baseline: Model Plant Costs
1 680 46.39
2 220 63.31
3 820 37.84
After Substitution in the Baseline: New Plant Costs0
1 680 22.89
2 220 51.63
3 820 25.83
a Estimated using regression methods applied to plant cost and capacity data reported in the
Municipal Waste Combustion - Background Information for Proposed Standards: lll(b)
Model Plant Description and Cost Report (EPA, 1989c).
TABLE 5-7. SCENARIO H SUBSTITUTION PROCESS: EMISSIONS
Model Plant
Plant Capacity CCD/CDF CO PM
Number Mg/day
Before Substitution in the Baseline: Model Plant Emissions
1 680 .00410 494 146
2 220 .000890 147 191
3 820 .00566 677 74
After Substitution in the Baseline: New Plant Emissions0
1 680 .0000918 21 78
2 220 .0000370 10 34
3 820 .0000269 91 142
S02
452
142
619
339
109
606
HC1
643
206
882
465
148
829
Pb
2.99
3.92
1.52
2.28
0.732
2.53
a Estimated using regression methods applied to plant emission and capacity data reported in the
Municipal Waste Combustion - Background Information for Proposed Standards: lll(b)
Model Plant Description and Cost Report (EPA, 1989c).
5-22
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There is ample evidence of a trend toward closure of old systems (Hickman et al.,1984).
Furthermore, within the last two years three older plants included in the industry profile report
(Radian, 1988a) have been shut down and new MWC systems are planned or under construction
to replace them. These events lend support to the Scenario II characterization of substitution in
the baseline. Because of the complexity of the decision process, however, it is difficult to
determine what role, if any, the prospect of tighter guidelines played in the decision to retire and
replace these plants. While there are grounds for arguing that the proposed Guidelines either
triggered or contributed to the decision, in Scenario II we use an economic cost basis for
determining substitution and don't give the Guidelines any "credit" for the lower emissions of
the revised baseline.
Given the revised baseline, we now address whether the advent of the Guidelines is likely
to result in further substitution of new MWC plants for those plants that, based on the
comparison of unit costs, would continue to operate in the absence of the Guidelines. We
analyze this by following the procedure established for baseline substitution. We first fit
regression equations to our data on capital and operating costs of control devices and capacities
of new mass burn and modular combustors. We then use the resulting cost-of-control functions,
in combination with the baseline costs per Mg already developed, to compute the post-regulatory
costs per Mg of new plants, equal in capacity to corresponding model plants, for each of the
regulatory alternatives. In doing this, we assume that the level of control required of the new
plants under each regulatory alternative would be the same as that required of the model plant.
Costs per Mg of the corresponding new and model plants are then compared using
Inequality (5.4), where Cljg is the unit cost of the 1th model plant under regulatory alternative I
and Cljn is the unit cost for the corresponding new plant under the same regulatory alternative.
CIin* (1.15) S dig (5.4)
We substitute the new plant for the model plant if the unit cost of the new plant after
regulation is less than the cost per Mg of the model plant after regulation. There are no cases,
however, where substitution is warranted under this economic cost criterion. While the cost per
Mg of control is often quite large for the model plant, it is never large enough to compensate for
the fact that the entire capital cost for the new plant is reflected in its cost per Mg.
Under Scenario II, we compute the cost of regulation and emission reductions for model
plants that arc not replaced in the baseline just as we do in Scenario I. For those model plants
that are replaced in the baseline, however, we use the capital and operating cost of control
equations estimated by the regression analysis for new plants. The use of these costs, converted
5-23
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to costs of control per Mg of MS W, is illustrated in Figures 5-5a and 5-5b. In the first case,
Figure 5-5a, the cost per Mg of the new plant after regulation is still less than that of the model
plant before the regulation. In the second case, Figure 5-5b, the cost per Mg of the new plant is
greater than the pre-regulatory cost per Mg of the model plant, but still less than the cost per Mg
of that plant after adding the cost of control due to the regulation. In either case, the cost of the
regulation is the cost of controlling emissions at the new plants (cross-hatched area), and
emission reductions are those achieved with the additional controls on the new plants. These
costs are then applied to model plant categories, aggregated to total across model plant
categories, and adjusted for "unassigned" plants as described for Scenario I above.
In Scenario n we exclude RDF or FBC plants from among the substitution options even
though the baseline per-Mg cost for new RDF and FBC technologies were estimated to be very
low. This is because both economists and engineers on the study team have concerns regarding
the applicability of these RDF and FBC cost estimates. These technologies are still relatively
new, and experience with them has been limited and varied. The accuracy of pre-combustion
processing costs is especially uncertain. Excluding the RDF or FBC options in the Scenario II
analysis may have resulted in understatement of substitution both in the baseline and for each
regulatory alternative.
5.4.3 Scenario III: MWC/Landfill Substitution
In Scenario HI, we consider the prospect that increased costs of combustion due to the
Guidelines would result in a substitution away from MSW disposal by combustion to other
means of waste disposal, primarily to landfills or materials recycling. In contrast to Scenarios I
and n, however, we only discuss the impact of such a response to the Guidelines qualitatively.
The analysis underlying the discussion is based on application of conventional microeconomic
theory and observations regarding the trends and factors that would affect such substitution.
5-24
-------
mwc
l
mwc
Annual
W//////////////S
mwc
^
Qmwc Throughput
Model Plant (M9/yr)
mwc
Figure 5-5a
mwc
*mwc Qmwc Throughput
Model Plant (Mg/yr)
mwc
Figure 5-5b
New Plant
~^~ Annual
mwc Throughput
(Mg/yr)
—^- Annual
mwc Throughput
New Plant
Figure 5-5. Municipal Waste Combustion Response under Scenario II:
MWC Substitution
5-25
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CHAPTER 6
COST AND PRICE IMPACTS
This chapter presents the estimated costs of each regulatory alternative and scenario for
each of the model plants and for the nation as a whole. These costs are based on engineering
control cost estimates for 17 model plants that represent those plants affected by the Guidelines
(EPA, 1989b) and selected new plants that would possibly substitute for plants affected by the
Guidelines. The national cost estimates are computed from both an enterprise and a social
perspective.
6.1 MODEL PLANTS AND THE COST OF REGULATORY ALTERNATIVES
Table 6-1 lists the estimated additional capital and annual operating costs required by the
17 model plants to meet the emissions limits of each regulatory alternative. Also presented are
the associated present value of costs, annualized costs, and costs per Mg of MSW. The cost data
presented here are used directly to compute the cost of regulatory alternatives under Scenario I.
Costs for these model plants are calculated based on one 15-year operating cycle for control
equipment for all scenarios. The capital costs include an allowance for downtime during retrofit
installation of air pollution control devices (APCDs) based on the cost of shipping and landfilling
MSW that otherwise would be combusted. The operating costs are annual values based on the
capacity utilization specified for the model plant. The operating costs include a credit for
revenues when there is energy recovery during combustion. The present value of costs, the
annualized costs, and the costs per Mg of MSW in Table 6-1 are based on public revenue bond
financing of control expenditures by a public entity. The basis for the associated discounting and
annualization procedures is discussed in Chapter 3. Costs in the table are zero when the model
plant is small enough to qualify for exemption from emission limits or was originally designed to
meet these limits.
In looking at these costs, note again that, while values reported on these tables are
internally consistent, they are not necessarily comparable to costs reported in other studies. The
basis for computing costs per Mg of MSW, for example, varies greatly in the literature.
Differences include different base year dollars, nominal vs. real dollar flows, conventions for
treatment and timing of cost and revenue categories, and scope of the analysis. However, since
costs used in this report have been computed consistently, decision makers can use them to
represent the relative economic attractiveness of the model plants when making choices among
plants and technologies. The only qualification, an important one, is the assumption that the cost
and credit data for the model plants used in this impact analysis are representative of similar
MWC plants.
6-1
-------
TABLE 6-1.
GUIDELINES ENTERPRISE COSTS OF CONTROL FOR PUBLICLY
OWNED MODEL PLANTS (1987 $)•
Model Model Plant
Plant Description
#
Regulatory Alternative I
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
MB/REF/TG
MB/REF/RG
MB/REF/RK
MB/WW(large)
MB/WW(mid-size)
MB/WW(small)
RDF (large)
RDF (small)
MOD/SA/TR
MOD/SA/G
MOD/EA
MB/RWW
TRANS MOD/EA
TRANS MB/WW
TRANS RDF (large)
TRANS RDF (small)
TRANS MB/RWW
Annual
Capital Operating
Costb Cost*
($103) ($103/yr)
(1)
16,000
5,850
1,240
5,540
86
991
10,900
4,330
270
716
0
2,880
1,830
0
0
0
2,580
(2)
-190
461
246
288
127
186
235
168
131
171
0
121
76
0
0
0
136
PV of Total
Control
Costd
(3)
13,900
11,000
3,980
8,750
1,500
3,050
13,500
6,190
1,720
2,620
0
4,220
2,680
0
0
0
4,090
Total Annualized
Annualized Unit
Cost« Costf
($103/yr) ($/Mg)
(4)
1,250
987
358
787
135
275
1,210
557
155
235
0
379
241
0
0
0
368
(5)
6.80
17.60
1.42
1.25
.45
4.90
2.21
3.39
5.73
19.20
0
2.71
2.12
0
0
0
2.63
Regulatory Alternative HA
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
MB/REF/TG
MB/REF/RG
MB/REF/RK
MB/WW(large)
MB/WW(mid-size)
MB/WW(small)
RDF (large)
RDF (small)
MOD/SA/TR
MOD/SA/G
MOD/EA
MB/RWW
TRANS MOD/EA
TRANS MB/WW
TRANS RDF (large)
TRANS RDF (small)
TRANS MB/RWW
18,500
5,850
8,820
10,500
8,160
991
16,400
11,000
270
716
0
5,030
3,220
0
5,500
6,090
4,730
580
461
1,580
2,240
1,540
186
1,980
1,200
131
171
0
825
515
0
1,870
1,160
842
25,000
11,000
26,300
35,400
25,300
3,050
38,400
24,400
1,720
2,620
0
14,200
8,950
0
26,300
17,900
14,100
2,250
987
2,370
3,190
2,270
275
3,450
2,190
155
235
0
1,280
805
0
2,360
1,610
1,270
12.20
17.60
9.39
5.05
7.51
4.90
6.31
13.30
5.73
19.20
0
9.11
7.09
0
4.31
9.78
9.04
CONTINUED
6-2
-------
TABLE 6-1. GUIDELINES ENTERPRISE COSTS OF CONTROL FOR PUBLICLY
OWNED MODEL PLANTS (1987 $)a (CONTINUED)
Model Model Plant
Plant Description
#
Regulatory Alternative IIB
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
MB/REFyTG
MB/REF/RG
MB/REF/RK
MBAVW(large)
MB/WW(mid-size)
MBAVW(small)
RDF (large)
RDF (small)
MOD/SA/TR
MOD/SA/G
MOD/EA
MB/RWW
TRANS MOD/EA
TRANS MB/WW
TRANS RDF (large)
TRANS RDF (small)
TRANS MB/RWW
Annual
Capital Operating
Costb Costc
($103) ($103/yr)
(1)
18,500
7,560
8,820
10,500
8,160
4,540
16,400
11,000
2,870
1,570
2,280
5,030
3,220
4,050
5,500
6,090
4,730
(2)
580
1,010
1,580
2,240
1,540
786
1,980
1,200
468
452
363
825
515
676
1,870
1,160
842
PV of Total
Control
Costd
($103)
(3)
25,000
18,700
26,300
35,400
25,300
13,300
38,400
24,400
8,080
6,600
6,310
14,200
8,950
11,600
26,300
17,900
14,100
Total Annualized
Annualized Unit
Cost6 Costf
($103/yr) ($/Mg)
(4)
2,250
1,690
2,370
3,190
2,270
1,190
3,450
2,190
727
593
568
1,280
805
1,040
2,360
1,610
1,270
(5)
12.20
30.00
9.39
5.05
7.51
21.30
6.31
13.30
26.90
48.30
10.50
9.11
7.09
18.50
4.31
9.78
9.04
Regulatory Alternative HI
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
MB/REF/TG
MB/REF/RG
MB/REF/RK
MBAVW(large)
MBAVW(mid-size)
MBAVW(small)
RDF (large)
RDF (small)
MOD/SA/TR
MOD/SA/G
MOD/EA
MB/RWW
TRANS MOD/EA
TRANS MB/WW
TRANS RDF (large)
TRANS RDF (small)
TRANS MB/RWW
34,150
5,850
31,040
36,750
22,400
991
53,600
24,200
270
716
0
11,500
7,380
0
29,500
15,100
11,200
2,090
461
3,660
4,740
2,940
186
5,050
2,270
131
171
0
1,470
939
0
4,620
2,000
1,460
57,400
11,000
71,800
89,500
55,100
3,050
110,000
49,400
1,720
2,620
0
27,800
17,800
0
80,800
37,300
27,400
5,160
987
6,460
8,050
4,960
275
9,870
4,450
155
235
0
2,500
1,600
0
7,270
3,340
2,460
28.00
17.60
25.60
12.80
16.40
4.90
18.00
27.10
5.73
19.20
0
17.80
14.10
0
13.30
20.40
17.60
CONTINUED
6-3
-------
TABLE 6-1.
GUIDELINES ENTERPRISE COSTS OF CONTROL FOR PUBLICLY
OWNED MODEL PLANTS (1987 $)a (CONTINUED)
Model
Plant
#
Model Plant
Description
Regulatory Alternative IV
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
MB/REF/TG
MB/REF/RG
MB/REF/RK
MB/WW(large)
MBAVW(mid-size)
MBAVW(small)
RDF (large)
RDF (small)
MOD/SAyTR
MOD/SA/G
MOD/EA
MB/RWW
TRANS MOD/EA
TRANS MB/WW
TRANS RDF (large)
TRANS RDF (small)
TRANS MB/RWW
Annual
Capital Operating
Costb Cost*:
($1(P) ($103/yr)
(1)
34,100
7,560
31,000
36,800
22,400
4,540
53,600
24,200
2,870
1,570
2,280
11,500
7,380
4,050
29,500
15,800
11,200
(2)
2,090
1,010
3,660
4,740
2,940
787
5,050
2,270
468
452
363
1,470
939
676
4,620
2,000
1,460
PV of Total
Control
Costd
(SIO3)
(3)
57,400
18,700
71,800
89,500
55,100
13,300
110,000
49,400
8,080
6,600
6,310
27,800
17,800
11,600
80,800
37,300
27,400
Total
Annualized
Cost*
($103/yr)
(4)
5,160
1,690
6,460
8,050
4,950
1,190
9,870
4,450
727
593
568
2,500
1,600
1,040
7,270
3,340
2,460
Annualized
Unit
Costf
($/Mg)
(5)
28.00
30.00
25.60
12.80
16.40
21.30
18.00
27.10
26.90
48.30
10.50
17.80
14.10
18.50
13.30
20.40
17.60
a Control costs are costs over the baseline model plant costs of Chapter 3. These costs are
incurred to meet the emission requirements of the Guidelines.
b Capital costs of control occur only once, at the outset of operation.
c Annual operating costs are assumed to be constant from year to year.
d Present value based on 15-year operating life and 4 percent real rate of discount applied to
column (2) and added to column (1). The NPV equation for publicly operated facilities is
given in Chapter 3.
e Total annualized cost is based on addition of column (2) with annualization of column (1) over
15 years at 4 percent.
f Computed by dividing column (4) by the estimated amount of MS W processed per year at the
model plant
6-4
-------
When choices arise, decision makers will be guided by the cost of choices as they see
them. These are termed private or business enterprise costs even if a public entity is doing the
enterprise. As discussed in Chapter 3, this viewpoint will differ slightly for private and public
entities' decision makers given their different financial environments—particularly their tax
liabilities and opportunity costs of capital. Using the same cash flow model and financial
parameters as in Chapter 3, the present value and per-Mg cost are computed for public and
private plants. To illustrate how decision makers with different perspectives evaluate the control
costs, Table 6-2 provides results for public and private financial environments for Regulatory
Alternative IV under Scenario I.
The data of Table 6-2 show how an average private firm would view the two measures of
the cost of control, after allowance for tax effects of passing the full cost along to the customer,
for the different model plants. Similarly, the data show how an average public entity would view
the cost of control for different model plants given the public entities' cost of capital and lack of
tax obligation. These measures provide a good basis for a single entity to compare different
investment choices having the same revenue effects of meeting the same regulatory requirement.
For example, the NPV measure can be the basis for a private firm's choice between building a
new MWC (with an associated NPV or cost per Mg) or modifying a current MWC at the cost
shown in Table 6-2.
The data of Table 6-2 also allow one to compare the cost of control between privately
owned and publicly owned MWCs. Such comparisons, however, should be made with care
because these entities have very different financial conditions. The NPV of total control costs
aren't extremely different for public and private ownership in this instance, but differences do
exist and the lower cost ownership category varies from one model plant to another. These
variations arise from a combination of differences in the cost of capital and tax obligations for
privately owned and public owned MWCs and differences from one model plant to another in the
share of capital and operating costs for APCD equipment.
The annualized costs per Mg of MSW, however, show that the average publicly owned
MWC, with its financial conditions, would be able to meet the regulations at a substantially
lower cost (tipping fee increase), than a privately owned MWC for any model plant category.
This measure is equivalent to asking, "What must the public entity or private firm receive per
unit of waste disposed if it is to cover the costs experienced when investing in the pollution
control equipment?" For the range of model plant capital and operating costs of control
considered here, the cost of control per Mg of MSW is estimated on average to be 30 percent
higher for private ownership than for public ownership. As in the case of NPV values, variations
in the differences in per-Mg MSW cost are due in part to the relative mix of capital and operating
cost—as the capital cost increases relative to operating cost, the per-Mg cost differences shift in
favor of public ownership.
6-5
-------
TABLE6-2-
Model Model Plant
Plant Description
#
1 MB/REF/TG
2 MB/REF/RG
3 MB/REF/RK
4 MB/WW(large)
5 MB/WW(mid-size)
6 MB/WW(small)
7 RDF (large)
8 RDF (small)
9 MOD/SA/TR
10 MOD/SA/G
11 MOD/EA
12 MB/RWW
13 TRANS MOD/EA
14 TRANS MB/WW
15 TRANS RDF (large)
16 TRANS RDF (small)
17 TRANS MB/RWW
Public*
Private1*
Capital
Cost
($103)
•^•^^•^
(1)
34,100
7,560
31,000
36,800
22,400
4,540
53,600
24,200
2,870
1,570
2,280
11,500
15,100
7,380
4,050
29,500
11,200
Operating
Cost
($103/yr)
(2)
2,090
1,000
3,660
4,740
2,940
787
5,050
2,270
468
452
363
1,470
2,000
939
676
4,620
1,460
NPV of Total
Control
Cost**
($103)
Annualized
Cost8*
per Mg MSW
($/Mg)
NPV of Total
Control
Annualized
(3)
57,400
18,700
71,800
89,400
55,060
13,300
110,000
49,400
8,080
6,600
6,310
27,800
37,300
17,800
11,600
80,800
27,400
(4)
28.00
30.00
25.60
12.80
16.40
21.30
18.00
27.10
26.90
48.30
10.50
17.80
20.40
14.10
18.50
13.30
17.60
($103)
•I^HHm
(5)
64,400
18,900
73,600
90,600
55,600
12,900
116,000
52,400
7,920
6,010
6,210
28,200
37,700
18,100
11,300
79,700
27,700
aDifferences in annualized operating costs for privately and publicly owned facilities are due
- mm™ to «*" fl- -^
» Based on 4 percent discount rate, 15-year equipment life, and the cash flow model for public financing and ownership
> 15'year eq"ipment "*"• •nd *' cash flow
per Mg MSW
($/Mg)
««^«^H
(6)
40.80
39.30
34.10
16.80
21.50
26.90
24.80
37.30
34.20
57.10
13.40
23.50
26.80
18.60
23.50
17.00
23.10
-------
These data suggest that, in situations where public and private entities compete to provide
disposal of MSW by combustion, imposing the Guidelines would substantially favor public
ownership. As noted above, this result must be interpreted with caution for the following
reasons. First, it doesn't reflect any differences in the productivity that may exist for public and
private owners of MWC plants. For example, private owners may be more efficient in installing
and operating controls by virtue of multiple project experience. Second, the measured
differences are also the product of the average financial parameters used to represent public and
private ownership. The differences in per-Mg cost of MSW between public and private
ownership are not so large that they are outside the range in variation associated with financial
parameters of public entities and private firms. Even so, these cost-per-Mg data appear to
corroborate the contention that publicly owned MWC facilities will continue to be the norm. The
costs of meeting the Guidelines probably amplify the public ownership advantage in most cases.
Because of this finding and the already prominent role of public ownership of current
MWC plants, cost impacts of the Guidelines are presented in the next two sections of this report
using the cash flow model for public financing of control equipment A discussion of social cost
impacts follows later in this chapter.
In considering the implications of building a new MWC plant as opposed to installing
controls on an initial plant, a decision maker, whether public or private, compares the stream of
prospective costs across the alternatives. In particular, the decision maker compares the
operating costs plus the necessary APCD costs of the existing plant to the capital and operating
costs plus necessary APCD costs of the new alternative. These costs for initial model plants,
assuming public ownership and expressed as costs per Mg of MSW, are shown Table 6-3.
Table 6-3 includes the baseline costs per Mg MSW estimated for the model plants (based
on operating costs only) and the per-Mg MSW cost for each regulatory alternative wherein the
per-Mg MSW cost of APCD capital equipment and operation are added to the baseline costs per
Mg of MSW. The difference between baseline cost per Mg and that for each regulatory
alternative is the cost of control per Mg of MSW.
Table 6-4 presents comparable cost data for new MWC plants introduced in the
substitution analysis of Scenario II. Since the plants are new, their capital cost is not "sunk."
The initial combustor capital cost is included in the baseline per-Mg MSW cost for each of these
new model plants. The difference between baseline and regulatory alternative costs per Mg is
the cost of control per Mg used in the Scenario H analysis for those model plant categories that
substitute new plants for the original model plants. This calculation doesn't credit cost savings
associated with baseline cost differences between the new plant and original model plant due to
the regulation.
6-7
-------
TABLE 6-3. GUIDELINES ENTERPRISE COSTS FOR PUBLICLY OWNED MODEL PLANTS" (1987$): SCENARIO I
COST PER Mg OF MUNICIPAL SOLID WASTE AND PERCENTAGE CHANGES IN COST OVER THE
BASELINE FOR EACH REGULATORY ALTERNATIVE
oo
Regulatory Alt. I
Model
Plant
#
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
Model
Plant
Description
MB/REF/TG
MB/REF/RG
MB/REF/RK
MB/WW(large)
MB/WW(mid-size)
MB/WW(small)
RDF (large)
RDF (small)
MOD/SA/TR
MOD/SA/G
MOD/EA
MB/RWW
TRANS MOD/EA
TRANS MB/WW
TRANS RDF (large)
TRANS RDF (small)
TRANS MB/RWW
Baseline
Cost per
MgMSWb
($/Mg)
46.40
63.30
36.40
-3.13
5.08
24.40
-19.70
4.94
5.17
23.80
3.39
10.50
27.40
14.20
24.40
14.20
10.50
Cost
per
MgMSW6
($/Mg)
53.20
80.90
37.80
-1.88
5.52
29.30
-17.50
-1.55
10.90
42.90
3.39
13.20
27.40
16.40
24.40
14.20
13.10
Percentage
Change
over
Baseline
14.70
27.70
3.90
d
8.80
20.10
d
d
111.00
80.60
0
25.90
0
14.90
0
0
25.10
Regulatory Alt HA
Cost
per
MgMSWc
(VMg)
58.60
80.90
45.80
1.92
12.60
29.30
-13.40
8.39
10.90
42.90
3.39
19.60
3720
21.30
24.40
18.50
19.50
Percentage
Change
over
Baseline
26.30
27.70
25.80
d
148.00
20.10
d
d
111.00
80.60
0
87.10
35.70
49.80
0
30.40
86.50
Regulatory
Cost
per
MgMSWc
($/Mg)
58.60
93.30
45.80
1.92
12.60
45.70
-13.40
8.39
32.00
72.10
13.90
19.60
37.20
21.30
4190
18.50
19.50
AltHB
Percentage
Change
over
Baseline
26.30
47.40
25.80
d
148.00
87.40
d
d
520.00
203.00
310.00
87.10
35.70
50.00
76.10
30.40
86.50
CONTINUED
-------
TABLE 6-3 GUIDELINES ENTERPRISE COSTS FOR PUBLICLY OWNED MODEL PLANTS' (1987$): SCENARIO I
COST PER Mg OF MUNICIPAL SOLID WASTE AND PERCENTAGE CHANGES IN COST OVER THE
BASELINE FOR EACH REGULATORY ALTERNATIVE
v
Regulatory Alt HI
Model
Plant
#
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
t
Model
Plant
Description
MB/REF/TC
MB/REF/RG
MB/REF/RK
MB/WW(large)
MB/WW(mid-size)
MB/WW(small)
RDF (large)
RDF (small)
MOD/SVTR
MOD/SA/G
MOD/EA
MB/RWW
TRANS MOD/EA
TRANS MB/WW
TRANS RDF (large)
TRANS RDF (small)
TRANS MB/RWW
Baseline
Cost per
MgMSWb
($/Mg)
46.40
63.30
36.40
-3.13
5.08
24.40
-19.70
-4.94
5.17
23.80
3.39
10.50
27.40
14.20
24.40
14.20
10.50
Cost
per
MgMSW0
($/Mg)
74.40
80.90
62.00
9.62
21.40
29.30
-1.71
22.10
10.90
42.90
3.39
28.30
47.80
28.40
24.40
27.50
28.00
Percentage
Change
over
Baseline
60.40
27.70
70.20
d
322.00
20.10
d
d
111.00
80.60
0
171.00
74.60
99.20
0
93.40
168.00
Regulatory Alt IV
Cost
per
MgMSWc
($/Mg)
74.40
93.30
62.00
9.62
21.40
45.70
-1.71
22.10
32.00
72.10
13.90
28.30
47.80
28.40
42.90
27.50
28.00
Percentage
Change
over
Baseline
60.40
47.40
70.20
d
322.00
87.40
d
d
520.00
203.00
310.00
171.00
74.60
99.20
76.10
93.40
168.00
a Costs based on annualization of control costs over 15 years with a real discount rate of 4 percent
b Baseline costs are computed from operating costs only.
c Costs for regulatory alternatives are baseline costs plus the cost of control relative to the baseline.
d Percentage increases are not meaningful because the baseline cost is negative.
-------
TABLE 6-4. GUIDELINES ENTERPRISE COSTS FOR PUBLICLY OWNED NEW PLANTS8 (1987$): SCENARIO H
COST PER Mg OF MUNICIPAL SOLID WASTE AND PERCENTAGE CHANGES IN COST OVER THE
BASELINE FOR EACH REGULATORY ALTERNATIVE
Model
Plant
#
1
2
3
Model
Plant
#
1
2
3
Model
Plant
Description1*
MB/REF/TG
MB/REF/RG
MB/REF/RK
Model
Plant
Description
MB/REF/TG
MB/REF/RG
MB/REF/RK
Baseline
Cost per
MgMSW0
($/Mg)
25.20
56.90
28.90
Baseline
Cost per
MgMSWb
<$/Mg)
25.20
56.90
28.90
Regulatory Alt. I Regulatory
Cost Percentage Cost
per Change per
MgMSWd over MgMSWc
($/Mg) Baseline ($/Mg)
25.60 1.39 34.80
56.90 0 56.90
28.30 1.44 35.50
Regulatory Alt. m
Cost Percentage
per Change
MgMSW6 over
($/Mg) Baseline
38.80 53.7
56.90 0
38.90 36.5
Alt HA
Regulatory Alt HB
Percentage Cost Percentage
Change per Change
over Mg MSW0 over
Baseline ($/Mg) Baseline
38.1
0
24.5
Regulatory
Cost
per
Mg MSWC
<$/Mg)
38.80
70.00
38.90
34.80
70.00
35.50
Alt IV
Percentage
Change
over
Baseline
53.7
23.0
36.5
38.1
23.0
24.5
a Costs based on annualization of control costs over IS years with a real discount rate of 4 percent
b Model plant description refers to initial Guidelines plant that is replaced by a new mass burn plant under Scenario n.
c Baseline costs are computed from operating and capital costs.
d Costs for regulatory alternatives are baseline costs plus the cost of control relative to the baseline.
-------
6.2 NATIONAL ENTERPRISE COSTS OF EACH REGULATORY ALTERNATIVE
Table 6-5 lists the national enterprise cost impacts estimated for each regulatory
alternative under Scenarios I and n based on public ownership of all the plants and the
aggregation method described in Chapter 5. The capital cost is the initial equipment and
installation cost for APCDs. Estimated annualized cost and costs per Mg of MSW use the cash
flow model described in Chapter 3 and the enterprise and amortization procedures of Section 6.1.
The capital cost estimates show that these regulations will require a substantial initial
financial commitment on the part of affected MWCs and that the regulatory alternatives differ
substantially in the financial commitment required. If roughly 200 plants will be affected, the
TABLE 6-5. GUIDELINES NATIONAL COST IMPACTS: ENTERPRISE COSTS
FOR PUBLICLY OWNED MODEL PLANTS (1987 $)
Scenario
and
Regulatory
Alternative
Scenario I
Regulatory Alternative I
Regulatory Alternative HA
Regulatory Alternative IIB
Regulatory Alternative in
Regulatory Alternative IV
Scenario II
Regulatory Alternative I
Regulatory Alternative IIA
Regulatory Alternative IIB
Regulatory Alternative HI
Regulatory Alternative IV
Capital
Costs
($10«)
517
978
1,190
2,370
2,580
275
713
913
1,970
2,170
Annualized
Costs8
($10«/yr)
82.2
229
294
484
550
49.3
198
264
424
490
Annualized
Costs
per Mg MSW*>
($/Mg)
2.82
7.84
10.00
16.60
18.70
1.78
7.14
9.01
15.30
16.70
a Costs based on annualization of control costs over 15 years with a real discount rate of
4 percent.
bComputed by dividing total annualized cost by the estimated amount of MSW processed per
year.
6-11
-------
average capital cost under Scenario I ranges from $2.6 million per plant for Regulatory
Alternative I to $ 13 million per plant for Regulatory Alternative IV. The capital costs for
Scenario II are nearly 50 percent lower for Regulatory Alternative I because of very expensive
retrofits to older combustors. For other regulatory alternatives, however, increments in capital
costs for Scenario n are only slightly less than they are for Scenario I, so that for Regulatory
Alternative IV Scenario II capital costs are roughly 85 percent of those for Scenario I.
Annualized costs cover amortized capital and operating costs for a 15-year period. For
both scenarios, they exceed $100 million per year for all regulatory alternatives greater than I.
With their annual impacts, these regulatory alternatives qualify as major regulations under
Executive Order 12291. Annualized costs for Scenario n range from $30 million to $60 million
less per year than Scenario I because incorporating the APCD equipment into a new plant is
cheaper than retrofitting it into a plant that has already been built.
Table 6-5 shows the estimated average enterprise costs per Mg of solid waste combusted
by plants that have to install APCDs under a given regulatory alternative. If the regulatory
alternative does not require that a MWC plant incur costs to meet the regulation, then the plant's
waste stream is not included in the denominator used to compute cost per Mg These data are
discussed further below.
6.3 PRICE IMPACTS
The Guidelines will increase the cost of operating most MWC plants. The amount of this
cost that is passed on in the form of higher tipping fees (prices) to waste collectors and by
collectors, in turn, to waste generators in the form of higher collection fees, is determined by the
institutional and market conditions prevailing in the MSW service area. In this section of the
report we discuss three variations of institutional and market conditions that result in very
different "price" impacts. In each instance we use enterprise costs to estimate these impacts
because these are the costs measured for the individual firm or government entity.
If, for example, the contracts between collectors and combustors allow combustor owners
to pass on pollution control costs to the collectors, or if there aren't any significant alternatives to
disposal by combustion locally and costs are covered by tipping fees, then all or most of the costs
will be passed on to solid waste collectors. This increase in tipping fees will, in turn, be passed
on to waste generators if there is a highly inelastic demand for waste collection (as postulated in
Chapter 2) and all collectors experience the same increase in tipping fees. In such a case, the
price increases would, on average, be roughly equal to the cost-per-Mg values of Table 6-5.
6-12
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The reader should recall, however, the cost-per-Mg control costs for model plants
presented in Table 6-1. There we see a tremendous variation in control cost per Mg from model
plant to model plant. For any given regulatory alternative, the individual model plant can have
control costs from 75 percent below average to many hundreds of percent above the average cost
per Mg.
To provide some perspective on the potential price increases, we compare the costs per
Mg with average tipping fees reported for resource recovery facilities by Pettit (1989). The
average tipping fee for resource recovery facilities in 1988 was $42.70 per Mg (1987 dollars).
Pettit notes these important features of that figure:
• It is based on "gate fees" (municipality and/or contract waste may be charged lower
tipping fees).
• Those facilities that reported 7,ero tipping fees were excluded from the average.
Furthermore, Pettit notes that the average tipping fee has risen sharply over the past 7 years—-
68 percent since the average was first computed for 1982. This dramatic increase is likely due to
some combination of both the introduction of new, more costly facilities into the sample and a
change in the pricing policies of owners and operators.
Table 6-6 provides the average percentage increases in tipping fees for scenario and
regulatory alternative combinations, assuming that all the estimated increase in enterprise cost
per Mg of MSW is passed through to the waste collector. The average percentage increase in
TABLE 6-6. PERCENTAGE PRICE INCREASES BASED ON FULL PASS THROUGH
OF ESTIMATED GUIDELINES ENTERPRISE COSTS OF CONTROL
PER Mg OF MUNICIPAL SOLID WASTE8
Regulatory Regulatory Regulatory Regulatory Regulatory
Alternative Alternative Alternative Alternative Alternative
Scenario I HA HB HI IV
Scenario! 6.6 18 23 39 44
Scenario II 4.2 17 21 36 39
a Based on average resource recovery facility tipping fee for 1988 of $43.96 per Mg (Pettit,
1989), converted to last quarter 1987$ to an average $42.70 per Mg.
6-13
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»
tipping fees per Mg is substantial and increases with the regulatory alternative. The percentage
increases for individual model plants vary considerably with both the model plant and regulatory
alternative. This can also be seen by reviewing the data of Tables 6-3 and 6-4. There is wide
variation in the percentage increases in cost per Mg associated with each regulatory alternative.
Admittedly, much of this variation is due to the variations in the baseline cost per Mg used, but
enough is attributable to the control cost itself to indicate that the price impacts of the Guidelines
will vary widely depending on the size and technology of the MWC plants. If the full cost of
MSW disposal (collection, transportation, tipping fee) were used to estimate percentage price
increase, the percentage increases would average roughly one-half of those shown in Table 6-6.
As shown in Chapter 4, waste collection and disposal are often financed out of public
revenues such as property taxes. If this is the method selected to finance the costs of control, and
if the public entity does not then cut back on other expenditures, the increased cost of control will
be paid in the form of higher taxes. In such a situation, although the price of collection or
disposal do not increase, the price of public services do—in the form of a tax increase. The size
and incidence of the tax increase depends on the public financing method employed. It is
unlikely, however, that these tax increases will be linked to the amount of solid waste the
individual taxpayer or household generates as would be the case for most price increases.
Finally, there may be instances in which prices and fees are charged by MWCs, but
because there are many readily available, cost-competitive solid waste disposal methods MWC
owners find it difficult to pass the costs of control along to waste collectors and generators.
Public owners could possibly increase taxes or reduce services to offset these increased costs, but
private firms would have to accept lower profits, operate at a loss, or shut down. Thus, while
imposing the Guidelines would result in little or no price increase, there may be a tax increase
(for public ownership) or a private income loss (private ownership).
6.4 SOCIAL COSTS
To calculate the social cost of a regulation we recast the private cost data and insert them
into a social opportunity cost framework. While, in principle, a multiplicity of issues account for
differences between private and social costs, these issues usually center on selecting an
appropriate discount rate and measuring social losses due to quantity adjustments.
Over the past several decades, views have ranged widely regarding the appropriate
discount rate to use when evaluating a public project or estimating the economic impact of a
government program. A recent discussion of the issues involved is presented in Lind (1982).
While no particular approach commands the complete support of economists, a number of
6-14
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prominent economists agree that a recently introduced set of principles for discounting when
seeking social measures of costs or benefits is a step in the right direction. This position is
represented in two recent papers (Kolb and Scheraga, 1988; Arnold, 1986). In summary, these
papers direct the analyst to employ a "two stage" or two discount rate procedure. A capital rate
of discount is used to annualize any capital expense, and a consumption rate of interest (discount)
is used to determine the present value of the annual expenditures, as well as the annualized
capital cost. This procedure is used to estimate national social costs in this chapter.
The papers provide only modest guidance on choosing the appropriate rates of
consumption and capital discount. The general consensus is that the consumption rate of interest
is lower than the capital discount rate. The consumption rate of interest has been estimated by
various authors to be in the 0 to 6 percent range; the capital discount rate in the 8 to 13 percent
range. This analysis uses a consumption rate of interest of 3 percent and a capital discount rate
of 10 percent. The resulting social cost estimates for each scenario and regulatory alternative are
shown in Table 6-7. Because the procedure and the discount rates employed are still
controversial, Chapter 9 includes results using single discount rates of 10 and 3 percent.
Because of the discounting procedure, the annualized and per-Mg social costs are 20 to
25 percent higher than comparable enterprise costs. The annualized cost of Regulatory
Alternative I under Scenario I is now over $100 million, making all regulatory alternatives but
that for Regulatory Alternative I under Scenario II "major" regulations using national social
costs.
6-15
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TABLE 6-7. GUIDELINES NATIONAL COST IMPACTS (1987 $)
Scenario
and
Regulatory
Alternative
Scenario I
Regulatory Alternative I
Regulatory Alternative IIA
Regulatory Alternative IIB
Regulatory Alternative in
Regulatory Alternative IV
Scenario II
Regulatory Alternative I
Regulatory Alternative IIA
Regulatory Alternative IIB
Regulatory Alternative in
Regulatory Alternative IV
Capital
Costs
($106)a
517
978
1,190
2,370
2,580
275
713
913
1,970
2,170
Annualized
Social Costsb
($10«/yr)
104
269
343
583
657
60.7
228
302
506
580
Annualized
Social Costs
perMg
MSWM
($/Mg)
3.55
9.23
11.70
20.00
22.40
2.19
8.20
10.30
18.20
19.80
Annualized
Enterprise
Costs per
Mg MSWc»d
($/Mg)
2.82
7.84
10.00
16.60
18.70
1.78
7.14
9.01
15.30
16.70
a Capital costs are based on one APCD equipment cycle for existing plants and two APCD
equipment cycles for new plants that replace existing plants under Scenario n. These
assumptions make no difference in the annualized cost impacts (Robson, 1989).
b Annualized social costs are the sum of capital costs, annualized at 10 percent, and annual
operating costs.
c Annualized public enterprise costs are the sum of capital costs, annualized at 4 percent, and
annual operating costs.
d Computed by dividing total annualized cost by the estimated amount of MSW processed per
year at the model plant.
6-16
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CHAPTER 7
EMISSION REDUCTIONS AND COST-EFFECTIVENESS
MWC air emissions are changed, usually reduced, with the increased costs MWCs incur
with the application of air pollution control devices (APCDs). The emission reductions are
computed as the difference between estimates of baseline emissions from MWC plants and
estimates of emissions after the installation of the APCDs on those plants. This chapter provides
estimates of these reductions for six air emissions and ash, describes how they might be
combined with cost data to obtain cost-effectiveness estimates, and notes the problems caused by
denominating these cost-effectiveness measures in different units (e.g., Mg of SC>2 vs. Mg of
HC1).
Scenario I energy impacts are also presented in this chapter. Energy impacts are
computed as the difference between estimated baseline energy usage and energy usage after the
regulation. Electrical energy usage is generally higher after the installation of APCD equipment.
No change on gas usage is projected for any of the regulatory alternatives.
7.1 EMISSION REDUCTIONS AND ENERGY IMPACTS
Radian (EPA, 1989b) estimated emission reductions associated with use of APCDs for
each model plant. APCDs control several pollutants both in the baseline and under the
regulatory alternatives, including
• polychlorinated dibenzo-p-dioxins and dibenzofurans (CDD/CDF),
• carbon monoxide (CO),
• particulate matter (PM),
• hydrogen chloride (HC1),
• sulfur dioxide (SO2),
• lead (Pb), and
• solid waste.
Table 7-1 presents estimated changes in national emissions for each pollutant associated with
each of the regulatory alternatives under Scenarios I and n. Table 7-2 presents energy usage
impacts associated with each of the regulatory alternatives under Scenario I. We compute these
data using the same strategy of scaling model plant emissions, emission reductions, and energy
impacts to national emissions, emission reductions, and energy impacts as that employed in
estimating the national costs for these regulatory alternatives.
7-1
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TABLE 7-1. GUIDELINES NATIONAL BASELINE EMISSIONS AND EMISSIONS
REDUCTIONS (Mg per yr.)
Scenario and
Regulatory
Alternative
CDD/CDF CO PM
SO2
Solid
HC1 Pb Waste
Residuals3
Scenario I
Baseline Emissions
0.193 25,600 11,300 86,200 108,000 247 7,830,000
Emissions Reductions
Regulatory Alternative I 0.140
Regulatory Alternative HA 0.175
Regulatory Alternative IIB 0.180
Regulatory Alternative HI 0.186
Regulatory Alternative IV 0.191
10,700
10,700
10,700
10,700
10,700
6,520
6,520
8,230
6,520
8,230
0
30,700
34,500
69,100
72,900
0
75,500
86,300
91,600
102,000
154
192
240
192
240
269,000
-248,000
-320,000
-182,000
-253,000
Scenario II
Baseline Emissions
0.120 16,400 7,400 84,600 105,000 169
Emissions Reductions
Regulatory Alternative I 0.0719 3,560 2,480 0 0 82
Regulatory Alternative HA 0.105 3,560 2,480 30,400 74,400 120
Regulatory Alternative HB 0.108 3,560 4,350 33,900 84,100 163
Regulatory Alternative HI 0.115 3,560 2,480 68,400 90,300 120
Regulatory Alternative IV 0.118 3.560 4.350 71,900 99,900 163
a Includes bottom ash and fly ash with some residual quench water. Negative values reflect
measures in solid waste residuals relative to the baseline. Scenario n values were not
estimated because no significant differences between Scenario I and Scenario II solid waste
residuals were anticipated.
TABLE 7-2. GUIDELINES NATIONAL ENERGY IMPACTS8
Scenario and
Regulatory
Alternative
Scenario I
Regulatory Alternative I
Regulatory Alternative HA
Regulatory Alternative IIB
Regulatory Alternative HI
Regulatory Alternative IV
Electrical
Use
(Tj/yr)
3
264
527
1,530
1,790
Gas
Use
(Tj/yr)
809
809
809
809
809
a Energy impacts use refer to air pollution control only.
7-2
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7.2 COST-EFFECTIVENESS
The cost-effectiveness of regulatory alternatives provides a measure of the cost per unit
of emission reduction associated with each regulatory alternative. These ratios are meant to
measure the marginal effectiveness of each regulatory alternative. So, first they must be
arranged in order of increasing levels of emission reductions. Then, both the numerator and
denominator of the cost-effectiveness ratio are calculated as the difference between costs (or
emissions) of the regulatory alternative being evaluated and the previously most stringent
alternative. To highlight the nature of the resulting cost-effectiveness ratios, some analysts refer
to them as "incremental" cost-effectiveness measures. In mathematical terms, the cost-
effectiveness ratio for regulatory alternative i and emission j is
j-Eij) (7.1)
where C is cost and E is emissions.
This relationship has a number of other notable features. First, the presumption is made
that costs increase and emissions decrease as the regulatory alternatives become more stringent.
Thus, the level of costs under the next most stringent regulatory alternative is subtracted from the
level of costs under the regulatory alternative of interest and vice versa for emissions. The cost-
effectiveness measure, therefore, is positive under normal circumstances. The cost-effectiveness
measure is the cost per unit of emission reduction for that regulatory alternative — for example,
dollars per Mg of sulfur dioxide reduction.
Second, while this relationship can be applied to many different emissions, it has no
inherent ability to identify which cost is assignable to which pollutant. To do this, either the
regulatory alternatives must be redefined and narrowed to apply to only one emission of interest
(all other emissions constant) or some way must be devised to find a common measure for
valuing the emissions. Applying the cost-effectiveness measure to each of the pollutants when
the APCDs are responsible for simultaneously controlling a number of pollutants, as in the case
of MWCs, assigns all the cost for control to the particular pollutant for which the cost-
effectiveness measure is computed. In this such circumstance, the cost-effectiveness measure
overestimates the cost-effectiveness (i.e., implies emission reduction is more costly than in fact it
is).
This obviously argues for a more comprehensive measure of cost-effectiveness — one that
addresses the joint effectiveness of control on multiple emissions. Economists argue that such a
7-3
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comprehensive measure would be denominated in dollars, since the value of a commodity for
purposes of trade is denominated in dollars. Put another way, if the additional benefit of a given
emission reduction were measured in dollars, then the joint benefit of all emission reductions
would be the sum of benefits of the individual emission reductions. Unfortunately, such benefit
estimates are not available for many of the pollutants reduced by the Guidelines' regulatory
alternatives. For this reason the cost-effectiveness estimates for individual pollutants are not
presented at this time.
7-4
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CHAPTER 8
ECONOMIC IMPACT ON SECTORS OF THE ECONOMY
The costs and emission reductions estimated for each of the regulatory alternatives will
affect firms, households, and government units. This chapter examines in more detail how the
costs associated with the regulatory alternatives will affect these sectors of the economy. In
particular, we are interested in whether these costs are systematically larger for smaller entities or
service areas and whether these impacts are severe under some of the criteria adopted in other
analyses.
8.1 REGULATORY FLEXIBILITY ANALYSIS
The impact of government regulation on small entities (non-profit organizations,
governmental jurisdictions, and businesses) is a special social concern as demonstrated by the
Regulatory Flexibility Act of 1980. Among other things, the Act requires that federal agencies
consider whether regulations they develop will have "a significant economic impact on a
substantial number of small entities" (U.S. Small Business Administration, 1982).
Small government jurisdictions are identified in the Act as those with populations less
than 50,000. Small businesses are identified by the Small Business Association general size
standard definitions. These vary by Standard Industrial Classification (SIC) code. For SIC code
4953, Refuse Systems, small business concerns are those receiving less than $6 million dollars
per year averaged over the most recent 3 fiscal years. These definitions are not, however, fixed
for all regulatory actions. According to both SBA (1982) and EPA (1982) guidelines, with
appropriate justification these definitions can be modified by the regulatory agency.
EPA (1982) provides guidelines for determining when a "substantial number" of these
small entities have been "significantly impacted." Impacts may be considered significant if:
1. compliance costs are greater than five percent of production costs,
2. compliance costs, as a percent of sales, are at least 10 percent higher for small entities
than for other entities,
3. capital costs of compliance are a significant portion of capital available, or
4. the requirements are likely to result in closures of small entities.
Three of these criteria apply absolute measures, but the second measure determines the adversity
of the impact on small entities relative to other, larger entities. In its guidance, EPA also notes
8-1
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that these criteria, as well as the criterion suggested for determination of a "substantial number"
are only guidelines, and that lead Offices may adopt other criteria as appropriate.
In its guidance EPA suggests that a "substantial number" is "more than 20 percent of
these (small entities)...affected for each industry the proposed rule would cover." This criterion
is open to a certain amount of interpretation as to the scope of the industry and "affected"
industry segments. In this analysis we choose to address the question of "a substantial number"
by treating public entities and private businesses separately. We assume that any entity that
operates a MWC plant will be "affected," and determined that a "substantial number" of small
entities are affected if small entities are more than nominally represented in the industry segment.
8.2 PRIVATE BUSINESS IMPACTS
Impacts of the regulation on private firms may be direct or indirect in nature. Owners
who must purchase and install control equipment, train employees, or change operating practices
will be directly impacted. On the other hand, firms that supply services or equipment but do not
own a plant will be indirectly impacted, and may actually benefit from the regulation as demand
for air pollution control technology and equipment increases. The extent of impacts for a
specific MWC plant owner or supplier is dependent on the level of pollution control in place at
the time of the regulation, local market conditions and contractual arrangements, size of the
MWC plant, and financial status of the firm.
Many of the privately owned "merchant" MWC plants are large and were built (or are
about to be built) under much more favorable tax and financing conditions than would likely
apply to control equipment used to meet the Guidelines. Based on the cash flow analysis of
Chapter 6, the Guidelines will result in higher control costs for private owners than for public
owners of MWC plants. For private MWC plants that have long-term contracts to dispose of
waste that include escalator provisions to cover contingencies such as pollution control
equipment, these higher costs can be passed on to waste collectors and generators. Private MWC
plants generally have such arrangements.
In contrast, privately owned plants that don't have such long-term contracts will be
adversely affected by the Guidelines. How adverse the effect will be depends on the cost of
production of the private MWC plant relative to other local means of solid waste disposal. If,
after the Guidelines, the private plant still has relatively low costs of production, the Guidelines
will reduce expected profits but will not force sale or closure of the plant. If, however, control
costs are large enough to increase cost of production beyond prevailing tipping fees at landfills or
8-2
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public MWC plants, the private MWC plant may have to close or operate at a loss in the hope
that tipping fees increase in the future. A local cost and market analysis for each such private
MWC plant would be required to determine the severity of the Guidelines' impacts.
Current information on significant events in the waste management industry highlight the
rapidly changing market conditions for private firms. Several firms have been involved in recent
mergers or acquisitions, including the following high-profile transactions:
• Wheelabrator Technologies, Inc. and its majority shareholder, The Wheelabrator
Group, Inc. plan to merge and create a combined company Wheelabrator Technologies,
Inc.(Waste-to-Energy Report, June 28,1989, p.l).
• Environmental Systems Company (Ensco) acquired almost 1.7 million shares of
Consumat, giving Ensco 54 percent ownership of Consumat (Waste Age, May 1989,
p. 108).
• Bramble Industries, Ltd., an Australian firm, has the potential to convert $60 million in
recently purchased Ensco securities into near-controlling interest in the company
(Waste Age, May 1989, p. 1 10).
• Joy Technologies purchased Ecolaire for $1.5 million cash (Waste Age, May, 1989,
• Waste Management recently traded its combustor plants and a wastewater treatment
plant to Wheelabrator for a 22 percent equity position in Wheelabrator (Waste Age,
June 1989, pp.-74-75).
8.2.1 Private Owner Profile
We compiled a list of firms that own MWC plants using the 1988-89 Resource Recovery
Yearbook (Gould, 1988) and the data gathered under Section 114 of the CAA (EPA, 1988a).
This list includes owners of plants currently in operation as well as owners of plants now in
planning stages and plants under construction. We then obtained annual sales data on those firms
included in Moody' s Industrial Manual (1988), Standard and Poors Register of Corporations,
business periodicals (Fortune, April 1989; Business Week, Special Edition, 1989), and Waste Age
(May 1989 and June 1989).
Telephone contacts were made with firms not included in these sources to obtain annual
sales figures and to confirm information about the firm's line of business and organizational
structure. It should be noted that financial data for many of the firms initially identified are
unavailable due to difficulty contacting the firm, or reluctance on the part of the firm to release
the information. In addition, this list does not necessarily represent a complete listing of private
owners of MWCs since recent mergers, acquisitions, or plant closures may not be reflected in the
8-3
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data. Table 8-1 lists the firms we were able to identify as owners of MWC plants, their annual
sales in millions of dollars, and a brief description of the firms' activities.
Approximately one-third of the firms we identified are publicly held corporations; the
remaining majority are privately held firms including corporations and limited partnerships.
Some are very large and diversified firms (e.g., General Motors Corporation). Although some
firms for which financial data are not public would not disclose the actual amount of their annual
sales when contacted by telephone, several did say that annual sales were substantially larger
than the $6 million dollar cut-off specified by the Small Business Administration as the criterion
for defining a small business in this industry. Only one firm was identified as having less than
$6 million in annual sales, suggesting that small businesses are only nominally represented in the
MWC segment of the industry. Therefore, under our analysis, a substantial number of small
business are not significantly impacted. These data do suggest, however, great disparity in
annual revenues between the smallest and the largest of these firms. Consequently, we examined
the relationship between impacts, plant size, and firm size under these regulatory alternatives.
Table 8-2 shows the annualized costs per Mg under the most stringent regulatory
alternative for privately owned model plants ordered by design capacity. Impacts are greater for
small model plants than for large plants. Because of this indication of a relationship between the
size of the plant and the severity of the impact, EPA has provided greater regulatory flexibility
for small plants. Specific measures to address the needs of small plants include: size cut-offs
built into the regulatory structure, less stringent requirements for small plants, and permission for
states to make case-by-case judgments under the Guidelines. We have used costs for small
plants to estimate impacts for smaller firms and costs for large plants to estimate impacts for
larger firms. While there is no evidence to clearly indicate a relationship between the size of the
plant and the size of the firm that owns the plant, if small firms do generally own small plants,
the regulatory flexibility measures aimed at small plants will help mitigate these impacts.
8.2.2 Private Supplier Profile
To examine indirect economic impacts of the Guidelines on private firms, we compiled a
list of APCD vendors supplying plants currently in operation, plants under construction, or plants
in various stages of planning using data from the 1988-89 Resource Recovery Yearbook (Gould,
1988). Annual sales data were then obtained using the same sources previously used to obtain
for financial data for private owners. Table 8-3 lists the firms we were able to identify as
suppliers of APCDs and their annual sales in millions of dollars. We don't expect to observe any
adverse impacts on firms that supply APCDs and supporting technology; these firms will likely
8-4
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TABLE 8-1. MWC PRIVATE OWNER PROFILE
Firms
Annual
Sales8
($10*)
Line of Business (Other Than MWC Ownership)
General Motors Corp. 101,780
Ford Motor Co. 92,446
Occidental Chemical Corp. 19,417
Westinghouse 12,500
Ford Motor Credit Corp. 5,850
James River Corp. 5,623
Southern California Edison 5,490
General Electric Capital 3,600
Waste Management 3,566
Combustion Engineering 3,484
Northern States Power (Elk River, MN) 1,770
Wheelabrator 1,205
oo Ogden-Martin 1,088
<* Foster Wheeler 1,054
Joy Technologies1* 500
Blount Energy Resources 460
Zurn Industries 406
Research-Cottrell 348
Katy-Seghers, Inc. 261
Dravo 248
Environmental Systems Co. 66.4
Reuter, Inc. 30.2
Consumatb 14.4
KTI Energy, Inc. >6
Maine Energy Recovery Co. (MERC) >6
Penobscot Energy Recovery Co. (PERC) >6
Vicon Recovery Industries 1
American Ref-Fuel N/A
Channel Sanitation Corp. N/A
Waste Resources Association N/A
Auto, truck, bus, locomotive, aircraft manufacturer
Auto, truck, tractor & implement manufacturer
Chemical manufacturer
Electrical products, construction, financial services
Finance company
Paper and disposable packaging manufacturer
Electric utilities services
Finance company
Recycling, medical wastes, chemical wastes
Hazardous waste systems, consulting, mass transit engineering
Electric, gas, steam, telephone utilities
Environmental services & consulting
Environmental engineering & design services,financial services
Sludge processing, hazardous waste systems
Air pollution control equipment
General contractor
Air pollution control equipment, energy recovery systems
Air pollution control equipment, energy recovery systems
Oil field equipment, bearings
Engineering and consulting services
Hazardous waste management services
Plastic refuse container, recycling, composting
Modular systems manufacturer
Continued on next page
-------
TABLE 8-1. MWC PRIVATE OWNER PROFILE (continued)
===S==B=======================^^
Firms for Which Financial Data Were Unavailable in Business Publications
American RR Inc.
Bridgeport RESCO Co.
Camden Co. Energy Res. Assoc.
Catalyst W-T-E Corp.
Channel Landfill, Inc.
Flour RR of Mass, Ltd. Prt.
Mass REFUSETECH Inc.
New England Trust Company
North County RR Corp.
Power Recovery Systems
Pulaski Co. Ltd. Ptn.
Quadrant
00
Ox
Refuse Energy Systems Co.
Rhode Island SW MgmL
Richards Asphalt
Savannah Energy Systems Co.
SEMASS Partnership
SES Claremont Co. Ltd. Ptn.
Signal Environmental Systems
Southland Exchange, Inc.
St. John's University
Truckee Meadows Ltd. Ptn.
Ukiah Energy Inc.
Waste Energy Partners Ltd. Prt
aAnnual sales given for the most recent year available.
bEstimated using 9-month total sales volume figures.
Sources: Moody's Industrial Manual^(\9^\ Standard and Poors Register of Corporations (19*9) Fortune (Avril 1989^
Business Week (Special Edition 1989), and Waste Age (May 1989 and June 19850
-------
TABLE 8-2. GUIDELINES ENTERPRISE COSTS OF CONTROL FOR PRIVATELY
OWNED MODEL PLANTS UNDER REGULATORY ALTERNATIVE IV:
ORDERED BY DESIGN CAPACITY*
Model
Plant
#
10
9
6
11
14
2
13
12
17
8
16
1
3
5
7
15
4
Model
Plant
Description
MOD/SA/G
MOD/SA/TR
MB/WW (small)
MOD/EA
TRANS MB AVW
MB/REF/RG
TRANS MOD/EA
MB/RWW
TRANS MB/RWW
RDF (small)
TRANS RDF (small)
MB/REF/TG
MB/REF/RK
MB/WW (mid-size)
RDF (large)
TRANS RDF (large)
MB/WW (large)
Design
Capacity
(Mg/day)
45
140
180
180
180
220
380
450
450
540
540
680
820
980
1,810
1,810
2,040
Annualized Cost
per Mgb
($/Mg)
57.10
34.20
26.90
13.40
18.60
39.30
26.80
23.50
23.10
37.80
17.00
40.80
34.10
21.50
24.80
23.50
16.80
Variations in annualized cost per Mg may also be due to effects other than capacity including
energy recovery capabilities, MWC technology differences, and capacity utilization.
bBased on 8 percent discount rate, 15-year equipment life, and the cash flow model for private
financing and ownership.
8-7
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TABLE 8-3. PRIVATE SUPPLIER PROFILE: APCD VENDORS
Annual
Firms Sales8
($106)
EXXON 79,557
General Electric 49,414
Combustion Engineering 3,484
Wheelabrator APC Industries 1,205
Joy * 500
Zurn Industries 405.7
Research-Cottrell 348
Firms for Which Financial Data Were Unavailable
in Business Publications
American Air Filter
Baumco
Bellco Pollution Control
Brandt
Buell
Carborundum Environmental
Deutsche Babcock Anlagen
Environmental Elements Corporation
Flakt
Interel Corporation
Michigan Boiler Company
PPC Industries
Procedair Industries
Rossmuel
Rothemuehle, Inc.
Schmidt
Sigoure Freres, Inc.
United McGill Corporation
Volund
aAnnual sales given for the most recent year available.
bEstimated using 9 month total sales volume figures.
Sources: Moody's Industrial Manual (1988), Standard and Poors Register of
Corporations (1989), Fortune (April 1989), Business Week (Special
Edition 1989), and Waste Age (May 1989 and June 1989)
8-8
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benefit from increased demand for their services. Therefore we conclude that a substantial
number of small businesses will not be adversely affected by the proposed regulation.
8.3 IMPACTS ON HOUSEHOLDS AND GOVERNMENT ENTITIES
Analyzing the economic impacts of the Guidelines on households and government
entities was difficult because of the uncertainty regarding community characteristics; special
conditions relating to ownership, contractual arrangements, and financial responsibility; and
variation in accounting practices among government entities. We introduced assumptions into
our analysis that have the tendency to overestimate impacts, thereby assuring the credibility of
any "no severe impacts" results. The assumptions we adopted to facilitate this "screening
process" include:
1. assumptions that tend to underestimate the population of each service area, and
2. assumptions that tend to overestimate control costs.
The first step in computing geographically specific regulatory impacts is to identify the
plants affected by the regulation. Radian (1988a) identifies 161 current and 120 transitional
plants1 expected to be affected by the Guidelines. Of these, 43 were not assigned to a model
plant category. These plants are therefore omitted from the analysis. For each of the remaining
238 affected plants, we compiled the following information:
• ownership,
• the technology used,
• the annual throughput,
• the model plant that represents the actual plant, and
• the geographic location.
Specific ownership information is available for many of the plants from the Section 114
letters (EPA, 1988a) or from the 1987-88 Resource Recovery Yearbook (Gould, 1988). Using
these two sources, we assigned 166 out of 238 total plants to 1 of 7 ownership categories. A
plant may be owned by one of the following: a municipality (M), a county (C), both a
municipality and a county (MC), the federal government (F), an independent authority (A), or a
private firm (P). The remaining 73 plants are of unknown ownership. A frequency distribution
of plant ownership is shown in Table 8-4.
1 We project that only about 40 of these 120 plants will actually start construction in time to be affected by the
Guidelines. Because we do not know which 40 will be affected, our analysis considers all of the 120 that are
assigned to a model plant category.
8-9
-------
TABLE 8-4. OWNERSHIP OF GUIDELINES PLANTS"
Owner
Private
Authority
County
Municipality
County and Municipality
Federal
Unknown
TOTAL
Number
of Plants
60
25
23
49
3
6
72
238
Percent
of Plants
25.2
10.5
9.7
20.6
1.3
2.5
30.2
100
alnformation on ownership taken from the 1986-1987 Resource Recovery Report (Gould, 1986)
and Section 114 letters (EPA, 1988a)
These same sources provide information on the areas served by the plants. In general,
plants may serve a single municipality, several municipalities, an entire county, or more than one
county. We included only two categories in this study: municipality or county. Those plants for
which either source lists "only one city" as the area served were assigned to the municipality
category, and "place" data from the Census of Population and Housing were used to assess
government and household impacts of the regulation for these plants. All other plants were
assumed to serve the county in which they are located, and county data from the Census of
Population and Housing were used to compute their household impact indices. Of the plants in
this study, 26 were assigned to a municipal service area and 213 to a county-wide service area.
A default procedure assigns county ownership unless sources specifically indicate "only
one city" as the service area. This procedure tends to underestimate the population base served
in those cases where the actual service area includes multiple counties and/or multiple cities with
total population greater than the designated county (see Assumption 1 above).2 Household and
government impact indices use population data to calculate the financial base responsible for
bearing the control costs imposed by the regulations. The inherent tendency toward
underestimation of service area population has the effect of underestimating the population base
responsible for financing the control costs of the plant or plants located in each service area.
2For those plants saving multiple cities with total population less than the designated county the population base
would be overestimated. However, in the follow-up telephone contacts for government entities no MWC plant
had a service area which included less than one county.
8-10
-------
Consequently, the first step in the screening procedure was designed to compensate for this bias:
only those service areas whose estimated waste generation roughly matched the capacity of the
plant or plants located in that service area were included in the analysis. In particular, only the
72 service areas with implied capacity utilization between 40 percent and 400 percent for
modular plants and 60 percent and 400 percent for all other plants were included.
To assess the impacts of the Guidelines on households and government entities, we must
first compute plant-specific costs of compliance. Costs of the various regulatory alternatives
were assigned to actual plants based on the model plant designations of the industry profile
(Radian, 1988a). When calculating control costs, we assumed that all plants are just meeting
federal standards for emissions in the baseline (see Assumption 2 above). This assumption may
tend to overestimate control costs for those plants with baseline controls in place that remove
more pollution than called for by current federal standards. Using cost-of-compliance
information for the model plants, we computed two measures of cost for each plant, under each
of the five regulatory alternatives. These two costs are total capital cost and total annualized
enterprise cost of compliance for both public and private forms of ownership. Total annualized
enterprise cost of compliance for a plant equals the annual waste flow (Mg/yr) for each plant
multiplied by the total annualized compliance cost per Mg for the appropriate model plant. To
compute capital cost of compliance for the plant, capital cost of compliance for the model plant
is scaled up or down based on the ratio of each plant's annual waste flow to the appropriate
model plant's annual waste flow.
8.3.1 Household Impacts
All MWC plants, whatever their ownership, are likely to pass increased costs on to their
customers. Among these are households, which generate much of the municipal waste
incinerated annually. To assess the impacts of the Guidelines on households, 1980 Census of
Population data were collected on each of the municipalities and counties in which plants are
located. The data collected include the county population, number of households, median
household income, and per capita income. The monetary values were inflated from 1980 dollars
to fourth-quarter 1987 dollars using the GNP deflator (1988 Economic Report of the President,
p. 252).
As previously described, the total annual compliance cost of the regulation was computed
by multiplying enterprise cost per Mg times each plant's estimated throughput. We calculated
different compliance costs for each model plant, depending on whether the plant is publicly or
privately owned. For purposes of computing the plant-specific compliance costs, we used the
8-11
-------
cash flow model with private ownership for the privately owned plants, and the cash flow model
with public ownership for all other plants. This may be somewhat inaccurate for authority-
owned plants, which describe themselves as "quasi-public." In fact, their financing is probably
much like that of a public plant. After computing total annual compliance costs for each plant,
we summed the plant compliance costs over the plants within each service area to find the
compliance cost incurred in each service area.
We combined census data associated with the 72 counties or municipalities included in
these estimated service areas with control cost data for the affected plants and used those data to
estimate two service area specific household impact indices:
1. compliance cost per household, and
2. compliance cost per household as a percentage of median household income.
These indices had been used previously by EPA's Office of Solid Waste (OSW) in its Subtitle D
Landfill Regulatory Impact Analysis (RIA) (Temple, Barker and Sloan et al., 1987). They are a
rough measure of the household burden associated with the regulation: the former is an absolute
dollar measure per household, while the latter is a measure of the cost of the regulation relative to
the income of an average household. In the OSW Landfill RIA, a service area is defined as
having severe household impacts if either:
1. compliance cost per household exceeds $220, or
2. compliance cost per household exceeds 1 percent of median household income.
Based on either criterion, none of the 72 service areas had severe household impacts
under any of the regulatory alternatives. However, it should be noted that our sample does not
include service areas with a population less than 2,500 because of census data limitations.
Additionally, these results are based on conditions of national average waste generation per
household and the assumption that all served households share equally in paying the cost of
compliance. In practice, the impact of the regulation on individual households would depend on
actual waste generated, actual household income, and the method by which individual
jurisdictions pass on costs to their customers. While on average, impacts of compliance are not
severe, there may well be special contractual or technical conditions, especially for small
communities and service areas, where these costs, in combination with the costs of other
environmental regulations, may impose unusual hardships.
8-12
-------
Figures 8-1 and 8-2 show the distribution of household impacts measured by each index.
Under the most stringent regulatory alternative, no service area averages control costs greater
than $93 per household per year or 0.5 percent of median household income per household per
year. Costs for 90 percent of all households average less than $58 per household per year in
Figure 8-1 and less than 0.29 percent of median household income per household per year in
Figure 8-2. The average control cost per household per year is $27, translating to 0.12 percent of
median household income per household per year.3
In Figures 8-3 and 8-4 service areas are grouped in population size categories, and
median impacts in each category are presented for the five regulatory alternatives. It appears that
smaller service areas have slightly higher household impacts. In particular, greater control of
smaller combustors under Regulatory Alternatives HE and IV more than double the household
impact for the smaller communities.
8.3.2 Governmental Impacts
To assess impacts on governmental units, we identified the plants owned by
municipalities or counties or co-owned by municipalities and counties. For each of these public
plants, data were collected from the 1982 Census of Governments, including the county's or
municipality's annual capital expenditures, annual total tax revenue and total revenue, annual
total expenditures, and annual sewerage and sanitation expenditures, as well as the county's or
municipality's total debt outstanding and annual interest paid on the debt. These government
expenditure and revenue figures were inflated from 1982 dollars to 1987 dollars using the State
and Local Government Expenditure Deflator (1988 Economic Report of the President, p. 253).
These data were used to estimate annual values for three government impact indices:
1. sum of the average sewerage and sanitation cost per household and the average
control cost per household as a percent of median household income,
2. sum of total current debt service and additional debt service associated with the
capital cost of control as a percent of total general revenues, and
3. control costs as a percent of total general expenditures.
The first two indices are adaptations of indices used in the Municipal Sector Study (U.S.
EPA, 1988c). Exact duplication of the indices used in that study was impossible with the data
available to us, so our analysis substituted measures of government activity similar in principle.
3Twelve of the 72 government jurisdictions are "small" as defined in the RFA (i.e., population of 50,000 or less).
8-13
-------
Number of 50 -\
Service
Areasb-c
00
Y/A Regulatory Alternative I
KJS8 Regulatory Alternative HA
Regulatory Alternative IIB
[ | Regulatory Alternative III
•• Regulatory Alternative IV
$0-$10 $10-$20 $20-$30 $30-$40 $40-$50 $50460 $60-$70 $70-$80 $80-$90 $90-$100
$220
Average Cost per
Household per Year a
1 Costs refer to control costs only; no baseline costs are included.
'Service areas with less than 2,500 total population were not included in the sample because census data for these service areas
were not available.
' Service areas with implicit capacity utilizatbn less than 40 percent for modular plants, less than 60 percent for other technologies, or
greater than 400 percent for all technologies were not included in the sample. See text for discussion.
Household impacts were defined as "severe" if average cost exceeds $220 per household per year.
Figure 8-1. Distribution of Household impacts Under Guidelines by
Number of Service Areas and Regulatory Alternative: index 1
-------
oo
Number of
Service
Areas b-c 45 .
0%-.05% .05%-.
P^/j Regulatory Alternative I
BOB Regulatory Alternative HA
Regulatory Alternative IIB
I | Regulatory Alternative III
jfM Regulatory Alternative IV
.2%-.25%.25%-.3% .3%-.35% .35%-.4% .4%-.45% .45%-.5% .5%-1.0% 1.0%
Average Cost per Household per Year as a
Percentage of Median Household Income a
a Costs refer to control costs only; no baseline costs are included.
Service areas with less than 2,500 total population were not included in the sample because census data for these service areas
were not available.
c Service areas with implicit capacity utilization less than 40 percent for modular plants, less than 60 percent for other technoloqies or
greater than 400 percent for all technologies were not included in the sample. See text for discussion. '
Household impacts were defined as "severe" if average cost exceeds 1 percent of median household income per household per year.
Figure 8-2. Distribution of Household Impacts Under Guidelines by
Number of Service Areas and Regulatory Alternative: Index 2
-------
00
I
M^
o\
Median $220°-,
Cost per I
Household X
per/ear a
$20-
$10-
$0
0-50
50-150
150-500
Regulatory Alternative I
Regulatory Alternative IIA
Regulatory Ahernative I IB
| | Regulatory Alternative III
•I Regulatory Alternative IV
500-1,000
1,000 +
Population of
Service Area (1.000's) b>c
a Costs refer to control costs only; no baseline costs are included.
Service areas with less than 2,500 total population were not included in the sample because census data for these service areas
were not available.
0 Service areas with implicit capacity utilization less than 40 percent for modular plants, less than 60 percent for other technologies, or
greater than 400 percent for all technologies were not included in the sample. See text for discussion.
d,
Household impacts were defined as "severe" if average cost exceeds $220 per household per year.
Figure 8-3. Distribution of Household Impacts Under Guidelines by
Service Area Population and Regulatory Alternative: Index 1
-------
oo
Median Cost per
-------
The Sector Study indices are designed to measure a government entity's ability to meet
additional financial obligations incurred due to the regulation. More specifically, the indices are
designed to measure each government's ability to issue revenue bonds or obtain loans to finance
the additional control costs. The third index is one used in the OSW Subtitle D Landfill RIA. It
is a measure of the additional governmental cost burden associated with the regulation relative to
the existing government commitments.
Indices of government unit impacts were only computed for some of the plants affected
by the regulation. Our analysis naturally included only MWCs that could be identified as
government owned. We further restricted our analysis to those plants for which ownership and
service area were specified as being the same. In some cases, this meant that even though
ownership was specified as one county, the plant may have actually served multiple counties,
counties and municipalities, or multiple municipalities in one or more counties. As previously
noted, assigning only one government unit to a plant may tend to overestimate government unit
impacts for those MWCs that serve several jurisdictions by underestimating the financial base of
the communities served. We thus treat this part of the analysis as a screening device, aimed at
identifying potential problem communities. If assigning a single government unit to the MWC
plant in our analysis does not give severe impacts, the full assignment of all relevant government
units with their greater combined resources to the plant is unlikely to give severe impacts.
Only the model plant costs for public ownership were considered in our analysis of
government impacts. The compliance costs were summed over all the public combustor plants in
each county or municipality. As in the case of household impacts, our analysis was further
limited to those service areas whose estimated waste generation roughly matched the capacity of
the associated plants. While we were concerned that this reduction in the number of plants
analyzed might distort the government impact analysis, the remaining 15 plants appeared to be
fairly representative of the entire set in terms of population served, median income, and
combustor technology.
To compute the impacts, we combined Census of Governments data associated with these
15 counties or municipalities with the control cost data for the affected plant. These impacts
were compared to the "severity" measures adopted from the Sector Study and the OSW Landfill
RIA. Using the Municipal Sector Study criterion, a governmental unit is defined as severely
impacted if:
• the sum of the average sewerage and sanitation cost per household and the average
control cost per household as a percent of median household income exceeds 1 percent,
and
8-18
-------
• the sum of total current debt service and additional debt service associated with the
capital cost of compliance to the regulation as a percent of total general revenues
exceeds 15 percent.
For the OSW Landfill RIA, the government impact is likely to be severe if:
• control costs as a percent of total general expenditures exceed 1 percent.
Figure 8-5 shows the preliminary results for our analysis using each of the indices as well
as the joint criterion for the first two indices. Since the first and second criteria must be met
together to indicate severe impacts, no government units had severe impacts under the joint
criterion. Under the third criterion 11 governments were identified as having severe impacts in
our analysis.
Given this indication that the government impacts might indeed be severe under one of
the criteria, we examined the service and financial conditions of each community we identified
as having severe impacts. This inquiry revealed that more than one government jurisdiction was
served by the plant(s) in all 11 cases where severe impacts were indicated. For example, the
combustor plant in Dayton, Ohio, serves Montgomery County in addition to other nearby
counties and municipalities which may dispose of waste at the Dayton MWC for a fee. In many
cases, the financial base in our analysis represented only a small fraction of the actual financial
base served by the combustor. Adding the resources of these government units together would
result in smaller impacts and reduction of the impact below the "severe" threshold. We note,
however, that because of data limitations, we could not compute impacts for plants serving
government entities representing service areas with a population of 10,000 or less.
Using county and municipality population data, we divided the service areas into
population size categories. Figures 8-6, 8-7, and 8-8 examine the relationship between the
impact ratios and the county or municipality size. Unlike the household impact indices, no clear
inverse relationship appears to exist between the size of the service area and the magnitude of
impact for the first two indices. Using the third index, some evidence of an inverse relationship
between the magnitude of the impact variable and population size appears to exist. As in the
case of household impacts, Regulatory Alternatives IIB and IV, with more stringent controls on
small combustors, have the greatest impact on small government units.
8-19
-------
Number of 1
Government
Units with
Severe 10 ^
Impacts
8-
6-
4-
Joint(
/note*
Regulatory Alternative I Regulatory Alternative I IB
Regulatory Alternative IIA | ] Regulatory Alternative III
Regulatory Alternative IV
Service areas with less than 10,000 total population were not included in the sample because
census data for these service areas were not available.
Service areas with implicit capacity utilization less than 40 percent for modular plants, less than 60
percent for other technologies, or greater than 400 percent for all technologies were not included in
the sample. See text for discussion.
Index 1 is the sum of average sewerage and sanitation cost per household and the average control
cost per household as a percent of median household income. The Municipal Sector Study (U.S.
EPA, 1988d) sets 1 percent as the criterion for severe impacts under this index.
Index 2 is the sum of total current debt service and additional debt service associated with
compliance to the regulation as a percent of total general revenues. The Municipal Sector Study
(U.S. EPA, 1988d) sets 15 percent as the criterion for severe impacts under this index.
0 Using the Municipal Sector Study criteria, both index 1 and index 2 must be exceeded to indicate
severe impacts.
Index 3 measures control costs as a percent of total general expenditures. The OSW Landfill RIA
sets 1 percent as the criterion for severe impacts under this index
Figure 8-5. Distribution of Government Impacts Under Guidelines:
Preliminary Screening Results a>b
8-20
-------
Index 1C 1.00%
0 T
(Median L
Impact) X
0.60%
0.50%
0.00%
150 +
N-7
Population of
Service Area
(1,000's) a
Regulatory AHemative I
Regulatory Alternative HA
Regulatory Alternative I IB
Regulatory Alternative III
Regulatory Alternative IV
Service areas with less than 10,000 total population were not included in the sample because
census data for these service areas were not available.
Service areas with implicit capacity utilization less than 40 percent for modular plants, less than 60
percent for other technologies, or greater than 400 percent for all technologies were not included in
the sample. See text for discussion.
c Index 1 is the sum of average sewerage and sanitation cost per household and the average control
cost per household as a percent of median household income. The Municipal Sector Study (U.S.
EPA, 1988d) sets 1 percent as the criterion for severe impacts under this index.
Figure 8-6. Distribution of Government Impacts Under Guidelines by
Service Area Population and Regulatory Alternative13: Index 1
8-21
-------
Index 2 c 15.0%
(Median
Impact)
2.50%
2.00%
1.50%-
1.00% •
0.50% -
0.00%
Population of
Service Area
(1,000's) a
r>
-------
Index 3 c 7.00% i
(Median
Impact) 600%.
0.00%
10-50
50-150
N = 4
150+ Population of
N - 9 Service Area
(1.000's) a
Regulatory Alternative I Regulatory Alternative I IB
Regulatory Alternative IIA | | Regulatory Alternative III
Regulatory Alternative IV
Service areas with less than 10,000 total population were not included in the sample because
census data for these service areas were not available.
Service areas with implicit capacity utilization less than 40 percent for modular plants, less than 60
percent for other technologies, or greater than 400 percent for all technologies were not included in
the sample. See text for discussion.
0 Index 3 measures control costs as a percent of total general expenditures. The OSW Landfill RIA
sets 1 percent as the criterion for severe impacts under this index
Figure 8-8. Distribution of Government Impacts Under Guidelines by
Service Area Population and Regulatory Alternative5: Index 3
8-23
-------
CHAPTER 9
SENSITIVITY ANALYSIS
Social costs were estimated using a two-stage discounting procedure (see Table 9-1).
Annualized social costs are the sum of capital costs, annualized at 10 percent, and operating
costs. Present values are calculated by applying a 3 percent discount rate to total annualized
values. EPA has not officially adopted the use of the two-stage discount procedure. In addition,
continuing debate surrounds the appropriate discount rate to use in any procedure. To show how
alternative views of discounting affect the results of this analysis, the social costs were
recomputed using single discount rates: 10 percent in one case and 3 percent in another. The
results are shown in Tables 9-2 and 9-3, respectively.
Average capacity utilization values reported in the 1988-89 Resource Recovery Yearbook
(Gould, 1988) were adopted for the calculation of model plant baseline waste flows. Capacity
utilization estimates reported by in the retrofit report by Radian and EER (EPA, 1989b) averaged
as much as 10.5 percent higher than those used in this report. Table 9-4 presents scaling factors
calculated using higher capacity utilization. These factors are used to calculate national cost
impacts in Table 9-5 and emission reductions in Table 9-6. Table 9-5 reports national social
costs using the two-step discounting procedure described above with the higher capacity
utilization values. Table 9-6 reports Scenario I baseline emissions and emissions reductions
under each regulatory alternative with the higher capacity utilization values.
9-1
-------
TABLE 9-1. NSPSs NATIONAL COST IMPACTS: SOCIAL COSTS USING A
TWO-STEP DISCOUNTING PROCEDURE (1987 $)«
Scenario
and
Regulatory
Alternative
Scenario I
Regulatory Alternative I
Regulatory Alternative HA
Regulatory Alternative EDB
Regulatory Alternative in
Regulatory Alternative IV
Scenario III
Regulatory Alternative I
Regulatory Alternative HA
Regulatory Alternative IBB
Regulatory Alternative HI
Regulatory Alternative IV
PVof
Social
Capital
Costsb
($106)
37.8
227
268
638
676
36.9
150
185
398
430
Present
Value of
Social Costs
($10*)
126
1,190
2,260
2,930
3,290
123
1,320
1,610
1,840
2,110
Annualized
Social Costs
($10«/yr)
6.41
97.2
115
150
168
6.26
67.6
82.0
93.8
107
Annualized
Social Costs
per Mg MSWC
($/Mg)
0.46
6.99
7.70
10.80
11.20
0.46
6.86
7.69
10.60
11.10
a Annualized social costs are the sum of capital costs, annualized at 10 percent, and annual
operating costs. Present values are computed as the present value of these annualized costs
using a 3 percent rate of discount.
b Present value of capital costs are based on 2 consecutive, 15-year life cycles for APCD
equipment over the 30-year plant life. These assumptions make no difference in the
annualized cost impacts (Robson, 1989).
c Computed by dividing total annualized cost by the estimated amount of MSW processed per
year by MWC.
9-2
-------
TABLE 9-2. NSPSs NATIONAL COST IMPACTS: SOCIAL COSTS USING A
10 PERCENT DISCOUNT RATE (1987 $)
Scenario
and
Regulatory
Alternative
Scenario I
Regulatory Alternative I
Regulatory Alternative HA
Regulatory Alternative IIB
Regulatory Alternative in
Regulatory Alternative IV
Scenario III
Regulatory Alternative I
Regulatory Alternative HA
Regulatory Alternative IIB
Regulatory Alternative IE
Regulatory Alternative IV
PVof
Social
Capital
Costs*
($10«)
37.8
227
268
638
676
36.9
150
185
398
430
Present
Value of
Social Costs
($106)
60.5
917
1,090
1,410
1,580
58.9
637
773
884
1,010
Annualized
Social Costs
($10«/yr)
6.41
97.2
115
150
168
6.26
67.6
82.0
93.8
107
Annualized
Social Costs
per Mg MSW»>
($/Mg)
0.46
6.99
7.70
10.80
11.20
0.46
6.86
7.69
10.60
11.10
a Present value of capital costs are based on 2 consecutive, 15-year life cycles for APCD
equipment over the 30-year plant life. These assumptions make no difference in the
annualized cost impacts (Robson, 1989).
b Computed by dividing total annualized cost by the estimated amount of MSW processed per
year by MWC.
9-3
-------
TABLE 9-3. NSPSs NATIONAL COST IMPACTS: SOCIAL COSTS USING A
3 PERCENT DISCOUNT RATE (1987 $)
Scenario
and
Regulatory
Alternative
Scenario I
Regulatory Alternative I
Regulatory Alternative IIA
Regulatory Alternative IIB
Regulatory Alternative III
Regulatory Alternative IV
Scenario III
Regulatory Alternative I
Regulatory Alternative IIA
Regulatory Alternative IIB
Regulatory Alternative III
Regulatory Alternative IV
PVof
Social
Capital
Costs3
($106)
50.0
300
355
845
899
48.8
199
245
527
570
Present
Value of
Social Costs
($106)
97.2
1,730
2,050
2,450
2,770
94.8
1,210
1,470
1,540
1,780
Annualized
Social Costs
($l(%r)
4.96
88.5
105
125
142
4.84
61.8
74.9
78.5
90.9
Annualized
Social Costs
per Mg MSWb
($/Mg)
0.36
6.37
7.01
9.00
9.46
0.36
6.28
7.02
8.87
9.43
a Present value of capital costs are based on 2 consecutive, 15-year life cycles for APCD
equipment over the 30-year plant life. These assumptions make no difference in the
annualized cost impacts (Robson, 1989).
b Computed by dividing total annualized cost by the estimated amount of MSW processed per
year by MWC.
9-4
-------
TABLE 9-4. SCALING FACTORS CALCULATED USING A HIGHER CAPACITY
UTILIZATION
Model
Plant
#
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
Other
Model
Plant
Type8
MB/REF/TG
MB/REF/RG
MB/REF/RK
MB/WW(large)
MB/WW(mid-size)
MB/WW(small)
RDF (large)
RDF (small)
MOD/SA/TR
MOD/SA/G
MOD/EA
MB/RWW
TRANS MOD/EA
TRANS MB/WW
TRANS RDF (large)
TRANS RDF (small)
TRANS MB/RWW
Model Plant Total
Unassigned
Model Plant
Capacity
(Mg/day)
680
220
820
2,040
980
180
1,810
540
140
45
180
450
380
180
1,810
540
450
—
Scaling
Factorsb
5.53
22.75
4.78
10.13
15.39
9.30
5.00
14.10
18.75
46.50
8.38
2.43
1.64
2.32
3.31
2.08
3.44
175.83
1.09
a Tables 3-2 describes each of the model plants listed here.
b These scaling factors are based the annual operating hours reported by Radian and EER (EPA,
1989b) with an adjustment for a stand-by combustor unit at model plant #9. Capacity
utilization adopted in the Radian/EER report was in many cases greater than that used in the
baseline and scenarios of this impact analysis.
9-5
-------
TABLE 9-5. NSPSs NATIONAL COST IMPACTS: SOCIAL COSTS USING A
HIGHER CAPACITY UTILIZATION (1987 $)«
Scenario
and
Regulatory
Alternative
Scenario I
Regulatory Alternative I
Regulatory Alternative IIA
Regulatory Alternative IBB
Regulatory Alternative ffl
Regulatory Alternative IV
PVof
Social
Capital
Costsb
($10
-------
TABLE 9-6. GUIDELINES NATIONAL BASELINE EMISSIONS AND EMISSION
REDUCTIONS (Mg PER YEAR): HIGHER CAPACITY UTILIZATION8
Scenario I
Regulatory
Alternative
CDD/CDF CO PM SO2 HCI Pb Ash
Baseline Emissions 0.203 26,400 11,400 86,600 108,000 248 7,790,000
Emissions Reductions
Regulatory Alternative I 0.149 11,200 6,520 0 0 155 270,000
Regulatory Alternative DA 0.185 11,200 6,520 30,800 75,300 192 -246,000
Regulatory Alternative HB 0.190 11,200 8,290 34,700 86,500 241 -320,000
Regulatory Alternative HI 0.196 11,200 6,520 69,200 91,300 192 -180,000
Regulatory Alternative IV 0.201 11,200 8,290 73,100 102,000 241 -254,000
KEY: polychlorinated dibenzo-p-dioxins and dibenzofurans (CDD/CDF), carbon monoxide
(CO), paniculate matter (PM), sulfur dioxide (SOa), hydrogen chloride (HCI), and lead (Pb).
8 Calculated based on annual hours of operation as reported by Radian and HER (EPA, 1989b)
with an adjustment for a stand-by combustor unit at model plant #9. Capacity utilization
adopted in the Radian/EER report was in many cases greater than that used in the baseline
and scenarios of this impact analysis.
9-7
-------
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»
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Radian Corporation. 1988b. Memorandum to U. S. Environmental Protection Aeencv
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\X/Kit» r r j
White.
R-2
-------
Research Triangle Institute. 1988. Economic Impact Analysis of Municipal Solid Waste Landfill
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* "
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7J^^
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-------
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of Environmental Economics and Management 2:263-272.
R-4
-------
APPENDIX A
ESTIMATION OF THE REAL DISCOUNT RATE FOR PRIVATE FIRMS
AND PUBLIC ENTITIES
-------
CONTENTS
Section Page
A.1 Introduction A-1
A.2 Private Cost of Capital A-1
A.2.1 The Weighted Average Cost of Capital A-2
A.2.2 Cost of Equity. A-3
A.2.3 Estimation of the WACC A-4
A.3 Public Cost of Capital A-5
A.4 Inflation and the Real Cost of Capital A-6
A.5 Social Rate of Discount A-6
m
-------
TABLES
Number Page
A-1 Capital Asset Pricing Method: Data and WACC Calculations for Private Entities
in the Municipal Waste Management Industry A-8
A-2 Standard & Poors Bond Ratings and Yields A-9
A-3 "Bond Rate Plus Four" Method: WACC Calculations for Private Entities in the
Municipal Solid Waste Management Industry A-10
A-4 Dividend Growth Model Data: Data and WACC Calculations for Private Entities
in the Municipal Solid Waste Management Industry A-ll
A-5 Estimated Real Weighted Average Cost of Capital (Percent) A-12
IV
-------
APPENDIX A
ESTIMATION OF THE REAL DISCOUNT RATE FOR PRIVATE FIRMS AND
PUBLIC ENTITIES
A.I INTRODUCTION
The cash flow model introduced in Chapter 3 is needed to determine the cost associated
with meeting an emission standard or guideline. The model is also used to predict a decision
maker's response when a number of options for meeting a regulation are available.
Two forms of the model were presented: one for a private firm and one for a public entity
like a municipality or a solid waste authority. The reason for this distinction is that these forms
of organization face very different financial conditions due to the effect of differing tax treatment
of their incomes and expenditures. Not only are the cash flow models different, but the financial
parameters used in the models are also different. In particular, the real discount rates used in the
private and public (municipal) cash flow models differ. In this appendix we describe how the
different real discount rates for private and public (municipal) entities used in this analysis were
estimated.
This section also discusses some of the problems and issues—such as inflationary
expectations and risk and liquidity premiums—associated with both estimating and applying cost
of capital values. Additional information on estimation and using cost-of-capital values for
regulatory analyses may be found in an RTI report by Anderson, Mims, and Ross (RTI, 1987).
A.2 PRIVATE COST OF CAPITAL
The private discount rate is the "time value of money" used by firms to represent the cost
to them of investing funds today in anticipation that these expenditures will yield revenues
sometime in the future. The private discount rate is therefore often referred to as the "cost of
capital."
For a private firm, the cost of capital can be the rate of return on an alternative investment
or, if the firm has access to credit or equity markets, the lending rates prevailing in those markets.
Inasmuch as a firm with access to capital funds would find it profitable to invest in any
opportunity where the rate of return exceeds the cost of capital in credit and equity markets, these
market-based values determine the cost of capital.
A-l
-------
A.2.1 The Weighted Average Cost of Capital
Most private firms finance new investments from two sources of capital: debt and equity.
The term "weighted average cost of capital" is used to denote the fact that the firm's overall cost
of capital is a weighted average of the costs of debt and equity. Debt financing is generally
carried out by issuing long-term bonds. Equity financing occurs when firms retain earnings and
issue common stock. Other sources of capital are usually insignificant in comparison to these
two sources and therefore will not be discussed here.
The before-tax cost of debt is the interest rate a firm must pay on long-term debt. This
rate is equal to the yield to maturity (YTM) on the firm's long-term bonds. YTM is based on
current bids for the bonds in the bond market. YTM must be used rather than the rate at which
past debt was issued because the firm's current cost of capital is the relevant interest rate in new
investment decisions.
Interest paid by corporations with current revenues is tax deductible; therefore the after-
tax cost of debt is the true cost of debt for the firm. The after-tax cost of debt can be calculated
by multiplying the before-tax cost of debt by one minus the combined state and federal marginal
corporate tax rate (t).
The cost of equity is much more difficult to estimate. The cost of equity is the rate of
return that is required by the holders of the firm's common stock. This rate of return must be
earned to ensure that the market price of common stock remains unchanged. Estimation of the
cost of equity is discussed in detail below.
Once the cost of debt and equity have been computed, however, they can be combined to
estimate the overall or weighted average cost of capital (WACC) for the firm. In equation form:
WACC = (1-t) rd(D/V) + re(E/V) (A.l)
where
t = marginal corporate tax rate,
rd = before-tax cost of debt,
D= value of firm's debt,
E = value of firm's equity,
A-2
-------
V = total value of firm (D + E), and
re= cost of equity.
This is the appropriate discount rate for all of the firm's investments even though any
specific project could conceivably be financed entirely by one source. The WACC formula
assumes that the firm's debt/equity ratio will remain constant over time.
Once the firm's WACC has been estimated, then the average cost of capital for the
municipal solid waste management industry can be calculated. This value for the industry can be
used in conjunction with a discounted cash flow model and estimates of expected expenditures
(including taxes) and revenues to assess the relative attractiveness of a given investment using a
net present value criterion.
A.2.2 Cost of Equity
Three methods of estimating the cost of equity capital for use by private firms are
discussed below: the Capital Asset Pricing Model (CAPM), the Bond Rate Plus Four method,
and the Dividend Growth method.
In equation form, CAPM can be expressed as follows:
re = rf + B[rm-rf] (A.2)
re = cost of equity,
rf = risk-free rate of return (long-term treasury bonds),
rm = rate of return in the equity market generally (i.e., S&P 500), and
B = Beta, a measure of the relative risk of the equity asset.
Beta values of stocks are readily available through several sources such as The Value Line
Investment Survey.
The second method for estimating the cost of equity is called the "bond rate plus four"
method. In this method one adds 4 percentage points to the interest rate on a firm's long-term
debt to obtain the estimated return on equity. This is an ad hoc method that provides only rough
estimations of a firm's cost of equity and should only be used in conjunction with other methods.
A-3
-------
Tied as it is to the cost of debt, however, it tends to reflect the reasonable assumption that firms
with risky debt will also have risky and high cost equity.
A third method of estimating a firm's cost of equity is the Dividend Growth Method
(DGM). DGM is based on the theory that the current price of a share of stock is equal to the
present value of expected future dividend payments. This can be expressed as:
"»"£i
where
PQ = current price of stock,
DI = expected dividend next year,
re = firm's cost of equity, and
g = expected annual growth rate of dividends.
PQ is the current price of stock as quoted in any newspaper; estimates of DI can be found
in many sources, such as The Value Line Investment Survey; and g can be estimated from
historical data on dividend growth. With these values in hand it is a simple matter to calculate
the cost of equity, using the DGM.
A.2.3 Estimation of the WACC
The data and calculations used in estimating the WACC by the CAPM are presented in
Table A-1. In these calculations, a federal corporate tax rate of 34 percent is used. As an
approximation, a state corporate tax rate of 7 percent is used to derive an effective tax rate of
approximately 39 percent. The beta values (B) used to calculate the cost of equity are the overall
betas for the firms in Table A-l. The overall company beta is a measure of a firm's overall
undiversifiable risk, not the more specific municipal risk of waste management projects; betas
specific to waste management activities of the firms are not available.
As shown in Table A-l, using the average re found by the CAPM and the average yield of
bonds as rated by Standard and Poors (Table A-2), the average WACC is 14.11 percent, with a
range for individual firms of 11.43 percent to 16.80 percent.1
1 The only difference between the methods discussed above and their application in this appendix lies in computing
the cost of debt, r(d). Direct information on the yield to maturity for the long-term instruments of the firms in
A-4
-------
The calculations using the Bond Rate Plus Four method are presented in Table A-3. As
can be seen, the average return on long-term debt for the 12 firms in our sample is 11.02 percent.
The resulting re using the Bond Rate Plus Four method is 15.02 percent. The average WACC is
12.81 percent with a range of 10.20 percent to 15.27 percent for individual firms in the sample.
Table A-4 presents WACC calculations using the DGM methodology to find the return
on equity. The current price of stock is the price of the stock on January 14, 1988. DI is the
expected annual dividend as found in The Value Line Investment Survey. The expected growth
rate in the stock was derived from The Value Line Investment Survey as the growth rate expected
over the next 12 months. As can be seen, the industry average WACC using this methodology is
estimated to be 8.81 with a range of 5.18 to 14.37 percent. The DGM therefore results in much
lower WACC estimates than the other two methods.
The three estimates of WACC are simple arithmetic means and are not weighted by
market share of each firm. In addition, the firms included in the analysis are only those that
currently own or supply municipal waste management facilities, are publicly traded, and are large
enough to have the necessary financial statistics available. The WACC values calculated using
the above methodologies are nominal and not real WACC. The effects of expected inflation and
the underlying real cost of capital are discussed below.
A.3 PUBLIC COST OF CAPITAL
Public entities do not have equity investors, and some holders of certain types of
municipal debt do not pay income tax on interest received. Thus, the cost of capital values in the
financial markets appropriate to a private firm are not the relevant cost of capital values for
municipalities.
Public entities that manage municipal wastes usually finance new projects by issuing
municipal bonds. Revenue bonds are generally used rather than general obligation bonds. Thus,
the cost of debt is slightly higher than the rate on long-term general obligation municipal bonds.
A very broad range of public entities own municipal waste management facilities (Gould,
1986). Thus, average yields on municipal revenue bonds can be used as the cost of capital for
public entities that manage municipal waste. According to the Merrill Lynch Bond Index for
Table A-l varied greatly for debt instruments across sources because of differences in reporting periods. We
used the S&P bond ratings for each firm's bonds to find the yield to maturity based on the average yield in each
rating category. The yields for bond ratings AAA through BBB are directly from Standard and Poors while the
yields for lower ratings were estimated based on a previous analyses performed by RTI (1987).
A-5
-------
January 14, 1988, the yield on long-term municipal revenue bonds is 8.40 percent This is also
the average over the past year.
A.4 INFLATION AND THE REAL COST OF CAPITAL
The WACCs estimated above for private and public entities are nominal rates of discount.
To find real or inflation-adjusted cost of capital, we must estimate investors' expected rate of
inflation over the long term.
The expected change in the rate of inflation over the next 20 years can be approximated
from the difference in current short-term and long-term interest rates after adjustment for
investors' liquidity preferences. Liquidity preference has been estimated to be about 1 percent.
However, the current difference between short- and long-term interest rates is observed to be
1.89 percent (9.11 - 7.22). This indicates that inflation is expected to be approximately 0.89
percentage points over the current level for the next 20 years.
Current inflation expectations over the short term generally match recent actual rates of
inflation. Recent actual rates of inflation have roughly averaged 3.50 percent (see Standard &
Poors Statistical Service). Therefore the expected average rate of inflation over the next 20 years
is estimated to be 4.39 percent (0.0350+0.0089).
Another way of estimating the expected rate of inflation is to assume that the real
discount rates determined by past nominal rates of return and inflation are still being earned by
today's investors. Historically, real discount rates appear to have been in the 3 to 4 percent
range. Applying the 4 percent figure to virtually risk-free, long-term treasury bills circulating
today yields an estimate of the expected rate of inflation of 4.91 percent [(0.0911 - 0.04)/1.04],
Estimates of the private and public real WACC under different estimates of expected
inflation and the nominal WACC are shown on Table A-5. The wide range in values highlights
the uncertainty associated with estimation of a real WACC, making selection of a particular
value for use in this impact analysis somewhat arbitrary. Given this uncertainty, rounded real
WACC values of 8 and 4 were selected for private and public entities respectively. The former is
in the neighborhood of estimates provided by two of the three methods used to estimate the cost
of equity capital. The latter is the rounded value of the average of the two estimates of the public
entity real WACC in Table A-5. One should note again that these estimates are approximate and
that the real WACC will vary substantially across individual firms and public entities.
A-6
-------
-
on ivestfl^
-------
A-8
-------
-------
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SOL'^o«s
*0.69
J0.69
J0.07
J0.69
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*4.07
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4-10
-------
TABLE A-4. DIVIDEND GROWTH MODEL METHOD: DATA AND WACC
CALCULATIONS FOR PRIVATE ENTITIES IN THE MUNICIPAL
SOLID WASTE MANAGEMENT INDUSTRY
Firm
Allied Signal
Ashland Oil
Boeing
Combust. Eng.
Dravo
Foster Wheeler
McDermott
Ogden
United Indust.
Westinghouse
Zurn
Industry Average
rd(%)
10.69
10.69
10.07
10.69
11.22
11.22
11.22
11.22
11.22
10.07
11.71
PO
31
56
46
29
13
15
16
29
13
50
23
D,
2.20
1.00
1.75
1.00
0.50
0.44
1.00
1.20
0.64
2.15
0.72
g
5.5
9.5
11.00
5.00
1.50
2.00
-3.00
10.00
4.50
12.50
3.00
re(%)
12.60
11.29
14.80
8.45
5.35
4.93
3.25
14.14
9.42
16.80
6.13
D/V
.39
.34
.05
.25
.20
.29
.53
.38
.12
.49
.08
WACC (%)
10.24
9.68
14.37
7.98
5.65
5.50
5.18
11.38
9.12
11.60
6.22
8.81
Sources: Standard and Poors Inc., December 1987; Standard and Poors Inc., September 1987;
Moody'sine., 1987; The Value Line Investment Survey, January 1988
A-ll
-------
TABLE A-S. ESTIMATED REAL WEIGHTED AVERAGE COST OF CAPITAL
(PERCENT)
Weighted Average 4.39% 4.91%
Cost of Expected Expected
Capital Method Inflation Inflation
Private Entities
Capital Asset Pricing Model 9.31 8.77
Bond Rate Plus Four Method 8.07 7.53
Dividend Growth Model 4.23 3.72
Public Entities
Long-Term Revenue Bonds 3.84 3.33
A-12
------- |