United States
 Environmental Protection
 Agency
 Air and Energy Engineering
 Research Laboratory
 Research Triangle Park NC 27711
 Research and Development
 EPA/600/S8-88/064  May 1 988
 Project Summary
 Development of the Fuel
 Choice  Module  in  the  Industrial
 Combustion  Emissions  Model

 Tim Hogan, Joel L Horowitz, and Thomas Cook
  The Industrial Combustion Emissions
(ICE) Model is one of four stationary
source emission and  control cost
forecasting models developed by EPA
for the  National Acid  Precipitation
Assessment Program. The ICE Model
projects air pollution emissions (sulfur
dioxide, sulfates, nitrogen oxides, and
particulate matter), costs, and fuel mix
for industrial fossil-fuel-fired (natural
gas, distillate and residual fuel oil, and
coal) boilers by state and year (1980
baseline,  1985,  1990,  1995,  2000,
2010, 2020, and 2030).
  The ICE Model was originally devel-
oped from the Industrial Fuel Choice
Analysis Model (IFCAM), which relies
on a life-cycle cost-of-fuel logic. Two
reports describe the development of an
updated  forecast model (i.e., ICE)
which relies  on  a broader  range of
factors shown to be relevant  to the
industrial boiler fuel choice  decision.
These reports describe  the  develop-
ment and basis for the improved fuel
choice decision logic used in the ICE
Model (Version 6.0).
  This Project Summary was  devel-
oped by EPA's Air and  Energy Engi-
neering Research Laboratory, Research
Triangle Park, NC, to announce key
findings of the research project that is
fully documented in two separate
reports of the same title (see Project
Report ordering information at back).

Introduction
  The Industrial Combustion Emissions
(ICE) Model is one of several  emission
forecasting models developed by EPA for
use by the National Acid Precipitation
Assessment Program (NAPAP). The ICE
Model (Version 6.0) projects air pollution
emissions (sulfur dioxide, sulfates, and
nitrogen oxides), costs, and fuel mix for
industrial fossil-fuel-fired (natural  gas,
distillate and residual fuel oil, and coal)
boilers by state (excluding Alaska and
Hawaii) and year (1980 base year, 1985,
1990, 1995,  2000, 2010, 2020,  and
2030). The ICE Model does not include
projections related to the combustion of
LPG,  municipal  or agricultural  solid
waste, or non-purchased, self-generated
by-product fuels (i.e., wood, black liquor,
coke oven gas, blast furnace gas, refinery
off-gas, and refinery still gas).

Background
  The ICE Model is a disaggregated
process engineering model.  Models of
this type simulate the effects  of specific
policies on technical alternatives for new
and existing equipment. The  ICE Model
is designed  to  assess the  impact of
several factors on industrial  boiler fuel
choice decisions and air pollution emis-
sions, including local  and Federal air
pollution  emissions regulations, fuel
price forecasts, and capital and annual
operating and maintenance (O&M) costs
of firing  alternative fuels or retrofitting
pollution control equipment.
  The ICE Model projects the distribution
of industrial boiler characteristics  (e.g.,
new versus  existing,  boiler size  and
capacity utilization rate) and selects the
fuel type and  pollution control com-
pliance strategy for each unit.  An impor-
tant  model feature is the  approach
chosen in the ICE Model to  select the
fuel type for new industrial boilers.
  One option is to estimate the life cycle
costs for each fuel type (including boiler

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and pollution control equipment capital,
O&M, and fuel expenses) and select the
low-cost alternative. This cost compar-
ison can be performed on an after-tax
basis because,  in the  past. Federal
income  tax laws treated investments in
coal and alternative fuel-firing boilers
differently than investments in oil- and
gas-fired boilers. Specifically, the regular
investment tax  credit  was  denied for
investments in  industrial  oil- and gas-
fired boilers.
  Many analysts recognize that actual
decisions by industrial firms consider a
broader range of factors than just capital,
O&M, and expected fuel costs.  These
other considerations include: reliability
of fuel  supplies, risks  of operating
disruptions, uncertainty regarding future
fuel prices, capital budgeting constraints,
and whether purchasers  have past ex-
perience with coal.
  Some analysts believe that a decision
framework which considers only  ex-
pected costs is an unreliable predictor of
fuel choice decisions for  new industrial
boilers. They are further concerned that
the use of this  narrow approach  in in-
dustrial  energy demand  analyses con-
ducted  in  the   past  has  resulted  in
unreasonably high or lowforecasts of the
market share for coal in  new industrial
boilers and,  as a result, this procedure
is biased.
  EPA decided that a more comprehen-
sive  evaluation  of the factors affecting
the boiler  fuel  choice  decision  was
required to  eliminate this bias  in  the
forecasted results. A qualitative review
identified several  important factors in
addition  to  life-cycle costs of capital
investment  and  annual  operating
expenses. Recent new industrial  boiler
sales data showed that the fuel  choice
decision  was not  based  solely on  the
comparison of readily quantifiable life-
cycle costs for alternative  fuels.

Fuel Choice Module
Development
  Data  on  new  industrial  boiler  sales
were evaluated as a function of expected
cost (boiler and pollution  control equip-
ment capital, O&M, and fuel) differences
and  other  factors  in three  statistical
analyses (Phases I, II, and III). The initial
and final statistical analyses (Phases I
and III)  were performed  by EEA.  Addi-
tional insights  were gained from  an
additional statistical  analysis (Phase II)
by Joel L. Horowitz and Thomas Cook.
  The data base analyzed includes over
400 orders for new industrial coal, oil,
and gas boilers between 1977 and 1983.
The  probability  of selecting  coal was
estimated  from this  data base as  a
function of boiler size, region, previous
experience with firing coal  on-site in
existing boilers (yes or no), and expected
cost differences.
  Prior to the  late 1970s, the  market
share of coal in new boilers since World
War II was so low(approximately 5%)that
there was no real experience  to analyze
which showed  any  variability in fuel
choice.  In general,  natural gas was
underpricing other fuel sources  due to
price controls; therefore,  that premium
fuel  was  the  overwhelmingly dominant
fuel choice.
  However, in the  late 1970s and early
1980s the coal market  share  (as  a
percent of fossil fuel capacity) for new
boilers rose to  15-30%. Even though this
period was characterized by  sudden
shifts in  incentives (e.g.,  oil embargo,
changes in tax laws), at  least the coal
versus oil/gas  market's share changed
substantially. This study was initiated
with the hope that analysis of new boiler
orders during  that period  would shed
new light on the determinants  of fuel
choice decisions.
  The market share of coal in new boiler
orders was found to be a strong function
of boiler size.  Almost  75%  of the large
boilers were  ordered  with coal-firing
capability, in  comparison with approxi-
mately 50% of the medium-sized boilers
and 11 % of the small boilers.
  The impact of fuel choice decisions of
having previous coal experience also was
apparent in the data.  For both medium
and large boilers, the very large majority
of decisions were  made for coal when
previous coal  experience was a factor.
A much lower  percentage of small boiler
orders chose coal with prior coal exper-
ience, but on a relative basis  this lower
market share still greatly exceeded that
observed   for  small  units  without
experience.
  Plant location was also important. New
industrial boilers built at plants without
previous coal  experience in  Federal
Regions 4 (South Atlantic)  and 5 (Mid-
west) are, on the average, more likely to
choose coal than  plants  without coal
experience  located  elsewhere.  More
than  half  of  U.S.  coal consumption  is
accounted  for by  these two regions.
Apparently close proximity  to coal sup-
plies and the demonstrated reliability of
coal boilers in other plants in the same
area  may  also be  important considj
erations.
  In addition to boiler size, location, anc
previous coal experience, there are othei
important factors.  However,  the date
base on new industrial boiler orders doe;
not include information on plant-specifk
equipment costs, fuel price expectations
perceptions of fuel supply  reliability
equipment  reliability,  capital budge'
constraints, or the costs of lost produc
tion due  to steam  supply disruption
Therefore,  this study  summarizes th«
distribution  of fuel  choice decisions aj
a function of the available data (fulh
recognizing the  data  limitations) tc
capture the effects of these less readih
quantifiable effects on  the fuel choice
decision by industrial plant managers.

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    T. Hogan is with Energy and Environmental Analysis, Inc., Arlington, VA 22209;
      J. L. Horowitz is with the University of Iowa, Iowa City. IA 52442; and T.
      Cook is with the University of Denver, Denver, CO 80210.
    Larry G. Jones is the EPA Project Officer (see below).
    The complete report consists of two  volumes, entitled "Development of the
      Fuel Choice Module in the Industrial Combustion Emissions Model:"
      "Volume 1. Phases I and III." (Order No. PB 88-198 577/AS; Cost: $14.95)
      "Volume 2. Phase II," (Order No. PB 88-198 585/AS; Cost: $14.95)
    The above reports will be available only from: (costs subject to change)
           National Technical Information Service
           5285 Port Royal Road
           Springfield, VA 22161
           Telephone: 703-487-4650
    The EPA  Officer can be contacted at:
           Air and Energy Environmental Research Laboratory
           U.S. Environmental Protection Agency
           Reserach Triangle Park, NC27711
United States
Environmental Protection
Agency
                                 Center for Environmental Research
                                 Information
                                 Cincinnati OH 45268
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