400R92501
BUSINESS OPPORTUNITIES OF THE
      NEW CLEAN AIR ACT:
  THE IMPACT OF THE CAAA OF
  1990 ON THE Am POLLUTION
       CONTROL INDUSTRY
              Prepared By
         ICF Resources Incorporated
                and
Smith Barney, Harris Upham and Company Incorporated
              (Prepared For
           Office of Air and Radiation
         Environmental Protection Agency)
              August 1992


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                                       PREFACE
       This report presents the findings of (1) an analysis performed by ICF Resources Incorporated and
Smith Barney, Harris Upham and Company Incorporated, and (2) a compilation of results from publicly
available studies already complete. This report was prepared for the Environmental Protection Agency
(EPA). The assumptions, findings, conclusions, and judgments expressed in this report, unless otherwise
noted,  are  those  of ICF Resources  Incorporated or Smith Barney,  Harris  Upham  and Company
Incorporated and should not be interpreted as necessarily representing the official policies of EPA or other
agencies of the U.S. government.
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                              ACKNOWLEDGEMENTS
       This report was prepared by ICF Resources Incorporated and Smith Barney, Harris Upham &
Company  Inc. for the U.S. Environmental Protection Agency.   In  addition, the U.S. Environmental
Protection Agency provided analysis used in this report.

       •      ICF International Inc. -  ICF Resources Inc.  (a subsidiary of ICF
              International Inc.) took the lead role in preparing this report.  Analysis to
              develop the revenue  increase estimates for the air pollution control
              industry  (Chapter III)  were largely  developed  by ICF  Resources.
              Additionally, ICF Resources prepared Chapter II (Major Requirements of
              the Clean Air  Act Amendments) and Appendices A and B.   Other ICF
              International Inc. subsidiaries provided assistance in preparing this report.
              Clement and Associates prepared the revenue increase estimates associat-
              ed with Title  III (Air Toxics), and SAI Inc., also  contributed  a few
              company-specific case studies (i.e., examples of how some companies
              plan to pursue CAAA opportunities or have developed innovative ways
              of complying with CAAA requirements) presented in this report.  These
              were developed in previous  work  for EPA's Office of Air Quality
              Planning Standards (OAQPS).

       •      Smith Barney, Harris Upham & Company Inc. - Smith Barney,  Harris
              Upham & Company Inc., developed analyses of the current status of the
              air pollution  control  industry, and the  relevant supply-side  issues
              affecting the air pollution control industry over the next 5-10 years. This
              included drafting Chapters I and IV.

       •      Environmental Protection Agency - The EPA developed the air pollution
              control  industry  revenue increase  estimates associated with Title  VI
              (Stratospheric  Ozone), and assisted in the review of drafts of this report.
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                          TABLE OF CONTENTS
                                                                           Page

PREFACE  	   i

ACKNOWLEDGEMENTS	   ii

INTRODUCTION	  iv

EXECUTIVE SUMMARY	ES-1

CHAPTER I OVERVIEW  OF THE ENVIRONMENTAL PROTECTION INDUSTRY	1-1
      Introduction	1-1
      The Environmental Protection Industry	1-1
      The Air Pollution Control Industry	1-4

CHAPTER II MAJOR REQUIREMENTS OF THE CLEAN AIR ACT AMENDMENTS  	II-1
      Introduction	II-l
      Summary of Major Requirements	II-l

CHAPTER HI INCREASED DEMAND FOR POLLUTION CONTROL SERVICES 	  III-l
      Introduction	  III-l
      Summary of Revenue Increases	  III-5
      Title I (Nonattainment)	  III-9
      Title II (Mobile Sources)	111-18
      Title III (Air Toxics)	111-28
      Title IV (Acid Rain)	111-35
      Title VI (Stratospheric Ozone)	111-41

CHAPTER IV SUPPLY RESPONSES BY THE AIR POLLUTION CONTROL INDUSTRY . .  IV-1
      Introduction	  IV-1
      Summary Market Effects	  IV-1
      Air Pollution Control Equipment 	  IV-6
      Cleaner Burning and Alternative Fuels  	  IV-20
      Engineering, Design, and Construction	  IV-28
      Instrumentation, and Emissions Monitoring	  IV-31
      Wall Street Implications of the CAAA	  IV-33

APPENDIX A DESCRIPTION OF DETAILED PROVISIONS OF TITLES I-IV AND  VI OF
            THE 1990 CLEAN AIR ACT

APPENDIX B METHODOLOGY FOR ESTIMATING CHAPTER III REVENUE ESTIMATES
            TITLES I-IV AND VI OF THE 1990 CLEAN AIR ACT AMENDMENTS

APPENDIX C RESPONSE TO COMMENTS ON DRAFT REPORT

APPENDIX D SELECTED CAAA PROJECTS, BUSINESS VENTURES AND TECHNOLOGI-
            CAL INNOVATIONS
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                                   INTRODUCTION
       Over the last several years the public, Congress, and the Administration have become increasingly
concerned with the level of air quality in the U.S.. The Clean Air Act Amendments of 1990 (CAAA) are
the result of that concern.  The eleven titles of the CAAA embody some of the most comprehensive, and
sweeping environmental regulations ever enacted in the U.S..  The cost of such sweeping environmental
regulation and its impact on the U.S. economy have formed the core of the CAAA debate over the past
several years. Several cost studies ha.ve been conducted.  To name only a few developed for or by EPA
to date:

       •       "Environmental Investments: The Cost of a Clean Environment", January
               16, 1991, prepared by EPA.

       •       "Comparison of the Economic Impacts of the Acid Rain Provisions of the
               Senate Bill (S.  1630)  and the House Bill (S. 1630)",  Draft July 1990,
               prepared by ICF Resources Incorporated, prepared for EPA.

       •       "Ozone Nonattainment Analysis A Comparison  of Bills", January 1990,
               prepared by E.H. Pechan  & Associates, Inc., prepared for EPA.

       •       "Analysis of Costs of Hazardous Air Pollutant Controls Under H.R.
               3030, H.R. 2585, and S. 816", January 25, 1990, prepared by Energy and
               Environmental Analysis, Inc., prepared for EPA.

       Also, as required in the new Clean Air Act, Section 812, the Agency must conduct a retrospective
study of the benefits and costs of air pollution control to date and a prospective study of the costs and
benefits.  This major effort is currently underway.

       During  this debate, very little attention or discussion has focused on the increase in revenues and
new business the CAAA will offer certain segments of U.S. commerce—most notably, the air pollution
control industry.  The purpose of this report is to identify the CAAA opportunities for U.S. commerce,
and where possible to quantify these opportunities, as well as  to evaluate just how these various industry
groups will meet that CAAA challenge  Table i-1  shows this report in the context of other EPA Clean
Air studies.

       In addition, this report is intended to foster a better understanding of the continuing development
of the pollution control market both nationally and internationally. The report helps provide information
that can be used to evaluate the effects of the new Clean Air Act on such important policy  questions as
the development  of new more cost-effective technology and the role of market-based environmental
policies in bringing about such developments. As this market and its opportunities are better understood,
there should be increased desire on the part of those currently not participating to do so, which could lead
to increased competition, technological innovation, a stronger  domestic pollution control industry and
increased competitiveness abroad.

       Increased revenues to be earned by the air  pollution  control  industry estimated  in  the report
correspond only to the incremental increase created by the 1990 Clean Air Act Amendments.  Certain
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                                    TABLE 1-1
                  EPA's CLEAN Am ACT ECONOMIC STUDIES
      Costs to
   Regulatory Impact Analyses
   Plant Closure Study
   Cost of Clean Air and Water
   Acid Rain Study
   Section 811 Study on Trade
Regulatory Impact Analyses
Acid Rain Study
Air Toxics Contingent Valuation
Study
                        Business Opportunities Study
                        Clean Air Marketplace (Confer-
                        ence)
       SECTION 812 STUDIES ON CLEAN Am ACT COSTS AND BENEFITS:
                             •  Retropective (1970-1990)
                             •  Prospective (1990 on)
states and localities may implement their own environmental programs that will also result in increased
revenues for the air pollution control industry, however, these opportunities are not assessed in this report.
In addition, revenues earned by the pollution control industry due to foreign sales are not included in this
report.  However, increased U.S.  sales revenues for foreign-based companies due to the CAAA are
included in this report (see Chapter IV for more on this issue).

Report Organization

       This report has an executive summary, four chapters, and three appendices.  The four chapters of
this report include: Overview of the Air Pollution Control Industry (Chapter I), Major Requirements of
the Clean Air Act Amendments (Chapter II), Increased Demand for Pollution Control Services (Chapter
III), Supply Responses by the Air Pollution Control Industry (Chapter IV).  The two appendices are
entitled: Description of the  Detailed Provisions of Titles I-IV and VI of the 1990 Clean Air Act
Amendments (Appendix A), and Methodology for Estimating Chapter III Revenue Increase under Titles
I-IV and VI of the 1990 Clean Air Act Amendments (Appendix B), and Response to Comments on Draft
Report (Appendix C).  A discussion of the contents of each is provided below:

       •      Chapter I - This chapter presents an overview of the air pollution control
             industry.  Beginning with an introduction to the overall environmental
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              industry, this chapter narrows its focus on to the air pollution control
              industry.  Business  issues,  affecting four broad segments  of the  air
              pollution control industry (i.e., air pollution control equipment, clean and
              alternative fuels, engineering design and construction, and instrumenta-
              tion and emissions monitoring) over the  last 20 years are  discussed.
              Importantly, Chapter I summarizes two sides of the air pollution control
              industry that will have opportunities for growth due to the CAAA:  (1)
              the more "traditional" stationary source air pollution control  equipment
              oriented industry where environmental business is dominant, and (2) a
              much larger expanded market which includes natural gas producers, low
              sulfur  coal  producers and  large  diversified engineering, design and
              construction companies where environmental business is currently less
              dominant.

              Chapter II - This chapter provides a brief introduction and general back-
              ground discussion of the major requirements under the Clean Air Act
              Amendments of 1990 (CAAA) that will result in opportunities for growth
              in the air pollution  control  industry.  A  more detailed (title  by title)
              description  of  the CAAA  requirements is presented in Appendix A.
              Requirements specified under five CAAA titles will have the greatest
              impact on U.S. commerce:  Title I (requirements  for ozone, carbon
              monoxide and particulate matter nonattainment regions), Title II (mobile
              source  requirements calling for use  of reformulated and oxygenated
              gasolines, clean fuels, and clean fueled vehicles which supplement Title
              I requirements), Title III (air toxics which requires reduction of at least
              189 listed toxic air pollutants from  "major sources" and  from smaller
              more  numerous "area  sources"),  Title IV (acid rain which requires
              reduction in emissions  of  acid rain precursors—sulfur  dioxide and
              nitrogen oxide emissions from electric utility sources), and  Title VI
              (stratospheric ozone, which calls for a  production and  consumption
              phaseout  of CFCs and for recycling, recovery, and disposal  during
              service and repair of CFC containing  appliances).

              Chapter III  -  Estimates of increased air pollution control  industry
              revenues  associated with the  five titles  described  in Chapter II  are
              presented in this chapter.

              Chapter IV - Chapter IV focuses on supply-side issues likely to affect the
              various segments of the air pollution control industry in response to the
              revenue growth opportunities inspired by the CAAA (Chapter III).  It
              evaluates how various industry  groups will meet the new CAAA growth
              opportunities.

              Appendix  A  - This appendix provides  detailed descriptions  of  the
              provisions of Titles I-IV and VI.

              Appendix B -  This appendix describes the methodology used to deter-
              mine the revenue increase estimates presented in Chapter III.
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               Appendix C  - This appendix presents a response to comments to the
               January 1992 draft version of this report.
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EXECUTIVE SUMMARY

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                              EXECUTIVE SUMMARY
INTRODUCTION

       The Clean Air Act Amendments of 1990 (CAAA) represent one of the most comprehensive
pieces of environmental legislation ever enacted in the United States.  These  amendments  will have
substantial impacts on U.S. commerce and the economy. Indeed, the potential costs of the legislation and
the impact that these costs could have on the U.S. economy formed a major part of the debate  preceding
the statute's enactment.  Virtually absent from this debate however was discussion about the increased
revenues and new business that the CAAA might offer to selected areas of U.S. commerce—most notably
to the air pollution control industry.

       The increased revenues  and new business, and the associated industry impacts over the next
decade constitute the focus of this report which covers the general provisions  of the Clean Air Act
Amendments, the revenues and demand that the law could generate throughout the air pollution control
industry, and how that industry might respond to the opportunities and challenges presented.  Note that
increased revenues due to the 1990 CAAA for foreign-based companies  competing in  the U.S. are
included in this report as part of the overall revenue  projections.

SUMMARY OF REVENUE INCREASES

       Annual  average revenues for the air pollution control industry due to the  1990 CAAA are
estimated to be about $4.1-5.8 billion higher (in 1990 $) during 1992-1995 and about  $6.6-9.2 billion
higher  (in  1990 $) during  1996-2000.-'  This  corresponds to a cumulative increase in  air pollution
control industry revenues of about $50-70 billion over the next decade.   To put this in perspective,
compare this to 1990 sales of automobiles in the U.S. of about $96.6 billion.

       Four general air pollution control industry market segments are expected to have virtually all of
the CAAA  growth opportunities:

       •       Revenues from the first two segments - stationary source  and mobile
               source air pollution control equipment manufacturers are expected to
               grow the most significantly, with average annual revenues (in 1990 $) of
               about $2.8-4.0 bilb'on higher during the 1992-1995 period and about
               $4.8-6.5 billion higher during the 1996-2000 period.  This represents
               about a 10  percent per year annual average growth through 2000 (in
               1990 $).

       •       Companies involved with  the production and transportation of cleaner
               burning and alternative fuels (e.g.,  natural gas, low sulfur coal, and
               reformulated and  oxygenated  gasoline)  are  also expected to  have
-      The increase in "average annual revenue increases" referred to throughout this report are always
       presented in 1990 $.  Including the effects of inflation, future year revenue increases (i.e., stated
       in nominal $ or current year $ rather than 1990 $) will be higher.
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              significant revenue growth due to the 1990 CAAA.   Average annual
              revenues for these companies  are expected to be about $0.6-0.8 billion
              (in 1990  $) higher  during 1992-1996, and about $1.7-2.3 billion (in
              1990 $) higher  during  1996-2000.   In percentage terms,  because the
              clean fuels industry is already  quite large, this amounts to an average of
              less than a 1 percent per year  increase in revenues.

       •      Engineering, design, and construction companies are  expected to have
              annual average revenues about $0.4-0.7 billion (in 1990 $) higher during
              1992-1995 and  about $0.1-0.2 billion (in 1990 $) higher during 1996-
              2000 associated with the construction of new production facilities for
              gasoline oxygenates such as  methyl  tertiary butyl ether (MTBE) and
              ethanol, and for chlorofluorocarbon (CFC) substitutes such as hydrochlor-
              ofluorocarbon (HCFC).

Overview of the Pollution Control Industry

       The market for the air pollution control industry (the primary focus of this report) constitutes only
one segment  of the far broader business of environmental protection. Estimates vary,  but the overall
environmental market today can be  categorized as $59-$ 132 billion dollar  a year industry. EPA in its
"Environmental Investments:  The Cost of a Clean Environment", estimated total  1990 expenditures on
environmental protection to be $115  billion. EnviroQuest Inc., a Wall Street research firm estimated total
1990  environmental business  revenues at $132 billion, and  Farkas Berkowitz and Company, an
environmental consulting company,  calculated total 1990 revenues at $59 billion.-'

       Although the overall market for environmental business is a huge and widely studied industry, it
remains, in many respects, a difficult one to assess.  This is because:

       •      The overall market  encompasses a variety of businesses encompassing
              manufacturers  of pollution control  equipment, hazardous-  and  solid
              waste-management firms, makers of waste-water treatment systems and
              products, engineering, design  and construction companies, and a  wide
              variety of other concerns.
-       Estimates of the size of the environmental industry vary greatly because business activities that
        are considered environmental vary depending on the source of the estimate.  Farkas Berkowitz's
        estimate ($59 billion) does not include certain "activities" as part of the environmental industry
        that are included in the EnviroQuest estimate ($132 billion). Most notably, the Farkas Berkowitz
        estimate does not include revenues for water utilities (although revenues  for  water pollution
        control systems  are considered), resource  recovery (i.e., post-consumer  and  post-industrial
        recycling), environmental energy sources (i.e., geothermal, biomass, wind, solar, and cogenera-
        tion), waste management equipment (i.e., landfill liners, storage  tanks, noise control equipment
        protective suites, gas masks, etc), and asbestos abatement.  These items or activities are included
        in the EnviroQuest  estimate.  Note that both estimates  of the  environmental industry  do not
        include revenues for manufacturers of mobile source air pollution control equipment. The U.S.
        Department of Commerce estimates these revenues to be about $8.3 billion  in 1990.
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      ESTIMATES OF THE U.S. ENVIRONMENTAL PROTECTION INDUSTRY
                            (BILLIONS OF 1990 DOLLARS)
         EnviroQuest 1990
        Revenue Estimates
Farkas Berkowitz 1990
  Revenue Estimates
EPA "Cost of Clean" 1990
  Expenditure Estimates
       Hazardous Waste
                                                                                Chemicals
                                                                 Multi-Media
         Total 1990 Revenues
             $132 Billion
   Total 1990 Revenues
       $59 Billion
   Total 1990 Expenditures
        $115 Billion
       •      Only a small fraction of the firms operating in the pollution control
              market are publicly held (thus making  it difficult to obtain detailed
              information on their operations),  and many  firms that operate in the
              environmental market also do business in other industries as well.

       •      The environmental industry is covered by no  unique subset of standard
              industrial classification (SIC) codes. (SIC codes form the organizational
              framework for most governmental data on the business community.)

The Air Pollution Control Industry

       According to the EnviroQuest and Farkas Berkowitz estimates, which do not include revenues for
manufacturers of mobile source air pollution control equipment, the air pollution control market represents
a relatively small  subset of the environmental protection business. (It accounts for less than 5 percent of
total 1990 revenues.) However, as with the overall environmental protection or pollution control business,
it is difficult to pin down the size of this market.  This is because:
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       •       Participants in the industry are often involved in other diverse business
               activities unrelated to air pollution control (e.g., engineering, design, and
               construction companies rely on air pollution control for only a small
               portion of their business);

       •       It is not entirely clear what activities constitute air pollution control (e.g.,
               only a portion of current low sulfur coal and natural gas producers' sales
               are directly attributable to environmental compliance).

       As a result, characterizing the size of the overall air pollution control  market is difficult.
According to Farkas Berkowitz and EnviroQuest, current revenues for manufacturers of stationary source
air pollution control equipment (e.g., flue gas desulfurization equipment, fabric filter systems, precipi-
tators, scrubber/adsorber systems, and thermal/catalytic systems) ranged from about $2.0-5.4 billion in
1990.  The Department of Commerce estimated revenues  for mobile source air pollution control
equipment to be about $8.3 billion in 1990. Thus, the total current air pollution control equipment market
is approximately a $10-14 billion market  As mentioned above, it is much more difficult to estimate the
size of the market for other types of businesses which do not rely entirely or even very significantly on
air pollution regulations or controls for their business (e.g., natural gas producers, low  sulfur coal
producers, and engineering, design, and construction companies).

Growth in the Air Pollution Control Industry

       Since 1970, after the advent of the original Clean Air Act, revenues in the air pollution control
industry have fairly closely tracked prevailing environmental legislation. During  the 1970s, the flow of
business to air pollution control firms increased fairly steadily.  In 1969, before the passage of the Clean
Air Act,  member companies  of  the Industrial Gas Cleaning Institute  (the principal trade organization
representing the makers of air pollution control equipment) reported bookings (or  contract orders) of
roughly $0.1 billion for "bare flange-to-flange" air pollution control equipment (i.e.,  equipment cost not
including  freight, field erection,  and auxiliaries such  as gas ducts and structural supports).  By 1973,
bookings surged to $0.3 billion, in 1974, to $0.5 billion. In the wake of the 1977 Clean Air Act Amend-
ments, bookings reached nearly $1.1  billion  by 1980.

       During the 1980s however, the pace of air-quality enforcement and new regulation slowed, while
the legislative branch concerned itself more with land pollution problems than with air quality.  Also,
overall electricity growth slowed with fewer new facilities  and powerplants being built and hence less
demand for new pollution control equipment. After  1980  bookings of $1.1 billion, the value of total
contracts (including hardware and installation) collapsed to $0.5 billion in 1981, and dwindled steadily
thereafter through 1988.  However, IGCI bookings burgeoned to $0.5 billion in 1989, to $0.4 billion in
1990, and to $1.0 billion in 1991 as demand for air-cleaning equipment, particularly for scrubbers and
electrostatic precipitators increased in advance of the 1990 Clean Air Act Amendments, partly due to the
impetus of DOE's clean coal program.

Summary of the 1990 Clean Air Act  Amendments (CAAA)

       The Clean Air Act Amendments of 1990 should reaccelerate the growth in the air pollution
control industry.  Requirements under five of the titles in the new amendments will result in most of the
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              SUMMARY OF IGCI MEMBERS' BOOKING STATISTICS
                                       1969-1991
                            (BILLIONS  OF 1990 DOLLARS)
      1.2

        1
   O
   = 0.6
   CO
   ^0.4
     0.2
 Original
1970 CAA
             1969
  Note: 1969-1980 Include Hardware Value Only
       1981-1991 Include Both Hardware and Installation Value
                                               1989   1990   1991
  busopp/cmMatZ.drw
                             .37
significant business opportunities:-'
              Title I (Nonattainment) - revises the CAA for attaining and maintaining
              national ambient air quality standards (NAAQS).  Key provisions  are
              aimed at bringing cities and other areas which are not in attainment, in-
              line, with ozone, carbon monoxide,  and particulate matter (PM-10) stan-
              dards.

              Title II (Mobile  Sources) - augments requirements under Title I.   It
              requires controls  on NOX, hydrocarbon and carbon monoxide emissions
              from mobile sources through (1) stricter controls on emissions, including
              tailpipe, evaporative, or refueling, (2) changing  the specifications of
              existing fuels to reduce the level of combustion emissions, and (3) re-
              quiring the use of 'clean fuels' and clean fuel vehicles for both fleets and
              private vehicles.
3/
       Title V permitting  requirements would result in new business for environmental consultants,
       engineers, and lawyers.  However, these new business opportunities are expected to be modest
       compared to opportunities resulting from the  other titles and the  percentage of firms seeking
       outside help with permitting requirements is generally unknown.
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    SUMMARY  OF THE 1990' CLEAN AIR ACT AMENDMENTS (CAAA) AND
                                 BUSINESS OPPORTUNITIES
r:
  Title I (Nonattainment)
                     Ozone (1993-2010)
                     CO (1995 & 2000)
                  PM-10 (1994 & 2001)
  Title II (Mobile Sources)
     Reformulated Gasoline (beg. in 1995)
       Oxygenated Fuels (beg. Nov 1992)
              Fleet Program (1998-2001)
    California Pilot Program (Model Years
                            1996-1999)
          Tier I Tailpipe Std. (1994-1998
 Title III (Air Toxics)
              Major Sources (1995-2003)
               Area Sources (1994-2000)
              Accidental Releases (1993)
  Title IV (Acid Rain)
           SO2 Provisions (1995 & 2000)
           NOX Provisions (1995 & 2000)
     Emissions Monitoring (1993 & 1995)
                                                 Industries Affected/Business Opportunities
Industries Affected:  Air pollution equipment suppliers, A&E
companies, instrument manufacturing, construction companies, oil
companies, producers of oxygenated fuel additives and service
stations
Business Opportunities:  Manufacture, design, development and
construction of technological controls and/or product and process
modifications; production and supply of clean/oxygenated fuels
Industries Affected:  Auto companies, oil companies; producers
of oxygenated fuel additives, refineries, chemical manufacturers,
A&E companies, and automobile parts suppliers
Business Opportunities:  Development, production and supply of
reformulated gasoline and oxygenated fuels, and design and
production of clean/alternative fueled vehicles, and parts suppliers
for motor vehicle emission control devices
Industries Affected:  Air pollution control equipment manufac-
turers, stack testing companies, environmental service firms, and
instrumentation manufacturers
Business Opportunities: Manufacture, production, design, and
construction of air pollution control equipment and process  modi-
fications, and development of accidental release plans
Industries Affected:  Air pollution equipment suppliers, A&E
companies,  and producers and shippers of low sulfur coal, natural
gas, and lime/limestone
Business  Opportunities: Supply, manufacture, design, and con-
struction  of SO2 and NOX control equipment and CEMs; and the
supply and  transport of low sulfur coal, natural gas, and lime/
limestone
  Title VI (Stratospheric Ozone)
       CFC/HCFC Production Phase-Outs
                           (2000-2030)
    Recycling and Disposal (1992 & 1994)
          Mobile Air Conditioners  (1992)
Industries Affected:  Chemical manufacturers, A&E Companies,
air pollution control equipment manufacturers, and the environ-
mental service industry
Business Opportunities:  CFC substitute development and produc-
tion, manufacture, design and construction of CFC recovery and
recycling equipment including leak detection equipment, and
development and production of non-CFC containing product
substitutes
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       •       Title III (Air Toxics) - expands the scope of hazardous air pollutant
               controls to include at least 189 listed substances and requires numerous
               industrial sources to  control for the first time.  "Major sources"  must
               install  maximum achievable  control technology  (MACT),  and  "area
               sources" may be subject to MACT or to  generally available  control
               technology (GACT) requirements.

       •       Title IV (Acid Rain) - requires electric utilities (in two phases) to achieve
               a reduction of approximately 10 million tons  of  sulfur dioxide (SO2)
               emissions below  1980 levels and in combination with other provisions of
               the Act, approximately a 2 million ton reduction of NOX emissions.  Title
               IV establishes a two phase  SO2  emission allowance  allocation and
               trading system and NOX limits to achieve the reductions.

       •       Title VI (Stratospheric  Ozone) - provisions are designed to protect the
               stratospheric ozone layer and  strengthen the provisions of the Montreal
               Protocol by phasing out production and consumption of CFCs,  halons,
               CC14,  and TCA, and implementing requirements addressing the  recy-
               cling and disposal of CFC containing appliances.

Summary of Increased Revenues Due to the 1990 CAAA

       With some overlap, the types of growth opportunities and specific companies benefiting will vary
from title to title for the air pollution control industry.  Annual average revenues are forecasted to be
about $4.1-5.8 billion (in 1990 $) higher during 1992-1995 and about $6.6-9.2 billion (in  1990 $) higher
during 1996-2000. Over the entire 1992-2000 period, this represents about a $50-70 billion cumulative
increase in revenues for the opportunities quantified in this report.  Most  of  the quantified revenue
increases are likely to result from the installation of technological controls.  Significant opportunities are
also likely in the pollution prevention and process modification areas (particularly Titles I and III), but
these techniques are not well understood, their likely penetration and costs are  quite uncertain, and hence,
they were not estimated in this report.  Also, there will be significant growth opportunities after 2000 for
the air pollution control industry  due to the CAAA. However, these longer-term impacts were not within
the scope of this report.  The revenue opportunities associated  with each title are presented in the table
on the next page and discussed below:

       •       Title I - Revenues due to Title I should  grow steadily. The air pollution
               control equipment industry will have most of these growth opportunities.

       •       Title II - Title II is expected to spur fairly significant near-term and long-
               term growth through  2000.  The  clean fuels industry  is expected to
               benefit the most by supplying  oxygenates such as MTBE and ethanol for
               reformulated and oxygenated gasolines.  Note that the majority of MTBE
               capacity in the U.S. is owned by (or captive to) the oil  companies and
               refineries which will use it, and  therefore, increased  sales of  these
               products to parent companies is not classified as a business opportunity.
               Revenues for automobile parts and on-board diagnostic systems suppliers
               are also expected to increase significantly.
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        SUMMARY  OF  INCREASED  REVENUES DUE TO THE 1990 CAAA
                            (BILLIONS OF 1990 DOLLARS)


Title I
(Nonattainment)
Title II
(Mobile Sour-
ces)
Title III
(Air Toxics)
Title IV
(Acid Rain)
Title VI
(Stratospheric
Ozone)
TOTAL REVB-
• Average \\^t
- • nue IB
;il
0.8-1.0
1.0-1.5
1.1-1.4
0.8-1.6
0.3
; 	 W* :
c**as«';
4^'
1.0-1.4
1.1-1.4
2.7-3.5
2.0-3.0
0.1
•'•-.««; ;
Cttttftt-
lative
Ifcrnawe
1992-2000
8-11
9-13
18-23
13-21
2
;,:S^ "
Major I
Sflfllfp1** :
ttf^fl-W :
^jjimt^^ '•
ttattee
XX
X
XX
XX
XX

roitfcsir,? S«
Clean
-
XX
-
XX
-

gtmtitsB^n
Design/
En^-
X
X
X
X
X

t/ffC|>111^4
Instru-
mentation
and Moni-
toring
X
X
X
X
X

XX    = Primary Beneficiary
X      = Significant Beneficiary
       = Limited or No Opportunities, or Not Relevant
              Title III - This title is expected to spur the most significant long-term
              growth in the air pollution control  industry  (even beyond  2000).
              Manufacturers  of  air pollution control equipment will be the most
              significant beneficiaries.

              Title IV - The most significant gains under this title are expected for
              both air pollution control equipment manufacturers and the clean fuels
              industry (i.e., primarily low sulfur coal producers and  shippers).

              Title VI - The primary beneficiaries will be air pollution control equip-
              ment  manufacturers  (e.g.,  manufacturers  of  recycling  equipment).
              Producers of CFC product substitutes (e.g., chemical manufacturers) are
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              not expected to benefit because of the phaseout of CFCs they currently
              produce.

Air Pollution Control Industry:  Growth Potential

       The  CAAA  will test the supply-side resources  of the air pollution control business  to  a
considerable extent, particularly in the equipment business where the strongest absolute growth is anti-
cipated.  In general, because many companies complying with the Act will have to make investment deci-
sions relatively quickly, (1) large,  more established companies will  have an advantage because of their
established reputations, and long-term staying power, (2) firms offering a full service approach will be
favored, (3) driven by the "full service approach", there will be increased acquisition activity, and (4)


         Am POLLUTION CONTROL INDUSTRY:  GROWTH POTENTIAL
Revenue Estimates
(billions of
Air Pollution Control Equipment
Stationary Source
Mobile Source
Cleaner Burning & Alternative Fuels
Natural Gas
Low Sulfur Coal
Reformulated and Oxygenated Gasoline
Engineering, Design, and Construction
Instrumentation and Emissions Monitoring
TOTAL
By Industry Segment
1990 dollars)*
• ; [~Ci*v&!l " A
':••' MamiaS.-: '•"•
• :VRfeVettBS»':''.:.
2.0-5.4
8.3
10.3-13.7
NI
NI
NI
NI
NI
NI
Average AttaiJall Reventie :
'I99&ms'l:
2.3-3.4
0.5-0.6
19^2600
4.2-5.8
0.6-0.7
2.8-4.0 4.8-6.5
0.3-0.4
0.3-0.4
0.6-0.8
0.4-0.7
0.2-0.4
4.1-5.8
0.1
1.2-1.8
0.3-0.4
1.7-2.3
0.1-0.2
0.1-0.2
6.6-9.2
* Size of the market for other types of businesses which do not rely entirely or even very
significantly on air pollution regulations or controls for their business and are not part
of the air pollution control industry is currently about $43-47 billion for the natural gas
industry, $13-19 billion for the low sulfur coal industry, and about $22 billion for
engineering, design, and construction.
NI Not included.
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increased near-term demands will lead to increased public debt or equity issues to spur capital formation
and financing. Significant growth is expected in four air pollution control market segments:

       •      Air Pollution Control Equipment - The most significant beneficiary of
              the CAAA is the traditional stationary source equipment segment.  The
              current market is estimated to  be about $2.0-5.4 billion and should
              double in size over the next decade due to the  CAAA.   The mobile
              source equipment market (about  $8.3 billion currently) is expected to
              have  relatively moderate growth over the next decade due to CAAA.

       •      Alternative  and Cleaner Burning Fuels  - While this  segment is also
              expected to have relatively  large absolute growth in revenues, most of
              this is expected to accrue to low sulfur coal producers and shippers as
              well as non-captive suppliers (i.e., supplier is not owned by the refinery
              which demands the product) of methyl tertiary butyl ether (MTBE) and
              ethanol. The natural gas industry is expected to experience solid growth
              in the future, but only tangentially due to the CAAA.-'

       •      Engineering, Design and Construction - Only a small fraction of current
              sales in this segment are environmentally related.  The overall projected
              increases due to the CAAA are relatively small and are related primarily
              to the construction of new MTBE, ethanol, and hydrochlorofluorocarbon
              (HCFC) production facilities. However, a  portion of the air pollution
              control equipment business  may be shared by this market segment and
              Titles I and  HI in  particular may  spur  process  changes and  other
              engineering and design  innovations as a method of pollution prevention.

       •      Instrumentation and Emissions Monitoring - This small industry,  about
              $0.1-0.2 billion currently,  is expected to have substantial growth  in
              percentage terms, primarily due to the monitoring requirements in Title
              IV in the near term and under Titles I, II and III in the longer term.

       In addition to the business opportunities estimated for this report, there are  several areas in which
potentially significant new opportunities will likely exist, but estimates of increased revenues were not
provided.  This is because (1) there is a great deal of uncertainty about the eventual control techniques
to be required, or (2) it is not clear what control techniques will be applied to reduce emissions.  These
business opportunities are summarized in the table below.
-;      As noted later in this report, the natural  gas industry is expected to gain significantly in the
        future, irrespective of the Clean Air Act Amendments. For example, natural gas is expected to
        supplant coal in most new electricity generation markets and at most existing oil-fired facilities
        over the next decade because it is estimated to be lower in cost (even not including its SO2
        advantage).
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             NON-QUANTIFIED BUSINESS OPPORTUNITIES SUMMARY

r ~ — '
Title I (Nonattainment)
Progress Requirements
SCTGs
Consumer Solvents
Trans. Control Programs
Title II (Mobile Sources)
Merchant MTBE Capacity
Emissions Testing Equip.
Infrastructure
Alternative Fuel Vehicles
Title III (Air Toxics)
Accidental Release Plans
Title W (Acid Rain)
Industrial Opt Ins
Allowance Brokerage Fees
Title VI (Stratospheric Ozone)
CFC Recycling and Disposal
Ma|or Industry ^egniettte Likejy t&B«neflt
Control
E
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                       SUPPLY-SIDE  EFFECTS OF THE CAAA
    Foreign Vs. Domestic
    Competition?
Increased Air Pollution
Control
Industry Demands
Profitability?
                                         Capacity
                                         Constraints?
              which, in the near term, cannot be handled by U.S. suppliers/producers
              alone.

              Foreign vs. Domestic Competition - Current market share of foreign-
              owned pollution control equipment companies in the U.S. is relatively
              significant, particularly stationary  source markets.  While most of the
              CAAA related  revenues are expected to flow to  domestic  concerns,
              foreign-owned companies are also expected to share in these gains.  The
              gain in the low sulfur coal and natural gas markets are expected to be
              dominated by domestic companies.  Perhaps the most significant inroads
              in the near term for foreign firms will be in the imports of MTBE to the
              U.S. market.

              Profitability - The pollution control equipment and clean  fuels markets
              are  generally  characterized by a large number of companies, relatively
              intense competition, and thus, relatively low profit margins. Profitability
              for  certain manufacturers, producers, and suppliers should expand due to
              very significant near-term demands in certain market segments (e.g., NOX
              control equipment  required in Title IV  and Title  I by  1995, MTBE
              demands in Title II,  etc).   In general though, profit margins  are not
              expected to expand significantly.
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               Employment - Associated with increased revenues in the air pollution
               control industry, there will be increased labor demand in that industry.
               The increased demand for labor will be satisfied by (1) hiring additional
               laborers, and (2) increasing utilization of the existing workforce (note
               that due to the lean period in the 1980s, the air pollution control industry
               currently has excess capacity).  Therefore, the impact of the CAAA on
               total employment in the air pollution control industry is unclear. Further,
               the  CAAA  will increase costs  for  a  number of affected industries
               resulting in employment losses. The net effect on total jobs was beyond
               the scope of the analysis conducted for this report.

               However, it is possible to estimate very  approximately the amount  of
               direct employment demands in the stationary source air pollution control
               equipment business due to the CAAA.  Most of the revenue increases
               quantified  in this report in the  air pollution control industry due to the
               CAAA (about 50-60  percent)  are expected to result from stationary
               source  pollution control equipment demands.  These revenue increases
               (about $2.3-3.4 billion (in 1990 $) annually (1992-1995), and about $4.2-
               5.8  billion (in 1990 $) annually (1996-2000)) are expected to result in
               increased demand for direct labor services (i.e.,  defined as employees
               involved in either air pollution equipment manufacture, on-site construc-
               tion, design, or engineering, including subcontracted labor) of about 15-
               25 thousand full-time equivalent positions on average annually  during
               1992-1995  and  an average of  20-40 thousand full-time equivalent
               positions annually during 1996-2000.-'

               In addition, there will be potential employment increases associated with the requirement
               for the enhanced and expanded inspection and maintenance (I & M) automobile programs
               (Section 182 (c) (3)).  Although the program regulations have not been promulgated yet,
               it is expected that any program implemented will result in a net increase in employment.
               These jobs will  include automobile emission equipment inspectors,  automotive repair
               personnel  and auto parts  manufacturing  to  supply needed equipment  as a result of
-      The estimate for direct full-time labor positions is based on the assumption that for an average
       project:  (1) 50 percent of the revenue is spent on labor in the pollution control industry, based
       on an on-going ICF-Kaiser Engineers Clean Coal  Technology project of similar  scope to a
       stationary source air pollution equipment installation; (2) average employee salary is $40,000 per
       year exclusive of fringe, insurance, overhead, and  labor fees; and (3) fringe, insurance, overhead
       and fee increases  labor costs  100 to 140 percent.  The estimate of labor share of revenue is
       affected by the definition used for pollution control industry; the definition chosen here includes
       engineers,  construction managers, and support staff, field construction workers and supervisors,
       and some equipment manufacturing workers.  Manufacturing workers involved in the  production
       of material specifically geared for pollution control  were included;  workers involved in  the
       production of more fungible items were not included.  Thus, workers involved in the production
       of flue gas analyzers, mist eliminators, specialty pumps, dampers, and filters were included,  but
       workers involved in the manufacture of construction cranes, pile drivers, bulldozers, earth movers,
       cement trucks,  wire, etc.  were not included.
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AVERAGE INCREASE IN FULL-TIME EQUIVALENT LABOR POSITIONS IN THE
  STATIONARY SOURCE AIR POLLUTION CONTROL EQUIPMENT INDUSTRY-'
             50
           CO
           to
           o
             40
           CO
           c
           CO
             30
           IE 20
           Q>
           co

           UMO
           CD
           E
  Title I (Nonattainment)
1 Title III (Air Toxics)
3 Title IV (Acid Rain)
                     Average Annual Increase
                           1992-1995
                      Average Annual Increase
                           1996-2000
      Increases presented are approximate estimates of the number of full-time equivalent positions (but
      not necessarily new jobs) only for the air pollution control equipment business.  As discussed in
      the text, net impacts to the overall economy were not estimated herein.
             inspections.  Further details will be available in the forthcoming  regulatory impact
             analysis associated with this EPA rulemaking.
Caveats and Uncertainties

      There are a number of caveats and uncertainties in the air pollution control industry revenue
projections.
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               The estimates generally  reflect  gross  increases in revenues.   Other
               companies within related or similar  market segments will experience
               higher costs or losses in demand (e.g., high sulfur coal producers).  As
               noted in the Introduction, this  report has not attempted to develop the
               relative costs  and benefits of the Statute.  Other EPA studies, such as
               Regulatory Impact Analyses, conducted for individual regulations and the
               Section 812 report looking at overall costs & benefits have or will  be
               analyzing these issues.

               The estimates are highly uncertain given the uncertainties in the final
               regulations and  industry's response.  Revenue  gains in certain market
               segments were not estimated such as RACT for several CTG categories
               in Title I, MTBE production in  Title II, and residual risk requirements in
               Title III.  Given these uncertainties,  the  estimates presented herein
               probably understate the true revenue gains.

               Revenue estimates in  Titles  I  and  III assume  that, in most cases,  air
               pollution control equipment would be installed to meet the nonattainment
               and air  toxics requirements.   There  would also  be  opportunities  to
               comply through the use of pollution  prevention and process modification.
               However, the types of pollution prevention techniques, their penetration,
               and costs are very uncertain.  Accordingly, application of equipment
               (which is much better understood) was assumed.

               Pollution prevention case studies are presented throughout the report and
               demonstrate  how investments in  preventing  rather than  controlling
               pollution offer equally valuable economic effects by making industries
               more efficient and hence more  productive and competitive. In addition,
               technologies and process modification can, to the degree that they are
               transferable to other situations, become a viable part of the environmental
               industry.   The  new  Clean Air  Act presents  many opportunities for
               development and application  of prevention methods.
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        CHAPTER I
Overview of the Environmental
     Protection Industry

-------
                                      CHAPTER I
         OVERVIEW OF THE ENVIRONMENTAL PROTECTION INDUSTRY
INTRODUCTION

       The Clean Air Act Amendments of 1990 (CAAA) represent perhaps the most comprehensive,
sweeping piece of environmental legislation ever enacted in the United States.  Few corners of American
business will not feel at least some reverberations from CAAA regulations.  Indeed, the potential costs
of the legislation and the impact that these  costs could have on U.S. economic health and international
competitiveness formed a major part of the debate preceding  the statute's enactment. Virtually absent
from this debate however was discussion about the increased revenues and new business opportunities that
the CAAA might offer to selected areas of American commerce—most notably to the air pollution control
industry.

       The increased revenues and new business the CAAA will  create for certain areas of  U.S.
commerce constitute the focus of this report.  Subsequent chapters will cover the general provisions of
the Clean Air Act Amendments, the revenues and demand that the law could generate throughout the air
pollution control industry,  and how that industry might  respond to  the opportunities and  challenges
presented. To provide a perspective for that discussion, this chapter takes a brief look at where the air
pollution control industry stands today.

THE ENVIRONMENTAL PROTECTION INDUSTRY

       The market for air pollution control equipment and services constitutes only one segment of the
far broader business of environmental protection. Before narrowing the focus to the clean-air side of the
industry, it makes sense to view it in this larger context—and, in particular, to examine how other areas
of the pollution control business have behaved in the wake of far-reaching environmental laws such as the
Resource Conservation and Recovery Act  (RCRA) and  the Comprehensive Environmental Response,
Compensation,  and Liability Act (CERCLA).

       Although the environmental business is a huge and widely studied industry, it remains, in many
respects, a difficult one to assess.  The term "environmental" itself casts a broad net, encompassing
manufacturers of pollution control equipment, hazardous- and  solid-waste management firms, makers of
wastewater-treatment systems and products, engineering, design, and construction companies, and a  wide
variety of other firms.  Only a small fraction of these companies are publicly held, and many firms that
operate in the environmental market also do business in other industries.

       In addition, the environmental industry  is covered by no unique subset of standard industrial
classification (SIC) codes.  As is well known, SIC codes form the organizational framework for  most
governmental  data on the  business community (including census figures on number of companies,
revenues, and employment), and for much information supplied by private  research companies such as
Dunn and Bradstreet.  Although a few environmental industry segments have their own SIC codes (e.g.,
refuse systems), most are included within codes that also cover non-environmental activities. The SIC
product codes provided by the U.S. Department of Commerce in their publication Selected Industrial Air
Pollution Control Equipment supplies a fair amount of detail  on major air  pollution control equipment
items.  However, equipment that may be involved in an air pollution system package may not show up
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in these selected product codes. For instance, induction and forced draft fans, pumps, and compressors
may all be needed in an air pollution control system installation.  However, these items do not have
individual air pollution control equipment product codes and may therefore be grouped in SIC codes that
contain non-environmental equipment items.

Market Size

       The above noted uncertainties and complexities help explain the range of estimates for the size
of the environmental  market.   The  U.S. Environmental  Protection Agency  (EPA), in its  report
"Environmental Investments: The Cost of a Clean Environment", December 1990, estimated total 1990
expenditures related to environmental protection were roughly $115 billion; with the share attributable to
air  pollution control  totalling about $32 billion^.  However, many  other private estimates  exist.
EnviroQuest Inc., a Wall Street research firm, estimated in The Environmental Business Journal, April
1991, total 1990 environmental industry revenues at some $132 billion; Farkas Berkowitz & Company,
an environmental consulting company, calculated, according to a March 18,1991 press release, total 1990
revenues at $59 billion (see Exhibit l-l).^

       Estimated differences in the market size  are attributable, in part, to what is "counted" as part of
the  environmental protection business.  For example, the Farkas Berkowitz figure excludes revenues for
water utilities (although water pollution control systems are included), resource recovery (i.e., post-
consumer and post-industrial recycling), environmental energy sources (i.e., geothermal, biomass, wind,
solar, and cogeneration), waste management equipment (i.e., landfill liners, storage tanks, noise control
equipment,  protective suits, gas masks, etc.) and asbestos  abatement.   Also, the  various estimates
categorize expenditures or revenues differently, which makes direct comparisons difficult.  The EPA air
pollution control cost expenditure estimate defines the air pollution control expenditure category broadly.
Some  expenditures, such  as professional services, analytical services or consulting, instrumentation,
diversified companies, and conglomerates, are captured under other categories in the Farkas Berkowitz or
EnviroQuest estimates.

       Based on these and other market studies, the environmental business may be generally classified
as a $59-132 billion market.  Management and cleanup of hazardous waste is believed to account for $8-
13 billion of those annual revenues; solid waste, for $29-31 billion; water treatment and infrastructure for
$8-26 billion; stationary source air pollution control, for $2-5 billion; and professional services, for $10-
14  billion.  In addition, other services such as remediation, asbestos abatement,  resource recovery,
instrument manufacturing, waste management equipment, environmental energy sources, and transactions
of diversified companies and conglomerates,  are believed to  account for about $45 billion of annual
revenues.
-      EPA estimates were originally presented in 1986 dollars. These estimates were inflated by 1.15
       to be consistent with other estimates presented in this report in 1990 dollars.

-'     Farkas  Berkowitz and EnviroQuest do  not  include estimates  for mobile source air pollution
       control  equipment revenues.  The Department of Commerce estimated revenues for mobile source
       air pollution control equipment to be about $8.3 billion in  1990.
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                               EXHIBIT 1-1
              THE ENVIRONMENTAL PROTECTION INDUSTRY:
                 REVENUE AND EXPENDITURE ESTIMATES
                       (BILLIONS OF 1990 DOLLARS)
   EnviroQuest 1990
   Revenue Estimates
Farkas Berkowitz 1990   EPA "Cost of Clean" 1990
  Revenue Estimates       Expenditure Estimates
  Hazardous Waste
                               Hazardous Waste
                        Air Pollution Control   Air Pollution Control
                                           Chemicals
                                                        Multi-Media
   Total 1990 Revenues
       $132 Billion
  Total 1990 Revenues
      $59 Billion
Total 1990 Expenditures
     $115 Billion
 butopp\cmhym1 B.drw
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Effect of Regulation on the Environmental Market

       Despite considerable disagreement on the environmental market's absolute size and composition,
it is widely acknowledged that the industry is driven, first and foremost, by legislation and regulation.
The contour of revenues for pollution control equipment and service firms has been shaped by an array
of federal statutes and, more specifically, by EPA's enforcement of those laws.  In each case, major
environmental legislation has forced or promoted the development of new technologies and specialized
services,  and has impelled creation of an infrastructure of companies to supply those technologies and
services.  A prime example of the importance of legislation and regulation is the air pollution control
business. Equipment bookings more than doubled in the two years following enactment of the Clean Air
Act of 1970 (see "The Air Pollution Control Business since 1970," below).  This history points to sizable
future benefits as a result of the Clean Air Act Amendments of 1990.

       An even more instructive test case for the business impact of the CAAA lies in the hazardous-
waste management industry's experience after passage of the Hazardous and Solid Waste Amendments
(HSWA) of 1984.  In many ways, HSWA was comparable in scope to the Clean Air Act Amendments
of 1990.  The 1984 law fundamentally restructured the way hazardous waste was managed in the United
States,  imposed a variety  of new and technically complex requirements, and created, across a broad
spectrum of American industrial companies, a huge demand for assistance in meeting those requirements.
Spurred by these legislative and regulatory changes, hazardous-waste management swelled from less than
$200 million in 1981 to $1.7 billion in 1987. Further, by EPA's estimate, costs attributable to hazardous-
waste management could soar to more than $9 billion by the  middle of this decade.   The increase in
demand piqued Wall Street's interest in the environmental business.  In response to the HSWA demands,
both revenues and  the number of firms  offering  hazardous waste management  services increased
substantially.  As evidence of this, in 1985, the year after HSWA was passed, 22 environmental-service
firms were taken public. The stock offerings raised net proceeds of $813.4 million.

       In addition to the demand for pollution control services generated by federal legislation, state and
local regulations, which vary  widely from jurisdiction to jurisdiction,  can add considerably to that
demand.  Perhaps the best example is the state of  California, which has environmental rules that are
frequently  more stringent than federally imposed  regulations.   The CAAA  recognized the unique
environmental problems in California (e.g., by requiring the development of a clean-fuel  vehicle pilot
program  to be implemented in  1996).  Even more  important than regulation, however, is the role of
private expenditures taken not as a result of regulations.

Growth  Potential

       Given the likelihood of additional, complex, environmental regulation, it is reasonable to expect
continued growth in virtually  all segments of the  environmental business.  EPA estimates that total
annualized spending on environmental protection will expand from some $115  billion in 1990 to more
than $185 billion by 2000, rising from 2.14% of gross national product to 2.83% over the same time
frame. The consulting firm of Farkas Berkowitz & Co. envisions even swifter growth over the next five
years for selected parts of the industry:  20% per annum for professional services, 25% for hazardous-
waste services, and 30% for air pollution control systems.  The particularly rapid growth foreseen for air
pollution control systems,  stems directly from the Clean Air Act Amendments of 1990.
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THE AIR POLLUTION CONTROL INDUSTRY

        The balance of this chapter deals with the air pollution control side of the environmental industry.
After a brief outline of the clean-air business's widely varying fortunes over the past two decades, the
chapter will provide a segment-by-segment discussion of where the industry stands today.

Size of the Air Pollution Control Industry

        Currently, according to estimates provided by EnviroQuest and Farkas Berkowitz, the air pollution
control  market represents a relatively small subset of the environmental protection business.  It accounts
for less than 5 percent of total  1990 revenues  (although these estimates exclude mobile source air
pollution control). A number of uncertainties also apply to the size of the air pollution control market.
It  is difficult to  estimate  the current size of the overall air pollution control industry because (1)
participants in the industry are often involved in other diverse business activities unrelated to air pollution
control, (2) it is not entirely clear what activities  constitute air pollution control  (e.g., only a portion of
current  low-sulfur coal and natural gas producers revenues, and engineering, design, and construction
revenues are directly attributable to environmental compliance), and (3) there are no standard industrial
classification (SIC) codes that uniquely  cover the air  pollution control  industry.  Reflecting these
uncertainties, revenues in  the current traditional, stationary  source  market  are estimated by  Farkas
Berkowitz and EnviroQuest to  be about  $2.0-5.4 billion.   These revenues are associated  with the
manufacture, engineering, design and construction of stationary source  equipment such as scrubbers,
carbon adsorption, flares, incinerators, etc.  The Department of Commerce estimates current revenues for
mobile source air pollution equipment manufacturers to be about $8.3 billion.  Thus, the total air pollution
control equipment revenues amount to about a $10-14 billion market (or about 10-15 percent of the total
environmental services market).

        Sales revenue for producers of cleaner burning fuels (e.g.,  low-sulfur coal and natural  gas), and
instrument manufacturers are also expected to be augmented by the CAAA,  but are not "traditionally"
classified  as part of the air pollution control industry.  Only a portion of sales for these companies can
be directly attributable to environmental protection making measurement difficult.

        Additionally, a portion of the revenues included in the traditional stationary source air pollution
control equipment industry were earned by engineering, design and construction companies for their on-
site services. Many of these companies are large and diversified concerns that build bridges or factories
as well as air pollution control equipment.  Subsequently, some of these companies do not rely on
environmental protection for much of their business.

        When taking into account the total sales of companies from other industry segments (i.e., clean
fuels, engineering, design, and construction), an expanded and more diversified  market which does not
rely substantially on environmental protection emerges.  This expanded market is several times larger than
the stationary source air pollution control equipment market.  For example, the natural gas industry had
revenues in 1990 of about $43-47 billion, low sulfur industry revenues were about $13-19 billion in 1990,
and there  were  about $22 billion in revenues for engineering, design, and construction companies.

Growth of the  Air Pollution Control Industry Since 1970

        Revenues in the air pollution control industry vary with prevailing environmental  legislation and
priorities.  In the 1970s, when the Clean Air Act was the principal environmental statute administered by
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EPA, the business activity of air pollution control firms increased steadily.  During the 1980s, however,
the pace of air-quality enforcement and new regulation slowed, as the legislative branch focused more on
land pollution problems. Also, electricity growth slowed with fewer new facilities and powerplants being
constructed and hence less demand for new pollution control equipment. In the 1970s, revenues of firms
selling stationary source air pollution control equipment dropped considerably, competition increased, and
profit/operating margins and return on investment shrank.  For example, Research Cottrell's air pollution
control operating margins dropped from approximately 6-8 percent during 1977-1980 to 4.5-5.5 percent
during 1981-1984.  In the face of this situation, many firms—particularly  those involved in air-quality
design, engineering, and consulting—opted to de-emphasize this market and pursue the "greener pastures"
of the hazardous-waste cleanup business.  Some of these same companies, such as Air & Water Technolo-
gies (formerly Research-Cottrell), TRC Companies and Zurn Industries are now gearing up their clean-air-
related businesses as  a result of the CAAA.

       Perhaps the clearest indication of air pollution control business history emerges from booking
statistics for the equipment segment, for which a fair amount of historical data are available:

       •       The 1970s - In 1969, before  passage of the original Clean Air Act, member
               companies of the Industrial Gas Cleaning Institute (the principal trade organiza-
               tion representing  maJcers of industrial air pollution control equipment) reported
               bookings  of roughly $0.1 billion for bare hardware.   (Bare hardware numbers
               exclude freight, field  erection, and auxiliaries such as gas ducts and structural
               supports.)  By 1973, as the Clean Air Act's requirements were beginning to be
               felt in earnest, bookings of IGCI members surged to $0.3 billion. The following
               year,  bookings increased to $0.5 billion. After returning to near $0.3  billion by
               1976, IGCI bookings again soared in the wake of the Clean Air Act's  1977
               amendments, reaching nearly $1.1 billion by 1980 (Exhibit 1-2).   Particularly
               noteworthy  was  the  gain in  bookings  for  flue-gas desulfurization (FGD)
               equipment, or scrubbers, which expanded from $0.1 billion  in 1977  to $0.7
               billion in 1980.  Also, the number of IGCI members reporting these statistics
               increased—from 28 firms in 1969 to 39 firms in 1980.

       •       The 1980s and Early 1990s - The air pollution control equipment business faced
               considerably leaner times in the  1980s, as the legislative and regulatory impetus
               behind  the business faded. After 1980, from bookings of  more than  $1 billion
               for just hardware alone, the  value  of total contracts—that is, hardware and
               installation collapsed to $0.5 billion in 1981, and dwindled steadily thereafter to
               the $0.2 billion range: by the middle of the decade. Total contract value ranged
               between $0.2 billion  and $0.3 billion from 1985  through  1988.   Interestingly,
               however,  IGCI bookings burgeoned to around $0.5 billion in 1989, approached
               $0.4  billion in 1990,  and increased to $1.0 billion in  1991, as demand for air-
               cleaning  equipment,  particularly  FGD  units  and  electrostatic  precipitators,
               expanded in  advance  of the Clean Air Act Amendments of 1990 (see Exhibit
               1-2).    Several electric utilities  have  already signed contracts with scrubber
               vendors for compliance  with Title  IV Phase I acid rain requirements.   For
               example,  Pennsylvania Power has contracted  with  Asea  Brown  Boveri for a
               scrubber at its Coneraaugh powerplant, Virginia Electric Power has contracted
               with  GE  Environmental  for unit 3  at its Mount Storm powerplant, the Public
               Service Company of Indiana has  contracted with Babcock and Wilcox for Gibson
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                                   EXHIBIT 1-2
       SUMMARY OF INDUSTRIAL GAS CLEANING INSTITUTE (IGCI) MEMBERS'
                           BOOKING STATISTICS 1969-1991
                            (BILLIONS OF 1990 DOLLARS)^7
   1.2

     1


   0.8
 (/>
 c
 o
= 0.6
in
^0.4


   0.2


     0
 Original
1970CAA
          1969    1974    1976   1980
                              1981
                             Year
1985   1989    1990    1991
Note: 1969-1980 Include Hardware Value Only
     1981-1991 Include Both Hardware and Installation Value

busopp/cmh/bat2.dtw
           Bookings represent contracted orders for large stationary source air pollution control equipment.
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               powerplant unit 4, Owensboro Municipal Utility in Kentucky has contracted with
               Wheelabrator to scrub its Elmer Smith powerplant, and TVA has contracted (on
               a contingent basis) with Asea Brown Boveri to scrub its Cumberland powerplant.

       Although the industrial air-quality equipment sector offers a convenient yardstick for assessing the
air pollution control industry's history, today's air pollution control market is considerably broader-based.
As discussed earlier, the traditional air pollution control market (i.e., stationary source and mobile source
pollution control equipment manufacturers that rely predominantly on environmental business) is a $10-14
billion business. The expanded market includes non-environmental activities or revenues  of firms that
rely partially on air pollution control business and is  much larger.  These markets encompass a sometimes
bewildering variety of firms, driven by different combinations of market forces. For companies  in the
expanded market, the diversity of business activity can lead to  greater stability rather than boom or bust
cycles which a number of firms in the traditional  market experienced during the 1970s and 1980s.

       For purposes of analysis, it is thus convenient to divide industries benefitting from the C AAA into
five broad segments:

       (1)     air pollution control equipment;
       (2)     alternative and cleaner burning fuels;
       (3)     engineering design, and construction;
       (4)     instrumentation, and emissions  monitoring; and
       (5)     consulting and other services (for which revenue estimates were not available).

       These  industry groupings, though useful, should be viewed circumspectly, for several reasons.
First,  the relative importance  of each group is likely to change as the Clean Air Act  Amendments
influence the marketplace.  For example,  the  alternative fuels category, which currently represents a
relatively small portion of the air-quality market, will receive a sizable push from Titles I, II, and IV of
the CAAA. On a  related note, the CAAA will pull a number of industries  not normally thought of as
"environmental" into the air pollution control market. Natural gas, low-sulfur coal, rail transportation, and
even the limestone business are all areas that could benefit from  the statute.  These benefits are more or
less direct impacts of the CAAA. The CAAA may also have secondary impacts for suppliers of resources
and raw materials, subcontracting manufacturers,  and others.  A full treatment of secondary business
opportunities is largely outside the scope of this report.

       The following pages provide a thumbnail sketch of each of these industry segments as they exist
today.

Air Pollution  Control Equipment

        This business area can be divided into two main categories:  emission control equipment for
stationary sources, such as industrial  facilities,  and  equipment  for mobile sources, such as  autos, trucks,
and buses.

        Stationary-Source Equipment

        This segment includes  companies that  design,  build,  install,  and service  emission control
equipment for utilities and large and small industrial plants.  The principal product offerings fall into six
categories:  scrubbers, electrostatic  precipitators, fabric filters, known as baghouses,  oxidizers, carbon
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                                    EXHIBIT 1-3
 MANUFACTURERS OF AIR POLLUTION CONTROL EQUIPMENT FOR STATION-
  ARY SOURCES:  NORTH AMERICAN (UNITED STATES, CANADA, MEXICO)
                  VENDOR MARKET SHARE BY 1991  REVENUES
                           (MILLIONS OF 1991 DOLLARS)
Air & Water Technologies
Asea Brown Boveri
General Electric Environmental
Environmental Elements
John Zink Company
Wheelahrator
Babcock & Wilcox
Joy Technologies
JWP
Calgon Carbon
Total
Others
139
125
86
83
71
63
59
59
39
38
$762
$748
9.2%
8.3%
5.7%
5.5%
4.7%
4.2%
3.9%
3.9%
2.5%
2.5%
50.4%
49.6%
              TOTAL                                 $1,510             100%

Source:        Market Intelligence Research (Mountain View, CA)
              Preliminary of 1992 publication "The North American Air Pollution Control Technologies
              Market."
adsorption systems, and nitrogen oxide (NOX) control devices.  Market Research Intelligence Corporation
estimated revenues for manufacturers  of these  types of controls to be about $1.1  billion in  1988.
Approximately half of the market was controlled by eight firms (Exhibit 1-3).  Note that this $1.1 billion
estimate differs from  the $2.0-5.4 billion estimate of the stationary source air pollution control market
because it does not include some of the revenues associated with on-site construction and engineering
(e.g., field erection). Also, IGCI booking statistics were only about $0.5 billion for 1988. The difference
is accounted for by (1) revenues for non-IGCI  members, and  (2) contract orders do not necessarily
correspond directly to annual revenues.

       Historically, this business has had relatively low profit margins, in part because of the high cost
of bidding for and securing contracts. As noted in an earlier section, revenues for the stationary-source
equipment segment trailed off dramatically during the 1980s. Without a high volume of new business to
offset the expenses related to lost bids, industry  profitability eroded.  In recent years,  some air-quality
equipment companies have had operating margins of less than 7  percent.  Typical operating margins for
other industrial businesses average around 10-15  percent.

       Despite its heavy-industry  connotations, the equipment segment is not particularly capital
intensive. Many firms act mainly as system designers and project managers, subcontracting a large share
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of the  actual construction.  On the other hand, clients tend to put a premium on experience and on
technological sophistication, and are likely to emphasize these factors even more in light of the Clean Air
Act Amendments.  Another key characteristic of this marketplace is the presence of substantial foreign
competition.  The market-share leader, Flakt, is  a Swedish-Swiss concern. In addition to foreign firms
marketing on U.S.  soil, an effective way to compete domestically is through licensing agreements with
U.S. air pollution control firms. Examples are Noell-KRC and Air & Water Technologies, Mitsubishi and
Air Products & Chemicals, Hitachi and Babcock & Wilcox, Kawasaki and Joy  Technologies,  and
Saarberg-Holter Umweittechnik and Natec Resources.

       Mobile-Source Equipment

       Broadly defined, the mobile-source equipment market includes designers and manufacturers of
three product categories:  (1) catalytic controls that reduce motor-vehicle emissions of hydrocarbons,
carbon monoxide, nitrogen oxides, and the soluble organic fraction of diesel particulates, (2) noncatalytic
controls,  principally trap  oxidizers which catch  paniculate emissions from  diesel engines,  and (3)
manufacturers of on-board diagnostic (OBD)  systems to monitor vehicle emissions.

       At present, the market for catalytic controls is dominated by a small number of large manufactur-
ers consisting primarily of catalyst manufacturers  and substrate manufacturers.^   Roughly 82%  of the
domestic supply of catalysts comes from four companies:  Johnson Massey, Allied Signal, Engelhard, and
the German firm Degussa.  Manufacturers of substrates, the honeycomb or metallic filter that is coated
with a precious metal catalyst, include Corning, Inc.; Japan's  NGK-Locke, Inc.;  A.C. Rochester; W.R.
Grace; and Emitec.

       The market for non-catalytic controls is  also dominated by a large number of small companies.
For example, Corning and NGK-Locke provide  filters for trap oxidizers, as do Donaldson Corporation,
3-M Corp. and the Japanese conglomerate Panasonic.

       Existing manufacturers of microchips and  software for OBD systems include Delco Electronics
and Nippon Denso.   Many of these manufacturers currently supply OBD  systems  for the California
market (OBDs are already required in California).

       In the past, revenue growth for the mobile-source equipment industry has hinged  on two main
factors: environmental regulation,  and production of new cars and trucks. According to Department of
Commerce figures, in 1975, when the catalytic converter became common in American automobiles, $2.8
billion (1990 dollars) was spent on motor-vehicle emission abatement devices. Six years later, nitrogen
oxide  standards were tightened,  a regulatory  shift  that prompted a switch to a second generation
technology (i.e., from two-way  to  three-way catalyst technology).  The stricter standards  helped boost
total spending on vehicle emission control devices from $5.5 billion  in 1980 (in 1990 dollars) to $8.4
billion by 1984 (in 1990 dollars), and $9.4 billion by 1986 (in 1990 dollars).  On the other hand, in 1987,
when new-car production in the U.S. decreased, total expenditures on emission abatement devices sagged
from $9.4 billion to $8.3 billion (in 1990 dollars).  In 1990, market  revenues were about $8.3 billion.
Not included in this  estimate of current revenues are inspection and maintenance equipment service and
sales, research and development, OBD equipment, and production  of alternative-fueled vehicles.
-       The catalyst,  usually a precious  metal, is one component of a catalytic control system.  The
        substrate is a honeycomb or metallic filter that is created with a catalyst. Together, they form a
        complete system.
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Alternative and Cleaner Burning Fuels

       The Clean Air Act Amendments bring a variety of formerly non-environmental industries into the
air pollution control business. Nowhere is this more apparent than in fuel and energy markets. In some
cases, CAAA implementation will stoke demand in well-established markets; in others, it will create new
ones.  For analytical convenience, the broad area of alternative and cleaner fuels is divided into three
segments: alternative fuels  and fuel additives, natural gas, and low-sulfur coal.

       Alternative Fuels and Fuel Additives

       The three fuels/additives most likely to be affected by the Clean Air Act Amendments—methanol,
methyl tertiary butyl ether (MTBE), and ethanol—have well-established  markets in other applications.
Increased revenues  for these  products  (presented in Chapter III)  are  due to  the reformulated and
oxygenated  gasoline requirements stipulated in Title II of the CAAA.  Methanol, one of the highest-
volume  organic  chemicals  produced in the U.S., has  applications in a variety of plastic and fiber
polymers, in auto antifreeze, and as  the feedstock for MTBE.  MTBE,  in turn, is widely used as  an
octane-boosting additive for gasoline.  In addition  to its major use as a fuel additive in "gasohol," ethanol
has several  other  niche applications in products ranging from  automobile  antifreeze  to perfumes.
Production of methanol, MTBE, and ethanol is largely the province of large chemical and petrochemical
concerns. Important suppliers  of methanol include Du Pont, Lyondell Petrochemical, Borden, Georgia
Gulf, Ashland Petroleum, Tenneco, and Hoechst-Celanese.  The largest merchant (i.e., for sale on the
open market) supplier of MTBE is Arco Chemical. Agribusiness is a chief beneficiary of high ethanol
demand,  as a principal raw  material for ethanol is corn.

       The three fuels/additives described above  have had widely divergent fortunes in the marketplace
over the  past several  years. U.S. methanol production expanded  at a compound annual rate of 9.8%
between  1985 and 1990. Much of that expansion was attributable to brisk demand for MTBE, which has
become the second-largest  application for methanol.-/  MTBE production expanded at  a compound
annual rate of 27.2% from 1985 to 1990, as lead additives continued to be phased out of gasoline and as
demand increased for high-octane unleaded fuels. Demand for ethanol, on the other hand, has trended
down.  Production in  1989 was only 38% of 1980 levels.

       Natural Gas

       The natural gas business has had considerable difficulties in recent years.  At present, gas industry
revenues and volumes are down significantly from historical peaks.  In the past decade, annual production
of natural gas has varied from a high of 18.7 trillion cubic feet (tcf) in 1981 to a low of 15.6 tcf in 1986;
in 1989,  some 17.0 tcf of gas were produced (Exhibit 1-4). Many  gas pipeline concerns saw revenues
decline significantly in the mid-1980s, and although sales have recovered for most pipelines, they are still
generally below 1985 levels. Revenues of gas utilities, meanwhile, have trended steadily downward, from
$67.5 billion in 1984 to an estimated  $46.3  billion in 1990.   Behind the steady decline  has been
competition from other energy sources such as coal and petroleum, coupled with unusually warm weather
-      Methanol is an alcohol most commonly derived from natural gas. MTBE is made from methanol
       and a butane.  Methanol can be used as a clean alternative fuel or as a gasoline additive (when
       blended with another alcohol), but because it is hydrophilic (i.e., attracted to water) it can not be
       transported via pipeline, thus limiting its market penetration. MTBE is not hydrophilic, but can
       be used only as an additive.
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                                     EXHIBIT 1-4
  U.S. HISTORICAL NATURAL GAS  PRODUCTION AND RESERVE ADDITIONS
                             (TRILLIONS OF CUBIC FEET)
                                                          Reserve
                            Year	Production	Additions

                            1989            17.0             16.08
                            1988            16.7             19.50
                            1987            16.1             16.90
                            1986            15.6             13.83
                            1985            16.0             11.89
                            1984            17.2             14.41
                            1983            15.8             14.52
                            1982            17.5             17.29
                            1981            18.7             21.45

SOURCE: ICF Resources Estimates, November 1990.
during several recent winters.

       Although traditional natural-gas markets are maturing, the industry is working to open new
business areas, and expects a significant future upturn in demand. Applications for gas that show promise
are cogeneration, combined-cycle power generation, and commercial air conditioning. Demand for natural
gas could also rise in response to governmental actions—notably the Administration's National Energy
Strategy, which favors natural gas in several respects, and the Clean Air Act Amendments.

       Low-Sulfur Coal

       Although emissions from coal-burning utilities represent a key target of the CAAA, one segment
of the coal industry stands to benefit from the legislation: producers and transporters of low-sulfur coal.
Geography plays a significant role in this business segment.  Whereas most high-sulfur coal is mined in
Northern Appalachia and the Midwest, close to 70% of U.S. low-sulfur coal reserves are in Montana and
Wyoming. A majority of that coal is located in the somewhat smaller Powder River Basin (PRB) region
of Wyoming and Montana. The Central Appalachian states, notably southern West Virginia and eastern
Kentucky, also have substantial low-sulfur coal reserves (Exhibit 1-5).

       Due  to (1)  existing environmental  regulation from the 1970 CAA,  and (2)  price competition
between low-sulfur coal  products and high sulfur coal products in some regions (e.g., low-sulfur coals are
cheaper out  West because they are mined locally), the  market for low-sulfur coal has been growing
steadily during the 1980s.  In 1980,  about 56 percent of total coal production was from low-sulfur mines.
By  1990, low-sulfur coal production accounted for about 63 percent of total production.  In fact, produc-
tion of low-sulfur coal has been increasing at rate of 3.4 percent annually since 1980. Over the same time
period, high sulfur coal production has been growing at a rate of only 0.6 percent annually (Exhibit 1-6).
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                                     EXHIBIT 1-5
             GEOGRAPHIC DISTRIBUTION OF U.S. COAL RESERVES
                     (IN BILLIONS OF SHORT TONS AS OF 1987)
                                       Total            Percentage        Low Sulfur
              State                     Reserves         Low Sulfur       Reserves

              Montana                    120.2             89%           107.0
              Illinois                      78.6              3               2.4
              Wyoming                    68.8             72              49.5
              West Virginia                38.2             50              19.1
              Pennsylvania                 22.5              9               2.0
              Western Kentucky            20.6              0                 0
              Eastern Kentucky              9.8             76               7.4
              Other                       108.3             38              41.4

              United States                467.0             49%           228.8

Source: U.S. Department of Energy; Energy Information Administration (taken from Standard & Poor's
Industry Surveys, Railroads & Trucking, May 23, 1991)
       The largest single low-sulfur coal mine, with annual volume of some 30 million tons, is the Black
Thunder mine in Wyoming, owned by Arco Coal Company. Other important low-sulfur coal producers
include Peabody Holding Group, Amax Coal Industries, Exxon Coal and Minerals, Shell Mining Co.,
NERCO Coal, and Sun Coal.  The rail companies  in the Powder River basin are Burlington Northern,
which moves most of the region's coal, and a joint venture between Chicago North Western and Union
Pacific.

       Low-sulfur coal from  the West has increased in  market share for reasons unrelated to  SO2
emissions. Geologically, western coal is considerably more accessible than eastern coal, as it is found in
wider seams with less overburden to remove. The  cost per ton of western low-sulfur coal can in some
cases (predominantly in the Powder River Basin) be one-sixth that  of low-sulfur coal from eastern mines.
Low-sulfur coal, particularly from the Powder River Basin, also has a number of disadvantages in the
marketplace. For one, it is relatively low in heating value, so larger quantities are required to achieve the
same energy.  Freight charges can also add significantly to the cost of using low-sulfur coal for utilities
far from mining areas.  In addition, switching from Eastern bituminous coal to Western subbituminous
coal often requires new equipment or new operating  procedures to accommodate the coal in utility boilers.
Despite these disadvantages, Powder River Basin coal use has  grown considerably.

Engineering,  Design and Construction

       The engineering, design and construction business has  an  extremely broad scope, encompassing
construction, architectural  services, industrial-process modifications, and various other engineering ser-
vices for general manufacturing, petroleum, utility, environmental, and other areas.  The exact amount of
revenues  attributable to clean-air issues is very difficult to quantify.  The overall environmental segment
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                             EXHIBIT 1-6

             CHANGE IN COAL PRODUCTION DURING THE 1980s

                            (MILLION TONS)
 1.200
 1,000
CO
c
o
   800
   600
   400
   200
     0
                               Western Low Sulfur
     1980  1981  1982  1983  1984 1985 1986  1987  1988  1989  1990

                                  Year
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          Market Potential for Low-sulfur Powder River Basin Coal

 Due to Title IV (the acid rain requirements) the potential market opportunity for clean-burning, low-
 sulfur Powder River Basin coal is substantial in Phase I (beginning in 1995) and Phase II (beginning
 in 2000) of the acid rain control program.  The seven largest coal mines in the U.S. are located in
 the Powder River Basin (PRB), a 9,700 square mile region between South Dakota's Black Hills and
 Wyoming's Big Horn Mountains. The PRB has 56 billion tons of proven, easily-accessible, surface
 reserves of clean-burning, low-sulfur coal, enough to meet current U.S. total coal consumption for a
 period of fifty years. Spurred by the 1979 amendments to the Clean Air Act production of PRB coal
 has already increased substantially from about 104 million tons in 1980 to about 194 million tons in
 1990.

 Most of the coal-fired utility generating capacity with very stringent requirements  to reduce SO2 is
 located east of the Mississippi River.  Despite long transportation distances, PRB coal is still an
 attractive compliance alternative for many powerplants.  In Phase I of the acid rain control program,
 about three-quarters of the  generating capacity affected is in regions potentially accessible to PRB
 shipments. This represents a possible market penetration  of about  20 to 50 million tons annually in
 Phase I.  Some estimates indicate that the Phase II market for PRB coal could result in an increase
 in production of 120 million tons per year over current levels.

 This represents a large increase in production for current producers and an increase in transportation
 volume for railroads serving the Basin. However, to be competitive with other potential compliance
 strategies (e.g., switching to Central Appalachian low-sulfur coal, or installing a scrubber) the profit
 margin earned by  PRB  producers, and rail shippers will  likely be constrained.  PRB  production is
 controlled  primarily by large diversified companies such as ARCO, AMAX, Exxon, Shell, Peabody
 and Kerr  McGee.   Railroads serving the Basin include Burlington  Northern, and Western Rail
 Properties, Inc. (WRPI), a joint venture between Chicago  and Northwestern and Union Pacific.

 Increased production in the  PRB will also lead to increased economic growth and employment in the
 area.  For instance, production  increases during the 1980s  resulted in 4,000  new  jobs in the
 Wyoming Powder  River region alone. In fiscal year 1990, Wyoming received  about $225 million in
 coal royalties  and taxes which accounted for about 12  percent of the  State's budget.   Increased
 production resulting from  Title  IV acid rain  requirements could  lead  to increased growth and
 economic opportunities in this region.
of the engineering market, however—largely comprising  areas such as hazardous-waste design and
construction—has been estimated at some $2.4 billion in size, with a growth rate on the order of 15% per
year.  The business is extremely fragmented, and the top ten firms are believed  to control only 30% of
the market (Exhibit  1-7).   During 1990, the top ten  firms were  all involved  in work related to air
pollution control. The above numbers, however, do not include a large majority of construction and
design revenues associated with indirect pollution control activities (i.e. design and construction of MTBE
facilities).  Other firms expected to have increased revenues from the CAAA, outside the traditional air
pollution market, include many of (he firms in The Engineering News Record Top 10 rankings (Exhibit 1-8).

       As might be  expected given the market's fragmentation, engineering and design is a two-tiered
industry.  The top tier includes a small number of very large firms that do business on a nationwide basis
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                                 EXHIBIT 1-7
                       EBJ's TOP 10 ENVIRONMENTAL
                      ENGINEERING/CONSULTING FIRMS
                        (MILLIONS OF 1990 DOLLARS)
Environmental
  Revenues

     1.                         Bechtel Group Inc.                        $974
     2.                         Foster Wheeler Corp                        470
     3.                         CH2M Hill Cos. Ltd.                        400
     4.                         Metcalf & Eddy Cos.                       294
     5.                         Morrison Knudsen                         274
     6.                         Roy F. Weston Inc.                         269
     7.                         Camp Dresser & McKee Inc.                 228
     8.                         Parsons/Main                             222
     9.                         Jacobs Engineering Group Inc.                220
    10.                         Dames & Moore                          210

Source: Environmental Business Journal, April 1991
                                 EXHIBIT 1-8
                        ENR TOP TEN DESIGN FIRMS
             1.                 Bechtel Group Inc.
             2.                 Brown & Root Inc.
             3.                 Fluor Daniel Inc.
             4.                 ABB Lummus Crest
             5.                 Parsons/Main
             6.                 United Engineers & Construction Int. Inc.
             7.                 CRSS Inc.
             8.                 Stone & Webster Engineering Corp.
             9.                 Ebasco Services Inc.
             10.                Davy McKee Corp.

Source: Engineering News Record, April 8, 1991
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as well as overseas.  The lower tier consists of a large number of smaller, regionally based players whose
fortunes are heavily tied to the geographical area in which they operate.

Instrumentation, and Emissions Monitoring

       At present, the air pollution instrumentation segment has two principal components:  instrument
manufacturers and makers of emissions monitoring systems.   Compared to other air pollution control
segments, the instrumentation segment is relatively small.   Even for the largest players, revenues
attributable to the clean-air market have recently ranged from only $5 million to $10 million.  Further,
a host of smaller  firms provide emissions monitoring systems  and instrumentation on a regional basis.
Employment in the instrumentation and monitoring segment is  believed to total less than 2,000 persons.

       Although the instrumentation and monitoring business is dominated by domestic companies, some
foreign companies have gained a toehold in the market. Examples include the Japanese firm Horiba, and
three German companies, Bodenseewerk, Sick Optical, and Durag, that sell their instruments through
domestic dealers.

       Another side of the monitoring business deals with emission-testing equipment for mobile sources.
Important firms in this area include Environmental Systems Products, Allen Test Products, Sun Electric,
and Hamilton Test Products.

Consulting and Other Services

       In addition to the segments described above, the air pollution control  business encompasses  a
variety of miscellaneous services, most of them provided by a large number of small companies or by
specialized subsidiaries of larger firms.  Chief among these service industries is environmental consulting,
which can  embrace information  gathering, computer modeling,  strategic planning,  and a variety of
ancillary areas.  Similarly,  a large  number  of attorneys  specialize in  environmental counseling and
litigation.

       Virtually all titles of the CAAA—a complex law whose evolving requirements will not easily be
grasped by the regulated community—will spawn important opportunities for  such business segments.
However, both current and CAAA-driven future revenues  for these areas are very difficult to quantify.
One reason lies in the large number of small,  privately owned players in the consulting market.  Another
reason is that consulting and engineering services often overlap, and many of the larger consulting firms
are subsidiaries of construction and engineering concerns.  Because of the difficulty in defining this
market, current revenue estimates and future projections for consultants and environmental attorneys are
not included in this report.

Overview of the International Air Pollution Control Market

       The previous sections of this chapter have focused on  the extent and character of the domestic
environmental protection industry generally,  then more narrowly  on the air pollution control industry.
Increasingly,  however, environmental  markets  are  global  in scope.  Understanding  how the U.S. air
pollution control industry will grow and  change as the Clean Air  Act  Amendments are implemented
requires taking cognizance of the international context in which the domestic industry operates.
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       This section provides a broad-stroke overview of the international air pollution control industry.
The discussion focuses on the size and shape of the market, growth trends in that market, global trade
patterns,  and the potential  role of the U.S.  air pollution control  industry in  the global marketplace.
Emphasis is placed on the influences that appear to drive the international market, as well as those factors
which are likely  to determine the competitive success of the U.S. industry.

       Trends in the global  market  are important for several  reasons:   First,  increasing market
opportunities abroad add to  domestic opportunities created by the Clean Air Act Amendments, providing
further impetus for the growth of U.S. firms.  Second, to the extent that the control requirements imposed
by the Amendments are stricter than those  of other countries, technical  innovations spurred by the
Amendments may increase  U.S. firms' competitiveness vis-a-vis foreign firms in the APC markets in
those  countries.   Third, foreign firms already competing  effectively  in the international and U.S. air
pollution control markets may capture a share of the increased market created by  the Amendments.
Finally,  increasing global market  opportunities may distract U.S.  firms from pursuing some domestic
market opportunities, thereby creating supply-side constraints affecting implementation of the Amend-
ments.

       It should be noted that the international environmental  industry is even more difficult to grasp
than the domestic industry.  Unlike business opportunities due to the 1990 CAAA (which is the primary
topic of this report), no independent evaluation of the global APC  market was conducted. Rather, this
section presents  only  a limited compilation  of estimates  and views  of the international air pollution
control market.

Size and Shape  of the International Market

       One frequently-cited source estimates that in 1991 global orders for stationary-source air pollution
control (APC) systems totalled over $12 billion.   On a regional  basis this estimate disaggregates as
follows:

              North America - $3.9 billion (32 percent)
              Europe - $4.1  billion (34 percent)
              Rest of the  World - $4.1  billion (34 percent)^

According to  this source, orders  for  gas treatment technologies  predominate in North America and
Europe, while orders for paniculate removal  equipment predominate in the rest of the world.

       This perspective, however, focuses only on stationary-source equipment orders. Another analysis
of the European  market for  equipment, monitoring, and services estimates 1991 revenue at $11.2 billion.
Nearly half of this market is in Germany (48 percent), followed by the United Kingdom (16 percent),
France (13 percent), Italy (10 percent), and the Netherlands (5 percent).-7 Directly comparing these
estimates  of the European  market is  difficult because  they are derived from different  sources using
-      Mcllvaine, Robert W., Journal of Air and Waste Management Association, March 1991, pp. 272-
       275.

-      Environmental Business Journal, November 1991, p. 7, citing an analysis by Ecotec Research and
       Consulting Ltd.
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different methodologies.  Nonetheless, these estimates  drive home the fact that the total global  APC
market is much larger than just the equipment segment.

Growth  Trends in the International Market

       As noted in an earlier section of this chapter, the principal factor determining the size, and driving
the growth, of the U.S. APC market has been the stringency of air pollution control regulations. A recent
OECD study makes the  same point with respect to the international marketplace:   "Variations in
environmental policies and regulations have been instrumental in the development of specific environmen-
tal markets and products in different OECD countries."  Japan's APC industry, for example, expanded
rapidly in the 1970s and early 1980s as a result of legislation imposing stricter flue gas desulfurization
requirements2  As this and other sources document, as a result of more stringent requirements in the
Clean Air Act Amendments, the U.S. share will grow from less than one-third of global APC equipment
orders to 43 percent of global APC equipment orders by 1995.—'

       The prospects for growth in the APC  market vary by country and region.  Focusing first on
developed countries, the OECD forecasts that sales of APC equipment will grow at an annualized rate of
4.4 percent through the end of this decade in the OECD market as a whole.  More stringent new source
performance standards are anticipated to increase the market for particulate emissions control and gaseous
emissions control systems.^

       Within the OECD area, market growth is expected to be strong in the European Community (EC),
which is  currently undergoing the integration process known as "EC '92." The EC has already enacted
numerous APC directives impinging on the domestic requirements of EC-member countries. Looking to
the future,  a  recent U.S. Department of Commerce  report concluded that, "With the advent of the
integrated European market in 1992, more EC directives  may be expected on air quality control although
implementation will not necessarily be an across-the-board rule for Europe."^  The creation of an EC
Environmental Protection Agency with supranational inspection powers should strengthen the  trend
toward more uniform and stringent APC requirements in Europe.
-      Organisation for Economic Cooperation and Development, Directorate for Science Technology
       and Industry, Industry Committee, The OECD Environment Industry: Trends and Issues (Note by
       the Secretariat), September 1991, p. 18.

-;      Mcllvaine, Robert W., "Air and Waste Management Markets in a New Decade," in Journal of Air
       and Waste Management Association, pp. 305-309.

-      Care must be exercised  in comparing the relative stringency of environmental regulations among
       countries. The form control requirements take, the institutional framework they fit within, and
       the stringency with which they are enforced  all  vary considerably from country to country,
       confounding ready comparisons.

—•     Organisation for Economic Cooperation and Development, Directorate for Science Technology
       and Industry, Industry Committee, The OECD Environment Industry: Trends and Issues (Note by
       the Secretariat), September 1991, p. 12.

—     U.S. Department of Commerce, International Trade Administration, A Competitive Assessment of
       the U.S. Industrial Air Pollution Control Equipment Industry, August 1990, p. 55.
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       Germany has been the traditional trend-setter in the European APC market.  Current German SO2
standards—historically more stringent than U.S. requirements—are expected to spur $22 billion in capital
investments in  APC equipment by  German firms  between 1986  and 1996.  In  addition,  Germany's
neighbors, including Belgium, Netherlands,  Denmark,  and Austria, are expected to follow its lead and
enact similar control requirements.—'

       Additional European growth will occur as the Eastern European members of the former Soviet
Bloc accelerate  efforts to modernize their economies. The scale of pollution of all types is vast in Eastern
Europe; the World Bank, for example, estimates  it  will take  $200 billion to  arrest their pollution
problems.—7  Subject to continued political  stability and the availability of financing, the APC  market
should burgeon in these countries.

       In the Pacific Rim, Japan—an OECD-member country—represents by far the largest APC market.
This market has been driven by national and regional standards that generally have been more stringent
than comparable U.S. requirements.™•   A  recent  report released by the Japan  Society of Industrial
Machinery Manufacturers projects that demand for APC equipment will grow by an  annualized rate of 7.1
percent through 2000.^-/  Even greater  growth is anticipated among the newly industrialized countries
of East Asia—South Korea, Taiwan, Hong  Kong, and Singapore.  All of these countries place a high
priority on  environmental protection,  have controlled their foreign debt,  and  have  favorable trade
balances.—7

       Mobile  source emissions—due to their contribution to greenhouse gases—will remain a  driving
force in the global air pollution control market.  For example, transfrontier truck  traffic is predicted to
increase 30-50 percent after the 1992 unification of EC markets.  This increase is expected to constitute
the greatest environmental impact due  to the joined markets.^7-7  Emission standards are increasingly
more stringent  and efforts are underway to pattern European and other national standards after U.S.
regulations.  Catalytic converters will become required on all EC automobiles at the end of 1992.  The
real question is  whether U.S. firms will penetrate this market.

       One expert points to formidable challenges facing nations looking to control  emissions from
mobile sources.  Based on continuing efforts by the U.S. and Japan, and recent EC controls, global CO,
hydrocarbon (HC), and NOX emission predictions remain stable over the next decade but begin to increase
due to growing  vehicle populations in less controlled parts of the world. He cites motorcycles as a major
—     ibid., p. 42.

—•     "Greening Eastern Europe," The Times, June 18, 1990.

—•     Environmental Business Journal, p.3.

—7     Comline News Service, Comline Industrial Machinery and Mechanical Engineering, August 13,
        1991, p. 2.

        U.S. Depart
        the U.S. Air Pollution Control Equipment Industry, August 1990, p. 48.

        Environment - Europe  1992 Industry  Report,
        Services (Belgium), October 10, 1991,  88 pgs.
—     U.S. Department of Commerce;, International Trade Administration, A Competitive Assessment of


—     Environment - Europe  1992 Industry  Report, prepared by  Deloitte, Ross, Tohmatsu  Europe
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HC contributor, with heavy-trucks contributing significantly to emissions of CO2, as well as NOX, which
is  generally less  regulated.—7  Regulations  to  reduce  emissions  and improve  fuel efficiency—past
market drivers in developed nations—will continue and play a larger role in newly industrialized nations.

Trade Patterns in Air Pollution Control

       As previously noted,  the international market for APC systems  is quite large.  Most of this
market, however, is captured by domestic firms within each major industrial country.  Consequently, the
cross-border flow of APC equipment is relatively modest.^7  This reflects the advantage  enjoyed by
domestic vendors.  A recent  U.S. Department of Commerce analysis indicates that  this advantage
primarily derives from three factors—manufacturing simplicity, the large  bulk of APC equipment, and
proximity to the market, which minimizes delivery cost. Because APC equipment typically is bulky, and
includes a relatively small high technology component, "where a country has manufacturing/fabricating
capability, each installation will have a high percentage of domestic content."—7

       Despite, or in  large measure because  of the competitive advantages enjoyed by domestic firms,
the APC industry has become increasingly international in terms of the scale and scope of activities of its
leading competitors.  In order  to take advantage of the U.S. APC market, the largest in the world, many
foreign companies have  acquired  U.S. firms, developed U.S. subsidiaries,  or  struck joint venture,
licensing, or other arrangements with U.S. partners.  In this way, foreign companies can compete in the
U.S. market on the same footing  as U.S. firms.

       The recent purchase by Swedish-Swiss Asea Brown Boveri (ABB) of Combustion Engineering,
long a leader in the U.S.  market, is perhaps the most striking example of the acquisition route into the
U.S. market. By contrast, Environmental Elements  Corporation went the  licensing route in arranging a
deal involving a wide variety of APC technology developed and owned by Lurgi GmbH,  a German firm.
Mitsubishi Heavy Industries, with a 50 percent share of the Japanese APC  market, has entered numerous
licensing agreements with other firms around the globe. More recently, however, it formed Pure Air Inc.,
a 50-50 joint venture with U.S.-based Air Products and Chemicals Inc., to sell flue gas desulfurization
          j\i
equipment.—

The Role of the U.S.  APC Industry  in the International Market

       The U.S.  APC industry remains a diverse and viable part of the  economy.  As the previously
cited Department of Commerce statistics indicate, as of 1986, the U.S. APC industry was the world leader
—7     Walsh, Michael P., Global Progress and Problems in Motor Vehicle Pollution Control.

—     The Department of Commerce estimates that in 1986 the export market for APC equipment in 17
       major industrialized countries, excluding the U.S., was approximately $142 million.  European
       countries' markets collectively accounted for $82.6 million of this export market, by far the
       largest share.  Among the top five exporting nations to this foreign  market, the U.S. had the
       leading share - 29.5 percent, followed by West Germany, 17.7 percent, the United Kingdom, 8.8
       percent, and Japan, 5 percent.  (See footnote 12, p. 29.)

^7     ibid., p. 29.

—•     Environmental Business Journal, November 1991, pp. 3-4.
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in the export market.  In addition, although foreign firms have gained a significant presence in the
domestic U.S. APC market through acquisitions, joint ventures, and licensing agreements, these same
types of arrangements present U.S. firms with options for increasing their presence in the international
market.

       A recent  OECD  report identifies six basic factors contributing  to the competitiveness  of a
country's environmental industry in the global market—the strength of environmental legislation, the
quality of basic research, integration of technologies, global marketing capabilities, price competitiveness,
and the availability of venture capital.  On a "high/medium/low" scale, the U.S. environmental industry
(including the APC  industry)  scored a high or medium  on all factors except global marketing.—
Increased use of global partnerships, following the European  and Japanese examples, provides a ready
means of improving U.S.  marketing prowess.

       The  technology-forcing aspects of the Clean Air Amendments may  represent the U.S.  APC
industry's strongest future competitive advantage.  This would reverse the trend  of the  1980s, when
flagging progress in reauthorizing the  Clean Air Act provided little technological impetus to U.S. firms.
During  this  same time,  firms in Japan and Europe—responding  to  increasingly stringent  APC
requirements in their domestic markets—were investing substantially and developing a new generation of
APC technologies. These investments provided the basis for the recent increased presence of such firms
in the U.S. APC market and the strong positioning of foreign firms to reap the new business benefits of
the Clean Air Act Amendments.
       The remaining chapters in this report develop several of the themes outlined above in more detail.
Chapter II  provides a title-by-title review of the CAAA's basic provisions.  Chapter III  attempts, in a
general way,  to determine how those provisions could translate into demand and revenues for various
segments of the air pollution control industry. Chapter IV looks at how those industry segments, and the
companies  within them, are positioned to respond to that demand and to the challenges it will present.
—      Organisation for Economic Cooperation and Development, Directorate for Science Technology
        and Industry, Industry Committee, The OECD Environment Industry: Trends and Issues (Note by
        the Secretariat), September 1991, p.24.
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    CHAPTER II
Major Requirements of
  the Clean Air Act
    Amendments

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                                      CHAPTER II
        MAJOR REQUIREMENTS OF THE CLEAN AIR ACT AMENDMENTS
INTRODUCTION

       This chapter  provides a brief introduction and general  background discussion of the major
requirements under the Clean Air Act Amendments of 1990 that will result in opportunities for growth
in the air pollution control industry. More detailed (title-by-title) descriptions of the CAAA requirements
are  presented in Appendix A.   Chapter III describes the opportunities for revenue growth in the air
pollution control industry (and corresponding revenue estimates);  and Chapter IV addresses supply-side
issues associated with revenue growth in the air pollution control  industry.

       The Clean Air Act Amendments of  1990 were signed into law by President Bush on November
15,  1990.  The air pollution reduction requirements of the CAAA are contained in eight separate titles.
However, the major requirements that will have significant revenue effects on the air pollution control
industry are contained in five titles - Title I (Nonattainment), Title II  (Mobile  Sources), Title III  (Air
Toxics), Title IV (Acid Rain) and Title VI (Stratospheric Ozone).  Less significant growth opportunities
are  associated with the  other three titles:  Title V (Permits),  Title  VII (Enforcement) and Title  VIII
(Miscellaneous).  These titles would spur administrative, regulatory and legal service activities for  law,
and consulting firms,  which are not considered in this report (see  Chapter I).

       Major requirements under Titles I-IV and VI are outlined in Exhibit 2-1 on the following page,
and summarized below (and presented in more detail in Appendix A). In addition, several documents are
available from EPA that  further describe the requirements of the CAAA.  These include:

       •      "Implementation Strategy for  the  Clean Air Act Amendments of 1990," EPA
              Office of Air and Radiation, January 15, 1991,  which includes timelines for the
              requirements of each title of the act.

       •      "Clean Air Act Amendments of 1990:  Detailed Summary of Titles," EPA Office
              of Air and Radiation, November 30, 1990.

       •      "The Clean Air Act Amendments of 1990:  Summary Materials," EPA Office of
              Air and Radiation, November  15, 1990.

SUMMARY  OF MAJOR REQUIREMENTS

Title I (Nonattainment)

       Title I revises Clean Air Act requirements for attaining  and maintaining national ambient air
quality standards (NAAQS).  Key provisions of the Title I  are aimed at bringing cities  and other areas
which are  not in attainment in line with ozone, carbon monoxide (CO), and particulate matter (PM-10)
standards.  Title I also stipulates national measures to be taken in all  regions regardless of attainment
classification. These national measures address, among other things, emissions of ozone precursors from
consumer solvents and architectural coatings, hazardous  waste treatment, storage and disposal facilities
(TSDFs), municipal solid waste landfills, and marine vessel loading and unloading. Note that regulatory
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                                        EXHIBIT  2-1
          SUMMARY OF  CLEAN Am ACT AMENDMENT REQUIREMENTS^
                                                               Stinanary of Requirements
 Title I (Nonattainment)
                                 Ozone (1993-2010)
                     Carbon Monoxide (1995 & 2000)
                     Paniculate Matter (1994 & 2001)
Technological control requirements for major
sources; emission offset requirements at new/mod-
ified sources; enhanced motor vehicle inspection
and maintenance; stage II controls (systems to
capture evaporative emissions at service stations);
transportation control programs; and clean fuels/
advanced controls; mandatory sanctions
 Title II (Mobile Sources)
            Reformulated Gasoline (beginning in  1995)
              Oxygenated Fuels (beginning Nov.  1992)
                           Fleet Program (1988-2001)
   California Pilot Program (Model Years 1996 &  1999)
                      Tier  I Tailpipe Std. (1994-1998)
Reformulated gasoline in 9 urban areas (classified
as severe or extreme ozone nonattainment areas);
oxygenated fuels in 40 CO nonattainment areas;
tailpipe emission standards; and clean fueled vehi-
cle programs
 Title III (Air Toxics)
                          Major Sources (1992-2003)
                           Area Sources (1992-2003)
                          Accidental Releases (1993)
Technological requirements and health based stan-
dards (if necessary) for major sources; reduction
requirements at area sources; and development of
plans to prevent,  detect, and respond to accidental
releases of toxic air pollutants
 Title IV (Acid Rain)
              Sulfur Dioxide Provisions (1995 & 2000)
             Nitrogen Oxide Provisions (1995 & 2000)
                 Emissions Monitoring (1993 & 1995)
SO2 control program:  SO2 reductions required at
affected sources in two phases, with allowance
trading and banking allowed; NOX control pro-
gram:  required NOX controls at sources affected
under SO2 control program; and emissions moni-
toring: continuous emissions monitors required at
sources affected under the SO2 control program
 Title VI (Stratospheric Ozone)
                 Production Phase-Outs (2000 & 2030)
               Recovery and Recycling (1992 & 1994)
                Motor Vehicle Air Conditioners (1992)
 Product Labeling, and Nonessential Product Ban (1992)
Production of CFCs, 3 halons, carbon tetrachloride,
methyl chloroform, (Class I substances) and
HCFCs (Class II substances) to be phased-out;
standards regarding use and disposal of Class I
substances during service, repair, or disposal of
appliances and industrial process refrigeration;
standards for safe disposal of class I and II sub-
stances; regulations for the servicing of motor
vehicle air conditioners; and product labeling and
banning certain non-essential products.
       For more detail on the requirements and their timing, see Appendix A.
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authority for TSDFs comes under RCRA.  However, it is included here because its control will affect a
region's attainment status.

       Schedules  for attaining the ozone (precursors include volatile organic compounds and NOX)
standard  are over  the 1993-2010 period;  CO attainment is required  by 1995  and  2000; and  PM-10
attainment  is required by  1994 and 2001  (see  Appendix  A for precise deadlines by  nonattainment
classification).  In  some instances, extensions from these attainment dates may be available.  To reach
attainment, mandatory requirements will include tighter controls (e.g., installation of additional pollution
controls) at existing and new stationary sources.-^7 Other Title I provisions require emission reductions
from mobile sources.

       Beyond these technology-based requirements, Title 1 requires that areas not in attainment with the
above noted standards, demonstrate "steady progress" toward attainment. To accomplish this, some areas
will go beyond mandatory requirements. The exact nature of additional controls required on sources of
emissions is determined by the present level of severity of the nonattainment problem in each area of the
country.  Areas defined by EPA as having  more severe air pollution are required to apply more controls
than areas  defined as having less severe problems.   (Areas not in  attainment  with ozone,  CO,  or
paniculate  matter standards are presented in Appendix A.)

Title II (Mobile Sources)

       Title II of the Clean Air  Act Amendments, which  supplements the requirements under Title I
takes a threefold approach to controlling emissions from mobile sources.  This approach  consists of:

       •       Stricter  controls  on  emissions,  including tailpipe,  evaporative,  or
               refueling,  applicable  to both conventional and clean fuel  vehicles.  In
               addition,  more equipment on cars to diagnose  emission problems is
               required beginning in model year 1995 (e.g., on-board emission systems
               diagnostic equipment).  Also  required are tighter particulate emission
               standards  for buses beginning model  year  1993, and  certain centrally
               fueled fleets must meet more stringent standards beginning in 1998 for
               CO, NOX, particulate  matter, and non-methane  hydrocarbons (NMHC)
               emissions.

       •       Changing  the specifications of existing fuels to reduce  the level  of
               evaporative and combustion emissions (oxygenated gasoline requirements
               begin  in 1992 and reformulated gasoline requirements  in 1995)^;
-      Examples of major stationary source categories to be regulated include industrial processes (e.g.,
       chemical, food  and agricultural, mineral  processes,  metal processes and  wood and paper);
       petroleum processing, storage and transfer (e.g., oil  and gas extraction, and petroleum refining);
       and solvent use (e.g., degreasing, architectural coating, asphalt paving, and industrial solvent use)
       to name but a few.

-      Gasoline is supplemented with oxygen boosting  additives such as ethanol (corn alcohol),  and
       MTBE  (methyl  tertiary butyl ether) to  make  oxygenated gasoline which reduces  carbon
       monoxide.  Reformulated gasoline  is made by modifying conventional refining techniques to
                                                                                    (continued...)
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       •       Requiring the  use  of 'clean fuels' and clean fuel  vehicles (e.g., com-
               pressed natural gas, methanol, ethanol, liquid propane gas, reformulated
               gasoline, and electric) for both fleets (in some nonattainment regions)
               and private vehicles (in California) beginning in 1998.

       Some of the requirements apply on a nationwide basis.  However, in general, most apply to the
CO and ozone nonattainment areas of the country.  Some of these requirements apply on a year round
basis, while others apply during only part of the year.

       Title II is very complex.  Not only does it mandate various controls aimed at reducing emissions
from mobile sources, it contains provisions for both opting into programs and opting out of them under
certain circumstances. These opt-in/opt-out provisions apply to the CO and ozone control programs and
are discussed in more detail in Chapter III.

Title III (Air Toxics)

       Title III will  expand the  control of hazardous air pollutants and require  numerous industrial
sources to control for the first time.  First, Title III requires nationwide reductions  in routine emissions
from  stationary  sources  of 189  specifically listed hazardous  air  pollutants  (see  Appendix A).   The
provisions require the initial application of maximum achievable control technology (MACT) to all "major
sources." Under the area source program, EPA must set standards to cover at least 90 percent of the area
sources of the most toxic hazardous air pollutants in urban areas.   Major sources  are defined as those
releasing more than 10 tons per year of a listed pollutant or 25 tons per year of any combination of listed
pollutants.  Area sources, which are defined as those sources which  are not major, are generally smaller
and more numerous than major sources.

       Emission standards are to be promulgated according to  the  following  schedule:  40  source
categories in 1992, 25 percent  of all listed source categories in 1994, another 25 percent in 1997, and the
remainder in 2000.  Following study by EPA and the National Academy of Sciences, and  no later than
8 years after promulgation of any MACT standard, EPA also is required to promulgate standards to
reduce the risks remaining after application of MACT to achieve an "ample margin of safety to protect
the public  health."  In  addition,  EPA  must implement by  1999  a national strategy  for controlling
emissions of hazardous air pollutants from area sources in urban areas.

       Title III also contains  provisions requiring specific facilities to put in place procedures for the
detection, prevention, and minimization of accidental releases  of air toxics.   EPA  will list at least 100
extremely hazardous substances and threshold quantities  of those substances.  Facilities with threshold
amounts of these substances will have to conduct hazard assessments and implement programs to prevent
accidental releases and develop programs that provide for specific actions to be taken in the case of an
accidental release.

       Title III also  contains provisions to assess the extent of deposition of air toxics  in the  Great
Lakes, Chesapeake Bay,  Lake  Champlain, and coastal waters.
-'(...continued)
        produce a cleaner burning gasoline which result in lower volatile organic compounds and less
        ozone and less air toxics.  Increased oxygenate content  will  also be part  of the gasoline
        reformulation.
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Title IV (Acid Rain)

       Title IV requires electric utilities to achieve a reduction of approximately 10 million tons of SO2
emissions below 1980 levels and, in combination with other provisions of the Act, approximately a 2
million ton reduction of NOX emissions.  Title IV establishes  a two  phase  SO2 emission allowance
allocation and trading system and NOX limits to achieve the reductions.

       In Phase I (beginning in 1995) 110 powerplants with units having nameplate capacity greater than
100 megawatts and  1985 SO2 emission rate  greater than 2.5  Ibs. per million British thermal units
(mmBtu) are required to reduce their SO2 emissions to  an "allowance" level based on a 2.5 Ib. SO2 per
mmBtu  emission rate multiplied  by baseline  (1985-1987 average) fuel consumption.   An allowance
represents the right to emit one ton of SO2 emissions.  This effectively reduces SO2 emissions by about
3-4 million tons annually in Phase I.  SO2 allowances may be transferred between units, bought, sold, or
banked (i.e., saved) for use in later years. Most units "affected" in Phase I are also required to meet NOX
limits.

       In Phase II  (beginning in  2000), all utility units with  nameplate capacity  greater than 25
megawatts are  affected, annual allowance allocations are capped at about 9.5 million tons,  and new
sources are required to offset their SO2 emissions (i.e., purchase allowances/obtain reductions from other
sources). In Phase II, affected units are generally allocated allowances based on a 1.2 Ib. SO2 per mmBtu
emission rate (or less) multiplied by baseline fuel.  Most units affected in Phase II are required to meet
NOX limits.

       Additionally,  other  Title  IV  provisions (1)  require the installation  of continuous  emissions
monitors, (2)  allow other non-utility sources to "opt-in" to the system to sell SO2 allowances generated
through emissions controls,  (3) provide extra  allowances for units installing  90 percent removal SO2
control technologies  in Phase I, and  "clean coal" repowering technologies in Phase II, and (4) provide
extra  allowances for  qualifying conservation and renewable energy measures.

Title VI (Stratospheric Ozone)

       Title VI provisions are designed to protect the stratospheric ozone layer  and follow and strengthen
the provisions of the Montreal Protocol (the international treaty signed to address stratospheric ozone
depletion). To accomplish this, the production of chlorofluorocarbons, three halons, carbon tetrachloride,
and methyl chloroform (class I substances) will be phased out by 2000 (2002 for methyl chloroform).
Production and consumption of hydrochlorofluorocarbons (class II substances) will be  frozen by 2015
with complete  phaseout by  2030.  EPA will  implement a national recycling and emission reduction
program  (effective mid-1992 for  class I and class II substances  in air conditioning and refrigeration
sectors and 1994 for the remaining sectors) in  which regulations will be promulgated regarding the use
and disposal of class I and class II substances during the service, repair, or disposal of appliances and
industrial process refrigeration.  EPA will also  promulgate regulations by early 1992 for the servicing of
motor vehicle air conditioners, as well  as regulations  requiring product labeling and banning  certain
nonessential products.
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     CHAPTER HI
  Increased Demand for
Pollution Control Services

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               what type of new testing equipment or equipment modifications would
               be needed.  Related to reformulated and oxygenated fuel requirements,
               existing   pipeline,  truck,  and rail  infrastructure could  be  strained.
               Opportunities will exist to  meet these new infrastructure  demands.
               However, too much uncertainty exists to provide meaningful  estimates.
               It is also possible that some relatively small opportunities (at least in the
               near term) will exist for the development of alternatively fueled vehicles,
               compressed natural gas stations, and vehicle conversions.

               Title III  - Title III requires that for at least 100 air toxic chemicals  (16
               are currently listed and EPA must identify at least 84 more), plans to
               prevent and detect accidental releases be developed.  This  will result in
               some business opportunities for emissions monitoring and leak detection
               equipment.   However, because  revenue estimates are  for  only   16
               chemicals, the estimated increase  has been underestimated.

               Title IV  -  Estimates  of  revenue increases  associated with  Title  IV
               requirements cover virtually all the major control strategies.  However,
               some additional opportunities may exist for certain industrial sources that
               may  be  able  to  "opt-in"  to  the  acid rain program  and sell  emission
               allowances, and a number of companies could earn brokerage fees  for
               emission allowance trades. Sales revenue estimates associated with these
               two opportunity areas were not developed for this report.  They are likely
               to be much smaller in magnitude than the air pollution control equipment
               and clean fuel industry impacts.

               Title VI - Techniques and technologies  to reduce the  use and recycle
               CFCs have been actively used in a wide variety of industries. The motor
               vehicle industry  has been a major  proponent of the process of CFC
               recycling for many years.   Major U.S. electronics companies have
               announced plans to phase-out the use of CFCs in the early 1990s through
               the use  of currently available substitutes and  innovative production
               procedures. While substitute chemicals may  not be available for every
               end use  at this  time, chemical  manufacturers  have invested in new
               production plants for substitute chemicals as well as continuing vigorous
               research.  However, it is unclear what control techniques and technol-
               ogies will ultimately be developed and used (e.g., product reformulation
               versus add-on controls).  Therefore,  there is a good deal of uncertainty
               about the magnitude of business opportunities that will be created. As a
               result, the revenue  estimates presented  are  incomplete and  probably
               conservative.  For example, estimates of the amount of revenue increase
               for companies that will develop  and manufacture some of these new
               techniques and technologies  have not been developed.  Also, there is
               likely to  be a revenue transfer within generally the same companies.
               Gross revenue increases associated with new demands for HCFCs  (which
               will directly offset CFC production)  were not included.
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       In addition to some of the unquantified opportunities for traditional "command and control"
services, there could also be significant growth opportunities for air pollution prevention techniques such
as product reformulation and process modifications.  However, these techniques are in most cases  not
very well understood and their potential market penetration is unknown.  Revenues corresponding to the
installation of air pollution control technology  are much better understood.  As a result, the estimates
provided herein correspond in most cases (except for growth opportunities for producers of alternative and
cleaner burning fuels such  as natural gas, low sulfur coal, and reformulated and oxygenated gasoline) to
the installation  of air pollution  control  technologies.  Pollution prevention opportunities are discussed
qualitatively in several sections of this chapter and in several case studies in this chapter and Chapter IV.
Note that the degree that sources required to lower their air pollution emissions are successful in altering
manufacturing processes, substituting away from toxic input chemicals or other pollutants,  and preventing
rather than controlling pollution, the revenues earned by firms selling pollution controls will decrease.
For example, the case study discussed below illustrates how one company's  transportation control
planning can result in significant reductions in pollution without the advent  of potentially more costly
add-on equipment.
             Transportation Control Measures To Prevent Pollution
  Domino's Pizza Distribution Corporation, headquartered in Ann Arbor, Michigan, is responsible for
  product handling and delivery to all Domino's Pizza stores.  With 41 distribution centers in North
  America delivering pizza dough and other food products, they must employ a large  fleet of delivery
  trucks which produce NOX, CO and hydrocarbon emissions.

  In  June 1990,  Domino's  became  a signatory  to  the Valdez Principles, promising to  exercise
  environmental consciousness in all of their business practices. As a result, they have implemented a
  number of environmental programs, including a computerized truck routing system.  The computer-
  ized truck  routing program determines the most fuel efficient routes for delivery trucks.  Inputs to
  the program include latitudinal and longitudinal coordinates of each store, vehicle capacity, expected
  driver productivity, expected road speeds, DOT regulations, and loading and delivery times.

  The computerized truck-routing system generates a 5-15 percent reduction annually in vehicle miles
  traveled (about 750,000 miles annually).  With a current fleet average of 6.4 MPG that is equivalent
  to a savings of 109,375 gallons of diesel fuel each year and a reduction of about 2.4 tons (HC),  10.8
  tons  (CO), and  16.1 tons (NOX) emissions  per year.  The  cost  of the  software is  $6,000  per
  application and requires the use of a high speed IBM compatible personal computer.  On-site training
  to use the program takes a week.

  Domino's has made some adjustments to the software for the computerized truck-routing program to
  meet their  specific activities and needs, but in general, this software can be used by other distributors
  utilizing fleets making multiple stops.  Specific examples of activities in which this program could
  make substantial savings in fuel expenditures and emissions reductions include Federal Express and
  other overnight  delivery services, dairy product distributors, and other fast food restaurant suppliers.
  Domino's  driver education program is also something that could be implemented with ease, requires
  minimal investment, and could help maximize fuel efficiency, and minimize idling emissions.
Summary of Opportunities
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       The types and timing of business opportunities that will develop as a result of the CAAA will
vary, but in general fit into four general categories described below.  The types of business opportunities
by title are summarized in Exhibit 3-1.

       •       Air Pollution Control Equipment - Design, manufacture and construction
               of air pollution control equipment such as scrubbers for SO2 and/or air
               toxics, electrostatic precipitators for particulates, baghouses for air toxics
               and/or particulates, incinerators and carbon adsorbers for ozone precur-
               sors;  process change and containment units for CO; catalytic emission
               reduction systems for ozone precursors at both stationary and mobile
               sources;  on-board diagnostic systems for motor vehicles,  and  CFC
               recycling and recovery equipment.

       •       Engineering, Design and Construction - On-site design  and engineering
               of air pollution control devices; field process engineering; and design and
               construction of new plants  such  as  HCFC  production  facilities and
               MTBE production facilities.

       •       Cleaner  Burning and  Alternative Fuels  - Companies  involved in the
               production and development of cleaner burning and alternative fuels such
               as natural gas, low sulfur coal, reformulated gasoline, and fuel oxygen-
               ates such as ethanol,  methanol, and  methyl tertiary butyl ether (MTBE) -
               a natural gas derivative.

       •       Instrumentations and Emissions Monitoring - To  a less significant degree,
               the design, manufacture and construction of  equipment to  monitor,
               inspect,  and maintain emission control systems (Title III and Title IV
               requirements), and enhanced motor vehicle inspection and maintenance
               equipment.

SUMMARY OF REVENUE INCREASES

       With some overlap, the types of growth opportunities and the specific companies benefiting from
the CAAA will vary  from title-to-title (see Exhibit 3-2).  Cumulative revenues are expected to increase
about $50-70 (in 1990  $) billion during 1992-2000.   Sales  associated  with increased demand for
stationary source air pollution control equipment are expected  to be higher on average by about $2.3-3.4
billion (in 1990 $) annually during the 1992-1995 period, and about $4.2-5.8 billion (in 1990 $) higher
on  an average  annual basis during  the  1996-2000 period (see Exhibit 4-2  and Chapter IV for more
discussion). This is a rather large increase compared to current sales in the traditional stationary source
air  pollution control equipment industry estimated  at $2.0-5.4 billion (in 1990 $) (discussed in Chapter
I and Chapter IV) i7

       However, a significant portion of this growth will accrue to companies not part of the traditional
air pollution control equipment industry.  Taking into account the base sales for companies not part of the
-      The increase in "average annual revenues" referred to throughout this report are always presented
       in 1990 $.  Including the effects of inflation, future year revenue increases (i.e., stated in nominal
       $ or current year $) rather than 1990 $ will be higher.
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                                         EXHIBIT  3-1
SUMMARY OF CLEAN Am ACT AMENDMENT INDUSTRIAL BUSINESS  OPPORTUNITIES
                                                 Industries Affected/Business Opportunities
 Title I (Nonattainment)
                     Ozone (1993-2010)
                     CO (1995 & 2000)
                  PM-10 (1994 & 2001)
Industries Affected:  Air pollution equipment suppliers, A&E
companies, instrument manufacturing, construction companies, oil
companies, producers of oxygenated fuel additives and service
stations
Business Opportunities:  Manufacture, design, development and
construction of technological controls and/or process and product
modifications; production and supply of clean/oxygenated fuels
 Title II (Mobile Sources)
     Reformulated Gasoline (beg. in 1995)
       Oxygenated Fuels (beg. Nov 1992)
              Fleet Program (1998-2001)
    California Pilot Program (Model Years
                            1996-1999)
          Tier I Tailpipe Std. (1994-1998
Industries Affected:  Auto companies, oil companies; producers
of oxygenated fuel additives, refineries, chemical manufacturers,
A&E companies, and automobile parts suppliers
Business Opportunities: Development, production and supply of
reformulated gasoline and oxygenated fuels, and design and
production of clean/alternative fueled vehicles, and parts suppliers
for motor vehicle emission control devices
 Title III (Air Toxics)
             Major Sources (1992-2000)
                    Area Sources (1999)
              Accidental Releases (1993)
Industries Affected:  Air pollution control equipment manufac-
turers, stack testing companies, environmental service firms, and
instrumentation manufacturers
Business Opportunities: Manufacture, production, design, and
construction of air pollution control equipment and process modi-
fications, and development of accidental release plans
 Title IV (Acid Rain)
           SO2 Provisions (1995 & 2000)
           NOX Provisions (1995 & 2030)
     Emissions Monitoring (1993 & 1995)
Industries Affected:  Air pollution equipment suppliers, A&E
companies,  and producers and shippers of low sulfur coal, natural
gas, and lime/limestone
Business Opportunities: Supply, manufacture, design,  and con-
struction  of SO2 and NOX control equipment and CEMs; and the
supply and  transport of low sulfur coal, natural gas, and lime/
limestone
  Title VI (Stratospheric Ozone)
       CFC/HCFC Production Phase-Outs
                           (2000-2030)
    Recycling and Disposal (1992 & 1994)
         Mobile  Air Conditioners (1992)
Industries Affected:  Chemical manufacturers, A&E Companies,
air pollution control equipment manufacturers, and the environ-
mental service industry
Business Opportunities: CFC substitute development and produc-
tion, manufacture, design and construction of CFC recovery and
recycling equipment including leak detection equipment, and
development and production of non-CFC containing product
substitutes
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                                     EXHIBIT 3-2
              Am POLLUTION CONTROL INDUSTRY ESTIMATES OF
                             INCREASED SALES REVENUE
                            (BILLIONS OF 1990 DOLLARS)




Title I: Nonattainment
Title II: Mobile Sources
Title III: Air Toxics
Title IV: Acid Rain
Title VI: Stratospheric Ozone
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air pollution control equipment industry which includes fuel producers (e.g., natural gas and low sulfur
coal) as well as more diversified engineering, design and construction companies, current sales in all of
these market segments are about $88-103 billion (in 1990 $).  Accordingly, the overall percentage rate
of growth is much less than in the stationary source equipment market.  Total sales are expected to be
higher on average by about $4.1-5.8 billion (in 1990 $) annually during the 1992-1995 period, and higher
by about  $6.6-9.2 billion (in 1990 $) annually during the 1996-2000 period. The specific title-by-title
revenue increases are summarized below:

       •      Title I  (Nonattainment) - Due to the Title I requirements, air pollution
              control industry sales revenue is expected to be higher  on  an average
              annual  basis by about $0.8-1.0 billion  (in 1990 $) between 1992 and
              1995 and higher by about $1.0-1.4 billion (in 1990 $) between 1996 and
              2000.  This is a cumulative revenue increase of about $8-11  billion (in
              1990 $) during 1992-2000.  Most of this growth will be associated with
              the  manufacture,  development and  design  of air  pollution  control
              equipment such as incinerators, carbon  adsorption  units  and  scrubbers.
              There will also likely be significant opportunities (not estimated herein)
              for the design and development of motor vehicle inspection and mainte-
              nance (I&M) equipment, and construction and engineering for transporta-
              tion control measures (e.g.,  building of  roads and  new mass  transit
              systems).   Market  segments such as air pollution control equipment
              manufacturers, A&E companies, instrument manufacturers, and construc-
              tion companies  are likely to  grow significantly due to Title I require-
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              ments.   The most  stringent  requirements, and therefore  most of the
              demand for equipment and services will occur in urban areas with the
              most serious air quality problems.

              Title II (Mobile Sources) - Requirements under this title were designed
              to supplement the nonattainment and air toxics titles (Titles I and III).
              Revenues in air pollution control industry are estimated to  be higher on
              average by about $1.0-1.5 billion (in 1990 $) annually during the 1992-
              1995 period and about $1.1-1.4 billion (in 1990 $) annually during the
              1996-2000 period (or  about  $9-13 billion cumulatively during 1992-
              2000). Sales for parts  suppliers of on-board diagnostic equipment, and
              sales for the  oxygenated and reformulated  gasoline industry  (which
              includes  chemical manufacturers, oil companies,  natural gas producers,
              fuel alcohol producers, and grain producers) are likely to grow the most
              as a result of this title.

              Title III  (Air Toxics) - Similar to Title I, demand for the  manufacture,
              supply, design and construction air pollution control equipment will grow
              the most due to Title III.  This will include various types of equipment
              such as baghouses, scrubbers, incinerators, and carbon adsorbers, as well
              as design, reformulation or process changes. There will also be addition-
              al business associated with  the implementation of  plans  to  prevent
              accidental release of air  toxics.  Associated sales are estimated to be
              higher on average by about $1.1-1.4 billion (in 1990 $) annually during
              the  1992-1995 period and higher by about $2.7-3.5 billion (in 1990 $)
              annually during the 1996-2000 period. The cumulative revenue increase
              during 1992-2000 is expected to be about $18-23 billion  (in 1990 $).
              Market segments such as air pollution control equipment manufacturers,
              stack testing companies, environmental service firms, and instrumentation
              manufacturers will likely grow most significantly.

              Title IV (Acid Rain) - Significant opportunities exist for the design,
              manufacture and construction of air pollution control equipment such as
              conventional and advanced flue gas desulfurization (FGD)  technologies,
              NOX control technologies, emissions monitoring equipment, the supply of
              lime/limestone (and perhaps sodium) as a  catalytic  reagent for FGD
              systems, production and  transportation of low sulfur  coals and natural
              gas. Associated air pollution industry sales are estimated to be higher by
              about  $0.8-1.6 billion (in 1990 $) on average  during the  1992-1995
              period and higher by about $2.0-3.0 billion (in 1990 $) during the 1996-
              2000 period (or about $13-21 billion (in  1990 $) cumulatively during
              1992-2000).   Other types  of opportunities could accrue to certain
              industrial sources that "opt-in" to the acid rain program in  order to earn
              and sell  emission allowances, and  companies involved in the brokering
              of emission allowance trades. Revenues of  air pollution control equip-
              ment manufacturers, A&E companies, lime and limestone producers, low
              sulfur coal producers, railroads, natural gas producers and pipelines are
              likely to increase significantly.
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       •      Title VI (Stratospheric Ozone) - Gains will accrue to companies involved
              with the development and manufacture of CFC  recovery and recycling
              equipment for stationary and mobile sources, and for companies offering
              employee training and certification for the operation of CFC  recovery
              and recycling equipment.  Revenues are expected to be higher annually
              by about $0.3  billion  (in 1990  $) on average during  the 1992-1995
              period and higher by about $0.1 billion (in 1990 $) during the 1996-2000
              period, resulting in a cumulative revenue increase of about $2 billion (in
              1990  $)  during  1992-2000.  Revenues for  A&E  and  construction
              companies, air pollution control equipment manufacturers, and environ-
              mental service companies are expected to grow most significantly due to
              Title VI  provisions.

TITLE I (Nonattainment)

INTRODUCTION

       Title I stipulates mandatory measures to require reductions  in ozone, carbon monoxide, and
paniculate matter emissions in nonattainment areas from both stationary and mobile sources.  As a result,
a number of companies such as air pollution control equipment  manufacturers, engineering, design and
construction companies, and instrument manufacturers will have increased sales.  In addition to the
mandatory requirements, there are "steady progress" requirements which will force certain regions that are
unable to demonstrate steady progress toward attainment to apply additional controls.

       Title I stationary source provisions require reductions in ozone precursors (i.e., volatile organic
compounds  and  nitrogen oxide),  carbon  monoxide  (CO), and  particulate  matter.   However, CO
nonattainment  areas are much  more likely to  achieve CO emission reductions through mobile source
controls (which are covered in the mobile source section in this  chapter), and stationary source controls
in particulate matter nonattainment regions will likely be limited because there are substantially fewer
moderate, and serious particulate matter nonattainment regions.  Therefore,  the vast majority of the
growth opportunities for stationary source air pollution control equipment manufacturers will result from
the stationary source ozone requirements stipulated in Title I. There are three relevant Title I programs—
(1) national measures,  (2) VOC and NOX reasonably available control technology (RACT) guidelines, and
(3) RACT stipulated through control technology guidelines (CTGs).

       •      National Measures - Regardless of nonattainment  classification,  certain
              types of sources are required to achieve reductions in VOCs.  National
              measures are stipulated for  (1) consumer solvents (e.g.,  VOC content
              limits  for underarm products, hairsprays and laundry  detergent),  (2)
              treatment, storage, and disposal facilities (e.g., processes or equipment to
              reduce total organic emissions from equipment leaks, and process vents,
              storage tanks, containers, and surface impoundments), (3) municipal solid
              waste  landfills  (e.g., gas collection systems and open flare combustion
              systems  to reduce non-methane organic gas emissions), and (4)  marine
              vessel loading and unloading (e.g., incinerators, and carbon adsorption to
              reduce associated VOC emissions).
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       •      Non-CTG RACT - Major stationary sources in moderate, serious, severe,
              and extreme ozone nonattainment areas, which are not covered by a CTG
              RACT, will  be  required to install  RACT to  reduce  VOC and NOX
              emissions.  VOC and NOX RACT will be promulgated by Ihe individual
              states affected.

       •      CTG RACT - CTGs are issued by EPA and are considered the presump-
              tive  norm  for when  states develop their  own regulations for these
              categories.   EPA is currently developing RACT guidelines  for certain
              source categories (eleven CTGs  are under development currently—see
              below).  All sources  covered by a CTG and  located in a moderate,
              serious, severe, or extreme  ozone nonattainment region are required to
              install  RACT.

       Mobile source provisions in Title I require controls to recapture evaporative emissions during
refueling at service stations (Stage II controls), and require  consideration of transportation control
measures (e.g., possibly mass transit systems or high occupancy vehicle lanes) which are covered in this
section.  Note that  there are additional  mobile source  provisions covered in Title II of the CAAA
including motor vehicle emissions controls such as reformulated and oxygenated gasoline, stricter tailpipe
emission standards,  and  clean fuels and  clean fueled  vehicles (e.g., compressed natural  gas vehicles,
methanol vehicles).  The effects  of these Title II provisions are covered in the next section.

       Stationary source requirements will lead to new business opportunities for companies that design,
construct and supply stationary source controls such as covers, carbon absorbers, incinerators, flares, and
for product reformulation.  Mobile source requirements in Title I will lead to new business opportunities
for companies that manufacture, design and construct Stage II evaporative controls for service stations.
These opportunities  are summarized in Exhibit 3-3.

REVENUE ESTIMATES AND TIMING

       Revenue estimates  associated with Title I provisions  were developed by E.H. Pechan and
Associates and are largely based on EPA commissioned studies.  A number of key analytic assumptions
were made in these  studies.  See Appendix  B for a discussion of study methodology and assumptions.

Air Pollution Control Equipment  Manufacturers

       In total, air pollution control equipment manufacturers are estimated to have higher revenues due
to the Title I requirements on average by about $0.8-1.0 billion (in 1990 $) annually  during the 1992-
1995 period, and by  about $1.0-1.4 billion (in 1990 $) annually during the 1996-2000 period (see Exhibit
3-4).  Most of this  growth will  be  due to  (1) the national measures addressing municipal solid waste
landfills, marine  vessel loading and  unloading, and TSDFs, (2) the  CTG RACT requirements addressing
industrial wastewater treatment, (3) the NOX and VOC RACT requirements, (4) the Stage II Controls, and
(5) CTG RACT requirements addressing offset lithography, and (6)  CTG RACT for autobody refinishing.
Revenue estimates presented herein ;ire based on total capital cost of the different types  of equipment
required, and the number of facilities  assumed to need controls. Revenue estimates associated with the
remaining eight CTG RACT categories are either very small, or not available because the CTG is not yet
sufficiently developed or the equipment costs are uncertain.
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                                  EXHIBIT 3-3
               TITLE I:  NONATTAINMENT BUSINESS OPPORTUNITIES
  General Requirements
    Business Opportunities
  Major Stationary Sources

       (RACT/BACT)
  Motor Vehicles:

   t Enhanced I  & M

   m Stage II Controls

   • Transportation Control
     Programs
  Air Pollution Equipment Industry
                                                            Instrumentation and
                                                           Emissions Monitoring
Engineering, Design and Construction
busop|Acmli\Doiutt2.dr»
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    New Commercial Opportunities for Surfactants to Reduce Air Emis-
 sions

 Surfactants (surface active agents)  are relatively common process chemicals that have been used
 routinely in foods, medicine, laundry detergents, petroleum drilling muds and ore processing agents
 for their detergent, emulsifying, foaming and dispersing properties.  New commercial opportunities
 for surfactants in controlling air emissions have recently surfaced.

         •      The Nalco  Automotive  Group in Detroit,  Michigan has developed  an
               innovative method for controlling emissions of volatile organic compounds (or
               VOCs which are ozone emission precursors  regulated under Title I of  the
               CAAA) during their automotive spray-painting operations. Nalco's Hydrocar-
               bon Emission Control (HEC) process uses surfactants to form an oil-in-water
               emulsion in the paint  spray  booth's water recirculation system  in which
               fugitive VOCs are solubilized and removed from the oil-in-water emulsion.

         •      The Nalco Chemical Company in Naperville, Illinois has marketed
               surfactant compounds that are now being used in some wet-limestone
               scrubbing systems to increase removal efficiencies.  These surfactants,
               promote the desulfurization  reaction  of the  scrubber  system by
               increasing  the  dissolution  rate of the limestone wet slurry  (the
               scrubber system's catalytic reagent).  It is reported that use of  2 to
               200 ppm of the surfactants  in the limestone slurry  can  enhance
               scrubbing efficiency by up to 30 percent in some systems.
       National Measures

       National measures include provisions to control VOC emissions from consumer solvents and
architectural coatings, hazardous waste TSDFS, municipal solid waste landfills, and  marine vessels
loading and unloading. Authority for regulating TSDFs does not come from Title I of the  CAAA; TSDFs
are regulated under RCRA. However, because controls on TSDFs will affect a region's attainment status,
associated revenue increase estimates for the air pollution control equipment industry are included herein.
In sum, national measures are estimated to result in higher average revenues of about $0.6-0.8 billion (in
1990 $) annually during the 1992-1995 period and $0.8-1.1 billion (in 1990 $) annually during the 1996-
2000 period. Requirements addressing municipal landfills are expected to generate the  most revenues for
the air pollution control equipment industry, followed by marine vessel  loading and  unloading, and
TSDFs.  Requirements addressing consumer solvents are expected to be met by reformulating existing
products. Business opportunities may exist for laboratories developing alternative solvents, but associated
revenues are uncertain.

       •      Municipal  Landfills - The proposed rule and guideline for municipal
              solid waste landfills was published in the Federal Register on May 30,
              1991. Affected landfills will  be required to install gas collection systems
              followed by  combustion (open flare) systems.   In 1987, there  were
              approximately 6000 active municipal solid waste landfills. About 540  to
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                                      EXHIBIT 3-4
          TITLE I:  NONATTAINMENT REVENUE INCREASE ESTIMATES
Air Pollution Control Equipment Industry

                    NOX and VOC RACT
                         Stage II Controls
                              New CTGs
                       National Measures
                   Progress Requirements

                                   Total
                                                    0.1-0.2
                                                    0.6-0.8
                                                     N.A.
                0.1-0.2
                0.8-1.1
                  N.A.
              600  of these landfills require emission controls. In addition, at least an
              estimated 940  new landfills will be built prior to 2000  also requiring
              controls.   Revenues for manufacturers of gas collection systems and
              combustion systems are estimated to be higher on average by about $0.5-
              0.6 billion (in 1990 $) annually during the 1992-2000 period.

              Marine Vessels - Proposal of the marine vessel  rule,  which affects
              emissions when loading and unloading at terminals, is scheduled for late
              1991, with promulgation in late  1992.   The  likely revenue growth
              opportunities will be for manufacturers  of incinerators and carbon
              adsorption equipment.  The magnitude of these revenues will vary greatly
              depending on the facility size cut off chosen by EPA.  Revenues could
              be higher  on average by less than $0.1  billion (in  1990 $)  annually
              during the 1992-2000 period to as  much as $0.3-0.4 billion (in 1990 $)
              annually during the 1992-2000 period.  On the high end of this  estimate,
              controls would be required at approximately  1750 marine vessel termi-
              nals; on the low end only about 10 terminals would require controls.

              Treatment. Storage, and Disposal Facilities (TSDFs) - Rules for hazard-
              ous waste TSDFs (i.e., facilities that process hazardous wastes from
              many sources) to control  emissions from equipment leaks and process
              vents are to be implemented in two  phases. The Phase I rule has already
              been established, and the Phase II rule is to be promulgated in  1991. In
              sum, revenues associated with  TSDF  requirements are expected to be
              higher on average by about $0.1 billion (in 1990 $) annually during the
              1992-2000 period.
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              —     The Phase  I rule will  create growth opportunities for manu-
                     facturers of equipment such as condensers,  carbon adsorbers,
                     incinerators, or flares.  Also, affected compressors must have a
                     dual mechanical seal system (i.e., better seal  system to prevent
                     leaks from process vents).  The increase in revenue is estimated
                     to be higher on average by less than $0.1 billion annually during
                     the  1992-2000 period.  An estimated 450  facilities  will  be
                     subject to the new standards. Additionally, monthly monitoring
                     for equipment leaks will be required.  Of the estimated 2,300
                     TSDFs nationwide, 1,400 facilities are expected to be subject to
                     the equipment leak standards.

              —     The Phase II rule, will control emissions from tanks, containers,
                     and surface impoundments.  The rule will affect an estimated
                     2,300 TSDFs.  The proposed rule also requires generators with
                     90 day accumulation tanks (tanks holding waste for a period of
                     90 days or more) to install controls in order to retain RCRA
                     Permit exempt status.   An estimated 7,200 generators will be
                     affected.   Controls specified for the Phase II  rule are covers
                     vented to a 95 percent destruction device such as incinerators or
                     carbon adsorbers.  Revenues for equipment  manufacturers  are
                     estimated to be higher on average by about $0.1 billion annually
                     during the 1992-2000 period.   VOC emissions  from these
                     sources  are expected  to  be reduced  by  about  1.7  million
                     megagrams from a baseline of 1.8 million megagrams.

              Consumer Solvents - A consumer products study is slated to be complet-
              ed in 1993. Groups of consumer products will then be regulated ~  the
              first 25 percent completed in late 1995,  and 25 percent more every two
              years, with completion in late 2001. Consumer solvent regulations  are
              expected to be in the form of VOC content limits for various groups of
              products (i.e., underann products, hair sprays, laundry detergents). These
              limits will be met by reformulating the existing products (some products
              will also be eliminated such as spray deodorants). Existing manufactur-
              ers will  alter the formulation of existing  products  to meet the new
              standards.  Costs to the manufacturer may include research and develop-
              ment and the purchase of alternative solvents.   Business opportunities
              may  exist  for  laboratories developing alternative  solvents  and  the
              producers  of these solvents.   However, there is a large degree of
              uncertainty surrounding the development of these alternatives.
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       Industrial Wastewater Treatment CTG

       The CTG which  defines RACT for industrial  wastewater is expected to be a treatment type
standard.  Steam stripping is the recommended control option.-7  This will require the purchase of a
steam stripping column, auxiliary feed tank, primary condenser, and a refrigerated condenser.  Some
vendors may sell this as a package but many facilities will purchase the equipment separately.  Sources
in four industries (organic chemicals, plastics, and synthetic fibers manufacturing industry, the pesticides
manufacturing, Pharmaceuticals manufacturing, and hazardous waste TSDFs) are expected to be affected.
There were about 3500 sources in these four industries in 1982. This analysis assumes that about half of
these industries would be  required to install controls.  A very rough estimate indicates that revenues will
be higher for equipment vendors on average by about  $0.1-0.2 bilb'on (in  1990 $)  annually during the
1992-2000 period.

       Non-CTG RACT Controls

       There will be growth opportunities for air pollution control equipment manufacturers associated
with the  application of RACT to control VOC and  NOX emissions in moderate, serious, severe, and
extreme ozone nonattainment areas.  The pre-1990 EPA policy mandated RACT at major sources, those
emitting  more than  100 tons VOC per year.   Title  1  redefines major sources in serious, severe, and
extreme ozone  nonattainment areas, thereby requiring  RACT on  smaller sources in those areas.  The
RACT requirements of the  new Act extend to NOX as well as  VOCs.   However, a rough  estimate
indicates that average revenues will be higher by about $0.1 billion (in 1990 $) annually during the 1992-
1995 period, and by less  than $0.1 billion (in  1990  $) annually  during the 1996-2000 period.^  Note
that there is presently  an inadequate inventory of the smaller size  sources that will be affected.  To the
degree that the inventory  upon which this estimate is based is underestimated, the revenues accruing to
pollution control firms as a result of the application of RACT could increase beyond what is estimated
here.

       In addition to  RACT controls on all major stationary sources in nonattainment areas, RACT to
control NOX is mandated in a special ozone transport region  for sources emitting more than 100 tons of
NOX per year.-7  Revenues for air pollution control equipment manufacturers are estimated to be  higher
on average by about $0.1 billion (in 1990 $) annually during the 1992-1995 period. Sources are expected
to purchase these controls by 1995.

       Stationary source  categories required to install RACT for NOX include industrial boilers, internal
combustion engines, gas turbines, and process heaters.  Estimates  for NOX controls from electric utility
sources are included in the Title IV discussion in this chapter. Types of sources required to apply RACT
for  VOCs include those  that manufacture  or  use the following:  ethylene  oxide,  synthetic organic
-      Steam stripping is a process used to reduce the organic content of the waste stream before the
       stream comes in contact with the air.  This process separates VOCs from the rest of the waste
       stream.

-      Existing sources are required to have NOX controls installed prior to 1995.

-      The following states comprise the special ozone transport region: Connecticut, Delaware, Maine,
       Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island,
       Vermont, and the District of Columbia.
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manufacturing  chemical  industry  (SOCMI)  fugitives,  cellulose  acetate,  styrene-butadiene rubber,
polypropylene manufacture, polyethylene manufacture, ethylene, carbon black, paper surface coating,
miscellaneous surface coating, coke ovens (door and topside leaks), coke oven by-product plants, and
aircraft surface coating.

       Stage II Controls

       Title  I  requires stage II vehicle refueling controls in moderate, serious, severe,  and extreme
nonattainment areas.  States where stage II controls are required must adopt regulations by the end of
1992. Some of the covered areas already have stage II controls (e.g., Washington, D.C.; St. Louis, MO;
New Jersey;  the New York metropolitan  area; and most of California).  Revenue estimates are not
included  for  these regions.  There are several  refueling  systems designed for this purpose currently
certified for use in California.  Total  revenue to the manufacturers of such systems are estimated to be
higher by about $0.2 billion (in 1990 $) by  the end of 1992 for controls at existing service stations. Less
significant  growth opportunities (not estimated herein) would be associated with supplying refueling
controls to  new service stations.  The  average cost of a Stage  II system is estimated to be about $12,200
(in 1990 $) at a typical  service station.  Starting  from a  population of about 100,000 existing service
stations, about 15 percent are expected to fall within nonattainment regions, and be required to install an
evaporative control system.

       Offset Lithography CTG

       Development of RACT for offset lithography (i.e., process of printing from a plane surface on
which the image to be printed is ink  receptive  and the blank area is ink repellant) is in the draft stage.
However, recommendations for RACT include: (1) condenser filters with carbon for dryer  exhaust from
heatset inks,  (2) decreased alcohol content and magnets for  fountain solutions from web printing and
sheetfed facilities, (3) no additional control for newspaper printing facilities, and (4) nontoxic cleaning
solutions with less than 30 percent VOC. Revenues associated with equipment to meet the recommended
RACT standards are estimated to be higher by far less than $0.1  billion annually during the 1992-2000
period.  The  decreased alcohol content of the fountain solutions and the nontoxic cleaning solutions
represent a reformulation or chemical substitute (for which estimates were not developed).

       Autobody Refinishing

       RACT for this category is expected to be defined as the use of reformulated products.  Given the
uncertainty about what reformulation will be necessary,  and whether this will result in new business
opportunities  for manufactures, revenue estimates were not developed. It is however estimated that about
8,405 gun cleaners (i.e., equipment to clean paint spray guns) that recirculate the solvent and about 5945
spray booths (i.e., an enclosure to prevent paint over-spray  from coming in contact with the open air) will
be purchased.  Average  annual revenues associated with these purchases are estimated to  be higher on
average by far less than $0.1 billion (in 1990 $) annually  during the 1992-2000 period.

       Additional Control Technique Guidelines (CTGS)

       There are CTGs that will  determine  RACT for  an  additional  eight categories (not discussed
above). Because there is still a good deal of uncertainty  surrounding what these CTGs will eventually
require and how many  sources will be affected, estimates  of  likely revenue increases  could  not be
developed. A qualitative discussion  about the likely opportunities for air pollution control equipment
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                Process Changes Used to Reduce VOC Emissions

 Ecoprint is a small commercial printer in Maryland specializing in two-and three-color offset printing
 including direct mail packages, newsletters, brochures and booklets. Their major air emissions from
 this print shop are due to VOCs from inks and solvents.

 In March  1991,  Ecoprint signed the Valdez Principles to  publicly commit to practicing sound
 environmental policies.   From the outset, Ecoprint has been  committed to providing the most
 environmentally friendly printing process that  is technologically available.  In an effort to reduce the
 air-polluting emissions from their plant Ecoprint uses low-VOC,  vegetable oil-based inks and citrus-
 based solvents. They have removed isopropyl alcohol from their press solutions and use an alcohol
 substitute.   In addition,  Ecoprint  has  eliminated  1,1,1-Trichloroethane  (a  stratospheric  ozone-
 depleting compound), from its printing processes.

 Ecoprint has achieved an 85  percent reduction in VOCs over the past two years.  In 1989, the plant's
 VOC emissions was 475  Ibs/yr.  Projected emissions for 1991 are 62 pounds or less.   Ecoprint
 reports that although the vegetable oil-based  inks cost as much as 10 percent more than the usual
 petroleum-based inks, they actually enjoy a net savings because less ink is wasted.  The vegetable
 oil-based inks are less likely to "skin" in the can which requires  scraping the can and often leads to
 unnecessary waste.  An added bonus of using  these inks is that they are a renewable resource unlike
 petroleum-based inks. Ecoprint has also found that vegetable oil-based inks print better on recycled
 paper than do petroleum inks.

 The use of well-cared-for,  up-to-date equipment is the primary prerequisite for successfully using the
 alcohol  substitute  and vegetable oil  inks.  According to its president, Roger Telschow,  Ecoprint
 receives  calls almost daily  from other  printers, mostly small plants,  requesting  information  and
 assistance on how to switch to sounder environmental practices.  Telschow actively shares his ideas
 and technology with others and he believes that his  low  VOC printing process can be converted to
 larger scale printing with relative ease.  Telschow notes,  however,  that with such a large number of
 small print shops  in any suburban area,  their  total contribution to  air emissions is not insignificant,
 and he encourages other small printers to follow his  initiative and adopt similar practices.
manufacturers associated with these additional CTGs is presented below.

       •      Synthetic, Organic Chemical Manufacturing Industry (SOCMI) Distilla-
              tion and Reactors - The types of equipment that represent RACT for this
              CTG are flares and incinerators.  Revenue growth for manufacturers is
              expected to be relatively small—probably less than an average of $0.1
              billion (in 1990 $) annually 1992-2000.

       •      Batch Operations - The Batch Processing CTG will cover five industries:
              SOCMI, pharmaceutical, pesticides, paint &  varnish,  and polymers &
              resins. Capital equipment for RACT includes thermal  incinerators with
              scrubbers, flares,  and refrigerated condensers.

       •      Plastic Parts (Business Machines and Other) - The RACT recommenda-
              tion for this category will probably be in the  form of a lower VOC
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              content for coatings.  Some facilities may choose to use higher VOC
              content coatings and install add-on controls such as incinerators, although
              this is not the recommended technique.

       •      Wood Furniture Coating - The development of RACT for this category
              is in the draft stages.

       •      Clean-Up Solvents - The CTG on solvent clean-up operations has not yet
              been defined. EPA is currently developing a concept of a unit operation
              for this category.  Options being considered include keeping the cleaning
              tanks  in the spray  booths  and minimizing  paint usage  to decrease
              cleaning emissions.

              Volatile Organic Liquid (VOL) Storage Tanks - Under this CTG, RACT
              equipment  may include internal floating roofs, seals, and domes (for
              external floating roof tanks).

       Progress  Requirements

       A large portion of the costs associated with the Title I ozone requirements are attributed to
mandated controls (described above).  After applying the mandated controls, each area's progress is
measured against attainment/progress requirements.  The shortfall in meeting these targets is termed
"residual tons". Revenue estimates associated with progress requirements are not available because of the
uncertainty as to  the degree to which the shortfall will be met by motor vehicle, versus stationary source
controls.  Also, the measures implemented to meet the shortfall are likely to differ from area to area. As
discussed above, the amount of revenues resulting from attainment/progress requirements are uncertain,
however the estimated costs associated with these requirements bears some mention here.  EPA estimated
the costs associated with progress requirements  to be $37-185 million (in 1990 $) annually by  1995.

TITLE II (Mobile Sources)

INTRODUCTION

       Title II requires emission reductions from mobile sources in order to reduce carbon monoxide and
ozone  problems  in  CO/ozone nonattainment areas.  As a  result,  there will  be significant growth
opportunities for a variety of companies that supply motor vehicle equipment and parts, and that supply
fuels.  Parts suppliers, chemical manufacturers, A&E companies, oil  companies, natural gas producers,
fuel alcohol producers and grain producers will likely gain as a result  of these provisions (see Exhibit 3-
5).

       Major new changes required  in Title II (e.g., reformulated gasoline requirements, oxygenated fuel
requirements, on-board diagnostic equipment requirements, and tailpipe emission standards), will lead to
new business growth opportunities  which are  estimated and discussed  below.   Title II also codifies
changes that were part of earlier laws and regulations that had already been enacted. These fall into two
categories: (1) diesel fuel specifications, which represent the incorporation of existing regulations, and
(2) changes in the applicable motor  vehicle model year of already announced regulations or standards.
These two regulatory components of Title II have already precipitated changes and investments prior to
the passage of the  CAAA.   Consequently, revenue gains  associated with these provisions  are not
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                                    EXHIBIT 3-5
                 TITLE II: MOBILE SOURCE BUSINESS OPPORTUNITIES
   General Requirements
   Business Opportunities
      Emission Controls
      Fuel Specifications
        Clean Fuels/
     Clean Fuel Vehicles
                                                            Instrumentation and
                                                            Emissions Monitoring
                                                       Air Pollution Equipment Industry
                                                     Engineering, Design and Construction
                                                           Natural Gas Producers
                                                           Fuel Alcohol Producers
                                                              Grain Producers
bu»oppV:nih\mobloppldrw
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attributed to the CAAA and are not included herein.

REVENUE ESTIMATES AND TIMING

       Sales revenues as a result of Title II are estimated to be higher on average by about $1.0-1.5
billion (in 1990 $) annually during the 1992-1995 period, and higher by about $1.1-1.4 billion (in 1990
$) annually during the 1996-2000 period (see Exhibit 3-6).  Title II is very complex and therefore these
estimates should  be viewed  as very approximate.   Complexities and uncertainties associated with
estimating  new business opportunities associated with Title  II  are discussed in more  detail in  the
methodology section in Appendix  B.

       Given the complexity of  Title II, revenue estimates could not be developed for all  relevant
requirements.  Most significantly, the eventual price for MTBE, the oxygenate likely to have the largest
demand increase due to the reformulated gasoline and oxygenated fuel program is highly uncertain. This
is because a significant amount of MTBE capacity is captive to the refineries that use it (i.e., not sold on
the market).  It is likely, given the large demand increase expected, that revenues for merchant MTBE
producers (i.e., produced for sale oa the market) could be significant.-'  However,  due to the price
uncertainty, an estimate of the increase in revenue  for  merchant MTBE production  could  not be
developed.   Also, as noted in the introduction to this chapter, the potential increase in sales of gasoline
to refiners able to supply the  new reformulated and oxygenated gasoline markets where other suppliers
are not able or have chosen not to compete have not been quantified in this report.

       Also, revenues estimates associated with certain other Title II requirements were not developed
because of significant regulatory and market uncertainties.  However, the magnitude of these revenues is
expected to be relatively small.  New motor vehicle inspection and maintenance requirements will result
in more elaborate equipment at motor vehicle emissions testing stations.  This will lead to some relatively
small opportunities  for instrument manufacturers.  However, it is not  clear exactly what type of new
testing equipment or equipment modifications would be needed.  Related to reformulated and oxygenated
fuel requirements, existing pipeline, truck, and rail infrastructure will be  strained. Opportunities will  also
exist to meet these new infrastructure, demands.

       Title II requirements (which supplement the nonattainment requirements specified in Title I),  will
lead to growth opportunities in three broad market segments noted in Exhibit 3-6.  They include: (1) air
pollution control equipment manufacturers, (2) the cleaner burning and alternative fuels industry, and (3)
engineering, design, and construction. Specifically, the demand for (1) onboard diagnostic systems  and
tailpipe emission controls, (2) fuel oxygenates such as MTBE and ethanol, and (3) reformulated gasoline
will increase significantly due to the CAAA.  Additionally, alternative clean fuels such as compressed
natural gas (CNG) and methanol could have some marginal increases in demand after 1995.

Air Pollution Control Equipment Manufacturers

       Additional growth opportunities for equipment manufacturers will result from the following Title
II requirements.   Specifically there will be standards for highway diesel fuel and NOX emissions from
heavy duty diesel engines (HDDE), paniculate emission standards for buses and NOX standards for all
post 1988 model  year heavy  duty engines (HDEs), and Tier I tailpipe emission regulations governing
-      At present, 32 MTBE plants are in operation in the U.S.; of these 26 are captive.  Also, there are
       47 plants planned or under construction, of which 37 are captive.
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                                     EXHIBIT 3-6
         TITLE  II:  MOBILE SOURCE REVENUE INCREASE ESTIMATES
; Average Annual Revenue Increase (8iHfo)js «ff 1$£0: Dollars)

Air Pollution Control Equipment Manufacturers
Cleaner Burning and Alternative Fuels
Oxygenated and Reformulated Gasoline Program
Clean Fuel/Clean Fuel Vehicle Program
Total
Construction, Design and Engineering
• ' ! ! .- I ' ; - ' 1&&i
:m&*im..
0.5-0.6
0.3-0.4
0.3-0.4
0.2-0.5
.. = UM£
im*m& ;
0.6-0.7
0.3-0.4
0.1
0.4-0.5
0.1-0.2
IMA \
emissions of CO, NOX, PM, and non-methane hydrocarbon on light duty vehicles and trucks. In addition,
revenues for air pollution control equipment manufacturers as a result of the application of onboard
diagnostic  systems (OBDs) are estimated to be higher on average by about $0.5-0.6 billion (in 1990 $)
annually during the 1992-1995 period (with most of this increase occurring in 1994 and 1995) and about
$0.6-0.7 billion (in 1990 $) higher annually during the 1996-2000 period.

       New Heavy Duty Diesel Engine and Heavy Duty Engine Requirements

       The emissions standards for HDEs whether for particulates or NOX are not expected to be major
revenue generators. The proposed NOX emission regulations are simply extensions of existing regulations
that manufacturers have already been obligated to meet. The PM emissions standards are refinements of
existing standards  and EPA believes  they can be met with little  effort beyond what has already been
accomplished in the auto industry.-  Considerable research and development has been undertaken by
manufacturers of HDEs, and new engines have  already been demonstrated that approach the more
stringent emission  levels of later year models.   A  limited upfront source  of revenue to equipment
manufacturers might arise if engine manufacturers have to retool their production  lines.

       Tier I Tailpipe Emission Standards

       EPA will promulgate regulations in May 1991 to implement Tier I emission standards for model
year 1994  light duty vehicles and cars to reduce emissions of CO, NOX, PM and NMHC.  In estimating
the likely  revenue effect of the  standards  an unknown is the  interrelationship of new automobile
technology and reformulated fuels.  There is a consensus among those in the gasoline industry and EPA
6/
EPA, Office of Mobile Sources, Draft Regulatory Support Document.
Year Urban Bus Paniculate Standard, May 1991.
                                                                       1994 and Later Model
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               Exhaust Afteirtreatment Devices Seen as Possibility
                   for Controlling Diesel Particulate Emissions

 Title II (Mobile Sources) of the  1990 CAAA requires reduced levels of participate emissions from
 buses in 1993 and trucks in 1994.  There are several options for controlling these emissions such as
 reformulated fuels,  engine modifications,  air  handling improvements,  and exhaust aftertreatment
 devices.

 Exhaust aftertreatment devices can be installed on new models or retrofitted on existing engines.
 Two devices that should have new market opportunities due to Title II requirements are the flow-
 through  oxidation catalytic  converter, and  the trap oxidizer.   Allied Signal a  leading  catalyst
 company for catalytic converters, and Corning a  leading supplier  of  trap oxidizer filters to the
 automotive  industry  are gearing up to meet increased demands.  In fact, Corning  is considering
 building a new plant to meet increased demand for filters of 200-600 thousand per year expected by
 1994 when Title II tailpipe standards kick-in.

     •    Flow-Through Oxidization Catalytic Converter - This diesel particulate control device
         operates by passing the engine exhaust through a honey-combed substrate consisting of a
         catalytic metal such as platinum or palladium.  This catalyst reacts with the particulate
         matter in the exhaust transforming it into harmless gases via oxidation. These  catalytic
         converters are capable  of reducing  particulate emissions in diesel exhaust by  40-50
         percent.

     •    Trap Qxidizers - Trap oxidizers consist of a filter which captures significant portion of the
         particulate matter  as the engine exhaust passes through it.   Because these particulates
         build-up in the filter, oxidizers have a regenerative system which  burns or oxidizes the
         captured particulate matter, thus maintaining the  filter.  Trap oxidizers are  capable of
         removing 60-90 percent of the particulate matter from diesel  exhaust.
that some of the presently available new cars using reformulated gasolines can already meet the Tier I
tailpipe emission standards. It is also widely believed that new cars burning conventional gasoline could
meet the Tier I requirements with minor engine recalibration, catalyst reformulation, or a reposition of the
catalyst.   If this is so, then there are relatively  few new opportunities for manufacturers of tailpipe
emission control devices  such  as catalytic converters.   However, for many cars some changes to the
catalyst are assumed necessary.  These would most likely be changes in the  catalyst location and would
not result in significant new growth opportunities.

       Onboard Diagnostics (OBDs)

       OBDs will be required on all  1994 model year LDVs and LDTs.^7  OBDs will be required  to
monitor the performance of the catalyst, the oxygen sensor and detect misfires. This enhanced monitoring
of motor vehicle pollution controls will lead to better maintenance of these systems and thus reductions
in CO, VOCs and NOX. EPA requires a slightly more elaborate system than that required by California's
-      Light duty vehicles (LDVs) are cars, and light duty trucks (LDTs) are trucks up to 6,000 pounds
       gross vehicle weight rating.
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OBD II (current  system diagnostic  requirement  in California).   Under the proposed  regulations,
considerable freedom is left to the manufacturer as  to the details of the system.

        EPA has made a considerable effort to coordinate its regulations with those of California. There
are some changes  vis-a-vis California, but the Federal requirements largely "piggyback" on the work
undertaken for the  state. Equipment manufacturers  will have increased revenues due to the expansion of
these requirements beyond California.  Since the OBD system will be required on all light duty vehicles
and light duty trucks, considerable revenues should accrue to parts suppliers, microchip processors, and
to developers of the necessary software for application of the system beyond California.  If normal sales
patterns for new vehicles continue, then approximately 13.1 million new vehicles will be sold outside of
California.  Revenues accruing to part suppliers and microchip processors (for domestic and foreign cars)
are estimated to be higher on average by about $0.5-0.6 billion (in 1990 $) annually during the 1992-1995
period and about  $0.6-0.7 billion (in 1990 $)  annually during the 1996-2000 period.-7  Automobile
manufacturers should also increase their sales of manuals to independent auto shops, a requirement of the
proposed regulations.

Cleaner Burning  and Alternative Fuels

        Title  II requirements will lead to  increased demand for cleaner burning and alternative fuels.
First, the reformulated gasoline and oxygenated fuel programs specified in Title II will lead to increased
demands for MTBE  and ethanol which are oxygenate additives.  Second, the clean fuel  and clean fuel
vehicle  program will lead to increased demands for  clean fuels (e.g., methanol, ethanol, reformulated
gasoline, diesel fuel, compressed natural gas, and  propane) and clean fuel additives (e.g., MTBE and
ethanol). Note that under the Title II clean fuel and clean fuel vehicle program, reformulated gasoline is
classified as a clean fuel. Therefore, because reformulated gasoline is already required in most areas
affected by the clean fuel and clean  fuel vehicle program under the reformulated gasoline program, it is
unclear  whether clean fuels other than reformulated gasoline will have much market penetration due to
the CAAA.  Note  however, some areas have opted in under California standards (e.g., the NESCAUM
states) which are more stringent that  the  CAAA standards.-7 As a result,  a greater penetration than
estimated in this report of clean fuels (other than reformulated gasoline) and clean fuel  vehicles could
occur.   However,  consistent  with other sections of this report, only CAAA induced opportunities are
considered.

        Oxygenated and Reformulated Gasoline Program

        Companies in the oxygenated  and reformulated gasoline industry (e.g., producers and suppliers
of reformulated gasoline, ethanol,  MTBE; corn growers; oil companies;  chemical companies; parts
suppliers; and construction, design and engineering firms), will have new growth opportunities as a result
of the oxygenated  gasoline and reformulated gasoline requirements. In total, revenues are  estimated to
be higher on  average by about $0.3-0.4 billion (in  1990  $) annually during the 1992-2000 period.  The
required changes in fuel specifications that will generate  additional revenues directly attributable to Title
II are:
-      EPA, Office of Mobile Sources, Draft Regulatory Impact Analysis, On-Board Diagnostics, April
       1991.

27      The North-East States Coordinated for Air Use Management (NESCAUM) include ME, NH, VT,
       MA, CT, RI, NY, NJ.
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       •      Oxygenated Gasoline - Beginning in November 1992, gasoline sold in
              forty CO nonattainment regions (see Appendix A) must have an oxygen
              content of 2.7 percent weight during the high CO winter months.  CO
              non-attainment regions that have trouble with other regulated emissions
              (such as NOX) may opt out of the program if oxygenates cause a rise in
              the level of these other emissions.

       •      Reformulated  Gasoline -  Beginning January 1, 1995, all gasoline sold
              year round in  at least nine urban  areas classified as severe and extreme
              ozone areas (see Appendix A) must be reformulated. Ninety-one serious,
              moderate, and marginal nonattainment areas (see Appendix A) have the
              choice of opting into the program.

       Oxygenated Gasoline Producers and  Suppliers

       All gasoline  sold in  CO nonattainment regions is required to  have an oxygen content  of
2.7 percent weight during the winter months. However, as oxygenates increase, NOX nonattainment
regions may choose to opt out of the program if NOX is of greater concern to them than CO. This opt-
out option will likely only apply  to Southern California as Los Angeles is the only area of the country
where the NAAQS emission levels for NOX  are exceeded.  Southern California has decided to wait on
this decision.—/  Should they decide to opt out, a waiver would be required from EPA.  Since this has
yet to be determined, most studies (and  this report) assume California  will remain in the  program.
Market opportunities for oxygenates are included in the overall discussion on MTBE below. Consistent
with most other studies, MTBE is considered to be the oxygenate of choice.

       The results of the existing CO oxygenate programs in the United States, the  Rocky Mountain
Region and some Southwestern cities, show that MTBE is the oxygenate of choice, with  ethanol capturing
a smaller share of the market. This is not expected to change for other affected urban areas once the
oxygenate programs are in place.  1VTTBE can be  blended  at the refinery and as a blend shipped by
pipeline which gives it an advantage  over  ethanol which  cannot move  by pipeline  due to  its water
solubility.

       •      MTBE Supply and Production - Demand  for MTBE  is expected to
              increase from  about 0.1 million barrels a day in 1992 to as much as 0.4
              million barrels a day by  1996, driven both  by demand  for oxygenated
              fuels and for  reformulated gasoline.—'  However, as noted earlier in
              this report, only new MTBE demands which are satisfied by merchant
              suppliers  (i.e., sold on the market) are considered  a growth opportunity
              for this report. A significant majority of domestic MTBE capacity, both
              current and planned is captive  to the refineries that use it.
—'    Telephone conversations with California Air Resources Board, August 1991.

—'    It should be noted that MTBE is also used to  meet other EPA regulations that predate the new
       CAAA so not all of this  new demand can be  attributed to the Act.  For example, EPA's Reid
       Vapor Pressure (RVP) regulations require the removal of butane from gasoline, so MTBE is used
       as  an  octane  booster for premium gasoline.   However, compared to overall estimated new
       demand, this demand is relatively small.
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       •       Ethanol  Supply and Production -  Ethanol producers,  and thus grain
               producers  and the attendant agricultural infrastructure (e.g.,  fertilizer
               producers, chemical pesticide producers, etc.) likely will benefit from the
               demand  for ethanol as an oxygenate because it will  lead to increased
               corn production.  Estimates of incremental ethanol demand vary consid-
               erably.—7  Due to the increased demand for ethanol, ethanol producers,
               and through them, corn growers and the attendant agriculture infrastruc-
               ture are expected to have higher revenues of $0.3-0.4 billion (in 1990 $)
               annually during the 1992-2000 period.

       Reformulated Gasoline Producers and Suppliers

       Beginning January 1, 1995, all severe and extreme ozone nonattainment regions are required to
use reformulated gasoline, and serious, moderate and marginal regions have the choice of opting into the
program. Reformulated gasoline must have an oxygen content of 2.0 percent weight, again with a waiver
if NOX emissions are of concern.   These regulations may affect much of the gasoline consumed in the
United States.

       Once the reformulated gasoline regulations go into effect gasoline specifications become more
complicated because many regions have both  ozone  and CO nonattainment problems.  In such cases,
reformulated gasoline while improving ozone problems, does not contain enough oxygenate to meet the
CO requirements.  One option being seriously  examined for the overlap regions is to use MTBE in the
basic year round  reformulated gasoline and then "splash blend" with ethanol for the winter months to
meet the CO requirements.—7

       EPA, industry and other  officials have recently agreed to the specification for  reformulated
gasoline under the 'reg-neg' process (i.e., an alternative to the normal  EPA regulatory process, designed
to speed the issuance of regulation by formulating consensus, and avoiding costly litigation, whereby all
affected parties negotiate the details of the new regulations). Some of the specifications,  such as oxygen
content and lower aromatic content were already set out in the Title.^7

       New business areas should develop due to the reformulated gasoline specifications.  Typically, a
refinery can lower aromatics and benzene by adjusting the refining process used to develop reformulated
gasoline. However, this results in lower hydrogen production and more low cetane/high aromatic material
going into  the distillate stream,  a result that is directly opposed  to EPA's diesel  desulfurization
regulations.  In response, processing capacity will have to be added, or existing capacity will have to be
reconfigured.  The more complex processing units at a refinery use chemical reactions of the feedstock
—•     Based on work done for EPA on oxygenate demand, ICF Resources estimated a high bound of
       incremental ethanol production to be about 24 thousand barrels per day by 1994.

—•     Ethanol is hydrophilic (i.e., attracted to water), therefore it can not be transported long distances
       by pipeline without becoming contaminated (this is not the case with MTBE).  Therefore, ethanol
       must be "splash blended" at the site of distribution.  This means that it would be transported by
       truck or rail to the distributor and then added to the storage tanks containing gasoline.

—     Regulations for reformulated gasoline are expected to be promulgated in late Winter 1992. These
       regulations will determine the changes refineries will have to undergo.
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in the presence of catalysts.  The changes  in  fuel  specifications will therefore increase business
opportunities in the catalyst industry.

       Clean Fuel and Clean Vehicle Program

       The Clean Fuels/Vehicle program is specifically aimed at the serious, severe, and extreme ozone
nonattainment regions, but other  regions may opt-in.  The thrust of the program is  to reduce ozone
precursors  by requiring  the  use  of clean fuels  and  clean  vehicles in the private  sector, in urban
transportation, and in centralized fleets. Emissions standards for clean fuels are similar to Tier I tailpipe
standards with the addition of a standard for non-methane organic gas (NMOG).  However, it is unclear
whether clean fuels (e.g., compressed natural gas and methanol), other than reformulated gasoline (which
is considered a "clean fuel" for purposes of this program) would have much market penetration, because
reformulated gasoline is required in some of these areas anyway under the reformulated gasoline section
of Title II.

       It is  estimated very roughly that revenues  could be higher by  about $0.1 billion (in 1990 $)
annually during the 1996-2000 period for clean fuels (e.g., CNG and methanol) other than reformulated
gasoline. Revenues of automobile parts suppliers would increase as a result of new demands for parts to
build compressed natural gas (CNG), flexible fueled vehicles (FFVs), and possibly methanol burning
vehicles.^ Also, producers and suppliers of natural gas, and possibly methanol could have some very
modest new revenues.

       In reality, the CAAA opportunities for clean fuels and clean fuel vehicles (other than reformulated
gasoline and diesel fuel) specifically attributable to the clean fuel program may be more limited.  This is
because (1) as discussed above, reformulated gasoline will already be required in the regions affected by
the clean  fuel and clean fuel vehicle program,  and (2) modifying the design  of heavy duty engines
combined with changes in diesel fuel  specifications  could result in compliance with requirements under
the clean fuel and clean fuel vehicle program.—7

Infrastructure

       Increased demand for reformulated gasoline and oxygenated  gasoline will produce potential
expansions of the existing pipeline, transportation and bulk storage infrastructure capacity.  Steps will
have to be taken to maintain and upgrade, and expand existing infrastructure in many regions. Also, new
MTBE and ethanol production facilities will be built in the U.S. (see Chapter IV).  Chemical companies,
and construction, design  and  engineering firms will  likely provide such services.
—•      According to the automobile companies, the incremental cost of a methanol vehicle is $219 per
        vehicle, and a CNG vehicle is $937 per vehicle.  These costs to automobile companies would
        translate into revenues for parts suppliers and fabricators.

—'     Additional increased opportunities could result for clean fuels and clean fuel vehicles (other than
        reformulated gasoline and diesel fuel) as a  result of the NESCAUM states  opting in under
        California standards which are more stringent than those stipulated in the CAAA.  However, these
        opportunities were not estimated because compliance with California standards in these regions
        is not required under the CAAA.
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               New MTBE Facilities - Construction, design and engineering firms will
               have growth opportunities as new MTBE  production facilities,  both
               captive and non-captive, will be needed.  Revenues for these firms are
               estimated to be higher on average by about $0.1-0.3 billion (in 1990 $)
               annually during the 1992-1995 period.

               New Ethanol  Facilities - Due  to  increased demand for  ethanol, new
               production facilities will  need  to  be  built.   This will lead to higher
               revenues for construction, design and  engineering companies estimated
               to average about $0.1-0.2 billion (in 1990 $) annually during the 1992-
               2000 period.

               Maintenance and Upgrade of Pipelines for MTBE - Increased demand for
               MTBE as an  additive  and  the  transportation of MTBE  either  as  an
               additive or in a blended gasoline will provide additional opportunities for
               chemical  companies, construction,  design, and engineering companies.
               Although gasolines containing  MTBE  presently move  through  the
               product pipeline system, MTBE tends to attack some of  the common
               fluorinated elastomers  used in gaskets  and  valves (the same applies to
               storage tanks). This has precluded pipeline movement of straight MTBE.
               With the growth of the oxygenate  program there will be a demand for
               new teflon elastomers  that are not reactive to MTBE.  The elastomers
               used in the distribution system in pipelines and  storage tanks will have
               to be replaced creating a major opportunity for chemical manufacturers
               and construction, design and engineering firms.

               Truck and Rail Transportation Facilities - The use of ethanol as a fuel
               additive will generate increased demand for truck and rail transportation
               facilities.  As ethanol cannot be moved by the pipeline system, the trend
               is toward splash blending at terminals.  This  will provide business
               opportunities for the development of much more sophisticated blending
               and monitoring units than presently exist at bulk distribution terminals.
               This may in fact apply  to many of the new additives and should result in
               substantial business opportunities to engineering firms.

               Bulk Tank Storage  Facilities - One result of the various changes is that
               there will be many more products and additives used and transported.
               Thus,  additional products may lead to incremental  demand for bulk
               storage capacity and transportation facilities, plus more complex facilities
               at service stations.   This may provide considerable incremental business
               for construction, design and engineering companies, particularly (hose
               specializing in bulk tank construction.   However, since accurate data on
               tanks is spotty, the  impact is hard to estimate. The National  Petroleum
               Council has begun  a 3 year study  to  estimate infrastructure  needs.  If
               more transportation facilities are needed, railroads and possible barges
               are  the most  likely to benefit particularly  from ethanol  movements.
               There  may be incremental business opportunities for tanker movements
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              of MTBE from the U.S. Gulf, but generally this routing is not competi-
              tive with foreign imports.

TITLE III (Air Toxics)

INTRODUCTION

       Title III provisions require new regulatory programs to be implemented starting in 1992 for both
routine and accidental releases of hazardous and toxic air pollutants.  These requirements will lead to
substantial new business opportunities for companies that evaluate the potential effects of the releases,
measure the quantities released, design and install control equipment and processes, and assist facilities
in complying with standards.  The opportunities for the various segments of the air pollution control
industry are summarized in Exhibit 3-7.

SUMMARY  OF REVENUE ESTIMATES AND TIMING

       Revenues for the  air pollution control industry due to Title III requirements are estimated to be
higher by about $1.1-1.4 billion (in 1990 $) annually during the 1992-1995 period and higher by about
$2.7-3.5 billion (in 1990 $)  annually during  the 1996-2000 period.  As illustrated in Exhibit 3-8, air
pollution control equipment manufacturers will experience the greatest growth opportunities; revenues are
estimated to be higher on average by about $0.9-1.2 billion (in 1990 $) annually during the 1992-1995
period and about $2.6-3.3 billion (in 1990 $)  annually during the 1996-2000 period.  Revenues  for
instrumentation companies are estimated to be higher on average  by about $0.1-0.2 billion (in 1990 $)
annually during the 1992-2000 period.

       The procedures used to estimate revenue increases in this section  are  described in detail in
Appendix B.   Estimates provided are based largely upon the assumption that reductions in air toxics
emissions will be  achieved  principally through the additions  of control  equipment.  This  approach
facilitates the estimation of revenues  since  the cost of air pollution control equipment is relatively well
understood.   However, demand is also expected for other  products and services, such  as equipment
maintenance and repair, equipment instrumentation and laboratory analyses. Revenues for these products
and services were not estimated because they are highly uncertain and are likely to be a small percentage
of the revenue increase.  More importantly, in some situations, it is expected that emissions reductions
will  be  achieved though process modifications or product substitution.  While these changes are site-
specific and the resulting revenues are more difficult to estimate, significant inaccuracies in the total
demand estimates will  not occur.   The relative  magnitude of the cost of process and product changes
should be similar to those associated with control equipment.  The distribution of revenue increases within
the air pollution control industry could, however, be altered.

        The vast majority of new growth opportunities for the air pollution control industry will result
from the routine release requirements  under Title III for major and  area sources. These requirements  will
be implemented in four stages (1992, 1994, 1997 and 2000).  Compliance for existing sources will be
required within three years of the promulgation of standards (i.e., from the  years noted above). New
sources  must comply upon the effective date of the standard.  An estimated 30,000 major sources  will
have to comply with these  regulations.  Literally hundreds of thousands of area sources (which are
smaller  than major sources)  could have to  comply.  Air pollution  control equipment manufacturers  will
gain most of the Title III revenues (an estimated 65-85 percent of total revenues). Of the major types of
control technologies expected to be installed in response to routine  release requirements, fabric filters and
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                                  EXHIBIT 3-7
                 TITLE III:  AIR Toxics BUSINESS OPPORTUNITIES
General Requirements
   Business Opportunities
     Major Sources
     Area Sources
  Accidental Releases
Air Pollution Equipment Industry

      Engineering, Design
       and Construction

      Instrumentation and
      Emissions Monitoring
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                                      EXHIBIT 3-8
            TITLE III:  AIR Toxics REVENUE INCREASE  ESTIMATES
Average Annual Revenue Increase (Billions of 1990 Dollars)

Air Pollution Control Equipment
Incinerators
Scrubbers
Fabric Filters
Carbon Absorbers
Fugitive Controls
Process Controls
Combustion Controls
Other
Total
Instrumentation
Total
1992-199$

0.1-0.2
0.1-0.2
0.1-0.2
<0.1
0.2-0.3
<0.1
0.1-0.2
0.1
0.9-1.2
0.1-0.2
"^4*.....*L-..
19%-2«00

0.3-0.4
0.5-0.6
0.8-1.0
0.1-0.2
0.4-0.5
0.2-0.3
<0.1
0.2-0.3
2.6-3.3
0.1-0.2
..':1.2M.5V ;
scrubbers are expected to garner most of the increased revenues.  Fugitive controls and incinerators are
expected to have the next most significant share, followed by process controls and carbon absorbers (see
Exhibit 3-8).

       EPA also must implement by 1999 a national strategy for controlling emissions of hazardous air
pollutants from area sources in urban areas.  Actions may be taken under any applicable law. This report
assumes that  area sources will be regulated throughout the 10  year  implementation  of Title  III
requirements.  Many of these sources have been included in the estimates, e.g., dry  cleaners, hospital
sterilizers, small surface coalers, and degreasers.  Importantly,  only air pollution control  equipment
revenues have been estimated for these  sources.  Revenues accruing to firms that supply stack testing,
environmental, and other similar services are not estimated for  area sources.

       Title III  also  contains provisions to detect and prevent  accidental release of toxic air pollutants.
Revenue increases associated with  accidental  release requirements (less than $0.1 billion (in 1990 $)
annually during 1992-2000) are much less than sales gains associated with routine releases.  Most of this
revenue increase can be associated with yearly  hazard  assessments.  Fugitive emission  controls,
combustion control technology,  scrubbers and process controls  are expected to account for only a small
portion of this revenue increase.

       Revenue estimates for the accidental release portion of Title III are somewhat  uncertain because
the program is in the process of being developed by EPA.  The estimates  included herein are based
primarily on an analysis of the 16 chemicals listed in Title III.  As noted earlier, EPA  must identify and
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    New Technology Investment Results in Reduced Toxic Air Emissions

 Methylene chloride, an air toxic pollutant to be regulated under Title III of the CAAA is a common
 chemical used in standard photographic film manufacturing.  The Eastman Kodak  Company in a
 report to New York State Environmental officials outlined it commitment to reduce emissions of
 methylene chloride by 1995.  This will be accomplished through Kodak's investment of $300 million
 in a new state-of-the-art film manufacturing plant in Rochester, New York.  Sources have indicated
 that Kodak is in the process of introducing a new consumer photographic system that could change
 the  accepted format of current  35MM film.   The new photographic system would  involve  an
 alternative technology  to reduce  emissions of methylene chloride during  the film manufacturing
 process.

 Financial  analysts covering the industry predict that Kodak's introduction of this  new consumer
 photographic system in 1992-1993 will significantly boost Kodak's previously lagging  growth rate
 from approximately 8.5 percent annually to 10.5-11.0 percent and increase its revenue stream  by
 $700-$750 million annually.   Although,  Kodak has not cited air pollution reduction requirement as
 the primary reason for the development of this new process, the net results on air emissions remains
 positive.
list at least 84 more substances for regulation. Thus, the revenue demands presented are underestimated,
possibly significantly.  It was assumed that a major fraction of the new revenue demand would be for
hazard assessments, and that these will continue annually.  It has been recently estimated that hazard
assessments could cost as much as $50,000 (in 1990 $) for a large chemical process.  Larger chemical
plants and petroleum refineries have many processes.  Smaller sources that use the listed chemicals, such
as refrigeration systems (i.e., ammonia) and purification systems  (i.e., chlorine), were assumed to cost
about $5,000 each.  The estimates here are also based upon the assumption that regulations will be
promulgated in 1993 with compliance required in 1996.

       One other Title III requirement, the Great Waters air toxics monitoring program, was  quantified
in this report.  Current information indicates that one network of 20 monitoring stations is in operation
in the Great Lakes area and that another network with about 10 stations is planned.  The cost to set up
the initial network was in the range of $3,000,000 and yearly operating costs can run about $4,000,000.
It was assumed that at  least the equivalent of one additional 20 monitor network for the  Great Lakes area
would be developed.

Air Pollution Control Equipment Industry

       In response to Title III provisions regarding routine releases, revenues for air  pollution control
equipment manufacturers are estimated to be higher on average by about $0.9-1.2 billion (in  1990 $)
annually during the 1992-1995 period and higher by about $2.6-3.3 billion (in 1990 $) annually during
the 1996-2000 period.

       EPA has already announced its preliminary intent to regulate several source categories in 1992.
A major early source category will be the control of air toxics from the organic chemical manufacturing
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industry. Prior regulation of this industry has focused on ozone precursors, with less attention to toxic
air pollutants.  This industry is reasonably well defined, and production volumes  and emissions are
generally well documented. Although not large in number, the facilities in this industry are typically very
large in size, and often are integrated to maximize the use of feedstocks and by-products.  Thus, most
facilities implement many different processes.  EPA's intent is to promulgate regulations that can be
applied to an entire chemical plant rather than regulating each individual chemical and process separately
at different times.  The  estimated revenue demand increase  accounts for this problem. The estimated
control technology revenue demands were based on estimated costs per ton reduced of typical organic
pollutants.  The cost averaged about $1 million per facility.

       Coke oven  production  also will produce substantial revenues in  early years,  particularly for
fugitive emission control equipment manufacturers. Tide III contains a number of specific requirements
concerning both the timing and technology of emissions control for coke oven batteries. The age and the
deteriorating condition of the U.S. steel industry are major factors in the  large size of the estimates.

       The largest sources of increased air pollution control demand in the second stage (1994) should
be the petroleum and non-ferrous smelting industries. There  will be increased demands for combustion,
scrubbing,  vapor recovery and  petroleum storage controls for the petroleum industry.  The petroleum
industry is  similar in many ways to the chemical industry.  Many of the same processes are  used and
many of the feedstocks for the chemical industry are derived from petroleum.  In fact, many petroleum
refiners also operate chemical plants. Again, regulations on refinery operations in the past 20 years have
focused on precursors to ozone. Revenue demands were based on estimated costs  per ton reduced of
typical organic  pollutants.

       The non-ferrous smelting industry is projected to warrant early regulatory consideration because
of the  emissions of toxic metals such as arsenic, cadmium, nickel, and lead.  Paniculate collection
equipment  will  predominate.

       As a category, large volume  surface coalers (e.g.,  chemical coating processes used to make
adhesive tapes and photographic film) likely will require substantial expenditures. Control in the past has
focused on ozone precursors, but significant emissions of hazardous air pollutants still exist.

       It has been assumed that air toxics emissions from coal-fired utilities will not be regulated until
after the year 2000. EPA and industry research studies  are underway.   Early results indicate that air
toxics emissions may be substantial from typical boilers controlled with electrostatic precipitators (ESPs).
Scrubbers that  may be  installed pursuant to Title IV  (Acid Rain) appear to reduce these emissions
significantly, although removal  efficiencies vary. Importantly, some low-sulfur, alternative fuels appear
to be associated with greater air toxics emissions.  If EPA decides to proceed with MACT standards for
coal-fired powerplants, upgrades to ESPs or installation of baghouses may be  sufficient to  meet the
requirements.  Owing to the on-going Title IV  program and uncertainties as to the  need and extent of
control, the timing of MACT standards for this source category is considered highly uncertain.

       The most significant revenue  increases resulting  from regulations promulgated after  2000 are
anticipated to be for other coal and oil combustion sources, such as industrial and commercial boilers,
architectural coatings production and use, and wood processing industries (e.g., sawmills). Industrial and
commercial boilers are numerous and are assumed to require scrubbers and/or baghouses.  Architectural
coating usage is vast, with little  opportunity for direct control  because much of it occurs outside.
Emission reduction will  come largely from reformulation stimulated by earlier efforts under  Title I to
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    Non-Solvent Based Coating Methods Developed to Reduce Air Emis-
 sions

 As a major manufacturer of plastics and adhesives in the United States and worldwide, 3M has been
 a major contributor to air emissions from solvents such as toluene and xylene which combine with
 NO2 and sunlight to form smog, and are also among the 190 toxic pollutants listed in the Clean Air
 Act. Xylenes are among the most effective ozone-producing precursors known.

 In the summer of 1990, 3M invested $26 million in a solvent  recovery system  at their plant  in
 Hutchinson, Minnesota,  which manufactures videotapes.  The goal of this project is to recover and
 reuse the toxic solvents toluene,  cyclohexanone and ethyl methyl ketone.   The  recovery system
 works through a series of collecting ducts that capture the  chemicals as they evaporate and store the
 gaseous solvents in large tanks filled with activated carbon. Through carbon adsorption, the solvents
 are collected and with steam and distillation, are separated and recovered for reuse.

 Although implementation costs at the Hutchinson plant were $26 million, expected savings are $5
 million to $7 million a year in solvent purchases.

 3M  has  been actively involved in air pollution abatement since 1975, when it implemented its
 Pollution Prevention Pays program.  Now, 3M has implemented the 3P Plus program, in which they
 pledge to reduce air emissions by 70% by 1993  and 90% by the year 2000.  3M has decided not to
 trade or sell emission credits and they have committed $150 million to be spent between 1991 and
 1993 on installment of  Best Available Control Technology, such as thermal oxidizers and solvent
 recovery systems.

 The  control  technology installed at the Hutchinson plant is applicable to any solvent-using industry.
 This technology for recapturing and recycling solvents,  while still somewhat new,  has the potential
 to achieve substantial emissions reductions and is both economically and environmentally attractive.
 The  largest  drawback is the  implementation cost, and  smaller companies, lacking the  capital and
 managerial support may  be hesitant to invest in such a program.  With the new CAA regulations,
 however,  all solvent-using industries will  have to reevaluate their production processes and take the
 necessary steps toward emissions  reductions, and 3M and other large  chemical  manufacturers like
 Dow have already  begun to realize the benefits from their  investments.
attain the  ozone standards.   However, ozone nonattainment programs  will only address architectural
coatings in the larger metropolitan areas.

Instrumentation and Stack Testing Companies

       Instrumentation and stack testing companies are estimated to have revenues averaging about $0.1-
0.2 billion (in 1990 $) higher annually during the 1992-2000 period.  The types of companies that will
benefit are described  below.

       •      Instrumentation - Toxic air pollution regulations will be based largely on
              emissions limitations established for each category and subcategory of
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              major sources  and area sources of the listed pollutants.   After the
              effective date of any emission standard, no person may operate a source
              in violation of  the standard.  In addition, permits will be required and
              penalties for noncompliance could be substantial.  For these and other
              reasons, most sources of regulated air pollutants will use instrumentation
              to provide continuous monitoring of process conditions, emissions and
              compliance. Instrumentation can take many forms, including: (1) moni-
              toring of critical process parameters that indirectly serve as indicators of
              compliance, and  (2) in-stack monitors that directly measure chemical
              emissions. Again, this report assumes that about 30,000 major sources
              will have to comply with air toxics emission standards, with instrumenta-
              tion needs spread generally  equally throughout the  10 year program.
              Typical instrumentation is  assumed to  range  in cost  from $30,000 to
              $100,000 per source.

       •      Stack Testing Companies - Stack testing is an essential element of any
              air pollution control  program.  It is critical to determine emissions
              accurately prior to regulation so that the type and extent of necessary
              control can be established.  Following promulgation of regulations,  stack
              testing is necessary to demonstrate compliance.  Testing for air toxics
              will be particularly difficult because there are 190 listed  air toxics and
              EPA is unlikely to promulgate standard test methods for air toxics, as
              they  have done in the past.   Rather,  stack test plans likely will be
              required to be submitted to EPA for approval. As a result,  the demand
              for stack tests  will increase  significantly  relative to past air pollution
              regulatory programs because  more tests will be conducted and more test
              method development will be required.  This report has assumed that
              about 30,000 major sources will have to comply with air toxics emission
              standards, with stack tests conducted generally equally throughout the 10
              year program.  Each test is assumed to  range in cost from $30 to  $100
              thousand.

Environmental Service Industry

       Environmental service  companies are expected to have significant new demands.  Companies in
this sector could support the  design of programs to comply with toxic air pollutant  regulations by
providing specialized expertise  that is not cost effective for individual companies to maintain, particularly
smaller companies. In addition, the economic downturn in the early 1980s led many companies to reduce
in-house environmental staff. To plan for and comply with regulatory requirements, many companies will
be utilizing the  services of outside contractors.  Typical activities will include  compliance strategy
planning, permit preparation support, control technology assessment, new process and control research and
development, risk assessment and development of innovative new control methods.
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  SO2 Allowance  Exchange Markets Could Provide Valuable Information,
         Foster Market Efficiency and Reduce Utility Cost and  Risk

  To reduce the costs of complying with the  SO2 reduction requirements, Title IV establishes the
  allocation of SO2 emission allowances and allowance trading mechanisms.  Recently the Chicago
  Board of Trade (CBOT) has  proposed to EPA that the board offer a cash market for trading on a
  spot basis, a futures market,  an options market and a "package" market for SO2 allowances.  The
  New York  Mercantile Exchange (NYMEX)  has  also expressed interest  in offering  a cash and a
  futures  market  for SO2 allowances.   The  development of such exchange  markets could  help
  accomplish CAAA legislative objectives, and benefit electric utilities, and other market participants
  by:

        Ensuring an efficient  market with one set of unique prices at any point in time,

        Minimizing transaction costs to a level about equal to brokerage fees, thereby promoting
        active trading,

        Simplifying and reducing the risks of prudence evaluations,

        Providing utilities with an immediate  capability to buy or sell allowances, to meet short
        term allowance needs, and

        Providing market information to air pollution control equipment manufacturers, clean fuel
        producers and others that will aid in business planning and competitive  positioning.

  The exchange market proposal is  currently  being evaluated by the Commodity Futures Trading
  Commission (CFTC), which is assessing the  viability of an allowance futures market. If approved
  by CFTC  and EPA, allowance futures could begin trading as early as 1993  according to CBOT
  officials.
TITLE IV (Acid Rain)

INTRODUCTION

       During this decade, a number of industry segments will witness increased product demands and
revenues as a result of the Title IV (Acid Rain) provisions.  In response to electric utility SO2 and NOX
reduction requirements, air pollution control equipment vendors and A&E companies will design, engineer
and construct conventional and advanced flue gas desulfurization (FGD) technologies, low NOX burner
technologies, additional or upgraded  electro-static precipitators or other particulate control devices, and
boiler modifications.  A  number of companies will supply lime  or  limestone (perhaps sodium) as a
catalytic reagent for FGD systems, or produce  and transport  low sulfur coals  and natural gas.
Additionally, certain industrial sources may be able to "opt-in" to the acid rain program and sell emission
allowances, and a number of companies could earn brokerage fees for  emission allowance trades.
Revenue estimates associated with these latter two opportunity areas were not developed herein. They are
expected to be much smaller in magnitude than the air pollution control equipment and clean fuel industry
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impacts.  Business opportunities, and the resulting increase in sales (1992-2000) are discussed below and
summarized in Exhibit 3-9 and Exhibit 3-10.

       •      Air Pollution Equipment Industry - As a result of the SO2 and  NOX
              control  requirements of Title IV, a number of companies will  manu-
              facture, design, engineer, and  construct more  SO2  and  NOX control
              equipment, and produce, or design more paniculate control equipment or
              upgrade electro-static precipitators (necessary when fuel switching to low
              sulfur coals).   Specific  revenue gains for these companies will  result
              from the installation of the following types of technologies:

              —      SO2 control  technologies such as:  (1) conventional wet lime or
                      limestone scrubbing; (2) advanced repowering technologies such
                      as atmospheric fluidized bed combustion (AFBC), pressurized
                      fluidized bed combustion (PFBC) and integrated gasified com-
                      bined cycle  (IGCC) which qualify  as repowering technologies
                      under  Title  IV ^ and (3)  newer  clean  coal technologies -
                      examples include DOE  Clean Coal Project demonstrations such
                      as in-duct sorbent injection (NATEC), gas suspension absorption
                      (AirPol Inc.), and confined zone dispersion (Bechtel Corp.).

              —      Conventional NOX control equipment such as low NOX burners
                      (LNB)  and low NOX concentric firing systems (LNCFS).

              —      Particulate control upgrades such as adding flue gas conditioning
                      systems, expanding electro-static precipitator surface plate area,
                      or installing baghouses.

              —      Boiler and powerplant  equipment upgrades (necessary in some
                      cases for switches to  Western coal) such as additional coal
                      pulverizers  and induced draft fans.

              —      Companies  producing and transporting lime and/or limestone (a
                      catalytic reagent used in scrubber technologies).

       •      Clean Fuels Industry - Title IV will spur significant shifts to low-sulfur
              fuels such as low-sulfur coal displacing high-sulfur coal at some utility
              coal-fired sources, and natural gas displacing residual fuel-oil at oil-fired
              sources. As a result, "clean fuels" companies will produce and ship more
              low-sulfur fuels:

              —      Companies that mine low sulfur coals in Central and Southern
                      Appalachia as well as companies with mining operations in  the
—     Title IV amendments provide a four-year Phase II compliance exemption (until 2004) for sources
       installing qualified repowering technologies (e.g., PFBC, AFBC and IGCC). Therefore, increased
       sales revenue will probably not accrue to companies that develop, and supply these technologies
       until after 2000 (i.e., past the time period considered in this study).
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                            EXHIBIT 3-9
             TITLE IV:  ACID RAIN BUSINESS OPPORTUNITIES
General  Requirements        Business Opportunities
      NOx Control Program
          Control Program
      Emissions Monitoring
                                      Air Pollution Equipment Industry
                                    Engineering, Design and Construction
                                         Lime/Limestone Producers
                                         Low Sulfur Coal Producers
                                               Railroads
                                       Natural Gas Producers/Pipelines
 Pace III-17
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                                   EXHIBIT 3-10
            TITLE IV:  ACID RAIN REVENUE INCREASE ESTIMATES^
Annual Average Revenue Increase
Air Pollution Control Equipment
SO2 Control Technology
NOX Control Technology
ESP Upgrade/Boiler Modifications
Lime/Limestone Market
Total
Clean Fuel Industry
Low Sulfur Coal Producers
Low Suliur Coal Shippers
Natural Gas Producers
Total
Emissions Monitoring Industry
Continuous Emissions Monitors
Total
t {Billion*; ftf 1998 Dollars)
IS92-199S

0.2-0.7
0.1-0.2
<0. 1-0.2
<0.1
0.4-1.0

0.3-0.4
<0.1
0.3-0.4

0.1-0.2
$0.8-4.6
199&.2&00

0.2-0.4
0.3-0.5
<0. 1-0.1
<0.1
0.5-1.0

1.2-1.6
0.1-0.2
0.1
1.4-1.9

—
$2.€-3*0
       As discussed in more detail in Appendix B, the range of Title IV revenue increase estimates are
       based on (1) the "Low Regulatory Case" of the Regulatory Impact Analysis of the Proposed Acid
       Rain Implementation Regulations, September 16, 1991,  and (2) ICF Resources'  independent
       analysis of the Title IV requirements.
                    West (including most prominently subbituminous low sulfur coal
                    products from the Wyoming and Montana Powder River Basin)
                    will have increased demands and realize higher prices.  Note that
                    some companies supply  low sulfur coals almost exclusively,
                    while others supply both high and low-sulfur products.  Revenue
                    impacts will be mixed for suppliers that participate in both high
                    and low sulfur markets with gains in some areas and losses in
                    others.
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              —     Railroads that ship  low sulfur coals will generally benefit by
                      increased shipments often over longer distances.

              —     Companies that produce and transmit natural gas (i.e., pipelines)
                      will benefit  from increased  demand and prices.   In addition,
                      companies that expand existing or build new natural gas pipeline
                      capacity will benefit.

       •      Emissions Monitoring Industry - As a result of the emissions monitoring
              requirements of Title IV, significant sales revenue gains will accrue to
              companies involved with the manufacture, supply, design and construc-
              tion of continuous emissions monitors (CEMs).

REVENUE ESTIMATES AND TIMING

       Over the next 5-10 years, to comply with the SO2, NOX, and emissions monitoring requirements
of Title IV, affected sources will adopt some or all of the following compliance options:  (1) install SO2
control technology (e.g., conventional, and advanced clean coal technologies); (2) fuel switch to cleaner
burning fuels (e.g., low-sulfur coal and natural gas); (3) install NOX control technology; and (4) install
continuous emissions monitors (CEMs).  As a result, revenues for the air pollution control equipment
industry are estimated to be higher on average by about $0.8-1.6 billion (in 1990 $)  annually during the
1992-1995 period, and higher by about $2.0-3.0 billion (in 1990 $) annually during the 1996-2000 period.

       The majority of the increase in revenues associated with Title IV requirements,  about 70-75
percent, will accrue in the second half of the 1990s (1996-2000) and  will be associated primarily with
Phase II requirements (which begin in 2000). Note that in Phase II, the number of sources affected and
general emission reduction requirements are much greater than in Phase I; and hence revenue increases
(as well as electric utility compliance costs) are greater.

Air Pollution Control Equipment Manufacturers

       At the beginning of Phase I (i.e., 1995) it is estimated that about 10-15 gigawatts of powerplant
capacity will retrofit conventional wet lime or limestone scrubbing systems. By Phase II (2000) it is
possible that an additional 5-20 gigawatts of powerplant capacity will retrofit more  advanced  scrubbers
and lower cost clean coal technologies  currently under development in DOE's Clean Coal Technology
Program.  As a result, companies in the air pollution equipment industry that manufacture, design, and
construct/engineer conventional SO2 technologies are estimated to have revenues higher on average by
about $0.2-0.7  billion (in  1990 $)  annually during the 1992-1995 period as Phase  I  SO2 control
technology is constructed.

       Additionally,  companies  that   manufacture,  design,  and  construct/engineer  CCTs  and/or
conventional technologies are estimated to have higher revenues on average by about $0.2-0.4 billion (in
1990 $) annually during the 1996-2000 period as Phase II SO2 control technology is constructed.

       NOX controls will be required  at affected coal-fired units in Phases I  and II of the  acid rain
program.  Units with cyclone, or wet  bottom  boilers  and cell burners will not be required  to install
technology in Phase I.  Correspondingly, about 60-65 gigawatts of capacity are estimated to install NOX
controls by 1995, and an additional 200-250 gigawatts of powerplant capacity are estimated to install NOX
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control equipment by 2000.  (Cyclone and wet bottom boilers and cell burners were assumed not to be
required to install NOX controls in Phase II.)  Revenues accruing to companies that design, engineer,
manufacture and construct NOX control  equipment are estimated to be higher on  average by $0.1-0.2
billion (in 1990 $) annually during the 1992-1995 period and higher by about $0.3-0.5 billion (in 1990
$) annually during the 1996-2000  period.

       Many sources that switch to low sulfur coals in Phases I and/or II will need to add flue gas
conditioning systems, or upgrade their electrostatic precipitators or in a few cases install baghouses.  As
a result, revenues for paniculate control vendors will increase. These revenues are estimated to be higher
on average by less than $0.1  billion (in  1990 $) annually during the 1992-1995 period, and  higher by
about $0.2 billion annually during the  1996-2000 period.

       In addition to paniculate upgrade equipment, a number of plants switching to western coals may
require significant plant modifications (e.g., pulverizers, fans, boilers etc.) The amount of such upgrades
is highly uncertain because of the uncertain economics and site-specific nature of switching to western
coals.  Another uncertainty is the extent to which plants  will be derated (i.e., accept a reduction in
generating capacity), in lieu of these capital investments. Plant modifications could add up to as much
as an additional $0.1 billion (in 1990 $) in revenues annually during 1992-2000 for boiler/plant equipment
manufacturers.

       Producers of lime and limestone  are expected to have increased sales of less than $0.1  billion (in
1990 $) annually during 1992-2000. The demand for lime (a refined product of limestone) and limestone,
typical FGD reagents, are expected lo increase by 1-3  million tons annually (1995-1999) and 2-7 million
tons annually beginning in 2000.  Lime and  limestone shipments by truck or  rail  will also increase
leading to some small revenue growth.

       Disposal of sludge (a solid waste product from wet scrubbing systems)  may result in some
marginal increase in demand  for trucking companies and/or environmental service firms.   Incremental
revenues from these activities are  expected to be relatively minor.

Clean Fuels Industry

        As a result of fuel switching at  existing sources, the demand for low-sulfur coals will increase
somewhat in Phase I and more dramatically in Phase II—because more sources will be affected and
emission reduction requirements will be greater. The most significant increase will be for coals with less
than about 0.75-1.0 percent sulfur. Increased revenues will accrue to the producers of these lower sulfur
coals  from:  (1) increased sales,  and (2) increased  prices.  Most of the increase in low sulfur  coal
producer and shipper revenues (primarily with operations in Central and Southern Appalachia and the
West) will be a transfer from higher-sulfur  coal producers (primarily  with  operations in  Northern
Appalachia and the Midwest) which will face decreased demand and declining prices.

        Demands for low sulfur coals (i.e., 1 percent  sulfur or less) in Phase I are estimated to increase
by about 20-25 million tons annually during 1995-1999, and by about 50 to 110 million tons annually
beginning in 2000. Revenues accruing to low-sulfur coal producers are estimated to be higher on average
by about $0.3-0.4 billion (in 1990  $) annually during the 1992-1995 period, and higher by about $1.2-1.6
billion (in 1990 $) annually during the 1996-2000 period.
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       Associated with increased demand for low-sulfur coals, railroads will increase their revenues
significantly. Railroads will likely ship greater volumes of coal (as some plants switch from local coals
snipped by truck or conveyor) and will ship low-sulfur coals over greater distances (e.g., more coals
shipped from the West to the Midwest and East). Through 1995, net revenues are estimated to be higher
on average by less than $0.1 billion (in 1990 $) annually.  From 1996-2000 net revenues are estimated
to be higher on average by about $0.1-0.2 billion (in 1990 $) annually.

       Demand and revenue will increase for companies that produce and transmit (via pipeline) natural
gas.  These revenues are expected to increase as some affected sources switch to gas use generally from
oil.  However, a limited number of sources may co-fire gas in coal boilers.  Most of this fuel switching
will  not occur until the end of Phase I and the beginning of Phase II because very few oil-fired sources
are affected (and therefore required to  reduce emissions) in Phase I. From 1996-2000, revenues to natural
gas producers, companies that transmit natural gas, and  companies that build and/or expand  natural gas
pipelines are estimated to be higher on average by less than  $0.1 billion (in 1990 $) annually. Most of
this revenue increase is expected to occur in 1999 and 2000.

Emissions Monitoring Industry

       Units affected under the SO2 program are also required to  install CEMs.  Sources  affected in
Phase I are required to install CEMs by November 1993, and sources affected in Phase II are required to
install CEMs by the beginning of 1995.  As a result of these requirements, companies that manufacture,
design, and  construct CEMs will have increased demand and revenues.  It is highly  uncertain at this
juncture what exact type of monitors will be required and which plants will be able to meet requirements
without adding new monitors.  It is  assumed for  the revenue  estimates  presented herein that all 110
powerplants or 261 units are affected in Phase I, and all Phase II  affected sources (almost 2000 units) will
be required to install CEMs.  Revenues are estimated to be higher on average by about $0.1-0.2 billion
(annually) during the 1992-1995 period.—

TITLE VI (Stratospheric  Ozone)

INTRODUCTION

       Over the next several  years there will be significant opportunities  for revenue growth associated
with the Title VI requirements.  Companies in four general market segments will benefit:  (1) chemical
manufacturers, and R&D companies, (2) design, engineering, and construction companies, (3) air pollution
control equipment  manufacturers and (4) environmental service industry.^7 The business opportunities
are summarized in Exhibit 3-11.
—•      Revenue estimates are  based on data provided by Thermo  Environmental Instruments  Inc.,
        Rosemount Analytical Inc., and KVB Inc.

—'      The chemical manufacturers producing non-CFC containing chemical substitutes (which will have
        increased demand) are in most cases the same chemical manufacturers currently producing CFCs
        (which will have decreased demand).  Because this represents a net transfer of business within the
        same group of companies, the gross revenue impacts are not presented herein. The net effect on
        sales revenues in this industry segment is unclear.  However, it is widely accepted by EPA and
        sources in  the chemical  manufacturing industry that the net effect will be positive.
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                            EXHIBIT 3-11
        TITLE VI:  STRATOSPHERIC OZONE BUSINESS OPPORTUNITIES
General  Requirements
Business Opportunities
        CFC Phase-Out
   CFC Recovery and Recycling
      Mobile Air Conditioner
     Recovery and Recycling
     Nonessential Product Ban
                                            Engineering, Design and
                                                Construction
                                             Instrumentation and
                                             Emissions Monitoring
                                                 Air Pollution
                                              Equipment Industry
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       In  response  to chlorofluorocarbon  (CFC) phaseout  requirements,  a number  of chemical
manufacturers will develop and  produce CFC chemical substitutes  such as hydrochloroflourocarbons
(HCFCs).  Appliances  and other devices that use CFCs which are expected to use substitutes include
motor vehicle air conditioners (MVACs), non motor  vehicle air  conditioners (NMVACs), household
refrigerators and freezers,  other  refrigerated appliances (e.g., dehumidifiers, vending machines, water
coolers and ice makers), larger industrial uses such as chillers (alternative  to air conditioners used in
many large facilities),  cold storage, retail food,  process refrigeration, refrigerated transport, solvents,
sterilization, several types  of foam insulation, aerosols, and portable extinguishers, and are expected to
switch to chemical substitutes include manufacturers.  Several major chemical companies  already have
plans to build new production facilities for CFC substitutes.

       There could also be research and development  opportunities associated with new CFC chemical
substitutes, although chemical companies currently producing CFCs have conducted most of this research.
Opportunities will also exist for the development of cooling and refrigeration technologies that do not rely
on CFCs or HCFCs.  Companies will also be able to research and develop product substitutes (e.g., new
solvents and cleaning solutions) or process modifications (e.g., aqueous processes to clean glue and other
residues from electronic circuit boards) that do not rely on  the use of ozone  depleting substances.

       Some companies will  have opportunities to design, engineer and construct new  production
facilities  for HCFCs. Opportunities will also exist for  the design and installation of alternative cooling
systems at stationary sources as  well  as the design and installation of  CFC recovery and recycling
equipment for larger industrial processes.
   Title VI CFC Recycling and Recovery Requirements Will Help Foster
                                     Family Business

 Ken White founded  White Industries  in  1967.   Headquartered in his garage, White  Industries
 manufactured a small anti-blowback valve to protect auto servicemen from freon discharges during
 air conditioner repairs.  Today White Industries employs 180 people, and in 1990 had revenues of
 $18.2 million.  Recently,  White Industries  dedicated a new 110 thousand square foot headquarters
 and manufacturing building. White Industries hopes to cash in on Title VI CAAA provisions which
 require  the capture and recycling of CFCs  during  automobile and appliance service and repair.
 Currently,  White Industries manufactures machines that capture and clean freon from automobiles
 during service and repair.   The captured freon is then used to recharge the automobile air  condition-
 er. White Industries is also attempting to manufacture and sell portable CFC  recapture/recycling
 units to be used in the service and repair of commercial air conditioning systems used to cool food
 and other perishable items.
       There will be increased demand for CFC recovery  and recycling equipment to be used in the
service, repair and disposal of motor vehicle and non motor vehicle air conditioners, as well as other CFC
containing appliances.  As a result, this market segment will have a number of new business opportuni-
ties.  Environmental service companies will train service  employees  to  use  recovery  and recycling
equipment, and for off-site service, repair and disposal of CFC containing appliances.
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       Title VI has created business opportunities that are distributed throughout the country and involve
inventors, small manufacturers, the service industry (particularly auto repair, refrigeration servicing, and
fire protection services), and expansion of business for companies offering non-chemical solutions.

       In many  cases the alternatives and substitutes are decreasing costs, increasing  employment
(increased service eliminates emissions) improving product performance (some technologies  are better)
and in a few cases are stimulating other related pollution-prevention efforts as managers see the benefits
of environmental  innovation.

       In the automobile  air conditioning  sector,  regular  servicing and repair reduces  the need to
recharge  units.  In the commercial refrigeration sector, chillers will  be monitored to reduce emissions
resulting  in economic benefits of higher energy efficiency by  proper  pressure balance and  greater
reliability saving the cost of spoiled food.

       In fire  protection,  more  stringent  engineering  oversight  and quality control replaces  costly
discharge testing of halon systems.

       Similar opportunities  exist for small businesses as they address  how best to  phase  out of the
controlled substances.  Innovative proposals will be in demand for recycling  equipment design and
services  including training and certification programs for technicians.  Design and criteria for  leak
detection monitoring and halon room-integrity testing are additional opportunities.

       A significant source of business opportunities is the development and implementation of new
technology that does not rely on the use of controlled substances and that has the unexpected benefit of
improving manufacturing.  One example of such innovation is a no-clean electronics assembly line that
is  less expensive to operate, more reliable, less  likely to expose workers to chemicals, and deposits less
lead dross for disposal than traditional assembly practices using CFC solvents. A  second example is new
recycling equipment technology that gives a measured recharge. This technology  replaces currently used
inaccurate gauges and sight-glasses that result in overcharge or undercharge with  eventual damage to the
equipment and a reduction  in cooling  capacity.  There are many other examples  of how replacement of
obsolete  technology is resulting in cost savings  particularly in stimulating full product redesigns.

       This push for innovative technology is a direct result of the stringency of the Clean Air Act.  This
same stringency ensures that products developed by  U.S. industry are competitive in export markets. In
addition, development of technology in compliance  with the goals of the  Montreal Protocol assures
American manufacturers access to the markets of other Montreal Protocol signatories.

Revenue Estimates and Timing

       As  discussed above  in  the introductory section,  there  are four  market  segments that will
experience demand increases and revenue growth in  response to Title VI requirements. Over the next 5-
10 years, Title VI  requirements will  result in  gross  revenue increases in several segments of  the air
pollution control  industry.  In sum, total annual average revenues are estimated to be  higher by  $0.3
billion (in 1990 $) during the  1992-1995 period and higher by about $0.1 billion (in 1990  $) during the
1996-2000  period.   Estimates presented below are based  on and extrapolated from EPA  sponsored
analyses.
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              Chemical Manufacturers - Major chemical manufacturers are currently
              gearing-up to  increase their  production  of HCFCs (CFC chemical
              substitutes) which have much lower ozone depletion potential than CFCs.
              However, there is some uncertainty in the future role that HCFC-123,
              HCFC-141b, and HCFC-22 will play in light of their relatively  high
              ozone depletion level in relation to their expected production volume.

              Construction, Design and Engineering Companies - The likely amount of
              revenue growth for construction, design and engineering companies is
              very uncertain. It is clear that there will be some opportunities corre-
              sponding  to the construction and design of new facilities  to produce
              HCFCs.  Several chemical manufacturers have already announced plans
              to build new facilities prior to 1995. Construction, design and engineer-
              ing companies stand to  earn  on average  about $0.1 billion annually
              (1992-1995). As discussed above, there are other business opportunities
              for these companies (e.g.,  design,  engineering and construction of
              recycling and recovery equipment) for which revenue estimates have not
              been developed.

              Air Pollution Control Equipment Manufacturers  - The most significant
              revenue growth opportunities in this market segment exist for supply of
              recovery/recycle equipment to be used in the service, or repair of air
              conditioning and  refrigeration equipment.  For  the MVACs industry,
              revenues are estimated to be higher on average by about $0.2 billion
              annually during the  1992-1995 period and about $0.1 billion annually
              during the 1996-2000 period for such equipment.

              Environmental  Services - Some relatively small growth opportunities
              associated with administering certification tests for MVAC  service and
              for repair employees,  are  expected for environmental  service firms.
              However, these opportunities are not quantified in this report.
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      CHAPTER IV
Supply Responses by the Air
 Pollution Control Industry

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                                     CHAPTER IV
       SUPPLY  RESPONSES BY THE Am POLLUTION CONTROL INDUSTRY
INTRODUCTION

       As discussed in Chapter III, the Clean Air Act Amendments will increase the demand for services
and equipment for a wide variety of companies and industry groups, both large and small.  Yet the
intensified demand will also put the supply-side resources of the air pollution control business to an
unprecedented test.   This chapter, using Chapter Ill's revenue estimates and other supporting  data,
evaluates how the various industry groups will meet this challenge and how specific companies' or
industry groups' growth and profitability will be affected.

       Chapters II and III focused on the specific provisions of the legislation and the potential revenues
on a title-by-title basis. As those chapters illustrate, different titles frequently contain provisions that will
benefit the same types of companies. For  example, the stationary-source emission control  equipment
business will have new demand attributable to Titles I, III, and IV;  while the engineering/design segment
will gain business  from nearly every title of the statute. Accordingly, this chapter is not broken down by
CAAA title, but by four of the five broad industry segments outlined in Chapter I.

       The specific title-by-title revenue increases presented in Chapter III are translated into revenue
increases in the four industry segments identified in Chapter I.  Exhibit 4-1 identifies the interrelationship
between the  title-by-title revenue impacts and the corresponding major air  pollution control  industry
market segments expected to reap benefits from the Clean Air Act Amendments of  1990.

SUMMARY  MARKET EFFECTS

       The estimated revenue increases for the various supplying segments of the air pollution control
industry are briefly discussed below and shown in Exhibit 4-2.

       As discussed in Chapter III,  revenue estimates for all growth segments were not developed or
were not available. However, most of the larger revenue impacts associated with the CAAA requirements
have been estimated.  Estimates were not available for some segments because final regulations are still
uncertain, or uncertainty about emission control steps that will be taken exists (e.g., product reformulation
versus add-on controls).   As a consequence, certain segments described below may  experience even
greater revenues:

       •      Air Pollution Control Equipment - This category includes participants in
              the  "traditional"  stationary  source  air pollution  control  equipment
              industry.    As noted  in Chapter I, the traditional  segment  includes
              companies  that rely  predominantly on stationary source air pollution
              control equipment business.  In addition to the "traditional" stationary
              source air  pollution  control equipment manufacturers, this segments
              includes makers of pollution control devices for mobile sources.  Current
              revenues for the traditional,  stationary source  air pollution control
              industry are about $2.0-5.4 billion (in 1990 $). Revenues in this  segment
              are expected to be higher  on average by about $2.3-3.4 billion (in
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                                     EXHIBIT 4-1
  INTERRELATIONSHIP OF CLEAN AIR ACT IMPACTS BY TITLE AND MAJOR
           AIR POLLUTION CONTROL INDUSTRY MARKET SEGMENTS
              Title I (Nonattainment)
              -Major Stationary
               Source Requirements
              -Stage II Controls
            Title II (Mobile Sources)
            -OBD Equipment
            -Tailpipe Standards
    Title VI (Stratospheric Ozone)
    -Recycling and Disposal Requirements
                                   Title III (Air Toxics)
                                   -Major and Area
                                    Source Requirements
                                   -Accidental Releases
                                  Title IV (Acid Rain)
                                  -SO2 and NOx Requirements
Title I (Nonattainment)
 •Monitoring	
    Title II (Mobile Sources)
     -On-board Diagnostics
Title III (Air Toxics)
-Monitoring Requirements
Title IV (Acid Rain)
 -Monitoring Requirements
                                                    Title IV (Acid Rain)
                                                     -SO2 Requirements
                                               Title II (Mobile Sources)
                                                -Reformulated and
                                                 Oxyenated Gasoline
              Title I (Nonattainment)
              -Major Stationary
                Source Requirements
                                   Title II (Mobile Sources)
                                    -Transportation Control
                                      Programs
                                    -MTBE Facilities
                                            JL
         n!ttlowch2.diw
                         Title VI (Stratospheric Ozone)
                          -HCFC Production Facilities
                                  Title III (Air Toxics)
                                   -Major and Area
                                    Source Requirements
                                   -Accidental Releases
                              Title IV (Acid Rain)
                              -SO2 and NOx Requirements
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                                      EXHIBIT 4-2
                 REVENUE  GROWTH  POTENTIAL DUE TO CAAA
Revenue Estimates
(billions of
Air Pollution Control Equipment
Stationary Source
Mobile Source
Cleaner Burning & Alternative Fuels
Natural Gas
Low Sulfur Coal
Reformulated and Oxygenated Gasoline
Engineering, Design, and Construction
Instrumentation and Emissions Monitoring
TOTAL
By Industry Segment
1990 dollars)
Ottlt<
Annual
Revenues
2.0-5.4
8.3
10.3-13.7
43-47
13-19
NA
56-66
22
0.1-0.2
88-103
Average Annual Reveniifc
Increase
m&m$
2.3-3.4
0.5-0.6
2.8-4.0
0.3-0.4
0.3-0.4
0.6-0.8
0.4-0.7
0.2-0.4
4.1-5.8
im#m
4.2-5.8
0.6-0.7
4.8-6.5
0.1
1.2-1.8
0.3-0.4
1.7-2.3
0.1-0.2
0.1-0.2
6.6-9.2
              1990 $) annually during the 1992-1995 period and higher by about $4.2-
              5.8 billion (in 1990 $) annually during the  1996-2000 period.  As noted
              in Chapter I, a portion of these  revenues would likely  be earned by
              engineering, design, and construction companies for on-site services (e.g.,
              site modifications and equipment assembly).

              The current market for  makers of pollution control devices for mobile sources
              (e.g., tailpipe controls such as catalytic converters, and trap oxidizers) is about
              $8.3 billion.  New  business opportunities for these types of companies are
              expected to be relatively modest.  However, there will be increased demand for
              on-board diagnostic  systems which will lead to higher revenues on average by
              about $0.5-0.6 billion (in 1990 $) annually during the 1992-1995 period and by
              about $0.6-0.7 billion (in 1990 $) annually during the 1996-2000 period.

              Alternative and Cleaner Burning Fuels - This segment  encompasses
              manufacturers of alternative vehicle fuels and fuel additives; natural gas
              concerns; and producers and shippers of low-sulfur coal.   Total current
              revenues in these areas—excluding natural gas, which is a $43-47 billion
              (in 1990 $) business—is roughly $13-19 billion (in 1990 $).  Overall,
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              due to Titles II, IV, and VI of the CAAA revenues are expected to be
              higher on average by  some $0.6-0.8 billion (in 1990 $) annually in the
              alternative fuels and energy segment between 1992 and 1995, and higher
              by some $1.7-2.3 billion (in 1990 $) annually between 1996 and 2000.
              Of this, increased demand for natural gas is expected to be relatively
              small—adding  revenues of less than $0.1 billion (in 1990  $) annually
              1996-2000.-' It is important to note that in the  case of the low-sulfur
              coal market, increased revenues reflect losses in revenues for high sulfur
              coal producers.  More uncertain growth opportunities in this  segment
              (which were not  quantified for this analysis) include a variety of other
              areas  (e.g.,  compressed natural gas  vehicles,  and  refueling  stations,
              methanol  vehicles, electric vehicles, development of more efficient, and
              less expensive catalysts).

              Engineering, Design and  Construction - Engineering, design and con-
              struction  companies provide industrial  clients  with a wide range of
              services,  only  a  small  fraction of which are related  to the clean-air
              market. Due to the CAAA, average annual revenues for this industry are
              expected to be higher by some $0.4-0.7 billion (in 1990 $) annually from
              1992 to  1995 and by about $0.1-0.2 billion (in  1990 $) from  1996 to
              2000, with most of the demand related to design and construction of new
              facilities to  manufacture MTBE, ethanol (fuel oxygenates for gasoline)
              and  CFC-substitutes  (HCFCs).   This  growth  compares  with a total
              engineering market of $22 billion in 1990. It should be noted, however,
              that revenue estimates could be substantially underestimated.   As dis-
              cussed in Chapter I, even though engineering, design and  construction
              companies are not  traditionally  classified as part of the  air pollution
              control equipment industry (because they do not rely on that business for
              a large portion  of sales), they certainly would earn a portion (significant-
              ly less than half)  of the increased revenues associated with that industry.
              Also, as discussed in Chapter III, opportunities  for  process engineering
              to reduce or prevent air toxic or other emissions have not been estimated
              in this report.  These process opportunities were not quantified for this
              report because  the costs and techniques  are not well understood.

              Instrumentation, and Eimissions Monitoring - Companies in this business
              area provide instrumentation and systems for  testing emissions from
              utilities and other industrial sources. This relatively  small segment (with
              current revenues  of about  $0.1-0.2 billion (in 1990 $)) will receive a big
              boost from the  CAAA.  Due to provisions in Titles II, III, and IV, annual
              revenues  are expected to be higher on average by about $0.2-0.4 billion
              (in 1990  $) during the  1992-1995 period and higher by some $0.1-0.2
              billion (in 1990 $) during the 1996-2000 period.
-      Growth opportunities for natural gas suppliers and producers will likely be more substantial after
       2000 when Phase II of the acid rain program takes full effect.
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       In addition to these four segments, Chapter I also touched on one additional business area likely
to glean sizable new revenues from the CAAA: environmental consulting and other services. In view of
the diversity of companies in this sector, however, it is difficult to attempt to characterize the industry's
supply-side response to the CAAA requirements.  The  current chapter makes no attempt to explore or
analyze the consulting segment.

       These four diverse industry groups (and their many subsets) face different situations in terms of
capacity, profitability, employment, and competitiveness.  Further, each group or company will have its
own highly individual response to the CAAA-induced demand.  Yet despite these specific considerations,
in general the CAAA is likely to engender the following type of business climate:

       •       Advantage to established companies - As  with some previous environ-
               mental  statutes, the CAAA will create a bid-intensive, big-ticket environ-
               ment, forcing many in the regulated community to make massive capital
               expenditures over relatively short time  frames.  Confronted with  that
               situation, companies  may well favor contractors with stability,  experi-
               ence,  financial  strength, and staying  power, to  ensure  a long-term
               solution to CAAA dilemmas.  Such  attributes usually belong to large,
               established  concerns, particularly in business areas such as equipment
               and engineering.  Other areas that could benefit from CAAA demand,
               such as low-sulfur coal and natural gas, have pronounced economies of
               scale, a quality that again gives the nod to bigger companies.

       •       Full-service  approach -  In the  face  of extremely complex and often
               interrelated legislative strictures, many  regulated companies also  will
               likely seek  a full-service, "turnkey" approach to compliance.  Sensing
               that trend, some vendors of pollution control products and  services are
               looking to expand across  industry lines.  Engineering companies, for
               example, have begun to make forays into the emission control equipment
               marketplace;  equipment  firms,  in turn,  increasingly  are providing
               instrumentation  as part of their  product  lines.   This  observation  is
               especially true for larger construction-oriented projects.

       •       Increased acquisition activity - Driven by the full-service trend, acquisi-
               tions in the pollution control business should accelerate, as companies
               make selective  purchases  to fill  gaps in their  product   and  service
               offerings. Obviously, the pace of this activity will vary from segment to
               segment.  Instrumentation, where even  the larger players until recently
               had annual  revenues  of only  $10 million or  so, will offer  a far greater
               number of acquisition candidates  than the mobile-source equipment
               business, which is dominated by a few very large firms.  Acquisitions
               will run at perhaps the briskest pace in the fragmented engineering and
               consulting arena. Here, companies will buy other concerns  not only for
               their client lists and  niche technologies, but  also for their  air pollution
               control specialists, who could be  in short supply due  to  the  CAAA
               demands.
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              Capital formation and financing - At present, most air pollution control
              firms appear to be  funding growth internally, rather than floating new
              public debt or equity issues. The CAAA, however, should increase Wall
              Street's appetite for such investments, allowing air pollution control firms
              to access the capital markets. Even so, the rate of new offerings may not
              materially  quicken until a few  years from now,  when post-CAAA
              earnings trends come into sharper relief.  The  investment community
              usually prizes businesses with earnings  stability and predictability—
              qualities not historically associated with the air pollution control market
              —and could well take a show-me attitude in the near term.

              Niche opportunities for small and medium size businesses  - The CAAA
              will also open up some  new  markets  for smaller firms in technology-
              driven niches or in areas, such as instrumentation, where bid sizes are
              relatively small. To illustrate this, several case studies of opportunities
              (or cost reducing actions) for  small and  medium size businesses have
              been included throughout this report.  Specifically, case studies were
              included on the Ecoprint, a small commercial printer  in Maryland which
              has adopted process changes to reduce VOC emissions; White Industries,
              a family  business  which  is  producing  CFC  capture and  recycling
              equipment; and the Passamaquoddy  Indian tribe, which is marketing an
              innovative SO2 control technology.
             Small Companies Gear Up for  Clean Air Act Growth
 In addition to providing growth opportunities for large established firms providing clean air services,
 small companies will benefit.  For example,  as reported in the Detroit Free Press last year, three
 small Michigan companies are expecting increased business due to the new Act.  Control  Manufac-
 turing Corporation of Riverview is expected to increase its present workforce of 25 to 45 employees
 by  1995.   Monroe  Environmental, a scrubber sales company, is expecting a 10%  growth in its
 workforce and Swanson Environmental,  a Farmington Hills air quality consulting firm anticipates
 doubling its current  workforce of 14 within the next two  to three years.
       With these ideas as background, the remainder of this chapter explores the CAAA's influence on
specific industry segments, and how these segments are expected to respond to the increased demands
under the CAAA.

AIR POLLUTION CONTROL EQUIPMENT

Stationary Sources

       Although the CAAA will open up business opportunities  for a wide spectrum of companies, the
most  immediate beneficiaries of the statute will likely be firms in the well-established business of
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cleaning up emissions at the stack. Title I and Title III include provisions that should spur the market for
recovery equipment, such as vapor abatement, carbon adsorption, and air stripping systems; for disposal
equipment, including catalytic incinerators, thermal incinerators, and flares; for paniculate control systems
such as electrostatic precipitators (ESPs) and fabric filters (baghouses); and for wet and dry scrubbers.
The acid-rain regulations of Title IV will also increase the  demand for scrubbers, and for other SO2-
reduction technologies such as flue-gas conditioning systems and dry sorbent injection.  In addition, the
acid-rain title will expand the market for a variety of NOX control strategies and for paniculate control
systems.

       The  demand and revenues linked to the CAAA should profoundly alter the stationary-source
equipment industry, which during the  1980s saw revenues and margins erode as air-quality legislation,
regulation, and enforcement lagged (see Chapter I).  Driven  by the statute, average annual revenues for
stationary source equipment makers are estimated to be higher on average by $2.3-$3.4 billion (in 1990
$) from 1992 to 1995 and higher by about $4.2-$5.8 billion (in 1990 $) annually from 1996 to 2000.
This growth  adds significantly to the current market of $2.0-5.4 billion (in 1990 $), and would far eclipse
the average compound annual growth rate of approximately  3.2 percent earned by leading firms in this
segment form 1982  to  1989 (Industrial Gas  Cleaning Institute).   As  discussed further below, the
equipment business is dominated by sizable, established firms, which are likely to garner the lion's share
of CAA-related revenues owing to the statute's bid-intensive requirements and relatively short compliance
deadlines.  Even so,  the expansion engendered by the law should create opportunities for virtually  all
companies in this market segment.

       Quite apart from revenue gains, the CAAA will change the stationary-source equipment industry
in other ways. Notably, the potential customer base will widen. Titles I and III, for example, will extend
air controls  to some industries, such  as electronics, fibers, and coatings, that have not traditionally
employed  such equipment.  Further,  in the  worst-air-quality  areas,  small-quantity generators  could
constitute a growth area, analogous to the new business opportunities that waste-management companies
discovered in the "mom  and pop" market after passage of the Hazardous and Solid Waste Amendments
of 1984.

       The following paragraphs offer some thoughts on how the revenue bulge derived from the CAAA
could affect the  equipment industry.  The discussion pertains mainly to suppliers of SO2,  NOX and
paniculate-control systems, such as scrubbers, low NOX burners and ESPs, that will be affected by Title
IV of the CAAA.  While Titles I and III will also contribute  significantly to increased demand for
stationary-source equipment, considerably more information is available regarding the major players and
competitive  dynamics in the SO2 and NOX control  markets affected under the acid rain title.  Note,
however, that in many cases the equipment requirements are similar in Titles I  and III  (e.g., scrubbers,
NOX controls, paniculate controls) and hence, the companies benefiting  are likely to be similar.  It is
expected therefore, that many of the same companies will be affected and the same competitive dynamics
will exist as a result of the Title I and Title III requirements.

Supply-Side Issues

       A sizable number of equipment firms, large and small, will be competing for the new pool of
revenues attributed to the CAAA (see Exhibit 4-3). As was  noted in Chapter I, however, the industry's
top eight players control  half  of the market  at present.   These same companies  are  competitively
positioned to maintain their current market share.
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                                   EXHIBIT 4-3
                            SELECTED PARTICIPANTS
      Am POLLUTION CONTROL EQUIPMENT - STATIONARY SOURCES
     SO2 Control Technology
     NO Control Technology
     Electrostatic Precipitators
     Lime/Limestone
                                                 Selected Pwticrpaitts*
Asea Brown Boveri
Air & Water Technologies - Research Cottrell
Babcox & Wilcox
General Electric
Joy Technologies
NaTec Resources
United Engineers & Constructors
Wahlco Environmental
Air & Water Technologies - Research Cottrell
Asea Brown Boveri
Babcox & Wilcox
Damper Design - Eagle Air
Foster Wheeler
Nalco Fuel-Tech
NaTec Resources
Noxso Corporation
RCM Technologies
Riley Stoker
Asea Brown Boveri
Air & Water Technologies - Research Cottrell
BHA Group
Environmental Elements
General Electric
Lodge Cottrell
Beazer pic
Dravo Corporation
Martin Marietta
Vulcan Materials
            *  This is not an all inclusive list, but gives a sample of different firms,
            both public and private, that compete in the specified segment.
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Profitability

       Many of these companies are already seeing an increase in bidding activity, as the regulated
community begins to gear up for compliance deadlines in the mid-1990s.  For example, the Research
Cottrell division of Air & Water Technologies is currently bidding on twice as many projects as they had
the year earlier. The impact of that upturn on profit margins, however, is somewhat more difficult to
gauge.  In light of the industry's history of unstable revenues  and earnings, operating  margins  have
generally been relatively low.  That was particularly true during much of the  1980s, when the volume of
business dropped substantially and, thus, fewer revenues were available to offset the costs inherent in
bidding for new work.

       The same logic should work in reverse as the CAAA business heats up.  As revenues expand, the
enhanced volume will begin to far outweigh bidding costs, and margins should widen.  In  addition, as
equipment firms develop sizable cushions of backlog, many are likely to become more selective in their
bidding, favoring more profitable contracts  and  leaving lower-margin work to competitors with less
favorable market positions.  Finally, the timing of compliance deadlines will influence profitability.
Although many utilities and industrial clients  are already taking steps to ensure timely compliance, others
apparently are postponing action or still working to determine the best course.  The longer such customers
delay their decisions, the higher the margin that equipment concerns will be  able to exact from them to
meet the legislative deadlines.

       Given  these dynamics,  a number of participants  in  the equipment business expect operating
profitability to  climb  to as high as 20-25 percent,  versus levels of  10-15  percent  today.  However,
increased margins will neither take hold  immediately nor be spread  uniformly. For example, according
to a number of industry sources,  operating margins have actually been somewhat depressed in the
immediate aftermath of the CAAA's enactment. The reason:  although bidding activity has quickened in
the past several years, actual orders have been relatively  slow coming on line.  Further, although this
situation will likely reverse itself as CAAA-related business grows,  any increase in margins is likely to
sharpen competition in the equipment segment.  Selected firms could  thus see  market shares erode,
notwithstanding generally higher revenues and improved profitability.

Capacity

       There should not be any significant capacity concerns in meeting increased demand for stationary
source equipment due to CAAA provisions. This is because: (1) both large and small  firms are currently
positioning themselves to gear up for the new demands, and (2) there is  some excess capacity available
in the  industry  given  the slow growth period in the last  half of the  1980s. As noted  later, the only
potential capacity constraint in the industry is in terms of execution capacity (experienced personnel to
engineer the projects).  Title  I  and  Title IV provisions requiring NOX  control equipment  at  major
stationary  sources  and at Phase I  affected  (1995)  utility sources,  as well  as SO2 control equipment
demands under Title IV at some Phase I affected sources, will  be at the forefront of short-term equipment
demands.  However, there appears to be sufficient capacity (in terms of experienced personnel)  in the
short-term to meet this growth. Major companies currently in the NOX control market likely to have the
greatest demand increases include Research  Cottrell, Asea Brown Boveri, Babcox and Wilcox, Foster
Wheeler and Riley Stoker.

       In addressing the expanded market  fostered by the CAAA, production capacity, as classically
defined, is  unlikely to  be  a major obstacle for the  stationary-source equipment segment.  Despite its
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heavy-industry connotations, this business is not particularly capital intensive.  Many firms  focus on
design and project management, subcontracting a large share of the actual construction.  A number of
other capacity indexes, however, could become important.  Surety capacity, for example, is determined
by a firm's underlying financial strength.  Although few contracts actually require equipment companies
to post surety bonds, the contractor often must show that it has the financial capability to post such bonds
if necessary.  The surety issue, while unlikely to constrain the industry's overall ability to respond to the
CAAA, could strengthen the hand of firms with excellent balance sheets in capturing a significant share
of future work.  Another possible hurdle is proposal capacity—equipment companies, after all, can only
respond to a limited number of bids.

       Perhaps the most salient capacity issue in this industry for the coming decade will  be execution
capacity:  the ability to hire and retain  qualified engineers,  technical staff, sales representatives, and
others.  In the near and long term, the number of engineering and design personnel appears adequate to
meet CAAA  demand.  General design and engineering skills can apply to a variety of industries, and
employees  possessing those abilities  are routinely transferred from one industry to another as market
conditions  change.  (This factor  is  discussed  in  more  detail under "Engineering/Design, Process
Modifications, and R&D,"  below.)  On the other hand, these  staff members must be supervised and
guided by employees with a detailed, highly specific knowledge of air pollution control systems.  Such
specialists are in  short supply at  present, and  the ability to  attract and  retain them  will be a key
competitive issue as CAAA demand begins in earnest.

        One other capacity  variable should be mentioned. As was noted earlier, emission control equip-
ment suppliers focus on design and process management, leaving production and assembly of materials
to a variety of subcontractors. Thus, although production capacity in the post-CAAA era will not emerge
as a major issue for the equipment companies themselves, the extra demand could strain the capacity of
subcontracting companies such as steel fabricators and construction firms.  At present, these secondary
suppliers have more than  adequate room to  handle the surge in  business, in  large part because of
continued sluggishness in the  U.S. economy.  Should general  economic growth materially accelerate,
however, the situation could tighten considerably.  At the very least, such a development would narrow
the equipment industry's profit margins as subcontracting costs expanded.

Employment

        As the principal  capacity constraint in the equipment business lies in the number of qualified
personnel available, it is reasonable to anticipate employment increases throughout this business.  Many
companies  expect to  add to their rolls in the wake of the CAAA. Exhibit 4-3 presents a very selective
list of equipment firms and their projections of employee growth over the next three to five years.

        A number of important points emerge from this brief list.  First, although several firms have
ambitious hiring  plans, the reality will be determined, as is  implied above, by the pool  of trained
professionals actually available.  Also, it is interesting to  note that larger  concerns, such  as  GE's
environmental division and Foster Wheeler, look for relatively moderate employee growth, while smaller,
niche concerns, such as Lodge Cottrell and NaTec Resources, plan for a brisker rate of increase in their
work-force.  Obviously, this factor depends in part on the relative sizes of the existing employee bases,
but it also hinges  on the breadth of business addressed.  Also, firms providing a relatively wide spectrum
of pollution control services can shift  personnel from segment to segment as market conditions require,
thereby flattening out fluctuations in overall company employment levels. Companies focused on one or
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two  business areas,  by contrast,  must keep the number of workers in sync with  demand for those
particular services, and thus will need to access more new outside labor to enjoy CAAA-induced growth.
EXHIBIT 4-3
Employee Growth Rates for Selected Stationary Source Companies
'...." , . , ..r.. ^Bpa»yv': •" ;;; "
Environmental Elements
Foster Wheeler
General Electric - Environmental Division
Lodge Cottrell
NaTec Resources
Corre»i J&njtfoyees
325
300
250
50
50
Growth
{% per year)
15
15
10
19
20
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Technology

       Research and development expenditures in the equipment business typically run at around 5
percent of sales, and have tended to focus more on product improvement than on product development.
The principal technologies in this segment are proven, and should meet the needs of CAAA compliance
for most regulated concerns. Therefore, a significant upward trend in R&D expenditures is not expected.

       Still, many companies will likely expend considerable effort to improve current technologies,
thereby differentiating their products and making them more competitive in the marketplace. New, tightly
focused marketing opportunities could open up as a result. Also, air toxics requirements, particularly in
the longer term, may require considerable R&D effort to meet very high residual risk standards that EPA
may develop.  Another R&D focal point will be technologies that will allow utilities to burn relatively
high-sulfur coal economically under  the SO2 emission allowance program.  Such emerging schemes,
   Passamaquoddy Indian Tribe Offers Innovative SO2 Control Technolo-
 gy

 The Dragon Products Company is testing the  Passamaquoddy  Technology at its cement plant  in
 Thomaston, Maine.   A  demonstration project  in  DOE's  Clean Coal Technology program, the
 Passamaquoddy technology is a recovery scrubber that achieves 95 percent sulfur removal efficiency
 by combining the waste dust from the cement plant with water.  In addition to removing sulfur from
 the plant's exhaust gases the  process reduces  the amount of solid waste and produces fertilizer,
 distilled water and limestone as saleable by-products.  Operation of the scrubber in Thomaston  is
 expected to more than pay for itself by avoiding landfill costs, recycling the feed materials, and
 selling valuable by-products.

 However, the owners of the cement plant have recognized the potential for additional  savings by
 opting-in to become affected under the SO2 provisions of Title IV.  By doing so the cement plant
 would be  allocated SO2 allowances  which are saleable based on its 1985 SO2 emission rate
 multiplied  by  1985-1987 average annual  fuel consumption.   Because application of the Passama-
 quoddy technology occurred after 1985, the cement plant would generate excess SO2  allowances
 (i.e., more  than needed to offset future controlled emissions), which could be sold for profit to other
 interested parties such as electric utilities.

 In addition to possible applications at cement plants, other potential Title IV industrial opt-in sources
 that are considering application of the Passamaquoddy technology include paper and waste-to-energy
 industries where wood ash and incinerator ash would be used as scrubbing agents.
under the auspices of the Department of Energy's Clean Coal Technology program, are discussed under
the "New Opportunities and Secondary Impacts" section, below.

Company Specific Impacts

        "Experience will tell" will likely be the golden rule as equipment suppliers compete for CAAA-
induced business.  Both utility and industrial customers—facing multimillion dollar investments, tight
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regulatory  time  frames,  and the risk of sanctions for  noncompliance—could  well  gravitate  toward
companies  and technologies with a proven record of timely compliance. (Utilities in particular have long
showed very conservative buying practices.) As a corollary, the market may greet comparatively untried
participants with a large dose of skepticism, at least in the short run.  And, in light of the complexity of
the statute,  the most successful equipment concerns could also be those that have a relatively broad view
of the air pollution control arena, with strong positions in a variety of market segments.

        Almost by definition, this implies a considerable advantage for firms in the market's top tier. As
was noted earlier, roughly half of the stationary source equipment manufacturers' $1.1 billion in annual
revenues is accounted for by eight firms.  Certain market segments are even  more concentrated.  In
electrostatic precipitators, for example, the top three players—Flakt, Research Cottrell, and Environmental
Elements control more than two-thirds of the market.  It is likely that such firms will be the  first ones
called upon to fill CAAA demand. As they become increasingly "booked up," other players will receive
contract awards.  This is not to say that the statute carries no opportunities for smaller companies in the
equipment segment. But such companies will likely find their best bets in niche areas, such as innovative
improvements to existing technologies, and in the Energy Department's clean-coal program.

Domestic versus Foreign Competition

       Although most CAAA-related revenues in the equipment market will go  to domestic concerns, a
not-insignificant  share will likely flow overseas as well.  The top player in the U.S. equipment market,
Flakt—with 12.7 percent of the total business—is owned by the Swedish-Swiss giant Asea Brown Boveri,
and other foreign-owned  firms hold a sizable portion of the market.  It is worth noting, however, that
foreign firms  have  usually entered this market not by opening a grassroots U.S. office but rather through
an  acquisition.   Notwithstanding the large installed  base  of air pollution control  equipment abroad,
American utility  and industrial companies will  likely lean toward stateside suppliers with commercially
proven technologies.  Such thinking in part probably drove Asea Brown Boveri's $1.8 billion acquisition
of Combustion Engineering in 1990, and Deutsche Babcock's 1990 purchase of Riley Consolidated.  Both
foreign concerns will now market their technologies as part of the boiler systems sold by the acquired
subsidiaries.

       In  view  of the  huge revenue potential inherent in  the  CAAA, it seems  likely  that  foreign
companies  will remain interested in  acquiring U.S. players,  to  gain  a toehold in a possibly lucrative
marketplace.  In  the near term, however, the rather lofty prices of many air pollution control companies
could blunt acquisition activity, foreign or domestic.  In anticipation of CAAA business, investors have
materially bid up the stock values of companies  in the air market. In recent months, the shares of Air and
Water Technologies, for example, have been trading at some 29  times projected 1992 earnings (year end
is October), and Environmental Elements stock has a price/earnings  ratio of 21 times projected  1993
earnings  (year end is March). These ratios are high relative to historical market norms.  Rather than
making outright acquisitions at such high prices, foreign companies looking to enter the U.S. market may
choose to enter via joint ventures or partnerships with American firms.

New Opportunities and  Secondary  Markets

Clean Coal Technology

The U.S. Department of Energy's Clean Coal Technology program, started in the mid-1980s, has already
provided "seed money" for a variety of novel  approaches to reducing coal emissions.  In essence, the
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technologies under study all have the goal of allowing relatively "dirty" high-sulfur coal to be burned
efficiently while meeting acceptable emission standards. The CAAA's assault on SO2 emissions will only
intensify the search for workable clean-coal approaches.

       In four separate selection rounds since 1986, the Energy Department has chosen a total  of 51
projects, in 22 states, for clean-coal funding, with a total funding level of more than $6 billion. (Under
the program, DOE can recover its investment by taking a portion of the future sales associated with the
funded facility.)  The latest round, in September 1991, focused on nine projects in eight states, with total
funding of some $1.5 billion (Exhibit 4-5).

       Eight of the nine projects employ U.S.-designed technology, and all proposals would manufacture
the principal components of the technology in the U.S. Three projects involve coal gasification, expected
not only to remove a substantial portion of acid-rain-causing components but also to squeeze as much as
25 percent more  electricity from a given amount of coal. Another four projects will create devices that
can be added onto existing or new power stations to  meet CAAA requirements, and the other two
schemes will demonstrate techniques to change coal into  cleaner-burning  fuel forms for a variety of
applications.

       Because the technologies under the clean-coal program are by definition commercially untested,
it is very difficult to gauge their potential impact on the clean-air equipment marketplace.  The clean-coal
program has already created some unusual niche opportunities (see case study, "Passamaquoddy Indian
Tribe Offers Innovative SO2 Control Technology").  Most of the demand for such technologies, however,
will likely be felt toward the end of this decade, as the Phase II deadlines  under CAAA Title IV draw
near.  Should clean-coal technologies become a commercially viable and  widely used  alternative, the
impact would be  felt  far  beyond the equipment  marketplace.   Widespread  adoption of clean-coal
techniques, for example, might slow  demand  growth for low-sulfur  coal, and  could diminish the
attractiveness of natural gas as  a utility fuel alternative. The range of revenue estimates presented in the
Chapter III section addressing the acid rain provisions take these uncertainties into  account.

Lime/Limestone Market

       An interesting secondary impact of the CAAA-induced demand for wet and dry scrubbers will be
its effect on the  lime and limestone industry.  Both kinds  of scrubbers use a lime or limestone slurry,
containing varying percentages of solids,  as a reagent to neutralize acid gases.   Roughly 60 percent of
U.S. scrubbers use limestone in this process; the remaining 40 percent use lime.

       Both the lime and limestone businesses are large, fragmented industries, and, because freight costs
represent  a key expense component, they  tend to operate on a regional basis.  Total  annual  limestone
volume is roughly 1.2 billion tons, and is expected to grow to some 1.6 billion tons by 2000.  Only four
million tons of limestone are now used in utility applications.  A considerably higher proportion of total
lime consumption goes to utilities:  1.4 million tons, or 8.2 percent  of the total industry volume of 17
million tons.

       Although the overall lime market has  many players, one company, Dravo Corp., dominates the
sale  of lime to  utilities, with  more than three-fourths of that  market.   Most of Dravo's sales are
concentrated in the Ohio Valley corridor.  Mississippi Lime, another important player, marketed roughly
0.2 million tons of lime for utility consumption.  In the limestone market, meanwhile, a handful of large
companies, including Vulcan  Materials,  Martin  Marietta, and Beazer  pic, supply the utility market.
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EXHIBIT 4-5
Round 4 Clean Coal Technology Selections
Project SjKHi$frr
Cordero Mining Co.
Custom Coals International
New York State Electric & Gas
Corporation
Sierra Pacific Power Company
TAMCO Power Partners
Tennessee Valley Authority
ThermoChem, Inc.
Union Carbide Chemicals and
Plastics Company
Wabash River Coal Gasifica-
tion Repowering Project Joint
Venture
•;;•:• ; £tf|je&-%^ ••••;•••
Coal Drying
Coal Cleaning/Sorbent
Reconstitution
98% FGD and Selective
Noncatalytic Reduction
Integrated Combined
Cycle (IGCC)
IGCC
Coal Reburning for NOX
Coal Gasification
Regenerable FGD
System
Coal Gasification
"' ..'^f^j^'l ;
34.3
76.1
158.6
340.7
219.1
7.3
37.3
32.7
591.9
.^f'^M^m.- .
Gillette, WY
Greensboro, PA
Springdale, PA
Richmond, IN
Lansing, NY
Western Nevada
Coeburn, VA
Paducah, KY
Columbia, MD
Newburgh, IN
West Terre Haute,
IN
Source: DOE News, U.S. Department of Energy, September 12, 1991, pp. 1-5.
Neither segment appears ripe for new players, in view of the high capital costs involved with mining
limestone and processing lime.  The lime business currently is operating at only 77 percent of capacity.
Additional demand for limestone would represent less than one percent of the industry's total volume.

       The revenue estimates developed in Chapter III envision CAAA-driven sales of less than $0.1
billion (in 1990 $) annually for lime and limestone suppliers, beginning in 1995 and continuing through
the balance of  the  decade as the Phase II compliance deadline of Title IV  approaches.  Individual
suppliers in this marketplace disagree regarding the potential of the clean-air business.  Vulcan Materials,
only 1-2 percent of whose limestone sales go to the utility market, sees some benefit from the CAAA, but
believes that utility sales will make up no more than 5 percent of its limestone business even after the full
impact of the statute.  Dravo Corporation, on the  other hand, plans to  spend some $100 million to
increase capacity by 33 percent between now and 2000,  in direct response  to perceived utility demand in
the years ahead.
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Mobile Sources

Overview

       The CAAA will also influence the segment of the  emission control industry  that produces
equipment for mobile sources such as automobiles, trucks, and buses.  Most notably, Title II of the statute
imposes new tailpipe emission standards for light-duty cars and trucks of model years 1994 and later;
tighter NOX emission standards for heavy-duty diesel engines  and particulate emission standards for all
heavy-duty engines; and a requirement for on-board diagnostic equipment (to test the efficiency of the
emission control system) on all light-duty cars and trucks for model  years 1994 and later.

       As sweeping as these provisions might appear, their impact on the mobile-source pollution control
equipment market—at least in comparison with other business areas—will likely be modest. For example,
it is widely believed by EPA, and industry analysts, that the CAAA's Tier I tailpipe standards may be met
by reformulated gasoline  or, if using conventional  gasoline by  minor engine  recalibration,  catalyst
reformulation, or a reposition of the catalyst. If so, new revenues for advanced catalytic control will not
be significant.  Thus, sales in the catalytic-control area,  which accounts for a significant portion of the
mobile-source equipment market, will continue to be driven mainly by levels of auto and truck production
and current regulations  rather than by the new CAAA standards.  Analysis in this study has assumed that
areas, other than California would not opt-in under  California standards. However, recently it has become
apparent that some additional areas, particularly some New England states may opt in under the California
standards.-'  If this does occur, it  is  possible that opportunities for catalyst manufacturers would be
expanded.

       The CAAA could also offer material new business prospects in mobile-source equipment niches:

       •       As the new law's particulate-emissions  standards  for  buses and  trucks
               become effective (in 1993  and 1994), demand  should turn up signifi-
               cantly for a key non-catalytic control, the trap  oxidizer, and for other
               particulate control  systems.  (See case study, "Exhaust Aftertreatment
               Devices Seen as Possibility  for  Controlling  Diesel Particulate  Emis-
               sions.") Indeed, companies supplying such systems are already receiving
               increased inquiries  from large fleet operators, well in advance  of the
               legislative deadline. The  New York City  Transit Authority, for one,
               recently accepted delivery of over 390 trap-equipped buses.

       •       Due  to Title H's  requirement  for  on-board  diagnostic  equipment,
               revenues are expected to be higher on average by about $0.5-0.6 billion
               (in 1990 $)  annually during the 1992-1995  period and higher by about
               $0.6-0.7 billion (in  1990 $) annually  during the  1996-2000 period for a
               variety of auto-parts suppliers and makers of electronic microprocessors
               (see Chapter III).
-       Delaware, Maine, Maryland, New Hampshire, Massachusetts, New York, New Jersey, Pennsylva-
        nia, Virginia, and the District of Columbia have, pending approval from state legislatures, decided
        to opt-in under California standards.  Connecticut, Rhode Island, and Vermont are considering
        this option.
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       •       Title II provisions could lead to some growth opportunities for the clean
               fuel vehicle industry. These industries could have growth resulting from
               Title H's California Pilot Program and the fleet program.  Under both
               programs, opportunities could  exist for the development  of alternative
               fueled vehicles, such as compressed natural gas, and methanol vehicles.
               Vehicle manufacturers, natural gas producers (see discussion in clean
               fuels section of this report),  and methanol  producers, and producers/
               operators of natural gas compression stations will benefit. Under Title II,
               reformulated  gasoline  is considered a clean fuel and there is some
               evidence to suggest that a significant majority of affected sources  will
               opt for use of reformulated gasoline. If this is the case, the opportunities
               for other  alternative fuels, such as methanol and natural gas will be
               limited.

Supply-Side Issues

       According to the Department  of  Commerce, the market for mobile-source pollution  control
equipment  totaled some  $8.3 billion in 1988.  Although this market has been  driven in the past by
regulatory  and legislative changes, it  has tended in recent years to  track levels of auto  and truck
production.  As is noted in Chapter I, the  business is at present dominated  by a small number of large
manufacturers—a situation unlikely to  change in the wake of the CAAA.   Manufacturers of catalytic
control systems include Allied Signal, Corning, W.R. Grace, NGK Locke, Johnson Massey, Engelhard,
EMITEC, and A.C.  Rochester.  Manufacturers of non-catalytic control systems include Donaldson
Company, and Siemens Corp.

Profitability

       Margins in the  mobile-source  equipment  segment traditionally have been low.   The  low
profitability has stemmed from  several  basic attributes of the business.  For one,  catalytic-control firms
add little value relative to the high dollar cost of the raw  materials, which include precious metals such
as platinum, rhodium or palladium.  Also, as noted above, revenues tend to vary with automotive and
truck sales, making revenues and earnings unstable from year to year.  This variability has led to periods
of overcapacity, which has exerted a further dampening effect on profit margins.

       Currently, the industry suffers from overcapacity (see "Capacity and Employment," below).  This
situation  coupled  with increasing price pressure from European catalyst manufacturers eager to expand
share in the U.S. marketplace, means that margins in the catalytic-control  business will probably remain
low, if not decline further.  With no material  revenue impact likely from the CAAA, this situation is
unlikely to change appreciably.

       On the other hand, in several of the business niches (such as the trap-oxidizer area) that could
benefit materially  from the CAAA, margins are expected to firm somewhat as demand increases and
excess capacity is brought into production.

Capacity and Employment

       The current,  substantial overcapacity in the mobile-sources equipment business traces to the
volatile experience of the automobile industry in the late 1980s.  In 1986, as auto production passed the
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8.0 million unit level, many mobile-source equipment companies ramped up capacity materially, in the
expectation of further gains.  In  1990, however, auto production fell to 6.2 million units, and emission-
control  equipment  suppliers were left  burdened with  their  newly  added,  under-used capabilities.
Accordingly, there should be little difficulty in meeting new pollution control equipment demands.  Even
today, mobile-source equipment suppliers are operating at only around 70 percent of capacity—and, as
a result of their earlier experiences, most firms plan no significant increases in capital spending in the
next five to seven years.  For much the same reason, employment levels probably will not rise materially
in this market segment.

Technology

        Superior technology will remain  an important determinant of success for individual companies.
To meet the  statute's  Tier I tailpipe standards and other strictures, however, research and development
will likely focus not so much on new technology as on refining the existing,  proven catalytic system.
One current  line of study involves determining  the optimum  placement of the catalyst relative to the
engine.   Another line of study consists of efforts to  make the catalyst "light off  more quickly, as a
sizable share of emissions occur when the engine first turns over. And, since the CAAA will require that
catalytic-converter warranties be increased to eight years or 80,000 miles, some effort may also go toward
giving these units a longer useful life.

        In the longer term, other provisions of the CAAA mobile-sources program could indirectly spur
R&D activity in the emission control  business.  Much of Title II is devoted to improving the prospects
for clean-fueled  "cars of the  future," some of them still on the drawing boards.  To the extent that the
legislation succeeds in this goal, companies in the mobile-sources equipment arena will eventually have
to address the emission control needs of vehicles that run on compressed natural gas, reformulated fuels,
methanol, and even electricity.

        One promising example  is CNG vehicles. Increased use of natural gas  vehicles will hinge on an
infrastructure to  support them, and building that infrastructure  presents some interesting new opportuni-
ties. One niche area is natural gas refueling stations.  At present there are 328 stations in forty states.
Among the companies actively promoting natural  gas refueling stations is Brooklyn Union Gas, a natural
gas utility in the New York metropolitan area.   At present, Brooklyn Union operates six  natural gas
refueling stations in the New York region, and  is in the  process of building twelve more.   Transco
Energy, one  of the  nation's leading natural gas pipeline concerns, has also made a commitment to the
natural gas refueling market.  It  has invested in Tren-Fuels, Inc., a company that delivers  natural gas by
mobile tanker to service fleet vehicles. Working jointly with Sulzer Canada, Inc. (a leading manufacturer
of equipment for natural  gas refueling stations), Tren-Fuels had iastalled 2 refueling stations in the state
of Texas by the third  quarter of calendar 1991.

        The natural gas vehicle infrastructure presents other opportunities.  Supplying refueling stations
with equipment such as compressors, which cost as much as $250,000 apiece, could emerge as a lucrative
business  niche  for small  manufacturers.   The major U.S. automakers, meanwhile,  are  devoting
considerable R&D to the design of new natural gas vehicles.  Nor is the interest limited to the new car
market.  An Ohio-based company, Metropane, is attempting to  exploit the surge of interest in natural gas
by establishing facilities  for conversion of existing gasoline-fueled vehicles to  natural gas usage.
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    1990 CAAA Enhances  Future for Compressed Natural  Gas Vehicles

 Heavier reliance on compressed natural gas (the cleanest burning fossil fuel) as  a veliicle fuel in fleet
 and private motor vehicles is one promising 1990 CAAA compliance option for reducing ozone and
 carbon monoxide in the nations dirtiest cities. In addition to its lower air emissions, natural gas as a
 motor vehicle fuel  is cheap, abundant, and would reduce U.S. reliance on OPEC oil imports.

 Due to CAAA requirement on fleet vehicles and heavy duty engine vehicles, compressed natural gas
 (CNG) is an attractive CAAA compliance alternative for large fleets,  buses, vans,  and delivery
 trucks.

 Recent studies have indicated of all the alternative vehicle fuels considered (including pure methanol
 and methanol gasoline blends), that CNG produces the lowest levels of  ozone reactive compounds
 and carbon monoxide emissions.

 Additional advantages can be associated with CNG vehicles.  Because  all the gas is burnt in the
 combustion process carbon build-up in the engine is reduced.  This means  that spark plugs can last
 two to three times longer, motor oil is changed less frequently, and engine life is extended.   Some
 cities have already begun  to experiment with CNG vehicles and the reaction has been positive.  A
 city  in Alabama converted 27 vehicles to CNG and reported  the following savings:  over $36,000
 lower fuel costs, an 80 percent reduction in usage of motor  oil, 80 percent fewer spark plugs, and 50
 percent fewer required tune-ups.
Company Specific Impacts

       The  mobile-sources equipment marketplace is  dominated by a handful of large, established
companies, and the CAAA will likely only further strengthen these companies' competitive hand. The
barriers  to entry  in this business are formidable indeed:  capital intensiveness; the high cost of the
precious metals used in catalytic-control devices;  low  margins;  and, in light of all this, a need for
extremely  efficient production, with little room for  price cutting to establish a market position.  To the
extent that the business is boosted by the CAAA, small  firms probably will not capture any meaningful
share of demand.  Indeed, it is even possible that smaller companies could become acquisition targets of
larger ones—although, in view  of the already commanding market share claimed by a few very large
concerns, overall  acquisition activity in this segment should remain relatively unimportant.

Domestic Versus Foreign Competition

       Domestic companies are the biggest players in both the catalytic and non-catalytic sides of the
marketplace.   The largest foreign participant  in the catalytic-control  marketplace, the  German firm
Degussa, holds only 9 percent of the market; its three biggest American competitors together control some
73 percent.  Nonetheless, a few foreign firms, such as Heralis of the Federal Republic of Germany and
Nippon Denso of Japan, have made forays into this side of the market.  On the non-catalytic side, the
largest firm,  Donaldson Corporation, expects some competition from Europe in coming years. It seems
likely, however, that American  companies will continue to claim the lion's share of this marketplace,
particularly in light of the substantial domestic  excess capacity.
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CLEANER BURNING AND ALTERNATIVE FUELS

       The second major segment of the air pollution control industry that is expected to benefit from
the CAAA is the cleaner burning and alternative fuels business.  The CAAA includes an important subset
of provisions that,  although spread among different titles of the statute,  share a common theme: they
either explicitly or implicitly promote the use of cleaner energy sources. Titles I and II, for example,
together  mandate  the  use of  gasoline formulas  with increased oxygen  content in  selected CO
nonattainment areas,  as well  as cleaner  "reformulated"  gasoline  in severe and extreme  ozone
nonattainment areas.  Title II also sets up a pilot clean-fueled vehicle program in California beginning in
1996, and requires, beginning in 1998, that a percentage of new  fleet vehicles in 21  CO or ozone
nonattainment areas be equipped to run on clean fuels as well.  Title IV, meanwhile will spur the demand
for clean energy for a different reason.   By imposing an SO2 "allowance" program and allowing electric
utilities flexibility  in how they comply, the CAAA should increase the use of low-sulfur coal very
significantly and also increase the demand for natural gas.

       Overall, due to the CAAA, annual average revenues in the alternative and clean fuels market are
expected to be higher by about $0.6-0.8 billion (in 1990 $)  from 1992 to 1995 and higher by about $1.7-
2.3 billion (in 1990 $) from 1996 to  2000 (Exhibit 4-6). This represents a moderate increase in growth
for this  market  segment which currently has sales of about $56-66  billion  (in  1990 $) annually.
Companies competing  in  this market  segment generally  do not rely  exclusively on  environmental
protection for their business.  However, the CAAA will result in some significant opportunities for these
companies. That growth will be spread over a variety of market subsegments, each of which will respond
differently to the new demand.  The following subsections examine the supply-side impacts of these
provisions on three broadly defined business segments:  alternative fuels  and  fuel additives, natural gas,
and low-sulfur coal.

Alternative Fuels  and Fuel Additives

Overview

       The opportunities in clean fuels and fuel additives lie mainly in the  CAAA's requirements for
oxygenated and reformulated gasoline.   Although the statutory language appears to mandate only limited
use of such fuels, their actual  penetration in the marketplace could be considerable.  It is estimated, for
example, that the nine nonattainment zones in which reformulated gasoline will be required will account
for more than one-quarter of the nation's gasoline demand by 1995. Further, if all ozone nonattainment
regions were to "opt in" to the reformulated-gasoline program, the areas covered would account for some
62 percent of total  U.S. gasoline demand (see Chapter III).  In Chapter III it was estimated that increased
revenues associated with increased demand for oxygenated gasoline will lead to be increased  demand for
ethanol (fuel oxygenate) and  result  in  higher revenues for corn  growers  on average of about  0.3-0.4
billion (in 1990 $) annually between 1992-2000.

       Increased demands for both oxygenated and reformulated gasolines will lead to increased use of
substantial amounts of oxygen-rich ethers such as methyl tertiary butyl ether (MTBE), ethyl tertiary butyl
ether (ETBE), and  tertiary amyl methyl ether (TAME), as well as fuel alcohols like methanol and ethanol.
MTBE appears to have a strong edge in the  oxygenate market; it is already the octane-booster of choice
in lead-free gasolines.  Ethanol, and its derivative ETBE, also could have a future as fuel additives, but
demand  for these  substances  will likely be significantly less impressive than for  MTBE, and will be
mainly regional, as ethanol cannot  be transported by pipeline.   Thus,  although ethanol demand  will
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                                     EXHIBIT 4-6
    Revenue Increase  Estimate:   Cleaner Burning and Alternative Fuels
                               (billions of 1990 dollars)
    Reformulated and Oxygenated
              Gasoline
 NA
0.3-0.4
0.3-0.4
            Natural Gas
43-47
  0.0
  0.1
          Low Sulfur Coal
13-19
              TOTAL
56-66
0.3-0.4
0.6-0.8
1.2-1.8
1.7-2.3
increase somewhat in light of the CAAA and could even present niche opportunities, the overall fuel-
additives market, and the discussion that follows, will focus on MTBE.

Supply-Side Issues

       The nation's MTBE is manufactured mainly by large chemical and petrochemical concerns, with
the principal producer, Arco Chemical, accounting  for some 40 percent of total annual volume (Exhibit
4-7). It should be noted, however, that—with the important exception of Arco, which sells a sizable share
of its yearly MTBE  production to other petroleum companies—most MTBE manufacturers are captive
operations, selling virtually all of the oxygenates that they produce to the refining operations of their
respective parent companies.  Indeed, the principal business opportunity presented by increased MTBE
demand lies not in the sale of the ether itself (most of which will continue to be manufactured by captive
suppliers), but rather in the design and  construction of new  MTBE plants, which will  emerge as an
important new revenue source for engineering/construction firms between now and the mid-1990s.  (This
story is covered in more detail under "Engineering, Design, and Construction," below.)

Profitability

       Nonetheless, the facilities that do market a portion of their MTBE could see margins expand
significantly in the next several years. MTBE capacity is expected be extremely tight in the coming half-
decade, as demand,  driven by the CAAA, could well outpace supply additions.  That, in turn, should
enable  merchant producers of MTBE to price their product aggressively, boosting margins in the process.
The  impact will be temporary, however.   By the mid-1990s, considerably more MTBE production
capacity is expected to be on line, and pricing and  margins should return to more normal levels.

Capacity

       In the face of tight MTBE capacity, certain states heavily tied to the petroleum business, such as
Louisiana and Texas, have offered tax breaks to encourage new MTBE projects. Market forces, however,
are probably a more effective inducement. In the years ahead, making MTBE may be less expensive than
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                                     EXHIBIT 4-7
                  Potential North American MTBE Production
                                   Capacity by 1995
               Current
               New Facilities Under Construction
                      1991
                      1992
                      1993
                      TOTAL
               Total MTBE Capacity
  123
  36
  83
  24
  143
  266
               Source: ICF Resources Estimates, November 1991.
buying it in the merchant market. Refiners are thus working feverishly to expand their own capability to
produce the oxygenate. At present, some 29 MTBE facilities, with total capacity of 123 thousand barrels
per day, are on line in the U.S. (see Exhibit 4-7). It has been projected that, after planned and proposed
additions to the MTBE  production base, total North American  MTBE capacity could swell to 266
thousand barrels per day by 1993.  Note that projected demands will likely total  about 0.3-0.4 million
barrels per day in  1995 and thus, significant imports may have to be relied on in  the near term. Some
43 new North American facilities are currently under construction, and another 25 plants are under study.

Technology

       Despite the considerable activity in  the MTBE market, the optimum fuel formula for CAAA
compliance has yet to be developed. Oil companies, chemical manufacturers, and automakers, working
both independently and jointly, are all trying to zero in on this mixture.  One of the more visible joint
efforts, begun in 1989, is the Air  Quality Improvement  Research Program  (AQIRP), which includes
personnel from the Big Three automakers and from 14 major oil companies.

Company Specific Impacts

       Notwithstanding  the high capital costs in design  and construction of MTBE facilities, some
companies are pursuing the fuel additive as  a business opportunity.  Most of the new MTBE capacity
under construction will  be captive to major oil  companies.  Some projects,  however, are expressly
designed not only to supply in-house MTBE needs but also to produce surplus oxygenate for sale to other
refiners. Among these more market-oriented projects are the Canadian joint venture between Neste Oy,
Petro Canada, and Chevron; the TransAmerica Refining plant in Good Hope, Louisiana;  and projects in
Texas  sponsored by such firms as Global Octanes, Tenneco, Phillips  Petroleum, Valero, and Texaco
Chemical.
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Domestic versus Foreign Competition

       Even with the many additional MTBE plants now under construction or on the drawing boards,
near-term shortages of the additive remain likely,  as  noted earlier.   A share of  CAAA-spurred
consumption will thus have to be imported from foreign companies.  Also, in view of the expected hike
in spot-market MTBE prices and the sizable capital  cost of adding to captive capacity, the next several
years of change could put small refiners at a competitive disadvantage.

Natural Gas

Overview

       The natural gas industry has often been considered a principal winner in the CAAA game. Yet
most of the statute's benefits for this side of the clean-energy business will not begin to  be felt until the
waning years of this decade, as the Phase II acid-rain SO2  reductions are implemented in 2000 and as
clean-fueled vehicles are mandated for vehicle fleets beginning in 1998 (1996 in California).  Thus, the
revenue estimates developed in Chapter III envision relatively little CAAA impact on the natural gas
business.  Annual revenues accruing  to the compressed natural gas  (CNG) business from the CAAA
clean-vehicles program are projected to be  higher on average by far  less than $0.1 billion (in 1990 $)
annually during the 1996-2000 period.  The projections for higher gas demand from electric utilities under
Title IV is estimated to be  less than $0.1 billion per year during the 1996-2000 period—with virtually all
of the impact felt in 2000.

       The comparatively modest CAAA impact envisioned for the  gas business is primarily because
natural gas is expected to gain significant market share even in the absence of the Act and thus, little of
the projected demand is CAAA related.  That is, many existing electric utility oil plants already have, or
are expected to switch to more gas in the future.  New utility gas combined cycle plants are expected to
be built regardless of the CAAA, simply  because gas prices are  low  enough and  combined cycle
generating technologies have improved.  Even so,  the gas industry  itself has expressed considerable
optimism regarding the potential additional market due to the CAAA. The American Gas  Association, for
example, believes that natural gas demand resulting from the CAAA could account for 7-9 percent of the
total U.S. gas market by 2005.  Should that demand indeed materialize, it would represent a considerable
lift for a long-troubled industry.  As is  noted in Chapter I, some 17.0 trillion cubic feet (tcf) of natural gas
was  produced in  1989, down from 18.7 tcf in  1981.  Gas utility sales, meanwhile, sagged  from $68
billion in 1984 to an estimated $46 billion in 1990, a drop of nearly 32 percent.

       Nonetheless, the legislation has undeniably increased interest in natural gas as an alternative fuel,
and many individual efforts are afoot to build the necessary infrastructure. Perhaps the most interesting
near-term opportunities in  natural gas  associated with the CAAA, in fact, deal not with gas demand per
se, but with niche areas looking ahead to the expected growth for gas as a vehicle fuel. Some of these
opportunities are discussed under "New Opportunities and Secondary  Impacts," below.

Supply-Side Issues

       The  natural  gas   industry can  be  divided into three segments:   production,  pipeline  (or
transmission), and distribution.  The production segment is heavily concentrated, and is dominated by
large energy concerns.  The pipeline business,  too, is  in  relatively few hands,  with the top  fifteen
companies holding in excess of 50 percent  of the market.   The distribution side, by contrast, is  rather
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fragmented; firms in this business operate on a regional basis.  All three areas of the gas business share
the attribute of relatively low margins, due to high lifting costs, depressed production and demand levels,
and considerable price competition from other fuels.

Capacity

       Capacity probably will not pose a constraint to meeting CAAA-induced demand for any of the
three natural gas business segments.  The current complement of plant and equipment is considered more
than adequate to handle the expected increased volume.  Indeed, as was noted earlier, 1989 production
was below 1981 levels. In addition, 1989 year-end reserves are down 17.1 percent from  1981 levels.
The one  possible weak link could  be  in the pipeline segment.  Capacity is a  regional issue.  New
England, the Northwest, and Florida are  the only areas of the U.S. now facing capacity pressure. Pipeline
capital projects approved for 1990-91 are expected to cost some $6.1 billion.  Additional capital spending
planned for future years should help  prepare the current infrastructure for increased business attributable
to the CAAA and to other demand sources.

Technology

       Although improved techniques such  as horizontal drilling can widen profit margins  on the
production side of the  business,  technology is not  a driving force in the mainstream gas  market, and
CAAA demand is unlikely to spur a new generation of natural gas R&D. Niche areas ancillary to the gas
market, however—such as design and production of gas-fueled vehicles—already constitute a focus of
lively technological activity, and will likely  remain  so throughout the decade.

Company Specific Impacts

       Clearly, the CAAA will not change the basic contour of the natural gas business.  The firms with
entrenched positions and "critical mass" in this capital-intensive industry will continue to do most of the
gas business in the future, although some consolidation is possible in the pipeline business.  The key
question is, Will the gas industry  as  a whole benefit materially from the CAAA?   To  ensure  an
affirmative answer, suppliers will need to actively market natural gas as a compliance alternative, both for
utilities and fleet operations, well in advance of the CAAA deadlines.

Domestic versus Foreign Competition

       To the  extent that the CAAA sharpens demand for natural gas,  the benefits will  flow almost
entirely to U.S. businesses rather than to foreign concerns. Approximately 92-95 percent of the natural
gas consumed in the U.S. is produced  domestically—and, with American companies sitting on proved
reserves of some 167.1 tcf, there is little reason to expect that situation to change.  What little gas
demand is met by foreign suppliers will probably go mainly to Canadian companies, which  enjoy strong
gas reserves and proximity to the U.S. market.

New Market Opportunities

       Many emerging niche opportunities  related to the natural gas market deal with CNG as a vehicle
fuel.   Quite apart from its excellent attributes as a CAAA compliance alternative, CNG has also been
shown to  reduce fuel, operating, and maintenance costs in fleet vehicles (see case study, "1990 CAAA
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Enhances Future for Compressed Natural Gas Vehicles").  As these advantages become more widely
known, natural gas vehicles should grow increasingly common, both for fleet applications and private use.

Low-Sulfur Coal

Overview

       Producers and transporters of low-sulfur coal  are among the clearest beneficiaries of the CAAA.
Many coal-burning utilities are already mulling the use of this alternative energy source to meet the Title
IV SO2 reduction requirements, particularly on the tail end of the compliance schedule. The decision to
switch from high- to low-sulfur  coal is not  a straightforward one,  however.  Certain low-sulfur  coal
products  (e.g., Western subbituminous coal from the Wyoming and Montana Powder River Basin (PRB))
are considerably lower in heat value than are high-sulfur products, and thus a greater volume must be
burned for the same energy output or a capacity derate must be accepted at the powerplant. Low-sulfur
coal  also necessitates in  many  cases a  retrofit of  the powerplant's  paniculate control system  and
potentially other facility upgrade expenses. Also, the decision to burn low-sulfur coal in certain regions
(e.g., in the Midwest and Northern Appalachia) contains an important geographical element.  Long-haul
transportation adds  considerably  to  the fuel's cost.  This is  because the location of low-sulfur  coal
reserves  varies geographically. The vast majority of low-sulfur coal reserves are located West of the
Mississippi and in Central  Appalachia.

       However, these potential problems will not detract from the immense potential CAAA market for
low-sulfur coal.  As is outlined in Chapter III, yearly  demand for low-sulfur coal is expected to increase
by about 20-25 million tons in the period of Phase I compliance (1995-99), and  by 50-110 million  tons
in Phase  II (beginning in 2000). These levels  compare with aggregate annual volume of some 1.0 billion
tons for the coal industry overall.

       Annual revenues to low-sulfur coal producers are expected to be higher  on average by $0.3-0.4
billion (in 1990 $) between 1992  and 1995 and higher by $1.1-1.6 billion (in  1990 $) between 1996 and
2000. Railroads that ship low-sulfur coal could see annual revenues during the 1996-2000 period higher
by about $0.1-0.2 billion.  This represents  a significant  growth opportunity for the low sulfur  coal
industry which had revenues in 1990 of about $13-19 billion.

       As mentioned above, the location of low-sulfur  coal  reserves vary by region.  East of the
Mississippi most of the low-sulfur coal reserves are  located  in Central and Southern Appalachia.
Currently, these coals are competitive in local markets, and  are in demand by eastern unscrubbed
powerplants that have strict SO2 emission standards. There are also abundant low-sulfur coal reserves in
the West. Major Western  low-sulfur mining  areas include the Rocky Mountain states, and the Powder
River Basin of Montana and Wyoming. Traditionally, Western coals have been competitive only in local
markets.  However, as powerplant SO2 emission standards have declined over  time  under the current
CAA, many states (especially in the  Midwest) have begun to burn increasing amounts of these Western
low-sulfur coals because they are competitive with low-sulfur Central Appalachian coals. In fact, over
the past few years, many Midwestern utilities, and even some as far East as Georgia, have either switched
or begun  to experiment with Western subbituminous low-sulfur coal from the PRB.  As mentioned above,
PRB coal has a lower energy content than  more typical bituminous  coals, however PRB  coals  are
extremely cheap to mine. In fact, the transportation cost component of a PRB coal reaching the Midwest
are typically greater than the mining cost.
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       The CAAA will change the coal industry's profitability, employment, and efficiency. Some of
these changes are explored in the following paragraphs.

Supply-Side Issues

       The coal industry is relatively fragmented reflecting the fact that it is a commodity type business.
The  top ten firms control only about 37 percent of the market. Nine of those ten producers own low-
sulfur coal reserves,  and these producers and others have, as a matter  of strategic policy, worked to
increase the low-sulfur component of their reserve base.  An example of that trend came in March 1991,
when AMAX Coal, one of the nation's biggest coal suppliers, acquired Cannelton Coal for $100 million.
Some 80 percent of  Cannelton's 138 million in coal reserves is  low in sulfur content.  However, in
addition to the many larger coal mining concerns, there are also several "mom-and-pop" type mining
operations especially in Appalachia and the Midwest. This is generally not the case out West, where the
majority of mines are owned and operated by larger mining concerns.

       Only  a few companies are involved in transporting low-sulfur coal from the West, principally
because of the resource's limited geographical scope.  Some two-thirds of U.S. low-sulfur coal reserves
lie in the Powder River Basin.  Demands for these coals are expected  to increase dramatically.  Rail
transportation of Powder River  Basin  coal is dominated by two companies:  Burlington Northern and
Western Rail Properties, Inc. (WRPI),  a joint venture between Chicago &  North Western and Union
Pacific. These companies are anticipating increased benefits from the switch to low-sulfur coal, but the
amounts are not quantifiable at present.  Eastern transporters, on the other hand, have both low- and high-
sulfur coal in their operating regions.  Thus  switching by utilities  from one type of coal to another will
not necessarily reduce overall coal-shipping revenues for these railroads, which include Norfolk Southern
in the Southeast and  Conrail in the Northeast.

Profitability

       Profitability in the low-sulfur coal business (and in the coal mining  business in general) varies
depending on geography, but is relatively low. This is because of (1) the basic commodity nature of the
coal mining business (i.e.,  price competition is prevalent and barriers  to entry are  low), (2)  there is
currently a great deal of excess  productive capacity, and (3) stiff regional competition exists.  For
example, because of considerably lower production costs, Western coal is typically less expensive to mine
(especially in the Powder River Basin) than Eastern  or Midwestern coal.  On the other hand, freight
charges for moving Western coal East raise the price to the end user.  Thus, to keep low-sulfur coal
competitive over the widest possible  geographical area, producers and shippers must  make do  with
relatively low profit margins.  Demand associated with the CAAA could well increase these margins,
particularly in light of the economies of scale inherent in the mining process.

Capacity

       Capacity is not expected to represent a meaningful constraint in  feeding the CAAA demand for
low-sulfur coal.  Even the high end of the expected future demand range,  110 million tons annually,
would represent only a  small fraction of total U.S. low-sulfur coal  reserves, estimated at 228.8 billion
tons. Rail capacity appears adequate to move the increased coal volumes efficiently.  In anticipation of
the increased demand for PRB  coals from the Midwest, Burlington Northern and WRPI (the main rail
shippers out to the PRB) have announced multi-million dollar rail capacity upgrade and expansion plans
for the next few years.
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Employment

        It has been widely noted that the increasing emphasis on low-sulfur coal has boosted employment
in selected areas.  In Wyoming, for example, the rise in production is estimated to have created some
4,000 jobs, and  coal royalties and taxes are said to have aided the state's economy.  Notwithstanding
important local gains, it seems clear that employment levels in the coal industry will  fall.  The strip-
mining  techniques used for western low-sulfur coal—which  is  geologically more accessible than its
eastern counterpart—are inherently more efficient than the underground mining prevalent in the East.  As
a corollary, coal volume per employee is higher for miners of low-sulfur coal than for miners of high-
sulfur coal. (Partly offsetting this is the fact that higher volumes of low-sulfur coal are required to attain
the heat value of a given volume of high-sulfur coal.)

        Threats to local  coal employment and tax revenues,  in fact, have led certain states with a sizable
interest in high-sulfur coal to  attempt to restrict use of low-sulfur varieties.  For example, Illinois has
passed a law  required two large Illinois coal-burning powerplants—Baldwin and Kincaid—to install
scrubbers to protect the use of local coals. Ohio  and Indiana have also passed laws giving more favorable
rate base treatment,  tax and other incentives  to scrub.  Other states with  higher sulfur coal mining
interests, such as Kentucky, West Virginia and Pennsylvania, have also considered legislation. Whether
such laws will stand in the long term is uncertain.

Technology

        Technological advances will likely not bear directly on the low-sulfur coal market.  Using present
state-of-the-art techniques, coal at some mines is probably being mined at present about as cheaply as it
can be.  However, the application of these techniques and technologies to existing and new mines and the
likely attendant continued labor productivity  improvements  (e.g., labor  productivity approximately
doubled in the 1980s in Appalachia) should continue to  improve the  costs of mining coal.  However,
technology may partly determine the ultimate popularity of switching to low-sulfur coal. After 2000,
many clean-coal technologies currently under development may become commercially available.  If the
economics  are sufficiently compelling, the pendulum could begin to swing back toward the use of
relatively high-sulfur coals.  Indeed, companies with large high-sulfur  coal reserves, hoping to  preserve
the value of their coal assets in the wake of the CAAA, are strongly supporting R&D efforts in the clean-
coal technology  program.

Company Specific Impacts

        Coal producers  with substantial low-sulfur reserves and solid long-term contract arrangements
should do well  in light of the CAAA, provided they can meet  the stringent quality demands of a
conservative utility customer base.  Benefits should flow to both large and small mining concerns. Larger
companies will have an edge, as they can fund the high requisite capital expenditures and also  have the
flexibility to acquire smaller players.

        Rail transporters of coal will also benefit greatly from the increase in traffic.  Indeed, to the extent
that utilities choose to switch from high-sulfur coal to low-sulfur coal  as a CAAA compliance  strategy,
revenues will shift from coal producers to coal  shippers. For example, low-sulfur coal from the Powder
River Basil is priced at about $4-5 per ton (spot price at the mine), while high-sulfur coal from Ohio can
range in price  from $17-23 per ton.  But shipping costs add, often in a significant way, to the total price
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paid by the utility, adding $10-20 per ton to the delivered costs of Powder River coal to a Midwestern or
Eastern utility.

Domestic Versus Foreign Competition

       Some foreign countries compete on a limited basis in the low-sulfur  coal  market—notably
Columbia, and recently, Indonesia.  In fact, the Tampa Electric Company is planning to test burn very
low-sulfur coal imported from Indonesia at its Big Bend powerplant which is affected in Phase I of the
Title IV acid rain program. Almost all  of the low-sulfur coal demand spurred by the CAAA, however,
will probably be fed by domestic mines.

ENGINEERING, DESIGN, AND CONSTRUCTION

Overview

       Virtually every  title of the  CAAA has something for  the wide-ranging engineering industry.
Titles I,  III, and IV, for  example,  will provide considerable  work in the design, development,  and
construction of air pollution control devices.  (These business opportunities are discussed in more detail
early in this chapter, under "Air Pollution Control Equipment.")  Perhaps more interestingly, the same
titles (particularly Title III) should redirect and reinvigorate the field of process engineering.  Whereas
process modifications in the past have focused mainly  on cutting energy costs, an important part of the
business henceforth will likely involve production changes to minimize routine and accidental emissions
and, therefore, lower overall pollution-abatement expenses.  Large industrial concerns have already put
this approach into practice as  an integral  part of their CAAA strategy (see case studies on  3M  and
Eastman  Kodak).

       Title VI, the  stratospheric-ozone provisions, could open up a market for design and construction
of chlorofluorocarbon (CFC) recovery and recycling equipment.  And, in what stands to be one of the
more important near-term business opportunities for the  engineering industry, Title II's reformulated-fuels
program will create significant demand for design and construction of new plants to manufacture gasoline
additives, particularly methyl tertiary butyl ether (MTBE).

       Together, due to these provisions,  engineering industry revenues are expected to be higher on
average by about $0.4-0.7 billion (in 1990 $) annually during the 1992-1995 period, and higher by $0.1-
0.2 billion (in 1990 $) annually during  the 1996-2000  period (Chapter III).  Relative to the current $22
billion engineering market (Engineering News Record, 8 April 1991),  this new business is relatively
small.  Nonetheless, the CAAA will provide a large new pool of potential customers for the engineering
business, and a consequent demand on its resources. As mentioned previously, revenue estimates could
be substantially underestimated here.  Under all the CAAA Titles considered, engineering, design and
construction companies are expected to benefit  from the CAAA requirements.  These opportunities
include the design and construction  of new facilities (for which revenue estimates are provided above);
and additional opportunities for the engineer, design, and construction of air pollution control equipment
at the  numerous sources affected by requirements under Titles I, III and IV.  In fact, a major portion
(although probably significantly less than  half)  of the revenues attributed  to the traditional stationary
source air pollution equipment industry  discussed in the first section of this chapter would be captured by
firms in this segment (see Chapter I, and the beginning of this chapter).
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Supply-Side Issues

       The engineering business is a two-tiered market, characterized by a large number of small firms
a( the front end (consulting and design), and a small number of very large firms at the back end (design/
engineering and construction). It is important to remember that the wide variety of engineering work
stimulated by the CAAA will be handled not only by self-styled "environmental" engineering companies
but by firms with a demonstrated expertise in heavy-industrial, process, and other relevant branches of the
field.   Such firms have already  begun their  CAAA work, and  are now bidding on large projects.
Engineering companies can  profit both  from forward-thinking clients  who  act well  in  advance of
regulatory prodding, and from those inclined to wait until just before the deadlines hit.  For example, in
(he first group, relatively forward-thinking oil  and chemical companies have begun construction of new
MTBE manufacturing facilities, to ensure an adequate supply of the oxygenate when the CAAA's reformulated-
 and oxygenated-gasoline requirements take effect (see Exhibit 4-8).  Customers that choose to wait, on
the other hand, may order front-end design and coastruction studies.  In either case, the revenues accrue
to the engineering, design and construction industry. (See "Alternative Fuels and Fuel Additives," above,
tor a summary of current and projected MTBE plant construction.)

Profitability

       Large-scale industrial engineering and construction projects carry relatively low margins,  ranging
from  3-5 percent  in most  areas  to  7-8 percent in some less mature  markets.  The relatively  low
profitability stems directly from  the industry's intensely competitive nature, with a sizable number of
large and small concerns competing for relatively few contracts.

       Although the CAAA is expected to increase industry revenues, the demand probably will not be
so great that  the  business's overall profitability will change.  There will be exceptions to  that rule,
however, in certain narrowly defined business areas.  For example,  as MTBE capacity tightens in the
middle of the coming decade, oil and chemical companies  are likely to come under increasing pressure
to  get new oxygenate production facilities on line, and may be willing to pay a premium for  MTBE-
related engineering and design services.

Capacity and Employment

       Capacity probably will not become a growth-limiting factor, as many firms  competing in this
segment can shift their resources as market conditions change. As an example,  industrial engineering
during the  1980s  focused largely on  design and construction of petrochemical facilities, a market that
waned toward the  end  of the decade.  Many of the  same companies working that market have since
reallocated  their engineering talent into business related to the CAAA, such as design and construction
of oxygenated-fuel facilities and large  air pollution control systems. For most  companies,  therefore,
aggregate employment levels will not change materially.  As with  the stationary-source control  market,
the engineering market  has a finite number of specialists in particular areas, such  as MTBE design, and
firms  must  retain those specialists to remain competitive.

Technology

       To  survive and  prosper, engineering firms must stay at the forefront of technological activity.
They  achieve  this goal through  (1) large  in-house R&D  programs,  which create, study,  and  modify
existing and emergent  technologies,  and (2)  through communications  with their sales  forces, which
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EXHIBIT 4-8
Leading MTBE Engineering & Construction Compan-
ies Ranked by Capacity On-stream and Under Con-
tract !
October 18, 1991*



Fluor Daniel
Thousand
Barrels Per
Bay
19
Market
Share
%
17.4
Snamprogetti ' 19 17.0
Kellogg
Staff
Foster Wheeler
Jacobs
Inievep
S&B
John Brown
Other
TOTAL
16
'•7
7
5
3
3
3
25
110
14.8
7.8
6.5
4.8
3.1
3.1
2.7 1
22.8
100
* Includes EP and EPC work under contract. Does not include infeas-
ihility studies.
Contractors for some planned projects have not been identified which may
affect the rankings.
             Source:  Smith Barney, November 1990.
provide a pipeline to the needs of the customer base.

Company Specific Impacts

        Staying "close to the customer," in fact, will  likely be a key to success in the CAAA-induccd
engineering  marketplace.   Firms that  prosper  will  need to  keep abreast  of constantly  changing
technologies for customers  in different  industry segments.  Both small and large companies will enjoy
opportunities in this business.  The smaller firms,  however, will probably capture front-end, consulting
and design work rather (nan the bigger, more lucrative projects  such as design and construction of MTBE
facilities.  Those jobs,  along with large-scale  process modification  work, will be the province  ol  the
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bigger engineering companies, which tend to be extremely diversified. Chemical manufacturers, utilities,
and industrial concerns all have short time frames to comply, and will choose engineering firms with
extensive experience in their particular market.  They will also be looking for engineering contractors
with the demonstrated  ability to staff large-scale projects that can employ as many as 400 persons.

       In view of the lucrative markets spawned  by the CAAA, joint ventures between the owners of
technologies and the companies with the ability to design and build facilities  will become increasingly
common.   One example is  the recently announced joint-venture  between  Duke/Fluor Daniel, with
expertise in design and construction of pollution control systems, and Pure Air, an air pollution control
technology  firm.  (Interestingly,  both participants in this joint venture are  themselves joint-venture
partnerships between  other firms.)   Large firms will also not be  shy about making acquisitions,
particularly "tuck-in" purchases of small companies with a distinct technology  or specialty in one of the
CAAA-related business areas.

INSTRUMENTATION, AND EMISSIONS MONITORING

Overview

       The more traditional environmental instrument business will see a material addition to business
resulting from several titles of the CAA. As quantified in Chapter III, Title III  will produce an increased
demand for air toxics monitoring and testing and Title IV calls for continuous emission monitors (CEMs).
In addition, but not quantified in this report, the Title I nonattainment program will increase the demand
for source and ambient monitoring and the Title II automobile inspection and maintenance program will
increase demand for both centralized I/M vehicle emission analyzers and service station units  designed
to do the same.
          Expanded Markets for Environmental Monitoring Industry

 With new emphasis on the environment worldwide, the market for analytic instruments to assess
 environmental conditions should grow more  than  14 percent annually,  to $2.25  billion  in  1994
 according to Strategic Directions International, a Los Angeles based market research firm.

 Due primarily to the 1990 CAAA, the largest growth segment (more than 20 percent) in this  industry
 is expected to  be non-laboratory instruments used for air analysis  and to measure  air pollutant
 emissions.  Market opportunities for air instruments are expected to  more than double from about
 $120 million in 1989 up to 300 million in 1994.

 Air monitoring  instruments for organic compounds  facing new requirements under the  1990 CAAA
 (e.g., SO2,  NOX,  VOCs,  CO, and CFCs) include  gas chromatography/thermal  desorption, gas
 chromatography-mass spectrometry,  and organic  elemental analysis systems; instruments to  measure
 metals that result in air toxicity (regulated under Title III of the CAAA) include atomic absorption,
 graphite  furnace atomic absorption, and inductively  coupled plasma-mass spectrometry.

 The CAAA will spur competition, technological  innovation  and increased  instrument reliability.
       Compared with some of the "big winners" in the CAAA market, such as stationary-source equip-
ment and low-sulfur coal, the incremental CAAA revenues quantified in this report for the instrumentation
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and monitoring business are rather modest. Instrumentation manufacturers should have on average higher
revenues of about $0.2-$0.4 billion annually during the 1992-1995 period, and about $0.1-$0.2 billion
annually during the 1996-2000 period.  In comparison with the current market size, approximately $150
million, the increases are substantial. In fact, companies in these segments are already fielding increasing
numbers of requests for information, not only from utilities, the traditional buyers of such equipment, but
also from industrial concerns,  which have heretofore not been customers in this market.

Supply-Side Issues

        In addition  to  being  small industries, the instrumentation  and  CEM businesses are highly
concentrated.   The  top five  suppliers  of CEMs hold  in excess of 70 percent of the market.   For
instrumentation, the top three firms control more than 60 percent.  Even for the largest players, however,
revenues attributable to the clean-air market have recently ranged from only $5-$ 10 million.  A variety
of considerably smaller firms provide CEM systems and instrumentation on a regional basis.  Major firms
in the  instrumentation business include:   Lear Siegler, Beckman, Dasibi Environmental, Thermo
Instruments, Columbia Scientific and Western Research.  Major CEM systems firms include Lear Siegler,
Enviroplan, KVB (Air & Water Technologies), Alltech,  SDI  and  Thermo Instruments.

Profitability

        Both CEM and instrumentation businesses are relatively low-margin affairs, with gross margins
of around 40 percent and operating margins in the 5 percent range.   Moreover, even in the face of the
CAAA-induced surge  in demand, some participants in  this  segment believe that margins will remain
essentially constant.

Capacity and  Employment

        Companies  in  the CEM and instrumentation  segments do not expect  capacity to  pose a
meaningful constraint. Much of the construction and assembly work in these markets is subcontracted to
other firms. (As in the stationary-source equipment market, however, there is the possibility of tightening
capacity for secondary suppliers.)  Perhaps a  more important limitation to growth for  instrumentation
firms  could be the ability to recruit, train, and  retain technical staff.

Technology

        R&D costs represent about 5 percent of sales in the instrumentation business, and industry sources
expect that percentage to remain about the same looking  forward.  The focus of technology will likely  be
the development of smaller, more efficient units and systems.

Company Specific Impacts

        Instrumentation and monitoring are among the few CAAA-influenced  businesses in which big
firms  are not necessarily at an advantage. Price, rather than  size, has historically determined success in
this very competitive marketplace.  Firms with large numbers of installations and good  reputations will
enjoy an additional advantage. Indeed, because of the small size  of the marketplace, big firms generally
do not compete, although divisions of a few larger companies hold important market positions. It is quite
likely, however,  that in light of the CAAA, large firms may want  to become involved in the instrumenta-
tion and monitoring business, as part of their drive to provide a full-service approach to pollution control.
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For example, Environmental Elements, a major player in air pollution control equipment, has introduced
CEMs as part of its product line.

       In view of the large number of small players in these businesses, the surge in activity promised
by the CAAA might also accelerate the pace of acquisition, as larger firms seek to expand their product
lines with promising niche technologies.   KVB, a division of Air and Water Technologies, recently
purchased the Analtech Instruments division of Laser Precision Corporation; the rationale for the purchase
was to gain Analtech's manufacturing expertise in analyzers and spectrometers that could be useful in the
air-toxics business.

       Another example of market consolidation was the recent acquisition, by industry leader Thermo
Electron, of TACE pic and Goring Kerr, two niche monitoring-instrument companies.

       The increased demand for instrumentation and CEM  systems over the  next  several years  is
expected to be  met principally  by domestic suppliers, who dominate both markets.  There are  some
foreign firms that  should benefit, however.  One is Environment S.A.,  a French firm (backed by the
French government) that is expected to enter the market in the short term.

WALL STREET IMPLICATIONS OF THE CAAA

       Wall Street has monitored progress of the Clean Air Act Amendments with great interest—not
only because of the statute's wide-ranging economic impact, but also because of some niche opportunities
it presents in the financial-services realm.  For example, the Chicago Board of  Trade announced in 1991
that it would market a commodity futures contract based on the tradeable emission allowances that form
a key element of the Title  IV acid-rain reduction strategy.

       On  a more traditional  note, the  Clean Air Act Amendments of 1990 should increase the
investment community's attention to and awareness of the air pollution control industry, in much the same
way that the Hazardous and Solid Waste Amendments  of 1984 galvanized Wall Street  interest in the
hazardous-waste marketplace.  Indeed, it is quite reasonable to suspect that the 1990 statute could have
even wider reverberations in the equity market than did the 1984 law,  as a distinct  financial market for
environmental companies has emerged in the interim. As of year-end 1990, some 9 environmental-sector
mutual funds were being marketed in the  United States.  At year-end  1984, only 2 such funds existed.
These funds as well as the increased familiarity of institutional investors with the environmental industry,
should help assure a lively demand  for new  clean-air equities and existing companies with a clean-air
story.

       That said, only three companies expressly tied to the air pollution control market  became public
in the 1989-90 time frame. In 1989, Air & Water Technologies  completed a $30.7 million initial public
offering (IPO).  The marketing emphasized the increased demand the firm could experience owing to the
Clean  Air Act  Amendments.   A  similar  marketing strategy guided the  1990 IPOs of Environmental
Elements ($40.8 million) and Wahlco Environmental ($40.3 million).  With the CAAA now the law  of
the  land, the pace of such  stock offerings is likely to increase.  Factors external to the pollution control
industry,  such as equity prices and the macroeconomic picture, will also play a role.

       Wall Street has already factored the CAAA's effect into valuations for publicly held air-quality
firms.  Further, the investment community's earnings analysis for companies not typically marketed as air
pollution control firms—companies such as Air Products & Chemicals, Wheelabrator, Raytheon, Dravo,
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and General Electric—is also changing. The research analysts covering these stocks are considering how
the CAAA will effect hoth the revenue and earnings streams for these companies.
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        APPENDIX A
Description of Detailed Provisions
   of Titles I-IV and VI of the
 1990 Clean Air Act Amendments

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                                     APPENDIX A
  DESCRIPTION OF DETAILED PROVISIONS OF TITLES I-IV AND VI OF THE
                        1990  CLEAN AIR ACT AMENDMENTS
       This appendix presents more detailed descriptions of the provisions in Titles 1-IV and VI of the
1990 Clean Air Act Amendments.  Descriptions of the major provisions which have the most important
effect on the air pollution control industry are provided by title below.

TITLE I (NONATTAINMENT)

Introduction

       Title I revises  Clean Air Act  requirements for attaining and maintaining national ambient air
quality standards (NAAQS).  Key provisions of the Title I are aimed at bringing cities and other areas
which are not in attainment in line with the NAAQS in most areas by 2000 and all areas by 2010.  The
specific pollution control  requirements  are determined by the present  level  of severity of  the
nonattainment problem in each area of the country.  Areas with more severe air pollution are required to
apply more controls than areas with less severe problems.  These provisions, summarized in Exhibil A-l,
require some or all of the following measures depending on the severity of nonattainment:

       •      Tighter controls at existing, new and modified major stationary sources
              (which have been redefined to include smaller sources).

       •      Emission offsets (i.e., "extra"  reductions from other existing sources) for
              every 1 ton new/modified source emission, a reduction of 1.1 Ion (or
              greater) emission  must be  achieved  from  the  inventory of existing
              sources.

       •      Other requirements such as enhanced motor vehicle inspection and maintenance
              (I&M),  stage  II  controls, transportation control  programs, and  clean  fuel
              programs/advanced controls.

       In addition,  national measures for  all  regions  (regardless of attainment classification)  are
stipulated.  These "national measures" require  the application  of technological  controls  to reduce
emissions  of ozone  precursors from  consumer solvents and architectural coatings,  hazardous waste
treatment storage  and  disposal  facilities (TSDFs),  municipal solid waste landfills, and marine vessel
loading and unloading.  Note that authority for regulating TSDFs comes from RCRA.  However, because
the emission reductions from TSDFs will affect the attainment status of regions affected, their impacts are
considered herein.

SUMMARY DESCRIPTION OF PROVISIONS

       Ozone Nonattainment

       Ozone nonattainment areas are classified  according to seventy of pollution.  Areas with higher
pollution levels are allowed more time to attain the ozone standard, but  arc  subject to more stringent
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                                     EXHIBIT A-l
           SUMMARY OF TITLE I (NONATTAINMENT)  REQUIREMENTS
   New or Modified Major
               Sources

      Motor Vehicle I&M
        Stage II Controls
    Transportation Control
               Program
     Clean Fuels/Advanced
               Controls

     Consumer/Commercial
               Products
 CO Nonattainment
 PM-10 Nonattainment
[ Timing
5- Area class .fications: attainment
between Nov. 1993 and Nov.
2010
Expeditious)}/ as practicable, but
before May 31, 1995, or by date
prescribed in CTG
Beginning nrd-1992
Beginning in Nov. 1992
Beginning in Nov. 1992
Potentially Nov. 1996

By Nov. 1998
Beginning in 1994; 4 source
groups; 1 regulated every 2 years
Attainment by 1995 (moderate
areas); 2000 (serious areas)
Attainment by 1994 (moderate
areas); 2001 (serious areas)
Summary «f Requirements
15% reduction in VOCs except in marginal areas (Nov.
1996); additional reduction in VOCs of 3% annually there-
after in serious, severe and extreme areas
RACT at existing sources; LAER at new and modified
sources in all areas for both VOC and NOX
LAER plus emission offsets; (offset ratio ranges from 1.1-
to-1 to 1.5-to-l depending on area classification
On-road emissions testing; tampering and misfueling detec-
tion in moderate, serious, severe and extreme areas
Controls to capture fuel vapors at service stations in mod-
erate serious, severe and extreme areas
Could include improved mass transit, lanes for buses and
high occupancy vehicle lanes, and traffic flow improvement
programs
Clean fuels or advanced controls required to reduce emis-
sions from new and existing sources
Control of 80% of consumer and commercial product emis-
sions.
Oxygenated fuels in an amount adequate to reach attain-
ment; other requirements similar to ozone nonattamment
Moderate areas — Reasonably Available Control Measures
(RACM) required; serious areas — Best Available Control
Measures (BACM) required; Certain New and Existing
Sources Regulated as Major Sources.
control requirements.  The nonattainment classifications are as follows:  Marginal (47 areas, attainment
by Nov. 1993), Moderate (41 areas, attainment by Nov. 1996),  Serious (19 areas, attainment by Nov.
1999), Severe (8 areas, attainment by Nov. 2005/2007), and Extreme (1 area, attainment by Nov. 2010).
A listing of the geographical nonattainment areas is provided in Exhibit A-2.

       In general, all areas (except marginal areas) must achieve a 15 percent reduction in the emissions
of volatile organic compounds (VOCs) such as hydrocarbons and nitrogen oxides by Nov. 1996;  and
serious,  severe and extreme areas are additionally required to achieve VOC reductions of 3 percent per
year after 1996. Through their State Implementation Plans, some nonattainment areas may be required
to  go beyond the  national  mandatory requirements (described below) in  order to demonstrate steady
progress toward attainment.
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                                           EXHIBIT A-2
                        AREAS VIOLATING  OZONE  NAAQS (1991)
Extreme (1 area)
- Attainment Deadline Nov. 20TO
   Los Angeles

Severe (8 areas)
- Attainment Deadline Nov. 2007
   Chicago, IL-IN-WI
   Houston, TX
   New York, NY-NJ

- Attainment Deadline Nov. 2005
   Baltimore, MD
   Milwaukee, WI
   Muskegon, MI
   Philadelphia, PA-NJ-DE-MD
   San Diego, CA

Serious (19 areas)
- Attainment Deadline Nov. 1999
   Atlanta, GA
   Bakersfield, CA
   Baton  Rouge, LA
   Beaumont, TX
   Boston, MA-NH
   El Paso, TX
   Fresno, CA
   Hartford, CT
   Huntington, WV-KY-OH
   Louisville, KY-IN
   Parkersburg, WV-OH
   Portsmouth, NH-ME
   Providence, RI
   Sacramento, CA
   Sheboygan, WI
   Springfield, MA
   Washington, DC-MD-VA
   Worcester, MA
   Greater Connecticut
Moderate (41 areas)
- Attainment Deadline Nov. 1996
   Ashland, KY
   Atlantic City. NY
   Birmingham, AL
   Bowling Green, KY
   Charleston. WV
   Charlotte. NC-SC
   Cincinnati, OH-KY-IN
   Cleveland, OH
   Dallas, TX
   Dayton, OH
   Detroit, MI
   Grand Rapids, MI
   Greensboro, NC
   Greenville, SC
   Hancock Co., ME
   Huntington, WV
   Jefferson Co., NY
   Kawaunce Co., WI
   Kewaunee Co., WI
   Knox Co., ME
   Lewiston, ME
   Lincoln Co., ME
   Louisville, KY
   Mamtowoe Co., WI
   Miami, EL
   Modesto,  CA
   Monterey Bay, CA
   Nashville, TN
   Parkersburg, WV
   Phoenix, Ay-
   Pittsburgh, PA
   Portland, ME
   Providence, RI
   Raleigh, NC
   Reading, PA
   Richmond, VA
   Salt Lake City, LIT
   San Francisco, CA
   St. Louis, MO-IL
   Toledo, OH
   Visalia, CA
Marginal (47 areas)
- Attainment Deadline Nov. 1993
   Albany. NY
   Allentown, PA
   Altoona, PA
   Anderson, SC
   Birmingham, AL
   Buffalo. NY
   Canton, OH
   Columbia, SC
   Columbus, OH
   Erie, PA
   Essex Co., NY
   Evansville, IN-KY
   Fayetteville, NC
   Greenbner Co.. WV
   Harnsburg, PA
   Hutitxville, AL
   Indianapolis. IN
   Johnstown, PA
   Kansas City, MO-KS
   Kent/Queen Annes Co., MI)
   Knoxville, TN
   Lafayette, IN
   Lake Charles, LA
   Lancaster, PA
   Lexington, KY
   Lincoln Co.. ME
   Louisville, IN
   Manchester. NH
   Memphis, TN, AR, MS
   Montgomery, AL
   Norfolk. VA
   Owensboio, KY
   Paducah,  KY
   Portland, OK
   Poughkeepsie, NY
   Reno, NV
   Santa Barbara, CA
   Scranton, PA
   Seattle, WA
   South Bend. IN
   Stockton, CA
   Sussex Co , DE
   Tampa, FL
   Tulsa. OX
   Walworth, WI
   York. PA
   Youngstown, OH/Sharun, PA
   Jacksonville. FL
   Waldo Co ,  ME
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              Major  Stationary Source Requirements -  Prior to the CAAA, major
              stationary sources were those that emitted more than 100 tons per year of
              VOCs.  The CAAA  lowers this  threshold  to include sources that emit
              VOCs or NOX in excess of 50 tons per year in Serious areas, 25 tons per
              year in Severe areas, and 10 tons per year in Extreme areas.  Existing
              major stationary sources are required to meet reasonably available control
              technology (RACT)  requirements  in all  ozone nonattainment areas.
              Modified and new major sources must meet lowest achievable emission
              rate (LAER).i7

              Emission Offset Requirements - In addition to LAER requirements, new
              and modified major sources will be required to offset their emissions by
              obtaining further  reductions in emissions from existing facilities.  The
              ratio at which new/modified sources must obtain offsetting emission
              reductions from existing sources increases  from 1.1 ton reduction from
              existing sources for each 1 ton of new/modified source emissions (or  1.1-
              to-1) in Marginal areas, to 1.15-to-l in Moderate areas, to 1.2-to-l in
              Serious areas, to  1.3-to-l in  Severe  areas, and to 1.5-to-l  in Extreme
              areas.

              Motor Vehicle Inspection and Maintenance Requirements - In Moderate
              areas, basic motor vehicle inspection and maintenance programs  are
              required. For Serious, Severe, and Extreme areas with urban populations
              of 200,000 or more, enhanced motor vehicle inspection and maintenance
              programs will mandate on road emissions testing, detection of tampering
              with pollution control devices  and detection of  misfueling.   These
              programs are required by Nov. 1992.

              Stage II Control Requirements -  Controls on gas pumps to capture  fuel
              vapors in Moderate,  Serious,  Severe  and Extreme areas are required by
              Nov.  1992.    This requirement  can be waived by  EPA if on-board
              canisters are in widespread use.

              Transportation Control Program - By Nov. 1996, and  every  3 years
              thereafter, Serious, Severe, and Extreme areas that can not demonstrate
              vehicle mileage, emissions and congestion levels consistent with achiev-
              ing attainment must submit  a transportation control program.  Such
              programs  could  include a wide  variety of strategies  such  as improved
       Lowest Achievable Emission Rate (LAER) is the rate of emissions that reflects:  (a) the most
       stringent emission  limitation contained in the implementation plan of any state for such source
       unless the owner or  operator of the proposed  source  demonstrates that such limitation is  not
       achievable; or (b) the most stringent emissions limitation achieved in practice, whichever is more
       stringent.  Application of this term does not permit a proposed new or modified source to emit
       pollutants in excess of existing new source standards. Reasonably Available Control Technology
       (RACT) is defined by control technology guidelines (CTGs) which are defined for some source
       categories, however EPA is currently in the process of determining additional CTGs.
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              public transit, construction of roads or lanes for buses and high occupan-
              cy  vehicles,  and  traffic  flow  improvement  programs, among  other
              programs.

       •      Clean Fuels/Advanced Controls - By Nov. 1998, clean fuels or advanced
              controls to reduce NOX emissions from new and existing utility, industri-
              al, and commercial boilers would be required in Extreme areas.

       •      Consumer/Commercial Products  - After a three  year study, EPA must
              identify and require BACT for consumer and commercial sources that
              account for at least 80 percent of VOC emissions from consumer and
              commercial products identified by EPA. The list will be divided into 4
              groups and one group will be regulated every two years.

Carbon Monoxide Nonattainment

       Carbon monoxide nonatlainment areas are  categorized as Moderate (41 areas ) and Serious (1
area). More stringent controls are required in Serious areas than in Moderate areas. Moderate areas must
come into attainment by the end of 1995 and Serious areas by the  end of 2000. CO nonattainment areas
are listed in Exhibit A-3.

       •      Oxygenated Fuels - By Nov.  1993  in all CO nonattainment areas, fuels
              must be oxygenated in an  amount adequate to reach attainment, by
              blending gasoline with additives  such as ethanol,  methanol or MTBE.

       •      Other Requirements - Other requirements are similar  but not identical to
              those of ozone nonattainment areas.  Requirements for Moderate areas
              include  enhanced motor vehicle  inspection  and  maintenance;  and
              requirements  for Serious areas include transportation control measures,
              and controls on major stationary  sources with the  potential to emit more
              than 50 tons per year.

Particulate Matter (PM-10) Nonattainment

       All areas  not  in compliance  with PM-10  standards  are  initially classified  as  Moderate
nonattainment  areas  (attainment by the  end of 1994), however,  EPA can reclassify  as a Serious
nonattainment area (attainment by the end of 2001), any area it determines cannot achieve attainment by
the prescribed deadline for moderate areas. PM-10 nonattainment areas are presented in Exhibit A-4.

       •      Control Requirements -  In Moderate areas, reasonably available control
              measures (RACM) are required.  In Serious areas, best available control
              measures (BACM) are required.  Also new and existing sources with the
              potential to emit 70 tons per year are regulated as major sources.
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                                    EXHIBIT A-3
            AREAS VIOLATING CARBON MONOXIDE NAAQS (1991)
SERIOUS (1 area)
Los Angeles South Coast Air Basin, CA

MODERATE >12.7 PPM (8 areas)
Anchorage, AK
Denver-Boulder, CO
Fresno. CA
Las Vegas, NV
New York-N. New Jer-Long Is, NY-NJ-CT
Provo, UT
Seattle-Tacoma, WA
Spokane, WA

MODERATE <=12.7 PPM (33 areas)
Albuquerque, NM
Baltimore, MD
Boston, MA
Chieo, CA
Cleveland,  OH
Colorado Springs, CO
Duluth, MN
El Paso, TX
Fairbanks, AK
Fort Collins, CO
MODERATE <=12.7 PPM (continued)
Grants Pass, OR
Hartford-New Britain-Middletown, CT
Klamath Falls, OR
Lake Tahoe South Shore, CA
Longmont, CO
Medford, OR
Memphis, TN
Minneapolis-St. Paul, MN
Missoula, MT
Modesto, CA
Ogden, UT
Philadelphia-Camden Co, PA-NJ
Phoenix, AZ
Portland-Vancouver, OR-WA
Raleigh-Durham, NC
Reno, NV
Sacramento, CA
San Francisco-Oakland-San Jose, CA
San Diego, CA
Stockton, CA
Syracuse, NY
Washington, DC-MD-VA
Winston-Salem, NC
TITLE II (MOBILE SOURCES)

Introduction

       To supplement requirements under Title I and Title III, the use of reformulated and/or oxygenated
fuels will be required, motor vehicle emission standards will be tightened, and the use clean fueled
vehicle fleets will he mandated in several ozone and CO nonattainment areas.  General requirements are
summarized below and outlined in Exliibit A-5.

       •      Use of cleaner reformulated gasoline (achieving reductions in VOCs and
              toxic  air pollutants in 1995) will be mandated in  nine  ozone nonat-
              tainment areas with the highest ozone levels.

       •      Use of fuels with a minimum oxygen content of 2.7 percent will be re-
              quired in more than 40 CO nonattainment areas.
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                                   EXHIBIT A-4
                AREAS VIOLATING  PM-10 NAAQS (1987-1988)
Group I Areas

State         Area of Concern
                      County(s)
Connecticut   1-95 corridor	,	  New Haven, Fairfield
Maine        Presque Isle	 . . .	  Aroostook
West Virginia Follansbee	  Brooke
Illinois       Cook	County Cook
             Madison County	Madison
             Oglesby	Lasalle
Indiana       Clinton Twp	Vermillion
             Lake County	  Lake
Michigan     Wayne County 	Wayne
Minnesota    Olmstead County  	Olmstead
             Ramsey County	Ramsey
Ohio         Cuyahoga County  	Cuyahoga
             Jefferson County	  Jefferson
Texas        El Paso County	  El Paso
Colorado     Aspen   	   Pitkin
             Canon City	Fremont
             Denver Metro	  Adams, Arapaho, Denver, Jefferson
             Lamar   	Prowers
             Pagosa Springs	Archuleta
             Telluride  	  San Miguel
Montana     Butte	Silver Bow
             Killspell	Flathcad
             Lame Deer	Rosebud
             Libby	  Lincoln
             Missoula  	  Missoula
             Po'son/Roman	  Lake
Utah         ProvoPreovo	  Utah
             Salt Lake Metro/Magna	Salt Lake
Wyoming     Sheridan	  Sheridan
Arizona      Douglas	Cochise
             Hayden/Miami 	  Gila, Pinal
             Maricopa	  Maricopa, Pinal
             Nogales	Sanla Cru/
             Paul Spur	Cochise
             Rillito   	Pima
             Yuma	  Yuma
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                                     EXHIBIT A-4 continued
State
Area of Concern
County(s)
California     Cocachella Valley		  Riverside
              Imperial Valley	Imperial
              Mammoth Lakes	  Mono
              Owens Valley	  Inyo
              San Joaquin  Valley	 Fresno, Kern, Kings, Tulare
              Searles Valley	Inyo, Kern, San Bernadino
              South Coast  Basin		Los Angeles, Orange, Riverside, San Bernadino
Nevada        Las Vegas		Clark
              Truckee Meadows	Washoe
Alaska        Eagle River	  Anchorage
              Juneau 	 Juneau
Idaho         Boise  	Ada
              Pinehurst  	Shoshone
              Pocatello  	  Bannock, Power
Oregon        Grants Pass   	Josephine
              Klamath Falls  	Klamath
              Medford   	 Jackson
              Springfield/Eugene  	Lane
              White City   	Jackson
Washington    Kent  	  King
              Lacey  	   Thurston
              Seattle Metro  	  King
              Spokane   	Spokane
              Tacome Metro  	  Pierce
              Wallula  	Walla Walla
              Yakima  	  Yakima
Pennsylvania  Allegheny County	  Allegheny
              Tighter Tier I (1994-1998) tailpipe emission standards for new cars and
              light-duty trucks will be required in order to achieve reductions in VOCs
              and NOX. Additional tailpipe controls (Tier II 2003-2006) may also be
              required if necessitated hy air quality.

              In approximately 21  CO nonattainment areas, a  fleet  program will,
              require fleet vehicles such as taxis and delivery vans to meet California
              standards which are the tightest in the country.

              Advanced gasoline and/or alternative fueled  vehicles  (150,000 by model  year
              1996 and 300,000 a year by model year 1999)) will be developed for use under
              the California pilot program.
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                                     EXHIBIT A-5
          SUMMARY OF TITLE II (MOBILE SOURCES) REQUIREMENTS
                                   Timing
     Reformulated Gasoline I Beginning in  1995
         Oxygenated Fuels


            Fleet Program



   California Pilot Program
        Tier I Tailpipe Std.
       Tier II Tailpipe Std.
       Other Requirements
Beginning Nov. 1992
1998-2001
Model Years 1996 &
1999
1994-1998
2003-2006
Beginning in Model Year
1994
      Summary ef Requirements      jj

Use of reformulated gasoline required in
at least 9 urban areas (i.e., severe and
extreme ozone nonattainment areas)

Use of oxygenated fuels in 40 CO nonat-
tainment areas

Clean fueled vehicle fleets required to
meet California standards in about 21
CO nonattainment areas

Production of 150,000 clean fueled vehi-
cles in model year 1996 and 300,000 per
year beginning in model year 1999

Standards to cut hydrocarbons 30%, and
NOX for new cars and light-duty trucks
60%

Standards must require emissions at least
half that of Tier I standards for  new cars
and light-duty trucks

Cold temperature CO standards; onboard
canisters; evaporative controls; and on-
board diagnostics
Summary Description of Provisions
              Reformulated and Oxygenated Fuels - Beginning in 1995, cleaner refor-
              mulated gasoline is required in Baltimore, Chicago, Hartford,  Houston,
              Los Angeles, Milwaukee, New York, Philadelphia, and San Diego; and
              in any other area that is reclassified as  a severe ozone nonattainment
              area.  Starting in Nov. 1992, 40 areas will be required to use gasoline
              with a minimum oxygen content of 2.7 percent.  The effect of this is to
              require greater use of additives such as ethanol, methanol or MTBE.

              Clean-Fueled Vehicle Program - The fleet program and the California
              pilot program are intended to promote development  and use of clean-
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               fueled  vehicles (e.g., advanced gasoline or alternative fueled vehicles).
               Between 1998 and 2001 clean fueled vehicle fleets (i.e., a percentage of
               new fleet vehicles such as taxis and delivery  vans) will be required to
               meet California standards in approximately 25 ozone or carbon monoxide
               nonattainment areas. The California pilot program requires production of
               150,000  clean fueled  vehicles beginning in  model  year 1996,  and
               300,000 a year in model year  1999 and thereafter.

       •       Tier I and II Tailpipe Standards - Tighter tier  I tailpipe emissions stan-
               dards for new cars and light-duty trucks will be phased in between 1994
               and  1998.   For cars, current  standards will  be cut by  30 percent for
               hydrocarbons  and 60  percent  for nitrogen oxides.   Tier II standards
               which have  not yet been finalized, take effect  in 2003-2006. However,
               Tier II standards must  be at least twice as strict as tier I  standards.

       •       Other Requirements -  Other  requirements include:  cold  temperature
               carbon monoxide  standards (beginning in model year 1994),  onboard
               canisters on new cars  to capture gasoline vapors (beginning in  1995),
               evaporative controls, and onboard diagnostics to detect emissions related
               to system malfunction  (beginning in model year 1994).

TITLE III (AIR TOXICS)

Introduction

       Title  III of the Clean Air Act Amendments of 1990  establishes a  major new program for the
regulation of  toxic  air pollutants.  The  combined federal/state program  provided  in  the legislation
represents the first comprehensive and  coordinated nationwide effort to deal with these pollutants.  Title
III specifically lists  189  substances as  "hazardous air pollutants" (see Exhibit A-7  for a list).  Title III
defines three significant new programs that will require  substantial  pollution  control expenditures by
industry: (1) control of routine releases  of air toxics from larger industrial and commercial sources (called
"major sources" in Title III), (2) control of air toxics releases from area sources, primarily in urban areas,
and (3) control of accidental releases of air toxics from industrial and commercial sources.

       To reduce emissions of 189 listed toxic air pollutants  (listed in Exhibit A-7), the application of
maximum achievable control technology (MACT) at  major toxic air emitting sources will  be required.
Typical major  source categories  will include  the steel and iron industry, chemical manufacturers, and
degreasers.  After the implementation  of MACT, air toxic pollutant emissions from major sources may
need to be further reduced to achieve an ample margin of safety to protect the public health. Further, a
75 percent reduction in the cancer incidence associated with emissions of hazardous air pollutants from
area sources will  be required.  Another major Title III  program is aimed at preventing accidental releases
of toxic air pollutants and minimizing the consequences of such releases.  Title III also contains other
provisions (1) to  assess the extent of deposition of air toxics in the Great Lakes, Chesapeake Bay, Lake
Champlain, and coastal waters; and (2) to control toxic air pollutant emissions from specific industry
sources such  as coke ovens, electric utility powerplants, and oil and gas exploration or production wells.
Title III requirements are summarized  in Exhibit A-6.
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                                      EXHIBIT  A-6
             SUMMARY OF TITLE  III (Am Toxics)  REQUIREMENTS
    MACT Requirements
                                 Timing
       Health Based Std.
1992-2003 (implemented in
4 stages)
Begin 2000
           Area Sources  By 1992-2003
     Accidental Releases
Beginning by the end of
1993
         Summary 
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                                         EXHIBIT A-7
                      LIST OF 189 HAZARDOUS Am POLLUTANTS
   Acetaldehyde
   Acetamide
   Acetonitrile
   Acetophenone
   2-Acetylaminoflourene
   Acrolein
   Acrylamide
   Acrylic acid
   Acrylonitrile
   Allyl chloride
   4-Aminobiphenyl
   Aniline
   o-Anisidine
   Asbestos
   Benzene (including benzene from gasoline)
   Ben/.idine
   Benzotrichloride
   Benzyl chloride
   Biphenyl
   Bis(2-ethylhexyl)phthalate (DEHP)
   Bis(chloromethyl)ether
   Bromoform
   1,3-Butadiene
   Calcium cyanamide
   Caprolactam
   Captan
   Carharyl
   Carbon disulfide
   Carbon tetrachloride
   Carbonyl  sulfide
   Catechol
   Chloramben
   Chlordane
   Chlorine
   Chloroacetic  acid
   2-Chloroacetophenone
   Chlorobenzene
   Chlorobenzilate
   Chloroform
   Chloromethyl methyl  ether
   Chloroprene
   Cresols/Cresylic acid  (isomers and mixture)
   o-Cresol
   m-Cresol
   p-Cresol
   Cumene
   2,4-D, salts and esters
DDE
Diazomethane
Dibenzofurans
1,2-Dibromo-3-chloropropane
Dibutylphthalate
1,4-Dichlorobenzene(p)
3,3-Dichlorobenzidene
Dichloroethyl ether (Bis(2-chloroethyl)ether)
1,3-Dichloropropene
Dichlorvos
Diethanolamine
N,N-Diethyl aniline (N,N-Diethylaniline)
Diethyl sulfate
3,3-Dimethoxybenzidine
Dimethyl aminoazobenzene
3,3-Dimethyl benzidine
Dimethyl carbamoyl chloride
Dimethyl formamide
1,1-Dimethyl hydrazine
Dimethyl phthalate
Dimethyl sulfate
4,6-Dinitro-o-cresol, and salts
2,4-Dinitrophenol
2,4-Dinitrotoluene
1,4-Dioxane (1,4-Diethyleneoxide)
1,2-Diphenylhydrazine
Epichlorohydrin (1 -Chloro-2,3-epoxypropane)
1,2-Epoxybutane
Ethyl acrylate
Ethyl benzene
Ethyl carbamate (Urethane)
Ethyl chloride  (Chloroethane)
Ethylene dibromide (Dibromoethane)
Ethylene dichloride (1,2-Dichloroethane)
Ethylene glycol
Ethylene imine (Aziridine)
Ethylene oxide
Ethylene thiourea
Ethylidene dichloride (1,1-Dichloroethane)
Formaldehyde
Heptachlor
Hexachlorobenzene
Hexachlorobutadiene
Hexachlorocyclopentadiene
Hexachloroethane
Hexamethylene-l,6-diisocyanate
Hexamethylphosphoramide
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                                         EXHIBIT A-7 (continued)
   Hexane
   Hydra/me
   Hydrochloric acid
   Hydrogen fluoride (Hydrofluoric acid)
   Hydroquinone
   Isophorone
   Lindane  (all isomers)
   Maleic anhydride
   Methanol
   Methoxychlor
   Methyl bromide (Bromomethane)
   Methyl chloride (Chloromethane)
   Methyl chlorofonn (1,1,1-Trichloroethane)
   Methyl ethyl ketone  (2-Butanone)
   Methyl hydra/ine
   Methyl iodide (lodomethane)
   Methyl isobutyl ketone (Hexone)
   Methyl isocyanate
   Methyl methacrylate
   Methyl tert butyl ether
   4,4-Methylene bis(2-chloroaniline)
   Methylene chloride (Dichloromethane)
   Methylene diphenyl diisocyanate (MDI)
   4,4-Methylenedianiline
   Naphthalene
   Nitrobenzene
   4-Nitrobiphenyl
   4-NitrophenoI
   2-Nitropropane
   N-Nitroso-N-methylurea
   N-Nitrosodimethylamine
   N-Nitrosomorpholine
   Parathion
   Pentachloronitrobenzone (Quintobenzcne)
   Pentachlorophenol
   Phenol
   p-Phenylenediamine
   Phosgene
   Phosphine
   Phosphorus
   Phthalic  anhydride
   Polychlorinated biphenyls (Aroclors)
   1,3-Propane sultone
   beta-Propiolactone
   Propionaldehyde
   Propoxur (Baygon)
   Propylene dichloridc (1,2-DichIoropropane)
   Propylene oxide
   1,2-Propylenimine (2-Methyl a/indinc)
Quinoline
Quinone
Styrene
Styrene oxide
2,3,7,8-Tetrachlorodiben/o-o-dioxin
1,1,2,2-Tetrachloroethane
Tetrachloroethylene (Perchloroethylene)
Titanium tetrachloride
Toluene
2,4-Toluene diaminc
2,4-Toluene diisocyanate
o-Toluidine
Toxaphene (chlorinated cainphene)
1,2,4-TrichIorobeii7,ene
1,1,2-Trichloroethane
Trichloroethylene
2,4,5-Trichlorophenol
2,4,6-Trichlorophenol
Triethylamine
Trifluralin
2,2,4-Trunethylpentane
Vinyl acetate
Vinyl bromide
Vinyl chloride
Vinylidene chloride (1,1-Dichloroethylene)
Xylenes (isomers and mixture)
o-Xylenes
m-Xylenes
p-Xylenes
Antimony Compounds
Arsenic Compounds (inorganic  including
arsenic)
Beryllium Compounds
Cadmium Compounds
Chromium Compounds
Cobalt Compounds
Coke Oven Emissions
Cyanide Compounds
Glycol ethers
Lead Compounds
Manganese Compounds
Mercury  Compounds
Fine mineral fibers
Nickel Compounds
Polycylic Organic Matter
Radionuclides (including radon)
Selenium Compound
I'age Appendix A-H
          ICF Resources Incorporated

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       •       Area Source Requirements - The goal stipulated in Title III is to achieve
               a 75°/r  reduction in the  cancer incidence associated with emissions of
               ha/ardous air  polluiants from these  types  of  sources.   Research is
               required  by  EPA  (including  monitoring,  characterization  of sources,
               atmospheric  transformations,  etc.)  and EPA  is to report to Congress
               within 5 years of enactment and recommend a comprehensive National
               Strategy  to  control emissions of ha/ardous  air  pollutants  from area
               sources in urban areas. The National Strategy is to identify not less than
               30 pollutants that  present the greatest risks to  the urban populations,
               identify  the sources accounting for 90% of the emissions, and provide
               schedules for actions under any environmental law.  The strategy is to he
               implemented within c> years.

       •       Accidental  Release Requirements  -  By the  end of  1993  EPA is to
               promulgate regulations and guidance to provide for the prevention and
               detection of accidental  releases and for appropriate response  to such
               releases by sources.  To initiate this program, EPA is  to publish witliin
               24 months of enactment an initial list of 100  substances which, in case
               of accidental releases,  could cause  death, injury,  or serious  adverse
               effects  to human health  and the environment. These regulations  are to
               require sources, at which a regulated substance is present in more  than a
               threshold quantity  defined by EPA, to prepare  and implement  a  risk
               management plan to detect and prevent or minimize accidental releases,
               and to provide for prompt emergency response to any such releases in
               order to protect the public health and the environment.

TITLE IV (ACID RAIN)

Introduction

       The goal of Title IV, is to achieve, primarily from electric utility units, a 10 million ton reduction
in SO2 emissions and in combination with other provisions of the Act, approximately a 2 million ton
reduction in NOX emissions from 19HO levels. SO2 reductions will be achieved in  two phases (Phase I
beginning in 1995, generally, and Phase II  beginning in 2000) via  an innovative allowance trading
scheme.  NOX  reductions will  generally be  achieved through the  installation of  conventional burner
technologies. Most coal-fired utility units affected under the SO2 control program in  either Phase I  or
Phase II will be required to  meet specific NOX emission limits under the statute.  General requirements
under Title IV are outlined in Exhibit A-X.

        •       The  allowance  trading  provisions  of the  SO2 control program  which
               permit utilities to buy, sell or  trade their allowable emission tonnages as
               part  of an integrated compliance  strategy  (provided that at the end of
               each year  each unit holds  enough allowances  to at  least offset its
               emissions)  give utilities  a  large  degree of  compliance  flexibility.
               Allowances, if unused in the year they are allocated, can be "hanked" for
               future use or sale.
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                                    EXHIBIT A-8
             SUMMARY OF TITLE IV (Aero RAIN) REQUIREMENTS
 SO2 Control Program

    Phase I SO2 Requirements
                                  Timing
          Phase I Technology
                  Incentives
   Phase II SO2 Requirements
                  New Units
        Repowering Extension
          Allowance Auctions
     Cons./Renewable Reserve
      Election/Opt-In Sources
1995-1999
 NOX Control Program
 Emissions Monitoring
1995-1999
Beginning in 2000
Beginning in 2000
2000-2004
Beginning in 1993
Beginning 1995
Beginning 1995
Beginning in 1995
Beginning in 1993
                             Summary of Requirements
110 powerplants with nameplate capacity greater
than 100 MW and 1985 SO2 rate greater than 2.5
Ibs/mmBtu are allocated allowances based on a 2.5
Ib. rate multiplied by baseline (1985-1987 average)
fuel consumption.

Phase I sources that install 90% removal technolo-
gy receive extension allowances from the Phase I
technology reserve (capped at 3.5 million tons)

Units with nameplate capacity greater than 25 MW
allocated allowances based on several formulas.
Total allowances allocated equal about 9 million
tons

New units not allocated allowances; new units must
obtain allowances from existing sources to offset
emissions

Repowered sources receive 4 year exemption from
Phase II requirements

Allowance auctions held annually; special provi-
sions ensuring allowances available for IPPs

Extra allowances for emissions avoided through
electricity conservation and the use of renewable
energy

Unaffected sources can opt-in to become affected;
allocated allowances based on 1985 rate multiplied
by baseline fuel
Sources affected in SO2 program required to meet
                                                NOX limits
Continuous emissions monitors (CEMs) required at
affected sources (1993 for Phase I units and 1995
for Phase II units)
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               In Phase I (1995)  110 powerplants will be required to meet total annual
               emission allowances based on a 2.5 Ib. per mmBtu SO2 emission rate.

               In Phase  II (2000) virtually all existing  utility sources with  nameplate
               capacity greater than 25 megawatts are affected and allocated emission
               allowances based on several formulas.  In total, about 9.5 million tons of
               SO2 emission allowances will be allocated annually in Phase  II.

               In Phase II most new (i.e., post-enactment) utility sources are required to
               offset their  SO2  emissions  by  obtaining tradeable allowances from
               existing sources.

               NOX reductions will  be achieved in two phases, generally through the
               installation of conventional burner technologies (e.g.,  low  NOX burners)
               at most utility coal-fired units.  NOX limits will be established.

               Units  affected in  Phase I and/or Phase II will be  required to  install
               continuous emissions monitors  (CEMS) to measure SO2 emissions, NOX
               emissions, opacity, and volumetric flow
Summary Description of Provisions

       SO2 Control Program
               Phase 1 SQ2 Control Program -  110 of the highest  emitting  utility
               powerplants (i.e., those with a 1985 emission rate greater than 2.5 Ibs.
               SO2 per million Btu and nameplate capacity at least 100 megawatts)
               are required to meet  Phase I emission allowance allocations which are
               based on 1985 SO2 emission rates multiplied  by "baseline"  (1985-1987
               average  annual) fuel  consumption.  These annual allowance allocations
               are fully tradeable and can be banked for use  in the future.

               Phase I  Technology Extension Program - To mitigate high-sulfur coal
               production  losses  and high sulfur coal-mining losses, Phase I affected
               sources  that install 90 percent removal technology by 1997  will qualify
               to earn Phase I extension or bonus allowances from the Phase I technolo-
               gy reserve which is capped at 3.5 million tons.  Extension allowances are
               also fully tradeable arid can be banked.

               Phase II SO2 Control Program - Beginning in Phase II (2000) virtually
               all existing utility units  with  nameplate  capacity  greater than  25
               megawatts  will be affected and granted annual allowance allocations
               based on various formulas.  As is the case in Phase I, Phase II allowanc-
               es are fully tradeable and can he banked. In sum, total annual emission
               allocations  in  Phase II  will  equal  about  9  million  tons  annually.
               Additionally about  0 5  million tons  of "bonus"  allowances will  be
               allocated annually during the 2000-2009 period.
                                                              ICF Resources Incorporated

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       •      New  Units  -   New  (post-enactment) units  (i.e.,  those  on-line after
              November 15,  1990) will  not  he allocated emission allowances and
              therefore  must  obtain SO2  emission allowances from other sources to
              offset their SO2 emissions.

       •      Repowering Extension -  Sources  repowering  with  qualified clean coal
              repowering  technologies (e.g., pulverized fluidized  bed combustion
              PFBC, and integrated gasified combined cycle IGCC) would receive a
              four year  compliance exemption from Phase II requirements.

       •      Allowance Auctions - To promote efficient operation of the  allowance
              trading  market, annual allowance  auctions beginning in  1993 will  be
              held.   Special  auction  provisions exist to ensure the availability  of
              allowances for independent power producers.

       •      Conservation/Renewable  Energy   Reserve -  Sources avoiding  SO2
              emissions through the use of qualified electricity conservation measures,
              or from qualified renewable sources will receive extra allowances from
              this reserve for each ton of emissions avoided.

       •      Election/Opt-In Sources  -  Sources unaffected under the  SO2 control
              program,  including utility  and non-utility sources,  could "opt-in" to
              become affected under the SO2  control program and would be allocated
              SO2 emission allowances based on their 1985 emission rate,  multiplied
              by baseline fuel.  Such an opt-in could be  beneficial to sources that are
              able to reduce their SO2 emissions at a low cost or have already reduced
              since 1985.  In either case,  opt-in sources could be  allocated allowances
              greater than their expected  SO2 emissions and thus potentially sell their
              excess allowances in the  allowance trading market  for a profit.

       NOX Control Program

       •      Phase I NQX Requirements - On the date that a Phase I coal-fired unit
              becomes  affected under the SO2  control program,  it  also becomes
              affected under the NOX control program.  Under this program, Phase  I
              affected coal-fired units will be  required to  emit NOX at a rate no greater
              than 0.45 Ibs.  per mmBtu at tangentially fired boilers, and 0.5 Ibs. per
              mmBtu at dry bottom wall-fired boilers.  More stringent limits may be
              set by regulations. Units  with cyclone, and wet bottom wall-fired boilers
              will  probably not be required to install technology in Phase I.

       •      Phase II NQX Requirements - Units affected for SO2 in Phase II will also
              be subject to  NOX requirements  and must  install cost-effective  NOX
              control technology. The maximum allowable emission rate for tangen-
              tially fired and dry bottom  wall-fired boilers may be more stringent  for
              Phase II units, and controls at cyclone and  wet bottom wall-fired boilers
              could be required by the  EPA Administrator.
06(X)975F
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       Emissions Monitoring Requirements

       •       Continuous emissions monitors (CEMS) are required to be installed at
               affected sources in Phase 1 and Phase II to measure SO2 emissions, NOX
               emissions, opacity, and volumetric flow.
TITLE VI (STRATOSPHERIC OZONE)

        In accordance with the Montreal Protocol, Title  VI provisions reduce the deposition into  the
stratospheric ozone layer of class I suhstances (chlorofluorocarbons, 3 halons, carbon tetrachloride, and
methyl  chloroform and  class II  substances (hydrochlorofluorocarbons).   These substances have been
associated with  the  destruction  of ihe  stratospheric ozone layer.  Under Title  VI provisions, U.S.
production and  consumption of  class  I substances  is to be  phased-out  by 2000 (2002 for methyl
chloroform); class II substances are to be phased-out by 2030; prior to phaseouts, labeling of products
made with or containing Class I substances is required by May 15, 1993; there are new standards by 1992
regarding the use and disposal of Class I substances during service, repair, or disposal of appliances and
industrial  process refrigeration (similar standards for  class II substances in November  1994);  new
regulation for CFC recovery and recycling during servicing and repair of mobile air conditioners (MACs)
in November 1991; and  a ban on  nonessential products  containing CFCs in 1992 (Exhibit A-9).

Summary Description of Provisions

        •       Production Phaseouts -  Production and  use of class I and II  substances will be
               phased out overtime.  Interpollutant transfers on an ozone depletion weighted
               basis for substances within the same class and grouping are allowed on an annual
               basis.  Class I substances  comprise  five groupings, and  EPA shall establish
               groupings of class II substances for interpollutant trading purposes.

               —     Class I Substances  - Beginning in 1991 it will be unlawful to
                      produce  any class I substance  in an annual quantity above a
                      prescribed percentage of baseline quantity.  The baseline year is
                      determined, depending on CFC grouping  to be  either 1986 or
                       1989.  Production  of class  I  substances  will  be completely
                      phased-out by 2000 (2002 for methyl chloroform.)^

                      Annual percent production of class I substances allowed by year is  as  follows:
       Exceptions to the phaseout for essential uses (e.g., medical devices and aviation safety) of methyl
       chloroform are provided.
   Appendix A-iR                                                  ICF Resources Incorporated

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                                         EXHIBIT  A-9
      SUMMARY  OF TITLE VI (STRATOSPHERIC OZONE) REQUIREMENTS
                                Timing
                             Summary of Requirements
    Production Phaseouts

         Class I Substances
1991-2002
         Class II Substances
2015-2030
    Recovery and Recy-
    cling
1992 & 1994
    Mobile Air Condition-
    ers
Beginning
1992
    Nonessential Product
    Ban

    Product Labeling
1991
1993
Gradual phaseout relative to a baseline year (1986 or
1989):  carbon tetrachloride (from 90-70 percent produc-
tion relative to baseline 1992-1994, 15 percent 1995-
1999); methyl chloroform (90-70 percent 1993-1995, 50
percent 1996-1999, 20 percent 2000-2001); other class I
substances (85-40  percent 1991-1996, 15 percent 1997-
1999).

Beginning in 2015 consumption of class II substances is
forbidden unless they have been used, recovered and
recycled, are entirely consumed in production of other
chemicals, or are used as a refrigerant in pre-2020 appli-
ances; production  of class II substances above baseline
levels beginning in 2015 is forbidden, and will be totally
phased-out by 2030 (schedule to be determined).

Standards are established regarding use  and disposal of
class I substances  (effective in 1992) and class II sub-
stances (effective in 1992) during service, repair, or dis-
posal of appliances and industrial process refrigeration.
Standards are required for the removal of class I and II
substances prior to disposal, and for appliances and other
machinery not to be manufactured, sold, or distributed
unless equipped with a servicing aperture to recapture
class I and II substances.

Regulations beginning in 1992 will provide for certifi-
cation and proper  use of approved refrigerant recycling
equipment for the  service of motor vehicle air condition-
ers (MVACS).  Stations servicing less  than 100 MVACs
annually will have until 1993 to comply.

Nonessential products that release CFCs during  manu-
facture, use, storage, or disposal to be banned in 1992.
Mandatory warning labels on all containers of products
made with or containing Class I substances.
06C0975F

Page Appendix A-19
                                     ICF Resources Incorporated

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                                   Carbon         Methyl      Other Class I
                                 Tetrachloride    Chloroform     Substances

                         1991        100             100             85
                         1992        90             100             80
                         1993        80             90             75
                         1994        70             85             65
                         1995         15             70             50
                         1996         15             50             40
                         1997         15             50             15
                         1998         15             50             15
                         1999         15             50             15
                         2000         --             20
                         2001         --             20

              —     Class II Substances -  Beginning in  2015 it will be unlawful to
                      introduce into interstate commerce, or use any class II substance
                      unless it has been used, recovered, and recycled; is used and
                      entirely consumed in  the  production  of other chemicals; or is
                      used as a refrigerant  in appliances  manufactured before 2020.
                      Similar to the production phaseout of class I substances, pro-
                      duction of class II substances beginning in 2015 will be unlawful
                      above  a percentage of a baseline level. EPA shall  promulgate
                      the phaseout schedule  by 1999.  Effective in 2030 production of
                      all class II substances  shall be phased-out.

              Recovery and Recycling Requirements - Standards regarding the use and disposal
              of class I and II substances are to become  effective in 1992.   These standards
              will establish safe  disposal requirements such as  (1) requiring the removal of
              class I and II substances  from appliances,  machines or other goods prior to
              disposal; and (2) making it unlawful to manufacture, sell, or distribute appliances,
              machines, or other goods unless they are equipped with a servicing aperture to
              recapture class I and class II substances during service,  repair, or disposal.

              Motor  Vehicle Air Conditioners (MVACs) - Beginning  in 1992 (or  1993 for
              stations servicing  fewer  than  100 MVACs  annually) stations  servicing,  or
              repairing MVACs must use approved refrigerant recycling equipment.  Servicers
              must also be trained and certified to use such equipment.  In 1992 it shall also be
              unlawful to  sell or distribute MVAC refrigerant in containers  less than  20
              pounds.

              Nonessential Product Ban - Beginning in  1992 it shall be unlawful to  use or
              distribute nonessential products that release class I substances  during manufac-
              ture, use, storage, or disposal.   At a minimum,  this ban will  include  CFC
              propelled plastic party streamers and horns, and CFC containing cleaning fluids
              for noncommercial electronic  and photographic equipment.  Beginning in  1994
              nonessential  aerosol products and  plastic  foam  products  containing class II
              substances shall be banned.
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       APPENDIX B
 Methodology for Estimating
Chapter HI Revenue Estimates
Titles I-IV and VI of the 1990
 Clean Air Act Amendments

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                                     APPENDIX B
    METHODOLOGY FOR ESTIMATING CHAPTER III REVENUE ESTIMATES
      TITLES I-IV  AND VI OF THE 1990 CLEAN AIR ACT AMENDMENTS
       This appendix discusses the  methodology, assumptions and sources of information used to
determine revenue estimates presented in Chapter III.  In most cases, revenue estimates were based on the
results of previous studies and analyses.  As noted in introduction to Chapter III, revenue estimates were
not  available for all CAAA requirements due to  regulatory uncertainty, or uncertainty regarding the
method of emissions control.  Rather, an attempt was made to attain estimates for the requirement likely
to have the  most significant impacts.

Title I (Nonattainment)

       Revenue estimates for Title I provisions were compiled by E. H. Pechan and Associates Inc. from
a variety of sources including studies sponsored  by EPA and telephone conversations with relevant
experts.  In some instances, revenue estimates were based on capital cost forecasts presented in several
of these studies.  In other  instances, capital cost  estimates were not available  from one  source, and
revenue estimates were more roughly based on integrating results presented in several studies. References
used as a basis for determining revenue estimates include:

       •      Alliance Technologies Corporation, Chapel Hill, NC, Cost Assessment of
              Alternative  National Ambient Air  Quality Standards for Ozone, draft
              report, prepared for U.S. Environmental Protection Agency, OAQPS,
              October 1987.

       •      Radian Corporation, Auto  Refinishing CTG  Costs,  memorandum to
              Rebecca Battye, E. H. Pechan & Associates, Inc., July 1, 1991.

       •      Federal Register, Vol. 55, No.  120, p. 25454, Hazardous Waste  Treat-
              ment, Storage, and Disposal Facilities- Organic Air Emission Standards
              for Process  Vents and Equipment Leaks, June 21,1990.

       •      E. H. Pechan  & Associates, Inc., Springfield, VA, National Assessment
              ofVOC, CO, andNOy Controls, Emissions, and Costs, prepared for U.S.
              Environmental Protection Agency,  Office  of Policy Planning  and
              Evaluation,  September 1988.

       •      Radian Corporation, Offset Lithographic Printing Control Technique
              Guideline -  National Impact Analysis, prepared for U.S. Environmental
              Protection Agency, May 1991.

       •      U.S.  Environmental  Protection  Agency,  Draft Regulatory  Impact
              Analysis:  Proposed Refueling Emission Regulations for Gasoline-Fueled
              Motor Vehicles,  Office of Air and Radiation, March 1987.
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       •       U.S. Environmental  Protection Agency, Industrial Wastewater Volatile
               Organic Compound Emissions Background Information for BACT/LAER
               Determinations, EPA450/3-90-004, OAQPS, January 1990.

       •       U.S.  Environmental Protection  Agency,  Control  of Volatile  Organic
               Compound Emissions from Reactor Processes and Distillation Opera-
               tions Processes  in  the Synthetic  Organic  Chemical  Manufacturing
               Industry, draft report, *OAQPS, June  1991.

       •       U.S. Environmental  Protection Agency, Air Emissions from Municipal
               Solid Waste Landfills - Background Information for Proposed Standards
               and Guidelines, EPA450/3-90-Olla, OAQPS,  March 1991.

Title II (Mobile Sources)

       Revenue estimates presented herein are based on a variety of sources. Most are studies or papers
performed by various contractors for EPA. Some are studies performed for other government agencies,
but which contain relevant data.  These are referenced throughout this section.

       To arrive at a meaningful estimate of the business opportunities  available under Title II, certain
general assumptions had to be  made:

       •       Emissions controls:   more  complex equipment will be installed on
               vehicles, including new catalysts or different  placement of the catalysts.
               New and better traps will be required in buses.  More complex equip-
               ment will  also be required at the gasoline pumps to recover refueling
               vapors.  Onboard emission  control diagnostics will  be  required on all
               cars after 1994.

       •       Fuels specifications:  refining  will require more extensive processing,
               entailing revamping and reconfiguration of existing units, expansion of
               other units, and the building of completely new units.  The production of
               new additives will require new catalysts and new processing equipment.
               Oxygenates will have to be supplied by domestic producers and import-
               ers.

       •       Clean fuels and clean fuel vehicles: clean fuels will have to be supplied
               either by domestic producers or importers. Vehicles capable of running
               on the clean fuels and meeting the clean fuel vehicle Tier 1 and Tier II
               emissions standards will have to be supplied.  The fleet requirements for
               clean fuel  use may create a substantial market for these vehicles and for
               the necessary fuels.

       More specific assumptions affecting  fuel input producers and suppliers include:

       •       MTBE - Production of (his additive will both be increased domestically
               and more will be  imported.   Should  shortages  of MTBE  feedstock
()fi("0975f!
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               emerge, particularly  butanes,  MTBE rather  than  feedstocks  will be
               imported.

        •       Ethanol - Production of ethanol (corn alcohol) will be increased, although
               there is considerable surplus capacity in the United States which would
               be brought on line first.  Ethanol is more likely to gain market share as
               an oxygenate additive  than as a fuel.  If the tax subsidy for grain based
               ethanol is  continued, ethanol demand as a feedstock for ethyl tertiary
               hutly ether (ETBE) an oxygen additive may grow.  Without the subsidy,
               it is unlikely that ETBE use will grow.-

        •       Methanol  - Methanol serves both  as a feedstock for MTBE and  a fuel
               itself.  The general consensus is that incremental methanol (i.e., methanol
               demand beyond the capacity of U.S. plants  to produce) will be imported
               particularly from  the Caribbean and the Middle East.   In the  United
               States only two new plants are  planned, one of which, under construc-
               tion, is largely captive to an MTBE plant and  a refinery.

        •       Clean Vehicle Industry - Clean  fuel light duty vehicles and trucks have
               to be supplied for the fleet programs in the ozone nonattainment regions,
               beginning  with  model year 1998  and for the California pilot program
               beginning  in model year 1996.

        More specific assumptions affecting the clean fuel  and clean fuel vehicle  industry include:

        •       The California Pilot Program -  The California program applies only to
               light duty vehicles and trucks. If reformulated gasoline is used there will
               be no incremental revenues accruing under  this part of Title II. Howev-
               er, if one were to assume that the California program would use alterna-
               tive fuels then revenues could be estimated  as follows. Title II specifies
               the  number  of  vehicles that  have to be  supplied.   According to  the
               automobile companies, the incremental cost of a methanol  vehicle is
               $219/vehicle and  of a CNG vehicle is $937/vehicle.-  These costs to
               the automobile companies translate into revenues for the parts suppliers
               and fabricators.  Assuming that the  supply of clean fuel  vehicles are
               equally divided between methanol and CNG, revenues for parts suppliers
               is estimated to increase on average by about $0.1  billion annually 1996-
               2000.
-      There is one small ETBE plant in Lincoln, Nebraska. However, MTBE plants can be adjusted
       to produce ETBE.

9/
-      Methanol costs are taken from DOE Assessment of Costs and Benefits of Flexible and Alternative
       Fuel  Use in the U.S. Transportation  Sector, 1990.  CNG costs from  EPA Analysis of the
       Economic and Environmental Effects of Compressed Natural Gas As A Vehicle Fuel,  1990.
06( '0975(1
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       •       The Fleet Program - Fleet vehicle revenue could he calculated similarly.
               However, data on the number of fleets and the vehicle distribution were
               not available.

       •       Clean Fuel Industry - Methanol will most likely be imported so domestic
               business opportunities will be confined to incremental transportation and
               storage needs.  CNG will probably be supplied  by incremental domestic
               production. This provides revenue opportunities for domestic natural gas
               producers.  Assuming that half of the vehicles in the California pilot
               program are CNG vehicles, this translates into an incremental demand for
               natural  gas of 2.76 x 106 MCF/Y for  model years 1996 through 1998,
               and 5.51 x 106 MCF/Y for 1999 onwards. A gas price of $3.69/MCF is
               assumed.

Title III  (Air Toxics)

         Estimates associated with Title III requirements are based generally on estimates of the control
equipment required to comply with expected regulations; a total demand of $15-20 billion is estimated.
Stack testing demand estimates  were based on an  assumed requirement of $30,000 to $100,000 per
facility, again with activities at the approximately 30,000 facilities requiring assistance spread equally over
10 years.  Instrumentation demand estimates  were based on  an  assumed requirement of  $30,000 to
$100,000 per facility, with the same number of sources also spread equally over 10 years.

       The starting point for the estimation of revenue demands presented here were estimates that were
made during the legislative debate over the Clean Air Act Amendments.  For example, a report prepared
for EPA  provided annualized cost estimates but focused largely on a limited number of larger and better
understood industries.-^  Other researchers also estimated costs but generally focused on anticipated costs
in 1995 and 2005.^  While these studies were useful, a more comprehensive industry-wide assessment
of the  revenue demands  associated with Title III  was  desired.   Accordingly, ICF developed these
estimates.

       The anticipated revenues accruing to the air pollution control industry resulting from implementa-
tion of Title III were estimated in two steps.  First, a list was prepared of the industrial and commercial
source categories  that were expected to be regulated by EPA in 1992,  1994, 1997, and 2000, as required
in the Act.  This  was based on EPA's preliminary  list of categories  and subcategories  to be regulated
under §112 (56 FR  28548,  June 21, 1991) and a  preliminary announcement by EPA of  its  planned
regulatory actions for 1992.  Since EPA's planned regulatory
actions for later dates will not be announced until late 1991, it was assumed that source categories and
emissions associated with potentially greater population exposures and risks, and sources that generally
were better studied, would be more likely to be regulated in earlier years. Source categories for potential
regulation thus  were assigned to specific years largely based upon the expected population exposures and
risks, the industrial  air pollution control experience of the analysts and available  EPA information
concerning expected source category priorities.
-       Analysis of Costs of Hazardous Air Pollutant Controls, Energy and Environmental Analysis, Inc.,
        January 25, 1990.

-       E.H. Pechan and Assoc., Springfield, VA, in the Congressional Record, October 27,  1990.
Page Appendix B-4                                                   ICF Resources IncorponileJ

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       Second, relevant information on the selected source categories was collected.  This information
included SIC codes, expected emissions from each source category, numbers of facilities, production and
usage volumes, estimated emissions of toxic air pollutants, estimated average current levels of control, the
types of controls most likely to he adopted to comply with new regulations, and the estimated revenues
arising from new  installed  control  technology,  source testing, research and consulting services and
instrumentation.  Sources from which this information was obtained included the following:

       •    SIC codes - 1990 Standard Industrial Classification Manual.

       •    Major chemicals - 1989 Toxic Release Inventory (TRI)  data base, EPA data
            and the industrial experience of the  analysts.

       •    Numbers of facilities - TRI and the  1987 Census of Manufacturers.

       •    Production volume or  usage -  1987 Census of Manufacturers, 1991  SRI
            Directory of Chemical  Producers and EPA data.

       •    Emissions - TRI and EPA Emission Factors Handbook (AP-42)

       •    Types of Controls - AP-42 and  air pollution control experience.

       •    Revenue estimates - EPA summary cost information and  industrial experience
            of the analysts.

Areas of Uncertainty

       There are several areas of uncertainty in  this analysis. These  are summarized below:

       •    Number of Facilities Regulated - Facilities identified by the 1987 Census  of
            Manufacturers as being in a specific business  may not necessarily correspond
            to facilities that would be identified by EPA as subject to regulation.

       •    Source Categories Regulated - A detailed EPA assessment would be necessary
            to determine with certainty whether a particular source category should be
            regulated; the analysis here assumes  that all potential source categories will be
            regulated.  Note, however, that  given the large number of pollutants and the
            small emission limit requirements in the Act,  this assumption is not expected
            to significantly overestimate revenue demands.

       •    Accidental  Release  Uncertainties - The  revenue  estimates for accidental
            releases are much less precise than those for routine releases. A major reason
            is that the accidental release control program  is not  nearly as well defined at
            this  point.   For example, Congress specifically  listed  16  substances  for
            regulation but required EPA  to identify at least 84 more.  Also, threshold
            quantities are still to he defined and will have a significant effect on the size
            and  number of sources that  are covered,   Finally, the hazard assessment
            procedures that are still to be developed could be associated with a wide range
            of cost.
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       •    Regulatory  Timing  -  Given the  regulatory uncertainty  involved,  some
            inaccuracy in the assignment of source  categories to particular years is
            expected.  In addition,  some sources may elect to participate in EPA's early
            reduction  program.  However, neither of these  should  effect  total  revenue
            demands,  only the timing of the revenue demands.

       •    Costs of Control - Although the  cost of air  pollution control  equipment to
            reduce air toxic emissions is relatively well understood today  (and  thus the
            revenue increase to  equipment manufacturers),  future costs  are somewhat
            uncertain  and could change over-time for various reason (e.g., technological
            developments, and change in economic conditions faced by the manufactures).

       •    Pollution Prevention  - Because the costs and methods of pollution prevention
            (e.g., process modifications, product reformulation, and  use of non-toxic
            substitutes) are not well known, it is difficult to provide meaningful discussion
            on the extent to which  affected facilities would pursue such options.

       Even with the inherent uncertainty involved (some of which could be eliminated through more
detailed work), the information presented herein is believed to represent  plausible estimates  of the
revenues to be generated by Title  III.  While any one value probably could  be improved, on the whole
over-estimates are expected to balance under-estimates such that the final total revenue demand estimates
are believed to be reasonable.  Still, to accommodate the potential uncertainties, the final revenue demand
estimates were assumed to vary plus or minus 25% from the estimated value.

       The impact on revenue demand of one major requirement  of Title III,  which falls generally
beyond the time frame of the analysis is not included.  Title III requires that additional  control beyond
MACT be added  to source categories associated with residual risks to achieve  "ample margin  of safety
to protect the public health."  The analysis here does not attempt to estimate potential future revenues thai
could result from actions taken to implement these requirements of Title  III.

Title IV (Acid Rain)

       To capture a range  of impacts under  likely future scenarios in the  energy  markets, revenue
estimates presented herein are based on the (1)  "Low Regulatory Case" analysis conducted as part of the
Regulatory Impact Analysis (RIA) of the. Proposed Acid Rain Implementation Regulations, September 16,
1991, prepared by ICF Incorporated for EPA, and (2) ICF Resources' independent analysis of Title IV
requirements.

        ICF Resources' independent analysis was used as a basis for one end-point of the  range of
revenue estimates (as opposed to using "High Regulatory Case" analysis from the acid rain RIA), because
behavioral assumptions in ICF Resources'  analysis allowed the penetration of western Powder River Basin
(PRB) subbituminous  coals into  the eastern  bituminous  boiler market  (several eastern utilities  have
announced their intention to use PRB coals).-'  Also, the analysis included the availability of lower cost
-'      A capital cost add-on of $100 per kilowatt was charged for switching to PRB coals (in whole or
        in a blend) at eastern boilers designed to burn bituminous coal to reflect powerplant upgrade
        costs.
   Appendix B-6                                                   ICF Resources Incorporated

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clean coal technologies in Phase II.  On balance, this analysis yielded higher revenue estimates than the
EPA case.

       EPA Base Case assumptions (i.e., the assumptions underlying the "Low Regulatory Case" of the
acid rain  RIA), which were developed in 1988 did not permit the penetration of PRB coals in the eastern
bituminous boiler market.  At that time, relatively few utilities had tested or used PRB coals in boiler
designed  to burn bituminous coals. More recent experience, and studies conducted by ICF Resources, as
well as others suggest that shifts to significant amounts of PRB coals at bituminous designed boilers are
likely to occur.

Title VI  (Stratospheric Ozone)

       Revenue increase estimates associated with Title VI of the CAAA were initially developed  by
EPA (Stratospheric Ozone Branch) based on various cost estimates.  Steve Anderson, Director of EPA's
Technology Transfer and Industry Programs Office in the Global Change Division, provided comments
and written text.
   Appendix 0-7                                                   ICF Resources Incorporated

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   APPENDIX C
Response to Comments

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                                      APPENDIX C
                               RESPONSE  TO COMMENTS
       This appendix presents responses to several comments received on the January 1992 Draft version
of (his report.  This draft report  was sent  to experts in several areas for their technical review of the
assumptions and methodologies used in this report.  The Draft version of this report was also available
to the general puhlic hy request.

       Given  the large number  and  scope of comments  received,  the authors have not attempted to
respond to each comment individually.  Rather, a set  of comments  which seemed to be most relevant,
and in most  cases submitted by more  than one reviewer were  selected for this appendix.

       In the text below, comments are presented followed by a response from the authors. The  identity
of the individual commenters is not provided.

COMMENT:
Several reviewers were  confused by the draft report's use of the term "benefits" to describe the effect on
the pollution control industry  caused by  the new Act.   These  comments note that  traditionally in
regulatory analysis, "economic benefits" refers to either the valuation of risk reduction resulting from
environmental  regulations, or producer and consumer "welfare" gains.

RESPONSE:
The final report has changed "economic benefits" to "increases in  revenues and new business" to avoid
confusion.  This  change does not mean that there are not economic benefits associated with the impact
of the Act on the pollution control industry. To  the degree that the pollution control industry increases
its profitability, expands sales of equipment to other markets, enhances productivity and efficiency of
users of their services, or stimulates technological innovation that results  in an improvement of industry's
competitive position, benefits (of a more broadly defined nature) are produced.

COMMENT:
Several comments questioned whether this report should address the costs of pollution control associated
with the act, because without the  "cost" side of the equation, an incomplete assessment of the Act's full
effects is produced.  These comments have also  noted  that there is a potential adverse impact of these
costs on traditional measures of productivity in the affected industries.

RESPONSE:
We agree that both sides of the cost-benefit equation should be analyzed.  This report, as the Executive
Summary states,  is not a full  "cost-benefit" study and is only one piece that is needed to complete a full
analysis.  EPA is required under Section 812 of the Act to conduct a complete cost-benefit analysis of the
act. In addition, every major regulation promulgated by the EPA is accompanied by a Regulatory Impact
Analysis which examines costs in great detail.  This report only  attempts to identify and quantify the
economy providing air pollution control services.  Most of the  expenditures for pollution control services
represent a shift of resources from one sector of the economy to another.
                                                             ICF Resources Incorporated

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COMMENT:
When discussing the differences betv/een EPA's estimates and other private estimates of the sue of the
environmental protection market, it should be noted that the "expenditure" and the "revenue" approaches
will lead to different estimates because of a variety of reasons.

RESPONSE:
We agree.  The point of the  report  is to  say that whether one looks at revenues or expenditures, the
general magnitude of the resources involved is major and significant rather than minor and incidental.
The sources of information used to come up with both the expenditure and revenue accounts are different
and independent of one another.  Thus, the media specific amounts will not necessarily, nor are they
meant to, indicate similar magnitudes.  The agency's work on the adequacy of the government's current
accounts to account for environmental expenditures should help with this situation and make comparisons
more compatible in the future.

COMMENT:
When presenting historical revenue estimates for stationary source equipment,  it is important to define
whether just "equipment" costs or "entire system" costs are being included.

RESPONSE:
We agree completely.  On page 1-8, in fact, it is stated that "the revenue estimates include companies that
design, build, install and service emission control equipment..." Thus, the revenue estimates in the  report
include the cost of the entire system.

COMMENT:
The current revenue estimates for mobile source pollution control equipment used in the report could be
supplemented by estimates from an EPA publication (Environmental Investments:  The Cost of a  Clean
Environment) and a BE A publication (Survey of Current Business, November 1991).

RESPONSE:
While we agree that different  historical estimates can help add perspective on the correct si7,e and scope
of the air pollution control industry, different estimates  also introduce the difficulty of comparability.  In
the case of mobile service equipment, the 1990 estimates cited in the report come  from the Department
of Commerce which excluded inspection and maintenance equipment service and sales, research and
development, on-board diagnostic equipment, and production of alternative-fueled vehicles.  The BEA
publication does not break out various mobile source products and services separately and thus was not
used (since it cannot be compared directly).  The EPA publication, cited above, provides estimates for
1986 and not 1990 and thus was not cited  either.

COMMENT:
Revenue projections for Title I provisions (nonattainment) may be overestimated because, in many cases,
equipment installed to meet Title  I requirements can also be used to meet Title III (air toxic) require-
ments.

RESPONSE:
Revenue projections are based on EPA'Administration cost analysis of Titles  I, II, III, and  IV,  which
when originally constructed were checked for potential double counting.  It is not expected that revenue
projections are therefore overestimated given the origin of the cost estimates.
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COMMENT:
Several comments noted that existing cost estimates of the Act (prepared by EPA and the Administration)
arc greater than the estimated increased revenues to the pollution control industry and wondered why this
was the case.

RESPONSE:
The report  is not an attempt to  analyze where all of the  compliance costs outlined in existing  cost
estimates eventually end up. In many cases, provisions of the Act which were assigned costs (such as the
steady progress requirements under Title 1) were not analyzed to determine where these expenditures
would eventually  end up  in the pollution control industry (In  many cases it is too early to tell which
control measures  are likely to be selected).  In other  cases, (such as monitors for air toxic releases)
increased revenues were estimated for specific provisions that were not assigned costs in earlier analysis
because of a lack  of specificity of the provisions at the time of the earlier cost analysis.

COMMENT:
Discussion of employment impacts:  The report says that it cannot determine net employment impacts
from the increased revenues generated by CAAA demand and increased costs from complying with the
regulations.   It does, however, estimate employment increases based on increased  revenues  in the
pollution control industry. This leaves the reader with the incorrect impression that the CAAA will create
15-25 thousand new jobs annually during 1992-1995 and 20-40 thousand jobs annually from 1996-2000.
Dale Jorgensen (Harvard) and others have clearly demonstrated that net economic  activity decreases as
a result of environmental regulation.  Therefore, showing job increases  without showing losses  is
misleading.

RESPONSE:
Concerning employment  analysis in this report, as  the report clearly states, a determination  of net
employment effects  is not  part  of this analysis.   Concerning the Jorgensen  work that indicates
environmental investments are a net detraction from economic growth, there are  others who offer a
different opinion.  They hold that environmental investments can both stimulate technological innovation
and increase production efficiency - both of which can lead to  an increase in economic competitiveness
and enhanced economic activity.

COMMENT:
The report should be careful about comparing total spending for environmental protection to GNP.  GNP
is  measured as final demand  expenditures while expenditures  for environmental protection  include
expenditures on intermediate goods.  The two are not comparable.

RESPONSE:
The comparison of expenditures to GNP was meant to show magnitude and not be a directly compatible
comparison. These questions will be examined in the Section 812 analysis described above.

COMMENT:
In the discussion  of the growth of air pollution control industry, the draft report asserts that the slow-
down in the growth in the U.S. air pollution control industry in the 1980s was a result of a slowdown in
"the pace of air-quality enforcement and new regulation" as well as a slowdown  in overall economic
growth (page 1-5). The 1980s have been characterized as one of the longest expansionary phases in the
history of the U.S.  economy, so the report needs to clarify what is meant by a slowdown  in overall
economic growth.  Furthermore, no evidence of a slowdown in air-quality enforcement has been given.
06ni
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Is it not possible that the investment in air pollution control equipment is a one-time occurrence.? Once
regulated industries make this investment, additional expenditures for air pollution  abatement appear as
operation and maintenance expenditures; these do not necessarily involve purchases for new equipment
that become revenues for the air pollution control industry.  This would also explain the "spikes" in
Exhibit  1-2 that followed the  1970 and 1977 CAAA's.

RESPONSE:
We agree with the observation that the pollution control industry is indeed a cyclical one with ups and
downs that are more closely related  to  the promulgation of regulations  than anything else.  This is
confirmed by the report's discussion of industry booking statistics (see Exhibit 1-2 in Chapter 1).  Also
note that this information has been updated to capture the expected buildup of orders in anticipation of
new regulation.

COMMENT:
Overall, Chapter  IV contains very little factual support for its discussions; its assertions are primarily
speculation.

RESPONSE:
Discussion about how an industry will respond in the future is by its very  nature somewhat speculative.
The report discusses how this particular industry is likely to respond given the authors' knowledge of past
behavior of the market.

COMMENT/RESPONSE:
Concerning a comment  that utilities are worried about the capacity of the air pollution control industry
to meet the increased demand for its services, analysis of the likely market demands and conversations
with the air pollution control industry indicates that capacity will likely be sufficient  and the pollution
control industry eagerly await the increased business.

COMMENT:
An assumption is made  that 50  percent of revenue is spent on labor in the  air pollution control industry.
This assumption is important since it is the basis for projections for increases in employment and should
have  more basis  in fact. For example, the 500 sector U.S. input and output table would be useful for
comparing the 50 percent assumption to what percentage  of revenues are actually spent on labor.  For
example, in the  1977 U.S. input-output table,  expenditures on labor for I-O sector 49.0300 was $434.1
million, while gross output was $1,399 9 million.  (I-O sector 49.0300 corresponds  to SIC 3564, the  SIC
code  which covers the production of industrial air pollution control equipment.)  Expenditures for labor,
then,  only accounted for 31.0% of gross output.  Alternatively, in the 1977  Census  of Manufacturers
payroll  expenditures for SIC 3564 were  $356.8  million while the value  of shipments were $1,430.8.
According to Census data, labor expenditures  are about 24.9% of the total  value of shipments.  Finally,
a review of 1982 input-output tables for new construction suggest an approximate 29 percent share for labor.

RESPONSE:
The range of 24.9-31.0 percent would appear accurate  for the labor portion of direct construction,
engineering and design  services.  However, the report's estimate includes, in addition to labor for direct
services, an estimate of labor associated with other crafts which  typically fall under subcontracts.  For a
typical  project,  labor under subcontract would  be associated  with  work on  foundations, electrical,
fabrication and  installation, insulation, piping and fitting, etc.   As noted in the text, the 50 percent
estimate is based on actual experience at a clean coal technology project.
(>(>('< 19751
page Appendix ('-4                                                    ICF Resources

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        APPENDIX D
Selected CAAA Projects,, Business
Ventures and Technological Inno-
           vations

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                                     APPENDIX D
   SELECTED CAA PROJECTS, BUSINESS VENTURES, AND TECHNOLOGICAL
       INNOVATIONS ASSOCIATED WITH  CLEAN AIR ACT COMPLIANCE-
ALTERNATIVE FUELS

•      The U.S. Advanced Battery Consortium — a collaboration of the Big Three automakers and the
       Federal government — awarded its first contract for $18.5 million to Ovonic Battery Co. of Troy,
       MI, a  small research firm that claims it has already invented  the battery of the  future.  The
       company says that its first prototype "nickel-metal hydride" battery will propel a compact car 3(X)
       miles on one charge, go 0 to 60 in eight seconds, attain a top speed of 100  mph,  last 100,000
       miles, and recharge in 15 minutes. All these results are equal to or considerably better than those
       achieved with existing  technology. The company also claims that the cost per mile of operating
       an electric car with its battery will be  less than half that  of gasoline cars and,  unlike other
       batteries, theirs is made of nontoxic materials.  The contract with Ovonic, the first of several
       expected to be awarded to that company and to rivals,  calls not only for work to  improve the
       battery but to begin production.  (Washington Post, 5/25/92, p. A3)

•      Stations offering compressed natural gas (CNG) have been opening at a rate of three per week in
       preparation for new clean air requirements. Benefits of CNG include its price (about 70 cents per
       equivalent gallon) and burning  properties that would allow engine oil to last 50,000 miles and
       spark plugs to last 75,000 miles.  Its outstrips gasoline  in auto  safety and emissions; predicted
       reserves in the lower 48  states could last 50 years and supply networks are already in  place.
       Some predict that by decade's end, 25 to 50 million  vehicles in the U.S. will be  operating on
       CNG  and that half of the growth will come from 15 to 30 million fleet vehicles.  (Christian
       Science Monitor, 5/12/92)

•      Ford and General  Motors are certifying their "flex-fuel" vehicles that run on either methanol or
       gasoline to meet California's Transitional  Low Emissions Vehicle standard by 1992. Chrysler is
       planning  to  sell its  "flex-fuel" vehicle in  1993  for the same  price as conventional gasoline
       vehicles,  offering consumers the flexibility of filling their tanks  with methanol in nonattainment
       areas where methanol will he available, or using gasoline on trips away from the city.  (Summary
       of Proceedings, The Clean Air Marketplace Conference, 4/22/92 - 4/23/92)

•      W.R Grace & Co.  is developing new catalysts to be used as feedstocks for refining products used
       in reformulated gasoline.  (Summary of Proceedings, The Clean  Air Marketplace Conference, 41
       22/92 - 4/23/92)

•      Battery technology is the greatest cost of the electric vehicles being developed by Ford Motor Co.
       These vehicles offer several positive features, including good performance within a 100-mile daily
       range; the ability to recharge overnight, at home, rather than requiring a trip to  the  service station;
       relatively quiet; and the potential  to be more reliable and require less maintenance  than internal
-This document summarizes information cited in newspapers, trade journals, company press releases, and
other public sources. No attempt has been made to verify the  accuracy of the original sources.
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       combustion vehicles. Disadvantages include reduced driving range; high cost; and short lifetime
       of batteries making electric vehicles more expensive to operate, per mile, than gasoline vehicles.
       Electric vehicles could be used primarily for utility vehicles, such as vans or commuter cars.
       Under Ford's electric  vehicle  demonstration  program, 82  Eco-Star  vans will be leased to
       customers in early 1993 for 30 months and then returned to Ford for evaluation.  Batteries for the
       Eco-Star will weigh 800 pounds, while the  body and  frame of the vehicle will made of
       lightweight materials to compensate. The Eco-Star has a range of 100 miles per day, acceleration
       of 0-50 mph  in 12 seconds, a top speed of 70 mph, air conditioning and heating are  optional
       features, and  a recharge time of 6 hours on a 220 volt/30 amp outlet.  Ford is also developing
       data on a fuel-fired heater, which does not reduce the driving range of electric vehicles, although
       air conditioning does affect the  driving range.  (Summary of Proceedings, The  Clean Air
       Marketplace Conference, 4/22/92  - 4/23/92)

       ARCO's EC-X, a reformulated gasoline that meets the California Air Resources Board  (CARB)
       standard for Phase II gasoline, provides evidence that reformulated gasoline shows great promise
       to compete in the  areas of environmental quality,  energy efficiency, ease of implementation, and
       economic efficiency. ARCO estimates that the overall reduction in urban ozone formation would
       be 39% through the use of reformulated gasoline. Phase II gasoline also offers the advantage of
       achieving mandated emissions reductions without requiring  new engine technology.  EC-X  is
       estimated to cost 16 cents per gallon more than conventional gasoline, but reportedly compares
       favorably with M85.  (Summary of Proceedings, The Clean Air Marketplace Conference, 4/22/92
       - 4/23/92)

       Enron NGV Co. created Enfuels, a subsidiary, to build compressed natural  gas fueling stations in
       the Houston area,  with the first station opening  in Houston by June 1992 and five more expected
       to be  in operation by the end of the year.  Liquified natural  gas  may be the alternative fuel of
       choice for diesel buses in Houston because it  allows greater driving range.  Most  compressed
       natural gas pumps  will  be at  existing  gasoline retail stations.   In July, Enron will  open a
       technology conversion  center where customers can convert  gasoline vehicles into natural gas
       vehicles. Natural  gas vehicles are reputed to produce fewer of the precursors to smog formation,
       eliminate evaporative hydrocarbons, produce 5% of the CO produced by gasoline engines, achieve
       low cold start emissions, and eliminate paniculate emissions.  Some challenges to the industry
       include the lack of fueling stations; a reduced driving range; the development of low-cost, light-
       weight tanks; and the need for compressed natural gas-specific fuel injection systems, catalysts,
       and engines to meet future emissions requirements.  (Summary of Proceedings, The Clean Air
       Marketplace Conference, 4/22/92  - 4/23/92)

       GMC  has  introduced a  Sierra-class pickup truck featuring  the first in  a new generation of
       electronic fueling systems for the use  of natural gas.  (Summary of Proceedings, The Clean Air
       Marketplace Conference, 4/22/92  - 4/23/92)

       Chrysler is producing full-sized compressed natural gas vans  that  utilize what Chrysler claims is
       the cleanest internal combustion  engine available.  (Summary of Proceedings, The Clean Air
       Marketplace Conference, 4/22/92  - 4/23/92)

       The Southern California  Rapid Transit District (SCRTD) has 10 Flexible buses with Cummins
       engines that run on compressed natural gas, and,  except for the time required to fill  all  six tanks
       on these buses, have performed well. The fleet has 30  methanol buses built by TMC. "Avocet",
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       used by the SCRTD in  12 CMC RTS buses which run on methanol, increases the high octane,
       low cetane properties of methanol,  facilitating combustion and allowing buses to be convened
       from  diesel fuel to methanol  avocet.  For the past two years, the SCRTD has had a retrofit
       program using Donaldson/Owens Corning and Donaldson/3M paniculate traps.  The SCRTD is
       also exploring the options of electric trolley buses, the development of fuel cells, the development
       of a lightweight bus with traction motors in which  all four wheels run on a low combustion
       internal engine, and the use of liquified natural gas which weighs less than compressed natural
       gas and takes  less time to refuel.   (Summary of Proceedings, The  Clean Air Marketplace
       Conference, 4/22/92 - 4/23/92)

       H-R International  Inc.  (Edison, NJ), a subsidiary of  Outokumptu Oy, has  arranged to offer
       turnkey MTBE plants in the U.S. based on Sumitomo technology developed in Japan in the early
       1980s. H-R's offering is specifically focused on the niche market for medium-sized 2,000 barrel-
       per-day MTBE plants using the FCC unit isobutylene cut. Four plants have been licensed to date
       — two in Japan, one in  Singapore, and a fourth plant  under construction in Korea. H-R plans to
       offer  specialty  process  plants ranging from  $5 million to  $25  million total  installed cost.
       (Chemical Marketing Reporter, 4/20/92)

       A new business venture could capture a significant share of the surging market for hydrogen, on
       which oil refineries are relying  to  cut sulfur content in diesel fuel.  HyTEX, a  hydrogen-
       generation process developed by Texaco Inc.,  which, with Union Carbide  Industrial Gases  Inc.
       (UCIG), plans to develop and operate high-purity hydrogen production facilities that could begin
       producing hydrogen less than two years after a contract is signed.  The joint venture,  named
       HydroGEN  Supply Co., combines the Texaco gasification system with UCIG's experience in
       cyrogenic and  advanced air separation technology.    Gasification generates  a  high grade of
       hydrogen from natural  gas and  refinery  off-gas streams with less NOX and carbon dioxide
       emissions than  conventional methods.  Oxygen,  supplied by UCIG's air separation technology,
       converts feedstock into hydrogen while reducing operating costs and improving efficiency.  (Coal
       & Synfuels Technology, 4/20/92)

       Englehard has  developed 2 new  catalysts that may  save oil  refineries $2.5 billion when they
       retool to comply with new Clean Air Act standards. The new catalysts are reputed to  significant-
       ly increase the  output of isobutylene, which is used  in the production of MTBE.  Some states
       may require the use of oxygenated fuel at  all times.  Englehard's Isoplus 1000 catalyst is said to
       raise isobutylene output from existing fluid catalytic cracking units by 76 percent. Isoplus 2000
       will double isobutylene output.  This could cut the estimated $5 billion needed to add isobutylene
       capacity at refineries by 50 percent.  (New York  Times  (National Edition),  4/11/92, p. 21)

       GE Silicones fuel-flex laboratory in Waterford, NY, is searching for a cost-effective way to build
       cars that run on alternate fuels.  GE expects that demand for alternate fuels will grow larger as
       manufacturers introduce flex-fuel  vehicles that  have the flexibility to  switch back and forth
       between gasoline and blends  of gasoline and alcohol-based fuels.  Alcohol-based  fuels  burn
       cleaner, but attack elastomers, metals, plastics, and other materials that are used in conventional
       engine gaskets, fuel lines, and seals. The lab is specifically designed to  test  automotive parts
       made from  elastomers  in the presence of alternate fuels.  Traditional approaches  tested only
       materials  used rather than actual parts.  (Chemical  Marketing Reporter, 4/06/92,  p. 21)
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       Hercules Materials Company is in the early stages of evaluating the feasibility of one new-age
       automotive application aimed at  natural gas  vehicles.   The company  is working with West
       Virginia University, headquarters of the National Center for Alternate Transportation Fuels, to
       develop high-strength fuel tanks that are reinforced with carhon fiber as a long-term alternative
       to current steel designs.  These tanks  are  reported to weigh as much as 60 percent  less than
       traditional steel tanks, while holding up to 20 percent more fuel. The company believes that cost-
       competitive carbon fiber-wound tanks are attainable  within the next three years and that these
       new tanks will become a  key component of natural gas vehicles—demand for which is predicted
       to reach well  over 2 million by  the year  2000 in the  U.S.  as  entire fleets of pickup trucks,
       delivery  vans,  heavy-duty utility trucks, and buses  are converted from  gasoline, diesel, and
       methanol to alternate fuels.  (Chemical Marketing Reporter, 4/06/92, p. 21)

       Biodiesel fuel,  an alternative diesel made from esterified vegetable oils, is being tested in city
       buses in Sioux Falls, SD.   Novamont North America,  a Ferruzzi-Montedison subsidiary  will
       supply "Diesel-Bi" fuel for two buses for the next four or five months.  Biodiesel fuel is created
       by reacting crude vegetable oil  and methanol in the presence of a catalyst to yield methyl ester.
       Both  rapeseed  oil  and soybean oil will  be used in  the  tests.  The environmental advantages
       claimed for biodiesel fuel include no sulfur emissions, a no-net gain of CO2 (the amount emitted
       during combustion equals that photosynthesized during oilseed growth), a flashpoint double that
       of diesel fuel, and biodegradability. Ferruzzi has reported these results based on tests conducted
       in Europe over the past  few years. The Sioux Falls tests resemble ones in buses and  taxis in
       European cities. In conjunction with Mercedes-Benz, the company hopes to  fuel 40,000 taxis
       throughout Germany by  1995.  A 60,000 metric-ton-per-year biodiesel plant under construction
       in Livorno,  Italy, should be completed  in 1992.  Diesel-Bi  has reportedly  passed  European
       emission tests,  which are less stringent than American  tests.  Company data shows  Diesel-Bi
       emissions of carbon monoxide at 60 percent  of the European Community  emission levels for
       1993, 90 percent of hydrocarbons,  65 percent of nitrogen oxide, and  95 percent of paniculate.
       Biodiesel fuel can be used  in testing or as a fuel additive  while emissions data is still being
       gathered in the U.S. to  submit to EPA in  several  months.  (Chemical Marketing  Reporter,
       4/06/92, p. 5)

       Mixed fuels are created  by  combining biodiesel fuels with diesel fuels in various  proportions.
       The Missouri  Soybean  Merchandising Council, in conjunction with the  St. Louis  Lambert
       International  Airport, is  running  10 vehicles on a 20 percent esterified soybean oil/80 percent
       diesel  fuel.  Biodiesel/diesel mixtures are advertised as a less expensive alternative  that still
       reduces the particulates  emitted to meet emissions standards.  (Chemical Marketing  Reporter,
       4/06/92, p. 5)

       Interchem NA Industries  Inc. of Leawood, KS, has produced a few thousand gallons of biodiesel
       fuel and reportedly broke ground  on May 1 for a 3 million gallon per year plant in Kansas City.
       The company specializes in processing waste materials for energy. As the cost of alternative
       fuels becomes a main factor  in their acceptance, one significant advantage to biodiesel fuel is that
       it reportedly appears to be the  most cost-effective option available.    (Chemical Marketing
       Reporter, 4/06/92, p.5

       Plans are still  underway  at Quadrex Corporation to construct an ethanol plant that  will use yard
       waste  for feedstock.  Quadrex  holds the exclusive patented technology for converting biomass
       waste  to ethanol. (Alternative Energy Network Online Today, 4/06/92)
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       Proposed isomerization/dehydrogenation facilities generally produce about 12,000 barrels per day
       of MTBE and represent an investment of between $150 and $300 million.  To date, five such
       units are going up in North America: Alberta Envirofuels' project in Edmonton, Alberta, is
       scheduled to come on line in April, 1992; Costal Chemical's unit in Cheyenne, WY, is scheduled
       to come on line in Spring of 1992; Enron is completing construction on a former Teneco unit in
       La Porte, TX,  which is slated to start up in the third quarter of  1992;  the Global  Octanes
       subsidiary of Mitsui also plans to bring on its Houston facility later in 1992; and the fifth project
       Valero Energy's  Corpus  Christi unit  is expected to start up in 1993.  (Chemical Marketing
       Reporter, 3/30/92, p. SRI6)

       Texaco Chemical is reportedly planning to start a world-scale plant at Port Neches, TX, in 1994
       that manufactures polypropylene and MTBE as a by-product.  (Chemical Marketing Reporter,
       3/30/92, p. SRI6)

       Freedom Envirofuels plans to  build a 12,500 barrels per day MTBE plant at Morris, IL.  The
       project has already secured raw material suppliers, but is still in the  stage of obtaining off-take
       contracts. (Chemical Marketing Reporter,  3/30/92, p. SRI6)

       A 12,000 barrel  per day  MTBE plant is being  planned for Mont Belvieu,  TX, by Belvieu
       Environmental Fuels, a joint enterprise of Enterprise Products, Houston, TX, Mitchell Energy &
       Development, The Woodlands, TX, and Sun Refining & Marketing, Philadelphia, PA. The Texas
       Air Control Board is expected to approve the $200 million project, whose output will go solely
       to Sun, and which is scheduled to start up in  1994.  (Chemical Marketing Reporter,  3/30/92,
       p. SR9)

       Warren Petroleum is building a 30,000 barrel per day, $50 million isomerization unit in order to
       obtain  isobutylene precursor isobutane from n-butane because naturally occurring isobutylene is
       in short supply for use in producing MTBE.  In this process, isobutanes are split to isobutylene
       and n-butane is isomerized to make even more isobutane for splitting to isobutylene.  Isobutane
       product is then split to isobutylenes in three roughly equal units totaling  170,000 barrels daily, all
       of which is contracted for by MTBE producers. The Warren facility is scheduled to come on line
       in 1993.  (Chemical Marketing Reporter, 3/30/92, p. SR9)

       Formosa Plastics  Texas's 680,000 ton  ethylene plant is due to start up in Point Comfort, TX, in
       the first quarter of 1993.  (Chemical Marketing Reporter, 3/30/92, p. 5)

       Dow Chemical is planning new  ethylene plants  in Alberta, Canada, and Freeport, TX, in late
       1994 and early 1995.  (Chemical Marketing Reporter,  3/30/92,  p.5)

       The growth in  demand for methanol is projected by some  to be 7.4 percent per year through
       1997; that strong demand growth is causing a reshuffle in the mcthanol  business as companies
       look to add capacity or to cash in on the soaring value of methanol assets.  Du Font's Beaumont,
       TX, methanol  plant, for example, sold for $150  million; two  years ago the best bid was $27
       million.  (Chemical Week,  3/25/92, p.  42)

       Metallgesellschaft of Frankfurt, Germany,  is involved in  a plan to convert and rcslarl  an idled
       ammonia unit belonging to American Cyanamid at Fortier, LA, to produce mcthanol.  (Chemical
       Week,  3/25/92,  p. 42)
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       A $500 million loan syndication was arranged by National Commercial Bank, Riyad Bank, Saudi
       American Bank, and Al Bank Al Saudi Al Fransi to finance the cost of building a new MTBE
       unit and a polypropylene plant with a capacity of 200,000 tons/yr.  The polypropylene plant, the
       first in the Saudi kingdom, is to be built by John Brown of the UK, using technology developed
       by Union Carbide of the U.S. (APS Review Gas Market Trends, 3/23/92, V. 38, No. 11)

       U.S.  companies involved in Middle East ventures are optimistic about  the prospects for MTBE
       as  they target the U.S. as the main market.  Texas Eastern is a  leader among them, being a
       partner in SABIC's new 700,000 tons/yr. project at Jubail, Saudi Arabia, and has the first pipeline
       in the U.S. to transport MTBE from Beaumont, TX, to the midwest.  (APS Review Downstream
       Trends, 3/23/92, p. N/A)

       The Shell Oil Company plans to build its third MTBE manufacturing facility at its existing Wood
       River, Illinois plant. MTBE is an oxygenated gasoline additive that allows the fuel to burn more
       completely in vehicle engines and, thus, release  fewer emissions into the atmosphere.  Shell
       began construction of two other facilities to manufacture  MTBE in Louisiana and Texas which
       are scheduled to begin production in 1993.  The Wood River facility should follow in 1994. The
       company expects  all three facilities to have a  production capacity  of 15,000 barrels per day.
       (Clean Air Network Online Today, 3/23/92)

       A newly  patented technology, called multiple oxygenated production (MOP), integrates several
       fully commercialized turnkey processes to yield economical ethanol, methanol,  and oxygenated
       fuels.  MOP integrates the production of ethanol and  methanol  and, from them, high-value
       oxygenated fuel additives such as MTBE and ETBE.  Revolution  Fuels of America received a
       U.S.  Patent for the technology and assigned it to  Blackstone Capital, which licensed it back to
       Revolution and a Canadian company by the name of Synthetic Energy.  (Inside R&D, 3/4/92)

       Tropicana International (a Kingston-based firm  owned by U.S. shareholders) and Petrojam Ltd.
       (a state-owned Jamaican company) say they will export 40 million  gallons of ethanol to the U.S.
       this year, up by 9 million gallons from last year.  Consumption is  expected to increase as more
       U.S.  states comply with new clean air  requirements.  The U.S. International Trade Commission
       has agreed to allow limited amounts of ethanol to enter the U.S. duty free if the ethanol meets a
       minimum of 35 percent of local value added in its production. The Caribbean producers, mainly
       Jamaica and Costa Rica, are allowed 7 percent of the U.S.  market  (or 60 million gallons) for
       ethanol as a  motor fuel.  (Caribbean Update, 3/92)

       Chevron Standard Limited, an affiliate  of Chevron Canada Limited and Neste Canada Inc., have
       — subject to regulatory approval —jointly agreed to purchase Petro-Canada's interest in Alberta
       Envirofuels Inc. Neste and Chevron Standard will each have a one-half equity interest.  In April
       1991, the 3 companies announced a joint venture in which each company would hold a one-third
       interest in an MTBE plant to be built by Alberta Envirofuels in Edmonton. Chevron U.S.A. will
       obtain a supply of the MTBE through an agreement with Chevron  Standard. Completion of the
       approximately $395 million plan, which can produce 12,000 barrels a day of MTBE from Alberta
       butane and methanol, is expected by the  end of 1992.  (Worldwide Energy, 2/92)

       Valero Energy, in San Antonio, Texas,  expects operation of its 4230 million butane upgrade
       project to start by  mid-1993.  The facility is at the company's Corpus  Christi, Texas, refinery; the
       facility will  convert butane into  MTBE,  a  clean-burning and high octane gasoline-blending
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       component that should be an essential component of reformulated gasoline, made mandatory by
       the Clean Air Act of  1990.  When the  facility is complete, the Corpus Christi refinery will be
       able to make 100 percent reformulated gasoline. (San Antonio Express-News, TX, 2/22/92, p.
       D  1-D2)

       Petroflex Indiana & Commercio (Brazil) will sell a shut-down MTBE plant to TransAmerican
       Refining (Houston, TX), which plans to move the plant to Norca, LA, where it will join another
       purchased plant to expand TransAmerican's MTBE production.  The plant will make 12,000 bpd
       of MTBE by the fourth quarter of 1993. (Journal of Commerce. 2/13/92,  p. 9A)

       Experts at New Zealand-based Fletcher Challenge Ltd., a large methanol producer, think the 1990
       Clean Air Act Amendments will boost demand for chemical-grade methanol for making MTBE
       in  the United States.  Japanese regulations also now require gasoline to contain 7 percent MTBE
       by  volume.   A global boom is expected in  the next 3-5 years in demand for chemical-grade
       methanol with which to make MTBE, as European nations follow the lead  of Japan and the U.S.
       Fletcher Challenge has already signed a 10-year, $45 million/yr contract to supply two Japanese
       companies with methanol.  (Energy), Report, 2/10/92)

       Saudi Basic Industries Company (Sabic) and its affiliates, predicting a world shortage of methanol
       and rising demand for MTBE, started up Ar-Razi's expanded methanol plant in January.  The
       plant is now said to be the world's largest with a capacity of 1.27 million tons per year. Ibn Sina
       is  now building a 700,000 ton-per-year MTBE plant,  while Ibn Zahr plans to take its  current
       output of 550,000 tons per year to 1.2 million tons per year. Further down the line are Mobil/
       Saudi Chemical  investments with plans for an 800,000 tons per  year plant and Himont/Xenel
       Industries with a 500,000 tons per year facility.  (International  Gas Report, 2/07/92)

       Conoco,  Catalytica (Mountain View, CA) and Neste (Finland) will build a joint  venture pilot
       plant to  produce high-octane gasoline using a solid catalyst.   The plant, located at Neste's
       research center in Porvoo, Finland, is expected to produce reformulated gasolines that are required
       by the Clean Air Act more economically than liquid acid catalyst  alkylation units.  (Journal of
       Commerce, 2/06/92, p. 7A)

       The implementation of the 1990 Clean Air Act is expected to help earnings at Midwest Grain.
       One of the co-products of wheat gluten and wheat starch, the company's basic products,  is fuel
       alcohol (ethanol). (Investext, 1/31/92, p. 1-9)

       USX-Marathon completed its second  MTBE unit at its Robinson, IL, refinery. The  first unit was
       constructed at its Detroit refinery with plans for additional units in Garyville, LA, and Texas City,
       TX. The demand for MTBE is expected to triple over the next few years as a result of the Clean
       Air Act amendments.  (Energy,  Alert, 1/29/92)

       Liquid natural gas properties are reported to be selling at  a relatively robust 5.5 to 7.5 times
       pretax cash flow. The reason:  liquid natural gas can be made into clean-burning  fuels such as
       ethane, propane,  normal butane, isobutane,  and natural gasoline that can be  substituted for
       heavier, dirtier petroleum products.  New petrochemical plants  require fuels for which propane,
       ethane, and butane are feedstocks. Three such new chemical plants that are to be built along the
       U.S.'s Gulf of Mexico coast will require 100,000 barrels of liquid natural gas a day. In addition,
       reformulated gas is mandated for several  U.S.  cities by  1995; MTBE is a chief  ingredient of
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       reformulated gas.  Reflecting this trend, the stocks of liquid natural gas companies rose a reported
       41 percent in 1991 as a group.  Western Resources, a liquid natural  gas provider, successfully
       went public in recent months. (Investext, 1/22/92, p. 1-2)

       The Iowa Corn Growers Association is considering changing the priorities of its program from
       developing export markets to devising new domestic consumption by creating new uses for corn.
       Among these new uses for which there may be potential markets is the use of corn as ethanol for
       fuel.  Speculation on the future of the ethanol market is that the use of corn to make ethanol
       could double or triple within months  to satisfy the oxygenate market.   (Chemical Marketing
       Reporter, 1/06/92, p. 27)

       Amoco is offering an oxygenated fuels slate in Richmond, Northern Virginia, Washington, D.C.,
       and Baltimore.  The fuel meets the wintertime oxygenate requirement of the amended Clean Air
       Act.   All three unleaded grades contain  15 percent MTBE and will  produce 23 percent fewer
       carbon monoxide emissions than gasoline containing no oxygenates.  (Oil Express,  11/11/91)

       An immediate goal of the Clean Air Act is to cut VOC emissions 15 percent by 1995 through use
       of reformulated gasoline.  Other aspects require that alternative fuels power  25 percent of the
       vehicle miles  traveled  by the year 2005.   In August, Federal and California officials gave
       approval  to Detroit Diesel Corporation to begin selling a methanol-fueled version of its Series 92
       diesel engines used in transit buses  and trucks.  Compressed natural gas (CNG) is another
       alternative to gasoline:   Consolidated Edison of New York and Brooklyn Union Gas  Co. both
       operate experimental natural gas-powered vehicles.  In addition, General  Motors Truck & Bus
       Group recently entered into a $40 million contract with the Gas Research Institute to develop full-
       sized light  and medium-duty trucks powered by  dedicated compressed  natural  gas  fuel.
       (Chemical Business, 10/91)

       As part of the drive to develop alternatives for traditional fuels in order to cut VOC emissions,
       some Denver Conoco stations began selling propane for use in motor vehicles in August, 1991.
       (Chemical Business, 10/91, p.33)

       The  employment picture could improve considerably for  petrochemical workers  in  Houston.
       Already three new plants for making  the additive for reformulated gasoline are  planned for the
       Houston  area.   The additive is made from natural gas liquids, which will give the industry  a
       boost.  Also oil imports  are expected to drop  by 300,000 barrels per day when the new gas is in
       full production.  (Houston Post, 8/26/91)

       Oxygenating gasoline additives have been economically derived from coal  in Department of
       Energy-sponsored research.   The  process  involves  the conversion of coal-derived gases into
       dimethyl-ether in one step.  Dimethyl-ether is an essential ingredient for oxygen-rich additives in
       gasoline that will make compliance with the stricter Clean Air Act requirements possible by 1995
       (when 25 percent of all US gasoline must contain oxygenates).  While previous research had
       concentrated on natural gas, petroleum, or ethanol derived oxygenates,  the DOE-sponsored project
       showed that coal can be a cost-effective source. The process was developed by Air Products &
       Chemicals scientists in Pittsburgh, PA.  (Wall Street Journal, 8/02/91, p. Bl)
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MOBILE SOURCES
       Englehard Corporation of Iselin, NJ, has developed a way of solving the cold start problem in
       meeting more stringent auto emissions standards.  The problem is that pollution is unchecked
       during the two minutes it takes the standard catalyst to heat up or "light off  and start working
       after the car is started.  Englehard has developed a way of trapping 50  percent of the hydrocar-
       bons during the light-off period during testing using the Federal Test Procedure.  The hydrocar-
       bon trap works by trapping pollution in an absorbent bed.  When the catalytic converter starts
       working, the pollution is released through it and is destroyed, leaving the trap clean and ready for
       the next time the engine is started.  Englehard is planning to begin working with auto manufac-
       turers to apply the technology to specific engine designs. (Air Quality  Week,  6/15/92)

       W.R. Grace & Co. Grace has also developed a CAMET electrically pre-heated catalytic converter
       for automobiles that will heat up faster, thereby reducing auto emissions to meet California's low
       emission vehicle requirement.  (Summary of Proceedings, The Clean Air Marketplace Conference,
       4/22/92 - 4/23/92)

       Because catalytic conversions to  reduce  mobile source  emissions  require high temperatures,
       Allied- Signal has focused on  technologies with higher temperature applications in addition to a
       100,000- mile  durability requirement.  One technology involved equipping a vehicle  with  an
       underfloor  catalyst and a manifold  cat  which led to the development of  a closed  couple
       technology that meets California LEV standards.   Ongoing work is being conducted  to  meet
       ULEV standards  with this technology.  Palladium, a relatively low-cost metal, used as a catalyst
       to convert CO, NOX and hydrocarbon, meets 1992 and 1993 emission standard levels with a life-
       span of 100,000 miles. More advanced palladium catalyst technologies are currently being tested
       with promising results.   (Summary of Proceedings,  The Clean  Air Marketplace Conference,
       4/22/92 - 4/23/92)

       Allied-Signal and ULP, Inc. are developing an absorber catalytic system that converts hydrocar-
       bons before releasing them. The absorber material can be  used with ceramic, metallic, foam, and
       other types of substrates.  Several new technologies being developed can be combined to achieve
       optimal hydrocarbon removal levels while improving high temperature performance, hydrocarbon
       absorption  capacity,  and the time taken by the absorber material  to hold onto the hydrocarbon
       before releasing it. Catalytic technologies are also being developed for alternative fuels including
       natural  gas and  organic  emissions.  (Summary of Proceedings, The Clean  Air Marketplace
       Conference, 4/22/92 - 4/23/92)

       In researching ceramic catalytic converters, Corning Inc. has developed a  new, low-expansion
       ceramic material that combats thermal shock  and  corrosive agents and an  extrusion process
       invention that provides substrate with its distinctive honeycomb structure needed to for a  large
       amount of surface area in a very small volume.  Added surface  area increased overall conversion
       efficiency by  14%.  In  1990, Corning released two  cell core XT (extra-thin) substrates that use
       newer, more dense ceramic material.  The 475 unit  provides added  surface area and improved
       conversion efficiency by 24%. The 355.5 reduces back pressure by  14% without compromising
       conversion efficiency. These  units save space and weight and are made from  low-cost ceramic
       materials.   Corning  has also worked on  electrically  heated catalyst units  which combine
       electrically heated metal substrate with a standard cellular ceramic substrate. The heated catalyst
       starts the catalytic converter  and  converts most emissions during  the cold  phase when  most
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       pollutants are emitted.  Durability and energy requirements are further research issues.  The unit
       takes less than 5 seconds to preheat prior to ignition and begins to convert emissions immediately
       thereafter in contrast to today's converters which take two  minutes to heat up.  (Summary of
       Proceedings, The Clean Air Marketplace Conference, 4/22/92 - 4/23/92)

       Camet Corp., a division of W.R. Grace, has researched electrically heated converters (EHCs).
       EHC systems are reported to be the most effective and eliminate an average of 85% of emissions
       from the firsr 505 seconds of operation of a car.  Working  with auto manufacturers, Camet is
       integrating the electronic controls from the EHC with the engine logic controls and the large-scale
       integrated circuits provided by auto companies for an integrated system solution  to emissions
       requirements.  The Grace/Camet EHC core is formed from a metal foil about 2 mills thick and
       weighing 0.01 pounds/cubic inch, yet  required to  withstand hot shake  tests  at  1850 degrees
       Fahrenheit. The EHC system is expected to cost auto manufacturers $200-$300 and will weigh
       between 25 and 40 pounds.  The system has met California standards and Grace/Camet will soon
       be preparing for full-scale production of the EHC core with expected installation  for the  1997
       model  year, as required by the California timetable. (Summary of Proceedings, The Clean Air
       Marketplace Conference, 4/22/92 - 4/23/92)

       Originally conceived of to alleviate traffic congestion, the Intelligent Vehicle Highway System
       (IVHS) is a broad-based concept of controlling road traffic in much the same way that air traffic
       and harbor traffic are controlled.  It involves  technologies that can be grouped into three main
       functional areas: Advanced Traffic Management System (ATMS) that is responsible for obtaining
       real-time information; Advanced Traveller Information System (ATIS) through which information
       will be disseminated, either in vehicles or on a kiosk; and  Advanced Vehicle Control System
       (AVCS) which incorporates the idea of intelligent cruise control by which future cars may be able
       to sense that they are too close to the car in front and respond  by automatically slowing down.
       IVHS  may also  be  applied to develop "smart buses" that would provide  a way  of providing
       location  information to people at stops or feature a farebox or "smart  card"  reader to  count
       passengers. Carpooling could be made more efficient by IVHS and a computer system that could
       configure a "dynamic carpool" providing  drivers with a  daily schedule  of people to pick up.
       Currently 30 field tests are being conducted for these technologies.  (Summary of Proceedings,
       The Clean Air Marketplace Conference, 4/22/92 - 4/23/92)

       To deal more  quickly with problems causing traffic delays, the states of New York  and New
       Jersey created Transcom to act as a hub for information as part of its IVHS for the metropolitan
       area.  It collects and relays real-time information to all other transportation agencies, including
       rail lines, subways,  and bus drivers, because traffic and transit system incidents have spill-over
       effects on other  routes. Another technology  that will help is  electronic toll collection (ETC),
       which  already exists in Dallas, Louisiana, and Oklahoma. ETC for the  New York region will
       probably take the form of an electronic tag on a car which will record the amount of the toll as
       the car passes  through the toll reader.  The driver will receive a bill for the  total number of tolls
       at the end of each  month.   The  technology may reduce CO and hydrocarbon emissions
       significantly even if only a quarter of cars have it.  Another possible  application of ETC would
       be to use tagged vehicles to monitor traffic flow and signal  an operations center regarding any
       problems. (Summary of Proceedings, The Clean Air Marketplace Conference, 4/22/92 - 4/23/92)

       To meet new emissions standards which go into effect in  1994, engine manufacturers will have
       to offer after-treatment devices and adapt their products to  alternative fuels such as natural gas or
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       methanol.  Cummins Engine,  Inc. has introduced a  10-liter natural gas engine for the  transit
       industry  in  1991.   Major engine modifications expected to  appear in response to tougher
       emissions standards include turbo charger technology improvements for air handling systems;
       increased  use  of ceramics in high temperature areas, and  ways  to decrease the amount of
       lubrication oil  used;   electronic components will  be used to control  NOX emissions; and
       combustion chamber design will likely be modified to change the shape of the piston for better
       mixing of fuel  and air and more efficient lubrication.  Catalytic converters, already a proven
       technology for emissions reductions, are being designed to be as unobtrusive as possible, fitting
       conveniently inside the exhaust system.  Another technology in development  is the ceramic
       particulate trap, an after-treatment device that collects paniculate from the exhaust stream and,
       through an  oxidation process, burns them  off.  (Summary of Proceedings, The  Clean Air
       Marketplace Conference, 4/22/92 - 4/23/92)

       Donaldson Corporation manufactures detailed diesel particulate control systems such as particulate
       trap  oxidizers,  catalytic converter mufflers, and replaceable/cleanable  filters.  A trap system
       consists of a filter to capture particulate emitted, a regeneration mechanism to burn off or clean
       the particulate periodically, and a mechanism for sensing when regeneration should occur. Among
       filtration methods, the wall-flow monolith is popular as a ceramic device in which the particulate
       flow through porous  walls and are  collected.  Filter  regeneration systems  include electrical
       heating, the use of diesel fuel burners, catalysts, throttling, or combinations of these.  Donaldson
       has about 550 ceramic wall-flow monolith trap with electrical  regeneration systems in use. These
       trap systems can be installed on new  vehicles or retrofitted on vehicles with conventional diesel
       technology.  The company is  also testing a multiple cartridge  approach that fits easily into an
       engine compartment with limited space. Another type of after-treatment, the catalytic converter
       muffler,  integrates  emissions  and noise control.   Particulate  trap systems are commercially
       available now, improving in reliability, cost effective, and reportedly effective in achieving clean
       diesel performance.  (Summary of Proceedings, The Clean Air Marketplace Conference, 4/22/92 -
       4/23/92)

       Sun Electric, Crystal Lake, IL, produces diagnostic and enhanced I/M equipment including a line
       of mobile recovery systems for reducing CFCs emissions, a hand-held scanner that gathers
       diagnostic messages from the  vehicle and displays them, a PC-based shop management system
       (Shopmax), and safety and inspection system equipment such as front-end aligners. Sun's MCA
       3000 is a PC-based analyzer that performs "four gas analysis" and is capable of supplying the
       mechanic with technical service bulletins. Sun's MGA 9000 bar exhaust gas analyzer is a 286/386
       based system with sufficiently large  memory for data management and can communicate with
       other computers.  Additional technology options available for the MGA 9000 include a haicode
       reader, vehicle on-board computer interface, advanced diagnostic software, PC option to retrieve
       technical service bulletins, CD-ROM  mass storage unit of 500 megs, on-line communications by
       modem (currently used in  Florida to  register information with the state), and the capability to
       incorporate a NOX analyzer, opacity  test, and dynamometer. Another technology option is the
       POD which, if connected  between the Sun analyzer and the  cable to the  vehicle's on-board
       computer, obtains real-time data and  additional maintenance  data.  Future options to be offered
       by Sun include evaporative pressure  and canister purge tests.   (Summary of Proceedings, The
       Clean Air Marketplace Conference, 4/22/92 - 4/23/92)

       Corning GmbH introduced its  thin wall substrate for catalytic converters in 1990.  This substrate
       was  initially developed to meet European vehicle  manufacturer requirements.   Corning also
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       unveiled the prototype of a new electrically heated catalyst which is designed to meet the cold
       start segment of the ultra low emissions requirements.  In laboratory tests, this system meets or
       exceeds the California 1997 ultra low emission requirements.  (Summary of Proceedings, The
       Clean Air Marketplace Conference, 4/22/92 - 4/23/92)

       Ford Motor Co. has announced plans to  sell new, ultraclean 1993 Ford Escorts and Mercury
       Tracers in California beginning in the summer of 1992. Employing a larger catalytic converter,
       placed closer to the engine, these new vehicles meet the state's  tough 1997 emissions limits
       according to Air Resources Board tests. The new Escorts and Tracers emit just one percent of
       the emissioas of a similar 1972 car. (USA Today, 4/15/93)

       Lockheed Aircraft has offered to loan one of its Burbank, CA, facilities to Amerigon, Inc., for
       use in the design  and manufacture of electric vehicles.  (California Reporter, 4/10/92)

       Airco Gases has launched a new line of automotive inspection/maintenance (I/M) gases, designed
       to help states in their expanding efforts to monitor tailpipe emissions from automobiles. The
       gases are mixtures containing carbon monoxide, carbon dioxide, and propane or nitric oxide in
       nitrogen.  The  I/M  mixtures  monitor the accuracy of equipment used to  test those emissions.
       (Chemical Marketing Reporter, 4/06/92, p. 21)

       Anticipating that electric cars will become more prevalent in the future, Michelin has developed
       its Electron tire, a tire made specifically for electric cars.  The tire reportedly provides reduced
       rolling resistance  by producing a narrow  tire with low tire envelope volume and high inflation
       pressure.   It also controls  tread noise through careful  optimization of the tire tread pattern.
       (Rubber and Plastics News, 4/03/92, p. 18)

       Amoco Oil Company recently opened the first compressed  natural  gas (CNG) fuel  station in
       Topeka, Kansas.  Governor Finney's van  can be fueled by CNG and a portion of the state fleet
       will be converted so that it can be fueled by CNG or  low ethanol gas.  The filling station is a
       joint venture of Amoco Oil Company and KPL Gas Service Company.  Bids were let for the
       conversion of vans.  (Worldwide Energy,  3/92)

       The Tulsa, OK, school district has converted 105 school buses to CNG and each bus is saving the
       school district about $1000 per year in fuel costs. One  of the buses was sent to be refueled at the
       grand opening of the CNG  station in Topeka, KS.  (Worldwide Energy, 3/92)

       Inset Industries of Clifton, NJ, has developed the Fuel  Stabilizer,  an  anti-pollution device that
       fits onto an automobile fuel line and is designed to cut tailpipe emissions to zero and improve
       fuel mileage. The Fuel Stabilizer costs between $700  and $1500.  The Fuel Stabilizer
       reportedly works  well on diesel engines as well as gasoline engines.  The city of Fort Worth,
       TX, having used six Fuel Stabilizers in the past year, has found that they are effective in
       cutting  emissions and, therefore,  bought an additional  200 of the devices.  (Clean Air Weekly,
       3/30/92)

       Solar Electric Engineering of Santa Rosa, CA, is taking steps to build a network of electric car
       dealerships. The first dealership opened in Los Angeles in March, providing drivers with
       some big tax advantages:  electric car drivers skip 17 cents federal and 15 cents state tax on
       motor fuels.  The company has qualified with the California  Air Resources Board for a $1000
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       state tax credit.  The company claims 3 cents per mile fuel cost which can fall to 1.5 cents per
       mile with a special recharging rate adopted by Los Angeles'  Department of Water & Power,
       compared with 8 cents per mile for gasoline powered vehicles.  The company has sold 105
       cars, with sales last year of just under $1 million; the company projected sales to hit $24
       million in five years.  (Clean Air Weekly, 3/30/92)

       GM offered 4000 cars designed to run on 85 percent methanol, known as M85, to the general
       public in California late last year and has already agreed to build another 2000 of the variable
       fuel vehicles for delivery this April or May. In addition, GM is planning to sell  1000 CNG
       pickup trucks to utilities in Texas and California and 50 variable fuel cars that use corn-based
       ethanol or gasoline in a test program in Wisconsin and Illinois.  (Chemical Marketing Report-
       er,  2/27/92, p. SRI6)

       The General  Services Administration in Washington, DC, has ordered 50 vans powered by
       compressed natural gas (CNG) from Chrysler and has agreed to increase its order of flexible
       fuel vehicles, or FFVs, to  2,500  from the 100 it originally agreed to purchase.  (Chemical
       Marketing Reporter, 2/17/92, p. SR16)

       Detroit Diesel, a maker of bus and truck diesel engines, has received Federal Environmental
       Protection Agency and California Air Resources  Board certification for a  100 percent methan-
       ol-fueled engine. A major order from the Southern California Rapid Transit District is
       pending. Detroit Diesel is 80 percent,  owned by Penske Corporation and 20 percent owned by
       GM.  The company also has an M85 engine (an  engine that runs on a mixture of 85 percent
       methanol and 15 percent unleaded gasoline) and  is researching engines fired by ethanol and
       both compressed and liquefied natural gas.   (Chemical Marketing Reporter, 2/17/92, p. SR16)

       Ford will produce a demonstration fleet of  100 CNG pickup trucks later this year to be used
       by  a number of natural gas utilities.  Also,  2,500 flexible fuel Tauruses and at least 200
       variable fuel  Econoline vans are scheduled  to be produced later this year and into 1993 for  the
       California market.  Ford is trying out its international demonstration fleet of 80 Ecostar electric
       vans later this year.  (Chemical Marketing Reporter, 2/17/92, p. SRI6)

       Ford  is redesigning its 7-liter light  truck engines developed a decade ago that run on liquid
       propane gas.  The new 4.9-liter versions are due out this summer.  Ford also offers factory
       conversions to propane engines.  (Chemical Marketing Reporter, 2/17/92, p. SRI6)

       Ford, Chrysler, and GM have formed the Battery Consortium along with the Electric Power
       Research Institute and the Department  of Energy, which has set aside $260 million in funding
       to find ways to increase the range of vehicles, reduce the weight of the vehicles, and bring
       costs  down.  (Chemical Marketing Reporter, 2/17/92, p. SRI6)

       Mercedes-Benz of North America plans to  deliver  six flexible-fuel  300SE models to the
       California Energy Commission this year and plans to produce 9,000 of these cars for sale in
       California in 1994.  (Automotive News, 1/16/92,  p. 1)

       The California commission has authorized Pacific Gas and Electric Co. to develop a ratepayer-
       funded  program to achieve substantial  market penetration of vehicles fueled by compressed
       natural  gas.  (Public Utilities Fortnightly, 10/1/91, pp. 32-34)
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•      Columbia Gas System Service (Wilmington, DE) has cooperated in the development of a
       transit bus that runs entirely on natural gas. The bus has been in testing for several months by
       the Central Ohio Transit Authority and recently  made a trip to Wilmington, DE, for a debut
       for utility, environmental, and transit officials.  Columbia Gas put some $300,000 into the
       development of the bus, which can carry 65 passengers, go 800 miles without refueling, and
       get some 4 miles per gallon, as do diesel buses.  Compressed natural gas, at 3,600 Ib/in of
       pressure, is stored in 6 tanks to fuel the bus.  The natural gas-powered bus  market is expected
       to grow over the next 5 years as urban pollution control measures get stricter under the Federal
       Clean Air Act. Columbia Gas expects a return on bus development costs in 5 years.  (Morn-
       ing News  (Wilmington, DE) 6/01/91, pp. El, E3)

STATIONARY SOURCES/GENERAL

•      Georgia-Pacific reportedly found a better way to lower SO2 emissions at a paper mill boiler.
       The procedure uses an internally generated alkaline process stream to get big reductions when
       burning high-sulfur oil.  (Air  Quality Week, 6/15/92)

•      Municipal waste-to-energy plants have seen increases in the efficiency of their thermal  cycles
       allowing them to produce more power through the recycling of waste.  Wheelabrator Environ-
       mental Systems of Hampton,  NH, was reportedly the first to utilize utility-grade, high-tempera-
       ture, high-pressure steam at 850 degrees fahrenheit and 900 psi at their Baltimore and  West-
       chester facilities.  This development was described  as an advance in the state-of-the-art.
       (Environmental Projects, 6/92, p.7)

•      Solid waste  incinerator technology that reportedly achieves near  perfect reductions of toxic
       emissions exists at the Coburg facility in Germany, which employs a spray dryer, fabric filter,
       a packed wet scrubber, and an electrostatic precipitator to control pollution. Particulate
       emissions from the Coburg facility have been measured at  Img/m  and metals emissions have
       been recorded at less than 0.05mg/m3. The removal efficiency at the facility approaches 99%
       for all toxic gases, and 95% for mercury.  (Summary of Proceedings, The Clean Air Market-
       place Conference, 4/22/92 - 4/23/92)

•      Available technology options  for controlling emissions of mercury from solid waste incinera-
       tors include: wet scrubbers; wet electrostatic precipitators; sulfide (NaOH) injection (which
       reduces mercury to form easily removable inert compounds); and activated carbon, which
       oxidizes and chemically adsorbs mercury.  Of those, sulfide injection and activated carbon
       have been judged as the most effective approaches.  Activated carbon, in particular, yielded
       removal efficiencies in the range of 88%-94%.  Two other  approaches to reducing mercury
       emissions include: decreasing the amount of mercury in batteries to detection levels which
       should virtually eliminate mercury from the waste stream by  1995, and source separation/
       recycling  which involves recycling batteries.  A continuous emissions monitoring (CEM)
       system for mercury has been  cited as an urgently needed technology.  (Summary of Proceed-
       ings, The Clean Air Marketplace Conference, 4/22/92 - 4/23/92)

•      W.R. & Co. Grace has developed the CAMET system that removes CO and/or NOX for
       cogeneration,  fire heaters, and other clean fuel applications. These systems can be customized
       and are frequently designed for dual pollutant removal with a removal efficiency of greater
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       than 99% for CO and up to 90% for NOX. (Summary of Proceedings, The Clean Air Market-
       place Conference, 4/22/92  - 4/23/92)

       Continuous Emissions Monitoring Systems (CEMS) are expected to play an important role in
       facilitating a reliable market-based emissions trading system,  CEMS serve four primary
       functions in a market-based system: (1) provide the "gold standard" for measuring the success
       of emissions control, thereby allowing a company to maximize the value of its plant and
       equipment as well as improve its credibility;  (2) expand the applicability of market-based
       incentives; (3) provide "added value" to traditionally non-productive emissions control systems
       as companies seek to buy the most productive, rather than the cheapest,  system and as
       integration of CEMS maximizes the  production process and extends process equipment life;
       and (4) force technology development by  propelling market-based strategies, helping to verify
       the accuracy of emissions equipment, and enhancing the return on investments in emissions
       control equipment by making companies aware of their position in trading.  (Summary of
       Proceedings, The Clean Air Marketplace Conference, 4/22/92 - 4/23/92)

       The Hydrocarb process, which is currently being evaluated as a source of methanol as an
       alternative fuel, has a by-product that has potential for  use as a premium pollution-free boiler
       fuel in the utility and industrial sectors. The by-product is pure carbon-black (CB), which
       contains no sulfur, nitrogen, or particulates and has a significant heating value.  EPA's Air and
       Energy Engineering Research Laboratory  (AEERL) ran a brief series of tests to determine
       pumpability, atomization, and combustion characteristics of slurries made from pure CB.
       Results from these tests indicate that CB slurries have high carbon burnout efficiencies for a
       wide range of furnace excess air levels. In addition, NO emissions resulting from the combus-
       tion of these slurries would probably be lower than those from pure oil burning. (EPA ORD
       Engineering Highlights, 4/92, p.l)

       Kennecott Corporation plans to build a new smelter and modernized refinery at the company's
       Utah Copper operations to reduce the facility's sulfur dioxide emissions and promote other
       environmental benefits.  When completed in  1995, the  new Kennecott facility will be the
       world's cleanest smelter. SO2  emissions will be cut to approximately five percent of the
       allowable limit under the Utah State Implementation Plan.  Particulate emissions also will be
       eliminated significantly. The smelter project has a estimated  cost of $860 million and will
       result in the addition of 3,300 jobs over a three year period.  More than 500 separate Utah
       companies will benefit from contracts  created by the construction of the smelter. (Kennecott
       Corporation press materials, 3/11/92)

       Buoyed by successful pilot plant testing overseas, General Atomics Co.  of San Diego is talking
       with several companies and utilities interested in demonstrating a bromine-based scrubber
       capable of removing virtually all heavy metals emitted during coal burning.  Part of General
       Atomies' U.S. marketing strategy  centers  around the technology's recent small-scale testing at
       an oil refinery in Sardinia, Italy.  Two to  three months of 8-MW testing have reportedly been
       successful.  General Atomics is commercializing the technology, born out of the Joint Re-
       search Centre of the European  Community in Ispra, Italy.  The system reportedly removes
       about 95 percent of SO2, produces no  waste, and gives off a  marketable by-product in the
       form of sulfuric acid.  More importantly,  due to the chemistry of hydrogen bromide, which the
       process generates, the system allegedly has the ability to remove heavy metals,  although this
       never actually has been proven. The system  is also reputed to produce and recycle hydrogen,
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       which can be sold or burned as process fuel, and decreases reagent costs relative to conven-
       tional wet scrubbing.  Costs to restore lime and limestone, a wet system's primary reagents,
       can be expensive and  are often compounded by sludge disposal expenses.  ISPRA, in contrast
       to traditional scrubbers, generates no sludge or blowdown water stream and the sulfuric acid is
       salable. (Coal & Synfuels Technology, 3/02/92,  V. 13, No. 9)

       Ashland Oil of Russell, K-Y, will spend $100 million to upgrade  its St.  Paul Park refinery in
       Spring 1992. Upgrades at the refinery are expected to be completed by  fall of 1993. Federal
       and state permits are being sought for a new desulfurizer and sulfur recovery, hydrogen, and
       tail gas plants to cut the sulfur content of fuel oil.  The company  will  also add biological
       treatment of effluent at its wastewater treatment plant and will build an ethanol handling
       facility to meet a state requirement for expanded use of fuel in  the Twin Cities area.  (St. Paul
       Pioneer Press, 2/13/92, p. D13)

       Carl Russell and Brian Anderson have become partners in National Offsets, a company that
       brokers pollution emission credits.  They are gearing up for the new market of air pollution
       credits that is expected to develop in Houston over the next year  or so.  The trading of
       emission credits  should get rolling in Texas later this year and in  1993 as the Texas Air
       Control Board issues regulations to comply with the 1990 Clean Air Act Amendments.  A
       subcommittee of the Houston Chamber of Commerce is studying  the possible creation of an
       emissions bank.  (Houston Post, 2/9/92)

       France's Institute Francais du Petrole (IFP) is undertaking an aggressive program to broaden
       its product offering  and up its commercial presence in the petrochemicals and refining process
       licensing field.  In order to take advantage of the impact of the Clean Air Act Amendments on
       the U.S. refining industry, IFP will make the U.S. a key focus of its licensing sales.  IFP was
       created as a national research institute engaged in researching and developing oil  exploration
       and production techniques and developing  and licensing refining/petrochemical processes, as
       well as providing documentation  and  education resources across the hydrocarbons area.
       (Chemical Week, 1/29/92, P.56)

       Houston is seeing an upsurge in engineering and construction work as Houston-based refiners
       and petrochemical companies retrofit,  replace, and redesign facilities.  "The Clean Air Act has
       had a tremendous impact on the design engineering business," said a spokesman for Jacobs
       Engineering Inc. (Houston Business Journal, 10/28/91)
COAL/ACID RAIN
       Corning and Mitsubishi formed Cormatech, a Durham, NC, ceramics-based NOX control firm
       that recently dedicated a 60,000 square-foot headquarters and plant.  The firm also has started
       making the first ceramic-based catalysts in America for a market encompassing power
       generation, chemical manufacturing, and other industrial sectors.  Cormatech  uses selective
       catalytic reduction (SCR) technology in which ammonia is injected into the flue gas as the
       mixture passes through the catalyst. The  mixture then becomes nitrogen and water.  (Air
       Quality Week, 6/15/92)

       Tampa Electric completed arrangements with Texaco and GE to supply two major components
       of its planned 260-megawatt power plant  that is a part of DOE's Clean Coal  III Project.  The
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       innovative facility has a combustion turbine that is expected to come on line in July 1995. and
       a gasification/clean-up and combined cycle configuration in July 1996.  The project will
       demonstrate a metal oxide hot gas clean-up system that removes sulfur at temperatures of
       about 1,000 degrees Fahrenheit and improves plant cycle efficiency by  10-12 percent.  During
       a two-year demonstration, Tampa Electric will assess and report on its technical and financial
       feasibility based on the use of a fuel mix of various eastern coals.  The plant will use the first
       commercial  applications of these advanced integrated technologies  in the U.S. relating to two
       parts of the  IGCC project: 1) an oxygen-blown entrained-flow gasification system that will
       process about 1,900 tons of coal per day into a low Btu coal gas provided by Texaco Inc.'s
       Alternate Energy Group, N.Y; and 2) an advanced combustion turbine capable of operating
       with a low  Btu  coal gas fuel provided by GE, Schenectady, NY. The project will add the use
       of low Btu coal gas in the combustion turbine. (Clean Air Network Online Today, 5/13/92)

       The Tennessee Valley Authority will meet part of its clean air requirements by buying
       pollution "credits" worth 10,000 tons/yr of emissions from Wisconsin Power & Light Co.
       While the terms of the deal are confidential, by some accounts the  TVA is expected to  spend
       $250 to $400 a ton for a total of $2.5 million to $4 million for the credits.  The Tennessee-
       based utility is the largest in the United States and is planning to carry out its own pollution
       prevention projects.  But if there is a delay in installing cleanup equipment or other problems
       hindering its own efforts, the TVA could use the credits instead to  comply on time.  A
       Washington investment firm by the name of Clean Air Capital Markets set up the deal.  (The
       Washington Post,  5/12/92, p. Cl, C4)

       Northern Indiana Public Service Company  (NIPSCO) will have the first U.S. plant in compli-
       ance with Phase I regulations.  A $150 million Pure Air scrubber will be operational  as of
       June 2, 1992, putting it 2.5 years ahead of the Phase I deadline.  The scrubber will remove 90
       percent of the sulfur dioxide, producing 1,140 tons of gypsum by-product daily.  The gypsum
       will be sold to the U.S.  Gypsum Co. for use in manufacturing wallboard.  The scrubber will
       enable NIPSCO to continue burning high-sulfur Illinois Basin coal. (Utility Environment
       Report, 5/1/92)

       Babcock and Wilcox designs and sells Selective Catalytic Reduction (SCR) systems which are
       widely accepted technologies for achieving NOX reductions in natural gas fired and coal fired
       boilers. In the SCR process, the flue gas leaves the boiler and passes through an injection
       grid.  Ammonia is injected and mixed with the flue gas and when  the ammonia and NOX pass
       over the surface of the catalyst, nitrogen and water  are formed.  (Summary of Proceedings, The
       Clean Air Marketplace Conference, 4/22/92 - 4/23/92)

       Flue Gas Desulfurization (FGD) systems, installed to help utilities  decrease their SO2 emis-
       sions, are now at a minimum 95% removal level.  Cost-reducing advances in FGD technology
       include the production of commercial by-products, such as gypsum, of which 20 to 30 million
       tons per year are consumed in the U.S. (Summary of Proceedings, The Clean Air Marketplace
       Conference, 4/22/92 - 4/23/92)

       Aquatech Systems, a unit of Allied Signal, has developed a new polymer-membrane technolo-
       gy to capture acid rain-causing gases.  Flue gases are scrubbed  with sodium sulfite; the gases
       are then separated into charged ions by the bipolar membrane technology and these ions are
       recombined into sulfur dioxide in one chamber and the original scrubbing solution, sodium
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       sulfite, in another.  If the technology is proven commercially successful, it will allow utilities
       to hum higher-sulfur, lower-cost coal.  The technology is being tested at a coal-fired power
       plant near Buffalo, NY.  (Wall Street Journal, 4/17/92, p. Bl)

       Virginia Power expects its new Clover plant in South-Central Virginia will result in a 76,000-
       ton net cut in SO2 emissions and an 11,000-ton net drop in NOX emissions in the second half
       of the 1990s. The first Clover unit will come on line in 1995, followed a year later by the
       second unit. The 786-MW plant, a joint project with Old Dominion Electric, will be equipped
       with scrubbers, as well as controls on NOX emissions.  Virginia Power holds a 50 percent
       share of the Clover plant and will operate it.  Old Dominion Electric, the other partner, is
       overseeing  its construction which, began in February. (Coal Outlook, 4/13/92)

       Potomac  Electric Power (PEPCO) expects to switch to lower sulfur fuels at its Chalk Point and
       Morgantown power plants.  PEPCO tentatively plans to add natural gas capability to Chalk
       Point's two 341-MW coal  units by  Jan. 1, 1995.  PEPCO then will be able to co-fire coal and
       gas or switch back and forth as market conditions dictate.  Chalk Point's other two units
       already burn either oil or natural  gas.  At Morgantown, PEPCO's largest coal consumer, two
       582-MW units can burn either  coal or  oil.  PEPCO substitutes oil for coal in these units
       whenever the price is right and can also switch to lower-sulfur oil, depending on the price, to
       reduce SO2 emissions.  PEPCO's compliance plan includes the possibility of emissions trading
       allowances and installing low-NOx  burners on the Chalk Point and Morgantown coal  units for
       Phase 1 and on the Dickerson and Potomac River coal units for Phase 2. (Coal Outlook, 4/06/
       92, V.  16 No.  14)

       Switching to blends of medium sulfur coal is the main feature of PSI Energy's plan to comply
       with Phase 1 SO2 emissions reduction  requirements.  The plan will be filed with the Indiana
       Utility Regulatory Commission around April 13th and will involve: upgrading electrostatic
       precipitators at  Gibson units 1  and 2 and switching to a medium-sulfur blend of coal; using
       flue gas conditioning and a medium-sulfur blend of coal at Gibson 3;  Gibson 4 is scheduled
       for a scrubber  installation, with Gibson 5 already scrubbed; Cayuga I and 2 will get flue gas
       conditioning and a medium-sulfur coal blend; Gallagher 1-4 is scheduled for flue gas condi-
       tioning and a medium-sulfur coal blend; and Wabash River 1-6 will get upgraded ESPS, with
       Wabash 6 switched to a medium-sulfur coal blend.  Low-NOx burners will be installed on all
       of the units at  Gibson, Cayuga, Gallagher, and Wabash River.  One of the Wabash River units
       may also be repowered with integrated gasification-combined cycle technology from Destec
       Energy.  Additional tentative plans  for Phase 2 compliance feature two scrubbers for Cayuga 1
       and 2, and  flue gas conditioning at  Wabash 1-5.  Low-NOx burners would be installed at all
       units of the Edwardsport and Noblesville plants.  PSI is also looking at a blend of 60 percent
       Powder River Basin coal and 40  percent Illinois Basin coal at  Gibson 1-3 for Phase 2 compli-
       ance.  (Coal & Synfuels Technology, 4/06/92, V. 13 N 0. 14)

       Virginia Electric Power  Co. (VEPCO)  will host a clean coal demonstration to begin optimiza-
       tion testing of a dry scrubbing  technique designed to cut SO2 emissions from coal-fired boilers
       in half.  Formal demonstration of the Lime Injection Multistage Burner (LIMB) will begin
       later and will continue through early 1993.  ABB-Combustion Engineering is the project
       contractor.  EPA will provide the bulk of the funding for this project and will collect and
       analyze the data.  LIMB's market consists of about 200 coal-fired  plants in the U.S. that will
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       have to lower SO2 emissions.  There is no known LIMB process operating commercially in
       the U.S.  (Coal & Synfuels Technology, 4/06/92, V. 13, No. 14)

       EPA's AEERL is co-sponsoring a reburn demonstration for NOX control on a 108 MW
       cyclone coal-fired plant in Niles, OH. In initial testing with the original fuel injectors (.using
       flue gas recirculation), AEERL achieved a 60% NOX reduction from a NOX baseline level of
       702 ppm.  The original reburn fuel injectors were replaced with new water-cooled fuel
       injectors to eliminate the use of flue gas recirculation which was causing slag buildup on the
       rear wall  of the boiler.  With the modified fuel injectors, the NOX was reduced to 350 ppm for
       a 51% NOX reduction.  To achieve improved NOX reduction, water or steam will be introduced
       into the natural gas stream to replace the temperature and reaction time and allow for  better
       mixing.  In late January, two of the five injectors developed water leaks and the NOX  level
       dropped to 220 ppm for a 69% NOX reduction.  Long-term tests that are about 60 days long
       will be performed without water injection from  March to May.  If all sponsors and the host
       site agree, a second series of tests with water injection will  be run from May through  July
       1992, Controlled amounts of water will be introduced into  the natural gas stream with the aim
       of improving the process.  (ORD Engineering Highlights, 4/92, p. 2)

       As part of the  continuing People's Republic of China-U.S. etiologic study of the relationship
       between lung cancer and indoor open hearth combustion of coal, an EPA  AEERL test facility
       was used to burn coal associated with extremely high lung cancer rates. The coal was burned
       both in chunk  form and in briquettes composed of the same coal ground and combined with
       clay.  The briquette firing showed reductions of total particulate by 70%, medium boiling
       organics by 90%, benzo(a)pyrene by 65%, and heavy organics by 70% compared to the chunk
       form. NO2 was reduced by 50% to 100 ppb. More extensive testing will be needed to
       identify the processes involved and to quantify the results, however the data are an indication
       of the briquettes' potential in markedly reducing the exposure faced by some rural Chinese.
       (ORD Engineering Highlights, 4/92, p. 2)

       Initial test results show that a clean coal method known as Confined Zone Dispersion (CZD)
       can be an effective, near-term option for use by utilities that must control  emissions at older,
       coal-burning plants.  Preliminary commercial-scale tests indicate that CZD can meet or exceed
       its goal of reducing SO2 emissions by 50 percent, indicating that older, space-confined power
       plants equipped with this pollution control technology could meet new SO2 emissions require-
       ments in  time.   As a sorbent injection system, CZD was developed by Bechtel Corp. in the
       early 1980s as a low-cost, retrofit option with operating costs  expected to  be a third of costs
       for conventional scrubbers.  Although some sorbent injection systems are  incorporated inside
       the boilers, the CZD method operates inside existing ductwork between the boiler's air heater
       and particulate removal equipment  The atomizers form a cone-shaped confined zone of wet
       particles surrounded by hot combustion gases.  As it moves through the duct, the cone cools
       and forms SO2-absorbing droplets that mix with hot gases outside the cone and dry quickly,
       preventing particles from building up on duct walls.  Wastes are usually dry and easy to
       handle and do  not require additional treatment for disposal. CZD and sorbent injection
       techniques in general are reputed to be especially well-suited for plants with a limited amount
       of space and/or older facilities that have too short an operating life to justify large capital
       investments needed for post-combustion systems. CZD is being demonstrated as a Round 3
       clean coal technology at Pennsylvania Electric Co.'s 73-year-old Seward station outside
       Johnstown, PA.  DOE is financing half of the $9.2 million demonstration.  If the 25-month
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       demonstration continues error free, the system could be commercially available by 1994.
       (Coal & Synfuels Technology, 3/30/92)

       Wisconsin Electric Power completed the first phase of the urea-based NOX OUT selective non-
       catalytic reduction (SNCR) test at Wepco's Valley Power Plant in Milwaukee.  The prelimi-
       nary test showed up to 75 percent NOX  attenuation, high reagent use, and no measurable
       escape of gas phase ammonia.  The test was set up in two days using existing upper furnace
       view ports and trailermounted feed equipment and reagent storage. NOX was reduced from 50
       percent to  75 percent by adjusting the feed rate of the reagent. (Clean Air Weekly, 3/30/92, p.
       1)

       American Electric Power is considering a scrub of both units at its Gavin plant in Ohio.
       Preconstruction of scrubbers is underway and, if built, the scrubbers would likely be operating
       by Jan. 1,  1996.  (Energy Report, 3/30/92, V. 20, No. 13)

       Allegheny Power System plans to scrub its Harrison plant in West Virginia, with an in-service
       date of Jan.  1, 1995. APS is a leader in forming a credit pool to distribute bonus emissions
       credits from EPA, so pro rata distribution from the pool may be a virtual guarantee the scrub
       will go forward. (Energy Report, 3/30/92, V. 20, No. 13)

       Atlantic Electric plans to have a scrubber operating on Unit 2 of its England plant by Jan.  1,
       1995.  A scrub of Unit  1 is  possible by Jan. 1, 1997, or could be delayed until the  year 2000.
       (Energy Report, 3/30/92, V.  20, No. 13)

       Commonwealth Edison is planning to install two  scrubbers at its Kincaid plant in Illinois and
       will keep burning Illinois coal in those  two units.  A definite decision on the shape of its
       compliance program is not expected for some time. (Energy Report, 3/30/92, V. 20, No. 13)

       Indianapolis Power &  Light plans to include a scrub of units 1 and 2 at the Petersburg plant. No
       in-service  date is available.   (Energy Report, 3/30/92, V. 20, No. 13)

       The Keystone-Conemaugh Projects Office plans to scrub Units 1 and 2 at the Conemaugh plant.
       The Unit 1 scrubber would be on-line by Jan. 1, 1995, with the Unit 2 scrubber in service by Jan.
       1, 1996.  (Energy Report, 3/30/92, V. 20, No. 13)

       New York State Electric & Gas has won initial approval from DOE for money to help build
       an advanced scrubber  that will cover both units at its Milliken plant. Provided NYSEG can
       successfully negotiate  the funding contract with DOE, the scrubber is due on-line in 1995.
       (Energy Report, 3/30/92, V.  20, No. 13)

       Tampa Electric will switch Unit 3 at its Big Bend plant to  a low-sulfur blend of coal from
       Jan. 1, 1995, to Jan. 1, 1997. The utility will decide around July  I whether to build a scrubber
       on Unit 3  to be in service by Jan. 1, 1997.  That decision will depend on the number of bonus
       credits received and on whether scrubber vendors or coal suppliers bid the lowest prices.
       (Energy Report,  3/30/92, V. 20, No. 13)

       Big Rivers Electric  is  likely to scrub both units of the Henderson  Station Two power plant in
       Kentucky.  The utility recently considered a switch to low-sulfur coal instead, but scrubber
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       vendors came in with low bids so a scrub is now probable.  An in-service date for the
       scrubber is uncertain. (Energy Report,  3/30/92, V. 20, No. 13)

       Owensboro Municipal Utilities plans one scrubber to  cover both units at its Smith plant in
       Kentucky.  The scrubber is scheduled to be operating in October 1994.  (Energy Report, 3/30/92,
       V. 20, No. 13)

       Backers of a plan to pool  "early scrub" bonus emissions credits named the consulting firm of
       Resource Management International as  the pool's administrator. The Chicago-based firm of
       Sargent & Lundy will subcontract through RMI for architectural and engineering  services.
       RMI is based out of Sacramento, CA and will be responsible for reviewing EPA  credit
       applications by members, obtaining credits from winning members of the pool and redistribut-
       ing them, and monitoring whether members are actually building  scrubbers as laid out in their
       EPA applications.  On March 31, officials of entities (utilities,  municipalities, and the
       Keystone-Conemaugh Projects Office, a joint venture of several utilities) interested in the pool
       met to receive the final contract. All parties were expected to  sign by April 30,  (Coal  &
       Synfuels Technology, 3/23/92, V. 13, No. 12)

       Central Illinois Public Service (CIPS) is talking with AMAX Coal about supplying some of the
       coal needs at its Hutsonville plant beginning in 1993.  The plant is now fired by  high-sulfur
       coal supplied by Black Beauty Coal under a contract that expires at the end of this year. The
       plant is not on the Phase I list, but CIPS's Grand Tower plant  is.  CIPS will  continue burning
       high-sulfur coal at Grand Tower and thus must offset those emissions elsewhere in the system.
       Some of those offsets will be accomplished at Coffeen, where  Exxon Coal is supplying a
       lower sulfur coal  as the result of a contract signed  in early 1991.   (Coal Outlook, 3/23/92, V.
       16, No. 12)

       In anticipation of decreased demand for high-sulfur coal, combined private and public spend-
       ing on research for clean coal technologies in Illinois is projected  to pass the $1 billion mark
       by  1995.  The money will fund research on coal gasification projects, fluidized bed technolo-
       gy, and enhanced flue scrubber research.  The  State has promised about $200 million for the
       research and DOE will reportedly match that total. Private and public cost-sharing funds will
       account for another $717 million.  There are two projects the state is banking on to illustrate
       the possibilities of clean coal technology.  One is  a coal gasification, combined cycle plant in
       Springfield, IL, to be built by City Water, Light & Power.  According to DOE estimates, the
       technology could cut SO2 emissions by 99 percent and  nitrogen oxides by 95 percent. The
       second is a fluidized bed combustion project at an Archer Daniels Midland plant in Decatur
       that now reportedly captures more  than 90 percent of its SO2 emissions. (Energy Daily, 3/18/
       92, V. 20, No. 53)

       Southern Co. Services is  preparing a Request for Proposals to obtain term coal for Alabama
       Power. Alabama Power intends to examine its needs for low-sulfur coal for its Gaston plant
       and for somewhat higher sulfur coal for the Gorgas and Greene County plants. For the Miller
       plant, the  RFP may specify a beginning date of 1993 to conform with a market review in a
       term coal  contract with Jim Walter Resources.  Miller burns coals containing no  more than  1.2
       Ibs/mmBtu of SO2.   A quarterly spot bid invitation is anticipated for coals moving to Gaston
       and other plants beginning July 1.  A short list of coal bidders could be developed by May.
       (Coal  Outlook, 3/16/92, V. 16, No.  11)
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       Nalco Fuel Tech offers a process by which a chemical called urea is sprayed inside of
       operating boilers to break down nitrogen oxide, a major pollutant.  The process breaks the
       nitrogen oxide down  into harmless compounds, such as water and carbon dioxide. Nalco Fuel
       Tech (Naperville, IL) is a 2-year old joint venture of Fuel Tech (Netherlands Antilles), a
       British-owned firm, and Nalco Chemical, formed to help other companies control pollution.
       The pollution-control process that Nalco Fuel Tech uses was acquired by Fuel  Tech in the
       early 1980s while Nalco Chemical is known for a process it developed to clean sludge out of
       the boilers  of railroad locomotives. Nalco Fuel Tech was formed in 1990 to take advantage of
       what its creators saw as the huge potential market that would be created as a result of the
       Clean Air Act of 1990.  (Chicago Tribune (IL), 3/12/92, p.3; 1,4)

       The New York Mercantile Exchange recently submitted a proposal to EPA  to administer the
       direct sale and auction  of SO2 emissions allowances.  Other possible business developments
       that could arise out of the emissions allowance market include a futures market for low-sulfur
       coal and trading allowances futures. The Chicago Board of Trade also submitted an applica-
       tion to EPA to run the  Agency's auctions and direct sales of allowances. Last July, the Board
       publicly announced its  intention to create a futures market for allowances and to  offer market
       participants an electronic bulletin board system that will distribute information on available
       allowances. A third  party, Cantor Fitzgerald Brokerage Corp. of New York City, is also vying
       to administer the SO2 allowances program.  In December  1991, EPA solicited  proposals from
       organizations on delegating SO2 allowances.  EPA's decision on a managing agent for auctions
       and direct sales has not yet been made. (Coal & Synfuels Technology, 3/02/92, V.  13, No. 9)

       The effectiveness of  future SO2 removal technologies may be judged in comparison to EPA's
       new advanced silicate (ADVACATE) control technique.  While not yet commercially avail-
       able, the technology  will remove more than 90 percent of the SO2 produced during coal
       combustion, but will  cost only half as much as conventional wet scrubbers, measured both in
       terms of capital and operating costs. Calcium silicate sorbent is injected into the exhaust duct
       downstream of the boiler, removing the SO2 without any need for a scrubbing vessel.  The
       technique, which has been tested successfully on a pilot scale, is scheduled for field demon-
       stration at the Tennessee Valley Authority's Shawnee plant in the next six months. The
       technology should be ready for commercial utility use by  1995.  (Energy Daily, 3/01/91)

       Allegheny Ludlum signed a deal to provide 1.2 million pounds of stainless steel  plate to use in
       the building of a new sulfur dioxide scrubbing unit at the company's power station in Clarks-
       burg, VA.  Recently, Allegheny Ludlum has positioned itself in contact with engineering firms
       and scrubberunit makers  and  other significant fabricators in an attempt to gain orders for
       approximately 100 facilities that must reduce sulfur by-products from burning  coal.  (Pitts-
       burgh Business Times,  PA, 3/08/92, pp. 1, 21)

       Conversion Systems  Inc. has  developed a technology that produces commercial quality
       aggregate from flue gas desulfurization (FGD) wastes. Aggregate is used as a base material  in
       paving and construction.  The Horsham, PA-based company's technology, called Poz-O-Tec,
       produces an aggregate  material from either forced oxidation or unoxidized scrubber sludge.
       Applications  of the Poz-O-Tec process that are in operation at about 35 locations in the U.S.
       produce lightweight aggregate from wet scrubbing by lime, limestone or dual alkali FGDs.
       (Coal and Synfuels Technology, 2/24/92)
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       The Tennessee Valley Authority, in an effort to secure early SO2 emissions allowances from
       the Phase I technology reserve specified in Title IV of the Clean Air Act, has begun prelimi-
       nary site work for a new scrubber before it makes a final scrub decision.  TVA has awarded
       two major contracts for a scrubber at its Cumberland steam plant. Asea Brown Boveri (ABB)
       Environmental Systems has a $69.6 million contract to build the  scrubber and has already
       begun work.  United Engineers and Constructors will design and manage the construction
       under a $92.5 million contract.  Geupel Construction, the first subcontractor, should complete
       preliminary site work by the end of June.  Installation of the scrubber modules is scheduled to
       begin in the spring of 1993 and the on-line date is January  1,  1995, in time to meet the
       beginning of Phase 1.  (Coal and Synfuels Technology, 2/24/92)

       A.T. Massey Coal (Richmond, VA) has bought two idled coal mines (Big Creek 1  and 2), a
       prep plant, and 130 million tons of recoverable coal  reserves from Island Creek.  Massey aims
       to begin production in early to mid-1993 with  a target of 1  million tons of production in 1993.
       The target market for this operation will be the low-sulfur utility market fostered by the  1990
       Clean Air Act. Part of the sales agreement is to supply Toledo  Edison's Bay Shore plant.
       (Coal Outlook, 2/24/92)

       Kentucky Utilities will add a scrubber at Ghent No.  1 and switch to lower sulfur coal at its
       Brown station to  comply with Phase I of the Clean Air Act. The Ghent scrubber will begin
       operating  no  later than January  1, 1995.  Ghent units 2-4 will  continue to be fired by 1.2 Ihs
       compliance coal.  The second part  of KU's Phase 1 compliance plan involves switching to
       lower sulfur coal  at the Brown plant, for which the utility began reviewing bids  this month.
       KU will award one or more contracts for 100,000 to 500,000 tons per year for terms ranging
       from  19 months to 8 years.  (Coal Outlook, 2/24/92)

       Research-Cottrell, has purchased the exclusive right to market Howden fabric filter technology
       products in North America.  Research-Cottrell  will license the Howden shaker and  pulse-jet
       fabric filter technologies and market them to power generation and industrial clients.  The
       pulse-jet system is a low-pressure,  high-volume system that, because of its compact si/e, can
       be used to replace or convert an existing electrostatic precipitator. This enables the system to
       handle the high resistivity and  increased ash loading characteristics of low sulfur coal, a
       significant feature in light of the Clean Air Act Amendments.  (PR Newswire, 2/5/92, p. 1)

       To meet the Clean Air Act SO2 requirements,  Associated Electric Cooperative (AEC) Inc.
       plans to switch to a low sulfur fuel at its Missouri coal-fired power plant  in mid-1994.
       Rochelle Coal Co. recently signed  a long-term supply agreement with AEC to supply about 4
       million  tons/yr of 0.2  percent sulfur Powder River Basin coal  to  the company's New Madrid
       plant in Missouri. AEC had previously considered installing a scrubber but decided to change
       coal types instead.  (Coal & Synfuels Technology, 2/3/92)

       Illinois  Power signed a  letter of intent to purchase two scrubbers for the utility's Baldwin
       Power Station.  Babcock and Wilcox of Barberton, Ohio, will provide a matched pair of flue
       gas desulfurization units that will allow the company to meet the Clean Air Act requirements
       while continuing  to use high-sulfur Illinois coal in the Baldwin boilers. The completion target
       for the first unit is January 1, 1995. (News Release,  1/31/92, p.  1)
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       American Electric Power plans to build a new 340 MW commercial pressurized fluidized bed
       combustion (PFBC) technology plant adjacent to Appalachian's Mountaineer generating station
       in New Haven, W. VA. Construction of the new plant will begin in 1999 or up to three years
       earlier if growth in electricity demand accelerates in Appalachia's service area.  DOE is
       cosponsoring the project by funding $118 million.  AEP plans to use a more efficient and
       modern "super-critical" steam cycle and will incorporate improvements from several smaller
       pilot and demonstration facilities.  (Energy Daily, 1/22/92)

       Bachmann North American, a subsidiary of Wahlco Environmental Systems, Inc., has booked
       flue gas desulfurization damper orders in excess of $10 million from North American utilities
       that are building scrubbers. Wahlco designs and manufactures air pollution-control and power-
       efficiency equipment and provides related services to electric utilities and industrial manufac-
       turers. Eighty percent of Wahlco  is owned by San Diego Gas and Electric Company.  (Coal
       and Synfuels  Technology, 1/20/92)

       Virginia Power signed a contract to buy a $140 million scrubber for the utility's Mt.  Storm,
       W.Va. coal-fired plant.  The scrubber will be built by General Electric Environmental Systems
       Inc. and will remove an estimated 50,000 tons of sulfur dioxide from the coal-fired  plant's
       emissions.  The scrubber is scheduled to begin operating by January 1995 in time to comply with
       Phase I of the Clean Air Act Amendments of 1990.  (Energy Daily, 1/9/92)

       Wisconsin Electric completed a fly ash demonstration project that may enable the Milwaukee-
       based utility by 2000 to reuse or market all of the roughly 500,000 tons of ash it generates
       annually.  The utility already markets approximately 50 percent, or 250,000 tons, of its fly ash
       each year as a substitute for Portland cement. Wisconsin Electric recently paved a half-mile-
       long section of road on the grounds of its Pleasant Prairie Power Plant using a mixture of 50-
       60 percent carbon fly ash as a cement substitute. Wisconsin Electric has also found that
       portions of its bottom ash generated at power plants can be useful  for farmers in areas with
       compacted soils. (Energy Daily, 1/8/92)

       Southern Indiana Gas & Electric Co. (SIGECO) filed a $120 million Phase I Clean Air Act
       compliance plan with the Indiana  Utility Regulatory Commission.  The plan describes the
       installation of a single scrubber facility at the utility's Culley Generation Station Units 2 and 3
       by January 1, 1995, to remove about 95 percent of the sulfur dioxide from the flue gases.  The
       utility also plans to retrofit the boilers on the two units with low NOX burners.  For Phase II,
       which starts January 1, 2000,  the utility plans to retrofit boilers at Culley Unit 1  and Warrick
       Unit 4 with Low NOX burners.  (Energy Daily, 1/7/92)

       Dow is installing flue gas recirculation and is converting its four burners to low-NOx burners
       at the Plaquemine (LA) plant.  When the  project is complete it should halve the site's 13,000
       ton/year NOX emissions.  The Plaquemine personnel have also instated a program to hunt
       fugitive releases and eliminate them.  About 20 tons/year of emissions have been controlled.
       (Chemical Week, 11/13/91)

       Destec Energy (Houston), which went public last March  but is 73 percent owned by Dow, won
       DOE  financial backing in September's Clean Coal program awards.  With 240 million in DOE
       dollars, Destec is planning a 265 megawatt coal gasification unit at PSI Energy's Wabash
       River Generating Station in West  Terre Haute, IN.  (Chemical Week, 11/13/91)
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       Noxso Corporation is paying DOE $10,000 to license a coal-burning technology that reduces
       nitrogen oxide.  The technology, invented by four DOE scientists, enhances a scrubbing
       system invented by Noxso and could help firms meet the requirements of the Clean Air Act.
       The DOE scientists will split 15 percent of the fee and receive future royalties from Noxso
       under the Federal Technology Transfer Act of 1986.  (Chemical Marketing Reporter, 10/14/91,
       p. 7)

       The Department of Energy approved funding for Sierra Pacific Power CO.'s proposal to
       construct the Pinon Pine Power Project.  Sierra's proposal to DOE is to construct and operate
       a "state-of-the-art," 80-megawatt power plant capable of using coal, gas, natural  gas or diesel
       oil to generate electricity, allowing it to use the fuel that is most  economically priced.  The
       Pinon Pine Power Project, which is one of nine demonstration projects in the country selected
       to receive matching funds to demonstrate advanced "Clean Coal Technology", is expected to
       cost $ 160mm to build with half of the  funds coming from DOE.  (Energy Alert, 9/13/91)

       LIFAC North America has been jointly formed by ICF Kaiser Engineers and Tampella Power
       to demonstrate and market Tampella's  'clean coal' technology.  ICF Kaiser Engineers'
       Pittsburgh office will jointly build a $17 million pilot project with Tampella (Williamsport,
       PA) at a Richmond Power & Light (Richmond, IN) plant. Half the cost of the project  is being
       picked up by DOE, which chose LIFAC  North America as one of 35 clean coal technologies.
       The process uses a bed of pulverized limestone and humidification to remove between  70-80
       percent of sulfur dioxide emissions produced by the burning high-sulfur coal.  (Pittsburgh
       Press (PA), 5/7/91, p. B3)

       Custom Coals International is using a new technology that combines  advanced coal cleaning
       and combustion techniques to produce  cleaner coal.  Marble-sized, pelletized coal products are
       produced from which over 90 percent of the pyritic,  or free, sulfur has been removed at a coal
       preparation plant with a unique design.  Some 70-80 percent of the remaining organic sulfur is
       captured with the use of additives during the combustion process. (Coal, 4/91, p. 69)

       Southern Illinois University researchers are working  on 16 clean  coal technology projects,
       including advanced scrubbers and coal gasification, as well as methods for separating sulfur
       from raw coal.  The Illinois Department of Energy and Natural Resources has committed more
       than $113 million to research and development of those  technologies.  (News Release,  1/09/91,
       P. 1)
AIR TOXICS
       Shell Oil Company and Systems Applications International (SAI), a unit of ICF International,
       have collaborated in the development of the FUGEMS system, which uses hardware and
       software programs to monitor fugitive emissions at Shell's Deer Park, TX, facility.  SAI
       developed special hardware that minimizes potential human errors and yet is rugged enough to
       stand up to the challenges of a refinery  environment.  The hardware system uses punch-hole
       tags that allows every source in a facility of virtually any size to be identified uniquely and
       information ranging from the repair and emissions history of the source to the source manufac-
       turer can be quickly retrieved.  The second major effort by SAI and Shell involved the
       development of computer software programs to support the fugitive emissions monitoring
       program.  Two specific software programs were developed.  Shell designed a program to assisl
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       all departments within the facility in complying with fugitive emissions monitoring require-
       ments. The program automates all facets of fugitive emissions paperwork and maintains a data
       base of compliance information.  In addition, the  program provides status reports on inspec-
       tions and maintenance activities.  SAI also developed a software program that allows data
       gathered in the field to be entered into the data logger.  The software allows the operator to
       scan any tag and quickly determine if this source is on the list of sources that require inspec-
       tion.  (Company literature)

       W.R. Grace & Co. is commercializing a new water printing plate to reduce volatile organic
       compounds (VOCs) for the graphic arts industry.  Grace is also developing a container-sealing
       product that is reformulated to a  water-based compound and reduces the use of organic
       solvents; water-based photopolymers for printed circuit boards; fluid-cracking catalysts that
       have been redesigned to reduce process emissions; and silica-based coating materials that are
       reformulated for VOC paints.  (Summary of Proceedings,  The Clean Air Marketplace Confer-
       ence, 4/22/92 - 4/23/92)

       W.R. Grace & Co. has "tech" systems, such as thermal and catalytic oxidation systems for
       reducing VOCs in industrial processes. The Snyox Ceramic Honeycomb catalysts developed
       by Grace provide  NOX reduction over a wide range of flue gas conditions.  Noxso is a dry,
       dual pollutant  removal technology that removes both NOX and SOX with a high removal
       efficiency rate and virtually no solid waste by-products. (Summary of Proceedings,  The Clean
       Air Marketplace Conference, 4/22/92 - 4/23/92)

       Glidden Paint  Corporation has focused on the control of VOC emissions from architectural and
       consumer  paints and has developed two new lines of interior latex paint that are formulated
       without the use of solvents and are VOC-free.  (Summary of Proceedings, The Clean Air
       Marketplace Conference, 4/22/92 - 4/23/92)

       For NOX control,  Research-Cottrell's  control technologies  include: combustion technologies,
       catalysts, and burners  and the company is concentrating on developing technologies at 1/10 or
       1/100 of the cost  of currently available technologies.  Three options are available for VOC
       emissions  control: process modification,  recovery, and thermal oxidation.  These technologies
       encompass a range of sizes, structures, and flexibility.  (Summary of Proceedings, The Clean
       Air Marketplace Conference, 4/22/92 - 4/23/92)

       Continuous Emissions Monitoring (CEM) systems are important new technologies for facilitat-
       ing emissions trading.  For example, the Fourier Transformer Infrared analyzers (FTIR),
       supplied by Research-Cottrell, is an emissions monitoring technology for VOC emissions
       control. The FTIR is  in increasing demand for reputedly  being able to fingerprint chemicals
       based on the chemicals' emission/absorption of a particular light spectrum. (Summary of
       Proceedings, The Clean Air Marketplace Conference, 4/22/92 - 4/23/92)

       Research-Cottrell  has been exploring  the  use of biofiltration technology for controlling VOC
       emissions, as it has been used in Europe. There is  some concern that the organisms involved
       will enter  the environment. (Summary of Proceedings, The Clean Air Marketplace Conference,
       4/22/92 - 4/23/92)
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       Addressing the need for new fugitive emissions control systems comprised of computer
       hardware and software designed for better data management and analysis to track fugitive
       emissions, Systems Applications International (SAI) collaborated with Shell's Deer Park, Texas
       Manufacturing Complex to develop a program that involves new hardware source tags. These
       source tags contain unique source identification numbers for each individual source, assigned
       to the source for its lifetime.  Information about the source, such as manufacturer of the
       source, location of the source, lead definition, emissions history, and repair history,  is associat-
       ed with a particular source identification number making it easier to identify a source.  New
       software reads the tag number and scans a list of source numbers to see if the  source has been
       identified as needing monitoring.  If so, concentrations from fugitive emissions are tested
       which the software program compares against the  leak definition for that source.  If the
       monitored emission exceeds the leak definition, then the software system directs the operator
       to make a number of repairs to that source. Thus  the software system decreases the time
       required to locate the  source, take the proper measurements, and make first attempts to repair
       the source. In addition, software has been developed for the mainframe that centrally stores all
       the information on the various sources allowing for across-the-board analyses of the equipment
       manufacturers, location of sources, or maintenance records.  (Summary of Proceedings, The
       Clean Air Marketplace Conference, 4/22/92 -  4/23/92)

       A recently developed  vapor seal that allegedly keeps VOC emissions to less than one part per
       million could help chemical and oil-refinery industries meet the requirements of the 1990
       Clean Air Act amendments.  The seal, built by Ferrofluidics Corporation, in Nashua, New
       Hampshire, is based on ferrofluid  technology  and  is advertised as being 1,000  times more
       effective at reducing VOC emissions than any other seal on the market.  (Clean Air Network
       Online Today, 4/14/92)

       The John Roberts Company (Minneapolis,  MN) has changed to a new solvent  from one that
       nearly half evaporated before being used.  Another change included reducing the amount of
       solvent in rags before laundering.   Installation of a $15,000 centrifuge recovers 2.5-3.5 gallons
       of spent solvent per 220 towels.  Reuse of the solvent saves $34,000 per year.  (Graphic Arts
       Monthly, 3/92)

       FFC International, Inc. of Lancaster, PA, has  introduced a z.ero-VOC alcohol product  for use
       in the dampening systems of sheetfed printers. Printing has traditionally been  done with
       isopropyl alcohol, which  allegedly is responsible for more than half of all VOCs emitted from
       sheetfed press rooms.  (Graphic Arts Monthly, 3/92, p.56)

       More than  100,000 Ibs/year of benzene emissions  were reduced last year when Dow built a
       fully enclosed vapor recovery system at its loading docks  on (he Mississippi, at its Baton
       Rouge, LA, Plaquemine plant. Now when a barge is loaded, nitrogen and hydrocarbon gases
       are collected  and cooled, and the unit recovers 98  percent in liquid form.  A second dockside
       vapor recovery system, to be completed in 1995, will collect roughly 80 tons/year of chlorinat-
       ed solvent products, including ethylene dichloride, perchloroethylene, carbon tetrachloride, and
       chloroform, among other highly regulated substances.  Vapors will be collected,  cooled,
       separated, and reused.  (Chemical Week, 7 7/75/9J)

       Monsanto has achieved a large reduction of toxic  air emissions; the greatesl reduction lias been
       made at its Sauget, IL, W.R. Krummrich plant.  The plant wiped out 1 million Ibs/ycar of
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    paradichlorobenzene emissions by replacing the old unit with new crystallization technology.
    The new unit is enclosed and every chemical put into the process is recovered.  Krummrich
    has reduced total emissions 65 percent since 1987, from 3.8  million Ibs/yr to 1.34 million Ibs.
    The installation of a new centrifuge reduced xylene emissions and, by next year, the plant will
    add new vents to recondense emissions for recycling and reuse.  About $200,000/year in feed
    chemicals will be saved. In addition, engineers at  Krummrich designed a new railcar system
    that replaced the drum-filling system for phosphorus pentasulfide.  It reduced emissions by
    6,200 Ibs/yr and it is the first time this type of system has been used for the  product. (Chemi-
    cal Week, ] 1/13/91)

    Union Carbide has  cut benzene emissions by 20,000 Ibs/year by changing the cleaning agent at
    its Seadrift, TX, plant.  Similar substitutions were made at Dow and Monsanto.  At Institute,
    WV, 672,000 Ibs/year of SARA Title III  emissions were cut by the installation of a  new
    ethylene oxide distribution system that eliminated several hundred pumps, valves,  and flanges.
    (Chemical Week, 11/13/91)

    Hoechst Celanese has announced plans to reduce toxic  air emissions by at least  70 percent
    over the next five years, at a cost of $500 million nationally, including $150 million to be
    spent on the company's four Houston locations.  (Houston Business Journal, 10/28/91)

    The South Coast Air Quality Management District (SCAQMD) in California, has  funded
    several research projects to develop new types of coatings that produce no pollution and have
    minimal environmental  impact.  SCAQMD has enlisted the California Furniture Manufacturers
    Association, Southern California Edison,  and Battelle Columbus Labs to develop ultraviolet
    (UV)-curable coatings for wood furniture.  Battelle has successfully developed a high-quality,
    pollution-free, UV-curable basecoat and is working on  a topcoat.  SCAQMD is  also working
    with the Coating Research Institute of Eastern Michigan University, the Michigan Research
    and Development Fund, Paint Research and Associates, and the Agency for International
    Development to develop zero-VOC coating that  uses vernonia plant oil as a base.  (Modern
    Paint and Coatings, TO/91)

    Pennsylvania House has begun full-scale production using a revolutionary new spray finishing
    system designed to apply high solids coatings with fewer VOCs.  Pennsylvania  House is the
    first  manufacturer in any industry to market a product that was in part finished with the
    Uniearb System, developed by Union Carbide Chemicals and Plastics Co. Inc.  The  project
    incorporates spray equipment developed by Nordson Corp. and lacquers specially  formulated
    for the process by Guardsman Products Inc.  The system represents a new technological
    alternative for reducing emissions of VOC in spray finishing operations.  The finish is mixed
    with carbon  dioxide and conditioned to the right temperature and pressure for delivery to the
    spray gun.  Pennsylvania House estimates that VOC emissions  have been reduced by about 70
    percent with the new spray system.  (Wood & Wood Products,  10/91)

    Metropolitan Furniture  Corporation manufactures high-end office furniture and has plants in
    both San Jose and San  Francisco, California. Both facilities fall under the local jurisdiction of
    the Bay Area Air Quality Management District (BAAQMD), which has proposed increasingly
    strict VOC limits for 1992, 1994, and 1996.  As a result, Metropolitan Furniture made a high
    priority of finding low  VOC finishes that matched or exceeded the quality of its existing
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       finishes.  Metropolitan has also updated its spray equipment with air-assisted airless and high-
       volume, low-pressure spray equipment. (Wood & Wood Products, 10/91)

       TEC Systems in De Pere, WI, has developed the Summit hot-air convection dryer for printing
       presses, reportedly the first model that does not require pollution control because the capability
       is built-in to the dryer. The  problem with traditional heatset operations using solvent-based
       inks is that during drying, solvents laced with VOCs evaporate into the atmosphere unless
       trapped by pollution control  systems.  Using thermal afterburner technology,  the Summit unit's
       combustion chamber destroys hydrocarbons at 1,400-1,600 degrees fahrenheit from solvents
       that have been evaporated.  The Summit differs from conventional pollution control because it
       recirculates air into the dryer.  The air can then be employed for absorptive chilling or other
       uses.  The Summit also omits extra duct work and installation costs involved in using add-on
       pollution control systems. (American Printer, 5/91,  p. 30)

       Allegheny Metalworking in Mars, PA, which paints  a large number of metal  parts and
       cabinets, took steps to limit VOC emissions by employing a painting system  that uses a high
       volume of paint under low pressure to reduce the amount of excess paint, known as over-
       spray, going into the air.  (Pittsburgh Business Times, 4/22/91, p.  1)

       Catalytica has finished Phase I of an EPA SBIR  grant demoastrating the technical feasibility of
       its absorption-catalytic combustion system for eliminating VOCs.  Catalytica is looking for a
       Phase III commercial scale-up partner in 1992.  In this  system, VOCs are catalytically oxidized
       to produce carbon dioxide and water vapor.  (Inside R&D, 3/31/91)

       Dow is expanding its Freeport, TX, glycidyl methacrylate facility. GMA is a reactive mono-
       mer used in coatings to reduce the solvents  content.  The expansion, due to be  completed in
       1991, will position Dow  as the major supplier of GMA in the United States.  (Plastics News,
       12/24/90)

       The pollution prevention program instituted by Statler Tissue Co. of Augusta, ME, has
       eliminated the amount of hazardous and toxic materials used by the company.  All of the
       goods manufactured by the company are produced from 100 percent recycled fibers. The
       program has allowed Statler to emit the lowest volume  of toxic releases of any integrated
       tissue mill in the United  States.  (EPA Office of Pollution Prevention)

       The Mead Packaging Division of the Mead Corp., based in Atlanta, GA, is a leading manufac-
       turer of paperboard packaging for the beverage and  food industries.  Mead Packaging has been
       able to reduce its emissions  of VOCs by more than  85  percent in the last 15  years by substitut-
       ing water-based inks and coatings for solvent-based  inks previously used in the printing
       process.  This pollution prevention step has resulted in  the elimination of thousands of tons of
       air  emissions annually from  non-attainment areas. In addition to reducing VOC emission from
       its U.S. plants,  Mead has helped its customers (other printers) experience similar reductions by
       selling its water-based inks and varnishes. (EPA  Office of Pollution Prevention)

       UNICOAT,  developed by the Navy's Exploratory Development Program in Warminster, PA, is
       a single coating corrosion preventative developed to replace the traditional two-coat, primer
       and topcoat  paint systems used on  aircraft and in other industrial applications.  The aircraft
       industry has recognized that UNICOAT provides  a number of benefits, such  as reduced VOC
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       emissions; reduced application time and materials; less component degradation, malfunction,
       and maintenance; reduced paint removal time, materials, and effort.  Efforts to develop a
       second generation UNICOAT are in progress.  (EPA Office of Pollution Prevention)

•      Dec-E-Tech of Pepperell, MA has developed a line of catalytic incineration and solvent
       capture systems for the printing and coatings industries.  The incineration systems can be used
       in either water-based or hydrocarbon-based coatings and inks, with a reported 95 percent
       minimum destruction efficiency.

STRATOSPHERIC OZONE

•      W.R. Grace & Co. is also developing an aqueous CFC substitute for cleaning operations.
       (Summary of Proceedings, The Clean Air Marketplace Conference, 4/22/92 - 4/23/92)

•      Hydrofluorocarbon (HFC), a new compound being examined by EPA's AEERL as a possible
       replacement for CFC-114 refrigerant,  has passed the next round of testing and continues to
       look attractive.  The compound, whose code name is HFC-236ea, contains  no chlorine  or
       bromine capable of destroying stratospheric ozone and has an estimated lifetime in the
       atmosphere of approximately 2 to 4 years, thus  minimizing any impact the chemical could
       have on global warming.  AEERL is continuing to examine the attributes of HFC-236ea and is
       discussing with the Navy the possibility of cooperative evaluation of the  chemical in actual
       refrigeration equipment as the next step.  (ORD Engineering Highlights, 4/92,  p.l)

•      Kryptonics Inc. of Boulder, CO has developed an innovative method of spraying silicone mold
       release that eliminates the use of chlorofluorocarbons (CFCs) in its production of polyureth-
       anes. As a result of this project, Kryptonics has reduced its usage of CFCs from 40,000
       pounds in 1990 to zero in 1992. Equipment based on the technology from this project will
       soon be made available to other firms and industries. (EPA Office of Pollution Prevention)

•      IBM's San Jose disk drive development and manufacturing operations  for its U.S. mainframe
       computers was one of the world's largest users  of chlorofluorocarbons  (CFCs) for disk drive
       parts cleaning and drying.  The program instituted by IBM has substituted  aqueous cleaning
       and hot air drying technologies for CFC processes and reported emissions have dropped by 95
       percent.  (EPA Office of Pollution Prevention)
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        APPENDIX E
Insights Gained From the Clean
Air Act Marketplace Conference

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                                     APPENDIX E
                  INSIGHTS GAINED FROM THE CLEAN Am ACT
                            MARKETPLACE CONFERENCE
       The Clean Air Marketplace conference, sponsored by EPA on April 22-23, 1992, provided a rare
opportunity for leaders from both industry and government to meet and discuss the relationship between
environmental protection and opportunities for economic growth. Fourteen panel sessions — featuring
senior representatives of leading air pollution control companies, as well as senior Federal, state, and local
government officials, and  other experts on clean air issues — covered a wide  variety  of  business
opportunities and challenges created by the Clean Air Act Amendments of 1990.  Many insights were
gained during the two days of speeches and panel discussions. Some of the  more important of these
insights are  summarized here.   In addition, several  companies  at  the  conference highlighted  new
technological  developments and  business  ventures  aimed  at  garnering a  share  of  the  Clean Air
Marketplace. Some of these developments are summari/ed in the Attachment at the end of this appendix.

THE POSITIVE ECONOMIC IMPACTS OF THE CLEAN AIR ACT AMENDMENTS

       Since the passage of the Clean Air Act Amendments  in late 1990, considerable attention has
focused on the  compliance  challenges,  and the associated  economic costs,  facing U.S.  industry.
Discussions at  the Clean Air Marketplace conference, however, emphasized the  "other side of the
story" — the positive economic results of the amendments and, more generally, environmental  laws and
regulations.

       EPA's cornerstone concept for the Clean Air Marketplace conference was the interdependency of
environmental protection and economic growth.   Although they  are often thought of as  conflicting
objectives, conference participants identified several different levels of linkage between efforts to protect
the environment and to promote  U.S. economic growth and exports. Exemplified by many of the projects
highlighted in the Attachment, conference participants cited the following general linkages:

       •      Most fundamentally, although environmental laws and regulations require
              the expenditure of funds  on the part of business  firms on control
              technologies and services increasing the costs of some goods and services
              and  reducing jobs in some  sectors, environmental expenditures also
              create business opportunities for firms supplying such technologies and
              services.  These opportunities translate into jobs for U.S. workers.

       •      Many of the jobs associated with efforts to improve the environment are
              high-skill, high-wage jobs that are very desirable in terms of improving
              the skill base of the U.S. workforce and providing high multiplier effects
              on the economy.

       •      Complying  with environmental requirements can, in some instances, lead
              to a net cost savings for companies.  The need to  find cost-effective
              ways of complying with more stringent environmental regulations often
              leads companies to evaluate more comprehensively their manufacturing
              process or other ways of doing business. This often leads to discovering
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               "smarter," more cost-effective processes that both reduce emissions and
               the overall cost of doing business.

       •       Cost savings realized by companies in complying with the Clean Air Act
               Amendments and  other environmental  regulations  can, in some  cases,
               improve the international competitiveness of those companies and the
               U.S. economy in general.

       Considerable conference discussion also focused on export opportunities for  U.S. air pollution
control companies. Many participants noted the historic role of the  U.S. in setting directional trends that
other countries  follow in developing their own environmental requirements.  This phenomenon creates
prospective opportunities for aggressive companies. Developing innovative,  "state-of-the-art" technologies
or services gives a company a competitive advantage as foreign countries adapt the Clean Air Act model
to their own situation and needs.

INSIGHTS FOR THE FEDERAL GOVERNMENT

       The conference yielded numerous insights of value to the Federal  government in shaping
regulations under the Clean  Air Act Amendments and in crafting future environmental  laws. Perhaps the
most commonly expressed belief was the importance of the promulgation and enforcement of effective
regulations to the development and sustenance of a clean air marketplace.  Historically, the size and
shape of revenues in the environmental control market has been driven by the timing and stringency of
laws and regulations. That relationship is expected to continue judging from opinions expressed by many
conference participants. The  role of effective enforcement was stressed as a key factor increasing the
credibility of nominally stringent requirements.

       Conference participants also stressed the need for consistency and certainty in the direction of
new air pollution regulations.  The private planning and investment decisions necessary to achieve the
objectives of the Clean Air Act Amendments depend on companies — on both the supply and demand
side of the clean air marketplace — knowing where EPA's "goal line" is.  The operation of  innovative
trading markets, such as that  created for SO2 allowances under Title IV, is particularly vulnerable to
uncertainty.

       At the  same time  that conference participants emphasized  the  driving role of stringent and
consistent environmental requirements in creating the clean air marketplace, there was equal stress placed
on the need for flexibility in the form  of those requirements.  There  was wide praise for the emphasis
placed in the Amendments on the use  of economic  incentives  and, more generally,  the  use of a
performance  standard-oriented  approach  (as  opposed  to mandated  technology requirements).   EPA
repeatedly was urged  to reinforce  this statutory  emphasis in  formulating  implementing regulations.
Several panelists noted that  special care  must be  taken  that the permitting process not hinder the
development and commercialization of new technologies by placing innovative pollution control methods
at a disadvantage.

       The process by which new technologies get commercialized was the focus of many panelists.
There was wide agreement on the need to improve upon current means of technology transfer so that new
developments can be  accessed by those  companies who can apply them most effectively  in solving
pollution  problems.  The concomitant  need  to improve working relationships  between environmental
entrepreneurs and the financial community to improve the flow  of capital to environmental slart-up
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companies, new ventures by established companies, and industrial firms seeking to finance air pollution
control projects was also identified as a pressing problem.

       The use  of economic incentives to induce desired environmental  behavior —  "profits in the
service of the environment" — was a theme in many panel presentations. The flexibility such incentives
provide allows the most environmentally forward-thinking companies to set the pace in developing new
technologies that achieve (even exceed) statutory goals at minimum cost.

INSIGHTS FOR STATE AND LOCAL  GOVERNMENTS

       The conference  yielded insights  relevant  to  state and  local governments  as  well.   Many
participants noted the power of state and local laws and regulations to reinforce, facilitate, or undercut
the dean air marketplace.  The market for SO2 allowances was cited as an example: the treatment of
allowances in state tax laws and by public utility commissions may do as much to determine the market's
ultimate effectiveness as will EPA's regulatory actions. State and local air pollution control regulations
will also interact  with EPA actions to send important messages to industry.  The clean air marketplace
will  be buttressed if such regulations  adopt  the  same  flexible,  economic  incentives-based approach
embedded in the Clean Air Act  Amendments.  The clean air marketplace can be strengthened further if
state and local authorities take the type of proactive approach illustrated by the South Coast Air Quality
Management District, which recently opened an economic development office focusing on bringing new,
emerging technologies forward to create opportunities to  reduce pollution quickly and cost-effectively.

INSIGHTS FOR THE PRIVATE SECTOR

       Finally, the Clean Air Marketplace conference provided additional insights for corporate leaders.
Several speakers  and panelists, for example, stressed the potential for new technological developments in
the private sector to materially influence the shape of new laws and regulations.  The impact of ARCO's
low-emission reformulated  gasoline, EC-1, on provisions in both the Clean Air Act Amendments and
South Coast District requirements, was cited as an example.

       Numerous conference participants stressed that an increased corporate concern for environmental
results often is part of a broader effort to improve quality and reduce costs. On the one hand, efforts to
reduce the  environmental impacts of a manufacturing process, through process design  changes,  input
substitutions, or product reformulations, often lead  to a rethinking of the entire manufacturing process,
and the identification of ways to  improve quality and/or reduce production costs.  Reduced environmental
impacts can likewise result  from efforts motivated by quality improvement and cost reduction goals.

       Another  frequent observation  concerned the dynamics of  achieving improved environmental
performance within companies.  The key role of the CEO in articulating a corporate commitment to the
environment was stressed by numerous panelists from the corporate sector.  Without such a commitment,
backed by an ongoing investment of corporate resources, positive change is seldom possible.

       Finally, the evolving relationship between sellers and buyers of pollution control equipment and
services was discussed in several panels.  The consensus  of many participants  was that, for most air
pollution problems, there is a role for many different technologies and services as part of the solution.
Increasingly, the  seller-buyer relationship involves a partnership with both parties working cooperatively
to identify  a package of technologies and  services  that constitute the least-cost solution to a particular
problem.
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                                   ATTACHMENT
  NEW TECHNOLOGICAL ADVANCES & BUSINESS VENTURES DISCUSSED AT
    EPA's CLEAN Am MARKETPLACE CONFERENCE, APRIL 22 - 23,1992
STATIONARY SOURCES

•      GEMS.  Continuous Emissions Monitoring Systems (CEMS) are expected to play an important
       role in facilitating a reliable market-based emissions trading system.  CEMS serve four primary
       functions in a market-based system: (1) providing the "gold standard" for measuring the success
       of emissions control, thereby  allowing a company to maximize the  value of its plant  and
       equipment,  and to  improve  its credibility;  (2) expanding the applicability of market-based
       incentives; (3) providing "added value" to traditionally non-productive emissions control systems
       as companies seek to buy  the most productive, rather  than  the cheapest, systems  and as
       integration of CEMS maximizes the production process and extends process equipment life; and
       (4) forcing technology development by propelling market-based  strategies, helping to verify the
       accuracy of emissions equipment, and enhancing the return on investments in emissions control
       equipment by making companies aware of their position in trading.

•      Dual CO/NOX Removal. W.R.  Grace  & Co. has developed the CAMET system, which removes
       CO and/or NOX for cogeneration, fire  heaters, and other clean fuel applications.  These systems
       can be customized and are  frequently designed for dual pollutant removal with a removal
       efficiency of greater than 99%  for CO and up to 90% for NOr

•      Mercury Emissions Control  at Incinerators.   Available technological  options  for controlling
       emissions of mercury from  solid waste incinerators include: wet scrubbers; wet electrostatic
       precipitators; sulfide injection  (which reduces mercury to form easily removable inert com-
       pounds); and activated carbon, which oxidizes and chemically adsorbs mercury. Of these, sulfide
       injection and activated carbon have been judged to be the most effective approaches.  Activated
       carbon, in particular, achieved removal efficiencies in the range of 88%-94%.  Two other
       approaches to reducing mercury emissions include: decreasing the amount of mercury in batteries
       to detection levels which should virtually eliminate mercury from the waste stream by  1995, and
       source  separation/recycling  which involves recycling  batteries.   A continuous  emissions
       monitoring  (CEM) system for  mercury has  been cited in the industry as  an urgently  needed
       technology.

•      Toxics Control at Incinerators.  Solid  waste incinerator  technology that reportedly achieves  near
       perfect reductions of toxic  emissions exists at the Coburg facility in Germany, which employs a
       spray dryer, a fabric filter, a packed  wet scrubber, and an electrostatic precipitator to  control
       pollution.  Particulate emissions from  the

       Coburg facility have been measured at Img/m3 and metals emissions have been recorded at less
       than 0.05mg/m3.  The removal  efficiency at the facility approaches 99% for all toxic gases, and
       95% for mercury.
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VOLATILE ORGANIC COMPOUNDS (VOCs)

•      Reducing VOCs in the Graphic Arts Industry.  W.R. Grace & Co. is commercializing a new
       water printing plate to reduce volatile organic compounds (VOCs) for the graphic arts industry.
       Grace  is also developing  a water-based  container-sealing product  that eliminates  the  use of
       organic solvents; water-based photopolymers for printed  circuit boards; fluid-cracking catalysts
       that have been redesigned to reduce process emissions; and silica-based coating materials that are
       reformulated  for VOC paints.

•      Thermal and  Catalytic Oxidation.  W.R. Grace & Co. also has developed "TEC" systems, such
       as thermal and catalytic oxidation systems  for reducing VOCs in industrial processes.  The Snyox
       Ceramic Honeycomb catalysts developed by Grace provide NOX reduction over a wide range of
       Hue gas conditions. Noxso is a dry, dual  pollutant removal  technology that removes both NOX
       and SOX with a high removal efficiency rate and virtually no solid waste by-products.

•      VOC-Frcc Paints.  Glidden Paint Corporation has focused on the control of VOC emissions from
       architectural and consumer paints and has developed two new lines of interior latex paint that are
       formulated without the use of solvents and are VOC-free.

•      NOX Control.  Research-Cottrell has developed NOX control technologies including combustion
       technologies, catalysts, and burners.   The company currently is concentrating on  developing
       technologies which it feels could cost 1/10 or 1/100 of the cost of currently available technolo-
       gies. Three options are available for VOC emissions control;  process modification, recovery, and
       thermal oxidation.  These  technologies encompass a range of sizes, structures, and flexibility.

•      CEMS. Continuous Emissions Monitoring Systems (CEMS) are important new technologies for
       facilitating emissions trading.  For example,  the Fourier  Transformer Infrared (FTIR) analyzer,
       supplied by Research-Cottrell, is an emissions monitoring  technology for VOC emissions control.
       The FTIR is in increasing demand for fingerprinting chemicals based on their emission/absorption
       of a particular light spectrum.

•      Biofiltration Technology. Research-Cottrell has been exploring the use of biofiltration technology
       for controlling VOC emissions, as it has been used in Europe.

•      Fugitive Emissions Controls.  Systems Applications International (SAI) collaborated with Shell's
       Deer Park, Texas Manufacturing Complex to develop a fugitive emissions control program that
       combines computer hardware and software designed for better data management and analysis.
       The SAI/Shell technology  involves source tags containing unique identification numbers for each
       individual source,  assigned to the source for  its lifetime.  Information about the source, such as
       the manufacturer of the source, the location of the source, leak definition, emissions history, and
       repair  history, is associated with a particular source identification number, making  it easier to
       identify a source.  New software reads the tag number  and scans a list  of  source  numbers to
       determine  whether the  source  requires monitoring.   If so,  the concentration  from  fugitive
       emissions are tested and  the software program compares that concentration  against the leak
       definition for that source.  If the monitored emission  exceeds  the  leak definition, then the
       software system directs the operator to make a number of repairs to that  source.  Thus the
       software system decreases the time required to locate the source, take the proper measurements,
       and make initial attempts to repair the source.  In addition, software has been developed for the
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       mainframe that centrally stores all the information on the various sources, allowing for across-the-
       board analyses of the equipment manufacturers,  location of sources, or maintenance  records.

CHLOROFLUOROCARBONS (CFCs)

•      CFC Substitutes.   W.R.  Grace  &  Co.  is developing an aqueous  CFC  substitute for cleaning
       operations.

ACID RAIN

•      SCR Systems. Babcock and Wilcox designs and sells Selective Catalytic  Reduction (SCR)
       systems which are among  the  most widely  accepted technologies for achieving high percent
       removal NOX reductions in  natural gas-fired and coal-fired boilers.  In the SCR process, the flue
       gas leaves the boiler and passes through an injection grid.  Ammonia is injected and  mixed with
       the flue gas and nitrogen and water are formed when the ammonia and NOX pass over the surface
       of the catalyst.

•      FGD Systems.  Flue Gas Desulfurization (FGD) systems, installed to help utilities decrease their
       SO2 emissions, are now at a minimum 95% removal level.  Cost-reducing  advances  in FGD
       technology include the production of commercial by-products, such as gypsum, of which 20 to
       30 million tons per year are consumed in the U.S.

MOBILE SOURCES

•      Pre-heated Catalytic Converters.   Camet Corp., a division  of W.R.  Grace, has  researched
       electrically heated converters (EHCs).   EHC systems are reported to be the most effective
       converters available, eliminating an average of 85% of emissions during the first 505 seconds of
       operating  a car.  Working with  auto manufacturers, Camet is integrating the electronic controls
       from the EHC with the engine logic controls and the large-scale integrated circuits provided by
       auto companies for an integrated system solution to emissions requirements.  The Grace/Camet
       EHC core is formed from a metal foil about 2 mills thick and weighing  only 0.01 pounds/cubic
       inch,  yet  it  can withstand hot  shake tests at 1850 degrees fahrenheit.  The  EHC system is
       expected to cost auto manufacturers $200-$300 and will weigh between 25 and 40 pounds. The
       system has  met California standards and Grace/Camet will  soon be preparing  for  full-scale
       production of the EHC core, with expected installation for the 1997 model year, as  required by
       the California timetable.

•      Electrically Heated Catalyst.  Corning GmbH has unveiled the  prototype of  a new electrically
       heated catalyst which is designed to meet the cold  start segment  of the ultra-low emissions
       requirements.   In laboratory tests, this  system meets or exceeds the California 1997 ultra-low
       emission requirements.

•      High Temperature Catalytic Technologies.  Because catalytic conversions to reduce mobile source
       emissions require high  temperatures, Allied-Signal  has focused  on technologies with higher
       temperature applications, in addition to a 100,000-mile durability requirement.  One example is
       a vehicle  equipped with an underfloor catalyst and a manifold cat which led to the development
       of a closed  couple technology  that meets California LEV  standards.  Ongoing work  is being
       conducted to meet ULEV standards with this technology.  Palladium, a relatively low-cost metal
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       that is used as a catalyst to convert CO, NOX, and hydrocarbons, meets 1992 and 1993 emission
       standards and offers a life-span of 100,000 miles. More advanced palladium catalyst technologies
       are currently being tested with promising results.

       Absorber Catalytic Systems.  Allied-Signal and ULP, Inc. are developing an absorber catalytic
       system that converts hydrocarbons before releasing them. The absorber material can be used with
       ceramic, metallic, foam, and other types of substrates. Several new technologies being developed
       can  be combined to  achieve  optimal  hydrocarbon  removal  levels  while improving  high
       temperature performance and hydrocarbon absorption capacity, and reduce the time taken by the
       absorber material to hold onto the hydrocarbon before releasing it. Catalytic technologies are also
       being developed for alternative fuels including  natural gas and organic emissions.

       Ceramic  Catalytic Materials.   In researching  ceramic  catalytic converters, Corning Inc. has
       developed a new, low-expansion  ceramic material that combats thermal shock and corrosive
       agents  and an extrusion process invention that provides substrate with its distinctive  honeycomb
       structure,  thereby creating a large surface area in  a very small volume.   Added surface area
       increased  overall  conversion efficiency by 14%. In 1990, Corning released two cell core XT
       (extra-thin) substrates that use newer, more dense ceramic material.  One  unit provides added
       surface area and improves conversion efficiency by 24%.  The second reduces back  pressure by
       14% without  compromising conversion efficiency.  These units save space and weight  and are
       made from low-cost ceramic materials.  Corning has also worked on electrically heated  catalyst
       units which combine electrically heated metal substrate with a standard cellular ceramic substrate.
       The  heated catalyst starts the catalytic  converter and converts  most emissions during the cold
       phase when most  pollutants are emitted.  Durability and energy requirements are further research
       issues.  The unit takes less than  5 seconds to preheat prior to ignition and begins to  convert
       emissions immediately thereafter, in contrast  to currently  available converters that take two
       minutes to heat up.

       Intelligent Vehicle/Highway Systems (IV.HS). Originally conceived to alleviate traffic congestion,
       the Intelligent Vehicle Highway System (IVHS) is a broad-based concept to control road traffic
       in much  the  same way that  air traffic  and  harbor traffic are controlled.   IYHS  is based on
       technologies  that  can be grouped  into three main functional areas: an  Advanced  Traffic
       Management  System  (ATMS)  that  is  responsible  for  obtaining real-time information;  an
       Advanced Traveller Information System (ATIS), through which information will be disseminated,
       either  in vehicles or on  a  kiosk; and  an Advanced Vehicle Control System  (AVCS), which
       incorporates the idea of intelligent cruise control, which would allow future cars to determine
       their locations relative to other vehicles.  IVHS  may also be applied to develop "smart buses" that
       would  provide location information to people at bus stops, or feature a farebox or "smart card"
       reader  to count passengers.  Carpooling could be made more efficient by IVHS and a computer
       system that could configure a "dynamic carpool," providing drivers with a daily  schedule of
       people to  pick up. Thirty field tests currently are being conducted  for these technologies.

       IVHS.  In order  to deal with traffic  delay more efficiently, the states of New York and New
       Jersey  created Transcom to act as a hub for information for the New York City metropolitan
       area's  IVHS.  Transcom collects and  relays  real-time information to all other transportation
       agencies, including rail lines, subways, and bus  drivers, to avoid spill-over effects on  other routes.
       Another  Transcom technology  is electronic toll collection (ETC), already in use in Dallas,
       Louisiana, and Oklahoma. ETC for the New York City region will  probably take the form of an
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       electronic tag on a car wliich will record (he amount of the toll as the car passes through the toll
       reader.  The driver will receive a hill for the total number of tolls at the end of each month. The
       technology may reduce CO and hydrocarbon emissions significantly by speeding cars through
       tollbooths (even if only a quarter of cars use the system).  Another possible application of ETC
       would be to use tagged vehicles to monitor traffic flow and signal an operations center regarding
       any problems.

•      Diesel  Particulate  Control  Systems.   Donaldson Corporation manufactures  detailed  dicsel
       paniculate control systems such as particulate trap oxidizers, catalytic converter mufflers, and
       replaceable/cleanable filters.  A trap system consists of a filter to capture particulates emitted, a
       regeneration mechanism to burn off or clean the particulates  periodically,  and a mechanism  for
       sensing when regeneration should occur.   A popular filtration method is the wall-flow  mono-
       lith —  a ceramic device in which the  particulates flow through  porous walls and are then
       collected.  Filter regeneration systems include electrical heating, the use of diesel fuel burners,
       catalysts, throttling, or combinations of these.  Donaldson  has about 550 ceramic wall-flow
       monolith traps  with electrical regeneration systems in use.  These trap systems  can be  inslallcd
       on new vehicles or retrofitted on vehicles with conventional diesel technology.  The company is
       also testing a multiple cartridge approach that fits easily into an engine compartment with limited
       space.  Another type of after-treatment, the catalytic converter muffler, integrates emissions and
       noise control.  Particulate trap systems are commercially available now, improving in reliability,
       cost effective, and reportedly effective in achieving clean diesel performance.

•      Diagnostic Equipment.   Sun Electric, Crystal Lake, IL, produces diagnostic and enhanced I/M
       equipment, including a line of mobile recovery systems for reducing CFCs emissions; a hand-held
       scanner  that gathers  and displays diagnostic messages from  the  vehicles;  a PC-based shop
       management system (Shopmax); and  safety and inspection system equipment such as front-end
       aligners.  Sun's MCA  3000 is a PC-based analyzer that performs  "four gas analysis"  and is
       capable of supplying mechanics with technical service bulletins. Sun's MGA 9000 bar exhaust
       gas analyzer is  a 286/386-based system with sufficiently large memory for data management thai
       can communicate with other computers.  Additional technology options available for the MGA
       9000  include  a  barcode reader;  vehicle  on-board computer interface;  advanced diagnostic
       software; a PC option to retrieve technical service bulletins; a  CD-ROM mass storage unit of 5(X)
       megs; on-line communications by modem (currently used in Florida to register information with
       the state); and the capability to  incorporate a NOX analyzer,  opacity test, and dynamometer.
       Another technology option is the  POD, which, if  connected  between the  Sun analy/er and the
       vehicle's on-board computer, obtains real-time  data  and additional  maintenance data.   Fulurc
       options to be offered by Sun include  evaporative pressure and canister purge tests.

ALTERNATIVE  FUELS

•      "Flex-Fuel Vehicles."  Ford and General Motors are certifying their "flex-fuel" vehicles that  run
       on either methanol or gasoline to meet California's Transitional Low Emissions Vehicle standard
       by  1992.  Chrysler is  planning  to sell  its "flex-fuel" vehicle in 1993  for the same price as
       conventional gasoline vehicles, offering  consumers  the flexibility of filling (heir  tanks with
       methanol in nonattainment areas where  methanol  will he available, or using gasoline on  (rips
       away from the city.
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       Electric Vehicles.  Battery technology represents the greatest cost component  of the electric
       vehicles heing developed by  Ford Motor Co.   These vehicles offer  several positive features,
       including good performance within a 100-mile  daily range; the ability to recharge  overnight, at
       home, rather than requiring a trip to the service station; relatively quiet running; and the potential
       to  be  more  reliable  and  to  require  less  maintenance than internal  combustion  vehicles.
       Disadvantages include reduced driving range; high cost; and short lifetime of batteries making
       electric vehicles  more expensive to operate, per mile, than gasoline vehicles.  Electric  vehicles
       may he used primarily for utility vehicles, such  as vans or commuter cars.  Under Ford's electric
       vehicle demonstration program, 82 Eco-Star  vans will be leased to customers in early 1993 for
       30 months and then returned to Ford for evaluation.  Batteries for the Eco-Star will weigh 800
       pounds, while the body and frame  of  the vehicle  will  made  of lightweight  materials to
       compensate.  The Eco-Star has a  range of 100 miles per day, acceleration  of 0-50 mph in 12
       seconds, a top speed of 70 mph, and a recharge  time of 6 hours on a 220 volt/30 amp outlet. Air
       conditioning and heating are optional features.  Ford is also developing data on a fuel-fired
       heater, which does not reduce the driving range of electric vehicles,  although air conditioning
       does affect the driving range.

       Reformulated Gasoline.  ARCO's EC-X,  a reformulated gasoline that meets the California Air
       Resources Board (CARB) standard for Phase II gasoline, shows great promise to be competitive
       in the areas of environmental quality, energy efficiency, ease of implementation, and economic
       efficiency.  ARCO estimates that the overall  reduction in urban ozone formation would be 39%
       through the use of reformulated  gasoline.  Phase II  gasoline  also offers the advantage of
       achieving  mandated emissions reductions without requiring new engine technology.  EC-X  is
       estimated to cost 16 cents per gallon more than conventional gasoline, but reportedly compares
       favorably with M85.

       Compressed Natural Gas. Enron NGV Co. has created Enfuels, a subsidiary, to build compressed
       natural gas (CNG) fueling stations in the Houston area.  The first station is scheduled to open in
       Houston by  June 1992,  and five more are expected to  be in operation by the end of the year.
       Liquified natural gas may  be the alternative  fuel of choice for diesel buses in Houston because
       it allows greater  driving range.  Most compressed natural gas pumps will be at existing gasoline
       retail  stations. In July,  Enron will  open  a technology conversion center where customers can
       convert gasoline vehicles into natural gas vehicles. Natural gas vehicles  are reputed to produce
       fewer of the precursors to  smog formation, eliminate evaporative hydrocarbons,  produce 5% of
       the CO produced by gasoline engines, achieve low cold start emissions, and eliminate paniculate
       emissions.  Some challenges to the industry include the lack of fueling stations; a reduced driving
       range; the need to develop low-cost, light-weight tanks; and requirements for compressed natural
       gas-specific fuel  injection systems, catalysts,  and engines to meet future emissions requirements.

       Natural Gas  Electronic  Fueling Systems.   CMC has introduced  a Sierra-class  pickup truck
       featuring the first in a new generation of electronic fueling systems for use with natural gas.

       CNG Vans.  Chrysler is  producing full-sized compressed natural gas  vans  that utilize what
       Chrysler claims  is the cleanest internal combustion engine available.

       CNG Buses.  The Southern California Rapid Transit District (SCRTD) has 10 Flexible buses with
       Cummins engines that run on compressed natural gas, which, except for the time required to fill
       all six tanks on  these buses, have performed well.  The fleet has 30 methanol buses built by
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TMC.  "Avocet", used by the SCRTD in 12 GMC RTS buses which run on methanol, increases
the high octane, low cetane properties of methanol, facilitating combustion and allowing buses to
he converted from diesel fuel to methanol avocet.  For the past two years, the SCRTD has had
a retrofit program using Donaldson/Owens Corning and Donaldson/3M paniculate  traps.  The
SCRTD is also exploring the following  options: electric trolley buses; the development  ol fuel
cells; the development of a lightweight bus with traction motors in which all  four wheels run on
a low combustion internal engine; and the use of liquified  natural gas which  weighs less than
compressed natural gas and takes less time to refuel.
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