DRAFT REPORT
Prepared For
Office of Air and Radiation
Environmental Protection Agency
Prepared By
ICF Resources Incorporated
and
Smith Barney, Harris Upham and Company
Incorporated
January 1992
ICF RESOURCES™ SMITHBARNEY
INCORPORATED A PREMERICA company
9300 Lee Highway 1345 Avenue of the Americas
Fairfax. Virginia 22031-1207 New York, New York 10105
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DRAFT REPORT
Prepared For
Office of Air and Radiation
Environmental Protection Agency
Prepared By
ICF Resources Incorporated
and
Smith Barney, Harris Upham and Company
Incorporated
January 1992
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PREFACE
This draft 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 draft report was prepared for the
Environmental Protection Agency (EP A). The assumptions, findings, conclusions, and judgments
expressed in this draft 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 draft 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 and drafting this
report. Analysis to develop the revenue increase estimates for the air
pollution control industry (Chapter ill) 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 associated with Title ill (Air
Toxies), and SA! 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 EP A'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 Agencv - The EP A developed the air
pollution control industry revenue increase estimates associated with
Title VI (Stratospheric Ozone), and assisted in the review of previous
drafts of this report. .
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TABLE OF CONTENTS
Page
PREFACE
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 1
AC~O~EDGE~NTS ..................................................
II
IN1RODUCTION [[[ iv
EXECUTIVE SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ES-l
CHAPTER I OVERVIEW OF THE ENVIRO~NTAL PROTECTION INDUSTRY.. 1-1
Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . '. . . . . . . . . . . . . . . . . . . . .'. . . . . . . .. 1-1
The Environmental Protection Industry. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 1-1
The Air Pollution Control Industry. . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 1-4
CHAPTER II MAJOR REQUIRE~NTS OF THE CLEAN AIR ACf AMEND-
~NTS ..., ...... ................. . ...... .. ... .... . ... . ... ..... . . . II-I
Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-I
Summary of Major Requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-I
CHAPTER ill INCREASED DEMAND FOR POLLUTION CONTROL SERVICES. .. ill-I
Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. ill-I
Summary of Revenue Increases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. ill-6
Title I (Nonattainment) .............................................. ill-9
Title II (Mobile Sources) ............................................ ill-18
Title ill (Air Toxies) ............................................... ill-28
Title IV (Acid Rain) ............................................... ill-35
Title VI (Stratospheric Ozone) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. ill-42
CHAPTER IV SUPPLY RESPONSES BY THE AIR POLLUTION CONTROL
INDUSTRY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. IV-I
Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . .'. . . . . . . . . . . . . . . . . . . . . . . . . .. IV -1
Summary Market Effects. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV-I
Air Pollution,Control Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . .. IV-6
Cleaner Burning and Alternative Fuels. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. IV -19
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 ACf
APPENDIX B METHODOLOGY FOR ESTIMATING CHAPTER ill REVENUE
ESTIMATES TITLES I-IV AND VI OF THE 1990 CLEAN AIR ACf
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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 have been conducted. To
name only a few developed for or by EP A 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 EP A
.
"Ozone Nonattainment Analysis A Comparison of Bills", January 1990,
prepared by E.H. Pechan & Associates, Inc., prepared for EP A
.
''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 EP A
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 economic benefits
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, arid
where possible to quantify these opportunities, as well as to evaluate just how these various industry
groups will meet that CAAA challenge.
In addition, this report is intended to foster a better understanding of the continuing
development of the pollution control market. 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 develop-
ment 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 states and localities may implement their own environmental programs that will also result
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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).
. Requirements under these amendments will be implemented over the next several years by
EP A with significant effects on the air pollution control industry over the next. 5-10 years. Effects
on the air pollution control industry are expected well beyond 2000. However, because of the
regulatory uncertainty involved, as well as difficulty in evaluating these long-term revenues and
supply-side issues, post-2000 impacts are not considered in this report. Further, the exact nature of
the final regulations and the likely industry response is very uncertain even in the nearer term. In
such cases, potential revenues were not included in the overall estimates.
There could be significant growth opportunities for air pollution prevention techniques such
as product reformulation and process modifications. However, these techniques are in most cases
not well understood. Revenues, and supply-side issues corresponding to the installation of air
pollution control technology are much better understood. As a result, the growth opportunities
discussed in Chapters ill and IV of this report correspond in many cases (except for producers of
alternative and cleaner burning fuels such as natural gas, low sulfur coal, gasoline oxygenates and
reformulated gasoline) to the installation of air pollution control technologies. However, several case
studies illustrating how some companies are implementing innovative pollution prevention techniques
are included throughout the report.
Report Organization
This report has an executive summary, four chapters, and two appendices. The four chapters
of this report include: Overview of the Air Pollution Control Industry (Chapter I), Major Require-
ments of the Clean Air Act Amendments (Chapter n), Increased Demand for Pollution Control
Services (Chapter ill), 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 In
Revenue Increase under Titles I-IV and VI of the 1990 Clean Air Act Amendments (Appendix B).
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 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 instrumentation 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 produc-
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ers and large diversified engineering, design and construction compa-
nies where environmental business is currently less dominant.
.
Chapter II - This chapter provides a brief introduction and general
background 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 non attainment
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 ill (air toxics
which requires reduction of at least 190 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--5ulfur 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 ill - 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
ill). 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 ill.
Page vi
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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 general economic health. Indeed, the potential costs of
the legislation and the impact that these costs could have on U.S. economic health formed a major
part of the debate preceding the statute's enactment. Virtually absent from this debate however was
discussion about the economic benefits that the CAAA might offer to selected areas of U.S.
commerce-most notably to the air pollution control industry.
Where those benefits lie, and how they could play out 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.
SUMMARY OF REVENUE INCREASES
In sum, 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 1996-2000.11 This corresponds to a cumulative increase in air
pollution control industry revenues o~ 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 billion 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
significant revenue growth due to the 1990 CAAA. Average annual
revenues for these companies are expected to be about $0.6-0.8
1/
The increase in aaverage annual revenue increasesa 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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billion (in 1990 $) higher during .1992-2000. 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 hydrochlorofluorocarbon (RCFC).
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.Y
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.
.
Only a small fraction of the firms operating in the pollution control
market are publicly held (thus making it difficult to obtain detailed
Y
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 cogeneration), waste management equipment (i.e.,
landfill liners, storage tanks, noise control equipment pro~ective 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 PROTECfION INDUSTRY
(BILLIONS OF 1990 DOLLARS)
EnviroQuest 1990
Revenue Estimates
Hazardous Waste
Farkas Berkowitz 1990
Revenue Estimates
EPA "Cost of Clean II 1990
Expenditure Estimates
Chemicals
Hazardous Waste
Water
Air Pollution Control
Air Pollution Control
Multi-Media
Water Infrastructure
and Water Utilities
Total 1990 Revenues
$59 Billion
Total 1990 Revenues
$132 Billion
busopp\cmhlpie1 B.drw
Total 1990 Expenditures
$115 Billion
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
By most traditional measures, 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:
.
Participants in the industry are often involved in other diverse
business activities unrelated to air pollution control (e.g., engineering,
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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 compli-
ance ).
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,
precipitators, scrubber/adsorber systems, and thermaVcatalytic systems) ranged from about $2.0-5.4
billion in 1990. The Department of Commerce estimates 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 Amendments, 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 economic growth (and particularly 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 and to $0.4 billion in 1990 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 significant business opportunities:
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SUMMARY OF IGCI MEMBERS' BOOKING STATISTICS
DURING THE 1970s AND 1980s
(BILLIONS OF 1990 DOLLARS)
en 0.8
c:
o
:- 0.6
m
Y7 0.4
1.2
1
0.2
o
1974
1976
1980
Year
1981
1985
1989
1969
Note: 1969-1980 Include .Hardware. Value Only
1981-1989 Include Both Hardware and Installation Value
buoopp~.drw
.
.
.
Title I (Nonattainment) - revises the CAA for attaining and maintain-
ing national ambient air quality standards (NAAQS). Key provisions
are aimed at bringing cities and other areas which are not in attain-
ment; in-line, with ozone, carbon monoxide, or fine particle (PM-I0)
standards.
Title IT (Mobile Sources) - augments requirements under Title I. It
requires controls on N0X' hydrocarbon and carbon monoxide emis-
sions from mobile sources through (1) stricter controls on emissions,
including tailpipe, evaporative, or refueling, (2) changing the specifi-
cations of existing fuels to reduce the level of combustion emissions,
and (3) requiring the use of 'clean fuels' and clean fuel vehicles for
both fleets and private vehicles.
Title ill (Air Toxies) - expands the scope of hazardous air pollutant
controls to include at least 190 listed substances and requires numer-
ous industrial sources to control for the first time. "Major sources"
must install maximum achievable control technology (MACT), and
"area sources" must install generally available control technology
(OACT)
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SUMMARY OF TIlE 1990 CLEAN AIR ACT AMENDMENTS (CAAA) AND BUSINESS
OPPORTUNITIES
Title I (Nonattainment)
Ozone (1993-2010)
CO (1995 & 2000)
PM-10 (1995 & 2002)
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 m (Air Taxies)
Major Sources (1992-2000)
Area Sources (1999)
Accidental Releases (1993)
Title IV (Acid Rain)
S02 Provisions (1995 & 2000)
NOx Provisions (1995 & 2000)
Emissions Monitoring (1995 & 2000)
Title VI (Stratospheric Ozone)
CFC Production Phase-Outs (2000-
2015)
Recycling and Disposal (1992 & 2004)
Mobile Air Conditioners (1991)
.... . . . .
... ..... ... ......". ................... ......... ... ........... "'" '''''' .
... ......... ........ ...... ......... ............. ........... .... ........".,... ...".
,.......... ....... .... ....... ........... ... ....... . ...... ... ,.... "'.......'.. ..
jg4tJ$.~~~~~~~i~~sii1#~sQpport...riiti~s?
. .
.. ..
. ..
Industries Affected: Air pollution equipment suppliers, A&E
companies, instrument manufacturing, construction compa-
nies, oil companies, producers of oxygenated fuel additives
and service stations
Business Opponunities: Manufacture, design, development
and construction of technological controls and/or process
modifications; production and supply of clean/oxygenated
fuels
Industries Affected: Auto companies, oil companies; produc-
ers of oxygenated fuel additives, refineries, chemical manu-
facturers, A&E companies, and automobile parts suppliers
Business opponunities: Development, production and supply
of reformulated gasoline and oxygenated fuels, and design and
production of clean/alternative fueled vehicles, and parts sup-
pliers for motor vehicle emission control devices
Industries Affected: Air pollution control equipment man-
ufacturers, stack testing companies, environmental service
firms, and instrumentation manufacturers
Business Opponunities: Manufacture, production, design,
and construction of air pollution control equipment and pro-
cess modifications, 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 opponunities: Supply, manufacture, design, and
construction of S02 and NOx control equipment and CEMs;
and the supply and transpon of low sulfur coal, natural gas,
and lime/limestone
Industries Affected: Chemical manufacturers, A&E Compa-
nies, air pollution control equipment manufacturers, and the
environmental service industry
Business Opponunities: CFC substitute development and
production, manufacture, design and construction of CFC
recovery and recycling equipment including leak detection
equipment, and development and production of non-CFC
containing product substitutes
06C097SA
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ICF Resources Incorporated ~
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.
Title N (Acid Rain) - requires electric utilities (in two phases) to
achieve a reduction of approximately 10 million tons of sulfur dioxide
(S0:0 emissions below 1980 levels and approximately a 2 million ton
reduction of NOx emissions. Title N establishes a two phase S02
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 follow 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 recycling 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 $6.9-9.2 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 quanti-
fied 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 ill), 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 n - Title n 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 signi-
ficantly.
.
Title ill - 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.
06C097SA
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ICF Resources Incorporated ~
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SUMMARY OF INCREASED REvENUES DUE TO THE 1990 CAAA
(BILLIONS OF 1990 DOLLARS)
Title I
(Nonattain-
ment)
Title II
(Mobile Sour-
ces)
Title III
(Air Taxies)
Title N
(Acid Rain)
Title VI
(Stratospheric
Ozone)
......... .... ........ . ..
............ ...,........ ..........
.....",".. "H' ....... ..........,
...... .....,. ........ n..""",'
n' ...,.........."........ ..........
---mAT.;A;t;::--RE------ ,y------
~i$.i]
'"H''''''''''''''' .
.............. n',',','
...... ........... .....
........... ..... ..,..,
. . . . . .. ..........,.....
p~~~:
;i~~1
. ,",".".,,'.", . ','..",,", .",'
. .. .. ..... . ... . .
.. .. . . ... ... . . . .
... ... .. .. ... .
II!ifl
:Jori~g/;::)
0.8-1.0
1.0-1.4
xx
x
x
8-11
1.0-1.5 1.1-1.4 9-13 X XX X X
1.1-1.4 2.7-3.5 18-23 XX X X
0.8-1.6 2.0-3.0 13-21 XX XX X X
0.3 0.1 2 XX X X
XX
X
= Primary Beneficiary
= Significant Beneficiary
= Limited or No Opponunities, or Not Relevant
.
.
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
equipment manufacturers. Producers of CFC product substitutes
(e.g., chemical manufacturers) are not expected to benefit because of
the phaseout of CFCs they currently produce.
06C097SA
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ICE Resources Incorporated ~
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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
anticipated. In general, because many companies complying with the Act will have to make
investment decisions 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) 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 INDUSTRY: GROWTH POTENTIAL
Revenue Estimates By Industry Segment
(billions of 1990 dollars).
. ..
........ . ....... "'P""' ...., .......... ....... ....... ..
..... ......... ..........................., ....... ..............
.... ,...,.................. "",,,"'..",'," "n'"'''''''''''''' ...n."", .......... ..
.... ......................................, ..................... .
... .. .............,-, n.." ...........',- ...... ... ..... ....
...... -.........."""H .... ..... ... ","" ............... . ... ... ...........
.. "". ",."..... u.... ~y~rng~~~~Y~I,Rt!~p~~}
...............,...........
.................... .n",'
:.q~~!
'~!M#).,,:,: ':'::::":':::\:::.i.e~~~:"?':"::::::::::::::::'
..". "p'"
. . . . . . . . . . . .. ........... ...... . . . . . . . .. ................ .
. . . . . . .. ............ .......... . . . . .. ........ ........... ..
~~!~#'aJ~ ........... ..... ..... ....... ............ ...... .........
.......... ......... .......... ........ ..... .... ..
. .""" . ... . . . . . . . . . . . . . . .. .. ............... .....
. . . . . . . . . . . . . .. .... .. ........ : 199,64!iQ()C) ::
"'.'199.t;1!)95 .'.'.'
. . . . . . . . .
\>:,::,".:"....::':. ::,..'.... .)(:
Air Pollution Control Equipment
Stationary Source 2.0-5.4 2.3-3.4 4.2-5.8
Mobile Source ~ 0.5-0.6 0.6-0.7
10.3-13.7 2.8-4.0 4.8-6.5
Cleaner Burning & Alternative Fuels
Natural Gas NI -- 0.1
Low Sulfur Coal NI 0.3-0.4 1.2-1.8
Reformulated and Oxygenated Gasoline NI 0.3-0.4 0.3-0.4
0.6-0.8 1.7-2.3
Engineering, Design, and Construction NI 0.4-0.7 0.1-0.2
Instrumentation and Emissions Monitoring NI 0.2-0.4 0.1-0.2
TOTAL NI 4.1-5.8 6.6-9.2
. Size of the market for other types of businesses which do not rely entirely or even
very significantly on atr 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.
06C097SA
P8F ES-9
ICE Resources Incorporated ~
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.
Air Pollution Control Equipment - The most significant beneficiary of
the CAM 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 (Le., supplier is not owned by the
refinery which demands the product) of methyl tertiary betyl ether
(MTBE) and ethanol. The natural gas industry is expected to experi-
ence solid growth in the future, but only tangentially due to the
CAAA'JJ
.
Engineering:, Design and Construction - Only a small fraction of
current sales in this segment are environmentally related. The overall
projected increases due to the CAM are relatively small and are
related primarily to the construction of new MTBE, ethanol, and
hydrochloroflourocarbon (HCFC) production facilities. However, a
portion of the air pollution control equipment business may be shared
by this market segment and Titles I and ill in particular may spur
process changes and other engineering and design innovations as a
method of pollution prevention.
.
Instrumentation and Emissions Monitorin~ - 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 N in the near term and under Titles I, n and ill 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.
'JJ
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 SOz advantage).
06C097SA
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NON-QUANTUIED BUSINESS OPPORTUNITIES SUMMARY
. ... .. ......... ........ ... .. .d. . .... . .. .
.... .... ...... ... ... ... ..... .... . ..... .. ... . ..... .. ... .. ... ...
. .......... .......... ........ '"'" ........... ...", ".,.. ...... ... .. p., .
. ... . . . . . . . . . . . . .. ... ......... ............. .. . ... . . . . . . . . .. . ... ...,. .. . .... ..
':M#j9r!rl~ij~ftY~~n~~~6':@i!~~~pf
",-.
.. .
..."... ..,....,.. ... .d.."..""
...."......... ...... ....,"..
.. ............ .............",....
........ ..... .... ...... ..........
N~~q~ij#()9
'..q~#.~~I;
i~ffl1jp~#1t
.... . .
.... ..... ,,,,"'"'''''...''''' "...
",,,,,,,,,,,,,,,,,,,,""... no".,...
............... ......................
............................ .........
~i91:9ii.i
:!!4~~t{
.ljmy.~F#~I~'
".... ........ ..................
"0'''' ... ....... ...........
............. ....................
. ..... .... ....... ...............
~~*~~;
..........~~~i3#;..fili~..........
ConstRiction)
... ....... ..... .
..... .......... .... .
... .... .... .... .
. . . . . . . . . . . . . . . . . . . . . . .. .. .. .
.... ..... .... "'''''''''''' ....
!#~!fi##~~!Jl) ...
Ciurf....... .
Title I (Nonattainment)
Progress Requirements X X X
8 Cl'Gs X X X
Consumer Solvents XX - X
Trans. Control Programs - - XX
Title n (Mobile Sources)
Merchant MTBE Capacity - XX -
Emissions Testing Equip. - - -
Infrastructure - - XX
Alternative Fuel Vehicles - XX -
Title m (Air Toxics)
Accidental Release Plans X - X
Title IV (Acid Rain)
Industrial Opt Ins X XX X
Allowance Brokerage Fees - - -
Title VI (Stratospheric Ozone)
CFC Recycling and Disposal X - X
XX Primary Beneficiary
X Significant Beneficiary
Limited or No opponunities, or Not Relevant
X
X
X
-
-
XX
-
xx
X
x
-
x
Air Pollution Control Industry: Supply-Side Issues
The increased demands for air pollution control and monitoring equipment, cleaner fuels, and
the engineering, design and construction of new facilities will affect the market share, profitability,
and capacity needs among the major supplying segments and companies. While the exact response
to these demands is uncertain, the following trends are expected to emerge:
.
Capacity Constraints - There are not expected to be any major
capacity constraints, particularly among air pollution control equip-
ment manufacturers. This is due to, among other factors, (1)' the
timing of the CAAA provisions with most of the demand anticipated
in the late 1990s giving companies a chance to gear up their produc-
tive capacity, and (2) the current excess capacity situation in some
market segments due to the current sluggish economy. The exception
to this is the MTBE market which, in the near term, cannot be
handled by U.S. suppliers/producers alone.
06C0975A
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SUPPLY-SIDE EFFECTS OF THE CAAA
Increased Air Pollution
Foreign V s. Domestic Control Profitability?
Competition? Industry Demands
Capacity
Constraints?
.
Foreim 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 n, etc). In general
though, profit margins are not expected to expand significantly.
.
Employment - Associated with increased revenues in the air pollution
control industry, there will be increased labor demand. The increased
demand for labor will be satisfied by (1) hiring additional laborers,
and (2) increasing utilization of the existing workforce (note that due
06C097SA
Page 1!S-12
ICF Resources Incorporated ~
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to the lean period in the 19808, 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 construction, design, or engineering) of about
15-25 thousand full-time equivalent positions on average annually
during 1992-1995 and an average of 20-40 thousand full-time equiva-
lent positions annually during 1996-2ooo.~
Caveats and Uncertainties
There are a number of caveats and uncertainties in the air pollution control industry revenue
projections.
.
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 EP A studies,
such as Regulatory Impact Analyses, conducted for individual regula-
tions and the Section 812 report looking at overall costs & benefits
51
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, (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.
06C097SA
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AVERAGE INCREASE IN FULL-TIME EQUIVALENT LABOR POSmONS IN THE
STATIONARY SOURCE AIR POLLUTION CONTROL EQUIPMENT INDUSTRY
en 50
"C
c::
Ct!
en
:J
o
~ 40
-
en
c::
o
:;:;
.~ 30
n...
~
o
.c
Ct!
-.J
- 20
c::
Q)
Cti
.~
:J
C"
w 10
Q)
E
i=
I
~ 0
crm~.5.dlW
~ Title I (Nonattainment)
1m Title III' (Air Toxics)
rm;;mrn . V(' .)
I1EElJ Title I ACId Rain
25
Average Annual Increase
1992-1995
have or will be analyzing these issues.
40
Average Annual Increase
1996-2000
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 RACf for several CfG catego-
ries in Title I, MTBE production in Title II, and residual risk require-
ments in Title m. Given these uncertainties, the estimates presented
herein probably understate the true revenues gains.
.
Revenue estimates in Titles I and m assume that, in most cases, air
pollution control equipment would be installed to meet the non attain-
ment 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, applica-
tion of equipment (which is much better understood) was assumed.
.
06C097SA
PIS" BS-14
ICF Resources Incorporated ~
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Chapter I
-------
. . .. . , , ., . .. . . .. . , . . ,
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-------
CHAPTER I
OVERVIEW OF THE ENVIRONMENTAL PROTECTION INDUSTRY
INTRODUCTION
The Clean Air Act Amendments of 1990 (CAAA) represent perhaps the most comprehen-
sive, sweeping piece of environmental legislation ever enacted in the United States. Few comers 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 economic benefits
that the CAAA might offer to selected areas of American commerce-most notably to the air
pollution control industry.
Where CAAA benefits lie, and how they could play out over the next decade, 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.
For instance, manufacturers of electrostatic precipitators, a common category of pollution control
equipment, are grouped in the same SIC code that includes makers of ventilating blowers, industrial
exhaust fans, and even attic fans.
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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 (EP A), 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 billionll. 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 1-1).Y
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
(Le., post-consumer and post-industrial recycling), environmental energy sources (Le., geothermal,
biomass, wind, solar, and cogeneration), waste management equipment (Le., 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 EP A 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, environmen-
tal energy sources, and transactions of diversified companies and conglomerates, are believed to
account for about $45 billion of annual revenues.
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 EP A's enforcement of those laws.
In each case, major crnvironmental legislation has forced. or promoted the development of new
technologies and specialized services, and has impelled creation of an infrastructure of companies to
11
EP A 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.
y
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
Hazardous Waste
Farkas Berkowitz 1990
Revenue Estimates
EPA "Cost of Clean II 1990
Expenditure Estimates
Hazardous Waste
Chemicals
Air Pollution Control
Water
Air Pollution Control
Total 1990 Revenues
$132 Billion
bUSopp'cmh~81 B.drw
Multi-Media
Total 1990 Revenues
$59 Billion
Total 1990 Expenditures
$115 Billion
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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 (HSW A) of 1984. In many ways, HSW A 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 HSW A demands, both revenues and the number of firms offering
hazardous waste management services increased substantially. As evidence of this, in 1985, the year
after HSW A was passed, 22 environmental-service firms were taken public. The stock offerings
raised net proceeds of $813.4 million.
Quite apart from federal actions, state and local regulations, which vary widely from
jurisdiction to jurisdiction, can also have a considerable impact on environmental businesses. 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).
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. EP A 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.
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.
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Size of the Air Pollution Control Industry
Currently, 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
(according to previously cited estimates). 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.
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 (Le.,
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 EP A, 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, overall economic growth (and particularly
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 profitt
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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 Technologies (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 19708 - In 1969, before passage of the original Clean Air Act, member
companies of the Industrial Gas Cleaning Institute (the principal trade
organization representing makers of industrial air pollution control equip-
ment) 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 19808 - The air pollution control equipment business faced considerably
leaner times in the 19808, 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 and
approached $0.4 billion in 1990, 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).
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 consider-
ably 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-environ-
mental 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
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1.2
0.8
en
c:
o
== 0.6
.-
m
Y7
0.4
EXHIBIT 1-2
SUMMARY OF INDUSTRIAL GAS CLEANING INSTITUTE (IGCI) MEMBERS'
BOOKING STATISTICS DURING THE 1970s AND 1980s
(BILLIONS OF 1990 DOLLARS):!
1
Original
1970 CAA
0.2
o
1969
1974
1976
1980
Year
1981
1985
1989
Note: 1969-1980 Include RHardwareR Value Only
1981-1989 Include Both Hardware and Installation Value
b~\cmh'b8r2.drw
:!
Bookings represent contracted orders for large stationary source air pollution control
equipment
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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 CAAA
into fIve broad segments:
(1)
(2)
(3)
(4)
(5)
air pollution control equipment;
alternative and cleaner burning fuels;
engineering design, and construction;
instrumentation, and emissions monitoring; and
consulting and other services.
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.
Stationarv-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 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.
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EXHIBIT 1-3
MANUFACTURERS OF POLLUTION CONTROL EQUIPMENT FOR UTILI1Y AND
INDUSTRIAL SOURCES (1988)
VENDOR MARKET SHARE BY REvENUE
(MILLIONS OF 1990 DOLLARS)
TOTAL
144
93
82
77
76
43
32
21
571
$1,142
13%
8%
7%
7%
7%
4%
3%
5%
50%
Flakt (Asea Brown Boveri)
Air & Water Technologies (Research-Cottrell)
Wheelabrator
Joy Technologies
Environmental Elements
Salem Industries
Calgon Carbon (Vara International)
Huntington Energy Systems
Other
100.0%
Source: Market Intelligence Research Corporation, September 1990.
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 per-
cent. 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 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 hydrocar-
bons, carbon monoxide, nitrogen oxides, and the soluble organic fraction of diesel particulates, (2)
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noncatalytic controls, principally trap oxidizers which catch particulate 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
manufacturers 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 Coming, Inc.;
Japan's NGK-Locke, Inc.; AC. Rochester; W.R. Grace; and Emitec.
The market for non-catalytic controls is also dominated by a large number of small
companies. For example, Coming 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, $2.1 billion (1982 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 $3.9 billion
in 1980 to $6.9 billion by 1984, and $8.2 billion by 1986. On the other hand, in 1987, when new-car
production in the U.S. decreased, total expenditures on emission abatement devices sagged from $8.2
billion to $7.4 billion. 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.
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 ill) are due to the
~
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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reformulated and oxygenated gasoline requirements stipulated in Title n 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 fot 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 com.
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 (tcl) 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 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 Administra-
tion's National Energy Strategy, which favors natural gas in several respects, and the Clean Air Act
Amendments.
!!
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 ADDillONS
(TRILLIONS OF CUBIC FEET)
Year
Production
Reserve
Additions
1989
1988
1987
1986
1985
1984
1983
1982
1981
17.0
16.7
16.1
15.6
16.0
172
15.8
17.5
18.7
16.08
19.50
16.90
13.83
11.89
14.41
14.52
17.29
21.45
SOURCE: ICF Resources Estimates, November 1990.
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 19808. 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, production 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).
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
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EXHIBIT 1-5
GEOGRAPmC 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
lllinois 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)
North Western and Union Pacific.
Low-sulfur coal from the West has increased in market share for reasons unrelated to S02
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, encompass-
ing construction, architectural services, industrial-process modifications, and various other engineering
services 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 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
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EXHIBIT 1-6
CHANGE IN COAL PRODUCTION DURING THE 1980s
(MILLION TONS)
1,200
1,000
800
en
c
0
r- 600
~
~
400
200
busopp\cmh\hne2.dIw
o
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 amend-
ments 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 S02
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 1. 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 19808 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.
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 the. 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 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.
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EXHIBIT 1-7
EBJ's Top 10 ENVIRONMENTAL
ENGINEERING/CONSULTING FIRMS
(MILLIONS OF 1990 DOLLARS)
Environmental
Revenues
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Bechtel Group Inc.
Foster Wheeler Corp
CH2M Hill Cos. Ltd.
Metcalf & Eddy Cos.
Morrison Knudsen
Roy F. Weston Inc.
Camp Dresser & McKee Inc.
Parsons/Main
Jacobs Engineering Group Inc.
Dames & Moore
Source: Environmental Business Journal, April 1991
$974
470
400
294
274
269
228
222
220
210
EXHIBIT 1-8
ENR Top TEN DESIGN FIRMS
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Bechtel Group Inc.
Brown & Root Inc.
Flour Daniel Inc.
ABB Lummus Crest
Parsons/Main
United Engineers & Construction Int. Inc.
CRSS Inc.
Stone & Webster Engineering Corp.
Ebasco Services Inc.
Davy McKee Corp.
Source: Engineering News Record, April 8, 1991
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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 instrumenta-
tion 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 Amendments.
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 particulate 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).21
Directly comparing these estimates of the European market is difficult because they are derived from
'JJ
McTIvaine, Robert W., Journal of Air and Waste Management Association, March 1991, pp.
272-275.
21
Environmental Business Journal, November 1991, p. 7, citing an analysis by Ecotec Research
and Consulting Ltd.
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different sources using 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 environmental markets and products in different OECD countries." Japan's
APC industry, for example, expanded rapidly in the 19705 and early 19805 as a result of legislation
imposing stricter flue gas desulphurization requirements.1/ 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.~
2/
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.1Q/
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
11
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.
~
McDvaine, Robert W., "Air and Waste Management Markets in a New Decade," in Journal
of Air and Waste Management Association, pp. 305-309.
2/
1Q/
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.
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Europe."1!1 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.
Germany has been the traditional trend-setter in the European APC market. Current
German S02 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..!Y
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.W 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.HI A recent report released by the Japan
Society of Industrial Machinery Manufacturers pro!ects that demand for APC equipment will grow
by an annualized rate of 7.1 percent through 2000.12/ Even greater growth is anticipated among the
newly industrialized countries of East Asia-SOlith 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.12/
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.11/ Emission standards are
111
.!Y
W
w
12
12/
U.S. Department of Commerce, International Trade Administration, A Competitive
Assessment of the u.s. Industrial Air Pollution ContrC?1 Equipment Industry, August 1990, p.
55.
ibid., p. 42.
"Greening Eastern Europe," The Times, June 18, 1990.
Environmental Business Journal, p.3.
Comline News Service, Comline Industrial Machinery and Mechanical Engineering, August
13, 1991, p. 2.
U.S. Department of Commerce, International Trade Administration, A Competitive
Assessment of the U.S. Air Pollution Control Equipment Industry, August 1990, p. 48.
11/
Environment - Europe 1992 Industry Report, prepared by Deloitte, Ross, Tohmatsu Europe
Services (Belgium), October 10, 1991,88 pgs.
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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.
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 HC contributor, with heavy-trucks contributing significantly to emissions of
C02' as well as NOx, which is generally less regulated.W Regulations to reduce emissions and
improve fuel efficiency-past market drivers in developed nations-will continue and playa 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 m~or industrial country. Consequently,
the cross-border flow of APC equipment is relatively modest.127 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 manufactur-
ing/fabricating capability, each installation will have a high percentage of domestic content. n?:Qj
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 Engineer-
ing, 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,
W
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.)
12/
?!l/
ibid., p. 29.
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however, it formed Pure Air Inc., a 50-50 joint venture with U.S.-based Air Products and Chemicals
Inc., to sell flue gas desulphurization equipment.W
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 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 competitive-
ness, 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 19808, 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 ill
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 N 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.
W
Environmental Business Journal, November 1991, pp. 3-4.
~
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 TIlE 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 couesponding 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 Toxies), 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 VITI (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 EP A that further describe the requirements of the CAAA These
include:
.
"Implementation Strategy for the Clean Air Act Amendments of 1990," EP A
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 (Non attainment)
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 inline with ozone, carbon monoxide (CO), or 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 emissions of ozone precursors from
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EXHIBIT 2-1
SUMMARY OF CLEAN AIR ACT AMENDMENT REQUIREMENTS:!!
Title I (Nonattainment)
Ozone (1993-2010)
Carbon Monoxide (1995 & 2000)
Particulate Matter (1995 & 2002)
Title n (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)
Title ill (Air Toxics)
Major Sources (1992-2000)
Area Sources (1999)
Accidental Releases (1993)
Title IV (Acid Rain)
Sulfur Dioxide Provisions (1995 & 2000)
Nitrogen Oxide Provisions (1995 & 2(00)
Emissions Monitoring (1995 & 2(00)
Title VI (Stratospheric Ozone)
Production Phase-Outs (1991 & 2015)
Recovery and Reqcling (1992 & 1994)
Motor Vehicle Air Conditioners (1991)
Nonessential Product Ban (1992)
~
.. . . .
F.;..$9t.i~j~~~i.;ri~~~ri~......
(,:.;::.:;
Technological control requirements for major
sources; emission offset requirements at new/
modified sources; enhanced motor vehicle in-
spection and maintenance; stage II controls (sys-
tems to capture evaporative emissions at service
stations); transportation control programs; and
clean fuels/advanced controls; mandatory sanc-
tions
Reformulated gasoline in 9 urban areas (clas-
sified as severe or extreme ozone nonattainrnent
areas); oxygenated fuels in 40 CO nonattain-
ment areas; tailpipe emission standards; and
clean fueled vehicle programs
Technological requirements and health based
standards (if necessary) for major sources; re-
duction requirements at area sources; and devel-
opment of plans to prevent, detect, and respond
to accidental releases of toxic air pollutants
S02 control prolmim: S02 reductions required
at affected sources in two phases, with allow-
ance trading and banking allowed; NOx control
prol!Tam: required NOx controls at sources
affected under S02 control program; and emis-
sions monitorine:: continuous emissions moni-
tors required at sources affected under the S02
control program
Production of CFCs, 3 halons, carbon tetrachlo-
ride, 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 substances; regulations for the servicing
of motor vehicle air conditioners
For more detail on the requirements and their timing, see Appendix A
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.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 authority for TSDFs comes under RCRA However, it is included here because its
control will affect a region's attainment status. .
Attainment schedules for ozone (precursors include volatile organic compounds and NOx) are
over the 1993-2010 period; CO attainment is required by 1995 and 2000; and PM-lO attainment is
required by 1995 and 2003 (see Appendix A for precise deadlines by nonattainment classification).
To reach attainment, mandatory requirements will include tighter controls (e.g., installation of
additional pollution controls) at existing and new stationary sources)/ Other Title I provisions
require emission reductions from mobile sources.
Beyond these technology-based requirements, Title I 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 non attainment
problem in each area of the country. Areas defined by EP A 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 particulate 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 track their emission levels 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, NOr particulate matter, and non-methane hydrocar-
bons (NMHC) emissions.
.
Changing the specifications of existing fuels to reduce the level of
evaporative and combustion emissions (oxygenated gasoline require-
ments begin in 1992 and reformulated gasoline requirements in 1995)Y;
1/
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 process, storage and transfer (e.g., oil and gas extraction, and petroleum
refining); and solvent use (e.g., dry cleaning, degreasing, architectural coating, asphalt paving,
and industrial solvent use) to name but a few.
y
Gasoline is supplemented with oxygen boosting additives such as ethanol (com alcohol), and
MTBE (methyl tertiary butyl ether) to make oxygenated gasoline which reduces carbon
(continued... )
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.
Requiring the use of 'clean fuels' and clean fuel vehicles (e.g.,
compressed natural gas, methanol, ethanol, liquid propane gas,
reformulated gasoline, and electric) for both fleets (in some nonat-
tainment 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-inJopt-out provisions apply to the CO and ozone
control programs and are discussed in more detail in Chapter ill.
Title ill (Air Toxies)
Title ill will expand the control of hazardous air pollutants and require numerous industrial
sources to control for the first time. First, Title ill requires nationwide reductions in routine
emissions from stationary sources of 190 specifically listed hazardous air pollutants (see Appendix A).
The provisions require the initial application of maximum achievable control technology (MACI') to
all "major sources" and then requires generally available control technology (GACI') to all "area"
sources. 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 EP A and the National Academy of Sciences, and no later
than 8 years after promulgation of any MACT standard, EP A 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, EP A must implement by 1999 a national strategy
for controlling emissions of hazardous air pollutants from area sources in urban areas.
Title ill also contains provisions requiring specific facilities to put in place procedures for the
detection, prevention, and minimization of accidental releases of air toxies. 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.
Y (...continued)
monoxide. Reformulated gasoline is made by modifying conventional refining techniques to
produce a cleaner burning gasolilie which result in lower volatile organic compounds and less
ozone and less air toxies. Increased oxygenate content will also be part of the gasoline
reformulation.
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Title m also contains provisions to assess the extent of deposition of air toxies in the Great
Lakes, Chesapeake Bay, Lake Champlain, and coastal waters.
Title IV (Acid Rain)
Title IV requires electric utilities to achieve a reduction of approximately 10 million tons of
S02 emissions below 1980 levels and approximately a 2 million ton reduction of NOx emissions.
Title IV establishes a two phase S02 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 S02 emission rate greater than 2.5lbs. per million British thermal units
(mmBtu) are required to reduce their S02 emissions to an "allowance" level based on a 2.5 lb. S02
per mmBtu emission rate multiplied by baseline (1985-1987 average) fuel consumption. An
allowance represents the right to emit one ton of S02 emissions. This effectively reduces S02
emissions by about 3-4 million tons annually in Phase I. S02 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 S02 emissions (Le., purchase allowances/obtain reductions from
other sources). In Phase II, affected units are generally allocated allowances based on a 1.2 lb. S02
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 S02 allowances
generated through emissions controls, (3) provide extra allowances for units installing 90 percent
removal S02 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. EP A 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. EP A will also promulgate
regulations by late 1991 for the servicing of motor vehicle air conditioners.
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Chapter III
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CHAPTER III
INCREASED DEMAND FOR POLLUTION CONTROL SERVICES
INTRODUcnON
This chapter characterizes the types of business opportunities associated with the CAAA
requirements and provides estimates, wherever possible, of the timing and magnitude of demand and
sales revenue increases for the air pollution control industry. A general summary of the CAAA
requirements is provided in Chapter IT with a more detailed description in Appendix A Estimates
of revenue increases in this chapter cover the 1992-2000 time period. For each CAAA Title
considered, estimates of average annual revenue increases-1992-1995 and 1996-2000 are presented.
Revenue estimates are presented in constant 1990 dollars. The methodology underlying the revenue
estimates is presented in Appendix B.
As noted previously in the introduction to this report, the focus here is. to identify the CAAA
opportunities for the "air pollution control industry", and where possible to quantify the gains that
will accrue to the various industry segments. These opportunities or gains will also translate into
large cost increases for a number of major U.S. industries which must install equipment, or make
process or fuel changes (e.g., electric utilities, automobile manufacturers, refineries, chemical
companies, and iron and steel companies as well as others), as well as revenue and profit losses for
these industries and other affected industries (e.g., high sulfur coal producers). These types of cost
impacts are not presented herein but have been the subject of various other EP A sponsored analyses
noted in the introduction to this report. No attempt has been made to quantify the net costs and
economic impacts to all parts of U.S. industry. In addition, as the exact regulations implementing the
legislative requirements are promulgated by EP A, associated detailed economic analysis will be
forthcoming.
Second, estimates presented herein generally reflect gross revenue increases to the air
pollution control industry. In some cases, specific industries may be beneficiaries of the CAAA but
may also lose revenues as well (e.g., high sulfur coal producers will face price and production
decreases while low sulfur coal producers will have price and production increases, and chemical
manufacturers will displace production of CFCs with HCFCs). In such cases, if losses for one
company represent gains for another, then the gross revenue increase is presented because it does
represent a net revenue increase for a particular company or set of companies (e.g., high sulfur coal
producers and low sulfur coal producers are, in most cases, different companies, therefore the net
revenue loss for high sulfur coal producers represents, in most cases, a net revenue increase for low
sulfur producers). On the other hand, if a gross revenue increase is simply a transfer within the
same company or set of companies, then that revenue increase is not included in this report. This
is because it does not represent a net revenue increase for any particular company (e.g., demand will
increase for HCFCs which will displace CFCs; but because the current manufacturers of CFCs will
also likely manufacture HCFCs, the net effect on their revenue is nil).
The intent of this report is to develop understanding of the types and magnitude of growth
opportunities for the air pollution control industry as a result of the CAAA, and not to present
definitive estimates of revenue increases. It was not possible to provide estimates for all of the
potential revenue increases associated with every CAAA requirement. This is because, in some
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instances, there is uncertainty surrounding (1) what regulations will be specifically required and
when, and (2) what types of emission reduction strategies will ultimately be pursued. In cases where
revenue estimates could not be provided, the likely or potential control techniques and the possible
relative magnitude of the revenues are discussed qualitatively later in this chapter in the appropriate
subsections of this chapter. Also, there will be significant revenue impacts that will occur after 2000,
however, these longer-term impacts were not considered In this report. As a result, the revenue
estimates presented in this chapter are conservative (i.e., they likely underestimate the total revenues
which will accrue to the air pollution control industry due to the CAAA). A summary of instances
where estimates could not be developed is presented below:
.
Title I - EP A will develop between 1991-1993 eleven Control Technology
Guidelines (CTGs) which will define the types of equipment controls
required for major stationary source categories. Of these eleven CTGs, only
three are defined well enough to provide meaningful revenue estimates. The
eight categories for which estimates are not available include synthetic
organic manufacturing industry (SOCMI) distillation, SOCMI reactor, batch
operations, plastic parts-business machines, plastic parts-other, wood furniture
coating, -clean-up solvents, and volatile organic liquid (VOL) storage tanks
(see discussion in the Title I section of this chapter). Of the national
measures identified in Title I, those addressing consumer solvents are still
uncertain (a study is to be completed in 1993). Also, Title I requires
attainment/progress requirements. Areas not able to demonstrate steady
progress would be required to go beyond mandatory controls. It is uncertain
what areas would need additional controls, and whether these additional
controls would be applied to stationary or mobile sources. Although it is
unclear what amount of revenues could result from the attainment/progress
requirements, the potential costs of these requirements bears some mention.
In EP A's cost estimate of the CAAA, attainment/progress requirements were
estimated to cost between $37-185 million annually by 1995. Significant
revenues could also be associated with transportation control programs in
serious, severe, and extreme ozone regions not demonstrating steady progress
toward attainment. This could encompass a variety of programs such as
construction of roads or lanes for buses and other high occupancy vehicles
and traffic flow improvement programs.
.
Title n - The eventual price for MTBE (which is expected to be the major
oxygenate used in reformulated gasoline and oxygenated fuels) is highly
uncertain. This is because a significant portion of future MTBE capacity will
be captive or produced by the refineries that will demand it. Therefore, due
to the price uncertainty of MTBE, an estimate of the increase in revenue for
non-captive (or merchant) MTBE capacity could not be developed. In
addition, the potential increases in gasoline sales for refiners able to supply
the new reformulated and oxygenated fuels markets where other suppliers are
not able or have chosen not to compete have not been quantified in this
report. New motor vehicle inspection and maintenance requirements may
result in more elaborate equipment at motor vehicle emissions testing
stations. This will lead to some opportunities for instrument manufacturers.
However, it is not clear exactly what type of new testing equipment or
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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 ill - Title ill requires that for at least 100 air toxic chemicals (16 are
currently listed and EP A 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 require-
ments 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 - Despite use in a wide variety of industries, several techniques and
technologies to reduce the use of CFCs and to recover and recycle CFCs are
relatively new (e.g., non-CFC containing cooling equipment) and are still in
the development stage. 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.
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.
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Pollution prevention opportunities are discussed qualitatively in several sections of this chapt~r 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 manufactunng 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 N0x> 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 implement-
ed a number of environmental programs, including a computerized truck routing system. The
computerized 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 mM 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
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.
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EXHIBIT 3-1
SUMMARY OF CLEAN AIR ACT AMENDMENT INDUSTRIAL BUSINESS OPPORTUNITIES
Title I (Nonattainment)
Ozone (1993-2010)
CO (1995 & 2000)
PM-10 (1995 & 2002)
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 ill (Air Toxics)
Major Sources (1992-2000)
Area Sources (1999)
Accidental Releases (1993)
Title IV (Acid Rain)
S02 Provisions (1995 & 2000)
NOx Provisions (1995 & 2000)
Emissions Monitoring (1995 & 2000)
Title VI (Stratospheric Ozone)
CFC Production Phase-Outs (2000-
2030)
Recycling and Disposal (1992 & 2004)
Mobile Air Conditioners (1991)
. . .
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. . . . .. ....... ... ......... .. ....... ......................... ..................,. .................
~~~#i~Ą~~~~~~#~s~QPP6fiuh~ti~~
Industries Affected: Air pollution equipment suppliers, A&E
companies, instrument manufacturing, construction compa-
nies, oil companies, producers of oxygenated fuel additives
and service stations
Business Ooportunities: Manufacture, design, development
and construction of technological controls and/or process
modifications; production and supply of clean/oxygenated
fuels
Industries Affected: Auto companies, oil companies; produc-
ers of oxygenated fuel additives, refineries, chemical manu-
facturers, A&E companies, and automobile parts suppliers
Business Opoortunities: Development, production and supply
of reformulated gasoline and oxygenated fuels, and design and
production of clean/alternative fueled vehicles, and parts sup-
pliers for motor vehicle emission control devices
Industries Affected: . Air pollution control equipment man-
ufacturers, stack testing companies, environmental service
firms, and instrumentation manufacturers
Business Opoortunities: Manufacture, production, design,
and construction of air pollution control equipment and pro-
cess modifications, 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 Ooportunities: Supply, manufacture,design, and
construction of S02 and NOx control equipment and CEMs;
and the supply and transport of low sulfur coal, natural gas,
and lime/limestone
Industries Affected: Chemical manufacturers, A&E Compa-
nies, air pollution control equipment manufacturers, and tbe
environmental service industry
Business Opportunities: CFC substitute development and
production, 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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.
Air Pollution Control Equipment - Design, manufacture and construc-
tion of air pollution control equipment such as scrubbers for S02 and/
or air toxics, electrostatic precipitators for particulates, baghouses for
air toxics and/or particulates, incinerators and carbon adsorbers for
ozone precursors; 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.
.
Enlrineerinl!. Design and Construction - On-site design and engineer-
ing 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
oxygenates such as ethanol, methanol, and methyl tertiary butyl ether
(MTBE) - a natural gas derivative.
.
Instrumentations and Emissions Monitorin~ - To a less significant
degree, the design, manufacture and construction of equipment to
monitor, inspect, and maintain emission control systems (Title m 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 CAM 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. This is a rather large increase
compared to current sales in the traditional stationary source air pollution control ~uipment industry
estimated at $2.0-5.4 billion (in 1990 $) (discussed in Chapter I and Chapter IV).1i'
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 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
1/
The increase in "average annual revenuesD referred to throughout this report are always
presented in 1990 $. Including the effects of inflation, future year revenue increases (Le.,
stated in nominal $ or current year $) rather than 1990 $ will be higher.
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EXIflBIT 3-2
AIR POLLUTION CONTROL INDUSTRY ESTIMATES OF
INCREASED SALES REvENUE
(BILLIONS OF 1990 DOLLARS)
Title I: Nonattainment
Title II: Mobile Sources
.. ...... .. ... . ..
11i~~~1~::""
."...ji~rea~e
.. "P' .............
.... ,... ..................
........................ ......
............ ............... ...
. . . . .. .........."""'" -....
~~~~~~~_?~J??$~~~~~~~
0.8-1.0 .
1.0-1.5
..... ","n',,' -,
...." .............. ..... .,..
n.""'" ............. .....
....'"'''' ....... ..... ".....
i.?~2PQn
1.0-1.4
."p"
.... ... ".... .. H'd
"'" ..... ...... .. ...
"P"''''-'''' ...... .......
0"''''... ".. ......"...
;i.:~~~i~()ij~.(
8-11
9-13
1.1-1.4
2.7-3.5
2.0-3.0
18-23
13-21
2
Title ill: Air Toxies
Title IV: Acid Rain
1.1-1.4
0.8-1.6
0.3
0.1
..,.....
Title VI: Stratospheric Ozone
... . . .....
.................. ........ ........""''''''''''''''''
..... ,'n"',",',' ..........-........................
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. ..
. . . . . . . . . . . . . . . . . . . .. .............. ......
T()ii.It~!~~ii~
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 (Non attainment) - 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 adsorp-
tion units and scrubbers. There will also likely be significant opportu-
nities (not estimated herein) for the design and development of
motor vehicle. inspection and maintenance. (I&M) equipment, and
construction and engineering for transportation 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 construction compa-
nies are likely to grow significantly due to Title I requirements. The
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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 n (Mobile Sources) - Requirements under this title were
designed to supplement the nonattainment and air toxies titles (Titles
I and ill). 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 cumula-
tively 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 compa-
nies, natural gas producers, fuel alcohol producers, and grain produc-
ers) are likely to grow the most as a result of this title.
.
Title ill (Air Toxies) - Similar to Title I, demand for the manufacture,
supply, design and construction air pollution control equipment will
grow the most due to Title ill. 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 additional business associated with the implementation of
plans to prevent accidental release of air toxies. 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, environ-
mental service firms, and instrumentation manufacturers will likely
grow most significantly.
.
Title N (Acid Rain) - Significant opportunities exist for the design,
manufacture and construction of air pollution control equipment such
as conventional and advanced flue gas desulfurization technologies;
the supply of lime/limestone (and perhaps sodium) as a catalytic
reagent for these 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 1992-2(00). Other types of
opportunities could accrue to certain intlustrial sources that "opt-in"
to the acid rain program in order to earn and sell emission allowanc-
es, and companies involved in the brokering of emission allowance
trades. Revenues of air pollution control equipment manufacturers,
A&E companies, lime and limestone producers, low sulfur coal
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producers, railroads, natural gas producers and pipelines are likely to
increase significantly.
.
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 opera-
tion 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 environmental 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
particulate 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-{l) national measures, (2) VOC and NOx reasonably available
control technology (RACI) guidelines, and (3) RACf stipulated through control technology
guidelines (CfGs).
.
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
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organic gas emissions), and (4) marine vessel loading and unloading (e.g.,
incinerators, and carbon adsorption to reduce associated VOC emissions).
.
VOC and NO", RACf - Major stationary sources in moderate, serious, severe,
and extreme ozone nonattainment areas, which are not covered by CfG
RACf, will be required to install RACf to reduce VOC and NOx emissions.
VOC and NOx RACf will be promulgated by the individual states affected.
.
CfG RACf - CfGs are issued by EP A and are considered the presumptive
norm for when states develop their own regulations for these categories.
EP A is currently developing RACf guidelines for certain source categories
(eleven CfGs are under development currently-see below). Similar to NOx
and VOC RACf, major stationary sources in moderate, serious, severe, and
extreme ozone nonattainment regions are required to install RACf.
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
CAM 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
Most of the growth opportunities associated with this title will accrue to air pollution control
equipment manufacturers, because the major provisions in Title I require reductions, through the
application of technology, in volatile organic compounds and NOx emissions (which are ozone
precursors) from stationary sources. As discussed above, reductions in CO emissions in nonattain-
ment regions are identified in Title I but are further stipulated and likely to be achieved primarily
through Title II requirements addressing mobile source emissions. Accordingly, these effects are
discussed in the Title II section of this chapter. Title I provisions calling for emission reductions in
areas not in attainment with particulate matter (PM-tO) standards are not yet well defined, and are
expected to be relatively minor compared to the ozone requirements. Therefore, growth opportuni-
ties associated with particulate matter requirements are not discussed in detail. These estimates were
developed by E.H. Pechan and Associates and are largely based on EP A commissioned studies. A
number of key analytic assumptions were made in these studies. See Appendix B for a discussion of
study methodology and assumptions.
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EXHIBIT 3-3
TITLE I: NONATIAINMENT BUSINESS OPPORTUNITIES
General Requirements
Business Opportunities
Major Stationary Sources
(RACT/BACT)
Air Pollution Equipment Industry
---------
. Enhanced I & M
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
i--------
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
Instrumentation and
Emissions Monitoring
Motor Vehicles:
. Stage II Controls
----------~--------
Engineering, Design and Construction
. Transportation Control
Programs
busopp\cmh\noDBtt2.drw
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New Commercial Opportunities for Surfactants to Reduce Air Emissions
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
Hydrocarbon 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-lime-
stone 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.
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 are 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.
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
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EXHIBIT 3-4
TITLE I: NONATIAINMENT REvENUE INCREASE ESTIMATES
. ... "....... n. n... ..... ...... .n . ............... n'" ,.......
.".... ,'....' ....... ......... ..................., .... Un"" ........ -.." "',...
..... 0" ,........................, ..", .,,"" ...... n.............''',,,,' ...
".......',..... .......... ............ ,.... ,.. """0 ..... . .. ""... ....
1\Y~m~A##~ItI..)t~!~~~~~~~~~.......
(~~W9#.~P.t:1,~o.J?~P~~).}
. ..... .. ... "." .
""".. -...."" ...........
. . . . . . . . . . . . . ,. . . . . . . . .. . ..
n...................,",........
............ ........ ... ....
..:....~~?(f20Q.Q......
Air Pollution Control Equipment Industry
NOx and VOC RACT
Stage II Controls
New CTGs
National Measures
Progress Requirements
Total
<0.1
<0.1
0.1-0.2
0.6-0.8
N.A
<0.1
<0.1
0.1-0.2
0.8-1.1
N.A
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
landf1lls 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 Landf1lls - The proposed rule and guideline for municipal solid
waste landf1l1s was published in the Federal Register on May 30, 1991.
Affected landf1l1s will be required to install gas collection systems followed by
combustion (open flare) systems. In 1987, there were approximately 6000
active municipal solid waste landf1l1s. About 540 to 600 of these landf1lls
require emission controls. In addition, at least an estimated 940 new landf1lls
will be built prior to 2000 also requiring controls. Revenues for manufactur-
ers 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
19n-2ooo 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 EP A Revenues could be higher on average by less than
$0.1 billion (in 1990 $) annually during the 1992-2000 period to as much as
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$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 terminals; on the low end only about 10 terminals would
require controls.
.
Treatment. Storal!e. and Disposal Facilities (TSDFs) - Rules for hazardous
waste TSDFs (i.e., facilities that process hazardous wastes from many sources)
to control emissions from equipment leaks and process vents are to be imple-
mented 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.
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, contain-
ers, 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 aver-
age 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 completed 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., underarm
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 manufacturers will alter the formulation
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of existing products to meet the new standards. Costs to the manufacturer
may include research and development 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 alterna-
tives.
Industrial Wastewater Treatment CfG
The CfG which defines RACf for industrial wastewater is expected to be a treatment type
standard. Steam stripping is the recommended control option.Y 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 billion (in 1990 $) annually during the 1992-2000 period.
NO~ and VOC RACf Controls
There will be growth opportunities for air pollution control equipment manufacturers
associated with the application of RACf to control VOC and NOx emissions in moderate, serious,
severe, and extreme ozone non attainment areas. The pre-199O EP A policy mandated RACf at
sources in nonattainment areas emitting more than 100 tons VOC or NOx per year. Title I requires
RACf on smaller source sizes in serious, severe, and extreme ozone nonattainment areas. 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
RACf could increase beyond what is estimated here.
In addition to RACf controls on all major stationary sources in moderate, serious, severe,
and extreme nonattainment areas, RACf to control NOx is mandated in a special ozone transport
region for sources emitting more than 100 tons of NOx per year.~ Revenues for air pollution
control equipment manufacturers are estimated to be higher on average by about $0.1 billion (in
y
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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1990 $) annually during the 1992-1995 period. Sources are expected to purchase these controls by
1995.
Stationary source categories required to install RACI' 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 RACI' for VOCs include those that manufacture or use the following: ethylene
oxide, synthetic organic manufacturing chemical industry (SOCMI) fugitives, cellulose acetate,
styrene-butadiene rubber, polypropylene manufacture, poly~thylene 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 serious, severe, and extreme nonattain-
ment 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 were expected to fall within nonattainment regions, and
be required to install an evaporative control system.
Offset Lithol!l"aphv CfG
Development of RACf for offset lithography (Le., 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 RACf 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 higher by associated with
equipment to meet the recommended RACf standards are estimated to be 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
RACf 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 (Le., equipment to clean paint spray guns) that recirculate
the solvent and about 5945 spray booths (Le., an enclosure to prevent paint over-spray from coming
in contact with the open air) will be purchased. Average annual revenues associated with these
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Ptocess 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 stratospher-
ic 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-eared-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.
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 manufacturers associated with these additional CTGs is presented below.
.
Synthetic. Organic Chemical Manufacturin~ Industry (SOCMI) Distillation
and Reactors - The types of equipment that represent RACT for this CTG
are flares and incinerators. Revenue growth for manufacturers is expected to
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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 recommendation
for this category will probably be in the form of a lower VOC 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 recom-
mended 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
defined. EP A 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 Ore:anic 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)
INTRODucnON
Title n 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
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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 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 on the market) could be
significant.2I 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.
2/
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 3-5
TITLE II: MOBILE SOURCE BUSINESS OPPORTUNITIES
General Requirements
Business Opportunities
Emission Controls
('.-..-..-..-..
I ............
I
I
-"-"-"-"-j
! .
.-..-.........-..-.
Instrumentation and
Emissions Monitoring
Air Pollution Equipment Industry
.
.. .. ... ... ..
Engineering, Design and Construction
Fuel Specifications
.
I......... ..1
Natural Gas Producers
I
.
.,. ... ... .. .
Fuel Alcohol Producers
Clean Fuels/
Clean Fuel Vehicles
.
. . .. . ... .. . .. . .. . ..... . .. ...
.
L.........~
Grain Producers
I
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EXIDBIT 3-6
TITLE II: MOBILE SOURCE REvENUE INCREASE ESTIMATES
~Ą.~~~~~~!R~t~~~!*~~$.~(~!i!ip#~*i~~~9P~i.~)
Air Pollution Control Equipment Manufacturers
Cleaner Burning and Alternative Fuels
Oxygenated and Reformulated Gasoline Program
Clean FueVClean Fuel Vehicle Program
Total
",",',',',','''.' ',',",' ',",",,"..",,"',',',.
",",',',',',',',",'..',',',', ,',',',',' '..',' ',.',',',
..................... .........
)i~~4.1.~~.
0.5-0.6
.. "'.... ........... .....
... ....... ...... ... ...
. . . . .. .................. . . . .
.... "'p'" .......... ....
:.t99~~96.9/
0.6-0.7
Construction, Design and Engineering
0.3-0.4 0.3-0.4
- 0.1
0.3-0.4 0.4-0.5
0.2-0.5 0.1-0.2
Title n 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 n requirementS. Specifically there will be standards for highway diesel fuel and NOx emissions
from heavy duty diesel engines (HDDE), particulate emission standards for buses and NOx standards
for all post 1988 model year heavy duty engines (HDEs), and Tier I tailpipe emission regulations
governing emissions of CO, NOr 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 Heavv Du1;y Diesel Engine and Heavv Du1;y 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 EP A believes they can be met with little effort beyond
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what has already been accomplished in the auto industry.2I 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 up front source of
revenue to equipment manufacturers might arise if engine manufacturers have to retool their
production lines.
Exhaust Aftertreatment Devices Seen as Possibility
for Controlling Diesel Particulate Emissions
Title II (Mobile Sources) of the 1990 CAAA requires reduced levels of particulate 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, Coming 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 Oxidizers - Trap oxidizers consist of a f1lter 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.
.
Tier I Tailpipe Emission Standards
EP A 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, N0X' 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 EP A 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
21
EP A, Office of Mobile Sources, Draft Regulatory Support Document. 1994 and Later
Model Year Urban Bus Particulate Standard, May 1991.
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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 opportuni-
ties.
Onboard Diagnostics (OBDs)
OBDs will be required on all 1994 model year LDVs and LDTs.1I 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 N0x- EP A requires a slightly more elaborate system than that
required by California's OBD n (current system diagnostic requirement in California). Under the
proposed regulations, considerable freedom is left to the manufacturer as to the details of the system.
EP A 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 durin~ the 1992-1995 period and about $0.6-0.7 billion (in 1990
$) annually during the 1996-2000 period.~ 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 n requirements will lead to increased demand for cleaner burning and alternative fuels.
First, the reformulated gasoline and oxygenated fuel programs specified in Title n 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 n 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
11
Light duty vehicles (LDVs) are cars, and light duty trucks (LDTs) are trucks up to 6,000
pounds gross vehicle weight rating.
w
EPA, Office of Mobile Sources, Draft Regulatory Impact Analysis, On-Board Diagnostics,
April 1991.
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standards.2/ 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; com 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:
.
Oxyl!enated 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.
Oxyl!enated 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..!Q/ Should they decide to opt out, a waiver would be required from EP A
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. MTBE can be blended at the refinery and as a
2/
The North-East States Coordinated for Air Use Management (NESCAUM) include ME,
NH, VT, MA, CT, RI, NY, NJ.
.!Q/
Telephone conversations with California Air Resources Board, August 1991.
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blend shipped by pipeline which gives it an advantage over ethanol which cannot move by pipeline
due to its water solubility.
.
MTBE Supplv 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 reformu-
lated gasoline.lY 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.
.
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 com production.
Estimates of incremental ethanol demand vary considerably.ilI Due to the
increased demand for ethanol, ethanol producers, and through them, com
growers and the attendant agriculture infrastructure 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
lY
ill
It should be noted that MTBE is also used to meet other EP A regulations that predate the
new CAAA so not all of this new demand can be attributed to the Act. For example, EP A'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.
Based on work done for EP A on oxygenate demand, ICF Resources estimated a high bound
of incremental ethanol production to be about 24 thousand barrels per day by 1994.
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MTBE in the basic year round reformulated Ą3asoline and then "splash blend" with ethanol for the
winter months to meet the CO requirements.11'
EP A, 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 EP A 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 sEecifications,
such as oxygen content and lower aromatic content were already set out in the Title.HI
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 EP A'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 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 FuelsNehicle program is specifically aimed at the serious, severe, and extreme
ozone non attainment 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 reformulat-
ed 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 n.
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
Jl/
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.
HI
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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possibly methanol burning vehicles.llI 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..w
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.
.
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 produc-
tion 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 Uograde 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
1lI
121
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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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 those 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. H 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 of MTBE from the U.S. Gulf, but generally this routing is
not competitive with foreign imports.
TITLE III (Air Toxies)
INTRODUCI10N
Title ill 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 ill 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 $) annually during the 1996-2000 period. As illustrated in Exhibit
3-8, air pollution control equipment manufacturers will experience the greatest growth opportunities;
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EXHIBIT 3-7
TITLE III: AIR TOXICS BUSINESS OpPoRTUNmEs
General Requirements
Major Sources
....1.."""""""
Area Sources
.
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. ... . ....... 'r ... .. . ...... .. . ...... .. .
.
-..-..---.-.----
Accidental Releases
busopp\cmb\airtx2.drw
Business Opportunities
Air Pollution Equipment Industry
Engineering, Design
and Construction
Instrumentation and
Emissions Monitoring
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EXHIBIT 3-8
TITLE III: AIR TOXICS REvENUE INCREASE ESTIMATES
Average Annual Revenue Increase (Billions of 1990 Dollars)
Air Pollution Control Equipment
Incinerators
Scrubbers
Fabric Filters
Carbon Absorbers
Fugitive Controls
Process Controls
Combustion Controls
Other
Total
Instrumentation
Total
. . . .. n' .
.. .. .' '. ...... ..
... """..." . ..., ....
... .... '''P' . .... ...
.... .. P' ....... .....
1992Jt9?$.\
.... '...
.. ..... .. ...
"' . ...... ... ... ...
','...'."..',","..','.'.',",', .'.'.,."," ",,",".'
"""'" ". ... ... .'",
)t.!)9()42~9~(:
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
0.3-0.4
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
0.9-1.2
0.1-0.2
2.6-3.3
0.1-0.2
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 toxies
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 ill for major and area sources. These require-
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New Technology Investment Results in Reduced Toxic Air Emissions
Methylene chloride, an air toxic pollutant to be regulated under Title ill of the CAM 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.
ments 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 ill 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 scrubbers are expected to gamer 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).
EP A 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 ill requirements. Many of these sources have been included in the estimates, e.g., dry cleaners,
hospital sterilizers, small surface coaters, 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 ill 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.
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Revenue estimates for the accidental release portion of Title III are somewhat uncertain
because the program is in the process of being developed by EP A The estimates included herein
are based primarily on an analysis of the 16 chemicals listed in Title ill. As noted earlier, EP A must
identify and 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 ill requirement, the Great Waters air toxies 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 ill 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. .
EP A has already announced its preliminary intent to regulate several source categories in
1992. A major early source category will be the control of air toxies from the organic chemical
manufacturing 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. EP A'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. Title ill 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.
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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.
Non-Solvent Based Coating Methods Developed to Reduce Air Emissions
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 N02 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, cyc1ohexanone 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 environ-
mentally 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.
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. Particulate
collection equipment will predominate.
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As a category, large volume surface coaters (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 toxies emissions from coal-fired utilities will not be regulated
until after the year 2000. EP A and industry research studies are underway. Early results indicate
that air toxies 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 toxies emissions. If EP A decid~ 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 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 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) monitoring 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 toxies
emission standards, with instrumentation 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.
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.
Stack Testin~ 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
toxies will be particularly difficult because there are 190 listed air
toxies and EP A is unlikely to promulgate standard test methods for
air toxies, as they have done in the past. Rather, stack test plans
likely will be required to be submitted to EP A 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 toxies 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 19808 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.
TITLE IV (Acid Rain)
INTRODUCfION
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 S02
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 impacts. Business opportunities, and the
resulting increase in sales (1992-2000) are discussed below and summarized in Exhibit 3-9 and
Exhibit 3-10.
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802 Allowance Exchange Markets Could Provide Valuable Information,
Foster Market Efficiency and Reduce Utility Cost and Risk
To reduce the costs of complying with the S02 reduction requirements, Title IV establishes the
allocation of S02 emission allowances and allowance trading mechanisms. Recently the Chicago
Board of Trade (CBOT) has proposed to EP A that the board offer a cash market for trading on
a spot basis, a futures market, an options market and a "package" market for S02 allowances.
The New York Mercantile Exchange (NYMEX) has also expressed interest in offering a cash
and a futures market for S02 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 position-
ing.
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.
.
Air Pollution Eauipment Industry - As a result of the S02 and NOx
control requirements of Title IV, a number of companies will manu-
facture, design, engineer, and construct more S02 and NOx control
equipment, and produce, or design more particulate control equip-
ment 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:
S02 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 combined cycle (IGCC) which qualify as repowering
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EXHIBIT 3.9
TITLE IV: ACID RAIN BUSINESS OPPORTUNITIES
General Requirements
Business Opportunities
------------~------
NOx Control Program
I
:' . . . . . . '.' . . . . . . . . . . . . .
: I
: I
: I
: I
: I
: I
. I
I
I
I
Air Pollution Equipment Industry
--- ---
ngineering, Design and Construction
.
".............. ......
S02Controi Program
Lime/Limestone Producers
Low Sulfur Coal Producers
Emissions Monitoring
.
.................
Railroads
Natural Gas Producers/Pipelines
buIopp\cmb'vaiDOpp2..cIrw
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EXHIBIT 3-10
TITLE IV: ACID RAIN REvENUE INCREASE ESTIMATES
~~~!y~tij~~~Yel1#~II1(!~~e(JJiJ~.~n~~t"J.9@J)ijll~~S)<
Air Pollution Control Equipment
S02 Control Technology
NOx Control Technology
ESP UpgradelBoiler Modifications
LimelLimestone Market
Total
Clean Fuel Industry
Low Sulfur Coal Producers
Low Sulfur Coal Shippers
Natural Gas Producers
Total
Emissions Monitoring Industry
Continuous Emissions Monitors
Total
. . . .... ....
... .... ... . .. .
...... .. .... . .
.. ... . ......... .
. ........ .... .. .
. .... .... .. ... .
.......19924199~....
... ",.. ..... ...
.. ... .....
..".." . . ...
... ... ....... . ..
..<..1.99.~20ott.....
0.2-0.7
0.1-0.2
<0.1-0.2
<0.1
0.2-0.4
0.3-0.5
<0.1-0.1
<0.1
0.4-1.0
0.5-1.0
0.3-0.4
<0.1
1.2-1.6
0.1-0.2
0.1
0.3-0.4
1.4-1.9
0.1 ~0.2
technologies under Title IV;1Y 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).
1Y
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 (Le., past the time period considered in this study).
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Particulate control upgrades such as adding flue gas condition-
ing 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 IndustlV - Title N 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 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.
Railroads that ship low sulfur coals will generally benefit by
increased shipments often over longer distances.
Companies that produce and transmit natural gas (Le., pipe-
lines) 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 monitor-
ing requirements of Title IV, significant sales revenue gains will
accrue to companies involved with the manufacture, supply, design
and construction of continuous emissions monitors (CEMs).
REVENUE ESTIMATES AND TIMING
Over the next 5-10 years, to comply with the S02' N0X' and emissions monitoring
requirements of Title IV, affected sources will adopt some or all of the following compliance options:
(1) install S02 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
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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 19905 (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 802 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 802 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 802 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 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 particulate 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 particulate 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 (Le., 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.
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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 to 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.
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
shipped 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.
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Emissions Monitoring Industry
Units affected under the S02 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 n
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.1Y
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.W The business opportunities are summarized in Exhibit 3-11.
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 (MV ACs), non motor vehicle air conditioners (NMV ACs), 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 will also be research and development opportunities associated with new CFC chemical
substitutes. 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
1Y
Revenue estimates are based on data provided by Thermo Environmental Instruments Inc.,
Rosemount Analytical Inc., and KVB Inc.
W
The chemical manufacturers producingnon-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 EP A 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
I
CFC Phase-Out
CFC Recovery and Recycling
Mobile Air Conditioner
Recovery and Recycling
Nonessential Product Ban
busopp\cmh\rewpp1.drw
1- "-"-"-"-"1
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- - - - - _I
Business Opportunities
Engineering, Design and
Construction
Instrumentation and
Emissions Monitoring
Air Pollution
Equipment Industry
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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 conditioner. 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
opportunities. 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.
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 EP A
sponsored analyses.
.
Chemical Manufacturers - Major chemical manufacturers are currently
gearing-up to increase their production ofHCFCs (CFC chemical substitutes)
which have much lower ozone depletion potential than CFCs. However,
there is some uncertainty in the future role that HCFC-I23, HCFC-141b, and
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HCFC-22 will play in light of their relatively high ozone depletion level in
relation to their expected production volume.
.
Construction. Design and Engineerinl! 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 corresponding 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 engineering 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 MV ACs 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 MV AC 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
-------
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-------
CHAPTER IV
SUPPLY RESPONSES BY THE AIR POLLUTION CONTROL INDUSTRY
INTRODUCTION
As discussed in Chapter ill, 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 ill 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, Ill, 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 ill 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 ill, 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 "traditionalD station-
ary 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
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EXHIBIT 4-1
INTERRELATIONSIDP 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 III (Air Toxics)
-Major and Area
Source Requirements
-Accidental Releases
itle VI (Stratospheric Ozone)
-Recycling and Disposal Requirements
Title IV (Acid Rain)
-S02 and NOx Requirements
Title I (Nonattainment)
-Monitorin
Title II (Mobile Sources)
-On-board Diagnostics
itle II (Mobile Sources)
-Reformulated and
Oxyenated Gasoline
Title IV (Acid Rain)
-S02 Requirements
Title III (Air Toxics)
-Monitoring Requirements
Title IV (Acid Rain)
-Monitoring Requirements
Title II (Mobile Sources)
-Transportation Control
Programs
-MTBE Facilities
Title I (Nonattainment)
-Major Stationary
Source Requirements
itle III (Air Toxics)
-Major and Area
Source Requirements
-Accidental Releases
Title VI (Stratospheric Ozone)
-HCFC Production Facilities
Title IV (Acid Rain)
-S02 and NOx Requirements
busopp'anh\llowch2.dlW
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EXHIBIT 4.2
REvENUE GROwrn POTENTIAL DUE TO CAAA
Revenue Estimates By Industry Segment
(billions of 1990 dollars)
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Air Pollution Control Equipment
Stationary Source 2.0-5.4 2.3-3.4 4.2-5.8
Mobile Source ~ 0.5-0.6 0.6-0.7
10.3-13.7 2.8-4.0 4.8-6.5
Cleaner Burning & Alternative Fuels
Natural Gas 43-47 -- 0.1
Low Sulfur Coal 13-19 0.3-0.4 1.2-1.8
Reformulated and Oxygenated Gasoline NA 0.3-0.4 0.3-0.4
56-66 0.6-0.8 1.7-2.3
Engineering, Design, and Construction 22 0.4-0.7 0.1-0.2
Instrumentation and Emissions Monitoring 0.1-0.2 0.2-0.4 0.1-0.2
TOTAL 88-103 4.1-5.8 6.6-9.2
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 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 compa-
nies 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.
ICF Resources Incorporated ~
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.
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, 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 1996-2000.17 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).
.
En lrineering. Design and .Construction - Engineering, design and
construction 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 substan-
tially underestimated. As discussed 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 (significantly less than half)
of the increased revenues associated with that industry. Also, as
discussed in Chapter ill, opportunities for process engineering to
reduce or prevent air toxic or other emissions have not been estimat-
ed in this report. These process opportunities were not quantified for
this report because the costs and techniques. are not well understood.
.
Instrumentation. and Emissions Monitoring - Companies in this
business area provide instrumentation and systems for testing emis-
sions from utilities and other industrial sources. This relatively small
segment (with current revenues of about $0.1-0.2 billion (in 1990 $))
y
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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will receive a big boost from the CAAA Due to provisions in Titles
II, ill, 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.
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
environment, 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, experience, 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 apDroach - 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,
acquisitions 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.
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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.
.
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 tech-
nology-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 produc-
ing CFC capture and recycling equipment; and the Passamaquoddy
Indian tribe, which is marketing an innovative S02 control technolo-
gy.
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 Manufacturing 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.
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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
cleaning up emissions at the stack. Title I and Title ill 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
particulate 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 S02-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 particulate 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
gamer 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 ill, 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
aazardous 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 S02' NOx
and particulate-control systems, such as scrubbers, low NOx burners and ESPs, that will be affected
by Title IV of the CAAA While Titles I and ill 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 S02 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
ill (e.g., scrubbers, NOx controls, particulate controls) and hence, the companies benefiting are likely
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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 ill 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.
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 19808,
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 custoiners 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 19808.
As noted later, the only potential capacity constraint in the industry is in terms of execution capacity
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EXHIBIT 4-3
SELECTED PARTICIPANTS
AIR POLLUTION CONTROL EQUIPMENT - STATIONARY SOURCES
S02 Control Technology
. .
"".. ...",",". ..., ..... ... ,." ,.. n...
..... ............... .......... .., .........., . ,". ......
. ....... ..... .... ..... -,...... . ......... '" '"'
.$~~~~r~#~p#~tS~::
Asea Brown Boveri
Air & Water Technologies - Research Cottrell
Babcox & Wilcox
General Electric
Joy Technologies
NaTec Resources
United Engineers & Constructors
Wahlco EnvironmentaJ
Electrostatic Precipitators
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
NOx Control Technology
LimelLimestone
. 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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(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 S02 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
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
equipment 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
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selective list of equipment firms and their projections of employee growth over the next three to five
years.
Environmental Elements
Foster Wheeler
325
300
anies
......g~j~~'...~ij.pl~y'~:,.:::
.....::...:::::.'........~~.;~~..i....."':':'" '.
15
15
10
General Electric - Environmental Division
Lodge Cottrell
NaTec Resources
250
50
50
19
20
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 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.
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. Ne~,
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 EP A may develop. Another R&D focal point will be technologies that will allow
utilities to burn relatively high-sulfur coal economically under the S02 emission allowance program.
Such emerging schemes, under the auspices of the Department of Energy's Clean Coal Technology
program, are discussed under the "New Opportunities and Secondary Impacts" section, below.
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Passamaquoddy Indian Tribe OtTers Innovative SOz Control Technology
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 S02 provisions of Title N. By doing so the cement
plant would be allocated S02 allowances which are saleable based on its 1985 S02 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 S02 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 N 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.
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 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 likdy 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.
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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 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 S02
emissions will only intensify the search for workable c1ean-coal approaches.
In four separate selection rounds since 1986, the Energy Department has chosen a total of
51 projects, in 22 states, for c1ean-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 $1.5 billion (Exhibit 4-5).
Eight of the nine projects employ U.S.-designed technology, and all proposals would
manufacture the principal components of the technology in the U.S. Three projects involve coal
gasification, expected not only to remove a substantial portion of acid-rain-causing components but
also to squeeze as much as 25 percent more electricity from a given amount of coal. Another four
projects will create devices that can be added onto existing or new power stations to meet CAAA
requirements, and the other two schemes will demonstrate techniques to change coal into cleaner-
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EXHIBIT 4-5
Round 4 Clean Coal Technolo
Selections
Cordero Mining Co.
Custom Coals International
New York State Electric &
Gas Corporation
Sierra Pacific Power Company
TAMCO Power Partners
Tennessee Valley Authority
ThermoChem, Inc.
Union Carbide Chemicals and
Plastics Company
Wabash River Coal Gasifica-
tion Repowering Project Joint
Venture
. ... ............,..... ........
"'P"" P" ......,.. ..."",--
".... ...... n', ',".........
""""''''''''....''''" ......,....
..rfflj~c!$iĄ~
>~$.#,i)~9.#.~)
34.3
Gillette, WY .
Greensboro, P A
Springdale, P A
Richmond, IN
Coal Drying
Coal Cleaning/Sorbent
Reconstitution
76.1
98% FGD and
Selective Noncatalytic
Reduction
158.6
Lansing, NY
Integrated Combined
Cycle (IGCC)
IGCC
340.7
Western Nevada
219.1
Coeburn, VA
Coal Reburning for
NOx
Coal Gasification
Regenerable FGD
System
7.3
Paducah,KY
37.3
Columbia, MD
32.7
Newburgh, IN
Coal Gasification
West Terre
Haute, IN
591.9
Source: DOE News, U.S. Department of Energy, September 12, 1991, pp. 1-5.
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 S02 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 CMA 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 ill section addressing the acid rain provisions take these
uncertainties into account.
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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. 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 ill 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 CMA, 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.
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 alllight-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-willlikely be modest.
\.
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For example, it is widely believed by EP A, 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.Y 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 il'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 ill).
.
Title il provisions could lead to some growth opportunities for the
clean fuel vehicle industry. These industries could have growth
resulting from Title il'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 il, reformulated gaso-
line is considered a clean fuel and there is some evidence to suggest
that a significant majority of affected sources will opt for use of
Y
Delaware, Maine, Maryland, New Hampshire, Massachusetts, New York, New Jersey,
Pennsylvania, 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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refarmulated gasaline. H this is the case, the appartunities far ather
alternative fuels, such as methanal and natural gas will be limited.
Supply-Side Issues
. Accarding to. the Department af Commerce, the market for mabile-saurce pallutian control
equipment tataled same $8.3 billian in 1988. Althaugh this market has been driven in the past by
regulatary and legislative changes, it has tended in recent years to. track levels af auto. and truck
productian. As is nated in Chapter I, the business is at present daminated by a small number af
large manufacturers-a situatian unlikely to. change in the wake af the CAAA Manufacturers af
catalytic control systems include Allied Signal, Corning, W.R. Grace, NGK Locke, Jahnsan Massey,
Engelhard, EMITEC, and AC. Rachester. Manufacturers af nan-catalytic control systems include
Donaldsan Company, and Siemens Corp.
Profitability
Margins in the mabile-saurce equipment segment traditianally have been law. The law
profitability has stemmed fram several basic attributes af the business. Far ane, catalytic-cantrol
firms add little value relative to. the high dallar cost af the raw materials, which include preciaus
metals such as platinum, rhadium ar palladium. Also., as nated abave, revenues tend to. vary with
autamative and truck sales, making revenues and earnings unstable fram year to. year. This
variability has led to. periads af avercapacity, which has exerted a further dampening effect an prafit
margms.
Currently, the industry suffers fram avercapacity (see "Capacity and Emplayment," belaw).
This situatian coupled with increasing price pressure fram European catalyst manufacturers eager to.
expand share in the U.S. marketplace, means that margins in the catalytic-contral business will
probably remain law, ifnat decline further. With no. material revenue impact likely fram the CAAA,
this situatian is unlikely to. change appreciably.
On the ather hand, in several af the business niches (such as the trap-oxidizer area) that
could benefit materially fram the CAAA, margins are expected to. firm samewhat as demand
increases and excess capacity is brought into. productian.
Capacity and Employment
The current, substantial avercapacity in the mabile-saurces equipment business traces to. the
valatile experience af the autamabile industry in the late 19808. In 1986, as auto. productian passed
the 8.0 millian unit level, many mabile-saurce equipment companies ramped up capacity materially,
in the expectatian af further gains. In 1990, hawever, auto. productian fell to. 6.2 millian units, and
emissian-contral equipment suppliers were left burdened with their newly added, under-used
capabilities. Accordingly, there shauld be little difficulty in meeting new pallutian contral equipment
demands. Even taday, mabile-saurce equipment suppliers are aperating at anly araund 70 percent
af capacity-and, as a result of their earlier experiences, mast firms plan no. significant increases in
capital spending in the next five to. seven years.. Far much the same reasan, emplayment levels
probably will nat rise materially in this market segment.
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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 r the emission control business. Much of Title n 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.
1990 CAAA Enhances Future for Compressed Natural Gas Vehicles
Heavier reliance on compressed natural gas (the cleanest burning fossil fuel) as a vehicle 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 began 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.
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
opportunities. 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
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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 installed 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.
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.
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 IT, for example, together mandate the use of gasoline formulas with increased oxygen content
in selected CO nonattamment areas, as well as cleaner "reformulated" gasoline in severe and extreme
ozone nonattainment areas. Title IT also sets up a pilot clean-fueled vehicle program in California
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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 S02 "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 fOT
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 ill). In
Chapter ill 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 com growers on average of about 0.3-0.4 billion (in 1990 $) annually between
1992-2000.
Increased demands for both oxygenated and reformulated gasolines will lead to increased use
of substantial amounts of oxygen-rich ethers such as methyl tertiary butyl ether (MTBE), ethyl
tertiary butyl ether (ETBE), and tertiary amyl methyl ether (TAME), as well as fuel alcohols like..
methanol and ethanol.MTBE appears to have a strong edge in the oxygenate market; it is already
the octane-booster of choice in lead-free gasolines. Ethanol, and its derivative ETBE, also could
have a future as fuel additives, but demand for these substances will likely be significantly less
impressive than for MTBE, and will be mainly regional, as ethanol cannot be transported by pipeline.
Thus, although ethanol demand will increase somewhat in light of the CAAA and could even present
niche opportunities, the overall fuel-additives market, and the discussion that follows, will focus on
MTBE.
Supply-Side Issues
The nation's MTBE is manufactured mainly by large chemical and petrochemical concerns,
with the principal producer, Arco Chemical, accounting for some 40 percent of total annual volume
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EXIllBIT 4-6
Revenue Increase Estimate: Cleaner Burning and Alternative Fuels
(billions of 1990 dollars)
..... ....... ,." ...... .. ... .. .... . ... n... ... .... .
........... ...................... ......... ...... .............................. ......
..... .......................................... ............. '" ..... ....... ......... ..
...n...''''''''',,'','''' .............. .....
,",".",".",','.','.'.'.",",',".',',",',',".',",",',",'.",".",",',".',",'''. .',',",', ','," ~y~flm~J:{~#~~ i!~iJ81
[[['.:.:.:.:.:.:,..:.:.".:.'.:.:.:.:.:.;.:.:.:.:.:
l~fi~1~1~_1~f~ <":~~~::
..~?~8~$:H
Reformulated and Oxygenated NA 0.3-0.4 0.3-0.4
Gasoline
Natural Gas 43-47 0.0 0.1
Low Sulfur Coal 13-19 0.3-0.4 1.2-1.8
TOTAL 56-66 0.6-0.8 1.7-2.3
(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 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
-------
EXHIBIT 4.7
Potential North American MTBE Production
Capacity by 1995
........... ....... ... ..... .n. ... ... n' . .. ...
. . . . . . . . . . . . . . . . . . .. ... .................. . . . . . . . . . . . . . , . . . . . . . . . .
.. P"'" ""H'''''''''-'''''''''''''''''''''''''''''''''''''''''''''-'
.... ..." .. PH" ...... ...... P"'"''''''''''''''''''''''''''
<1b9Ą.~!#4fl~~~r~tQ!r
Current :1!fi
New Facilities Under Construction
1991 36
1992 83
1993 24
TOTAL IIi
Total MTBE Capacity 621
Source: ICF Resources Estimates, November 1991.
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 auto makers,
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 auto makers 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.
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
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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 IT acid-rain S02 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 ill 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 N 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 (tcl) 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
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.
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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 iri 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 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.
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Low-Sulfur Coal
Oveniew
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 S02 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 particulate control system and potentially other facility upgrade expenses. Also, the
decision to bum 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 ill, 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 loeation 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 S02 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 S02 emission standards have declined
over time under the current CAA, many states (especially in the Midwest) have begun to bum
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 subbitumi-
nous 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.
The CAAA will change the coal industry's profitability, employment, and efficiency. Some
of these changes are explored in the following paragraphs.
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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 produc-
tivity 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. H 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 Basin 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
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way, to the total price 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 bum
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, ill, 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 ill) 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
D'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 ill). 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, ill 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 at 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 the 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
construction studies. In either case, the revenues accrue to the engineering, design and construction
industry. (See "Alternative Fuels and Fuel Additives," above, for 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
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EXHIBIT 4-8
Leading MTBE Engineering & Construction Compan-
ies Ranked by Capacity On-stream and Under Contract
October 18, 1991*
. ... ....... .... . P''''
....".......... ... P... """
........ ..... ......,.. ...... ""0"'"'' ."",
. ............" '" .......... ",",',",," ,',',",.",','..',",
... ........ . . ....... ....
.......~9*~@~~ Nt~f~~t
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...............\q~yC.... ... .......%)..... ......
Flour Daniel 19 17.4
Snamprogetti 19 17.0
Kellogg 16 14.8
Staff 7 7.8
Foster Wheeler 7 6.5
Jacobs 5 4.8
Inievep 3 3.1
S&B 3 3.1
John Brown 3 2.7
Other 25 22.8
TOTAL 110 100
* Includes EP and EPC work under contract. Does not include infeas-
ibility studies.
Contractors for some planned projects have not been identified which
may affect the rankings.
Source: Flour Daniel, November 1990.
existing and emergent technologies, and (2) through communications with their sales forces, which
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-induced
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 than the bigger, more lucrative projects such as design and
construction of MTBE facilities. Those jobs, along with large-scale process modification work, will
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be the province of the 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 ill, Title ill will produce
an increased demand for air toxies 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 IIM 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., S02' N0X' 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 ill of the CAAA) include atomic
absorption, graphite furnace atomic absorption, and inductively coupled plasma-mass spectrome-
try.
The CAAA will spur competition, technological innovation and increased instrument reliability.
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Compared with some of the ''big winners" in the CAAA market, such as stationary-source
equipment and low-sulfur coal, the incremental CAAA revenues quantified in this report for the
instrumentation 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 subcontract-
ed 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
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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 instrumentation and monitoring business, as part of their drive to provide a full-
service approach to pollution control. 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 Technolo-
gies, 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-toxies 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
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external to the pollution control industry, such as equity prices and the macroeconomic picture, will
also playa 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, and General Electric-is also changing. The research analysts covering these stocks
are considering how the CAAA will effect both the revenue and earnings streams for these
compames. .
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Appendix A
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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 I-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 Exhibit A-1, require some or all of the following measures depending on the severity of
nonattainment:
.
Tighter controls at existing and 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 new/modified sources at ratios of 1.1 ton (or greater) emission
offset (i.e., "extra" reduction) for every 1 ton new/modified source
emission.
.
Other requirements such as enhanced motor vehicle inspection and mainte-
nance (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 landf1lls, 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.
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EXHIBIT A-I
SUMMARY OF TITLE I (NONATTAINMENT) REQUIREMENTS
Ozone Nonattainment
Major Stationary Sources
Emission Offsets
Motor Vehicle I&M
Stage n Controls
Transportation Control
Program
Clean Fuels/Advanced
Controls
Consumer/Commercial
Products
CO Nonattainment
PM-IO Nonattainment
5-Area classifications: attain-
ment between Nov. 1993 and
Nov. 2010
Expeditiously as practicable
New/Modified sources (post-en-
actment)
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 1995 (moderate
areas); 2002 (serious areas)
SUMMARY DESCRIPTION OF PROVISIONS
Ozone Nonattainment
. . . . . . . . . . . . .. ...... ... ......... . ............ ., .. .
.........,........, ........ ................. ......
o ........ .. ......... ....... . . . .. . . . . . . . . . . . . . . . . .. .
ii$~mm~&p~~g.riir;m~ri4\
. ..
-, ".
15% reduction in VOCS except in marginal areas (Nov.
1996); additional reduction in VOCs of 3% annually
thereafter in serious, severe and extreme areas
RACf at existing sources; LAER at new and modified
sources in all areas for both VOC and NOz
New/Modified sources must offset emissions; (offset ratio
ranges from 1.1-to-1 to 1.5-to-1 depending on area classi.
fication
On-road emissions testing; tampering and misfueling
detection 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 improve-
ment programs
Clean fuels or advanced controls required to reduce emis-
sions from new and existing sources
Control of 80% of consumer and commercial product
emissions.
Oxygenated fuels in an amount adequate to reach attain-
ment; other requirements similar to ozone nonattainment
Moderate areas - Reasonably Available Control Mea-
sures (RACM) required; serious areas - Best Available
Control Measures (BACM) required; Certain New and
Existing Sources Regulated as Major Sources.
. Ozone nonattainment areas are classified according to severity of pollution. Areas with
higher pollution levels are allowed more time to attain the ozone standard, but are subject to more
stringent control requirements. Five 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. 200512007), and Extreme (1 area,
attainment by Nov. 2010). A listing of the geographical nonattainment areas is provided in
Exhibit A-2.
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ICF Resources Incorporated
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EXHIBIT A-2
AREAs VIOLATING OZONE NAAQS (1991)
Extreme (1 area)
- Attainment Deadline Nov. 2010
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, cr
Huntington, WV-KY-OH
Louisville, KY-IN
Parkersburg, WV -OH
Portsmouth, NH-ME
Providence, RI
Sacramento, CA
Sheboygan, WI
Springfield, MA
Washington, DC-MD-V A
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
DaUas, 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
Manitowoc Co., WI
Miami, FL
Modesto, CA
Monterey Bay, CA
Nashville, TN
Parkersburg, WV
Phoenix, AZ
Pittsburgh, P A
Portland, ME
Providence, RI
Raleigh, NC
Reading, P A
Richmond, VA
Salt Lake City, UT
San Francisco, CA
St. Louis, MO-IL
Toledo, OH
Visalia, CA
Marginal (47 areas) ,
. Attainment Deadline Nov. 1993
Albany, NY
Allentown, P A
Altoona, P A
Anderson, SC
Birmingham, AL
Buffalo, NY
Canton, OH
Columbia, SC
Columbus, OH
Erie, P A
Essex Co., NY
Evansville, IN-KY
Fayetteville, NC
Greenbrier Co., WV
Harrisburg, P A
Huntsville, AL
Indianapolis, IN
Johnstown, P A
Kansas City, MO-KS
Kent/Queen Annes Co., MD
Knoxville, TN
Lafayette, IN
Lake Charles, LA
Lancaster, P A
Lexington, KY
lincoln Co., ME
Louisville, IN
Manchester, NH
Memphis, TN, AR, MS
Montgomery, AL
Norfolk, VA
Owensboro, KY
Paducah, KY
Portland, OR
Poughkeepsie, NY
Reno, NY
Santa Barbara, CA
Scranton, P A
Seattle, W A
South Bend, IN
Stockton, CA
Sussex Co., DE
Tampa, FL
Tulsa, OX
Walworth, WI
York, PA
Youngstown, OH/Sharon, PA
Jacksonville, FL
Waldo Co., ME
06C097SP
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ICF Resources Incorporated ~
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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 non attainment areas
may be required to go beyond the national mandatory requirements (described below) in order to
demonstrate steady progress toward attainment.
.
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 more than 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 areas. Modified and new major sources must meet lowest
achievable emission rate (LAER).1/
.
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-1 in
Moderate areas, to 1.2-to-1 in Serious areas, to 1.3-to-1 in Severe
areas, and to 1.5-to-1 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 IT Control Requirements - Controls on gas pumps to capture
fuel vapors in Moderate Serious, Severe and Extreme areas are
1/
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 sources, however EPA is currently in the
process of determining additional CTGs.
06C097SP
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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 demon-
strate vehicle mileage, emissions and congestion levels consistent with
achieving attainment must submit a transportation control program.
Such programs could include a wide variety of strategies such as
improved public transit, construction of roads or lanes for buses and
high occupancy 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, industrial, and commercial boilers would be required in
Extreme areas.
.
Consumer/Commercial Products - Mter a three year study, EP A must
identify and require BACf for consumer and commercial sources that
account for at least 80 percent of VOC emissions from consumer and
commercial products identified by EP A The list will be divided into
4 groups and one group will be regulated every two years.
Carbon Monoxide Nonattainment
Carbon monoxide nonattainment 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.
.
Oxye:enated 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 transporta-
tion control measures, and controls on major stationary sources with
the potential to emit more than 50 tons per year.
Particulate Matter (PM-10) Nona~inment
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. PM-10 nonattainment areas are presented in Exhibit A-4.
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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, NY
New York-No New Jer-Long Is, NY-NJ-CT
Provo, UT
Seattle-Tacoma, W A
Spokane, W A
MODERATE <=12.7 PPM (33 areas)
Albuquerque, NM
Baltimore, MD
Boston, MA
Chico, CA
Cleveland, OH
Colorado Springs, CO
Duluth, MN
EI 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, P A-NJ
Phoenix, AZ
Portland-Vancouver,OR-WA
Raleigh-Durham, NC
Reno, NY
Sacramento, CA
San Francisco-Oakland-San Jose, CA
San Diego, CA
Stockton, CA
Syracuse, NY
Washington, DC-MD-V A
Winston-Salem, NC
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.
.
TITLE n (MOBILE SOURCES)
Introduction
To supplement requirements under Title I and Title ill, 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 be mandated in several ozone and CO nonattainment areas. General
requirements are summarized below and outlined in Exhibit A-5.
.
Use of cleaner reformulated gasoline (achieving reductions in VOCS
and toxic air pollutants in 1995) will be mandated in nine ozone
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EXHIBIT A-4
AREAs VIOLATING PM-I0 NAAQS (1987-1988)
Group 1 Areas
State
Area of Concern
County(s)
Connecticut 1-95 corridor. . . . . . . . . . . . . . . . . . . . . . . . . . .
Maine Presque Isle
West Virginia Follansbee
Illino~ Cook
Mad~on County. . .
Oglesby. . . . . .
Clinton Twp ... .
Lake County. . . . . . . . .
Wayne County. . . . .
Olmstead County. . . .
Ramsey County
Cuyahoga County. . . .
Jefferson County
EI Paso County. . . . . .
Aspen. . . . . . . . . . .
Canon City. . . . . . . . .
Denver Metro
Lamar. . . . . . . . . . . . . . . . . . . . . . .
Pagosa Springs. . . . . . . . . . . . . . . . . . . . . . . .
Telluride. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Butte. . . . . .
Killspell .............
Lame Deer. . . . . . . . . . . . . . . . . . . . . . . . . .
Libby. . . . . . . . . . . . . . . . . . . . . .
~oula . . . . . . . . . . . . . . . . . .
Po~on/Roman
ProvoPreovo . . . . . . .
Salt Lake Metro!Magna ............
Sheridan. . . . . . . . . .
Douglas. . . . . . . . . . . . . . . .
Hayden/Miami
Maricopa. . . .
Nogales ....................
Paul Spur. . . . . . . . . . . . . . . . . .
Rillito
Yuma. . . . . . . . . . . . . . . .
New Haven, Fairfield
. . . . . . . . . Aroostook
. . . . . . . . . .. Brooke
County Cook
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. Mad~on
. .. Lasalle
. . . . . . . . Vermillion
... Lake
. . . . . . . . . . . . . . . .. Wayne
Olmstead
. .. .. . Ramsey
Cuyahoga
. . Jefferson
. . . . . . EI Paso
. . . . . . . .. Pitkin
. . . . . . . . . . . . . . . . . . . . . . . . . Fremont
. . .. Adams, Arapaho, Denver, Jefferson
. . . . . . . . . . . . . Prowers
Archuleta
. . . . . . . . . . . . .. San Miguel
. . . . . .. Silver Bow
Flathead
. . . .. Rosebud
. Lincoln
. . . . . . . . . .. M~soula
.... Lake
Utah
. . . . . . . . . . . . .. Salt Lake
Sheridan
. Cochise
. . . . . . . . . Gila, Pinal
Maricopa, Pinal
. . . . . . . . . .. Santa Cruz
. . . . . . . . . Coch~e
. . . . . . . Pima
. . . . .. Yuma
Indiana
Michigan
Minnesota
Ohio
Texas
Colorado
Montana
Utah
Wyoming
Arizond
...... .
... . ..
. .... .
.. .. ....
..... .
.. ....
. . ....
. ... . ...
...... ...
........ .
.. . ...
. . . . . . . . .
.. . . .... .
... . . .
. . . . . . . . .
..... .
.... ..
... . ......
.... ...
... . ....
. . . . . .
.... ..
........ ..
. . . . . . . . . .
... ...... .
.........
. . . . . .
. . . . . . .
. . . . . . . .
. . . . . . . .
. . . . . . . . . . .
. . . . . .
. . . . . .
.. ... .
. . . . . .
.. ....
. . . . . . .
. . . . . . .
. . . . . .
. . . . . . . . .
. . . . . . . . . . .
. . . . . . .
. . . . . .
. . . . . . . . . . .
. . . . . . . .
. . . . . .
. . . . . .
. . . . . . . .
. . . . . .
. ,; . . . .
. . . . . .
. . . . . .
. . . . . . . . . . . .
. . . . . .
. . . . . .
. . . . . .
. . . . . . . . .
. . . . . .
. . . . . . . . . .
. . . . . .
06C097SP
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EXHIBIT A-4 continued
State
Area of Concern
County(s)
California
Nevada
Alaska
Idaho
Oregon
Washington
Pennsylvania
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
Las Vegas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. Clark
Truckee Meadows. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. Washoe
Eagle River. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. Anchorage
Juneau. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. Juneau
Boise. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. Ada
Pinehurst. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. Shoshone
Pocatello .......................................... Bannock, Power
Grants Pass. . . . . . . . . . : . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. Josephine
Klamath Falls. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. Klamath
Medford. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Jackson
SpringfieldlEugene ........................................... Lane
White City. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Jackson
Kent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. King
. Lacey.................................................. Thurston
Seattle Metro. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. King
Spokane. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. Spokane
Tacome Metro. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pierce
Wallula .............................................. Walla Walla
Yakima. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yakima
Allegheny County. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Allegheny
.
.
nonattainment 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.
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 N0x- Additional tailpipe controls (Tier n 2003-2006)
may also be required if necessitated by air quality.
.
In approximately 21 CO nonattainment areas, a fleet program will,
require fleet vehicles such as taxis and delivery vans to meet Califor-
nia standards which are the tightest in the country.
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EXHIBIT A-5
SUMMARY OF TrfLE II (MOBILE SOURCES) REQUIREMENTS
Reformulated Gasoline Beginning in 1995
Oxygenated Fuels Beginning Nov. 1992
Fleet Program 1998-2001
California Pilot Program Model Years 1996 &
1999
Tier I Tailpipe Std.
1994-1998
Tier II Tailpipe Std. 2003-2006
Other Requirements Beginning in Model
Year 1994
... .. .
:S;~~~ij~f~~ij@~~~~~.
Use of reformulated gasoline required
in at least 9 urban areas (i.e., severe
and extreme ozone non attainment ar-
eas)
Use of oxygenated fuels in 40 CO
non attainment areas
Clean fueled vehicle fleets required to
meet California standards in about 21
CO non attainment areas
Production of 150,000 clean fueled
vehicles 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; on-
board canisters; evaporative controls;
and onboard diagnostics
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.
.
Summary Description of Provisions
Reformulated and Oxvl!enated Fuels - Beginning in 1995, cleaner
reformulated 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
.
06C097SF
Pa&e Appcndi% A.9
ICF Resources Incorporated ~
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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 Pro~am - The fleet program and the California
pilot program are intended to promote development and use of clean-
fueled vehicles (e.g., advanced gasoline or alternative fueled vehicles).
Between 1998 and 2001 clean fueled vehicle fleets (Le., 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 n Tailpipe Standards - Tighter tier I tailpipe emissions
standards 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 n stan-
dards which have not yet been finalized, take effect in 2003-2006.
However, Tier n 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 diagnosties to detect emissions
related to system malfunction (beginning in model year 1994).
TITLE ill (AIR TOXICS)
Introduction
Title ill of the Clean Air Act Amendments of 1990 establishes a major new program for the
regulation of toxic air pollutants. The combined federaVstate program provided in the legislation
represents the first comprehensive and coordinated nationwide effort to deal with these pollutants.
Title ill specifically lists 189 substances as "hazardous air pollutants" (see Appendix C for a list).
Title ill defines three significant new programs that will require substantial pollution control
expenditures by industry: (1) control of routine releases of air toxies from larger industrial and
commercial sources (called "major sources" in Title ill), (2) control of air toxies releases from area
sources, primarily in urban areas, and (3) control of accidental releases of air toxies from industrial
and commercial sources.
To reduce emissions of 190 listed toxic air pollutants (listed in Exhibit A-7), the application
of maximum achievable control technology (MACf) at major toxic air emitting sources will be
required. Typical major source categories will include the steel and iron industry, chemical
manufacturers, and degreasers. Mer the implementation of MACf, 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
06C097SP
Page Appendix A.10
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of hazardous air pollutants from area sources will be required. Another major Title ill program is
aimed at preventing accidental releases of toxic air pollutants and minimizing the consequences of
such releases. Title ill also contains other provisions (1) to assess the extent of deposition of air
toxies 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 ill requirements are summarized
in Exhibit A-6. .
Summary Description of Provisions
.
MACf Requirements - Major sources (i.e., sources that emit more
than 10 tons per year of any listed pollutant or 25 tons per year in
combination) will, between 1992-2000, be required to control their
emissions to a level reflecting maximum available control technology
(MACf) which is to be more stringent than BACf and LAER
(defined under Title I discussion). MACf regulations are to be
promulgated by EP A in four stages: 40 source categories are to be
regulated listed source categories by the end of 1994, another 25% by
the end of 1997, and the remainder by the end of 2000.Y
.
Health Based Standards - If MACf standards do not achieve "an
ample margin of safety to protect the public health" then additional
requirements will be implemented.
.
Area Source Requirements - The goal stipulated in Title ill is to
achieve a 75% reduction in the cancer incidence associated with
emissions of hazardous air pollutants from these types of sources.
Research is required by EP A (including monitoring, characterization
of sources, atmospheric transformations, etc.) and EP A is to report to
Congress within 5 years of enactment and recommend a comprehen-
sive National Strategy to control emissions of hazardous 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 be implemented within 9 years.
.
Accidental Release Requirements - By the end of 1993 EP A 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, EP A is to publish
Y
MACf is defined in Title ill as the "maximum degree of reduction in emissions of hazardous
air pollutants subject [to regulation] including a prohibition on such emissions, where
achievable, that the Administrator, taking into consideration the cost of achieving such
emission reduction, and any non-air quality health and environmental impacts and energy
requirements, determines is achievable, for new and existing sources in the category or
subcategory to which such emissions standard applies [.]"
06C0975P
Pa&e Appeodis A-ll
ICF Resources Inc~rporated ~
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EXHIBIT A-6
SUMMARY OF TITLE III (AIR TOXICS) REQUIREMENTS
.. .
.. ........................ . .... ".. ....." .....,., ....
n .............. ......... '''''''''''''''''''''' ...."... ....
.................. ....... ........ """" no, ,,'... ....... .
Y$~ffim#.rY9!)i~~~~n.~.:.::(
..
MAeI' Requirements
1992-2000 (implemented
in 4 stages)
Major sources (emitting more than 10 tons per
year of single pollutant or 25 tons per year in
combination) are required to meet MAeI'
emission requirements.
Health Based Std. About 1999
More stringent than MAeI' to be implement-
ed only if necessary (to achieve an "ample
margin of safety to protect to public health")
Area Sources By 1999
75% reduction in cancer incidence from area
source toxic emissions; not less than 30 pollut-
ants must be regulated.
Accidental Releases
Beginning by the end of
1993 .
Sources at which a regulated substance (initial
list of 100) is present (more than a threshold
quantity) are required to develop plans for the
prevention and detection of accidental releases
and for emergency response
within 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 EP A, to prepare
and implement a risk management plan to detect and prevent or
minimi7.e 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 S02 emissions and approximately a 2 million ton reduction in NOx emissions from 1980
levels. S02 reductions will be achieved in two phases (Phase I beginning in 1995, generally, and
Phase n 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 S02 control program in either Phase I or Phase n will be required
to meet specffic NOx emission limits under the statute. General requirements under Title IV are
outlined in Exhibit A-8.
06C0975P
Page Appelldis A.U
ICF Resources Incorporated ~
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EXHIBIT A-7
LIST OF 190 HAzARDous AIR 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)
Benzidine
Benzotrichloride
Benzyl chloride
Biphenyl
Bis(2-ethylhexyl)phthalate (DEHP)
Bis( chloromethyl )ether
Bromoform
1,3-Butadiene
Calcium cyanamide
Caprolactam
Captan
Carbaryl
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 (l,l-Dichloroethane)
Formaldehyde
Heptachlor
Hexachlorobenzene
Hexachlorobut~diene
Hexachlorocycloptmtadiene
Hexachloroethane
Hexamethylene-l,6-diisocyanate
Hexamethylphosphoramide
ICF Resources Incorporated ~
06C097SF
Page AppeIIdiz A.13
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EXHIBIT A-7 (continued)
Hexane
Hydrazine
Hydrochloric acid
Hydrogen fluoride (Hydrofluoric acid)
Hydrogen Sulfide
Hydroquinone
Isophorone
Lindane (all isomers)
Maleic anhydride
Methanol
Methoxychlor
Methyl bromide (Bromomethane)
Methyl chloride (Chloromethane)
Methyl chloroform (l,l,l-Trichloroethane)
Methyl ethyl ketone (2-Butanone)
Methyl hydrazine
Methyl iodide (Iodomethane)
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-Nitrophenol
2-Nitropropane
N-Nitroso-N-methylurea
N-Nitrosodimethylamine
N-Nitrosomorpholine
Parathion
Pentachloronitrobenzone (Quintobenzene)
Pentachlorophenol .
Phenol
p-Phenylenediamine
Phosgene
Phosphine
Phosphorus
Phthalic anhydride
Polychlorinated biphenyls (Aroclors)
l,3-Propane sultone
beta-Propiolactone
Propionaldehyde
Propoxur (Baygon)
Propylene dichloride (l,2-Dichloropropane)
Propylene oxide
1,2- Propylenimine (2- Methyl aziridine)
Quinoline
Quinone
Styrene
Styrene oxide
2,3,7,8- Tetrachlorodibenzo-o-dioxin
1,1,2,2- Tetrachloroethane
Tetrachloroethylene (Perchloroethylene)
Titanium tetrachloride .
Toluene
2,4- Toluene diamine
2,4-Toluene diisocyanate
0- Toluidine
Toxaphene (chlorinated camphene)
1,2,4- Trichlorobenzene
1,1,2- Trichloroethane
Trichloroethylene
2,4,5- Trichlorophenol
2,4,6- Trichlorophenol
Triethylamine
Trifluralin
2,2,4- Trimethylpentane
Vinyl acetate
Vinyl bromide
Vinyl chloride
Vinylidene chloride (l,l-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
06C097SP
Paso AppendiI: A-14
ICF Resources Incorporated ~
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EXIllBIT A-8
SUMMARY OF TITLE IV (ACID RAIN) REQUIREMENTS
S02 Control Program
Phase I S02 Requirements 1995-1999
Phase I Technology 1995-1999
Incentives
Phase n S02 Requirements Beginning in 2000
. ...
,",........ ,'n'""'" "",,','...n .......... ." "p'" ..
~~~~~..y9f.ii~q~;~~~iS<
110 powerplants with nameplate capacity greater
than 100 MW and 1985 S02 rate greater than
2.5 Ibs/mmBtu are allocated allowances based on
a 2.5 lb. rate multiplied by baseline (1985-1987
average) fuel consumption.
Phase I sources that install 90% removal tech-
nology 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 for-
mulas. Total allowances allocated equal about 9
million tons
New Units Beginning in 2000 New units not allocated allowances; new units
must obtain allowances from existing sources to
offset emissions
Repowering Extension 2000-2004
Repowered sources receive 4 year exemption
from Phase n requirements
Allowance Auctions Beginning in 1993 Allowance auctions held annually; special provi-
sions ensuring allowances available for IPPs
Cons./Renewable Reserve Beginning 1995
Election/Opt-In Sources Beginning 1995
NOx Control Program
Beginning in 1995
Emissions Monitoring
Beginning in 1995
Extra allowances for emissions avoided through
electricity conservation and the use renewable
energy
Unaffected sources can opt-in to become affect-
ed; allocated allowances based on 1985 rate
multiplied by baseline fuel
Sources affected in S02 program required to
meet NOx limits .
Continuous emissions monitors (CEMs) required
at affected sources
06C097SP
Page AppendiJ: A-lS
ICF Resources Incorporated ~
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.
The. allowance trading provisions of the S02 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 "banked"
for future use or sale. .
.
In Phase I (1995) 110 powerplants will be required to meet total
annual emission allowances based on a 2.5 lb. per mmBtu S02
emission rate.
.
In Phase II (2000) virtually all 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 S02 emission allowances will be allocated annually in Phase II.
.
Most new (Le., post-enactment) utility sources are required to offset
their S02 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 estab-
lished.
.
Units affected in Phase I and/or Phase II will be required to install
continuous emissions monitors (CEMS) to measure S02 emissions,
NOx emissions, opacity, and volumetric flow
Summary Description of Provisions
S02 Control Program
.
Phase I S02 Control ProlITam - 110 of the highest emitting utility
powerplants (i.e., those with a 1985 emission rate greater than 2.5 lbs.
S02 per million Btu and nameplate capacity at least 100 megawatts)
are required to meet Phase I emission allowance allocations which are
based on 1985 S02 emission rates multiplied by "baseline" (1985-1987
average annual) fuel consumption. These .annual allowance alloca-
tions are fully tradeable and can be banked for use in the future.
.
Phase I Technolo~ Extension Prolp"am - 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
technology reserve which is capped at 3.5 million tons. Extension
allowances are also fully tradeable and can be banked.
~SP
Page AppcndiIt A.16
ICF Resources Incorporated ~
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.
.
.
.
.
.
Phase II S02 Control Program. - Beginning in Phase II (2000)
virtually all 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
allowances are fully tradeable and can be 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.
New Units - New (post-enactment) units (i.e., those on-line after
1992 which did not commence construction by 1991) will not be
allocated emission allowances and therefore must obtain S02 emission
allowances from other sources to offset their S02 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 allow-
ance 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 Ener~ Reserve - Sources avoiding S02
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 S02 control
program, including utility and non-utility sources, could "opt-in" to
become affected under the S02 control program and would be
allocated S02 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 S02 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 S02 emissions
and thus potentially sell their excess allowances in the allowance
trading market for a profit.
NOx Control Program
.
Phase I NO~ Reauirements - On the date that a Phase I coal-fired
unit becomes affected under the S02 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 lbs. per mmBtu at dry bottom wall-fired boilers.
060W7SP
Page AppeocIis A-17
ICF Resources Incorporated ~
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Units with cyclone, and wet bottom wall-fired boilers will probably not
be required to install technology in Phase I.
.
Phase II NOx Requirements - Units affected for S02 in Phase II will
also be subject to NOx requirements and must install cost-effective
NOx control technology. The maximum allowable emission rate for
tangentially fired and dry bottom wall-fired boilers may be more
stringent than in Phase I, and controls at cyclone and wet bottom
wall-fired boilers could be required by the EP A Administrator.
Emissions Monitoring Requirements
.
Continuous emissions monitors (CEMS) are required to be installed
at affected sources in Phase I and Phase II to measure S02 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 substances (chlorofluorocarbons, 3 halons, carbon tetrachloride,
and methyl chloroform and class II substances (hydrochlorofluorocarbons). These substances have
been associated with the destruction of the 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 EP A
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
06C097SP
Page AppcodiJ: A-IS
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EXHIBIT A-9
SUMMARY OF TITLE VI (STRATOSPHERIC OZONE) REQUIREMENTS
......."....... .....
......,................
""""'...",........
"""""'..'''''' ...
:Ii1#.i#g)
Production Phaseouts
Class I Substances
1991-2000
Class II Substances 2015-2030
Recovery and Recy-
cling
1992 & 1994
Mobile Air Condition~
ers
Beginning
1992
Nonessential Product
Ban
1991
Product Labeling
1993
.. .....
.. . . . . . . . . . . . . . . . . . . . . . . . .. ............""'" . . . . . . , .' .
,........... ............................. '""p'"'",,,,.,. .
. . .. ..."""""'" .... ... . ....... ............. . . . .. . ....
~!iDw~~!Ii&)~j}~Iij~~~.......
Gradual phaseout relative to a baseline year (1986 or
1989): carbon tetrachloride (from 90-70 percent pro-
duction 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
appliances; production of class II substances above
baseline levels beginning in 2015 is forbidden, and will
be totally phased-out by 2030 (schedule to be deter-
mined).
Standards are established regarding use and disposal
of class I substances (effective in 1992) and class II
substances (effective in 1994) during service, repair, or
disposal of appliances and industrial process refrigera-
tion. 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 apenure
to recapture class I and II substances.
Regulations beginning in 1992 will provide for certifi-
cation and proper use of approved refrigerant recy-
cling equipment for the service of motor vehicle air
conditioners (MV ACS). Stations servicing less than
100 MV ACs 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 prod-
ucts made with or containing Class I substances.
06C097SF
Page Appendiz A-19
ICF Resources Incorporated ~
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-
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:
1991
1992
1993
1994
1994
1996
1997
1998
1999
2000
2001
Carbon
Tetrachloride
Methyl
Chloroform
Other Class I
Substances
100
90
80
70
15
15
15
15
15
100
100
90
85
70
50
50
50
50
20
20
85
80
75
65
50
40
15
15
15
Class IT Substances - Beginning in 2015 it will be unlawful to
introduce into interstate commerce, or use any class IT sub-
stance unless it has been used, recovered, and recycled; is
used and entirely consumed in the production of other chemi-
cals; or is used as a refrigerant in appliances manufactured
before 2020. Similar to the production phaseout of class I
substances, production of class IT substances beginning in 2015
will be unlawful above a percentage of a baseline level. EP A
shall promulgate the phaseout schedule by 1999. Effective in
2030 production of all class IT substances shall be phased-out.
Recovery and Recycling Requirements - Standards regarding the use and
disposal of class I and IT substances are to become effective in 1992 for class
I substances and 1994 for class IT substances. These standards will establish
safe disposal requirements such as (1) requiring the removal of class I and IT
substances from appliances, machines or other goods prior to disposal; and
(2) making it unlawful to manufacture, sell, or distribute appliances, ma-
chines, or other goods unless they are equipped with a servicing aperture to
recapture class I and class IT substances during service, repair, or disposal.
.
Motor Vehicle Air Conditioners (MVACs) - Beginning in 1992 (or 1993 for
stations servicing fewer than 100 MV ACs annually) stations servicing, or
repairing MV ACs 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 MV AC refrigerant in containers
less than 20 pounds.
.
~
Exceptions to the phaseout for essential uses (e.g., medical devices and aviation safety) of
methyl chloroform are provided.
06C097SP
Pa&e AppcDdiK A.20
ICF Resources Incorporated ~
-------
.
Nonessential Product Ban - Beginning in 1992 it shall be unlawful to use or
distribute nonessential products that release class I substances during
manufacture, 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. .
06C097SP
Page Appendix A.21
ICF Resources Incorporated ~
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Appendix B
-------
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.." ........,.., "....,..,...."..... ..., ,.....' .. ,.., ....... ..
.., ,. ...., "... ..,.........., ,.... ......... .. .. ''',..'' ,...........
. . ..,....'...... ..,...., ...... ..,....... .."....,.. .......
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.. ,....., , .. ,............ .. ..,..,........
,....' ..,.. ......... " ..'....... ..,..,.... ...' .., ....., ,...
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" ..... ,.. '..,.... .., ....' ,....',
" '" .., " . ' , ' '" , , '
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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 ID. In most cases, revenue estimates were based
on the results of previous studies and analyses. As noted in introduction to Chapter Ill, 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 (Nonsttainment)
Revenue estimates for Title I provisions were compiled by E. H. Pechan and Associates Inc.
from a variety of sources including studies sponsored by EP A 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 Assess-
ment of Alternative National Ambient Air Quality Standards for
Ozone," draft report, prepared for U.S. Environmental Protection
Agency, OAQPS, October 1987.
.
Radian Corporation, '~uto 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
Treatment, 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 Assess-
ment of VOC, CO, and NO]t' Controls, Emissions, and Costs," pre-
pared 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. Environmen-
tal 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 Stan-
dards and Guidelines, " EP A450/3-90-011a, 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 EP A 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 b.uses. More
complex equipment 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 produc-
tion of new additives will require new catalysts and new processing
equipment. Oxygenates will have to be supplied by domestic produc-
ers and importers.
.
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
Ti~r 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 this additive will both be increased domestical-
ly and more will be imported. Should shortages of MTBE feedstock
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emerge, particularly butanes, MTBE rather than feedstocks will be
imported.
.
Ethanol - Production of ethanol (com 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 teritiary butly ether (ETBE) an oxygen additive
may ~ow. Without the subsidy, it is unlikely that ETBE use will
grow.Y
.
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 construction, is largely captive to an MTBE plant and a
refinery.
.
Clean Vehicle Industry - Clean fuel light QUty vehicles 'and trucks
have to be supplied for the fleet programs in the ozone nonattain-
ment 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 Prollfam - 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 ll. However, if one were to assume that the California program
would use alternative fuels then revenues could be estimated as
follows. Title II specifies the number of vehicles that have to be
supplied. According to tbe automobile companies, the incremental
cost of a methanol vehicle is $219/vehicle and of a CNG vehicle is
$937/vehicle.Y 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 metha-
nol and CNG, revenues for parts suppliers is estimated to increase on
average by about $0.1 billion annually 1996-2000.
1/
Y
There is one small ETBE plant in Lincoln, Nebraska. However" MTBE plants can be
adjusted to produce ETBE.
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 EP A Analysis
of the Economic and Environmental Effects of Compressed Natural Gas As A Vehicle Fuel,
1990. '
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.
The Fleet Program - Fleet vehicle revenue could be 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 opportuni-
ties 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
. MCFIY for model years 1996 through 1998, and 5.51 x 106 MCFIY
for 1999 onwards. A gas price of $3.69!MCF is assumed.
Title III (Air Toxies)
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 EP A 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
implementation 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 EP A's preliminary list of categories and,
subcategories to be regulated under ~112 (56 FR 28548, June 21, 1991) and a preliminary
announcement by EP A of its planned regulatory actions for 1992. Since EP A'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
~
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.
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expected population exposures and risks, the industrial air pollution control experience of the
analysts and available EP A information concerning expected source category priorities.
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 be 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, EP A
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 EP A data.
.
Emissions - TRI and EPA Emission Factors Handbook (AP-42)
.
Types of Controls - AP-42 and air pollution control experience.
.
Revenue estimates - EP A 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 Re[U}ated - 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 EP A as subject to
regulation.
.
. Source Catel!ories Rel!Ulated - A detailed EP A 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 substanc-
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es for regulation but required EP A to identify at least 84 more. Also,
threshold quantities are still to be 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.
.
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 EP A'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., technologi-
cal 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 meaning-
ful 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 ill. While anyone 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 ill, which falls generally
beyond the time frame of the analysis is not included. Title ill 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 that could result from actions taken to implement these requirements of Title ill.
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 EP A, and (2) ICF Resources' independent
analysis of Title IV requirements.
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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).2/ Also, the analysis included the
availability of lower cost clean coal technologies in Phase II. On balance, this analysis yielded higher
revenue estimates than the EP A case. .
EP A Base Case assumptions (Le., 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 bum 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.
2/
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 bum bituminous coal to reflect powerplant
upgrade costs.
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