v>EPA
United States
Environmental Protection
Agency
Office of Pesticides and
Toxic Substances
Washington, DC 20460
EPA-560/12-80-001
October 1980
Toxic Substances
Economic Implications of
Regulating Chlorofluorocarbon
Emissions from Nonaerosol
Applications
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EPA_ 560/12-80-001
October, 1980
ECONOMIC IMPLICATIONS OP REGULATING
CHLOROFLUOROCARSON EMISSIONS FROM
NONAEROSOL APPLICATIONS
Contract No. 68-01-3882
& 68-01-6111
Project Officer: Ellen Warhit
REGULATORY IMPACTS BRANCH
ECONOMICS & TECHNOLOGY DIVISION
OFFICE OF TOXIC SUBSTANCES
WASHINGTON, D.C. 20460
U.S. ENVIRONMENTAL PROTECTION AGENCY
OFFICE OF PESTICIDES AND TOXIC SUBSTANCES
WASHINGTON, D.C. 20460
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Disclaimer
This document is a contractor's study done with the
supervision and review of the Office of Pesticides and Toxic
Substances of the U.S. Environmental Protection Agency. The
purpose of the study was to evaluate the economic implications of
alternative policy approaches for controlling emissions of
chlorofluorocarbons (CFCs) in the United States.
The report was submitted in fulfillment of Contracts
No. 68-01-3882 and 68-01-6111 by the contractor, The Rand
Corporation and by its subcontractor, International Research and
Technology, Inc. Work was completed in June, 1980.
The study is not an official EPA publication. The document
can not be cited, referenced, or represented in any court
proceedings as a statement of EPA's view regarding the
chlorofluorocarbon industry, or the impact of the regulations
implimenting the Toxic Substances Control Act.
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PREFACE
Scientific studies indicate that atmospheric emissions of certain chlorofluoro-
carbon chemicals (CFCs) contribute to depletion of the ozone layer that protects the
earth from harmful ultraviolet radiation. Since late 1978, nearly all use of these
chemicals to charge aerosol products has been banned in the United States. This
report assesses the economic implications of potential regulations to limit CFC
emissions from nonaerosol applications.
This research was performed under Contracts 68-01-3882 and 68-01-6111 from
the U.S. Environmental Protection Agency. It began in 1977 with a review of
existing data to determine whether they were sufficient to support the economic
analysis. Because these data proved inadequate, it became necessary to collect new
primary data. With respect to CFC uses in refrigeration and air conditioning appli-
cations, the primary data collection was carried out by a research subcontractor,
International Research and Technology, Inc. This report presents the data obtained
by Rand and IR&T, together with a policy analysis performed by Rand.
This research is part of a larger program of investigation sponsored by EPA in
conjunction with the Consumer Product Safety Commission and the Food and Drug
Administration. Other studies are concerned with evaluating the biological and
economic implications of ozone depletion. The present study focuses attention on
the industries that produce and use chlorofluorocarbons, assessing the possible
effects of regulation on these industries and their customers.
As a study of options for environmental policy, this research is unusual in that
it investigates the potential for using economic incentives as alternatives to manda-
tory controls on the behavior of firms. The study examines policies that would raise
the prices of CFCs and compares the costs to industry and the emissions-reducing
potential of such policies with those of various mandatory controls. A further novel
feature of the research is that it examines the distributive as well as the efficiency
implications of policy.
Three other Rand documents containing material related to this study are also
forthcoming. One is based on a briefing to EPA that sums up the study results and
is recommended to readers seeking a concise, nontechnical, and policy-oriented
summary of the study: Adele R. Palmer et al., Economic Implications of Regulating
Nonaerosol Chlorofluorocarbon Emissions: An Executive Briefing, R-2575-EPA
(forthcoming). Another Rand document provides somewhat greater detail on the
analysis of flexible foam applications: William E. Mooz and Timothy Quinn,
Flexible Urethane Foams and Chlorofluorocarbon Emissions, N-1472-EPA
(forthcoming). Finally, Kathleen A. Wolf, in Regulating Chlorofluorocarbon Emis-
sions: Effects on Chemical Production, N-1483-EPA (forthcoming), provides an
extensive description of the industries that produce the chemicals used to make
CFCs.
iii
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SUMMARY
Recent studies of atmospheric chemistry have indicated that emissions of cer-
tain chlorofluorocarbon (CFC) chemicals contribute to depletion of the ozone layer
that protects the earth from harmful ultraviolet radiation.1 As of late 1978, most
uses of CFCs as aerosol propellants were banned in the United States. This study
examines the economic implications of regulations on nonaerosol uses of CFCs,
focusing attention on the potential costs and emissions effects of policy over the
period 1980 through 1990.
The most widely used and potentially most detrimental of the CFCs are CFC-11,
CFC-12, and CFC-113, and their nonaerosol applications include cushioning foams,
packaging and insulating foams, industrial cleaning of metals and electronics com-
ponents, food freezing, medical instrument sterilization, refrigeration for homes
and food stores, and air conditioning of automobiles and commercial buildings. In
1976, the United States emitted over 300 million pounds of CFCs from nonaerosol
applications—almost as much as was emitted from aerosol applications before the
recent ban.2
A major first step in this study involved collecting primary data on CFC use
levels and emissions processes and projecting future emissions through 1990. This
work yielded findings that modified and extended previous studies that had
focused on refrigeration applications as the most important sources of nonaerosol
emissions. While the present study shows that refrigeration and air conditioning
together accounted for about 33 percent of 1976 nonaerosol emissions, these appli-
cations are growing relatively slowly. By 1990, when U.S. emissions are projected
to reach almost 600 million pounds in the absence of policy action, refrigeration and
air conditioning are expected to account for less than 26 percent of the total. In
particular, home and food store refrigeration are small contributors to emissions,
both now and in the future.
Short of banning the use of CFCs, a number of technological options for reduc-
ing nonaerosol emissions have been identified by various observers. Some, but not
nearly all, of these options appear suitable for implementation as mandatory
regulatory controls. If implemented in 1980 and enforced through 1990, the most
promising set of mandatory controls could reduce cumulative emissions over the
period by perhaps 15 percent.3 The present value of estimated compliance costs
would be approximately $185 million over the period, with roughly half the costs
borne by producers of flexible foams and their customers. It is anticipated that
nearly all of the compliance costs would be passed through to final product
consumers in the form of higher product prices. The final product price increases
'See Stolarski and Cicerone (1974); Molina and Rowland (1974); Crutzen (1974); Turco and Whitten
(1975); NASA (1977); and National Academy of Sciences (1976 and 1979).
"CFC-22, which is believed to be much less hazardous to ozone other than CFCs, is omitted from the
emissions estimates cited here. This omission accounts for the absence of home air conditioners from
the list of nonaerosol applications.
"Emissions are measured here by weighting the emissions of various CFCs according to their chlorine
content. In the absence of policy action, cumulative emissions over the decade would be approximately
5.4 billion pounds, measured in CFC-113 equivalent units.
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would be less—often much less—than five percent. With the possible exception of
some small producers of flexible foams and polystyrene sheet (nonurethane foams
used for packaging), plant closures and worker unemployment are not expected to
result from the regulations.
An alternative to mandatory control policy is the use of economic incentives to
encourage emissions reductions. Economic incentives could take the form of a tax
on CFC sales, or a sales quota, perhaps combined with marketable permits to use
CFCs within the quota. The tax or quota policy can be designed to yield the same
reduction in cumulative emissions as under the mandatory controls. If so, the
estimated real resource costs of emissions-reducing activities induced by policy are
more than 40 percent lower than those for mandatory controls. Resource costs are
lower under incentives primarily because they rely more heavily on low-cost chemi-
cal substitution and less heavily on costly equipment improvements for emissions
reductions. The distribution of these costs among product areas would also differ,
with solvent applications carrying a larger share of the total under incentives than
under mandatory controls.
Economic incentive policies can also be used to achieve greater reductions in
cumulative emissions than under mandatory controls. The most stringent incen-
tives policy analyzed here is about twice as effective as the mandatory controls. The
cumulative emissions effect of the stringent policy is approximately equal to the
effect of a policy that prevents growth in CFC use beyond 1980. Real resource costs
under the stringent incentives policy could run as high as $600 million over the
period, but are more likely to be under $300 million.
In addition to the expenses firms pay for resources to help limit CFC emissions,
firms may have to pay taxes, buy permits, or pay higher CFC prices for the CFCs
they continue to use under an incentives policy. These are transfer payments: They
do not reflect increased use of real resources in the affected industries, and thus
do not mea$ure a sacrifice in the ability of the economy as a whole to produce goods
and services. However, for the firms that pay them, the payments for taxes, per-
mits, or higher CFC prices are an added business expense, and thus could cause
increased consumer prices and could raise the risk of plant closures. Stated another
way, the payments redistribute wealth away from CFC users and their customers
toward the rest of the economy.
The study identifies compensation techniques that can substantially mitigate
the transfers of wealth under an incentives policy. Such techniques promise to be
difficult to design and implement. However, in the absence of compensation, the
total present value of transfer payments between 1980 and 1990 would be very
large—$1.5 billion to $1.7 billion under incentives policies that are equally effective
in reducing emissions as the mandatory controls.
Ultimately, the nature of the policy choice depends upon the potential severity
of the environmental damages resulting from CFC destruction of the ozone layer
and the consequent level of desired emissions reductions. If relatively modest
emissions reductions are acceptable, mandatory controls and economic incentives
are both effective policy choices. While economic incentives substantially reduce
the real resource costs of regulation, their adverse impacts on CFC users would be
greater unless a compensation technique is implemented.
Given current technology, if substantial emissions reductions beyond the
limited capabilities of mandatory controls are required, the relevant policy choice
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Vll
appears to be between outright bans on CFC use and economic incentives. CFC bans
would impose exceedingly high costs on affected user groups and the economy as
a whole. Economic incentives would impose lower costs on the economy as a whole,
but could seriously injure CFC user industries unless wealth transfers are compen-
sated.
This research also compares policy alternatives along other dimensions in addi-
tion to effectiveness, resource costs, and transfer payments. Among the other di-
mensions are ease of implementation and enforcement, the energy and
environmental side effects of policy, and opportunities for easing industry's transi-
tion to regulation. No policy ranks first along all of the dimensions. Consequently,
this study does not recommend a particular choice among the policy strategies.
Ultimately, the choice will depend upon which dimensions of policy are deemed
most important. That evaluation is left to the policymakers.
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ACKNOWLEDGMENTS
Tackling a study of this size, breadth, and complexity required learning the
details of a myriad of industries and businesses—details that were often proprie-
tary, about technical matters that were mostly unfamiliar. We found that private
individuals and firms not only were cooperative, but were generous with their time
and patience in explaining important details. Many companies, trade associations,
and individuals went to extraordinary lengths to assist us to obtain essential infor-
mation.
Naming these individuals or companies would result in a list of perhaps 400
entries, and the list would omit the names of many people who contributed indirect-
ly through their firm's representatives or who responded anonymously to our
questionnaires. Rather than perform the injustice of selecting only a few names for
explicit mention, we prefer to express implicit, but heartfelt, appreciation to the
many industry contributors to this study. Indeed, given the number, diversity, and
geographic dispersion of the contributors, it is appropriate to view the completion
of this project as a testament to the conscientiousness and sincerity of U.S. industry
as a whole in recognizing its important role in helping to formulate environmental
policy.
The authors also owe a substantial debt for the special efforts of several persons
at Rand. Foremost, we acknowledge the pervasive contribution of the project's
original director, George Eads, whose insights and talents laid a firm foundation
for the research. The successful completion of the research also owes no small debt
to the unflagging encouragement and support offered by two Rand managers: Mary
Anderson, Head of the Divisional Support Group, and Charles Phelps, Director of
the Regulatory Policies and Institutions Program. The two internal reviewers of
this report, Stephen Dole and Willard Manning, showed exceptional attention to
substance and detail in their comments, and deserve no blame for any remaining
oversights in this final version.
The size and typographical accuracy of this document attest to the patience and
skill of many secretaries: Joyce Marshall, Dorothy Gardner, Ethel Lang, and Mar-
tha Cooper. Ethel Lang and Martha Cooper deserve special recognition for their
effectiveness in coordinating and facilitating the entire enterprise. Our editors
Patricia Bedrosian and Janet DeLand made a substantial contribution to the qual-
ity of the presentation, in matters of both format and style.
Our acknowledgments would be incomplete without a mention of our original
project monitor at EPA, Douglas Hale. His guidance and administrative skill were
essential in allowing the research to adjust to the many, not inconsiderable "sur-
prises" encountered along the way. James Hughes at EPA also provided valuable
assistance to the project.
ix
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CONTENTS
PREFACE iii
SUMMARY v
ACKNOWLEDGMENTS ix
FIGURES xv
TABLES xvii
Section
I. INTRODUCTION 1
Scope of Analysis 2
Sources of Information 5
Overview of Results 5
Relationships Between Targets and Strategies 20
Structure of the Report 20
II. METHODS OF ANALYSIS 22
Final Product Demand Assumptions 22
CFC Demand Simulations 23
Firms' Investment Decisions 24
A Definition of Terms: Compliance Costs, Rents, and Transfer
Payments 26
Plant Closure Prognosis 28
Prognosis for Inflation 29
The Argument Against New Source Standards 30
Cumulative Emissions as a Basis for Policy Comparison 32
Discounted Cumulative Costs as a Basis for Policy Comparison .. 32
III. INTRODUCTION TO THE PRODUCT AREA ANALYSES 34
Placing the Product Areas in Perspective: An Overview of Use
and Emissions 34
The Data 36
Sources of Uncertainty 37
CFC Price Assumptions 41
Outline of the Product Area Summaries 41
III.A. FLEXIBLE URETHANE FOAMS 44
Introduction 44
Use and Emissions 45
Industry and Market Characteristics 47
Technical Options to Reduce Emissions 51
CFC Demand Schedules 53
Mandatory Control Candidates 58
Conclusions 63
XI
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III.B. SOLVENTS 64
Introduction 64
Use and Emissions 67
Industry and Market Characteristics 72
Options to Reduce Emissions 76
CFC Demand Schedules 78
Mandatory Control Candidates 84
Conclusions 85
III.C. RIGID POLYURETHANE AND NONURETHANE FOAMS 88
Introduction 88
CFC Use and Emissions 91
Industry and Market Characteristics 105
Options to Reduce Emissions 108
CFC Demand Schedules 112
Mandatory Control Candidates 119
Conclusions 123
III.D. MOBILE AIR CONDITIONERS 125
Introduction 125
Use and Emissions 125
Industry and Market Characteristics 133
Options to Reduce Emissions 134
CFC Demand Schedules 140
Mandatory Control Candidates 142
Conclusions 142
III.E. CENTRIFUGAL AND RECIPROCATING CHILLERS 144
Introduction 144
Use and Emissions 145
Industry and Market Characteristics 151
Options to Reduce Emissions 154
CFC Demand Schedules 157
Mandatory Control Candidates 160
Conclusions 161
III.F. HOME REFRIGERATORS AND FREEZERS 162
Introduction 162
Use and Emissions 163
Industry and Market Characteristics 167
Options to Reduce Emissions 169
CFC Demand Schedules 172
Mandatory Control Candidates 173
Conclusions 174
III.G. RETAIL FOOD STORE REFRIGERATION SYSTEMS 175
"I 7%
Introduction
1 Vfl
Use and Emissions |'°
Industry and Market Characteristics
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Options to Reduce Emissions 182
CFC Demand Schedules 185
Mandatory Control Candidates 188
Conclusions 193
III.H. MISCELLANEOUS APPLICATIONS 195
Introduction 195
Use and Emissions .'. 195
Industry and Market Characteristics 204
Opportunities for Reducing Emissions 207
IV. ECONOMIC INCENTIVES VERSUS MANDATORY CONTROLS:
EMISSIONS REDUCTIONS AND COMPLIANCE COSTS .... 212
How Economic Incentives Work 212
The Bases of Policy Comparison 215
The Mandatory Control Benchmark 217
Estimating Emissions and Costs Under Economic Incentives
Policies 217
Outcomes Under Four Incentive Policy Designs 221
Summary 228
V. DISTRIBUTIVE EFFECTS AND OTHER REGULATORY
ISSUES 229
Distribution of Costs 229
Other Regulatory Issues 239
VI. POLICY ISSUES AND OPTIONS 249
Setting Goals 249
Controls Versus Incentives 252
Taxes Versus Quotas 253
Advantages and Disadvantages of Compensation 253
Closing Comment 254
Appendix
A. EFFECTS OF POLICY ACTION ON THE PRODUCTION OF
PRECURSOR CHEMICALS 257
B. ESTIMATES OF FOOD FREEZING PRODUCTION COSTS 263
C. POINT ESTIMATES OF 1980 AND 1990 CFC
DEMAND SCHEDULES 265
D. ESTIMATION OF CFC DEMAND SCHEDULES FOR PLASTIC
FOAMS 267
E. THE SOLVENTS SIMULATION MODEL 271
F. A SIMULATION MODEL OF CHLOROFLUOROCARBON
EMISSIONS FROM CLOSED CELL PLASTIC FOAMS 278
BIBLIOGRAPHY 289
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FIGURES
1.1. 1980 Demand Schedule for Use of Fully Halogenated CFCs 14
3.C.I. Major Types and Applications of CFC Blown Closed Cell Foams 89
5.1. Cumulative Industry Expenses Under Mandatory Controls and
Uncompensated Economic Incentives 233
6.1. Cost and Effectiveness of Alternative U.S. Policies 250
6.2. Comparison of Features Relevant to the Choice Between Mandatory
Controls and Equally Effective Economic Incentives 252
6.3. Potential Discrepancies Between Actual and Estimated Outcomes
Under Taxes or Quotas 254
D.I. Annual Material Costs for a Large Flexible Slabstock Plant 270
XV
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TABLES
1.1. Estimated CFC Use and Emissions from Nonaerosol Applications
(Excluding CFC-22), 1976 and 1990 6
1.2. Estimated Size of the CFC Bank in 1976 and 1990 (Excluding
CFC-22) 8
1.3. Benchmark Mandatory Control Options 9
1.4. Estimated Effects of the Benchmark Mandatory Controls 11
1.5. Summary Comparison of Policy Options 17
1.6. Cumulative Emissions Outcomes, 1980-1990 19
3.1. Estimated CFC Production and Nonaerosol End Use, 1976 35
3.2. Estimated CFC Nonaerosol Emissions from Analyzed End Uses,
1976 37
3.3. Estimated CFC Production and Nonaerosol End Use, 1990 38
3.4. Projected CFC Nonaerosol Emissions, 1990 39
3.5. Estimated Bulk Prices for Virgin CFCs, 1976 42
3.A.I. Approximate Distribution of Flexible Foam Output by Type of
Auxiliary Blowing Agent 45
3.A.2. Distribution of Flexible Foams Use Among Final Product Markets,
1977 46
3.A.3. Estimated Historical and Projected Future Flexible Urethane Foam
Production 46
3.A.4. Estimated CFC Use and Emissions in Flexible Urethane Foam
Production 47
3.A.5. Approximate Distribution of CFC Use per Plant by Type of Flexible
Urethane Foam 55
3.A.6. CFC-11 Demand Schedule for Flexible Urethane Foam, 1980 and
1990 58
3.A.7. Effects of Mandated CFC Recovery in Flexible Urethane Foam
Plants 61
3.B.I. Domestic Sales of CFC-113 for Categories of Solvent-Related Uses,
1976 64
3.B.2. Domestic Production, Domestic and Export Sales of CFC-113, 1970 to
1977 67
3.B.3. Industry Projections of Domestic Production and Sales of CFC-113
Solvent, 1978 to 1990 68
3.B.4. Two Hypothetical Projections of Domestic CFC-113 Sales, 1985 to
1990 69
3.B.5. Annual Domestic CFC-113 Emissions, 1970 to 1977, Upper- and
Lower-Bound Estimates 71
3.B.6. Domestic CFC-113 Emissions, 1978 to 1990, Upper- and Lower-Bound
Projections 72
3.B.7. Estimated Cost for New Cleaning and Drying Equipment, 1976 to
1977 74
3.B.8. Prices of CFC-113, 1970 to 1977 79
xvii
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3.B.9. Comparisons of Price Indexes for CFC-113 and Other Chemicals 80
3.B.10. Assumptions for Cleaning and Drying CFC-113 Demand Simulations. 81
3.B.11. CFC-113 Demand Schedules, 1980 and 1990 84
3.B.12. Emissions Reductions and Compliance Costs Under Mandatory
Equipment Standards 86
3.C.I. Rigid Polyurethane and Isocyanurate Foam Production, 1960 to
1990 92
3.C.2. Rigid Polyurethane and Isocyanurate Foam Output by Production
Process, 1976 and 1990 94
3.C.3. Nonurethane Foam Production, 1977 to 1990 95
3.C.4. Estimated CFC Use in Rigid Polyurethane and Isocyanurate Foam,
1960 to 1990 96
3.C.5. Estimated CFC Use in Nonurethane Foams, 1970 to 1990 97
3.C.6. Estimated CFC Emissions from Rigid Polyurethane and
Isocyanurate Foams, 1960 to 1990 101
3.C.7. Estimated CFC Emissions from Nonurethane Foams, 1970 to 1990 .. 102
3.C.8. Distribution of Annual CFC Emissions from Rigid Polyurethane and
Isocyanurate Foam by Stage of Product Life, 1976 and 1990 103
3.C.9. Cumulative CFC Emissions and the Closed Cell Foam CFC Bank,
1976 and 1990 104
3.C.10. Annual Energy Usage with Foam and Nonfoam Insulation in
Selected Applications 114
3.C.11. Annual Energy Penalties of Substituting Nonfoam for Foam
Insulation Beginning in 1980 116
3.C.12. CFC-12 Demand Schedule for Extruded Polystyrene Sheet, 1980 and
1990 118
3.C.13. CFC Demand Schedule for Closed Cell Foams by Type of CFC, 1980
and 1990 120
3.C.14. Effects of Mandated CFC Recovery in Extruded Polystyrene Sheet
Plants 121
3.C.15. Estimated Annual Costs per Plant of Mandated Conversion to
Pentane Blowing Agents in Extruded PS Sheet 121
3.C.16. Effects of Mandated Conversion to Pentane Blowing Agents in
Extruded Polystyrene Sheet Plants 122
3.D.I. U.S. Installations of Mobile Air Conditioners, 1970 to 1976 126
3.D.2. Projected U.S. Installations of Mobile Air Conditioners, 1977 to 1990. 127
3.D.3. Estimated U.S. Stocks of Mobile Air Conditioners, 1976 and 1990 ... 128
3.D.4. Estimated U.S. Bank of R-12 in Mobile Air Conditioners, 1976 and
1990 129
3.D.5. Estimated U.S. Emissions of R-12 from Mobile Air Conditioners,
1976 and 1990 132
3.D.6. Estimated Annual Sales of R-12 for Mobile Air Conditioners, 1976
and 1990 133
3.D.7. Effects of Increased Virgin R-12 Prices on Recovery at Repair
Servicing 141
3.E.I. Annual Shipments of Centrifugal Chillers, 1970 to 1976 146
3.E.2. Projected Domestic Installations of Centrifugal Chillers, 1977 to
1990 146
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XIX
3.E.3. Use of CFCs for Manufacture and Servicing of Centrifugal Chillers,
1976 and Baseline Projection for 1990 147
3.E.4. Estimated 1976 and 1990 Emissions from Centrifugal Chillers by
Emissions Source and Refrigerant 150
3.E.5. Fluorocarbon Refrigerant Stocks in Centrifugal Chillers, 1976 and
1990 151
3.E.6. U.S. Reciprocating Chiller Shipments, 1970 to 1976 151
3.E.7. Projected U.S. Shipments of Reciprocating Chillers, 1977 to 1990 .... 152
3.E.8. Use of CFCs for Manufacture and Servicing of Reciprocating
Chillers, 1976 and Baseline Projection for 1990 152
3.E.9. Estimated 1976 and 1990 Emissions and "Banked" CFC for
Reciprocating Chillers, by Refrigerant 153
3.E.10. 1980 Centrifugal Chiller Manufacturing Use of CFCs and Average
Annual Rates of Growth to 1990, Assuming Constant Real CFC
Prices at 1976 Levels 159
3.E.11. 1980 Chiller Servicing Use of CFCs and Annual Rates of Growth to
1990 160
3.F.I. Annual Refrigerator and Freezer Sales, 1970 to 1976 163
3.F.2. Projected Domestic Refrigerator and Freezer Sales, 1977 to 1990 .... 164
3.F.3. Domestic Refrigerator and Freezer Stocks, 1976 and 1990 164
3.F.4. Domestic R-12 Use in Refrigerators and Freezers, 1976 and 1990 .... 165
3.F.5. Appliance Refrigerant Emissions by Category, 1976 and 1990 168
3.G.I. Number of Retail Food Stores, 1976 and 1990 176
3.G.2. 1976 Refrigerant Requirements per Store 177
3.G.3. Refrigerant Bank by Store Class and Refrigerant Type, 1976 and
1990 177
3.G.4. Refrigerant Purchases for Use in Retail Food Stores, 1976 and 1990. 178
3.G.5. Emissions from Retail Food Store Refrigeration, 1976 and 1990 181
3.G.6. R-12 Demand Schedule for Retail Food Refrigeration, 1980 and 1990. 189
3.G.7. R-502 Use Schedule for Retail Food Refrigeration, 1980 and 1990 ... 190
3.G.8. Refrigerant Emissions Effects of Price Responses by Retail Food
Stores, 1980 and 1990 191
3.G.9. Benchmark Mandatory Control Analysis Results for the Retail Food
Product Area, 1980 and 1990 192
3.H.I. R-12 Use in Liquid Fast Freezing 196
3.H.2. Effect of Refrigerant Conservation Measures on Possible Future
LFF Consumption Rates 198
3.H.3. Estimated Halon 1301 Consumption, Emissions, and Bank 199
3.H.4. Estimated CFC-12 Consumption, Emissions, and Bank in
Single-Station Heat Detectors 200
3.H.5. Estimated Use, Emissions, and Bank of R-12 for Dehumidifiers 201
3.H.6. Use and Emissions of Fluorocarbons in Miscellaneous Products 204
4.1. Permit Pound Conversion Factors 216
4.2. Estimated Effects of the Benchmark Mandatory Controls 218
4.3. Aggregate Demand Schedules for CFCs, 1980 and 1990 219
4.4. Emissions Reductions and Compliance Costs at Selected Price
Increments 220
4.5. Constant-Price-Increment Design versus Mandatory Controls:
Compliance Costs for Similar Emissions Reductions 223
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4.6. Annual Quotas and Permit Prices Under a Cost-Minimizing,
Benchmark-Equivalent Design, 1980 to 1990 225
4.7. Comparison of Alternative Policies Having Similar Cumulative
Emissions Reductions 225
4.8. Effects of Low-Growth and Zero-Growth Policy Designs 226
5.1. Uncompensated Transfer Payments Under Economic Incentives
Achieving the Benchmark Emissions-Reduction Level 231
5.2. Uncompensated Transfer Payments Under Low-Growth Policy 232
A.I. Reduction in CFC Use Under Benchmark Controls and Four
Economic Incentive Policy Designs 258
A.2. Intermediate Precursor Chemical Factors 259
A.3. Preliminary Precursor Chemical Factors 259
A.4. Baseline CFC and Precursor Chemical Production 260
A.5. Reduction in Precursor Chemical Requirements, 1980 and 1990 260
A.6. Percent Reduction in Precursor Chemical Requirements for
Producing CFC-11, CFC-12, CFC-113, and CFC-502 261
A.7. Precursor Chemical Usage, 1976 261
B.I. Industry-Supplied Estimates of Relative Food Freezing Costs, circa
1978 264
C.I. Demand Schedules for Fully Halogenated CFCs by Type of CFC,
1980 and 1990 265
C.2. Demand Schedule for CFCs, Aggregate 1980 and 1990 266
D.I. Variable Definitions for Estimating CFC Demand Schedules in
Plastic Foam Markets 268
E.I. Postulated Characteristics of the Current Equipment Stock for
Cleaning and Drying Applications 272
E.2. Normal Annual Losses per Machine 274
E.3. Estimated Annual Conservation Potential from Equipment
Improvements 275
F.I. Definition of Variables in the Closed Cell Foam Emissions Process .. 279
F.2. CFC Use as Percentage of Foam Weight by Production Process 282
F.3. Frothed Rigid Urethane as Percentage of Pour in Place Foam 283
F.4. Manufacturing Emissions as a Percentage of CFC Use by Production
Process 284
F.5. Cumulative Normal Use Emissions Functions for Clad and Unclad
Closed Cell Foams 285
F.6. Disposal Functions for End Products Containing Closed Cell Foams .. 286
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I. INTRODUCTION
Recent studies have indicated that atmospheric emissions of certain chlorine-
containing gases contribute to the depletion of stratospheric ozone, which shields
the earth from harmful ultraviolet radiation.1 Prominent among these gases are
several chlorofluorocarbons (CFCs) that are used to manufacture a wide variety of
consumer products in the United States and throughout the world.2 In 1976, the
U.S. National Academy of Sciences concluded that "selective regulation of [CFC]
uses and releases is almost certain to be necessary at some time."3
Although ozone depletion would have deleterious consequences throughout the
world, the United States has been the largest single user of CFCs and has taken
the lead in acting to protect the ozone. The first regulatory steps were taken by the
Food and Drug Administration (FDA) and the Environmental Protection Agency
(EPA), culminating on December 15, 1978, in a virtual ban on the use of CFCs to
charge aerosol products.4 Meanwhile, a federal interagency task force has been
examining nonpropellant uses and emissions of CFCs and will present a report to
the Congress in 1980 on regulation of those uses.
The 1980 report will draw on research concerning ozone depletion and related
climate modification; biological and socioeconomic implications of ozone depletion;
and economic implications of regulatory strategies for limiting CFC emissions from
nonaerosol applications. The present study, which was commissioned in mid-1977
by EPA in conjunction with the FDA and the Consumer Product Safety Commis-
sion, considers the third topic, economic implications of regulatory strategies.
Nonaerosol applications of CFCs are diverse and ubiquitous. CFCs are used to
manufacture flexible foams used in products such as furniture, bedding, and carpet
underlay, and to make rigid foam insulation for buildings and refrigeration devices.
Other CFC foams are used for packaging foods (e.g., egg cartons). CFCs are the
refrigerants in automotive air conditioning, home refrigerators and freezers, com-
mercial air conditioning systems, and display and storage cases for retail food
stores. CFC solvents are used to clean and dry metals and electronics components
and also to dry clean clothing. And CFCs are sometimes used to sterilize medical
devices, to stabilize whipped dessert toppings, or to provide the gas pressure to
operate boat horns and other warning devices. All these applications, and several
others, are examined in this report.
This study has three major analytical components. First, it updates and extends
previous estimates of CFC use and emissions through extensive primary data
collection and detailed analysis of the emissions process in each product area. This
'See Stolarski and Cicerone (1974); Molina and Rowland (1974); Crutzen (1974); Turco and Whitten
(1975); and NASA (1977).
2CFCs are commonly referred to as Freon; however, Freon is a DuPont trade name and therefore
is not used in this report.
Continuing research has led to more detailed specification of the chlorine-containing gases of princi-
pal concern and has added other types of gases (such as bromofluorocarbons) to the list of possible ozone
hazards. The National Academy of Sciences study specifically referred to fully halogenated chloro-
fluoroalkanes, which include the CFC that was then used as an aerosol propellant but was later banned.
4As of April 15, 1979, entering CFC aerosols into interstate commerce was prohibited for products
that come under FDA jurisdiction.
-------
segment of the analysis has shown that the composition of sources of CFC emissions
will change over the next decade. In 1976, the emissions of CFCs from air condition-
ing and refrigeration devices accounted for nearly 40 percent of total nonaerosol
emissions of the three most common and potentially most hazardous CFCs.6
However, nonrefrigeration emissions sources are growing more rapidly. In the
absence of regulation, the refrigeration share of emissions is expected to decline to
less than 30 percent of the total by 1990.
The second major component of the analysis is an investigation of the economic
properties of various technologies and procedures that industry might be able to
use to reduce CFC emissions. The research team, composed of both physical scien-
tists and economists, characterized existing technology and the economic forces
that motivate choices among technologies. This investigation revealed that some
emissions-control techniques have been or will soon be implemented by some CFC-
using industries as a result of economic forces even in the absence of regulatory
action. Consequently, our estimates of the potential for reducing emissions through
regulation are lower than those that would have been obtained from a purely
technical assessment of the differences between high- and low-emissions technolo-
gies.
The third major component is an assessment of the economic implications of
alternative regulatory strategies. These strategies include not only regulations that
would require the use of certain emissions-control techniques but also the use of
economic incentives to reduce emissions. The policy alternatives are compared
along a number of dimensions—costs to the economy as a whole, the distribution
of costs within and among industries, and operational advantages and disadvan-
tages of various policy mechanisms. No single policy option was found to dominate
the others along all dimensions; consequently, this study does not attempt to rank
policies. We merely provide information that will enable policymakers to weight
the different dimensions of policies in selecting among them.
SCOPE OF ANALYSIS
We have grouped the nonaerosol CFC applications in the United States into
eight categories: (1) flexible urethane foams, (2) solvents, (3) rigid urethane and
nonurethane foams, (4) automotive air conditioning, (5) chillers (i.e., large commer-
cial air conditioning systems), (6) home refrigerators and freezers, (7) retail food
store refrigeration, and (8) miscellaneous applications, including the liquid fast-
freezing process and sterilants.
About a dozen chlorofluorocarbon chemicals are currently manufactured and
used in the United States. The principal ones are CFC-11, CFC-12, and CFC-113 (the
numerical suffixes identify their chemical formulas). CFC-114, which until recently
was used principally as an aerosol propellant, is also used to a very limited extent
in these products. There are also some CFC chemicals that are made by combining
other CFCs in various proportions; the most prominent of these are CFC-500 and
5These are CFC-11, CFC-12, and CFC-113. It should be noted that most previous studies of CFC
emissions exclude CFC-113 even though it is fully halogenated and its use is rapidly increasing.
-------
CFC-502.6 At least 85 percent of the total annual use of these CFCs for
nonpropellant applications is reflected in our analysis.
Most other CFC emissions analyses—including the 1976 and 1979 studies by the
National Academy of Sciences—have failed to consider CFC-113 and CFC-114.
However, because of rapid growth in the solvents market for CFC-113, this has
become a significant source of emissions, and current scientific analyses indicate
that CFC-113 is about as hazardous to the ozone (per pound of emissions) as
CFC-12.7
Another chlorofluorocarbon, CFC-22, is widely used in home and supermarket
air conditioning systems; this chemical accounted for nearly one-fourth of total
domestic CFC use for nonpropellant applications in 1976. However, CFC-22 is not
fully halogenated (i.e., it contains a hydrogen atom), and models of atmospheric
chemistry indicate it is only one-tenth to one-fifteenth as hazardous to the ozone
layer (per pound of emissions) as the CFCs listed above. Therefore, we have not
treated CFC-22 as a principal ozone hazard, and home and supermarket air condi-
tioning systems are not included in the list of analyzed products. CFC-22 has been
cited as a potential substitute for other, more hazardous CFCs in the refrigeration
product areas we have analyzed, however, and this possibility is examined in this
report.
This study estimates CFC use and emissions from 1970 to 1976 (the last date
for which historical data were available at the start of this research), for each
product area and CFC. Projections of annual use and emissions extend through
1990, the most distant date for which predictions of future product market Condi-
tions are available from industry and published data sources. Projections of future
use and emissions in the absence of regulation form a baseline time profile of
emissions against which we measure reductions in emissions that might be gener-
ated by regulatory action.
For each category of nonaerosol applications, the study identifies feasible tech-
nical options for limiting emissions. When adequate data are available, each techni-
cal option is evaluated in terms of its cost to industry, its effectiveness in limiting
emissions when properly implemented, the length of time required to implement
the option, the CFC price required to make use of the option cost-effective to
industry, and the ease with which the option could be enforced if required by
regulation in the absence of increased CFC prices.
The technical feasibility and cost of some technical options for emissions control
are not well known. Some options are still on the drawing boards, while others have
been so little used that their costs in an expanded market are not known. Given
these uncertainties, prudence suggests that these options should be viewed skepti-
cally, both as candidates for mandatory controls and as likely outcomes of economic
incentives policies.
More generally, this analysis has taken a cautious approach in its treatment of
uncertainty. By design, our predictions of policy effects may tend to understate
potential emissions reductions and overstate costs to industry.8 However, the
6CFC-500 is a blend of CFC-12 and FC-152a (a fluorocarbon that contains no chlorine). CFC-502 is a
blend of CFC-22 and CFC-115.
'Personal communication with Dr. M. J. Molina, University of California at Irvine.
8In contrast, our baseline emissions projections are not particularly cautious, but are a "most likely"
outcome given what firms told us about their own plans for the future.
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analytical procedures and assumptions that lead to cautious predictions are
specifically designed to be evenhanded in the treatment of alternative policies, and
the resulting comparison among policy options should not be affected.
The study explores the implications of two general policy strategies, those that
set specific standards for the way CFCs are used or emitted (mandatory controls),
and those that provide economic incentives for reducing use and emissions. The
mandatory control options necessarily differ from one product area to another,
while economic incentive policies can be applied to the CFC market as a whole, by
effectively raising the prices at which CFCs can be purchased.
Evaluation of the health and environmental effects of ozone depletion is beyond
the scope of this study, and we have not attempted to weigh the costs of regulation
against health and environmental benefits. Instead, we identify mandatory control
policies that could be expected to reduce CFC emissions between now and 1990
without seriously curtailing the availability of the services provided by the final
products made from CFCs. These policies establish a benchmark of cumulative
emissions reductions over the next decade.9 We have calculated the costs of these
mandatory controls and compared them with the costs that would be incurred
under economic incentives policies designed to match or improve upon the
benchmark level.
This study was not mandated to examine potential bans on production of cer-
tain CFCs or their use in particular applications. However, it is possible to draw
some qualitative conclusions about the implications of such bans, based upon the
analyses and data presented here. These inferences are noted in the concluding
section of this report.
Programs to encourage voluntary emissions reductions are not examined in
detail, though they are discussed briefly in the concluding section. Historically,
commercial firms have sometimes acted in the public interest, even when it has cost
them something to do so. However, it is difficult to predict the extent to which
industry would voluntarily undertake actions to reduce CFC emissions, so we have
cautiously assumed that firms will voluntarily take only those actions that are
already cost-saving or nearly so. Logically, the effects of such cost-saving actions
are built into the baseline use and emissions profiles presented in this study.
Policy alternatives are evaluated here primarily in terms of their potential
effects on CFC users' capital investment and production costs, and on consumer
prices. The policies may also affect employment, energy use, or worker exposure
to hazardous materials that might be substituted for CFCs and, where possible, this
study identifies these factors and other possible side effects as well as the basic
economic implications of regulation.
Any policy that reduces CFC use below the baseline projection implies that the
CFC producers will face smaller markets for their products than they would in the
absence of regulation. Appendix A reports the reductions in CFC for 1980 and 1990
under various policy scenarios.10 Some, but not all, of the polices would cause an
initial cutback in annual production below 1979 levels. However, none of the policy
9As explained later in this section and in Sec. II, scientific models indicate that cumulative emissions
over a decade is an appropriate measure of the effectiveness of a policy in protecting the ozone layer.
10Another Rand document (Wolf, 1980) details the relationships between baseline and regulatory
scenario output levels for CFCs.
-------
scenarios that are analyzed quantitatively would cause annual cutbacks below 1979
levels throughout the entire period 1980 through 1990. Consequently, the
likelihood of CFG production facility closures is substantial only in cases where the
long-term profitability of continued operation is critically dependent on achieving
the baseline level of CFC market growth. We do not have sufficient data on CFC
plant capacity utilization and profitability to make a judgment about the likelihood
of CFC plant closures.
SOURCES OF INFORMATION
In a preliminary stage of this research, we reviewed the existing CFC studies,
evaluating them as a source of data for policy assessment. We found that historical
data were incomplete and often conflicting, and that projections of future CFC use
and emissions were virtually nonexistent. Consequently, we developed our own
data base from interviews and surveys of industry contacts; in the refrigeration
product areas, data collection was performed by a research subcontractor, Interna-
tional Research and Technology Corporation (IR&T). The information from all
sources was summarized in written reports, which were submitted to the sources
for review and revision. We then used this new data base to prepare use and
emissions profiles and to evaluate the implications of various policy candidates.11
OVERVIEW OF RESULTS
The following discussion summarizes the analyses and findings from a complex
research project, and thus necessarily skirts certain issues and avoids certain de-
tails. Notes to the text, as well as the Table of Contents, identify sections of this
report that deal with individual matters in far greater detail.
Use and Emissions
Table 1.1 summarizes the use and emissions estimates obtained in this study
for 1976 and 1990, combining all the CFCs (except CFC-22). A more detailed break-
down of these data is given in Sec. III. Emissions are projected to more than double
by 1990, led by growth in rigid foam, solvent, and flexible foam applications. Annual
worldwide emissions, which have been a little more than twice the U.S. level, could
grow proportionately, though this possibility is not supported by detailed analysis
from this study. These growth rates are considerably above the zero-growth rate
being assumed by many of the current scientific studies that are attempting to
predict the extent of climatic change and ozone depletion due to CFC emissions.
We emphasize that the estimated growth rates to 1990 cannot be projected to
continue beyond that year. The CFC applications most responsible for the cur-
uAlthough the refrigeration product area analyses are based on the IR&T data, some revisions have
been made. Evident errors in data calculation have been corrected, and in some instances, we reinter-
preted the implications of IR&T data or reevaluated the feasibility of various emissions-control strate-
gies.
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Table 1.1
ESTIMATED CFC USE AND EMISSIONS FROM NONAEROSOL APPLICATIONS
(EXCLUDING CFC-22), 1976 AND 1990a
(Millions of pounds)
Analyzed Applications
Flexible foam
Solvents
Rigid foams
Ur ethane
Nonur ethane
Mobile air conditioning
Other refrigeration
Chillers
Home refrigerators
and freezers
Retail food devices
Miscellaneous
LFF
Sterilants
Other
Total
Other applications
1976
Use
34
69
37
23
90
13
6
11
6
13
4
306
51
Emissions
34
69
14
19
76
12
5
10
6
13
4
262
51b
1990
Use
72
147
159
67
125
20
9
10
15
40
15
679
47
Emissions
72
147
59
54
122
17
7
9
15
40
9
551
47b
Calculations were performed from data provided by in-
dustry and published sources, as explained in Sees. III.A
through III.H. Annual use does not necessarily equal an-
nual emissions because some CFCs are banked in final pro-
ducts and released slowly over time.
Although some of the products in this category may
bank the CFC, estimated emissions figures assume all
CFCs are promptly emitted.
rent high growth rates are in a phase of increasing market penetration, as a result
of either increased use of final products or increased use of CFCs in manufacturing
those products. By 1990, penetration should be complete in most existing markets,
so the CFC use growth rate should slow to approximately that of the GNP, unless
significant new uses of CFCs are developed in the next decade. Moreover, easily
extracted fluorine is expected to become scarce toward the end of this century,
which will increase the prices of CFCs and provide incentives to develop new
technologies that are less CFC-oriented.
Table 1.1 shows that the contribution to emissions made by home appliances
and retail food store refrigeration is relatively minor. These products are frequent-
ly mentioned at the forefront of discussions of the prospects for reducing CFC
-------
emissions, implying that solutions to the ozone depletion problem hinge upon sacri-
ficing food storage or developing new refrigeration technology. The data clearly do
not support such contentions.
The projections of annual emissions for 1980 through 1990 in the absence of
regulatory policies represent the baseline time profile of emissions against which
policy effects are measured in this study. Hence, a "reduction in emissions" is
achieved if the time profile of emissions under regulation lies below the baseline
time profile. None of the policy alternatives considered here would result in nega-
tive average rates of growth in emissions for the decade as a whole.
The CFC "Bank"
As shown in Table 1.1, not all of the CFCs used in a year are emitted in that
year. Some products are made by confining the CFC within the product, and the
confined CFC may be emitted only slowly over time or may be retained until the
product ruptures, perhaps at the time of disposal. We refer to the CFC contained
in a stock of final products as the CFC "bank." (Emissions that occur as soon as the
CFC is first used are referred to as "prompt" emissions.) A substantial degree of
banking occurs in rigid urethane and some nonurethane foams, mobile air condi-
tioners, chillers, retail food store refrigeration devices, and home refrigerators and
freezers.
Table 1.2 reports our estimates of the size of the CFC bank by product area for
1976 and 1990. Additions to the bank through growth in final product output are
far larger than emissions from the bank over this period. The bank will nearly triple
by 1990, most of the increase being attributable to rigid foams. Thus, even if all CFC
use were banned by 1990, a large amount of emissions would still occur over the
following decade.12 The eventual emissions from the 1990 bank alone would about
equal the total cumulative emissions for 1976 through 1981.
Mandatory Control Options
All of the technical options for emissions control identified in this study were
tested against three criteria, which they had to satisfy in order to be included in
the "benchmark" set of mandatory controls. First, the option-had to be enforceable.
If an option would be so costly to industry that it would present strong incentives
for evasion, and if it would have to be monitored frequently and at many sites, then
the cost of effective enforcement would be so high that such an option is herein
deemed unenforceable. For example, technical options that were excluded from the
benchmark set on this basis include recovery of CFC refrigerant from home appli-
ances, chillers, automotive air conditioners, or retail food refrigeration systems
that are being scrapped. Some other unenforceable options are noted below, and
all are discussed in the product area sections of this report.
The second criterion was that data on the technical feasibility and cost of an
option had to appear reliable and internally consistent. Many of the options ex-
12And not all of the bank would be emitted within that decade. Emissions from rigid foams would
continue for many decades.
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Table 1.2
ESTIMATED SIZE OF THE CFC BANK IN 1976 AND 1990
(EXCLUDING CFC-22)a
Product Area
Rigid foams
Urethane
Nonurethane
Mobile air conditioning
Other refrigeration
Chillers
Home refrigerators and freezers
Retail food store devices
Total
CFC Bank
(millions of Ib)
1976
230
20
222
59
86
56
673
1990
1,156
135
384
89
104
81
1,949
See Sees. III.A through III.H for calculations
and data sources.
eluded on this basis involved CFC uses in miscellaneous products and would result
in only small reductions in emissions even if they proved effective and enforceable.
The options excluded on the basis of poor data that could have contributed signifi-
cantly to emissions reductions by 1990 are primarily related to automotive air
conditioning products, and most of these options involve the use of such new and
unproved technologies that further assessment would be required before regula-
tions could be instituted.
The third criterion for the benchmark control candidates was designed to per-
mit valid comparisons between economic incentives and mandatory controls; it
concerns the anticipated timing of the costs and emissions effects of the proposed
options. Most of the technical options that involve substituting an alternative re-
frigerant in refrigeration or air conditioning applications would require some re-
search and development, followed by major retooling, and then followed by
substantial turnover of the existing stock of refrigeration devices before any effects
on emissions would become noticeable. Given the 1990 horizon for the quantitative
policy comparisons, almost all of the costs and virtually none of the emissions
benefits of such options would be observable in the benchmark analysis. Conse-
quently, the comparison between mandatory controls and economic incentives
would yield misleading and arbitrary results. The longer-run implications of incor-
porating slowly maturing technical options in a regulatory strategy are explored
in the product area sections of this report but are not reflected in the analysis of
benchmark outcomes.
The technical options that met all three criteria are listed in Table 1.3. These
benchmark control options involve three emissions-reduction techniques. One is
recovery and recycle, which captures CFCs that would otherwise be released to the
-------
atmosphere and returns them to use in place of virgin chemicals. Recovery and
recycle appears to be a feasible option for producers of flexible foam and ther-
moformed polystyrene sheet, a rigid nonurethane foam used in packaging appli-
cations. The second technique is the imposition of equipment standards for users
of solvents in industrial cleaning and drying. These standards would specify design
features for cleaning and drying equipment that would limit the escape of CFC
vapors into the atmosphere. The final technique is substitution of less-hazardous
CFCs for the CFCs that are currently used. Substitution of CFC-22 for CFC-12 as
the gas used in testing chillers and retail food store refrigeration systems would
reduce emissions of CFC-12. Retail food store refrigeration systems designed for
medium-temperature (nonfreezing) applications could be charged with CFC-502
instead of CFC-12.13 Thus, the benchmark controls would reduce emissions of the
most hazardous CFCs from certain applications in six of the major product areas
under investigation.
Table 1.3
BENCHMARK MANDATORY CONTROL OPTIONS
o Flexible foams: recovery and recycle of CFC-11 in
slabstock and molded flexible foam plants.
o Solvents: equipment standards for users of CFC-113
in cleaning and drying applications.
o Rigid foams: recovery and recycle of CFC-12 in
thermoformed extruded polystyrene sheet plants.
o Chillers: conversion to CFC-22 test gas at manufac-
ture.
o Retail food refrigeration: conversion to CFC-22
test gas in manufacture.
o Retail food refrigeration: conversion to R-502
refrigerant in medium-temperature (nonfreezing)
systems.
Two technical options that were excluded from the benchmark control candi-
dates could result in substantial emissions reductions under an economic incentive
policy. One is substitution of methylene chloride for CFC-11 in flexible foam manu-
facture. This option was omitted because it does not pass the enforceability test. Not
all foams can be made with methylene chloride, so regulatory exemptions would
be necessary to permit all types of existing foams to remain on the market. Given
the several hundred production sites for foams and the ease with which production
can be converted back and forth between CFC and methylene chloride, it would be
extremely difficult to ensure that CFC was being used only for the exempted foams.
In contrast, economic incentives could make it profitable for many foamers to use
methylene chloride instead of CFC-11. Moreover, our analysis anticipates that a
13This change would not require extensive research and development or industry retooling and thus
would yield most of its emissions effects by 1990.
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10
CFC recovery and recycle mandate would induce some foamers to convert to
methylene chloride rather than comply directly with the regulation. Thus, even
though methylene chloride substitution is not one of the benchmark controls, some
substitution is expected to occur if the benchmark controls are implemented.
The second option that is notably absent from the benchmark candidates is
substitution of other solvents for CFC-113. Regulatory exemptions would be neces-
sary in particular solvent applications where substitution is not feasible. As in the
case of methylene chloride substitution in flexible foams, exemptions facilitate
evasion of regulation, making enforcement difficult and costly. Perhaps more im-
portant, many of the potential solvent substitutes for CFC-113 are currently
thought to be possible health or environmental hazards. A regulatory decision to
require increased use of one or more of the alternative solvent substitutes would
necessitate weighing the risks of ozone depletion against other hazards. The doubt-
ful prospects for a near-term regulation mandating solvent substitution make it a
poor candidate for the benchmark controls.
Like bans on the use of CFCs, policy options to eliminate the existing CFC bank
through retrieval or replacement of the existing stock of CFC-holding products are
excluded from this report, reflecting a judgment on the part of EPA that such
policies would be far too costly to implement. Regulations concerning newly pro-
duced CFC-holding products, such as requiring the use of a different refrigerant in
new refrigerators and freezers, are considered, but few such options appear in the
benchmark controls because most of their emissions effects would occur after
1990."
Estimated Effects of Mandatory Control Options
To analyze the implications of mandatory controls or economic incentive poli-
cies, it is necessary to specify the year of implementation. In order that the out-
comes of policy could be revealed over as long a period as possible, given the 1990
horizon of our data base, we have assumed that the benchmark controls would be
implemented in 1980 and enforced through 1990. For purposes of comparison,
economic incentives are also assumed to be implemented in 1980. However, using
a later implementation date would not jeopardize the qualitative results of the
comparison of the two policy strategies, provided the same implementation date
would apply to either strategy.
Furthermore, to compare alternative policies, it is necessary to establish a
common measure of effectiveness in protecting the ozone layer. We do this first by
measuring the emissions effects of each policy in terms of "permit pounds." The
permit-pound measure weights the CFCs so that one permit pound of any CFC has
the same chlorine content as a pound of CFC-113. Because chlorine content is a
major factor in determining the ozone depletion potential of fully halogenated
CFCs, the permit pound is an appropriate measure for comparing the ozone protec-
tion afforded by various policies.16
"See Sec. II for a dicussion of why new source performance standards for manufacturing processes
are not treated as candidates for the benchmark controls.
16The multiplicative weights are: 1.36 for CFC-11; 1.03 for CFC-12; .26 for CFC-502; and 1.00 for
CFC-113. The weight for CFC-502 reflects the chlorine content of its CFC-115 component and one-tenth
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11
Second, the overall environmental protection achieved by a policy is measured
by its impact on cumulative emissions levels from 1980 through 1990. Information
supplied by EPA indicates that the ultimate damage to the ozone layer is indepen-
dent of the timing of emissions over periods as short as one decade. (See Sec. II.)
Table 1.4 summarizes results of the analysis of the benchmark mandatory
controls. The cumulative emissions reductions are measured in pounds of CFCs
and, alternatively, in permit pounds. Note that conversion from CFC-12 to CFC-502
increases CFC-502 emissions. The permit-pound measure of this effect reflects the
estimate that a pound of CFC-502 is only about one-fourth as hazardous to the
ozone layer as a pound of CFC-12.
Table 1.4
ESTIMATED EFFECTS OF THE BENCHMARK MANDATORY CONTROLS"
Product Area
Flexible foams
Solvents
Rigid foams
Retail food
refrigeration
Chillers
Total
CFC
CFC-11
CFC-113
CFC-12
(CFC-12
(CFC-502
CFC-12
Non-
CFC-226
Annual Reductions
in Emissions
(millions of Ib)
1980 1990
26.5 40.5
10.0 32.5
7.2 11.3
1.0 4.0
-0.7d -3.9d
0.1 0.1
44.1 84.6
1980-1990 Cumulative
Emissions Reduction
(millions)
CFC Pounds Permit Pounds
368.5 501.2
185.7 185.7
103.0 106.1
.11:1}
1.0 1.0
660.7 812.3
1980-1990
Cumulative
Compliance Costs
(millions of $)
93.3
45.7
38.8
7.3
0.1
185.3
Detailed calculations are presented in Sees. III.A. through III.G and IV. Components
might not sum to totals because of rounding.
Baseline use and emissions in CFC pounds are shown in Table 1.1. Baseline use measured
in permit pounds would be 454.9 millions in 1980 and 784.4 millions in 1990, for a cumula-
tive total of 6.7 billions over the period 1980 through 1990. Baseline cumulative emis-
sions are 5.4 billion permit pounds.
Cumulative compliance costs are the sums of annual compliance costs in constant 1976
dollars discounted at 11 percent per year.
The negative signs for CFC-502 emissions reductions indicate that those emissions
would increase under the mandatory control options.
6The totals for non-CFC-22 exclude the 48.8 percent of CFC-502 that is composed of
CFC-22.
Compliance costs are the costs of resources used in the industry activities that
reduce CFC emissions. For example, a firm's expenses to purchase and operate CFC
recovery and recycle equipment are measured by compliance costs. The cumulative
the chlorine content of its CFC-22 component. It is possible to adjust the weights to specify permit pounds
using any CFC as the base, but all calculations in this report use CFC-113 as the base. The use of chlorine
content to weight emissions of different CFCs was recommended by EPA, and was accepted by Dr. M.
J. Molina as a reasonable approximation to the relative ozone hazards implied by current scientific
models.
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12
compliance cost estimates are the sums of annual compliance costs (in constant 1976
dollars), discounted to 1980 at 11 percent per year.16
The economic analysis indicates that compliance costs would be passed through
to consumers in the form of modest increases in final product prices (less than five
percent in all cases for which data are available). The data in Table 1.4 reflect an
assumption that the anticipated price increases will not seriously restrict the mar-
ket for any of the final products made by CFC-using firms. A possible exception is
the market for rigid foams (polystyrene sheet) used in packaging applications,
where paper and cardboard are closely competitive products. Because this type of
foam is a small component of the rigid foams product area, revising the assumption
for that case would only slightly increase the emissions reductions and reduce the
compliance costs shown in the table. It should be noted, however, that rigid pack-
aging foam is a product for which any regulatory action, whether mandatory
controls or economic incentives, increases the risk of plant closures. (See Sec. III.C.)
The estimates of emissions reductions and compliance costs presume that no
new regulatory restrictions will be placed on chemicals that might be substituted
for CFCs.17 The effects of this presumption are not trivial. In flexible foams, for
example, 40 percent of the emissions reduction shown in Table 1.4 is achieved by
some smaller producers who find it less costly to convert to methylene chloride than
to recover and recycle CFC-11.
Overall, the benchmark mandatory controls would reduce cumulative permit
pounds of U.S. nonaerosol emissions by about 15 percent between 1980 and 1990
(inclusive).
Economic Incentives Policy Options
The economic incentives policies studied here function by raising the prices of
newly produced (virgin) CFCs. With increased CFC prices, some users would find
it cost-saving to recover and reuse CFCs that would otherwise be emitted, to substi-
tute alternative chemicals for CFCs, to purchase equipment that reduces CFC
losses to the atmosphere, or to make other changes in their production or servicing
practices. The CFC prices at which various technical options become cost-saving for
various users are predicted by the CFC demand analyses presented in the product
area sections of this report.
As Sees. IV and V explain, CFC prices could be raised either through an excise
(sales) tax, which the user would pay in addition to the CFC supplier's price for each
pound of CFC purchased, or through imposition of a quota on total CFC sales.
Under a quota system that effectively restricts the availability of CFCs, some
mechanism is necessary for allocating the available supplies among users. As Sec.
V explains, a reliable way to assure that the allocation is economically efficient is
for the regulatory body to issue marketable permits for CFC use.18 The permits
would resemble ration coupons and would have a designated face value authorizing
purchase (or sale) of certain amounts of alternative CFCs during a specified time
period. CFC users would obtain newly issued permits and could buy and sell
"Section II explains the choice of 11 percent for cost discounting and zero percent for emissions
discounting.
17All existing OSHA, EPA, and other regulations are presumed to remain in effect.
18Section V also discusses the implications of quotas without permits.
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13
permits among themselves.19 Thus, the market for permits determines their price.
A user wishing to buy CFCs would have to turn in permits he has acquired as well
as pay the producers' CFC prices.
On a given CFC demand schedule, a particular CFC price corresponds to a
particular level of CFC use. In principle, therefore, a tax that yields a targeted level
of CFC use equals the permit price for a quota set equal to the use target. Conse-
quently, the quantitative analysis described here treats the two incentives policy
techniques as identical. However, Sees. V and VI discuss operational differences
between tax and permit quota approaches.20
All of the economic incentive policy designs specified for the quantitative analy-
sis assume that all applications of fully halogenated CFCs would be subject to the
policy. This feature promotes economic efficiency by encouraging pursuit of the
least costly combination of emissions-reducing activities among all product areas
and all CFCs to achieve a given goal. It is also especially valuable in providing
incentives for new technology development in product areas where no emissions-
reducing options appear to exist. Not incidentally, widespread coverage by a permit
policy helps to ensure against a very small number of firms attempting to corner
the market for CFC permits. Finally, it is less costly to administer an economic
incentive policy that does not exempt certain users.21
While all applications would be subject to the policy, the tax or permit price
would vary among CFCs, depending on the CFC's potential for environmental
damage per pound of emissions. This feature provides greater incentives for reduc-
ing emissions of the most hazardous CFCs, including substitution of less-hazardous
CFCs where that is technologically feasible. The desired price differentials are
achieved by specifying a tax rate or permit price per "permit pound" as defined
above. For example, a tax rate of 10 cents raises the price of CFC-113 by 10 cents
but raises that of CFC-11 by about 14 cents; similarly, a permit purchased for 10
cents would allow the use of one pound of CFC-113 or about 0.74 pounds of CFC-11.
When the product area demand schedules for a given year are specified in
terms of permit pounds and are aggregated, the year's overall demand curve looks
like the curve in Fig. 1.1, which shows the demand schedule for 1980. The CFC
producers' supply prices have been subtracted from the user demand price, so the
vertical axis is specified in terms of a price increment that could be established by
policy action. The points in the figure represent our point estimates of CFC use and
price combinations, while the dashed curve is a continuous approximation illustrat-
ing the point estimates. Section IV details the derivation of the demand schedules
and explains how less cautious assumptions would alter the demand schedules and
hence the estimates of policy effects.
Figure 1.1 shows that CFC demand is responsive to price. The distribution of
inducement prices for emissions reductions is such that many different product
areas would participate in such activities throughout the price range, as indicated
"Section V discusses the option of also allowing the CFC producers to buy and sell permits.
20In practice, the two policies can be expected to yield different outcomes, partly because there is
uncertainty about the precise relationship between CFC prices and quantities demanded, and partly
because taxes usually cannot be changed without legislative action and thus are relatively inflexible
over time. Marketable permits can more easily yield permit prices that vary over time due to variations
in the annual quota level.
21The implications of exemptions are discussed in Sec. V.
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14
21
h*
OJ
a.
x
3
S.
2.20
2.00
1.80
1.60
1 40
1 «TV
1.20
1.00
0.80
0.60
0.40
0.20
nnn
I
I
•SOL
I
\
\
_ \
^MAC
\
KEY: Initials indicate product
areas taking action to
reduce emissions as follows:
FF = Flexible foams
RF = Retail food
PSS = Polystyrene sheet
SOL = Solvents
MAC = Mobile air conditioning
• VPSS
*» SOL
\ • PSS
\
\. PSS
. v FF
V
\
Y PSS. SOL. FF
^V^ SOL
* ^
**V»RF, FF, SOL, PSS
A 1 1 I 1 I I I 1 1 i 1 *^i-».
340 350 360 370 380 390 400 410 420 430 440 450
Permit pounds of total CFC use (millions)
Fig. 1.1—1980 demand schedule for use of fully halogenated CFCs
by the product area labels in the figure. For example, a price increment of 25 cents
per permit pound would induce producers of retail food refrigeration systems,
flexible foams, and some types of rigid foams, as well as solvent users, to undertake
emissions-reducing actions.22 The CFC demand curves for years other than 1980
also reveal a mix of price responses across product areas, though of course the
curves shift to the right and change shape somewhat to reflect growth in demand
in the various product areas.23
Because virtually all the CFC used is ultimately emitted, limiting use limits
22A 25 cent price increment per permit pound translates into a 25 cent increment per pound of
CFC-113, a 26 cent increment for CFC-12, and a 34 cent increment for CFC-11. In 1976, CFC supply prices
ranged from about 34 cents (CFC-11) to $1.20 per pound (CFC-152a).
23The CFC demand schedule point estimates for 1980 and 1990 are presented in Appendix C.
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15
emissions. As a practical matter, the amount of CFC going into the CFC bank is
very insensitive to CFC prices, so the price effects we estimate appear primarily
in the prompt-emitting applications. Consequently, a price increase that reduces
use in a given year will reduce emissions in that year by almost the same amount.
The demand curves can therefore be used to determine the amount of emissions
reduction in a given year that would be induced by raising prices by a certain
amount in that year.
During the first year of implementation, 1980, the benchmark mandatory con-
trols would reduce use by nearly 58 million permit pounds (thus reducing emissions
by 54 million permit pounds). From Fig. 1.1, the same reduction would be induced
by a price increase of about 50 cents per permit pound. Larger price increases would
yield even greater emissions reductions. If prices were increased by $2.20 per
permit pound, 1980 use could be reduced by roughly 111 million permit pounds. Our
demand analysis does not evaluate the effects of CFC price increases above $2.20
per pound, in part because higher prices would not be necessary to achieve the most
severe emissions reductions contemplated in this study, and in part because higher
prices seriously threaten to put many firms out of business or even to eliminate
entire product areas.24
Three economic incentive policy scenarios are examined in this report. The
first, called the "benchmark-equivalent" scenario, would achieve approximately
the same cumulative emissions reduction as the benchmark mandatory controls.
The second, called the "low-growth" scenario, minimizes the average rate of growth
in CFC use over the coming decade, subject to a maximum price increment of $2.20
per permit pound in 1990; this policy would be only slightly more effective than the
benchmark-equivalent policy and is not referenced further in this overview, but the
low-growth scenario is used in Sec. IV to illustrate the cost implications of attempt-
ing to regulate annual growth rates rather than cumulative emissions. Finally, the
third scenario, "zero-growth," would have the same effect on cumulative emissions
as prohibiting growth in annual CFC use beyond the 1980 level.26
A given reduction in cumulative emissions can be obtained through many
different combinations of annual price increments. For example, the price incre-
ment could be set in 1980 and maintained at the same level (in constant dollars)
every year through 1990, or the increment could be set at a lower level in the initial
year but raised gradually over the period. While both types of policy design would
have the same cumulative emissions effect, the discounted cumulative costs to
industry would differ. The results cited in this overview reflect only policy designs
in which the price increment is held constant; however, Sec. IV indicates that costs
to industry can be slightly reduced by using a price increment that increases at a
constant rate of 11 percent per year—or noticeably increased by using a price
increment that starts lower but rises much more rapidly.
^Section II explains that our CFC demand models assume final product demand schedules are
perfectly inelastic. The assumption becomes less acceptable as the CFC price rises, and we do not
recommend using our models for permit prices or taxes much above $2.20 per permit pound.
25As examined here, the zero-growth policy would not actually hold annual use constant because that
proves to be much more costly than a policy that allows annual use to vary while achieving an equivalent
cumulative emissions reduction.
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16
Estimated Effects of Economic Incentives Policies
Mandatory controls require firms to use real resources to implement and oper-
ate technical options for emissions control. Real resource costs, or "compliance
costs," for technical options also arise under economic incentives policies. In addi-
tion, economic incentives cause firms to make tax or permit payments for the CFCs
that continue to be used. The tax or permit payments are wealth transfers that
leave the affected firms and enter the economy elsewhere; unlike compliance costs,
transfers do not cause the economy as a whole to sacrifice the production of other
goods and services.26 Because compliance costs and transfer payments have
different implications, these factors are treated separately in this analysis.
Compliance Costs. Economic incentive policies impose lower costs on the
economy as a whole than the benchmark mandatory controls, even when they
achieve the same cumulative emissions reductions. The benchmark-equivalent sce-
nario requires a constant price increment of about 50 cents per permit pound and
yields estimated cumulative compliance costs only 58 percent of those estimated for
the benchmark controls. Using marketable permits to achieve this outcome would
require setting a 1980 quota of 396 million permit pounds (13 percent below 1980
baseline use) and allowing the quota to increase by about 5.6 percent per year
through 1990.
The reasons for lower compliance costs under economic incentives can perhaps
best be illustrated by reference to an example of policy responses in the solvents
product area. Under mandatory controls, most solvent users would have to invest
in more conservative equipment; the majority of solvent users would comply
directly with the regulation because the equipment investment is too small to make
substitution of a different solvent a more cost-effective alternative. In contrast,
under economic incentives the price of the CFC-113 purchased by solvent users
would increase enough to encourage some of them to substitute an alternative
solvent. This leads to much larger solvents emissions reductions under incentives
than under controls, which in turn means that some CFC users in other industries
(particularly in rigid packaging foams) for which mandatory controls would be very
costly do not have to contribute as much to emissions reductions. Hence, because
incentives induce firms to use the least costly combination of technical options for
limiting emissions, the overall cost of achieving the benchmark level of emissions
reduction is lower under incentives than under mandatory controls.
Given the very cautious assumptions embodied in the demand-curve analysis,
the zero-growth scenario implies very high compliance costs. The price increment
would have to be maintained above $2.00 per permit pound throughout the period,
and cumulative compliance costs would be nearly $600 million.
The cautious assumptions that lead to high costs for zero growth partly reflect
a lack of data on the costs of several apparently feasible technical options in various
product areas (especially in miscellaneous products). If these options prove to be
as sensitive to CFC prices as the options for which cost data are available, the
cumulative emissions effect of zero growth would be achievable with a constant
price increment of 64 cents per permit pound, thus doubling the cumulative emis-
further discussion of this point, see Sec. II.
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17
sions reduction of the benchmark mandatory controls while generating cumulative
compliance costs only one-and-a-half times as high.
Table 1.5 summarizes results from the three incentive policy scenarios and
compares them with the benchmark controls.
Table 1.5
SUMMARY COMPARISON OF POLICY OPTIONS*
Policy Options
Emissions Reduction
(millions of permit pounds)
1980-1990
1980 1990 Cumulative
Compliance Costs
(millions of 1976 $)
1980-1990 .
1980 1990 Cumulative
Mandatory Controls
Benchmark
candidates
54
102
812
21
37
185
Economic Incentive Policy Scenarios
(Constant-Price Increment Designs)
Benchmark equivalent
Zero growth:
Cautious assumptions
Alternative assumptions
55
108
108
102
190
195
816
1,602
1,625
12
68
31
22
122
54
108
600
268
Calculations are explained in Sec. IV.
The 1980-1990 cumulative figure is the present value of annual compliance costs,
discounted at 11 percent.
Transfer Payments. The size of transfer payments depends on the way in
which an economic incentives policy is implemented. The payments are largest if
users must pay taxes, purchase permits, or pay higher prices to the CFC producers
for all the CFCs they use.27 However, transfer payments can be reduced through
tax forgiveness or by directly allocating permits to users without requiring
payments for the initial allocation. Transfers can also be offset by reimbursements
to users. Implementation strategies that mitigate transfer payments in any of these
ways result in "compensated" economic incentives policies, which are discussed in
Sec. V.
Transfer payments are wealth transfers. This fact is perhaps easiest to recog-
nize for the hypothetical case in which permits are directly allocated to users, who
then buy and sell permits among themselves; in this case, the permit revenues are
paid by the firms that buy permits and received by the firms that sell permits. The
same general principle applies, however, even if the tax or permit payments are
paid into the general treasury and later used to help finance government expendi-
tures.
For the firms that pay them, transfer payments are an expense that will be
reflected in higher prices to the consumer and a greater risk of plant closures and
transfer payments are not eliminated by setting CFC quotas without using permits. In that case,
the CFC producers would have to allocate available supplies in some fashion, probably by raising CFC
prices and thereby making themselves the recipients of the transfers. (See Sec. V.)
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18
worker unemployment. Because the transfers are not a real resource cost, the
negative effects on firms that pay them will be offset by benefits to the ultimate
transfer recipients. Nevertheless, transfers are a policy concern because wealth
redistribution and its effects on certain consumer prices and on plant closures are
politically sensitive issues.
Under an uncompensated economic incentives policy, cumulative transfer pay-
ments would be very large, ranging upward from $1.5 billion for the least costly
benchmark-equivalent policy. For the firms that pay them, uncompensated trans-
fers dwarf the costs of reducing emissions. On average, a firm's expenses for trans-
fers under an uncompensated benchmark-equivalent policy are about fifteen times
the costs of actually reducing emissions. For all but a few CFC-using firms, the total
expenses under uncompensated economic incentives are greater than the compli-
ance costs under mandatory controls.
Other Dimensions of Policy Comparison
Neither the benchmark mandatory controls nor any of the economic incentive
policy scenarios is expected to result in the elimination of any of the consumer
products under consideration.28 Moreover, neither mandatory controls nor a
compensated benchmark-equivalent incentives policy (i.e., one designed to mitigate
transfer payments) is expected to lead to increases in consumer prices of more than
five percent in CFC-using industries. Plant closures and worker unemployment
should be rare, with the possible exception of firms that produce rigid packaging
foams, where paper and cardboard are highly competitive products. The risk of
these detrimental side effects of regulation is greater under uncompensated
economic incentives policies, but with offsetting effects elsewhere in the economy.
Although even mandatory controls will encourage some firms to use chemical
substitution to avoid costly compliance with CFC regulations, the degree of chemi-
cal substitution should be far greater under economic incentives than under manda-
tory controls. To the extent that the substituted chemicals are found to be
hazardous to worker health or the environment, this greater substitution is a
disadvantage of economic incentives policies.
Notably, neither mandatory controls nor economic incentives would decrease
the use of rigid foam insulation, one major area where restrictions on CFC use
would extract a large energy penalty. There are several product areas where
incentives to reduce CFC use could cause some increase in energy use, but in no
case does it appear that an incentives policy would generate energy penalties
nearly as great as those imposed by CFC bans.
Economic incentives offer an important advantage over mandatory controls
because there are only five producers of CFCs who would have to be monitored to
assure that taxes are collected or the quota is observed. In contrast, enforcement
of mandatory controls would require identifying the several thousand CFC users
and their plant locations, then monitoring them on an ongoing basis.
comment applies even in the case of the rigid packaging foams. Although CFC packaging
foams might become less widely used as a result of regulation, the fact that paper and cardboard are
close competitors implies that consumers find the competitive products acceptable in several appli-
cations.
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19
Economic incentives are more flexible policy tools than mandatory controls.
They permit a wider range of emissions reductions, and a given cumulative reduc-
tion can be achieved using a variety of timetables for annual tax or quota adjust-
ments. Indeed, if the nature of the ozone depletion problem were deemed so
uncertain that a strenuous emissions-reduction program does not yet seem war-
ranted, a permit policy based on a quota only slightly below current CFC use levels
could be implemented with low initial costs to industry, and the option of rapidly
implementing a more stringent quota at a future date could be retained. In the
meantime, very low-cost emissions avoidance would be encouraged, industry would
gain familiarity with the policy mechanism, and the regulatory agency could look
more deeply into compensation techniques that could be introduced if the policy
became more stringent in the future.
Because Congressional authority is required for taxation policy to be changed
or implemented, taxes are a somewhat less flexible economic incentives technique
than marketable permits might be. At the same time, industry's greater familiarity
with taxes and the assurance that each firm could buy as much CFC as it needs,
as long as the tax is paid, might lead to greater industry acceptance of the tax
approach.
Policy Options in Perspective
The data in Table 1.6 help put the U.S. policy options in a broader perspective.
Over the next decade, in the absence of regulatory action both at home and abroad,
the United States will contribute a little over one-fifth to worldwide cumulative
CFC emissions. The benchmark mandatory controls, or equally effective economic
incentive policies, would reduce total worldwide emissions by about three percent.
Table 1.6 also indicates that even an immediate and total ban on CFC use would
reduce U.S. emissions by only about 85 percent, because of the continuing emissions
Table 1.6
CUMULATIVE EMISSIONS OUTCOMES,
1980-1990a
Cumulative Emissions
U.S. Outcomes (billions of permit pounds)
Baseline
Benchmark
Zero growth
Ban in 1980
Rest of the world
(approximate)
5.4
4.5
3.6
0.8
23.2
Calculations performed by Rand. The rest-of-
the-world estimate is based on EPA-supplied esti-
mates for CFC-11, CFC-12, and CFC-113.
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20
from the existing CFC bank. Delay in taking action to limit emissions implies
further growth in the bank, and a resulting increase in future emissions that would
be extremely costly to eliminate.
RELATIONSHIPS BETWEEN TARGETS AND STRATEGIES
Because this study does not examine the health, environmental, or economic
benefits of ozone protection, we have not directly addressed the crucial issue of
setting emissions-reduction targets. However, the study does show that the choice
of a policy strategy is not independent of the policy target.
Either mandatory controls or economic incentives can achieve modest emis-
sions reductions by 1990. However, given current technology, it does not appear
feasible to use mandatory controls to reduce cumulative U.S. emissions by more
than 30 percent over the next decade; to do much better than this with mandatory
controls would require not only near-term technological innovation, but innovation
that is effective without time-consuming capital formation or turnover of the stock
of products in use. Short of such fortuitous technological development, an attempt
to achieve a more stringent target over the next decade requires a policy choice
between economic incentives and CFC bans.
Although CFC bans were not analyzed quantitatively in this study, we are
confident that bans would be more costly to the economy as a whole than economic
incentives, because incentives do not eliminate CFC applications until all less costly
options have been exploited. The costs of the two policy alternatives would be
similar only in the extreme case of a virtual elimination of all CFC use. The
principal disadvantage of using economic incentives to achieve stringent emissions
targets lies in the very large transfer payments that would be generated unless the
policy includes compensation. Consequently, if large emissions reductions are the
goal, design of a compensated implementation plan for economic incentives would
presumably be a major policy concern.
STRUCTURE OF THE REPORT
Section II explains important features of our methods of analysis. Sections III
and III.A through III.H detail the individual product area analyses, including
estimates of the effects of mandatory controls and simulations of the product area
CFC demand schedules; these sections may be used simply for reference purposes
by readers whose primary interest is in the overall comparisons of policy
alternatives.29 Section IV estimates the compliance costs for economic incentive
policies that would achieve emissions reductions similar to or greater than those
called for by the mandatory controls, and compares incentive policy compliance
costs with those of the benchmark controls. Section V discusses a number of
implementation issues for economic incentive policies, with particular emphasis on
the payments firms might make for the right to use CFCs and how these payments
29Section III establishes important assumptions and terminology common to all the product area
analyses and should be read in conjunction with them.
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21
might be reduced or rebated. Section VI presents an overview of the comparisons
among policy options.
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II. METHODS OF ANALYSIS
The goal of this study is to predict future economic behavior under regulatory
and economic conditions that represent radical departures from previous industry
experience. Some of the technologies that firms might use to reduce emissions are
not yet in widespread use, so their costs and effectiveness are uncertain. Moreover,
under economic incentive policies, firms might need to adapt to changes in CFC
prices that are several times greater than any experienced by the industry in recent
history.
Historical patterns of behavior can provide only limited guidance in predicting
the future industry outcomes when economic conditions are drastically altered.
Consequently, this study makes predictions by modeling the decisionmaking pro-
cesses of firms and their customers, then uses the models to simulate quantitative
decision outcomes. This section addresses a number of important analytical issues
that arose when the models for this research were devised, and describes how the
issues have been resolved. The methods and assumptions deserve close scrutiny
because they influence the outcome of analyses presented in later sections.
FINAL PRODUCT DEMAND ASSUMPTIONS
Each of the product areas examined in this study represents a grouping of firms
that use CFCs in similar ways and for similar purposes, though not necessarily to
produce a single, homogeneous final product. For example, flexible foams consist
of slabstock (cut-to-fit) and molded foams of widely varying resiliency and softness,
and the foams are used to produce such diverse consumer products as bedding,
furniture cushioning, textiles, and carpet underlay. In some of the product areas,
the information on the final products produced using CFCs is far from complete.
In particular, the only available information concerning the final products pro-
duced with CFC solvents is that much of the use is in the electronics industry.
Early in the research it became clear that neither data availability nor research
resources would permit empirical demand estimation for the numerous final prod-
ucts under consideration. However, preliminary results of the investigation sug-
gested that it would be appropriate to assume that the final product demand
functions are perfectly inelastic (unresponsive to final product prices) within the
range of final product price adjustments that could be expected to result from the
policies under review.
In every major product area studied here, the use of CFCs is a very minor
source of overall final output production costs. For example, even complete pass-
through to final consumers of all costs imposed by the benchmark mandatory
controls would increase final product prices by less (in most cases, much less) than
five percent.1 When price changes are this small, a perfectly inelastic demand curve
'Depending on how they are implemented, economic incentives policies could lead to greater product
price increases than under mandatory controls. This possibility is discussed later in this section in the
context of transfer payments.
22
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23
yields a good approximation to outcomes for any case in which actual demand is
not extremely responsive to price changes.2
Highly elastic (price-responsive) final product demand is a property most com-
monly encountered for products that have close substitutes whose prices move
independently of those of the product in question. For example, imported goods
could offer an alternative to domestic products. In most CFC-using product areas,
transportation costs limit the domestic market for foreign products enough that the
relatively minor domestic price increases anticipated in this research would not
lead to large-scale import substitution. But even for those products whose transport
costs are not a barrier to imports, the problem of import substitution can be solved
by setting tariffs or other import restrictions; this issue is addressed in Sec. V.
Foreign markets for domestically produced goods might have relatively elastic
final product demand because of competition from foreign-made goods. The only
product we have examined where foreign markets are currently an important
source of demand is chillers. This product is also one for which the effect of regula-
tion on final product prices is expected to be so small that it would be easily
overlooked by foreign consumers who already encounter far greater price varia-
tions for U.S. products due to changes in exchange rates.
There are some applications in some product areas (e.g., flexible foams and
solvents) where virtually identical products can be made without CFCs. In these
situations, we recognize that there is considerable elasticity of demand for the
output of firms that use CFCs, while maintaining the assumption that overall final
product demand (which is close to being indifferent about whether the product is
made with CFCs) is perfectly inelastic.
While we do not believe that the inelasticity assumption is grossly inaccurate
for any product, it is possible that actual final product demand functions have some
elasticity in the price range under consideration. Given uncertainty about final
product demand, assuming it is perfectly inelastic is, in most respects pertinent to
this study, "cautious." To the extent that the assumption is inaccurate, it leads us
to underestimate the reductions in CFC use and emissions that would occur after
regulatory action. If inaccurate, the assumption would lead us to overestimate the
increase in consumer prices due to policy action, and to overestimate the market-
able permit price or tax consistent with a particular emissions-reduction goal. In
short, perfectly inelastic final product demand is a "worst case" assumption for
predicting the economic implications of emissions control, though one we do not
expect to be very far from reality.
CFC DEMAND SIMULATIONS
Given perfectly inelastic final product demand, changes in the cost of producing
final products do not affect their output level for the product market as a whole.
As a rule, however, competition among firms to maintain or increase their market
"The First Fundamental Law of Demand, as specified by Alchian and Allen (1972, p. 60) is: "Whatever
the quantity of any good consumed at a particular price, a sufficiently higher price will induce any
person to consume less." The argument presented above is that the price changes under consideration
here are not sufficiently great to induce significantly lower consumption.
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24
shares induces them to seek the least-cost method of production. If the cause of
increased production costs is an increase in CFG prices, firms will seek to economize
on CFC use if the methods available for doing so lead to overall cost savings. The
analysis of CFC demand for each product area proceeds by simulating the firm's
decisions concerning how best to economize on CFC use.
All of the product area simulations assume that the prices of alternative chemi-
cals or for emissions-reducing capital equipment would be unaffected by the in-
creased demand for those products when CFC prices rise. Compared with their
non-CFC chemical substitutes, such as methylene chloride or methyl chloroform,
CFCs are specialty chemicals with relatively small markets. Even if all CFC use
were replaced with alternative chemicals in the flexible foams and solvents product
areas, the increase in the markets for the alternative chemicals would be only a few
percentage points; it is reasonable to presume, therefore, that the market prices of
the alternative chemicals would not be affected by the increased demand for them
generated by the CFC policies under consideration here. Similarly, solvent-using
equipment and recovery equipment have a much larger market than that gener-
ated by CFC use, and so equipment prices should not be affected (except perhaps
as a temporary phenomenon) by increased demand for equipment due to CFC
regulatory policy.
For the product areas most responsible for CFC emissions, available informa-
tion permits plausible simulation analyses. For flexible foams and solvents, the
simulations indicate that there is substantial elasticity of demand for CFCs. In
contrast, for much of the CFC use in rigid foams—for insulation in particular—the
simulations imply very low elasticity of CFC demand. The analysis of chillers and
retail food store refrigeration also indicates fairly high elasticity but with relatively
small effects on CFC use and emissions because current use and emissions are
relatively small for these products.
There are some product areas for which available data do not provide a suffi-
cient basis for carrying out the simulations. Automotive air conditioning is the one
major source of use and emissions where this is true, but the same difficulty arises
for home appliances, and for liquid fast freezing and sterilants and other "miscella-
neous" products. To conduct the analysis of the effects of economic incentive poli-
cies, we assume that the CFC demand functions in these product areas are perfectly
inelastic. However, we provide information indicating that these CFC demand
schedules are surely somewhat elastic; we offer some calculation of how much CFC
use and emissions might be reduced through economic incentives, though at an
unknown price; and we indicate how the results of the analysis of the economic
incentive policies would be affected if a plausible degree of CFC demand elasticity
were encountered in these product areas at CFC prices within the range under
consideration.
FIRMS' INVESTMENT DECISIONS
If faced by higher prices for CFCs, firms in several of the industries examined
in this study have one or more options for reducing CFC use while maintaining
current levels of final output production. In most cases, the options require making
an initial investment (e.g., for equipment with lower emissions rates) that yields
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25
returns for several years thereafter in the form of reduced purchases of CFCs.3 Our
methodology for simulating CFC demand in these industries proceeds by
calculating the CFC price at which the present value of net returns over the life
of the investment is sufficient to compensate for the initial investment cost. For
example, in a simple case where the annual reduction in CFC use is constant over
the life of the investment and the investment does not affect operating costs, the
formula for the CFC price at which the investment would become profitable is:
], (2.1)
where K is the initial investment cost, AC is the reduction in annual CFC expendi-
tures, r is the firm's opportunity cost of capital, T is the life of the investment, and
P* is the critical value of the CFC price.
In practice, information on the firm's opportunity cost of capital (r) is rarely
available. In some cases, even the investment lifetime (T) is uncertain because the
functional life of a piece of capital equipment is not necessarily equal to its economic
lifespan, especially in industries with rapid rates of technological change or high
rates of entry and exit. Finally, information on operating costs, especially fuel
requirements, for various types of capital equipment is often unavailable, usually
because the equipment is not yet in general use in the industry. In short, the
quantitative analysis of investment decisions requires us to make plausible as-
sumptions about the variables in the present value calculations.
Given information only on the initial investment cost (K) and the reduction in
annual CFC use (AC), there is an unknown factor, F, which would account for the
values of r and T such that Eq. (2.1) can be written:4
K = FP*AC (2.2)
The value of F, which must be assumed, is "robust" in the sense that there are
many values of its component variables that would yield the same value of F. For
example, if there are no operating cost adjustments, setting F equal to 4 is approxi-
mately equivalent to using r = 0.2 and T = 9, or r = 0.18 and T = 8, or r = 0.16
and T = 7. Given some uncertainty about which particular values of r and T are
appropriate, it is analytically convenient to rely on an assumed value of F to which
several plausible combinations of r and T are equivalent.
It is readily apparent from Eq. (2.2) that F can also be interpreted as the number
of years required for the undiscounted cumulative returns on the investment to
equal the initial outlay, a concept familiar to industry as the "payback period."5 We
expect this term to be familiar to many of the firms who participated in this study
3This type of investment is characterized as "point-input, stream-output." As a simplification, the
analysis presumes discrete annual returns rather than a continuous stream of returns.
4In more complicated formulations of Eq. (2.1), the value of F would include factors reflecting other
unknown variables, such as operating cost adjustments.
5Gordon (1962) has interpreted the payback period as an indirect though quick measure of invest-
ment return. Smith (1961) offers a rigorous analysis showing the conditions under which Gordon's
conclusion is correct; the investment conditions appearing in this study meet Smith's requirements. Lutz
and Lutz (1951) have even shown that under conditions like those encountered here, maximization of
the rate of return is equivalent to minimizing payback.
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26
because many firms actually use the simple payback concept6 rather than internal
rates of return or net present value calculations in making their investment
decisions. Consequently, the value of F is frequently described as the payback
period in the product area analyses, with notes to the text to indicate illustrative
values of r and T that correspond to the stated value of F.7
A DEFINITION OF TERMS: COMPLIANCE COSTS, RENTS,
AND TRANSFER PAYMENTS
Compliance costs, rents, and transfer payments are three components of the
cost of regulatory action that are distinguished throughout this study.
Compliance Costs
Compliance costs refer to the resource costs incurred by firms in adapting to
regulation, either by implementing mandated controls or in responding to in-
creased CFC prices. The costs include incremental investment in capital and any
net increases in operating (variable) costs. If firms that are not presently using
CFCs would begin to use them in the absence of regulation, the cost of forgoing this
opportunity is included in the estimates. If firms find it less costly to substitute an
alternative chemical for CFCs than to implement, say, mandatory recovery and
recycle of CFCs, the cost of conversion to the alternative chemical, rather than the
cost of implementing mandatory controls, is measured in the compliance cost esti-
mate.
Rents
Under perfectly inelastic final product demand, all compliance costs are passed
through to final consumers in the form of higher product prices. In the short run,
some CFC users in a product area may have higher compliance costs than others.
For example, the net cost of compliance with mandatory recovery and recycle
would be higher for small firms (which have less CFC to recover) if the required
investment in recovery equipment does not vary with the size of the firm. If final
product prices rise enough to cover the costs of the highest compliance-cost firms,
firms with lower compliance costs will receive higher prices than needed to compen-
sate them for their own production costs. In time, market adjustment (perhaps
through entry and exit of firms) tends to eliminate major cost differentials among
competing firms, but in the short run (a period of uncertain length) some firms in
the industry will earn "rents"—revenues in excess of production costs and normal
profits. Because the value of rents is exceedingly difficult to predict and because
6A 1971 survey (Fremgen, 1972) of 177 business firms in a variety of industries showed that 67
percent use the payback period as a criterion for evaluating investments, though often in combination
with other, more complex criteria.
In some instances, when we suspect that the economic life of equipment is shorter than its functional
life, we describe T as the period required for payback, but we also cite an assumed "discount rate" for
the value of r. This is equivalent to using a modified payback rule.
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27
they are temporary, we do not measure rents as part of the cost consumers would
pay for regulation. However, the prospect that there will be some rents in some
product areas for some period of time deserves recognition in that it implies that
consumer prices might initially rise more than the analysis predicts under the
assumption that only compliance costs are passed through by firms.
Transfer Payments
The third component of the costs of regulation, transfer payments, exists only
under economic incentives policies. If a CFC tax is levied, the tax payments by firms
are transfer payments; they enter the general treasury, from which the payments
are ultimately used to help finance government purchases of goods and services.
If regulation imposes a quota on CFC sales and the government sells permits for
CFC use, the payments for permits are transfers that also would enter the general
treasury and ultimately return to the economy elsewhere. If the permits are given
to the CFC producers who then sell them to users, the producers receive the
transfers. Even if the permits are directly allocated to the CFC users free of charge,
any sales among users in the permit aftermarket still result in transfers, in this case
from the buyers of permits to the sellers; however, to the extent that direct alloca-
tion to users reduces the number of permits that are bought and sold, the total
magnitude of transfer payments is reduced.
Finally, if a quota is set for CFC sales but no permits are issued, and if the CFC
producers allocate the restricted CFC supplies among users by raising the prices
of CFCs—which is not unlikely—then the increase in CFC prices generates trans-
fers from the CFC users to the producers, just as in the case of direct allocation of
permits to the producers. Although a regulatory policy that sets quotas without
permits is not a focus of attention in this study, the implications of such a regulatory
strategy are discussed in Sec. V.
More generally, the magnitude and distribution of transfer payments depend
on how an economic incentives policy is implemented. Transfers are at a maximum
if all users must pay taxes, buy permits, or otherwise pay increased prices for all
the CFCs they use; policies with this result are described here and elsewhere in this
report as "uncompensated." Policies that reduce transfer payments (or reimburse
firms for the payments) are described as "compensated" incentives policies. Vari-
ous compensation approaches, including direct allocation, are discussed in Sec. V
of this report.
Unlike compliance costs, transfer payments do not result from an increased use
of real resources in CFC-using industries, and thus do not restrict the ability of the
rest of the economy to produce goods and services. The transfers do raise the costs
of doing business for the firms that pay them, leading to increased consumer prices
and greater risks of plant closures and worker unemployment for those firms.
However, the transfers ultimately reenter the economy elsewhere, with offsetting
effects on prices, investment, and employment in other industries.8 Consequently,
8Transfer payments can cause short-run economic dislocations, both because the transfers might not
reenter the economy instantaneously and because some human and physical capital is firm- or industry-
specific and fixed in the short run. Like the short-run phenomenon of rents, temporary dislocations due
to transfer payments are omitted from the quantitative analysis of policy effects in this study.
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28
transfer payments are properly excluded when the focus of analysis is on the effects
of policy on the economy as a whole, as in Sec. IV of this report.
The effects of alternative policies on the economy as a whole represent, how-
ever, only one dimension of policy comparison in this study. Another is the extent
to which various policies result in a redistribution of wealth among firms, indus-
tries, and consumers. Wealth redistribution is relevant because it is politically
sensitive. Even when alternative policies yield the same benefits in terms of emis-
sions reduction, neither firms nor policymakers are indifferent to the distribution
of the costs of the regulation—especially if some distributions of costs could lead
to plant closures, worker unemployment, or high consumer prices in certain indus-
tries.
All regulations impose costs that vary from one firm or industry to another; the
benchmark mandatory controls, for example, would impose costs only on those
CFC-using firms for which controls are implemented and enforced, leaving many
users unaffected. Thus, compliance costs alone imply some redistribution of wealth.
Because transfer payments also redistribute wealth, they are included in the analy-
sis of the distributive effects of incentive policies. The transfers prove to be especial-
ly important in the analysis, both because the payments would be many times
larger than compliance costs under an uncompensated incentives policy and be-
cause the size of the transfers can be reduced through compensation techniques.
PLANT CLOSURE PROGNOSIS
Over the next decade, some production and sales facilities in the United States
will be shut down. Some of the closures will occur in the product areas examined
in this study. In a few cases, primarily those where the economic survival of the
firm is already borderline, CFC regulation could contribute to the closure and it
would be difficult (if not impossible) to determine with certainty whether regula-
tion is the critical factor. As a general rule, however, we do not expect the bench-
mark mandatory controls to cause plant closures in most of the product areas
examined here. The few possible exceptions to this rule are noted here and dis-
cussed in more detail in Sees. III.A through III.H.
In principle, even regulations that fall far short of banning a product can cause
the shutdown of some production facilities in an industry. There are two ways this
can occur: The regulations can cause product prices to rise enough to reduce final
product demand, or they can cause an increase in the optimal scale of production,9
leading some plants to expand output enough to displace their smaller competitors.
Since the final product demand functions for the products examined here ap-
pear to be extremely inelastic within the relevant price ranges, plant closures for
the first of the reasons listed above should be rare, and those that do occur would
result from highly localized demand conditions. The possible exceptions to this
general rule occur in situations where there are substitute final products that do
"Intuitively, the optimal scale of production is the output level of a firm that produces at the lowest
possible production costs per unit of output and is thus able to charge its customers low prices while
continuing to earn a reasonable profit. Regulations can change production costs so that the least costly
method of production occurs at a higher output level per firm, i.e., the optimal scale of production
increases.
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29
not use CFCs and the substitute products cannot be made with the same capita]
equipment that is used in CFC-based production.10 The principal cases where
substitution requires a different capital stock are packaging applications of rigid
nonurethane foams (where paper and cardboard are among the substitutes), in
liquid fast freezing (where cryogenic and mechanical freezing are alternatives), and
possibly in sterilants (where the alternative use of pure ethylene oxide or ethylene
oxide-carbon dioxide blends may be feasible). Of these product areas, only rigid
packaging foams would be subject to regulation under the benchmark mandatory
controls. The likelihood of plant closures in this product area is discussed in Sec.
III.C.
Increases in the optimal scale of production depend on whether a policy raises
fixed costs of production.11 Mandatory controls that raise fixed costs, and hence tend
to increase the optimal scale of production, are recovery and recycle of CFC losses
and equipment improvements to reduce CFC loss rates. Controls that increase only
variable costs are those that require or induce substitution of an alternative
chemical for the CFCs (provided no capital investment is required to make the
transition).
Given inelastic final product demand, changes in optimal scale are necessary
but not sufficient for there to be substantial numbers of plant closures. If final
product demand is growing fairly rapidly, firms can "afford" to operate for a time
at less than optimal scale. In time, existing plants will be able to increase their scale
of production to optimal levels without displacing other firms already in the mar-
ket. There will simply be fewer new entrants to the market than there would have
been in the absence of regulation. This is the outcome we find most plausible for
flexible foams and rigid nonurethane packaging foams. For the remaining product
areas, the anticipated changes in optimal scale appear too small relative to current
scale to result in plant closures, especially given the observation that there is
already considerable variation in scale of operation among existing plants.
All of the preceding comments on the likelihood of plant closures apply equally
well to outcomes under compensated economic incentives policies, because the costs
of regulation to the CFC-using industries would be lower than under the mandatory
controls. However, uncompensated policies would generate transfer payments
many times as high as compliance costs, and CFC-using firms would face total
regulatory costs much higher under such policies than under mandatory controls.
Consequently, there is greater risk of plant closures under uncompensated econom-
ic incentives policies.
PROGNOSIS FOR INFLATION
Economists distinguish between inflation, a rise in the general level of prices,
and changes in relative prices. Inflation occurs when the money supply expands
10Although there are substitutes for CFCs in flexible foams and solvents, the substitutes can be used
with the existing capital stock and so plant closures would not be caused by the elasticity of demand
for the CFC-made products.
ulf a regulation increases only variable costs, the firm's average cost curve rises vertically, leaving
the output level of minimum average costs unchanged. Increased fixed costs shift the average cost curve
to the right as well as upward, increasing the level of output at which average costs are minimized.
Reductions in variable costs can offset this effect, but the offset is not sufficient in the cases considered
here because a necessary outcome of regulation is an increase in total costs.
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30
relative to the supply of goods and services, or when the supply of goods and
services contracts relative to the money supply. Because environmental quality
does not appear explicitly in measures of the output of goods and services, an
increased use of resources in producing or protecting environmental quality ap-
pears as an inflationary reduction in economic output. Consequently, the compli-
ance costs generated by CFC regulation are inflationary. However, the inflationary
impact of the CFC regulations studied here would be quite modest, raising consum-
er prices by less than five percent due to compliance costs in CFC-using industries,
and having little if any effect on prices elsewhere in the economy.12 We expect such
effects to be imperceptible.
Transfer payments under uncompensated economic incentives policies would
cause larger final product price effects in the CFC-using industries, but would be
largely offset by price reductions elsewhere in the economy. Consequently, transfer
payments cause changes in relative prices but do not contribute to inflation accord-
ing to the economic definition of this term.
THE ARGUMENT AGAINST NEW SOURCE STANDARDS
In contemplating mandatory controls that set standards for production pro-
cesses, a regulatory agency has the option of applying the control only for new firms
and equipment purchases ("new source standards") or also requiring that existing
firms bring their production processes up to the standard (described herein as
"retrofit controls"). For some CFC applications, there are also the options of requir-
ing redesign of newly produced products and replacement of the stock of final
products in use; these options are pertinent for rigid insulating foams and for
refrigeration products, all of which emit CFCs during normal use and at product
disposal. Though all options are discussed, only retrofit controls on production
processes are included in the set of benchmark mandatory controls.
The options involving redesign of newly produced products to reduce their
emissions during normal use of the product or at disposal are not included in the
benchmark because most of the emissions effects would occur after 1990, the hori-
zon of the quantitative analysis in this study. Before they could generate their full
potential in emissions effects, these options would require further research and
development, followed by retooling of the industry, and then followed by a period
of time to allow for turnover in the existing stock of the products. Most of the costs
of implementing the options would occur at the beginning of this adjustment pro-
cess, and thus would appear in the cost data for the period 1980 through 1990. To
include these options in the benchmark controls would result in an unfavorable
comparison of controls with incentives over the first decade of the policy. There-
fore, the options have been omitted from the benchmark controls. However, the
product area analyses do examine the costs and longer-range emissions effects of
the options that have potentially sizable long-range emissions effects.
The options of replacing the stock of various CFC-containing products currently
12Prices elsewhere in the economy would be affected only to the extent that the supply of factor inputs
is less than perfectly elastic and the increased use of factors in CFC-using industries causes upward
movement along the supply curve.
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31
in use are not considered here. Some of these options would be extremely costly and
difficult to enforce, such as replacement of rigid insulating foams already in struc-
tures. For automotive air conditioners, systems that might currently be used to
replace existing units would have relatively small effects on emissions compared
to new systems that might be developed in the future, suggesting that it might be
worthwhile to defer a replacement strategy, at least until there has been further
technical assessment of systems that are still on the drawing boards. For insulating
foams, the replacement materials that are currently available would severely in-
crease energy utilization, as indicated by analysis presented in Sec. III.C. For the
remaining products (home refrigerators and freezers, chillers, and retail food store
refrigeration systems), the emissions benefits of replacement are small relative to
other and far less costly CFC policy actions.
New source standards on production processes (e.g., equipment standards and
recycling requirements) would effectively reduce emissions by 1990 (the horizon for
this analysis) only if: (a) in the absence of controls, new sources established between
now and 1990 would account for a significant fraction of CFC use and emissions
over the period; (b) in the absence of the controls, the new sources would not meet
the standards; and (c) the standards themselves do not encourage the prolonged or
more intensive use of existing equipment and operating practices that fall short of
meeting the standards. One or another of these conditions is violated in nearly all
of the product areas examined here.
In all the refrigeration product areas, we anticipate that existing firms and
capital equipment will be sufficient to satisfy final product demand for several
years to come. Consequently, new production facilities for these products would
account for only a small share of CFC use by 1990.13 The simulation analysis for
solvents suggests that much of the new equipment purchased between now and
1990 would meet proposed emissions control standards even in the absence of policy
action, so new source standards would have only a small incremental effect in
reducing emissions.
Flexible foam production facilities are expected to increase in number between
now and 1990 in the absence of regulatory action. However, there appears to be
considerable opportunity for increasing production from existing plants. Where
output from existing plants can be increased, new source standards encourage such
expansion and discourage new plant construction by increasing production costs for
new plants relative to older ones, thereby putting new plants at a competitive
disadvantage.14 Since output expansion appears feasible for older flexible foam
plants, new source standards would probably not greatly reduce emissions by 1990
in this product area. A similar situation arises with respect to certain rigid
packaging foams, as explained in Sec. III.C.
13Even if new production plants were to be built before 1990 in the absence of controls, controls would
probably delay capital expansion in these markets for the same reason given below concerning flexible
foams.
"New source standards cause the average cost curves of new plants to lie above those for older
plants. Consequently, older plants can profitably increase production beyond the minimum point on
their average cost curves.
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CUMULATIVE EMISSIONS AS A BASIS FOR POLICY
COMPARISON
According to information supplied by the EPA, models of atmospheric chemis-
try indicate that the ultimate effect on the ozone layer is essentially the same for
a given cumulative emissions level, regardless of whether the emissions occur in
a brief burst or over a period as long as a decade. The time profile of emissions does
affect the future date at which the ultimate ozone effect occurs. In principle, there-
fore, the emissions effects of alternative policies should be adjusted (discounted) to
reflect differences in the timing of ozone depletion outcomes. However, given that
the ultimate ozone effect would be reached only after several decades in any case,
discounting would not perceptibly alter the measured differences among the effec-
tiveness of alternative policies.15 Consequently, our analysis compares the outcomes
of alternative policies on the basis of their undiscounted cumulative emissions
effects between 1980 and 1990.
Different policy strategies can lead to different time profiles of emissions even
if cumulative emissions effects are equal. Mandatory controls "bite" as soon as they
are implemented, causing an immediate reduction in emissions relative to the
baseline level. Thereafter, emissions levels grow commensurately with growth in
user industries. In contrast, with economic incentives policies it is possible to select
alternative time profiles of emissions that produce a given cumulative reduction.
A policy involving a constant tax or marketable permit price yields a time
profile most similar to that of mandatory controls. Allowing taxes or marketable
permit prices to rise over time yields an emissions profile that does not show as
large a decline in early years but compensates with greater declines in later years.
While tax rates tend to be inflexible over time because they usually can be changed
only through legislative action, it does not appear as difficult operationally to vary
a CFC annual quota such that marketable permit prices would vary. The latter
feature offers a degree of flexibility in marketable permit prices that can be used
to some advantage, both in allowing industry some time-to become familiar with
the new policy mechanism and also in helping to reduce cumulative compliance
costs. The latter point is illustrated in Sec. IV.
DISCOUNTED CUMULATIVE COSTS AS A BASIS FOR
POLICY COMPARISON
In contrast with the measures of cumulative emissions reductions, all measures
of cumulative costs are discounted in this study. Policies can differ considerably in
the time profile of compliance costs and transfer payments imposed on industry,
and discounting accounts for the fac£ that firms are not indifferent to when regula-
tory expenses are incurred.
Suppose, for example, that a firm can invest its money in profitable enterprise
to earn a return of 11 percent per year, and that one policy option would require
the firm to spend $1,000 in regulatory expenses in 1980. If there were an alternative
15This is especially true for comparisons of effectiveness between mandatory controls and the bench-
mark-equivalent, constant-price economic incentives policy because the time patterns of emissions are
similar under the two policies.
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33
policy that would allow the firm to put off its regulatory expenses until 1985, the
firm could earn $685 by investing $1,000 elsewhere for five years. Other things
equal, the firm would be indifferent between an alternative policy requiring an
expense of $1,685 in 1985 and the original policy requiring an expense of just $1,000
in 1980. Using a discount rate of 11 percent, our estimate of the cumulative costs
of these two (hypothetical) policy alternatives would be equal.
Throughout this study, we use a discount rate of 11 percent per year to discount
future regulatory expenses.16 This discount rate is specified in real terms; it implies
that a firm could earn a (money) rate of return of 24 percent in years when the
inflation rate is 13 percent, as it was in 1979. The specific value of 11 percent was
chosen for consistency with cost-benefit analyses of the ozone-depletion problem
being performed by Dr. Martin Bailey at the University of Maryland and by Dr.
Daniel Dick and others at the Stanford Research Institute. Dr. Bailey reasons that
11 percent is the proper rate to use because it is the current real yield on
nonconstruction investment in the United States.
"Higher rates are used to analyze investment decisions for individual product areas in part to offset
incomplete data on investment costs and in part to reflect the unusual uncertainty surrounding invest-
ments required or induced by regulatory action.
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III. INTRODUCTION TO THE PRODUCT
AREA ANALYSES
The results of detailed analyses of major categories of products made using
CFCs are summarized under each of several topic headings to follow.1 The topic
headings are:
A. Flexible Urethane Foams
B. Solvents
C. Rigid Urethane and Nonurethane Foams2
D. Mobile Air Conditioning
E. Chillers
F. Home Refrigerators and Freezers
G. Retail Food Store Refrigeration
H. Miscellaneous
Topic H examines a number of smaller categories of CFC use, including fire extin-
guishers, liquid fast freezing, sterilants, and dehumidifiers.
The ordering of topics reflects a distinction between two types of emissions
processes. Flexible foams and solvents are both categories of use whose emissions
are "prompt," by which we mean that virtually all the CFC entering use in a given
year is emitted in that same year. The remaining categories of use involve some
degree of "banking." A substantial portion of the CFC entering these uses in a given
year is stored in the products and emitted in future years. Although some relatively
small uses within the rigid foams category are prompt emitters, all the rigid foams
are treated together as a matter of expositional convenience.
CFC labeling in the product area summaries follows product area conventions.
Hence, when denoting CFCs used in refrigeration categories, we use the "R" prefix
(e.g., R-ll, R-12). In the nonrefrigeration categories, we revert to the more general
designations using the "CFC" prefix.3 When CFC-22 use and emissions are
subtracted from CFC totals, the remainder is described as "non-R-22" or as "fully
halogenated CFCs."
PLACING THE PRODUCT AREAS IN PERSPECTIVE: AN
OVERVIEW OF USE AND EMISSIONS
Table 3.1 lists the estimates of 1976 use of each of the major CFCs for each of
the product areas analyzed in this report. Also shown is the production of CFCs not
accounted for by the analyzed product areas. Overall, the analyzed product areas
account for about three-quarters of total CFC production, including R-22. Over 70
percent of the production not accounted for by the analyzed product areas is com-
lFor an examination of the industries related to CFC production, see Wolf (1980).
2Elsewhere in this report, these foams may be labeled "closed cell" foams.
3Some readers may be familiar with the "F" prefix. This prefix refers to "Freon," which is a DuPont
trade name. As a courtesy to other producers of CFCs, the prefix is not used here.
34
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35
Table 3.1
ESTIMATED CFC PRODUCTION AND NONAEROSOL END USE, 1976
(Millions of pounds)
CFC-11 CEC-12 CFC-22 CFC-113
Total
Minus
Total CFC-22
Total domestic production: 256
393
170
72
891
721
Sales for nonaerosol use:
99
189
117
69
474
357
Analyzed applications
Flexible foam 34 —
Solvents
Rigid foams
Urethane 35 2
Nonurethane 2 21
Mobile air conditioning — 90
Other refrigeration
Chillers 8 5
Home refrigerators
and freezers — 6
Retail food — H
Miscellaneous
Liquid fast freezing — 6
Sterilants — 13
Others 1 3
Total 80 157
69
69
34
69
37
23
90
16
6
12
6
13
4
310
34
69
37
23
90
13
6
11
6
13
4
306
Other applications
Home air conditioning
Supermarket air
conditioning
Other
Total
19
19
32
32
46
29
38
113
0
46
29
89
164
51
51
SOURCES: Estimates of total domestic production and sales for nonaerosol
use are based on data supplied by the CFC producers. Usage levels in the
analyzed applications are based on data developed by Rand and International
Research and Technology Corp. (IR&T), as explained elsewhere in this report.
Usage levels for other applications are from Dupont (1978a). Total domestic
production includes production for aerosol use.
NOTE: Sales for nonaerosol use equal production minus internal use by the
CFC producers, exports, and emissions during packaging and transport to users.
Imports should be included, but data were not available for most of the CFCs.
Uses reported for individual applications exclude: 1 million pounds of
CFC-114 used mostly in chillers; 5~million pounds each of CFC-22 and CFC-115
used to form CFC-502 used in retail food refrigeration; and less than 1
million pounds of CFC-12 used to form CFC-500 used in chillers.
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36
posed of R-22 used in home and supermarket air conditioners, product areas out-
side the scope of this study.
Table 3.2 reports estimated emissions for 1976 by CFC and product area. The
emissions estimates are generally similar to the use estimates, even for product
categories in which there is banking. For the refrigeration categories, the similari-
ty between use and emissions is largely attributable to a near-steady-state phe-
nomenon; new additions to the stock of refrigerant in home appliances, for
example, are roughly offset by losses from unit disposals. In rigid foams, emissions
are much smaller than use because the market is youthful and relatively little of
the historical addition to the bank has reached the disposal stage.
Tables 3.3 and 3.4 report projected use and emissions for 1990. Total CFC
production was projected from data provided by the CFC producers; notably, the
producers disagree sharply about expected growth in production. The preceding
comments about the similarities between use and emissions in 1976 apply to the
data for 1990 as well.
THE DATA
In all of the product areas, estimates of "current" CFC use refer to the most
recent year for which industry sources were able to provide documentation at the
time the data were being collected; in most cases, the current use estimates refer
to 1976. Estimates of current and historical emissions derive from current and
historical use data and from models of the various product area emissions pro-
cesses. Although the mandate for this study required developing historical data
only from 1970 on, product sales data from years prior to 1970 were sometimes
required in order to estimate emissions from the CFC bank.
This study relies heavily on IR&T's analyses of the refrigeration products
(mobile air conditioning, chillers, retail food store refrigeration, and home refriger-
ators and freezers), but some changes have been made. Such deviations from the
IR&T documentation are noted where pertinent.
Whereas the CFC producers are the major sources of data on current use of
CFCs for each product area, final product producers provided much of the informa-
tion necessary for projecting future levels of use. An important exception is in
solvents, where user industries are diverse and the CFC producers presumably
have the best vantage point for assessing overall market trends. In all product
categories, the basis for future projections is an analysis of anticipated market
forces, such as population growth or commercial construction trends. Although past
trends in CFC market growth helped inform the projections, simple extrapolation
of past trends is not the sole basis of any of the projections, either by Rand or by
IR&T.
In several of the product areas, users anticipate changes in CFC use patterns
or emissions, such as increased reliance on recovery and recycle or reduced average
CFC use per unit of final product. Where such adjustments are already under way
or where existing market forces seem to warrant such adjustments in the near
future, the projections of CFC use and emissions incorporate the adjustments.
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37
Table 3.2
ESTIMATED CFC NONAEROSOL EMISSIONS FROM ANALYZED END USES, 1976
(Millions of pounds)
Analyzed Applications
Flexible foam
Solvents
Rigid foams
Urethane
Nonurethane
Mobile air conditioning
Other refrigeration
Chillers
Home refrigerators
and freezers
Retail food
Miscellaneous
Liquid fast freezing
Sterilants
Other
Total
Prompt
From the bank
Emissions During 1976
CFC-11
34
—
13
2
--
7
—
—
—
—
1
41
16
CFC-12 CFC-22 CFC-113
—
69
1
17
76
53 —
5
10 1
6
13
3
49 — 69
87 4
Combined Non CFC-22
Emissions
Prompt
34
69
5
19
8
(a)
(a)
1
6
13
4
159
—
From
the Bank
0
0
9
(a)
68
12
5
9
—
—
—
"1
103 /
Total
34
69
14
19
76
12
5
10
6
13
4
262
NOTE: Calculations performed by Rand and explained in the product area analyses
elsewhere in this report. Estimates are approximate due to omitting certain CFCs
and to rounding. Omitted amounts are: (a) less than a million-pounds of CFC-12
used to form CFC-500 for use in chillers; and (b) 3 million pounds each of CFC-22
and CFC-115 used to form CFC-502 for use in retail food store refrigeration. Also,
the amount shown for CFC-11 in nonurethane foams includes very small amounts (prob-
ably less than a quarter million pounds each) of CFC-113, CFC-114, and CFC-115.
Less than half a million pounds.
SOURCES OF UNCERTAINTY4
Relative to the amount of detailed analysis performed during this research, the
summaries presented in this document are brief. Brevity is achieved in part by
omitting detailed discussion of the various sources of uncertainty. Consequently,
the various product area summaries either present alternative estimates of major
variables or note the possible ranges of the variables as indicated by a sensitivity
analysis. Beyond this, it is useful in this introduction to consider the several differ-
ent sources of uncertainty and how they vary in importance among product areas.
4Many of the estimation procedures used here involve chain calculations using many parameters,
each containing some degree of rounding error. Redoing the calculations at different degrees of preci-
sion can change the estimates by several millions of pounds. We have balanced considerations of
underlying data accuracy and research time requirements against the desire for accurate estimation
in selecting the levels of precision for the calculations. Overall, the estimates contain rounding errors
of less than 10 percent. Rounding error, strictly speaking, is not caused by uncertainty, and thus is not
covered in the discussion of sources of uncertainty.
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38
Table 3.3
ESTIMATED CFG PRODUCTION AND NONAEROSOL END USE, 1990
(Millions of pounds)
Total domestic production:
Sales for nonaerosol use:
Analyzed applications
Flexible foam
Solvents
Rigid foams
Urethane
Nonurethane
Mobile air conditioning
Other refrigeration
Chillers
Home refrigerators
and freezers
Retail food
Miscellaneous
Liquid fast freezing
Sterilants
Other
Total
Other applications
CFC-11
262
228
72
—
154
8
—
14
—
—
—
—
4
252a
0
CFC-12 CFC-22
363 385
327 265
_
—
5
59
125
6 4
9
10 1
15
40
11
280 5
47 260
CFC-113 Total
147 1,157
147 967
72
147 147
159
67
125
24
9
11
15
40
15
147 684a
Ob 307
Total
Minus
CFC-22
772
702
72
147
159
67
125
20
9
10
15
40
15
679a
47
SOURCES: Estimates of total domestic production and sales for nonaerosol use
are based on data supplied by the CFC producers. Usage levels in the analyzed
applications are based on data developed by Rand and International Research and
Technology Corp. as explained elsewhere in this report. Usage levels for other
applications are from Dupont (1978a).
NOTE: Sales for nonaerosol use equal production minus internal use by the
CFC producers, exports, and emissions during packaging and transport to users.
Uses reported for individual applications exclude 2 million pounds of CFC-114
used mostly in chillers; 7 million pounds of CFC-22 and 8 million pounds of
CFC-115 used to form CFC-502 for use in retail food store refrigeration; 2 million
pounds of CFC-12 used to form CFC-500 for use in chillers.
30ur calculations of use in analyzed applications conflict with producer projec-
tions of sales available for use.
Refrigeration and other relatively small miscellaneous uses of CFC-113 are
included in the solvents data.
Forecasting market trends is inherently uncertain. In the present analyses,
baseline trends in final product output are based on industry-supplied market
projections or are derived by linking product market trends to trends in major
economic and social indicators, such as growth in the number of U.S. households.
The indicator variable trends were taken from previously published sources. Over
decades or longer periods, related variables do tend to show similar basic trends.
There can be, however, considerable independent variation around a general trend,
so growth rates predicted for individual years are less certain. Because IR&T
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39
Table 3.4
PROJECTED CFC NONAEROSOL EMISSIONS, 1990
(Millions of pounds)
Analyzed Applications
Flexible foam
Solvents
Rigid foams
Urethane
Nonurethane
Mobile air conditioning
Other refrigeration
Chillers
Home refrigerators
and freezers
Retail food
Miscellaneous
Liquid fast freezing
Sterilants
Other
Total
Prompt
From the bank
CFC-11
72
—
57
8
~
12
—
—
—
—
4
100
53
CFC-12 CFC-22 CFC-113
—
147
2
46
122
54 —
7
91 —
15
40
5
110 0 147
141 5 0
Combined Non CFC-22
Emissions
Prompt
72
147
17
52
5
(a)
(a)
1
15
40
8
357
0
From
the Bank
0
—
42
2
117
17
7
8
—
—
1
°\
194 f
Total
72
147
59
54
122
17
7
9
15
40
9
551
NOTE: Calculations performed by Rand and explained elsewhere in this report.
Estimates are approximate due to omission of certain CFCs and rounding errors.
Omitted amounts are: (a) 2 million pounds of CFC-114 used in chillers; (b) 1.5
millions pounds of CFC-12 contained in CFC-500 used in chillers; and (c) 6 million
pounds of CFC-22 and 7 million pounds of CFC-115 contained in CFC-502 used in
retail food store refrigeration. Data for nonurethane foam emissions of CFC-11
may include small amounts of CFC-113, CFC-114, CFC-115.
Less than half a million pounds.
typically did not report projections for individual years between 1976 and 1990,
Rand has computed the average annual rates of change implied by the IR&T data.
A particular uncertainty arises in the baseline projections for flexible and rigid
urethane foams, both of which emit toxic gases when burned. Given the hazard of
accidental fires in homes and workplaces, where these foams are becoming ubiqui-
tous, future regulatory action is a prospect that should not be ignored. These
industries are continually improving the flammability properties of the foams, and
industry sources uniformly believe this problem will not restrict the growth of
urethane foam markets. Nevertheless, if there is such regulation, the baseline
projections given here might be overstated.
Given the baseline trends estimated for final product output, CFC purchases in
each product area depend on the CFC used per unit of final product and the amount
of recovery and recycle of CFC. For flexible foams and solvents, a source of uncer-
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40
tainty about CFC use per unit of final product is the possibility of substituting an
alternative chemical for the CFC. The baseline projections for these product areas
assume that the CFC share of the final product market will be stable. The major
reason for uncertainty about this assumption is that some of the alternative chemi-
cals have been under investigation for regulatory control; if such controls on alter-
native chemicals are implemented, they could greatly increase the baseline
projections given here.
In many product areas, there are techniques for reducing CFC use that would
be induced by increases in CFC prices; this fact is essential to the analysis of CFC
demand. An uncertainty arises, however, because future trends in CFC prices in
the absence of regulation are largely unknown. Because CFCs are made from
petroleum-based chemicals,5 it is reasonable to suppose the prices of CFCs will rise
over the next decade. However, prices of potential substitutes for CFCs, many of
which are also made using petroleum-based chemicals, are also likely to rise.
Similarly, increased petroleum prices will increase the costs of manufacturing
generally, raising all costs of production and raising the costs of equipment that
might be used to help control CFC emissions. The analysis presented here presumes
that the prices of CFCs measured relative to other chemical and equipment prices
will remain constant over the period 1980 to 1990. The one exception to this rule
is the price of CFC-113 which, from producer supplied data, is expected to fall as
CFC-113 production increases; this case is discussed in the section on solvents (Sec.
III.B).
For flexible foams, solvents, and nonurethane foams used in packaging, the fact
that emissions are prompt means that the annual emissions estimates are as certain
as the CFC use estimates on which they are based. In all the product areas where
CFCs are banked, however, there is considerable uncertainty about the share of
CFC use that is emitted promptly during manufacture and about the rate at which
the banked CFC is emitted over time. Moreover, the reported estimates for emis-
sions at final product disposal are extremely uncertain, due to lack of information
on how final products are disposed, how much CFC might be retained indefinitely
in the disposed product, or how long after disposal the emissions might occur.
Because we have repeatedly sought industry comment on the data, we antici-
pate few disputes over the baseline projections of CFC use and emissions.6
However, we do anticipate considerable industry criticism of the estimates of
industry and consumer responses to changes in CFC prices. It is common in debates
over regulatory policy for industry to argue that demand is not responsive to price.
Indeed, a basic belief in the responsiveness of firms and individuals to price
incentives seems rare outside the economics profession. To be sure, price
responsiveness might be limited indeed. Where our analysis does presume some
price responsiveness, we have carefully documented our reasoning. More
generally, our analyses are cautious in their presumptions about both CFC user and
final product consumer price response, so that the uncertainty largely concerns
how much we have underestimated the degree to which price increases for CFCs
would motivate actions to reduce emissions and overestimated the welfare losses
associated with emissions reductions. (See Sec. II.)
5CFCs are produced from several petrochemicals, including methane, propylene, and ethylene.
6An exception might be normal use emissions from rigid urethane foams. (See Sec. III.C.)
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41
Where price responsiveness would require that firms make capital investments
to reduce CFC use, we believe our assumptions are also cautious. While we believe
most industry sources have been sincere in attempting to project investment costs
accurately, we also recognize that there may be a tendency for firms to overesti-
mate the costs, both to account for the riskiness of investment and to emphasize
the potential severity of the short-run economic dislocation that mandatory re-
quirements to invest might impose. The decision-to-invest models were discussed
in more detail in the preceding section of this report.
Some readers, particularly those with detailed knowledge of the technologies
involved in CFC use, will observe that some promising new technological opportu-
nities for emissions control are omitted from this analysis. New product designs,
new production processes, and new chemicals—particularly new CFCs with proper-
ties that should make them less hazardous to the ozone layer—are currently being
sought by researchers at the major chemical companies and also at some of the
larger CFC-using firms. Although the details of recent discoveries are proprietary
and carefully guarded, there is evidence that some new options have passed the
stage of conceptual development and are being tested for operational feasibility. A
few such options are mentioned here in the product area analyses, but others are
omitted altogether.
Until a technology is actually used to produce goods for sale in a market, there
are substantial uncertainties about the operational advantages or disadvantages
and the costs of using the technology. Innovations that are as yet unproven are poor
candidates for mandatory control policy in the near term because technical evalu-
ation of the innovations is incomplete. Unproven innovations also cannot be
analyzed in the context of economic incentives policies because the cost-effective-
ness of the innovation is not well known.
Like other cautious assumptions in this analysis, omission of recent technologi-
cal developments from the analysis might lead to underestimates of the extent to
which regulatory action can reduce CFC emissions, perhaps especially so for eco-
nomic incentives because they might make new technologies cost-effective and thus
spur their development.
CFC PRICE ASSUMPTIONS
Unless otherwise indicated, CFC prices are measured at bulk rates, averaged
over 1976. The rates are shown in Table 3.5. Some users pay higher prices for
smaller unit purchases or for shipping charges. However, insofar as a given abso-
lute increase in bulk rates would result in the same absolute increase in rates for
all users, the demand analyses in these studies correctly predict the relationships
between CFC use and bulk prices. Prices specified for years other than 1976 are
measured in constant (1976) dollars.
OUTLINE OF THE PRODUCT AREA SUMMARIES
Each product area summary begins by describing the final product, reasons for
the use of CFCs in producing the final product, major subcategories within the
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42
Table 3.5
ESTIMATED BULK PRICES FOR
VIRGIN CFCs, 1976
Bulk Rate
CFC Per Pound
CFC-11 .34
CFC-12 .41
CFC-113 .62
CFC-114 .50
CFC-22 .64
CFC-500 .62
CFC-502 1.11
CFC-125a 1.16
SOURCES: Most estimates were
provided by DuPont. The esti-
mate for CFC-11 was drawn from
data received in survey responses
from producers of foam products;
the DuPont value of the CFC-11
price is 37 cents.
product area that use CFCs for different reasons or differ in the nature of the
emissions process, and basic features of the market forces causing growth or de-
cline in the use of CFCs.
Next, each summary reports the use and emissions estimates for a baseline case
that assumes no change in regulatory policy through 1990. In the interest of brevi-
ty, the methodologies underlying the estimates are described in a cursory fashion;
important assumptions are noted, but in cases where complex simulation models
are used, no attempt is made to provide all the information required to permit the
reader to duplicate the methods of calculation. Appendixes amplify on the models
used to analyze solvents and rigid and flexible foams. Several IR&T publications
that document the models used by IR&T are cited in the bibliography.
The third topic in each summary is a description of the final product market,
the number of firms in it, and their locations, employment levels, and other char-
acteristics. Although the information is often quite limited, it does provide some
background against which to assess likely user responsiveness to various regulato-
ry strategies.
Options for reducing CFC emissions are the fourth topic of the summary. These
are opportunities available to firms or final product consumers to limit emissions,
and are not necessarily good candidates for mandatory controls. In discussing the
options, we identify those that might be induced by higher CFC prices, those that
are included in the benchmark candidates for mandatory controls, those that would
be so difficult to enforce that their effectiveness as mandatory controls is question-
able, and those whose major effects on emissions would occur after 1990, causing
them to be excluded from the set of benchmark control candidates.
The fifth topic is derivation of the product area CFC demand schedule. These
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43
schedules provide fundamental insight about the relative costs of alternative op-
tions for reducing emissions, and thus provide important background information
for assessing the implications of mandatory control policies. The demand schedules
are also used later in this report to assess the effects of economic incentive policies.
As a sixth topic, each product area summary estimates the costs to industry and
consumers of various candidates for mandatory controls. The discussion of the
control candidates includes, as far as possible, an assessment of the "side effects"
of regulation, such as increased use of substitute chemicals that might cause work-
er health or environmental hazards, and increased energy utilization. Control can-
didates that are not included in the benchmark set (see Sees. I and IV), particularly
those that would have a substantial emissions effect after 1990, are discussed to the
extent that data permit. Because marketable permit and tax strategies are policy
options that are not specific to individual product areas, a discussion of them is
reserved for later sections of this report.
-------
III.A. FLEXIBLE URETHANE FOAMS
INTRODUCTION
Flexible urethane foam manufacture in the United States began in the 1950s,
and the attractive characteristics and low cost of the material have caused it to
develop into an important component of furniture, automobile seats, bedding, car-
pet underlay, and other products where a durable and resilient cushioning material
is required. Flexible urethane foams can either be molded into their ultimate shape,
or produced in the form of slabstock, a large, continuously made bun that is sawed
into pieces several feet high, several feet wide, and six to over 200 feet long. Foam
molding is done either by the hot molding process, or by the newer high resiliency
molding process, which uses warm molds. In 1977, the estimated total production
of flexible urethane foams was about 1,275 million pounds,1 of which about 65
percent was slabstock and 35 percent was molded. This production used about 38
million pounds of CFC.
The important characteristics of flexible foams are imparted by blowing agents,
which form the holes (or cells) in the foam and give it its flexibility. In all flexible
urethane foams, the primary blowing agent is carbon dioxide, which is formed by
the reaction of water and toluene diisocyanate (TDI). Foams with lower densities
than are possible by water blowing (as it is called) require an auxiliary blowing
agent. The two most often used auxiliary blowing agents are CFC-11 and methylene
chloride, and these are used in the range of less than five percent to about 14
percent of the input chemicals depending upon the product manufactured and
which auxiliary agent is used; it takes fewer pounds of methylene chloride than
CFC to make the same type of product.
Just as flexible urethane foams can be categorized as either slabstock or molded
foams, they can also be categorized as water blown (without an auxiliary blowing
agent), CFC blown, or methylene chloride blown. Data to estimate the present
distribution of these types are incomplete, but a rough percentage breakdown is
shown in Table 3.A.I.
CFC emissions from flexible polyurethane foams are prompt. That is, essential-
ly all the CFC disappears from the freshly made foam in a matter of hours or a few
days. This means that annual CFC emissions are virtually identical to CFC con-
sumption in manufacturing the foam, and that the emissions occur at the physical
location of the manufacturing facility.
The growth of output from the flexible urethane foam industry between now
and 1990 is variously estimated between three and eight percent per year. Various
forces acting on the molded foam portion of the market make projections of the
CFC use somewhat uncertain, but a reasonable presumption is that the same
growth rates apply. Driving the growth in flexible foam markets is the expectation
of greater than five percent growth in furniture and bedding markets, over four
percent in the transportation market, and over 10 percent for carpet underlay and
'Based on estimates by chemical suppliers.
44
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45
Table 3.A.1
APPROXIMATE DISTRIBUTION OF FLEXIBLE FOAM OUTPUT BY
TYPE OF AUXILIARY BLOWING AGENT
(Percent of total output, by weight)
Blown by:
Water
CFC
Methylene chloride
Total
Slabstock
20
27
18
65
Molded Molded
20
7 8
0 0
35
Total
40
42
18
100
SOURCES: Estimates from marketing data from the
following: Mobay Chemical Company (see Upjohn,
1977b); Mobay (1978); Allied Chemical Company,
Statement to EPA, October 25-27, 1977; Olin Chemicals
Group, private communication.
packaging, which are both relatively small uses. An approximate breakdown of
foam consumption by final product is given in Table 3.A.2.
USE AND EMISSIONS
Table 3.A.3 presents the historical sales of flexible urethane foams from the
approximate date of their commercial introduction to the present, together with
the ranges of future sales projections given by industry sources. Industry sources
do not project sales past 1982. For analytical use, we have linearly extended the
industry projections to 1990, and produced maximum and minimum projections
that reflect the uncertainties inherent in such projections. The band of uncertainty
is wide enough to accommodate different assumptions about rates of market satu-
ration and rates of growth of GNP.
The data in Table 3.A.3 may be translated into CFC use projections by applying
assumptions about the average CFC content of the foam. As noted above, foam is
made by three different processes: the water blown foams use no auxiliary blowing
agent, and some of the foam that does use an auxiliary blowing agent does not use
CFC. At present, the ratio of CFC use to the weight of total industry foam output
is three percent. This will probably decline to about 2.75 percent in 1990 due to
greater use of the high resiliency (HR) process, in making molded foam; the HR
process uses less CFC than the hot molding process. Applying the three percent
factor up until 1977 and then assuming a linear transition to the 1990 factor of 2.75
percent yields the results for CFC use shown in Table 3.A.4. Since the emissions are
prompt, Table 3.A.4 also represents emissions of CFC.
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46
Table 3.A.2
DISTRIBUTION OF FLEXIBLE FOAMS USE
AMONG FINAL PRODUCTS MARKETS, 1977
Percentage
Market by Weight
Furniture 38
Transportation 29
Bedding 15
Prime carpet underlay 12
Packaging 2
Textiles 2
Other 2
SOURCES: Mobay Chemical Company
(see Upjohn, 1977b); Mobay (1978);
Olin Chemical Group, private commun-
ication.
Table 3.A.3
ESTIMATED HISTORICAL AND PROJECTED
FUTURE FLEXIBLE URETHANE
FOAM PRODUCTION
(Millions of pounds)
Year Production
1960
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1980
• • *
1982
1990
86
241
307
356
480
520
618
655
746
955
979
974
1,121
1,275
1,420-1,690
1,696-2,137
1,960-3,240
SOURCES: Bedoit (1974);
Mobay Chemical Company (see
Upjohn, 1977b); and Mobay
(1978); Upjohn (1975, 1976,
and 1977); Allied Chemical
Company, Statement to EPA,
October 25-27, 1977; Olin
Chemical Group, private commu-
nication.
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47
Table 3.A.4
ESTIMATED CFC USE AND EMISSIONS IN
FLEXIBLE URETHANE FOAM PRODUCTION*
(Millions of pounds)
Year
1960
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
* • •
1980
1982
1990
Use/
Emissions
2.6
7.2
9.2
10.7
14.4
15.6
18.5
19.7
22.7
28.7
29.4
29.2
33.6
38.3
...
42.9-50
50.0-63
53.9-89
.7
.0
.1
Estimated from Table
3.A.3, as described in
text.
INDUSTRY AND MARKET CHARACTERISTICS
Information about the structure of the industry derives from the responses to
confidential questionnaires that were sent to foam manufacturers by the Society
of the Plastics Industry in cooperation with this study, together with estimates
provided by the chemical suppliers. Because of the relatively limited number of
responses to the questionnaire, our characterizations must be viewed as qualita-
tive. There are sufficient differences between molded foam and slabstock that it is
worthwhile to describe these separately.
Slabstock Foam
There are about 50 companies that manufacture flexible slabstock. Roughly
one-third of these are large companies, some of which have multiple plants located
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48
in various parts of the country. These large companies each have an annual produc-
tion volume of 20 to 100 million pounds of foam a year, which would imply average
CFC use rates per company of 600,000 to three million pounds per year.
About 15 percent of the companies fall into the range of 10 to 20 million pounds
of foam production annually, which would imply roughly 300,000 to 600,000 pounds
of annual CFC use. The remaining companies are smaller, manufacturing less than
20 million pounds of foam per year. While foam plants may differ in size by a factor
of 10 from the largest to the smallest, large foam companies tend to be multiplant
companies, with each plant being located close to a market. A large company might
have half a dozen plants across the country.
In terms of foam plants, we estimate that there are about 10 plants that are
large enough to consume about one million pounds of CFC per year. One or two of
these consume two or more times this amount. There are 30 to 60 plants that have
an average consumption of 200,000 to 250,000 pounds of CFC per year; a few
consume about 500,000 pounds of CFC. Then there are another 30 to 60 plants that
use 100,000 to 200,000 pounds of CFC per year.
Slabstock foam is a low value, low density product, and foamers lose their
competitive edge if located too far from their markets because of transport costs.
This causes foamers to locate in the midst of their markets, which are predominant-
ly furniture, bedding, and carpet underlay. There is a large concentration of furni-
ture manufacturers in the Southeastern United States, and many foam plants are
located in North Carolina, Tennessee, Arkansas, and Mississippi. Flexible foam
plants are also located in Southern California, another major furniture manufactur-
ing center. Rhode Island, Indiana, New Jersey, Iowa, Massachusetts, Pennsylvania,
Maryland, Indiana, and Colorado all have slabstock foam plants, and it can be
inferred that there is probably one near every major metropolitan area where there
are furniture or bedding manufacturers. As might be expected from the importance
of transport costs, little or no flexible foam is imported or exported.
Slabstock foam is not very capital intensive, and the technical know-how is
readily available from the chemical suppliers. Thus, an individual with some key
accounts in his control and some reasonable financing can enter the business fairly
easily. But small foamers complain about the narrow margins they must live with,
and just as a few accounts can cause an entry into the market, their loss could cause
an exit. While large companies appear to be well established businesses and have
been around for a long time, small companies may come and go. To support this
impression, we observe that there are several companies whose sole business is the
manufacture of equipment for making foams, and whose customers are primarily
recent entrants into the foam production business.
Slabstock foam lines are all designed to produce a bun of similar cross section.
Because of this, there is a great deal of similarity in the equipment used by large
and small foamers, and the difference in plant output is controlled by the number
of hours per day that the foam line is operated. A small foamer may operate his
line for only one hour per day, possibly even skipping one or more days per week.
A large foamer may operate for a full eight hour shift or longer. As a result, foam
equipment is being operated on the average in the range of one-third of its capacity.
Among the factors that might limit plant output are limited local market size,
warehousing and storage space constraints, and transportation costs.
The industry does not appear very capital intensive, requiring about half a
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49
million dollars to set up a small foam plant. The chemicals that are fed to the foam
line frequently flow at the rate of about $500 worth per minute, implying that in
1,000 minutes (17 hours) of operation, more value in raw materials will pass
through the plant than was involved in setting it up. Larger plants often require
much more investment because they are vertically integrated so as to process the
slabstock into finished shapes for their customers. Our survey indicated that large
firms have individual investments in slabstock plants that typically range from $10
to $15 million, with the investment in each of their plants ranging from $2 to $4
million. These same firms have annual sales of $25 to $75 million. The ratio of
capital inputs to total production costs seems to run about one to two percent.
Operation of the foam line generally requires about six people. In small plants
where the line operates for only a few hours a day, these people are used in
warehousing activities when they are not actually running the line. However, the
bun product must be cut and trimmed to its final shape before use, and the cutting
and trimming operations involve a great deal of hand work. Large multiplant
companies, characterized by annual sales in the range of $25 to $75 million and CFC
consumption of one million pounds or more, seem to have about 19 employees per
million dollars of sales; i.e., a company with annual sales of $52 million would have
1,000 employees connected with foam operations in three to five plants. In these
plants, labor represents about 13 percent of the manufacturing cost.
Foam plants that are involved only in slabstock production, without cutting or
trimming operations, may have substantially fewer employees. But since the cut-
ting, trimming, and fabricating operations are an essential part of the conversion
of the slabstock into a finished and salable product, we must presume that the
people involved in these operations are simply on someone else's payroll, such as
the furniture manufacturer. In assessing the employment related to slabstock
foam, it would be shortsighted to overlook this.
The output of the slabstock industry is closely related to the output of the
furniture, bedding, and carpet industries. Originally, materials other than foam
were used in furniture cushioning, but these have been largely replaced by foam.
Bedding is made both with and without foam, but the desirable characteristics of
foam probably mean that penetration of this market will increase. Similarly, the
superior quality of foam carpet underlay probably means that penetration will also
increase in that market, especially since otherwise worthless scrap foam is rebond-
ed into carpet underlay and sold in competition against other carpet underlays.
CFC use represents only a small part of the final product price, and therefore
changes in CFC prices might have only a small effect on the final consumer. For
example, in the softest foam usually used in furniture, the CFC presently accounts
for about 13 percent of the raw materials cost. For a medium softness foam, the CFC
represents only about five percent of material costs. According to furniture manu-
facturers, foam represents 10 to 15 percent of their manufacturing costs, which
means that the CFC accounts at most for about two percent of the furniture manu-
facturing cost. Thus, changes in CFC price, even if passed through to the consumer
at full markup, have little leverage on furniture prices.
Similarly, because the CFC content of carpet underlay is very low, the CFC
leverage on its price would be very small.
For bedding, in which expenditures for foam might be the major component of
bedding production costs, the situation is different. But even if mattresses used only
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50
supersofl foam, the CFC would represent less than 13 percent of the foam cost, and
leverage on the price of bedding would be modest.
Molded Foam
The major consumer of molded urethane foam is the automotive industry, and
this fact dominates the economic characteristics of this sector of the foam industry.
There are less than 20 companies involved (one source estimates 16), of which half
make between 10 and 100 million pounds of foam per year. The balance consists
of smaller plants, averaging perhaps five million pounds per year of output.
Whereas large slabstock companies usually have multiple plants, the same is
not true for the molded foam companies, primarily because a major portion of their
output is destined for a small group of customers in a relatively concentrated
location—the automotive industry. Also, the molding process lends itself to automa-
tion, and thus some plants are huge. The large size of a few of these plants means
that they are also large single point sources of emissions, with several plants
emitting between one arid four million pounds of CFC per year.
Molded foam plants are found close to automotive assembly plants, with most
of the molded foam being made in Ohio, Indiana, Michigan, California, and New
England.
Entry into and exit from this market are rare, except perhaps for very small
specialty molders. Recent conversions from hot molding to high resiliency molding
processes have increased production capacity, and a crude estimate of the unused
production capacity of the molded foam industry is about one-third the level of
current production.
Molded foam plants do not resemble slabstock plants at all. The equipment is
vastly different, with molds on an automated production line that runs through
curing ovens, demolding stations, automatic release agent application, mold filling,
product crushing, and wire filling operations. The entire line might be computer
controlled in order to achieve high production levels and extremely accurate prod-
uct quality control. We do not have industry-wide estimates of capital costs in
typical large molded foam plants, due to limited responses to our questionnaire. But
the responses received indicate that the investment and employment character-
istics of large molded foam companies may not be too different from their slabstock
counterparts having a comparable dollar volume of production. This may result in
part because molded parts require much less hand work than the fabrication of
slabstock, and also because the value per pound of molded foam output is about two
or more times greater than that of slabstock.
The output of the molded foam industry is directly related to the output of the
automobile industry, and changes in automobile production can be expected to
relate almost exactly to changes in molded foam production.
Molded auto seat bottoms are water blown because of their stiffer character,
and thus do not use any auxiliary blowing agents. The seat backs generally use
CFC. According to foam molders, the high resiliency process uses about 25 percent
less CFC per pound than the older hot molded process. In either case, the CFC is
a minor constituent of the material costs. Because the end product is generally an
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51
automobile, it is difficult to envisage a perceptible effect on final product retail
prices resulting from changes in the price of the CFG used to make the seat backs.
TECHNICAL OPTIONS TO REDUCE EMISSIONS
Two technical options exist for reducing CFC emissions from the manufacture
of flexible urethane foams: substitution of other auxiliary blowing agents, and
recovery and recycle of the emitted CFC.
Substitution Away from CFC
Earlier, we noted that flexible foams are either water blown (using no auxiliary
blowing agent), or are blown with either CFC or methylene chloride auxiliary
blowing agents. All types of foams that can be water blown already are, so there
is no potential for substitution. However, many slabstock foams can be blown with
either CFC or methylene chloride, suggesting that CFC emissions could be reduced
if methylene chloride were substituted for the CFC—in essence, replacing CFC
emissions by those of methylene chloride.
For many grades of slabstock, the materials costs of methylene chloride formu-
lations are lower than those of CFC-based formulations. On the surface, this fact
alone might cause the industry to convert from CFC use, but as often is the case,
a detailed examination of the factors involved indicates that the situation is not so
simple. No better proof of this is needed than the observation that some of the
largest manufacturers of slabstock use both auxiliary blowing agents in the same
plant, allocating each to the product that they feel can be best made with it,
balancing questions of economy and quality.
There are wide ranging and staunchly defended diverse opinions about methy-
lene chloride as a blowing agent. Many foamers argue that quality control of very
soft foams is more difficult when using methylene chloride and therefore the scrap
rate of the product is higher. Coping with this requires technical skill, and we found
at least one multiplant company whose ability to use methylene chloride varied
from plant to plant, depending upon the skill of the personnel involved. To counter
this perceived disadvantage, methylene chloride manufacturers continue to con-
duct research designed to enhance the market penetration of this product.
There are also hotly debated questions about the relative safety of methylene
chloride. While CFC-11 has a threshold limit value (TLV)2 of 1,000, methylene
chloride has a recommended TLV of 200. Questions of the toxicity of the material
have been addressed by the manufacturers of methylene chloride, and their
conclusions state that the product is safe to use when properly handled. However,
there are strongly held contrary opinions by foamers, and these opinions are part
of the reason that many slabstock foamers use only CFC. The fact that they do, and
that they coexist with foamers who use methylene chloride, indicate that current
cost differences between foams made with the two materials are not sufficient to
force the emergence of one or the other as the preferred blowing agent in all foams.
is expressed in parts per million of a vapor in air. It is the legal maximum average concentra-
tion of the vapor to which a worker may be exposed in an eight hour period.
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52
From a technical standpoint, it would be difficult to achieve complete replace-
ment of CFC by methylene chloride. There are a variety of reasons for this that
range from the unavailability of methylene-chloride-based formulations for some
specialty foams to the inability of some foamers to handle the technical problem
of blowing agent conversion. A response to our interim report under the Society
of the Plastics Industries' letterhead suggests that perhaps 75 percent of the
present use of CFC in slabstock could be replaced by methylene chloride.
There is little difference between a foam plant designed to use methylene
chloride and one designed to use CFC. Because of the lower TLV of methylene
chloride, ventilation requirements may be more severe. However, foam plant venti-
lation is usually designed to cope with another of the foam chemicals, TDI, which
has a TLV of 0.02. The ventilation installed for this purpose is often sufficient to
handle the methylene chloride. For plants where separate ventilation is used in the
curing and warehousing areas, higher air flow rates might be required if methylene
chloride is used.
Substitution among blowing agents appears less possible in molded foams.
Some studies suggest the product that results has quality characteristics that are
presently unacceptable,3 but there does appear to be the potential of blending CFC
with 20 percent methylene chloride to obtain a satisfactory product. Other research
regarding molded foam is directed at attempts to minimize auxiliary blowing agent
use. Recent conversions from hot molding to HR molding have resulted in perhaps
a 25 percent reduction in CFC use, and continuing research is seeking to reduce this
figure further. In short, there are few pressures to continue to work with methylene
chloride in molded foams.
Recovery and Recycle
The principle behind this technical option is simple. Flexible foams are prompt
emitters, losing essentially all of their CFC before they leave the foam plant. If the
emitted CFC could be collected and reused, it would reduce emissions in direct
proportion to the collection efficiency.4 Flexible slabstock lines appear particularly
suited for this process, since the foam is made in a long tunnel equipped with
ventilation fans, which collect the exhaust gases and discharge them outside the
plant. Recent measurements made by DuPont indicate that in a well-designed
modern slabstock plant, the CFC collection efficiency of these ventilation systems
may already be between 33 and 53 percent. Molded foam lines may also already
collect similar percentages in the ventilation system at the demolding stations.
Once collected, CFC may be recovered by carbon adsorption. In this process, the
CFC laden air is passed over beds of specially prepared carbon. The CFC adsorbs
onto the carbon, and the CFC-free air then is exhausted. After the bed has reached
its capacity, the carbon is desorbed with steam, and the CFC is separated for
recycling purposes. Adsorption technology is well established, and its use in CFC-11
3One result is that the surface is sufficiently less slick that the cushions cannot be stuffed into their
covers. Another is that surface imperfections, such as bubbles, become objectionable.
••Collection efficiency refers to the efficiency of the ventilation system in capturing the CFC before
it is dissipated to the atmosphere. Ventilation systems already exist on all foam lines, for control of the
TDI.
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53
recovery and recycle is successfully practiced in some nonfoam industries, where
it has proved economical. Experience with flexible slabstock lines appears limited
to one experiment that was conducted in 1968, and which was deemed a failure for
economic reasons.
Reviewing the applicability of the adsorption process to slabstock lines reveals
that there are contaminants in the vented gas that interfere with the carbon bed.
For example, TDI "poisons" the bed so that the carbon will not adsorb the CFC.
Other contaminants, such as amines, surfactants, arid aerosols, may have similar
effects, but this is not now known. The situation requires that the exhaust gases
from the foam line first be treated to remove the interfering contaminants, and
then be passed over the carbon beds.
The cost of this pretreatment step is presently unknown, and consequently, an
accurate appraisal of the economics of the process is difficult to make. It is clear,
however, that recovery and recycle equipment is more likely to be economical in
large foam plants, in which there is more CFC to recover, than in small ones. This
is because the capital investment may not be much different for different sized
plants (like the slabstock line itself) and because most of the costs of a recovery and
recycle system are capital-related ones. If the volume of exhaust gas treated is
20,000 cubic feet per minute (CFM), which might be representative of a well-
designed slabstock line, the total capital investment might vary between $480,000
and $1,440,000,5 depending upon the cost of removing the contaminants from the
gas stream.
CFC DEMAND SCHEDULES
Our analysis of the demand for CFC-11 by flexible foamers presumes that they
attempt to make each type of foam in the most cost-effective manner, taking into
account such considerations as the desired density, resiliency, and overall quality
of the foam. For some foams, the only feasible way to reduce production costs when
virgin CFC-11 prices rise is to recover and recycle the CFC; the analysis presumes
that this option becomes economically attractive when the virgin CFC-11 price is
high enough that the savings from using recycled CFC offset the costs of installing
and operating recovery and recycling equipment. For other foams, the use of
methylene chloride is also a feasible option, one that would be employed when the
cost of chemical substitution is lower than continuing to use CFC at a higher price,
even with recovery and recycling. Given estimates of the costs of recovery and
recycling and the costs of methylene chloride substitution, it is possible to infer the
CFC-11 prices at which each of these options becomes economically attractive for
different foamers and types of foams, and thereby to infer the amount of reduction
in CFC-11 use at each level of increase in CFC prices. The analysis by which these
inferences are drawn is described here and amplified in Appendix D.
If the CFC-11 price rises but there is no technique available for producing a
foam at lower cost, the CFC will still be used and foamers making that type of foam
will charge their customers higher prices to cover the higher foam production costs.
Even in this case, we do not expect consumers to buy much less of the foam. CFC
6Based on estimates by Vic Manufacturing Company and DuPont of $24 to $72 per CFM, installed.
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54
accounts for a small fraction (4 to 11 percent) of total foam production costs and an
even smaller fraction of the costs of final consumer products made with foam. For
the CFC price increases under consideration here, even complete pass-through of
cost increases would have little effect on consumer prices and, by the reasoning
presented in Sec. II, would have little if any effect on sales of foams. And if there
is a way to avoid some of the increase in foam production costs (e.g., by converting
to methylene chloride or by recycling the CFC), then the amount of cost increase
passed on to the final consumer would be less. In short, none of the CFC price
increases examined here would significantly reduce the production of flexible
foams. All of the predicted reductions in CFC use would come about by implement-
ing recovery and recycle or chemical substitution while maintaining the overall
level of foam output.
Recovery and recycle is a potential response to higher prices for virtually all
users of CFC-11. The demand schedules presented below assume that the installed
capital cost of recovery and recycle equipment is $960,000 per plant (the midpoint
of available estimates) and that 50 percent of initial CFC use is recovered and
reused on average. For the flexible foam industry, an investment criterion of a 4.2
year payback period is assumed.6 In addition, recovery and recycle increases plant
operating costs by an estimated $26,800 annually7 plus $.014 per pound of recovered
CFC due to the energy requirements of the recovery unit. Because most of the costs
of recovery are independent of the amount of CFC recovered, this option is much
more attractive for plants that use large amounts of CFC.
For most flexible slabstock producers, conversion to methylene chloride is also
a potential response to higher CFC prices. Conversion apparently involves no
significant capital expenditures, but there are at least two deterrents to the use of
methylene chloride in flexible foams now blown with CFC. According to industry
sources, methylene chloride conversion increases the difficulty of controlling some
foam formulations, resulting in higher levels of rejected product (or scrap). Conse-
quently, foam lines converted to methylene chloride require greater amounts of
material inputs to produce a given amount of foam output. Available evidence
suggests that this material cost is smaller for larger slabstock producers, who have
superior technical expertise for adjusting methylene chloride foam formulations.
In addition, some slabstock producers are reluctant to use methylene chloride
because they suspect it may affect worker health, or might at some future time be
regulated.
Because these factors discourage methylene chloride use, slabstock producers
are not expected to convert voluntarily to methylene chloride unless the price of
CFC-11 rises. For smaller slabstock plants, the demand analysis adopts the assump-
tion that methylene chloride conversion will not occur unless the cost of materials
contained in CFC blown final foam output is 20 percent higher than the cost of
materials in an identical amount of methylene chloride blown foam output. For
large slabstock plants (where CFC use is greater than one million pounds annually),
we assume that conversion will occur when the materials cost in CFC blown final
6This investment criterion is equivalent to a 10 year useful life for the equipment and a pretax
opportunity cost of capital of 20 percent annually.
'These costs include $0.08 per CFM for maintenance, based on information from a producer of carbon
adsorption units, $6,000 for labor, and insurance at two percent of the capital cost, based on DuPont
(1978a).
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55
foam output is 12.5 percent greater. The assumptions for both large and small
plants are somewhat cautious, being more likely to overstate than understate the
CFC prices at which conversion would occur.
The cost of conversion to methylene chloride also depends upon the type of
foam produced. In the demand analysis, we distinguish between two types of flexi-
ble slabstock—medium soft and soft foams.8 Because medium soft foams use
greater amounts of nonblowing agent materials per pound of CFC, the costs
imposed by the higher scrap rates associated with methylene chloride are greater
for these products. Consequently, if scrap rates for both types of foam are similarly
affected by conversion to methylene chloride, a higher CFC price is required to
induce conversion by producers of medium soft foams.
Table 3.A.5 presents the distribution of CFC use levels employed in the flexible
foam demand simulation.9 Because incentives for CFC recovery depend upon the
level of CFC use, the demand analysis requires information on the distribution of
CFC use per plant. The analysis distinguishes five types of flexible foam production
facilities: large and small molded plants and large, medium, and small slabstock
plants. In addition, for slabstock plants, we assume one-half primarily produce
medium soft products and one-half primarily produce soft products.
Table 3.A.5
APPROXIMATE DISTRIBUTION OF CFC USE PER PLANT
BY TYPE OF FLEXIBLE URETHANE FoAMa
Type of Foam,
Plant size
Molded foam
Large plants
Small plants
Slabstock
Large plants
Medium plants
Small plants
CFC USE
Per Plant
(thousands of Ib)
2,500
500
1,200
225
150
Share of
Total CFC Use
(percent)
20
16
34
18
12
aBased on Tables 3.A.I, 3.A.3, and industry
sources.
For producers of molded flexible urethane foam, the only possible responses to
higher CFC prices (other than reduced output levels) are paying the higher price
or CFC recovery. On the basis of the recovery costs described above, recovery and
recycle appears cost-effective at or near current CFC-11 price levels for large mold-
ed plants, which use extremely large amounts of CFC-11.10 For smaller producers
8Harder flexible urethane foams are not commonly produced with an auxiliary blowing agent.
9While the actual size distribution of plants is somewhat more diverse than Table 3.A.5 indicates,
these data appear to be a reasonable summary of the variety of plants in the industry and simplify the
demand schedule estimation procedure considerably.
10Recovery appears economical at current prices for these large CFC users even at the upper-bound
estimate of capital costs ($1.44 million per plant). There are several possible explanations of why
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of molded foam, the total value of recovered CFC is only 20 percent of that for large
CFC users, and CFC recovery will probably not occur unless the price of CFC-11
exceeds $1.04 per pound.
Flexible slabstock producers may respond to higher CFC prices in several ways.
Possible responses include: pay higher CFC prices; recover CFC; convert to methy-
lene chloride in products where this blowing agent is technically feasible and pay
higher CFC prices for the remaining output;11 and convert to methylene chloride
where feasible and recover and reuse both blowing agents. Whereas conversion to
methylene chloride requires no fixed investment, an initial investment in recovery
and recycle equipment must be reimbursed by materials cost savings over a period
of time. Hence, whether conversion, recycling, or both will be implemented depends
upon where the regulated price of CFC-11 is expected to stabilize (referred to below
as the "long-run" CFC-11 price).
For large slabstock plants, no emissions-reduction activity is expected at long-
run CFC-11 prices below $0.44 per pound.12 Above this price level, reducing CFC use
(and emissions) is a profitable activity. From the cost parameters presented above,
at prices from $0.44 to $0.61 per pound, all large slabstock plants would minimize
production costs by employing CFC recovery equipment. If firms expect a regulated
price of CFC-11 from $0.61 to $1.13, methylene chloride conversion (rather than
CFC recovery) will occur in large plants that primarily produce soft foam products,
reducing emissions by 75 percent. However, for large slabstock plants that
primarily produce medium soft foams, CFC recovery always results in lower costs
than methylene chloride conversion in the range of CFC prices considered in this
study. Finally, if firms can recover methylene chloride as well as CFC-11 (as
available evidence suggests), the analysis suggests that at prices above $1.13 per
pound large slabstock plants that produce softer foams would convert to methylene
chloride where possible and purchase recovery equipment in order to reuse both
auxiliary blowing agents.
For smaller slabstock producers, CFC recovery is an extremely unlikely out-
come of higher CFC prices regardless of the type of foam produced because of their
relatively low CFC use levels per plant.13 Instead, we expect small slabstock
producers to respond to higher CFC prices by switching blowing agents. Methylene
chloride costs less per pound than CFC-11 and 15 percent less blowing agent is
recovery does not occur at the present time. First, firm managers may be uncertain about what overall
recovery efficiencies are actually achievable and about actual volumes of exhaust gas to be treated.
Second, some cost variables may have been omitted from the analysis. Third, and perhaps most impor-
tant, the uncertain regulatory climate in the recent past may have discouraged recovery efforts. For
example, despite the seemingly attractive economics, recovery would be discouraged if firms anticipated
a future ban on CFC blowing agents, as occurred in the aerosol regulations, or if substantial subsidies
were anticipated for future purchases of recovery equipment. In any case, all available evidence
strongly suggests that CFC recovery in large molded foam plants would be among the first responses
observed as the CFC price increases.
"On the basis of information from the Society of the Plastics Industry, we assume that 25 percent
of each plant's output cannot be converted to methylene chloride. Other industry sources quoted smaller
percentage estimates.
12Blowing agent prices appear to vary from producer to producer. As a base case, the prices of CFC
and methylene chloride are assumed to be $0.34 and $0.22 per pound.
13For smaller slabstock producers, CFC recovery does not result in lower production costs than
methylene chloride conversion at any CFC price, on the basis of the cost parameters defined above. If
a small plant cannot convert any of its output to methylene chloride, CFC recovery would be induced
at a CFC price of $2.29 for medium slabstock plants and $3.42 for the smallest slabstock plants in Table
3.A.5.
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57
required to produce a given amount of final product (ignoring scrap). However,
because of the material and other costs associated with methylene chloride,
conversion by small plants that produce softer products is not expected unless the
long-run CFC price exceeds $0.68 per pound. At this price, these producers convert
75 percent of their CFC blown production to methylene chloride and are assumed
to incur higher prices for the remaining CFC. For small plants that primarily
produce medium soft foams, conversion to methylene chloride is not expected
unless the CFC price reaches $1.52 per pound.
Finally, higher CFC prices would also induce improved collection efficiencies
for CFC recovery in both molded and slabstock plants. Although existing plants
appear to collect a significant fraction of CFC use at central points in their ventila-
tion systems, plants have not been designed with this purpose in mind. Higher CFC
prices would create strong incentives to recycle as much CFC-11 as possible, given
that a firm employs recovery equipment. While exact information on the costs of
improving collection efficiencies is unavailable, in some cases relatively modest
capital costs may be involved. However, even assuming that capital costs are high
leads us to expect that a CFC-11 price of about $1.50 would be sufficient to induce
an increase in overall recovery efficiencies to 80 percent of CFC use.14
Table 3.A.6 presents the demand schedule for CFC use in flexible urethane
foams, based on the above analysis and assumptions. According to the analysis, an
increase in the CFC price of only 10 cents per pound will reduce CFC use by an
estimated 27 percent. If CFC-11 prices were to double, CFC use in flexible foam
products would decline by over 42 percent, with most of the emissions-reduction
activity occurring in large foam plants. Because flexible foams are prompt emitters,
the annual use reductions in Table 3.A.6 equal annual reductions in CFC-11 emis-
sions.
The increase in CFC-11 prices required to induce the use of a technical option
measures the cost of the option per unit reduction in CFC-11 use. Thus, the first
technical option to be induced, recovery in large molded and slabstock plants,
reduces use by 12.6 million pounds at a cost of just 10 cents per pound of reduction.
However, achieving further reductions imposes increasingly higher costs per unit
reduction in CFC use. For example, the cost of the last technical option that is
induced by higher prices (methylene chloride conversion by small slabstock plants
producing medium soft foam) costs $1.18 per pound.
In part, the higher costs required for each additional emissions-reduction activ-
ity reflect the differential economic impact of restrictions on CFC use for large and
small foamers. Because of their lack of sufficient technical expertise for using
methylene chloride and lack of large size for CFC recovery, small plants find it
relatively costly to reduce CFC use. Thus, while large foamers find it cost-saving
to substitute away from CFC at relatively low CFC prices, small foamers will absorb
the full impact of higher CFC prices until the CFC-11 price increase is substantial.
The demand schedule of Table 3.A.6 can be used to derive information regard-
ing the use of methylene chloride: At a CFC price of $0.68, we estimate methylene
chloride use will be at least 11 million pounds higher than in the baseline case in
"For a molded foam producer using 500,000 pounds of CFC annually, modifying the plant to achieve
this higher collection efficiency at a CFC price of $1.50 will be profitable so long as the capital costs
involved are less than an estimated $920,000.
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Table 3.A.6
CFC-11 DEMAND SCHEDULE FOR FLEXIBLE URETHANE FOAM, 1980 AND 1990a
(Millions of pounds)
CFC-11
Price
(1976 $ per Ib)
0.34
0.44
0.61
0.68
1.04
1.13
1.50
1.52
Induced Activity
None
Large MD and all
large SL plants
recover
Large SL, SF plants
convert
Smaller SL, SF
plants convert
Small MD plants
recover
Large SL, SF plants
recover and
convert
Improved collection
efficiency
Smaller SL, MF
plants convert
1980
CFC
Reduction0
—
12.6
2.0
5.3
3.7
1.0
8.0
5.3
Total
CFC Used
46.8
34.2
32.2
26.9
23.2
22.2
14.2
8.9
1990
CFC
Q
Reduction
—
19.3
3.0
8.0
5.7
1.5
12.3
8.0
Total
CFC Use
71.5
52.4
49.2
41.2
35.5
34.0 .
21.7
13.7
See text for explanation of calculations. Estimates based on distribution of
CFC use in Table 3.A.5.
MD denotes molded foam, SL denotes flexible slabstock, SF denotes soft slab-
stock foam, and MF denotes medium soft slabstock foam.
GShows incremental reduction induced at indicated price.
Shows total CFC-11 use at indicated price level.
1980 and nearly 17 million pounds higher in 1990. However, at prices in excess of
$1.13 for CFC-11, methylene chloride may be recovered along with CFC-11 by large
slabstock plants. In this CFC price range, methylene chloride use is higher than in
the baseline forecast, but only by about eight million pounds in 1980 and 13 million
pounds in 1990. Finally, at CFC-11 prices in excess of $1.52, we estimate that
methylene chloride use will increase by about 12 million pounds in 1980 and by over
18 million pounds in 1990.
MANDATORY CONTROL CANDIDATES
The two technical options for reducing CFC-11 use and emissions from flexible
foams—recovery and recycle and methylene chloride conversion—are discussed
here as candidates for mandatory control policy. The first of the options meets the
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59
criteria stated in Sec. I for inclusion in the benchmark set of mandatory controls;
as explained below, the benchmark analysis presumes that CFC recovery and
recycle would be implemented in the absence of any other regulatory restrictions
limiting the use of methylene chloride, thus allowing foamers who would find the
CFC recovery mandate especially costly to avoid the mandate by converting to
methylene chloride. For reasons given below, methylene chloride conversion is not
included in the benchmark controls, though the implications of required conversion
are spelled out here.
Required Recovery and Recycle
A recovery and recycle mandate meets all the criteria for inclusion in the
benchmark controls: The mandate appears enforceable because once each plant has
made the investment in recovery equipment it is cost-saving to use the equipment
rather then to let it stand idle; hence, enforcement consists of making sure each
plant acquires the necessary equipment. The mandate would be effective in reduc-
ing CFC-11 emissions by 1990 because annual use equals annual emissions in the
flexible foams product area. There are also sufficient data about recovery and
recycle to make a reasonable judgment about the costs and effectiveness of a
recovery mandate. Moreover, the recovery option is technically feasible for all
types of foams, so a recovery mandate would not require exemptions in order to
avoid eliminating the production of certain foams.
A CFC recovery mandate for flexible foams could be implemented as a new
source standard, requiring compliance only in plants constructed after a specified
date, or as a retrofit standard, requiring compliance by existing plants as well.
However, new source standards are unlikely to be an effective means of controlling
emissions from flexible foam plants. These plants typically operate for only one to
five hours per working day and appear capable of significant increases in output
levels. Because new source standards dramatically increase production costs in new
plants relative to existing facilities, a likely outcome is that existing foam plants
would be operated more hours than otherwise and industry growth would occur
primarily through expansion of output in existing plants where emissions controls
are not required.
In contrast, mandatory controls requiring recovery in existing as well as in new
plants do not increase production costs in new foam plants relative to old plants,
and no incentives are created to avoid new plant construction in order to circum-
vent the intent of the regulation.16 As a result, while new source standards would
have little impact on pre-1990 CFC emissions in this industry, retrofitting could
significantly reduce emissions levels. The following analysis concentrates on
mandatory controls for both existing and new plants.
Under a CFC recovery mandate, producers of molded flexible urethane foams
would purchase recovery equipment and reduce emissions by about 50 percent. For
15Currently, several factors, such as transportation and warehousing costs, constrain optimal plant
output levels. A CFC recovery mandate increases the fixed costs of production while reducing variable
costs by substituting reclaimed for virgin CFC. Consequently, optimal plant output levels under the
mandate would increase slightly (see Sec. II) and there would be fewer flexible urethane foam plants
than in the baseline case. However, this does not imply that plant closings would occur. Rather, fewer
plants would be constructed to meet the anticipated growth of the industry.
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60
large molded CFC users, recovery currently appears economical (or nearly so) and
no compliance costs for the regulation are imputed to these firms. For smaller
molded foam plants, a CFC recovery mandate increases the fixed costs of produc-
tion by an estimated $256,000 annually (including amortized capital expenses,
insurance, and other costs) and reduces material expenditures by only $81,000,
resulting in a net cost to each plant of approximately $175,000 annually, or $0.70
per pound of CFC emissions avoided.
For large flexible slabstock plants, the use of mandated CFC recovery devices
also increases fixed production costs by $256,000 annually. However, because of the
greater quantities of CFC recovered, material expenditures are reduced by nearly
$196,000, and the net annual costs of the mandate are estimated at about $60,000,
or $0.10 per pound of emissions avoided.
On the basis of the earlier demand analysis, firms that produce flexible slab-
stock in smaller plants will not respond to a recovery mandate by purchasing
recovery equipment. Rather, if allowed to do so, they will convert foam lines to the
use of methylene chloride. For softer foam output that can be converted, the costs
of substituting methylene chloride may be as high as $65,000 per plant annually,
or $0.34 per pound of CFC emissions avoided.16 For smaller slabstock plants that
primarily produce medium soft products, the estimated costs of conversion are
much higher, although still less than if these plants were to recover their CFC. For
these plants, the recovery/recycle mandate could impose costs as high as $221,000
per plant, or $1.18 per pound of emissions avoided.
Small plants that produce flexible slabstock would probably lose any foam
markets that depended on products that cannot be converted to methylene chloride
at the present time. The most likely outcome is that these markets would be
supplied by increased output from larger plants. Consequently, this analysis does
not estimate the costs of forgone production of these products.
Table 3.A.7 summarizes the costs of mandated CFC recovery for the flexible
urethane foam industry, assuming that small slabstock plants convert to methylene
chloride. With an overall recovery efficiency of 50 percent, the mandate could
reduce annual emissions by over 40 million pounds in 1990 and cumulative emis-
sions by nearly 370 million pounds from 1980 through 1990.
Estimates of costs in Table 3.A.7 implicitly assume that the number of flexible
foam plants in each category increases proportionately with industry output.17 The
total estimated costs of a CFC recovery mandate are $10.9 million in 1980 and $17.0
million in 1990 (in 1976 dollars), averaging about $0.41 per pound of emissions
avoided. From 1980 to 1990, the present value of the estimated costs generated by
the regulation are $93.3 million (discounted at 11 percent annually).
The above analysis assumes that no regulatory action is taken to discourage the
use of methylene chloride blowing agents. If a CFC recovery mandate required that
small slabstock foamers use CFC recovery, rather than convert to methylene chlo-
ride, the costs of the regulation would be higher. Assuming annual CFC use levels
of 225,000 pounds for medium sized plants and 150,000 pounds for small plants, the
"Based on cost assumptions presented at p. 54.
"Because average output per plant is likely to increase slightly, and because the net costs of CFC
recovery decrease as plant size increases, the assumption of constant per plant output levels over time
biases cost estimates upward.
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61
Table 3.A.7
EFFECTS OF MANDATED CFC RECOVERY IN FLEXIBLE URETHANE FOAM PLANTS*
Type of Foam,
Plant size
Molded
Large plants
Small plants
Slabstock
Large plants
Medium and .
small plants
Total
Emissions Reduction
(millions of Ib)
1980 1990 1980-1990b
8.3 12.6 114.7
4.6 7.0 63.8
3.7 5.6 50.9
18.2 27.9 253.8
7.9 12.1 110.3
10.3 15.8 143.5
26.5 40.5 368.5
Total Compliance Costs
(millions of $)
1980 1990 1980-1990°
2.4 3.8 21.3
2.4 3.8 21.3
8.5 13.2 72.0
0.7 1.2 6.6
7.8 12.0 65.4
10.9 17.0 93.3
Cost d
per Ib
($)
0.31
0.70
0.47
0.10
0.76
0.41
See text for explanation of calculations. Assumes mandate applies to
existing and new plants, and no restrictions on raethylene chloride use.
Cost estimates are in constant (1976) dollars.
Cumulative emissions reduction from 1980 to 1990, inclusive.
Present value of annual 1980 to 1990 net costs, discounted at 11
percent.
Calculated from individual plant data.
Recovery assumed economic at or near current CFC prices.
Emissions reductions and estimated costs based on methylene chloride
conversion, rather than CFC recovery. Estimates include plants producing
both medium soft and soft flexible foams.
net costs of using recovery equipment are an estimated $1.95 and $3.08 per pound
of emissions avoided for these plants, respectively.18 While the level of emissions
reduction declines because only 50 percent of CFC emissions are assumed
recovered, total compliance costs for these firms increase sharply to about $17
million in 1980 and $25 million in 1990.
In short, if a CFC recovery mandate is designed to force smaller slabstock foam
plants to purchase and use recovery equipment, the net costs imposed on all smaller
plants would be more than five times the total costs incurred by all other firms
combined, despite the fact that the total emissions reduction of the larger plants
would be twice as great. Obviously, it is unlikely that small plants could survive
such an extreme cost disadvantage. Consequently, under a CFC recovery mandate
combined with restrictions on the use of methylene chloride, many small plants
may be forced to close. Currently, there are at least 60 plants that might be affected,
located in all regions of the country. The markets previously supplied by this sector
of the industry would be gained by nonfoam substitute products or, as appears more
likely, by larger foam plants.
18Note that the costs of CFC-recovery and recycle are not affected by the type of foam produced.
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62
Ultimately, the cost impacts of mandated CFC recovery will be born primarily
by the final consumers of products that use flexible urethane foam. Although the
total costs of the control strategy (assuming small slabstock plants convert to
methylene chloride) are significant through 1990, the impact on prices of individual
products will probably be small. In markets where foam is only one component of
the final good, final product prices would probably rise by no more than one percent
for furniture products and by much less in the transportation markets. In other
cases where foam makes up a larger fraction of final product costs, such as foamed
mattresses and carpet underlay, the relative increase in prices will be larger. The
cost of the flexible foam itself would increase by less than five percent on average,
with greater increases for smaller slabstock and molded plants than for other
producers.
The employment effects of mandated CFC recovery are exceedingly difficult to
estimate. However, even under the assumption of completely inelastic foam de-
mand, the above analysis suggests that some smaller plants, which are placed at
a relative cost disadvantage, may reduce employment levels or close down as foam
markets are lost to larger competitors. Although total industry employment may
not be significantly affected, temporary employment dislocations will almost cer-
tainly occur, affecting perhaps as many as 1,500 workers.
Mandated Methylene Chloride Conversion
At present, most molded foams and some slabstock foams cannot be made with
methylene chloride. Thus, unless some foam products are exempted, a methylene
chloride conversion mandate might amount to a product ban on 25 percent of
slabstock foam and virtually all molded foams, which together currently account
for over half of all CFC blown output. In these segments of the industry, the
promulgation of a conversion mandate would result in possibly severe employment
effects as well as substantial losses in terms of the value of forgone output. Because
product bans are not a focus of the current analysis, we do not include the unex-
empted conversion mandate in the benchmark mandatory controls.
For (slabstock) foams that can be converted to methylene chloride, an effec-
tively enforced conversion mandate would cost the affected firms a total of $13.0
million in 1980 and $19.7 million in 1990, with small plants accounting for nearly
two-thirds of the total.
However, it is unlikely that a conversion mandate that exempts certain foams
could be effectively enforced. Since an individual slabstock plant produces several
different types of foams, exemptions for slabstock foams that cannot be made with
methylene chloride would allow both CFC-11 and methylene chloride blowing
agents to be used in the same plant. Because the alternative blowing agents can be
used on the same production line, enforcement of a regulation involving exemp-
tions would be difficult and costly, requiring a constant threat of inspection at every
plant. Consequently, the option of mandating methylene chloride conversion is
omitted from the benchmark set of mandatory controls on the grounds that it does
not meet the enforceability criterion.
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63
CONCLUSIONS
Flexible urethane foam plants are a significant source of CFC emissions. Total
emissions from flexible urethane foam are among the largest of all nonaerosol CFC
uses and may be as high as 90 million pounds of CFC-11 in 1990. Moreover, each
plant represents an extremely large point source of emissions, with hundreds of
thousands of pounds of CFC-11 used and emitted annually per facility.
In contrast to many other nonaerosol CFC uses, emissions from flexible ure-
thane foam appear susceptible to regulatory action. Either CFC recovery or methy-
lene chloride conversion could substantially reduce CFC releases to the
atmosphere, and CFC recovery appears to be an enforceable candidate for manda-
tory controls. However, the most efficient means of reducing emissions for a flexi-
ble foam producer depends upon the characteristics of the firm, such as the level
of CFC use per plant and the types of foam products produced. Thus, mandatory
recovery would impose vastly different levels of costs on different firms.
The use of CFC in foam products is sensitive to the price of CFC-11. The analysis
suggests that substantial reductions in use can be induced by moderate price in-
creases, and that total industry use could be reduced by as much as 80 percent if
the price of CFC-11 increased by slightly more than $1.00 per pound.
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III.B. SOLVENTS
INTRODUCTION
The solvents product area encompasses almost all domestic applications of
CFC-113 and does not involve substantial use of any other CFC.1 Table 3.B.1 reports
the distribution of CFC-113 among its various applications in 1976. By far the
largest category of applications is cleaning and drying, which accounted for 84
percent of CFC solvent sales. Dry cleaning, at less than four percent of sales, is not
a major use category but is significant because of impending regulations on
alternative dry cleaning agents. The remaining uses of CFC-113 are described by
DuPont as "solvent-related" uses. They are included in this analysis, along with the
2.5 million pounds of CFC-113 used in specialized refrigeration applications, to
encompass the total market for CFC-113.
Table 3.B.1
DOMESTIC SALES OF CFC-113 FOR CATEGORIES OF
SOLVENT-RELATED USES, 1976
Domestic Sales
Use Category (millions of Ib)
Cleaning and drying (total) 55.2
Vapor phase cleaning:
Defluxing 14.3
Metal cleaning 3.6
"Critical cleaning" 18.4
Liquid phase cleaning:
Open cleaning 6.6
Closed systems 4.2
Drying 3.7
Government 4.4
Dry cleaning (total) 2.2
Other (total) 8.1
Chemical processing:
Reaction medium 1.2
Intermediate 2.2
Carrier medium 2.7
Cutting fluid 1.6
Miscellaneous 0.4
Total 65.5
SOURCE: DuPont (1978a), p. V-5.
JA few million pounds of CFC-11 are used annually in highly specialized solvent applications, which
are omitted from this discussion.
64
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65
Cleaning and Drying
In cleaning, CFC-113 is used as an industrial solvent to remove flux from
printed circuit boards and to clean scientific instruments or metal parts and
assemblies.2 "Critical cleaning" refers to cleaning of plastic and specialty
components, many of which are produced in a contamination-controlled
environment. For liquid-phase ("cold") cleaning, the solvent is placed in an open or
closed tank and the item to be cleaned is dipped in or sprayed with the solvent. For
vapor-phase cleaning ("vapor degreasing"), the solvent in the tank is heated to form
a vapor zone above the liquid; items to be cleaned may be dipped in the vapor zone
as well as dipped in the liquid or sprayed. In both types of cleaning, the solvent coats
the item, displacing soils and particulate matter, and then evaporates to leave the
item clean and dry.3
Drying is a process similar to cleaning, with the solvent used to displace water.
Drying equipment units share basic design and functional features with vapor
degreasers.
Motives for using CFC-based solvents vary among cleaning applications. Some
users have converted to CFC from other solvents, such as trichloroethylene, which
are believed to be hazardous to workers. Other users rely on the CFC because it
is especially compatible with materials used in the final product, particularly plas-
tics; the use of plastic components in many applications was permitted by the
existence of CFC-113, which has been widely available since the early 1960s. Other
attractive features of CFC solvent are that it is virtually nontoxic and photochemi-
cally nonreactive.
There are dozens of industrial solvents, which include many potential substi-
tutes for CFC in cleaning applications. Among the substitutes most commonly
noted are 1,1,1 trichloroethane (also known as methyl chloroform) and methylene
chloride. Recently, aqueous cleaners (systems using heated water, sometimes de-
ionized or with detergent additives) have made inroads in the solvent market,
particularly for cleaning printed circuit boards. Crude data indicate that CFC-113
accounts for no more than five percent of the current total solvent market,4 but
there may be submarkets in which the CFC is far more important. Industry sources
argue, in particular, that CFC-113 is critical to the electronics and aerospace
industries and that these industries account for the majority of CFC cleaning sales.
If the cleaning and drying market were to grow in step with projected growth
in U.S. electronics production, CFC sales for cleaning and drying applications alone
SThe CFC-based solvent used in these applications may consist of pure CFC-113 or may be a mixture
or an azeotropic (constant-boiling) blend of CFC-113 with other solvents, usually methylene chloride.
(Even "pure" CFC-113 contains a small amount of other fluorocarbons. One of the two producers
markets two grades of pure CFC-113 that differ in the level of other material; both grades are over 99
percent pure.) The composition of an azeotrope affects cleaning strength (usually increasing strength
relative to pure CFC-113), odor (the pure CFC is odorless), boiling point, and other solvent character-
istics. All data reported in this section exclude the non-CFC components of azeotropes; in 1976, non-CFC
components added approximately 7.5 million pounds to solvent sales.
3There appears to be some disagreement among industry sources about the amount of CFC-113 used
in cold cleaning. However, the total use for vapor and liquid-phase cleaning is not in dispute, and the
distinction between the two cleaning methods is not essential in the analysis presented here.
4We have no data on solvent usage rates per unit of final product output for any of the industrial
solvents. To measure market shares, we assume that a gallon of any solvent will clean the same amount
of final output. Then the share of final output cleaned with CFC-113 is given by its share of the total
industrial solvent sales in gallons.
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66
would reach 130 million pounds in 1990. However, regulatory restrictions on other
solvents found hazardous to worker health or to the environment could easily
double the size of the CFC-113 market. Alternatively, market expansion could be
inhibited through increased market penetration by aqueous cleaners or through
improved solvent conservation.
Dry Cleaning
There are currently three main classes of solvents used to dry clean clothing.
CFC-113 with detergent additives (under DuPont's trade name Valclene ®) ac-
counts for less than one percent of the market at present. The CFC is mostly used
in coin-operated units, where exposure to other solvents is deemed hazardous to
the public, and for cleaning specialty goods, such as leathers. The other two classes
of dry cleaning agents, petroleum solvents and perchloroethylene, are both under
investigation for impending regulation. Regulations on alternative dry cleaning
agents could reasonably be expected to expand the market for Valclene much more
rapidly than might otherwise be predicted.
"Other" Uses
In 1976, about three percent of the CFC-113 sold in the United States was used
as an inert carrier of ingredients (for example, in paint and coating formulations).
A smaller amount was used in mixtures with small amounts of lubricant as a
coolant (cutting fluid) in specialized machining. In chemical processing, which was
four percent of the 1976 market, the solvent is used in a closed reactor as a medium
for chemical reactions or as a raw material for generating other products.
The DuPont report (1978a) rules out substitutes for CFC-113 as an intermediate
(raw material) in chemical processing, but notes that, as a carrier or reaction
medium, CFC-113 might be replaced by chlorinated solvents, hydrocarbons, or
water. However, DuPont argues that the CFC is generally much more costly than
the alternatives, suggesting that the CFC is used only where its properties are
especially advantageous or essential.
Pqtential market growth in these applications is uncertain. Both of the CFC-113
producers apply the same projected growth rates to these categories as to cleaning
and drying uses (though the two producers do not agree completely on anticipated
overall growth rates).
Not shown in Table 3.B.1 is the 2.5 million pounds of CFC-113 used in special-
ized refrigeration uses. Given the high price of CFC-113 relative to other CFC
refrigerants, it is reasonable to presume that this use requires the particular prop-
erties of CFC-113 and that there are no feasible substitutes.
The CFC producers do not include refrigerant applications in their solvent
market projections. For lack of better information, we assume that this application
will grow at the same rates projected for all other applications taken together.
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67
USE AND EMISSIONS
CFC-113 is the only CFC for which reclamation and reuse are nontrivial at
present. If "use" is defined as the amount of CFC used to fill equipment, reclaimed
material would be included. In contrast, the data reported below refer to sales of
virgin material. Because the amount of CFC emitted cannot be greater than the
amount of virgin material produced (regardless of how many times it is recovered
and reused), sales is the proper measure for assessing potential emissions.
Projecting future sales of CFC-113 is heavily dependent on knowledge and
assumptions about the markets and regulatory prospects for competing solvents,
matters largely outside the scope of this study. The importance of uncertainties
about future sales (and hence emissions) is illustrated below by means of alterna-
tive projections. Later in this section, we use a simulation model of the CFC-113
market to derive the point estimates of CFC-113 use and emissions that appear in
the quantitative analysis of policy implications. The details of the simulation model
are presented in Appendix E.
Historical and Projected Solvent Sales
Table 3.B.2 reports data on historical production and domestic nonrefrigerant
sales of CFC-113 obtained from its two producers, DuPont and Allied Chemical.
Exports are assumed to equal five percent of domestic sales, based on data for 1976.
Prior to 1978, imports were negligible.
Table 3.B.2
DOMESTIC PRODUCTION, DOMESTIC AND EXPORT SALES
OF CFC-113, 1970 TO 1977
(Millions of pounds)
Year Production Domestic Sales Export Sales
1970
1971
1972
1973
1974
1975
1976
1977
41
42
49
65
69
63
69
81
39
40
47
62
66
60
66
77
2
2
2
3
3
3
3
4
SOURCE: Computations performed by Rand from data
provided by the two CFC-113 producers, DuPont and
Allied Chemical. Refrigerant applications are ex-
cluded from all data.
NOTE: Imports of less than 500,000 pounds per
year are omitted from domestic sales.
The historical data on production and sales show a sudden drop in 1975, fol-
lowed by market recovery in 1976. The drop probably reflects the recession in the
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68
U.S. economy in which the electronics industry was especially hard hit. Sales data
for other industrial solvents show a similar decline in 1975 and less rapid recovery
afterwards.
DuPont and Allied offered somewhat different projections of future domestic
market growth. The two sets of estimates were combined to yield the "industry
projections" shown in Table 3.B.3.6 For the first four years, the average annual
growth rate for nonrefrigerant sales is higher (eight percent) than for the
succeeding years (five percent). These results are similar to those that would be
obtained if CFC-113 sales were to grow at the rate projected for electronics industry
production.6 The projections for domestic production assume that exports will
continue at five percent of domestic sales and that the import percentage of
domestic sales will grow linearly from zero in 1978 to five percent of domestic sales
by 1990, the latter percentage having been estimated by industry sources.
Table 3.B.3
INDUSTRY PROJECTIONS OF DOMESTIC PRODUCTION AND
SALES OF CFC-113 SOLVENT, 1978 TO 1990
(Millions of pounds)
Year
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
Domestic
Production
87
94
101
106
110
116
121
126
132
138
144
151
158
Exports
4
4
5
5
5
6
6
6
6
7
7
8
8
Imports
__
—
1
1
2
2
3
4
4
5
6
7
8
Domestic
Sales
83
90
97
102
107
112
118
124
130
136
143
150
158
SOURCE: Calculated from data supplied by
DuPont and Allied Chemical. Refrigeration uses
of CFC-113 are omitted.
Industry sources themselves remarked on the uncertainty that currently sur-
rounds prospects for the CFC-113 market.7 As an illustration of how significant the
uncertainties are, Table 3.B.4 lists two hypothetical projections derived from
5The method by which we combined the two sets of projections cannot be described in detail without
revealing proprietary information. The general method involved computation of a weighted average of
the two projections with greater weight given to the data from DuPont because of its larger CFC-113
market share.
°See the Industrial Outlook (1978), Chapter 31.
Those who did not remark on it demonstrated it by their behavior. Throughout this study, it was
commonplace to receive contradictory yet equally sincere predictions from different individuals within
a company as well as from the same individual in response to questions raised in different contexts.
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69
Table 3.B.4
Two HYPOTHETICAL PROJECTIONS OF DOMESTIC
CFC-113 SALES, 1985 TO 1990
(Millions of pounds)
Year
1985
1986
1987
1988
1989
1990
Lower
Projection
98
103
107
113
118
125
Upper
Projection
284
298
311
327
344
362
SOURCE: The lower projection
reduces the estimate of domestic
sales from Table 3.B.3 by 21 per-
cent. The upper projection in-
creases 84 percent of domestic
sales by a factor of 2.5 and in-
creases three percent of domestic
sales by a factor of 2.0. See text
for additional explanation.
alternative speculations about changes in the market environment. The "lower
projection" supposes that aqueous cleaners might completely replace CFC-113 in
printed circuit board defluxing, which accounts for 21 percent of CFC-113 solvent
sales. The "upper projection" assumes that CFC-113 will (a) displace other
industrial solvents, doubling its share of that market; and (b) double its dry cleaning
market share from one to about two percent.8 Note that the upper projection could
be met only by expanding CFC-113 production facilities beyond the current level
of roughly 150 million pounds; such expansion is likely only if current regulatory
uncertainty is resolved in favor of permitting rapid growth in the use of CFCs.
Emissions Processes
In the foregoing data, there is no presumed loss of CFC-113 between production
and sales despite producers' estimates that there are production emissions of one
to two percent. Our understanding is that the production emissions figures were
derived by comparing actual production output with the theoretical output of
CFC-113 that should have been achieved given precursor chemical input levels. It
8As noted earlier, the CFC market share for cleaning and drying has been estimated from the ratio
of CFC-113 sales in gallons to total gallons of industrial solvents sold for cleaning applications. Because
weights per gallon differ among solvents, a doubling of the CFC market share in gallons corresponds
to increasing its use in pounds by a factor of 2.5. For dry cleaning, market share is measured as a fraction
of total pounds of clothing cleaned. It is assumed also that both the overall dry cleaning market and
the industrial solvent market grow at eight percent per year through 1981 and at five percent per year
thereafter.
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70
is not clear, therefore, whether the production loss consists of CFC-113 rather than
the precursor chemicals themselves. In any case, production losses are at most very
small.
The producers estimate that about two percent of sales are emitted during
packaging and transport to users. The remainder comprises virgin (unreclaimed)
solvent deliveries to users.
Following deliveries to users, the emissions process differs somewhat according
to application. In cleaning and drying, two types of solvent losses occur:9 Some
solvent escapes in vapor form from the tank or from the surface of items removed
from the tank; the rest is removed in liquid form along with contaminants when
the tank is emptied for cleaning. The liquid waste may be allowed to evaporate,
sealed in drums and buried, or reclaimed and returned to repeat the use cycle. Since
the use cycle is repeated ten to forty times per year, it is a good approximation to
say that all the virgin input to cleaning and drying use in a given year is either
emitted or buried in that same year. There is currently no evidence on whether or
when buried waste is emitted; we have derived emissions estimates for an upper
bound assuming that all waste is emitted in the year it is buried and a lower bound
assuming that the waste is never emitted.10
In dry cleaning, the solvent escapes into the atmosphere from residues in
cleaned clothing or from equipment filters, which are discarded at frequent
intervals.11 There is no evidence that filters are discarded in any way that would
prevent prompt emissions of the CFC. Hence, all dry cleaning emissions are
assumed to be prompt.
For all other applications except chemical processing, the DuPont report
(1978a) describes the emissions process as being prompt. The closed reactors used
in chemical processing may delay emissions, and the CFC-113 that becomes part of
another final product may never be released. Our upper-bound emissions estimates
treat all chemical processing use as though it is promptly emitted, whereas our
lower-bound estimates treat this use as though it is never emitted; actual emissions
from this use lie somewhere between these two extremes.
Historical and Projected Solvent Emissions
Since the upper-bound emissions estimates presume that all CFC-113 domestic
sales are promptly emitted, the estimates derive directly from the sales data in
Table 3.B.2. To compute the lower-bound case, it is necessary to subtract sales for
chemical processing and waste burial from cleaning and drying uses. In the absence
of data on CFC-113 chemical processing for years other than 1976, its share of sales
for that year is assumed to hold for other years as well. To estimate burial, we
developed a simulation of the cleaning and drying emissions process.12 The
9Many previous studies and some industry sources describe losses as consisting of evaporation,
dragout, and disposal. These terms are not used here because they are subject to misinterpretation and
are not especially useful in the analysis.
10The former case is a true upper bound for all years in which solvent use increases from the year
before. For the historical period, this was true except in 1975.
"Equipment for dry cleaning is fully enclosed during operation and includes internal reclamation
cycles. Opportunities to control emissions further are very limited.
12DuPont provided a simulation for a single "typical" vapor degreaser. Our model simulates emis-
sions for eight different categories of cleaning and drying equipment. The model was critiqued by both
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71
simulation model, which also forms the basis.for our predictions of policy outcomes,
is detailed in Appendix E.
According to the simulation model, there were over 11 million pounds of waste
generated in 1976, of which some was buried, some was sent to chemical reclaimers,
and some was promptly emitted. There are no comprehensive data on the amount
of waste sent out for reclamation, but most industry sources presume that reclama-
tion comes to four or five percent of total virgin solvent sales; thus, we assume that
no more than three million pounds of waste went to reclaimers in 1976.13 Of the
remaining eight million pounds of waste, perhaps half was buried and half was
promptly emitted due to improper disposal practices. The estimated amount of
burial is equal to seven percent of virgin solvent sales for cleaning and drying in
1976. The same percentage is applied to data for all years in order to calculate
burial.
Table 3.B.5 reports the upper- and lower-bound emissions estimates for the
historical period. The upper- and lower-bound emissions projections for 1978 to
1990 are presented in Table 3.B.6. No emissions projections are given for the two
hypothetical sales projections from Table 3.B.4 because those merely reflect a
sensitivity analysis. However, the same recognition of uncertainties should be
applied with respect to Table 3.B.6.
Table 3.B.5
ANNUAL DOMESTIC CFC-113 EMISSIONS,
1970 TO 1977, UPPER- AND
LOWER-BOUND ESTIMATES
(Millions of pounds)
Year
1970
1971
1972
1973
1974
1975
1976
1977
Upper Bound
39
40
47
62
66
60
66
77
Lower Bound
35
36
42
55
59
53
59
69
SOURCE: Calculations explained in
text. The lower-bound projection is
equal to 89.12 percent of the upper-
bound projection. Refrigeration uses of
CFC-113 are omitted.
of the CFC-113 producers. When combined with data on the characteristics of the equipment stock, the
model accounts for over 90 percent of the 1976 CFC-113 use in cleaning and drying. See Appendix E.
13A few sources argued that seven to 10 million pounds of reclaimed solvent were used in 1976. These
figures are plausible only if reclamation carried out in-house by solvent users is counted. Data in the
text refer only to material recycled through outside reclaimers. Material reclaimed in-house is not
counted in the data on waste losses.
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72
Table 3.B.6
DOMESTIC CFC-113 EMISSIONS, 1978 TO 1990,
UPPER- AND LOWER-BOUND PROJECTIONS
(Millions of pounds)
Year Upper Bound Lower Bound
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
83
90
97
102
107
112
118
124
130
136
143
150
158
74
80
86
91
95
100
105
111
116
121
127
134
141
SOURCE: Upper bound is equal to
projected domestic sales from Table
3.B.3. Lower-bound estimate is 89.12
percent of the upper-bound estimate.
(See text for additional explanation.)
Refrigeration uses of CFC-113 are
omitted.
INDUSTRY AND MARKET CHARACTERISTICS
In other product areas reviewed in this report, there is some basis for measur-
ing the output of the final products manufactured by the use of CFCs. In many
instances, there is detailed information on the major firms in the user industry.
Because there are several producers of most CFCs, it is usually reasonable to
presume that moderate changes in the amount of use in a product area would not
drastically affect the price at which the CFC is available. Finally, the number of
potential substitutes for the CFC in the product area is sufficiently small that it is
usually possible to analyze in some detail the conditions under which substitution
would occur.
With regard to solvents, none of the foregoing features applies. What follows
represents inferences based on limited information available from a wide variety
of industry sources." Most of the discussion concerns cleaning and drying
applications only. Dry cleaning is discussed briefly at the end of this subsection.
14These include the two CFC-113 producers, three manufacturers of cleaning equipment, three chemi-
cal reclaimers who reclaim CFC-113, two users in the electronics/aerospace industry, a private consul-
tant to the electronics industry, a prominent solvent distributor, and (for dry cleaning) the International
Fabricare Institute.
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73
The Cleaning and Drying Market
Producers of CFC-113. There are two CFC-113 manufacturers, DuPont and
Allied Chemical. Each produces CFC-113 in a single plant, the larger of which has
sufficient capacity to supply all of the current CFC-113 market. In both plants,
CFC-113 is produced jointly with CFC-114, the output of which has fallen dramati-
cally because of the federal regulation of CFC aerosol propellants. Although the
production process differs between the two plants, it is clear that the heavy capital
investment in each case causes average unit production costs to fall as total output
from the plant increases. Since both plants currently have excess capacity because
of the CFC-114 restrictions, we presume that current CFC-113 unit production costs
are probably above the minimum achievable from the current capital stock. Expan-
sion in the market for CFC-113 might cause prices to fall in real terms, while
restriction of the market would probably generate increased real prices.15 To
substantiate an .argument that the CFC-113 price would rise if the market were
regulated, DuPont gave us a formula relating production costs to market output
that assumes a constant supply elasticity of —0.5.
CFC-113 sales represent a tiny fraction of total chemical production and reve-
nues for both producers. However, CFC-113 may be more important as a source of
current and especially future profits for the two firms, and neither is indifferent
to the prospect of regulatory restrictions on this chemical.
The Allied Chemical CFC-113 production facility is located at Baton Rouge,
Louisiana, where CFC-11 and CFC-12 are also produced. The DuPont plant is in
Corpus Christi, Texas. Both firms gave us highly confidential data indicating that
CFC-113 production is a relatively minor source of employment in the Baton Rouge
and Corpus Christi communities.
Distributors. The CFC-113 is marketed through a few hundred chemical dis-
tributors nationwide who usually carry a variety of solvents and actively compete
for sales. The same equipment can be used for Allied or DuPont solvent, and users
can and do switch among suppliers.
Equipment Manufacturers. There are 15 to 20 firms that manufacture clean-
ing and drying equipment, but the number that market equipment specifically for
CFC-113 use is unknown. The two most widely recognized manufacturers of equip-
ment for CFC-113 are Baron-Blakeslee (in Chicago) and Branson (in Shelton, Con-
necticut); most of the other firms are also located in the Northeast and Midwest.
Neither Branson nor Baron-Blakeslee provided data on their employment, but our
impression is that there are considerably fewer than 100 full-time-equivalent em-
ployees per firm involved in the manufacture of CFC-113 equipment. Both of the
well known firms sell a range of equipment types suitable for many different
solvents and cleaners.
Table 3.B.7 lists prices estimated by one of the CFC-113 producers for several
types of small and medium sized equipment units in a recent year.16 The prices refer
to well designed units available at retail; lower prices would apply to less
15Note that with declining unit costs and only two producers, pricing and output decisions may reflect
some degree of oligopoly behavior, with one of the producers acting as a price leader. Hence, prices could
be well above marginal cost.
16The equipment manufacturers did not provide price data, one arguing that there are so many
variations in designs that his price list would be difficult to compile.
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74
Table 3.B.7
ESTIMATED COST FOR NEW CLEANING AND DRYING EQUIPMENT, 1976 TO 1977
Equipment type
Vapor degreaser
In-house
distillation
unit
Dryer
Capacity
Small (15 gal)
Medium (80 gal)
10 gal/hr
80 gal/hr
Small (4 gal)
Mediumb
Features
Nonultrasonic3
Ultrasonic3
Nonultrasonic3
Ultrasonic3
Water-cooled
Refrigeration -cooled
Water-cooled
Ref r igerat ion-cooled
Purchase
Price ($)
3,000-4,500
6,200-7,500
6,200-7,500
9,500-11,800
2,000
3,000
8,700
10,800
10,800
12,900
SOURCE: Estimated by Allied Chemical Company.
Ultrasonic Units use sound waves to cavitate the solvent and increase
its cleaning effectiveness. The lower price estimates for ultrasonic and
nonultrasonic units assume that condensing coils are water-cooled. The
higher price assumes direct-expansion refrigerated coils.
Capacity in gallons not reported.
sophisticated units. Other industry sources report that very large units, which
make up about 10 percent of the equipment stock, cost upward of $100,000. As the
table indicates, the smaller units more generally in use do not represent major
investments by the user, especially in comparison to costs for other types of
equipment used in electronics and aerospace firms. Furthermore, an industry
source estimated that the cost of converting a machine from one solvent to another
is modest except for the very large machines. To convert a small degreaser to 1,1,1
trichloroethane, for example, would cost perhaps as much as $2,000."
Users. The CFC-113 producers estimate that CFC-113 solvents are used in as
many as 5,000 plants nationwide. Presuming that these plants are geographically
distributed much like the electronics components manufacturers covered by the
1972 Census of Manufactures, almost 40 percent are in the Northwest, about 20
percent are in the North Central region, over 10 percent are in the South, and
almost 30 percent are in the West; as might be expected, the largest electronics
production centers are in California and New York. It is common for a single user
firm to have several cleaning or drying units in a given plant and to use several
different solvents for different purposes. A solvent distributor offered the following
breakdown of the user market: 50 percent of users purchase under 20,000 pounds
per year; 45 percent purchase 20,000 pounds to one million pounds per year; five
percent purchase over one million pounds per year.
17The changes would primarily involve increasing the temperature at which the vapor zone is
formed.
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75
Reclaimers. At present, there are five to ten chemical reclamation companies
nationwide that reclaim CFC-113. Each of these companies also uses the same
distillation equipment to reclaim other chemicals. Consequently, we presume that
other chemical reclaimers could enter the CFC-113 market easily without new
capital investment.
At present, the price charged for reclaiming CFC-113 to 98 percent or better
purity is approximately 30 cents per pound, plus shipping charges. Because ship-
ping charges can add a substantial amount to the cost of reclaimed material, and
because until recently virgin solvent cost only 40 to 60 cents per pound, there has
been been little incentive for most users to send material to be reclaimed. Instead,
the 20 to 40 percent of users who generate enough waste to make reclamation
worthwhile often do so by means of in-house stills. The in-house equipment cannot
extract as much solvent for reuse as an outside reclaimer could, but in-house
reclamation does not involve any shipping costs.18
Disposal. Liquid waste and the sludge remaining after reclamation must be
discarded in some fashion. Some might be properly buried by a disposal company
that charges perhaps $10 per drum. Several industry sources are confident that
users often either leave the solvent to evaporate from open drums or pay a small
fee to someone who will take the drums away, no questions asked.
The Dry Cleaning Market
Although we do not have detailed data on the costs of using alternative dry
cleaning agents, it is clear that CFC-113 is relatively costly. The most commonly
used dry cleaning solvent, perchloroethylene, cost about 15 cents per pound in
1976.19 In the absence of data on Valclene prices in 1976, we presume that it cost
about as much as pure CFC-113, 52 cents per pound. Even under an assumption
especially favorable to Valclene—that it can clean 2.5 times as much clothing per
pound as perc—the cost of using Valclene would be 39 percent higher than the cost
of using perc.
The relatively high cost of CFC-113 dry cleaning agents makes it unlikely that
the CFC dry cleaning market share will increase much—unless there is regulatory
action to restrict the use of other solvents. But because CFC-113 currently holds a
small share of the dry cleaning market, even modest restrictions on other solvents
could vastly increase the market for CFC-113.
In 1976, approximately three billion pounds of clothing were dry cleaned in the
United States. CFC-113 accounted for only about one percent of the market, or 33
million pounds of clothing, while perchloroethylene held about 78 percent of the
market, and petroleum solvents held the remaining 21 percent.20 Limited
regulatory restrictions on perc and petroleum solvents could easily double the
market for CFC-113, even allowing for the possibility that regulatory action might
"Note that in-house reclamation was not included in the three million pound 1976 reclamation level
mentioned earlier in this section. That figure applied only to externally reclaimed waste.
19From data published by the U.S. International Trade Association. See the notes to Table 3.B.9 for
a full citation.
from the International Fabricare Institute.
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76
also reduce the total amount of clothing cleaned. A doubling of the CFC-113 dry
cleaning market was assumed in computing the "upper projection" in Table 3.B.4.
OPTIONS TO REDUCE EMISSIONS
Short of reducing final product output, the options for reducing solvent emis-
sions are substitution of other solvents for CFC-113 and improved conservation,
which reduces virgin CFC-113 purchases per unit of final output. Every substitute
solvent that has come to our attention has some known or suspected risk associated
with its use. Some may be hazardous to the health of workers, while others are
photochemically reactive and thus might contribute to smog.21 An assessment of the
validity and magnitude of the hazards imposed by non-CFC solvents is beyond the
scope of this study, but one will undoubtedly be needed to help EPA judge
alternative policies toward CFC-113. In contrast, conservation has few, if any,
undesirable health or environmental side effects. However, according to DuPont,
improving conservation is an option only in cleaning and drying applications.
One conservation approach involves reducing vapor losses by means of im-
proved equipment designs and better operating practices.22 Up to a point, vapor
losses can be reduced by such techniques as increasing the freeboard height of
equipment,23 using more condensing coils and better refrigerated coils, reducing the
speed of item throughput to allow better drainage back into the equipment unit,
and covering equipment when it is idle or shut down.24
Industry sources frequently mention figures in the range of 60 to 80 percent as
the amount of vapor loss conservation achievable with current technology. How-
ever, these figures refer to improvements in poorly designed equipment and in bad
operating practices, which are by no means universal even today. Consequently,
the gains to be made from increasing vapor conservation relative to the status quo
are much smaller than the industry estimates convey.26 As an illustration, we
computed a hypothetical reduction in vapor losses by using the emissions
simulation model mentioned above and reducing all loss rate parameters in the
model to the lowest values given to us by various industry sources. The result was
a decline in vapor losses from 3,737 pounds per machine per year to 2,039
pounds—a decline of 45 percent. (If reclamation rates remained unchanged, the
21Even aqueous cleaners have been criticized because they are disposed into waterways, along with
the contaminants they pick up during cleaning.
^or a detailed list of the standards for equipment designs and operating practices that might be
effective, see EPA (1979).
^Freeboard is the equipment wall that rises above the solvent surface and condensing coils and helps
contain vapors.
24The efficacy of carbon adsorption as a means of recovering vapor losses for reuse is debatable.
Producers of carbon adsorption units claim that they can recover up to 40 percent of vapor losses in
solvent applications. One of the CFC-113 producers argues, however, that the exhaust fans that feed the
carbon adsorption unit increase vapor losses. Currently, less than one percent of users have carbon
adsorption systems, and users and equipment manufacturers who have investigated the systems claim
that they are far from economically justified. Technical assessment of this option is required prior to
its evaluation as a candidate for mandatory control.
25The gains are also smaller than those estimated by EPA (1979), which also estimates emissions
effects by comparing conservative equipment with very poorly designed units rather than with the types
of units actually in use.
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77
improvement in vapor losses would reduce cleaning and drying solvent sales by
only 36 percent, and total solvent sales by only 30 percent.)26
It is evident also that the potential gain from individual conservation improve-
ments is very uncertain.27 An impressive example concerns the use of covers during
shutdown. One industry source who reviewed our preliminary simulation results
argued that the vapor loss rate when equipment is shut down is 0.08 pounds per
square foot of equipment surface area per hour—and that equipment is always
covered during shutdown. Another industry source preferred to assume the
shutdown rate is 0.02 when equipment is uncovered and 0.01 when equipment is
covered, and that covers are used only three-quarters of the time. If the former
assumption is more accurate, average annual shutdown losses are about twice as
high, shutdown losses would account for a third of vapor losses or a quarter of total
losses—and there would be no opportunity to reduce shutdown losses through
increased use of covers.28
Similar points can be made regarding the prospective benefit of reclamation as
a means of solvent conservation. Like vapor conservation, reclamation means that
less virgin solvent is required to perform a given amount of cleaning and drying;
hence, potential emissions are less. Some industry sources have speculated that
reclamation could replace up to 30 percent of current virgin solvent use. However,
our analysis indicates that most of the in-house reclamation that is feasible29 is
already being done and that only 20 percent or so of cleaning and drying solvent
losses end up as waste available for external reclamation. Not all of this waste
CFC-113 would be reclaimed, since some is too contaminated to warrant
reclamation and some cannot be extracted from the waste even with good
distillation. Moreover, some waste accumulates slowly from small users, making
outside reclamation uneconomical because of the costs of collection and storage.
Finally, because reclamation is largely an option only in cleaning and and drying
applications, even if as much as 90 percent of the waste could be returned to use,
total CFC-113 emissions could be reduced no more than 15 percent.
Solvent substitution, equipment and operating practice improvements, and
increased reclamation are options that might be induced by higher CFC-113 prices,
as explained in the following discussion of solvent demand. Except for equipment
improvements, however, the options are less promising as mandatory control candi-
dates.
Solvent substitution could be caused by banning CFC-113 use, but the desirabili-
ty of that option depends on how EPA views the risks imposed by other solvents—
and there are some current CFC-113 applications where solvent substitution might
^he potential for conservation cited here and elsewhere applies to averages. Certainly, some users
would do better; other users, who already practice good conservation, cannot further achieve even the
average improvement.
"Although there are many published studies that report the emissions effects of various conserva-
tion improvements, we have not discovered any documentation reporting results from tests using
CFC-113. Given the differences in the chemical properties of different solvents, there is absolutely no
technical justification for assuming that the emissions effects estimated from a test using, say, 1,1,1
trichloroethane, would equal those that would be obtained for CFC-113.
s^The higher shutdown loss assumption also makes the simulation results more nearly account for
reported usage of CFC-113 in cleaning and drying in 1976.
^Feasibility is determined by the user's requirements for solvent purity relative to the purity
achievable from in-house distillation. Using our emissions simulation model, the cost data for stills from
Table 3.B.7, and the information that a vapor degreaser can be used as a (crude) still, we have analyzed
the economics of in-house distillation. Since it always appears economically justified, we presume it is
already being practiced where feasible.
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not be feasible without changing the materials or methods used to produce final
products.
Aside from offering possibly very small emissions improvements, requirements
for better operating practices would be virtually unenforceable; even managers at
the user sites we visited complained that they cannot be sure that workers are
following recommended procedures when not under direct supervision.
Requirements for more reclamation would also be extremely difficult to enforce
at the thousands of user sites where CFC waste is generated. Many users might be
happy to have a market for their CFC waste because that would solve their disposal
problems, but those same users are often reluctant to accept reclaimed material for
reuse because it could contain impurities that could damage the products being
cleaned.
This leaves equipment standards as the most promising mandatory control
candidate, because inspectors could determine whether equipment in use meets the
standard, and equipment producers could be required to sell only equipment that
meets the standard.30
CFC DEMAND SCHEDULES
Several industry sources have argued vigorously that users of CFC-113 are
insensitive to its price, a conclusion with which we disagree. The reasons given to
support the sources' contention are: (1) Solvent expenditures are a trivial compo-
nent of production costs in user industries; (2) although CFC-113 is much more
expensive than other solvents, it is used anyway; and (3) the market for CFC-113
has not declined despite rapid price increases in recent years. All three of these
observations are accurate, but they do not prove that users are unresponsive to
prices of CFC-113.
One user has estimated that solvent expenditures are less than one percent of
his production costs, and we suspect that this situation is typical of most cleaning
and drying applications. This suggests that solvent prices have little bearing on
final product prices and that final product sales would not be affected by solvent
price increases of the magnitude contemplated in this study. However, users can
reduce CFC purchases without reducing final product output by using more conser-
vative equipment and operating practices, by recycling the CFC, and perhaps by
substituting alternative solvents. Whenever these actions will reduce production
costs, the firm has an incentive to undertake them, and firms that respond to such
incentives will fare better in their market shares and profits than their less respon-
sive competitors.
The observation that CFC-113 costs more than other solvents when compared
gallon-for-gallon or pound-for-pound is accurate, but the more pertinent compari-
son is overall production costs per unit of final output. Recent information from a
confidential source shows that users of 1,1,1 trichloroethane and CFC-113 have
similar production costs when measured per square foot of printed circuit boards
MEven if the standards were required only for CFC equipment and other solvent equipment con-
tinued to be produced, the cost of converting other equipment to CFC use would tend to dissuade users
from pursuing that method of evasion.
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79
cleaned. One reason is that CFC-113 requires less energy to form a vapor zone
because of its lower boiling point.31 Another reason might be that CFC loss rates
are generally lower. In any case, it is reasonable to expect that competition among
solvents would tend to drive the cost of using alternative solvents to equality at the
margin, with many inframarginal users finding one or another of the solvents more
economical for a particular application.
It is also true that the absolute price of CFC-113 has been rising rapidly, as
shown in Table 3.B.8. However, the prices of other solvents have been rising even
more rapidly. As indicated by Table 3.B.9, prices of CFC-113 rose 30 percent be-
tween 1970 and 1976, whereas the prices of other solvents rose 90 to 117 percent.
Since it is changes in relative rather than absolute prices that would influence a
user's choice among solvents, the recent history of solvent prices is perfectly consis-
tent with the strong market growth of CFC-113, and does not in any way support
the contention that solvent users are unresponsive to prices.
Table 3.B.8
PRICES OF CFC-113, 1970 TO 1977
CFC-113 Bulk Price
Year (cents per Ib)
1970
1971
1972
1973
1974
1975
1976
1977
SOURCE :
DuPont.
40.0
40.0
40.0
38.4
43.3
48.5
52.0
56.0
Prices reported by
Our model of CFC-113 demand presumes that there is some price responsive-
ness by users. We expect the use of CFC-113 to be less at higher prices in part
because higher CFC prices make investment in more efficient equipment cost-
saving for the firm and in part because higher CFC prices would begin to outweigh
the perceived disadvantages of reclaimed CFC, at least for some users. We also
expect some users of CFC-113 to convert to an alternative solvent if the CFC price
rises sufficiently; this view is consistent with the fact that some users converted to
CFC-113 from an alternative solvent in the past (for reasons of economics, advan-
tages of the CFC solvent in certain applications, and regulatory action toward other
solvents).
Unfortunately, neither of the CFC-113 producers provided information from
310ne source estimates energy use for a 2.5 gallon, one-sump vapor degreaser to be 4 to 11 kilowatts,
depending upon operating conditions. Overall, energy consumption would be 20 to 60 percent less with
CFC-113 than with such alternative solvents as methylene chloride, trichloroethylene, and 1,1,1 tri-
chloroethane.
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Table 3.B.9
COMPARISONS OF PRICE INDEXES FOR CFC-113 AND OTHER CHEMICALS
(1970 = 100)
Year
1970
1971
1972
1973
1974
1975
1976
Industrial
Chemicals3
100
101
100
102
150
205
217
Methylene
Chlorideb
100
88
88
100
163
200
213
1,1,1
Trichloro-
ethaneb
100
90
90
90
130
170
190
Trichloro-
ethyleneb
100
100
100
100
157
214
214
Perchloro-
ethylene
100
100
86
86
143
200
214
CFC-1130
100
100
100
96
108
121
130
Computations based on Handbook of Labor Statistics 1977, Table 118, p. 261.
Computations based on U.S. International Trade Commission (1976); prices in
this source are determined by dividing the value of sales by quantity where
value of sales is F.O.B. (if available) or delivered price.
c
Computations based on bulk prices as reported in Table 3.B.8.
their own marketing studies or experience that would allow us to discern which
solvent applications would be most susceptible to solvent substitution or the condi-
tions under which such substitution would occur.32 Given the large number of
alternative solvents and the wide range of solvent applications, it is beyond the
resources of this study to conduct such an analysis. Therefore, our model of the
opportunities for solvent substitution is very cautious, and may well understate the
degree of solvent conversion that might be induced by higher prices for CFC-113.
If so, our models would: (a) understate the elasticity of CFC-113 demand; (b)
understate the degree of emissions reduction under an economic incentives policy;
and (c) overstate the costs to users of such a policy. This tendency toward caution
is consistent with assumptions elsewhere in this study, as explained in Sees. I and
II.
Our analysis of CFC-113 demand focuses on cleaning and drying applications
where we have at least some crude evidence on the costs and effectiveness of
various options to reduce emissions. The analysis presumes that final product
output in this application category is unaffected by CFC prices and that the CFC
users will use reclaimed CFC and invest in solvent conserving equipment when it
is cost-saving to do so. Because the share of cleaning and drying use that is amena-
ble to solvent substitution is uncertain, we develop a demand scenario that is
cautious about the likelihood and degree of substitution. We assume, first, that
there is a cost of converting equipment that must be outweighed by CFC price
increases before conversion will occur. Second, we assume that the cost of using an
alternative solvent is equal to the current cost of using CFC-113 only for the
32When there are only two producers of a chemical, it is understandable that each of them would be
reluctant to provide detailed marketing data or studies that, if revealed here, would convey proprietary
information to the competitor.
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81
marginal user, but is higher for inframarginal users.33 Aside from the substitution
assumptions, the demand model has several other features.
First, the model assumes that the use of reclaimed material would increase if
the price of virgin CFC-113 reached $1.00 per pound (in 1976 dollars). The cost of
reclamation processing is not affected by the price of virgin material, and ease of
entry into CFC reclamation suggests that this activity could increase without
changing processing costs. At $1.00 per pound of virgin CFC, many users would find
the difference between reclaimed and virgin prices sufficient to compensate for
increased risk of impurities and higher transport and handling costs for reclaimed
material. Whereas the average share of waste reclaimed in 1976 was only 20
percent, we presume that the share could rise as high as 75 percent, with some
users more heavily engaged in this activity than others.
Second, the demand analysis uses the emissions simulation model mentioned
earlier (and detailed in Appendix E) to evaluate the effect of conservation improve-
ments on solvent losses for each of eight cases describing different equipment sizes
and use characteristics. Table 3.B.10 describes the eight cases and lists the prices
we assume for conservative equipment in each case.
We do not have data on equipment prices for less conservative units, so we
Table 3.B.10
ASSUMPTIONS FOR CLEANING AND DRYING CFC-113
DEMAND SIMULATIONS
Case
Number
1
2
3
4
5
6
7
8
Case
Description
Spray unit
Small, one-sump
Sma 11, two - sump
Medium, one-
sump
Medium, two-
sump
Medium, con-
veyor
Large, one- or
two- sump
Large, conveyor
Number of
Machines
in 1976
1,760
3,520
3,520
440
990
440
110
220
Price of
Conserving
Equipment
(1976 $)
3,300
5,300
7,800
7,500
10,000
12,500
78,000
125,000
Annual
Vapor Loss
Reduction
(lb)
1,084
1,108
1,228
3,225
4,280
1,161
12,891
4,355
SOURCE: Emissions simulation model developed for this study,
plus cost data from Table 3.B.7.
^We derive the degree of substitution of alternative solvents from the following formula, where E,.
is the new annual expenditure for CFC after its price increases, C0 and E0 are current use and expendi-
tures for CFC, K is the annualized cost of investment to modify equipment for a different solvent, and
C* is the level of CFC use after substitution at the new CFC expenditure level: CVC0 = E0/(EC - K).
Eo and Ec include the annualized cost of investments in equipment. The value of K is estimated to be
40 percent of the cost of new equipment (based on data from an industry source), except for conveyorized
machines where K is assumed to be somewhat less than 40 percent of total equipment costs.
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examined the outcomes of an investment decision model34 in which the conservative
equipment alternatively costs 20, 30, or 40 percent more than less conservative
units. Using the 20 and 30 percent parameters, we find that virtually all users
would choose the more conservative equipment at virgin CFC prices much below
the 1976 level of 52 cents. With the 40 percent parameter, users in simulation cases
1,2,4, and 5 would all choose the more conservative equipment when making a new
investment decision at a CFC price of 50 cents or less. The 40 percent parameter
is used in the results reported here because it is cautious—i.e., it yields a lower
estimate of demand elasticity than the alternative parameters.
The estimates of reductions in vapor losses from more conservative equipment
derive from detailed assumptions about underlying loss rate parameters for differ-
ent types of machines. The estimated reductions in vapor losses from making
conveyorized machines more conservative are smaller than the estimated reduc-
tions for nonconveyorized equipment of a similar size; conveyorized machines are
enclosed and therefore have lower vapor loss rates than nonconveyorized ma-
chines, so the gains that can be achieved from improved equipment design are
smaller for conveyorized units.
Finally, the demand scenario assumes that increases over time in final output
produced with CFC-113 are accomplished through proportional growth in the size
of the equipment stock, leaving its distribution among the eight simulation cases
unchanged. If this had been true historically, nearly 60 percent of the 1976 equip-
ment stock would have been at least six years old in 1976. For the results shown
here, we assume that all of the equipment of that vintage will be replaced in 1980,
but the results would not be greatly affected if a somewhat longer life (up to about
15 years) were assumed. Similarly, the remainder of the 1976 stock (whose average
age in 1976 was about three years) is assumed to be due for replacement on its tenth
anniversary, but would be replaced earlier if early investment in more conservative
equipment is justified by reduced production costs.36 It turns out that all existing
equipment in cases 1, 2, 4, and 5 would be replaced with more conservative units
in 1980 if the CFC-113 price reached 60 cents.
If the relative price of CFC-113 were constant over time, we would expect the
share of final product made using the CFC to remain constant as well. Using
electronics industry growth as a proxy for growth in all cleaning and drying appli-
cations, the CFC-using equipment stock would have grown about 10 percent in 1977
and at eight percent per year in 1978,1979, and 1980. We would predict (along with
industry sources) that the growth in solvents-using industries, and thus the CFC
equipment stock, would be eight percent in 1981, then five percent per year there-
after, through 1990.
However, the price of CFC-113 has not remained constant in real terms since
1976. Recent data from DuPont indicate that the 1980 price of CFC-113 is 38 percent
above the 1976 price, whereas prices of CFC-11 and CFC-12 rose 20 percent or less
over the same four-year period. Before obtaining these data, we based our model
^The investment model assumes that users amortize the equipment over eight years and discount
solvent savings at 20 percent per year.
36It is possible that users would modify rather than replace existing units in order to improve
conservation. The assumption that equipment is replaced after ten years even though the functional
lifetimes of units might be 20 years is intended to compensate for what might be an overestimate of the
costs of improving conservation in existing equipment.
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83
calculations on the assumption that the 1980 CFC-113 price would be 60 cents in
real terms, which is only one or two cents below the estimate we would have
obtained from the more recent data.
The market supply formula given us by DuPont indicates that future relative
CFC-113 prices will not remain constant. As noted earlier, the supply elasticity is
—0.5, implying that CFC production prices would fall (relative to other chemicals)
by one-half percent for each one percent increase in output levels. Our analysis
assumes that CFC-113 prices will fall according to that rule, at least until total
market output of the CFC approaches the current capacity constraint of about 150
million pounds. For total industry production of 140 million pounds or more, we
assume that the relative CFC price would "bottom out" at about 40 cents per pound
(in 1976 dollars).
In the 1990 baseline demand analysis, the CFC-113 price decline would encour-
age firms that would have chosen other solvents to choose CFC-113 instead. Assum-
ing that the capital costs for converting from another solvent to CFC-113 are the
same as the costs of converting from CFC-113 to another solvent, use of the CFC
in 1990 would be augmented by 16.0 million pounds because of solvent conversion
by users in cases 4,5, and 6 combined. The CFC-113 price would be 40 cents in 1990,
with total use amounting to 147 million pounds.
Table 3.B.11 reports the results from the demand scenario. For lack of better
information, the estimates of CFC sales for all applications other than cleaning and
drying assume that those uses are unresponsive to prices and will grow at the same
annual rates as final product output from the cleaning and drying applications. The
total demand values for virgin CFC prices of 60 cents in 1980 and 40 cents in 1990
are those we predict in the absence of policy action. Although the use projections
include refrigeration applications of CFC-113, the baseline total demand values fall
short of the industry projections of 1980 and 1990 sales for solvent-related appli-
cations. The principal reason is that our models predict that the equipment stock
will become more conservative in the near future (even in the absence of policy
action), while the CFC-113 share of the final product market remains constant.
Industry sources were not specific about the assumptions underlying their projec-
tions, but one source commented that his growth rates, which were lower than
others, presumed there would be improved conservation.
In results not reported here, we also calculated a demand scenario that assumes
that there are no opportunities for solvent substitution. The demand results in the
two scenarios diverge as the CFC-113 price increases because the reported scenario
specifies that more users will find solvent substitution cost-effective as the CFC-113
price rises relative to the prices of other solvents.
The reported scenario is somewhat closer to the industry projection of 1990
sales than is the nonsubstitution scenario, and also embodies the plausible assump-
tion that solvent users have some opportunities for substituting among solvents
when economic conditions change. The reported scenario is the basis for the base-
line use and emissions projections and for the policy analyses throughout the rest
of this report. Our estimates might even understate the degree of emissions reduc-
tions achievable from increased CFC-113 prices; this cautiousness in our analysis
reflects the especially limited data availability for this product area.
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84
Table 3.B.11
CFC-113 DEMAND SCHEDULES, 1980 AND 1990
(Millions of pounds)
Bulk Price of
Virgin CFC-113
(1976 $)
Cleaning and Drying
Small Medium Large
Units Units Units Total
All Other
Applications Total
1980
0.60
0.80
1.00
1.25
2.00
2.80
24.8
18.8
11.6
10.7
8.5
6.9
15.2
14.7
11.1
9.0
6.3
4.7
14.1
14.1
11.4
9.8
6.6
5.2
54>1
47.6
34.1
29.5
21.4
16.8
24.2
24.2
24.2
24.2
24.2
24.2
78.3
71.8
58.3
53.7
45.6
41.0
1990
0.40
0.60
0.80
1.00
1.25
2.00
2.80
41.6
31.5
31.5
19.6
17.9
13.4
10.6
40.8
25.4
24.6
18.6
15.0
10.5
7.9
23.7
23.7
23.7
19.1
16.4
11.0
8.7
106.1
80.6
79.8
57.2
49.3
34.9
27.2
40.6
40.6
40.6
40.6
40.6
40.6
40.6
146.7
121.2
120.4
97.8
90.0
75.6
67.8
SOURCE: Calculations from simulation models described in text.
Scenario assumes that users can substitute among solvents. Compo-
nents may not sum to totals because of rounding.
MANDATORY CONTROL CANDIDATES
For reasons given earlier, the only mandatory control candidate considered
here is equipment standards. A standard applied only to new equipment promises
to be far less effective than standards requiring improvements in existing equipent
as well. We expect that most existing equipment is due for replacement by 1983,
so new source standards would differ little from retrofit if current replacement
schedules are followed. However, new source standards might encourage users to
retain the older and less conservative equipment longer, making new source con-
trols less effective over the decade. Our mandatory controls analysis presumes that
the controls would require improving existing as well as new equipment.
There are two regulatory options for retrofit controls that might be considered.
One is to impose the same equipment standards for all solvents. This regulation
would impose nearly the same equipment costs and yield similar reductions in
emissions for all solvents. The outcome of this regulation would be the same regard-
less of whether users can substitute among solvents, because the policy would not
much affect the relative costs of using alternative solvents.36 The policy would not
36Mandatory controls, if perfectly enforced, would raise the average conservation improvement in
all cases by eliminating below-average uses in each case. The analysis assumes that enforcement would
not be perfect.
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85
dissuade users from substituting CFC-113 for other solvents, and thus would be less
effective in restricting CFC use than would a policy directed only at CFC use. In
contrast, it appears that a regulation only on CFC-113 use could dissuade some
users of other solvents from converting to the CFC as its price declines over time,
and thus would reduce CFC emissions more than regulations applied to all solvents
might. Our analysis assumes controls would apply only to CFC-113, since regulation
of other solvents is outside the scope of this study.
Under equipment standards, users in cases 3, 6, 7, and 8 Who would not other-
wise improve their conservation would be required to do so, thus reducing total
CFC use by the year 1990. The reduction in use would keep the CFC-113 price from
falling as much as it would in the absence of regulatory action. Consequently, there
would be less incentive for users of other solvents to convert to CFC-113 as its price
declines.
If we assume that mandatory controls would dissuade users from converting
to CFC-113 in cases 4 and 5, then 1990 use under mandatory controls would come
to 120.9 million pounds and the supply price of the CFC would be about 45 cents.
This price is very close to the estimated price at which solvent substitution in cases
4 and 5 would occur—so close that a small change in the data used in the analysis
would shift the balance of the predicted outcomes.37 Our analysis gives the benefit
of the doubt to the mandatory controls, assuming that they will dissuade solvent
users from converting to CFC-113 in cases 4 and 5. Because the users in these two
cases who might consider solvent substitution are very close to indifferent about
it at a CFC price of 45 cents, the compliance costs associated with dissuading
conversion are very small.
Table 3.B.12 summarizes the estimated outcomes of a mandatory control policy
that requires retrofit equipment standards, but only for equipment in which CFC-
113 is used. Appendix E uses case 3 in the simulation model to illustrate how the
results reported in Table 3.B.12 were obtained.
CONCLUSIONS
Before this study, solvent applications were regarded as a minor source of CFC
emissions. Our results prove otherwise. Currently, CFC-113 accounts for over 15
percent of CFC emissions (measured in permit pounds). In the absence of policy
action, CFC-113 could account for almost 20 percent of such emissions by 1990.
Previous analyses of solvent emissions controls use test results for non-CFC
solvents and compare good and bad equipment designs without investigating the
characteristics of equipment actually in use. As a result, those studies suggest that
the ability to reduce solvent emissions through mandatory controls is far greater
than our analysis predicts. Nevertheless, mandatory controls on equipment stan-
dards in CFC solvent applications would be an important contributor to the emis-
sions reductions achievable from the benchmark mandatory controls examined in
this study.
37The 45 cent price would not dissuade users from converting in case 6.
-------
Table 3.B.12
EMISSIONS REDUCTIONS AND COMPLIANCE COSTS UNDER MANDATORY EQUIPMENT STANDARDS
Case
Number
3
4C
5C
6C
7
8
Total
TiT 1 l~ Tuf 1 *
Affected3
1980 1990
4,878 8,173
631
1,325
610 1,639
152 255
305 510
5,945 12,533
1980
Emissions
Reduction
(millions of
6.0
—
0.7
2.0
1.3
10.0
Outcomes
Compliance
Costs
Ib) ($ millions)
0.4
__
— _
0.3
0.7
3.2
4.5
1990
Emissions
Reduction
(millions of
10.0
3.1
7.5
6.3
3.3
2.2
32.5
Outcomes
Compliance
Costs
Ib) ($ millions)
2.6
0.2
0.4
1.0
1.8
5.8
11.6
Cumulative
Emissions
Reduction
(millions of Ib)
86.4
7.1
15.5
29.2
28.3
19.2
185.7
Outcomes
Compliance
Costs*3
($ millions)
6.6
0.1
0.3
3.3
7.2
28.2
45.7
SOURCE: Calculations based on a simulation model described in Appendix E. Components may not sum to totals
because of rounding.
The number of machines affected in 1990 includes machines affected in all prior years and still in operation.
Sum of annual compliance costs, discounted at 11 percent per year. The average annual compliance cost per pound of
emissions reduction is $0.15 in case 3; $0.05 in case 4; $0.05 in case 5; $0.21 in case 6; $0.45 in case 7; $2.49 in case 8;
$0.43 overall.
Includes effects of controls on dissuading substitution of CFC-113 for other solvents as the CFC-113 price falls. (See
text.) In each case where there is no such effect in 1980, but only in later years, the cumulative costs and emissions es-
timates use a constant average rate of annual change based on the assumption that the 1980 value is 10,000 pounds, or 500
dollars.
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87
Increasing the CFC-113 price could achieve even greater emissions improve-
ments, assuming that users are able to substitute among alternative solvents. As
indicated above, we believe that these demand estimates are more likely than not
to understate the elasticity of CFC-113 demand, and thus might cause us to over-
state the probable costs to CFC users of each of the economic incentives policy
designs under consideration.
Solvent substitution is not, of course, a panacea. Other solvents appear to
impose their own health and environmental hazards, and require some increase in
energy utilization. The potential effectiveness and the desirability of using policy
to induce substitution among solvents cannot be determined in this study, and
remain important issues for further investigation by EPA.
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III.C. RIGID POLYURETHANE AND
NONURETHANE FOAMS
INTRODUCTION
Since the early 1960s, CFCs have been increasingly used as a blowing agent in
closed cell plastic foams. By 1976 closed cell plastic foams accounted for 17 percent
of all nonaerosol CFC use. Figure 3.C.1 presents a schematic of the major types and
applications of closed cell foams. Although these products are characterized by an
extremely diverse and growing number of applications, two general types of CFC
blown closed cell foams can be identified: rigid polyurethane and isocyanurate
foams, and nonurethane foams.1
Rigid Polyurethane and Isocyanurate Foams
Rigid urethanes and isocyanurates are the largest closed cell foam consumers
of CFCs. By far the most extensive use of these plastic foams is as an insulation
material in construction, refrigeration, and transportation applications. In fact,
CFC blown rigid urethane and isocyanurate foam is the most effective insulation
medium, in terms of thermal efficiency, available on the market today. As a conse-
quence of rising energy prices, the use of these materials in the economy is growing
very rapidly and will continue to do so in the absence of regulation.
Insulating foams are widely used in sheathing and roofing applications in
commercial buildings. The foam insulation residential sheathing market was virtu-
ally nonexistent as late as 1972, but is currently expanding at a dramatic rate at
the expense of the market shares of wood fiberboard and other sheathing materi-
als. Industrial construction insulation applications are dominated by the use of
rigid urethanes that are sprayed on industrial pipes and storage tanks.2 Rigid
urethane foam is now the most prevalent insulation in the wall cavities of home
refrigerators and freezers, and its use in commercial refrigeration units, almost
nonexistent a decade ago, is growing rapidly.3 Finally, urethane insulation is
foamed within the walls of refrigerated truck trailers and railroad freight cars to
reduce the energy costs of cooling their payload.
In addition to providing the highest possible level of thermal efficiency, rigid
urethane foams provide structural strength, reduce weight, and increase interior
storage capacity (by reducing wall thickness) in several end-use applications. One
'The classification of a plastic foam as "open" or "closed" celled is not always obvious. In fact, some
nonurethane foam products contain a significant fraction of open cells. The term "closed" cell foam is
used as a convenient label for the class of foams considered in this section, rather than as a technical
description of a foam product's characteristics.
2Note that foam building materials, such as rigid urethane sheathing, that are installed at an
industrial site are classified in the commercial construction market. In contrast, rigid urethanes classi-
fied in the industrial construction market are generally "foamed" at the job site, rather than being
centrally produced.
3A home refrigeration appliance contains as much as three to six times more CFC blowing agent in
its walls than CFC refrigerant in its cooling system.
88
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89
CFC blown
closed cell
foams
Fig. 3.C.1—Major types and applications of CFC blown closed cell foams
or more of these advantages is observed in home refrigerators and other refrigera-
tion products, in some construction applications, and in refrigerated truck trailers.
Noninsulating uses of rigid urethane foam are far less important in terms of
both foam output and CFC consumption. Packaging applications involve foaming
rigid urethane around delicate, often expensive, items to be transported. Marine
and flotation applications include foaming rigid urethane in boat hulls for structur-
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90
al strength and safety purposes, as well as the production of foam logs, which serve
as waterborn cushions and buoys.4
Finally, a relatively recent application of CFC blown rigid urethane is reaction
injection molding (RIM), a process for fabricating high density polyurethane foam
parts. The RIM process is increasingly being used to fabricate automobile parts, but
currently consumes only small quantities of CFCs.6
Virtually all CFC blown rigid urethane and isocyanurate foams employ CFC-11
as a blowing agent.6 In addition to acting as a blowing agent in the production
process, CFC-11 plays a particularly important role in insulating foams. Indeed, the
superior insulating properties of these products is due solely to the presence of
CFC-11 in the foam cells. Because of the very low thermal conductivity of this
blowing agent, CFC blown insulations are approximately twice as efficient as
equally thick nonfoam alternatives, in terms of the amount of heat transfer
permitted. While urethane foams can be produced without CFC-11 by reacting
isocyanates with water to produce a carbon dioxide blowing agent, the carbon
dioxide blown foam retains only the structural properties of its CFC blown
counterpart, and the relative thermal efficiency of the foam product is completely
lost.7
Nonurethane Foams
Like the rigid urethanes, CFC blown nonurethane foams, which are dominated
by the polystyrenes and extruded polyolefins, are employed in a wide variety of
applications. There are three basic types of polystyrene foams—extruded poly-
styrene (PS) board, extruded polystyrene sheet, and expanded polystyrene. Dow
Chemical first introduced extruded PS board under the trade name Styrofoam
during World War II. Extruded PS board is primarily used as an insulating materi-
al in building construction. Due to its use of CFC-12 as a blowing agent, this product
has desirable thermal properties (which are exceeded only by rigid urethane) and
has the additional advantage of being highly resistant to moisture penetration.
Extruded PS sheet and film represents the largest consumer of CFCs among the
nonurethane foams. First introduced in the mid-1960s, these foams were originally
blown with pentane, but in part because of the fire hazard associated with this
agent, a conversion to CFC-12 began in about 1967. Polystyrene sheet products are
also used in some insulation products, but their primary application is as a pack-
aging material. The major markets for these foams are in stock foam trays for meat,
poultry, and produce products, foamed egg cartons, and "single service" food con-
tainers for the rapidly growing fast-food and institutional food industries. Miscella-
4High density rigid urethanes are fabricated into structural and decorative furniture parts. How-
ever, these high density foams are not CFC blown and involve different producers and technical
production processes than CFC blown foams. As a result, furniture applications are not considered in
this report.
5While the use of the RIM process is growing rapidly, in 1978 this application consumed only about
one million pounds of CFC-11. Consequently, even if CFC use in the RIM process grows faster than in
any other application examined in this report, total use in 1990 would be at relatively small levels.
6As discussed below, some production processes also employ modest amounts of CFC-12.
7CFC blown urethane insulation has a k-factor (a measure of thermal conductivity) of 0.11 to 0.16,
depending upon the physical characteristics of the foam and its environment. In contrast, the k-factor
of fiberglass or carbon dioxide blown foam is roughly twice as high, 0.24 to 0.29. (DuPont, 1978a, p.
IV-12.) In other words, non-CFC blown insulation will transfer about twice as much heat as CFC blown
foam per unit of thickness.
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91
neous uses for PS sheet include drinking cups, although this market is dominated
by expanded PS foams, and labels for glass bottles, a rapidly growing foam market.
Expanded PS foam products account for virtually all of the foam drinking cup
market and are fabricated into a variety of other products including packaging
materials, insulation board, ice chests, and flotation products. Although expanded
PS foams constitute the largest polystyrene market in terms of foam output, the
market penetration of CFC blowing agents in these foams is quite low. Conse-
quently, very little CFC is used in the manufacture of these products and they are
not dealt with extensively in this analysis.
The output and CFC use of the other nbnurethane foams is only a small fraction
of that of the polystyrenes. These products include the extruded polyolefins
(polyethylene and polypropylene), phenolics and polyvinyl chloride foams. The
largest of these minor categories is polyolefin, which is used as an insulating
material in electric cables, as well as in packaging, gasketing and sealing, marine
products, flexible foam insulation, and expansion joints in building construction.
The nonurethane foams employ a variety of CFC blowing agents. Although the
primary blowing agent for PS board is methyl chloride,8 CFC-12 is used to reduce
the warping of the finished board product and, as noted above, to provide thermal
integrity. The most widely used blowing agent in extruded sheet is CFC-12.
According to the DuPont report (1978a), the polyolefins and other minor foam
categories use CFC-11, CFC-12, CFC-114, and small quantities of CFC-113 and
CFC-115. Available evidence indicates that overall CFC-12 accounts for about 90
percent of all the CFC blowing agents used in nonurethane foams.
A substantial portion of all extruded PS sheet is currently produced with pen-
tane blowing agents. However, the market share of pentane blown extruded sheet
has eroded rapidly in recent years, from 45 to 50 percent in 19739 to about 35
percent in 1977. The use of pentane in extruded sheet poses a serious fire hazard.
In fact, at least three foam plants that produced pentane blown foam reportedly
have been destroyed by fire.10 Chlorofluorocarbons are nonflammable, and
substantial increases in tooling and insurance costs would accompany any
conversion from CFC to pentane. According to DuPont, while several producers of
polystyrene sheet have switched from pentane to CFC, there have been no
instances of producers substituting pentane for CFC blowing agents."
CFC USE AND EMISSIONS
Table 3.C.1 presents rigid urethane foam production data for aggregated prod-
uct categories. The production of CFC blown rigid urethane foam is substantial,
amounting to about 489 million pounds in 1979. Under the impetus of high energy
prices, production is expected to grow dramatically through 1982. After 1982, an-
nual growth rates are expected to decline as foam markets become relatively
"Methyl chloride should not be confused with methylene chloride, which is used in solvent appli-
cations and as an auxiliary blowing agent for flexible urethane foams.
9Arthur D. Little Inc. (1975), p. IV-79, and Midwest Research Institute (1976a), p. 123.
10DuPont (1978a), p. 14; and Allied Chemical (1977), p. 18.
"Industry sources also list methylene chloride as a potential substitute for CFC in some polypropy-
lene foams, although this research is still in the preliminary stages.
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92
saturated. Expected production in 1990 is 1.2 billion pounds. Over 90 percent of this
foam output is in the three major insulation markets: construction, refrigeration,
and transportation.
Table 3.C.1
RIGID POLYURETHANE AND ISOCYANURATE FOAM PRODUCTION, 1960 TO 1990
(Millions of pounds)
Year
Insulation
Construction3 Refrigeration Transportation Total
Marine/
Packaging Flotation
Total
CFC Blown
Historical
1960
1965
1970
1971
1972
1973
1974
1975
1976
1977
1.0
20.0
78.3
85.5
109.5
137.0
145.1
166.2
162.0
199.0
4.0
19.0
51.2
57.8
63.4
72.3
74.8
72.6
60.0
70.0
4.0
14.8
29.8
29.1
37.2
51.3
49.5
48.4
40.0
42.0
9.0
53.8
159.3
172.4
210.1
260.6
269.4
287.2
262.0
311.0
—
1.0
7.2
6.0
7.0
9.1
12.1
13.2
16.0
18.0
1.0
4.6
15.9
11.2
14.4
15.4
13.8
13.2
14.0
14.0
10
59
182
190
232
285
295
314
292
343
Projected
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
247.4
312.2
370.1
435.4
505.0
543.0
583.5
627.4
674.5
725.1
779.6
838.1
901.0
80.2
92.3
107.1
125.1
147.0
150.7
154.0
158.3
161.1
166.6
173.6
181.2
181.4
43.0
45.0
47.0
48.0
50.0
51.8
53.6
55.4
57.4
59.4
61.5
63.6
65.8
370.6
449.5
477.2
608.5
702.0
745.5
791.1
841.1
893.0
951.1
1,014.7
1,082.9
1,148.2
20.0
23.0
26.0
28.0
30.0
32.0
34.0
36.0
38.0
41.0
44.0
47.0
50.0
15.0
16.0
17.0
18.0
19.0
20.0
22.0
23.0
24.0
26.0
27.0
29.0
31.0
406
489
567
655
751
798
847
900
955
1,018
1,086
1,159
1,229
SOURCES: Historical data based on Bedoit (1974), and Midwest Research Institute (1976a).
Projections based on information from Mobay Chemical Corporation (1978), Olin Chemical
Group, and industry sources. Components may not sum to totals because of rounding.
Includes industrial tank and pipe.
Rigid urethane foams are manufactured primarily by four production pro-
cesses, which must be distinguished because their CFC use and emissions char-
acteristics differ.12 Rigid slabstock is produced in large buns similar to flexible
urethane buns and is cut to the desired size and shape for insulation and other
applications. Laminated boardstock is produced in large sheets, often with
aluminum, paper, or asphalt facing materials, and is used as a sheathing material
'^Detailed discussions of these production processes are contained in Arthur D. Little (1975), and
Midwest Research Institute (1976b), Chapter IV. These descriptions are not reproduced here.
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93
in the construction market. Field spray foams are typically applied on the job site
by small contractors as an insulation covering on industrial tanks and pipes and
other structures. Pour in place (PIP) foams involve pouring a liquid mixture into
a cavity, such as in the walls of an appliance cabinet. In some products, the pour
in place technology employs a frothing process, which uses small amounts of
CFC-12 in addition to CFC-11.
Table 3.C.2 shows rigid urethane foam output by product and production pro-
cess for selected years. Projections for most of the markets in Table 3.C.2 are based
directly on data obtained from and reviewed by industry sources. Much of the
impressive growth of rigid urethane foam markets expected by 1982 is attributable
to the residential construction and refrigeration markets. Residential construction
is the newest and fastest growing market for rigid urethane insulation. The market
penetration of laminated boardstock foam insulation in the residential sheathing
market is currently about 20 percent, according to construction industry sources.
Foam output projections for this insulation market are based on a fairly steady new
housing market, with 1.7 million starts in 1982 and 1.9 million starts in 1990.
However, the market penetration by rigid urethane insulation is expected to grow
to about 42 percent in 1982 and 67 percent in 1990. Consequently, foam consump-
tion in this market is expected to increase dramatically through 1982 and then grow
at a slower pace from 1983 to 1990,
Estimates for rigid urethane insulation in refrigerators and freezers are based
on IR&T projections of domestic unit shipments and on estimates of average foam
content and future market penetration by foam insulation. According to producers
of home appliances, in 1977 the average foamed refrigerator cabinet contained
about 11.3 pounds of rigid urethane and the average freezer contained about 17.2
pounds. The market penetration in 1977 of foam insulation is reported by one raw
material supplier to be 45 to 50 percent for refrigerators and as high as 90 percent
for freezers. Because of increased concern for energy efficiency, average foam
content and the market penetration of foam insulation are expected to rise in the
future. The estimates in this report assume that by 1983 both markets will be
completely penetrated and the average foam content will be 13 pounds for refriger-
ators and 19 pounds for freezers. As a consequence, foam output for the refrigera-
tion market is expected to double between 1977 and 1982. After these markets are
penetrated, growth in foam use will result only from increases in units shipped,
reaching 181.4 million pounds in 1990.
Table 3.C.3 presents output projections for the nonurethane foams. The expect-
ed growth rate for total extruded sheet output is approximately 8.2 percent until
198213 and about half that rate from 1983 to 1990. Estimates for extruded PS
insulation board are provided for the residential and commercial construction
markets. According to industry sources, these markets account for virtually all
extruded board output and in 1977 were of approximately equal size in terms of
foam consumption. Extruded board foam output is expected to grow along with the
^Modern Plastics, August 1978. Several industry sources, in comments on an interim report covering
the nonurethane foams, indicated that these projections for 1977 to 1982 were optimistic. However, no
substantive evidence or alternative projections were provided. Because of Modern Plastics close associa-
tion with the industry and because of recent growth trends in extruded sheet markets, these projections
were not adjusted downward prior to 1983.
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Table 3.C.2
RIGID PbLYURETHANE AND ISOCYANURATE FOAM OUTPUT BY
PRODUCTION PROCESS, 1976 AND 1990
(Millions of pounds)
Use
Slabstock
Laminated
Boardstock
Field
Spray
Pour
in Place
Total
1976
Construction
Commercial
Residential
Industrial
Refrigeration
Refrigerators
Freezers
Commercial
Transportation
Packaging
Marine/flotation
Total CFC blown
16
13
1
2
—
—
—
—
4
~
—
20
60
54
6
—
—
—
—
—
—
—
—
60
72
40
—
32
—
—
—
—
9
--
6
87
14
10
—
4
60
23
21
16
27
16
8
125
162
117
7
38
60
23
21
16
40
16
14
292
1990
Construction
Commercial
Residential
Industrial
Refrigeration
Refrigerators
Freezers
Commercial
Transportation
Packaging
Marine/flotation
Total CFC blown
31
23
4
4
—
—
—
—
1
—
—
32
551
323
228
—
—
—
—
—
—
—
551
228
127
6
95
—
—
—
—
12
—
13
253
91
80
—
11
181
103
44
34
53
50
18
393
901
553
238
111
181
103
44
34
66
50
31
1,229
SOURCES: Based on Mobay Chemical Corporation (1978), Olin Chemical
Group, and industry sources. See text for discussion. Components may
not sum to totals because of rounding.
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95
Table 3.C.3
NONURETHANE FOAM PRODUCTION, 1977 TO 1990
(Millions of pounds)
Extruded
Year PS Sheet
1977 321.9
1978 344.5
1979 368.9
1980 395.9
1981 425.1
1982 457.3
1983 476.0
1984 495.5
1985 515.7
1986 536.8
1987 558.7
1988 581.6
1989 605.4
1990 630.1
Extruded PS Board
Residential
26.6
30.8
35.7
41.4
48.1
55.8
61.0
66.7
72.9
79.7
87.1
95.2
104.0
113.7
Commercial Total
26.5 53.1
28.7 59.5
31.0 66.7
33.5 74.9
36.1 84.2
39.0 94.8
40.8 101.8
42.7 109.4
44.6 117.5
46.7 126.4
48.8 135.9
51.1 146.3
53.4 157.4
55.9 169.6
Extruded
Polyolef in,
Other
30.0
33.8
38.0
42.7
48.1
54.1
58.2
62.5
67.2
72.2
77.7
83.5
89.8
96.5
Total3
Foam Output
405.0
434.8
473.6
513.5
557.4
606.2
636.0
667.4
700.4
735.4
772.3
811.4
852.6
896.2
SOURCES: Modern Plastics (1978); Allied Chemical Corporation (1977);
and industry sources.
Total excludes expanded PS foam due to low market penetration of CFC
blowing agents.
demand for insulation, with the residential market outpacing growth in the
commercial market.14
CFC Use
For most closed cell plastic foams, direct evidence on CFC use is not available,
and it is necessary to compute CFC consumption from foam production data. On
the basis of evidence regarding CFC usage rates, Tables 3.C.4 and 3.C.5 present
baseline estimates of CFC use in rigid urethane and nonurethane foams,
respectively.15 For the rigid urethanes, CFC use is expected to nearly quadruple
from 43.6 million pounds in 1977 to 158.5 million pounds in 1990.16
For the nonurethane foams, CFC use is 27.2 million pounds in 1977 and will
more than double by 1990. Estimates of the largest nonurethane CFC consumer,
extruded PS sheet, assume a market penetration of 64 percent for CFC-12 blown
foam in extruded PS sheet markets and a CFC usage rate of 7.8 pounds per 100
14Some industry observers expect even higher rates of growth, and extruded board output in 1990
could be as high as 200 million pounds. In any event, the fact that Dow is developing products for new
insulation applications and will soon add two plants that will increase Styrofoam capacity by 50 percent
provides convincing evidence of high expected growth rates.
16Appendix F presents a more complete discussion of the methodology used to estimate CFC use and
emissions rates in closed cell foams.
16These estimates include approximately 1.8 million pounds of CFC-12 in 1977, or 4.0 percent of total
rigid urethane CFC use, and 4.3 million pounds of CFC-12 in 1990, or 2.7 percent of total use.
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96
pounds of CFC blown foam output. For the other nonurethane foams, the data are
direct estimates of CFC use based on information from reliable industry sources.
Estimates of CFC use in expanded PS foams are based on Arthur D. Little and
Midwest Research Institute estimates for 1973 and 1974 and assume a growth rate
of about eight percent annually."
In summary, CFC use in closed cell plastic foams is currently significant and
growing at a rapid rate. In 1977 total consumption of CFC in these products was
about 71 million pounds. By 1990 annual CFC use in closed cell plastic foams is
expected to treble to around 225 million pounds.
Table 3.C.4
ESTIMATED CFC USE IN RIGID POLYURETHANE AND ISOCYANURATE FOAM,
1960 TO 1990
(Millions of pounds)
Year
Construction
Insulation
Refrigeration Transportation
Total
Packaging
Marine/
Flotation
Total
.CFC Blown3
Historical
1960
1965
1970
1971
1972
1973
1974
1975
1976
1977
0.1
2.5
9.7
10.7
13.6
17.0
18.1
20.7
20.2
24.8
0.6
2.6
6.6
7.3
7.8
9.0
9.4
9.0
7.4
8.8
0.6
2.1
4.2
4.1
5.2
7.1
6.9
6.8
5.6
5.9
1.3
7.2
20.5
22.1
26.6
33.2
34.4
36.5
33.2
39.5
—
0.1
0.9
0.7
0.8
1.1
1.5
1.6
1.9
2.2
0.1
0.6
2.1
1.5
1.9
2.1
1.9
1.8
1.9
1.9
1.4
7.9
23.5
24.3
29.3
36.4
37.8
39.9
37.0
43.6
Projected
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
30.8
38.7
45.9
54.0
62.8
67.1
72.1
77.5
83.2
89.5
96.2
103.3
111.0
10.3
12.1
14.2
17.0
20.3
21.0
21.5
22.3
22.9
23.8
24.9
26.1
26.4
6.0
6.3
6.6
6.8
7.1
7.3
7.6
7.9
8.1
8.4
8.7
9.0
10.8
47.1
57.1
66.7
77.8
90.2
95.4
101.2
107.7
114.2
121.7
129.8
138.4
148.2
2.4
2.8
3.1
3.4
3.6
3.9
4.1
4.4
4.6
5.0
5.3
5.7
6.1
2.0
2.2
2.3
2.4
2.6
2.7
3.0
3.1
3.3
3.5
3.6
3.9
4.2
51.5
62.1
72.1
83.6
96.4
102.0
108.3
115.2
122.1
130.2
138.7
148.0
158.5
SOURCES: Midwest Research Institute (1976b); Tables 3.D.I, 3.D.2, and 3.D.3; and in-
dustry sources. See text for assumptions on usage rates.
Predominantly CFC-11. Includes less than five percent CFC-12 from frothed foam.
"Even if this assumed growth rate were seriously in error, total CFC use in closed cell foams would
not be significantly affected. As a point of reference, CFC use in expanded PS foams would have to
increase at an average annual rate of 20 percent from 1977 to 1990 to reach even the modest use level
of 10 million pounds in the latter year. This rate of growth would exceed that anticipated for any of the
plastic foams, including rigid urethane insulation in construction applications, which is expected to
average an annual growth rate of about 13 percent over this period.
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97
Table 3.C.5
ESTIMATED CFC USE IN NONURETHANE FOAMS, 1970 TO 1990
(Millions of pounds)
Year
Extruded
PS Sheet
Extruded
PS Board
Expanded
PS Board
Extruded
Polyolef in,
Other3
Total ,
CFC Use
Historical
1970
1971
1972
1973
1974
1975
1976
1977
6.5
7.8
9.4
11.5
13.7
13.0
13.1
16.1
1.4
1.8
2.2
2.6
3.1
3.6
4.2
5.0
0.3
0.3
0.4
0.5
0.8
0.9
0.9
1.0
2.9
3.1
3.3
3.5
4.4
4.0
4.5
5.1
11.1
13.0
15.3
18.1
22.0
21.5
22.7
27.2
Projected
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
17.3
18.5
19.9
21.3
22.9
23.9
24.9
25.9
26.9
28.0
29.2
30.4
31.6
5.6
6.3
7.1
8.0
9.0
9.7
10.4
11.2
12.0
12.9
13.9
14.9
16.1
1.1
1.2
1.2
1.3
1.4
1.5
1.6
1.8
1.9
2.1
2.2
2.4
2.6
5.7
1.4
7.2
8.1
9.1
9.8
10.5
11.3
12.2
13.1
14.1
15.1
16.3
29.7
32.4
35.4
38.7
42.4
44.9
47.4
50.2
53.0
56.1
59.4
62.8
66.6
SOURCES: Table 3.D.3; Arthur D. Little (1975); Modern
Plastics (1978); DuPont (1978a); and industry sources. Com-
ponents may not sum to totals because of rounding.
Contains some CFC-11, CFC-113, CFC-114, and CFC-115, as
well as 40 to 60 percent CFC-12.
Includes approximately 90 percent CFC-12.
CFC Emissions
The emissions processes of the closed cell foams are perhaps the most complicat-
ed—and most controversial—of any of the nonaerosol uses of CFCs.18 Most closed
cell foam products are "nonprompt" CFC emitters. That is, a substantial portion of
the CFC used in their production is retained within the cellular structure of the
foam long after manufacture. Indeed, because of the importance of CFC as an
F.
18For a more complete discussion of the CFC emissions process from closed cell foams, see Appendix
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98
insulating medium, a primary goal of foam insulation manufacturers is to retain
a maximum amount of CFC in their product for as long as possible.
The CFC consumed in the production of closed cell foams is lost to the atmos-
phere during one of three stages in the product life cycle. Manufacturing emissions
occur before the closed cell foam leaves the production facility. These losses occur
during the handling and storage of CFC and include emission during the actual
foaming process. The CFC not emitted during manufacture enters the "bank" and
is subject to possible future emission. Normal use emissions occur when CFC is
diffused from the foam cells during the normal use of the product. (Under some
circumstances, normal use emissions may continue even after the product has been
removed from service.) Disposal emissions occur when foam-bearing products are
scrapped. If a foam-bearing product is destroyed in such a manner as to rupture
a significant portion of the foam cells, the CFC remaining at disposal will be
emitted.
A small fraction of the CFC used is emitted during closed cell urethane foam
manufacturing processes. For rigid urethane and isocyanurate foam this averages
about 11 percent, and for PS board it averages about 10 percent. Actual manufac-
turing emissions rates vary among the rigid urethanes, depending upon the produc-
tion process involved.
In contrast, manufacturing emissions for nonurethane foams are a higher share
of use. Available evidence indicates that the production of extruded PS sheet
releases 45 to 79 percent of CFC use, depending upon the nature of the manufactur-
ing facility. The polyolefins appear to emit even a higher fraction of CFC use.
Manufacturing losses amount to virtually all the CFC used in polypropylene pro-
duction. Although industry sources present some conflicting evidence, the manu-
facturing facility also appears to be the fundamental emissions unit for
polyethylene foam.
In further contrast to the case of the rigid urethanes and extruded board
insulation, virtually all the CFC not emitted during production from extruded PS
sheet and polyolefin foam is released to the atmosphere during the first year of
foam life. Consequently, annual emissions from these "prompt," closed cell foams
approximately equal annual CFC use.
The estimates of normal use emissions presented below are based on the
theoretical literature on the "aging" process of CFC blown foam and on recent
evidence from industry sources, which are currently investigating the k-factor
degradation (or aging process) of CFC blown foam.19 Several important features of
the normal use emissions estimates should be noted.
First, initial versions of the simulation model developed to estimate closed cell
foam emissions assumed a relatively short basic "half-life"20 of 11.7 years for
two-inch-thick rigid urethane foam with all faces exposed to the atmosphere.
However, most industry sources strongly argue that this half-life, which is directly
19The thermal conductivity, or k-factor, of these products depends upon the CFC content of the foam
cells as a fraction of all gases contained in the cells. Over time, the thermal properties of CFC blown
foam generally degrade due to the infusion of air into or diffusion of CFC from the foam cells.
HThe half-life is a useful summary statistic of the normal use emissions function. It is defined as the
age at which 50 percent of the CFC originally banked in a closed cell foam product has been released
to the atmosphere.
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99
based on Norton's theoretical model,21 results in serious overestimates of normal
use emissions. In this report, a substantially higher basic half-life of 60 years for
two-inch-thick exposed foam is employed. This figure is based on the preliminary
results of ongoing industry research, which has tested a large number of foam
samples and found minimum half-lives of about 40 years, with a reasonable central
measure of the likely half-life of 50 to 60 years.
Second, it is extremely important to realize that no single normal use emissions
function can be meaningfully applied to all closed cell foams. The thickness of a
foam product has dramatic effects on normal use emissions rates, with thinner
foams releasing CFC at a much faster pace.22 Recent evidence indicates that foam
thicknesses vary systematically across products and our emissions estimates
account for these differences.
An equally important consideration is whether a foam product employs facing
materials resistant to CFC diffusion—i.e., whether the foam is "clad." In this re-
port, all laminated boardstock and pour in place foams (except in packaging) are
assumed to be clad. Slabstock and field spray foams are assumed unclad. The
half-life of clad foams is estimated to be four times the half-life of similar unclad
foams. That is, clad foams take approximately four times as long on average to emit
a given amount of CFC as do unclad foams of equal thickness.23
Normal use emissions from extruded PS board insulation are also characterized
by a relatively long half-life. For these insulation products, a half-life of nearly 50
years is used for unclad foam and nearly 200 years for clad foam, based on poly-
styrene aging data provided by industry sources.
In practice, the extent of normal use emissions from a foam product depends
upon the particular physical characteristics of the product and its environment. For
example, rigid urethane foam facing materials include aluminum foil, polyethylene
coated paper, asphalt impregnated felt paper, laminated plastics, perlite, and
others. When properly bonded to the foam, aluminum foil facings may virtually
eliminate normal use emissions, regardless of foam thickness. The other facing
materials are less effective (and may be completely ineffective) CFC barriers. Un-
fortunately, neither data availability nor existing knowledge of emissions processes
are adequate to account fully for these differences in product characteristics. As a
result, our estimates of normal use emissions are representative only of aggregate
releases from an entire foam market (e.g., residential construction). In general, the
emissions pattern of a particular piece of foam will differ from the average pattern
presented here.
The disposal of closed cell foam products also represents a potentially important
source of CFC emissions, although many of these emissions will not occur until long
after 1990. Average lifetimes for products containing nonprompt closed cell foams
21Norton (1967).
22This conclusion applies only if at least one face of the foam product is effectively exposed to the
atmosphere. See the discussion of cladding below.
23Mathematically, the effect of quadrupling the half-life is equivalent to assuming foams are clad only
on one side, with one face effectively exposed to the atmosphere. This procedure has several justifica-
tions. First, this assumption is realistic for many types of closed cell foam. For example, many foamed
refrigerator cabinets are made with plastic inner liners, which are not an effective CFC barrier, al-
though the steel outer wall is. Second, it is difficult to classify many product categories as clad or unclad.
Some of the rigid foam classified as clad may not have effective CFC barriers on either face of the foam,
while others may have effective barriers on both faces. Thus, the above cladding assumptions do not
appear unreasonable as an average approximation.
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100
vary substantially, from one year for packaging applications to 80 years for residen-
tial structures.
The average lifetime of a product has a significant effect on emissions patterns.
For example, disposal emissions are relatively less important for longer-lived prod-
ucts simply because the CFC has more time to diffuse to the atmosphere during
normal product use. In some cases, when a foam-bearing product is destroyed, all
or part of the residual CFC in the foam cells may remain there indefinitely or
continue to escape at the normal use emissions rate. Alternatively, all remaining
CFC at the time of disposal may be emitted immediately. Due to inadequate infor-
mation about disposal practices, the emissions estimates presented below adopt the
latter assumption, which can be interpreted as a "worst case" scenario.24
Estimates of CFC emissions from the rigid urethane and isocyanurate foams
are presented in Table 3.C.6. Total annual emissions from the rigid urethanes are
estimated at 13.3 million pounds in 1976 and are expected to more than quadruple
by 1990. Throughout the 1970 to 1990 period, the largest emission source among
the rigid urethanes is insulating foams in construction applications. In 1977, the
construction market accounts for 38 percent of total rigid urethane emissions and
by 1990, because of the rapid growth of this foam market, construction accounts
for a majority (53 percent) of emissions. Insulation applications in general account
for 81 percent of rigid urethane emissions in 1977 and 85 percent in 1990.
Emissions from the nonurethane foams are summarized in Table 3.C.7. Al-
though the nonurethane foams consume significantly less CFC, nonurethane emis-
sions are comparable in magnitude to rigid urethane emissions, because the
nonurethanes are dominated by relatively "prompt" emitters. In 1976 total nonure-
thane emissions are estimated at 19.2 million pounds and by 1990 annual emissions
should more than double. The nonprompt emitting extruded PS board insulation
accounts for a relatively small fraction of total nonurethane foam emissions
through 1990 (three percent in 1977 and six percent in 1990).
Perhaps more important than total emissions levels is the fact that emissions
patterns vary dramatically across closed cell foam applications of CFCs. With the
exception of extruded PS board, the nonurethane foams emit virtually all of their
CFCs during the first year of foam life. However, while emissions from some of the
polyolefins, such as polypropylene foam, occur almost entirely at the manufactur-
ing facility, normal use emissions account for about 21 to 55 percent of extruded
PS sheet losses, depending upon the nature of the production process.
Table 3.C.8 illustrates the distribution of emissions by stage of product life for
the major rigid urethane foam applications. The most important determinants of
the relative importance of manufacturing, normal use, and disposal emissions are
24 Very recent preliminary experimental evidence suggests the potential of chemical reactions, which
may occur during the aging process of rigjd urethane and isocyanurate foams. Such reactions have
potentially profound implications for the significance of the rigid urethanes as a source of CFC emis-
sions. Briefly stated, some industry sources argue that CFC-11 may react over long periods of time with
the rigid urethane polymer of the foam cells, exchanging a chlorine atom for a hydrogen atom. If such
reactions do occur, some of the CFC-11 banked within rigid urethane products would be transformed
to CFC-21, which is believed a less serious threat to the ozone layer, prior to release to the atmosphere.
It must be emphasized that this research is in the extremely early stages, and neither Rand nor other
sources can verify its accuracy. Although the possibility of such a terrestrial CFC-11 sink is not taken
into account in this analysis, it warrants mention here because of the implication that rigid urethane
emissions during normal product use and disposal may represent a much less severe ozone hazard than
the estimates presented below suggest.
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101
Table 3.C.6
ESTIMATED CFC EMISSIONS FROM RIGID POLYURETHANE AND ISOCYANURATE
FOAMS, 1960 TO 1990
(Millions of pounds)
Year
Insulation
Construction Refrigeration Transportation Total
Packaging
Marine/
Flotation
• Total
Emissions
Historical
1960
1965
1970
1971
1972
1973
1974
1975
1976
1977
0.0
0.4
2.0
2.3
2.9
3.6
4.1
4.7
4.9
5.9
0.1
0.4
1.-2
1.4
1.7
2.0
2.2
2.3
2.2
2.6
0.1
0.4
1.4
1.7
2.1
2.8
3.1
3.5
3.6
4.0
0.2
1.3
4.6
5.4
6.7
8.4
9.4
10.5
10.7
12.5
0.0
0.1
0.9
0.8
0.8
1.0
1.3
1.5
1.8
2.1
0.0
0.1
0.5
0.4
0.6
0.6
0.7
0.7
0.8
0.9
0.3
1.5
6.0
6.6
8.1
10.0
11.4
12.7
13.3
15.5
Projected
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
7.0
8.8
10.4
12.4
14.7
16.3
18.1
20.0
21.9
24.1
26.3
28.8
31.3
3.1
3.7
4.4
5.2
6.1
6.8
7.5
8.2
8.8
9.5
10.1
10.8
11.3
4.4
4.8
5.2
5.5
5.8
6.1
6.3
6.4
6.6
6.7
6.9
7.1
7.5
14.5
17.3
20.0
23.1
26.6
29.2
31.9
34.6
37.3
40.3
43.3
46.7
50.1
2.3
2.6
3.0
3.3
3.5
3.8
4.0
4.3
4.5
4.8
5.2
5.5
5.9
1.0
1.2
1.3
1.4
1.6
1.7
1.8
1.9
2.0
2.1
2.2
2.4
2.5
17.8
21.1
24.3
27.8
31.7
34.7
37.7
40.8
43.8
47.2
50.7
54.6
58.6
SOURCES: Based on Tables 3.C.I, 3.C.2, and 3.C.4. See text for assumptions. Com-
ponents may not sum to totals because of rounding.
Emissions are predominantly CFC-11. Includes less than five percent CFC-12.
the average lifetime of the foam-containing product and the characteristics of the
foam itself (primarily the presence of cladding material and foam thickness). In
construction applications, for example, disposal emissions are a small fraction of
total emissions, because the long expected lifetimes of these structures implies that
very little construction insulation will be scrapped prior to 1990. Normal use emis-
sions are relatively high in the construction market because of the relatively thin
foam used in the residential and commercial markets26 and the predominance of
unclad foams in industrial construction. In contrast, transportation applications of
25Laminated boardstock comprises the majority of the residential and commercial construction rigid
urethane markets. For this type of foam an average thickness of 0.75 inches is assumed for residential
markets and 1.25 inches for commercial markets. In contrast, the assumed average thickness of trans-
portation applications of rigid urethane foam is 3.0 inches.
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102
Table 3.C.7
ESTIMATED CFC EMISSIONS FROM NONURETHANE FOAMS, 1970 TO 1990
(Millions of pounds)
Year
Extruded
PS Sheet
Extruded
PS Board
Expanded
PS Board
Extruded
Polyolefin,a
Other
Total ,
Emissions
Historical
1970
1971
1972
1973
1974
1975
1976
1977
6.5
7.8
9.4
11.5
13.7
13.0
13.1
16.1
0.2
0.3
0.3
0.4
0.5
0.6
0.7
0.8
0.3
0.3
0.4
0.5
0.8
0.9
0.9
1.0
2.9
3.1
3.3
3.5
4.4
4.0
4.5
5.1
9.9
11.5
13.4
15.9
19.4
18.5
19.2
23.0
Projected
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
17.3
18.5
19.9
21.3
22.9
23.9
24.9
25.9
26.9
28.0
29.2
30.4
31.6
0.9
1.1
1.2
1.4
1.6
1.8
1.9
2.1
2.3
2.6
2.8
3.1
3.4
1.1
1.2
1.2
1.3
1.4
1.5
1.6
1.8
1.9
2.1
2.2
2.4
2.6
5.7
1.4
7.2
8.1
9.1
9.8
10.5
11.3
12.2
13.1
14.1
15.1
16.3
25.0
27.2
29.5
32.1
35.0
37.0
38.9
41.1
43.3
45.8
48.3
51.0
53.9
SOURCES: Based on Tables 3.C.3 and 3.C.5. See text for as-
sumptions. Components may not sum to totals because of rounding.
3Includes 40 to 60 percent CFC-12. Remainder consists of
CFC-11, CFC-113, CFC-114, and CFC-115.
Includes approximately 85 percent CFC-12.
rigid urethane are characterized by relatively short-lived assets (10 years on
average) and predominantly thicker, clad foam. Consequently, normal use
emissions are much less significant in transportation applications and product
disposal is the most important source of potential CFC emissions, accounting for
more than 70 percent of annual 1990 emissions.26
sensitivity of the emissions estimates in Tables 3.C.6 to 3.C.8 to alternative assumptions
regarding CFC usage and emission rates is extensively analyzed in interim reports submitted for
industry review. The sensitivity analysis indicates estimated emission levels are relatively insensitive
to alternative foam output growth rates, CFC usage rates, and manufacturing emission rates, within
reasonable ranges for these variables. In contrast, changes in the assumptions underlying estimates of
postmanufacturing emissions—including the basic half-life, foam thickness and effects of cladding for
normal use emissions, and the percentage of remaining CFC emitted at disposal—have a significant
effect on the magnitude and distribution of CFC emissions from closed cell foams. Because the conclu-
sions of the sensitivity analysis are essentially unchanged, they are not reproduced in full detail here.
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Table 3.C.8
DISTRIBUTION OF ANNUAL CFC EMISSIONS FROM RIGID POLYURETHANE AND
ISOCYANURATE FOAM BY STAGE OF PRODUCT LlFE, 1976 AND 1990
(Percent)
Product
Manufacture
Normal Use
Disposal
1976
Construction
Commercial
Residential
Industrial
Refrigeration
Refrigerators
Freezers
Commerc ial
Transportation
Packaging
Marine/flotation
Total rigid urethanes
44.5
47.5
37.1
40.7
44.6
73.8
21.5
12.0
30.8
33.8
55.5
52.5
62.2
33.0
38.3
25.1
10.4
6.3
28.4
31.6
<0.1
0.0
0.7
26.3
17.1
1.1
68.1
81.7
40.8
34.6
1990
Construction
Commercial
Residential
Industrial
Refrigeration
Refrigerators
Freezers
Commercial
Transportation
Packaging
Marine/flotation
Total rigid urethanes
40.2
29.5
28.6
29.4
20.7
38.4
21.1
11.4
22.6
29.2
55.7
70.0
58.3
20.9
17.9
21.8
7.1
6.2
19.1
38.7
4.0
0.5
13.1
49.7
61.4
39.8
71.9
82.5
58.3
32.4
SOURCES: Based on Tables 3.C.I, 3.C.2, and 3.C.4. Manu-
facturing emission rates vary by production process. Assumes
half-life of 60 years for two inch unclad foam and adjusts
normal use estimates for foam thickness. Disposal emissions
assume that 100 percent of remaining CFC is released when
final products are scrapped. Components may not sum to 100.0
percent because of rounding.
The Closed Cell Foam CFC "Bank"
Our analysis of rigid urethane and isocyanurate foams and extruded PS board
insulation suggests that by 1990 these closed cell foams will consume a cumulative
total of nearly 2 billion pounds of CFC. Yet, emissions from these products will
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104
amount to less than one-third of cumulative use over the same period of time. The
remaining CFG is, of course, contained in the closed cell foam CFC bank, awaiting
potential future release to the atmosphere.
Table 3.C.9 illustrates the CFC bank for closed cell foams in 1976 and 1990.
These data summarize the fate of CFC used in closed cell foam formulations from
the inception of these markets through 1990. By 1976, cumulative CFC use in
nonprompt emitting closed cell foams was about 340 million pounds. Of this total,
we estimate that about 90 million pounds was released to the atmosphere and 250
million pounds remained inventoried within foam products being used in the
United States. By 1990, cumulative CFC use is expected to be around 1.9 billion
pounds. Cumulative releases are expected to be about 623 million pounds, divided
approximately evenly between product manufacture, normal use, and disposal.
Thus, by 1990, the closed cell foam CFC bank is expected to contain nearly 1.3
billion pounds of CFC, including approximately 14 percent CFC-12 and 86 percent
CFC-11.
Table 3.C.9
CUMULATIVE CFC EMISSIONS AND THE CLOSED CELL FOAM CFC BANK,
1976 AND 1990
(Millions of pounds)
Product
Cumulative
Use
Cumulative Emissions
Manufacture Normal Use Disposal
CFC
Bank
1976
Total rigid urethane
Cons truct ion
Refrigeration
Transportat ion
Packaging
Marine/ flotation
Total extruded PS board
Total
317.0
139.0
82.6
62.9
11.5
21.0
22.9
339.9
38.3
14.4
11.1
8.7
1.3
2.8
2.3
40.6
26.2
15.5
5.1
3.1
0.7
1.8
1.1
27.3
22.8
<0.1
1.0
11.7
8.8
1.3
<0.1
22.8
229.8
109.2
65.3
39.4
0.8
15.1
19.5
249.3
1990
Total rigid urethane
Construction
Refrigeration
Transportation
Packaging
Marine/ flotation
Total extruded PS board
Total
1,748.9
1,095.9
353.8
169.6
68.0
61.1
165.0
1,913.9
195.8
110.0
45.7
24.2
7.6
8.3
16.5
212.3
205.7
159.3
26.4
9.3
4.1
6.6
13.5
219.2
191.7
6.4
43.0
73.3
53.9
15.1
0.3
192.0
1,155.8
819.9
238.8
62.9
2.6
31.6
134.8
1,290.6
SOURCES: Based on Tables 3.C.6 and 3.C.7. Data show cumulative totals from 1960
to year indicated.
"Predominantly CFC-11. Includes less than five percent CFC-12.
blncludes CFC-12 only.
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105
The CFC bank is obviously an important phenomenon for the closed cell foams.
In 1990, releases from the closed cell foam bank alone (i.e., normal use and disposal
emissions) will be nearly 44 million pounds annually. Even if CFC use in closed cell
foams were banned in 1990, the CFC bank could release this amount of CFC each
year_a level which exceeds total emissions in 1978 from all closed cell foams—until
the year 2020.27
INDUSTRY AND MARKET CHARACTERISTICS
Firms
There are hundreds of firms directly involved in the manufacture of closed cell
foams, ranging in size from extremely small and specialized contractors who apply
field spray foams to high volume producers of laminated boardstock, extruded
polystyrene and other closed cell foams. For some closed cell foams, the manufac-
turers' activities are related solely to foam production. For other foam products,
rigid urethane foam accounts for only one step in the production process of the final
product.
There are relatively few rigid urethane slabstock producers. The two major
producers are the CPR Division of Upjohn and Owens-Corning Fiberglass. Other
producers include Dacar Chemical Products and Elliot Company, Inc. Manufactur-
ers of laminated boardstock are more numerous. At least 17 have been identified,
located in all regions of the country except the less-populated Northern Great
Plains and Pacific Northwest states.
Foam insulation in the refrigeration markets is typically applied by the manu-
facturer of the final product. By the mid 1980s virtually all of these producers are
expected to manufacture foamed cabinets. Major producers who use rigid urethane
foam in transportation applications include Fruehauf Corporation, Timpte, Inc.,
Trailmobile, Great Dane Trailers, Inc., and Hackney Brothers Body Company.
In addition, at least 31 firms provide rigid urethane systems to customers who
then actually apply the rigid urethane foam. These "systems houses," which are
typically small and usually involved with field spray or pour in place foam, are also
located throughout the country, with concentrations in the Midwest, Northeast,
Texas, and California. A large number of small contractors apply field spray foams
on the job site. The Urethane Foam Contractors Association, a trade association
representing these firms, has about 300 member organizations, most of which
appear to have 10 or fewer employees and spray less than 500,000 pounds of foam
annually. According to Midwest Research Institute (1976, p. IV-35), in 1976 more
than 650 firms owned foam spray equipment and purchased rigid urethane systems
for on-site application.
27Under the assumptions of the simulation model, emissions following a cessation of the use of CFC
blowing agents would differ somewhat from this. If, for example, CFC use were prohibited after 1990,
annual emissions from the projected CFC bank would initially be near the 44 million pound 1990 level.
Annual emissions levels might actually increase for a time after 1990 as longer-lived products are
disposed, then gradually decrease. However, emissions from the closed cell foams would not be eliminat-
ed probably for more than a century.
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A substantial number of firms are involved in the production and fabrication
of nonurethane foams. One recent publication lists 105 producers of polystyrene
sheet, film, and block. However, these firms include a large number of expanded
PS producers and polystyrene foam fabricators, which are not likely to consume a
significant quantity of CFC blowing agents.
The use of CFC by polystyrene sheet and board producers appears fairly con-
centrated, relative to the rigid urethane foam industry. A substantial fraction of the
CFC used in these products is accounted for by no more than ten firms and in some
products the degree of concentration in foam output and CFC use is even higher.
In the large stock tray and egg carton markets, which account for over 50 percent
of extruded sheet output, three producers are dominant: Mobil Chemical Company,
Dolco Packaging Corporation, and Huntsman Container Corporation, which to-
gether produced over 90 percent of all foan^ egg cartons in 1977. Mobil is also the
largest producer of foamed stock trays and, along with W. R. Grace Foampac
Division and Western Foam Pak, accounts for nearly 90 percent of this polystyrene
foam market. The output of extruded sheet single service food containers is only
slightly less concentrated, with six firms manufacturing about 84 percent of these
products. Several nonurethane foam products are produced by a single firm. Until
recently, Dow Chemical U.S.A. has been the sole producer of virgin extruded PS
board and Owens-Illinois is the only known domestic producer of nonthermoformed
PS foam sheet containers.
The primary material inputs for rigid urethane foams are polyol and polyphe-
nyl-polymethylene-isocyanate. According to industry sources, the primary sup-
pliers of isocyanate to rigid urethane producers are Upjohn, Mobay, and Rubicon.
Production capacities for isocyanate production have recently been increased by
Mobay and Rubicon. In addition, BASF Wyandotte and ARCO will become isocya-
nate suppliers by 1982, and Mobay plans further capacity increases by 1981. Major
suppliers of polyether polyols to the urethane foam industries include Union Car-
bide, Dow, BASF Wyandotte, Olin, E. R. Carpenter, Mobay, and Jefferson Chemi-
cal. The first four firms accounted for about 70 percent of polyol capacity in 1977.
The major building block of polystyrene foam, aside from the blowing agent, is
polystyrene bead. In 1977, the five major polystyrene bead suppliers were ARCO
Polymers, Inc., BASF Wyandotte, Crown Molding Company, Dow Chemical, and
Foster Grant.
Like the other characteristics of closed cell foam markets, the economic char-
acteristics of closed cell foam producers vary. To assess these characteristics it is
useful to categorize foam producers into two groups defined above: those who
primarily produce a finished foam product and those who produce a final product
that merely contains CFC blown foam.28
The former group of firms includes the producers of laminated boardstock and
rigid urethane slabstock and many of the small rigid urethane foam spray contrac-
tors and systems houses, as well as virtually all of the producers of nonurethane
foams. With the exceptions noted below, these foam markets appear relatively easy
to enter and exit and are competitive in nature.29
28Obviously, firms in the former category can be (and often are) part of a larger corporate organiza-
tion engaged in a variety of other economic activities.
29According to industry sources, while there is no evidence of a lack of competition, the extruded PS
board insulation market is not relatively easy to enter or exit, primarily because of the large capital
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Available evidence strongly suggests that economies of scale are not a signifi-
cant phenomenon in the production of foam products (as opposed to final products
containing closed cell foams).30 One observation reinforcing this conclusion is that
the larger nonurethane foam producers tend to be multiplant firms. Second, firms
that anticipate substantial growth (as many do) almost invariably plan to meet the
increase in demand by constructing additional plants rather than by expanding old
plants. Third, the plants producing a particular foam product do not appear to vary
dramatically in size, as measured by plant capacity.
This evidence indicates the existence of a fairly well defined optimal plant size
for these foam markets, when both production and transportation costs are con-
sidered. Consequently, it is likely that any significant output reductions in response
to regulation would be accomplished primarily by plant closures, rather than by
smaller reductions in all (or most) facilities.
Fixed costs (including depreciation and supervisory and maintenance labor) in
the production of closed cell foam products are a relatively small fraction of total
costs.31 This generalization applies to the production of virtually all of the plastic
foams. These industries are highly materials sensitive, and with few (if any)
exceptions, materials costs represent the largest single cost item for a foam
producer. On the basis of available evidence, the variable (or direct) costs of closed
cell foam production, including material inputs and direct labor, account for at least
two-thirds of total costs. For some firms, this figure may be as high as 90 percent,
with a reasonable central measure in the range of 75 to 80 percent.
While materials costs dominate, the costs of CFC itself are not a particularly
large component of total costs. For rigid urethane foam products, CFC costs appear
to account for only four to 10 percent of total production costs, depending upon the
type of foam produced. For polystyrene sheet, blowing agent costs account for
about eight percent of total costs and perhaps 15 to 20 percent of materials costs.
The cost of blowing agents is a larger fraction of total costs for the polyolefins,
which normally consume more CFC per pound of foam output.
Economic characteristics differ from the above for firms that produce final
products containing CFC blown closed cell foams. These firms include producers of
refrigeration devices and transportation vehicles using foam insulation and manu-
investment required and the fact that historically the production process has been proprietary. How-
ever, Modern Plastics (1978) reports the recent introduction of processing equipment that should allow
entry into even this market. In fact, within the last year Gerd Lester Corporation and UC Industries
have entered the extruded PS board market, the latter with a patented extrusion technology.
30This discussion is largely based on evidence from confidential questionnaires distributed to foam
producers, with the cooperation of the Society of the Plastics Industry. The evidence refers to 13 firms
producing closed cell foam in a total of 25 plants. It should be noted that the firm-specific discussion in
the text is not based on any rigorous statistical analysis of these data. To preserve the confidentiality
of firm-specific data, the text discussion is largely qualitative in nature and any numerical data
presented are based on evidence from at least three firms.
"Industry sources argue that at least two exceptions exist. First, at least one major producer of
polypropylene foam employs recovery and recycle equipment (discussed below), which they assert adds
significantly to fixed costs. While cost data on this particular production process are not available, it
should be noted that for virtually all the producers of all other closed cell foams, fixed costs could double
and still not account for a majority of total costs. Second, according to industry sources, some of the lower
volume nonurethane foams require highly skilled technicians for their production and these skills are
in relatively short supply. This situation does suggest the existence of a factor in relatively fixed supply
and indicates that the short-run responsiveness of these industries to regulation may differ significantly
from the long-run response.
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facturers of items with foam cores, such as boat hulls. In general, entry and exit
appear less prevalent in these industries. Larger capital investments are required
to enter these industries and the lead time between the initial planning stages of
a new production line and full scale operation can be substantial.32 In addition, fixed
costs are typically a higher fraction, and CFC costs a lower fraction, of total
production costs than in those industries that produce solely a foam product.
Employment
Direct estimates of the number of employees involved in the production of CFC
blown foam are not available. However, from information received from a number
of closed cell foam producers, we estimate that in 1977,9,400 workers were directly
involved with the production of CFC blown closed cell foam. Of this total, approxi-
mately 4,200 workers were directly involved in rigid urethane foam production and
5,200 in CFC blown nonurethanes. Given expected growth rates, employment levels
will rise rapidly along with CFC blown foam output. In the absence of regulation,
employment should rise to about 17,000 workers in 1982 and 27,500 in 1990, with
the rigid urethanes accounting for the majority of workers during these later years.
These employment estimates apply to direct, maintenance, and supervisory
workers involved in foam production. They do not include employment in expanded
PS production, nonurethane foam fabrication, polystyrene bead production, or the
production of other inputs purchased by foam producers. Unfortunately, available
evidence is insufficient for even a rough calculation of the number of workers
employed in these endeavors. Nevertheless, the indirect labor effects of regulatory
action intended to reduce significantly the output of closed cell foams are potential-
ly greater than the direct labor effects. According to one industry source, the
number of workers indirectly related to the output of some nonurethane foams may
be three to four times the number of directly related workers.33
OPTIONS TO REDUCE EMISSIONS
For most closed cell foams, options to reduce CFC emissions are quite limited.
Alternative blowing agents that do not seriously compromise the quality of the
foam product are not available at the present time. Moreover, there are no nonfoam
insulation materials with thermal conductivity properties comparable to CFC
blown foam insulation. Consequently, except for some packaging applications,
short of eliminating the services provided by closed cell foams, options for reducing
emissions would be directed at one of the three stages of emissions—product manu-
facture, normal use, and disposal. Unfortunately, with the possible exception of
some nonurethane foams, few options aimed directly at the emissions processes of
32 An example of the level of investment is provided by a relatively small plant that has recently gone
on-line producing single door refrigerators. According to industry sources, because this refrigerator
market has a small and declining share of total sales, this plant would be shut down if required to use
non-CFC blown insulation, and capital losses alone would total $80 to $90 million. Required lead times
for major changes in the production process for home refrigeration appliances are a minimum of two
years and can be as much as five years or more before full scale operation is achieved.
33Statement of Jon Laing, Dow Chemical U.S.A., in EPA (1977a), p. 226.
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109
closed cell foams appear promising at this time, as the following discussion illus-
trates.
Foam Insulation
Because of the importance of CFCs to insulation performance, strong market
incentives currently exist to retain as much CFC in these products as possible, at
least until disposal. Thus, manufacturers attempt to maximize the amount of CFC
originally banked in foam insulation, or, equivalently, to reduce manufacturing
losses. Moreover, there are also incentives to clad products or otherwise reduce
normal use emissions, subject to cost constraints, in order to preserve product
quality over time.
Without exception, both industry and publicly available sources report that
there are no existing substitutes for CFCs that would preserve the relative thermal
efficiency of foam insulation. Because of their inertness34 and low thermal
conductivity, the CFC-11 in rigid urethane and CFC-12 in extruded PS board are
ideal blowing agents for foam insulation. Although rigid urethane insulation can
be produced without CFC by using carbon dioxide as a blowing agent, the resulting
product would have a k-factor roughly twice as high as existing products.
The most promising avenue for the development of alternative inputs appears
to lie with several experimental varieties of CFCs. According to DuPont, three
possible substitutes for CFC-11 in rigid urethane foam are CFC-123, CFC-133a, and
CFC-141b, although they are in the early (and uncertain) stages of their
development.35 These chemicals'have k-factors comparable to CFC-11 (about 10
percent higher) and are believed less harmful to stratospheric ozone. However,
these alternatives to CFC-11 pose several problems. Although the toxicological
properties of these chemicals are not fully known, existing evidence indicates that
CFC-133a is embryotoxic and CFC-141b is reportedly a weak mutagen. Moreover,
none of these chemicals is commercially available in the United States. A
production process is under development for CFC-141b, but, aside from its alleged
mutagenicity, this blowing agent is flammable, a serious concern for insulation
producers.
Recovery of manufacturing emissions appears infeasible for a large fraction of
the closed cell foam insulation markets. Hundreds of firms produce field spray and
pour in place foams in construction and other applications. These firms operate
nonstationary manufacturing facilities, moving from job site to job site. Conse-
quently, carbon adsorption or other known techniques for CFC recovery do not
appear technically feasible in these applications.
CFC recovery does appear technically feasible for laminated boardstock, slab-
stock, and some PIP rigid urethane foam and possibly for extruded PS board,
insofar as these represent in-plant (or stationary) sources of manufacturing emis-
sions. However, the economics in these cases strongly suggest that recovery has
virtually no chance of voluntary implementation and little better chance
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no
foam by weight than a flexible urethane plant and they use less CFC. On the basis
of available information from laminated boardstock producers and of the manufac-
turing emissions rates presented earlier, the amount of CFC available for recovery
in these plants can be (liberally) estimated as less than 100,000 pounds annually per
plant. If collection efficiencies and recovery costs comparable to those for flexible
urethane are achieved, only about 50,000 pounds of CFC would be recovered
annually,36 and the value of this small amount of CFC appears insufficient to cover
even the operating costs of the unit. Consequently, firms that produce insulating
foams may have strong incentives not to comply with recovery requirements, even
if forced to purchase the equipment. Because a relatively large and growing
number of plants are involved,37 the enforcement costs of such a strategy would
very likely be prohibitive.
In limited circumstances, cladding foams with CFC diffusion resistant facings
is a potential method of altering the CFC emissions pattern of foam insulation.
Since incentives currently exist to prevent normal use emissions, the use of clad-
ding materials is increasingly prevalent.38 In many of the foam insulation
applications that do not now use cladding, such as field spray applications, it would
be difficult to apply CFC barriers. Even in applications where cladding
improvements might be made, it is unlikely that long-run emission levels would be
significantly affected, because cladding is a delay strategy. Unless steps are also
taken to curb disposal emissions, cladding will probably reduce normal use CFC
emissions in the short run only at the expense of higher disposal emissions in the
future.39
Ultimately, effective options for limiting long-run emissions from closed cell
foams must consider emissions during product disposal. While disposal emissions
account for only 31 percent of pre-1990 total emissions from nonprompt closed cell
foams, post-1990 disposal emissions will become more significant as increasing
numbers of foam-bearing products are disposed.
Several methods for collecting or destroying CFC from used foam insulation are
available. Industry sources have noted that CFC-11 can be destroyed by incinera-
tion at a temperature in excess of 1,200 degrees centigrade, although the emission
of the halogen hydrides, HC1 and HF, resulting from this process would require the
installation of flue-gas scrubbers in the incinerator.40 Alternatively, several
processes are available for chemically dissolving disposed or scrap foam to recover
and reuse the polymer.41 According to industry sources, collection of the CFC
remaining in these foam cells would pose no fundamental technical problems.
36This figure is likely to decline in the future for laminated boardstock, because manufacturers are
actively seeking ways to reduce material waste, which is the primary cause of CFC losses during
production. One large producer of laminated boardstock anticipates reducing waste losses to three to
four percent, which would reduce CFC manufacturing losses by about two-thirds.
37The exact number of laminated boardstock, slabstock, and PIP plants is not known. However, at
least 21 firms produce laminated boardstock or slabstock, and it is not uncommon for a firm to have
four or more plants. In addition, because of economic considerations discussed above, the number of
plants involved can be expected to increase proportionately with rapidly growing industry output levels.
38The rigid urethane market share of foams that are clad, according to our admittedly rough classifi-
cation, is expected to rise from 63 percent in 1976 to 77 percent in 1990. (See Table 3.C.2.)
39This conclusion depends upon disposal practices and the fate of the remaining CFC when a product
is scrapped. If disposal results in the indefinite retention of the remaining CFC, cladding could reduce
long run emissions levels.
40This information was conveyed to Rand by Mobay Chemical Co. in a Bayer Technical note (1978).
41See, for example, Ulrich et al. (1978).
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Ill
While the prevention of disposal emissions is feasible once used foam is avail-
able, the actual collection of foam insulation from discarded products, whether
caused by regulatory mandate or economic incentives, poses immense problems.
During any given year, the number of potential disposal emissions sources is ex-
tremely large. For example, by 1990, there will be nearly four million residential
structures with foam insulation, a similar (if not larger) number of commercial
structures, thousands of industrial tanks and pipes, well over 100 million foam-
insulated home refrigeration appliances, tens of thousands of foam-bearing trans-
portation vehicles, boat hulls, and commercial refrigeration devices, and so on. All
of these millions of potential disposal emissions sources have uncertain destruction
dates. A relatively small (but absolutely large) number of units will, in fact, be
destroyed during any given year, but exactly which units will be destroyed and in
what manner cannot be predicted.
Moreover, the amount of CFC available for recovery is quite small per product.
For example, a typical foam-insulated refrigerator surviving an average 17 years
contains less than 1.5 pounds of CFC-11 at the time of disposal. Even a truck trailer,
which uses relatively large amounts of CFC in its thick insulated walls, will contain
only about 40 pounds of CFC after 10 years of life, on the basis of the emissions
assumptions discussed above.
In both of these examples, and in virtually all other foam insulation appli-
cations, the final product must be dismantled to allow access to the foam. While cost
estimates for collecting disposed foam are not available, the labor inputs alone
would appear to be substantial relative to the CFC that could be collected. Conse-
quently, strong incentives would likely exist to avoid recovery at disposal, and the
enforcement costs of requiring such action would almost certainly be prohibitive.
Noninsulating Foams
For extruded PS sheet, extruded polyolefin, and the other prompt-emitting
closed cell foams, which emit virtually all of their original CFC during the first year
of foam life, two options for emissions reduction can be considered. These include
the use of alternative blowing agents and CFC recovery and recycle during manu-
facture.
The primary candidate for using a substitute blowing agent is extruded PS
sheet, which currently consumes a large quantity of pentane blowing agents. Avail-
able evidence suggests that pentane could be used as the blowing agent for virtually
all thermoformed sheet products, which account for about 81 percent of total PS
sheet output in 1977 and 74 percent of CFC use.42
Several considerations are relevant for assessing regulations that require or
induce substitution of pentane blowing agents for CFC. First, despite the fact that
pentane costs less per pound than CFC-12, production costs are higher for pentane
blown PS sheet, because higher densities result and, therefore, more material
inputs are required. Second, conversion to pentane would impose very high capital
costs. Third, pentane blowing agents can pose a serious fire hazard to production
42Some industry sources argue that pentane is not well suited, although technically acceptable, for
the production of "deep draw" items, which are growing relative to other PS sheet markets.
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112
workers, especially if the polystyrene resin becomes ignited, and several plants
using pentane have reportedly been totally destroyed by fire.43 Finally, pentane has
very recently been the subject of several local regulatory actions. These blowing
agents are low-boiling gasoline fractions suspected of contributing to smog.
According to industry sources, at least two states, Georgia and California, are
actively seeking ways to prevent pentane emissions by regulation, and other states
are expected to follow.
Recovery of manufacturing emissions is an alternative to pentane substitution
for extruded PS sheet. Largely in response to potential regulations, producers of
both pentane blown and CFC blown PS sheet are currently investigating the pos-
sibilities for recovery and recycle of blowing agents. While these inquiries are still
in the early stages and have not yet produced any usable data for assessing recov-
ery and recycle of CFC, this option cannot be ruled out at this time. It should be
noted that, to our knowledge, no operational recovery and recycle equipment has
been developed for PS sheet products, and information on the costs and effective-
ness of recovery is necessarily speculative at this time. In contrast, the major
producer of extruded polypropylene foam does practice recovery at the present
time. This recovery process employs carbon adsorption technology, achieves an
overall recovery efficiency of 80 percent, and is economical at current CFC prices.44
While recovery from extruded PS sheet is undoubtedly less attractive from an
economic viewpoint, the large quantities of CFC-12 available for collection in a
single plant and the probable absence of chemical contaminants in the air stream
suggest that recovery is possible as a voluntary industry response to regulatory
stimuli and might be an enforceable control candidate.
CFC DEMAND SCHEDULES
The price responsiveness of CFC use in the closed cell foams differs between
insulation and packaging foams. For foam insulation, there are no currently avail-
able substitutes for CFC blowing agents. Consequently, the only way to reduce CFC
use in these products is to reduce the use of foam insulation itself. While an
examination of product bans is beyond the scope of this study, an analysis of the
energy implications of not using foam insulation illustrates that the demand for
CFC in these applications should be insensitive to the price of CFC and that this
very large use of CFC could not be substantially reduced without a very large
energy penalty.
In contrast, CFC use in extruded PS sheet can be significantly affected by
higher CFC-12 prices. The previous discussion identifies two options for reducing
CFC use—CFC recovery and pentane conversion—that can be implemented with-
out necessarily reducing the amount of foam produced. For these products, a de-
mand analysis similar to that for flexible urethane foam is presented, predicated
on the assumption of an inelastic demand for final foam products within the range
of CFC prices considered.
Substitute products are available in some PS sheet markets, such as egg cartons
43See the discussion above at p. 90.
44DuPont (1978b).
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113
and some other food service items where paper and foam products coexist. In these
cases, it is more likely that higher foam prices caused by regulation will result in
lower foam sales. Although the final product price effects of the mandatory control
candidates are not expected to be dramatic, the effects of the inelastic demand
assumption are to overestimate the pecuniary costs of regulation, which are ulti-
mately reflected in higher expenditures by consumers for packaging materials, and
to underestimate other costs that will occur as markets shift from foam to nonfoam
products, such as the temporary dislocation of workers and potential plant closures.
Available information is inadequate for a detailed demand analysis of CFC use
in the remaining closed cell foams, including extruded polyolefin foam, expanded
PS, and the noninsulation applications of rigid urethane. For these foam products,
which currently account for less than 13 percent of closed cell foam CFC use, the
following sections of this report adopt the conservative assumption of a completely
inelastic CFC demand schedule.
Foam Insulation
The energy savings attributable to foam insulation in construction, refrigera-
tion, and transportation applications depend upon a wide variety of variables.
These include the construction details of the application, location, climate, the
efficiency of the heating or cooling system, fuel costs, life styles, and a myriad of
other variables. Consequently, precise calculation of the implications of not using
foam insulation is exceedingly difficult. However, industry sources unanimously
agree that energy savings from CFC insulation are substantial, a view supported
by our analysis.
The approach adopted here is to calculate the energy consumption of a "typi-
cal" application in each foam market when foam insulation and, alternatively, a
likely substitute material are employed. Energy usage estimates are based on
design thermal resistance (or R) values for alternative materials, assumptions
regarding the construction detail of the insulation application, and on assumed
annual heating and/or cooling requirements.45 The aggregate energy implications
of substituting other materials for foam insulation are based on the energy penalty
computed for selected applications and projections of the future stock of foam
insulation in the economy.
Table 3.C.10 summarizes the analysis of energy implications in the selected
applications. The data show the annual increase in energy requirements (in mil-
lions of Btu) for each one million pounds of foam insulation replaced by a substitute
material. The consequences of substitution vary. In a residential structure, foam
insulation typically complements fiberglass batt insulation, which accounts for
most of the thermal resistance of the wall, ceiling, or floor assembly. Consequently,
the relative increase in energy consumption when fiberboard sheathing is used in
this application is relatively low. For the remaining applications, foam insulation
is the primary source of thermal resistance, and relative energy penalties are much
higher, ranging from a 54.1 percent increase in energy usage per million pounds
of foam insulation replaced in commercial construction to 99 percent for refrigerat-
ed truck trailers.
45R-values are from the ASHRAE Handbook of Fundamentals and from industry sources.
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114
Table 3.C.10
ANNUAL ENERGY USAGE WITH FOAM AND NONFOAM INSULATION
IN SELECTED APPLICATIONS
Foam Insulation
Application
Substitute
Material
Energy Usage
Foam Substitute
(millions (millions Percent
of Btu) of Btu) Increase
Residential structure
Commercial structure
Industrial tank
Refrigerator
Fiberboard
Perlite
Fiberglass
Fiberglass
8.9
6.8
17.1
10.2
9.9
31.2
14.9
54.1
82.7
Freezer /commercial
refrigeration0
Refrigerated truck
trailer
or CO. foam
Fiberglass
or CO, foam
Fiberglass
39.9
17.9
3.3
71.4
34.1
6.6
79.1
90.7
99.0
SOURCE: See text for method of calculation. Based on design values for
energy usage. Actual energy usage varies with field conditions.
aData show energy usage per million pounds of foam insulation and for
alternative materials of equal thickness and surface area.
Based on rigid urethane insulation.
Calculations are illustrative only, because technical considerations
require nonfoam insulation materials to be thicker than current foam insu-
lation thicknesses.
Energy usage for the substitute materials in Table 3.C.10 assumes that each
application is well insulated but does not use foam insulation.46 The analysis does
not account for the likelihood that greater thicknesses of alternative materials
would be employed in the absence of foam insulation, because the thicknesses that
would actually result cannot be predicted with available information. In particular,
the calculations for home refrigerators in Table 3.C.10 are illustrative only, because
it is not technically feasible47 to maintain desired temperatures in the unit unless
greater thicknesses of fiberglass or carbon dioxide blown foam are employed.
Consequently, Table 3.C.10 somewhat overestimates actual energy penalties. At
the same time, the analysis makes no estimate of other penalties from forgoing the
use of foam insulation, such as possibly significant sacrifices in interior volume
(especially for refrigerators) and, according to producers of the final products,
substantial increases in final product prices.48
46As an illustration, the "typical" residential structure in this analysis is a single family frame house,
with sheathing insulation (foam or fiberboard) and fiberglass in all exterior walls, ceilings, and floors.
Heating requirements of 6,000 degree days per winter season are assumed. For the fiberglass insulation
nominal R-values of 13 and 19 are used for walls and ceiling, respectively. The structure is also assumed
to contain energy efficient glass windows and doors. If the calculations were based on a less energy
efficient structure comparable to those produced when energy prices were lower, the relative energy
penalty of substituting away from foam insulation would be greater.
47That is, when using the standard size compressor and evaporator currently in these units.
48A further qualification is that the estimates of Table 3.C.10 include only the direct energy require-
ments resulting from greater heat loss through exterior walls. In some cases, secondary energy penalties
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115
Table 3.C.11 assesses the aggregate energy costs of substituting away from
foam insulation, based on a hypothetical ban on these products beginning in 1980.
The first column of Table 3.C.11 shows the increase in energy consumption during
1990 that would result if foam insulation were replaced by alternative materials in
all products produced during or after 1980. On the basis of the energy costs per
million pounds of foam insulation replaced and estimates of post 1980 production
contained in the 1990 baseline stock, energy consumption would be increased in
1990 by the equivalent of 6.4 billion gallons (or 152 million barrels) of fuel oil.
Refrigeration applications account for nearly half of this substantial energy pen-
alty, with estimated energy losses in the construction markets only slightly smaller.
The annual energy penalties for years after 1990 would be even larger because the
projected stock of foam products in the economy is growing at a rapid rate.
Table 3.C.11 also presents estimates of annual energy costs per pound of CFC
use avoided. Even for residential construction, where the energy saving from CFC
blown foam is low relative to other applications, energy penalties are substantial
per pound of CFC use avoided. The typical residential structure assumed in this
analysis consumes about 550 pounds of rigid urethane foam, containing 67 pounds
of CFC-11, which will not be completely emitted for a period of 80 years on average.
The replacement of foam insulation by fiberboard increases the energy consump-
tion of the structure by the equivalent of about 73 gallons of fuel oil annually, or
by nearly 1,500 gallons during the first 20 years of the structure's useful life. Since
foam insulation adds only about $150 to $300 to construction costs, and CFC blow-
ing agents account for less than 10 percent of foam costs, the cost of CFC relative
to the energy savings from using foam insulation is trivial. As a result, there is
virtually no chance that substitution to nonfoam insulations could be induced by
higher CFC prices, within the price range considered.
Extruded PS Sheet
Like the flexible urethane foams, the price responsiveness of CFC use in ther-
moformed extruded PS sheet depends upon the costs of alternative blowing agents
and CFC recovery, and varies with plant size. On the basis of information contained
in confidential questionnaires distributed with the cooperation of the Society of the
Plastics Industries, the demand analysis for extruded PS sheet distinguishes three
classes of plants: large plants, medium plants, and small plants, consuming 750,000,
500,000, and 350,000 pounds of CFC-12 per year, respectively.
Pentane conversion in extruded PS sheet products significantly increases pro-
duction costs. The capital costs of pentane conversion in this analysis are estimated
at $460,000 for structural modifications required by the fire hazards of pentane,
plus $80,000 per extruder line. With small, medium, and large plants containing
two, three, and four extruders, respectively, the capital costs of pentane conversion
will also occur. For example, if foam insulation were not used in refrigerated truck trailers, heavier body
construction would be required as well as a larger compressor in the refrigeration unit itself, resulting
in higher gasoline consumption of the vehicle.
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116
Table 3.C.11
ANNUAL ENERGY PENALTIES OF SUBSTITUTING NONFOAM FOR FOAM
INSULATION BEGINNING IN 1980
Penalty per Pound
Penalty in 1990a of CFC Use Avoided1"
(billions of equivalent (equivalent gallons
Foam Market gallons of fuel oil) of fuel oil)
Construction
Residential0
Commercial
Industrial
Refrigeration
Refrigerators
Freezers/commercial
Transpor tat ion
Total
0.3
1.5
1.3
2.3
0.9
0.2
6.4
1.1
2.6
11.7
18.0
9.2
2.8
—
SOURCE: Based on Tables 3.C.I, 3.C.2, and 3.C.10. Components do
not sum to totals because of rounding.
a
Assumes operating efficiency of 70 percent. (1 gallon fuel oil =
98,000 Btu.)
Based on rigid urethane. For extruded PS board, energy penalty is
about 30 percent less on average, but varies by application.
p
1990 energy penalty includes losses from rigid urethane and ex-
truded PS board markets.
Assumes the operating efficiency of fuel oil at the powerhouse is
33 percent and that electrical energy cools with a coefficient of per-
formance of 2.83. (1 gallon fuel oil = 130,746 Btu.)
are $620,000 for small plants, $700,000 for medium plants, and $780,000 for large
plants.49 For decisions regarding pentane conversion, an investment criterion
requiring capital payback in 4^2 years is assumed. Other costs associated with
pentane conversion include $90,000 annually for additional labor, higher energy
consumption estimated at $0.12 per pound of CFC replaced, and insurance costs
estimated at two percent of the costs of capital.60
The most significant cost of pentane conversion appears to involve higher usage
of material inputs in the production process. Some industry sources argue that as
much as 20 percent more material is required to produce a given level of final
output with pentane than with CFC blowing agents. While this figure may apply
to some plants, it is unlikely that pentane-related material costs are generally this
severe, and this analysis assumes a 10 percent increase in required material inputs
for conversion to pentane.51
49See Sweetheart Plastics (1978). Other industry sources argue that the capital costs of pentane
conversion are significantly lower: about $250,000 for structural modifications, plus $80,000 for each
extruder line.
50See DuPont (1978a).
61Assuming prices of $0.46 per pound for CFC, $0.18 for pentane, and $0.44 for polystyrene resin, if
pentane actually increased materials usage by 20 percent, PS sheet producers who use pentane should
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117
The second possible response of PS sheet producers to higher CFC prices (other
than simply reducing output or paying higher CFC-12 prices) is CFC recovery. The
cost parameters of CFC recovery in PS sheet plants are assumed identical to those
for flexible urethane foam plants. That is, recovery costs include $960,000 per plant
for capital, $26,800 annually for maintenance, labor, and insurance, and $0.014 per
pound of recovered CFC for the energy costs of the recovery unit.
Although the lack of adequate specific information on CFC recovery from PS
sheet necessarily makes an analysis of this response speculative, these cost parame-
ters nevertheless appear very conservative. In contrast with recovery costs in a
flexible foam plant, which may be significantly increased by the presence of isocya-
nates and other chemical contaminants in the air stream to be treated, extruded
PS sheet foam formulations are more than 99 percent polystyrene resin and blow-
ing agent. While some industry sources argue that the recovery process may be
complicated by the presence of PS resin particles, there are no indications that
recovery costs would be affected as significantly as for flexible urethane foam.62
In addition, manufacturing emissions from PS sheet may be concentrated at
points within the plant to a greater extent than for flexible urethane foam. As a
consequence, it is likely that producers of PS sheet can achieve higher collection
efficiencies for a given level of capital costs. This analysis accounts for this possibil-
ity by assuming that 50 percent of CFC use is recovered for reuse.63
The response of polystyrene producers to higher CFC-12 prices will depend
upon where the regulated price of CFC-12 stabilizes (i.e., the long-run price). For
sufficiently small price increases, the most likely response is simply to pay higher
CFC prices. On the basis of the conservative cost parameters described above, for
large PS sheet plants CFC recovery is the most profitable course of action at
long-run CFC-12 prices between $0.70 and $1.82 per pound, with pentane conver-
sion minimizing production costs above this price range. For medium sized plants,
production costs are minimized by CFC recovery if the price of CFC-12 is expected
to range from $1.04 to $1.78 and by pentane conversion at higher prices. For small
plants, no action is taken to reduce emissions unless a regulated CFC price of $1.48
results, where recovery is economical. At CFC prices above $1.69, small firms would
minimize production costs by converting to pentane.
be willing to invest immediately as much as $920,000 to convert to CFC-12. We are aware of no
substantial capital costs required for this conversion. Moreover, CFC reduces plant fire hazards as well
as materials costs. While pentane's market share of thermoformed sheet production continues to decline
gradually, available evidence indicates that this blowing agent is still used to manufacture significant
amounts of virtually every type of thermoformed PS sheet product. This evidence suggests that the 20
percent materials penalty cannot be generally applicable. Consequently, the 10 percent figure is as-
sumed.
52In particular, the capital cost used here is based on an assumed gas flow of 20,000 CFM, this being
required in flexible slabstock plants because of the very low (0.02) TLV of TDI. Since TDI is not present
in PS, it is likely that substantially lower gas flows are possible. Capital costs are directly proportional
to the gas flow, and thus would likely be much lower than estimated here. This case may be extremely
conservative, as a result.
53Actual measurements taken in a number of foam plants for an unpublished industry study show
that manufacturing emission rates for PS sheet range from 45 percent of CFC use to 79 percent, with
an average facility emitting 63 percent. The CFC releases occur primarily at three points in the produc-
tion process—extrusion, thermoforming, and scrap regrind—which together account for about 95 per-
cent of manufacturing emissions. For an average facility, recovery and reuse of 50 percent of total CFC
use implies an 80 percent collection efficiency.
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118
Table 3.C.12 summarizes the above demand analysis for extruded PS sheet. The
demand schedule indicates that a price increase of $0.24 per pound (or 52 percent)
is required to induce a nine percent reduction in emissions.64 To achieve a reduction
of 36 percent (or 50 percent of CFC use in thermoformed products) a price increase
of over $1 per pound is required, indicating that emissions reduction from PS sheet
is subject to significantly increasing costs. At a long-run CFC-12 price of $1.82, the
analysis indicates that the use of CFC in thermoformed sheet products will be
minimal, and only emissions from nonthermoformed foams remain. At this price,
we estimate the use of pentane blowing agents would be .14.5 million pounds greater
in 1980 and 22.6 million pounds greater in 1990 than in the baseline case.
Nonthermoformed products use only CFC-12 blowing agent and available
information does not allow a rigorous demand analysis. For these products, the
following sections of this report assume a completely inelastic demand for CFC.56
Table 3.C.12
CFC-12 DEMAND SCHEDULE FOR EXTRUDED POLYSTYRENE SHEET, 1980 AND 1990
(Millions of pounds)
CFC-12 Price
(1976 $
per pound)
0.46
0.70
1.04
1.48
1.69
1.78
1.82
Induced Activity
None
Large plants recover
Medium plants recover
Small plants recover
Small plants convert
Medium plants convert
Large plants convert
1980
CFC
Reduction
—
1.8
3.6
1.8
1.8
3.6
1.8
Total ,
CFC Use
19.9
18.1
14.5
12.7
10.8
7.2
5.4
1990
CFC a
Reduction
—
2.8
5.7
2.8
2.8
5.7
2.8
Total ,
CFC Use
31.6
28.8
23.1
20.3
17.5
11.8
9.0
SOURCE: See text for method of calculation. Assumes 25 percent of CFC use in
large plants, 50 percent in medium plants, and 25 percent in small plants.
b
aShows incremental reduction in CFC emissions from indicated activity.
Shows total CFC-12 use at indicated price level.
54The closed cell foam questionnaires reveal that PS sheet plants do not significantly vary in size.
Most plants for which data are available are comparable to the medium plant assumed in this analysis,
although some small and large plants exist. Consequently, Table 3.C.12 assumes that 50 percent of CFC
use in thermoformed sheet products occurs in medium plants and 25 percent each in small and large
plants. This assumption does not affect the estimated prices at which emissions reduction activities
occur. Nor does it affect the conclusions that at a price of $1.48, CFC use in thermoformed products is
50 percent less than in the baseline projections and at $1.82, only CFC use in nonthermoformed products
remains.
56Although pentane conversion does not appear a likely voluntary response to higher CFC prices for
producers of nonthermoformed PS sheet, CFC recovery may occur. However, because no information
is available on emissions within nonthermoformed PS sheet plants, this potential response is not in-
cluded in the demand schedule.
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119
These results are sensitive to several important assumptions. In particular,
according to some industry sources, the capital costs of pentane conversion may be
as much as $200,000 less per plant than the data assumed by Table 3.C.12, and the
estimated $90,000 increase in annual labor costs also may be a significant overesti-
mate. With lower estimates of pentane conversion costs, small plants would convert
to pentane at a CFC-12 price of $1.18 and would never practice CFC recovery. While
medium and large plants would still find that recovery minimizes costs in some
price range, they would convert to pentane at lower CFC-12 prices than indicated
above, and CFC use in thermoformed products would be minimal at a price of $1.44
per pound, rather than at $1.82 as in Table 3.C.12. Because the objective of the
analysis in Sec. IV is to estimate an upper bound on the level of taxes or marketable
permit prices required to achieve desired emissions reductions, the less elastic
demand curve in Table 3.C.12 is used for that analysis.
Another important qualification is that the above analysis ignores possible
regulations on the use of pentane, because of its contribution to smog creation. If
firms are required to recover pentane as a result of such regulations, the demand
schedule of Table 3.C.12 would not be affected at prices below $1.69, because the
economics of CFC recovery are unaffected. However, pentane conversion in PS
sheet would not be a likely outcome of higher CFC prices. Assuming the recovery
costs noted above, the minimum CFC-12 price at which voluntary conversion would
occur is $2.33 per pound for large plants.
Finally, Table 3.C.13 presents the demand schedule used in the analysis of Sec.
IV for CFC-11 and CFC-12 in all closed cell foams. Based on the analysis of the
energy savings from foam insulation, CFC use in rigid urethane insulation and
extruded PS board, which account for nearly 90 percent of CFC-11 use and about
30 percent of CFC-12 use at current CFC prices, will not be significantly affected
by higher CFC prices within the range considered. The reductions of CFC-12 use
in Table 3.C.13 are based on the preceding demand analysis of extruded PS sheet.
CFC use for the closed cell foams combined is not highly sensitive to higher CFC
prices, with a substantial price increase to $1.82 per pound reducing total CFC use
by only 13.5 percent in 1980 and 10 percent in 1990. Of the CFC use remaining at
this higher price, foam insulation accounts for about 80 percent.
MANDATORY CONTROL CANDIDATES
Among the closed cell foams, candidates for mandatory controls are analyzed
only for CFC recovery and pentane conversion in thermoformed extruded PS
sheet.56 Either control candidate could be implemented as a retrofit or new source
standard. Briefly summarized, a CFC recovery mandate would impose
substantially lower costs per pound of emissions avoided than mandated conversion
56CFC recovery may be a viable control candidate for nonthermoformed PS sheet products as well.
However, because of the paucity of data available on emissions from these products, nonthermoformed
foam is excluded from this analysis.
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120
Table 3.C.13
CFC DEMAND SCHEDULE FOR CLOSED CELL FOAMS BY TYPE OF CFC,
1980 AND 1990
(Millions of pounds)
1980
CFC Price
(Constant Total CFC-11
1976 $) Usea
0.46 73.2
0.70 73.2
1.04 73.2
1.48 73.2
1.69 73.2
1.78 73.2
1.82 73.2
1990
Total CFC-12 Total CFC-11
Use Use3
34.3 162.4
32.5 162.4
28.9 162.4
27.1 162.4
25.2 162.4
21.6 162.4
19.8 162.4
Total CFC-12
Use
62.7
59.9
54.2
51.4
48.6
42.9
40.1
SOURCES: Table 3.C.12. Assumes demand for CFCs in foam insulation,
expanded PS foam, and polyolefin foam is completely inelastic. See
text for discussion.
alncludes less than five percent CFC-113, CFC-114, and CFC-115.
to pentane, although the total emissions reduction of CFC recovery is only half as
large. Because of the higher costs of pentane conversion and possible adverse
effects on worker safety, the mandatory control benchmark emissions level for
comparison with marketable permits includes mandatory CFC recovery for
existing and new PS sheet plants, but excludes pentane conversion.
For thermoformed PS sheet producers, mandated CFC recovery applying to
existing as well as new plants would increase the fixed costs of production by an
estimated $256,000 per plant annually (including amortized capital expenses, insur-
ance and other costs), based on the data of the previous section. CFC recovery also
reduces material expenditures, resulting in net annual costs of about $89,000 for
large plants, $144,000 for medium plants, and $177,000 for small plants. Conse-
quently, the cost per pound of CFC emissions avoided varies from $0.24 to $1.02,
depending upon plant size.
The aggregate costs of a CFC recovery mandate in thermoformed extruded PS
sheet plants are reported in Table 3.C.14. The emissions reduction potential of the
mandate is 7.2 million pounds in 1980 and 11.3 million pounds in 1990, with a
cumulative reduction of about 103 million pounds. Assuming that the number of
PS sheet plants increases proportionately with industry output,67 the total costs of
a CFC recovery mandate are estimated at $4.6 million in 1980 and $7.0 million in
1990, averaging about $0.61 per pound of emissions avoided. From 1980 to 1990,
the present value of direct costs of regulation are $38.8 million (discounted at 11
percent annually).
Mandated pentane conversion would increase both the fixed and variable costs
57This assumption biases total cost estimates upward, because average plant size should increase
under CFC recovery mandate and the per pound cost of emissions avoidance is smaller for larger firms.
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121
Table 3.C.14
EFFECTS OF MANDATED CFC RECOVERY IN EXTRUDED
POLYSTYRENE SHEET PLANTS
Plant
Sizea
Emissions
(millions
1980
Large 1.8
Medium 3.6
Small 1.8
Total 7.2
1990
2.8
5.7
2.8
11.3
Reduction
of pounds)
1980-1990b
Total Costs
(millions
1980 1990
25.8 0.
51.5 2.
25.8 2.
103.0 4.
4
1
0
6
0.7
3.3
3.0
7.0
of $)
1980-1990°
3.
18.
16.
38.
Cost p
pound
($)
8 0.24
4 0.58
7 1.02
8 0.61
!r
SOURCE: See text for method of calculation. Assumes mandate
applies to existing and new plants. Cost estimates are in con-
stant (1976) dollars. Components may not sum to totals because
of rounding.
a
Assumes 25 percent of CFC use is in large plants, 50 percent
in medium plants, and 25 percent in small plants.
Cumulative emissions reduction from 1980 to 1990, inclusive.
CPresent value of 1980 to 1990 net costs, discounted at 11
percent.
Calculated from individual plant data.
of PS sheet production. Estimates of the per plant costs of pentane conversion in
thermoformed PS sheet plants are presented in Table 3.C.15. For nonthermoformed
PS sheet products, mandated pentane conversion could be equivalent to a product
ban, unless the regulation included appropriate exemptions or allowed other emis-
sions-reduction activities, such as CFC recovery.
Table 3.C.15
ESTIMATED ANNUAL COSTS PER PLANT OF MANDATED CONVERSION TO
PENTANE BLOWING AGENTS IN EXTRUDED PS SHEET
(Dollars)
Production Costs
Increase in fixed
expenditures
Increase in
material costs
Total
Large Plants
291,630
306,750
598,380
Medium Plants
270,950
204,500
475,450
Small Plants
250,270
143,150
393,420
SOURCE: See text for basis of calculations.
a
Includes amortized capital expenses, insurance, and addi-
tional labor.
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122
Table 3.C.16 summarizes the total emissions and cost effects of substituting
pentane for CFC-12. The emissions-reduction potential of pentane conversion is
twice as large as for CFC recovery. However, the direct costs of regulation are also
substantially higher. The total annual costs of the mandate are estimated at $14.4
million in 1980 and $22.4 million in 1990, averaging about $0.96 per pound of
emissions avoided. The present value of cumulative costs over the 1980 to 1990
period is $123.0 million.
Table 3.C.16
EFFECTS OF MANDATED CONVERSION TO PENTANE BLOWING AGENTS IN
EXTRUDED POLYSTYRENE SHEET PLANTS
Plant
Size3
Emissions
(Millions
1980 1990
Large 3.6 5.7
Medium 7.3 11.3
Small 3.6 5.7
Total 14.5 22.6
Reduction
of pounds)
1980-1990b
Total Costs
(millions
1980 1990
51.5 3.0 4.8
103.0 7.1 10.9
51.5 4.3 6.7
206.0 14.4 22.4
of $)
1980-1990°
Cost per
pound'*
($)
25.5 0.80
60.7 0.95
36.8 1.12
123.0 0.96
SOURCE: See text for method of calculation. Assumes mandate
applies to existing and new plants. Cost estimates are in con-
stant (1976) dollars. Components may not sum to totals because of
round ing.
3Assumes 25 percent of CFC use is in large plants, 50 percent
in medium plants, and 25 percent in small plants.
Cumulative emissions reduction from 1980 to 1990, inclusive.
£
Present value of 1980 to 1990 annual costs, discounted at 11
percent.
Calculated from individual plant data.
New source standards in the PS sheet industry would confront problems similar
to those discussed for flexible foams. Because production costs are higher in new
plants than in existing facilities, new source standards create strong incentives to
increase production levels in existing plants and strong disincentives to construct
new plants. The effect of this behavior would be to significantly delay any effects
of new source standards on emissions. However, because of the historical tendency
of this industry to expand almost exclusively through additional plants, we do not
anticipate that new plant construction would be avoided beyond the mid-1980s.
Consequently, extruded PS sheet may be one of the few product areas where new
source standards would have a modest impact on pre-1990 CFC emissions.
Currently, there are at least 16 producers of CFC blown thermoformed PS
sheet, producing foam in as many as 30 plants. By 1990, the baseline number of
plants is expected to increase to about 45 to 50. If new source standards were
implemented in 1980 and if existing plants could increase output by 25 percent
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123
without exceeding the considerably higher mandated production costs in new
plants, it is unlikely that the standards would have any impact on emissions prior
to 1984. By 1990, probably no more than 10 new plants, accounting for less than 20
percent of annual thermoformed production, would be subject to regulation. Conse-
quently, the annual emissions effects of the new source standard even a decade
after promulgation would be less than 20 percent of a retrofit standard, and the
cumulative emissions reduction from 1984 to 1990 would be less than eight percent
of the 1980 to 1990 reduction of a retrofit standard.
For the plants subject to regulation, the costs imposed by new source standards
would be comparable to the costs per pound of emissions avoided for the retrofit
controls. However, additional costs would be incurred even before the standards
had any emissions impact, because plants existing prior to the date of the standard
would be induced to increase production to inefficient levels.
Under the assumption that final product demand curves are inelastic, the costs
of mandated controls will be borne by final consumers in the form of higher prices.
Because the final product in the case of extruded PS sheet is foam itself, the relative
increase in the prices of these packaging items will be somewhat larger than in
other CFC applications. Assuming that product prices rise enough to return firms
to competitive profit levels, price increases are estimated at about 3.8 percent on
average for mandated CFC recovery or about 12 percent for mandated pentane
conversion.
As is the case with flexible urethane foam, even if the demand for extruded PS
sheet foam is completely inelastic, regulation will place smaller plants at a relative
cost disadvantage and they may lose some foam markets to larger competitors. In
addition, the existence of nonfoam substitutes for several PS sheet products sug-
gests that regulated firms may lose some of their markets to nonfoam alternatives.
While precise estimates of these impacts cannot be computed from available data,
as many as 1,800 workers might be temporarily dislocated due to the regulations.
CONCLUSIONS
Previous studies of nonaerosol CFC applications have concluded that the closed
cell foams are a relatively unimportant source of CFC use and emissions. In con-
trast, this analysis indicates that closed cell foams currently consume a significant
amount of CFCs and may become the largest nonaerosol CFC user by 1990 in the
absence of regulation. Similarly, CFC emissions from closed cell foams are substan-
tial, rising to over 100 million pounds in 1990. The closed cell foams are the largest
contributor to the CFC bank, and by 1990 the stock of closed cell foams in the
economy will contain nearly 1.3 billion pounds of CFC-11 and CFC-12 awaiting
potential future release. Releases from the bank alone, during normal product use
and product disposal, are expected to total nearly 44 million pounds during 1990.
With the possible exception of extruded PS sheet, prospects for controlling
emissions from closed cell foams short of eliminating the services provided by these
products are not promising. Recovery and recycle of manufacturing emissions does
not appear a workable mandatory control candidate and has virtually no chance
of voluntary implementation. Producers of most closed cell foams currently have
strong incentives to reduce emissions during normal product use, and the logistics
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124
of controlling disposal emissions are formidable. Moreover, CFC use in foam insula-
tion is likely to be insensitive to higher CFC prices, reflecting the value of the
energy savings resulting from the use of these highly efficient insulation materials.
For extruded PS sheet, CFC recovery appears a promising voluntary response
to higher CFC prices and may be an enforceable mandatory control candidate,
although information on this option is currently limited. An alternative option to
reduce emissions from PS sheet products is conversion to pentane blowing agents,
although such a response may expose workers to fire hazards and may contribute
to the creation of smog in urban areas.
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III.D. MOBILE AIR CONDITIONERS
INTRODUCTION
The air conditioning of automobiles began as a luxury car option in the late
1940s, but is now commonplace. In 1976, nearly three-quarters of U.S.-made passen-
ger vehicles were sold with original equipment mobile air conditioning (MAC)
units. Their popularity in light trucks and vans has also been increasing over the
last two decades.
An automobile air conditioning system is similar to other refrigeration systems.
The refrigerant is contained in a sealed unit. The cooling cycle requires the alter-
nate compression and expansion of refrigerant vapor, with heat being absorbed by
the vapor when it expands and being released to the outside environment when the
vapor is compressed.
Mobile air conditioning units use R-12 exclusively as the refrigerant. There was
a system in the past that used R-22, but its use did not last, presumably because
of its higher price and because it requires higher pressures, which make equipment
components heavier and thereby reduce auto fuel economy.
Use and emissions of R-12 vary substantially among four major classes of MAC
units: (1) original equipment on U.S.-made automobiles; (2) original equipment on
imported automobiles; (3) original equipment on light trucks and vans; and (4)
aftermarket air conditioners. Overall, IR&T estimates (Burt, 1979) that there were
about 64.5 million mobile air conditioners in 1976, and the stock of such units will
grow to about 123 million in 1990. The "bank" of R-12 in mobile units, which was
189 million pounds in 1976, is expected to reach 326 million pounds in 1990, reflect-
ing a slight decrease in the average per unit refrigerant charge in the stock of MAC
units.
Emissions from MAC units were approximately 76 million pounds in 1976 and
might reach 122 million pounds in 1990. These estimates imply an average annual
growth rate in emissions of about 3.6 percent compared to a growth rate in MAC
stocks of 4.7 percent and a growth rate in the refrigerant bank of 4.0 percent. As
described below, the slower projected growth in emissions is due largely to expected
reductions in the average initial charge of new MAC units.
All analysis of the future mobile air conditioning use of R-12 is made highly
uncertain by the likelihood that automotive designs and sales will be importantly
affected by prospective changes in the markets for fuels. The projections for this
product area are based on IR&T analyses performed prior to the 1979 petroleum
shortages, and should be interpreted in that context.
USE AND EMISSIONS
The annual U.S. use of R-12 for mobile air conditioners is only partly deter-
mined by the number of new domestic units being charged. Some use is for servic-
ing and recharging the stock of air conditioners, including imported units, and some
125
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126
is for replacement of test gas losses and inadvertent emissions during manufacture
of the U.S.-made units. To estimate use, therefore, it is necessary first to estimate
U.S. installations, U.S. stocks including imported units, and emissions during manu-
facture and servicing.
Domestic MAC Production and Stocks
Table 3.D.1 reports the IR&T estimates of historical U.S. original equipment
and aftermarket MAC installations. For autos, the share of new vehicles sold with
original equipment MAC units rose from about seven percent in 1960 to almost 60
percent in 1970, and had reached 74 percent by 1976. For light trucks and vans, the
share of new vehicles with original MAC installations has been lower but is growing
rapidly, rising from 30 percent in 1973 to just over 36 percent in 1976. Historically,
aftermarket systems were installed only on older cars and trucks, but today some
auto dealers install them on new cars because they are cheaper than original
equipment systems and can be used to help reduce auto prices at the end of the
model year.
Table 3.D.1
U.S. INSTALLATIONS OF MOBILE AIR CONDITIONERS,
1970 TO 1976
(Millions of installations)
Original Equipment
Year Autos
1970 4.70
1971 4.70
1972 6.00
1973 7.27
1974 5.60
1975 4.88
1976 6.24
Light Trucks
and Vans
Aftermarket
Sales
0.22 1.00
0.34 1.25
0.49 1.40
0.75 1.00
0.66 1.00
0.64 0.75
0.95 1.05
SOURCE: Burt (1979), Tables 1, 5, and 7.
Data have been recalculated and rounded for
this presentation.
IR&T used the historical data for autos and light trucks to estimate the parame-
ters of a logistic function describing market penetration by original equipment
MAC systems. Those parameter estimates were then used to project future MAC
installations from projections of future auto and light truck and van production
levels. Increasing market penetration by original equipment systems will limit
future growth in aftermarket sales; IR&T estimates that aftermarket sales will
average one million per year from 1979 through 1990. Table 3.D.2 reports the
estimates of U.S. mobile air conditioning installations for 1977 through 1990.
To estimate annual stocks of mobile air conditioners in the United States, IR&T
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Table 3.D.2
PROJECTED U.S. INSTALLATIONS OF MOBILE
Am CONDITIONERS, 1977 TO 1990
(Millions of installations)
Year
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
Original
Equipment
Light Trucks
Autos and Vans
6.94
7.64
7.48
7.88
8.13
8.51
8.12
8.37
8.37
8.41
8.55
8.62
8.77
9.08
1.04
1.12
1.19
1.29
1.35
1.41
1.23
1.53
1.58
1.64
1.69
1.74
1.80
1.86
Af termarket
Sales
1.40
1.60
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
SOURCE: Burt (1979), Tables 2, 5, and
7. Burt does not estimate future instal-
lations in autos. The data shown here
were calculated from the data in Table 7
of that report using the formula given on
p. 5 of that report. For 1977, the value
is assumed to be halfway between the es-
timates for 1976 and 1978.
uses historical data on U.S. original equipment and aftermarket installations going
back to 1960, estimates of MAC equipment on autos imported since 1960, and a
model of equipment disposals. The data on imported autos equipped with MAC
units are scant; they include data for only some models in two years when 18
percent of the imports had air conditioning. IR&T assumes, lacking better data,
that MAC unit penetration of the import car market will grow at the same rates
estimated for U.S.-made autos, and that imports will account for 12 percent of the
future U.S. auto registrations projected in EPA-supplied data. The disposal function
assumes an average life for autos of 10.5 years and an average life for trucks and
vans of 14.5 years. Table 3.D.3 lists the resulting estimates of 1976 and 1990 mobile
air conditioning stocks in the United States.
The bank of R-12 in mobile air conditioners depends on the stock of units and
the average amount of charge. Until recently, the estimated average charge in
original equipment units installed in U.S. autos and trucks was 3.8 pounds. Begin-
ning in 1975, Chrysler has been producing units with lower charges and has now
completely switched to units requiring only 2.5 pounds, primarily because of system
redesign intended to help reduce auto weight and thus improve gasoline mileage.
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Table 3.D.3
ESTIMATED U.S. STOCKS OF MOBILE AIR CONDITIONERS,
1976 AND 1990
(Millions of units)
Type of
Equipment /Vehicle
Original/U.S. autos
Original/imported autos
Original/U.S. trucks
Af termarket
Total
1976
Stock
48.28
2.34
4.72
9.16
64.50
1990
Stock
85.12
6.93
19.93
10.83
122.81
SOURCE: Burt (1979), Table 10. Data re-
ported in millions for this presentation.
Aflermarket and imported MAC systems have always tended to use smaller
charges because the MAC units themselves are smaller. Assuming the average
charge in imported and aftermarket units has always been 2.0 pounds, and taking
into account the gradual trend to reduced average charges in the stock of original
equipment units, IR&T estimates the 1976 and 1990 bank of R-12 as shown in Table
3.D.4. For 1976, the overall estimated average charge per unit in the stock was 3.44
pounds. The estimated average charge in 1990 is 3.12 pounds.1
Emissions Process
IR&T identifies six sources of emissions: manufacturing and installation, leak-
age, recharging, repair servicing, accidents, and disposal.
Manufacturing and Installation Emissions. R-12 losses are incurred in the
leak testing of components, in rework of systems and components that do not meet
requirements, during system charging, and from miscellaneous causes associated
with small amounts of R-12 ("heels") remaining in drums. Control of these losses
is rapidly being achieved by the equipment manufacturers because of the cost
savings involved.
The largest manufacturing losses have been in the category of leak testing.
Prior to the installation of any controls on this emissions source, perhaps 0.79
pounds per unit was lost in this fashion. The installation of control equipment and
changes in the methods of leak testing are markedly changing this picture.2 IR&T
'We suspect that IR&T's projections for average initial charges for 1980 through 1990 are too high.
The market for high mileage vehicles is likely to grow relative to the market for larger, heavier vehicles
because of shortages and higher prices for fuels. These trends may not be fully reflected in industry
planning, at least during the period when IR&T was collecting its data. Chrysler, for one, is currently
suffering financially from a past decision to cut back on downsizing activities. Because MAC charges
are partly determined by vehicle design, downsizing could reduce future charges more than IR&T
presumes. However, this study has no alternative to the IR&T data.
20ne control method that has been instituted widely is to learn if units hold a vacuum before using
R-12 to determine leakage rates. Another method now implemented by some manufacturers is to use
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Table 3.D.4
ESTIMATED U.S. BANK OF R-12 IN MOBILE
Am CONDITIONERS, 1976 AND 1990
(Millions of pounds)
Type of
Equipment/Vehicle
Orlginal/U.S. autos
Import ed/autos
Original/U.S. trucks
Af termarket
Total
1976
Bank
181.72
4.68
17.67
18.32
222.38
1990
Bank
281.43
13.86
66.56
21.65
383.51
SOURCE: Burt (1979), Table 12.
Data expressed in millions for this
presentation. Components may not sum
to totals because of rounding.
estimates that these losses will be down to 0.12 pounds per unit by 1980 and that,
by 1990, they will be further reduced to about 0.08 pounds per unit.
Manufacturing emissions levels from sources other than leak testing are debat-
ed. Industry estimates of the individual sources indicate that, together, they might
amount to 4.3 to 16.4 percent of the initial charge. However, Chrysler has provided
data from a materials balance calculation for their production facility, which sug-
gest that these losses are 32 percent of initial charge. In the absence of contrary
evidence, IR&T used the Chrysler estimate for their 1976 emissions estimates and,
assuming there would be some improvements in the future, used 28 percent for the
1990 emissions estimates.
After publication of the IR&T report, Ford provided data from a materials
balance calculation for one of its plants, which showed these losses to be closer to
six percent of initial charge. However, in previous testimony to EPA, Ford noted
that it had already taken actions to improve the design of charging devices, which
had reduced charging losses by 25 to 40 percent. This would suggest that the overall
average loss aside from leak testing for all manufacturers is somewhere between
six and 32 percent. If Chrysler's recent 32 percent loss was exceptional even for that
company, as we suspect, overall average losses might be closer to 10 percent. In its
sensitivity analysis, IR&T indicates that if the correct figures are 10 percent in 1976
and in 1990, the total manufacturing and installation emissions estimates should
be reduced by 42 percent for 1976 and by 60 percent for 1990. The use and emissions
estimates reported in this study reflect these adjustments to the IR&T estimates.3
Leakage. IR&T distinguishes three types of leakage: design, abnormal, and
mixtures of R-12 with dry air or nitrogen rather than pure R-12 as the test gas. Some manufacturers
also recover test gases.
3IR&T assumes that aftermarket units have the same manufacturing and installation emissions rates
as original equipment units. With regard to imported units, it is assumed that all manufacturing and
installation emissions occur overseas, before the units are imported. IR&T notes that some imported
cars have U.S.-made (aftermarket) MAC units installed in them, some of which are installed at port of
entry. It is unclear from the IR&T documentation whether these units are included in the measure of
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130
excess. Design leakage is what could be expected from a new system that was
properly factory tested and had no mechanical or other problems. Abnormal leak-
age occurs through system malfunction. Excess leakage results from major mal-
function or damage and consists of sudden losses of all or most of the charge,
leading to immediate repair.
The most commonly mentioned sources of design leakage are hose permeation,
compressor seals, gaskets and valves, and fittings. The manufacturers set stringent
limits on the leakage permitted during testing in order to reduce warrantee claims
and create satisfied customers, and design and materials improvements have re-
duced design leakage over time. Estimated design leakage was three ounces per
year for autos made in the 1966 model year, falling to 2.25 ounces for the 1976
model year, and further falling to 2.1 ounces for the 1990 model year.
Abnormal leakage results from malfunctions that are undetected at the factory
or from deterioration, usually at compressor seals, hoses, and metal tubing. The
same types of design improvements that reduce design leakage from one model
year to the next probably also reduce abnormal leakage, but there is too little
evidence from tests of vehicles in operation to judge abnormal leakage rates. IR&T
estimates a rate of 1.5 ounces per year from autos in the 1966 model year, dropping
to 1.25 ounces for the 1976 model year, and to 1.15 ounces for the 1990 model year.
Autos that are brought in for MAC unit servicing and repair include units that
are functioning acceptably but have had leakage sufficient to warrant recharging,
units damaged by collision, and units with serious (noncollision) malfunction. IR&T
develops a complex model to predict the frequency of repair and servicing for
vehicles of different ages, and estimates that excess leakage amounts to 45 percent
of the initial charge in vehicles that arrive for servicing for reasons other than
simple recharging or repair following accidents.
Emissions at Recharge. Servicing simply to replace losses from slow leakage
differs from other types of servicing activity in two respects: First, since the unit
does not require repair, there may be no need to "open the system up" and release
the remaining charge. Second, some consumers recharge their own units with
readily available refill cans. On the basis of industry comment, IR&T estimates that
units are fully vented at recharge only about 10 percent of the time.
Industry sources agree that the typical leakage loss at which a customer would
recognize the need for recharge is about 30 percent of initial charge. Thus, emis-
sions when there is venting at recharge would be about 70 percent of initial charge.
IR&T uses its model of servicing frequency to estimate total recharge venting losses
in 1976 and 1990.
In addition to venting losses at recharge, there are losses associated with refrig-
erant transfer, storage, and residuals (heels) left in discarded refrigerant contain-
ers. These waste losses are assumed to be 20 percent of the amount of refrigerant
used for recharge.
Emissions at Repair Servicing. Repairs that require opening up the system
total aftermarket sales and, if so, whether the estimate of imported MAC units has been properly
adjusted to take account of this. In any case, the necessary adjustment in use and emissions to account
for this possible error is quite small, and the error would be less great in 1990 data than for 1976 because
of a trend toward increased use of foreign-made units in foreign cars. The adjustment reported in the
text makes no allowance for the error with regard to imports, and is taken from calculations presented
in IR&T's sensitivity analysis.
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131
and venting the remaining charge include replacements of compressors, compres-
sor seals, receiver-drier bottles, hoses, condensers, and evaporators. As indicated
above, IR&T's model of frequency of repair predicts the number of vehicles requir-
ing this type of service. The previous estimate that 45 percent of the charge is lost
when there is excess leakage in a unit indicates that 55 percent of the charge
remains to be vented at service. In addition to venting losses at repair, there are
also waste losses like those for recharge servicing.
Emissions Due to Auto Accidents. In order to have access to cool air, the
condenser in virtually every MAC unit is located directly behind the front grille of
the vehicle, where it is vulnerable to damage in head-on collisions. IR&T estimates
emissions from this cause by means of a model describing the stock of R-12 in
vehicles of different vintages and the probability of a collision that will cause
rupture of the MAC unit without leading to immediate vehicle disposal.4
Disposal Emissions. These emissions equal the number of disposed cars times
the amount of charge remaining in each car. The disposal model previously used
to estimate stocks by IR&T was used to estimate the number of disposed cars. To
determine charge remaining (and thus emissions) at the time of disposal, IR&T
assumes that units lose charge gradually over time until recharged, but that half
the units over seven years of age are sufficiently deteriorated that they no longer
warrant recharge.
Emissions Estimates
The IR&T emissions estimates, after the adjustment to manufacturing and
installation emissions noted above, are shown in Table 3.D.5. The estimates derive
from many assumed parameter values that are very uncertain. For example, the
sensitivity analysis performed by IR&T suggests the total emissions figure for 1976
could be as low as 46.7 million pounds or as high as 217.6 million pounds.5
The "best-guess" estimates in Table 3.D.5 yield an expected result: Original
equipment mobile air conditioners in U.S.-made autos are responsible for about
three-quarters of annual domestic R-12 MAC emissions. For all types of vehicles,
the largest sources of emissions in each year are leakage and repair servicing,
which together account for two-thirds of the totals for 1976 and 1990. All types of
emissions will grow over the period except possibly manufacturing and installation
emissions. In IR&T's emissions model, losses at manufacturing and installation are
assumed to be a constant fraction of initial charges, and thus fall as the initial
charge declines.6
"National Safety Council data show that about 4.5 percent of all accidents are head-on, and insurance
data indicate that significant accidents occur within the first three years of life of about 11 percent of
all vehicles. Recognizing that some of these accidents will result in disposal rather than repair and that
some will not damage the MAC unit, IR&T assumes that 2.5 percent of the stock of units under eight
years of age are damaged by collision. For older vehicles, which are less heavily driven and are more
likely to be scrapped following collision, the damage rate is assumed to be one percent.
According to the sensitivity analysis for 1990, if all parameters were modified to yield their lowest
estimate of emissions, the 1990 level would be negative. IR&T does not explain this peculiar result, but
we suspect that it indicates that the sensitivity analysis does not take into account important indirect
effects of modifying various parameter values.
6Although there is some relationship between initial charges and manufacturing and installation
losses, the constant proportionality factor used by IR&T is not based on rigorous analysis. However,
even if the 1990 loss estimates are too low, the error is a miniscule fraction of total CFC emissions.
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Table 3.D.5
ESTIMATED U.S. EMISSIONS OF R-12 FROM MOBILE AIR CONDITIONERS,
1976 AND 1990
(Millions of pounds)
Emissions Source
Vehicle/Equipment Type
Original/ Original/ Original/
U.S. Autos Imports U.S. Trucks
After-
market
Total
1976
Manufacturing &
installation
Leakage
Recharge
servicing
Repair servicing
Accident
Disposal
Total
6.6
17.3
2.2
22.1
4.3
7.2
59.6
—
1.1
0.1
0.8
0.1
0.1
2.3
1.1
1.7
0.2
2.2
0.4
0.1
5.7
0.7
2.8
0.8
3.0
0.5
1.0
8.9
8.5
22.8
3.3
28.0
5.4
8.5
76.5
1990
Manufacturing &
installation
Leakage
Recharge
servicing
Repair servicing
Accident
Disposal
Total
3.6
25.4
2.9
30.6
6.2
20.5
89.2
—
1.8
0.5
2.6
0.3
1.0
6.2
0.7
6.0
1.6
7.2
1.4
1.8
18.8
0.1
3.0
0.6
2.6
0.5
1.7
8.6
4.5
36.3
4.7
43.2
8.4
24.9
122.0
SOURCE: Burt (1979), Tables 20 and 21. Manufacturing and instal-
lation emissions have been revised downward as explained in text.
Data reported in millions for this presentation. Components may not
sum to totals because of rounding.
CFC Use Estimates
Sales of R-12 for mobile air conditioners consist of refrigerant for initial charges
of U.S.-made units plus replacement of manufacturing and installation losses, re-
placement of servicing losses, and recharges at servicing and repair. The IR&T
estimates, after the aforementioned adjustment to manufacturing and installation
losses, are shown in Table 3.D.6. Because annual servicing use depends on the total
stock of units and because repair requires total system recharge as well as leak
testing, the repair servicing use is the largest by far, exceeding even the use for
initial charges.
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Table 3.D.6
ESTIMATED ANNUAL SALES OF R-12 FOR MOBILE
Am CONDITIONERS, 1976 AND 1990
(Millions of pounds)
Purpose
Initial charge
Manufacturing and
installation
Recharge servicing
Repair servicing
Replacement of
accident losses
Total
R-12
1976
28.0
8.4
9.1
38.0
6.3
89.8
Sales
1990
38.
4.
12.
60.
9.
124.
0
5
4
0
9
7
SOURCE: Hurt (1979), Table 22,
adjusted for this presentation as
described in text. Components may
not sum to totals because of rounding.
INDUSTRY AND MARKET CHARACTERISTICS
Today's MAC industry in the United States is very large and well established.
Annual sales of original equipment alone exceed seven million units and $2 billion.
The factories that produce compressors, condensers, evaporators, and accumula-
tors have sizable employment and invested capital, and there have been few (if any)
entries or exits to the industry in several years.
The major members of the mobile air conditioning industry are the automobile
manufacturers. General Motors employs about 13,200 workers in the production of
MAC components alone, and has plants in three locations: Lockport, New York;
Dayton, Ohio; and Kokomo, Indiana. The replacement value of the machinery,
equipment, and tooling for GM is estimated at $400 million. Ford does not manufac-
ture its own compressors, but does make most of the other components it uses.
About 4,500 workers are employed for this purpose in Connersville, Indiana, and
Sheldon Road, Michigan. The value of Ford's MAC production capital is about $60
million. For both Ford and GM, the high value of capital investment relative to
employment reflects the highly automated design of their MAC production and
assembly lines.
IR&T provides little information about Chrysler except to note that it produces
a small compressor and uses a system design that requires a smaller initial charge.
There is no information about American Motors, but the smaller overall size of that
company suggests that it probably purchases some components from independent
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134
refrigeration device manufacturers. Two manufacturers who produce compressors
for the automakers are York Air Conditioning Division of Borg Warner and Tecum-
seh Products Company.
The Delco Air Conditioning Division of GM has designed a small, light compres-
sor and has been phasing it into service steadily. As an indication of the long lead
times required for retooling when components are redesigned, Delco estimates it
will require approximately 10 years for the complete phaseout of their older unit.
Relatively few components are imported, and exports are also minor. For exam-
ple, out of about seven million compressors manufactured in 1978, less than 200,000
were exported.
IR&T estimates that there are about 140,000 facilities that install and service
MAC units in the United States. These range from corner gas stations to specialty
shops. Entry into this market appears simple because the required investment is
modest and the necessary labor skills are readily available. Given the large number
of facilities, it is likely that at least a few hundred thousand individuals are em-
ployed by this segment of the industry.
In 1976, the average charge of a newly produced original equipment unit was
3.8 pounds, costing about $1.56. Since the retail price of a mobile air conditioning
system is $300 to $700, the refrigerant represents a trivial portion of the final unit
price. It appears that few consumers are knowledgeable about the refrigerant
needs of their units (the number of pounds they hold, the frequency with which
they should be recharged, or the prices of refrigerant). This ignorance may help
explain why only about one-third of the units requiring recharge are serviced by
their owners, despite the simplicity and low cost of the procedure. Since a MAC unit
must be suited for the vehicle in which it is installed, the customer's choice among
MAC unit features cannot be made independently of his choice of vehicle. For all
these reasons, the refrigerant costs associated with the purchase and servicing of
a MAC unit probably have little bearing on the market for the unit.
OPTIONS TO REDUCE EMISSIONS
IR&T identifies seven options for reducing emissions in this product area. Two
of the options, controlling manufacturing and installation emissions and reducing
the average initial charge, are already being implemented to some extent by the
manufacturers. Further emissions improvements under these options might be
achievable. However, data limitations preclude detailed analysis in this study of
the economic incentives required to generate further improvements or of the pro-
spective costs of compliance with mandatory controls requiring further improve-
ments. The five remaining options are redesign to reduce leakage, servicing
procedure improvements, recovery at salvage yards, conversion to an alternative
refrigerant, and conversion to an air cycle system. Some of these options can be
induced through economic incentives, but they are poor candidates for mandatory
controls because of likely difficulties in enforcement. Others require further techni-
cal assessment before they can be evaluated as candidates for regulatory control.
The following discussion examines each of the seven options in detail.
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Control of Manufacturing and Installation Emissions
Among the specific emissions-control methods being implemented are trans-
porting units without charge, recovering test gases used during leak testing and re-
work, pretesting units to see if they hold a vacuum before leak testing, and using
mixtures of R-12 with dry air or nitrogen as the test gas rather than using pure
R-12. The reported motivation for such emissions controls is the desire to reduce
R-12 expenditures at current CFC prices.7 By 1980, we anticipate that all feasible
options will already have been implemented and that further CFC price incentives
or mandatory controls would do little to wring further emissions improvement from
the manufacturing and installation processes. In any case, these emissions are
relatively small, at about 11 percent of total MAC emissions in 1976, and are falling.
Reducing the Average Initial Charge
In contrast with other refrigeration systems discussed in this report, mobile air
conditioner initial charges can be reduced to some extent without complete rede-
sign of all components. Much of the current variation in initial charge from one
MAC unit to another is caused by the layout of the system in cars of different model
types, with the same compressors and similar evaporators and other components
being used in the different models. For example, a reason for differences in charge
between two MAC units is the length of hosing required to connect the compressor
and evaporator, with longer hoses (and larger initial charges) being required more
commonly in larger cars. Component redesign can also help reduce initial charges,
but it is very costly to implement and could have a major effect on cooling capability
and performance.
Over time, average initial charges have tended to decline. Though the manufac-
turers achieve some reduction in refrigerant expenses as a result, this is not the
primary reason for the change. Instead, the general downsizing of autos to improve
fuel economy has indirectly led to system layouts that require less initial charge.
In addition, the manufacturers have sought to reduce the weight of MAC units—
again in pursuit of better gas mileage—and this has reinforced the tendency for the
initial charge to decline.
In principle, it would be possible to institute mandatory controls to require
reductions in the average MAC charge in each new fleet of vehicles. Also, since
reductions in charge reduce the manufacturers' expenses for R-12, some reduction
in charge might be motivated by policies that increase the price of R-12. However,
much of the data required to evaluate these policy options are not available. The
information we do have is that Chrysler already has a system requiring only 2.5
pounds of initial charge, while two other manufacturers we contacted estimated
that average charges could be reduced to 2.5 pounds at a cost of less than $10 per
unit, but that further reductions would require retooling.8 The time required to
'Many observers argue that MAC unit manufacturers would be indifferent to R-12 price increases
because the added costs would simply be passed through to vehicle purchasers. This ignores the fact
that each MAC producer buys enormous quantities of R-12 each year, and that he can increase his
profits substantially if he can reduce R-12 use without changing the price or effectiveness of his MAC
units.
"One of these manufacturers had previously advised IR&T that reductions below 2.75 pounds would
require retooling.
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reduce charges without retooling is unknown; retooling is estimated to require five
to seven years to implement. IR&T offers no estimates of retooling costs for the
different manufacturers.
We can be reasonably sure that costs are high enough to preclude retooling in
response to CFC prices in the range considered in this study. Redesign without
retooling might be induced within the relevant price range, but there is insufficient
information to estimate the prices at which various reductions would be induced
for different manufacturers. Without this information on retooling costs, the costs
of compliance for mandatory controls requiring initial charge reduction cannot be
estimated. Available data permit only a calculation of the potential emissions ef-
fects of reducing the initial charge.
According to the available information, the minimum average initial charge
that could be required for all manufacturers without retooling is 2.5 pounds. Per-
haps 20 percent of the current U.S. original equipment units (those produced by
Chrysler) will already have an average charge of 2.5 pounds. Suppose, then, that
the overall average initial charge for all manufacturers could be brought down to
2.7 pounds by, say, 1983. This would reduce the average initial charge of all new
U.S.-made units by a little under 20 percent in 1983 and each succeeding year, and
the use of R-12 for initial charges and for replacement of manufacturing and
installation losses might fall commensurately.9 Since manufacturing and
installation emissions are quite small already, the reduction in such emissions in
1990 would be only about 0.8 million pounds, and the cumulative reduction between
1983 and 1990 would be less than six million pounds. The effect on emissions from
the stock of units would be larger. By 1990, when the units with reduced charges
would account for about three-quarters of the equipment stock, the average charge
per unit in the stock would be reduced about 12 percent. Disposal emissions would
not yet be affected (because almost none of the newer units would be disposed by
1990), but if all other emissions from the stock fell by 12 percent, the reduction in
1990 emissions would be about 11 million pounds. In summary, the cumulative
reduction in emissions from the stock between 1983 and 1990 would be less than
40 million pounds. However, the reduction in initial charge would continue to
reduce annual emissions after 1990. The full effects of the change would not be
observed until about 1995, when nearly all the units in the stock would have been
produced after the change.
Redesign to Reduce Leakage
As noted above, the four most often mentioned sources of design leakage are
compressor seals, gaskets and valves, fittings, and hoses. The first of these already
appears to satisfy conditions as stringent as are operationally feasible. The second
and third sources of leakage are often beyond the manufacturers' control because
the performance of gaskets, valves, and fittings is dependent on the care and
competence of servicemen in the field where aftermarket units are installed and
all units are serviced. The fourth source of design leakage, hoses, appears to be the
'Based on the IR&T assumption that manufacturing and installation emissions are a function of the
initial charge.
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major source of normal leakage and one where some modifications in materials and
design might result in significant reductions in leakage and recharging emissions.
The two means by which leakage from hoses might be reduced are use of less
permeable hose materials and shortened hose lengths. To some extent, both tech-
niques are already in use. However, most hoses are still made from nitrobutyl
rubber and related materials, rather than from metal or other less permeable
materials. Reasons given for preferring rubber in this application are that the other
materials are stiffer, noisier when the unit is in operation, and more expensive.
There is a serious difficulty in trying to incorporate the option of reduced
leakage from hoses in this analysis. The IR&T report indicates that there are
substantial unresolved differences of opinion about leakage through hoses under
actual operating conditions and therefore about the gains to be achieved by short-
ening hoses or using different hose materials. There are also insufficient data from
which to judge the costs of hose improvements. These questions, together with the
more general question of what abnormal leakage is and how best to control it,
deserve further analysis, perhaps beginning with empirical studies of refrigerant
losses in cars operated under actual conditions.10 In any case, we cannot attempt to
evaluate the implications of mandatory controls to reduce leakage under current
conditions of data availability.
It can be noted, however, that reductions in leakage probably cannot be
achieved through economic incentives in the form of higher prices for R-12. Reduc-
ing leakage during normal use does little to save refrigerant expenses by the
manufacturer. While the improvements would save the final consumer some
money on recharge expenses, it does not appear that many consumers are suffi-
ciently knowledgeable to take this into account when deciding to purchase a unit.
And even the knowledgeable consumer may find that other features of the vehicle
he is considering are more important to him than the number of times he will have
to recharge his MAC unit.
Servicing Procedure Improvements
One improvement that would reduce emissions would be to reduce or eliminate
venting at recharge. Some service manuals for MAC units recommend venting to
avoid buildup of moisture and acid in the system, but the frequency and signifi-
cance of these problems is unknown. Assuming that MAC unit manufacturers
would agree to validate warrantee claims for units that are not vented at recharge,
there is still no incentive for the serviceman to retain the existing charge because
venting allows him to recharge the entire system at a price that yields him some
return over the cost of the refrigerant he uses. It would be virtually impossible to
enforce mandatory controls to prevent venting at the thousands of U.S. MAC
service facilities. Further, since the customer will probably pay the full cost of a
complete recharge without question (at least in the range of CFC prices considered
in this study), there is little opportunity to use the economic incentive of higher
CFC prices to induce this behavior.
Mandatory recovery of vented refrigerant at recharge or repair servicing
10Some automakers are already conducting such tests.
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would also be virtually impossible to enforce; there are far too many servicemen
to monitor, and the customer would be eager to avoid paying the added labor costs
and the cost associated with the serviceman's investment in recovery equipment.
IR&T estimates that the capital cost alone per pound of recovered (but not re-
claimed) refrigerant ranges from about 80 cents to almost $3, depending on the
amount of vented R-12 per service facility. These figures make it clear that there
would be no market for the recovered refrigerant given a price for virgin R-12 that
is under 50 cents per pound. The IR&T estimates do suggest, however, that some
recovery might be induced through increased prices for R-12. This is discussed
further below.
Waste losses due to heels in the small cans of refrigerant used by consumers
and many servicemen could be eliminated by making such cans illegal. However,
emissions might be increased overall because the consumer would then have to
take his car in for service, where the remaining charge in the MAC unit has a 10
percent chance of being vented. For this same reason, it is not clear that eliminating
the use of small cans by means of economic incentives would be desirable. In any
case, emissions from this source are small, amounting to well under five million
pounds per year between 1976 and 1990.
Recovery at Salvage Yards
The disposal emissions estimate counts all losses occurring from the time a
vehicle leaves registration. Because there is often a delay between that time and
the time a vehicle arrives at a salvage yard, the vehicle often has less charge when
it reaches salvage than when it left registration. Industry sources estimate that just
25 to 50 percent of vehicles still have some charge remaining at the time they reach
a local salvage yard, and almost none retain a charge by the time they arrive at
a central scrapping facility.
IR&T estimates that there are 800 salvage yards, that the average charge
remaining when a vehicle reaches such a yard is 40 percent of the initial charge,
and that the average facility would currently receive about 2,500 pounds of refrig-
erant per year.
Salvage yards recover a wide variety of materials from scrapped vehicles, but
do not currently recover MAC refrigerant. IR&T remarks that the amount of R-12
available for recovery at the average yard would allow amortization of the invest-
ment of $500 to $1,000 for recovery equipment, and suggests that recovery at
salvage would occur if there were a market for recovered R-12. In our research
concerning other product areas, we interviewed one chemical reclaimer who cur-
rently reclaims small amounts of R-12 recovered from other refrigeration devices.
While we agree with IR&T that there is no widespread market for reclaimed
refrigerant and that there is currently no reclamation of refrigerant from MAC
units, we believe the explanation of the failure to reclaim MAC refrigerant lies in
a lack of current economic incentives for recovery at salvage.
First, we suspect that salvage yard operators require much more rapid payback
of capital investment than IR&T presumes. Whereas IR&T estimates the annual-
ized capital costs at about $200, our estimate would be in the range of $300 to $400,
yielding capital costs per recovered pound of R-12 of 12 to 16 cents. Second, IR&T
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has no estimate of reclamation costs. On the basis of charges for reclaimed CFC-113
(which is relatively costly to distill), we estimate that a chemical reclaimer would
charge approximately 25 cents per pound of reclaimed R-12 before shipping. Pur-
chasers will not pay as much for reclaimed material as they will for virgin refriger-
ant. Even if they will accept a price differential as little as five cents per pound, and
even if shipping costs were zero, the chemical processor would not pay a salvage
yard operator more than 11 cents per pound for recovered R-12 given its current
virgin price of 41 cents. This would barely cover IR&T's estimate of eight cents for
the average capital cost per pound of recovered material, and it would not cover
our estimate of capital costs per unit. Finally, IR&T has no estimate of the labor
cost for recovery at salvage. Using their assumptions, which imply that the salvage
yard would recover only about 1.4 pounds of R-12 at a minimum labor input of five
minutes per vehicle, even the low IR&T estimate of capital costs would leave the
average salvage yard operator with a return on his labor of about 50 cents per hour.
In summary, there appear to be strong economic disincentives for recovery at
salvage, given current R-12 prices.
The economic disincentives, together with the difficulty of enforcement, make
mandatory controls for recovery at salvage very unpromising. Economic incentives
could be established under a policy that increases the price of virgin R-12 as
explained below.
Conversion to an Alternative Refrigerant
Conversion to R-22 is an option that must be mentioned, but which carries with
it the necessity for complete system redesign and retooling of the industry, and the
energy consequences of a system that is not as efficient and is heavier than present
systems. Also, since the pressures of R-22 systems are higher, the emissions would
probably exceed R-12 emissions. IR&T provides no data quantifying the costs of
conversion, but it is clear that they lie at the farthest extreme of any of the
emissions-control options for any product area considered in this study. Morever,
since R-22 is currently more costly per pound than R-12, an economic incentive
approach to induce conversion would require R-12 prices outside the range con-
sidered in this study. Finally, the emissions effects of this option, though substan-
tial in the long run, would be modest before 1990 due to necessary delays in
implementation and delays in turnover of the equipment stock.
Conversion to R-142b, a new and experimental refrigerant that is believed to
be less hazardous to the ozone than R-12, might hold some promise. However, since
this new chemical is not yet commercially available, the implications of conversion
to R-142b cannot be assessed in this study.
Conversion to an Air Cycle System
At the outset of this study, the ROVAC Company was promoting its air cycle
refrigeration system as a promising alternative to existing R-12 systems, offering
the prospect that all R-12 emissions from MAC units could eventually be eliminat-
ed. Now, however, the ROVAC Company no longer sees sufficient promise from
this system to continue its development. That company is now beginning to pursue
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development of an air-vapor system, but it is in too early a stage of development
for consideration in this study.
Summary
The options for controlling emissions from MAC units fall into several analyti-
cal categories: (1) Those that deserve further technological or economic assessment
but are not sufficiently well understood for detailed evaluation in this study are
reductions in initial charge, redesign to reduce leakage, conversion to R-22 or
R-142b as the refrigerant, and (possibly) conversion to an air-vapor system; (2) those
that might be encouraged by economic incentives but would be difficult or impos-
sible to enforce under mandatory controls are recovery at servicing and at disposal;
(3) an option that does not appear promising either under economic incentives or
mandatory controls is elimination of venting at repair servicing; and (4) an option
that does not appear to warrant policy action because it is already being exploited
to nearly its full potential is control of leak testing and installation emissions.
CFC DEMAND SCHEDULES
Because refrigerant costs are such a small part of MAC unit costs, we can
assume that changes in the R-12 price would not affect the demand for mobile air
conditioners. As explained above, the only likely response by manufacturers to
increased CFC prices in the range considered here would be system redesign to
reduce the average initial charge. But as was also explained above, we cannot
determine the price at which this response would be induced. Therefore, manufac-
turing demand for R-12 is treated here as though it is perfectly inelastic. In 1976,
the level of R-12 use by the manufacturers was 36.4 million pounds (including
amounts used for initial charges plus losses during manufacturing and installation).
The average annual rate of growth in manufacturing use through 1990 is estimated
to be 1.1 percent, bringing 1980 use to 38.0 million pounds and 1990 use to 42.5
million pounds.
While manufacturing demand is assumed to be unaffected by the price of R-12,
a sufficiently high price might induce recovery at servicing. Table 3.D.7 reports the
estimated prices of virgin R-12 at which different types of servicing facilities would
introduce recovery and the amount of R-12 that would be made available for reuse
if each type of facility undertook recovery.11 Although there do appear to be prices
"The calculations assume that (1) the cost of recovery equipment is $1,000 (in 1976 dollars) and that
service facilities (which are in a somewhat less volatile business than salvage yards) require equipment
payback in five years with future returns from the sale of recovered R-12 discounted at 15 percent per
year; (2) growth in the stock of units requiring repair results in proportionate growth in the number
of service facilities, maintaining the 1976 distribution of types of facilities; (3) growth in the total amount
of R-12 available for recovery is equal to the average annual rate of growth in R-12 use for repair
servicing (3.4 percent per year between 1976 and 1990); (4) 75 percent of the R-12 available for recovery
is actually returned to use, with 25 percent either being unrecovered because some service facilities of
each type have too little R-12 to make recovery worthwhile at any price or because some of the
recovered material is lost during handling and reclamation; (5) the average labor cost per recovery
operation is $2 (corresponding, for example, with a labor time requirement of eight minutes per vehicle
at a charge of $15 per hour); (6) the number of pounds available for recovery per vehicle will be 2.45
pounds throughout the period; and (7) the service facility earns the price of virgin R-12 minus 40 cents
for each pound of R-12 it recovers.
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for virgin R-12 that would induce recovery at service, the prices are all well outside
the range considered in this study. At prices below $3 per pound of virgin R-12,
servicing demand is assumed to be perfectly inelastic. In 1976, servicing use
(including all types of servicing) was 53.4 million pounds. Assuming such use grows
throughout the future period at an average annual rate of 3.1 percent, 1980
servicing use would be 60.3 million pounds, and would reach the IR&T estimated
value of 82.3 million pounds in 1990.
Table 3.D.7
EFFECTS OF INCREASED VIRGIN R-12 PRICES ON
RECOVERY AT REPAIR SERVICING
Type of
Facility
Service
stations
Dealers
Independent
repair shops
Fleet shop
Number
Providing
MAC Service
in 1976
60,000
26,000
45,000
9,000
1976
Potential
R-12 Recovery
Per Facility
(lb)
131
253
156
72
Recovery
Inducement
Price for
R-12
(1976 $)
4.52
3.06
4.04
7.01
1980 Total
Reclamation
Potential
(millions
of lb)
6.7
5.6
6.0
0.6
SOURCE: Burt (1979), Table 19, and calculations explained in
the text.
The one remaining way that a change in the price of R-12 might affect its use
would be if the price change induced recovery at salvage yards. Assuming that
salvage yard operators require a faster payback on recovery equipment than ser-
vice facilities do, but also require a somewhat lower return on their labor, we
estimate that they would find recovery economically rewarding at a virgin R-12
price of about $2 per pound.12 At that price, the amount of R-12 returned to use in
1980 would be two million pounds, and the amount would grow at eight percent per
year through 1990. Since this amount of R-12 would otherwise be vented at salvage,
the amount of emissions reduction equals the amount of R-12 returned to use.
In summary, at prices for virgin R-12 below $2 per pound, the combined uses
of R-12 for mobile air conditioning would be about 98 million pounds in 1980, and
would increase at an average annual rate of 2.4 percent, reaching 125 million
pounds in 1990. Emissions would be approximately 87 million pounds in 1980,
growing at an average annual rate of 3.4 percent' to 122 million pounds in 1990.
12The calculation assumes that (1) the capital cost of recovery equipment is $1,000 (in 1976 dollars)
and salvage operators require payback in three years, discounting at 20 percent; (2) the growth in the
number of salvage yards is equal to the growth in disposal emissions (eight percent per year); (3) the
R-12 available for recovery at salvage grows at the same average annual rate as disposal emissions; (4)
75 percent of the R-12 available for recovery would be returned to use; (5) the average labor cost per
recovery operation is $1.50; (6) the number of pounds of R-12 available per vehicle is 1.4 pounds; (7) the
salvage yard operator earns the price of virgin R-12 minus 40 cents for each pound of R-12 he recovers.
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Assuming, for convenience, that recovered R-12 would be returned to use in mobile
air conditioning, a price between $2 and $3 (in 1976 dollars) would reduce 1980
purchases of virgin R-12 to 96 million pounds, and use would then grow slightly
faster than two percent per year, reaching 120 million pounds in 1990. At R-12
prices above $2 per pound, 1980 emissions would be 85 million pounds, would grow
at an average annual rate of three percent, and reach 118 million pounds in 1990.
MANDATORY CONTROL CANDIDATES
Two of the options for controlling emissions from mobile air conditioning units,
recovery at servicing and recovery at disposal, do not appear to be good candidates
for mandatory controls because of the extreme difficulties of enforcing them. A
third option, control of leak testing and installation emissions, is already being
undertaken, yielding little prospective benefit from mandatory controls. The re-
maining options, conversion to an air-vapor cycle or to R-22 or R-142b refrigerant
and reductions in initial charge, cannot be included in the benchmark for compari-
son with economic incentive policies because there are insufficient data to evaluate
compliance costs. These options would probably have been omitted from the set of
benchmark controls in any case because their effects on emissions by 1990 are small
relative to their longer-run emissions effects.
Conversion to an alternative refrigerant or to an air-vapor cycle deserves fur-
ther technical assessment. Either of the options would eventually eliminate emis-
sions of fully halogenated CFCs. Conversion to an air-vapor cycle or to R-22 would
impose enormous compliance costs, but conversion to R-142b might not require
complete retooling, making it an especially promising option. Since one of these
options may eventually prove to be far less costly than the others, and since only
one can be chosen for mandatory controls, it is necessary for all three to be
thoroughly and simultaneously evaluated.
As noted earlier, reductions in initial charge would impose compliance costs
that vary significantly depending on the selection of the charge level. A charge level
that would require retooling would not generate large emissions reductions before
1990, and might cost almost as much to implement as any of the conversion options.
Hence, it would be wise to consider major reductions in average initial charge
simultaneously with the three conversion options. Lesser reductions in initial
charge, if they would not require retooling and could be implemented rapidly
enough to have a noticeable emissions effect before 1990, might be selected as a
mandatory control even if conversion to an alternative refrigerant at a later date
remains a possible option. However, the decision to undertake a short-run strategy
while continuing to evaluate longer-term solutions to the emissions problem must
be weighed against the cumulative costs to consumers (who will pay the total bill
for regulation in higher MAC prices). Further research to evaluate those costs is
warranted.
CONCLUSIONS
Mobile air conditioning is currently the largest CFC-using product area and is
responsible for nearly one-quarter of 1976 fully halogenated CFC emissions. In
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1990, MAC units are expected to remain one of the top three sources of CFC
emissions, accounting for just under 20 percent of emissions in that year.
Although the high emissions potential in this product area makes it a desirable
target for regulatory control, the control options that would contribute most to
reducing emissions—conversion to an alternative refrigerant or to a different re-
frigeration design—require further technical assessment before their economic
implications can be evaluated. This is especially unfortunate because the "bank"
of R-12 in MAC units is large (222 million pounds in 1976) and growing (at an
average annual rate of nearly four percent per year). Consequently, delay in taking
action to reduce R-12 use in this application could have serious implications if the
ozone depletion and climate problems prove to be serious. Further technical assess-
ment of options to control R-12 emissions in this product area clearly deserve high
and immediate priority.
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III.E. CENTRIFUGAL AND
RECIPROCATING CHILLERS
INTRODUCTION
Chillers are air conditioning systems used in large commercial and industrial
buildings.1 The system consists of a central unit that chills a secondary refrigerant,
usually water or brine, which is then circulated to remote units (cooling coils) that
cool air. The primary refrigerant used in the central unit varies among R-ll, R-12,
R-114, R-500, and R-22; of these, the last is excluded from potential regulatory
concern under the mandate for this study, but its level of use and its potential as
a substitute for other refrigerants remain of interest.2
With regard to both emissions and market characteristics, a pertinent dis-
tinction is between chillers that use centrifugal compressor designs and those that
are reciprocating.3 While centrifugals rely heavily on R-ll and R-12, reciprocating
chillers use R-22. Whereas reciprocating units are used for capacities of 10 to 150
tons," centrifugal units are used for larger capacities, ranging from 75 to 10,000
tons.
Centrifugal Chillers
The market for centrifugal chillers mushroomed between 1950 and 1964, but
has fluctuated around 3,500 units per year since 1965. Exports have been a signifi-
cant feature of the market, accounting for 30 to 40 percent of total U.S. shipments
throughout the recent decade. In the absence of any change in CFC policy, annual
domestic shipments are projected to double by 1990; IR&T's projections (see Sev-
ern, Cummings-Saxton, and Burt, 1979) presume exports would do the same.
The primary refrigerant in centrifugal units varies. R-ll is used primarily for
units under 500 tons capacity, R-12 is used primarily in larger units, and R-114,
R-22, and R-500 are used only occasionally in very large units (over 1,000 tons).
Overall, R-ll is used in perhaps 80 percent of the units, with R-12 accounting for
another 10 percent of the chiller market.
Although early chillers held an average charge of six pounds per ton of cooling
capacity, design improvements have lowered that value by half. Consequently, the
replacement of older units with the new ones will retard growth in the stock of
refrigerant in chillers. The non-R-22 refrigerant stock (or "bank") of 50.8 million
pounds in 1976 is expected to reach only 87.8 million pounds by 1990. Similarly,
'Chillers are occasionally used for industrial refrigeration. Air conditioning accounts for over 95
percent of the market, however, and is the only use considered here.
2R-500 is an azeotrope (constant-boiling blend): 73.8 percent R-12 plus 26.2 percent R-152a. Like R-22,
R-152a is not considered to be an ozone hazard in this study.
3Perhaps 10 percent of the total market is served by absorption chillers that use ammonia or lithium
bromide.
••Refrigerating systems are traditionally rated in terms of tons of capacity, where one ton refers to
the amount of heat required to melt one ton of ice in 24 hours. A ton of cooling capacity corresponds
to perhaps 300 square feet of cooling area.
144
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annual non-R-22 emissions are expected to rise only 50 to 60 percent over the
period.5
Reciprocating Chillers
The market for reciprocating units grew rapidly to a peak of nearly 10,000 units
in 1966, but has not grown since then, partly due to the recession in commercial
construction. Like centrifugal chillers, the reciprocating units are heavily exported;
in recent years, about 45 percent of total shipments have been delivered abroad.
But unlike centrifugal chillers, the reciprocating units face strong competition from
unitary systems (such as heat pumps, which perform both heating and cooling), and
so the domestic market is expected to grow only 50 percent by 1990.
Historically, reciprocating units relied exclusively on R-12. In the early 1960s,
however, there was a rapid switch to R-22 to improve cooling from compressors of
a given size. Because of this switch and the declining market, the bank of R-12 held
in reciprocating units is expected to fall from 8.2 million pounds in 1976 to 1.1
million pounds in 1990. Similarly, annual emissions of R-12 should fall from perhaps
two million pounds to less than half a million pounds over the period.
USE AND EMISSIONS
Centrifugal Chillers
Table 3.E.1 shows annual domestic, export, and total shipments by U.S. makers
of centrifugal chillers for the period 1970 through 1976. The ratio of domestic
shipments to new commercial floor space in the United States was nearly constant
over the period, suggesting that expected growth in commercial floor space could
be used to estimate future chiller sales for new buildings. In addition, future sales
will include some replacement and rebuilt units that will be reaching the end of
their expected lifetimes of 25 years. Table 3.E.2 lists the projections of future
domestic installations developed by IR&T according to the foregoing logic.
IR&T does not explicitly report estimated future export shipments. However,
IR&T does measure emissions during domestic manufacture of exported units by
assuming that exports will continue to add 40 percent to domestic shipments
through 1990. By implication, centrifugal export shipments are estimated to rise
from 1,261 in 1976 to about 1,974 in 1990.
Annual use (purchases) of CFCs consists of refrigerant used to test units during
manufacture and installation, the initial charges for the manufactured units, and
refrigerant used in the servicing and recharging of existing units. IR&T computes
total use in 1976 and in 1990 (baseline) by adding all emissions in those years—
except those associated with chiller disposals—to the amount of CFCs used in
5As explained below, the current and projected levels of non-R-22 emissions are disputed. IR&T
estimates them at 12.1 million pounds in 1976, whereas recent data from the Trane Company suggest
that the figure is closer to seven million pounds.
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Table 3.E.1
ANNUAL SHIPMENTS OF CENTRIFUGAL CHILLERS,
1970 TO 1976
(Numbers of units)
Year
1970
1971
1972
1973
1974
1975
1976
Domestic
Shipments
2,667
2,718
2,559
2,500
2,893
2,873
1,733
Exports
1,389
1,275
1,287
1,373
1,601
1,774
1,261
Total
Shipments
4,056
3,993
3,846
3,873
4,494
4,647
2,994
SOURCE: Severn et al. (1979), p. 4.
Table 3.E.2
PROJECTED DOMESTIC INSTALLATIONS OF CENTRIFUGAL CHILLERS,
1977 TO 1990
(Numbers of units)
New
Construction Replacement
Year
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
SOURCE
am.
Sales
1,969
2,767
2,767
2,767
2,767
3,717
3,717
3,717
3,717
3,717
4,429
4,429
4,429
4,429
: Severn et
Sales
59
116
150
183
222
239
270
292
327
372
411
462
491
505
al. (1979),
_ i • i .i_ - • i
Rebuilt
Units3
(59)
(116)
(150)
(183)
(222)
(239)
(270)
(292)
(327)
(372)
(411)
(462)
(491)
(505)
p. 11.
/ _ •
Total
Domestic
Shipments
2,028
2,883
2,917
2,950
2,989
3,956
3,987
4,009
4,044
4,089
4,840
4,891
4,920
4,934
Total
Domestic
Installations
(2,087)
(2,999)
(3,067)
(3,133)
(3,211)
(4,195)
(4,257)
(4,301)
(4,371)
(4,461)
(5,251)
(5,353)
(5,411)
(5,439)
year is equivalent to the number of replacement units; rebuilt units,
however, are not included in calculations of domestic shipments.
Total domestic shipments are new construction sales plus replace-
ment sales.
Total installations include new construction sales, replacement
sales, and rebuilt units. This total is used to determine chiller
stocks and disposals.
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147
charging new, replacement, and rebuilt units.6 As an aid to later analysis, Table
3.E.3 not only reports total use, but also breaks down the IR&T total figures into:
(a) use associated with manufacture and installation, and (b) use associated with
field servicing. As explained below, recently available data from an industry source
suggest IR&T's field servicing estimates are about three times too high.
Table 3.E.3
USE OF CFCs FOR MANUFACTURE AND SERVICING OF CENTRIFUGAL
CHILLERS, 1976 AND BASELINE PROJECTION FOR 1990
(Millions of pounds)
Manufacturing Servicing Total
Refrigerant Use Use Use
1976
R-ll
R-12
R-500a
R-ll 4
R-22
Total
Total fully
halogenated
1.2
0.5
0.2
0.2
0.1
2.2
2.1
6.9
2.5
1.2
1.0
0.2
11.8
11.3
8.1
3.0
1.4
1.2
0.3
14.0
13.4
1990
R-ll
R-12
R-500a
R-114
R-22
Total
Total fully
halogenated
3.6
1.6
0.5
0.5
o.ob
6.2
6.1
10.8
3.6
1.9
1.5
0.4
18.2
17.3
14.4
5.2
2.4
2.0
0.4
24.4
23.4
SOURCE: Severn et al. (1979). Total use is from
Table 18, p. 58. Servicing use is the sum of leakage
and service-related emissions from the same report,
Table 15, pp. 48-49.
SR-500 is 73.8 percent R-12 and 26.2 percent
R-152a. R-152a contains no chlorine.
Zero due to rounding error. Actual estimate is 22
thousand pounds.
6Few exported chillers are shipped with a charge or with accompanying drums of refrigerant; foreign
customers charge the units on arrival using locally available refrigerant. The use figures in Table 3.E.3
reflect test gas emissions during manufacture of exported units but no initial charges for the exported
units.
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148
The emissions process for both centrifugal and reciprocating units consists of
losses during manufacture, leak testing, reworking, and other production proce-
dures (summed below to yield total manufacturing emissions); losses during ship-
ping and installation; leakage from existing stocks; losses during service of existing
stocks; and emissions from disposed units. Here, the discussion concerns these steps
in the emissions process for centrifugal chillers.
Manufacturing Emissions. During chiller production, manufacturers test con-
densers, coolers, and compressors for leaks using R-12 combined with dry air re-
gardless of the unit's primary refrigerant. IR&T estimates that the amount of R-12
lost during leak testing and reworking was equivalent to six percent of initial
charge capacity in 1976, but will fall to four percent by 1990, largely due to in-
creased recycling efforts.7
Despite leak testing, approximately three percent of initial charge is lost inad-
vertently after units are charged with the primary refrigerant.
Shipping and Installation Emissions. Procedures for shipping and installa-
tion vary by manufacturer and type of equipment, causing differences in emissions.
In summary, IR&T estimates that currently about two percent of the initial charge
is lost, and that a trend toward shipping units without charge will reduce this loss
to one percent by 1990.
Leakage During Normal Use. R-ll machines contain purging systems to
remove air and moisture that leak into the unit. These systems are the major source
of emissions during normal use, annually releasing 4.2 to 5.5 percent of the initial
charge. Maintenance and purging system improvements already under way should
reduce both the average loss per purge and the number of purges per year, imply-
ing a 1990 annual loss of 3.5 percent of initial charge.
Other leakage sources are pressure relief valves that open whenever excessive
pressure builds in the unit, mechanical valves that are used in (high-pressure) R-12
units, lead rupture discs and the carbon discs that have replaced them in newer
R-ll units, pipe threads, tube connections, O-rings, gaskets, and flanged joints.
The overall leakage rate is currently 7.5 percent of initial charge per year on
average, but will fall to five percent by 1990 largely due to improvements in purge
system design and maintenance.
Service-Related Emissions. DuPont estimates that 7.8 million pounds of R-ll
were sold "to the field" for recharging and servicing centrifugal units in 1976, of
which 0.8 million pounds were used at installation of units that were shipped
without charge. The leakage estimates developed by IR&T indicate that 2.3 million
pounds of the field sales went to replacing leakage, leaving 4.7 million pounds for
service-related emissions (i.e., losses associated with all types of servicing and
repair activities). The implication of these figures is that 16 percent of the equip-
ment charge capacity is lost each year in servicing, a figure consistent with some
industry-supplied estimates.
In a detailed commentary on the IR&T report, the Trane Company disputes
'One of the three firms described in detail in the IR&T report recovers test gas when testing R-12
and R-500 compressor/heat exchanger units; the recovered gas is reused as a test gas. A second firm
recovers test gas only following the final operational test of the chiller. The third firm described by IR&T
reports that recovery is not economical at present but should become so by 1990. With increasing chiller
production levels and a trend toward heavier use of R-12 and R-500 equipment, in which greater volumes
of test gas are required, economic incentives for test gas recovery should improve in the near future.
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149
these estimates of servicing emissions. The Trane estimate, which is based in part
on a survey of refrigerant users and in part on an analysis of servicing losses by
type of servicing problem, is that five to six percent of the refrigerant charge is lost
during servicing. The argument for this estimate is persuasive, and any future
analysis of emissions in this product area might be improved by relying more
heavily on the Trane estimates. However, because the Trane data were received
only shortly before publication of this report, because they do not seriously jeopar-
dize the arguments concerning control options presented later in this section, and
because the IR&T estimates insure against underestimating total CFC emissions
and the costs to this industry of regulation, the'IR&T results are retained in the
analysis developed here.8
Disposal Emissions. Although one of the three major manufacturers believes
that 20 percent of the refrigerant in disposed centrifugal units is recycled, the other
two manufacturers disagree and suggest that none is. IR&T averages these esti-
mates to conclude that six percent is recycled. The estimate for disposal emissions
reflects this conclusion and the results of a simulation of unit disposals and refriger-
ant retention at disposal.9
Table 3.E.4 reports the IR&T estimates of centrifugal chiller emissions by
category and refrigerant for 1976 and 1990. Table 3.E.5 reports the estimated size
of the CFC "bank" in centrifugal chillers in 1976 and 1990.
Reciprocating Chillers
Table 3.E.6 lists domestic, export and total shipments of reciprocating chillers
for 1970 through 1976. Market penetration by unitary systems is probably responsi-
ble for the decline in domestic chiller shipments since 1969. Regression analysis
indicates that the ratio of domestic shipments to new commercial floor space has
been declining; the regression results were used by IR&T to predict future new
construction shipments from projections of future commercial construction. Assum-
ing that the average lifetime of a reciprocating unit is 20 years, and that only half
the retired units will be replaced by new reciprocating units, the total level of future
domestic shipments would be as given in Table 3.E.7.10 As in the case of centrifugals,
the export market is expected to add 40 percent to shipments by domestic
manufacturers over the foreseeable future.
Refrigerant purchases are computed in the same way for reciprocating units
as for centrifugals and may contain the same error for servicing use that was noted
above for centrifugal chillers. Since all but two percent of new reciprocating units
use R-22, purchases of R-12 are largely for manufacturing leak tests and for servic-
ing and replacement of leakage losses in older units that were designed for R-12.
Table 3.E.8 reports IR&T's estimates of CFC use for 1976 and 1990 (baseline).
8Using the Trane estimate of servicing losses would reduce the IR&T figures for total non-R-22
emissions from chillers by six to seven million pounds in 1976 and by nine to 11 million pounds in 1990.
Revising the data would reduce the estimates of total non-R-22 emissions from nonpropellant appli-
cations by about three percent in 1976 and by about two percent in 1990.
sThe effects of alternative values for recycling rates are contained in the IR&T sensitivity analysis
results reported in the notes to Table 3.E.4.
'"Reciprocating units are smaller and less costly to replace than centrifugal units, so there is no
expectation of a future market for rebuilt units.
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150
Table 3.E.4
ESTIMATED 1976 AND 1990 EMISSIONS FROM CENTRIFUGAL CHILLERS BY
EMISSIONS SOURCE AND REFRIGERANT
(Millions of pounds)
Emissions
Source
R1 1 B 1 ")
^J.i ix— J.^
R-500 R-114
Total Fully
R-22 Total Halogenated
1976
Manufacturing
Shipping and
installation
Leakage
Servicing
Disposal
Total
0.
0.
2.
4.
0.
7.
06
02
33
60
36
37
0
0
0
1
0
2
.21
.01
.83
.64
.15
.83
0.
-
0.
0.
0.
1.
01
-
41
82
08
32
0.01
—
0.33
0.64
0.06
1.06
0.
0.
0.08 3.
0.16 7.
0.02 0.
0.26 12.
28
04
99
87
66
84
0
0
3
7
0
12
.28
.04
.79
.50
.63
.83a
1990
Manufacturing
0.
15
0
.36
0.
03
0.02
0.
57
0
.55
Shipping and
installation 0
Leakage
Servicing
Disposal
Total
2
8
1
12
.03
.73
.07
.28
.26
0.01
0.92
2.73
0.45
4.48
0.01
0.46
1.36
0.23
2.08
-
0.
1.
0.
1.
.-
37
09
18
67
—
0.09
0.27
0.05
0.42
0.
4.
13.
2.
20.
06
57
52
19
90
0
4
12
2
19
.06
.36
.89
.08
.94b
SOURCE: Severn et al. (1979), pp. 48-49; data expressed in mil-
lions of pounds and rounded for this presentation. Components may
not sum to totals because of rounding.
NOTES: R-152a is a component of R-500. R-22 and R-152a are not
treated as ozone hazards in this study.
aIR&T sensitivity analysis indicates a possible range for this
value of 3.92 to 19.48.
IR&T sensitivity analysis indicates a possible range for this
value of 3.25 to 40.02.
The emissions process for reciprocating units is like that for centrifugals, with
the following adjustments to the earlier discussion:
(a) Resealing mechanical valves are used in reciprocating machines, almost
exclusively.
(b) Whereas shaft seals are not a potential leakage source on centrifugal
units because they have an oil reservoir to lubricate the seals during
shutdown, the seals on reciprocating machines are not lubricated and will
leak under adverse conditions.
(c) The current estimated annual leakage rate of 7.5 percent of initial charge
is expected to remain constant through 1990.
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151
Table 3.E.5
FLUOROCARBON REFRIGERANT STOCKS IN
CENTRIFUGAL CHILLERS, 1976 AND 1990
(Millions of pounds)
Refrigerant 1976 1990
R-ll
R-12
R-500
R-114
R-22
Total
Total fully
halogenated
31.1
11.1
5.5
4.5
1.1
53.3
50.8
54.5
18.4
9.2
8.1
1.1
91.3
87.8
SOURCE: Severn et al. (1979),
p. 24.
NOTE: R-22 and the R-152a in
R-500 are excluded from the
total fully halogenated.
Table 3.E.6
U.S. RECIPROCATING CHILLER SHIPMENTS,
1970 TO 1976
(Numbers of units)
Year
1970
1971
1972
1973
1974
1975
1976
Domestic
Shipments
6,167
6,018
6,244
5,479
6,211
5,222
3,585
Exports
3,013
3,196
3,189
4,657
4,919
4,030
3,001
Total
Shipments
9,180
9,214
9,433
10,136
11,130
9,252
6,586
SOURCE: Severn et al. (1979), p. 15.
The IR&T data on estimated emissions of R-12 and R-22 for 1976 and 1990
(baseline) are reported in Table 3.E.9, as are estimates of the size of the "bank" in
the two years.
INDUSTRY AND MARKET CHARACTERISTICS
The following five companies are the major manufacturers of commercial chill-
er equipment and account for 90 percent or more of the market:
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152
Table 3.E.7
PROJECTED U.S. SHIPMENTS OF RECIPROCATING CHILLERS,
1977 TO 1990
(Numbers of units)
Year
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
New
Construction
Sales
2,190
2,126
2,067
2,014
2,638
2,577
2,520
2,467
2,417
2,826
2,774
2,726
2,681
2,638
Replacement
Sales
1,072
1,197
1,347
1,567
1,784
1,966
2,062
2,079
2,038
2,015
1,980
2,021.
1,882
1,721
Total
Domestic
Shipments
3,262
3,323
3,414
3,581
4,422
4,543
4,582
4,546
4,455
4,841
4,754
4,747
4,563
4,359
SOURCE: Severn et al. (1979), p. 17.
Table 3.E.8
USE OP CFCs FOR MANUFACTURE AND SERVICING OF RECIPROCATING
CHILLERS, 1976 AND BASELINE PROJECTION FOR 1990
(Millions of pounds)
Refrigerant
Manufacturing
Use
Servicing
Use
Total
Use
1976
R-12
R-22
0.08
0.56
1.83
2.42
1.91
2.98
1990
R-12
R-22
0.06
0.68
0.23
3.10
0.29
3.78
SOURCE: Severn et al. (1979), p. 58; data disag-
gregated by type of use for this presentation.
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153
Table 3.E.9
ESTIMATED 1976 AND 1990 EMISSIONS AND "BANKED"
CFC FOR RECIPROCATING CHILLERS, BY REFRIGERANT
(Millions of pounds)
Source/Refrigerant
1976
1990
Emissions
Manufacturing
R-12
R-22
Shipping and installation
R-12
R-22
Leakage
R-12
R-22
Service-related
R-12
R-22
Disposal
R-12
R-22
Total
R-12?
R-22b
0.02
0.03
(c)
0.01
0.62
0.81
1.22
1.60
0.50
0.05
2.39
2.51
0.04
0.03
(c)
0.01
0.08
1.0.4
0.16
2.06
0.18
0.68
0.46
3.82
The "Bank"
R-12
R-22
8.2
10.8
1.1
13.9
SOURCE: Severn et al. (1979), Table 16,
p. 52, and Table 14, p. 28.
According to IR&T sensitivity analysis,
the possible range for this variable in
1976 is -1.97 to 6.61. In 1990, the range
is -.47 to 1.80.
According to IR&T sensitivity analysis,
the possible range for this variable in
1976 is -.97 to 5.91. In 1990, the range
is 1.07 to 5.00.
£
Zero because of rounding error. Actual
estimates are 200,000 pounds in 1976 and
100,000 pounds in 1990.
Carrier Corporation: Syracuse, New York
Trane Company: LaCrosse, Wisconsin
York Division of Borg-Warner: York, Pennsylvania
Fedders Corporation (Airtemp): Edison, New Jersey
Westinghouse Electric Corporation: Pittsburgh, Pennsylvania
The top three manufacturers employ approximately 30,000 workers; one com-
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154
pany reports that 40 percent of its employees are skilled welders who received
on-the-job training for this work. All of the companies produce products other than
chillers, including other types of air conditioning equipment, and the proportion of
company sales and employment attributable to chillers cannot be determined from
available data. In addition, an undetermined amount of labor is employed in servic-
ing and installing units in the field.
The major manufacturers produce their own components, including the com-
pressors whose design depends importantly on the type of refrigerant to be used
and the initial charge. The investment in production equipment is large, as sug-
gested by a producer's estimate that converting production facilities to use R-22
would cost several million dollars. Since one manufacturer reports that his com-
pany runs two shifts five days a week, perhaps the industry could increase chiller
supply with the existing capital equipment stock by increasing shifts per day and
days per week of production. However, whether this method of expansion is more
economical than investing in new capacity cannot be determined from the informa-
tion given to IR&T.
In recent years, chiller customers have sought reductions in energy utilization.
Their willingness to pay up to 15 percent more for chillers with energy-saving
features has helped spur design changes that coincidentally lead to reduced initial
charges. Customers have also been investing in more heavily insulated structures,
causing a trend toward purchases of lower capacity chillers. Thus, reductions in
energy use have caused a downward trend in the average refrigerant charge in the
stock of chillers.
Some industry sources anticipate a slowing of this trend. Further improve-
ments in energy efficiency now require increased use of low-kilowatt heat exchang-
ers in chillers, and they require larger refrigerant charges for cooling effectiveness.
Thus, there now appears to be a technological tradeoff between reduced energy
consumption and lower refrigerant charges.
The cost of refrigerant (less than $1,500 even for a very large chiller) is very
small relative to equipment costs (which run $30,000 to $60,000 for a unit under 600
tons). Therefore, the domestic market for chillers is probably very insensitive to
refrigerant prices. The foreign market for U.S.-made centrifugal chillers would
probably also prove insensitive to increasing refrigerant prices if the price in-
creases were worldwide. Moreover, domestic manufacturers would probably not
suffer severely in foreign competition with producers in Japan and elsewhere, even
if only the U.S. refrigerant price rose, because foreign purchasers typically buy the
CFC to charge the American units from foreign suppliers.
OPTIONS TO REDUCE EMISSIONS
Test Gas Substitution or Recovery
Together, manufacturing and shipping and installation emissions account for
three percent or less of annual chiller emissions in the baseline case for 1976 to
1990. Manufacturers are already reducing these emissions further, partly by im-
proving equipment designs to reduce leakage and reworking losses, partly by ship-
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155
ping units without CFC charge, and partly by recovering test gases. The only
remaining options are complete recovery and recycle of test gas or the use of an
alternative test gas, such as R-22, nitrogen, or helium.
Presumably R-12 is used because it is less costly than the alternatives, so a
change in test gas would increase production costs. Recovery and recycle of test gas,
on the other hand, appears to be advantageous to some extent even under current
conditions, and is likely to become more cost-saving in the near future as chiller
production increases, because a recovery unit then will recover a larger volume of
test gas. In fact, given projected increases in centrifugal chiller production, we
estimate that at current R-12 prices a firm that requires payback in a period as
short as six years should be willing to invest in a recovery unit that costs as much
as $15,000 to purchase and 10 cents per pound to operate. Consequently, we expect
all the major chiller manufacturers to take advantage of this option in the near
future, especially if at least some of the uncertainty about CFC regulation is re-
solved. If so, mandatory recovery rules would not affect emissions.
Conversion to an alternative test gas might be induced by increased prices for
R-12 or required by mandatory controls.11 Because R-22 is the only specific
substitute mentioned by IR&T, the analysis later in this section assumes R-22 is the
only substitute test gas to which chiller manufacturers would convert.
Warning Devices and Maintenance
IR&T speculates that machine leakage during normal use could be reduced by
using sniffer detectors and alarm systems to identify leakage problems, and by
more systematic maintenance.12 We are skeptical, in part because we do not believe
that customer ignorance of maintenance needs is responsible for the current level
of leakage losses. According to IR&T's estimates, a typical service call lasts four
days and costs $1,200 and an annual maintenance inspection program would cost
about $400 per year. A very large chiller (1,000 tons) loses only 250 pounds per year
on average, so even if a warning system could allow the user to prevent all leakage,
the cost would be $5.33 per pound of CFC saved, and if systematic maintenance
were perfectly effective, the cost would be $1.60 per pound saved. The cost
estimates are undoubtedly optimistic because there are losses during the servicing.
If the servicing losses were just five percent of initial charge (as estimated by the
Trane Company), the net reduction in emissions through these options would be
only 65 percent of leakage losses, and the cost per pound of emissions reduction
would be 1.6 times the figures given above. In fact, if servicing loss rates are greater
than eight percent of initial charge (as IR&T estimates), these options would
increase emissions. Consequently, unless combined with effective mandatory
controls on servicing practices, mandatory controls requiring warning devices or
better maintenance would, at best, cause little reduction in emissions and, at worst,
might increase them.
"Compliance with such a mandatory control might not be perfect because the manufacturers have
several refrigerants in stock for initial charges and could not be constantly monitored to assure compli-
ance. However, the costs of compliance in this case are not extremely high (as indicated later in this
section), and there are only a few firms to monitor. Our analysis presumes there would be good
compliance despite monitoring difficulties.
12The use of dyes to "mark" leaks was criticized by two of the major chiller manufacturers on the
grounds that they interfere with compressor operation. We are not able to evaluate this complaint.
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156
Purge System Redesign
Improvements in purge systems for R-ll machines appear to be an effective
way to reduce leakage losses, but IR&T concludes that such improvements are
already under way. We speculate that the pressure to improve purge systems
comes from customers who are unhappy about having frequent service calls (dur-
ing which chiller systems are put out of commission for three or four days), and we
conclude that mandatory controls are unnecessary. In any case, the emissions
effects of purge system improvements are not likely to be very noticeable by 1990
because of the time required for turnover of the equipment stock.
Initial Charge Reduction
An industry source argues that the fraction of initial charge lost through leak-
age in units with smaller initial charges would be higher, so they would be serviced
more often and annual servicing emissions would be essentially unchanged. Since
a reduction in charge would require some component redesign, it could not be done
immediately. When accomplished, the change would reduce manufacturing emis-
sions, but these are quite small to begin with, and it would reduce normal use
emissions, but only after the new units had replaced a noticeable share of the chiller
stock. For these reasons, the change would have only a minor effect on emissions
between now and 1990. This option is not considered here as a candidate for
mandatory controls.
Recovery at Servicing
Servicing emissions could be reduced if units were pumped down before servic-
ing, and the recovered refrigerant could be made available for reuse if there were
a reliable refrigerant cleanup system to deal with contamination. The economic
disincentives for recovery of servicing losses are substantial, however. For a very
large chiller, perhaps 500 pounds of servicing losses per year might be prevented
through recovery, but this would require an investment of as much as $14,000 for
a receiver tank plus added servicing expenses. Using a 10-year payback rule, and
ignoring the added service costs, the investment would cost over $2.80 per pound
of recovered refrigerant; a similar cost per pound appears likely for smaller chill-
ers, where the receiver tank might cost as little as $3,000 but the amount of
potential recovery is less. Given such a disincentive, compliance with a mandatory
requirement for recovery would probably be poor, and enforcement at the thou-
sands of user sites would be virtually impossible. And, returning to the earlier
commentary on alarm devices and systematic maintenance, the difficulty of enforc-
ing recovery at servicing also indicates that mandatory controls requiring use of
those options would have, at best, limited effects on emissions.
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157
Recovery at Disposal
Recovery with recycle or destruction of disposed refrigerant is an option men-
tioned by IR&T, with the following comment:
The significant capital, logistics, and product assurance requirements as-
sociated with recovery alternatives weigh against such a procedure in the
absence of regulation.
As in the case of recovery at servicing, there appear to be strong disincentives to
recover at disposal, and mandatory control would not be effective without enor-
mous enforcement costs. To avoid costly compliance, either the owner or the ser-
vicer of the unit can simply vent the system, then claim that no charge remained
at disposal. This option is not included here as a candidate for mandatory control.
Refrigerant Substitution
The final set of options consists of conversion to alternative refrigerants. Recip-
rocating units are already being displaced to some extent by competitive systems,
but reciprocating units now use R-22 and so would not be of concern unless R-22
becomes suspect as a worker health or general climate hazard. With respect to
conversion to R-22 in centrifugal units, one manufacturer estimates that the change
would take three to four years and $2 million in capital investment per firm for
machines under 400 tons; six years and $9 million per firm for machines in the 450
to 2,000 ton range; and three years and $2 million per firm for units over 2,000 tons.
In addition, each change would involve substantial engineering costs. Further, the
units would be less energy efficient than existing R-ll and R-12 machines.
Lithium-bromide absorption systems once supplied a quarter of the market but
are now rarely used because they require five to eight times as much energy to
operate and are massive machines when produced in larger cooling capacities.
Other types of systems, such as the air cycle and thermoelectric systems, are not
currently available as operational systems. Screw-compressor systems are rela-
tively inefficient and have limited capacity; moreover, they are available to new
manufacturers only by licensing agreement. Whether and under what economic
conditions any of these systems would become viable alternatives to centrifugal
chillers is difficult to determine on a priori grounds.
CFC DEMAND SCHEDULES
Because refrigerant costs are a very small source of chiller costs, it is reasonable
to assume that the demand for chillers would be unaffected by any change in CFC
prices in the range considered here; hence, we assume that chiller output would be
unaffected by CFC price changes. The derived demand for CFCs in chillers consists
of the demand for manufacture and installation of chillers, and the demand for
servicing units in the field. Here we analyze each of these demand schedules for
both centrifugal and reciprocating chillers, assuming that R-22 prices remain con-
stant in real terms for the foreseeable future.
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158
CFC Demand for Manufacturing and Installation of Centrifugal
Chillers
According to IR&T data, the average rate of growth in CFC use for initial
charges of centrifugal chillers will be about eight percent per year for the period
1976 to 1990. This implies that total refrigerant consumption for charging such
units will be about 2.7 million pounds in 1980. Manufacturers inadvertently lose
about three percent of the primary refrigerant charge following leak testing, and
they lose another one to two percent at installation, bringing 1980 manufacturing
use to about 2.8 million pounds. In addition, there is a loss of R-12 duiing leak
testing. This loss might be reduced by means of recovery, or eliminated through
substitution of another test gas. As we noted earlier, recovery of test gases appears
economic for all the major producers at current CFC prices. Consequently, we
assume that there would be as much recovery as possible by 1980, even in the
absence of any CFC price increase in real terms. Since there are some losses even
with recovery, we assume that there would still be leak testing losses equal to about
two percent of the initial charge, or about 0.05 million pounds of R-12 in 1980.13
Manufacturers could eliminate R-12 test gas losses altogether by substituting R-22
as the test gas, with no change in testing equipment. If R-22 prices remain constant
at 64 cents (in 1976 dollars), the switch to R-22 as the test gas would occur if the
R-12 price rose 23 cents above its 1976 price of 41 cents. If the price increase
occurred in 1980, R-12 emissions would fall by 0.05 million pounds, and R-22 use
would increase commensurately.
The only other ways that manufacturers could respond to increased CFC prices
would be to reduce the initial charge or convert to R-22 as the primary refrigerant.
Manufacturers argue that reducing the initial charge would increase energy re-
quirements, and that chiller purchasers have been willing to pay 15 percent more
for chillers that offer substantial energy conservation. Given that refrigerant costs
are a small fraction of the purchase price of a chiller, it appears that an enormous
increase in refrigerant prices would be required to reverse the tradeoff between
energy conservation and equipment costs. We assume the necessary refrigerant
price is outside the range of consideration in this analysis (i.e., a marketable per-
mits strategy would not result in prices sufficiently high to induce a reduction in
initial charge). Similarly, the very costly conversion to R-22 as the primary refriger-
ant would not be induced unless CFC prices rose by several dollars per pound.
Moreover, reducing the initial charge or converting to R-22 would have little effect
on emissions by 1990, because the necessary changes in the manufacturing process
would take a few years to accomplish, manufacturing and installation emissions are
very small, and a reduction in non-R-22 emissions during equipment use would not
become noticeable until the new units replace a substantial fraction of the chiller
stock, which would not happen until sometime after 1990.
Manufacturers can reduce overall CFC emissions by improving R-ll purge
systems, although there would be no reduction in CFC use by the manufacturer
from doing so. As noted earlier, manufacturers are apparently making the needed
changes in the purge systems. Purge system improvements are already incorpo-
13Note that IR&T assumed that leak testing losses would still be four percent of the initial charge
even by 1990.
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159
rated in IR&T's baseline estimates of servicing emissions for 1990. We assume here
that the changes will have been made by 1980.
In summary, aside from a miniscule reduction in R-12 use if its price rises to
about 64 cents per pound, the manufacturing and installation demand curve ap-
pears perfectly inelastic in the price range under consideration here. Table 3.E.10
reports the 1980 level and average annual growth rates to 1990 for manufacturing
use at current CFC prices by refrigerant. If the R-12 price rose to 64 cents per
pound, annual R-12 use would fall by about eight percent, and R-22 use would rise
by the amount of the R-12 reduction.
Table 3.E.10
1980 CENTRIFUGAL CHILLER MANUFACTURING USE OF CFCs AND
AVERAGE ANNUAL RATES OF GROWTH TO 1990, ASSUMING
CONSTANT REAL CFC PRICES AT 1976 LEVELS*
1980 Manufacturing Use Average Annual Growth
Refrigerant (millions of Ib) to 1990 (%)
R-ll
R-12
R-500
R-114
R-22
1.60
0.56
0.27
0.27
0.14
8.3
9.8
5.8
5.8
0
Calculations explained in text.
CFC Demand for Manufacturing and Installation of
Reciprocating Chillers
The IR&T data indicate that only about .04 million pounds of R-12 was used as
a primary refrigerant in reciprocating chillers in 1976, and 1990 use will only be
about .03 million pounds. An additional .02 million pounds of R-12 was used to leak
test reciprocating units in 1976, and only about .03 million pounds will be used for
this purpose in 1990. These very small amounts disappear in the rounding error of
most of the calculations in this study, and shall therefore be ignored here. The
remaining CFC demand for reciprocating chiller manufacture is for R-22, which
would not be regulated in the regulatory scenarios considered in this study. There-
fore, it is sufficient to note that R-22 use for manufacture of these chillers is
projected to grow at an average annual rate of a little over one percent, reaching
about .58 million pounds in 1980.
CFC Demand for Servicing Centrifugal and Reciprocating
Chillers
For reasons explained above, there do not appear to be any emissions reduc-
tions in servicing that could be induced without imposing a price increase on CFCs
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of $2.50 or more. Short of such a price increase, the servicing demand schedules are
perfectly inelastic. Table 3.E.11 reports estimated servicing use of CFCs for cen-
trifugal and reciprocating chillers in 1980 and average annual growth rates for
servicing use to 1990.
Table 3.E.11
1980 CHILLER SERVICING USE OF CFCs AND ANNUAL RATES o^
GROWTH TO 1990a
1980 Servicing Use Average Annual Growth
Refrigerant (millions of Ib) to 1990 (%)
Centrifugal Chillers
R-ll
R-12
R-500
R-114
R-22
7.7
2.8
1.4
1.1
.2
3.3
2.6
3'. 3
2.9
5.1
Reciprocating Chillers
R-12 1.0 -13.8
R-22 2J5 1.8
Calculations explained in text.
MANDATORY CONTROL CANDIDATES
As explained above, mandatory controls to assure improvements in R-ll purge
systems and recovery and recycle of test gases used in manufacturing centrifugal
chillers might be worthwhile. However, unless the admittedly crude evidence is
seriously wrong, the mandatory controls would not increase manufacturing costs,
nor would they cause emissions reductions beyond those already being induced by
current economic conditions. The only remaining mandatory controls that appear
feasible and effective would be conversion to R-22 as a test gas and/or as the
primary refrigerant in centrifugal chillers.
Conversion to R-22 as a test gas would increase manufacturing costs by 23 cents
per pound of test gas. In 1980, the total cost (in 1976 dollars) would be about $11,500
for centrifugal chiller manufacturers and about $4,600 for reciprocating chiller
manufacturers. The total cost would increase in real terms by about eight percent
per year for centrifugal chillers and about one percent for reciprocating chillers, as
the number of chillers being tested increases. The average cost increase per chiller
would be well under $5, all of which would presumably be passed on to chiller
purchasers, both in the United States and abroad.
The conversion to R-22 test gas would reduce 1980 emissions of R-12 by 0.07
million pounds (0.05 million pounds for centrifugals manufacture and 0.02 million
pounds for reciprocating manufacture). In 1990, the R-12 emissions reduction
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would be 0.14 million pounds (0.11 million pounds for centrifugals alone). Assuming
the mandate is implemented in 1980, the cumulative reduction in R-12 emissions
would be 0.8 million pounds for centrifugal chillers and 0.2 million pounds for
reciprocating chillers, for a total reduction of 1.0 million pounds. The cumulative
cost to centrifugal manufacturers, discounted at 11 percent, is about $110,000. For
reciprocating chiller manufacturers, the cumulative cost is about $33,000.
Conversion to R-22 as the primary refrigerant in centrifugal units appears so
costly that it is not used in this study to form the benchmark emissions reduction
for comparing mandatory controls with economic incentive policy strategies. As
described above, investment costs alone would run from $2 to $9 million (depending
on chiller size) for each manufacturer. Assuming that the requirement would be
announced in 1980, that it would go into effect in 1985, and that at most five percent
of the chiller stock is replaced each year, the maximum emissions effect that could
be achieved by 1990 would be only about five million pounds. Of course, the emis-
sions effect would increase thereafter, but non-R-22 emissions would not be com-
pletely eliminated until after the year 2000.
CONCLUSIONS
As of 1976, chillers of all kinds were responsible for only about four percent of
total emissions of fully halogenated CFCs in the United States. By 1990, chillers'
share of emissions is expected to decline slightly, to under three percent. There are
few options for reducing emissions that are not exceedingly costly to implement and
that would not pose severe enforcement problems if required under a mandatory
control strategy. In comparison with other product areas, regulatory action toward
chillers would have little effect on emissions.
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III.F. HOME REFRIGERATORS AND
FREEZERS
INTRODUCTION
The only CFC refrigerant used in home refrigerators and freezers is R-12.1
Although freezers require 50 percent more refrigerant per unit than refrigerators,
the technologies and functional characteristics of the two types of units are similar.
The refrigeration cycle occurs in a hermetically sealed system; it consists of
compression of R-12 gas, cooling to convert the gas to a liquid, and expansion to
allow evaporation of the liquid. During evaporation, the R-12 absorbs heat from the
refrigeration unit and then returns to the compressor to renew the cycle.
Two different types of compressors are used in refrigerators and freezers today.
About half of the manufacturers produce units containing rotary compressors. The
remaining manufacturers use reciprocating compressors, which require one-third
to one-half the refrigerant charge of the rotary compressors for the same type of
refrigeration appliance.
Prior to 1931, refrigerants such as methyl chloride, ammonia, and sulfur diox-
ide were employed in all refrigeration equipment. Since these materials are toxic—
and some are also flammable or explosive—their safety for use in the home has
been questioned. R-12 is nontoxic, nonflammable, and nonexplosive. At least since
1946 (the earliest date in the data for this product area), R-12 has been the only
refrigerant used in home refrigerators and freezers.
Refrigerator sales in the United States are currently running about five million
units per year. This market is approximately saturated now, so most future growth
will be due to an increase in the number of households. Domestic sales are projected
to increase only to about eight million units by 1990. Refrigerator exports and
imports are a small fraction of domestic sales.
Freezer sales fluctuated around an annual average of about one million units
until 1965. Between 1965 and 1975—a period of rapid increases in meat prices—
average annual freezer sales in the United States more than doubled. Freezer
imports contributed to this growth, rising from seven percent of domestic sales in
1965 to 17 percent in 1976.2 IR&T anticipates market retrenchment from the recent
growth spurt, with sales fluctuating around two million units over the next decade
and reaching 2.3 million units in 1990 (see Cummings-Saxton, Severn, and Burt,
1979).
The "bank" of R-12 in refrigerators and freezers is projected to grow rather
slowly, from 85.7 million pounds in 1976 to 104.1 million pounds in 1990. Annual
refrigerant emissions are expected to increase slowly from five million pounds in
1976 to seven million pounds in 1990.
'This section does not analyze the use of CFC-11 to insulate refrigerators and freezers, which is
covered in Sec. III.D. This section also omits the use of R-12 in other small home appliances, such as
dehumidifiers, water coolers, and ice machines. Section III.H examines dehunidifiers. Data on the other
two small appliances are too scant to permit analysis.
2Freezer exports have always been few.
162
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163
When placed in the context of the other CFC uses studied in this report, home
appliances appear to be unimportant, both as sources of emissions and (therefore)
as targets for regulatory action. Nevertheless, in the policy debate over protection
of the ozone layer, home appliances are frequently held up as an example of highly
valued consumer products that might be endangered by policies to restrict CFC
emissions. To address this concern, the home appliance product area has received
detailed attention in this research.
USE AND EMISSIONS
Data from IR&T on domestic shipments, exports, imports and domestic sales
of refrigerators and freezers for 1970 through 1976 are presented in Table 3.F.I.
Table 3.F.2 reports domestic sales of refrigerators and freezers as projected by
IR&T from a model describing growth in numbers of households, increases in
market saturation, and replacement of discarded devices.
Table 3.F.1
ANNUAL REFRIGERATOR AND FREEZER SALES,
1970 TO 1976
(Thousands of units)
Domestic Domestic
Year Shipments Imports Exports Sales
Refrigerators
1970
1971
1972
1973
1974
1975
1976
5,259
5,544
6,069
6,527
5,707
4,553
4,912
595
787
901
641
311
409
506
117
118
121
223
388
278
328
5,737
6,213
6,849
6,945
5,630
4,684
5,090
Freezers
1970
1971
1972
1973
1974
1975
1976
1,305
1,241
1,355
2,287
3,061
2,645
1,483
340
448
514
366
178
233
288
15
13
12
19
28
30
36
1,630
1,676
1,857
2,634
3,211
2,848
1,735
SOURCE: Cumtnings-Saxton et al. (1979), Table
1, p. 4 and Table 5, p. 11.
By 1976, market saturation of refrigerators was 106 percent. The sales projec-
tions are based on the assumption that this relationship between households and
refrigerator stocks will obtain through 1990. In contrast, 1976 market saturation
by freezers was estimated at 44 percent. On the basis of the historical growth rate
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164
Table 3.F.2
PROJECTED DOMESTIC REFRIGERATOR AND
FREEZER SALES, 1977 TO 1990
(Thousands of units)
Year Refrigerators Freezers
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
5,004
5,001
5,217
5,572
5,968
6,324
6,489
6,633
6,842
6,931
7,225
7,641
8,081
7,959
1,800
1,939
2,040
1,952
1,970
1,993
1,954
1,996
2,123
1,953
1,956
1,973
2,165
2,305
SOURCE: Cummings-Saxton et al.
(1979), Table 3, p. 8, and Table
7, p. 15.
for the period 1948 to 1976, IR&T estimates that market saturation for freezers will
increase to 54 percent by 1990. The disposal functions used by IR&T assume mean
lifetimes of 17 years for refrigerators and 20 years for freezers.
The stocks of R-12 contained within refrigerators and freezers depend on both
the sales of new units and disposals. Table 3.F.3 lists the numbers of refrigerators
and freezers and their R-12 stocks for 1976 and 1990. The table indicates that the
"bank" of R-12 is expected to increase by 21 percent between 1976 and 1990.
Table 3.F.3
DOMESTIC REFRIGERATOR AND FREEZER STOCKS, 1976 AND 1990
Year
Refrigerators
Thousands
of Units
1976 87,173
1990 103,974
Millions of
Ib of R-12
Freezers
Thousands
of Units
54.5 33,328
65.0 41,720
Millions of
Ib of R-12
31.2
39.1
SOURCE: Cummings-Saxton et al. (1979), Table 4, p. 9,
Table 8, p. 14, and Table 9, p. 18.
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Annual use of CFCs includes the R-12 used to test units during manufacture,
the initial charges for new units, and replacement of the R-12 that is lost through
leakage and during servicing. Two factors important in determining initial refriger-
ant charges are the size of the refrigeration unit and its compressor design. A larger
quantity of refrigerant is necessary in larger units, and rotary compressors require
more refrigerant than reciprocating compressors. The average charge per refriger-
ator is estimated at 10 ounces, with 50 percent of the units (those using reciprocat-
ing compressors) having a five-ounce average charge, and the other 50 percent
(those using rotary compressors) having a 15-ounce average charge. The average
freezer charge is estimated at 15 ounces, again assuming half the units have an
average charge of 10 ounces, and the other half, 20 ounces. IR&T computes total
use by summing R-12 use in charging new units and all R-12 emissions except those
from disposal. The total estimated R-12 use in 1976 and 1990 for refrigerators and
freezers is shown in Table 3.F.4.
Table 3.F.4
DOMESTIC R-12 USE IN REFRIGERATORS AND FREEZERS,
1976 AND 1990
(Millions of pounds)
Year
R-12
Refrigerators
1976 4.233
1990 6.423
Use
Freezers
Total
2.030 6.263
2.976 9.399
SOURCE: Cummings-Saxton et al. (1979).
Data recalculated to correct errors found
in the results in Table 11, p. 31 of that
document.
Four categories of refrigerant losses can occur over the lifetime of a refrigera-
tor or a freezer: manufacturing, leakage, service, and disposal losses.
Manufacturing Emissions
The leading manufacturers of refrigerators and freezers manufacture their
own equipment components. Emissions from the manufacturing process include
losses that occur during leak testing of components, system charging, and rework
of defective systems.
Most components are first leak tested with high pressure air in a water bath
to identify gross leaks, then with either R-12 or helium to identify minute leaks.
Although the traditional testing method uses R-12 as the test gas with a halide
"sniffer" detection device, one manufacturer has employed helium test gas with
mass spectrometry detection for nearly 30 years. Not coincidentally, this same
manufacturer produces and sells the helium system as a separate product line.
Recovery systems to capture R-12 test gas are increasingly being adopted by
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appliance manufacturers. IR&T estimates that in 1976, overall industry R-12 re-
leases associated with component testing were 1.5 percent of initial charge, but that
it will fall to 0.5 percent by 1990 largely due to increased use of R-12 test gas
reclamation systems.
One large manufacturer, General Electric, estimates that an additional 1.5
percent of the refrigerant charge escapes from the charging connection during
refrigerant charging. IR&T assumes this percentage applies for other manufactur-
ers as well, and that it will remain constant through 1990.
After assembly and charge of the unit, "sniffer" leak tests are performed at
critical joints. The units are then passed through a simulated refrigeration-cycle
test. If a component is not functioning properly, it is replaced. One industry source
estimates refrigerant losses during system rework at five percent of the charge,
with recovery not currently practiced.
Summing the losses from each manufacturing stage yields losses of eight per-
cent of the initial charge for both refrigerators and freezers produced in 1976; for
1990, the figure is seven percent.
Leakage During Normal Use
Testimony by an industry trade association3 indicates that normal use leakage
losses are less than one percent of initial charge in a five-year period. General
Electric has estimated that leakage losses are less than two percent in 15 years.
IR&T assumes an industrywide annual leakage rate of 0.2 percent of the existing
stocks for refrigerators and freezers for 1976 through 1990.
Servicing Emissions
High design and test standards in manufacturing make appliance breakdowns
rare, with many units never being repaired over their lifetimes. When repairs are
needed early in a unit's life, they usually involve excessive noise but occasionally
they can result from serious leaks at joints. Later, problems associated with mois-
ture buildup and restricted flow predominate, and compressor failures become the
cause of a large percentage of the service calls. If the refrigerant becomes con-
taminated when the compressor fails, the serviceman releases the refrigerant,
installs a new compressor, condenser, and service dryer, and purges the system,
releasing about three ounces of refrigerant overall. From warranty records and
conversations with industry sources, IR&T estimates the annual servicing release
rate at 1.5 percent of refrigerant charges in the stocks of refrigerators and freezers
for 1976 through 1990.
Disposal Emissions
Potential refrigerant releases during appliance disposal are equal to the initial
charge minus unreplaced leakage during normal use. Assuming a 0.2 percent leak-
3Weizeorick (1977).
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167
age rate per year, a typical refrigerator will lose 3.4 percent of its charge without
replacement over its lifetime of 17 years. Therefore, at disposal, the typical refriger-
ator contains 96.6 percent of its original charge. The average freezer with a lifetime
of 20 years will retain 96 percent of its original charge."
Actual disposal emissions depend on what happens to refrigerators and freez-
ers at disposal. Although it has been assumed here that disposal emissions occur
in the year the appliance is disposed, this may not be the case. The charge could
be emitted gradually over many years if the appliance were disposed intact, say by
burial in a landfill site.
Total Emissions
Total emissions from refrigerators and freezers for 1976 and 1990 are given in
Table 3.F.5. Emissions during manufacture are prompt, while all other losses are
from the existing stock or the "bank" of R-12 in the appliances. The largest source
of emissions in both 1976 and 1990 is disposal.
INDUSTRY AND MARKET CHARACTERISTICS
IR&T identifies seven refrigerator and freezer manufacturers, with 12 plants
in all. The firms are:
1. General Electric, the largest manufacturer, with four plants.
2. Whirlpool, with three plants.
3. Admiral, with one plant.
4. Amana, with one plant.
5. Frigidaire, with one plant.
6. Revco, with one plant.
7. White Industries, with one plant.
The 1972 Census of Manufactures indicates that in 1972 there were 36 manufactur-
ers of refrigerators and freezers in the United States, with 34,000 total employees.
Of the 36 firms, 20 are located in the North Central region, six in the South, six in
the Northeast, and four in the West. Some or all of these firms may produce other
products in addition to refrigerators or freezers. Twelve of the companies have
1,000 employees or more and account for more than 90 percent of the total value
of shipments.
We have no data on the value of the capital stock in this industry, but compari-
son with the other refrigeration product areas suggests it is surely in the tens (if
not hundreds) of millions of dollars.
Prices of refrigerators and freezers vary widely depending on capacity and
design, but R-12 is not likely to be a significant cost feature in even the cheapest
units. At the 1976 R-12 price of 41 cents per pound, the cost of refrigerant for a
freezer requiring as much as 22 ounces of charge only amounts to 56 cents.5
4IR&T estimates that 30 to 35 percent of the charge must be lost before detection. Therefore, it is
reasonable to assume that losses of 3.4 to 4.0 percent over the lifetime of the unit would not be replaced.
5The price of R-12 at retail to a home appliance owner could be several times the price given here
without affecting the conclusion reached in the study.
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Table 3.F.5
APPLIANCE REFRIGERANT EMISSIONS BY CATEGORY,
1976 AND 1990
(Millions of pounds)
Operational
Phase
Refrigerators
Frees ersa
Total
1976
Manufacturing
Leakage
Service
Disposal
Total
.238b
.109
.816
2.310
3.473b
.106b
.063
.471
.884
1.521b
.344b
.172
1.287
3.194
4.994b
1990
Manufacturing
Leakage
Service
Disposal
Total
.344°
.130
.975
3.613
5.062
.U8C
.078
.589
1.580
2.395
.492
.208
1.564
5.193
7.457
SOURCE: Cummings-Saxton et al. (1979), Table
10, p. 28, unless otherwise indicated.
The values for 1990 in this column have been
recalculated to correct errors in the IR&T report.
This value has been recalculated to correct an
error in the IR&T report.
p
Manufacturing emissions for 1990 were calculated
by IR&T on the basis of projected domestic sales,
and therefore omit domestic manufacturing emissions
for exported units and include foreign manufacturing
emissions for imported units. The IR&T report does
not provide projections of exports and imports, so
this error could not be corrected for 1990 as it was
for 1976. The error would probably be small for
refrigerators but could be large for freezers. Re-
frigerator imports have generally been very small
units, and exports and imports may compensate one
another. In contrast, the number of freezers imported
has been far larger than the number exported in
recent years, so the error for 1990 could be large.
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169
Because refrigerant is a miniscule fraction of appliance costs, neither the
domestic nor the foreign market for refrigerators and freezers is likely to be sensi-
tive to R-12 price increases, even if only the U.S. price rose.
OPTIONS TO REDUCE EMISSIONS
IR&T identifies six methods for reducing emissions from home refrigerators
and freezers: (1) helium leak testing at manufacture; (2) recovery at rework; (3)
recovery of losses at servicing; (4) recovery at disposal; (5) use of only reciprocating
compressors in new appliances; and (6) substitution of R-22 for R-12.
Helium Leak Testing
Traditionally, home appliance manufacturers have used R-12 to leak test com-
ponents and systems. However, General Electric, which performs perhaps a third
of all leak testing, uses helium for this purpose. And IR&T reports that others are
making the conversion.
The economic implications of using helium rather than R-12 depend on the cost
of the helium testing system, the amount of R-12 that can be saved per plant, and
the cost of the helium itself. We estimate that the mass spectrometer and vacuum
system required for helium testing costs under $35,000. The cost of the helium itself
is unknown to us, but it is likely to be very small because the amounts used per
appliance are miniscule. Since IR&T did not obtain data on appliance output per
plant, we cannot assess the potential savings in R-12 leak testing expenses from
conversion to a helium system.
If we assume that testing losses are proportional to initial charges of reciprocat-
ing and rotary units and that each of the 12 manufacturing plants produces an
equal share of final output, we find that rotary manufacturers would find helium
leak testing cost-saving at current R-12 prices.6 Under the same assumptions,
reciprocating unit manufacturers would find helium cost-saving at a substantial
increase in R-12 prices (to about $1.25 per pound from the 1976 price of 41 cents).
However, this analysis may be misleading because the two assumptions could be
wrong. General Electric, for example, apparently finds helium leak testing
cost-effective at current prices for R-12 even though GE produces reciprocating
units that have relatively low R-12 leak testing loss rates.
Without detailed data on final product output and testing losses per rotary and
reciprocating plant, we cannot properly assess the net costs to firms of using helium
test systems. We can be certain, however, that the emissions effects of such a
change would be very small. IR&T estimates that leak testing losses are currently
less than 20 percent of manufacturing losses, and the leak testing share is declining.
analysis also assumes that the manufacturers project market growth rates similar to those
estimated by IR&T, and make investment decisions by assuming a 10-year equipment payback period
and discounting future R-12 savings at 12 percent per year.
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170
With manufacturing losses running under half a million pounds per year, complete
conversion to helium leak testing from 1980 on would yield at most a cumulative
reduction in R-12 emissions by 1990 of only a little over one million pounds.
Since helium testing would reduce manufacturers' purchases of R-12, it could
probably be induced by a sufficiently high price for R-12.
Helium testing might also be a feasible candidate for mandatory control. En-
forcement would involve making sure that each firm has the necessary equipment
—provided the cost of using the unit does not exceed the cost of using R-12—which
seems likely since one manufacturer already uses a helium system. Unfortunately,
although we have an estimate of the required capital cost of compliance, we cannot
estimate the necessary inducement price of R-12 or net cost of compliance with
mandatory controls without data on operating costs and potential R-12 savings per
plant.
Recovery at Rework
The R-12 that is currently discharged to the atmosphere during rework could
be recovered and reused. Although the recovered R-12 may not be pure enough for
charging new appliances, it might be usable for rework testing without reclama-
tion.
IR&T estimates the capital cost of a recovery unit at $50,000 to $100,000.
Operating costs for using the equipment are unknown, but probably small, consist-
ing largely or entirely of the cost of a few minutes of labor time. If we assume that
each plant is responsible for one-twelfth of the rework losses estimated by IR&T,
and if we assume operating costs are zero and the capital cost is $75,000, then
recovery at rework would be cost-saving at current R-12 prices for each plant.7
Taking into account that rotary manufacturers have larger rework losses per
appliance than reciprocating manufacturers, but that reciprocating plants may
produce a larger share of final output, recovery at rework still appears
cost-effective for most plants.
We suspect that IR&T's estimate of losses at rework are much too high. This
would help explain why firms do not recover at rework despite the appearance that
it should be cost-effective. It would also help explain why several firms are recover-
ing R-12 test gas losses and yet are not recovering losses at rework. A possible
explanation for the high estimate by IR&T might be that they properly estimated
the loss rate per reworked appliance, but failed to consider that few appliances
require rework. In any case, we cannot explain why recovery at rework is not
practiced if IR&T's loss estimates are correct.8
In principle, recovery at rework might be induced by a sufficiently high price
for virgin R-12. Mandatory recovery at rework might be a feasible control option,
depending on whether the cost of using a recovery unit once it is purchased is
'According to IR&T, rework losses are about 60 percent of manufacturing losses, which currently
run about .5 million pounds per year for all plants combined.
8We can be sure, however, that recovery at rework, even if universally practiced, would have little
effect on CFC emissions. Even if IR&T's estimates are correct, the cumulative emissions reductions by
1990 under full recovery from 1980 on would be only a little over three million pounds.
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covered by the savings from reduced purchases of virgin R-12. If not, monitoring
to assure that firms actually use the equipment would be extremely difficult.
Recovery at Service
To recover servicing losses, each serviceman would have to carry a portable
recovery pump and tank which IR&T estimates would cost $1,000. Assuming the
recovery process would take between 10 and 20 minutes at a labor charge of $30
per hour, the labor cost of recovery would be $5 to $10 to recover a few ounces of
R-12 per service call. Labor costs alone would thus be several dollars per pound of
recovered R-12, and there might also be reclamation costs of perhaps 25 to 35 cents
per pound of recovered refrigerant.
These high compliance costs, which make evasion profitable to servicemen and
their customers, together with the large number of servicing sites and occasions,
would make enforcement of mandatory recovery at service virtually impossible.
Even if the serviceman were required to purchase the recovery unit, there are
strong incentives for him not to use it.
Recovery at Disposal
There are no data on what happens to refrigerators and freezers at disposal.
For recovery at disposal, central collection points for the disposed appliances would
have to be identified. It would be virtually impossible to enforce a requirement for
people to have their disposed appliances delivered to the collection point; and a
financial incentive would probably have to be several dollars per appliance.
Use of Only Reciprocating Compressors in New Appliances
Using a reciprocating rather than a rotary compressor in a new refrigerator or
freezer reduces the charge, on average, by about five ounces. Over the life of the
appliance, the change reduces R-12 emissions from a refrigerator by about 50
percent and reduces emissions from a freezer by about 30 percent. If half of all
refrigerators and freezers (both new and existing) are made with rotary compres-
sors, a change in manufacturing to eliminate the use of rotary compressors would
eventually reduce annual emissions of R-12 by 30 to 40 percent.
An IR&T researcher has estimated that retooling the portion of the industry
that currently uses rotary compressors would cost over $20 million and take two
to four years to accomplish. It is not clear, however, that such retooling would
actually occur. If reciprocating unit manufacturers have sufficient capacity to
supply a larger share of the market than they currently do, some or all of the
existing plants that made rotary compressors might cease production altogether
rather than undertake the cost of retooling. The data provided by IR&T do not
permit us to assess the likelihood of this event.
Substitution of R-22 for R-12
Eliminating the use of R-12 in home appliances would eventually eliminate
emissions of fully halogenated CFCs from this product area. IR&T estimates the
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172
cost for the industry as a whole to make this conversion at $140 million, and the
time required to make the change at five to seven years. The full effect of the
change on R-12 emissions would not be achieved until sometime after the year 2000,
because the existing stock of R-12 appliances is very long-lived. In addition, there
might be an energy penalty from the use of R-22 units.
Summary
Of the six emissions control options mentioned by IR&T, four would be feasible
and effective as candidates for mandatory controls. Two of these, helium leak
testing and recovery at rework, would impose rather modest costs on industry but
would have very small effects on emissions. The other two, use of reciprocating
compressors exclusively in new appliances and substitution of R-22, would generate
larger emissions improvements, at least in the long run, but are far more costly.
The two control options that are not good candidates for mandatory controls be-
cause of the difficulties of enforcing them are recovery at service and at disposal.
These two options would also be far too costly to induce by raising prices for R-12,
at least within the price range considered in this study.
CFC DEMAND SCHEDULES
The preceding discussion outlines four ways in which the home appliance
manufacturers could reduce their use of R-12. Two of the options might be induced
by prices that are not much above the current price of R-12. These options are
helium leak testing and recovery at rework. In both of these cases, however, we
are unable to estimate the R-12 inducement price because of inadequate data on
the level of R-12 losses per plant. A third option, exclusive use of reciprocating
compressors, applies only to rotary unit manufacturers. The price at which this
option would be induced cannot be determined without data on output level per
plant and capacity of reciprocating unit plants. The inducement price for the final
option, substitution of R-22, cannot be assessed adequately without data on the
amount of R-22 that would be required to charge new appliances and the change
in operating costs for plants that manufacture R-22 units. While we suspect that
the inducement price for R-22 substitution is outside the range of prices considered
in this study (a conclusion supported by several simulations we performed), we
cannot be sure that the other options would not be induced by prices within the
relevant range.
In 1976, total manufacturing use of R-12 for home refrigerators and freezers
was only 2.6 percent of total domestic sales of R-12, and only 1.4 percent of total
domestic sales of non-R-22 CFCs. By 1990, the percentages will be slightly smaller.
Therefore, our inability to specify the shape of the home appliance manufacturing
demand schedules does not seriously constrain our ability to reach good estimates
of the outcomes of a marketable permit strategy. A more serious concern about not
having specified a home appliance CFC demand function is that it limits our ability
to estimate the economic effects of a marketable permit strategy on this industry.
The limitation is bounded, however. If we assume that home appliance manu-
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173
facturing demand is perfectly inelastic, we can be sure that our estimate of the cost
imposed by marketable permits (or taxes) is an upper bound.
Suppose that a marketable permit or tax strategy raised the cost to users of
R-12 as high as $2.50 per pound. The cost of producing an appliance that holds a
refrigerant charge as large as 20 ounces would rise by only $2.60. Given that the
appliance costs the consumer several hundred dollars, the effect on the final prod-
uct price of this rise in refrigerant costs is trivial. There would probably be no effect
on final product output for the home appliance market. Moreover, to the extent
that firms would find it cost-effective to reduce their usage of R-12, the increase in
appliance production costs would be smaller than the foregoing estimate.
It is true that some firms would find that their production costs would rise more
than others. Plants that produce rotary compressors and those that have smaller
market shares would be at a disadvantage, the former because they use more R-12
per appliance and the latter because the total R-12 savings per year might not offset
the capital investments that would help reduce R-12 use. We do not anticipate,
however, that any plants would be put out of business. Since appliances made by
different manufacturers already have different selling features, an added price
differential of as much as two or three dollars per appliance would probably not
have a substantial effect on the market share of different manufacturers.
With regard to servicing, we are confident that the demand for R-12 is perfectly
inelastic within the price range under consideration. A change in servicing costs of
as much as two or three dollars per service call would not lead customers to forgo
appliance repair. The serviceman's option of recovering R-12 at service is clearly
not cost-effective in the price range considered in this study.
Assuming that both the manufacturing and servicing demand schedules are
perfectly inelastic, R-12 total demand for home appliances would be about 7.1
million pounds in 1980, rising at an average annual rate of 2.9 percent per year to
9.4 million pounds in 1990.
MANDATORY CONTROL CANDIDATES
All four of the control options that appear to be feasible and effective candidates
for mandatory controls apply to regulation of the manufacturers. The costs to
different firms of complying with mandatory helium leak testing depend in part On
the level of R-12 leak testing losses by plant. In a comparison between a rotary unit
manufacturer and one who produces the same number of reciprocating units, the
rotary producer might find compliance with the regulation less costly because his
R-12 saving might be greater. More generally, we suspect that the compliance cost
for any manufacturer would be very modest and could be passed through to final
consumers through a price increase for appliances of just a few cents per unit.9 At
the same time, the emissions reduction from the policy would be tiny, adding up
to little more than one million pounds between 1980 and 1990.
All of the foregoing comments apply equally to a mandatory control requiring
recovery of R-12 at rework. Although IR&T's estimates of rework emissions sug-
9General Electric, the largest producer, would not incur any compliance costs at all because that
company already uses helium for leak testing. In fact, GE might benefit from the new market for its
helium leak testing system.
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gest that the policy would reduce cumulative emissions by 1990 by three million
to four million pounds, we suspect that estimate is somewhat high.
Requiring all new appliances to be made with reciprocating compressors would
eventually reduce R-12 emissions by 30 to 40 percent per year, assuming rotary
units comprise half the market. If the adjustment occurs through retooling of
existing rotary plants, it would cost perhaps $23 million and take a few years to
implement. Furthermore, since the long-run effects on servicing emissions would
not be felt until the stock of rotary appliances is disposed, the effect on emissions
prior to 1990 would be small. Assuming that rotary units would otherwise comprise
half the market, we estimate that the cumulative emissions reduction by 1990
would be just about one million pounds.
Although the $23 million retooling costs look large, they would be partly offset
by savings to the manufacturers in reduced refrigerant expenditures. Moreover,
the cost effect per appliance does not appear large. After constructing several
simulations of market outcomes using different assumptions about market struc-
ture, we conclude that the effect on appliance prices of this mandatory control
would be less than a dollar per appliance. However, because there is a remote
possibility that some rotary manufacturers might suffer serious financial losses
from this policy, further analysis should be undertaken before implementing it.
Substitution of R-22 for R-12 is an even more costly control candidate but offers
even larger long-term emissions improvements. The policy would be more even-
handed in its effects on different manufacturers than requiring use of reciprocating
compressors. However, several alternative simulations suggest it would have a
greater effect on final product prices, raising them as much as $5 to $20 per
appliance, depending on manufacturing operating costs and the amount of R-22
required for initial charges. Because this option would take a few years to imple-
ment and a few more years to achieve an effect on servicing emissions, the cumula-
tive effect on R-12 emissions by 1990 would be to reduce them by only four to five
million pounds. However, by the year 2005, when the appliance stock has turned
over, home appliance emissions of R-12 would reach zero.
None of the preceding control candidates is included in the benchmark set of
mandatory controls for comparison with economic incentive policies.
CONCLUSIONS
Home refrigerators and freezers contribute less to CFC emissions than any of
the other major product areas studied in this report. They even emit less than some
of the "miscellaneous" products we have investigated. By 1990, even in the absence
of policy action, home appliances will emit less than 10 million pounds of fully
halogenated CFCs.
There are a few ways to reduce emissions in this product area without imposing
exorbitant costs on the industry or its customers, but the emissions effects of the
options are small. Alternatively, substitution of R-22 would eventually eliminate
R-12 emissions from these products, but at high cost and with considerable delay.
In comparison with other product areas where emissions are far greater and can
be reduced more substantially and at less cost, home appliances are a poor target
for regulatory action.
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III.G. RETAIL FOOD STORE
REFRIGERATION SYSTEMS
INTRODUCTION
Retail food store refrigeration systems are used to refrigerate the food and
beverages in display cases, and to store meat, produce, dairy products, frozen food
and ice cream in walk-in coolers. Refrigeration systems have two temperature
ranges: medium temperatures for meat and dairy products, and low temperatures
for frozen food and ice cream.
The refrigerant commonly employed for low temperature applications is R-502,
which is an azeotrope (constant-boiling blend) consisting of 48.8 percent R-22 and
51.2 percent R-115. R-12 was used in low temperature systems until the early
sixties, when the development of R-502 offered a more energy efficient alternative.
While R-12 is generally chosen for medium temperature systems, the use of R-502
for this purpose in new systems has been increasing in recent years, reportedly
because of the advantage of handling only one refrigerant for both temperature
ranges.
R-22 was once employed in both low and medium temperature applications, but
today is used only at medium temperatures. With the exception of one company,
the industry recommends against using R-22 even at medium temperatures, be-
cause R-22 generates excessive heat in the compressor and tends to break down
compressor oil and corrode motors. Most manufacturers now install R-22 systems
only if they are specifically requested by a customer.
Current trends in refrigeration system design tend to increase average refriger-
ant charge per system. Because refrigeration equipment accounts for as much as
half of a food store's total energy requirements, refrigeration equipment manufac-
turers have been marketing several energy-saving options. One such option, heat
recovery, is being introduced in nearly all new stores and retrofitted into many
older stores. It requires a larger refrigerant charge. The charge is also affected by
the design of the automatic defrost feature of a system. Hot-gas defrost, which has
become increasingly popular, requires more refrigerant. A larger refrigerant
charge is also required for remote air-cooled condensers, which are displacing the
traditional water-cooled condensers ostensibly because of water conservation.
The total number of retail food stores is expected to decline by about 15 percent
between 1976 and 1990, but the average store size will increase and the average
refrigerant charge per store will increase. Hence, the refrigerant bank in food
stores will grow from about 74 million pounds in 1976 to approximately 120 million
pounds in 1990.
Purchases of refrigerant to charge and service food store systems is projected
to grow slowly from 23 million pounds in 1976 to 27 million pounds in 1990. The
use of fully halogenated CFCs, which exclude R-22 and the half of R-502 that is R-22,
is growing even more slowly. In 1976, 16 million pounds of non-R-22 refrigerants
were used to charge and service food store systems. By 1990, these uses will be only
about 18 million pounds.
175
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USE AND EMISSIONS
Industry statistics for total shipments of retail food store refrigeration systems
are unavailable. Consequently, the IR&T estimates (see Neill et al., 1979) of refrig-
erant use, emissions, and stocks are derived from information concerning retail
food stores. Since the average refrigerant requirements depend on the quantity of
food needing refrigeration, store sales volume serves as a proxy for refrigerant
needs. For analysis, IR&T separates sales volume into four categories:
1. Annual food sales of over $2 million.
2. Annual food sales ranging from $1 million to $2 million.
3. Annual food sales of between $500 thousand and $1 million.
4. Annual food sales under $500 thousand.
Table 3.G.1 presents the estimated numbers of retail stores in each category for
1976 and 1990. The 1990 values were projected from historical trends, incorporat-
ing provisions for new construction and permanent closings..
Table 3.G.1
NUMBER OF RETAIL FOOD STORES, 1976 AND 1990
Store Sales Class
Over $2 million
$1 million to $2 million
$500 thousand to $1 million
Under $500 thousand
Total
SOURCE: Neill et al. (1979)
1976
20,950
11,750
12,000
139,000
183,700
, Table 1,
1990
33,330
13,000
12,000
97,000
155,330
p. 7.
The values of Table 3.G.1 show that there will be a 15 percent decline in the
total number of grocery stores by 1990. This reflects an estimated 30 percent decline
in the number of grocery stores with sales under $500,000, which is partially offset
by a 59 percent increase in the number of large supermarkets.
While the most significant factor determining refrigerant requirements is the
quantity of food needing refrigeration, other influential factors include the type of
refrigeration system and the degree to which energy conservation features are
adopted. From data supplied by retail food industry sources, IR&T identified an
average refrigerant charge for each store size which depends in part on the type
of refrigerant used, the number of refrigeration components, and whether the
stores are new, remodeled, or existing. The new and remodeled stores are incor-
porating many energy-saving techniques which require a higher refrigerant
charge. Estimated refrigerant needs are shown in Table 3.G.2.
The type of refrigerants used differs between existing and new or remodeled
stores. IR&T estimates of the refrigerant mix, together with the data in Table 3.G.1,
permit estimates of the stock of refrigerants (the "bank") by store size for 1976 and
1990. Estimated stocks are given in Table 3.G.3.
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Table 3.G.2
1976 REFRIGERANT REQUIREMENTS PER STORE
(Pounds)
Store Type
Store Sales Class
Over $2
Million
Existing stores 1,500
New and remodeled
stores 2,500
$1 to $2
Million
1,000
1,200
$500,000 to
$1 Million
650
650
Under
$500,000
164
140
SOURCE: Neill et al. (1979), Table 6, p. 18.
Table 3.G.3
REFRIGERANT BANK BY STORE CLASS AND REFRIGERANT TYPE, 1976 AND 1990
(Millions of pounds)
Store Sales Class
R-12 R-502
R-22
Total
1976
Over $2 million
$1 million to $2 million
$500 thousand to $1 million
Under $500 thousand
Total
15.71 12.57
5.88 4.70
5.07 2.34
15.96 5.70
42.62 25.31
3.14
1.18
.39
1.14
5.85
31.42
11.75
7.80
22.80
73.77
1990
Over $2 million
$1 million to $2 million
$500 thousand to $1 million
Under $500 thousand
Total
29.16 50.00
5.46 9.36
3.70 3.70
6.79 6.79
45.12 69.85
SOURCE: Neill et al. (1979), Table 9, p. 23
4.17
.78
.39
5.34
83.32
15.60
7.80
13.58
120.30
Component s
may not sum to totals because of rounding.
Annual use includes the refrigerant used in the testing of units during manufac-
ture, replacement of losses during installation, initial charges for new units, and
replacement of the refrigerant which is lost through leakage and during service.
Table 3.G.4 gives both total refrigerant and non-R-22 use for 1976 and 1990 as
estimated by IR&T. The average annual rate of growth of the non-R-22 use for the
period is less than one percent.
As is true for other refrigeration devices, five types of refrigerant losses can
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Table 3.G.4
REFRIGERANT PURCHASES FOR USE IN RETAIL
FOOD STORES, 1976 AND 1990
(Millions of pounds)
Refrigerant
R-12
R-502
R-22
Total
Total non-
R-22a
Initial
Charge
All
Other
Total
1976
3.90
7.07
.60
11.57
7.52
6.73
3.43
.90
11.06
8.49
10.63
10.50
1.50
22.63
16.01
1990
R-12
R-502
R-22
Total
Total non-
R-22a
4.87
8.04
.68
13.59
8.99
5.25
7.28
.65
13.18
8.98
10.12
15.32
1.33
26.77
17.96
SOURCE: Neill et al. (1979) do not re-
port refrigerant use. These estimates were
calculated from data on emissions and food
store refrigerant charges reported by IR&T.
These values include all of R-12, and
51.2 percent of R-502.
occur over the lifetime of a retail food store system: manufacturing, installation,
leakage, service, and disposal losses. The nature, characteristics, and magnitude of
each type of loss are discussed below.
Manufacturing Emissions
One source of refrigerant loss during manufacture is leak testing. Both R-12 (in
a mixture that is 70 percent air), and R-22 (in a mixture that is 75 percent nitrogen)
are used as test gases in leak testing. One of the manufacturers of refrigeration
equipment currently practices reclamation of the test gas, and another plans to
install a reclamation system in the near future.
On the basis of data and information from industry sources, IR&T estimates
1976 and 1990 emissions from R-12 leak testing at 400,000 and 144,000 pounds,
respectively. The decline in 1990 occurs because of presumed widespread adoption
of reclamation, even in the absence of regulatory control.
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Installation Emissions
In contrast with other refrigeration systems discussed in this report, food store
systems receive their initial charges during installation at the food store site rather
than at the system manufacturing site. In the installation process, the system is
evacuated, leak tested, and charged. R-12 and R-22 are generally used to test
medium temperature systems, and R-12 and R-502 are used to test low temperature
systems. Isolation valves are sometimes put in during installation, to be used if an
undetected loss occurs at the time of startup. However, because of its cost, this
practice may not be widespread.
The emissions estimates for installation are based on IR&T's discussions with
four major equipment manufacturers and on testimony before the EPA hearings.1
The IR&T estimates of installation emissions, which vary depending on the size of
the store, yield an overall average of five percent of the total recommended charge.
In 1976, non-R-22 emissions of this type amounted to 468,000 pounds. By 1990, they
are expected to increase to 532,000 pounds due to projected increases in
installations.
Leakage and Service Emissions
Industry sources indicate that leakage accounts for 80 percent of combined
leakage and service losses. Refrigerant leakage eventually leads to a service call,
and the measure of leakage and service losses includes replacement of the loss and
releases by the technician during servicing procedures.
IR&T assumes that data on leakage and servicing emissions provided by one
major grocery store chain were representative of the industry as a whole. In 1976,
IR&T estimated these combined emissions at 10,15,15 and 17 percent of stocks for
each store type in descending order of sales volume. On this basis, non-R-22 leakage
and servicing emissions amount to about six million and 1.5 million pounds, respec-
tively. By 1990, these emissions are expected to be 10, 10, 15, and 10 percent of
refrigerant stocks, again in descending order of sales volume, leading to 6.6 million
and 1.7 million pounds of non-R-22 emissions from leakage and service, respective-
ly. The decline in the 1990 percentages for two of the store categories is due to the
presumed gradual replacement of older stores having relatively high leakage and
service emissions by supermarkets using more modern installations.
Disposal Emissions
IR&T estimates disposal emissions by assuming them to be a function of store
changes that cause equipment to be discarded. These changes include store clos-
ings, shillings among store size categories, and remodelings. According to IR&T,
one industry source suggests that about 50 percent of the refrigerant in a given unit
can be saved by pumping it into the receiving tank before replacement with new
equipment. However, this practice is currently followed only when the equipment
is to be sold secondhand.
'Swope (1977a).
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IR&T assumes that in the two largest store categories, 85 percent of the clos-
ings, shiflouts, and remodelings would result in disposal emissions; in the two small
categories, the figure is 100 percent. Non-R-22 losses of this type amount to 4.6
million pounds in 1976 and 6.9 million pounds in 1990.
Total Emissions
The total emissions in 1976 and 1990 for each refrigerant are presented in Table
3.G.5." The values illustrate that although total emissions of all refrigerants in 1990
will increase by 34 percent over 1976 levels, total non-R-22 emissions will increase
by only 21 percent. This is primarily a result of the movement away from R-12
toward R-502 mentioned earlier.
The largest sources of emissions in both 1976 and 1990 are leakage and disposal.
By 1990, leakage will account for 42 percent of total non-R-22 emissions. Disposal
emissions for that year represent 43 percent of total non-R-22 emissions.
INDUSTRY AND MARKET CHARACTERISTICS
The industry which produces the refrigeration equipment for the retail food
stores is dominated by five firms:
Hussman Refrigerator Company, Division of Pet, Incorporated, St. Louis,
Missouri.
Hill Refrigeration Company, Division of Emhard Corporation, Trenton, New
Jersey.
Tyler Refrigeration Corporation, a privately held company, Niles, Michigan.
Friedrick Air Conditioning and Refrigeration Company, Division of Weil-
McLain, Inc., San Antonio, Texas.
Warren-Sherer Company, Division of Kysor Industrial Corporation, Marshall,
Michigan.
The first three companies account for approximately 80 percent of the market,
and the last two share about 15 percent. The remaining five percent of the market
is held by several small companies. The number of persons employed by Hussman
Refrigerator Company is not available. The other four firms together employ about
4,000 workers. Each of these companies may produce other products, and the
proportion of employment attributable to retail food store refrigeration systems
cannot be determined from the available data.
2IR&T made a number of assumptions in developing the emissions estimates for retail food stores.
Sensitivity analyses were performed to quantify the significance of some of the central assumptions. The
largest effect on emissions results from a 33 percent variability in the estimate of refrigerant stocks.
This could cause total 1976 and 1990 emissions to increase or decrease by 5.7 million and 7.7 million
pounds, respectively. A 50 percent change in leakage and service emissions for all stores and for stores
in the two smaller categories results in a change in 1976 total emissions of about five million and 2.5
million pounds respectively; for 1990, the values are approximately 6.1 million and 1.3 million pounds.
A 25 percent shift in the number of disposals could vary total 1976 emissions by 1.6 million pounds and
1990 emissions by 2.6 million pounds. A decrease of three million pounds in total 1990 emissions would
result if there were a change in 1990 store composition, 25 percent fewer large stores, and 25 percent
more smaller stores.
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Table 3.G.5
EMISSIONS FROM RETAIL FOOD STORE REFRIGERATION, 1976 AND 1990
(Millions of pounds)
Stage
R-12
R-502
R-22
Total
Total3
Non-R-22
1976
Manufacturing
Installation
Leakage
Service
Disposal
Total
.40
.39
4.75
1.19
3.28
10.00
___
.15
2.63
.66
2.67
6.10
.10
.06
.59
.15
.48
1.38
.50
.60
7.97
1.99
6.43
17.48
.40
.47
6.09
1.52
4.65
13.13
1990
Manufacturing .14 — .04 .18 .14
Installation
Leakage
Service
Disposal
Total
.45
3.73
.93
3.81
9.07
.17
5.69
1.42
5.94
13.22
.06
.44
.11
.46
1.11
.68
9.86
2.46
10.22
23.40
.53
6.64
1.66
6.85
15.84
SOURCE: Neill et al. (1979), Table 14, p. 37, and
Table 15, p. 38. Components may not sum to totals
because of rounding.
These values include all of R-12 and 51.2 percent of
R-502.
The major manufacturers of commercial refrigeration systems act primarily as
the designers and assemblers of systems and depend heavily on other manufactur-
ers to supply components including motors, compressors, condensers, receiving
tanks, tubing, valves, electrical components, and other small hardware.
Future demand for refrigerant and refrigeration devices in retail food stores
is dependent on the outlook for retail food sales. Much of a store's profit is derived
from convenience foods requiring refrigeration. Until recently, a slowing in growth
of consumer demand has restricted the growth of the industry. In constant dollars,
domestic per capita food consumption for calendar year 1976 was up 2.5 percent
over 1975, reflecting a slightly stronger consumer demand.
Refrigeration system costs can vary widely depending on the capacity, design,
and energy efficiency of the unit. It is not likely that the cost of the refrigerant is
a significant part of the total costs. In stores ranging in size from 2,500 to 35,000
square feet, the refrigerant requirements may be as high as 2,000 pounds, with
refrigerant costs of about $1,700 for the initial charge. It is very likely that the
average annual cost of refrigerant to the user is dwarfed both by the refrigeration
system costs and also by the expenditures for energy to operate the unit.
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OPTIONS TO REDUCE EMISSIONS
IR&T identifies seven potential methods for reducing emissions from retail
food store refrigeration systems. To these, we add an eighth: refrigerant recovery
at servicing. For reasons explained below, only two of the options appear feasible
and effective as candidates for mandatory control, and only one is included in the
benchmark set of controls.
R-22 Leak Testing at Manufacture
Since there is no technical disadvantage in leak testing with a refrigerant other
than the one ultimately used in the system, any refrigerant can be used for this
purpose. R-502 is not currently used, primarily because its price is about three
times that of R-12. Approximately 80 percent of the refrigerant used in leak testing
is R-12 and the balance is R-22.
Substitution of one refrigerant for another in this use could be induced by
policies that manipulate their relative prices. Mandatory controls might be enforce-
able, given the small number of manufacturers to be monitored.
R-22 Leak Testing at Installation
As in leak testing during manufacture, there is no inherent disadvantage in
using R-22 for testing during installation, even if the system will ultimately contain
R-12 or R-502. Since the system is evacuated prior to charging, all of the R-22 would
be purged. R-12 is the refrigerant most widely used for installation leak testing
because of its low cost. However, R-502 is also used to some extent, despite its much
higher price.3 Industry sources report that this occurs when R-502 will be the initial
charge because installers can then use the same gas for both leak testing and
charging the units.
If the price of R-12 were to rise, at some point it would become cost-effective
to employ R-22 as the test gas. However, it is not necessarily true that an R-12 price
higher than that of R-22 would be necessary or sufficient to induce this substitution
if, as industry sources argue, the convenience to the serviceman of carrying only
one or two refrigerants plays a role in his choice among test gases. Thus, if R-22
became the most common refrigerant for initial charges, it might also be used as
the test gas even if it remains slightly more costly than R-12. Alternatively, if R-502
became the most common refrigerant for initial charges, it might become the most
commonly used test gas even though it is more costly than both R-12 and R-22. As
detailed below, our analysis presumes that only a portion of test gas use is sensitive
to relative prices of different refrigerants, and that a portion is sensitive to the
choice of refrigerant for initial charges.
Enforcement of a mandatory requirement to use R-22 as the test gas would be
virtually impossible at the thousands of installation sites where testing occurs each
year. Therefore, this candidate for mandatory controls is likely to be very in-
effective and is not considered further in this study.
3In 1976, the estimated price per pound of R-502 was $1.11, while the price of R-12 was 41 cents.
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183
R-502 Use in Medium Temperature Systems
R-502 is presently used in almost all low temperature applications (freezing),
while most medium temperature applications (cooling) use R-12 or R-502. The same
compressor can be used for low temperature systems employing R-502 and medium
temperature systems employing R-12. For R-502 to be used in medium temperature
applications, a different compressor is necessary. Since a small amount of R-502 is
already used in medium temperature systems, the compressors are presumably
available from the component manufacturers.
The disadvantage of this option is that R-502 is more expensive than R-12 and
R-22 and, at present prices, would not be cost-effective. However, if the price of R-12
were to rise above that of R-502, there would be an incentive to use the latter
refrigerant, at least in all new medium temperature systems. Alternatively, it
would also be possible to enforce this option as a mandatory control because there
are only a few manufacturers to monitor.
Universal adoption of this option would reduce R-12 emissions from leakage
and servicing. Disposal emissions would also be reduced, but with a time delay.
R-22 Use in All Applications
Although R-22 has been used in low temperature applications in the past, it is
not presently used for this purpose because its high pressure requires dual com-
pressors. As mentioned earlier, even at medium temperature, it is disadvantageous
to employ the refrigerant because some compressor manufacturers will not guaran-
tee their equipment for use with R-22. Because the technical problems of R-22
performance make it unattractive as a substitute for R-12 and R-502, we presume
R-22 substitution could not be induced by R-12 prices in the range considered in this
study. As a mandatory control, R-22 substitution is not included in the .set of
benchmark candidates because it is an alternative to R-502 substitution in medium
systems and because implementing R-22 substitution would take time, implying
that much of its emissions effects would not be observable until after 1990."
Recovery and Reclamation at Disposal
Retail food store refrigeration systems are replaced either because they no
longer satisfy a store's requirements and are sold second-hand, or because they no
longer function properly. In the former case, the refrigerant charge is often pumped
into a receiver tank for later use in the new system, and the old system is sold on
the second-hand market. However, IR&T reports that when the systems are dis-
posed, even though they are still functional, the refrigerant is purged to the atmos-
phere. In at least some of these cases, the refrigerant probably could be recovered
and reused.
From calculations not reported in the IR&T document, an IR&T researcher
concludes that recovery at disposal ought to be cost-effective at current CFG prices,
especially for R-502. The calculations assumed that the labor charge for the proce-
4 As explained below, we do not consider the option of requiring existing systems to be replaced.
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dure would be just $15 and that there are no lost sales during the procedure.
However, even if we assume that the labor costs plus forgone sales would be $200
or $300 we cannot explain why stores would not be undertaking this activity, at
least for R-502. Because we have no explanation for the failure of stores to under-
take what appears to be a money-saving operation, we are reluctant to include this
option in our analysis. It may be, for example, that there are technical problems
in reclaiming R-502, or that costs are much higher than we might guess, or that
there is less charge left in a disposed unit than IR&T estimates. In any case, further
technical assessment of this option is warranted because it holds the potential for
substantially reducing emissions, which amount to a few million pounds each year.
Better Installation Procedures
Proper system installation generally requires two or three days of a contrac-
tor's time. It is frequently the last thing done before a retail food store opening.
Since it is costly to delay the store opening for even one day, installation is often
performed quickly. Connections may be improperly fitted, causing higher leakage
rates, and access to allow proper servicing later may not be developed adequately.
Better installation could reduce leakage and service emissions over the lifetime
of the system. Reducing the required number of service calls each year would save
the store labor costs. For large supermarkets, at least, the savings could be signifi-
cant enough to make this option attractive at higher refrigerant prices, as ex-
plained below. However, this option is a poor candidate for control because of the
difficulties of enforcement.
Preventive Maintenance Programs
Institution of preventive maintenance on a monthly or quarterly basis could
reduce leakage arid service emissions. IR&T estimates that a quarterly program of
this type would cost the store about $400 per year for labor. The potential benefits
to the store of such a program would be a reduction in the requisite number of
annual service calls by 1.5 visits (saving the store about $150 per year) and a
reduction in annual leakage and servicing losses of about 15 percent. Even a large
supermarket would thus save only about 40 pounds of refrigerant annually, at a
net cost for added labor charges of $250 per year. For supermarkets, such a pro-
gram would be cost-saving on balance only if refrigerant costs rose to $6.25 or more
per pound.
Preventive maintenance could not be induced by refrigerant prices within the
range considered in this study. Moreover, since such programs are clearly not
cost-saving at current refrigerant prices, there are strong incentives for stores to
evade compliance with mandatory controls. This option is not considered here as
a candidate for mandatory controls.
Recovery at Servicing
Although this option is not mentioned by IR&T, it seems reasonable to suppose
that if refrigerant is recoverable at disposal, it would also be recoverable at servic-
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ing. This option, like that for disposal recovery, would be available without added
capital investment to stores in the two largest sales categories because they typical-
ly have receiver tanks. For those stores, the cost of pursuing the option consists of
forgone food sales due to the longer shut-down of refrigeration equipment during
service plus whatever extra labor costs are involved. We do not have data on these
costs, but the absence of recovery at servicing.may suggest that the costs of the
procedure outweigh the value of the refrigerant that would be recovered, at least
at current refrigerant prices.
This option is not treated here as being responsive to increased refrigerant
prices within the price range under consideration, nor is it a candidate for mandato-
ry control. It seems unlikely that refrigerant savings, even at higher prices, could
outweigh the costs of the procedure because the potential refrigerant recovery is
very small. For example, a new or remodeled store in the largest size category—the
kind of store with the highest annual servicing losses—loses on average only about
88 pounds of R-12, 150 pounds of R-502, and about 12 pounds of R-22 during
servicing each year. Only one of these refrigerants could be recovered at any one
time. Even if the costs of the procedure were as little as $250, it would not be
cost-saving even at the highest refrigerant prices considered in this study.5 It is
even less likely that the procedure is cost-saving at current refrigerant prices, so
under a mandatory control strategy there would be a strong incentive for stores to
attempt to evade the control, making enforcement difficult.
CFC DEMAND SCHEDULES
Because refrigerant appears to be a very small component of refrigeration
system costs, we do not expect the amount of refrigeration in retail food stores to
be noticeably affected by changes in refrigerant prices within the range considered
here. It is true that changing the refrigerant price will have differential effects on
the refrigeration costs of different stores; larger stores will experience a larger total
cost increase, but with unknown (but almost certainly very small) differences in
effects on the cost of refrigeration per unit sales of refrigerated foods. If all types
of stores were in competition in precisely the same markets, the differential cost
effects of a change in refrigerant prices could, in principle, affect the competitive
standing of stores of different types or sizes. However, stores operate in different
geographical markets and, even in the same locality, serve different consumer
needs (e.g., weekly marketing vs. quick-stop, convenience shopping). Although a
few stores here and there throughout the country might be affected adversely by
increased refrigerant prices, it is unlikely that many stores will experience a notice-
able effect on sales from the passing on to food customers of the rather minor cost
effects postulated here.6
The following analysis presumes that refrigerant prices in the range considered
6At a maximum price for R-12 or CFC-115 of $2.50 per pound, complete recovery and reuse of R-12
would save only $220, while complete recovery and reuse of R-502 would save only $240.
6IR&T estimates that the number of "Mom and Pop" stores is declining at seven to nine percent per
year. These same stores also are likely to feel the pinch of higher refrigerant prices more than their
larger competitors. As a practical matter, it would be virtually impossible after the fact to tell whether
higher refrigerant prices contributed to the shutdown of one of these small stores.
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here would not induce replacement of existing systems. It is possible that some
stores might be induced to advance their plans for remodeling if refrigerant prices
rose, just as rising energy costs have induced some remodeling efforts to begin
sooner than they otherwise would. However, we do not expect this effect to be large
enough to be readily observable or to have much effect on emissions.
We discuss three sources of demand. The first, manufacturing demand, de-
scribes the price responsiveness of refrigerant purchases for leak testing by the
system manufacturers. The second, installation demand, covers purchases of refrig-
erant for leak testing during installation and for charging the installed system. The
third demand profile describes servicing use, which is determined by the character-
istics of the entire stock of refrigeration equipment. Because the amount and type
of refrigerant used for installation and servicing of systems in retail stores varies
according to the store size, we develop the installation and servicing demand pro-
files for each of the four store sizes separately.
For each source of demand, there are up to three different CFC demand sched-
ules, for R-12, R-22, and R-502. We assume that policy action would not be taken
to modify the price of R-22, and that its price (in 1976 dollars) will remain constant
at 64 cents per pound throughout the period 1980 to 1990. The current R-502 price
of $1.11 is treated as a simple weighted sum of the prices for R-22 and CFC-115,
implying that the price of CFC-115 in 1976 was about $1.56 per pound. Policy action
to raise the price of CFC-115 would raise the price of R-502, but only by about
one-half cent for each one cent increase in the CFC-115 price because the cost of
the half of R-502 that is R-22 would be unchanged. The 1976 bulk price of R-12 was
41 cents per pound.
Section IV explains that an economic incentives policy should strive to equalize
the price penalty (i.e., the tax or marketable permit price) per unit of ozone deple-
tion among different CFCs. Using chlorine content as a simple proxy for ozone
depletion potential, CFC-115 is one-half as hazardous as R-12. Hence, for each one
cent increase in the penalty for R-12, the penalty for CFC-115 should rise one-half
cent, and the price of R-502 would rise one-fourth cent. This pricing relationship is
reflected in the demand schedules developed here.
Manufacturing Demand
Given the average annual rates of growth implied by Table 3.G.5, 327,000
pounds of R-12 would be purchased by system manufacturers for leak testing in
1980. A smaller amount of R-22, 82,000 pounds, would also be used for this purpose.
If the price of R-12 rose to 65 cents per pound, slightly above the R-22 price,
the manufacturers would find it cost-effective to use R-22 exclusively for leak
testing. There is no apparent disadvantage in the substitution, since some R-22 is
already employed for this purpose. The reduction in R-12 purchases that could be
achieved by implementation of this option is 327,000 pounds in 1980; in 1990, the
value would be 144,000 pounds. A corresponding increase for R-22 use would result.
Installation Demand
The same compressor can be used for R-12 in a medium temperature system
and R-502 in a low temperature system, but a different compressor is required in
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a system which employs R-502 at medium temperature. Information on the relative
costs of producing or operating the two compressors is unavailable. However, the
trend toward using R-502 in medium temperature systems suggests that any cost
differential partially offsets the higher cost of R-502 for charging the system, at
least for most customers. The demand estimates arbitrarily assume that if the price
difference decreased by 20 percent, all new medium temperature systems would be
charged with R-502. The policy prescription to achieve this outcome is to raise the
price of R-502 one-fourth as much as the price increase in R-12 until the difference
between the two prices declines by 20 percent. This procedure leads to prices of 60
cents and $1.16 for R-12 and R-502, respectively.7
Because of the convenience of using a single refrigerant for installation leak
testing as well as charging, implementation of this option would probably eliminate
some or all use of R-12 for testing during installation. A conservative estimate is
that half of all R-12 leak testing would be replaced by the use of R-502. If the price
of R-12 rose just a little higher, to 65 cents per pound, the remainder of the R-12
leak testing use would be supplanted by R-22 use. The corresponding R-502 price
at which this would occur is $1.17. Finally, we assume that all leak testing would
be done using R-22 if the R-502 price reached $1.30, corresponding to an R-12 price
of $1.17.
Installation use of R-12 and R-502 could be further reduced if all new medium
temperature systems were charged with R-22.8 For the manufacturers, it is
estimated that retooling, research, and startup costs for this adjustment would be
about $24 million, leading to higher system costs. Even leaving the increase in
system costs aside, however, we find that the retail food stores would not be induced
to purchase such systems by refrigerant prices in the range considered here. It is
estimated that the switch to R-22 would lead to increased servicing of the systems,
at a cost to the average retail store of $400 per year. A large store would reduce
the combined use of R-12 and R-502 by about 150 pounds. To make this cost
effective, the prices of R-12 and R-502 would have to rise by more than $3 per
pound. Smaller stores would require even greater increases in non-R-22 prices to
induce the use of R-22 because the added servicing costs for the R-22 systems would
be similar to those for large stores, but the potential reduction in R-12 and R-502
use would be less.
Servicing Demand
The servicing demand for each refrigerant depends on the refrigerant usage of
the entire stock of equipment. This would be affected by any tendency for new
systems to use R-502 or R-22 rather than R-12, but only after a significant portion
of the equipment stock was composed of the newer systems.
. Aside from this indirect effect on servicing demand, which is included in the
demand schedules reported below, the only potential effect of refrigerant prices on
'Requiring a 50 percent reduction in the differential leads to price outcomes of $0.88 and $1.23 for
R-12 and R-502, respectively.
8IR&T indicates that a significant amount of research and development, including system redesign,
would be required before R-22 could be used in low temperature applications. We presume that this
option would not be motivated by prices in the range considered in this study.
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servicing demand would be to induce better installation, preventive maintenance
programs, or recovery of servicing losses. Earlier, we noted that the last two of
these options would probably not be undertaken at refrigerant prices in the range
considered here. Consider, for example, a very large store, with annual leakage and
servicing losses of 88 pounds (for all refrigerants used in the store) and typical daily
profits of $1,000. To delay opening an extra day to allow better installation would
cost the store not only the loss of a day's profits, but also about $500 in extra
installation charges. Amortized over five years at 20 percent, the annualized cost
would be $302. In exchange, the store might save about two service calls per year,
at $100 each, plus the value of the refrigerant losses prevented. The better installa-
tion would pay for itself only if refrigerant prices were at least $3.45 per pound—
outside the range for this study. A similar result would apply to smaller stores
because although their daily profits are lower, so are their annual leakage and
servicing losses.
In summary, servicing demand is affected only by the choice among refriger-
ants in new systems, and then only with a lag as the existing equipment stock is
replaced.
Demand Summary
Table 3.G.6 summarizes the demand results described above for R-12. Table
3.G.7 summarizes the corresponding use results for R-502. As for R-22, at current
prices its use in 1980 would be 1.44 million pounds and its use in 1990 would be 1.32
million pounds. If the price of R-12 rose to 65 cents, the 1980 use of R-22 would
increase by 0.53 million pounds, and its 1990 use would increase by 0.34 million
pounds. If the price of R-502 rose to $1.30, the use of R-22 would rise another 0.35
million pounds in 1980 and another 0.77 million pounds in 1990.
Table 3.G.8 reports the emissions effects of alternative prices for R-12 (and
corresponding prices for R-502) achieved in 1980 and maintained at that level
through 1990. The emissions of R-502 rise initially as the prices of R-12 and R-502
rise, because R-502 replaces R-12 as the charge in all new medium temperature
systems.
MANDATORY CONTROL CANDIDATES
One candidate suitable for inclusion in the set of benchmark mandatory con-
trols is conversion to R-22 for leak testing at manufacture (but not at installation).
At 1976 refrigerant prices, this control would increase manufacturers' costs by 24
cents per pound of test gas. Assuming that the use levels (in pounds) of the alterna-
tive test gases would be equal, the reduction in 1980 use of R-12 of 0.33 million
pounds would impose compliance costs of $79,000, and the reduction in 1990 use of
0.14 million pounds would impose compliance costs of $34,000 (in constant 1976
dollars). The cumulative reduction in R-12 emissions under this mandatory control
would be 2.5 million pounds between 1980 and 1990. The cumulative compliance
cost, discounted at 11 percent per year, would be $587,000.
There are also three types of mandatory controls that involve specifying the
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Table 3.G.6
R-12 DEMAND SCHEDULE FOR RETAIL FOOD REFRIGERATION, 1980 AND 1990"
(Millions of pounds of R-12 used)
Bulk Price
of R-12
(1976 $)
Option
Induced
Manufacturing
Installation
A B C D
Servicing
A B C D
Total
1980
0.41
.60
.65
None .33
R-502 in
med ium
temperature
systems .33
R-22 leak
testing
3.56 .85 .41 .04 1.96 .78 .70 2.14 10.77
0.15 .04 .01 — 1.63 .67 .64 2.13 5.60
__ __ __ „ 1.63 .67 .64 2.13 5.07
1990
0.41
.60
.65
NOTE:
ar-«l „..
None . 14
R-502 in
med ium
temperature
systems .14
R-22 leak
testing
Dashes indicate zeros.
3.98 .87 .41 .04 2.92 .51 .56 .68 10.11
.17 .04 .01 — .63 .11 .12 .15 1.37
— __ __ ._ .63 .11 .12 .15 1.01
A is stores with over $2 million annual sales; B is stores with annual sales of $1 to
$2 million; C is stores with annual sales of $500,000 to $1 million; D is stores with
annual sales under $500,000.
type of refrigerant to be used: R-502 or R-22 might be required in medium tempera-
ture systems, and R-22 might be required in low temperature systems. In principle,
any of these controls might be implemented not only for new systems but also for
replacement of existing systems that do not conform to the controls. Since IR&T
does not report estimates of the costs of various systems, we cannot assess the cost
of compliance with regulations requiring replacement of systems. We can specu-
late, however, that some small stores would need assistance to meet the need for
short-term capital to comply with the controls, and some might even be driven out
of business. Moreover, the emissions benefits of such a strategy are likely to be
minor. First, older R-12 units are due for replacement in the next few years in any
case, and regulations prohibiting their resale together with controls on new equip-
ment would be nearly as effective as replacement regulations in reducing emis-
sions. Second, the total non-R-22 emissions from this product area is not very large
compared with that of other product areas.
Use of R-502 exclusively in all new medium temperature systems cannot be
costed precisely because we lack information on the costs of R-502 and R-12 sys-
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Table 3.G.7
R-502 USE SCHEDULE FOR RETAIL FOOD REFRIGERATION, 1980 AND 1990a
(Millions of pounds of R-502 used)
Bulk Price
of R-502
(1976 $)b
Option
Induced Manufac
1.11
1.16
1.30
—
R-502 in
medium
temperature
systems
R-22 leak
testing
Installation0 Ser
turing A B C D A B
1980
5.70 1.36 .40 .04 2.33 .75
9.12 2.18 .80 .07 2.65 .86
8.85 2.12 .78 .07 2.65 .86
vicing
C D Total
.41 .89 11.89
.47 .89 17.04
.47 .89 16.69
1990
1.11
1.17
—
R-502 in
6.38 1.40 .40 .04 5.00 .88
.56 .68 15.34
1.30
med ium
temperature
systems
R-22 leak
testing
10.19 2.23 .80 .07 7.29 1.28 .99 1.21 24.09
9.90 2.17 .78 .07 7.29 1.28 .99 1.21 23.69
NOTE: The schedule is not, strictly speaking, a demand schedule because the price
of a substitute, R-12, is not held constant.
Calculations explained in text.
Analysis assumes that an R-502 price of $1.11 corresponds to an R-12 price of 41
cents; that $1.16 corresponds to an R-12 price of 60 cents; that $1.30 corresponds to
an R-12 price of $1.17.
CA is stores with over $2 million annual sales; B is stores with annual sales of $1
to $2 million; C is stores with annual sales of $500,000 to $1 million; D is stores
with annual sales under $500,000.
Results include effect of conversion to R-502 for some installation leak testing
at $1.17.
terns. However, by making use of the assumptions described above for the CFC
demand analysis, we can obtain an estimate of compliance cost that is comparable
to the estimate of the economic incentive necessary to induce R-502 use. Conse-
quently, we can include this option in the benchmark set of mandatory controls.
Since the demand analysis presumes that R-502 use would be induced if the price
differential between R-502 and R-12 declines by 14 cents (1976 dollars), the compli-
ance cost for reducing R-12 use for initial charges at installation and for servicing
would be 14 cents per pound of R-12 reduction. We assume also that half of R-12
use for installation leak testing would be converted to R-502 if this control were
implemented. At current refrigerant prices, that R-502 is sometimes used despite
its higher price implies that the convenience value of using a single refrigerant for
leak testing and initial charge would be about 70 cents per pound. This value is used
in the calculation of compliance costs for the R-502 conversion in installation leak
testing.9
That is, we presume that installers would charge the retail food store the same installation fee to
use R-502 as the test gas or to use R-12 with an inconvenience valued at 70 cents per pound. As the
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Table 3.G.8
REFRIGERANT EMISSIONS EFFECTS OF PRICE RESPONSES BY RETAIL FOOD STORES,
1980 AND 1990
Bulk Price
of R-12
(1976 $)
.41
.60
Corresponding
Bulk Price
of R-502
(1976 $)
Emissions Effect (millions of Ib)
1980
R-12 R-502
1990
R-12 R-502
1980-1990
Cumulative
R-12 R-502
1.11
1.16 -.071 +.71 -3.88 +3.88 -20.4 +20.4
.65
1.17
1.17 -1.24 +.71 -4.22 +3.88 -22.7 +20.4
1.30 -1.24 +.36 -4.22 +3.11 -22.7 +14.6
SOURCE: Calculations from data in Tables 3.G.4 and 3.G.7. Cumu-
lative effect estimates assume constant average annual rate of
change between 1980 and 1990, by emissions source. Effects for 1980
and 1990 use results of effects on R-12 and R-502 demand, adjusted
for changes in amounts used for initial charges.
NOTE: Entries indicate total emissions effect assuming indicated
refrigerant prices are attained in 1980 and maintained at that level
throughout the period to 1990.
Since conversion to R-502 in medium temperature systems and use of R-22 test
gas at manufacturing are the only two control candidates included in the bench-
mark, Table 3.G.9 shows the control analysis results for both options, thereby
summarizing the overall benchmark control estimates for this product area.
As an alternative to mandated R-502 use, the use of R-22 in all new medium
temperature systems could be mandated. IR&T does not estimate the cost to indus-
try of complying with this regulation, nor the time lag (if any) required for im-
plementation. If the mandate could be implemented immediately, the cumulative
reduction in R-12 emissions would be the same as that estimated above, 12.2 million
pounds by 1990. In addition, there would be some reduction in R-502 emissions
relative to the baseline case, but this cannot be estimated from the IR&T data
because they do not provide separate estimates of R-502 use in medium and low
temperature systems.
Somewhat more information is available on the implications of mandating R-22
use in all new systems, for low as well as medium temperatures. According to IR&T,
the cost of compliance to the industry as a whole would be about $24 million. There
would also be added costs to the industry (which would be passed on to food
consumers) due to the increased costs of the systems, their original charge, and
their servicing. There is no information about the time required for implementa-
tion, but the stated need for retooling and redesign suggests that several years
might be required. If the mandate could not be implemented until, say, 1985, the
amount of leak testing for R-502 systems increases, the stores (in aggregate) either pay more total
inconvenience costs or more for the R-502 to test the systems. The analysis assumes the stores pay for
more use of R-502.
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Table 3.G.9
BENCHMARK MANDATORY CONTROL ANALYSIS RESULTS FOR THE RETAIL
FOOD PRODUCT AREA, 1980 AND 1990a
Cumulative
1980 1990 1980-1990
Control Candidate: R-502 Use in New Medium
.Temperature Systems
Reduction in R-12 emissions:
millions of pounds
Installation leak testing 0.20 0.22 2.3
Servicing 0.51 3.66 18.1
Total 0.71 3.88 20.4
Compliance cost: millions of
1976 dollars
Initial charge 0.62 0.68 4.4C
Installation leak testing 0.14 0.15 1.0C
Servicing 0.07 0.51 1.2C
Total 0.83 1.34 6.7C
Control Candidate: R-22 Use for Leak Testing
at Manufacture
Reduction in R-12 emissions:
millions of pounds
Total 0.33 0.14 2.5
Compliance cost: millions of
1976 dollars
Total 0.08 0.03 0.6°
Combination of Benchmark Controls
Reduction in R-12 emissions 1.04 4.02 22.9
Compliance cost 0.91 1.37 7.3°
o
Calculations explained in text.
Emissions of R-502 would increase commensurately. Note
that the reduction in R-12 use for initial charges imposes
compliance costs but does not directly reduce emissions.
The 1980 reduction in R-12 use for initial charges would be
4.46 million pounds, which would be replaced by increased
use of R-502. The 1990 reduction in R-12 initial charges
would be 4.86 million pounds.
Cumulative compliance cost estimates assume a discount
rate of 11 percent.
Emissions of R-22 would increase commensurately.
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193
full emissions effect of this option would not be felt until about the year 2000, when
the existing equipment stock will have been disposed. By 1990, the cumulative
reduction in R-12 emissions would be about 33 million pounds, and the cumulative
reduction in R-502 emissions would be about 39 million pounds (less than 10 million
pounds in R-12 equivalent units). Although this option would eventually eliminate
all non-R-22 emissions from this product area, the small share of the effect that
would occur before 1990 together with the uncertainties about the compliance costs
make this option a poor candidate for inclusion in the benchmark controls.
A further consideration in evaluating the desirability of mandated substitution
of R-22 is its potential effect on energy utilization. Although no precise data on the
energy implications of this option have yet been cited, industry sources uniformly
agree that a substantial energy penalty would be incurred. This option clearly
deserves further technical assessment to determine its costs, both in terms of its
impact on consumers and manufacturers and in terms of its energy implications.
CONCLUSIONS
In 1976, retail food store refrigeration systems were responsible for well under
five percent of total emissions of CFCs other than R-22. By 1990, non-R-22 emissions
from this product area will account for less than two percent of the total. Some
reductions in these emissions would probably be induced by rather modest changes
in the prices of R-12 and R-502, and some could be achieved through mandatory
controls without imposing exorbitant compliance costs on the industry or on food
consumers.
To achieve larger emissions gains, it would be necessary to convert to R-22 or
some other refrigerant, a change which appears feasible but much more costly than
the other emissions-reducing options. This is a long-term strategy, yielding much
of its emissions effects after 1990. Whether such a strategy should be pursued
would depend on results from further technical and economic assessment of R-22
conversion.
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III.H. MISCELLANEOUS APPLICATIONS
INTRODUCTION
In 1976, about five percent of total nonaerosol CFC sales were used for the
products discussed in this section. Two of these "miscellaneous" products, sterilants
and liquid fast-freezing systems, are relatively important because their CFC use is
already comparable to the smaller refrigeration product uses and is growing. The
remaining miscellaneous products are extremely small users of CFCs but are of
interest to the various federal agencies that are participating in the CFC policy-
making process.
USE AND EMISSIONS
Sterilants
Although steam is the traditional sterilant for use in hospitals and institutions,
a large and growing list of devices and patient care products cannot withstand
exposure to steam and must be sterilized with gas. In addition, the use of gas
sterilants has increased in recent years because hospitals increasingly favor the use
of disposable instruments that have been presterilized by industrial suppliers.
CFCs are used to dilute ethylene oxide in medical-instrument sterilants, the
most common being "12/88," a gaseous mixture of 88 percent CFC-12 and 12
percent ethylene oxide by weight.
There are alternatives to 12/88 gas for this application, such as pure ethylene
oxide and blends of ethylene oxide and carbon dioxide. However, pure ethylene
oxide is highly flammable and toxic in high concentrations; and the carbon dioxide
blends, while less flammable and less toxic than pure ethylene oxide, are less
efficient sterilants than 12/88 and must be kept in higher-pressure cylinders that
are more difficult to handle safely.
Sterilization is performed in specially constructed chambers in which tempera-
ture, humidity, and length of exposure to the sterilant gas can be controlled, some-
times for several hours. Whether sterilization is performed in the hospital or by
producers of disposable instruments, the sterilizing gas is discarded either by vent-
ing it to the atmosphere or by adding water and flushing it down a drain. In both
cases, emissions are prompt.
DuPont has estimated that during 1976, between 11 and 13 million pounds of
CFC-12 were blended with ethylene oxide for sale as a sterilizing gas.1 DuPont also
estimates that industrial sterilant applications account for 55 percent of the 12/88
sales, and that hospitals and institutions account for 45 percent. But Union Carbide,
one of the firms that blends the mixture, states that the proportions are 75 percent
'DuPont (1978a), p. VI-35.
194
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195
industrial and 25 percent hospital/institutional.2 While a contact at Pennsylvania
Engineering Company confirms the DuPont estimate, the Health Industry
Manufacturers' Association (HIMA) suggests that the proportions are 80 percent
industrial and 20 percent hospital/institutional.3 Presuming that DuPont would
have more knowledge of production, but that HIMA and Union Carbide could
better estimate usage allocations, we estimate that between 9.8 and 11.1 million
pounds of CFC-12 were used in industrial applications, and between 1.9 and 3.2
million pounds were used in hospitals and institutions in 1976. Since the emissions
are prompt, these values also represent the 1976 emissions levels.
The market for CFC gas sterilization appears to be closely linked to the market
for presterilized disposable medical and surgical equipment. Industry sources ex-
pect this market to grow at about 9.5 percent per year between 1974 and 1985.4
Applying this same growth rate between 1985 and 1990 leads to an estimate of
between 35 and 40 million pounds of industrial CFC-12 use and emissions in 1990,
in the absence of controls. If the market for disposables increases as rapidly as
forecast, the need for gas sterilization in hospitals and institutions might not grow.
Industry sources estimate that 1990 hospital use of CFC-12 will remain at or near
the 1976 level.
Liquid Fast-Freezing Systems
About 10 years ago, DuPont developed a specialized freezing system, called
LFF, in which the object to be frozen is placed in direct contact with a purified grade
of R-12. The low temperature of the refrigerant causes extremely rapid freezing of
the product. Moreover, the liquid refrigerant boils as it comes into contact with the
warm product, and the resulting physical agitation causes separation of the objects,
allowing them to be individually quick-frozen. Today, LFF systems are used to
freeze berries, cob corn, raw shrimp and clams, and meat patties.
The LFF equipment is extremely efficient in recycling the R-12 for repeated
use, which minimizes the amount of R-12 that must be purchased to freeze a given
volume of food. However, all the R-12 that is used is ultimately emitted to the
atmosphere.
Emissions from the LFF process occur in three ways: through evaporation,
through dragout, and during cleaning of the machine. Even though both the infeed
and outfeed conveyors are covered and inclined, evaporation losses occur at each
end of the machine, propelled in part by the movement of the conveyor belts.
Dragout emissions occur because a certain amount of the refrigerant adheres to the
product and vaporizes upon contact with the relatively warm outside air. When the
machine is shut down either for periodic cleaning or production runs, some of the
vapor cannot be condensed and is lost. In practice, refrigerant consumption rates
2Letter from Lory A. Crisorio, Union Carbide Corporation, August 14, 1978.
3HIMA (1978), p. 2.
4A recent study for the FDA reportedly projects future growth of hospital demand for disposable
products of all kinds at 20 percent per year.
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196
vary widely and are influenced by the characteristics of the product being frozen,5
by the care with which the equipment is operated, and by the operating schedule.
LFF systems are used for perhaps two percent of the total frozen food market.
The closest alternatives to LFF are cryogenic and cryogenic/mechanical systems
utilizing liquid nitrogen and carbon dioxide, which account for perhaps four per-
cent of the total frozen food market. LFF and cryogenic systems are both more
costly than conventional mechanical systems and thus are used only for food prod-
ucts with which they produce superior results.
In recent years, penetration of LFF systems into the cryogenic and cryogenic/
mechanical markets has greatly increased. Much of the penetration has been moti-
vated by the superior economics of the LFF systems, which are discussed in more
detail below. In addition, LFF users state that the system reduces product handling
and thus increases, cleanliness and reduces damage; it also causes less dehydration,
thereby preserving product weight and value;6 moreover, because LFF systems are
more compact, they require less space for freezing facilities.
The only formal attempt to project future LFF consumption has been made by
DuPont.7 Table 3.H.1 presents these projections as well as the estimated maximum
market potential of the LFF process, i.e., the opportunity for penetration of the
cryogenic market.
Table 3.H.1
R-12 USE IN LIQUID FAST FREEZING
(Millions of pounds)
Markets
Fruit and vegetable
Seafood
Meat
Specialty (long egg,
extruded foods, etc.)
Total
1976
(actual)
3.6
1.0
1.0
0.4
6.0
1980
(forecast)
4.3
1.2
3.5
1.0
10.0
1985
(optimistic
forecast)
5.5
1.5
9.0
2.0
18.0
Maximum
Estimated
Market
Potential
7.0
2.0
17.0
3.0
29.0
SOURCE: DuPont (1976), Exhibit 1, which describes the detailed assump-
tions underlying these projections.
DuPont describes its forecast for 1985 as "optimistic." It assumes that both the
fruit and vegetable and the seafood markets will have matured with regard to LFF
system use. Information provided by industry sources tends to confirm DuPont's
estimates in these markets. The greatest increase in LFF use, according to Table
6DuPont notes that with a few exceptions, freezant consumption per pound of frozen food should be
invariant with respect to the type of food, provided equipment features and operating practices are held
constant.
6Lower hydration losses are reflected in the economic comparisons among alternative freezing
systems as described below.
7DuPont (1976), Exhibit 1.
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3.H.1, is in the raw and cooked frozen meat market, for which the DuPont estimates
anticipate greatly increased penetration of the cryogenic market. This is a reason-
able expectation, since liquid nitrogen and carbon dioxide require a great deal more
energy than R-12 to produce and transport, and thus their prices should rise more
rapidly as fuel costs increase. However, individuals familiar with both types of
systems claim that LFF systems are not gaining as much of this market as was once
expected. If it were assumed that LFF consumption would grow only at the rate
of frozen meat production, which has been projected at 7.4 percent per year for the
near future,8 LFF consumption for meat products would be only 1.9 million pounds
by 1985, instead of the nine million pounds shown in Table 3.H.1, and projected total
LFF use in 1985 would be 10.9 million pounds.
These projections of use and emissions ignore potential improvements in refrig-
erant usage rates, and as a result they may be too high. All the food processing
firms we interviewed had modified their operations (and sometimes rebuilt their
LFF freezers), thereby achieving reductions in refrigerant consumption.9 All were
giving special attention to proper training of operators, and all were actively
looking for additional means of conservation.
It is difficult to project just how successful such conservation measures might
be in reducing future LFF consumption. However, even if refrigerant utilization
rates improve at only one percent per year over the nine-year period from 1976 to
1985, the figures shown for 1985 in Table 3.H.1 would be reduced by nine percent.
If utilization rates were to improve by five percent per year, 1985 usage could be
reduced by 37 percent. Table 3.H.2 summarizes the potential effects on R-12 con-
sumption of alternative degrees of conservation improvement. DuPont indicates
that conservation improvements of one percent are probably feasible but that a five
percent annual improvement is unlikely under current economic conditions.
LFF is, and will probably remain, a specialized CFC application, whose use will
be limited to cases where its superior results offset its higher costs relative to
mechanical systems or where the process is a lower-cost alternative to another
specialty freezing system. While it is difficult to forecast future LFF consumption,
use and emissions levels may fail to reach DuPont's optimistic estimate of 18
million pounds by 1985. Our projection of 15 million pounds in 1990 assumes that
conservation improvements will result in a use of 9.9 million pounds in 1985, but
that fuel cost increases will favor LFF, causing its use to grow at nine percent per
year through 1990.
Other Products
Bromofluorocarbon Fire-Extinguishing Agents. There is some indication
that the bromofluorocarbons, which include Halon 1211 and Halon 1301, may be
as much as 10 times as effective as chlorofluorocarbons in decomposing ozone.
Hence, we mention these chemicals here even though they are not CFCs.
"Quick Frozen Foods, (1976), p. 33. DuPont points out that the market for specialty freezing of meats
is limited to certain items, but the only available projection is for all frozen meats.
9Equipment modifications are often motivated by the desire to increase equipment capacity. Larger
capacity equipment tends to have lower freezant consumption rates in general, and increases in capacity
often solve overloading problems that contribute to high freezant consumption rates.
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Table 3.H.2
EFFECT OF REFRIGERANT CONSERVATION MEASURES ON POSSIBLE
FUTURE LFF CONSUMPTION RATES
Conservation Level
R-12 Consumption in 1985
(millions of pounds)
DuPont "Optimistic" Alternative
Estimate Estimate
Neglecting refrigerant
conservation 18.0 10.9
Consumption rates
reduced 1 percent
per year 16.4 9.9
Consumption rates
reduced 5 percent
per year 11.3 6.9
SOURCE: Table 3.H.I. See text for explanation of al-
ternative estimate.
Halon 1211 is employed in a variety of hand-held fire extinguishers and by
some Air Force "rapid intervention" crash trucks. Halon 1301 is used in "total-
flooding" systems which protect computer rooms, telephone exchanges, and other
high-value spaces. The speed of fire containment and lack of residue after discharge
compensate for the extremely high cost of using bromofluorocarbons in these situa-
tions. The mechanism by which these compounds extinguish a fire is not fully
understood, but it is generally believed to involve the chemical interruption of the
combustion chain.
The use of Halon 1301 depends largely on the number of fire extinguishers
manufactured each year and the average system charge. DuPont estimates that by
early 1978, 10,000 of these systems had been installed.10 Industry sources indicate
that widespread installation of total-flooding systems began in about 1972.
Therefore, we have assumed that prior to 1972, the number of installed systems was
zero, and that the number increased linearly from that date, reaching a stock of
10,000 units by the end of 1977.
Estimates of future rates of installation of Halon 1301 systems vary widely, as
do estimates of average system charges. As a reference case, we have chosen a
growth rate for system installations of 25 percent per year through 1980 but falling
to 10 percent thereafter, and an average system capacity of 600 pounds.
There are five sources of emissions from Halon 1301 systems. During the filling
of installed systems, a small amount, estimated at 0.5 percent of consumption, is
emitted through piping connections and other seals. Another small amount occurs
as leakage. Our estimate of the magnitude of this loss is 0.0000781b, where b is the
amount of Halon 1301 in the stock of installed systems. The third source of emis-
sions occurs during tests in which an installed Halon 1301 system is required to hold
10DuPont (1978a), p. IV-6.
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199
a specified gas concentration in the area to be protected for a given period of time.
We have assumed the testing frequency to be 10 percent of the installed systems,
with only half of the testing performed with Halon 1301.u Some systems
occasionally malfunction, inadvertently discharging their charge. We estimate the
probability of this at one percent per system per year. The probability of a
discharge due to an actual fire is estimated to be half that of inadvertent
discharges.
Table 3.H.3 presents estimates of 1977 and 1990 emissions, consumption, and
stocks of Halon 1301. Consumption includes the initial charge for new units plus
emissions from all sources, while the bank includes the stock of all units with their
contained charges.
Table 3.H.3
ESTIMATED HALON 1301 CONSUMPTION, EMISSIONS, AND BANK*
(Pounds)
Emissions Source 1977 1990
Filling and servicing
Normal leakage
Testing
Inadvertent discharge
Discharge during fire
Total emissions
Total consumption
Bank
6,695
375
60,000
48,000
24,000
139,070
1,339,070
6,000,000
16,672
2,158
138,150
276,324
138,162
571,466
3,334,466
30,395,400
Calculations explained in text.
This figure is the total amount of Halon 1301 con-
tained in all systems installed prior to and including
the indicated year. Since the scrappage rate has been
assumed to be zero, this might overestimate the true
bank.
The values in Table 3.H.3 indicate clearly that emissions are only a small
fraction of total consumption, about 10 percent in 1977 and approximately 17
percent in 1990. According to the estimates, the Halon 1301 bank in 1990 will
increase significantly—to about five times the 1977 level.
Data on Halon 1211 use and emissions are not available, but are likely to be
lower than for Halon 1301.
Single-Station Heat Detectors. A small amount of CFC-12 is employed in fire
warning devices known as single-station heat detectors.12 These devices consist of
a container of CFC-12, a heat-sensitive actuating device, and a horn through which
the CFC, liberated by the actuating device, escapes.
"The other half of the testing is done with CFC-12.
12This product is not the same as the now familiar smoke detector, and it is used in situations where
heat rather than smoke is likely to be a primary indicator of fire. Smoke detectors do not use CFCs.
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There are no generally accepted estimates of either the current rate of produc-
tion of these devices or the total number of units presently in the field. Use of
CFC-12 for this purpose has been estimated at between 150,000 and 300,000 pounds
in 1975. Assuming an average unit charge of 12.5 ounces, the CFC-12 was used to
fill between 192,000 and 384,000 units that year.
Single-station heat detectors have been marketed for about 25 years. If it is
assumed that output in the first year of production (which we take to be 1950) was
modest, say 1,000 units, then an average annual growth rate of about 25 percent
would yield a 1975 production level of about 265,000 units, slightly below the
midpoint of the range estimated above. Applying the same rate of growth through
1977 leads to production in that year of about 414,000 units and a stock of approxi-
mately 1.65 million units.
Future production levels are highly uncertain. As an upper bound, we assume
that a 25 percent growth rate might continue through 1990. This would result in
a unit production level of about 7.5 million units for that year. If all units are filled
with 12.5 ounces of CFC-12, consumption by 1990 would total about six million
pounds.
Emissions from single-station heat detectors are extremely small. Production
losses may be only a few thousand pounds, and the number of inadvertent dis-
charges is apparently so small as to be treated here as negligible. The final emis-
sions source, discharge during fire, is estimated at between 0.1 and 0.3 percent per
year of stocks. We use the 0.3 percent value, again as an upper bound.
Table 3.H.4 presents the estimated consumption, emissions, and bank of CFC-12
in these units for 1977 and 1990. Consumption includes the initial charge, while the
bank represents the contained charges of all units manufactured prior to and
including the current year. One manufacturer of these units, Falcon Safety Prod-
ucts, has recently marketed a smaller, less-expensive unit which holds only two
ounces of CFC-12. If all heat detectors manufactured between 1977 and 1990 were
of this type, emissions during fires in 1990 could be reduced from the 87,000 pounds
estimated in Table 3.H.4 to about 17,000 pounds.
Table 3.H.4
ESTIMATED CFC-12 CONSUMPTION, EMISSIONS, AND BANK
IN SINGLE-STATION HEAT DETECTORS*
(Millions of pounds)
Item 1977 1990
Emissions
Total consumption
Bankb
0.004
0.327
1.289
0.087
5.971
29.086
Calculations explained in text.
Estimated lifetimes of the units are from
30 to 50 years. We have ignored scrappage,
so the bank overestimates the true stocks.
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Other Warning Devices. There are a number of warning devices which oper-
ate on a principle similar to that of the single-station heat detector. These include
personal protection alarms, signal horns, boat horns, intruder alarms, and bicycle
alarms, all of which utilize CFC-12.
To the extent that these devices are purchased but not immediately used, they
represent some degree of CFC banking. However, in the absence of data on such
storage, we assume they are prompt emitters.
Falcon Safety Products estimates total industry consumption of "products like
ours" (including single-station heat detectors, other warning devices, a product
called "Dust-Off," and boat horns) at 1.25 to 1.75 million pounds per year. Assuming
that about 225,000 pounds of CFC-12 per year is used for single-station heat detec-
tors, approximately 1.2 million pounds remains for use in personal protection de-
vices, Dust-Off, and boat horns. Our best estimate is that less than one million
pounds of CFC-12 per year is used in and emitted from warning devices. Projections
of future CFC-12 use for this application are not available.
Dehumidifiers. Dehumidifiers are simple hermetic systems that use R-12 to
remove moisture from the air in the home. IR&T estimates that shipments of
dehumidifiers totalled 510,000 units in 1976. Based on shipments from 1957
through 1976, the projected shipments for 1990 are 909,000 units. The average
charge of a dehumidifier is estimated to be 0.9 pounds, based on an estimate in a
previous EPA study of 0.84 pounds and a major producer's estimate of 14 to 15
ounces per machine. The average lifetime of a dehumidifier is about 20 years.
The emissions characteristics of dehumidifiers are similar to those Of refrigera-
tors and freezers. Manufacturing emissions are estimated at eight percent of initial
charge in 1976, declining to seven percent by 1990. Leakage and servicing emissions
are estimated to be 0.2 and 1.5 percent of refrigerant stocks, respectively. Disposal
emissions are calculated by IR&T on the assumption that 96 percent of the charge
remains at the time of disposal.
Table 3.H.5 presents data on estimated use, emissions, and bank of R-12 for
dehumidifiers in 1976 and 1990. Purchases were calculated by summing initial
charges and all emissions except those at disposal.
Table 3.H.5
ESTIMATED USE, EMISSIONS, AND BANK OF R-12
FOR DEHUMIDIFIERS1
(Millions of pounds)
Item
Use
Emissions
Bank
1976
0.616
0.333
7.069
1990
1.121
0.757
14.319
Calculations explained in text.
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Pressurized Blowers and Drain Cleaners. These products use pressure from
CFC gas to displace lint or dust from a surface or free a clogged drain.
There are at least three pressurized blowers on the market. All use CFC-12,
which is emitted promptly during use. It is estimated that current use and emis-
sions in these devices is less than one million pounds.
At least two products using CFCs for cleaning drains are presently marketed.
Current CFC usage in these drain openers is estimated to be 950,000 pounds of
CFC-12 and 53,000 pounds of CFC-114. Emissions from these products are also
prompt.
No projections of CFC use in either device are available.
Skin Chillers and Presurgical Skin Cleaners. Small amounts of CFC-11,
CFC-12, and CFC-114 are used in vapor form to chill skin as a form of topical
anesthesia. CFC-113 is a solvent used in operating rooms to remove oils from the
skin, reducing the risk of infection and facilitating adhesion of surgical drapes to
the skin.
One estimate places the combined CFC usage in skin chillers at 23,000 pounds
annually.13 About 100,000 pounds of CFC-113 per year is used in operating rooms
to remove oils from the skin.14 Both types of products can be considered prompt
emitters. Again, there are no projections of future use of CFCs in these markets.
Whipped-Topping Stabilizer. The addition of CFC-115 to whipped topping
allows less butterfat content, prevents the last 20 percent of the topping from
becoming watery, and provides the stability necessary to inhibit sagging after the
topping has been dispensed.
CFC-115 is used in about one-fourth of the 100 million whipped-topping units
produced annually. Current use and emissions of CFC-115 from this source are
estimated at less than 100,000 pounds per year. Estimates of future market growth
are not available.
Coal Cleaning. Chlorofluorocarbons are used to recover hydrocarbon values
from coal. In one process, raw coal is placed in a CFC-11 bath, causing the less dense
coal to float and the more dense refuse material to sink. The coal is removed from
the liquid surface, while the refuse is recovered separately and used as dry land
fill.
In this application, CFC emissions are prompt. Two alternative estimates of
emissions rates are available. The first, made by Ostica Industries,16 places
emissions at 0.05 pounds of CFC per ton of raw coal processed, while the second,
made by McNally Corporation,16 estimates the rate at two pounds of CFC per ton
of coal cleaned. Current coal production for which this process is used is less than
one million tons, which implies that CFC-11 use and emissions could vary between
50,000 and two million pounds; we adopt one million pounds as the current
estimate.
Ostica Industries' "optimistic" projection of CFC use is 3.5 million pounds in
1989. We use this figure for the 1990 use and emissions estimates.
Trucking Refrigeration. This category includes refrigeration for trucks, air
conditioning in buses, and air conditioning in rapid-transit vehicles other than
13EPA (1977a), pp. 4-67 through 4-73.
I4DuPont (1978a), p. IV-6.
16EPA (1977a).
16EPA (1977a), pp. 4-67 through 4-73.
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203
buses. Since the late 1960s, there has been virtually no refrigerated transport by
rail.
Refrigerated trucks are used for intracity deliveries of perishables, including
neighborhood deliveries of dairy products. Industry sources estimate that approxi-
mately 5,000 refrigerated trucks are manufactured annually and that the average
charge of the refrigeration unit is nine pounds of R-12. Thus, about 45,000 pounds
of R-12 are used annually to charge these refrigeration devices. Over-the-road
trailers for intercity transport of perishables use an average charge of 17 pounds
per unit, and approximately 17,000 units are produced annually. Thus, about
289,000 pounds of R-12 is used annually to charge these larger trucking re-
frigeration units.
Annual production of air conditioning systems for intracity buses is currently
about 4,000 units, while about 1,000 units are produced annually for intercity buses.
Industry sources estimate that 75 to 85 percent of these systems are charged with
R-22, the remainder with R-12. At an average initial charge of 15 pounds per unit,
this application would account for 15,000 pounds of R-12 use and 60,000 pounds of
R-22 use per year. Current trends favor R-22 because it requires a smaller compres-
sor and has larger capacity parameters.
Other rapid-transit systems also use air conditioning systems charged with
R-22. Initial charges of these units amount to less than 10,000 pounds per year, at
current production levels of 500 cars annually.
These applications account for less than half of the 1973 mobile vehicle refriger-
ation system shipments recorded by the Census of Manufactures. We cannot ac-
count for the discrepancy, but it seems likely that the 69,000 shipments recorded
by the Census include a large number of very small units. Moreover, even if we
double the R-12 usage figures cited above, the total use for initial charges in this
application category remains very small, less than one million pounds. There are
no data on future growth for this application.
As in other refrigeration applications, emissions from trucking refrigeration
depend on the size of the bank. There are no data on the bank of air conditioning
systems for buses or other rapid-transit vehicles, but the American Trucking As-
sociation and the 1972 Census of Transportation indicate that there are over
100,000 city delivery trucks and nearly 125,000 over-the-road trailers currently
in use. The bank of R-12 implied by these stock estimates is 3.1 million pounds.
Without information on the emissions rates from the bank, we cannot estimate
annual emissions, but it is clear that such emissions must be very small relative
to those in other product areas covered by this study.
Incipient and Specialty Applications. CFCs are used in extremely small
amounts for cleaning and lubricating aircraft parts; chilling electronic parts; drying
numismatic blanks, coins and medals; propelling air brushes; removing chewing
gum; propelling roach and insect killer; cleaning and lubricating electric shavers;
treating books, prints, and documents; cooling in the gaseous diffusion process for
uranium enrichment; and as a refrigerant in home water coolers and ice makers.
CFC use and emissions data for these applications are largely unavailable, so we
have not included them in this study.
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Use and Emissions Summary
Table 3.H.6 summarizes CFG use and emissions estimates for 1976 and 1990.
Where 1990 use estimates were not available for a product area, we have assumed
an annual growth rate approximately that of the same CFC in the major product
areas described in previous sections.
Table 3.H.6
USE AND EMISSIONS OF FLUOROCARBONS IN MISCELLANEOUS PRODUCTS"
(Millions of pounds)
Product •
Sterilants
LFF
Fire extinguishers
Heat detectors0
Warning devices
Dehumidif iers^
Blowers and
drain cleaners
Skin chillers
and cleaners
Whipped topping
Coal cleaning
Fluorocarbon
CFC-12
CFC-12
Halon 1301
CFC-12
CFC-12
-CFC-12
(CFC-12
\CFC-114
(CFC-11
{CFC-12
JCFC-113
CFC-115
CFC-11
1976
Use Emissions
13.0 13.0
6.0 6.0
1.2 0.1
0.3 (d)
0.9 0.9
0.6 0.3
1.3 1.3
(d) (d)
(d) (d)
(d) (d)
0.1 0.1
0.1 0.1
1.0 1.0
1990
Use
40.0
15.0
3.3
5.9
1.7e
1.1
2.4e
O.le
(d)
(d)
0.2e
0.2e
3.5
Emissions
40.0
15.0
0.6
(d)
1.7e
0.8
2.4e
O.le
(d)
(d)
0.2e
0.2e
3.5
Calculations explained in text.
The bank of Halon 1301 in fire extinguishers was about five million
pounds in 1976 and could reach 30 million pounds in 1990.
CThe bank of CFC-12 in heat detectors was about 1.0 million pounds in
1976 and could reach 29 million pounds in 1990.
Less than 100,000 pounds.
eAssumes the same average growth rates as for major product areas
using the same CFC.
The bank of CFC-12 in dehumidifiers was about seven million .pounds
in 1976 and could reach 14 million pounds by 1990.
INDUSTRY AND MARKET CHARACTERISTICS
Sterilants
As discussed earlier, sterilization is performed either in hospitals and institu-
tions themselves or in industrial sterilization firms. DuPont estimates that there
are approximately 3,000 hospital sterilizers presently in service equipped to use
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12/88, and that an additional 3,000 "desk type" gas sterilizers are in use in clinics,
doctors' offices, and hospitals, 25 percent of which use ethylene oxide/CFC blends.
The value of the present stock of hospital/institutional sterilizers is estimated at
between $38 million and $64 million.
DuPont estimates that there are about 200 industrial gas sterilizers using
12/88,17 while Vacudyne Altair, a major manufacturer of industrial sterilizers,
places the number "in excess of 400,"18 and a source at Pennsylvania Engineering
estimates that the number is closer to 1,000. Estimates of the size of the typical
industrial sterilization unit range from 200 to 850 cubic feet. The total investment
in industrial sterilizers is estimated at between $20 million and $40 million.
We estimate that sterilization costs account for between seven and 15 percent
of the total cost of disposables.
Liquid Fast-Freezing Systems
As discussed earlier, perhaps two percent of the total frozen food market uses
LFF. DuPont estimates that there were about 32 LFF systems in existence as of late
1978, but some users believe that DuPont does not have a full count of custom-made
systems. System suppliers expect to sell three to five units per year in the future.
Information provided by firms that use LFF systems indicates that LFF-frozen
food sales account for between 0.002 and 50 percent of total corporate sales. The
smaller figure was reported by a large food processing firm that had recently
installed an LFF system to freeze a single product in its broad line. The company
also estimated that between 12 and 15 workers, about 0.001 percent of its total
employment, would be affected by regulation of LFF.
A more typical user is a seafood processing firm, which reported that LFF-
frozen products account for 50 percent of its revenues, and that of its total of 360
workers, 110 would be directly affected and 25 indirectly affected if LFF use had
to be discontinued. Another firm, a small specialty packer of fruits and vegetables,
reported that approximately 50 percent of its revenues are derived from LFF-
frozen products, and that 50 "regular" and 350 "seasonal" workers would be affect-
ed if controls were placed on LFF.
The largest current user of LFF is Green Giant (Minnesota), which has five
systems in operation at four plants and values the investment in these systems at
$3.1 million. Its LFF product is frozen cob corn, for which at least one of its
competitors uses an air-blast (cryogenic/mechanical) system. Other firms that have
identified themselves as LFF users include General Foods (New York), Booth
Fisheries (Chicago), National Sea Products (Florida), Stayton Canning Company
Cooperative (Oregon), Flavorland Foods (Oregon), Wilson Foods (Oklahoma), and
Keying Foods (Iowa).
A second group of firms which stands to be affected by controls on LFF is
freezing-equipment manufacturers. Although a few custom-made one-of-a-kind
units are produced, the principal supplier of LFF freezing equipment at present is
Frigoscandia Contracting, an international corporation which manufactures a full
"DuPont (1978a), p. IV-6.
18Letter from Harvey Markinson, Vice President-General Manager, Vacudyne Altair, November 2.
1978.
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206
line of freezing equipment. Frigoscandia's U.S. subsidiary reports that LFF equip-
ment accounts for less than 10 percent of their current sales and that they do not
expect this percentage to increase. Another major manufacturer of LFF systems is
Lewis Refrigeration of Woodinville, Washington.
Other Applications
Bromofluorocarbon Fire-Extinguishing Agents. Halon 1301 is supplied by
two companies, DuPont and Forex Chemical Corporation. Because of the high cost
of bromofluorocarbons, estimated at between $2.50 and $3.50 per pound wholesale,
Halon 1301 systems are not likely to be adopted for uses other than in high-value
areas such as computer rooms. A moderate increase in the price of Halon 1301
would probably not prevent sales of the systems in such high-value situations. The
suppliers of the chemical sell exclusively to manufacturers of fire-protection equip-
ment and to the U.S. government.
Single-Station Heat Detectors. Single-station heat detectors are manufac-
tured primarily by two firms, Falcon Safety Products and Evergard. However,
other manufacturers may exist.
A new model has recently been marketed exclusively by Falcon which is small-
er and less expensive than the traditional model and retails for about $19 rather
than $70 to $90. Because the new device requires less CFC-12, Falcon would have
a cost advantage over the other manufacturers of heat detectors if the price of
CFC-12 were to rise. However, the cost of the CFC-12 is very minor compared with
the cost of the heat detector itself. At the current price, the cost advantage from
charging one unit with two ounces instead of 12.5 ounces is about 27 cents. Even
if the price of CFC-12 were to increase tenfold, manufacturers of the large devices
would find that their production costs would rise by only about $3 per detector.
Other Warning Devices. Falcon Safety Products markets a "personal protec-
tion and signal horn" under the trade name Sound 911. Other firms (not identified
here) market a variety of similar devices for use as boat horns, intruder alarms,
and bicycle alarms.
Dehumidifiers. Neither IR&T nor Rand has data on the manufacturers of
dehumidifiers.
Pressurized Blowers and Drain Cleaners. Most pressurized blowers are
marketed by two firms, Falcon Safety Products, which calls its product Dust-Off,
and Century Laboratories, which uses the trade name Omit Plus. A third firm,
Miller-Stephenson, also provides a product of this type, which it calls Aero Duster.
Drain cleaners are also marketed primarily by two firms, Glamorene, which
calls its product Drain Power, and the Drackett Company, which calls its product
Drano. From sales data, we are able to infer that Glamorene's market share is
about 40 percent. CFC-propelled power drain cleaners comprise a small share of the
total drain cleaning market, which includes several chemical drain openers.
Skin Chillers and Presurgical Skin Cleaners. We are aware of no data that
provide economic characteristics of the firms engaged in marketing these products.
Whipped-Topping Stabilizers. CFC-115 represents about one percent of the
net package weight of the 25 million units of CFC-stabilized whipped toppings
produced annually. There are 15 firms that produce these whipped toppings; some
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208
available from Vacudyne Altair. This unit, which costs $125,000 installed, recovers
60 to 80 percent of vented sterilant gas, replaces any ethylene oxide lost through
absorption by the material being sterilized, and reinjects the sterilant gas into the
sterilizer. The producer of the unit claims it is cost-saving at current sterilant gas
prices; however, only one such unit is currently being operated, and that unit is in
a facility owned by its developer. We do not have sufficient information to deter-
mine the prices of sterilant gas at which the recovery unit would become more
widely used, though it is likely that larger sterilization units would begin recovery
at lower gas prices than smaller units. If the use of such units became widespread
beginning in 1980, cumulative emissions (and cumulative use) of CFC-12 from this
application would fall by at least 157 million or as much as 209 million pounds
between 1980 and 1990.
The second option involves shunting waste gas from one sterilizer to another.
This procedure would have a relatively low cost to any firm having more than one
sterilization unit, but the gains in terms of emissions reductions are unknown. The
observation that the procedure is not used might indicate that the costs of coor-
dinating sterilization cycles are sufficiently high to outweigh the gas savings, at
least at current gas prices.
The third option is increasing the length of the sterilization cycle to pe'rmit
lower gas levels per cycle. If this is technically feasible, its economic advantages
depend on (1) its effects on operating costs and (2) whether firms have sufficient
capacity to permit lower throughput rates without sacrificing levels of output.
For hospitals and institutions, which use smaller sterilization units, the use of
less gas per unit means that the preceding options are less likely to be economical
at any given gas price. One company offers an alternative sterilization system
("Sterijet") appropriate for hospital use that uses CFC-11 instead of CFC-12 and
requires much less gas to perform the sterilization function. Pursuit of this option
would require replacement of the stock of hospital equipment, currently valued at
$38 million to $64 million, and would have relatively little effect on emissions of
CFC-12 because hospitals and institutions use fairly small amounts and their use
is not expected to grow much over the next decade.
Industry sources vary in their opinions of the promise offered by the foregoing
options, just as they vary in their estimates of current sterilant use and projected
emissions. Opinions are far more uniform concerning another approach to the
emissions problem: Virtually everyone we interviewed agreed that substitution of
alternative sterilant gases or techniques for 12/88 is a bad idea. Sterilization by
steam, the principal alternative in use by hospitals and institutions, is relatively
inexpensive and safe, but it is incompatible with some of the materials from which
modern medical devices and supplies are made. Both of the alternative sterilant
gases, pure ethylene oxide and ethylene oxide/carbon dioxide blends, are widely
criticized, the former for its toxicity and flammability, the latter for its inconveni-
ence (due to high cylinder pressures) and because it is relatively inefficient.
We suspect that economics plays a much larger role in the stated preferences
for 12/88 than is readily apparent from the statements of industry sources. And if
economics is an important driving force behind the growth in 12/88 use, policy
action to modify the economics of the situation can be an important driving force
to reduce emissions of CFC-12 in this application.
No industry source has offered a detailed comparison of the costs of using
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209
alternative sterilant gases, even for a single, well-defined case. One source made the
general comment that pure ethylene oxide is far more costly to use than 12/88, but
this appears to conflict with the comment by another source that some very large
industrial users find the cost savings from using pure ethylene oxide sufficient to
offset the added costs of insulating chambers required to safeguard against the
flammability hazard.
Although the carbon dioxide blends are not new, they account for a far smaller
share of the sterilant gas market than does 12/88 (as indicated by a survey conduct-
ed by the HIMA). This alone suggests that current economic conditions favor the
use of 12/88 over the carbon dioxide blends. Furthermore, modest changes in
sterilization economics are not likely to lead to substitution of these blends for
12/88 by current users because they require different equipment.
In contrast, substitution of pure ethylene oxide might be induced by higher
12/88 prices. At present, about one-fourth of the sterilant gas used for industrial
sterilization is pure ethylene oxide, and substitution of the pure gas for 12/88 does
appear feasible if certain modifications are made to existing units and if they are
enclosed in an insulation chamber.
In the absence of data necessary to predict how 12/88 users would respond to
higher gas prices, we have treated this demand for CFC-12 in our basic analysis as
though it were perfectly inelastic. However, the foregoing discussion strongly indi-
cates that CFC emissions in this application could be reduced substantially and that
higher CFC prices could motivate such reductions. The analysis of economic incen-
tives in Sec. IV shows the effects on the policy outcomes of assuming that price
increases could motivate use of some combination of the preceding emissions-
control options that would reduce CFC use in this application by 80 percent.
It is also possible that a selected set of mandatory controls could reduce these
emissions by up to 80 percent without limiting the availability of sterilized medical
supplies. If so, and if the controls could be implemented soon, the cumulative
emissions reduction between 1980 and 1990 from this product area alone could
increase the reductions under the benchmark control candidates by nearly one-
third. This suggests that if mandatory controls rather than economic incentives
were used to limit CFC emissions, further technical and economic assessment of the
options in this product area would be very valuable.
Liquid Fast-Freezing Systems
Emissions of R-12 from LFF applications could be reduced by system improve-
ments to reduce loss rates or by limitations on the use of LFF systems. No specific
design improvements have been identified as being particularly effective in reduc-
ing emissions, because the systems are already designed for maximum recycling of
vapor losses. Instead, the major improvements in emissions seem to be related to
using systems of the proper capacity to prevent overloading and to adopting good
operating practices. Since operation is highly seasonal in this application, overload-
ing may not be uncommon and restrictions on loading rates for various equipment
might be possible, given that there are few sites to be monitored. Operating practice
standards do not appear enforceable, however, because they would require continu-
al monitoring. In the absence of data on freezant consumption rates under actual
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operating conditions, it is not possible to predict the emissions reductions achieva-
ble under loading-rate controls.
Restrictions that forbid production of new sources or expansion of existing ones
would reduce 1990 emissions by perhaps five million pounds. Such restrictions
would also generate significant excess profits for existing LFF users because the
alternative specialty systems appear to be far more costly to use and would cause
some loss of business (at about $400,000 per system and three to five new systems
per year) to LFF system suppliers.
Restrictions that eliminate all use of LFF would impose substantial costs on
existing users. Green Giant estimates that replacing their existing systems would
take three to five years and would cost in excess of $6 million; and the construction
costs for new facilities to house the new systems would increase that figure to $21
million. Green Giant claims it would discontinue production if LFF use were prohib-
ited because it lacks the capital to make the conversion.
Industry sources have identified several disadvantages of eliminating the use
of LFF, including increased consumer prices for similar products produced with
alternative systems, reduced product quality, and the elimination of certain prod-
ucts (e.g., extruded eggs) that cannot be frozen acceptably by other systems.
Another disadvantage would be increased energy utilization. Although air-
blast (cryogenic/mechanical) and liquid-nitrogen systems use less energy to freeze
a given volume of food, the freezant use rates for carbon dioxide and nitrogen are
much higher than those for LFF and their production and transport require greater
amounts of energy. One source estimates that liquid nitrogen requires 9 to 10 times
the Btus of LFF to freeze a pound of food, while carbon dioxide requires 17 to 20
times the Btus. To the extent that current or future energy prices do not reflect
their real resource cost, a simple comparison of the costs of alternative systems does
not reveal the true cost advantages of LFF.20
Available evidence strongly suggests that economic incentives could be used to
reduce CFC emissions from LFF systems, though the precise relationship between
LFF prices and emissions cannot be ascertained. Illustrative examples of the pro-
duction costs of different systems, provided by various industry sources, including
DuPont and Frigoscandia, are presented in Appendix B. The examples differ in
assumed food type, loading rates, equipment sizes, and other features, and assumed
current prices of LFF vary from 45 cents to 57 cents per pound. In most cases, the
examples provide two-way comparisons between LFF and liquid-nitrogen systems.
One set of illustrations refers to air blast as well, and the air-blast estimates are
shown for the one situation (freezing raw meat patties) where air blast is indicated
to be the least-cost of the three methods, and for a second situation (freezing
shrimp) where air blast is less costly than liquid nitrogen.
The prospective user of LFF is concerned with overall operating cost per pound
of food. If this cost is the only factor, the cost examples indicate that prospective
users would become indifferent between LFF and a competitive system if the price
of LFF freezant rose by varying amounts, depending on specific expected operating
20Some industry sources have converted the Btu estimates into costs by multiplying by the current
price of energy per Btu. This is an incorrect procedure for calculating the energy cost of eliminating
LFF systems. The current prices of liquid nitrogen and carbon dioxide already cover the energy ex-
penses for their production and transportation, so a comparison of freezing costs between LFF and the
alternatives already embodies the energy expenditure differentials among them.
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conditions. In one example, an increase in the price of LFF freezant of 97 cents per
pound would make its use equal in cost to that of the alternative system; in another,
the crossover price increase would be $1.50. Both of these price increments are in
the upper range of the changes considered in this study. If there are cost-saving
methods for still greater reductions in freezant use, the price increments required
to dissuade LFF use would be larger, while if the user anticipates some overloading
with LFF (but not with the alternative systems), the necessary price increment
would be smaller.
In the absence of information on the conditions under which producers might
expect to be operating, we cannot tell how much LFF use would be reduced by any
of the price increments in the foregoing range. Moreover, except for the one case
in which the air-blast system appears to have lower costs, the illustrative examples
do not allow us to explain why any new user would choose a system other than LFF.
Therefore, it cannot be assumed that changing the LFF price by precisely the
indicated amounts is either necessary or sufficient to induce prospective users to
choose alternative systems.
The important economic issue for existing LFF users is whether to continue
LFF use in the event of a price increase. Since some of their original capital
investment is already amortized, the capital loss from discontinuing LFF use is
equal to only a portion of the original investment.21 As long as the LFF-frozen food
price continues to allow recovery of variable operating costs, the existing user
would retain his LFF system; if the frozen food price is even slightly higher than
variable operating costs, the user would be able to continue amortization of the
original investment, though at a slower rate. According to the illustrative cost
examples, variable operating costs per unit of food frozen with LFF are only 26 to
40 percent as large as the variable operating costs per unit of competing systems.
Hence, the available data seem to indicate that existing LFF users would continue
to be able to charge competitive prices even if the LFF freezant prices doubled. This
is consistent with the comment by one LFF user that a doubling of the LFF freezant
price would be passed through to final product consumers in the form of a three
to five percent increase in frozen food costs.
Although the basic analysis of economic incentive policies in Sec. IV treats LFF
demand for CFCs as though it were perfectly inelastic, there does appear to be some
elasticity of demand, particularly among prospective users, in the upper end of the
CFC price range under consideration in this study. Therefore, Sec. IV also considers
how the overall results of an economic incentive policy might differ in the presence
of such demand elasticity.
21For example, Green Giant estimates that its write-off would be $1.75 million, as compared with the
original investment amount of $3.1 million.
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IV. ECONOMIC INCENTIVES VERSUS
MANDATORY CONTROLS: EMISSIONS
REDUCTIONS AND COMPLIANCE
COSTS
Together, this section and Sec. V compare various features of economic incen-
tives policies with those of mandatory controls. This section begins with a descrip-
tion of how and why economic incentives function, then develops definitions and
methods necessary for comparing incentive strategies with mandatory controls.
Finally, it derives four specific economic incentive policy designs, contrasting them
with one another as well as with the mandatory controls.
The alternative policies presented in this section are compared in terms of their
effectiveness in reducing emissions. Two of the economic incentives policies are
designed to achieve the same emissions reductions as the benchmark mandatory
controls identified in Sec. I, while two would achieve greater reductions.
This section also compares the effects of the policy alternatives in terms of the
sacrifices that must be made by the U.S. economy as a whole in order to reduce CFC
emissions between 1980 and 1990. As explained in Sec. II, all policies to limit
emissions either directly or indirectly cause increased use of economic resources for
emissions-reducing activities (e.g., increased use of equipment to recover and recy-
cle CFCs), thereby reducing the ability of the economy as a whole to produce other
goods and services. We have termed the measure of this sacrifice—the dollar value
of the resources so engaged—the "compliance cost." Here, we show that (1) compli-
ance costs of mandatory controls differ substantially from those of economic incen-
tives that achieve the same cumulative U.S. emissions reductions; (2) different
economic incentive policy designs can yield differences in compliance costs for the
same amount of emissions reduction; and (3) economic incentives can be used to
exceed the benchmark level of emissions reduction, but compliance costs rise more
than proportionately.
Other important differences among policies are examined in Sec. V. There,
major policy differences are predicted for the distribution of regulatory costs
among industries, firms, and consumers. For economic incentives policies, the dis-
tributive outcomes—and their implications for consumer prices, plant closures, and
the productivity of capital—depend critically on how the policy is implemented and
operated. Section V examines this and other operational aspects of policy, together
with a number of other policy concerns.
HOW ECONOMIC INCENTIVES WORK
Economic incentives strategies operate on a basic economic principle: As CFC
prices are raised, industry will seek ways to reduce CFC use in order to avoid
higher production costs. Firms may substitute alternative chemicals for CFCs,
purchase equipment to recover and recycle CFCs that would otherwise be emitted
212
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213
into the atmosphere, or purchase equipment that limits the rate at which CFCs
escape into the atmosphere, thereby prolonging the usefulness of a given amount
of them. The product area demand analyses in the preceding sections indicated the
CFC prices at which these activities should become cost-effective in various appli-
cations. By effectively raising the prices CFC users must pay, economic incentives
make emissions reductions cost-effective, and the desired policy outcome is
achieved through decentralized decisionmaking by firms without direct monitoring
and enforcement.
Two alternative policy mechanisms are available for raising the effective CFC
price. One is an excise tax that must be paid by users for each pound of CFC
purchased. As with other sales taxes, the CFC seller collects the tax and remits it
to the taxing authority. Under a tax system, the user who reduces his CFC pur-
chases reduces his expenses by the amount of the tax as well as by the amount of
the CFC supply price. Thus, the cost saving from reducing CFC use is greater than
it would be without the tax, and techniques for controlling use and emissions
become profitable.
Alternatively, CFC prices can be increased indirectly by restricting the quanti-
ty of CFCs available. If a quota is imposed, some mechanism will arise to allocate
the reduced amount of CFCs among competing users. If the regulation does not
supply an explicit mechanism, the CFC producers must devise one. For example,
they might raise CFC prices so that users will reduce their purchases, or they might
ration CFCs in some other way, with uncertain consequences for the ultimate
effects on emissions. (See Sec. V.)
Instead, the regulatory agency can issue permits for CFC purchases. Users
must then buy permits in order to obtain CFCs, and the prices they pay for permits
represent an increase in CFC costs. Thus, a permit quota likewise increases the
effective price of CFCs and encourages firms to seek ways to reduce their pur-
chases.
Under a permit quota, the regulatory agency establishes a quota for CFC
production during a specified period of time, and an amount of permits is released
corresponding to the quota. The permit (which is essentially a ration coupon)
authorizes a user to purchase a specified amount of any of the regulated CFCs.1
Upon making a CFC purchase, the user must transmit to the seller the requisite
number of permits; the seller then turns the permits in to the regulatory authority
to register completion of a CFC sale. The regulatory authority monitors the
production and sale of CFCs to assure that sales do not exceed the amounts
authorized by the number of permits that have been remitted during each time
period.
The permits could be bought and sold among eligible parties to the market,2 and
thus they are described as "marketable" or "exchangeable." This feature is
essential because it means that the permits continue to have a market value even
after a user has obtained them; a permit holder's consumption of CFCs implies a
decision to forgo receiving the sum others would be willing to pay for his permits.
'Some CFC users purchase reclaimed as well as virgin CFC. Since the amount of virgin production
is the ultimate determinant of emissions levels, this is the appropriate target for economic incentives
policies. The prices of reclaimed CFC should not be increased by regulation, since such action would
discourage reclamation activities that may directly reduce CFC emissions.
2Section V discusses the matter of eligibility for participation in the permit market. Of course, under
a tax policy, users would be allowed to buy and sell CFCs among themselves.
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214
For expositions! convenience, we speak as though all CFC users must buy
permits or pay taxes for all the CFC they buy. However, the predicted effectiveness
of economic incentives in reducing emissions does not depend on this feature.
Section V explains how a properly designed implementation plan can achieve the
emissions reductions cited below while exempting some users from the policy,
granting tax forgiveness for some portions of CFC use, or directly allocating per-
mits without requiring payments for the initial allocation.
The tax rate that would achieve a given reduction in CFC use is equivalent to
the permit price that would result if a quota reduced the availability of CFCs by
the same amount. Thus, the same reduction in use can be achieved with either taxes
or a permit quota, and the effective increase in the CFC price would be the same
under both policies.
Taxes and permits do have differences in their operation and implementation.
For example, one important distinction results from uncertainty about the esti-
mated demand schedules used to predict permit prices or requisite taxes to achieve
a given policy goal. The level of CFC use under a permit system is known with
certainty, but the permit price that actually develops might differ from the predic-
tion; under a tax system, the increase in CFC prices is known with certainty, but
the expected reduction in use might differ from the prediction. Other operational
distinctions between the two types of incentive policies are discussed in Sec. V. For
the remainder of the section, however, tax and permit policies are treated as
equivalent.
The ultimate goal of policy is to limit or reduce CFC emissions, but the tax and
permit quota policies examined here achieve this goal indirectly, by reducing CFC
purchases. This type of incentive policy design is appropriate for several reasons.
First, the total level of CFC purchases can be easily monitored. While there are
millions of point sources of emissions, there are only a handful of plants that
produce CFC. Thus, it is much less costly to administer a quota or tax on CFC sales
than on CFC emissions.
Second, reductions in CFC purchases and use closely approximate reductions
in emissions. There are very few applications that do not ultimately release all of
the CFCs used. In some products, most notably rigid foam insulation, emissions are
greatly delayed, but CFC use in these products is quite insensitive to CFC prices.
More than 95 percent of the reductions in CFC use under economic incentives
policies are reductions in prompt emissions, implying that a reduction in use during
a given year will result in a nearly equal reduction in emissions in the same year.
Third, incentives policies can appropriately concentrate on CFC purchases be-
cause the environmental damages associated with CFC emissions are not localized.
An individual in any locality benefits equally from a given amount of emissions
reduction, regardless of where the reduction occurs. As a result, the geographic
distribution of emissions sources is immaterial to an assessment of the environmen-
tal improvement resulting from a policy action. This characteristic makes an eco-
nomic incentive approach far less complicated in CFC regulation than it might be
in other regulatory contexts.
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THE BASES OF POLICY COMPARISON
Mandatory controls are targeted at particular activities in individual indus-
tries. In contrast, economic incentives policies operate simultaneously on the total
market for all regulated CFCs. Consequently, the two policy strategies affect the
use of CFCs differently and result in different time profiles of emissions reductions
and compliance costs. In this study, we establish a common basis of policy compari-
son by weighting the CFCs according to their potential for ozone destruction and
by measuring cumulative emissions reductions and cumulative compliance costs
for the entire period 1980 through 1990.
Permit Pounds
Models of atmospheric chemistry indicate that the ozone depletion potential of
a pound of emissions differs among the various CFC chemicals. A major reason for
the differences in the ozone depletion potential of the fully halogenated CFCs is
differences in their chlorine content. For example, the chlorine content of a pound
of CFC-11 is about one-third greater than that of a pound of CFC-113; a pound of
CFC-11 emissions is thus about one-third more hazardous to the ozone layer than
a pound of CFC-113 emissions.3
To account for these differences, we define a standard unit of measure for CFCs,
the permit pound. Each permit pound contains the same amount of chlorine but
differing amounts of alternative CFCs. Table 4.1 shows the amount of chlorine
contained in the types of CFC considered for regulation in this analysis, along with
the conversion factors for translating CFC pounds into permit pounds.4 These
conversion factors use CFC-113 as the base unit of measure, i.e., one pound of
CFC-113 is equivalent to one permit pound. Any other of the CFCs could be used
as the basis of measurement without affecting the results of the analysis.
Measuring emissions in permit pounds allows us to make more accurate
comparisons of the environmental improvement under alternative policies.
Throughout this analysis of economic incentives, the price increases generated
by taxes or permit quotas are specified as price increments per permit pound, which
means that the price increment differs among the CFCs. Suppose, for example, that
the tax rate or permit price is 10 cents per permit pound. The corresponding
increases in price to CFC users are 13.6 cents per pound of CFC-11, 10.3 cents per
pound of CFC-12, 10 cents per pound of CFC-113, and only 2.6 cents per pound of
CFC-502. More generally, the CFC price increment can be calculated by multiplying
the permit price or tax rate by the appropriate conversion factor from Table 4.1.
Specifying the price increments in terms of permit pounds yields a desirable
policy outcome: A single permit price or tax rate automatically yields a higher CFC
price increment for the most hazardous CFCs. Thus, the incentives for emissions
reductions are greatest where they will do the most good.
30ther chemical properties also affect the relative ozone hazard posed by different CFCs, but chlorine
content is a major factor for the fully halogenated CFCs. For further discussion of the importance of
chlorine content, see Sec. II. For a discussion of the possibility of devising economic incentives based
on other weighting schemes, see Sec. V.
4The inverse of each conversion factor in Table 4.2 equals the number of CFC pounds contained in
one permit pound. Thus, one permit pound is equivalent to 0.73 pound of CFC-11, 0.97 pound of CFC-12;
1.00 pound of CFC-113; or 3.85 pounds of CFC-502.
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Table 4.1
PERMIT POUND CONVERSION FACTORS"
Chlorine Content Conversion Factor
per Pound of CFC (permit pounds per
Type of CFC (pounds) pound of CFC)
CFC-11
CFC-12
CFC-113
CFC-502
0.774
0.586
0.568
0.147
1.36
1.03
1.00
0.26
Calculations explained in text.
CFC-22 comprises 48.8 percent of CFC-502 by
weight. The CFC-22 contained in CFC-502 is assumed
to be one-tenth as hazardous to the ozone as a com-
parable amount of CFC-12 (personal communication
with Dr. M. J. Molina).
Cumulative Emissions
Although the data presented here often illustrate policy effects by reporting
annual emissions reductions for 1980 and 1990, we are basically concerned with the
cumulative emissions effects of policy—the sum of annual emissions reductions
occurring from 1980 through 1990. Information supplied by EPA indicates that for
a given level of cumulative emissions, the ultimate effects on the ozone layer are
not significantly affected by the timing of emissions over a period as short as one
decade.5 Consequently, alternative regulatory strategies can be considered equally
effective if they reduce cumulative permit pounds of emissions by the same
amount.
Compliance Costs
The cost comparisons, although based on annual compliance costs, are specified
in terms of the present value of compliance costs over the entire period 1980
through 1990. The present value of cumulative compliance costs is a useful sum-
mary measure when different policies yield different time profiles of costs. The
discounting of future costs in computing the present value reflects the fact that
firms can earn a return on invested capital. If compliance costs are not incurred
until a future year, a firm can invest in a profitable activity and be earning a return
on the investment that will help pay the future compliance costs. Thus, compliance
costs in the future are less "expensive" per dollar than are those incurred today.6
5The timing of the ultimate effect might vary as the time profile of emissions varies, but not enough
to influence our policy comparisons. (See Sec. II.)
6An 11 percent discount rate was used in computing the present values in this study. This rate was
chosen for consistency with other EPA-sponsored research on the benefits of ozone protection, and it
approximately measures the current real rate of return on nonconstruction investment. (See Sec. II.)
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217
The time profile of compliance costs under mandatory controls is determined
by the nature of the controls and by industry growth rates under those controls.
The profile can be varied only by changing the implementation date, and that would
cause the cumulative emissions reduction to vary as well. In contrast, the time
profile of costs under economic incentives can be varied while holding the cumula-
tive emissions reduction constant. It is possible to take advantage of this feature
of economic incentives, both in easing the transition to regulation and, as explained
below, in lowering discounted cumulative compliance costs.
THE MANDATORY CONTROL BENCHMARK
The emissions effects and compliance costs of economic incentives policies are
compared here with the outcomes of the "benchmark" mandatory controls identi-
fied in Sees. III.A through III.H. These comparisons include all the potentially
enforceable options that have measurable effects during the period of study and for
which adequate data on costs are available. These options are:
1. Recovery and recycling of CFC-11 in slabstock and molded flexible foam
plants.
2. Setting equipment standards for users of CFC-113 in cleaning and drying
applications.
3. Recovery and recycling of CFC-12 in thermoformed extruded polystyrene
sheet plants.
4. Conversion to R-22 test gas in the manufacture of chillers.
5. Conversion to R-22 test gas in the manufacture of retail food refrigeration
systems.
6. Conversion to R-502 refrigerant in medium temperature (nonfreezing)
retail food refrigeration systems.
For reference purposes, Table 4.2 summarizes the emissions reductions and
compliance costs under the benchmark mandatory controls, as estimated in Sees.
III.A through III.H. Assuming perfect compliance, the combined set of mandatory
controls would achieve a reduction in cumulative emissions of 812 million permit
pounds, generating $185.3 million in discounted cumulative compliance costs.
ESTIMATING EMISSIONS AND COSTS UNDER ECONOMIC
INCENTIVES POLICIES
Under economic incentives policies, the extent of emissions reduction and the
level of compliance cost are determined by the demand for CFCs in each product
area as estimated in the preceding sections of this report. To estimate the product
area demand schedules, we calculated "critical prices" at which certain technical
options would become cost-effective for various groups of users. When the product
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218
Table 4.2
ESTIMATED EFFECTS op THE BENCHMARK MANDATORY CONTROLS
Product Area
Flexible foams
Solvents
Rigid foams
Retail food
refrigeration
Chillers
Totald
CFG
Annual Reductions
in Emissions
(millions of pounds)
1980 1990
1980-1990 Cumulative
Emissions Reduction
(millions)
CFC Pounds Permit Pounds
1980-1990
Cumulative ,
Compliance Costs
(millions of dollars)
CFC-11 26.5 40.5 368.5 501.2 93.3
CFC-113 10.0 32.5 185.7 185.7 45.7
CFC-12 7.2 11.3 103.0 106.1 38.8
/CFC-12 1.0 4.0 22. 9\ ,„ , , ,
(CFC-502 -0.7 -3.9 -20. 4/
CFC-12 0.1 0.1 1.0 1.0 0.1
Non-CFC-22 44.1 84.6 660.7 812.3 185.3
SOURCE: Detailed calculations presented in Sees. III.A. through III.G. Components may not sum
to totals because of rounding.
aOne permit pound is equivalent to 1.00 pound of CFC-113, 0.97 pounds of CFC-12, 0.73 pounds of
CFC-11, and 3.85 pounds of CFC-502.
The cumulative compliance costs are the sums of annual compliance costs in constant 1976 dol-
lars discounted at 11 percent per year.
CThe negative signs for CFC-502 emissions reductions indicate that those emissions would in-
crease under the mandatory control.
The totals for non-CFC-22 exclude the 48.8 percent of CFC-502 that is comprised of CFC-22.
area demand schedules are translated into permit pounds and summed, the result
is the aggregate demand schedule used to specify the outcomes of tax or permit
quota policies. By subtracting the amount the CFC producers charge from each
demand price, we obtain a demand schedule that shows the quantity of use that
would result from various price increments that might be set by policy.
As an illustration, Table 4.3 shows selected points on the aggregate demand
schedules for 1980 and 1990.7 The table also identifies the product areas that would
be undertaking emissions-reducing activities at each of the indicated tax rates or
permit prices. Because of the cautious assumptions employed to estimate critical
prices in Sees. Ill .A through III.H, the price increments shown in the table tend to
be higher than necessary to induce the indicated reductions in CFC use.8 In
particular, we do not estimate reductions in use from technical options for which
cost data are inadequate to estimate critical prices. Moreover, the estimates do not
include prospective reductions in use resulting from technological innovations that
might be induced by higher CFC prices.
In the absence of regulatory action to increase CFC prices, total CFC use is
projected to be 455 million permit pounds in 1980, rising to 784 million in 1990, for
a cumulative total of 6,669 million. However, as Table 4.3 illustrates, higher CFC
prices would result in lower CFC use levels. For example, an economic incentives
policy that increases prices by as little as 35 cents per permit pound would induce
7Appendix C contains more detailed tables of the market demand schedules for CFC-11, CFC-12, and
CFC-113 and for the aggregate demand schedule used to specify outcomes under economic incentives.
"Sections III and III.A through III.H indicate the nature of the uncertainties surrounding the
estimates of critical prices.
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219
Table 4.3
AGGREGATE DEMAND SCHEDULES FORCFCs, 1980 AND 1990
a
Price Increment
(dollars per
permit pound)
Product Areas of ,
Induced Activities
Quantity of CFC Demanded0
(millions of permit pounds)
1980 1990
0.00
0.23
0.35
0.51
0.87
1.19
1.54
2.03
2.20
—
FF, SOL, RFR, PS
FF, SOL
FF, SOL
FF, SOL, PS
PS
SOL, PS, MAC
SOL
SOL
455
422
401
396
368
364
348
344
344
784
718
706
676
632
626
598
598
590
SOURCE: Based on detailed calculations presented in Sees. III.A.
through III.H. Data shown only for selected price increments. See
Appendix C for detailed tables of all demand points calculated in this
analysis.
Price increment in constant 1976 dollars above CFC supply prices.
For CFC-113, the supply price declines as production increases, as a
result of economies of scale.
FF = flexible foams, SOL = solvents, PS = polystyrene sheet, RFR =
retail food refrigeration, MAC = mobile air conditioning.
CIncludes demand for CFC-11, CFC-12, CFC-113, and CFC-502 in retail
food refrigeration. One permit pound is equivalent to 1.00 pounds of
CFC-113, 0.97 pounds of CFC-12, 0.73 pounds of CFC-11, and 3.85 pounds
of CFC-502.
emissions reductions in virtually every product area where options for reducing
emissions are available.
Table 4.4 translates the effects of selected CFC price increments into annual
emissions effects and shows the annual compliance costs required for successively
larger emissions reductions.9 The table also predicts the cumulative emissions
reductions and compliance costs that would result from each cited price increment
if it were established in 1980 and maintained through 1990. In so doing, the table
illustrates two important features of economic incentives policies.
First, incentives can achieve a much wider range of emissions reductions than
simply those equivalent to the benchmark mandatory controls. At a price incre-
ment of just seven cents, the incentives policy could reduce emissions by 326 million
permit pounds, less than half of the benchmark reduction, while at a price incre-
ment of $2.20, incentives can reduce cumulative emissions by 1,602 million pounds,
almost twice as much as the benchmark.
Second, the table shows that in order to increase reductions in emissions,
compliance costs must rise far more than proportionately. The compliance cost for
'The price increments in Table 4.4 can be interpreted as the marginal costs of avoiding emissions.
-------
Table 4.4
EMISSIONS RKDUCTIONS AND COMPLIANCE COSTS AT SELECTED PRICE INCREMENTS*
Price Increment
($ per permit pound)
0.07
0.20
0.35
0.51
0.85
1.19
1.54
2.20
1980
Emissions
Reduction Compliance
(millions of Costs
permit pounds) (millions of $)
23.2 1.5
26.6 2.7
50.1 9.9
55.1 12.4
75.8 26.5
86.9 37.0
103.2 58.5
107.8 67.8
1990
Emissions
Reduction Compliance
(millions of Costs
permit pounds) (millions of $)
37.0 2.4
59.6 6.7
74.6 10.5
105.0 25.8
137.5 50.2
154.4 66.2
182.5 105.8
190.3 121.9
Cumulative
1980-1990b
Emissions
Reduction Compliance
(millions of Costs
permit pounds) (millions of $)
326 12.6
454 27.8
680 69.8
856 117.3
1144 240.1
1296 326.5
1535 518.8
1602 599.7
SOURCE: Calculations based on data in Appendix C.
3A11 costs and prices measured in constant 1976 dollars.
Assumes indicated price increment is constant in real terms from 1980 through 1990 and that the CFC demand schedule
shifts horizontally over time at a constant rate.
CPresent value of 1980 through 1990 annual compliance costs, discounted at 11 percent.
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221
the first 326 million permit pounds of emissions reduction (achieved when the price
increment is just seven cents) is less than $13 million. In contrast, raising the price
increment from $1.54 to $2.20 increases cumulative emissions reductions by merely
67 million permit pounds—but adds $81 million to cumulative compliance costs.
OUTCOMES UNDER FOUR INCENTIVE POLICY DESIGNS
Compliance costs under economic incentives are analyzed for three emissions-
reduction scenarios. The first scenario, called the "benchmark equivalent,"
achieves about the same cumulative emissions reduction as the benchmark manda-
tory controls. The second scenario, called "low growth," minimizes the average
annual rate of growth in CFC use subject to a maximum 1990 price increment of
$2.20; this scenario yields cumulative emissions reductions only slightly greater
than the benchmark-equivalent scenario, but is useful for illustrating the cost
implications of targeting policy on CFC growth rates rather than on cumulative
emissions. The third, or "zero-growth," scenario reduces cumulative emissions by
an amount approximately equivalent to holding annual CFC use constant at 1980
levels throughout the next decade.10
There are several time profiles of annual emissions reductions that yield the
same cumulative reduction in emissions. Under economic incentives, different time
profiles are obtained by varying the annual tax or permit price during the decade.
Within the benchmark-equivalent scenario, two incentive policy designs are con-
sidered here, one that imposes a tax or permit price that is constant (in real terms)
throughout the period, and one that minimizes cumulative compliance costs by
starting with a smaller 1980 price increment but raising it each year. By definition,
the low-growth scenario requires rising tax rates or permit prices over the period
in order to limit the growth rate for CFC use. For the zero-growth scenario, only
the constant-price-increment design is reported, because our cautious assumptions
about CFC demand imply that a very high tax or permit price would have to be
set throughout the entire period to achieve a cumulative emissions reduction
equivalent to zero growth. Hence there are four incentive policy designs, two for
the benchmark-equivalent scenario and one each for low and zero growth. As
elsewhere in this report, all price and compliance cost data are specified in constant
1976 dollars.
Benchmark-Equivalent Policy Designs
Table 4.4 indicated that the benchmark cumulative emissions reduction of 812
million permit pounds could be achieved by a constant price increment between 35
and 51 cents per permit pound. By interpolation, the point estimate of the price
increment required for the benchmark-equivalent scenario is 50 cents.11 This would
10The period considered in this analysis, 1980 through 1990, actually amounts to 11 years, but we
refer to it as a decade for expositional convenience.
"According to the aggregate demand schedule, economic incentives would achieve the same cumula-
tive emissions reduction as the benchmark controls when the price increment is between 49 and 50 cents.
We use 50 cents for the constant-price case, thereby obtaining slightly larger emissions reductions than
under the benchmark controls.
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222
be the constant tax rate under a tax policy, or alternatively, the permit price under
a quota policy that sets a quota of 396 million permit pounds in 1980 and raises the
quota by about 5.6 percent per year.
Table 4.5 presents estimates of the product area outcomes under the constant-
price, benchmark-equivalent policy. An example illustrates how the product area
outcomes are estimated from the product area demand schedules of the preceding
sections, and also how one of the cautious assumptions in our analysis influences
the estimates of aggregate and product area outcomes:
Example:
In flexible foams, which use CFC-11, a tax or permit price of 50 cents corre-
sponds to an increase in the CFC price of 68 cents per pound. When added to the
current price of CFC-11 (34 cents in 1976 dollars), the policy price increment raises
the CFC-11 price to $1.02. This lies between the price (68 cents) at which certain
small producers of slabstock foams find methylene chloride conversion cost-effec-
tive and the price ($1.04) at which small producers of molded foams find recovery
and recycle cost-effective. According to the product area demand curve, a price of
68 cents per pound of CFC-11 would reduce 1980 CFC use (and emissions) to 27
million pounds, and would reduce 1990 use (and emissions) to 41 million pounds.
Relative to the baseline use and emissions projections, a price of 68 cents reduces
cumulative use and emissions by about 25 percent, which amounts to 381 million
permit pounds as indicated in Table 4.5. Note, however, that if tax rate or permit
price rose by just one cent (to 51 cents per permit pound), the price of CFC-11 would
become $1.04 per pound and the small molded foamers would contribute another
51 million permit pounds to the emissions reduction in this product area.12 Though
some molded foamers might begin recovery and recycle at prices slightly below
$1.04 for CFC-11, our cautious assumption is that they would not begin this activity
unless the tax rate or permit price reaches 51 cents.
Overall, this benchmark-equivalent policy design generates cumulative compli-
ance costs of $108 million, only 58 percent as high as the costs for the benchmark
mandatory controls. The substantial resource savings that result from using eco-
nomic incentives are the result of a reallocation of emissions reduction activities.
Under an incentives policy, emissions-reduction activities whose unit cost is greater
than the price increment per permit pound are not undertaken. Hence, some rela-
tively high-cost activities that are required to achieve the benchmark emissions
reduction under mandatory controls are not undertaken under economic incen-
tives. For example, at a price increment of 50 cents, smaller extruded polystyrene
sheet plants do not find CFC recovery economical, so the policy results in less
emissions reductions in the rigid foam product area than would occur under manda-
tory controls. The economic incentives policy design compensates for this by en-
couraging larger emissions reductions in solvents, where an alternative chemical
can be substituted for the CFCs at unit resource costs of less than 50 cents per
permit pound. There are also cost saving redistributions of activities within product
areas; for example, while many flexible foam producers do less to reduce emissions
under incentives, some large producers of flexible slabstock foam increase their
emissions reductions by 50 percent.
12The conversion factors shown in Table 4.1 are rounded. In calculations, we use 1.3644 for the CFC-11
conversion factor. Hence, a permit price of 51 cents raises the CFC price to $1.04 (rather than $1.03).
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223
Table 4.5
CONSTANT-PRICE-lNCREMENT DESIGN VERSUS MANDATORY CONTROLS!
COMPLIANCE COSTS FOR SIMILAR EMISSIONS REDUCTIONS
Product Area
Cumulative Effects of
Economic Incentives
Emissions
Reduction
(millions of Compliance
permit pounds) Cost
Deviation from
Controls
Emissions
Reduction
(millions of
permit pounds)
Flexible foam 380.7 29.2 -120.5
Solvents 390.3 67.3 +204.6
Rigid foam 26.7 3.8 -79.4
Retail food 18.3 7.3
Chillers 1.0 0.1
Total 816.9 107.8 +4.6
Mandatory
Compliance
Costb
-64.1
+21.6
-35.0
-77.5
SOURCE: Based on detailed calculations in Sees. III.A through
III.H.
3Based on constant price increment of $0.50 per permit pound (1976
dollars) .
Present value of annual compliance costs in millions of 1976 dollars,
discounted at 11 percent.
The constant-price benchmark-equivalent design generates a time-path of an-
nual emissions quite similar to that of the mandatory controls, with substantial
reductions below baseline in the initial year of the policy and growth thereafter
that parallels the baseline growth curve.13 Alternatively, the same cumulative
emissions reduction would be achieved by setting a lower initial price increment
but raising it gradually over time. Correspondingly, the initial emissions reduction
would be less than under a constant-price design, but the reductions in later years
would be greater. Increasing-price policy designs therefore ease industry's
transition to regulation.
A particularly interesting form of an increasing-price policy is one that raises
the tax rate or permit price at the same rate as industry's discount rate for invest-
ment—11 percent in this study. If the price increment rises at this rate throughout
the period, the policy minimizes the present value of compliance costs.14 Table 4.6
describes a marketable permit policy design that minimizes the present value of
compliance costs while achieving the benchmark emissions reduction. The annual
13The baseline average annual growth rate in CFC use is 5.6 percent.
14This necessarily minimizes the present value of compliance costs because it equalizes the discount-
ed marginal cost of emissions-reducing activities across years. As a result, it would be impossible to
reduce compliance costs by shifting activities between years. In contrast, under a constant price incre-
ment of 50 cents, the discounted cost of activities induced at the margin in 1980 is 50 cents, while the
discounted cost of the marginal activity in 1990 is only 18 cents. Consequently, shifting one pound of
emissions reduction from 1980 to 1990 would result in a saving of 32 cents.
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224
quotas shown would yield the predicted annual permit prices shown. Equivalently,
the policy design could consist of a tax rate of 25 cents per permit pound in 1980
that rises in real terms at 11 percent per year throughout the period.16
The cumulative emissions effects and compliance costs of the cost-minimizing
design are summarized in Table 4.7 and compared with the mandatory control and
constant-price policy designs that achieve similar environmental improvement
over the decade. As expected, the present value of compliance costs under the
cost-minimizing design, $95 million, is less than that under the alternative policies.
In fact, the cost-minimizing design is only half as costly as the benchmark mandato-
ry controls. However, the savings relative to a constant price increment of 50 cents
per permit pound are not large, because of the tradeoff between the timing of
emissions-reduction activities and the increasing costs of those activities. The post-
ponement of emissions reductions is beneficial in one sense, since the capital that
would otherwise be engaged in these activities is available to generate income in
other pursuits (presumably with a rate of return equal to the opportunity cost of
capital). However, if the same cumulative emissions goal is to be achieved, more
costly activities must be induced during later years,16 and the net result is only a
modest savings in discounted compliance costs.
Low-Growth and Zero-Growth Policy Designs
Economic incentives policies can be designed to ease the transition to regula-
tion even more than under the cost-minimizing approach. However, this requires
a rapid rate of increase in the tax rate or permit price and causes much higher
compliance costs than other policy designs that yield about the same cumulative
reductions in emissions. These implications are well illustrated by the low-growth
scenario.
By setting the price increment near zero (specifically, seven cents per permit
pound) in 1980 and allowing it to reach the upper bound in our models ($2.20) in
1990, we can define a low-growth scenario for use and emissions. This low-growth
policy reduces cumulative emissions by 869 million permit pounds and results in
discounted compliance costs of about $143 million. The low-growth design is only
slightly more effective than the benchmark-equivalent incentives policies, but is 32
to 51 percent more costly. Relative to mandatory controls, however, the low-growth
policy substantially delays industry action, is slightly more effective at reducing
cumulative emissions, and also reduces cumulative compliance costs by 23 percent.
Economic incentives might achieve even greater emissions reductions than
those indicated in Tables 4.7 and 4.8, because our analysis of the emissions effects
and compliance costs of all the economic incentives policies is designed to be ex-
tremely cautious. In particular, many of the CFC applications are assumed to be
unresponsive to CFC prices even though we anticipate that higher prices within the
15If a different discount rate were used to calculate the present value of compliance costs, the
cost-minimizing policy would involve a price increment that rises at the new discount rate rather than
11 percent.
16In effect, the cost-minimizing policy design "moves up" the CFC demand schedule during later
years. For example, the higher price increments in Table 4.6 will eventually induce some use of CFC
recovery in smaller foam plants and greater amounts of chemical substitution by CFC-113 solvent
users—activities that are not generated by a constant price increment of 50 cents.
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225
Table 4.6
ANNUAL QUOTAS AND PERMIT PRICES UNDER A COST-MINIMIZING,
BENCHMARK-EQUIVALENT DESIGN, 1980 TO 1990
Year
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
Cumulat ive
Permit Quota
(millions of
permit pounds)
414.7
433.6
454.1
476.5
501.1
526.8
552.5
574.7
598.6
629.3
661.1
5,823.0
Estimated
Permit Price
(1976 $)
0.25
0.28
0.31
0.34
0.38
0.42
0.47
0.52
0.58
0.64
0.71
—
Emissions
Reduction
(millions of
permit pounds)
36.6
43.2
49.6
55.6
61.0
66.9
74.7
87.8
101.2
109.9
119.7
806.1
SOURCE: Calculations based on Tables 4.4 and 4.5 and
Sees. III.A through III.H. It is assumed that the demand
schedule for permits shifts horizontally over time at a
constant rate of growth. For some interim years, esti-
mates are based on linear interpolation of demand schedules.
Table 4.7
COMPARISON OF ALTERNATIVE POLICIES HAVING SIMILAR CUMULATIVE
EMISSIONS REDUCTIONS
Policy Design
Emissions Reduction
(millions of
permit pounds)
Cumulative
1980 1990 1980-1990
Total Compliance Costs
(millions of 1976 $)
Cumulative
1980 1990 1980-1990a
Mandatory controls
Economic incentives
Constant price
54.4 102.5
812.3
20.9 37.0 185.3
design
Cost minimizing
design0
54.8
36.6
96.9
119.4
816.9
806.1
12.3
5.2
21.8
35.0
107.8
94.7
SOURCES: Calculations based on Tables 4.2, 4.3, and 4.6, and Sees. III.A
through III.H.
a
Present value of annual compliance costs, discounted at 11 percent.
Based on linear interpolation of annual demand schedules for permit
pounds with a constant tax rate or permit price of $0.50 from 1980 through
1990.
Based on linear interpolation of annual demand schedules for permit
pounds with tax rate or permit price rising from $0.25 in 1980 to $0.71
in 1990.
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226
Table 4.8
EFFECTS OF LOW-GROWTH AND ZERO-GROWTH POLICY DESIGNS
Emissions Reduction
(millions of permit pounds)
1980
1990
Cumulative
1980-1990
Compliance Costs
(millions of 1976 $)
1980
1990
Cumulative
1980-1990a
Low-Growth Design
6.0 190.0
868.5
0.3
121.9
142.8
Zero-Growth Design
Cautious Assumptions
107.8
190.0
1,601.9
67.8
121.9
599.9
Zero-Growth Design
Alternative Assumptions
107.9
194.8
1,625.3
30.8
53.6
268.2
SOURCE: Calculations based on tables in Appendix C.
Present value of 1980 through 1990 annual compliance
costs, discounted at 11 percent.
Assumes price increment of $0.07 per permit pound in
1980, rising at constant rate to $2.20 in 1990.
Assumes price increment is $2.03 per permit pound in
1980, rising to $2.20 in 1990.
Assumes constant price increment of 64 cents per
permit pound.
range under consideration will actually cause significant reductions in CFC use and
emissions.17
Baseline projections of the CFC market imply that in the absence of regulation,
cumulative CFC use from 1980 through 1990 will be about 6.7 billion permit
pounds. Based on available data, we can predict the price-responsiveness of demand
for 80 percent of this CFC use, including 3.2 billion permit pounds (primarily in
foam insulation and refrigeration products) that are not expected to respond to
higher CFC prices in the relevant range, as well as about 2.1 billion permit pounds
in product areas where responses to CFC prices have been estimated.
The remaining 20 percent of the baseline cumulative use, about 1,325 million
permit pounds, occurs in applications for which available information is inadequate
to predict the prices at which emissions reductions might occur. For these appli-
cations, which include some uses in the solvents, rigid foams, mobile air condition-
"We have also ignored technological developments induced by higher CFC prices. If economic
incentives strategies induce CFC-saving innovations (as can be expected), actual emissions reductions
will be greater than those predicted by our analysis, which is necessarily predicated on the existing state
of technology.
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227
ing, LFF, sterilants, and other "miscellaneous" applications, the foregoing analysis
uniformly adopts the assumption that CFC demand is perfectly inelastic.
If we maintain the inelasticity assumption with respect to these applications,
a zero rate of growth in CFC use beyond 1980 is not achievable without exceeding
a price increment of $2.20 and thereby violating the conditions assumed in the
product area demand analysis. (See Sec. II.) Given our cautious assumptions, the
cumulative emissions reduction that would result from preventing CFC market
growth can almost be achieved, however, if a price increment greater than $2.00
is established in 1980 and maintained through 1990.18 This policy design would
reduce cumulative emissions by 1.6 billion permit pounds (about 99 percent of the
effectiveness of preventing growth in use) at cumulative compliance costs of almost
$600 million.
However, there are three reasons to suspect that the inelasticity assumption
is overly cautious, particularly for predicting the emissions effects of large price
increments. First, in several of the applications where CFC demand is inelastic by
assumption (e.g., LFF, sterilants, mobile air conditioning), options for reducing
emissions have been identified but are not reflected in the CFC demand schedules
solely because of the lack of cost data. Second, in certain applications (e.g., pack-
aging applications of rigid urethane and some nonurethane foams) there appear to
be final product substitutes that do not use CFCs, but the prices at which substitu-
tion would occur are unknown. Finally, for several small and highly specialized
applications, little or no information is available on options for reducing emissions,
but there is no evidence to suggest that emissions-reducing activities would fail to
occur under economic incentives.
Although the response of these product areas to economic incentives obviously
cannot be predicted precisely with available information, these applications well
might contribute to emissions reductions under an economic incentive policy, espe-
cially one as stringent as the zero-growth scenario. If the demand elasticity in these
applications proves to be as great as in the product areas where our analysis now
predicts price responsiveness, then a constant price increment of just 64 cents (by
interpolation) would actually generate about 1.7 billion permit pounds of emissions
reduction—equivalent to the reduction that would be achieved by a policy that
freezes annual CFC use at the 1980 level of 454 million permit pounds. Based on
the same seemingly reasonable assumption of equal elasticities, an economic incen-
tive policy design that increases CFC prices by more than 64 cents per permit pound
would actually reduce cumulative emissions below the zero-growth level.
In contrast, given current technology a mandatory control policy appears inca-
pable of achieving comparable emissions reductions. The benchmark mandatory
controls produce less than half the cumulative emissions reduction available from
a zero-growth policy. Even if we added in the mandatory control options that
appear enforceable but that were excluded from the benchmark because their
compliance costs could not be determined from available data, the entire set of
enforceable controls would produce only about 60 percent of the emissions reduc-
I8ln 1990, $2.20 is the highest price increment measured on our demand curves. However, in 1980,
the highest price increment is $2.03. Thus, the emissions effect of a policy that starts at $2.03 in 1980
and reaches $2.20 in 1990 is the same as one that maintains $2.20 throughout the period. Because the
latter design unnecessarily raises the estimates of cumulative compliance costs and transfer payments,
we assume that the zero-growth policy instead begins in 1980 with a price increment of $2.03.
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tion of zero growth.19 Table 4.8 reports predicted outcomes for the low-growth policy
design as well as for the zero-growth designs under both the cautious and
alternative assumptions.
SUMMARY
On the basis of costs to the economy as a whole, the case in favor of economic
incentives policy designs is indeed persuasive. Relative to mandatory controls,
economic incentives can reduce compliance costs by about half, while achieving
comparable environmental improvement.
Furthermore, economic incentive policies can produce greater emissions reduc-
tions than can mandatory controls, a feature that may become vitally important if
CFC destruction of the ozone layer is found to warrant substantial emissions reduc-
tions. Unlike currently available mandatory controls, economic incentives appear
capable of achieving the cumulative emissions effects of zero, perhaps even nega-
tive, growth rates in CFC use without significant sacrifices of the services now
provided by products produced with CFCs.
To complete the comparison of economic incentives with mandatory controls,
however, we must consider the distributive effects of the alternative policies, along
with some important implementation issues. These factors will be addressed in
Sec. V.
19The excluded mandatory control candidates and their potential reductions in cumulative emissions
are (1) helium leak testing in home appliances, one million pounds of CFC-12; (2) recovery at rework
in home appliances, three million pounds of CFC-12; (3) requiring reciprocating compressors in all new
home appliances, one million pounds of CFC-12; (4) reducing the average initial charge in mobile air
conditioners to 2.75 pounds, 40 million pounds of CFC-12; and (5) recovery and recycle or gas substitution
in sterilants, 200 million pounds of CFC-12. Together, adding these controls to the benchmark could
increase the benchmark emissions reduction by 252 million permit pounds, but at unknown compliance
costs. Other mandatory control candidates would yield the bulk of their emissions effects after 1990.
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V. DISTRIBUTIVE EFFECTS AND
OTHER REGULATORY ISSUES
Section IV identified substantial differences between incentives policies and
mandatory controls in both potential effectiveness and costs to the economy as a
whole. The two policy strategies also differ along a number of other dimensions that
are considered in this section.
Aside from the magnitude of resource costs imposed by regulation, an impor-
tant economic implication of regulatory activity lies in its distribution of costs
among firms, industries, and consumers. For economic incentives policies, the dis-
tributive consequences depend critically on how the policy is implemented. The
first portion of this section examines the distribution of costs under alternative
policies and implementation approaches.
Because the operational features of mandatory control programs are familiar,
little needs to be said about them here. However, the operational features of
economic incentives for environmental regulation are novel and deserve some
discussion in the remainder of this section.
DISTRIBUTION OF COSTS
Under mandatory controls, the only costs imposed on the CFC-using industries
(aside from administrative costs) are compliance costs, the costs of resources used
to limit CFC emissions. All of these costs are initially paid by the regulated firms,
but our analysis suggests that most—if not all—of these costs will ultimately be
paid by final product consumers in the form of higher prices for the products made
by the CFC-using industries. Because technical options to limit CFC emissions
would contribute a relatively small sum to total production costs in the industries
that would be subject to mandatory controls, the final product price increases
attributable to regulation should be modest, amounting to less than five percent in
any industry.
The cost and price increases will not be uniform across CFC-using industries
under mandatory controls. Some of the industries would not be subject to any
regulation under the benchmark set of mandatory controls, and would therefore
face no increase in costs or prices. Data in Sec. IV showed that the industries subject
to regulation would face differing costs. The distribution of mandatory control costs
is reviewed below when they are compared with economic incentives costs.
Under economic incentives policies, firms subject to regulation still incur com-
pliance costs for resources they use to limit CFC emissions. Section IV showed that
these compliance costs are lower in total than under mandatory controls that would
achieve the same emissions reduction. The preceding section also showed that
compliance costs are distributed differently under economic incentives, with lower
costs for producers of flexible foams and rigid packaging foams and higher costs
for users of solvents. As in the case of mandatory controls, we expect virtually all
incentives policy compliance costs to be passed through to final product consumers,
229
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230
but the different distribution of compliance costs implies that the price increases
under incentives policy will be spread among final products differently than under
mandatory controls.
If, under an incentives policy, firms must pay more than the unregulated price
for any of the CFCs they continue to use, the added CFC payments—termed trans-
fer payments in Sec. II—impose an added expense on the firms that pay them. In
principle, the transfers will ultimately benefit firms or consumers elsewhere in the
economy,1 but the benefits might be so diffusely distributed in our trillion-dollar
economy that the recipients would be far harder to identify than the relatively
small number of industries (and their customers) that make the payments.
Moreover, even if the transfers are paid by some CFC users to others or to the CFC
producers, the transfers might be a policy concern because of their readily apparent
effects on the distribution of policy expenses among industries.
The magnitude of transfer payments depends on how an economic incentives
policy is implemented. As defined in Sec. II, an "uncompensated" incentives policy
is one that requires CFC users to pay taxes, buy permits, or pay higher prices for
all the CFCs they continue to use under the policy.2 An uncompensated incentives
policy design would generate large transfer payments, ranging from a discounted
cumulative total of 1.5 billion dollars for the benchmark-equivalent cost-minimizing
design to 6.2 billion dollars for the zero-growth design based on cautious
assumptions about the CFC demand curves.3
The size of the annual transfers for each product area is estimated by multiply-
ing the amount of continuing CFC use under the policy by the tax or permit price
for each incentives policy design. Uncompensated transfer payments by product
area under the benchmark-equivalent and low-growth policies are shown in Tables
5.1 and 5.2. For zero growth under the cautious assumptions,4 uncompensated
cumulative transfer payments range from a low of $100 million for rigid packaging
foams to a high of $2,370 million for rigid insulating (and other rigid) foams; the
transfers for flexible foams would be $213 million, and the transfers for solvents
would be $740 million. However, these estimates reflect the extreme assumption
that many applications would not contribute to emissions reductions even if the
price increment were over $2.00 per permit pound. Under alternative and more
plausible assumptions about price responsiveness in these applications,5 estimated
transfer payments are much lower overall, perhaps as low as $1.6 billion.6 Of course,
without more data about CFC demand schedules in these applications, we cannot
predict the precise magnitude of transfer payments per application.
Under mandatory controls, the total expense imposed on regulated industries
'If there are lags or transition costs associated with transfer payments, there would be some cost
imposed on the economy as a whole as a result of transfer payments. However, these effects should be
small and difficult to pinpoint.
2Our estimates of transfer payments assume that only CFC-11, CFC-12, CFC-113, and CFC-502 are
regulated.
3See the discussion of the zero-growth scenario, Sec. IV.
4Recall from Sec. IV that the cautious analysis assumes that there would be no response to higher
prices in applications where data on technical options are incomplete.
5Under the alternative assumptions, applications with incomplete data on technical options are on
average just as responsive to CFC prices as applications for which data on technical options are more
complete.
6Under the alternative assumptions transfer payments are lower because the price increment re-
quired for zero growth declines to 64 cents.
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Table 5.1
UNCOMPENSATED TRANSFER PAYMENTS UNDER ECONOMIC INCENTIVES ACHIEVING
THE BENCHMARK EMISSIONS-REDUCTION LEVEL
(Millions of 1976 dollars)
Product Area
Constant-Price Design
1980
Flexible foam 18.3
Solvents 27.0
1990
28.1
48.9
Cumulative
1980-1990°
Cost-Minimizing Design
1980
158.7 9.2
239.6 17.9
1990
32.9
64.6
Cumulative
1980-1990°
115.2
224.6
Rigid foam:
Insulation and other
Packaging
Mobile air
conditioning
Chillers
Home refrigeration
Retail food
Miscellaneous
Total
57.3
9.3
50.9
9.3
3.7
4.8
17.7
198.3
126.8
14.9
64.4
13.2
4.8
3.6
36.8
341.8
558.3
78.1
386.2
74.2
28.3
29.6
167.5
1,720.5
28.7
4.7
25.5
4.6
1.8
2.4
8.9
103.7
180.1
17.0
91.5
18.8
6.9
5.1
52.3
469.4
488.5
58.3
317.9
61.2
23.3
23.2
145.8
1,458.3
SOURCE: Based on detailed calculations presented in Sees. III.A through
III.H and IV. Components may not sum to totals because of rounding.
Based on constant-price increment of $0.50 per permit pound.
Based on price increments of $0.25 per permit pound in 1980 and $0.71 in
1990.
cPre=>ent value of transfer payments from 1980 to 1990, discounted at 11
percent.
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Table 5.2
UNCOMPENSATED TRANSFER PAYMENTS UNDER LOW-GROWTH POLICY
(Millions of 1976 dollars)
Product Area
Flexible foam
Solvents
Rigid foam:
Insulation and other
Packaging
Mobile air conditioning
Chillers
Home refrigeration
Retail food
Miscellaneous
Low-Growth Design
a
Cumulative
1980 1990 1980-1990b
3.2 43.1 85
3.6 149.2 219
5.7 558.1 667
1.0 20.5 37
5.1 272.8 373
0.9 58.3 77
0.4 21.3 29
0.7 15.4 27
1.8 162.2 197
.7
.5
.0
.7
.8
.2
.1
.4
.2
Total
22.4 1,299.1 1,714.6
SOURCE: Results approximate, based on dated for 1980 and
1990 from Sees. III.A through IV. Components may not sum to
totals because of rounding.
aBased on price increment of $0.05 in 1980 and $2.20 in
1990.
Present value of annual transfer payments from 1980 to
1990, discounted at 11 percent.
(and their customers) is simply the total compliance cost for the policy. Under
incentives policy, the total expense imposed on regulated firms is the sum of compli-
ance costs and transfer payments. Figure 5.1 illustrates the comparison of total
industry costs between mandatory controls and uncompensated economic incen-
tives for the constant-price, benchmark-equivalent design.
In Figure 5.1, compliance costs are shown by the solid bars for mandatory
controls and by the "open" portions of the bars for economic incentives. There are
some product areas (e.g., rigid insulating foams) that do not appear to have techni-
cal options for reducing emissions, and there are some product areas (e.g., liquid
fast freezing and sterilants) where our cautious assumption is that technical options
would not be induced by economic incentives; these two groups of product areas are
combined in the "other" category in the figure, showing no compliance costs under
either economic incentives or mandatory controls.
The transfer payments under uncompensated economic incentives are indi-
cated by the cross-hatched portions of the bars in the figure. On average, the
transfers are about fifteen times the size of compliance costs under incentives, but
this relationship varies considerably from one product area to another. As a frac-
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1200
Compliance costs under incentives
Transfers under incentives
Flexible foams
Solvents
a
Rigid packaging
foams
Retail food
Chillers
Other
Benchmark-equivalent policy, constant price design.
Product areas
Fig. 5.1—Cumulative industry expenses under mandatory controls and
uncompensated economic incentives3
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234
tion of total expenses under economic incentives, transfer payments vary from 78
percent for solvents users to 100 percent in the "other" category. Indeed, the
"other" category accounts for 66 percent of the total transfers generated by the
uncompensated incentives policy.
The effects of transfer payments also vary substantially among individual firms
within product areas. For most firms, the effects are the same as for the CFC-using
industries as a whole: An uncompensated economic incentives policy imposes
greater expenses than do mandatory controls. Even when the emissions-reducing
activity required under mandatory controls is more costly than the activity induced
under economic incentives, total expenses are higher under economic incentives for
many firms, because the transfer payments outweigh any savings realized on
compliance costs.
However, not all firms would be seriously affected by transfer payments. For
example, given an uncompensated benchmark-equivalent policy, some flexible ure-
thane foam plants will convert most (if not all) of their output to methylene chlo-
ride. For these firms, transfer payments will be a very small fraction of total
regulatory costs,.
Although they are the exception rather than the rule, some firms will even be
better off under uncompensated economic incentives because the activity required
under mandatory controls is sufficiently more costly than the activity induced by
economic incentives. In the case of small polystyrene sheet producers, the bench-
mark mandatory controls require recovery of CFC-12, which costs nearly $1.00 per
permit pound of recovered CFC. However, under the uncompensated incentives
policy, this emissions-reduction activity would not be undertaken. As a result, total
expenses for these firms are less under the incentives policy than under mandatory
controls.
Implications of Uncompensated Transfer Payments
Although expenditures on CFC taxes or permits (or higher CFC prices) do not
constitute a real resource cost of CFC regulation, and thus do not restrict the ability
of the economy to produce other goods and services, the payments are an added
business expense for regulated firms. Consequently, transfer payments may be of
regulatory concern for reasons that provide a motivation for seeking a compensat-
ed implementation plan for economic incentives.7
Uncompensated economic incentive designs will result in higher prices for final
products made with CFCs than will compensated designs or mandatory controls.
Under an uncompensated policy, firms and their customers bear the full burden of
the transfer payments and total costs of production are higher. Consequently, final
product prices will be higher. Although prices elsewhere in the economy should fall
commensurately, in a trillion-dollar economy it cannot be predicted in which indi-
vidual industries this effect will be noticeable. In short, the burden of transfer
payments will be readily apparent, while the benefits might not be.
Uncompensated economic incentive policies increase the risk of plant closures.
7In principle, the arguments for transfer payment compensation also favor compensation for compli-
ance costs. However, transfer payments are potentially so much larger than compliance costs that a
particular emphasis on the motives for transfer payment compensation is warranted.
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Plant, closures might occur if higher final product prices cause substantial reduc-
tions in final product demand; a second reason for a greater risk of plant closures
is that uncompensated policies cause an increase in the optimal scale of production,8
so that a given total industry output would be produced by fewer plants. Without
detailed information on individual plants around the country, it is impossible to
predict where plant closures caused by transfer payments might occur. However,
the risk of plant closures would be greatest in industries where transfer payments
are large relative to total production costs, entry and exit are not uncommon, and
final product markets are stable or growing slowly.
Plant closures are an extreme manifestation of a more general consequence of
regulation. Fixed investments have been made in the past in equipment, structures,
and human skills that cannot be easily adapted to the new regulatory environment.
Under regulation, these investments are devalued. In the extreme case, a plant is
closed down, some of its equipment might be sold, but the rest is scrapped. Workers
are laid off, and while they eventually find other jobs, they cannot use certain skills
specific to their earlier employment. But even if a plant does not close, returns to
fixed capital, both physical and human, are less under regulation than had been
anticipated when the investments were made.
Devaluation of fixed capital occurs under any form of regulation, whether
mandatory controls or economic incentives.9 However, the magnitude of
uncompensated transfer payments implies that the wealth loss from capital
devaluation in regulated industries is much greater under uncompensated
economic incentives policies than under other policy approaches. For these reasons,
most firms would understandably prefer mandatory controls to uncompensated
economic incentives.
Alternative Implementation Approaches: Some That Reduce
Transfer Payments and Some That Do Not
The wealth effects associated with transfer payments and their adverse im-
pacts on the CFC user industries are not essential to an economic incentive policy
design. However, it is not easy to devise an implementation plan for incentives that
will effectively reduce transfers. Here we evaluate some plans that have been
suggested.
Exemptions. Perhaps the most obvious means of reducing transfer payments
is to grant exemptions from the regulation. This approach involves excluding some
CFC users from the requirement to make tax payments or purchase permits.
A simple exemption policy could exclude all the applications in the "other"
8Consider two policies that result in the same emissions-reducing activities, but only one of which
imposes uncompensated transfer payments. The marginal cost curves are the same in both cases, but
total and average costs are necessarily higher under the uncompensated policy; hence, optimal scale
must be larger. Consequently, an uncompensated economic incentives policy unambiguously increases
optimal scale relative to a compensated policy. Because mandatory controls do not always lead to the
same emissions-reducing activities as economic incentives, the comparison of optimal scale is ambigu-
ous. However, the sheer magnitude of transfer payments relative to mandatory control compliance costs
suggests that uncompensated economic incentives cause increases in optimal scale relative to mandato-
ry controls.
Devaluation of fixed capital occurs in regulated industries, but the devaluation caused by transfer
payments is offset by an increase in the value of capital in unregulated sectors of the economy.
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category of Fig. 5.1. Under the benchmark-equivalent constant-price-increment
policy design, granting exemptions to all applications in that category would reduce
total transfer payments by 66 percent.
Although exemptions could dramatically lower transfer payments, this ap-
proach is seriously flawed. An important defect of an exemption policy is that the
cost of using CFCs is not increased for exempted applications, thus eliminating the
incentive to develop and use technical options for emissions control. For some
products in the "other" category, there are technical options that are not taken into
account in the analysis simply because the costs of the options are unknown, but
in other products, there are no technical options currently. That is caused, at least
in part, by the fact that historically the price of CFC has not reflected the potential
ozone damages of CFC emissions. Under the stimulus of higher CFC prices, these
industries can be expected eventually to develop products or production processes
that are less dependent on CFCs.10
The nonaerosol CFC applications that do not appear to have technical options
currently—of which foam insulation and refrigeration products are the largest—
account for the largest fraction of projected CFC use over the next decade. These
rapidly growing applications are expected to use 3.2 billion permit pounds of CFC
from 1980 through 1990. As a result, exempting these uses would be tantamount
to eliminating incentives for emissions reductions in the product areas where fu-
ture emissions levels are expected to be the greatest.
A second shortcoming of allowing exemptions is that the monitoring costs
required to achieve an emissions-reduction goal could be dramatically increased.
Suppose, for example, that CFC-11 in rigid urethane insulation is exempted, but
CFC-11 in flexible urethane foam is not. To enforce the policy, it is necessary to
determine where a pound of CFC-11 is actually used. It may be extremely costly
to prevent black market activity, whereby exempt users purchase CFCs at the
supply price and resell them in regulated markets at a higher price.
A third shortcoming is that exemptions would do nothing about the large
transfer payments in product areas that are expected to implement technical op-
tions for emissions control. These product areas cannot be exempted without reduc-
ing the effectiveness of the incentives policy, yet the transfer payments in these
product areas would have the price and plant closure effects outlined above.
In principle, it is possible to design a compensation approach that does not have
the shortcomings of exemptions. In practice, it is no simple matter to design an
approach that eliminates a major portion of transfer payments without reducing
or distorting the basic incentives for emissions control that the larger policy is
designed to create. The design of a compensation approach is far beyond the scope
of this study, but a few comments on the subject serve to illustrate the opportunities
and possible pitfalls involved.
Direct Allocation to Users. Under a 'marketable permits policy, a promising
compensation approach would be to allocate permits to users directly, without
requiring permit payments. If, fortuitously, the allocation of permits in each time
period were exactly equal to the number of permits each firm would buy under an
uncompensated policy, direct allocation would eliminate transfer payments alto-
10This argument is essentially a restatement of the second fundamental law of demand: Long-run
demand schedules are necessarily more elastic than short-run demand schedules.
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gether. Even if the initial allocation were imperfect, the magnitude of transfer
payments would be reduced to the extent that fewer permits would be bought and
sold; moreover, all of the transfer payments would remain within the group of
CFC-using industries, with some firms whose allocations were larger than neces-
sary selling permits to firms whose allocations were inadvertently too small.
Direct allocation of permits does not eliminate the incentive for emissions
reductions because the permits continue to have value in the aftermarket (the
market in which user firms buy and sell permits to each other). Consider, for
example, a firm that has been allocated 1,000 permits for which the aftermarket
price is 50 cents each. If the firm can reduce CFC use by 250 permit pounds at a
total cost of $50, the firm will do so because it will then be able to sell 250 permits
and receive a total revenue of $125 from the sale. More generally, the aftermarket
should yield the same price for permits under direct allocation as under an uncom-
pensated policy, and the final distribution of CFC use among firms should also be
the same. Only the magnitude of transfer payments would be affected by direct
allocation.
Using a tax policy, a comparable implementation approach to direct allocation
is to grant each firm an entitlement to buy a prescribed amount of CFCs without
paying the tax. In this case, user firms would be able to resell the CFCs in the user
aftermarket if the initial entitlement proved to be too large—or to buy CFCs from
other user firms if the entitlement were too small. The price at which CFCs would
be traded in the aftermarket would be equivalent to the CFC suppliers' price plus
the amount of the tax, but firms that sold CFCs in the aftermarket would receive
the full amount of the aftermarket price. As in the case of direct allocation of
permits, the incentive to conserve on CFC use is retained, but the magnitude of
transfer payments is lower than under an uncompensated policy.
Compensatory Reimbursement. While directly allocating permits to users
reduces the effects of transfer payments by preventing them, another compensa-
tion approach is to reduce the effects by reimbursing users for their transfer
payments. However, it is not possible simply to pay firms back for their expendi-
tures on taxes or permits without eliminating the incentives for reducing emissions.
Instead, it is necessary to reimburse firms on some basis other than the actual
amount of transfer payments they make.
One approach we have considered is to make compensatory payments to firms
on the basis of their final product output. (The payments would be based only on
final product output and not on CFC input, so that reducing CFC use would con-
tinue to be just as profitable as under an uncompensated incentives policy.) If final
product demand is perfectly inelastic, then the compensation payments could be
designed to reduce final product prices enough to offset the price increases that
would derive from the CFC transfer payments. However, if there is any elasticity
to final product demand, reducing the product price would cause final output to
increase, generating increased demand for CFCs and ultimately raising the permit
price or the tax required to achieve a targeted level of emissions reduction.
Whereas the assumption that final product demand is perfectly inelastic serves well
in yielding cautious estimates of the emissions effects of incentives policies, the
assumption could be a disservice to the design of a reimbursement policy for
transfer payment compensation, and should not be relied upon in that context. In
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the absence of perfectly inelastic final product demand, a final product rebate
system is a less promising technique for compensation.11
Direct Allocation to the CFC Producers. Because direct allocation to users
appears to be a promising way to reduce transfer payments, it might appear that
direct allocation of permits to the producers would be equally effective and simpler
to implement because there are so few producers for whom the allocations would
have to be determined. Unfortunately, direct allocation to the CFC producers will
not reduce transfer payments. Instead, the prices that users would be willing to pay
for permits will be paid to the CFC producers; the producers will receive large
revenues from the sale of permits, but the CFC users will still face higher expenses
for the permits they buy and will have to raise their product prices and face the
risk of going out of business if consumers are unwilling to pay the increased prices
or if the optimal scale of production is significantly increased. In summary, we
expect the outcomes of direct allocation to producers to be very similar to the
outcomes of an uncompensated policy, except that the producers will receive the
transfer payments from users.
Quotas Without Permits. Because the sale of permits generates transfer pay-
ments, some readers might mistakenly conclude that transfer payments can be
eliminated under a quota policy by eliminating permits. The quota restricts the
availability of CFCs and, in the absence of permits, some other mechanism will
necessarily arise to allocate the CFCs among competing users. A likely outcome is
that the CFC producers will raise their prices. If the new CFC prices match the
sums of producer charges and permit prices that would arise under a permit policy,
the transfer payment outcome would be precisely the same as under a permit policy
with direct allocation to the producers: Total transfers would be maximized and the
entire amount of the transfers would be received by the CFC producers.
In order to implement a CFC quota without permits, it would be necessary to
establish production quotas for the individual CFC producers. It will be difficult to
select a formula for allocating production among the producers that will be accept-
able to all of them.
The political issue of how to allocate production among the CFC producers is
also raised by a decision to allocate permits directly to the producers. In the absence
of permits, however, there is an added potential pitfall in allocating production. For
the use of resources to be efficient (i.e., least costly to the economy as a whole), the
distribution of CFC production among the producers should reflect the least costly
means of production; if the individual producer quotas do not match the most
efficient distribution of production activities, and if the producers cannot trade
production rights under their quotas, then the use of resources under a quota
without permits will be more costly to the economy than necessary.
Because a policy that uses quotas without permits requires quotas for the
individual producers, the policy is not much simpler to implement than one that
involves direct allocation of permits to the producers. Furthermore, quotas without
permits could cause production inefficiencies. Consequently, there is little to recom-
mend quotas without permits over direct allocation of permits to the CFC produc-
ers.
Concluding Remarks. The implementation issues associated with the design
"A further disadvantage of compensatory reimbursement is that it appears administratively dif-
ficult. Legislative authority might be required.
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of compensated economic incentives policies should not be underestimated. Both
the basis and the formulas for compensation raise politically sensitive and economi-
cally complex issues. They are politically sensitive because of their obvious and
direct implications for the distribution of wealth among the CFC user and producer
industries. They are economically complex because it is no simple matter to devise
specific rules that prevent distortions in the policy that might thwart the economic
incentives it is intended to create.
Ultimately, the resolution of the implementation issues raised by transfer pay-
ments may be one of the most critical policy choices required by CFC destruction
of the ozone layer. As Sec. IV concludes, if relatively low emissions-reductions
levels are required, economic incentives and mandatory controls are both viable
policy choices. However, if emissions reductions beyond the relatively limited
capabilities of mandatory controls become necessary, the policy choice appears to
be between economic incentives and outright CFC bans, which are very costly. For
example, in the rigid foam insulation product area, where the data to assess some
of the effects of a ban are available, the analysis in Sec. III.C suggests that a ban
implemented in 1980 on CFCs in this product area alone would impose annual
losses, measured in terms of increased energy consumption, equivalent to 152
million barrels of fuel oil by 1990.
Despite the advantages of economic incentives for reducing the real resource
costs of regulation and achieving substantial emissions reductions, the adverse
impacts on user industries from an uncompensated incentives policy may not be
acceptable. If this is the case and substantial emissions reductions are required to
prevent serious environmental damage, the achievement of regulatory goals may
rest on the ability to design a compensated policy that does not distort incentives
for low-cost emissions reductions.
OTHER REGULATORY ISSUES
The remainder of this section surveys a broad range of regulatory issues,
including the side effects of policy, operational features of different policy ap-
proaches, and a variety of implementation details. Because they are less familiar
tools for environmental policy, economic incentives policies are the focus of atten-
tion in much of what follows, and a brief description of the operation of tax or
permit policies is a useful prelude to the discussion.
Operation of a CFC Tax
Aside from the special features that might be introduced as a means of transfer
payment compensation, a tax on CFCs would be instituted and operated like other
sales (excise) taxes. The tax would be added to the purchase bill for CFCs, paid by
users to the CFC producer, and transmitted by the producer to the revenue author-
ity.
Because the ozone depletion potential per pound of emissions varies among the
CFCs, the tax rate would vary among the CFCs. The illustrative case considered
in this study bases the desired tax rate on the chlorine content per pound of
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emissions, but exempts CFCs (such as CFC-22) that are not fully halogenated. A
more precise tax formula could be developed from recent scientific evidence on
ozone depletion potential.12 Such a formula could be extended to include taxes on
all CFCs. The only exemptions from the tax that would be recommended by
efficiency and effectiveness criteria would be for CFCs used in applications where
there are no emissions, such as when the CFC is used as a precursor for producing
other chemicals that do not deplete ozone. In principle, the tax could be used as an
economic disincentive even for CFC use in aerosol applications; however, our
analysis assumes that the ban on aerosol applications would be retained now that
it has been implemented.
All the tax rates specified in this study are measured in constant dollars. The
tax would vary in dollar terms under inflation. Moreover, the tax rates specified
here assume that the prices of all CFCs (except CFC-113, as explained in Sec. III.B),
will remain constant in real terms over the period 1980 through 1990. If CFC supply
prices change in real terms over the period, the real tax rate would have to be
revised to meet the emissions reduction target.
Operation of CFC Marketable Permits
Under the policy designs considered in this study, a permit is a piece of paper
that authorizes the holder to purchase a specified amount of CFCs for use in
specified applications. Ideally, the face value of the permit would vary in terms of
CFC pounds depending on the ozone depletion potential of each CFC. Although
CFC-22 is exempted from the permit policy designs considered here,13 in principle
the permit could be specified to cover all CFCs. Ideally, only those applications
where CFCs are not emitted (e.g., where the CFC is a precursor in producing other
chemicals) would be exempt from the policy; however, the existing ban on aerosol
applications already implies that the permits would not authorize the use of CFCs
as aerosol propellants.
The permit would have a specific time interval during which CFC purchase is
authorized and a maturity date at which the interval ends. The authorization
interval and the mix of maturity dates for outstanding permits should be chosen
according to two basic principles. First, the authorization interval should be long
enough to allow firms to buy and sell permits as needed to insure that demand and
supply are equalized. Second, the interval should be long enough and the mix of
maturity dates should overlap enough so that there are not major swings in the
permit price from one issue to the next because of short-term fluctuations in de-
mand.
The permits could be used to purchase CFCs from any producer. Thus, the
producers would compete for CFC sales as they do now, and the quota on sales
would automatically be allocated among producers by the market without regulato-
ry intervention.
Permit design features can influence the credibility of the permit policy. For
example, a document design that (like the design of paper currency) inhibits for-
12Changing the permit pound formula in this way would affect the policy outcomes estimated here.
"Except insofar as it is a component of CFC-502.
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gery is more likely to encourage the perception that the documents are legal tender
whose legitimacy will be enforced. Similarly, a policy that involves releasing some
permits in advance of their authorization interval would help encourage the belief
that the regulatory agency intends to stick to forestated goals for quota levels in
future years. For example, permits could be sold in 1985 to cover authorization
periods in 1986, 1987, and so on.
In contrast with taxes, a permit policy would not have to be revised to achieve
a specified emissions target if the money or real supply prices of CFCs vary over
time. The permit market would adjust automatically to establish the permit price
that brings demand into equilibrium with the supply of CFCs under a given quota.
Implementation and Enforcement Costs
Implementation costs are defined here as the costs to the regulatory body of the
many activities that are undertaken before the promulgation of regulatory policy.
For a new source or retrofit performance standard, for example, the activities
include engineering data collection, economic analysis, publication of the standard,
public participation, government review, and so on.
EPA has performed a preliminary calculation of what it would cost for the
engineering data collection, economic analysis, development of regulatory options,
and publication of standards for new source performance standards covering the
major CFC nonpropellant applications.14 The estimate of these costs is about $1
million for activities that would take about four to five years to perform.
The implementation costs for a novel policy approach, such as taxes or market-
able permits, would probably be greater than for mandatory controls because it
takes time and some learning-by-doing to develop the bureaucratic mechanisms
that would support the new policy approach. Once the policies become familiar,
however, their implementation costs would fall. Aside from startup costs, uncom-
pensated transfer payment systems should be inexpensive to implement because
they are so simple to operate.
Major differences in regulatory costs between mandatory controls and econom-
ic incentives are likely to arise with regard to enforcement. Although there are no
estimates of the costs, a brief description of what is involved under the alternative
policy strategies shows why they should differ. Under economic incentives, enforce-
ment involves monitoring the production and sales rates of a handful of CFC
production facilities to assure that production corresponds to permit remittals or
tax revenues. Under the benchmark mandatory controls, enforcement involves
monitoring activities at individual point sources of emissions—at least at enough
of them to convince users that evasion will probably be discovered. Even if we
assume that all the individual point sources can be found—by no means a simple
task in itself—the number of enforcement sites, is so large that monitoring would
be very costly.
The benchmark controls governing the behavior of chiller and retail food refrig-
eration manufacturers would not be too difficult to enforce because there are only
14The EPA estimate is essentially a simple multiple of the costs of previous regulatory projects
referring to an individual product area. The particulars of the CFC benchmark mandatory controls are
not reflected in the estimate.
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five firms or so in each business—but the emissions reductions from the controls
on these products are also relatively small. Thermoformed polystyrene sheet pro-
ducers would contribute more to the benchmark emissions reduction and are some-
what more numerous; there are as many as 30 plants currently, and 45 to 50 plants
might be in operation by 1990. Monitoring recovery and recycle in flexible foams
plants is still more troublesome, with over 70 slabstock plants and more than 20
molded foam plants currently in operation, and the number growing fairly rapidly.
Finally, monitoring equipment standards in the 5,000 plants that currently use CFC
solvents would be very costly—and the number of plants is expected to grow at
perhaps five to eight percent per year until 1990. Thus, the number of sites to be
monitored under mandatory controls is several hundred times as many as the
monitoring sites for economic incentives policies.
As noted later in this section, one possible enforcement problem raised by
economic incentives policies might be prevention of illegal CFC imports.
Setting Goals and Establishing Confidence
Previous experience indicates that mandatory controls are costly and time-
consuming to modify. In contrast, firms may perceive tax rates or quota levels as
highly variable, subject to regulatory whim or political manipulation. If so, firms
might be reluctant to undertake long-term investments that would reduce emis-
sions for fear that future regulatory action would make the investment obsolete or
reduce its cost-effectiveness. Thus, establishing and maintaining long-range policy
goals can contribute to the success of an economic incentives policy strategy.
Because economic incentives policies rely on decentralized decisionmaking,
there is some uncertainty about the precise market outcomes under the policies.
The nature of the uncertainty differs in a critical respect between taxes and permit
quotas. With taxes, the prices users must pay to obtain CFCs are known, but the
emissions outcomes of the price policy are uncertain. Marketable permits policy,
on the other hand, establishes a definite quota on use, and emissions will be deter-
mined within a small confidence interval.15 Consequently, if the primary goal of
policy is to achieve a particular CFC use or emissions target, tax rates are far more
vulnerable to revision than is a marketable permits policy.16
Revising tax rates to arrive at an emissions target (or to achieve a new target)
is likely to introduce uncertainty that can distort the effects of the policy. Revising
the quota under marketable permits would do likewise, but there is another regula-
tory approach that would enhance industry confidence while maintaining flexibil-
ity in the emissions target: The regulatory agency could retain the stated quota, but
buy back permits from the market to achieve a lower emissions goal. The CFC
producers would still be subject to variable output levels because of the policy
action, but at least the CFC users would be reimbursed for the regulatory revision.
Of course, permit prices are variable because of changes in demand conditions
even if a quota is maintained. However, industry is continuously subject to the
l;Most of the emissions reductions under the economic incentives policies evaluated here are prompt
emissions. Hence, use reductions are nearly equal to emissions reductions.
16The estimates of permit prices in this study are far more likely to be excessive than not. (See Sec.
II.)
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variability of natural market forces and has techniques for predicting how those
forces will vary over time. The issue at hand is how the regulatory agency can best
establish confidence in its future behavior—and publicized long-range quota goals
combined with a marketable permit buy-back policy is one way of encouraging
industry confidence.
Methods for Releasing Permits
The regulatory body can release directly allocated permits simply by allowing
an authorized representative of each individual firm to claim the permits or by
mailing them to the firm's headquarters. Release of permits that are sold can be
carried out in many alternative ways.
One approach would be a centralized auction: At a specified place and time, the
regulatory body puts blocks of permits up for bid by all eligible market participants.
Under an English auction, bids begin at the first price designated by a bidder,
and the sale is consummated when no bidder is willing to exeed the last bid price.
Under a Dutch auction, an initial price is specified by the auctioneer, and the price
is revised downward until some bidder is willing to accept the block of permits at
the stated price. If the permit demand schedule has regions of inelasticity, a Dutch
auction can result in a higher bid price than an English auction (Stigler, 1966).
Given a quota on the total permits available, a lower bid price is desirable because
it reduces the transfer payments for permits. Hence, the English auction has the
advantage that it could impose lower transfer payments if there are regions of
permit demand inelasticity. Moreover, the English auction formula is more famil-
iar in this country than is the Dutch auction formula.
Auctions, whether English or Dutch, bring together market participants in a
single event in which they can observe each other's behavior. This might encourage
collusive behavior, as explained below. In contrast, it might be possible in principle
to release permits continuously or at frequent intervals through a permit exchange
similar to (and perhaps in conjunction with) a securities or commodities exchange.
This option is best evaluated by experts in securities markets.
Participation in the Permit Market
Eligibility for participation in the permit market can be circumscribed by regu-
lation, though there are few clear reasons for doing so, and enforcement of eligibili-
ty would be difficult. The more participants there are in the market, the greater
is the likelihood that it will yield a competitive outcome. Allowing CFC users to
participate assures a large number of active buyers and sellers.17 Also allowing
producers to participate grants them an opportunity to relieve some uncertainty
about their production levels; in effect, they would sell permits along with the
CFCs, and then immediately turn in the permits for collection by the regulatory
agency. Users would buy from the producer who could offer the lowest combined
"Whatever the eligibility rules, we presume distributors would be allowed to participate at least
insofar as they would be allowed to handle a quantity of permits commensurate with the amount of
CFCs in each distributor transaction.
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price for the CFC and the permit. The producers would have little incentive to pay
more for permits than they expect users to be willing to pay, and because users
would also be able to participate in the permit market directly, the producers could
not pay less than the competitive permit price.18
Allowing participation by groups other than producers and users is not unjusti-
fied. Environmental groups could conceivably wish to enter the market to buy
permits and prevent emissions that would otherwise be allowed under the quota.
The willingness of such groups to make the necessary expenditures (and their
ability to raise support for the activity) would be an indication that the existing
quota level does not fully reflect the publicly perceived hazard from CFC emissions
relative to other environmental problems. Notably, there is as yet no particular
environmental protection constituency for which CFC emissions is the exclusive
focus of attention, and neither of two prominent environmental organizations with
more general concerns that were contacted informally expressed any interest in
participating in a CFC permits market.
A futures market for permits might arise, and some participants in this market
might be neither users nor producers of CFCs. A futures contract is one in which
a market participant agrees to buy or sell permits that will be released at a future
date. The futures contract buyer and seller agree on a prespecified price for the
permits to be delivered. When the pertinent permit issue is released, the seller in
the futures contract must buy enough of the new issue at the prevailing price to
fulfill the futures contract. If the prevailing price exceeds the prespecified price, the
futures seller loses money on the transaction—but if the prevailing price is lower,
the seller earns a profit. Futures contracts provide a valuable service, offering an
opportunity for certain market participants to absorb risks associated with uncer-
tainties about future permit prices, and offering other participants the opportunity
to reduce their risk-taking. Thus, there is no clear gain—and maybe some disadvan-
tage—in restricting futures trading.
Assuring "Fair Practices" in the Permit Market
Historically, the federal government has taken an active role in monitoring and
controlling the operations of commodities and securities markets to limit such
abuses as fraud, price-fixing, excessively risky credit practices, collusion, and coun-
terfeiting. A review of the state of the art in governmental oversight in these areas
is far beyond the scope of this study, but it is clear that the formulation and
implementation of a CFC permit market can benefit from readily available exper-
tise in these matters. What remains to be considered here are the specific properties
of a CFC permit market that might encourage or discourage collusion among
market participants or predatory behavior.
Collusion refers to organized behavior by a group of firms to control the permit
price. The goal of collusion would be to prevent the permit price from reaching the
level it would attain in a freely competitive market. Collusion is unlikely in the
aftermarket for permits because there are so many potential participants who
I8There do not appear to be any advantages from allowing only producers to participate in the
permits market, and a possible disadvantage is that it would encourage collusion, as discussed below.
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would be willing to pay the competitive price for permits in order to remain in
business. For the same reason, collusion is unlikely in the market for newly
released permits if they are released through a system similar to a securities
exchange where bidding is continuous and repetitive. Collusion is perhaps more
feasible under an auction where large blocks of newly released permits are made
available and firms are brought together at a specific time when each can observe
the bids of other market participants.
The prospect of collusion is not unfamiliar in commodities and exchange mar-
kets, and mechanisms for limiting collusion have been devised for situations similar
to those of a CFC permit market. The major point to be made in the CFC context
is that collusion does not negate the effectiveness of the permit quota in limiting
overall emissions. Moreover, so long as the permit aftermarket is competitive,
collusion does not affect the opportunity cost to users of creating CFC emissions.
Thus, collusion does not necessarily (or even probably) mean that a CFC permit
policy becomes ineffective or inefficient. Rather, collusion—if it occurs—implies
only that some firms might unfairly reap the reward of buying permits at an
artificially low price and selling them at the competitive price.
Predatory behavior arises if some firms are able to buy up permits to force their
competitors out of business. The potential for predatory behavior appears very
small, so long as all regulated CFCs are included in a single permit market. If a
substantial share of the permits is directly allocated to users, the possibility of
driving users out of business by restricting their access to CFCs is circumscribed
directly. If the permits are sold for all CFCs, a predator could restrict access by his
competitors only by buying up a very large fraction of all the permits for all CFCs,
not just the CFC used in the predator's industry.19 For example, in 1980 a predator
would have to buy up over 450 million permits to corner the market for a single
year. Not only is such predatory behavior extremely costly to the firm (since it
would have to outbid all other bidders), but the activity would be fairly easy to
monitor and, provided the permit policy contains sanctions against such behavior,
the activity would be fairly easy to stop. Finally, like collusion, predatory behavior
does not prevent the permit program from meeting its emissions-control goals.
In summary, neither collusion nor predatory behavior appears likely in the
CFC permit market, neither would limit the emissions-reducing potential of a
permit policy, and both appear readily amenable to the same sorts of regulatory
control that are currently available for other commodities and securities markets.
Combining Direct Controls and Economic Incentives
As a general principle, imposing mandatory controls in addition to using eco-
nomic incentives would detract from the desirable features of economic incentive
policies. Mandatory controls restrict firms to using certain technologies or under-
taking certain emissions-reducing activities even when other emissions-control ac-
19Recall that a permit can be used to buy a specified amount of any regulated CFC for use in any
application. Thus, for example, a small flexible foam producer could buy permits from a producer of
refrigeration devices even though the CFCs used in the two applications differ. Such cross-industry
transactions might be facilitated by CFC distributors and producers, who have an incentive to assist in
this process in order to increase their own CFC sales.
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tivities (those that would be encouraged by economic incentives) are more cost-
effective.
At present, the use of economic incentives would already occur in combination
with the existing ban on aerosol applications of CFCs. It is possible that economic
incentives policies of the sort examined here would have induced substitution away
from CFC aerosols except for the cases that are exempted under the current ban.
If so, the outcome of the combined policies would not differ from the optimal
outcome under a pure incentive policy that covered all CFC applications. More
generally, however, it should be expected that imposing mandatory controls in
addition to economic incentives would affect CFC market and emissions outcomes;
if not, there would be no need to impose the mandatory controls because they would
add nothing to the effectiveness of the policy.
There is a basis in economic theory for introducing mandatory controls in
addition to economic incentives in specific situations. This would arise if there were
a market imperfection that prevents economic incentives from functioning prop-
erly. The only example we have identified from a CFC product area that might fit
this criterion occurs in mobile air conditioning. There, final product consumers may
not take into account the cost of CFCs used in mobile air conditioning service and
repair when they choose a vehicle containing an air conditioning unit.20 Hence, the
system manufacturers do not face an incentive to design systems that have low
repair and service emissions (unless, fortuitously, the system designs reduce costs
of production or initial charges). Because economic incentives may not be fully
effective in this situation, mandatory controls to achieve better system designs
might be warranted. Our analysis presumes that economic incentives would not
affect CFC use or emissions in this product area, and because of the lack of
adequate data, there are no controls on mobile air conditioners in the benchmark
set of mandatory controls.
Another situation where a combined regulatory strategy might be used is
where the emissions-reduction activities that would be induced by economic incen-
tives impose risks of other worker, consumer, or environmental hazards. As ex-
plained later in this section, product areas in which this is a potential problem
might be exempted from the economic incentives policy. Then, mandatory controls
to require use of a different (and more -costly) means of emissions reduction might
be imposed on the product area.
Import and Export Policy
The economic incentive and mandatory control policies examined here operate
primarily in the domestic market. However, concerns of equity and effectiveness
imply that some regulatory action be taken with regard to import and export
markets.
Unlike mandatory controls on the behavior of users, economic incentives policy
requires enforcement to prevent illegal imports of CFCs. Under taxes or permits,
imports of CFCs would have to be subject to the policy in order to prevent unfair
20As Sec. III.D explains, the market imperfection under consideration is due either to imperfect
consumer information or the existence of a tied sale (i.e., the consumer purchases a vehicle and an air
conditioning unit jointly).
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competition with domestic producers and to preclude evasion through import sub-
stitution.
Under either economic incentives or mandatory controls, both of which in-
crease the costs of producing domestic final products, imported final products made
with CFCs should be taxed.21 Operationally, selecting an import tax rate on a final
product that correctly reflects the effect of regulatory policy on domestic final
product prices is extremely difficult. However, the problem of devising the
appropriate tax is essentially the same, no matter whether mandatory controls or
economic incentives are used. The only two product areas where imports are not
naturally limited by transportation costs are mobile air conditioners and freezers.
These are the only products where import taxes appear warranted under the
policies analyzed in this study.
Export policy raises somewhat different issues that can be cited here but cannot
be resolved without analyzing foreign CFG markets. Exports of CFCs offer domes-
tic producers an opportunity to maintain production levels despite domestic regula-
tory policy; whether the exports increase foreign emissions of CFCs depends on the
extent to which they add to (rather than substitute for) CFCs that would be pro-
duced by foreign manufacturers. Exports of final products made from CFCs also
have uncertain effects on world emissions. To some extent, the availability of
U.S.-made products may increase the foreign consumption of CFC products, there-
by tending to increase total world emissions. On the other hand, U.S. products that
are produced under domestic regulation might substitute for foreign products that
would be produced under emissions conditions that are uncontrolled, thereby re-
ducing world emissions. Which effect prevails determines whether export controls
for final products made with CFCs would help reduce world emissions.
Inventory Behavior
Suppose that CFC users attempt to build up CFC inventories to assure against
shortages, particularly under uncertainty about future policy changes. Under a
permit policy, inventory buildup is feasible because enforcement governs the use
of permits to purchase CFCs but would control actual use only with great difficulty.
However, under a permit policy, inventory buildups would imply rising permit
prices, thus exerting a moderating influence; a widespread attempt to increase
inventories would quickly become too costly to maintain.
In contrast, inventory buildup under a tax policy would not be costly unless the
tax rate were revised upward in response to observed inventory activity. To limit
this activity, it would be necessary to monitor final product output and CFC produc-
tion levels, and to raise taxes whenever the data suggest rapid inventory growth.
This approach, however, has the undesirable side effect of reducing confidence in
the policy, perhaps creating further pressure for inventory-building activity. Thus,
21Import taxes are appropriate even under a domestic policy based on quotas with permits. The tax
should be set to have the same effect on imported product prices as the permits have on domestic product
prices. If the imported product contains CFCs that will be emitted after importation, the domestic quota
on CFCs will already apply to CFCs used to replace the emissions from imports. CFC losses that would
not normally be replaced are likely to be too small to be concerned about.
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this is an area where permit policy appears to have a definite advantage over tax
policy.
Risk Tradeoffs
In some product areas—most notably flexible foams, solvents, and sterilants—a
significant opportunity for reducing CFC emissions lies in substituting other chemi-
cals for CFCs. The alternative chemicals may impose environmental or worker
health hazards of their own. In the absence of controls on the alternative chemicals,
policies that work well in reducing the ozone depletion risk from CFCs will increase
the risk of other hazards.
This is true under mandatory control policies as well as under economic incen-
tives. For example, 40 percent of the CFC emissions reduction for flexible foams
under a recovery and recycle mandate occurs because some firms would find it less
costly to convert to methylene chloride than to comply directly with the CFC
control. The difference between the two types of policy is a matter of degree:
Economic incentives rely more heavily on chemical substitution because that is less
costly in many cases than alternative means of CFC emissions control. Under any
policy strategy, the attempt to control substitute chemicals will make the policy less
effective in reducing CFC emissions than the estimates given in this study, which
assumes no other changes in regulatory controls for non-CFC chemicals.
A regulatory agency can attempt to control hazards from substitute chemicals
directly, using economic incentives or mandatory controls in the substitute chemi-
cal product areas. Alternatively, substitution can be controlled within the context
of CFC policy itself. Under a mandatory controls strategy on CFCs, the only option
for preventing chemical substitution would be to forgo controls that would indirect-
ly encourage substitution. Economic incentives policies have greater flexibility.
The tax rate or face value of the permit can be adjusted so that the incentive for
substitution in certain applications is reduced. Equivalently, the regulatory body
could rebate a fraction of the tax or permit payments to user firms that can demon-
strate that they have limited their use of alternative chemicals.22
As a general matter, economic incentives policies can be designed for a wide
variety of chemicals such that the use of all of them is reduced in some desired
proportions. Thus, economic incentives policies are particularly suited to situations
where policies with regard to many different products or chemicals are interre-
lated. In contrast, mandatory controls are relatively inflexible in situations where
there are tradeoffs among different types of environmental or health and safety
risks.
22These rebates differ from those described earlier for reducing transfer payments. The earlier
rebates would be paid in amounts that are independent of changes in CFC use. The amount of the rebates
mentioned here would vary with the level of CFC use, and thus would affect chemical substitution and
the firm's choices with regard to other techniques for reducing CFC use.
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VI. POLICY ISSUES AND OPTIONS
This section presents some of the insights that have emerged from this research
concerning the major policy issues for CFC nonaerosol regulation. Setting a goal
for emissions reductions is a primary regulatory decision. Closely related is the
choice among alternative policy strategies—voluntary action, mandatory controls,
economic incentives, or CFC bans—to use.in meeting the emissions goal. If manda-
tory controls or CFC bans are selected, further choices include whether to grant
exemptions to individual firms or product areas, and what level of enforcement
activity to pursue. If incentives are chosen, important associated decisions are
whether to use taxes or quotas (and whether to use permits), and whether to engage
in compensation. Although all these matters are touched upon in this section, the
discussion focuses primarily on incentives policy strategies because these are far
less familiar policy tools than mandatory controls.
SETTING GOALS
To a large degree, setting a goal for emissions reduction involves making a
tradeoff between the costs of regulation and the social, economic, and environmen-
tal benefits from protecting the ozone layer. This study has not addressed benefits
estimation, but we can specify how costs vary with the level of emissions control
achieved. Figure 6.1 illustrates the relationship between costs to the economy as
a whole (compliance costs) and the degree of emissions control. Emissions control
is measured as a percentage reduction in cumulative U.S. emissions over the com-
ing decade and, alternatively, as a percentage reduction in cumulative worldwide
emissions achievable by unilateral U.S. policy action.1
The figure illustrates costs and effectiveness for all the policy strategies except
voluntary action, which is omitted because the cost and effectiveness of a voluntary
program are especially uncertain. Under the simplest voluntary program, one in
which policymakers merely request industry cooperation, costs to industry are
likely to be lower than under any of the alternative policy strategies; firms cannot
successfully compete if they take costly actions that are not required of their
competitors, so firms are not likely to take costly actions. And, because there are
limits to the emissions reductions that can be achieved at very low costs, the
effectiveness of voluntary action is likely to be less than under alternative policies.
Some types of voluntary programs—those in which the regulatory agency takes the
lead in developing new technology or providing information services to industry—
might be somewhat more effective in reducing emissions because the regulatory
agency itself would be absorbing some of the costs associated with emissions con-
trol. In this case, the true cost to the economy includes not only the costs borne by
'An important regulatory issue that cannot properly be assessed in this study is the likelihood
that—and extent to which—regulatory action in the United States would induce or encourage foreign
nations to take action as well.
249
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High
CFC bans
§
to
O
D
O
to
en
O
Mandatory
controls
Economic
incentives
Low
I
I
I
I
10
20 30 40 50 60 70
Reduction in cumulative U.S. emissions, 1980-1990 (percent)
I I I I
80
90
100
8 12 16 20
Reduction in cumulative worldwide emissions. 1980-1990 (percent)
24
28
Fig. 6.1—Cost and effectiveness of alternative U.S. policies
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industry but also those incurred by the regulatory agency, and any improved
effectiveness of the voluntary program would derive from its higher cost to the
economy as a whole. Notably, even a policy program based on developing and
disseminating new technology is not likely to yield its greatest emissions improve-
ments prior to 1990 because it takes time for industry to respond to new technologi-
cal developments.
As shown in Fig. 6.1, compliance costs of mandatory controls are moderate, and
emissions effects are modest; the benchmark controls would reduce cumulative
U.S. emissions by 15 percent and worldwide emissions by three percent. The effec-
tiveness and costs of mandatory controls can be varied by changing the set of
controls, changing their implementation dates, granting exemptions, or choosing
among various levels of enforcement activity. But however they are implemented,
mandatory controls that require firms to use specific techniques for controlling
emissions will have quite limited effects on cumulative emissions between now and
1990 because the technologies that are already available commercially are limited.
Technologies that are on the drawing boards could prove quite effective in reducing
annual emissions by the end of the decade, but the time necessary to bring those
technologies to the commercial stage and then to carry out the regulatory steps
necessary to implement mandatory controls implies that they will contribute little
to emissions reductions for at least a few years. As a consequence, even if all the
unproven technologies that appear promising live up to expectations, it is unlikely
that cumulative U.S. emissions over the next decade could be reduced as much as
40 percent by means of mandatory control policy.
It would be possible to achieve higher levels of emissions reduction by banning
the use of CFCs in one or more applications. While we have not researched the use
of CFC bans, their greater effectiveness surely implies that they would be far more
costly than the mandatory controls. Also, the maximum cumulative emissions
reduction that could be achieved even by a total and immediate ban on all CFC use
would be only 85 percent of the U.S. baseline level, because emissions would con-
tinue from the CFC bank that already exists.
Economic incentives can provide a wide range of emissions reductions. While
we have not analyzed the costs of reducing U.S. baseline emissions by more than
about 30 percent, we do know that further reductions would cause costs to rise
rapidly. However, economic incentives would be less costly than CFC bans in the
middle range of emissions reductions, because incentives policies cause all less
costly options to be tried before any application is eliminated. Consequently, the
costs of economic incentives and equally effective CFC bans would become similar
only near the maximum level of emissions reductions.
In summary, Fig. 6.1 shows that to achieve modest near-term reductions in U.S.
emissions, the policy choice is between economic incentives and mandatory con-
trols. For larger near-term emissions reductions, the choice is between economic
incentives and CFC bans. Finally, even the most stringent restrictions on U.S.
emissions can have only a modest payoff in ozone protection in the absence of
regulatory action by other countries that contribute to worldwide emissions.
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CONTROLS VERSUS INCENTIVES
Suppose a goal is set for which both mandatory controls and economic incen-
tives are effective. Figure 6.2 lists some of the factors that might influence the
choice between the policies.
Features
Economic efficiency
Implementation
Enforcement
Transition
Distributive effects
Risk tradeoffs
Controls
Incentives
More familiar to EPA
Lesser effects than
uncompensated incentives
Less chemical substitution
Greater in short and long run
Fewer sites to monitor
Greater flexibility
Lesser effects than controls
when compensated
Fig. 6.2—Comparison of features relevant to the choice
between mandatory controls and equally
effective economic incentives
Holding effectiveness constant, the economic efficiency of a policy is indicated
by how low its compliance costs are. Compliance costs are lower under economic
incentives, not only over the short run, when technical options are fixed, but also
in the long run, because incentive policies induce innovations to achieve the desired
goal in the most cost-effective manner.
By implementation, we mean the full set of activities involved in promulgating
a regulation: dealing with legal challenges, collecting data, holding public hearings,
and so on. Implementation under mandatory controls is somewhat simpler, because
this type of policy mechanism is far more familiar to EPA. Taxes are not altogether
unfamiliar policies, but they are not a common technique for environmental regula-
tion, and their implementation is complicated by the probable need to obtain Con-
gressional authority.
-------
253
While implementation of mandatory controls is relatively straightforward, en-
forcement of the regulations is both costly and difficult because there are so many
CFC user sites to be monitored. Economic incentives are easier to enforce, given
the limited number of CFC production sites.2
Under mandatory controls, easing the industries' transition to regulation re-
quires delays in implementing the regulations, thereby reducing their effective-
ness. Under economic incentives, the same cumulative emissions reductions can be
achieved by means of incentives that gradually increase over time.
Any type of regulation imposes more costs on some firms and consumers than
on others; that is, regulation redistributes wealth. As Sec. V showed, the total losses
to CFC-using industries as a group are smaller under mandatory controls than
under economic incentives, unless, of course, transfer payments are compensated.
Finally, there may be somewhat lesser undesirable health or environmental
side effects under mandatory controls, because they do not lead to as much chemi-
cal substitution as do economic incentives.
TAXES VERSUS QUOTAS
If the policy decision is to use economic incentives, there is a choice between
taxes and quotas. One major difference is in the nature of any discrepancies be-
tween actual and predicted outcomes. Given a demand curve like those estimated
here, the two techniques yield the same outcomes. But if the estimated curve differs
from the actual one—and we suspect that the actual curve may lie below the
estimated one, as indicated in Fig. 6.3—a quota would increase CFC prices by less
than we predict. The policy would still achieve the desired emissions reduction, but
the cost per pound of reduction (for compliance and for transfer payments) would
be less. In contrast a tax would lead to emissions reductions greater than predicted.
Equally effective uncompensated tax and quota policies generate equally large
transfers of wealth away from user industries. However, uncompensated tax and
quota policies can differ with respect to who receives the transfers. While the tax
policies cause the payments to enter the general treasury for eventual redistribu-
tion throughout the economy, the destination of transfers caused by a quota policy
depends on how the policy is implemented. If EPA sells permits under the quota,
the transfers will be paid into the general treasury. However, if permits are not
issued, or if they are directly allocated to the CFC producers, the producers will be
the recipients of the transfers paid by CFC users.
ADVANTAGES AND DISADVANTAGES OF COMPENSATION
Because an economic incentives policy can generate large transfer payments,
the regulatory agency might want to engage in compensation. Designing a compen-
sation scheme that does not distort the policy's incentives is not a simple matter
operationally. Moreover, because such a scheme involves redistributing wealth
-Economic incentives do, however, require effective enforcement of restrictions on CFC imports.
-------
254
CFC price
increment
caused
by policy
Tax rate
Error under )
quota policy }
Quota
CFC use/emissions
Error under
tax policy
Fig. 6.3—Potential discrepancies between actual and
estimated outcomes under taxes or quotas
among firms and industries, it is politically sensitive. But these disadvantages must
be weighed against the fact that compensation can reduce consumer price and plant
closure effects—which could be considerable under a stringent goal for emissions
reduction. Moreover, even mandatory controls impose more costs on some firms
and industries than on others, so compensation might be considered even under
mandatory controls.
CLOSING COMMENT
The CFC regulatory problem is an exceptionally complex one, spanning dozens
of CFC applications in thousands of firms throughout the U.S. economy. If CFC
depletion of the ozone layer warrants domestic regulation, several policy strategies
—voluntary action, CFC bans, mandatory controls, and economic incentives—are
available. This study has endeavored to measure the prospective effects of each
policy along as many dimensions as possible.
-------
255
Each policy has advantages and disadvantages. Voluntary action, while less
costly to industry, promises to be relatively ineffective in reducing emissions over
the next decade. CFC bans could effectively reduce near-term emissions, but would
also impose excessive regulatory costs. Mandatory controls favorably compare with
economic incentives along the dimensions of ease of implementation, costs borne
by the CFC-using industries, and the risk tradeoffs inherent in CFC regulation. In
contrast, economic incentives impose lower costs on the economy as a whole and
offer far greater flexibility in both the timing and extent of emissions reductions.
An incentives policy might seriously disrupt the CFC-using industries, depending
on the magnitude of transfer payments; compensated economic incentives could
mitigate transfer payments, but may be quite difficult to implement.
Clearly, no policy ranks first along all of the dimensions of policy comparison.
Consequently, this study cannot—and does not—recommend a particular choice
among the policy strategies. Ultimately, the choice will depend upon which dimen-
sions of policy are deemed most important. That evaluation is left to the policymak-
ers.
-------
Appendix A
EFFECTS OF POLICY ACTION ON THE
PRODUCTION OF PRECURSOR
CHEMICALS'
The various policies that influence the use and emissions of the CFCs will also
affect production of the precursor chemicals required for CFC manufacture. The
significance of the impact depends both on the extent to which policy modifies the
amount of CFC production and on the importance of the CFCs in the market for
the precursor chemicals.
For reference purposes, Table A.I reports the expected magnitude of the reduc-
tions in CFC production under the benchmark mandatory controls and under each
of four economic incentive policy designs examined in Sec. IV. For a zero-growth
scenario, the data in Table A.I derive from the cautious demand assumptions (see
Sec. IV). The overall reduction in use under a zero-growth policy is similar even
when the alternative demand assumptions are used. However, the effects on use
of individual CFCs are unknown for the alternative demand assumptions and
therefore cannot be analyzed here.
The precursor chemicals for which CFC production comprises more than a
trivial share of the precursor market are: hydrogen fluoride (HF); carbon tetrachlo-
ride (CC14); perchloroethylene (C2C14); chlorine (C12); carbon disulfide (CS2) and
chloroform (CHC13). The effect of CFC regulation on production of these precursor
chemicals is estimated below.
METHOD OF ANALYSIS
Domestic CFC production differs from domestic CFC use according to the levels
of exports and imports, packaging and distribution emissions, and the amounts of
CFCs used to produce other chemicals. Historically, use has been a roughly con-
stant proportion of production. To predict future production from projections of
CFC nonaerosol use, we assume the same proportionality factor will hold through
1990, even under the regulatory scenarios. This method of analysis probably over-
states the effects of regulation to a small degree because it assumes that net exports
and the use of CFCs to make other chemicals would decline under regulation along
with CFC domestic nonaerosol use.
We classify precursor chemicals into intermediate and preliminary precursors.
Intermediate precursor chemicals are used directly to produce the CFCs, whereas
preliminary precursor chemicals are used to produce the intermediate precursor
chemicals. On the basis of the chemical equations for producing the CFCs and their
precursors, and of the efficiencies of the production processes, we derive the factors
'For a more extensive discussion of policy effects on the precursor chemicals—as well as on CFC
production—see Wolf (1980).
257
-------
258
Table A.I
REDUCTION IN CFC USE UNDER BENCHMARK CONTROLS AND FOUR ECONOMIC
INCENTIVE POLICY DESIGNS
(Millions of pounds)
Policy design
1980
CFC-11 CFC-12 CFC-113 CFC-502
Benchmark
controls 26.5 12.8 10.0 -5.2
1990
CFC-11 CFC-12 CFC-113 CFC-502
40.5 20.3 32.5 -8.8
Economic Incentives Policies That Achieve the Benchmark Reduction
Constant-price
design 19.9
Cost-minimizing
design 19.9
7.5 24.3
7.5 6.5
-5.2
-5.2
30.3 11.9 49.3
37.5 17.6 56.1
Low growth
Zero growth3'
Economic
0.0
37.9
Incentives Policies for Low and Zero Growth
0.0
22.6
6.0
37.3
0.0
-5.2
57.8
57.8
36.4
36.4
79.3
79.3
-8.8
-8.8
SOURCE: Calculations discussed in Sec. IV.
Data derived from cautious assumptions (see Sec. IV).
listed in Tables A.2 and A.3. When multiplied by a given level of production of a
particular chemical, a factor yields the amount of the precursor chemical required
for the production process. Since C12 is used both directly and indirectly in CFC
production, it appears as both an intermediate and a preliminary precursor chemi-
cal.
RESULTS
Table A.4 reports the baseline estimates of 1980 and 1990 production of the
CFCs and their precursor chemicals.
Table A.5 estimates the reductions in precursor chemical production under five
alternative regulatory policies examined in this report. For CHC13, all five policies
yield an increase rather than a reduction in production, both in 1980 and 1990. The
reason is that any of the five policies leads to an increase in the use of CFC-502,
for which CHC13 is an important precursor. Under the low-growth economic incen-
tive policy, 1980 production of HF is also greater under the regulation than for the
baseline projections. The reason is that HF is used to produce CFC-502 and the
increase in its use for that purpose initially offsets declines in its other uses under
the policy.
Tables A.6 and A.7 together permit a crude assessment of the impact of CFC
regulation on the precursor chemicals industry. Table A.6 shows the impact of CFC
regulation on the portion of the precursor chemicals market that is generated by
-------
Table A.2
INTERMEDIATE PRECURSOR CHEMICAL FACTORS
Factor
(pounds of the intermediate
Produced
Chemical
CFC-11
CFC-12
CFC-113
CFC-502
Intermediate
Precursor Chemical
cci4
HF
CC14
HF
c2ci4
HF
ci2
C2C14
HF
C12
CHC13
required to produce
of the CFC)
1.14
0.15
1.30
0.34
0.92
0.34
0.42
0.57
0.58
0.25
0.71
1 Ib
SOURCE: The factors were derived from information on the
chemical equations and process efficiencies and were subse-
quently verified by industry sources.
Table A.3
PRELIMINARY PRECURSOR CHEMICAL FACTORS
Produced
Chemical
cci4
C2C14
CHC13
Preliminary
Precursor Chemical
CS2
C12
ci2
C12
Factor
(pounds of the prelim-
inary precursor required
to produce 1 Ib of
the produced chemical)
0.20
1.45
0.81
1.62
SOURCE: The factors were derived from information on
the chemical equations and process efficiencies and were
subsequently verified by industry sources.
-------
260
Table A.4
BASELINE CFC AND PRECURSOR CHEMICAL PRODUCTION
(Millions of pounds)
Chemical
CFC-11
CFC-12
CFC-113
CFC-502
HF
CC14
C2C14
GHC13
CS2
C12
1980
144
246
87
13
141
484
87
9
96
825
1990
262
363
147
16
221
771
145
12
152
1,317
SOURCE: CFC data taken from
Tables 3.1 and 3.3. Precursor
chemicals data derived as ex-
plained in text.
Table A.5
REDUCTION IN PRECURSOR CHEMICAL REQUIREMENTS, 1980 AND 1990a
(Millions of pounds)
Policy design
1980
HF CC14 C2C14 CHC1 CS Cl
Benchmark
controls 10 53 6 -4 11 79
1990
HF CC14 C2C14 CHC13 CS2 C12
21 82 24 -7 16 143
Economic Incentives Policies That Achieve the Benchmark Reduction
Constant price
design
Cost-minim iz ing
design
12
6
Economic
Low growth
Zero growth
-1
25
37
37
20
3
Incentives
0
82
3
33
-4
-4
Policies
-4
-4
7
7
for
0
16
72
51
17
27
Low and
-3
154
46
46
57
74
Zero
128
128
40
46
Growth
68
68
-7
-7
-7
-7
11
15
25
25
122
155
260
260
Calculations explained in text.
Data derived from cautious assumptions. Overall use reductions are similar for
the alternative demand assumptions, but distribution among CFCs is unknown (see Sec.
IV).
-------
261
Table A.6
PERCENT REDUCTION IN PRECURSOR CHEMICAL REQUIREMENTS FOR PRODUCING
CFC-11, CFC-12, CFC-113, AND CFC-502a
(Millions of pounds)
Policy design
1980
HF CC14 C2C14 CHC13 CS2 C12
Benchmark
controls 7 11 7 -44 11 10
1990
HF CC14 C2C14 CHC13 CS2 C12
10 11 17 -58 11 11
Economic Incentives Designs That Achieve the Benchmark Reduction
Constant-price
design 9
Cost-minimizing
design 4
Economic
Low growth -1
Zero growth 18
8 23 -44 7 9
8 3 -44 7 6
Incentives Policies for Low
0 3 -44 0 0
17 38 -44 17 19
8 7 28 -58 7
12 10 32 -58 10
and Zero Growth
21 17 47 -58 16
21 17 47 -58 16
9
12
20
20
a
Calculations explained in text.
Table A.7
PRECURSOR CHEMICAL USAGE, 1976
(Millions of pounds)
Usage Category HF CCl^ C2C14 CHC13 CS2 C12
CFC Manufacture 295 803 103
Aerosol 98 401 29
Nonaerosol
CFC-11
CFC-12
CFC-113
CFC-502
Other
117 402 73
80 0 1
All othe?: chemical
processes 346 54 569
Total
641 857 669
247 159 1,690
0 79 616
8 80 686
239 0 388
45 477 17,310
292 636 19,000
SOURCE: Total production of the chlorocarbons -was taken
from U.S. International Trade Commission (1976). Total- pro-
duction for the other chemicals was derived from data sup-
plied by industry sources.
-------
262
CFCs produced for nonaerosol applications. (The table shows the reductions from
Table A.5 as a percentage of the production levels from Table A.4.) The data in
Table A.7 indicate how important nonaerosol applications of CFCs were in the
overall market for each precursor chemical in 1976, the most recent year for which
overall precursor chemical market data are available.
In 1976, aerosol applications of CFCs generated a significant share of the mar-
ket for each of the precursor chemicals except chloroform. This part of the precur-
sor chemical market has now virtually disappeared in the wake of the aerosol ban.
If the relative shares of the other markets for the precursor chemicals have re-
mained stable, the CFCs that would come under the regulations examined in this
study would today account for 22 percent of the HF market, 88 percent of the CC14
market, 11 percent of the C2C14 market, three percent of the CHCL, market, 14
percent of the CS2 market, and four percent of the C12 market. Hence, the CHC13
and C12 markets are not very sensitive to effects of CFC regulation, and only the
CC14 market could be described as critically dependent on CFC production levels.
It appears therefore, that the effects of CFC nonaerosol regulation would be
quite modest in comparison with the effects of the aerosol ban. The largest impact
of nonaerosol regulations would be felt in the CC14 market, where the reduction in
total annual production might be as high as 10 percent. For other precursors, the
effects of the nonaerosol CFC regulatory scenarios analyzed here would generally
amount to less than a five percent reduction in the overall markets.
-------
Appendix B
ESTIMATES OF FOOD FREEZING
PRODUCTION COSTS
263
-------
Table B.I
INDUSTRY-SUPPLIED ESTIMATES OF RELATIVE FOOD FREEZING COSTS, CIRCA 1978
Conditions
Production rate
(lb/hr)
Scheduled operation
(hr/yr)
Annual production
(millions of
Ib/yr)
Food type
Investment- installed
Equipment Cost ($)
Refrigerator
Freezer
Total
Annual Operating
Cost ($/yr)
Fixed cost
Ownership
Maintenance
Freezant tank
rental
Total ($/yr)
Variable cost ($)
Power
Freezer labor
Gas cost (?/yr)
(gas use rate
ib/lb)
(gas cost $/lb).
Yield loss (%)
($/yr)
Throughput
charge
Total
Total Annual Oper-
ating Cost ($/yr)
Unit Operating
Cost (c/lb)
Example A
Air
LFF Blast
4,000 4,000
4,000 4,000
16.0 16.0
Raw or cooked
shrimp
155,000 155,000
249,000 190,000
404,000 345,000
73,000 62,000
4,000 3,500
__
77,000 65,500
33,000 36,000
20,000 20,000
188,000
(0.025)
(0.47)
(0.25) (1.5)
160,000 960,000
—
401,000 1,016,000
478,000 1,081,500
2.98 6.76
Example B
Air
LFF Blast
6,480 6,480
4,000 4,000
26.0 26.0
Raw meat
patties
170,000 170,000
320,000 380,000
490,000 550,000
88,000 99,000
4,900 5,500
—
92,900 104,500
36,000 40,800
10,000 10,000
220,000
(0.018)
(0.47)
39,000 93,600
—
305,000 144,400
397,900 248,900
1.53 0.96
Example C
LFF LN2
4,000 4,000
2,000 2,000
8 8
Cooked pork
patties
185,000
215,000 85,000
400,000 85,000
100,000 21,000
8,000 1,000
10,000
108,000 32,000
16,000 1,000
5,000 5,000
108,000 440,000
(0.03) (2.0)
(0.45) (0.0275)
Example D
LFF LN2
1,000 1,000
2,000 2,000
2 2
(unspecified)
60,000
110,000 50,000
170,000 '50,000
31,000 9,000
7,000 8,000
10,000
38,000 27,000
2,000
5,000 5,000
40,000 160,000
(0.035) (2.0)
(0.57) (0.04)
Example E
LFF LN2
2,000 2,000
2,000 2,000
4 4
(unspecified)
100,000
120,000 60,000
220,000 60,000
40,000 11,000
9,000 9,000
10,000
49,000 30,000
4,000
5,000 5,000
62,000 216,000
(0.027) (1.8)
(0.57) (0.03)
Example F
LFF LN2
3,000 3,000
2,000 2,000
6 6
(unspecified)
130,000
140,000 70,000
270,000 70,000
49,000 13,000
11,000 11,000
10,000
60,000 34,000
6,000
5,000 5,000
65,000 306,000
(0.024) (1.7)
(0.45) (0.03)
Example G
LFF LN2
4,000 4,000
2,000 2,000
8 8
(unspecified)
165,000
165,000 80,000
330,000 80,000
59,000 14,000
13,000 12,000
10,000
72,000 36,000
8,000
5,000 5,000
79,000 320,000
(0.022) (1.6)
(0.45) (0.025)^
(Yield loss not included in these illustrations)
8,000
137,000 446,000
245,000 478,000
3.06 5.98
2,000
49,000 165,000
87,000 192,000
4.35 9.60
4j 000
75,000 221,000
124,000 251,000
3.10 6.28
6,000
82,000 331,000
142,000 345,000
2.37 5.75
8,000
100,000 325,000
172,000 361,000
2.15 4.51
SOURCE: Examples obtained from industry sources, not necessarily representing actual operating conditions.
NOTES: Examples A and B: Calculations assume a seven-year required payback period, maintenance at 1 percent of ownership costs, power priced at
$0.03/kWh, freezer labor at $5/hr and yield loss at $4/lb for Example A and at 60c/lb in Example B. Example C: Calculations assume a four-year
required payback period, maintenance at 2 percent of ownership costs for LFF and 1 percent for LN2, power priced at $0.03/kWh, and freezer labor at
$5/hr. The "throughput charge" represents payments for a portion of capital costs. If all capital costs were paid up front the throughput charge
would be zero and the initial purchase price would be increased by about $50,000. Examples D through G: Calculations assume a seven-year required
payback period, maintenance at 4 percent of ownership costs for LFF and at 15 percent for LN2, power priced at $0.015/kWh, and freezer labor at
The "throughput charge" is a part of capital costs but paid over time (see note for Example C).
-------
Appendix C
POINT ESTIMATES OF 1980 AND 1990
CFC DEMAND SCHEDULES
Table C.I
DEMAND SCHEDULES FOR FULLY HALOGENATED CFCs BY TYPE OF CFC,
1980 AND 1990
CFC-ll
CFC Use
Price Increment (millions
(1976 $ per Ib) of Ib)
CFC-12
CFC Use
Price Increment (millions
(1976 $ per Ib) of Ib)
CFC-113
CFC Use
Price Increment3 (millions
(1976 $ per Ib) of Ib)
1980
0.00
0.10
0.27
0.34
0.70
0.79
1.16
1.18
130.8
118.2
116.2
110.9
107.2
106.2
98.2
92.9
0.00
0.19
0.24
0.58
1.02
1.23
1.32
1.36
1.59
188.7
183.5
181.2
177.6
175.8
174.0
170.4
168.6
166.1
0.00
0.22
0.35
0.57
1.27
2.03
78.3
71.8
58.3
53.7
45.6
41.0
1990
0.00
0.10
0.27
0.34
0.70
0.79
1.16
1.18
252.2
233.0
229.9
221.9
216.2
214.7
202.4
194.4
0.00
0.19
0.24
0.58
1.02
1.23
1.32
1.36
1.59
279.8
271.1
267.9
262.2
259.4
256.6
250.9
248.1
243.4
0.00
0.15
0.35
0.50
0.73
1.43
2.20
147.1
121.2
120.4
97.8
90.0
75.6
67.8
SOURCE: Based on detailed calculations discussed in Sees. III.A. through III.H.
alndicates price increment above supply price. The supply price for CFC-113 declines
as production increases.
265
-------
Table C.2
DEMAND SCHEDULE FOR CFCs, AGGREGATE 1980 AND 1990
1980
Total CFC
Price Increment Use
(1976 $ per Product Area of (millions of,
permit pound") Induced Activity permit pounds )
0.00
0.07
0.18
0.20
0.22
0.23
0.25
0.35
0.51
0.56
0.57
0.58
0.85
0.87
0.99
1.19
1.27
1.28
1.32
1.54
2.03
Flexible
„
foam
Retail food
Flexible
Solvents
foam
Retail food, PS sheet
Flexible
Solvents
Flexible
PS sheet
Solvents
Flexible
Flexible
Flexible
PS sheet
PS sheet
Solvents
PS sheet
PS sheet
foam
foam
foam
foam
foam
Mobile air conditioning
Solvents
454
431
427
424
424
421
414
401
396
392
387
386
375
368
366
364
356
352
350
348
343
.9
.7
.6
.8
.3
.9
.7
.2
.2
.4
.8
.4
.5
.2
.4
.4
.3
.6
.7
.1
.5
1990
Price Increment3 Total CFC Use
(1976 $ per Product Area of (millions offe
permit pound13) Induced Activity permit pounds )
0.00
0.07
0.15
0.18
0.20
0.23
0.25
0.35
0.50
0.51
0.56
0.58
0.73
0.85
0.87
0.99
1.19
1.28
1.32
1.43
1.54
2.20
Flexible
Solvents
__
foam
Retail food
Flexible
foam
Retail food, PS sheet
Flexible
Solvents
Solvents
Flexible
PS sheet
Flexible
Solvents
Flexible
Flexible
PS sheet
PS sheet
PS sheet
PS sheet
Solvents
foam
foam
foam
foam
foam
Mobile air conditioning
Solvents
784.4
747.4
732.3
725.4
721.3
717.9
707.0
706.2
683.6
675.8
669.9
667.9
660.1
643.3
632.4
629.5
626.4
620.5
617.6
603.2
598.3
590.5
SOURCE: Based on detailed calculations discussed in Sees. III.A through III.H.
CFC-12, and CFC-113, and demand for CFC-502 in retail food refrigeration only.
a
Estimates include demand for CFC-11,
The supply price for CFC-113 declines as production increases as a
Indicates price increment above supply price.
result of economies of scale.
One permit pound is equivalent to 1.00 pound of CFC-113, 0.97 pound of CFC-12, 0.73 pound of CFC-11, or 3.87 pounds
of CFC-502. See Sec. IV for discussion.
-------
Appendix D
ESTIMATION OF CFC DEMAND
SCHEDULES FOR PLASTIC FOAMS
This appendix details the procedure employed to estimate CFC demand sched-
ules for flexible urethane foam and thermoformed extruded polystyrene sheet
foam. Because data are unavailable for the direct econometric estimation of the
demand schedules in these markets, estimates are based on technical cost data for
alternative foam production processes.
The demand analysis is predicated on the assumption that foam producers seek
to use the least costly method of production. The estimation procedure involves two
steps. First, production costs are estimated for each technical option that might be
adopted by foam producers at higher CFC prices. Because the costs of these alterna-
tive production processes differ in their sensitivity to higher CFC prices and in-
volve different levels of initial capital outlays, the least costly option for a firm
depends upon the expected CFC price. The second step simply involves determining
which option minimizes production costs, given the regulated price at which the
relevant CFC is expected to stabilize.
When confronted with higher CFC prices, the possible responses of foam pro-
ducers include:
1. Pay the higher CFC price.
2. Recover and recycle CFC.
3. Convert to alternative blowing agents.
4. Convert to alternative blowing agents where feasible, and recover both
CFC and the alternative blowing agent.1
Because the adoption of any of these options is unlikely to affect significantly a
foam producer's costs of labor, capital, and other nonmaterial inputs, the demand
analysis focuses on material costs. For the responses listed above, annual material
costs are described in Eqs. (D.I) to (D.4), respectively. (Table D.I contains the
definitions of all variables.)
TC, = [PcC + PmM] (D.I)
TC2 = [p«(l - e)C + beC + ProM + OJ + \Kr (D.2)
TC3 = [(peC + pmM)f + (PaA + pJVI)(l - f)a + OJ + XKa (D.3)
TC4 - [(p«(l - e)C + beC + pmM)f + (p.(l - e)A + beA (D 4)
+ PmM)(l - f)o + Or+ OJ + X(Kr + Ka)
'Note that this last option is relevant only for flexible urethane foam producers. A fifth option is to
shut down the production facility. While this possibility is not discussed in this appendix, it may be
relevant for some polystyrene sheet producers, as emphasized in Sec. III.C.
267
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268
Table D.I
VARIABLE DEFINITIONS FOR ESTIMATING CFC DEMAND SCHEDULES IN
PLASTIC FOAM MARKETS
Variable Definition
TC± Materials cost of ith option (i = 1, ..., 4)
p CFC price
p Price of alternative blowing agent
p Price of nonblowing agent materials
C Quantity of CFC use
A Quantity of alternative blowing agent
M Quantity of nonblowing agent materials
K Initial capital costs for CFC recovery
K Initial capital costs for conversion to alterna-
tive blowing agent
a
0 Other annual costs for CFC recovery
0 Other annual costs for conversion to alternative
blowing agent3
X Discount factor
e Fraction of CFC reused under CFC recovery
b Operating cost of CFC recovery unit per pound of
recovered CFC
a Material cost adjustment factor of conversion to
alternative blowing agent (a ^ 1.0)
f Fraction of CFC use that technically cannot be con-
verted to alternative blowing agent
Includes insurance, additional labor, and other costs. See
Sees. III.A and III.C. for a discussion of these variables.
In Eqs. (D.I) to (D.4) the bracketed terms describe the cost of materials plus annual
labor and insurance costs associated with CFC recovery or conversion to an alterna-
tive blowing agent. The unbracketed terms, XKr, XKa, and X(Kr + Ka), refer to the
amortized capital expenses for each option, where A. is a discount factor determined
by the investment criteria of the firm.
As an illustration, consider the alternative costs of production for a large flexi-
ble urethane slabstock plant that primarily produces softer foam products. In this
case, the alternative blowing agent is methylene chloride, which can be used to
produce all but 25 percent of a slabstock producer's output on average (i.e., f =
0.25). Moreover, the use of this chemical may result in higher levels of rejected
product (or scrap). This phenomenon is reflected in the value of a, which in this case
equals 1.125. The discount factor, X, is based on a 10 year average life for equipment
and 20 percent pretax annual opportunity cost of capital (or, equivalently, a 4.2 year
payback period requirement). Because 15 percent less methylene chloride than
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269
CFC is required to produce a given amount of foam (ignoring scrap), we also have
A = 0.85C. Finally, available evidence indicates that at the current CFC price of
$0.34 per pound, CFC accounts for about 13 percent of total material costs for soft
flexible slabstock foam; this implies the cost of nonblowing agent materials is p M
= (0.34C/0.13) 0.87.
On the basis of these observations and the data presented in Sec. III.A for
flexible slabstock, we have the following parameters for Eqs. (D.I) to (D.4):
Pa = $0.22 A = 0.24
K, = $960,000 e = 0.5
Ka = 0 b - 0.014
Or = $26,800 a = 1.125
OB = 0 f = o.25
A = 0.85C pmM = 2.28C
Substituting these values into Eqs. (D.I) to (D.4), total material costs (in millions
of 1976 dollars) for a flexible urethane foam producer are:
TC, = (pc + 2.28)C (D.la)
TC2 = (0.5 pc + 2.29)C + 0.256 (D.2a)
TC3 = (0.25 Pc + 2.65)C (D.3a)
TC4 = (0.13 pc + 2.58)C + 0.256 (D.4a)
Equations (D.la) to (D.4a) describe material costs under each respective option
as a function of the CFC price and the amount of CFC the firm would use in the
absence of regulation. Figure D.I illustrates these annual material cost curves for
a large flexible slabstock plant, where the value of C is 1.2 million pounds per year
(see Table 3.A.5).
The kinked bold line at the bottom of the figure shows which option is charac-
terized by the lowest material costs over several ranges of the price of CFC-11. Not
surprisingly, at CFC-11 prices near the current level ($0.34 per pound in 1976
dollars), the most profitable action for the firm is simply to pay the higher price.
However, material costs rise rapidly under this option as the price of CFC is
increased by regulation.2 If the regulated price is between $0.44 and $0.61, the least
cost response of the firm is CFC recovery. While CFC recovery requires a large
initial investment, this cost is more than offset by the savings realized by the firm,
because it purchases less CFC blowing agent. Similarly, if the regulated CFC-11
price is between $0.61 and $1.13 per pound, the firm's most profitable course of
action is to convert to methylene chloride. Above the price of $1.13 per pound, the
firm further reduces its use of CFC by converting to methylene chloride for the
products that can be produced with this chemical and using recovery equipment
to reuse both CFC and methylene chloride.3
2That is, the slope of TC^ is greater than the slope of the other cost functions.
3The permit prices in a permit market or tax rate per permit pound corresponding to the CFC-11
prices, in Fig. D.l are as follows:
CFC-11 Price
per Pound
$0.44
$0.61
$1.13
Corresponding Price Increment
per Permit Pound
$0.07
$0.20
$0.58
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270
0.34 0.44
0.61 1.13
CFC price (dollars per pound)
Fig. D.I—Annual material costs for a large flexible slabstock plant
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Appendix E
THE SOLVENTS SIMULATION MODEL
Table E.I lists the assumed characteristics of the stock of solvent-using equip-
ment for cleaning and drying applications of CFC-113. Each of eight cases is defined
by a representative set of characteristics that are presumed to yield averages for
the vapor and waste losses per machine. Individual machines might differ some-
what from the case characteristics.
The descriptions of the unit types were based on an examination of brochures
from the major equipment manufacturers. The descriptions were checked with the
CFC-113 producers who agreed that these eight types of units fairly well represent
the major categories of equipment in use, and who provided estimates of the
distribution of the equipment stock among the eight cases. (See the last column of
Table E.I.) For each unit type, the estimates of total capacity, surface area, and boil
sump capacity were also derived from equipment brochures. Individuals at DuPont
and Allied Chemical who are familiar with field uses of CFC-113 contributed to the
work hours and shifts estimates.
Most industry sources cite 0.5 as the most common rate of vapor loss (in pounds)
per square foot of surface area during use of a machine for cleaning throughput.1
However, it is also recognized that small spray units are relatively inefficient, while
conveyorized units are relatively efficient at controlling CFC losses. These
differences among equipment units are reflected in the work loss rates shown in
Table E.I. Similarly, there are some differences in the idle loss rates, when
equipment is turned on but is not being used. Industry sources generally agree that
covers are used during about one-quarter of all idle time; of course, conveyorized
units do not use covers because the units are enclosed.
The equipment manufacturers and the CFC-113 producers recommend that
equipment be cleaned out when the contamination in the boil sump reaches 10
percent of boil sump capacity. Because units with more sumps can be run somewhat
longer between cleanings, and because small spray units are not often used for
highly delicate cleaning operations, we assume that the units in cases 1, 3, and 5
are operated to 15 or 20 percent contamination before cleaning. Many users put the
waste from the cleaned unit back through the equipment unit, using it as a crude
still. Then virgin CFC is added and the solvent continues to be used until clean-out
is again necessary. As a result, the effective contamination limit that determines
when the waste will require precision reclamation or will be sent out for disposal
is far greater than 10 percent. The contamination limits shown in Table E.I refer
to this effective level of contamination at which waste requiring precision reclama-
tion or burial is generated.
The contamination rate in the table refers to the rate at which contamination
'The simulations are based on information about cleaning applications; drying applications are
relatively uncommon at present, and are assumed to be similar to cleaning applications in emissions
properties.
271
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ts3
-J
to
Table E.I
POSTULATED CHARACTERISTICS OF THE CURRENT EQUIPMENT STOCK FOR CLEANING
AND DRYING APPLICATIONS*
Case
Number Unit Type
Small
1 Spray
2 One-sump
3 Two— sump
Med ium
4 One-sump
5 Two-sump
6 Conveyor
Large
7 One /two -sump
8 Conveyor
Capac ity
(gallons)
5
15
15
60
60
60
375
375
Surface
(sq. ft)
2
2
2
6
6
6
25
25
Bo 11 -Sump
Capacity
(gallons)
3.5
10.5
6.0
42.0
24.0
18.0
188.0
150.0
Work Hours
per shift
2.0
3.0
3.0
4.0
5.0
5.5
6.0
7.0
Shifts
per Day
1.0
1.2
1.5
1.5
1.6
1.8
2.0
2.0
Work
Loss,
Rateb
0.60
0.50
0.50
0.50
0.50
0.30
0.50
0.30
Idle
Loss
Rateb
Covered
0.04
0.04
0.04
0.04
0.04
0.05
0.04
0.05
Uncovered
0.20
0.20
0.20
0.10
0.10
N/A
0.10
N/A
Contamination
Rate
(Ib/work
hour)
0.11
0.15
0.15
0.20
0.20
0.20
0.20
0.20
Limit0
(%)
20
20
30
30
30
30
30
30
Share of
Equipment
Stock
0.16
0.32
0.32
0.04
0.09
0.04
0.01
0.02
Calculations explained in text.
In pounds per square foot of surface area per hour.
Percent contamination in the boil sump (after boil-down) at which waste is removed for external recovery or recycle.
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273
displaces solvent in the boil sump during work hours. The contamination rate for
case 3 was inferred from a detailed case analysis provided by DuPont; the rates for
other cases were adjusted from the case 3 estimate, on the basis of judgments (our
own and those of individuals at Allied Chemical) about differences in the types of
applications for which different types of equipment are used.
A characteristic of equipment in use that is not reported in Table E.I is the
shutdown loss rate—the rate of vapor losses when equipment is turned off, mostly
overnight and on weekends.2 The two CFC-113 producers disagree sharply on
shutdown loss rates. One argues that equipment is covered during shutdown about
75 percent of the time, and that loss rates then are 0.02 Ib/sq. ft/hour, whereas loss
rates when equipment is uncovered are 0.10. The other producer claims that
equipment is always covered when shut down, but that the shutdown loss rate is
0.08 Ib/sq. ft/hour. The latter assumption nearly doubles the estimates of shutdown
losses for all machines, and suggests that there is a considerable amount of vapor
loss that cannot be reduced through better operating practices or even by
equipment improvements that do not include a redesign of covers for machines.
Both shutdown loss assumptions are examined in more detail below.
In recent years, CFC-113 accounted for 89.7 percent of the total number of
pounds of CFC-based solvent sales. Using 11.85 as the average density of azeotropes
and 13.06 as the density of pure CFC-113, the average amount of CFC-113 used per
gallon of equipment capacity is 11.17 pounds. Using this conversion factor and the
assumptions from Table E.I, the normal losses of CFC-113 per machine per year
would be as shown in Table E.2.
There are two reasons to suspect that the "high" shutdown loss assumption is
the more accurate one. First, the turnover rates in Table E.2 for the high shutdown
loss assumption are closer to the turnover rates estimated by the CFC-113 produc-
ers (before they saw the results of the simulation model). Second, when the simula-
tion model is combined with an estimate that there were about 11,000 units in the
1976 equipment stock, the results for the high shutdown loss assumption come far
closer to explaining total CFC-113 sales for cleaning and drying applications in that
year.3 Nevertheless, for lack of hard data on shutdown losses, our analysis assumes
that losses are halfway between the high and low estimates.
EFFECTS OF IMPROVED CONSERVATION
We have been able to find no data concerning the decrease in vapor losses from
equipment improvements under actual operating conditions. Industry sources cite
emissions reductions of 40 to 60 percent from replacing or modifying a poorly
designed machine, but they also argue that many CFC-113 users already use fairly
well designed equipment, because the cost of the CFC solvent warrants good conser-
vation.
In the simulation model, we assume that equipment improvements can reduce
the work loss rate in all cases to 0.03 Ib/sq. ft/hour; can reduce the idle loss rate
^Shutdown hours per year are 6,744 for all cases.
3That is, after taking account of external reclamation amounting to about three or four percent of
virgin CFC sales.
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274
Table E.2
NORMAL ANNUAL LOSSES PEE MACHINE8
(Pounds of CFC-113)
Case
Number
Unit Type
Vapor
Work Idle
Loss
Shutdown Total
Waste Total
Loss Loss
Turnover Rate
(fills per year)
"Low" Shutdown Loss Assumption
1
2
3
4
5
6
7
8
Spray
Small
Small
Medium
Med ium
Medium
Large
Large
(D
(ID
(D
(ID
(C)
(I/ID
(C)
543
814
1,017
4,070
5,427
4,030
20,350
23,742
434
434
543
692
1,182
305
961
565
485
455
412
1,236
1,192
1,105
4,242
4,242
1,462
1,703
1,972
5,998
7,801
5,440
25,553
28,549
194
971
704
1,869
1,670
3,058
3,802
4,369
1
2
2
7
9
8
29
32
,656
,674
,676
,867
,471
,498
,355
,998
33
17
17
13
15
14
7
8
.0
.8
.8
.1
.8
.2
.8
.7
"High" Shutdown Loss Assumption
1
2
3
4
5
6
7
8
Spray
Small
Small
Medium
Medium
Medium
Large
Large
(I)
(II)
(I)
(II)
(C)
(I/ID
(C)
543
814
1,017
4,070
5,427
4,030
20,350
23,742
434
434
543
692
1,182
305
961
565
968
911
824
2,460
2,373
2,199
8,484
8,484
1,945
2,159
2,384
7,222
8,982
6,534
29,795
32,791
194
971
704
1,869
1,670
3,058
3,802
4,369
2
3
3
9
10
9
33
37
,139
,130
,088
,091
,652
,592
,597
,160
42.
20.
20.
15.
17.
15.
8.
9.
7
8
6
1
7
9
9
9
Calculations explained in text.
I = one-sump, II two-sump, C = conveyor.
to 0.04 Ib/sq. ft/hour; and can reduce the shutdown loss rate to 0.02 Ib/sq. ft/hour.
The reduction in vapor losses for each of the simulation cases is shown in Table E.3,
both in pounds per year and as a percentage of total vapor losses. Averaging over
the eight cases (weighted by their shares of the total equipment stock), the improve-
ments reduce annual vapor losses by 45 percent. However, as a fraction of total
losses per machine (both vapor and waste), the improvements reduce CFC-113 use
by just 25 percent. This estimate, which appears to us to depend on a rather
optimistic view of what improvements in equipment design can achieve, is never-
theless substantially below the 40 to 60 percent improvement figures so often cited.
EFFECTS OF INCREASED RECLAMATION
The CFC-113 producers estimate that outside reclamation amounted to perhaps
four percent of solvent sales for cleaning applications in 1976. Given virgin cleaning
and drying sales of 55 million pounds, this implies that about 2.4 million pounds
were reclaimed, and a 90 percent reclamation yield rate implies that 2.2 million
pounds actually reentered use after reclamation.
According to the chemical reclaimers we interviewed, reclamation is far more
common among users of large units, like those in cases 7 and 8. We assume that
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275
Table E.3
ESTIMATED ANNUAL CONSERVATION POTENTIAL FROM
EQUIPMENT IMPROVEMENTS3
Case
Number
1
2
3
4
5
6
7
8
Reduction in
Vapor Losses
(pounds per machine)
1,084
1,108
1,228
3,118
4,280
1,161
12,891
4,355
Reduction as Fraction of
Normal Vapor
(%)
64
57
56
49
51
19
47
14
Lossb
Calculations explained in text.
"Normal" assumes shutdown losses are halfway between
the lower and upper estimates in Table E.2.
they already reclaimed about 80 percent of their waste in 1976, accounting for 0.77
million pounds of reclaimed CFC. We also assume that small users (cases 1, 2, and
3) do not reclaim currently. This implies that, on average, users in cases 4, 5, and
6 already reclaim about 30 percent of their waste.
At current CFC prices, mandatory controls requiring more reclamation of
waste do not appear enforceable. Most users already reclaim in-house as much as
possible, and outside reclamation is costly (at over 30 cents per pound, plus han-
dling, storage, and transportation costs).
However, if the virgin CFC price were to rise to as much as a dollar per pound
(1976 dollars), we do expect some improvements in reclamation activity. Specifical-
ly, our simulation assumes that the average share of waste sent for reclamation
would rise to almost 75 percent (70 percent in cases 1, 2, and 3; 80 percent in cases
4, 5, and 6; and 90 percent in cases 7 and 8).
THE CFC DEMAND SIMULATION
The assumed equipment prices for conservative and less conservative equip-
ment for all eight simulation cases were presented in Sec. III.B. Here we work
through the demand model for a single example. Case 3 is used, both because it is
one of the predominant cases in the current equipment stock and because behavior
in that case exemplifies most of the features of the economic analysis.
Consider a CFC user who is contemplating a purchase of new equipment in case
3. The estimated price of a conservative machine is $7,800. Assuming an average
equipment life of eight years and an opportunity cost of capital of 20 percent, the
average annual cost of the machine would be $2,028. In contrast, a less conservative
machine might be priced 40 percent lower, at $4,680, having an annualized cost of
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276
$1,217. The more conservative machine would reduce annual vapor losses (and,
hence, annual CFC-113 purchases) by 1,228 pounds. Consequently, the CFC-113
price at which the more conservative machine would generate solvent savings
sufficient to offset the higher machine cost is only about 66 cents. Since the 1980
price of CFC-113 (in 1976 dollars) is approximately 60 cents, we assume all new
users in case 3 would buy the more conservative machine if the CFC-113 price rose
by six cents (in real terms).
If the CFC-113 price were higher than 60 cents in 1980, there might be an
additional demand effect over and above the inducement to improve equipment.
The higher price might induce users to convert to another solvent. If the cost of
converting equipment is 40 percent as much as the cost of buying new (conserva-
tive) equipment, then the conversion cost in case 3 would be $3,120, or $811 per
year. We assume that at 60 cents per pound of CFC, some case 3 CFC users are close
to indifferent about the choice to use either CFC or an alternative solvent, implying
that for them the cost of using the alternative solvent is $2,946 per year." Adding
in the annualized conversion cost, the annualized cost of converting to a different
solvent would be $3,757. With less conservative equipment, the annualized cost of
using the CFC (including equipment costs) would not make conversion attractive
unless the CFC price rose to at least 88 cents per pound. However, the user can
choose the option of making his equipment more conservative, and at a price of 88
cents, the annualized cost of continuing to use the CFC would then be only $3,483,
and the user would still not find it attractive to convert to another solvent. With
the more conservative equipment, the user would not be interested in converting
unless the CFC price rose to $1.04 per pound. However, at $1.00, the user would
find it cost-saving to reclaim some waste, at an implicit price of $1.00 per pound of
reclaimed material. With reclamation (at about 400 pounds per year), the cost of
continuing to use the CFC (in conservative equipment) is only $3,732 at a CFC price
of $1.04—still not high enough to induce conversion away from the CFC.
Finally, at CFC prices just a little higher, the user who was close to indifferent
between the CFC and an alternative solvent when the CFC price was 60 cents will
begin to find conversion attractive. Assuming that one percent of use will be con-
verted to a different solvent for each one percent increase in the total cost of using
the CFC above the alternative's cost ($3,757), a price for the CFC of $2.00 per pound,
for example, would reduce CFC use in case 3 by about 30 percent (relative to what
use would be with good conservation and reclamation.)
The same sort of analysis is performed for other equipment types and used to
generate the overall demand results shown in Sec. III.B.
EFFECTS OF MANDATORY CONTROLS
Again using case 3 as an example, we calculate the compliance cost for equip-
ment standards by using the data on equipment costs. In 1990, the price difference
between conservative and nonconservative equipment is assumed to be the same
(in 1976 dollars) as in 1980: $811 per year (annualized). The baseline 1990 CFC-113
4 At 60 cents for the CFC, the annual cost of using it is the annualized cost of less conservative
equipment ($1,217) plus the cost of the solvent (2,882 pounds per year in the less conservative machine).
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277
price is expected to be 40 cents.5 Consequently, the more conserving equipment
would save the user only $491 dollars per year in reduced solvent expenditure. Net
of this solvent saving, the user is incurring $320 in extra production costs for 1990
due to the requirement that he use better equipment. The total number of case 3
machines in 1990 is projected to be 8,173, implying that total 1990 compliance costs
for case 3 users would be $2.6 million. Adding in the costs for other years and
discounting by 11 percent per year beyond 1980, the cumulative compliance costs
for this case come to the $6.6 million figure shown in Table 3.B.12.
5Under mandatory controls, the 1990 CFC-113 price is expected to decline to only 45 cents. However,
if 40 cents is the long-run marginal cost of producing CFC-113 and 45 cents is the short-run marginal
cost, then the 45 cents that users would pay would be five cents above the long-run cost of production,
and this five cent discrepancy is an additional real resource cost imposed by the mandatory controls.
Hence, the use of the 40 cent figure in calculating the compliance cost for 1990.
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Appendix F
A SIMULATION MODEL OF
CHLOROFLUOROCARBON EMISSIONS
FROM CLOSED CELL PLASTIC FOAMS
The problem of estimating CFC emissions is complicated considerably by the
fact that the CFC contained in a nonaerosol product may not be emitted until long
after product manufacture. When lagged emissions are a significant phenomenon,
the level of CFC emissions at any point in time is a function not only of current
production levels, but of the age distribution of the entire CFC stock in the econ-
omy. Consequently, post-manufacturing emission characteristics must be modeled
if reliable estimates of CFC emissions are to be produced.
This appendix presents the simulation model used to estimate emissions from
CFC blown closed cell foams. The appendix first presents the model in a general
mathematical form. This is followed by a discussion of the numerical values of
important parameters in the emissions process of closed cell foam products.
THE SIMULATION MODEL
The model simulates CFC emissions in two steps. First, manufacturing and
post-manufacturing emissions functions are used to calculate emissions over time
from CFC blown foams produced during a given period. This procedure transforms
observations (or projections) of CFC use in a single time period into time series
estimates of vintage-specific emissions, and is repeated for all vintages of foam
output. The second step in the simulation model involves the summation of emis-
sions over all vintages to derive the relevant CFC emissions profile.
Consider the output of a closed cell foam product during an arbitrary single
year. This foam will consume a certain amount of CFC during its production. Over
the life cycle of this vintage of foam output, the CFC blowing agent consumed
during manufacture can be released to the atmosphere during either product
manufacture, normal use, or disposal.
Emissions during the earliest stage of product life are the easiest to deal with.
Manufacturing emissions, including storage and handling losses, depend upon cur-
rent CFC use levels only. Moreover, no evidence suggests that the rate of manufac-
turing emissions varies with the level of foam output. Therefore, manufacturing
emissions from foam of vintage t, mt, can be specified as a linear, proportional
function of CFC use, CFCl; as in Eq. (F.I) where 8 denotes the manufacturing
emissions rate as a fraction of CFC use.1 (Table F.I contains the definitions of all
the variables of the emissions process.)
'For the closed cell foams, annual CFC consumption is not directly observable, and CFC use is
estimated by: CFC, = cF, where Ft denotes total CFC blown foam output and c is the average CFC
content of a pound of CFC blown foam output.
278
-------
279
Table F.I
DEFINITION OF VARIABLES IN THE CLOSED CELL FOAM EMISSIONS PROCESS
Variable Definition
CFG Total CFC use of foam produced in year t.
6 Fraction of CFC use lost during manufacture.
m Total manufacturing losses during year t.
B CFC "bank" immediately after manufacture.
Normal use emissions function.
N(a) Cumulative normal use emissions as fraction
of initial CFC bank through atn period of
foam life.
4>(a) Product disposal probability density function.
D(a) Cumulative product disposals as fraction of
initial production in atn period of foam
life.
R(a) Fraction of initial foam output remaining in
the stock in ath period of foam life.
nt(a) Normal use emissions from foam of vintage t
during a*-*1 period of foam life.
dfc(a) Disposal emissions from foam of vintage t
during a*-*1 period of foam life.
r Fraction of remaining CFC emitted at
disposal.
mt = S • CFCt (F.I)
The amount of CFC that is not emitted during manufacture enters the CFC bank,
Bt, which is represented symbolically in Eq. (F.2).
Bt = (l-s)CFC, (F.2)
Most of the CFC blowing agent used in closed cell foams leaves the production
facility embodied in the cellular structure of the foam — i.e., it enters the bank and,
therefore, the post-manufacturing emissions process.
The post-manufacturing emissions process involves two distinct underlying
functions. The first of these is the normal use emissions function, ft(a), which
predicts the rate at which CFC diffuses from a foam product over time (the symbol
"a" denotes foam age). For closed cell foams we have:
/
*
ft(a) da = 1.0 (F.3)
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280
Equation (F.3) assumes that eventually the normal use emissions process would
result in the complete emission of any CFC banked during production. Cumulative
normal use emissions (as a fraction of Bt) by the a-th period of product life, N(a),
are given by Eq. (F.4):
a
N(a) = / ft(a) da (F.4)
0
where 0 < N(a) < 1.0.
The second important underlying function of the post-manufacturing emissions
process is the probability density function for product disposal. This function de-
scribes the fraction of original foam output disposed during any period in the life
cycle of the foam vintage. If we denote the product disposal p.d.f. as 4>(a), then:
oo
/4>(a) da = 1.0 (F.5)
0
Cumulative product disposals, as a fraction of the initial output level, and the
fraction of end-products surviving to the a-th period of foam life are given by Eqs.
(F.6) and (F.7), respectively:
a
D(a) = f <|>(a) da (F.6)
0
R(a) = 1 - D(a). (F.7)
Equation (F.2), which defines the amount of CFC entering the post-manufactur-
ing emissions process, and the underlying disposal and normal use functions of Eqs.
(F.4), (F.6), and (F.7) provide an information base that is sufficient for the estima-
tion of CFC emissions from a vintage of foam throughout its life cycle. During any
given period following product manufacture, both disposal emissions and normal
use emissions will occur. However, it is important to note that emissions during
these stages of foam life are not independent. The level of normal use emissions
determines the amount of CFC contained in the cells of a foam product when it is
finally scrapped and, therefore, is a determinant of the level of disposal emissions.
Similarly, the level of normal use emissions depends upon the size and age distribu-
tion of the existing foam stock. Since the characteristics of the foam stock are a
function of the disposal p.d.f, the disposal function also affects the level of normal
use emissions.
Normal use emissions from foam of vintage t during the a-th period of product
life, nt(a), are represented in Eq. (F.8):
nt(a) = Bt • R(a) • (N(a) - N(a-l)). (F.8)
For most products, it is convenient to define the length of a single period of product
life as one year. Then, Eq. (F.8) states that normal use emissions during the a-th
year of foam life equal the CFC bank of this vintage of foam, adjusted for foam
scrappage prior to that time, times an annual normal use emissions function.
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281
Disposal emissions during the a-th year of life of a foam vintage produced in
year t are given by Eq. (F.9):
dt(a) = B, - (R(a-l) - R(a)) • (l-N(a)) . r (F.9)
where r is defined as the fraction of remaining CFC emitted at disposal. Equation
(F.9) can be usefully broken down into several components. The first component,
Bt (R(a — 1) — R(a)), shows how much CFC would be contained in disposed products
if normal use emissions are ignored. The factor (1 — N(a)) adjusts this quantity for
cumulative normal use emissions through the a-th year of foam life and results in
an estimate of potential disposal emissions. However, the disposal of a CFC blown
foam does not necessarily imply that all the CFC remaining in the product is
released to the atmosphere. Consequently, actual disposal emissions equal the
amount of CFC contained in disposed products times the fraction of that CFC
assumed lost to the atmosphere.
Equations (F.I), (F.8), and (F.9) completely summarize the emissions cycle of
any vintage of foam output. The amount of CFC emitted during any period from
the foam vintage, et(a), equals the sum of emissions from each stage of foam life.
At the time of production (i.e., a — 0), emissions are simply equal to mt. After the
foam leaves the plant (i.e., when a > 0), emissions equal the sum of normal use and
disposal emissions. Thus,
8.CFCt
I Bt [R(a) (N(a) - N(a -!))+( R(a - 1) - R(aj) ( 1 - N(a)) - r] if a > 0
Equation (F.10) completely describes CFC emissions from a single vintage of
foam. Of course, emissions at any point in time emanate not from a single vintage
of foam, but from many vintages. As a result, the second general step in the
simulation model sums the emissions from all existing vintages to estimate total
emissions during a given period. Mathematically, this summation merely uses the
fact that the age in year T of foams produced in year t is (T — t). Consequently,
total emissions in year T, ET, can be estimated by substituting a = T — t in Eq. (F.10)
and summing over all vintages:
T T T
ET = £ et(T-t) = mT + £ nt(T-t) + £) dt(T-t) (F.ll)
t=0 t=0 t=0
The calculations described by Eq. (F.ll) can be repeated for emissions during
any year. The final outcome is a set of estimated annual emissions levels, ET, where
T ranges from the first year the closed cell foam was produced commercially (about
1960 and 1965 for rigid urethane and extruded PS board, respectively) to projected
emissions levels out to 1990. This set of annual emissions levels constitutes the goal
of the simulation model: an emissions profile for the type of closed cell foam under
consideration.
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282
PARAMETER VALUES
To employ the simulation model, it is necessary to specify equations for CFC
use and for CFC emissions during product manufacture, normal use, and disposal.
The specification of these equations differs significantly depending upon the type
of closed cell foam and final product under consideration. For rigid polyurethane,
the simulation model distinguishes nine final product markets, which consume
foam produced by five production processes.2 In addition, the model was used to
simulate emissions from extruded polystyrene board consumed in the residential
and commercial construction markets.
Table F.2 presents CFC use rates as a percentage of foam weight for each rigid
urethane production process. With the exception of frothed foam, the estimates
refer exclusively to CFC-11. For frothed pour in place (PIP) foams, CFC-12 accounts
for about one-quarter of CFC use (or 4.5 percent of foam weight) with CFC-11
accounting for the remainder. Estimates of frothed foam output are based on data
in Table F.3, which presents available evidence on the share of PIP foam that is
produced with a frothing process. During recent years, the prevalence of the froth-
ing process has declined significantly, particularly in the home refrigeration mar-
kets. While home refrigerators and freezers were formerly the most significant
markets for frothed foam, industry sources estimate that only about 10 percent of
the foam insulation used in these markets is now frothed.
Table F.2
CFC USE AS PERCENTAGE OF FOAM WEIGHT
BY PRODUCTION PROCESS
CFC Use Rate
Production Process (%)
Slabstock 14.1
Laminated boardstock 12.1
Field spray 12.3
Pour in place, nonfroth
Refrigeration 13.4
Other 12.1
Pour in place, froth 16.5
SOURCES: Midwest Research Institute
(1976b), and industry sources. All esti-
mates include CFC released during storage
and handling.
Includes about 4.5 percent CFC-12 and
12.0 percent CFC-11.
^he final product markets are commercial, residential, and industrial construction; home refrigera-
tors, home freezers, and commercial refrigeration; transportation; packaging; and flotation. The produc-
tion processes are rigid slabstock; laminated boardstock; field spray; pour in place, nonfroth; and pour
in place, froth.
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283
Table F.3
FROTHED RIGID URETHANE AS PERCENTAGE OF
POUR IN PLACE FOAM
Froth as Percentage
Market of PIP Foam
Construction 23.2
Home refrigeration3 10.0
Commercial refrigeration 60:0
Transportation 56.7
Packaging 0.0
Marine/flotation 50.0
SOURCES: Midwest Research Institute (1976b),
p. IV-33, and industry sources.
Includes home refrigerators and freezers.
With the exception of some nonurethane foams, manufacturing emissions rates
for the closed cell foams are typically a small fraction of CFG use. The manufactur-
ing emissions rates employed in the simulation model for rigid urethanes are
presented in Table F.4. For field spray and PIP foams, these emissions rates are
based on data from Midwest Research Institute and sources in the refrigeration
industry, the largest consumers of PIP foams.3 Estimates of slabstock losses during
manufacture are considerably lower than previous estimates, reflecting
information from numerous industry sources. In contrast, the manufacturing
emissions rate used for laminated boardstock is significantly higher than previous
estimates, reflecting more accurate information on the amount of trimming that
occurs in this production process.4 Finally, for extruded PS board insulation,
average manufacturing losses are assumed to be 10 percent of CFC use.
Normal use emissions represent the most complicated stage of the closed cell
foam emissions process. Because the thermal efficiency of foam insulation depends
upon the CFC content of the foam cells, the k-factor of these insulation products
is closely related to the normal use emissions function. Consequently, estimates of
the normal use emissions function are based on the theoretical literature on k-
factor degradation (or the aging process) in foam insulation5 and on recent
information from industry sources, which are investigating the aging process of
closed cell foams.
'Midwest Research Institute (1976b), Chapter IV, and statement of Frank Schumacher in EPA
(1977a), p. 36.
4Statement of Gerald Reynolds in EPA (1977a), p. 259. These losses occur almost exclusively when
the foam product is trimmed to its final dimensions and several major producers are actively seeking
ways to reduce trim (and CFC) losses. However, in this report the 9.0 percent estimate is used through-
out the period of study.
5See, for example, Norton (1967), Ball et al. (1970), and Von Schmidt (1968). For recent work on this
issue, see Ball et al. (1978).
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284
Table F.4
MANUFACTURING EMISSIONS AS A PERCENTAGE OF CFC USE BY
PRODUCTION PROCESS
Manufacturing Emissions
Production Process Rate (%)
Slabstock
Laminated boardstock
Field spray
Pour in place,
Pour in place,
nonfroth
froth
10.2
9.0
10.9
11.1
17.8
SOURCES: Midwest Research Institute (1976b), EPA
(1977a), and industry sources.
Available evidence indicates that the cumulative normal use emissions func-
tion for rigid polyurethane and isocyanurate foams can be closely approximated by
a Weibull distribution. That is,
N(a) = 1 - e-bac
where b and c are the shape and scale parameters, respectively. For nonurethane
closed cell foams, several industry sources indicate that the corresponding equation
is an exponential function, a special case of the above specification with c = 1.
As discussed in Sec. III.C, the actual parameters of N(a) will vary dramatically,
depending upon the physical characteristics of the foam product. Table F.5 summa-
rizes the diversity of normal use emissions functions used in the simulation model
for rigid urethane and isocyanurate foams. In all cases, the functions are con-
strained to have the same general shape with c = 0.615.6 The value of the scale
parameter determines the rate at which normal use emissions occur and reflects
the assumed average thickness and cladding characteristics of foam products in the
market under consideration.7
For markets in which adequate information on foam thickness is unavailable,
a default average foam thickness of 2.0 inches is assumed, implying normal use
emissions half-lives of 60 years for unclad foams and 240 years for clad foams.8
However, in several important markets, available evidence leads to alternative
assumptions regarding average foam thickness. Laminated boardstock is used as
a sheathing material in the walls and roofs of buildings. Because of constraints
6This value is based on an analysis of theoretical data contained in Norton (1967).
7Mathematically, for two foam samples differing only in foam thickness:
hi =/ti\2
h2 \t2/
where hj and tj (i = 1,2) are the half-life and thickness of the i-th foam sample. To account for
the effects of cladding, we assume the half-life of clad foams is four times greater than the half-
life of otherwise identical unclad foams. See Sec. III.C.
8Equivalently, the scale parameters corresponding to an assumed thickness of 2.0 inches are
0.056 for unclad foams and 0.024 for clad foams.
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285
Table F.5
CUMULATIVE NORMAL USE EMISSIONS FUNCTIONS FOB CLAD
AND UNCLAD CLOSED CELL FOAMS
Market
a
Clad Foams
Average Foam Half
Thickness Life° Scale ,
(in.) (yr) Parameter
Unclad Foams
Average Foam Half
Thickness Life° Scale d
(in.) (yr) Parameter
Construction
Commercial
Residential
Industrial
Refrigeration
Transportation
Packaging
1.25
0.75
2.0
2.0
3.0
N.A.
94
34
240
240
540
N.A.
0.043
0.080
0.024
0.024
0.015
N.A.
2.0
2.0
1.5
N.A.f
3.0
2.0
60
60
34
N.A.
135
60
0.056
0.056
0.080
N.A.
0.034
0.056
SOURCE: Based on information from industry sources.
Includes laminated boardstock and pour in place foams.
Includes rigid slabstock and field spray foams.
The half-life is the foam age at which 50 percent of the originally banked
CFC has been emitted.
Cumulative normal use emissions functions are of the form N(a) = 1 - e ,
where a = foam age, c = 0.615 is the shape parameter, and b is the scale param-
eter.
p
For clad commercial construction foams, data apply to laminated boardstock
only. For pour in place commercial construction foams, average thickness is
2.0 inches, the half life is 240 years, and the scale parameter is 0.024.
N.A. = not applicable.
imposed by standard building designs, these insulating foams are rarely as thick
as 2.0 inches. Residential applications of laminated boardstock are dominated by
wall sheathing, which varies in thickness from less than 0.5 to about 1.0 inches, and
an average thickness of 0.75 inches is assumed for these products. In commercial
construction applications, laminated boardstock in roofs is typically thicker (about
1.5 inches), wall thicknesses are comparable to those in the residential sheathing
market, and an average thickness of 1.25 inches is assumed. According to an
industry source, rigid urethane foam applied on storage tanks and other industrial
structures does not often exceed 2.0 inches. Consequently, slabstock and spray
foams in industrial applications are assumed to be 1.5 inches thick. Finally,
available evidence indicates that foam insulation used in transportation
applications generally exceeds 2.0 inches. While foam thicknesses vary in this
application and are as high as 6.0 inches,9 transportation applications are assumed
to be 3.0 inches thick on average, implying an extremely long half-life of 540 years
for clad transportation foams.
The disposal functions for foam-containing products are summarized in Table
"See, for example, the statement of Royce B. Boykin in EPA (1977a).
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286
F.6.10 The distributions of product disposal for the construction industry are based
on information from the U.S. Bureau of Economic Analysis.11 These disposal
functions are Winfrey distributions, which are utilized by the Department of
Commerce in estimating capital stocks. These distributions are bell-shaped,
symmetric, and centered over the average lifetimes in Table F.6. Briefly stated, for
the nonresidential markets, the first disposals are estimated to occur at 45 percent
of the average life and the last occur at 155 percent of the average life. For the
residential market, which is assumed to be composed of longer-lived structures on
average, disposals begin earlier, at five percent of average life, and end later, at 195
percent of average life.
Table F.6
DISPOSAL FUNCTIONS FOR END PRODUCTS CONTAINING CLOSED CELL FOAMS
Market Assumed Distribution
Construction
Commercial
Residential
Industrial
Refrigeration
Refrigerators
Freezers
Commercial
Transportation
Packaging
Marine /flotation
Winfrey
Winfrey
Winfrey
Normal
Normal
Normal
Normal
Discrete
Normal
Average Life
(yr)
36
80
27
17
20
20
10
1
15
Standard
Deviation
(yr)
N.A.a
N.A.
N.A.
3.0
5.0
5.0
3.3
N.A.
5.0
SOURCES: U.S. Bureau of Economic Analysis (1976), IR&T (1979a
and 1979b), and industry sources.
N.A. = not applicable.
Disposals are assumed normally distributed for all other product categories
except packaging. The average lives of refrigeration products are based on informa-
tion from industry sources and IR&T. The 10 year average life for transportation
foams is based on information regarding truck trailers, and the standard deviation
of 3.33 years assumes that the ratio of the standard deviation to the mean life of
truck trailers is the same as for truck tractors.12 The disposal function for packaging
is substantively different than that of the other product categories. Packaging
applications of rigid urethane involve foaming around items .to be transported.
10Table F.6 summarizes the fate only of the final product containing CFC blown foam. Of course, the
disposal of the final product does not necessarily imply that all remaining CFC is emitted. However, as
a worst case assumption, this report assumes that all remaining CFC is emitted when a product is
scrapped (i.e., r = 1 for all products).
"U.S. Bureau of Economic Analysis (1976), pp. T-3 to T-10.
12The 10 year average life for truck trailers is based on the statement of Royce B. Boykin (EPA,
1977a). The ratio of the standard deviation to the average life of truck tractors is based on vehicle
registration data collected by IR&T.
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287
While precise information on the fate of these foams is not available, it is
reasonable to assume that they are very short-lived relative to other rigid
urethanes. Therefore, a discrete disposal function has been used for packaging,
which assumes that 50 percent of these foams are disposed during the first year
of foam life and 50 percent during the second year.13
13A similar disposal function is assumed for short-lived foam-bearing products in McCarthy et al.
(1977).
-------
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Used in Foam Blowing Agents, Washington, D.C., October 26, 1977(a).
U.S. Environmental Protection Agency, Public Meeting, Fully Halogenated Halo-
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Extinguishers, Washington, D.C., October 27, 1977(b).
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Halogenated Chlorofluoroalkanes (Chlorofluorocarbons), Sessions on Refrig-
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tion and Sales, 1976.
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April 1968.
Weizeorick, John, Association of Home Appliance Manufacturers, testimony, Pub-
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TECHNICAL REPORT DATA
(Please read Instructions on the reverse before completing)
1. REPORT NO. 2.
560/12-80-001
|4. TITLE AND SUBTITLE
Economic Implications of Regulating
Chlorof luorocarbon Emissions From
Nonaerosol Applications
J7. AUTHOR(S)
j Adele R. Palmer, William E. Mooz,
j Timothy H. Ouinn. Kathleen A. Wolf
{9. PERFORMING ORGANIZATION NAME AND ADDRESS
1
\ The Rand Corporation
1700 Main Street
Santa Monica, California 90406
12. SPONSORING AGENCY NAME AND ADDRESS
I U.S. Environmental Protection Agency
! Office of Planning and Evaluation and
j Office of Toxic Substances
1 401 M St. , SW, Washington, DC 20460
3. RECIPIENT'S ACCESSION NO.
5. REPORT DATE
. June, ] 9RO
6. PERFORMING ORGANIZATION CODE
B. PERFORMING ORGANIZATION REPORT NO.
R-2524-EPA
10. PROGRAM ELEMENT NO.
11. CONTRACT/GRANT NO.
68-01-3882 and
68-01-6111
13. TYPE OF REPORT AND PERIOD COVERED
Final
-IS.SfONSTWIIMG AGENCY CODE
115. SUPPLEMENTARY NOTES
j Study jointly funded by U.S. Environmental Protection Agency , U.S.
! Consumer Product Safety Commission, and U.S. Food and Drug Administrate
[16. ABSTRACT
This study examines and compares the outcomes of two alternate methods
for controlling nonaerosol emissions of chlorofluorocarbons (CFCs).
Conventional regulatory methods such as technology standards are com-
pared with innovative methods of regulation such as use taxes or pro-
duction quotas distributed•through the use of marketable permits.
The economic costs of each system are calculated and compared, alonq
with a discussion of the policy issues which must be addressed when
choosing one form of regulation over another.
17. KEY WORDS AND DOCUMENT ANALYSIS
ia. DESCRIPTORS
Chlorof luoroc arbone
Economic Impact Analysis Air Qualify
Regulation, Chemical?
Regulation Reform
Regulation , Innovation & Methodr-
Technology Standards
Non-aero&ols Emissions
is. DISTRIBUTION STATEMENT
Distribution Unlimited
b. IDENTIFIERS/OPEN ENDED TERMS
g
19. Sf-CURlTY CLASS (This Ri'part)
20. SECURITY CLASS (This page)
c. COS AT: Held/Group
21. NO. OF FACES
^n?
22. PRICE
EPA Foim 2220-1 (R«». 4-77) PHE vious EDIHON is OBSOLETE
1J-U.S. GOVERNMENT PRINTING OFFICE: 1 98 0-3 SI - 08 5/4 6 1 3
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