Prepublioation issue for EPA libraries
and State *Solid Waste Management Agencies
ECONOMIC IMPACT ANALYSIS
OF ANTICIPATED HAZARDOUS WASTE REGULATIONS
ON THE INDUSTRIAL ORGANIC CHEMICALS,
PESTICIDES, AND EXPLOSIVES INDUSTRIES
This final report (SW-]58c) describes work performed
for the Federal~~soTid waste management program
under contract no. 68-01-4637
and is reproduced as received from the contractor
Copies will be available from the
National Technical Information Service
U.S. Department of Commerce
Springfield, Virginia 22161
U.S. ENVIRONMENTAL PROTECTION AGENCY
1978
-------
This report was prepared by Energy Resources Co., Inc.,
Cambridge, Massachusetts, under Contract No. 68-01-4637.
Publication does not signify that the contents necessarily
reflect the views and policies of the U.S. Environmental
Protection Agency, nor does mention of commercial products
constitute endorsement by the U.S. Government.
An environmental protection publication (SW-158c) in the
solid waste management series.
-------
TABLE OF CONTENTS
Paqe
LIST OF FIGURES viii
LIST OF TABLES 1X
CHAPTER ONE EXECUTIVE SUMMARY 1-17
1.1 Regulatory Background 1
1.2 Procedures and Results 2
1.2.1 Methodology 2
1.2.1.1 Procedures and Data Sources 2
1.2.1.2 Limits of the Analysis 5
1.2.2 Profile of the Industry 6
1.2.2.1 Composition 7
1.2.2.2 Market Structure 7
1.2.2.3 Operational Variables 10
1.2.2.4 Financial Data 10
1.2.3 Costs of Compliance 11
1.2.4 Economic Impact Analysis 14
Notes to Chapter One 17
CHAPTER TWO METHODOLOGY 19-61
2.1 Analytical Procedure and Data Sources 19
2.1.1 Segment Selection 19
2.1.2 Industry Profile 27
2.1.2.1 Manufacturer Characterization 27
2.1.2.2 Market Characterization 29
2.1.2.3 Model Plant Development 30
2.1.3 Cost of Compliance 36
2.1.4 Economic Impact Analysis 37
2.1.4.1 Model Plant Analysis 39
2.1.4.2 Projected Impact Analysis 51
111
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TABLE OF CONTENTS (CONT.)
2.1.4.3 Impacts on the Industry and 53
the Nation
2.2 Limits of the Analysis 54
2.2.1 Highly Impact Segment Selection 55
2.2.2 Cost of Compliance 56
2.2.3 Model Plant Development 56
2.2.3.1 Technical Specification 57
2.2.3.2 Cost Analysis 57
2.2.4 Economic Impact Analysis 58
2.2.4.1 Highly Impacted Segments 58
2.2.4.2 Industry and the Nation 59
Notes to Chapter Two 60
CHAPTER THREE PROFILE OF THE INDUSTRIAL 63-171
ORGANIC CHEMICALS INDUSTRY
3.1 The Chemical Industry 63
3.1.1 Industrial Organic Chemicals Industry 63
3.1.1.1 Highly Impacted Segment 65
3.1.1.2 Other Segments 65
3.2 Characterization of the Highly Impacted Segments 66
3.2.1 Composition 66
3.2.1.1 Manufacturer Identification 66
3.2.1.2 Type of Firm 66
3.2.1.3 Size of Firm 69
3.2.1.4 Age of Firm 69
3.2.1.5 Products Produced 74
3.2.1.6 Entries and Exits 74
3.2.2 Industry Structure and Performance 80
3.2.2.1 Market Structure 80
3.2.2.2 Market Conduct and Pricing 87
Behavior
IV
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TABLE OF CONTENTS (CONT.)
3.2.2.3 Market and Price Stability 88
3.2.2.4 Industry Performance, 1967-72 91
3.2.2.5 Industry Performance, 1973-76 95
3.2.3 Highly Impacted Chemical Markets 97
3.2.3.1 Perchloroethylene 97
3.2.3.2 Chloromethane Markets 102
3.2.3.3 Epichlorohydrin 115
3.2.3.4 Vinyl Chloride Monomer (VCM) 118
3.2.3.5 Acrylonitrile 123
3.2.3.6 Furfural 129
3.2.4 Manufacturing Plants - Operational Data 131
3.2.4.1 Plant Locations 131
3.2.4.2 Production Processes Used 135
3.2.4.3 Products 135
3.2.4.4 Plant Sizes 139
3.2.4.5 Capacity Utilization 143
3.2.4.6 Employment 143
3.2.4.7 Waste Streams Produced 146
3.2.5 Manufacturing Firms - Financial Data 149
3.2.5.1 Economies of Abatement 149
3.2.5.2 Profitability 149
3.2.5.3 Investment Constraints 150
3.2.5.4 Model Plants 160
Notes to Chapter Three 170
CHAPTER FOUR THE COSTS' OF COMPLIANCE 173-203
4.1 Cost Estimates 173
4.2 Technology Assessment 177
4.2.1 The Assessment Study 177
v
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TABLE OF CONTENTS (CONT.)
4.2.2 The Techniques Study 181
4.2.3 The Alternatives Study 181
•4.3 Cost Analysis 186
4.3.1 Cost Estimates 186
4.3.2 Comparative Analysis of Costs 186
4.3.3 Cost Estimating Methodology 198
4.3.3.1 Best Estimates of Cost 198
4.3.3.2 Worst-Case Cost Estimation 200
4.4 Small Plant Costs 201
Notes to Chapter Four 203
CHAPTER FIVE ECONOMIC IMPACT ANALYSIS 205-277
5.1 Economic Impact Analysis of the Six 208
Highly Impacted Segments
5.1.1 Perchloroethylene 208
5.1.1.1 Model Plant Analysis 208
5.1.1.2 Projected Impacts 213
5.1.2 Chloromethanes 220
5.1.2.1 Model Plant Analysis 220
5.1.2.2 Projected Impacts 231
5.1.3 Epichlorohydrin 233
5.1.3.1 Model Plant Analysis 233
5.1.3.2 Projected Impacts 239
5.1.4 Vinyl Chloride 242
5.1.4.1 Model Plant Analysis 242
5.1.4.2 Projected Impacts 249
5.1.5 Acrylonitrile 252
5.1.5.1 Model Plant Analysis 253
5.1.5.2 Projected Impacts 257
5.1.6 Furfural 257
v.t
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TABLE OF CONTENTS (CONT.)
Paqe
5.1.6.1 Modei Plant Analysis 261
5.1.6.2 Projected Impacts 264
5.2 Aggregate Impacts on the Industry 268
5.2.1 Prices and Profits 270
5.2.2 Capital Availability 272
5.2.3 Competition 272
5.3 Impacts on the Nation 273
5.3.1 Inflationary Impacts 273
5.3.2 Employment Impacts 273
5.3.3 Regional Dislocations 275
5.3.4 Impacts on Foreign Trade 275
5.3.5 Impacts on GNP 275
Notes to Chapter Five 277
vn
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LIST OF FIGURES
CHAPTER ONE
1-1
1-2
EXECUTIVE SUMMARY
Flowchart of Generalized Procedure 3
for the Analysis
Distribution of Highly Impacted Chemicals 9
CHAPTER TWO
2-1
2-2
METHODOLOGY
Graph of Economic Importance (1976 Prices) 23
Annual Production vs. Cost/Price Ratio
Relationship of the Elements of the 40
Model Plant Analysis
CHAPTER THREE PROFILE OF THE INDUSTRIAL ORGANIC
3-1
3-2
3-3
3-4
3-5
3-6
3-7
3-8
3-9
3-10
3-11
CHEMICALS INDUSTRY
Major Product Lines of Highly 68
Impacted Firms
Sales of Highly Impacted Firms 71
Assets of Highly Impacted Firms 72
Age of Highly Impacted Firms 73
Distribution of Highly Impacted 75
Chemicals Among Firms
A Generalized Kinked Demand Curve 90
Basic Price and Production Trends for the 93
Industrial Organic Chemicals Industry
Hypothetical Cost Curve for the 98
Chemical Industry
Geographical Distribution of 133
Highly Impacted Plants
Distribution of Firms by the 137
Number of Plants Manufacturing
Selected Highly Impacted Chemicals
Capital Flows Within a Firm 153
CHAPTER FOUR THE COSTS OF COMPLIANCE
CHAPTER FIVE ECONOMIC IMPACT ANALYSIS
Vlll
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LIST OF TABLES
CHAPTER ONE
1-1
1-2
1-3
1-4
1-5
EXECUTIVE SUMMARY
Financial Size of Impacted Firms, 1976
Best Estimates of Treatment Costs
Worst-Case Estimates of Treatment
Costs
The Impacts of Compliance for the
Organic Chemicals, Pesticides and
Explosives Industries
Summary of Impacts on Plants
Producing Highly Impacted Chemicals
8
12
13
15
16
CHAPTER TWO
2-1
2-2
2-3
2-4
2-5
2-6
2-7
2-8
2-9
2-10
2-11
2-12
METHODOLOGY
Calculation of Abatement Cost-to-
Price Ratios
Relationship of Highly Impacted
Products to Assessment Study Sample
Relative Importance of Highly
Impacted Sample
Date Requirements and Data Sources
for the Identification of
Manufacturers
Distribution of Plant Size for
Six Highly Impacted Organic
Chemical Products
Model Plant Selection Analysis
References Used to Develop Model
Plant Cost Estimates
Changes Made to Assessment Study
Model Plant Processes
Estimation of the Price Elasticity
of Demand
Cost Passthrough Decision Model
Model Plant Shutdown Decision
Factors with Worst-Case Treatment Costs
Summary of Projected Impacts
22
25
26
28
31
36
34
35
42
44
49
52
IX
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LIST OF TABLES (CONT.)
CHAPTER THREE PROFILE OF THE INDUSTRIAL ORGANIC
CHEMICALS INDUSTRY
3-1 National Income Without Capital 64
Consumption Adjustments by
Industrial Origin: 1950-75
3-2 Domestic Manufacturers of Highly 67
Impacted Chemicals
3-3 Financial Size of Impacted Firms - 1976 70
3-4a Participating Firms in the 76
Perchloroethylene Industry by Year
3-4b Participating Firms in the 77
Chloromethane Industry by Year
3-4c Participating Firms in the 78
Epichlorohydrin Industry by Year
3-4d Participating Firms in the Vinyl 78
Chloride Monomer Industry by Year
3-4e Participating Firms in the 79
Acrylonitrile Industry by Year
3-4f Participating Firms in the 79
Furfural Industry by Year
3-5 1972 Census of Manufacturers 82
Concentration Ratios for Chemical
Industry Subcategories
3-6 Concentration Ratios for 83
Highly Impacted Product Markets
3-7 Principal Substitutes for 84
Highly Impacted Products
3-8 Capacities of Largest Plants in 86
Six Highly Impacted Product Markets
3-9 Nominal and Real Operations Level 92
for the Ten Largest Impacted
Chemical Firms
3-10 Price Declines in Highly Impacts 04
Segments 1967-72
3-11 Perchloroethylene Product Markets 93
and Substitutes
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LIST OF TABLES (CONT.)
Paqe
3-12 Chemical Intermediate Uses of 99
Perchloroethylene
3-13 Production, Sales, and Foreign 101
Trade of Perchloroethylene, 1960-75
3-14 Perchloroethylene Price Statistics 103
3-15 Production Volume of Four 104
Chloromethanes
3-16 Chloromethane Solvent Product Uses 105
3-17 Product Substitues for 107
Chloromethane Solvents
3-18 Production, Sales, and Foreign 109
Trade of Methyl Chloride, 1960-75
3-19 Production, Sales, and Foreign 110
Trade of Methylene Chloride, 1960-75
3-20 Production, Sales, and Foreign 111
Trade of Chloroform, 1960-75
3-21 Production, Sales, and Foreign 113
Trade of Carbon Tetrachloride,
1960-75
3-22 Chloromethane Price Statistics: 114
Unit Price Per Pound, 1960-75
3-23 Epichlorohydrin Product Uses 116
and Substitutes
3-24 Production, Sales, and Foreign 117
Trade of Epichlorohyrin, 1960-75
3-25 Vinyl Chloride Monomer Product Uses 119
3-26 Anticipated Market Growth for PVC 120
by Industry
3-27 Possible PVC Substitutes 121
3-28 Production, Sales, and Foreign 122
Trade of Vinyl Chloride, 1960-76
3-29 Vinyl Chloride Price Statistics 124
3-30 Acrylonitrile Product Uses and 125
Substitutes
XI
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LIST OF TABLES (CONT.)
Page
3-31 Production, Sales, and Foreign I2'
Trade of Acrylonitrile, 1960-75
3-32 Acrylonitrile Price Statistics 128
3-33 Furfural Product Uses and 13°
Substitutes
3-34 Furfural Price Statistics, 1960-74 132
3-35 Gulf Coast Production Capacity of 136
Highly Impacted Chemicals
3-36 Processes Used in Highly Impacted 138
Chemical Production
3-37 Products Produced at Highly 140
Impacted Plants
3-38 Capacities of Highly Impacted Plants 141
3-39 Capacity Utilization Rates • 144
3-40 Industrial Chemical Employment 145
and Earnings
3-41 Estimated Employment at Highly 147
Impacted Plants
3-42 Waste Stream Characterization 148
for Assessment Study Processes
3-43 Comparative Profitability of 151
Chemical Industry Sample With
All Manufacturers
3-44 Profitability Measures - 1976 152
3-45 10-Year Industry Operating 156
Statistics
3-46 Industry Cash Flow Approximations 157
3-47 Financial Leverage of Selected 159
Industry Firms
3-48 Dividend Payout Ratios of Selected 161
Industry Firms
3-49 Capital Structure Financial Ratios - 162
1976
3-50 Model Plant for Production of 163
Perchloroethylene
XI 1
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LIST OF TABLES (CONT.)
3-51 Model Plant for Production of 164
Chloromethanes
3-52 Model Plant for Production of 165
Epichlorohydrin
3-53 Model Plant for Production of 166
Vinyl Chloride
3-54 Model Plant for Production of 167
Acrylonitrile
3-55 Model Plant for Production of 168
Furfural
CHAPTER FOUR THE COSTS OF COMPLIANCE
4-1 Best Estimates of Treatment Costs 175
4-2 Worst-Case Estimates of Treatment 176
Costs
4-3 Data for the Fifteen Hypothetical 180
Typical Plants Examined in the
Assessment Study
4-4 Categories of Availability Used 182
in the Techniques Study
4-5 33 Alternative Techniques from 183
the Techniques Study
4-6 Most Attractive Alternative 184
Hazardous Waste Treatment
Technologies Identified in the
Alternatives Study
4-7 Hazardous Waste Treatment Cost 187
Estimates in the Assessment Study
4-8 Hazardous Waste Treatment Cost 192
Estimates from the Alternatives Study
4-9 Comparison of Cost Estimates for 193
Similar Treatments from the
Assessment Study and the
Alternatives Study
4-10 Comparison of Cost-Estimating 194
Assumptions from the Assessment
Study and the Alternatives Study
Kill
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LIST OF TABLES (CONT.)
Page
197
4-11 Comparison of Hazardous Waste
Treatment Costs
202
4-12 Expected Waste Volume from a
1,000 Ib/yr Plant for Each
High-Impact Product Line
CHAPTER FIVE ECONOMIC IMPACT ANALYSIS
5-1 The Impacts of Compliance for the 2^
Organic Chemicals, Pesticides and
Explosives Industries
5-2 Estimated Percentage Increase in 207
Manufacturing Cost Due to Compliance
Cost Due to Compliance for Six
Highly Impact Segments
5-3 Summary of Impacts on Plants 209
Producing Highly Impacted Chemicals
5-4 Estimation of the Price Elasticity 211
of Demand for Perchloroethylene
5-5 Likelihood of Full-Cost Passthrough 212
for Perchloroethylene
5-6 Model Plant Net Income Calculation 214
for Perchloroethylene
5-7 Model Plant Investment Analysis 215
for Perchloroethylene
5-8 Model Plant Shutdown Decision 216
Factors Using Worst-Cast Treatment
Cost for Perchloroethylene
5-9 Summary of Projected Impacts 218
for Perchloroethylene
5-10 Summary of Elasticity Estimates 221
for Chloromethane Products
5-11 Estimation of the Price Elasticity 222
of Demand for Methyl Chloride
5-12 Estimation of the Price Elasticity 223
of Demand for Methylene Chloride
5-13 Estimation of the Price Elasticity 224
of Demand for Chloroform
xiv
-------
LIST OF TABLES (CONT.)
5-14 Estimation of the Price Elasticity 225
of Demand for Carbon Tetrachloride
5-15 Likelihood of Full-Cost Passthrough 226
for Chloromethanes
5-16 Model Plant Net Income Calculation 228
for Chloromethanes
5-17 Model Plant Investment Analysis 229
for Chloromethanes
5-18 Model Plant Shutdown Decision 230
Factors Using Worst-Case Treatment
Cost for Chloromethanes
5-19 Summary of Projected Impacts for 232
Chloromethanes
5-20 Estimation of the Price Elasticity 234
of Demand for Epichlorohydrin
5-21 Likelihood of Full-Cost Passthrough 236
for Epichlorohydrin
5-22 Model Plant Net Income Calculation 237
for Epichlorohydrin
5-23 Model Plant Investment Analysis 238
for Epichlorohydrin
5-24 Model Plant Shutdown Decision 240
Factors Using Worst-Case Treatment
Cost for Epichlorohydrin
5-25 Summary of Projected Impacts for 241
Epichlorohydrin
5-26 Estimation of the Price Elasticity 243
of Demand for Vinyl Chloride
5-27 Likelihood of Full-Cost Passthrough 245
for Vinyl Chloride
5-28 Model Plant Net Income Calculation 246
for Vinyl Chloride
5-29 Model Plant Investment Analysis 247
for Vinyl Chloride
5-30 Model Plant Shutdown Decision 248
Factors Using Worst-Case Treatment
for Vinyl Chloride
XV
-------
LIST OF TABLES (CONT.)
Page
5-31 Planned Expansions in VCM Capacity 250
5-32 Summary of Projected Impacts for 251
Vinyl Chloride
5-33 Estimation of the Price Elasticity 254
of Demand for Acrylonitrile
5-34 Likelihood of Full-Cost Passthrough 255
for Acrylonitrile
5-35 Model Plant Net Income Calculation 256
for Acrylonitrile
5-36 Model Plant Investment Analysis 258
for Acrylonitrile
5-37 Model Plant Shutdown Decision 259
Factors Using Worst-Case Treatment
Cost for Acrylonitrile
5-38 Summary of Projected Impacts for 260
Acrylonitrile
5-39 Estimation of the Price Elasticity 262
of Demand for Furfural
5-40 Likelihood of Full-Cost Passthrough 263
for Furfural
5-41 Model Plant Net Income Calculation 265
for Furfural
5-42 Model Plant Investment Analysis 266
for Furfural
5-43 Model Plant Shutdown Decision 267
Factors Using Worst-Case Treatment
Cost for Furfural
5-44 Summary of Projected Impacts for 269
Furfural
5-45 The Costs of Compliance for the 271
Organic Chemicals, Pesticides and
Explosives Industry, 1973
5-46 Percent Contribution of Hazardous 274
Waste Regulations on the Organic
Chemicals Industry to Inflation
of the Wholesale Price Index
xvi
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DISTRIBUTION LIST
FINAL REPORT
CONTRACT NO: 68-01-4637
25 copies +
1 reproducible master
+
1 copy - letter of trans-
mittal original
Michael Shannon
U.S. Environmental Protection Agency
Office of Solid Waste
Washington, D.C. 20460
Contract No. 68-01-4637
FINAL REPORT
1 copy
1 copy - letter of trans-
mittal
G.L. Evans
U.S. Environmental Protection Agency
Selected Programs Contracting Section
Crystal Mall #2
Washington, D.C. 20460
Contract No. 68-01-4637
FINAL REPORT
1 copy
1 copy - letter of trans-
mi ttal
EPA Library
401 M Street
Washington, D.C. 20460
FINAL REPORT - 68-01-4637
1 copy
1 copy - letter of trans-
mittal
EPA
Office of General Counsel/Patents
401 M Street SW
Washington, D.C. 20460
-------
CHAPTER ONE
EXECUTIVE SUMMARY
This report has been developed in support of the U.S.
Environmental Protection Agency's (EPA) development of an
economic impact analysis of anticipated hazardous waste
roqulationa on t^e combined industrial organic chemicals,
pesticides, and explosives industries.
1.1 Regulatory Background
The Resource Conservation and Recovery Act of 1976
(RCRA) (PL 94-580) authorized the EPA to "promulgate
regulations establishing such standards, applicable to
generators of hazardous waste ... as may be necessary to
protect human health and environment."^ The EPA is also
responsible for developing an assessment of the economic
impact resulting from the promulgation of such regulations.
•
Presently, EPA plans to issue a single regulation that
will include standards for all generators of hazardous
wastes. Because industrial organic chemicals, pesticides,
and explosives industries combined presently generate an
estimated 2.3 million metric tons (MT) of hazardous waste
annually (13.1 percent of the annual national hazardous
waste volume)^ and because the costs for treatment of
hazardous organic wastes are high relative to other hazardous
wastes, the EPA has chosen to study the economic impacts of
anticipated regulations on these industries. (Henceforth
these industries will be referred to as the organic chemicals
industry, since the pesticides and explosives within its
purview are organic chemicals.)
Minimal effort was devoted to the pesticides and
explosives segments, however, because impact potential was
small for these segments. The impacts on those pesticides
for which data was available appear to be small. Impacts on
the private explosives industry also appear small. Larger
impacts are expected in the government sector explosives
industry, but these products (including munitions) are
manufactured at government-owned sites operated by private
contractors (GOCO facilities) and the Federal government
will bear the burden of additional hazardous waste treatment
and disposal efforts.
-1-
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1. 2 Procedures and Results
The analysis of the economic impacts of anticipated
hazardous waste regulations on the organic chemicals industry
consisted of the following four phases:
1. Development of an analytical methodology.
2. Development of a profile of the industry.
3. Analysis of the costs of compliance.
4. Economic impact analysis.
A chapter in the report has been devoted to each of
these phases. Chapter summaries appear below.
1.2.1 Methodology
1.2.1.1 Procedures and Data Sources
The generalized procedure utilized in this report is
illustrated in Figure 1-1. The figure shows the development
of each phase of the analysis and the relationships among
the four phases.
Organic chemicals is a giant industry producing
hundreds of products (many are intermediate ones that are
not used outside the industry). By volume, 98 percent of
this production generates hazardous waste streams.4 This
universe of products subject to regulatory impact is too
broad for coverage of each product separately and, therefore,
the industry was screened and product lines were isolated
for analysis.
Cost estimates developed for EPA indicated that the
impacts on the industry as a whole would be small. Therefore,
segments were chosen which were expected to be most severely
affected. In this way the most serious impacts could be
analyzed and that analysis would yield a bottom line of impact
on the other segments. The screening procedure utilized
three selection criteria in order to identify product lines
likely to incur the largest impacts of regulation. The
selection criteria used were the following: (1) treatment and
disposal cost data must be available for the product, (2) the
product must have a high treatment cost as a percentage of
price, and (3) the product must be produced in large volume.
Cost data had been developed for a 23-segment representative
sample of the industry in two previous EPA reports utilized
throughout this project. These are:
-2-
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I
CO
I
EPA S-n
METHOOOLCKiY
Atsnsfrvnt Stuffy
Alter >utnei Stuc?i>
I Ln«idlu;
:re SCLTCCS
In HoLi^t Ea(K3lH*
D-
Industry SoofCM
3
•0-
of Rcpm t
Meiliuiluk
-0
Pio.i'-ff o! rtve
IjTSfeiilltft!
Ogsfw; Cih-^nieaH
(na^rUry
0
II-DUSIBY PROFILE
1 _».
AttPnittivea Stiatv .
\
.
;»
j
s
r'
L_
s
/
s
^
L_
A
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-
EstinssEK
C«y!iC IMPACT ANALVSSS
--L
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Figure 1 — 1. Flowchart of generalized procedure for the analysis.
-------
1. Assessment of Industrial Hazardous Waste
Practices of the Organic Chemicals, Pesticides
and Explosives Industries by TRW, Inc.
(referred to here as Assessment Study).
2. Alternatives for Hazardous Waste Management
in the Organic Chemicals, Pesticides and
Explosives Industries by Processes Research
Inc. (referred to as Alternatives Study).
Using these cost data, six segments were identified as
highly impacted to be subjected to in-depth analysis. These
are:
1. Perchloroethylene.
2. Chloromethanes (methyl chloride, methylene
chloride, chloroforms, and carbon tetrachloride.
3. Epichlorohydrin.
4. Vinyl chloride.
5. Acrylonitrile.
6. Furfural.
These six segments represent 5.6 percent of 1973
industry production volume, 8.5 percent of dollar sales,
21 percent of the industry's hazardous waste generation, and
2.7 percent of the national generation of hazardous waste.
A profile for the entire industry was developed,
focusing primarily on the six highly impacted segments.
These segments tend to represent the industry's diverse
economics. The producers, markets, and market forecasts
for these products were thoroughly researched and
characterized using the available literature and limited
contacts with industry personnel. In addition, model
plants were developed to characterize the process economics
(costs, profit, ROI) for each segment.
The costs of compliance for model plants in each of the
highly impacted segments were estimated after a thorough
comparative analysis of the engineering cost estimates
developed in the Assessment Study and the Alternatives Study.
The incineration cost estimates from the Alternatives Study
were selected as the data base for developing improved cost
estimates. Two sets of estimates were developed. First, a
conservative best estimate of cost was developed for eacn
segment. This estimate assumed the model plant was already
-4-
-------
incurring expenditures for the average level of treatment
presently employed in each segment and counted only the
incremental increase in costs necessary to comply with
anticipated regulations. This set of estimates is believed
to overstate costs to the average plant in that they do not
recognize economies of scale nor of joint treatment of two
or more products.
However, because these estimates are sensitive to this
current level of expenditures as well as engineering cost
estimation uncertainty, a set of worst-case cost estimates
was al-",o develop.;^. Those estimates assumed no credit for
exintLmj treatment and included a 25 percent allowance for
uncertainty. This latter set of estimates is believed to be
a bottom-line estimate of the costs that may be incurred by
the most severely affected plant in the industry.
Both sets of estimates were incorporated into the
economic impact analysis. This analysis utilized a model
plant approach for determining impacts on profitability and
for calculating the net present value of investing in
abatement. The financial position of the firm was limited
to the cash flows from the model plant developed in the
industry profile. The plant shutdown decision was also
analyzed as was the likelihood of full-cost passthrough.
The model plant analysis was then validated and refined by a.
projection of the actual impacts on each segment based on
industry responses.
1.2.1.2 Limits of the Analysis
The results of the analysis are sensitive to four
areas of input, one area from each of the four phases of
the analysis. These are: (1) segment selection, (2) model
plant development, (3) cost of compliance estimates, and
(4) the economic impact analysis itself.
In selecting the segments, attempts were made to choose
those product lines subject to the highest impact. However,
the six highly impacted segments were selected from a sample
of product lines that included only 23 products of the
hundreds produced. Because of the correlation of treatment
and disposal costs with hazardous waste volume, production
of these products tended to generate a large portion of the
hazardous waste in the industry. (The sample represented
about 21 percent of the industry's hazardous waste production
exclusive of explosives.) However, other segments subject
to higher impacts than the six-segment sample may exist.
-5-
-------
Financial data for the model plant analysis were
developed from the model plant process economics in the
industry profile. Cost and profit estimates tended to
reasonably approximate present price levels, but a
25 percent uncertainty can be attributed to specifying the
mix between' costs and profits.
The most serious uncertainty in the analysis stems from
the cost of compliance estimates. In the cost analysis, it
was found that variations in the estimates between the
Assessment Study and the Alternatives Study are often
extremely large. In three cases - perchloroethylene,
epichlorohydrin, and vinyl chloride - the Assessment Study
estimates were 2 to 4 times higher than those of the
Alternatives Study. The Alternatives Study estimates were
used in the analysis, because they were considered to be
more accurate. Little variation was found in the estimates
for the other three products.
The economic impact analysis itself incorporates data
developed in the preceding three phases and, accordingly,
is subject to the variability (which may be additive) in
each of them. For this reason, the results of the model
plant analysis were compared to data obtained from the
industry for the final projection of impact. Results
projected by the model plant analysis appeared to be generally
comparable to industry responses.
Another limitation of the analysis is imposed by the
lack of information regarding the content of the final
regulations. It has been assumed that the Assessment Study and
the Alternatives Study reasonably represent the technologies
and costs represent compliance with the regulations.
1.2.2 Profile of the Industry
The industrial organic chemicals industry is composed
of the following five segments:
1. SIC 2861, gum and wood chemicals.
2. SIC 2865, cyclic crudes, cyclic intermediates,
dyes, and organic pigments.
3. SIC 2867, industrial organic chemicals not
elsewhere classified.
-6-
-------
4. SIC 2879, agricultural chemicals not elsewhere
classified.
5. SIC 2982, explosives.
1.2.2.1 Composition
Firms in the industry are among the nation's largest,
and include highly diversified companies not generally
thought of as chemical producers. These firms are often raw
materials suppliers or end users of industrial organic
chemicals who have entered the industry through vertical
integration. Table 1-1 displays financial statistics on the
size of firms which domestically produce at least one of
the highly impacted chemicals. All 22 firms are ranked
within the Fortune 500. General Electric is the largest
firm, ranking 9th in sales in the Fortune 500,- while
Dow-Corning is the smallest, ranking 471st.
1.2.2.2 Market Structure
The industry is composed of hundreds of firms producing
hundreds of chemicals, many of which are chemical intermediates
that are used as inputs for the manufacture of other chemicals.
Few products are manufactured by more than a dozen firms and
the resulting small number of firms producing each product
tends to give each product market an oligopolistic structure.
Prices change when initiated by a price leader, but price
increases may be withdrawn if other firms in the industry
fail to follow the lead.
Figure 1-2 displays a list of the firms domestically
producing the six highly impacted products. Twenty-two firms
produce the six product lines. Twelve of these firms produce
at least one, chloromethane, while Quaker Oats is the sole
producer of furfural. It should be noted that the market
power of firms sach as Quaker which are subject to minimal
direct competition is limited by the large potential for
substituting other organic chemicals for their products.
Many of the end uses of industrial organic chemicals can be
served by a number of different products creating significant
indirect competition on any one product.
Throughout the 1960's prices went through an industry-wide
decline, and then increased sharply in the mid-1970's. This
was due to the strong dependence of the industry on petroleum
and natural gas feedstocks as well as industry growth.
During the 1960's, the cyclical industry boomed, along with
the entire national economy. Regulated natural gas prices
-7-
-------
TABLE 1-1
FINANCIAL SIZE OF IMPACTED FIRMS, 1976*
i
00
I
FORTUNE 500
SALES RANK
1976
82
107
59
I/
26
471
167
16
194
97
9
112
26
96
42
100
13
204
21
73
427
164
1975
82
106
51
16
32
536
178
17
195
86
9
107
25
93
46
109
14
213
21
76
433
151
197G TOTAL
SALES
FIRM ($ million)
Allied Chamical
American Cyanamld
Borden
Continenlal Oil Co.
Dow Chemical
Dow Coining
Diamond Shamrock
E.I. Dupont de Nemours
Ethyl
FMC
General Electric
B. F. Goodridi
(looker Chemicals }t (Occidental)
Mormchem §§ (Uniroyal)
Mo.iisuo
PPG
Shell
Staoller
Union Carbide
VisiroriD(Sohiol
Vulcan
Quaker Oats
2,629.6
2.0938
3,381.1
8.352 9
5,652.1
353.6
1.356.6
8.361 0
1.135.4
2.298.4
15.700.0
1.99G.O
5.5000
2.314.8
4.270.2
2.254.8
0.309.1
t, 100.0
6.345.7
2 .916.4
411.2
1.473.1
1976 TOTAL ASSETS
S MILLION
2.439.3
2.002.4
1.808.5
6,041.5
6,8487
384.1
1.481.0
7.027 1
9219
1,919.6
2.049.7
1.5C78
3.9050
1.633.7
3.959.1
2.033 2
7.83G.5
1.2685
6.621.6
6.260.2
3765
854.9
FORTUNE 500
RANK (1976)
60
79
93
21
18
346
122
17
194
81
9
113
34
107
33
77
14
143
19
20
353
204
NET INCOME
$ THOUSAND
116,799
135,766
112.807
460.0OO
612,767
42.741
140,030
459.300
69,080
80.157
930.000
15,793
183.721
20. 1 32
366,300
151,500
706,000
113.016
441.200
136.900
37.247
53.093
FORTUNE 500
RANK (19761
95
75
98
16
13
2-45
71
17
163
HI
6
404
48
3C9
25
64
11
97
18
72
270
209
CHEMICAL SALES
1$ millionl
1.420"
6072
8453
1
3,052.111
n a.
800.4
3.7625}
6585
7935
n a
G9RG
1,50005
n a.
1,04681
811.7
1,5fi2.5
484.011
1,9037
n.a.
131.6
n.a.
" Source: Fonunt. May 1977; Moody'i Handbook of Common Stncts, Summer 1977 edition; corporate report data.
Chemical Division, excluding Energy and Fibers Division
t About 5 percent oi corporate investment Is m ctwtnical!.
11 Chemicals and melals sales.
t Chemicals and specially sales; excludes plastics and libers.
11 A subsidiary ol Occidental Petroleum; Occidental slatistlcs presented.
§ Hooker total safes.
§ § A joint venture ol Unlroyal and Borden; Uniroyal statistics presented.
I Industrial chemicals and polymers and petrochemicals.
II Imlusliul and specially chemicals.
1 A subsidiary of Standard Oil ol Ohio; Soliio statistics presumed.
-------
HIGHLV IMPACTED CHEMICAL
FIRM
Ul
CRVLONITRI
**
2
O
F'ICHLOROHY
LU
Q
INYLCHLOR
iONOMER
LU 1 > £
URFURAL
u_
UJ
2
LU
_l
Ul
O
§
0
cc
Ul
0.
CHLOROMETHANES
lETHYL
HLORIDE
2 0
lETHYLENE
HLORIDE
2
-------
caused the real price of these feedstocks to decline while
massive industry expansion exploited economies of scale and
new technologies to further reduce prices. When oil prices
began to soar, costs were driven up and were followed
initially by supply shortages. Later, however, demand fell
below supply. Plants were forced to operate at low levels
of capacity utilization, which resulted in production
inefficiencies.
The industry remains highly sensitive to oil and gas
prices and has maintained a significant export volume
because these price-regulated feedstocks help keep domestic
chemical prices below world market prices. Deregulation of
the prices of these feedstocks could seriously weaken the
industry's position by driving up costs dramatically.
1.2.2.3 Operational Variables
Because of the industry's strong dependence on cheap,
reliable sources of feedstocks, it is highly concentrated in
the Gulf Coast region of Texas and Louisiana. At least half
of the production of the six highly impacted industry
segments originates in this region with outlying plants
spread about the nation near local oil and gas supplies.
Plant sizes vary significantly for most products
produced. Generally, new plants are large, while older
plants are small and able to remain competitive only because
their capital costs have all been amortized. (The industry
generally aims for a 3- to 4-year payback for new investments.)
Plants also vary in the amount of hazardous waste
treatment already in place. The industry has made significant
efforts - in the absence of regulation - to properly dispose
of its hazardous waste; treatment of some kind is performed
at most plants. Such actions have been initiated both in
order to minimise liability from the dangerous effects of
these wastes as well as in anticipation of EPA regulations.
It is estimated that existing expenditures for hazardous
waste treatment and disposal total $106 million, almost
50 percent of the level of expenditure required for compliance
with anticipated regulations.'
1.2.2.4 Financial Data
A sample of 10 firms whose business is largely chemical
manufacture showed that these firms had higher profitability
than the average for all manufacturers. Net income as a
percent of sales as well as net income as a percent of
-10-
-------
equity were each about 2 percent hi^h^r for the chemical
industry sample than the averse i:or all manufacturorn in
1976. Dramatic di f f'cr^jncotj in sjlesj, profits, and financial
structure of firms in the industry, due in large part to
their diversified operations, preclude much further discussion
of the financial position of firms in the industry. For the
analysis, heavy reliance was placed on the model plant
process economics. These presumed that, in general, firms
operate with a 20 to 40 percent gross return to investment.
Because investment costs are generally overshadowed by
feedstock costs, however, this can create gross profit
levels of less than 5 percent of sales for many products.
1.2.3 Costs of Compliance
EPA has not yet proposed treatment and disposal
regulations for the generators of hazardous waste. However,
the Assessment Study has identified three levels of treatment
for the industry. These are:
Level I: Current average practice in the industry.
Level II: Best technology in commerical use at
one or more plants.
Level III: Technology necessary to provide adequate
environmental protection,.
It is the present position of the EPA that the regulations
will require compliance with Level III. Technologies have
been identified that will achieve this level8 and cost
estimates for several likely treatment and disposal options
have been developed in. the Assessment Study and the
Alternatives Study. The technologies and cost estimates
have been reviewed and a set of best estimates has been
developed for the six highly impacted segments. These
estimates are displayed in Table 1-2 and are based on the
costs of incineration developed in the Alternatives Study.
These costs are believed to be conservative estimates of the
costs incurred by an average plant. The estimates range
from 0.1 percent of manufacturing costs for acrylonitrile to
2.1 percent of cost for perchloroethylene.
In order to account for uncertainties in the cost
estimates and for site-specific factors that may cause
individual plants to incur higher costs, a set of worst-case
cost estimates was developed. These estimates are displayed
in Table 1-3. They represent an upper bound on costs to be
incurred by the most severely affected plant in the industry.
-11-
-------
TABLE 1-2
BEST ESTIMATES OF TREATMENT COSTS*
I
I—1
M
1
INDUSTRIAL
PRODUCT
Perch lor oethylene
Chloromethanes
Epichlorohydrin
Vinyl Chloride
Acrylonitrile
Furfural
MODEL
PLANT SIZE
(MT/vr)
39,000
50,000
75,000
136,000
181,000
18,000
LEVEL III
TREATMENT
TECHNOLOGY
Controlled Incineration
Controlled Incineration
Controlled Incineration
Controlled Incineration
Controlled Incineration
Controlled Incineration
ASSUMED EXISTING
LEVEL 1
TREATMENT
Landfill
Step Landfill
Landfill
Landfill
Chemical Landfill
Landfill
CAPITAL
INVESTMENT
COST($|"
1,178,000
184,000
866,000
860,000
226,570
1,140,700
COST
PER MTOF
PRODUCT ($)
7.69
0.59
2.03
1.22
0.37
1.95
%OF
PRODUCT
PRICEt
2.1
0.2
0.2
0.4
0.1
0.2
* Energy Resources Company Inc. estimates based on costs from the Alternatives Study.
** Adjusted to a 1976 base year.
t Price sources from the CMR, 1976.
ft Not specified as environmentally adequate in Assessment Study because wastes are not detoxified or neutralized.
-------
TABLE 1-3
WORST-CASE ESTIMATES OF TREATMENT COSTS*
I
M
to
I
INDUSTRIAL
PRODUCT
Perchloroethylene
Chloromethanes
Epichlorohydrin
Vinyl Chloride
Acryionitriletf
Furfural
MODEL
PLANT SIZE
(MT/yr)
39,000
50.000
75.000
136,000
181,000
18,000
COMPLYING TREATMENT
TECHNOLOGY
Controlled Incineration
Controlled Incineration
Controlled Incineration
Controlled Incineration
Controlled incineration
Controlled Incineration
CAPITAL
INVESTMENT
COST($t"
1,472,500
230,000
1,082,500
1,075,000
393,109
1,425,875
COST
PERMTOF
PRODUCT !S)
13.46
1.70
3.67
1.75
0.65
9.88
%OF
PRODUCT
PRICEt
3.7
0.5
0.4
0.6
0.1
0.9
* Energy Resources Company Inc. estimates based on costs from the Alternatives Study.
** Inflated 25 percent to reflect overall engineering uncertainty.
t Source: Chemical Mark sting Reporter, October 1976.
tt Original costs from the Alternatives Study were adjusted linearly to match the model size, and thus reflect no economies of scale.
-------
These costs range from 0.1 percent for acrylonitrile to
3.7 percent for perchloroethylene.
1.2.4 Economic Impact Analysis
The impacts of anticipated hazardous waste regulations
on the industrial organic chemicals industry are summarized
in Table 1-4. The incremental costs of compliance for this
large industry have been estimated at $137 million, but
spread out over the entire industry, this is an average of
only 0.6 percent of the 1973 value of shipments. For the
nation as a whole, this represents a barely perceptible
increase in the Wholesale Price Index for all commodities of
0.011 percent.
Certain individual segments of the industry will be
subject to more severe impacts than the industry as a whole.
The impacts on the plants producing the six highly impacted
product lines are presented in Table 1-5. The table shows
that six plants (one a coproducer of perchloroethylene/
chloromethane) may be subject to significant impact due to
the regulation. All of the six threatened plants are already
believed to be marginal operations and hazardous waste
regulations will contribute only incrementally to plant
closure. Therefore, assuming that no other segments are
more highly impacted than the six selected segments, it
appears that no plant closures will result directly from the
regulations.
-14-
-------
TABLE 1-4
THE IMPACTS OF COMPLIANCE FOR THE ORGANIC CHEMICALS,
PESTICIDES AND EXPLOSIVES INDUSTRIES
Estimated incremental annual cost (S million)* H3?
Total annual cost (S million)** 243
Estimated incremental annual cost/value of shipments (1973)t 0.6^
Total annual cost/value of shipments (1973) ^-1°/0
Increase in wholesale price index for all commoditiestt 0.011%
* Source: Energy Resources Company Inc. estimates.
Source: Assessment Study.
t Source: U.S. International Tariff Commission.
tt Source: U.S. Buruau of Labor Statistics.
-15-
-------
TABLE 1-5
SUMMARY OF IMPACTS ON PLANTS PRODUCING HIGHLY IMPACTED CHEMICALS*
HIGHLY IMPACTED
SEGMENTS
NO. OF PLANTS
IN SEGMENT
NO. OF PLANTS
SUBJECT TO
SMALL IMPACT
NO. OF PLANTS
SUBJECT TO
SIGNIFICANT
IMPACT (SHUTDOWN
POSSIBLE)
Perchloroethylene
Chloromethanes
Epichlorohydrin
Vinyl Chloride
Acrylonitrile
Furfural
TOTAL OF SIX SEGMENTS
11
19
3
15
6
4
57"
8
17
3
13
6
4
51
3
2
0
2
0
0
6**
* Source: Energy Resources Company estimates.
"Totals are less than the sum of entries because of Stauffer's coproduct perchloroethylene/chloro-
methanes (carbon tetrachloride) plant, which is counted in both segments. Other coproduct processes
are colocated with separate chloromethane plants circumventing double counting.
-16-
-------
NOTES TO CHAPTER ON£
1. Resource Conservation and Recovery Act of 197G
(PL 94-580), Section 3002.
2. TRW, Inc., Assessment oE industrial hazardous
waste practices of the organic chemicals, pesticides and
explosives industries, prepared for the U.S. Environmental
Protection Agency, 1976, p. 2-23.
3. Four other highly impacted industries are also
being studied separately. These are: (1) inorganic
chemicals; (2) batteries, specialty machinery and electrical
components; (3) leather tanning; and (4) electroplating.
4. TRW, Inc., Assessment study, 1976.
5. TRW, Inc., Assessment study, 1976.
6. Processes Research Inc., Alternatives for hazardous
waste management in the organic chemicals, pesticides and
explosives industries, Draft report prepared for the U.S.
Environmental Protection Agency, 1977.
7. TRW, Inc., Assessment study, 1976, p. 2-23.
8. TRW, Inc., Assessment study, 1976; and Arthur D.
Little Co., Analysis of potential application of physical,
chemical and biological treatment techniques to hazardous waste
management, prepared for the U.S. Environmental Protection
Agency, 1976.
-17-
-------
CHAPTER TOO
METHODOLOGY
The methodology utilized in assessing the economic
impacts of potential hazardous waste regulations on the
organic chemicals industry consisted of two phases. First,
analytical procedures and data sources for the analysis were
specified. Then, a careful review of the limitations of the
analysis was undertaken. This review discusses the likelihood
of errors which can be attributed to those assumptions to
which the analytical conclusions are most sensitive.
2.1 Analytical Procedure and Data Sources
The analytical procedure is separated into the following
four phases:
1. Segment selection.
2. Development of an industry profile.
3. Cost of compliance assessment.
4. Economic impact assessment.
A chapter of the report is devoted to each of the last three
phases. The methodologies for each are discussed individually
below following the presentation of the segment selection.
2.1.1 Segment Selection
The organic chemicals industry manufactures hundreds of
products resulting in an estimated 13 percent of the national
hazardous waste generated. Trying to analyze the impact on
the markets of all of these products is beyond the scope of
this project. Instead, an in-depth study has been conducted
of selected segments of the industry. It was therefore
important to select segments of the industry correctly in
order to maximize the usefulness of the analysis.
The industry was first narrowed down by TRW in their
Assessment Study.1 This study analyzed 26 organic chemical
processes that produce hazardous waste. Treatment cost
data were developed for 23 of these processes in either the
Assessment Study or the Alternatives Study.2 Twenty of the
-19-
-------
processes (excluding explosives) accounted for 44 P^cent of
the total hazardous waste produced by the organic <*emicals
chemicals and the technical organic pesticides ^dustries in
1973, and over 6 percent of the total annual hazardous waste
generation of the nation.3 This sample of processes had
to be further limited, however, in order to arrive at a
sufficiently small group of processes suitable for an
in-depth analysis of economic impacts.
Because the impact of hazardous waste regulations on
the industry was expected to be small, it was decided that
an attempt should be made to analyze in detail the segments
most severely impacted. Furthermore, by analyzing the
highly impacted segments, a worst-case upper bound could be
estimated for the impact on the remaining segments.
In order to determine the highly impacted processes, it
was necessary to screen all the processes and rank them by
such criteria as volume of product produced (dollars and
tons), abatement cost as a percentage of product price
for each product, price elasticity of demand for each
product, capital availability characterization for each
firm, and cash flow associated with each product in each
firm. These data were not all available at the outset of
the analysis and were, in fact, among the data sought in
the in-depth studies. It was, therefore, necessary to use
a surrogate measure for economic impact.
It was determined that a useful selection could be made
using the following criteria: (1) abatement cost as a
percentage of product price and (2) tons of product produced
annually. By plotting these two parameters on a graph, the
resulting display would highlight the highly impacted processes,
which would plot to the upper right. These data were
developed from the Assessment Study and the Alternatives Study.
Abatement cost data (in terms of dollars per ton of
product) were developed in both reports, although, in general,
the cost estimates varied significantly. The Alternatives
Study costed out alternatives to the standard treatments
examined in the Assessment Study. (The Alternatives Study
also costed out the standard treatments, but their assumptions
for these appeared to be different from those used by the
Assessment Study.) Because alternative treatments have not
necessarily been proven, the standard treatment methods could
not be eliminated. However, the alternative treatments could
not be overlooked because site-specific problems may preclude
a plant from using the standard treatments. For these reasons,
two points were plotted for each production process: (l) one
point using the Assessment Study standard treatment cost
for Level III treatment technology, and (2) one point using
-20-
-------
the Alternatives Study's alternative treatment cost. In
several cases, only one of these cost estimates was available
so that only one point could be plotted. All cost estimates
were adjusted to reflect a 1976 base year.
Data on product prices in 1976 were taken primarily
from the Alternatives Study. Defining product prices
presented a problem for those processes that created joint
products, because the prices for the different products are
highly variant. As it happens, however, the lowest priced
joint product (the one subject to the highest abatement
cost/price ratio) is generally also the product produced
in the largest volume. Therefore, the price for the product
produced in the largest volume was used. The Alternatives
Study used this approach. However, minor discrepancies
remained in some of the product prices. In these cases,
data published in the Chemical Marketing Reporter
(December 27, 1976) were used. (All prices were for fourth
quarter, 1976.)
Data on production volumes were taken from the Assessment
Study. Although such 1973 data are somewhat out of date, the
rankings of the various products using these data are the best
available for the purposes of the present study.
The production volume, price, abatement cost, and
abatement cost/price ratios for the 23 products studied by
the Assessment Study and/or the Alternatives Study are
displayed in Table 2-1. The table shows dramatic variation
in treatment costs between the Assessment Study process and
the Alternatives S t u dy alternative. In some cases, the
alternative is more costly; in others it is less costly. In
the case of epichlorohydrin, the Alternatives Study reported
that waste chemical recycle will return a profit to the
waste treatment process. Variation in costs among products
for similar technologies are also high, but are roughly
proportional to product price so that the abatement cost/price
ratios for most products are below 0.01 (1 percent).
The production volumes and cost/price ratios for the
products in Table 2-1 are plotted in Figure 2-1. A strong
clustering can be detected in the lower left of the graph,
indicating minimal expected impact for most products. The
outlying points can be segmented easily by the dashed line
indicated on the graph.
No price data were available for explosives products
precluding their inclusion in this analysis. However, the
entire multiproduct private explosives industry segment
manufactured only 1,250 thousand metric tons of product. It
is therefore assumed that based only on production volume,
-21-
-------
TABLE 2-1
CALCULATION OF ABATEMENT.COST-TO-PRICE RATIOS (1976 ADJUSTED DATA)
I
M
LEVEL III COST
IS/MT OF PHODOCTI
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
PRODUCT
P^rchtorocthylene
Nitrobenzene
Chlorome thane
Eptchlorohydrin
Toluene Oiisocyanate
Vinyl Chloride
Methyl Methacrylate
Acryk>nitrile
MaJetc Anhydride
Lead AUcyli
E thanolamines
Furfural
Fluorocarbon
Chtorotoluene
Chlorobenzene
Alrarineft
Tnfluf»lintt
Aldrinti
MafathionJ t
ParathiooJt
Explosives (carbon) §
Explosives (redwat«r)§
Explosives (explosives) §
1973 US AMNUAL
PRODUCTION •
11.000 WT)
320
140
1.115
2?5
230
2.432
320
614
128
506
133
63
373
365
180
41
11
discontinued
14
62
_
_
-
PRICE"
(S/MTI
364
510
320
880
1.120
310
840
590
810
1.440t
860f
1,040
i.oaot
660
570
4.2951
12,290t
3,02 1J
2.090
1.918
—
—
—
STANDARD
TREATMENT-
25.80
0.66
3.33
16.54
6.70
579
2.76
0.57
3.40
14.01
_
_
_
_
_
18.37
25.62
200.66
3.37
203
-
—
—
ALTERNATIVE
TREATMENT!
6.00
3.31
1 40
(0.40)
5.55
025
654tt
0.70H
10.00 ft
6.33
2.39 or 5.54
3800
0.56
0.1711
3.50tt
24.20
50.00
—
9.00
6.00
1.43
5050
1.98 or 2.94
COST/PRICE RATIO
STANDARD
TREATMENT
0.0709
0.0013
0.0104
0.01S8
0.0060
0.0187
00033
00010
0.0042
0.0097
_
_
_
_
_
0.0043
0.0021
0.0664
0.00 1C
0.0011
—
-
—
ALTERNATIVE
TREATMENT
00165
0.0065
0.0044
(0.0005)
0.0050
0.0008
00078tt
OOQ12tt
0.012311
0.0044
0.0028 or 0.0064
0.0365
0.0005
0.00031 1
0.0061tt
00056
0.0041
-
0.0043
0.0031
—
-
—
' Source: TRW. Inc.. Assessment ol Imhiarial Huirdmn Waste Prxlices: Organic Chemicals. Peslicidet and Explosives Imtnirici. pterwrnl
(or U.S. Environmental Protection Aqencv. 1976.
•' Source: Clicmicul Marketing Reporter, October 25. 1976.
1 Source: Processes Research. Inc.. AhmtMnei for Ha^arrlous Wale Management in the Organic Chemical. Pesliciilei tntf Ctplmivtt Indtn
try. |irepa>eil lor Office of Solivl Waste Management Proqrains. Hazardous Waste Management Division; December 1976.
11 No alternative specified. The costs are fof the most expensive other treatment.
^ Source: Chemical Marketing Reporter. December 20. 1976.
\\ Pesticide.
§ Explosive.
-------
2.500
I
to
Co
I
p* ALTERNATIVE STUDY COST FOR ALTERNATIVE TREATMENT
t - ASSESSMENT STUD Y COST FOR STANDARD TREATMENT
©
2 3
Abatement Co it as Percent of Price
7.1
Figure 2—1. Graph of economic importance (1976 prices) annual production vs, cost/
price ratio. (Processes Research, Inc., Alternatives for Hazardous Waste Management in the
Organic Chemical, Pesticides and Explosives Industries, prepared for Office of Solid Waste
Management Programs, Hazardous Waste Management Division, December 1976, and TRW,
Inc., Assessment of Industrial Hazardous Waste Practices: Organic Chemicals, Pesticides and
Explosives Industries, prepared for U.S. Environmental Protection Agency; 1976.)
-------
impacts would be small. Furthermore, private sector explosives
production guarantees only a waste explosives waste stream
that can be incinerated. It is therefore assumed that
treatment and disposal costs will be small relative to
product price. While the Federal explosives production
generates other waste streams, the Federal government owns
all such facilities and will therefore absorb the burden of
Federal hazardous waste regulations.
From Figure 2-1, it can be concluded that eight products
appear to be in the highly impacted category.4 Of these
eight, six have been selected as highly impacted products
for in-depth study:
1. Perchloroethylene (1).
2. Chloromethane (methyl chloride, methylene
chloride, chloroform, carbon tetrachloride) (3).
3. Epichlorohydrin (4).
4. Vinyl chloride (monomer) (6).
5. Acrylonitrile (8).
6. Furfural (12).
Aldrin has not been included because it is no longer produced
in this country due to banning by the EPA. Lead alkyls have
also been excluded because the EPA limitations of lead in
gasoline - the major use for lead alkyls - will diminish
their production to 350,000 tons by 1980. At this production
level, lead alkyls (with an abatement cost/price ratio of
only 0.0044 [0.44 percent]) will fall into the cluster of
points below the cutoff line. Also, the Assessment Study and
Alternatives Study data used specifically did notinclude a
credit for the lead recovery which is a part of both treatment
processes. This credit would substantially reduce the
calculated costs for both treatment types.
The relationship of the highly impacted segments to the
Assessment Study sample is displayed in Table 2-2 in terms
of production volume, sales, total waste, and hazardous
waste component. The six highly impacted products represent
almost 70 percent of the production volume and almost
60 percent of the hazardous waste volume of the Assessment
Study products (exclusive of explosives).
Both samples are then compared to the total industry in
Table 2-3. As can be seen in this table, the highly impacted
category represents only 5.6 percent of the total national
-24-
-------
TABLE 2-2
RELATIONSHIP OF HIGHLY IMPACTED PRODUCTS TO ASSESSMENT STUDY SAMPLE
SALES
PRODUCT
Per chlur oe Uiylene 1 1
Niliohemene
ChloromeihaneM
f pithlorohydr int 1
Tohiena DiHocyanat*
Vinyl Chloride II
Methyl Metlucrylate
Aciykxiiliilett
Mjlvtc Anhydride
Lewi Alkyls
£t1ianoLjfnii!£f
Furliuaitl
Fluor ocaruon
Clilorololuene
Chlor obei 12 ene
Airaiine
Trilluralin
AWrin
MdlaUikm
Paraihion
Total (t t) Products
Toliil All Product!
US
PRODUCTION '
(I.OOOMTI
320
140
1,1)5
225
230
2.432
320
614
S2B
606
133
08
373
36.6
180
41
11
0
M
02
4,774
6.948
OCT. 1976
PHICEf
IS/MTI
364
510
320
B80
1,120
310
840
590
eto
1.440}
860}}
1.040
1.080}
660
570
4.295}
12,290}
3.021}}
2.090
1.916
ESTIMATED
SALES
VOLUUCt
(S mitiion)
1165
71.4
3S68
1980
?S7S
7539
2G&8
362J
101.7
728.E
114.4
70.7
4028
24.1
102.6
176,1
I3S.2
29.3
1189
1.8582
4.391.7
WASTE VOLUME
WASTE/
TBOOUCT'
RATIO
P«EDICTED BY
PLANT MODELS
0.308
00025
0.006
0053
0021
0.010
0.086
0.0007
0.030
0.5
006
0.565
00002
0.001
0.044
1123
0.115
6422
tt 155
0.115
ESTIMATED
HAZARDOUS
WASTE
VOLUME
11.000 MI}
9846
035
6.69
1I.92S
4.92
25.04
2752
0.46
388
26300
10.64
3844
008
0.04
747
460.43
1.26
2.18
7.13
181.01
960 Jt
HAZARDOUS WASTE VOllOS
COMPONENT
(Hot waste*
classified as
Ita/ardousj
97
100
100
97
97
99
100
100
100
20
100
89
100
100
100
1.6
48
45
100
ESTlMATto
HAZARDOUS
COUFOIveMT
Of WASTE
njaootflt
95.51
035
669
1162
4.79
75.60
27.62
CAS
3J88
506
H) 64
34 36
ooa
O.O4
JM7
6fi9
060
O99
7.13
174 4
23642
* Soiircu: TRW, Inc.. Assessment of Inckntrial Haitfdoui Waste Practices: Organic Chemicsff. Pesticides md Cxplatnt Industries, prepared
(in U.S EnvirontnenUJ Prolectiun Agency, 1976.
" Sou;c«: Chemical Marketing neporter. August 27. 1976.
I Assumed mercltanl market prices lor entire (irodurlioii voluma. i.e. prices are not discounted fur capiive use.
I \ Frtxlucls selectuJ for economic impact analysis.
} Source: Processes Research, Inc., Alternatives for H&jrdotn Watte Management in the Organic Cntmital. Pesticides and Exptotftfi IntSia-
iries. pieiiared lot Ollice of Solid Waste Munajenienl Proyrami, llazarduus W«sle Management DivisJon. December 1976.
} } Source: Chemical Marketing Reporter. Decenilwr 20, 1976.
-------
TABLE 2-3
RELATIVE IMPORTANCE OF HIGHLY IMPACTED SAMPLE*
ESTIMATED
HAZARDOUS
ESTIMATED PRODUCTION ESTIMATED SALES ESTIMATED WASTE WASTE COMPONENT
1
to
0>
1
VOLUME SAMPLE VOLUME
( 1 ,000 MT) AS % OF (S million I
Economic Study 4.774 100 1.858.2
Chemicals (ERGO)
Assessment Study 6,948 69 4,391.7
Chemicals* *
National Totals: 85,343 5.6 21,740
Organ ics &
Pesticides Industry** '
SAMPLE VOLUME SAMPLE VOLUME SAMPLE
AS* OF (1.000MT) AS%OF (1.000MT) AS%OF
100 181.01 100 174.04 100
42 960.31 19 295.42 59
8.5 2,180 8.3 828 21
* Source: TRW, Inc., Assessment of Industrial Hazardous Waste Practices: Organic Chemicals, Pesticides and Explosive Industries, prepared for
U.S. Environmental Protection Agency; 1976.
** Not including explosives category.
t Represents estimated 90% of total tonnage or organic chemicals and technical organic pesticides.)
-------
organic chemical production volume, but includes 21 percent
of the total hazardous waste generated by this vast industry.
This result confirms the utility of these highly impacted
segments selected for the analysis.
2.1.2 Industry Profile
The industry profile consists of characterizing (1) the
manufacturers for each product market (firms, plants,
capacities, sales), (2) the market interactions (how prices
are set, methods of competition used), and (3) the financial
condition of the firms subject to the regulations (sales,
net income, cash flow). Each of these elements is discussed
separately below.
2.1.2.1 Manufacturer Characterization
A variety of operational and financial data were
collected on each manufacturer of highly impacted products
and its plants which produced these chemicals. Table 2-4
presents a summary of the data collected and the sources
used 'for each type of information. It was necessary to
verify much of the data from more than one source. For
instance, the figures on plant capacities sometimes varied
between sources and further checking was necessary. Direct
contacts were made with all the firms in the highly impacted
segments in order to verify that they indeed produce the
highly impacted products, and to obtain information about their
manufacturing processes and treatment systems.
Financial data on each firm were readily available from a
number of sources. There was a considerable overlap in the
information provided from the sources listed in Table 2-4.
The principal reason for the availability of financial data
is the fact that the companies studied are large, publicly
held corporations. Therefore, their annual financial
statistics are generally reported by the various investment
surveys and chemical industry data sources. However,
virtually none of the financial data available provided
information on the profitability of the highly impacted product
lines. Firms do not provide sufficient data to allow an
assessment of a specific product line, but prefer to aggregate
statistics to the division or firm level. As a result,
quantitative analysis of the highly impacted segments was
performed on the basis of model plants whose development is
discussed in Section 2.1.2.3.
Some financial analysis was made of firm-level statistics
in order to determine the overall profitability of the
-27-
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TABLE 2-4
DATA REQUIREMENTS AND DATA SOURCES
FOR THE IDENTIFICATION OF MANUFACTURERS
DATA REQUIRED
SOURCES OF DATA COLLECTED
Operational data
1. Highly impacted products
made by each firm
2. Plant location
3. Plant capacity
4. Processes used
5. Capacity utilization
6. Current hazardous waste
treatment method
7. Other products produced
at plant
Financial data
1. Annual sales
2. Annual income
3. Annual cash flow
4. Net worth
5. Rate of return on equity
6. Debt-equity ratio
Chemical Week, Buyer's Guide 1977
Chemical Marketing Reporter, Buyer's Guide 1976-77
Chemical Marketing Reporter, "Chemical Profiles."
Chemical Economics Handbook. Stanford •
Research Institute
Communications with firms
Corporate Reports
Value Line Investment Survey
Moody's Industrial Manual
Corporate Reports
Standard & Poor's Industry Surveys
Chemical Week, "Annual Survey of
. Chemical Manufacturers"
-28-
-------
impacted firms and to ferret out any failing companies. In
addition, several financial factors were analyzed based on a
10-firm sample chosen from the total of 22 producers of
highly impacted chemicals. The firms were chosen so as to
emphasize ones which are predominantly chemical manufacturers
in order to maximize the relevance of the statistics studied.
Diversified companies, such as General Electric, were
excluded. Once the sample was chosen, an assessment was
made of the profitability (and, by extension, the pricing
power) of the chemical firms. Particular note was made of
these firms' performance during the period 1973-76, when
prices rose dramatically in the chemical industry., An
examination was also made of the financial strength of the
firms as indicated by their debt-equity ratios. This ratio
is commonly used to indicate any possible future problems a
firm might have in financing its continued operations.
2.1.2.2 Market Characterization
The market characterization was undertaken to describe
the workings of the six highly impacted product markets.
Information was sought to explain the market mechanisms and
performance of the six segments as well as to characterize
the operational and financial variables that would dictate
the industry's ability to meet Level III regulations at each
of its plants.
Information was developed for the characterization in
three ways. First, published summary statistics were analyzed
to determine industry practices and trends. Analysis of the
summary statistics also served to highlight special problems
in the industry such as declining sales and overcapacity.
Second, reports and papers that describe the industry,
ranging from studies of one segment to treatises on the
aggregate chemical industry, were studied to explain some of
the qualitative workings of the industry. Information on such
aspects as market structure and pricing behavior was obtained
in this manner. Third, contacts with industry experts ranging
from journal editors to plant engineers were developed to
obtain plant-specific information as well as to receive
feedback on the market models being developed. The response
from industry personnel was limited due to OMB guidelines
restricting the use of surveys in government contracts and
the unwillingness of firms to release proprietary data.5
For this reason, plant and process level data for each of
the segments were modeled for the analysis.
-29-
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2.1.2.3 Model Plant Development
In order to estimate the impacts of abatement cost on
production, a model plant was developed for each of the
highly impacted product lines.6 The plant employed the
process technology detailed in the Assessment Study with the
exception of perchloroethylene. For this product recent
changes in production techniques had dated the Assessment
Study process which used acetylene; therefore, the more
common ethylene process was selected. Plant size was
determined by an analysis of the existing perchloroethylene
plants.
Model Plant Size. Selecting the model plant size for
use in the economic analysis required consideration of
several factors: (1) the model plant size must be
representative of the major portion of the industry, (2) the
model must be appropriately sized in order to be sensitive
to impacts that would potentially affect the smallest and
the largest firms in the industry, and (3) the model plant
should be compatible with the cost data developed in the
Assessment Study.
The distribution of plant size for each highly impacted
product is displayed in Table 2-5. Also noted in this table
is the model size used to estimate abatement costs in the
Assessment Study.
The Assessment Study data are then analyzed in Table 2-6.
The table shows that the Assessment Study sizes are generally
in the middle of the distribution of actual plant sizes. As
can be seen in the table, for four of the chemicals, the
model plant size used for the Assessment Study treatment
model appears to be a reasonable choice for the economic
model plant size. These are perchloroethylene,
chloromethanes, epichlorohydrin, and vinyl chloride.
For acrylonitrile and furfural, the table shows that
the Assessment Study model plant size falls askew from the
median range of the distribution of actual plant sizes. It
was, therefore, determined that the sizes chosen for the
economic impact plant models would differ from the Assessment
Study models. For acrylonitrile, the plant size for the
purposes of this study is more than double the size used in
the Assessment Study. The treatment cost data were adjusted
to reflect the economies of scale benefiting the larger
plant in the best estimate of cost. However, such adjustments
tend to increase the error of the estimates. Therefore, for
the worst-case cost estimates, size adjustments were not made
to reflect the economies of scale. In this way, any sizing
errors introduced would be conservative (i.e., they would
-30-
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TABLE 2-5
DISTRIBUTION OF PLANT SIZE FOR SIX HIGHLY IMPACTED ORGANIC
CHEMICAL PRODUCTS (1,000 MT/yr)
PRODUCT
Chloromethanes
PLANTSIZE"
NAMEPIATE CAPACITY
9, 18,23,23,32,54,68,68
73,91,91
7,9, 18,23,23,36,45,45,51,
MEAN
SIZE
50
83
MEDIAN
SIZE
54
59
ASSSSSMSHT"
STUDY
MODEL SIZE
39
50
59,68,75,84,91,98, 136,227,
229, 257,
Epichlorohydrin
Vinyl chloride
Acrylonitrile
Furfural
27,63, 113
68,79,91, 136, 136, 136, 136,
182,204,227,318,318,318,
382, 454
109, 125, 182,186,286,391
9, 18, 18,33
68 63
213 182
213 189
20 18
75
136
80
35
Source: Chemical Marketing Reporter, "Chemical Profiles," various issues and industry sources.
** Source: TRW, Inc., Assessment of Industrial Hazardous Waste Practices: Organic Chemicals, Pesticides
and Explosives Industries, prepared for U.S. Environmental Protection Agency, 1976.
-31-
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TABLE 2-6
MODEL PLANT SELECTION ANALYSIS*
EXISTING PLANT SIZES: II.OOOMTAI) ASSCSSMCNTSTUDY SELECTION Enco MODEL PLANT SELECTION
SIZE »O OF AC I UAL «O Of AC I UAL S|ZE NO Of ACTUAL NO Of AC1UAL
(I.OOO PLANTS PLANTS 11X100 PLANTS PLANTS
LOW HIGH MEAN MEWAN ur/yil BELOW ABOVE MT/vrl BELOW ABOVE
JUSTIFICATION
Percliloroelhylene
Chloroniethanes
91
50 54
39
6 39
7 257 83 59 50 8 10 50 8 10
to
I
Epichlorohydrin
Vinyl Chloride
Acrylonitrile
Furfural
27 113 68 63 75 2 1 78 2 1
68 454 213 182 138 7 9 136 7 9
109 391 213 189 80 0 6 182 2 3
9 33 20 18 35 4 0 18 1 1
Treatment cost data will bo
accurate; model will be
sensitive to factors impacting
smaller plants; cost analysis
will tend to worst case
lor larger plants.
Model covers Hie mid range
ol plants sizes; treatment
cost data will be accurate;
model will be more sensitive
to (actors Impacting smaller
plants.
Treatment cost data will lie
accurate; model reasonably
dose to mean plant size.
Treatment cost dala will be
accurate; model will be sen
sitive to factors impacting
smaller plants; four plants
reported to be 273 MT/yr.
Poor data available; model
size is the median size (or
the reliable data; treatment
cost data will tend to be
pessimistic.
Two plants reported to be
36 MT/yr; model will be
close to the mean plant size;
treatment cost data will
have to be scaled down to
Incorirorate the changing
economics ol scale.
• Source: Table 2-4.
-------
overstate costs), and would, therefore, be in accordance
with the general methodology.
For furfural, the model plant size is close to half the
size of that used in the Assessment Study. The treatment
cost data also had to be adjusted to reflect the change in
scale, as unit costs are higher for a smaller plant.
After determining model plant sizes, the next step
was specification of the cost assumptions. A 10-year
depreciation of plant was used for the model plants. While
firms generally amortize their organic chemical plants in
3 to 5 years, depreciation guidelines of the IRS generally
require firms to depreciate their facilities over a longer
period for tax purposes. Straight-line depreciation was
selected (though firms may favor double-declining balance)
in order to develop costs that are reasonable throughout the
10-year period. (Double declining balance would yield costs
that are constantly in flux due to the continually shrinking
depreciation base.)
Capital costs were then developed for each of the model
plants using a standard engineering cost estimation approach.
The sources used to develop the cost data are listed in
Table 2-7. Additionally, the Chemical Marketing Reporter
(CMR) (August 15, 1977) was used for raw material and product
costs. Capital costs from the literature were updated to
June 1977, using the Chemical Engineering Cost Index.
All pertinent cost data that could be identified were
included in the cost estimate. When no information was
available in the technical literature on a specific process,
then estimates were made on the basis of information about
analogous processes. In some cases, more detail was available
than in others. For example, the cost of utilities either
was a single item or was subdivided into fuel, cooling
water, electricity, etc., depending on the chemical produced.
When possible, the Assessment Study basis was used to make
sure that the production cost model corresponded directly
with estimated residual outputs. The basis items incorporated
were the process used (raw feed starting material), the
process yields, and the product mix. Several adjustments
away from the Assessment Study process configuration had to
be made and these changes are listed in Table 2-8.
The production costs were calculated on an annualized
product output basis (per pound of product). Cost items
such as capital and labor were calculated on an annual basis
and divided by annual production. The amounts of variable
cost items, such as feed material and utilities, were
calculated on the basis of input units per pound of product.
-33-
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TABLE 2-7
REFERENCES USED TO DEVELOP MODEL PLANT COST ESTIMATES
MODEL PLANT PROCESS
REFERENCES
Perchloroethylene
Chemical Engineering, May 4, 1970, p. 74.
Hahn, The Petrochemical Industry, McGraw-Hill, New York, 1970, p. 312.
Lowenheim, Faith, Keyes, and Clark's Industrial Chemicals, 4th ed. John Wiley
& Sons, New York, 1975, p. 604.
Chloromethanes
Hahn, The Petrochemical Industry, McGraw-Hill , New York, 1970, pp. 96,
180.
Hydrocarbon Processing, November 1975, p. 127.
Lowenheim, Faith, Keyes, and Clark's Industrial Chemicals, 4th ed. John Wiley
& Sons, New York, 1975, p. 530.
Epichlorohydrin
Hahn, The Petrochemical Industry, McGraw-Hill, New York, 1970, pp. 337,
339.
Lowenheim, Faith, Keyes, and Clark's Industrial Chemicals, 4th ed. John Wiley
& Sons, New York, 1975, p. 335.
Acrylonitrile
Vinyl Chloriclo
Furfural
Hydrocarbon Processing, January 1971, p. 110.
Hydrocarbon Processing, November 1975, pp. 108, 109.
Lowenheim, Faith, Keyes, and Clark's Industrial Chemicals, 4th ed. John Wiley
& Sons, New York, 1975, p. 46.
Hydrocarbon Processing, February 1973, p. 100.
Chemical Engineering Progress, 44 (1948) No. 9, p. 669.
Dunlop, Kirk-Othmer Encyclopedia of Chemical Technology, 2nd ed., 10,
p. 242.
Industrial and Engineering Chemistry, 47 (1955) No. 7, p. 1408.
-34-
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TABLE 2-8
CHANGES MADE TO ASSESSMENT STUDY MODEL PLANT PROCESSES
CHEMICAL
CHANGES
REASON
Perchloroethylene
Chloromethanes
Acrylonitrile
Starting material changed from
acctylano to othylons. Product
ylrtld is 80 percent perchloroethylene,
20 percent trlchloroethylane.
Product mix changed from 13 percent
CH3C1, 25 percent CH2C \2, 53
percent CHC [3, and 8 percent CC (4
to 70 percent, 15 percent, 10 percent,
and 5 percent respectively.
Ammonia consumption reduced and
product yields changed slightly.
Acetylene process is no
longer usad, since ethylenc is
a cheaper feedstock. Trichloro-
ethylene Is a customary byproduct.
Assessment Study product mix
produced an unrealistic gross profit
margin of about 170 percent. Other
data indicated different product
mixes.
Assessment Study data did not
accurately reflect literature data
available.
-35-
-------
The amount of each input needed was estimated from knowledge
about the nature of the chemical process or taken from the
technical literature on the process. Total costs for these
were then obtained by multiplying this amount by a cost
per unit. All cost breakdowns supplied give this information
for each cost item.
The estimated total production cost per pound was
compared to the actual bulk volume sales price reported in
the CMR. If the difference between cost and value was more
than about 5 percent, the cost model was modified. If a
large adjustment was needed, the product mix was reassessed,
and necessary changes were made. Other variables that were
considered adjustable (within limits) were the capacity
utilization factor, gross return, and byproduct credit.
For example, the byproduct credit for HC1 in
perchloroethylene production was reduced in order to
better reflect actual production techniques. In the
perchloroethylene process a large volume of HC1 is produced
and normally some of this byproduct is sold and some is
converted (via the Deacon process) into Cl2 for reuse.
Customarily Cl2 has a lower price than HC1 and therefore
the HC1 credit was reduced to reflect this reuse.
The capacity utilization rates for the cost estimation
were sot at either 90 or 70 percent. The 70 percent figure
was used for those highly impacted segments (perchloroethylene
and the chloromethane) where poor market conditions indicate
that utilization rates are likely to remain below the normal
target rate of 90 percent for some time. Nevertheless, the
model plant costs were developed to reflect a normal, healthy
rate of return rather than current weak market conditions.
The effect of poor market conditions is considered by the
economic impact methodology described below in Section 2.1.3.
2.1.3 Cost of Compliance
Development of engineering estimates of the costs of
compliance for treatment and disposal of hazardous wastes
from organic chemicals production was not included in this
effort. Cost data used to perform the economic impact
analysis were the incineration costs developed in the
Alternatives Study because they appear to most closely
reflect the costs which will be faced by industry.
This study, performed under contract to EPA in
support of potential hazardous waste regulations, developed
model plant cost estimates for the technologies required to
meet regulatory levels sufficient to provide for environmental
-36-
-------
protection. Using the cost data presented, a set of best
estimates of the cost for achieving Level III technology was
developed emphasizing the standard demonstrated treatment
prac ice for organic chemical wastes-incineration. The best
estimates of cost were developed as conservative estimates
of the incremental cost of achieving Level III. That is,
they presume that the costs of the present industry average
technology (Level I) are already being incurred and credit
the applicable amount of Level I cost' to the cost of
achieving Level III from scratch.
In order to determine the most significant potential
sources of error in these best estimates, the model costs
were investigated for their sensitivity to numerous cost
input assumptions including costs for land, fuel, maintenance,
and labor. These costs appeared to reflect minor
uncertainties which could not be easily reduced, and in
general the cost-estimating procedures used provide estimates
accurate to within 25 percent (see Section 4.4). However,
the best estimates of the costs of compliance were found to
be quite sensitive to variations in the extent of existing
treatment.
Because of the sensitivity of the cost estimates to
uncertainty and to variations in the existing treatment
assumed, a set of worst-case cost estimates was derived.
These estimates took an even more pessimistic view of the
previously developed cost data in order to provide a
worst-case limitation to impact. Using these estimates in
the analysis yields the most conservative scenario for
regulatory impact.
The worst-case cost estimates presumed no existent
plant treatment so that the incremental cost borne by
each plant will be the full cost of achieving Level III
technology with no Level I credit. Additionally, a
25 percent factor was added to the Level III cost estimates
to reflect the worst possible error resulting from the
uncertainty of the cost estimating procedures.
2.1.4 Economic Impact Analysis
The choice an organic chemical manufacturer faces in
the presence of hazardous waste management regulation is
simply whether the firm should shoulder the incremental costs
of hazardous waste pollution abatement in order to comply
with regulations and continue manufacture of impacted
chemicals, or whether it should discontinue production of
these products. This choice will be based on two basic
economic parameters:
-37-
-------
1. The capital decision: can the resources needed
for the additional investment necessary to comply
with regulations be provided given the firm's other
capital requirements and capital-raising constraints?
2. The price decision: can a sufficient amount of
the incremental product costs attributable to
abatement be passed on to the consumer via price
increases to allow continued production with an
acceptable rate of return?
Analyses of these two components of total profitability
of manufacturing an organic chemical, as amended by compliance
costs, presumably will be conducted by each firm for each
regulated manufacturing process. These analyses will take
into account all factors influencing the economic decisions,
including the following:
1. The economies of scale and possible spreading of
equipment costs among several processes served by
the same equipment (e.g., a plant-wide incinerator).
2. The value of captive production of organic chemicals
used as intermediates within the company, versus
outside purchase.
3. Expectations of future profit opportunities in
products subject to significant impact.
Unfortunately, the data needed to simulate this
process-by-process analysis for each product line of each
manufacturer are not available for this analysis. Many
relevant financial data of the process level are regarded
as proprietary by chemical manufacturers. Additionally,
the information needed to properly account for other
complicating factors, such as those noted above, is not
obtainable.
A model plant approach was developed specifically to
circumvent these problems as much as possible. In addition,
restriction of the analysis to highly impacted organic
chemicals reduces the scope of the analysis to manageable
proportions.
The investigation of the economic impacts of hazardous
waste management regulations on the industry was based on
analysis of the model plant for each highly impacted segment.
The general investigation was then supplemented by an
in-depth assessment of the regulatory impact to each firm
in the highly impacted segments. Impacts on the industry
and nation are discussed in the final section.
-38-
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2.1.4.1 Model Plant Analysis
The model plant analysis consists of a generalized
study of impacts in each of the highly impacted segments. A
flow chart showing the interrelationships of the five stages
of the analysis is displayed in Figure 2-2. The first two
stages consist of the assessment of market conditions. The
price elasticity of demand is estimated in order to determine
the sensitivity of the market to regulation-induced price
increases. The price elasticity is then incorporated into
the cost passthrough decision model. The decision model
examines the likelihood that firms can pass any increased
costs on to consumers, suggesting that their market is
sufficiently strong to allow price increases. The next two
stages examine first the profitability of the model plant
under the various treatment cost scenarios and then the
attractiveness of the abatement investment itself. These
two sections of the analysis provide the only quantitative
analyses utilized in the general impact model.
The results of these preliminary stages, which are
effectively summarized by "the likelihood of a full-cost
passthrough" conclusion and the net present value of
investment, provide needed inputs to the plant shutdown
decision analysis. The other inputs to this analysis are
plant-specific factors which can influence the shutdown
decision, often in nonquantifiable terms. An example of
such a factor is the "integration [of the impacted process]
with other on-site production processes."
The methodology used for each stage of the analysis is
discussed below.
Estimation of the Price Elasticity of Demand. The
standard method for estimating the price elasticity of
demand (i.e., the relative decline in sales resulting
from an increase in price) is to develop a simultaneous
equation market model specifying both supply and demand.
However, this approach could not be utilized for the six
highly impacted product lines because sufficient data were
not available to adequately characterize the market. For
two of the segments, furfural and epichlorohydrin, little
production data of any kind are published.
For all segments, difficulties were expected in the
specification of the supply equation. In general, the
supply equation is ignored using the rationale that producers
always adjust to market demand. But significant shortages
were experienced in 1974-75, precluding this rationale, and
modeling the limitations on supply could not be accurately
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1.
PRICE
ELASTICITY
OF DEMAND
ASSESSMENT
o
I
NET INCOME
CALCULATION
2.
COST
PASSTHROUGH
ANALYSIS
4.
INVESTMENT
ANALYSIS
5.
PLANT
SHUTDOWN
ANALYSIS
Figure 2—2. Relationship of the elements of the model plant analysis.
-------
performed with the existing data on energy prices, industry
capacities, etc.
On the demand side, the extent of captive production
and important inventory changes (which could not be isolated)
helped to obscure levels of market prices demand volume.
In light of these difficulties, an alternative approach
was used for estimating the price elasticity. A number of
market demand factors were studied for their qualitative
effect on an assumed baseline price elasticity of 1.0
(unitary elasticity: a 1 percent increase in price causes a
1 percent decline in demand). The market demand factors used
for this analysis are listed in Table 2-9. The table shows
the possible range of influences for each factor and the
basis for each estimated influence in terms of market data.
This alternative approach proved to be both a
cost-effective and accurate method of estimating the price
elasticity. All of the highly impacted product lines could
be readily classified as having either a low (0.0 to 0.5),
medium (0.5 to 1.0), or high (1.0 to 2.0) price elasticity.
Care was taken not to understate the price elasticity of any
segment since this could cause an understatement of the
overall economic impact of regulation-induced price increases.
For example, in order to derive an overall price elasticity
for the chloromethane market, it was necessary to combine
the price elasticities of the four submarkets in that
industry. Three of the submarkets were estimated to have
low price elasticities, but the remaining submarket, that of
the large-volume chemical, carbon tetrachloride, has a
medium price elasticity (0.5 to 1.0). The medium elasticity
range was used for the market segment in order to not
underestimate possible economic impacts.
The first market factor, as listed in Table 2-9, was
the historical and projected demand growth for the industry.
Strong demand growth, particularly in a period of price
increases, suggests that the price elasticity of demand is low,
The next factor, the level of captive usage, is included
in the table as an indicator of the extent to which a
chemical product is exposed to merchant market pressures. A
high level of captive use (meaning that a firm will use most
of its production of a chemical internally) indicates that a
chemical is sheltered from market competition. A firm's
demand for its own production is likely to be less sensitive
to price changes, generally, than open market demand would
be. Presumably, the firm has a vested interest in the
continued production of the impacted chemical and its
derivative end products.
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TABLE 2-9
ESTIMATION OF THE PRICE ELASTICITY OF DEMAND
MARKET
CHARACTERISTIC
PRESENT DATA
INFLUENCE ON
BASELINE PRICE
ELASTICITY (1.0)
Demand growth
Captive usage
Use as intermediate
Significance of price as
basis for competition
Substitu lability
Foreign competition
High
Low
High
Low
High
Low
High
Low
High
Low
High
Low
Decrease
Increase
Decrease
Increase
Decrease
Increase
Increase
Decrease
I ncrease
Decrease
Increase
Decrease
PRICE ELASTICITY ESTIMATE: High (1.0 to 2.0)
Medium (0.5 to 1.0)
Low (0.0 to 0.5)
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The extent of use as an intermediate also reveals a
significant fact about the nature of demand. The customers
of chemical intermediates normally have a stake (in terms of
sunk costs in existing processes which require the chemical
as an input) in continued purchases of these production
inputs and will tend to be less sensitive to price increases.
The "significance of price as a basis for competition"
factor presents conclusions about the relative importance of
price, effectiveness in use, environmental concerns, and
supply stability to market competition. It was often
concluded that price was only one of several important types
of market competition and, in these cases, the "significance
of price" factor was estimated to reduce the price elasticity.
The degree of substitutability was estimated for each
highly impacted product on the basis of information about
the intermediate and end-use markets of its derivatives. A
high degree of substitutability increases the price elasticity.
Lastly, the level of foreign competition was examined.
A large volume of imports, for instance, increases the
extent to which domestic customers will switch to foreign
supplies in the face of domestic product price increases.
Cost Passthrough Analysis. The likelihood that firms
will be able to pass on abatement costs through price increases
was also studied in terms of the qualitative influences of
various market characteristics. The four factors used to
assess whether costs can be passed through are listed in
Table 2-10. The table also lists the possible data entries
for each factor and the direction of their influence on the
likelihood of full-cost passthrough. The analysis considers
the cost passthrough decision at the industry level and
at the plant level, as will become evident below in the
discussion of each market characteristic.
The price elasticity of demand is the principal
determinant of an industry's ability to pass through costs.
A low price elasticity will yield the smallest decline in
sales volume for each percent increase in price. Therefore,
a minimal decline in profits due to diminished volume will
accompany the price increase required to pass on the costs
of abatement. If the elasticity is too high, the decline in
profit resulting from such increased costs may be more than
the loss of profit from absorbing the full cost of abatement
so that firms would not be expected to increase their prices.
The size of the required cost increase as a percentage
of current unit manufacturing costs (measured from the
model plant costs in terms of the manufacturing cost per
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TABLE 2-10
COST PASSTHROUGH DECISION MODEL
COST
PASSTHROUGH
FACTOR
PRESENT DATA
EFFECT ON
LIKELIHOOD OF FULL-
COST PASSTHROUGH
Price elasticity of demand
Variation in abatement costs
among firms
Required cost increase as %
of manufacturing cost
Expected capacity utilization
High (1.0 to 2.0)
Medium (0.5 to 1.0
Low (0.0 to 0.5)
High
Moderate
Large
Small
High
Medium
Low
Negative
Neutral
Positive
Negative
Positive
Negative
Positive
Positive
Neutral
Negative
LIKELIHOOD OF FULL-COST PASSTHROUGH: Good likelihood of full-cost passthrough;
Poor likelihood of full-cost passthrough.
-44-
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metric ton of product) measures the significance of the
cost passthrough question. In several of the highly impacted
segments, including furfural, acrylonitrile, and
chloromethanes, the required cost increase was less than
2 percent of the manufacturing costs for the worst-case cost
scenario. Cost increases of this magnitude will certainly
not be ignored, nor will they be immediately observable
in price increases or changes in operating income. The
conclusion drawn in this analysis is the obvious one that
firms are more likely to be able to pass through small costs
increases.
The two remaining factors concern the competitive
balances between firms in a given industry. The variation
in abatement costs among firms could mean that firms with
above-average treatment costs will not be able to fully
recover costs. That is, while the industry price level may
rise in response to the regulation, it may not rise enough
for all firms to recover costs. The expected capacity
utilization rate is included because it affects the
willingness of firms to increase prices. It is expected
that the lower the industry capacity utilization rate, the
more variation will exist among firms. When a firm is
running at a low operating level, e.g., 60 percent of
capacity, price rises are avoided lest they cause a further
decline in the quantity demanded, which will further decrease
production efficiency.
A determination regarding the cost passthrough decision
was made on the basis of the data presented. The greatest
weight was given to the price elasticity factor and to the
size of the cost increase due to their basic importance to
the question. However, in industry segments where much of
the volume of production is used captively, cost passthrough
becomes less meaningful. In these segments (e.g.,
epichlorohydrin) passing on abatement costs is merely an
accounting problem because the firm passing on these costs
is also the customer bearing the costs. To understand the
passthrough decision in this case, it would be necessary to
perform another passthrough analysis of the final product
sold by the firm, but that is beyond the scope of this study.
Investment Analysis. An assessment was made of the
attractiveness ofthe hazardous waste treatment investment
for each of the highly impacted segments. The investment
analysis consisted of calculating the expected future cash
flows for the model plants in order to measure the continued
profitability of operation. Negative results in the cash
flow calculation would indicate an unwillingness by firms to
make the required investments and suggest important economic
impacts and plant shutdowns. The underlying assumptions for
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this analysis will be discussed below as the basic methodology
is laid out. The data requirements for the calculations are
(1) the model plant costs and (2) the costs of the hazardous
waste treatment investments for the best estimate of cost and
the worst-case cost scenarios.
The net income for the model plant was derived prior to
the calculation of cash flows. The first step, a fairly
important one, was the assumption of the appropriate capacity
utilization rate. For most of the segments, a 90 percent
utilization rate was used, because that is the normal operating
target for the industry. Two of the highly impacted segments,
however, currently face considerable uncertainty about
future sales. Therefore, the net income calculation for
these two segments, perchloroethylene and the chloromethanes,
was made on the basis of a 70 percent utilization rate. The
70 percent rate approximates the current operating levels in
these industries and allows for the possibility of poor
future markets.
Revenue per metric ton of product was then calculated
on the basis of current (Chemical Marketing Reporter, August
1977) unit market prices.°The use of unit prices will tend
to overestimate actual revenues since some customers will
normally receive discounts for large-volume purchases and
many "sales" are captive transfers within a firm or plant.
However, this overstatement is mitigated by the fact that
manufacturing costs were also calculated using unit market
prices for the necessary chemical feedstocks which comprise
most of the costs of production. Manufacturing costs and
treatment costs were subtracted from the revenue figure in
order to derive gross profit per metric ton. Separate
calculations were made for both treatment cost scenarios as
well as for a baseline before the addition of treatment costs.
In order to derive the net profit figure, a 50 percent
corporate income tax rate was assumed. Finally, the model
plant net income was calculated as the product of the net
profit per metric ton and the annual production volume.
With the net income figure, it was then possible to compare
the effect on profitability of the different treatment
assumptions.
The investment analysis builds on the calculations
made in deriving the model plant net income. The annual
cash flow (CF) for any year t was derived in the following
manner:
CFt = NIt + DEPt - INV0 - WC0 + WCL - SALV0 + SALVL
where
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NIt = Net income for year t.
DEPt = Depreciation charges for year t. Depreciation
charges are added into the cash-flow figure
(after having been subtracted as part of the
manufacturer's cost in deriving net profit),
because they do not represent an actual
expenditure of funds.
INVg = Investment costs, considered here to consist
of one cash outlay in year 0 when the investment
was made. It was assumed that the investment
would have zero salvage value at the end of
its productive life.
= Working capital outlay required in year 0 in
order to maintain operation. It is included
here as a portion of the opportunity cost of
continued operation. Working capital is
approximated as one-fourth of the annual
manufacturing costs (depreciation charges not
included) .
= Working capital remaining at the end of the
life of the investment.
SALVQ = Salvage value of the plant at the time of
investment. The salvage value of the plant
also represents the opportunity cost of not
closing the plant.
SALVL = Salvage value of the plant at the end of the
life of the investment.
The net present value of investment was then calculated
with appropriate assumptions about the length of the investment
life and the correct rate of discounting. A 10-year investment
life was used because it is a standard time horizon for cash
flow analysis. The discount rate was set at 15 percent, which
is indicative of current borrowing conditions in the industry-9
The net present value of investment was then calculated with
the following formula:
10
NPV =
CF.
(1+r)
where r =» discount rate of 15 percent.
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A positive net present value for the discounted cash
flow suggests that firms would make the required investment.
In theory, it would be desirable to allow for some margin of
error in the results. For example, if the net present value
is positive but small (small being judged by any responsible
criteria), then the investment shoul'd be carefully examined.
In practice, none of the cash flow analyses performed raised
this uncertainty.
The weakness of this approach is that it assumes that
the current market conditions will be sustained during the
life of the investment. A number of firms may foresee
market difficulties which would cause them to use
significantly shorter planning horizons, thus reducing the
net present value of investments. Such plant-specific
conditions are treated later in the analysis in the section
on projected impacts.
Plant Shutdown Analysis. The plant shutdown analysis
summarizes those factors which are most significant to
continued operation for individual plants. The factors
considered relevant to the plant shutdown decision are
displayed in Table 2-11 along with the effects on the
likelihood of plant shutdown resulting from possible values
of existing plant data. Each factor is accorded a positive,
neutral, or negative influence on the likelihood of plant
shutdown, with a conclusion based on their cumulative
influence. For example, if all factors are listed as
positive influences, then the conclusion would be that plant
shutdowns are imminent for the industry.
No a priori assumptions about the likelihood of shutdowns
are made for any industry. The current vulnerability of
firms in a weak competitive position is taken into account
only in the assessment of projected impacts. The plant
shutdown analysis covers those influences which can be
accurately assessed in terms of a generalized model plant
analysis of the industry-
The influence of each factor is estimated on the basis
of the most pessimistic industry data. For example, the
investment analysis results for the worst-case costs are
used for this analysis. Similarly, if any plants in the
highly impacted segment are isolated operations, then the
degree of integration with other production processes is
assumed to be low. It is presumed that a manufacturing
operation which can be closed without affecting any other
operations is more susceptible to shutdown due to abatement
cost increases.
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TABLE 2-11
MODEL PLANT SHUTDOWN DECISSON FACTORS WITH
WORST-CASE TREATMENT COSTS
DECISION FACTOR
PLANT DATA
EFFECT ON LIKELIHOOD
OF PLANT SHUTDOWN
Net present value of
investment
Ratio of investment to net
fixed investment
Degree of vertical integration
(forward or backward)
Integration with other on-site
production processes
Other environmental/
regulatory problems
Likelihood of full-cost
passthrough
Positive
Negative
High
Low
High
Low
High
Low
High
Low
High
Low
Decrease
Increase
Increase
Decrease
Decrease
Increase
Decrease
Increase
Increase
Decrease
Decrease
Increase
LIKELIHOOD OF PLANT SHUTDOWN: (segment-specific).
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The most significant factors are derived directly, or
with a minimum of reworking, from the previous analyses.
As mentioned, the investment analysis results from the
worst-case cost scenarios were calculated, the cash flow
analysis being the most complete quantification possible of
the firms' decision-making process. The size of the
investment was also calculated as a percentage of the net
fixed investment in the model plant. An investment which is
large in relation to the existing sunk costs (e.g., 20 percent)
is more likely to be foregone than one which constitutes
only a small addition (less than 5 percent) to the existing
investment. The results of the cost passthrough analysis
are also listed. In cases where there was a strong likelihood
of a full-cost passthrough, it is thought to be more likely
that the regulatory impact on the industry will be small,
other factors remaining equal.
The three remaining factors listed cover operational,
plant-specific, and firm-specific data. The degree of
vertical integration is included because vertical integration
complicates the shutdown decision. The firm must then
examine a range of its activities. For example, a firm may
continue to operate a process that is more costly rather
than purchase product from a competitor because the costs of
shutting down an inefficient operation may be greater than
the cost difference between in-house production and outside
purchase.
Similarly, the extent of integration (in technical
production terms) with other on-site production processes
may affect the likelihood of a shutdown through its effect
on plant economics. To illustrate this concern, consider a
plant in which two parallel processes use the same raw
material inputs. The two processes share the burden of all
pollution control systems, but do not supply inputs to each
other. Closing down one operation may destroy the viability
of the other process. The one remaining profit center must
then support all of the plant overhead costs, and the
reduced purchase volume of inputs may cause input prices to
increase. In general, the closing of any one production
process may seriously affect the operations of the entire
plant.
Finally, a survey was made of any other environmental
or regulatory problems which could affect the future of the
highly impacted segments. The possibility of future
regulatory bans on sales of a particular chemical, for
instance, would radically reduce the commitment of a firm to
its continued production. Since it would have been difficult
to include such concerns in the investment analysis, this
factor was added to the plant shutdown analysis. The three
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major issues identified: (1) the possibility of a ban on
fluorocarbons derived from chloromethanes, (2) the uncertain
future of the OSHA emission standards in the vinyl chloride
industry, and (3) concerns about the toxicity of
perchloroethylene. In each case the factors were accorded
a positive influence on the likelihood of plant shutdown.
Conclusions concerning the overall likelihood of
plant shutdown were drawn for each highly impacted segment.
Since it is unlikely that the influence of each factor
would be of equal importance, the conclusions carry implicit
judgments about the relative importance of factors. These
judgments are made clear in the discussion of the plant
shutdown analysis for each highly impacted segment in
Chapter Five. In general, the factors given greater weight
were: (1) the likelihood of full-cost passthrough, and
(2) the results of the investment analysis. The significance
of the other factors varied with the industry-specific data.
2.1.4.2 Projected Impact Analysis
The projected impact analysis involved the examination
of each highly impacted segment on a plant-by-plant basis.
The methodology for this work was relatively informal in
that no models were developed. Rather, the analysis involved
two definable stages: (1) the gathering of data about
current treatment methods and the current competitive
position of firms in each industry, and (2) the estimation
by ERCO of the regulatory impacts for each plant. Table 2-12
summarizes the information gathered in this portion of the
analysis and also the possible entries for each column.
Contacts were made with firms in order to determine
their current treatment methods, the interrelationships of
their various production processes and any problems they
might have complying with potential hazardous waste
regulations. Information was also gathered about any firms
which appeared to be vulnerable to the competitive pressures
of the given industry and the causes of this vulnerability.
Vulnerable firms are here defined as being liable to cease
production within the foreseeable future because of existing
or projected market influences exclusive of hazardous waste
regulations. The problems faced by certain firms tend to
be common knowledge in the industry, but efforts were made
to obtain confirmation from all available sources about the
difficulties of the weak firms. The competitive position
of all firms was estimated as "good" or "vulnerable." No
more refined gradations were possible with the information
at hand.
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TABLE 2-12
SUMMARY OF PROJECTED IMPACTS
MANUFACTURER
Plant-specific
entries
PLANT LOCATION
Plant-specific
entries
CURRENT TREATMENT
Plant-specific
entries
CURRENT
COMPETITIVE
POSITION
Good
Vulnerable
MANUFACTURER
RESPONSE
REGARDING
IMPACT
Negligible
Moderate
Significant
PROJECTION OF
REGULATORY
IMPACT
Small
Significant
impact possible
I
Ln
K>
I
-------
The information provided by industry contacts allowed
the estimation of the regulatory impacts. Where firm
responses to queries stated that the regulatory impact would
be negligible, the information was assumed to be accurate.
Further investigation did not suggest that any of the firms
which responded in this fashion were misrepresenting their
position. In some cases it was found that incineration (a
sufficient Level III treatment for all six highly impacted
segments) is currently used at a certain plant, even though
none of the contacts with the firms produced a definite
statement of the impact of regulations. In these cases, the
impact was estimated to be small. When information on the
current treatment system at a plant was not available, and
contacts with the firm did not provide data on the regulatory
impact, the impact was assumed to be at the industry average.
A more difficult problem was posed by the estimation
of regulatory impacts on vulnerable firms. An investigation
was made of the specific reasons for the poor competitive
position of each vulnerable firm. In most cases, an
investment in hazardous waste treatment equipment was
expected to worsen the situation. The vulnerable firms
tended to be the smaller firms, which had not yet made an
investment in Level III treatment for hazardous wastes.
However, it was difficult to separate the incremental effect
of potential regulations from effects stemming from their
competitive position. Regulation may be the straw that
breaks the camel's back, convincing the firm to cease
production, or it may merely be a small additional nuisance
to a firm with an already weak market position. For the
most part, the weak firms' problems are caused by certain
established cost disadvantages and the importance of the new
regulation was not overemphasized. For the projected
impact, vulnerable firms which are not currently undertaking
Level III treatment of their hazardous wastes were classified
with the phrase, "significant impact possible," leaving a
vagueness appropriate to the difficulty of attributing a
plant shutdown to any one cause, regulatory or otherw-ise.
2.1.4.3 Impacts on the Industry and the Nation
The only available data for projecting the impacts
of hazardous waste regulations on the organic chemicals
industry was an estimate of the aggregate costs for
achieving Level III developed in the Assessment Study.
This figure was an estimate of the total costs for achieving
Level III, not the incremental costs. The Assessment
Study also developed an estimate for the existing Level I
expenditures (1973). Subtracting the existing expenditures
from the Level III costs yields an estimate of the incremental
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costs of compliance. This estimate may understate costs
because it assumes a full credit for Level I costs which may
not be fully applicable to Level III. However, this is
believed to be compensated for by the increase in present
preregulation expenditures that has occurred since the
Assessment Study data were gathered.
The average abatement cost as a percent of price for
the industry was developed by comparing the 1973 estimate of
incremental costs to the level of industry shipments for
1973. This industry average was estimated from the cost
data developed for the sample segments reviewed in the
selection of the highly impacted product lines. A comparison
of the total Level III abatement costs as a percent of price
of the sample to this total developed for the entire industry
in the Assessment Study shows that the sample value is
1.0 percent while the industry value is 1.1 percent. (Costs
used in the calculation for the sample were Assessment Study
standard technology costs except for those products not
treated in this report. For these products, the alternative
treatment cost from the Alternatives Study was used.)
The effect of the new cost increases on the Wholesale
Price Index (WPI) for all commodities was determined by
multiplying the incremental cost increase by the weight
of the combined industries in the WPI of 0.01849. High and
low ostimotoo of the incremental abatement costs as a
percent ol. price wore also utilized for comparison.
2.2 Limits of the Analysis
This report was based on application of the methodology
described above utilizing the best information available
given the constraints of time and cost. Because the analysis
is only an approximation of what is likely to happen upon
promulgation of hazardous waste regulations, those aspects
of the analysis which have the greatest effect on the
conclusions warrant further discussion. The sensitivity of
results to changes in the four most important portions of
the analysis will be discussed individually below. The four
areas are: (1) highly impacted segment selection, (2) model
plant development, (3) cost of compliance estimation, and
'(4) economic impact analysis. Additionally, the overriding
assumption made throughout this report is that the technologies
and costs developed in the Assessment Study and the Alternatives
Study reflect compliance with the impending regulations, the
content of which has not been finalized.
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2.2.1 Highly Impacted Segment Selection
Six products were chosen as those representatives of
the organic chemicals industry which would exhibit the
highest levels of economic impact. Two distinct selection
processes were involved. Both processes were applied to the
sample of 20 product lines which had been chosen for treatment
cost analysis by the Assessment Study and Alternatives Study
contractors.
The first selection process did not specifically utilize
a criterion for economic impact. Instead, the criteria used
were: (1) national production volume, (2) significance of
the products and process waste streams, and (3) industrial
importance of the chemical product group represented. There
remains, therefore, a distinct possibility that a product
which will be severely impacted by the regulations was
excluded in this selection and evaded close inspection in
the economic analyses.
The second selection process utilized the national
production volume and abatement costs as a percent of price.
A natural separation of the six highly impacted segments
from the rest of the sample which had minimal cost/price
ratios as well as low sales volume allows one to assume with
a high degree of confidence that the 6 product lines would
be subject to the highest impact of the 20 product lines
reviewed.
Two factors will mitigate the potential for excluding
a highly impacted product line from the economic analysis.
First, the consistent use of national production volume as a
criterion of selection assures that the six products selected
will constitute a significant percentage of total industry
production.!0 Because waste volume is related to compliance
cost this selection criterion may act as a surrogate for
treatment cost and also for impact. Second, since the cost
of treatment is generally higher for the more hazardous
wastes the use of the selection criterion of waste-stream
significance will tend to favor product lines with higher
treatment costs. Although this does not necessarily indicate
that selected products will always experience higher impacts,
it does give some assurance that most of the excluded products
will not experience severe impacts. Some uncertainty still
remains, however, which cannot be quantitatively specified.
In summary, there exists some likelihood that other
highly impacted products may exist that were not subjected
to analysis. These products were likely to have been
excluded by the selection process used in the Assessment
Study.
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2.2.2 Cost of Compliance
The costs of compliance had to be estimated for model
plants, because insufficient data on actual costs were
available from manufacturers. The estimates developed
relied in large part on the analyses performed and estimates
developed in the Assessment Study and the Alternatives
Study., and thus incorporate any errors made in these reports,
Whenever assumptions were required in order to use or
analyze these data, they were made to overstate costs so
as not to understate potential impact. Hence, if the
results of the economic analysis are in error, they will
tend to overestimate the actual impacts of the future
regulations on the industry because of overstating actual
costs of compliance.
The best estimates of compliance costs reflect this
conservative approach. Based as they are on the previous
work in the Assessment Study and the Alternatives Study,
they cannot be relied on to"be precise, particularly
if applied to one particular facility. The cost estimates
used are accurate to within only 25 percent (see
Section 4.4), and do not account for savings resulting
from economies of scale for joint treatment facilities at
multiproduct plants. In addition, the methodological
approach to current existing treatment technology and a
number of other factors introduce a conservative bias into
the estimates.
The worst-case estimates are predicated on the
assumptions that the facility currently has no hazardous
waste treatment and that the maximum cost-estimating error
of 25 percent has been made. These estimates thereby
reflect the worst conceivable possibility and provide an
upper bound on the impacts of the future regulations which a
firm may experience.
2.2.3 Model Plant Development
A model plant analysis is limited by the fact that
real-world conditions can never be represented perfectly.
Many, if not most, plants will have characteristics quite
different from the model, but this is not necessarily
a liability of the model. The principle of using the
model is that although data for all actual plants are not
available, calculations based on the model will reflect
average conditions for the industry- Thus, the calculations
cannot be used to predict conditions for a particular
facility, but only to indicate what the average conditions
are most likely to be. For this study, the plant models
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were designed to reflect as closely as possible the average
conditions in the industry.
Errors in developing model plants can arise from two
areas: (1) technical specifications of the model plant and
(2) the cost analysis. Each of these is discussed below.
2.2.3.1 Technical Specification
The model plants used in the economic analysis were
based on the process descriptions presented in the Assessment
Study. In general, data developed in the industry profile
agreed with the specifications presented in this study for
the hypothetical typical plants. Model plant, size, process
used, and product mix were adjusted for some cases in order
to update the specifications to more closely reflect present
practice.
2.2.3.2 Cost Analysis
Insuring that the model plant cost analysis also
reflects average industry conditions proved to be somewhat
more difficult. Cost and profit data were considerably more
difficult to obtain from the manufacturers, and the analysis
correspondingly utilizes more guesswork in determining the
technical specifications for the model plant.
Although standard cost-estimating procedures were used,
they cannot be relied upon to be more accurate than 4-25 percent
(see Section 4.4). In addition to the potential errors from
the cost estimation, however, significant potential for error
in the financial analysis exists because of uncertainties in
accounting procedures, plant factors, and gross returns to
the firm's profit centers. These data are not available,
and thus estimates must be based simply on reasonableness
and consistency. For this study, price estimates developed
for the model plants were compared with published merchant
market prices in the literature. If the prices did not
correspond to within 5 percent, the assumptions were altered
slightly to reflect more likely conditions. In this way,
although certain components in the cost analysis might be
somewhat inaccurate, the overall analysis should be
consistent with the existing price data.
In the cases of perchloroethylene and the chloromethanes,
this adjustment process proved quite difficult, and generally
the model firm's profits appeared to be unreasonable. In
these cases, it was determined that the product yields and
product mixes did not reflect current industry practice.
-57-
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Those p.-irain^Lera were adjusted in a technically consistent
manner to reflect somewhat more realistic profits. These
changes, although not based on any concrete data, still
appeared consistent with the average characteristics of the
industry .
2.2.4 Economic Impact Analysis
For the purpose of discussing limits to the economic
impact analysis, the procedure used is best separated into
two distinct phases: (1) analysis of impacts on the highly
impacted segments and (2) analysis of the impacts on the
industry and the nation. The limitations of each phase are
discussed below.
2.2.4.1 Highly Impacted Segments
The highly impacted portion of the economic impact
analysis dealt with the predicting of (1) price elasticity
of demand, (2) the likelihood of full-cost passthrough,
(3) the return of the abatement investment, and (4) the
likelihood of plant shutdown. The inputs for these analyses
are the model plant data and cost of compliance estimates
discussed above and estimates of the contractor based upon
knowledge of the industry. As discussed, these data appear
to be reasonable, conservative approximations of industry
practice. Therefore, it is presumed that the investment
analyses are also reasonable, but conservative,
representations of the industry's position. Feedback from
members of the industry tended to corroborate the analysis.
The conservative nature of the analysis was borne out by the
responses from many of the firms producing highly impacted
products, which noted that the regulations would have
negligible impact on them even in cases when the model plant
analysis indicated moderate impact. By including available
firm- and plant-specific data in the projected impact
assessment for each segment, divergence of the model plant
analysis from reality was significantly reduced. However,
such information could not be obtained for several plants
and therefore certain critical plant-specific factors may
have escaped inclusion in the analysis.
A review of the sensitivity of the results to variations
in tho data and assumptions used showed that the variability
was dominated by the potential error in the cost of
compliance estimates. For example, using the Assessment
Study cost estimates for incineration in place of those from
the Alternatives Study would have doubled the costs for
perchloroethylene (already subject to the most severe
-58-
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impact) and quailrupl.Ml fch<- eo:;ts foe fpichlocohydrin
and vinyl chloride (shifting the^e products to potentiall
large impact).
2.2.4.2 Industry and the Nation
The only quantitative estimates utilized in assessing
tho magnitude of impact on the industry and the nation was
the A ssse _s a me n t Study estimates of existing Level I
expenditures (1973) and the total costs of Level III.
An estimate of incremental costs was obtained by crediting
all Level I expenditures to Level III. This assumption
ignores capital investment in Level I technologies which
may not be applicable to Level III, thereby understating
incremental costs. This is counterbalanced by the new Level
I investment since 1973. Both of these factors, however,
may be negligible compared to the error in the Assessment
Study cost of compliance estimates. As has been discussed
above, the Alternatives Study costs have been used in this
report, and Assessment Study cost estimates for some products
are more than 4times higher. Furthermore, the large degree
of aggregation and averaging used in the Assessment Study
to develop their estimate is admittedly subject to large
error.^ A forthcoming report developed for EPA will
update this estimate.^'
-59-
-------
NOTES TO CHAPTER TWO
1. TRW, Inc., Assessment of industrial hazardous waste
practices of the organic chemicals, pesticides and explosives
industries, prepared for the U.S. Environmental Protection
Agency, 1976.
2. Processes Research, Inc., Alternatives for hazardous
waste management in the organic chemicals, pesticides and
explosives industries, Draft Report prepared for the U.S.
Environmental Protection Agency, 1977.
3. TRW, Inc., Assessment study, 1976, p. 2-8; and
Foster D. Snell, Inc., Potential for capacity creation in
the hazardous waste management service industry, prepared
for the U.S. Environmental Protection Agency, August 1976.
4. From Figure 2-1, it can be concluded that eight
products appear to be in the highly impacted category.
These are: (1) perchloroethylene, (3) chloromethane (methyl
cloride, methylene chloride, chloroform, carbon tetrachloride),
(4) epichlorohydrin, (6) vinyl chloride (monomer),
(8) acrylonitrile, (10) lead alkyls (tetraethyllead,
tetramethyllead, tetramethylethyllead), (12) furfural, and
(18) aldrin.
5. The guidelines enforced by the Office of Management
and Budget require that no more than nine contacts be made
for any type of data sought without clearance from OMB.
6. One plant was developed to produce the four
chloromethanes.
7. Costs for Level I were developed in the
Assessment Study.
8. Chemical Marketing Reporter prices tend to be
"merchant market" prices which overstate costs to captive
users and long-term contract customers. However, this
source is the most comprehensive one available for pricing
purposes, and using merchant market prices for inputs as
well as outputs should keep other cost factors (those of
interest) in line.
9. Personal communication, Shaw Bridges of Smith,
Barney & Co., a financial analyst specializing in the
chemical industry, to John Eyraud, ERCO, September 20,
1977.
10. This percentage is approximately 5.6 percent as
presented in Table 2-3.
-60-
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Personal communication, Dr. Gerald Gruber,
Jeffery Stollman, ERGO, October 21, 1977.
11. Personal communication, Dr. Gerald Gruber, TRW,
Inc., to
12. Battolle Columbus Laboratories Draft Report, Cost
of complying with hazardous waste management regulations,
prepared for the U.S. Environmental Protection Agency,
October 12, 1977.
-61-
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CHAPTER THREE
PROFILE OF THE INDUSTRIAL ORGANIC CHEMICALS INDUSTRY
3.1 The Chemical Industry
The chemical industry taken as a whole comprises nearly
2 percent of the national income and over 7 percent of all
manufacturing.1 Table 3-1 displays the relative contributions
to national income of the chemical and other major industries.
This $20+ billion industry provides 5. range of products that
serve every segment of the economy. The industry designated
by SIC code 28 consists of the following eight segments:
(1) 281, industrial chemicals; (2) 232, plastic materials
and synthetics; (3) 283, drugs and Pharmaceuticals; (4) 284,
soap, cleansers and toilet goods; (5) 285, paints and allied
products; (6) 286, industrial organic chemicals; (7) 287,
agricultural chemicals; and (8) 289, miscellaneous chemical
products not elsewhere classified.
This report is concerned with the impact of regulations
on the industrial organic chemicals segment of the industry
(SIC 286) and includes pesticides and explosives manufacture.
This segment, which produces hundreds of products for both
intermediate and end use, consists of the following five
subsegments:
1. 2861, gum and wood chemicals.
2. 2865, cyclic crudes, cyclic intermediates,
dyes, and organic pigments.
3. 2869, industrial organic chemicals not elsewhere
classified.
4. 2379, agricultural chemicals not elsewhere classified,
5. 2982, explosives.
3.1.1 Industrial Organic Chemicals Industry
By volume, most organic chemical production consists of
chemical "intermediates" in the sense that they form a bridge
between basic raw materials (primarily crude oil, natural gas,
and coal tars) and finished manufactured products. Industry
performance is thus tied to raw materials market conditions
and to end-use product demand for organic intermediates.
-63-
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TABLE 3-1
NATIONAL INCOME WITHOUT CAPITAL CONSUMPTION ADJUSTMENTS
BY INDUSTRIAL ORIGIN, 1950-75
|S billion)*
INDUSTRY
Agriculture, forestry, and fisheries
Mining
Contract construction
Manufacturing
Chemicals and allied products
Transportation
Communications
Electric, gas, and sanitary services
Wholesale and retail trade
Finance, insurance, and real estate
Services
Government and government enterprises
Rest of the world
1950
18.3
5.3
12.0
76.3
4.9
13.4
3.3
3.9
41.0
22.8
21.7
23.6
1.3
1E55
-.5.1
5 9
'= 8
1O5 0
/ '-t
16.0
5.7
62
52.3
35.3
31.1
38.1
2.0
19GO
17.5
5.6
21.0
125.4
9.1
18.1
8.2
8.9
64.7
48.6
44.6
52.7
2.5
1965
20
6
29
170
12
23
11
11
84
64
64
75
4
.4
.0
.8
.4
.4
.1
.5
.4
.7
.0
.1
.4
.7
1970
24.5
7.8
43.8
215.4
16.0
30.3
17.6
14.9
122.2
92.6
103.3
127.4
4.6
1971
25.7
7.4
47.8
224.7
16.8
33.0
18.3
16.3
132.9
103.1
111.2
139.0
6.6
1972
30.6
8.7
52.3
251.8
18,3
365
20.3
17.6
144.6
112.5
122.3
152.5
7.0
1973
47.8
10.4
58.3
281.6
20.1
41.6
21.8
18.8
162.6
121.2
136.9
165.8
9.0
1974
43.8
13.G
61.1
294.2
21.6
45.1
23.8
20.0
178.5
130.3
152.7
180.0
14.4
1975
44.7
16.4
57.9
303.1
(NA)
44.4
25.6
24.6
201.1
139.0
167.3
197,1
10.5
* Sources: U.S. Bureau of Economic Analysis, The Manorial Income and Product Accounts of the United States, 1929- 1974, and Survey of
Current Business, April 1976.
-------
The intermediate nature of much of the industry has
induced participation of firms initially engages in production
of chemical inputs or end use of products. For example,
many firms primarily engaged in the oil, natural gas,
or coal business have integrated forward and become organic
chemical manufacturers. Additionally, manufacturers of end
products utilizing organic chemical inputs have integrated
backward to join chemical companies in the industry.
3.1.1.1 Highly Impacted Segment
As is discussed above in Section 2.1.1.1, the processes
most severely impacted by hazardous waste regulation were
segregated for in-depth study, on the basis of abatement
cost/price ratios and annual chemical production (see
Figure 2-1).
The six market segments to be profiled in detail below
are, in order of presentation, (1) perchxoroethylene,
(2) chloromethanes, (3) epichlorohydrin, (4) vinyl chloride,
(5) acrylonitrile, and (o) furfural. The characteristics of
the firms manufacturing these highly impacted chemicals will
be examined, as well as the entry and exit of firms from
this group. The market dynamics for these segments will
then be discussed, examining the relations between market
structure, pricing behavior, market size, and product uses.
Plant-specific data will then be presented for these
segments, characterizing the operation of currently active
plants in as much detail as possible. Finally, inferences
will be drawn as to the profitability of organic chemical
manufacture from the firm level financial data that are
publicly available.
3.1.1.2 Other Segments
The organic chemicals industry includes hundreds of
chemical products. The highly impacted segments (as shown
in Table 2-3 above) account for only about 6 percent of
production, 9 percent of sales, and 21 percent of hazardous
wastes. Nonetheless, many of the market characteristics of
the highly impacted segment discussed below apply to organic
chemical markets in general. For instance, many of the
firms profiled below manufacture numerous organic chemicals
in addition to the six highly impacted chemicals. The
analysis of the profitability of these products applies to
the entire organic chemicals industry. Similarly, the
oligopolistic structures and accompanying price behavior
outlined for the six highly impacted chemicals typify the
industry. Thus, the characterization of the highly impacted
-65-
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segments is generally representative of the entire organic
chemicals industry.
3.2 Characterization of the Highly Impacted Segments
3.2.1 Composition
3.2.1.1 Manufacturer Identification
Twenty-two firms have been identified as domestic
manufacturers of one or more of the six highly impacted
organic chemicals selected for study. These firms, which
will therefore be examined in detail, are listed in
Table 3-2. As can be seen from this table, several firms
which do not directly produce chemicals are included.
Uniroyal is considered a member of the industry because
of its interest in Monochem Inc., a joint venture with
Borden. Monochem is a nonprofit chemical conversion center
which does not even own its raw materials. Its financial
performance is reflected in the profits of Uniroyal and
Borden, while Dow-Corning, though jointly owned by Dow
Chemical and Corning Glass, is an independent corporation.
Both Occidental Petroleum and Standard Oil of Ohio own
subsidiaries (Hooker Chemical and Vistron) that conduct
the firms' chemical operations. Not included on this list
are Tenneco, which, as of this writing, had placed its plant
at Houston, Texas on standby and Atlantic Richfield, which
recently withdrew from a joint venture with Stauffer
(American Chemical Co.) that had manufactured impacted
products in the past.
3.2.1.2 Type of Firm
The firms in the organic chemicals industry are often
firms whose public reputations are in industrial sections
other than organic chemicals. Unlike the auto and steel
industries where the major manufacturers have established
reputations as auto or steel producers, the organic
chemicals industry includes firms whose reputations have
been established as oil companies, food manufacturers,
agricultural products manufacturers, and machinery producers.
Figure 3-1 displays the major product lines of the 22 firms
that manufacture at least one of the six selected chemical
lines. This figure shows that all of the firms are highly
diversified enterprises, with none of the firms relying
solely on organic chemicals for revenues. Over half of the
firms are also engaged in the manufacture of plastics and
fibers and nearly half are involved in the agricultural/
fertilizers and consumer products markets. Four of the
-66-
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TABLE 3-2
DOMESTIC MANUFACTURERS OF HIGHLY IMPACTED CHEMICALS
Allied Chemical
American Cyanamid
Borden
Conoco
Diamond Shamrock
Dow Chemical
Dow-Corning
E.I. DuPont de Nemours (DuPont)
Ethyl
FMC
General Electric
8.F. Goodrich
Monsanto
Occidental Petroleum (Occidental)
PPG industries (PPG)
Quaker Oats
Shell Oi!
Standard Oil of Ohio (Sohio)
Stauffer Chemical (Stauffer)
Union Carbide
Uniroyai
Vulcan Materials (Vuican)
-67-
-------
MAJOR PRODUCT LINE
FIRM
CHEMICALS
FIBERS AND
PLASTICS
MEDICAL/
DRUGS
AGRICULTURE/
FERTILIZERS
FOODS
CO
<
O
Q
Z
<
_l
5
METALS
ELECTRICAL
EQUIPMENT AND
MACHINERY
CONSTRUCTION
MATERIALS |
CONSUMER
PRODUCTS
(RUBBERS
TEXTILES
Allied Chemical
American Cyanimid
Borden
Conoco
Diamond Shamrock
Dow
Dow-Corning
DuPont
Ethyl
FMC
General Electric
B.F. Goodrich
Monsanto
Occidental
PPG
Quaker Oats
Shell
Sohio
Stauffer
Union Carbide
Uniroyal
Vulcan
Figure 3—1. Major product lines of highly impacted firms. (Moody's
Handbook of Common Stocks, Summer 1977 Edition.)
-68-
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firms are primarily active in the petroleum production and
refining industry and several of the firms manufacture
highly impacted chemicals only for use by another division
or department of the parent company. Several of the
recognized leaders in the industrial chemical industry are
also present.
3.2.1.3 Size of Firm
The 22 highly impacted firms studied are among the
largest firms in the world. Table 3-3 displays the
distribution of these firms by 1976 sales, assets, and net
income. Where possible, an estimate of the magnitude of
chemical sales is also provided. As can be seen in the
table, all of the 22 firms appeared in Fortune's list of the
500 largest domestic corporations by sales. As the table
shows, the firms range in size from General Electric, the
9th largest domestic corporation, to Dow-Corning, ranked
471st in 1976. The table also shows that tnese 22 firms are
among the nation's largest with respect to income and
assets, With the exceptions of B.F. Goodrich and Uniroyal
(companies whose recent financial performance has been poor
due to the rubber industry slump), all of the firms rank
among the top 300 companies with respect to net income.
For purposes of comparison, impacted firms are grouped
by sales volume in Figure 3-2 and by assets in Figure 3-3.
It can be seen that Dow-Corning and Vulcan Materials are
significantly smaller than the other 20 firms in both
categories, and that General Electric is significantly
larger than the others. The remaining 19 firms bridge the
remaining range of sales and assets, suggesting no groupings
that yield further insight into the financial structure of
these firms.
3.2.1.4 Age of Firm
The distribution of firms by age is displayed in
Figure 3-4. The "years in existence" figure is measured
from the date of incorporation. It should be noted, however,
that some of the older firms have only recently become active
in the organic chemicals industry. In fact, all of the firms
in existence for more than 75 years began their activities
in markets other than industrial chemicals and ventured into
the chemical industry in the course of diversification.
There seems to be no consistent correlation between the size
of a firm and the number of years in operation.
-69-
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TABLE 3-3
FINANCIAL SIZE OF IMPACTED FIRMS, 1976*
o
I
ronruNE 500
SALES RANK
I97li
82
107
59
17
25
471
107
1C
194
07
9
117
26
95
42
100
13
204
21
73
427
154
1975
B2
IOC
51
16
32
B36
178
17
195
86
9
107
26
93
40
too
14
213
21
76
433
151
197G TOTAL
SALES
FIRM |$ million)
Allied Chemical
American Cyaumid
Borden
Continent Oil Co.
Dow Chemical
Dow Coining
Dianvoud Shanrock
E. 1. Dupont de Nemouis
Elhyl
FMC
General Elcciiic
B. F. Goodrkh
1 looker ChemicBh } } (Occidental
Monochem §5 lUnlioysJ)
Montaito
PPG
Shell
SlauKer
Unkm C«rbkto
VislfOrt^lSohio)
Vulcan
Quaker O*U
2.G206
2.0938
3.3RI.1
8.3S29
6,052.1
353 G
1.35C.6
B.3CIO
I.ISS.'I
2.2<3fl.-«
15.700.0
1.9900
5.5000
2.314^
4.270.2
2.254.8
0.309.1
1.100.0
6,345.7
2.91C.4
411.2
1.473.1
1D76 TOTAL ASSETS
{MILLION
2.439.3
2.002.4
1.BOU.5
0,01 1.5
C.84B 7
384.1
1.481.0
7.027.1
921.9
1.919.6
2.019.7
1.5C7.8
3.905.0
1.633.7
3.959.1
2.033.2
7.83G.5
1.268.5
6.621.6
6^60.2
376.5
854.9
FonruNc 500
RANK (I97R)
BO
79
93
21
10
34Q
122
17
194
83
9
113
34
107
33
77
14
143
19
20
353
204
NET INCOME
$ THOUSAND
116,799
135.76H
112,007
4GO.OOO
612.767
42.741
140.030
459.300
09,080
BO. 157
930.000
15.793
1B3.72I
20,13?
360.300
151,500
706,000
113.010
441.200
130.000
37.247
53.093
FORTUNE 500
RANK 119761
05
75
08
1G
13
2-15
71
17
163
141
6
404
48
3C9
25
64
11
97
18
72
270
200
CHEMICAL SALES
IS million)
1.420"
6072
045.3
1
3,002 111
n.«.
B00.4
3,76251
0585
7935
n.a.
eons
I.SOOOf
n >.
1,04601
811.7
1,6f)2.5
481.0! 1
1.903.7
n a.
131.6
n.i.
* Source: Fortune, May 1977: Maxty'i HanditooSt ol Common JrocAi. Summer 1977 edition; corpordi report daU.
" * Chsmkal Division, excluding Enersy entl Filreri Dlviikwi.
t About 5 percent ol coruoraie imactment It In chemicals.
f t Chemicals and melnh sales.
\ Chemkalt and specially sales; excludes plaslici .nwl libas,
\\ A suljskllary of Occident*! PeUoleum; Occidsnul suthlla pxrsenlw!
§ Hooker total sales.
§ § A Joint venture of Unlroyit eml Borden; Uniroyal Maihiici pretenlod.
I IndujtrUI chemicals md potynms ind pelrochetiikals.
II industrial and specially chemkiift.
\ A fiiliskliary ol Stonddrd Oil el Ohio; Solilo slaiistics presented.
-------
16
15
14
13
12
11
10
9
••i 8
_ o
CO
w 7
5
4
3
2
1
0
—
, —
i —
i —
, —
i —
—
_
I
—
—
-_^nn
?«=»•>.
c w « 2^
c " •= €
1 > 1 "
o
0
ond Shamrock
g
o
nn
Quaker Oau
8.F. Goodrich
ican Cyanamid
^
<
%
Q.
U
U.
___,
•9
1
c
—
1
1
-3
<
.2
1
^
£
8
—
! I 1 I | 1 |
•§ o O o ui
** f ~S
o | |
o
Firms
Figure 3—2. Sales of highly impacted firms. (Table 3—3.)
-------
m
v>
13
12
11
10
9
8
7
6
5
4
3
2
1
o
-
-
-
-
-
-
-
-
_
. .
f si t 1 I | 1
5 > 1 "• i « 1 1
i « 1 ® «
Q ? 0 "-. §
§ « 1
nn
O 0 TS
8: f |
'e
— •
ied Chemical
<
o
I
Borden
r^™^
Monsanto
Occidental
-
i —
J« O ** s u
TO 0 e TZ •£
• o a S
U O O it)
£ ""
i |
j
Firms
Figure 3—3. Assets of highly impacted firms. (Table 3—3.)
-------
\\J
9
8
7
6
M
iZ
Number of
0)
4
3
2
1
0
—
-
-
-
-
Stauffer
Vulcan
20-25
Diamond
Shamrock
FMC
Monsanto
Dow-
Corning
Dow
Ch&mical
American
Cyanamid
B.F. Goodrich
DuPont
Union
Carbide
Occidental
Conoco
Alliad
Chemical
Shell
PPG
Ethyl
Uniroyal
General
Electric
Borden
Quaker
Oats
Standard
Oil of
Ohio
26-50 51-75 76-100 100
Yean in Existence
Figure 3--4. Age of highly impacted firms. (Corporate annual reports.)
-73-
-------
j . 2 . I . r) [Jrqducbo_nProdycj'd
As stated above, each of the 22 firms manufactures
.it least one of the six highly impacted product lines.
Figure 3-5 shows the distribution of production of these
chemicals among the manufacturing firms. As is shown in the
figure, 12 of the 22 firms manufacture only one of the
chemicals, while 3 firms produce only two product lines. Of
the remaining seven firms, Dow Chemical manufactures all but
two products while Stauffer makes all but three chemicals.
It should be noted that the figure is consistent
with the expectation that a firm which produces any of
the chloromethane solvents is likely to produce other
chloromethanes and perchloroethylene, given the possible
common or interrelated production processes. By building a
joint treatment facility, impact could presumably be spread
over the related chemicals manufactured from single or
related basic processes, lessening the impact on each
product taken separately.
3.2.1.6 Entries and Exits
Firms enter the organic chemicals industry in two ways,
via construction of a new facility or via purchase of an
existing operation. In the first case, the market is expanded
by an addition to capacity. In an outright purchase, however,
the only change is in the name. Industry capacity remains
unchanged. Similarly, the exit of a firm may be caused by a
plant shutdown - decreasing industry capacity - or sale of the
facility to another firm. Statistics separating these two types
of entries and exits are not available, but inferences about
the entry and exit of firms from the various highly impacted
chemical markets can be made based on the U.S. International
Trade Commission's lists of chemical manufacturers. Table 3-4
displays the Commission's lists of reporting producers from
1960, 1967, and 1974. The firms identified as current
producers are also included for comparison.
As the table shows, vinyl chloride monomer appears to
be the most volatile market. Five of the 11 firms reported
as 1960 manufacturers had abandoned the market by 1974,
while a major producer (Borden) has entered the market only
recently. in the chloromethane segment, methyl chloride
producers also show significant variation between 1960 and
1977, with four of the nine current producers absent from
the 1960 list. The list of producers, however, seems to
have undergone a major revision between 1960 and 1967 and
has been relatively stable since then. In the methylene
chloride market and the furfural market as well, there
-74-
-------
HIGHLY IMPACTED CHEMICAL
FIRM
UJ
_l
ACRYLONITRII
Z
i
EPICHLOROHY
LU
O
VINYL CHLORI
MONOMER
FURFURAL
Ul
Z
Ul
£
PERCHLOROE1
CHLOROMETHANES
METHYL
CHLORIDE
METHYLENE
CHLORIDE
CHLORO-
FORM
UJ
Q
CARBON
TETRACHLORI
Allied Chemical
American Cyanamid
Borden
Conoco
Diamond Shamrock
Dow
Dow-Corning
DuPont
Ethyl
FMC
General Electric
B.F. Goodrich
Monsanto
Occidental
PPG
Quaker Oats
Shell
Sohio
Stauffer
Union Carbide
Uniroyal
Vulcan
• •
• • • • €»
•
• • • •
Figure 3—5. Distribution of highly impacted chemicals
among firms. (Chemical Marketing Reporter, "Chemical Profiles.")
-75-
-------
TABLE 3-4a
PARTICIPATING FIRMS IN THE PERCHLOROETHYLENE INDUSTRY
BY YEAR
1960 1967 1974 1977
Diamond Shamrock
Dow
DuPont
Hooker
PPG
Stauffer
Detrex
Vulcan
Diamond Shamrock
Dow
DuPont
Hooker
PPG
Stauffer
Detrex
Vulcan
Ethyl
Diamond Shamrock
Dow
Hooker
PPG
Stauffer
Vulcan
Ethyl
Diamond Shamrock
Dow
DuPont
Hooker
PPG
Stauffer
Vulcan
Ethyl
"Source: 1960, 1967, and 1974: U.S. Tariff Commission, Synthetic Organic Chemicals; 1977:
Energy Resources Company Inc. data.
-76-
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TABLE 3-4b
PARTICIPATING FIRMS IN THE CHLOROMETHANE INDUSTRY
BY YEAR
CHLOROMETHANE
PRODUCT
1960
1967
1974
1977
Methyl Chloride Ansol Chemicila
Allied Chemical
Dow-Corning
Diamond Shamrock
Dow
DuPont
General Electric
Methylene Chloride Allied Chemical
Diamond Shamrock
Dow
DuPont
Stauffer
Vulcan
Chloroform Allied Chemical
Brown
Diamond Shamrock
Dow
DuPont
Stauffer
Vulcan
Carbon Allied Chemical
Tetrachloride Diamond Shamrock
Dow
Food Machinery
and Chemical
Vulcan
Mallinckrodt
PPG
Stauffer
Allied Chemical
Dow-Corning
Daw
DuPont
Ancom Chemical
Conoco
Vulcan
Ethyl
Union Carbide
Allied Chemical
Diamond Shamrock
Dow
DuPont
Stauffer
Vulcan
Allied Chemical
Diamond Shamrock
Dow
DuPont
Stauffer
Vulcan
Allied Chemical
Diamond Shamrock
Dow
Vulcan
PPG
Stauffer
FMC
Allied Chemical
Dow-Corning
Dow
DuPont
Conoco
Vulcan
Ethyl
Union Carbide
Allied Chemical
Diamond Shamrock
Dow
DuPont
Stauffer
Vulcan
Allied Chemical
Diamond Shamrock
Dow
DuPont
Stauffer
Vulcan
Aldrich
Allied Chemical
Diamond Shamrock
Dow
Vulcan
Stsuffar
FMC
DuPont
Allied Chemical
Dow-Corning
Diamond Shamrock
Dow
General Electric
Conoco
Ethyl
Union Carbide
Stauffer
Allied Chemical
Diamond Shamrock
Dow
DuPont
Stauffer
Vulcan
Allied Chemical
Diamond Shamrock
Dow
Stauffer
Vulcan
Allied Chemical
Dow
Vulcan
Stauffer
FMC
DuPont
" Source: 1960, 1967, and 1974. U.S. Tariff Commission, Synthetic Organic Chemicals-, 1977:
Energy Resources Company Inc. data.
-77-
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TABLE 3-4c
PARTICIPATING FIRMS IN THE EPICHLOROHYDRIN INDUSTRY
BY YEAR
1960
1967
1974
1977
Dow
Shell
Union Carbide
Dow
Shell
Dow
Shell
Dow
Shell
'Source: 1960, 1967, and 1974: U.S. Tariff Commission, Synthetic Organic Chemicals;
1977: Energy Resources Company Inc. data.
TABLE 3-4d
PARTICIPATING FIRMS IN THE VINYL CHLORIDE MONOMER INDUSTRY
BY YEAR
1960
1967
1974
1977
Allied Chemical
American Chemical
B.F Goodrich
Diamond Shamrock
Dow
General Tire
Goodyear
Monsanto
Ethyl
Union Carbide
Uniroyal
Allied Chemical
American Chemical
B.F. Goodrich
Diamond Shamrock
Dow
General Tire
Goodyear
Monsanto
Ethyl
Union Carbide
Air Reduction
Monochem
Tenneco
PPG
Allied Chemical
American Chemical
B.F. Goodrich
Dow
Ethyl
Uniroyal
Monochem
Tenneco
PPG
Conoco
Georgia-Pacific
Shell
Allied Chemical
Stauffer
B.F. Goodrich
Dow
Ethyl
Monochem
Monochem
PPG
Shell
Borden
'Source: 1960, 1967, and 1974: U.S. Tariff Commission, Synthetic Organic Chemicals; 1977:
Energy Resources Company Inc. data.
-78-
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TABLE 3-4e
PARTICIPATING FIRMS IN THE ACRYLONITRILE INDUSTRY
BY YEAR
1960 1967 1974 1977
American Cyanamid American Cyanamid American Cyanamid American Cyanamid
B.f. Goodrich B.F Goodrich
DuPont DuPont DuPont DuPont
Monsanto Monsanto Monsanto Monsanto
Union Carbide
Vistron Vistron Vistron
"Source: 1960, 1967, and 1974: U.S. Tariff Commission, Synthetic Organic Chemicals; 1977:
Energy Resources Company Inc. data.
TABLE 3-4f
PARTICIPATING FIRMS IN THE FURFURAL INDUSTRY
BY YEAR
1960 1967 1974 1977
Quaker Oats Quaker Oats Quaker Oats Quaker Oats
*Source: 1960, 1967, and 1974: U.S. Tariff Commission, Synthetic Or-
ganic Chemicals; 1977: Energy Resources Company inc. data.
-79-
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appears to have been no entry or exit through the 1960's
and 1970's while the remaining markets show only minor
fluctuations.
The table also shows that entries and exits in the
highly impacted markets often involve the same group of
large chemical producers. Many of the 22 firms currently
producing at least one of the highly impacted chemicals were
active in additional highly impacted markets in the 1960's.
It is also interesting to note that in several instances
a firm chose to abandon a market temporarily and then
strategically to re-enter the market when conditions had
changed.
3.2.2 Industry Structure and Performance
3.2.2.1 Market Structure
The individual product markets for organic chemicals,
like those for most chemical products, tend to be dominated
by relatively few firms. While many firms manufacture a
number of chemicals, the va"riety of chemical products is so
great that few products are made by more than a dozen firms.
Participation in product markets is further reduced
by the extent of vertical integration and captive production
in the chemical industry. Many firms use all of their
production of any given chemical, particularly those in the
industrial organics classification, captively, as an input to
other production processes. For example, vinyl chloride
monomer is used in the production of polyvinyl chloride.
Thus if a dozen firms manufacture a chemical, no more than
five or six firms are likely to sell substantial quantities
of it on the open, or merchant, market. In fact, some of
the producing firms may not be able to supply their own
demand for the chemical, and enter the merchant market as
buyers rather than sellers.
Because the number of manufacturers competing in any
single chemical market is. small, an oligopolistic market
structure (a market in which all participating firms are
likely to recognize the interdependence of their business
decisions) has evolved. In this section, two principal
characteristics of this oligopolistic market structure will
be examined: (1) the high concentration in product markets
and (2) the significant barriers to entry.
Concentration. The large number of separate product
markets in the chemical industry makes the compilation of
meaningful concentration figures a problem. As a first
-80-
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indication of industry structure, the Census of Manufacturers
four-firm and eight-firm concentration ratios for various
chemical industry segments are presented in Table 3-5 as the
percentage of industry sales attributable to the four or
eight largest firms. The Census figures are based ,on the
dollar value of factory shipments for the calendar year.
The organic chemicals covered by this study fall mostly
into the first three subcategories displayed in the table.
The four-firm and eight-firm concentration ratios for these
groups in 1972 range from 34 to 43 percent and 52 to
57 percent respectively. These figures suggest some
concentration; however, the broad classification used fails
to capture the structural characteristics of individual
product markets.
The concentration ratios for the six highly impacted
chemical markets are presented in Table 3-6. The figures
are based on current production capacity estimates and are
calculated for two-firm and four-firm ratios. The two-firm
figures are useful due to the small number of firms in most
markets. The four-firm concentration ratios are all above
65 percent. The markets with the largest number of suppliers,
vinyl chloride monomer and the chloromethanes, still show
significant concentration due to the influence of several
large plants. Because producers of chloromethanes do not
necessarily market all four products, the individual
submarkets within the chloromethane category are even more
concentrated. It should be noted that the figures presented
indicate only apparent market concentration. The data
presented characterize estimated capacity as a surrogate for
unavailable production data.
The large amount of captive product use in the industrial
organic chemical industry represents another significant
feature of market-structure. The extent of captive use
reduces the amount of product sold between firms which makes
it easier for a single large-volume seller to dominate the
merchant market. On the other hand, even highly concentrated
product markets are subject to competition from other
aubstitutable products. The principal substitutes for each
chemical are listed in Table 3-7. Several of the product
markets, particularly those of epichlorohydrin and furfural,
are affected by the existence of substitutes which can fill
the same intermediate uses. In addition, transportable
products such as perchloroethylene and furfural face pressure
from import prices. Domestic perchloroethylene producers
are presently facing a serious challenge from imports of
surplus European perchloroethylene while furfural, which can
be made from almost any agricultural waste, must be priced
low enough to resist competition from Carribean production
from sugar cane or other wastes.
-81-
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TABLE 3-5
1972 CENSUS OF MANUFACTURERS CONCENTRATION RATIOS FOR
CHEMICAL INDUSTRY SUBCATEGORIES
PERCENTAGE OF INDUSTRY SALES
MADE BY LARGEST
CODE
2869
2812
2813
2819
2865
2879
CHEMICAL GROUP
Industrial Organic Chemicals n.e.c.
Alkalines and Chlorine
Industrial Gases
Industrial Inorganic Chemicals n.e.c.
Cyclic Crudes and Intermediates
Agricultural Chemicals
4 FIRMS
43
72
65
34
34
39
3 FIRMS
57
91
81
52
52
57
-82-
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TABLE 3-6
CONCENTRATION RATIOS FOR HIGHLY IMPACTED PRODUCT MARKETS
(BASED ON PRODUCTION CAPACITY)*
CHEMICAL
Perchloroethylene
Chloromethanes:
Methyl Chloride
Methylene Chloride
Chloroform
Carbon Tetrachloride
Epichlorohydrin
Vinyl Chloride Monomer
Acrylonitrile
Furfural
NO. OF
FIRMS
8
13
9
6
5
7
2
10
4
1
CONCENTRATION RATIO (%)
2 FIRM
40.5
45.6
51.6
66.7
66.4
52.6
100.0
41.2
70.7
100.0
4 FIRM
73.6
66.7
75.8
88.0
93.0
90.6
-
68.3
100.0
-
* Sourca: Chemical Marketing Reporter, "Chemical Profiles," various issues, and Energy Re-
sources Company Inc. estimates.
-83-
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TABLE 3-7
PRINCIPAL SUBSTITUTES FOR HIGHLY IMPACTED PRODUCTS
HIGHLY IMPACTED CHEMICALS
PRINCIPAL SUBSTITUTES FOR
HIGHLY IMPACTED CHEMICALS
FOR DERIVED PRODUCTS
Perchloroethylene
Chloromethanes:
Methyl Chloride
Methylene Chloride
Chloroform
Carbon Tetrachloride
Epichlorohydrin
Vinyl Chloride Monomer
Acrylonitrile
Furfural
Trichloroethylene
None
None
Non-fluorocarbon aerosol propellants
Non-fluorocarbon aerosol propellants
Acrolein and propylene oxide
No major substitutes
Wool and other synthetic fibers
Phenol based products
-84-
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Barriers to Entry. The existing market structure of
the highlyimpacted chemical markets is supported by the
presence of significant barriers to entry. The chemical
industry has seen construction of increasingly larger
plants over the years that exploit important economies
of scale. Economies can be realized in production, raw
material acquisition, research and development, and pollution
abatement. As plant sizes have grown, unit costs have fallen
and individual new plants are able to supply a significant
share of the entire market. For new firms to enter the
market and compete with the same unit costs, they must be
able to achieve the same production scale. It is, therefore,
necessary for the entrant both (1) to possess the resources
to finance a large-scale facility and (2) to capture a
substantial share of the market. Table 3-8 illustrates this
point by presenting the capacities of the largest plants in
each highly impacted segment as a percentage of the total
industry capacity. In all cases, except vinyl chloride, the
largest plant supplies at least one-sixth of total industry
capacity. While vinyl chloride plants are among the largest
plants in the industry, dramatic growth in this market has
allowed for entry of such large-scale facilities. Entry
difficulties are exacerbated by captive use. Because captive
suppliers can be expected to buy their own intermediates
until their demand exceeds their supply capability (except
for a limited amount of outside purchase to assure an
alternate supply source), the available market to which an
entering supply firm can potentially sell is limited.
Despite the importance of economies of scale, there
are smaller plants which are operating effectively in the
organic chemical markets. These small plants tend to be old
facilities and most of the capital costs for the plants have
been fully amortized. Also, many small plants supply
chemicals for captive firm use. Given the importance of
assured routes of supply in the chemical industry, most
firms would be reluctant to shut down an internal source of
supply to gain a favorable but small cost differential.
Entry of new firms is not uncommon, however. A principal
path of entry into a chemical market is through vertical
integration. Generally firms will begin to produce industrial
organics in order to supply their own production requirements.
Typical of this route of entry is a firm such as Borden,
which recently built a VCM plant in order to supply its
polyvinyl chloride (PVC) production operation. When firms
integrate backward toward their required sources of supply,
they are assured of a market for their new production line.
Another principal route of entry is through technological
change, which may grant a new firm an immediate cost advantage.
-85-
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TABLE 3-8
CAPACITIES OF LARGEST PLANTS IN SIX HIGHLY IMPACTED PRODUCT MARKETS*
1
CD
cn
1
MARKET
Peichloroethylene
Chlorome thanes
Epichlorohydrin
Vinyl Chloride Monomer
Acrylonitrile
Furfural
FIRM
Diamond Shamrock
PPG
Dow
Dow
8.F. Goodrich
Monsanto
Quaker Oats Co.
PLANT LOCATION
Deer Park, Texas
Lake Charles, Louisiana
Plaquemine, Louisiana
Freeport, Texas
Calvert City, Kentucky
Alwin, Texas
Belle Glade, Florida
CAPACITY
(million lb/yr|
200
200
565
250
1.000
860
72
CAPACITY
AS A % OF
INDUSTRY
CAPACITY
16.5
16.5
18.2
55.6
12.6
39.4
41.9
'Source: Chemical Marketing Reporter, "Chemical Profiles," various issues.
-------
Major technological developments of this nature, however,
have been uncommon in recent years.
3.2.2.2 Market Conduct and Pricing Behavior
The oligopolistic structure of the chemical industry
is reflected in the behavior of the participating firms.
The most visible aspect of firm behavior, pricing policy, is
discussed below.
Price is typically one of the key variables in competition,
For the chemical industry in general, most prices are set by
simple percentage markups over costs, or in terms of target
rates of return. Several factors tend to reduce the
importance of price competition for the industry. These
factors are: (1) joint product cost accounting, (2) price
inelastic product demand, and (3) the customer's interest in
an uninterrupted supply.
Chemical manufacturers often find it difficult to
assign costs to any one product due to the nature of chemical
processes. The typical chemical plant houses a number of
interrelated processes, each of which produces a number of
products. If it is possible to assign raw material costs
and labor costs to each individual product, there is still
the question of recouping the large capital investment in
equipment. Furthermore, the overhead rates in the industry
are high due to the rapid deterioration of equipment and the
high rate of technological obsolescence. Thus there is a
large gap between variable costs and total unit costs. The
price of any one product can, therefore, become nearly
arbitrary as long as the combined prices of joint products
produce the desired return. In general, firms look at
return on invested capital (ROI) as the key element in
pricing. A desired ROI usually between 25 to 40 percent is
selected and a unit price is then calculated by dividing the
costs and expected return by the estimated production volume.
Subject to existing price constraints, new investments are
then ranked by their expected ROI. Because investment is
only a small portion of total cost, this strategy yields a
return on total cost (gross margin) that appears in general
to average between 6 and 9 percent.
The relative price inelasticity of demand also affects
price policy- The absence of substitutes precludes the
customer's option to switch to another product. Polyvinyl
chloride, for example, which is made from vinyl chloride
monomer, does not compete with other substances in many
applications. Total product demand is therefore insensitive
to price increases. In those cases where substitutes are
-87-
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available, they tend to be imperfect substitutes, given the
specific properties of each chemical. For example,
perchloroethylene competes with two chemicals for the metal
cleaning (vapor degreasing) market, trichloroethylene and
1,1,1 trichloroethane. However, each of these three chemicals
has qualities which make it desirable for certain applications
and thus reduce the importance of price. Perchloroethylene's
higher boiling point makes it the preferred chemical for
cleaning operations which require high temperatures.
Import price pressure can also affect pricing for those
products which are easily transportable. Of the six highly
impacted products, only perchloroethylene and furfural are
subject to strong import price pressure. Interruption of
supply is a factor to which chemical customers are generally
more sensitive than they are to price increases. The
importance of uninterrupted supply is evident in certain
industry practices. Most chemicals are sold under long-term
contracts so that the customer may be assured of a steady
supply. The contracts may extend far enough into the future
to allow the customer time to undertake various options to
provide for a new supply source if the present source is
considering cessation of production. The customer may
require sufficient lead time to build his own plant should
the current supplier announce plans for ceasing production.
In periods of actual shortages, most suppliers give
preferential allocations to their most steady, long-term
customers. This policy discourages customers from switching
suppliers because of small price differentials.
3.2.2.3 Market and Price Stability
In order to characterize the strong tendencies toward
market stability in the chemical industry, it is necessary
to consider the behavior of firms across markets and the
behavior of firms within a market.
The largest chemical manufacturing firms make a wide
range of chemical products, and thus are likely to compete
in many separate markets. For firms such as Dow and DuPont,
the number of competing markets are many and, accordingly,
the incentive to maintain friendly relations is great.
While this fact will not result in explicitly collusive
behavior, there are some suggestions of cooperation. For
example, in areas of common interest, firms are likely to
form joint ventures in order to reduce the risk of strong
competition. Two such joint ventures are: (1) the creation
of Dow-Corning by Dow Chemical and Corning Glass and (2) the
creation of Monochem by Borden and Uniroyal.
-88-
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Kinked Demand Curve. The tendency toward stability
within a market can be explained by a theoretical construct
of economic theory called the kinked demand curve. Consider
the kinked demand curve, DAD1 in Figure 3-6. This curve is
intended to represent the situation of an individual firm
in light of reciprocating price behavior by other firms, not
a specific market demand curve. In a period of price
stability, such as one in which all firms have set the same
price, each individual firm would find itself at the kink in
the demand curve (with price at Px and quantity sold at Qx).
If a firm wished to increase its price, say to Py, it is
assumed that other firms will not increase their prices.
The relevant portion of the demand curve is elastic and the
firm would gradually lose sales to its competitors (quantity
sold falls from Qx to Qv), causing income for the firm to
decrease. (Total income before the price increase is
represented by the area of the rectangle OPXAQX. After the
price increase, total income has fallen to OPyBQy.)
Conversely, if a firm lowers its price to Pz, it is
assumed that other firms wi11 lower their prices in order to
avoid a loss of sales. The original price-cutting firm will
enjoy only a momentary competitive advantage and the resulting
increase in sales is small (from Qx to Q2). .The relevant
portion of the demand curve is inelastic and the firm again
suffers a decrease in total income. (The total income
rectangle OPZCQZ is smaller than the original OPXAQX
rectangle.) Thus the firms in the oligopolistic industry
have limited incentive to change prices.
The kinked demand curve scenario must be modified for
a period of rising costs. If increasing costs have made it
difficult for firms to maintain the desired operating
margin, then a firm may successfully increase prices. The
price increase will hold if other firms are also willing to
increase prices, in contrast to the assumption which creates
the kinked demand curve. The industry achieves a new
equilibrium at price, Pv, with the kinked demand curve now
represented by demand curve D'^ED'.
The price leading firm may be the largest firm in the
industry, or the firm least able to withstand rising costs.
Occasionally the judgment of the price leading firm may be
wrong and one or more firms will fail to raise prices as
much, if at all. In such a case, the leader will generally
rescind his price increase and the price will return to the
lower level. An example of this process may have recently
occurred in the acrylonitrile market. The price for
acrylonitrile had followed a steady upward trend since 1973.
Early in 1977, a new round of price increases was instituted.
However, one firm, American Cyanamid, has not yet increased
-89-
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D"N
8
V
Quantity
QE Qx Qz
Figure 3 6. A generalized kinked demand curve.
-90-
-------
its price to the new higher level. The resulting differential
may cause the other firms to return to the price level of 1976.
3.2.2.4 Industry Performance, 1967-72
The oligopolistic influences outlined in previous
sections were not sufficient to maintain price levels for
the period 1967-72. Several basic price and production
trends for the industrial chemical industry are shown in
Table 3-9. and illustrated in Figure 3-7. As indicated, the
Industrial Chemical Price Index did not increase significantly
from 1967 to 1972. The price performances for the highly
impacted chemical segments are listed in Table 3-10, in
terms of their respective price declines over a longer time
period, 1960 to 1972. The longer time period was used for
this display in order to capture the long price decline in
the individual chemical prices. In all cases except that of
furfural (no data were available on epichlorohydrin),
substantial price declines were registered during this
period. The table also shows that during this period the
Wholesale Price Index (WPI) for industrial chemicals remained
relatively unchanged while the WPI for all commodities
increased 26 percent. Therefore, the decrease in highly
impacted chemical prices is even more dramatic relative to
wholesale prices in general.
There are two reasons for the fall in chemical prices:
(1) the declining real cost of natural gas feedstocks, which
have their prices regulated, and (2) the influence of economies
of scale on production costs. During the 1960's, the markets
for most chemical products were expanding in concert with
the general economic growth. Chemical firms responded by
building new larger production plants which allowed the
realization of economies of scale in production. Each firm
hoped to gain production cost advantages and to obtain a
permanently larger share of the product markets. However,
since each firm wished to maintain its market share, the
result of their combined decisions was a competitive pricing
war. The situation was essentially that described above in
Section 3.2,2.3.
The next section will examine the price performance of
the industry since 1972. In recent years, firms have been
better able to push prices upward. The reduction in the
competitive struggle appears to have come about as firms
recognized that price-cutting behavior was not effective in
increasing their market share.^ Furthermore, the economies
to be gained by increasing size appeared to have been fully
realized by the end of the 1960's. The situation of chemical
firms in which increasing the scale of production does not
-91-
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TABLE 3-9
NOMINAL AND REAL OPERATIONS LEVEL* FOR THE 10 LARGEST IMPACTED
CHEMICAL FIRMS ($ Thousand)**
1
VD
1
Nut Sales
Nei Income
Irvcome/Salej
Industrial
Chemical
Price Index
(1967= 100J
Sales /Price
Income /Price
FRB
Production
index, Basic
Organic
Chemicals
1976 1975 1974 1973 1972 1971 1970 1969 1968 1967
35,107,765 31,061.205 29.580,373 22,445,871 18,405,367 16,631,426 15,860,114 15,683,170 14,765.619 12,762,400
2,578,271 2.238,197 2,456,764 1.823.926 1,283.616 1.040,652 978.853 1,113.649 1.078,304 971.200
7.3 7.2 8.3 8.1 7.0 6.3 6.2 7.1 7.3 7.6
219.0 206.9 151.7 103.4 101.2 102.0 100.9 100.3 101.0 100.0
160,309 150,127 194.993 217,078 181,871 163,053 157.186 156,363 146.194 127,624
11,773 10,818 16.195 17.640 12,684 10,202 9,701 11,103 10,676 97.120
131.8 114.8 122.9 143.9 129.3 119.0 11B.5 122.2 111.5 100.0
* Based on the 10 largest impacted chemical companies.
** Source: Chemical and Engineering News, Corporate Records, FRB Industrial Production, Bureau of Labor Statistics.
-------
CO
I
240
220
200
ISO
J*
I
g 160
1
140
120
100
80
I
I
I
I
I
I
I
INDUSTRIAL CHEMICAL
FB8 PSODUCTIOH
INDEX
1967 1963 1969 1970 1971 1972 1973 1574 1975 1976
Year
Figure 3—7. Basic price and production trends for the industrial organic chemicals indus-
try. (Chemicaland Engineering News, Corporate Records, FRB Industrial Production, Bureau
of Labor Statistics.)
-------
TABLE 3-10
PRICE DECLINES IN HIGHLY IMPACTED SEGMENTS,
1967-72*
CHEMICAL
1960PRICE/LB
1972PRICE/LB
% PRICE DECLINE
Perchloroethylene
Chloromethanes:
Methyl Chloride
Methylene Chloride
Chloroform
Carbon Tetrachloride
Epichlorohydrin
Vinyl Chloride Monomes
Acrylonitrile
Furfural
Wholesale Price Index
Industrial Chemicals **
Wholesale Price Index
All Commodities'"
SO. 10
0.12
0.11
0.10
0.08
n.a.
0.10
0.22
0.12
103.2
94.9
50.06
0.05
0.07
0.07
0.06
n.a.
0.04
0.11
0.175
101.2
119.1
40
42
36
30
25
-
60
50
(46) (Increase)
2
(26) (Increase)
* Source: 1960 and 1972 U.S. Tariff Commission, Synthetic Organic Chemicals.
Source: U.S. Bureau of Labor Statistics: Wholesale Prices and Price Indices for Selected Commodities,
Annual.
-94-
-------
reduce unit costs is pictured by the unit cost curve in
Figure 3-8. it is theorized that production costs eventually
reach an irreducible minimum set by raw material costs and
the given state of technology.
3.2.2.5 Industry Performance, 1973-76
Prices in the chemical industry since 1973 have been
in a strong upward trend. As can be seen in Figure 3-7,
the industrial chemicals price index doubled between 1973
and 1975. This price increase took place despite the
weak recessionary markets of the period, but during a time
when prices for the chief inputs - oil and natural gas -
began to soar. The real sales volume (the dollar value of
yearly sales divided by the price index) of the period
turned down in 1973 and then dropped sharply in 1975. The
1975 real sales volume was 23 percent below that of 1974.
The uncorrected figures on sales volume (based on the sales
of a sample of the 10 largest chemical firms) did not
decrease during the period due to the buoying influence of
the price increases.
Figure 3-7 and Table 3-9 also provide an indication of
the extent of market power in the industry. In particular,
it is clear that through price increases, firms were able
to maintain a healthy rate of return despite a temporary
market decline and rising costs.
The real net income series shows large increases in
real net income for 1973 and 1974 and a steady level ($10
to $12 million for the sample of firms) for all other years.
Firms apparently garnered large profits during 1973-74.
The raw material shortages of 1973 and 1974 prevented
further growth in production, and prices rose as anxious
customers competed for the available supply. In 1975 the
drop in sales eliminated the temporary bulge in net income,
but firms were nevertheless able to raise prices by more
than one-third. Net income was a healthy 7.2 percent of
sales for 1975.
The beginning of a recovery of real sales in 1976
suggests that the demand for chemical products was not
greatly reduced by the large increase in prices. This
supports the notion that demand for chemical products tends
to be price inelastic. However, little can be inferred from
the first year of the recovery.
-95-
-------
o
1
oZ
«•-
o
I-
5
S
o
O
0 p-
Quantity Production
Figure 3—8. Hypothetical cost curve for the chemical industry. Beyond p* further
increases in plant size do not result in a decrease in unit costs.
-96-
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3.2.3 Highly Impacted Chemical Markets
This section details the specific market conditions
for each of the six highly impacted segments. For each
segment the following subjects are addressed: (1) product
uses, (2) product substitutes, (3) current production, and
(4) competition and pricing behavior.
3.2.3.1 Perchloroethylene
Product Uses. The dry cleaning industry is the largest
customer of perchloroethylene, purchasing an estimated
63 percent of U.S. production for use as dry cleaning
solvent. This and other primary uses of perchloroethylene
are listed in Table 3-11.
Perchloroethylene has numerous desirable properties as
a dry cleaning agent, including its characteristics of
viscosity, stability, high solvent power, and nonflammability.
It can also be easily recovered for reuse. In metal cleaning,
perchloroethylene is used primarily for vapor degreasing.
It has been used in areas (1) where use of the preferred
substitute, trichloroethylene, has been restricted due to
its contribution to air pollution and (2) where the specific
properties of perchloroethylene, particularly its higher
boiling point than tricloroethylene's, make it the preferred
cleanser.
Perchloroethylene is also used in the synthesis of
several fluorocarbons. These products are listed in
Table 3-12, along with their uses.
Product Substitutes. Perchloroethylene is the preferred
cleaning agent of the dry cleaning industry but substitute
products do exist. Stoddard solvent, which is a petroleum
product, is used in the oil-producing Gulf states. For
other markets, however, Stoddard solvent's handling
characteristics, particularly its flammability, restrict its
market penetration.
As discussed, trichloroethylene is often preferred
to perchloroethylene for industrial metal cleaning.
Trichloroethylene, which is often produced in the same
process as perchloroethylene as a joint product, is cheaper
and has preferred handling characteristics; however,in some
areas, most notably Los Angeles, use of trichloroethylene is
restricted by air pollution regulations. Perchloroethylene
competes with 1,1,1 trichloroethane in the Los Angeles market.
Use of this special form of trichloroethylene usually requires
significant retooling costs for the customer, however.
-97-
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TABLE 3-11
PERCHLOROETHYLENE PRODUCT
MARKETS AND SUBSTITUTES*
% SHARE
PERCHLOROETHYLENE PERCHLOROETHYLENE DEGREE OF
MARKET MARKET SUBSTITUTE SUBSTITUTABILITY
Dry cleaning solvent
Industrial metal cleaning
Chemical intermediate
(Flourocarbons)
Export and miscellaneous
63
14
13
10
Stoddard
Trichloroethylene
1,1,1 trichloroethane
n.a.
n.a.
Moderate
High
Moderate
-
-
* Source: Chemical Marketing Reporter, "Chemical Profile-Perchloroethylene," August 9, 1976.
-98-
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TABLE 3-12
CHEMICAL INTERMEDIATE USES OF
PERCHLOROETHYLENE
DERIVED PRODUCTS PRINCIPAL USES
Fluorocarbon 113 Solvent
Fluorocarbon 114 Solvent, refrigerant
Fluorocarbon 115 Food propellant
Fluorocarbon 116 Dielectric gas
-99-
-------
An estimation of the degree of substitutibility in
each of the perchloroethylene markets is shown in Table 3-11.
Current Production. The market for perchloroethylene
has ci• asedTcTTjrow in recent years. The annual production
data for the chemical, presented in Table 3-13, show that
production has fluctuated around 320,000 metric tons per
year since 1970. During this period, demand for domestic
perchloroethylene was influenced by (1) reduced demand for
dry cleaning due to the increased use of wash and wear
clothing and synthetic knit fabrics and (2) substantial
volumes of imports. In 1976, imports are believed to have
grown to an even larger role in the domestic market.4 The
growth in imports is the result of dramatic increases in
European caustic soda production. Chlorine is a byproduct
of caustic soda production and European demand for chlorine
is low. Therefore, the additional chlorine is transformed
into perchloroethylene, ethylene dichloride (EDC), and
trichloroethylene, which are the most economically
transportable forms of this surplus chlorine, and exported.
Perchloroethylene imports from Europe are expected to
continue to be problematic until European demand for chlorine
in vinyl production catches up with the present surplus
chlorine supply. Export statistics for perchloroethylene
are not available, but exports are not believed to be a
large market factor.
Captive production (that portion of output used
internally by the firm and not sold) is not important in
the end-use oriented perchloroethylene market. The captive
production statistics displayed in Table 3-13 also capture
the effect of changing inventories. Although this effect
cannot be accurately quantified, the increase in the extent
of captive production in 1975 can safely be attributed to
unplanned additions to inventory as a result of the market
decline of that year. Because of its limited use as a
chemical intermediate, the demands of captive production are
lower for perchloroethylene than for all of the other
highly impacted segments.
Competition and Pricing Behavior. The perchloroethylene
market is the most competitive of the six highly impacted
market segments studied here. The following factors contribute
to this unusual, competitiveness:
1. There is little captive production of
perchloroethylene, with 90 percent of production
or more being sold on the merchant market.
2. Because perchloroethylene is a final product,
rather than a chemical intermediate, purchase
-100-
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TABLE 3-13
PRODUCTION, SALES, AND FOREIGN TRADE OF PERCHLOROETHYLENE, 1960-75
1975 1974 1973 1972 1971 1970 1969 1968 1967 1966 1965 1964 1963 1962 1961 1960
Production' (1,000 MT/yrl 308 333 320 333 320 321 288 289 242 210 195 166 147 145 102 95
Sales' (1,000 MT/yr) 267 322 333 328 297 290 277 228 213 193 175 152 126 140 102 85
Apparent Captive Production'* (%) 13.2 3.5 0.0 1.5 7.2 9.4 3.7 21.0 12.1 8.2 10.3 8.2 14.4 4.0 0.0 10.16
Imports! (1.000 MT/yrl 17 11 20 12 20 18 16 20 22
Imports/Production (%) 5.5 3.3 6.3 3.6 6.3 5.6 5.6 6.9 8.7
h-- Exportstt (1,OOOMT/vr) 23.9 13.t 36.2 48.8 Nj N N N N
O
(—i
I Expom/Produciion (%) 7.8 3.9 11.3 14.7 _____
Sources: 1960—74: U.S. Tariff Commission, Synthetic Ortfanic Chemicals; 1975: U.S. International Trade Commission, Synthetic Organic Chemicals,
(preliminary).
The statistics on captive production represent the difference between yearly production and sales figures. Inventory changes are not accounted for.
t Sources: 1972-75: U.S. Bureau of Census; U.S. Imports: Consumption and General SIC-Based Products by World Areas (FT 210); 1971-71: U.S.
Bureau of Census, U.S. Foreign Trade, Imports: SIC Based Products (FT210); 1967-69: U.S. Bureau of Census, U.S. Foreign Trade, Imports: Commodity
by Country.
tt Source: 1972-75: U.S. Bureau of Census; U.S. Exports: Domestic Merchandise, SIC-Based Products by World Areas (FT 610).
| Not available.
-------
price is a more important factor in demand,
overshadowing other considerations, such as the
certainty of continued supply.
3. There are a relatively large number of producers
(eight).
4. Most perchloroethylene is sold under short-term
contracts, in contrast to most other chemical
markets.
These competitive forces result in a market with low customer
loyalty and there is little resemblance to the oligopolistic
structure that comprises many other chemical markets.
Nevertheless, unit values for perchloroethylene, displayed
in Table 3-14, show the pattern common to other chemical
markets. Dow Chemical and PPG Industries tend to be the
most important price setters in this industry, although, for
the reasons stated, their power is limited. In 1977 there
has been no upward movement of prices due to the declining
market and the resulting accumulation of large inventories.
3.2.3.2 Chloroinethane Markets
There arc four chlorinated solvents which comprise the
chloromothane market: methyl chloride (CH3C1), methylene
chloride (Ct^C^)' chloroform (CHC13), and carbon tetrachloride
(CC14). All four chemicals can be synthesized from the same
basic manufacturing processes. Methyl chloride is produced
by the chlorination of methanol or methane which yields
coproducts of methylene chloride, chloroform, and carbon
tetrachloride. The mix of output chloromethanes from this
process can be adjusted as a function of reaction conditions.
In other production techniques, one of the chloromethanes
can serve as an input into the synthesis of the more highly
chlorinated methanes through further chlorination. Thus,
annual production capacity estimates for any one of the
chloromethanes should be regarded as flexible, with
producers possessing the ability to shift output among them.
The total chloromethane production in 1975 is displayed in
Table 3-15. The table shows that carbon tetrachloride
accounted for almost half of total chloromethane production
(46.3 percent).
Product Uses. The uses of chloromethanes vary with
each specific product. Table 3-16 summarizes the major uses
of each of the four chloromethanes.
Methyl chloride finds its largest use (40 percent of
1976 production) as an intermediate in the silicone industry.
-102-
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TABLE 3-14
PERCHLOROETHYLENE PRICE STATISTICS*
UNIT VALUE
YEAR PER POUND
1975 0.14
1974 0.10
1973 0.06
1972 0.06
1971 0.07
1970 0.07
1969 0.07
1968 0.07
1967 0.08
1966 0.08
1965 0.08
1964 0.09
1963 0.10
1962 0.10
1961 0.10
1960 0.10
* Sources: 1960-74: U.S. Tariff Commission, Syn-
thetic Organic Chemicals; 1975: U.S. International Trade
Commission, Synthetic Organic Chemicals, (preliminary).
-103-
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TABLE 3-15
PRODUCTION VOLUME OF FOUR CHLOROMETHANES
PRODUCT
1975
PRODUCTION
VOLUME
(1.000MT)
%OF
TOTAL
PRODUCTIONS
Carbon Tetrachloride
Methylene Chloride
Methyl Chloride
Chloroform
Total
411.1
225.4
166.2
118.7
921.4
46.3
24.8
15.5
13.4
100.0
-104-
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TABLE 3-16
CHLOROMETHANE SOLVENT PRODUCT USES
CHLOROMETHANE
SOLVENT
Methyl chloride
Methylene chloride
Chloroform
Carbon tetrachloride
USES
Silicones intermediate
Tetramethyllead intermediate
Butyl rubber (catalyst solvent)
Methyl cellulose
Herbicides
Quaternary amines
Miscellaneous
Total
Paint removers
Aerosols
Export
Chemical processes (mainly solvent degreasing)
Plastics
Miscellaneous
Total
Fluorocarbon refrigerants and propellants
Fluorocarbon plastics
Export and miscellaneous
Total
Fluorocarbon 1 1
Fluorocarbon 12
Other
Total
%OF
PARTICULAR
MARKET
40
35
4
4
4
4
9
100
30
20
20
10
5
15
100
60
30
10
100
28
52
20
100
* Sources: Chemical Marketing Reporter, March 29, 1976, September 20, 1976, September 27, 1976,
and Faith, Keyes and Clark's Industrial Chemicals.
-105-
-------
The second largest use - an intermediate in the production
of tetramethyllead (TML) - has been declining along with the
TML market as a result of the reduction of lead in automobile
fuel.
Methylene chloride has been found to have desirable
handling and performance characteristics in the product use
areas listed in Table 3-16. It is low priced relative to
its substitutes, is nonflammable, and has not yet been found
to have health-related problems. It is used in cases where
a strong solvent is required to remove paint or lacquer.
Methylene chloride is also used in aerosol development and
its aerosol products do not cause ozone damage. Several
additional uses which have significant growth potential
include: (1) use as a blowing agent for urethane foam and
(2) use in a single-operation phosphatizing process.
Chloroform is used in the manufacture of fluorocarbons
for refrigerants, aerosol propellants, and resins. While
the aerosol-propellant market has been declining due to
environmental problems, the fluorocarbon-refrigerant market
in which chloroform is used should not be affected by the
ozone controversy because the product is used primarily in
closed refrigerant systems which do not allow the chemical
to escape into the atmosphere.
Carbon tetrachloride is suffering from the decline in
the aerosols market. The largest-volume chloromethane
product, carbon tetrachloride, is used in the manufacture
of fluorocarbons 11 and 12. The largest outlet for these
fluorocarbons has been the aerosols market, which has
accounted for more than 60 percent of their use. Due to
the fluorocarbon-ozone controversy, aerosol spray cans,
which allow the fluorocarbon blowing agent to escape into
the atmosphere, are being replaced by mechanical spray
cans or cans with nonfluorocarbon blowing agents. Carbon
tetrachloride also finds use as a reacting agent in a number
of chemical processes.
The summary table of product uses, Table 3-16,
indicates the relative diversity of end uses for each
chloromethane solvent. A discussion of these end-use
markets follows.
Product Substitutes. The chloromethane solvents as
a group could not be easily replaced. For the principal
uses of the chloromethanes, as listed in Table 3-17, there
are few good substitutes. For example, the silicone industry
requires methyl chloride as an input for the majority of
its products; no other chemical compounds can serve the same
purpose. Methylene chloride can, be replaced as a paint
-106-
-------
TABLE 3-17
PRODUCT SUBSTITUTES FOR CHLOROMETHANE SOLVENTS
CHLOROMETHANE
USE
SUBSTITUTE
DEGREE OF
SUBSTITUTABILITY
Methyl chloride
Methylene chloride
Chloroform
Carbon tetrachloride
Silicone
Tetramethyllead
Paint remover
Aerosol sprays
Solvent degreasing
Refrigerants
Chlorofluorocarbons
Aerosol sprays
None —
Other gasoline additives Poor
Alkali emulsions with naptha Poor
Methyl chloride Poor
Carbon tetrachloride Fair
Methyl chloride Fair
Compressed methane and Fair
water
Mechanical spray cans Fair
Perchloroethylene Fair
Trichloroethylene Good
Non-fluorocarbon Poor
refrigerants
Carbon tetrachloride Fair
Methylene chloride Good
Methyl chloride Fair
Compressed methane Good
and gas
Mechanical spray cans Fair
* Source: Discussions with industry personnel (Tom Robinson of Vulcan Materials Co. to Jeff Stollman
of ERCO; Rich Moeller of General Electric to Doug Geoga and John Eyraud of ERCO, Hank Sauer of MCA
to John Eyraud of ERCO).
-107-
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purpose. Methylene chloride can be replaced as a paint
remover, but its substitutes, alkali emulsions with naphtha
and methyl chloride, have less desirable performance
characteristics. Chloroform-derived refrigerants are the
most efficient refrigerant liquids. Carbon tetrachloride
is being phased out as the blowing agent for aerosol spray
cans. However, another chloromethane, methylene chloride,
is currently viewed as the best replacement. Mechanical
spray cans have absorbed part of the aerosol market, but
these cans are less desirable in the marketplace.
Current Production. Methyl chloride production has
shown a relatively slow rate of growth, largely due to the
sharp decline since 1973 in the tetramethyllead market.
Table 3-18 displays annual production and sales from 1960
to 1975. For the period 1965 to 1975, the annual rate of
growth was 5.3 percent per year, substantially lower than
the 10 to 15 percent averaged by the other chloromethane
solvents. The extent of captive production has remained
steady at approximately 55 to 60 percent of the total
market. Numerous firms, including General Electric,
Dow-Corning, and Union Carbide, produce methyl chloride for
internal use, in the production of silicone products, and do
not produce the other chloromethanes. The silicone industry
accounts for the majority of the captive use of these
chemicals.
Methylene chloride production trends have closely
paralleled those of the chemical industry as a whole.
Table 3-19 displays annual production and sales. As can be
seen from the table, the production of methylene chloride
grew at a rate of 13 percent per annum for the period
1965-75 despite the large production drop in 1975. Captive
production for methylene chloride is relatively unimportant,
accounting for less than 15 percent of the market in recent
years.
The chloroform market is small relative to the other
chloromethane products. Annual production and sales are
displayed in Table 3-20. The table shows that annual
production is less than one-half of the physical production
volume of methylene chloride and only one-third that of
carbon tetrachloride production. However, the rate of
growth for chloroform, 9.2 percent for the period 1965-75,
is only slightly less than that for the other chloromethanes,
Roughly one-fifth of the annual production volume is used
captively by firms. In recent years, the statistics on
captive production have fluctuated erratically due to
significant changes in inventories, also reflected in
these statistics.
-108-
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TABLE 3-18
PRODUCTION, SALES, AND FOREIGN TRADE OF METHYL CHLORIDE, 1960-75
I
I—1
o
I
1975 1974 1973 1972 1971 1970 1969 1968 1967 1966 1965 1964 1963 1962 1961 1960
Production' (1,000 MT/yr) 166.2 233.6 246.7 205.7 198.4 191.7 182.7 138.4 124.7 107.0 81.6 60.8 51.7 48.8 47.7 38.2
Sales* (1.000 MT/yi) 65.6 97.4 125.8 94.3 87.6 79.8 75.3 63.2 53.5 47.3 43.0 30.5 24.8 21.0 20.6 19.7
Apparent Captive Production*• <%) 60.5 56.5 35.2 54.1 55.9 58.4 68.8 54.4 57.2 56.0 49.5 49.9 52.0 57.1 56.8 48.4
Imports (1,000 MT/yrl
Imports ot Production (%(
Exportst (1,000 MT/yr)
Exports/Production (%)
Nt N
N
N
N
N
N
N
N
N
* Sources: 1960—74: U.S. Tariff Commission, Synthetic Organic Chemicals; 1975: U.S. International Trade Commission, Synthetic Organic Chemicals,
(preliminary).
** The statistics on captive production represent the difference between yearly production and sales figures. Inventory changes are not accounted for.
t Not available.
-------
TABLE 3-19
PRODUCTION, SALES, AND FOREIGN TRADE OF METHYLENE CHLORIDE, 1960-75
1975 1974 1973 1972 1971 1970 1969 1968 1967 1966 1965 1964 1963 1962 1961 1960
O
I
Production' <1,OOOMT/yr)
Sales' (I.OOOMT/yrl
Apparent Captive Production" (%)
Importst (1.000MT/vr)
Imports/Production (%)
Exportstt (I.OOOMT/yr)
Exports/Production {%)
225.4 276.1 235.9 213.7 181.9 182.4 166.0 137.2 118.9 121.2 95.6 81.4 67.1 65.2 52.5 51.3
197.1 239.2 214.9 201.1 166.0 162.4 153.3 130.7 102.9 102.4 88.2 71.1 6O.4 58.2 51.9 436
12.6 13.4 8.9 5.9 8.8 10.9 7.6 4.8 13.5 15.5 7.7 12.8 99 10.5 1.2 14.9
5.7 5.6 19.2 5.1 3.5 4.3 3.5 6.6 4.6
2.5 2.0 8.1 2.4 1.9 2.4 2.1 4.8 3.9
44.1 46.1 51.9 47.1 39.5 38.9 Nf N N
19.6 16.7 22.0 22.0 21.7 21.3 -
* Sources: 1960-74: U.S. Tariff Commission, Synthetic Organic Chemicals,-1975: U.S. International Trade Commission, Synthetic Organic
Chemicals (preliminary).
** The statistics on captive production represent the difference between yearly production and sales figures. Inventory changes are not accounted for.
t Sources: 1972-75: U.S. Bureau of Census; U.S. Imports: Consumption and General SIC-Based Products by World Areas (FT 210); 1970-71: U.S.
Bureau of the Census, U.S. Foreign Trade, /mports: SIC Based Products (FT210); 1967-69: U.S. Bureau of Census, U.S. Foreign Trade, Imports:
Commodity by Country.
tt Sources: 1972-75: U.S. Bureau of Census; U.S. Exports: Domestic Merchandise, SIC-Based Products by World Areas (FT 610); 1970-71: U.S.
Bureau of the Census, U.S. Foreign Trade, Exports: Domestic Merchandise, SIC-Based Products by World Areas (FT 610).
$ Not available.
-------
TABLE 3-20
PRODUCTION, SALES, AND FOREIGN TRADE OF CHLOROFORM, 1960-75
1975 1974 1973 1972 1971 1970 1969 1968 1967 1966 1965 1964 1963 1962 1961 1960
Production' (1,000 MT/yr)
Sales' (1.000 MT/yr)
Apparent Captive Production" (%)
Imports t (1,OOOMT/yr)
Imports/Production (%)
Exports^ (1.000 MT/yr)
Exports/Production (%\
118.7 136.9 114.6 110.5 104.7 108.8 98.0 82.2 82.0 81.2 69.2 54.1 47.8 44.5 35.1 34.7
87.1 114.4 110.6 92.0 83.1 79.3 78.1 63.6 61.6 65.1 55.9 445 35.1 36.0 24.8 25.4
26.6 16.4 3.5 16.8 20.6 27.1 20.4 22.6 24.9 19.8 19.1 17.7 26.5 17.0 29.2 26.7
2.5 0.7 Ntt N 0.1 0.1 N N N
12.1 0.5 - - 0.1 0.1 - - -
5.4 5.4 N N N N N N
4.6 3.9 ----- -
N
Sources: 1960—74: U.S. Tariff Commission, Synthetic Organic Chemicals; 1975: U.S. International Trade Commission, Synthetic Organic
Chemicals (preliminary).
The statistics on captive production represent th« difference between yearly production and sales figures. Inventory changes are not accounted for.
t Sources: 1972-75: U.S. Bureau of Census; U.S. Imports: Consumption and General SfC-Based Products by World Areas {FT2W}; 1970-71: U.S.
Bureau of Census, U.S. Foreign Trade, Imports: SIC Based Products (FT210}; 1967-69: U.S. Bureau of Census, U.S. Foreign Trade, Imports: Commod-
ity by Country.
tt Not available.
J Source: 1974-75: U.S. Bureau of Census, U.S. Exports: Domestic Merchandise, SIC-Based Products by World Areas (FT 610).
-------
Carbon tetrachloride has the largest production volume
of the chloromothane solvents. As can be seen from the
production and sales data displayed in Table 3-21, production
peaked in 1974 at 411,100 metric tons for the year. However,
the market dropped off sharply in 1975 due to the combined
effect of the recession and the fluorocarbon-ozone controversy.
The latter is expected to remain a problem for the carbon
tetrachloride market. Captive production has not been
particularly significant for carbon tetrachloride, with the
annual rate normally below 20 percent. The drop in sales,
however, has caused the accumulation of large inventories.
In 1975, the extent of captive production rose to close to
50 percent.
Foreign trade, as displayed in Tables 3-18 through 3-21,
is not believed to be a significant factor in the chloromethane
markets, but imports are believed to surpass exports.
Competition and Pricing Behavior. The chloromethane
market should be considered in terms of the four submarkets
for the individual solvent products. Two of the submarkets,
chloroform and methylene chloride, have a small number of
competitors, with five and six firms respectively. The
markets for these products have not been affected by
environmental concerns. Industry spokesmen indicate that
prices are "firm," that is, there is little fear of future
price decreases.
Methyl chloride is manufactured by nine firms, but
several of these use the product internally for silicone
plastics manufacturing. The industry has been weakened by
the decline in the tetramethyllead market.
The carbon tetrachloride market is the "weakest" of the
chloromethane solvents due to the uncertainty in the future
for the derived fluorocarbons. The largest seller of carbon
tetrachloride, DuPont, tends to be a price leader for this
industry. However, price leadership is of little concern in
the current situation as firms attempt to maintain a profitable
rate of capacity utilization.
The price series for each chloromethane in terms of
unit price per pound is presented in Table 3-22. The prices
of all the chemicals increased at least 100 percent between
1973 and 1975, in keeping with the price performance of the
industry through this period.
-112-
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TABLE 3-21
PRODUCTION, SALES. AND FOREIGN TRADE OF CARBON TETRACHLORIDE, 1960-75
1975 1974 1973 1972 1971 1970 1969 1968 1967 1966 1965 1964 1963 1962 1961 1960
U)
I
411.1 527.3 475.0 452.0 457.7 458.6 400.3 346.2 323.6 293.9 269.2 243.0 235.4 219.3 174.1 168.8
219.5 355.6 4487 421.9 361.4 381.5 356.4 293.8 274.6 279.1 231.0 210.7 191.0 183.5 152.1 151.2
46.6 32.6 5.5 6.7 21.0 16.8 11.0 15.2 15.1 5.0 14.2 13.3 18.9 16.3 12.6 10.4
7.4 7.6 3.4 5.3 <0.1 <0.1 0.1 1.9 2.3
1.8 1.4 0.7 1.2 <0.1 <0.1 <0.1 0.5 0.7
12.4 NJNNNNNNN
0.3 --------
* Sources: 1960-74: U.S. Tariff Commission, Synthetic Organic Chemicals; 1975: U.S. Internationa! Trade Commission, Synthetic Organic Chem-
icals, (preliminary).
** The statistics on captive production represent the difference between yearly production and sales figures. Inventory changes are not accounted for.
t Sources: 1972-75: U.S. Bureau of Census; U.S. Imports: Consumption and General SIC=Based Products by World Areas (FT 210); 1970-71: U.S.
Bureau of Census, U.S. Foreign Trade, Imports: SIC Based Products (FT210); 1967—69: U.S. Bureau of Census, U.S. Foreign Trade, Imports: Commod-
ity by Country.
tt Source: U.S. Bureau of Census; U.S. Exports: Domestic Merchandise, SIC-Based Products by World Areas (FT 610), 1975.
i Not available.
Production* (1,000 MT/yr)
Sales' (1.000 MT/yr)
Appa/ent Caplive Production* • (%)
Impomt (1,000 MT/yr)
Imports/Vroduction (%}
EKportsTT (1.000 MT/yr)
(%)
-------
TABLE 3-22
CHLOROMETHANE PRICE STATISTICS:
UNIT PRICE PER POUND, 1960-75*
YEAR
1975
1974
1973
1972
1971
1970
1969
1968
1967
1966
1965
1964
1963
1962
1961
1960
METHYL
CHLORIDE
$0.14
0.09
0.06
0.05
0.06
0.06
0.05
0.06
0.07
0.07
0.07
0.08
0.09
0.10
0.11
0.12
METHYLENE
CHLORIDE
SO. 16
0.13
0.08
0.07
0.07
0.08
0.08
0.08
0.09
0.10
0.09
0.09
0.09
0.09
0.09
0.11
CHLOROFORM
SO. 16
0.11
0.07
0.07
0.06
0.06
0.06
0.07
0.07
0.08
0.08
0.08
0.09
0.09
0.10
0.10
CARBON
TETRACHLORIDE
S0.14
0.10
0.06
0.06
0.05
0.05
0.05
0.06
0.06
0.07
0.07
0.07
0.08
0.08
0.07
0.08
* Sources: 1960-74: U.S. Tariff Commission, Synthetic Organic Chemicals, and 1975: U.S.
International Trade Commission, Synthetic Organic Chemicals (preliminary).
-114-
-------
3.2.3.3 Epichlorohydrin
Product Uses. The largest use of epichlorohydrin
is in the manufacture of synthetic glycerin. The amount of
epichlorohydrin required for this use has been declining due
to a lack of market growth and due to the substitution of
other raw materials. The relative importance of the
epichlorohydrin uses is displayed in Table 3-23. As can be
seen from the table, the other principal use is in the
manufacture of epoxy resins.
Product Substitutes. The end-use markets for
epichlorohydrin are well established although there are some
competing substitutes in its intermediate uses. Acrolein
and propylene oxide can be substituted for epichlorohydrin
in the manufacture of synthetic glycerin. The use of these
alternate raw materials has been increasing in recent years,
due to cost advantages. However, synthetic glycerin
manufacturers will continue to use epichlorohydrin widely.
Estimates of the degree of substitutability are presented
in Table 3-23.
Epoxy resins made with epichlorohydrin have a large
number of uses in chemical processes. As such, there are
many substitutes depending upon the specific process use of
epoxy resins. An analysis of these numerous substitutes is
beyond the scope of this investigation.
Current Production. The U.S. International Trade
Commission (formerly the U.S. Tariff Commission) does not
publish annual production and sales figures for epichlorohydrin,
However, estimates of production have been made based on the
production of derived end products. The estimates are
presented in Table 3-24 along with available foreign trade
statistics. The striking lack of data on this chemical
allows no conclusions to be drawn. However, imports are
presumed negligible due to the high captive production rates
in the industry. Most epichlorohydrin is captively used,
which helps account for the shortage of production statistics
and lends credence to the estimates.
Competition and Pricing Behavior. The epichlorohydrin
market is quite stable, with only two producers of the
chemical. The producing firms, Shell Oil Company and Dow
Chemical, use the bulk of their production internally. As a
result, there is very little competition on the merchant
market for sales. In the merchant market, the profit margin
is likely to be large given (1) the small contribution that
the cost of epichlorohydrin makes to total cost of end-use
products and (2) the limited buying power of users. Entry
-115-
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TABLE 3-23
EPICHLOROHYDRIN
PRODUCT USES AND SUBSTITUTES*
INTERMEDIATE USES
Synthetic Glycerin
Manufacturing
Epoxy Resins
Miscellaneous
%OF
MARKET
SHARE
55
40
5
SUBSTITUTE
Acrolein
Propylene Oxide
Numerous Chemicals
n.a.
DEGREE OF
SUBSTITUTABILITY
Moderate
Moderate
n.a.
n.a.
* Source: Energy Resources Company estimates, and Faith, Keyesand Clark's Industrial Chemicals.
-116-
-------
TABLE 3-24
PRODUCTION. SALES. AND FOREIGN TRADE OF EPICHLOROHYDRIN, 1960-75
1975 1974 1973 1972 1971 1970 1969 1968 1967 1966 1965 1964 1963 1962 1961 1960
Production* (1,000 MT/yr)
Sales' (1,OOOMT/vr)
Apparent Captive Production!
Imporutt (1.000 MT/yr)
Imports/Production (%)
Exports (1,000 MT/yr)
Exports/Production (%)
N" N 81.6 N N N 39.0 N N N N 38.5 N 31.2 N N
N N 43.1 N N N 34.0 N N N N 14.5 N 8.8 8.1 13.3
N N 47.2 N N N 12.8 N N N N 62.3 N 71.8 N N
N N N N 0.1 0.1 N N N
---------
NNNNNNNNN
---------
* Sources: 1960-74: U.S. Tariff Commission, Synthetic Organic Chemicals; 1975: U.S. International Trade Commission, Synthetic Organic
Chemicals (preliminary).
** Not available.
t The statistics on captive production represent the difference between yearly production and sales figures. Inventory changes are not accounted for.
tt Source: 1970-71: U.S. Bureau of Census, U.S. Foreign Trade, Imports: SIC-Based Products {FT210).
-------
into the market is unlikely because the demand for synthetic
glycerin is mature, with only slow future growth expected.
3.2.3.4 Vinyl Chloride Monomer (VCM)
Product Uses. The dominant use of vinyl chloride
monomer is as an intermediate in the production of polyvinyl
chloride (PVC). As indicated in Table 3-25, PVC production
accounts for 91 percent of VCM production, with the bulk of
the remainder going to exports for PVC production outside
the United States.
Anticipated market growth for PVC is displayed in
Table 3-26. The table shows that the largest use for
polyvinyl chloride is for conduit, pipe, and fittings,
according to the statistics compiled in Table 3-26. The
figures, provided by B.F. Goodrich, show that the growth of
consumption of PVC between 1970 and 1975 was largely due to
the increase of the conduit and pipe segment. Other market
segments registered little growth throughout this period.
Product Substitutes. Since polyvinyl chloride cannot
be made without vinyl chloride monomer, there is no need to
examine the substitutability of VCM in its intermediate use.
Only the end markets for polyvinyl chloride are relevant to
a discussion of product substitutes.
A compilation of the possible product substitutes
for PVC is presented in Table 3-27. Obviously the degree
of substitutability will vary from market to market, but
several general comments can be made. Most of the substitutes
listed are more expensive and not as suitable to the particular
use as PVC. Those substitutes which existed prior to the
broad market penetration of PVC, such as steel, rubber, wood,
and glass, have already been found to be less desirable. In
other cases, such as that of the pipe and conduit market,
alternate supplies of the substitute ABS will not be available
in sufficient quantity to infringe significantly on the market
within the next decade.5 In the past, consumers of PVC have
made only limited substitutions away from PVC.° Thus the
overall substitution possibilities for PVC are small.
Current Production. VCM is a large volume industrial
organic chemical with 1976 production estimated at over
2.7 million metric tons.? Annual production and sales
figures for the period 1960-75 are presented in Table 3-28.
The table shows that the market sagged sharply in 1975, with
a 25 percent drop in production. The market drop was the
combined result of a recessionary economy and of concern
over the effect of OSHA regulations on PVC plants. The
-118-
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TABLE 3-25
VINYL CHLORIDE MONOMER
PRODUCT USES*
USE % OF TOTAL MARKET
Polyvinyl Chloride 91
Suspension Holopolymer Resins
Suspension Copolymer Rosins
Dispersion Resins
Exports 7
Miscellaneous 3
* Source: Chemical Marketing Reporter. "Chemical Profile—Vinyl Chloride Mono-
mer," July 14, 1975 and Energy Resources Company estimates.
** Total does not add up to 100 percent due to rounding.
-119-
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TABLE 3-26
ANTICIPATED MARKET GROWTH FOR PVC BY INDUSTRY
(1,000 MT)*
INDUSTRY 1970 1975 1980
Apparel
Conduit, pipe and fittings
Flooring
Siding, other construction applications
Home furnishing
Wire and cable
Packaging
Records
Transportation
Other
81.6
217.7
145.1
90.7
231.3
190.5
122.4
63.5
99.8
108.8
81.6
449.0
131.5
122.4
195.0
127.0
131.5
59.0
72.6
258.5
127.0
997.7
254.0
322.0
322.0
226.8
190.5
99.8
163.3
517.0
Total 1,351.4 1,628.1 3,219.9
* Source: B.F. Goodrich Chemical Company, Chemical Week, September 15, 1976.
-120-
-------
TABLE 3-27
POSSIBLE PVC SUBSTITUTES *
PVC RESIN USAGE
O.OOOMT)
MARKET
Apparel
Baby pants
Footwear
Outerwear
Building and construction
Extruded foam moldings
Flooring
Lighting
Panels and siding
Pipe and conduit
Pipe fittings
Rainwater systems
Swimming pool liners
Weatharsuipping
Window, other profiles
Electrical
Wire and cable
Home Furnishing
Appliances
Furniture
Garden hose
Housewsres
Wall coverings and
wood surfacing film
Packaging
Blow molded bottles
Closure liners and gaskets
Coatings
Film
Sheet
Recreation
Records
Sporting goods
Toys
Transportation
Auto mats
Auto tops
Upholstery snd seat covers
Miscellaneous
Agriculture (including pipe)
Credit cards
Laminates
Medical tubing
Novcltloi
Stationery luppltoi
Tools and hardware
Export
Other
Total
1973
12
66
31
26
202
5
39
520
41
16
18
16
26
138
20
145
18
51
54
39
9
9
59
35
66
25
38
18
15
83
66
8
23
23
7
18
8
66
42
2,180 2
1974
12
63
30
22
166
6
44
505
44
15
19
16
24
161
21
144
17
n.a.
58
34
10
9
57
37
65
28
37
19
13
84
72
10
24
23
8
20
10
145
119
,151
POSSIBLE
SUBSTITUTES
Rubber
Rubber
Other synthetic fibers
Wood
Wood
Glass, styrsne
Wood, polyester
Steel, ABS, polyethelene
Steel, ABS, polyethelene
Wood, aluminum
Rubber
Rubber, urathane
Wood, steel, aluminum
Rubber, polyethylene
Other plastics in some applications
Wood, melamine
Rubber, nylon
Styrene, rubber
Paper, melamine
Glass, cans
Rubber
None
Acrylics, sty rene
Polyethylene, nylon,polyester
None
Rubber, leather
None
Rubber
Steel
Nylon polyesters
Aluminum, polyethylene
None
Non«
Nona
None
Polynttr
Nona
Nona
None
* Source: U.S. Environmental Protection Agency, Standard Support and Environmental Impact State-
ment: Emission Standard for Vinyl Chloride.
-121-
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TABLE 3-28
PRODUCTION, SALES. AND FOREIGN TRADE OF VINYL CHLORIDE, 1960-76
1976 1975 1974 1973 1972 1971 1970 1969 1968 1967 19G6 1965 1964 1963 1962 1961 1960
Production' 2,494.3 1,903.0 2,549.2 2.427.6 2.307.6 1,966.3 1.832.2 1,694.2 1,346.4 1.099.1 1,133.5 907.0 731.9 650.9 594.8 473.4 470.3
(I.OOOMT/yr)
Sales' 1,018.0 1,415.8 1,611.9 1,516.1 1,362.2 1,233.6 1.069.7 663.5 431.6 379.2 311.9 270.8 227.1 233.8 192.4 159.8
(l.OOOMT/yr)
Apparent Capliv/e 46.5 44.5 33.6 34.3 30.7 327 36.9 50.7 60.7 66.5 65.6 630 65.1 60.7 59.4 66.0
Production" (%)
, Importst 1.5 1.2 0.8 <0.1 - 0.1 0.1 0.1 0.6
•- (1,OOOMT/yr)
N>
K)
1 Imports/ <0.1 <0.1 <0.1 <0.1 - <0.1 <0.1 <0.1 <0.1
Production (%)
Exportstt 188.4 187.4 191.0 282.2 281.6 302.0 Nj N N
(1.000lv)T/vr)
Exports/ 9.9 7.4 7.9 12.2 14.3 16.5 -
Production (%)
* Sources: 1960-74: U.S. Tariff Commission, Synthetic Organic Chemicals; 1975: U.S. international Trade Commission. Synthetic Organic
Chemicals (preliminary).
* * The statistics on captive production represent the difference between yearly production and sales figures. Inventory changes are not accounted for.
t Sources: 1972-75: U.S. Bureau of Census; U.S. Imports: Consumption and GeneralSIC-Based Products by World Areas (FT210); 1970-71: U.S.
Bureau of the Census; U.S. Foreign Trade: Imports; SIC Based Products (FT210); 1967-69: U.S. Bureau of Census; U.S. Foreign Trade: Imports;
Commodity by Country.
tt Sources: 1972-75: U.S. Bureau of Census; U.S. Exports: Domestic Merchandise, SIC-Based products by World Areas (FT6W); 1970-71: U.S.
Bureau of the Census, U.S. Foreign Trade, Exports: Domestic Merchandise, SIC-Based Products by World Areas (FT 610).
$ Not available.
-------
recovery of the market in 1976, however, suggests continued
growth for the industry. One manufacturer anticipates a 7
to 9 percent annual growth rate.^
Foreign trade does not appear to be of significance in
this huge-volume market, perhaps due to the inability of
obtaining a sufficiently large supply via tankers to service
PVC production needs and the significance of captive
production. Slightly under one-half of the domestic VCM
production is used captively by its producers. The share
going to captive production reached a low in 1971 of 30 percent,
but has since grown as existing PVC manufacturers have built
new facilities in order to supply their own VCM intermediate.
Competition and Pricing Behavior. Two factors have
helped to stimulate competition in the vinyl chloride
monomer market: (1) the number of competing firms is large,
10, and (2) the large growing market for the end product,
PVC, has encouraged firms to scramble for increased shares
of the market. The growth of production capacity has led to
expectations of a glut of VCM in the near future. However,
the adaptability of PVC to many applications suggests strong
future growth for the industry. One firm's expectation of
future growth has been presented in Table 3-26.
Discussions with industry personnel, however, indicate
that competitive influences are not sufficiently strong
to negate the price leadership models discussed above (see
Section 3.2.2). The largest sellers in the industry, Shell
and Dow, tend to be price leaders. Smaller firms meet the
established price in order to stay competitive and maintain
their market share. Unit values for vinyl chloride monomers
from 1960 to 1975 are displayed in Table 3-29. The price
series shows the sharp upward movement typical of the industry
after 1973. There is also no substantial discounting off
list price for preferred customers in today's market,
indicating a firmness of prices.
3.2.3,5 Acrylonitrile
Product Uses. Acrylonitrile is an intermediate that
enjoys widespread use in synthetic fibers manufacture. The
largest market for acrylonitrile is as an intermediate in
the production of acrylic and modacrylic fibers. Acrylic
fibers are used in apparel manufacturing where it is the
most wool-like of the synthetic fibers. Carpeting is the
second largest market for acrylic and modacrylic fibers.
Other markets for the fibers include draperies, upholstery,
and blankets. A breakdown of uses of acrylonitrile is
presented in Table 3-30.
-123-
-------
TABLE 3-29
VINYL CHLORIDE PRICE STATISTICS*
UNIT VALUE
YEAR PER POUND
1976 0.10
1975 0.08
1974 0.04
1973 0.04
1972 0.04
1971 0.04
1970 0.04
1969 0.04
1968 0.05
1967 0.05
1966 0.06
1965 0.06
1964 0.06
1963 0.07
1962 0.07
1961 0.08
1960 0.10
Sources: 1960-74: U.S. Tariff Commission, Synthetic Organ-
ic Chemicals; 1975: U.S. International Trade Commission, Syn-
thetic Organic Chemicals (preliminary); 1976: Chemical Week,
September 15, 1976.
-124-
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TABLE 3-30
ACRYLONITRILE PRODUCT USES AND SUBSTITUTES
USE
Acrylic and modacrylic fibers
Acrylonitrile-butadiene-styrene (ABS)
and styrene-acrylonitrile (SAN)
resins
Adiponitrile
Nitrile rubber
Miscellaneous
Exports
%OF
TOTAL DEGREE OF
MARKET SUBSTITUTE SUBSTITUTABILITY
50 Wool
20 PVC
Steel
Polyethelene
10 n.a.
5 PVC
Glass
Cans
5 n.a.
10
Moderate
Moderate
Low
Low
-
Moderate
Low
Low
-
-
* Source: Chemical Marketing Reporter, "Chemical Profile, Acrylonitrile," January 10, 1977, and
Energy Resources Company Inc. estimates.
-125-
-------
The manufacture of ABS and SAN resins from acrylonitrile
has provided a rapidly increasing outlet ror acrylonitrile.
The ABS resins are used in pipe, conduit, and pipe fittings.
Other supply routes include the manufacturing of components
for automotive use, and of linings for refrigerator doors.
SAN resins find applications in the manufacture of housewares,
automotive components, and instrument lenses.
Nitrile rubber is used in hosing, gaskets, or linings
in the petroleum, automotive, and home appliance industries
because it is oil resistant, hydrocarbon solvent resistant,
and grease resistant. Adiponitrile is used as an
intermediate in the production of nylon.
Product Substitutes. The substitutes for acrylonitrile
vary with the end-use market being considered. A listing of
the markets and the principal substitutes is provided in
Table 3-29. In the large synthetic fiber market, wool is a
principal competitor. Acrylic and wool fibers have similar
appearance and texture. In the plastic resins and nitrile
rubber markets, ABS and SAN resins compete with other
plastic products such as polyvinyl chloride and other
packaging materials such as steel, glass, or cans. The
degree of substitutability in these markets is a function of
the desired strength, flexibility, and chemical-resistant
properties for the product. The acrylonitrile-based
products tend to have good chemical-resistant properties
but limited flexibility.
Current Production. Historical production and sales
data for acrylonitrile are presented in Table 3-31. The
production series peaks in 1974 at 1.4 billion pounds per
year, with a decline to 1.2 billion in 1975. The growth
rate of production for the decade 1965-75 was 11 percent.
Recently, imports have grown to be a large portion of the
market but their share is likely to decline as new domestic
plants cause on-line expansion of domestic capacity. The
requirements of captive production have accounted for 50
to 60 percent of total production in recent years.
Competition and Pricing Behavior, There are four
domestic acrylonitrile producers. Of the participating
firms, American Cyanamid and Monsanto produce largely
for captive uses. DuPont sells substantial quantities on
the merchant market and also supplies internal demand.
Vistron specializes in sales to the smaller consumers of
acrylonitrile, specifically those customers who do not have
the resources to build their own acrylonitrile capacity.
The price series for acrylonitrile, presented in
Table 3-32, shows a pattern typical of that in the chemical
-126-
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TABLE 3-31
PRODUCTION, SALES, AND FOREIGN TRADE OF ACRYLONITRILE, 1960-75
1975 1974 1973 1972 1971 1970 1969 1968 1967 1966 1965 1964 1963 1962 1961 I960
Production* (1.000 MT/yr)
Sales' d.OOOMT/yri
Apparent Captive Production* * (%)
Imports* (1/)OOMT/yr)
Imports of Production (%)
Expomtt (I.OOOMT/yrl
Exports/Production (%)
550.8 640.2 614.1 505.5 4433 471.3 524.5 463.0 304.2 324.7 349.9 269.5 206.5 163.3 113.2 104.0
237.5 232.1 216.0 208.6 194.6 248.1 254.7 n.a. 122.7 144.3 137.6 141.1 96.3 92.1 71.4 83.3
56.9 63.8 64.5 58.7 56.2 47.4 51.4 n.a. 59.7 55.6 60.7 47.6 53.4 43.5 36.9 19.9
16.9 10.4 <0.1 <0.1 <0.1 <0.1 <0.1
-------
TABLE 3-32
ACRYLOIMITRILE PRICE STATISTICS*
YEAR UNIT VALUE
1975 0.23
1974 0.19
1973 0.11
1972 0.11
1971 0.10
1970 0.11
1969 0.12
1968
1967 0.12
1966 0.13
1965 0.16
1964 0.16
1963 0.14
1962 0.15
1961 0.18
1960 0.22
* Sources: 1960-74: U.S. Tariff Commission, Syn-
thetic Organic Chemicals; 1975: U.S. International Trade
Commission, Synthetic Organic Chemicals (preliminary).
-128-
-------
industry, although the size of the price increase in 1974
arid 1975 was unusually large. Prices rose by over 70 percent
in 1974 alone. In general, prices set by the four firms
tend to cluster in the manner described above (see
Section 3.2.2.3). There is currently a price discrepancy
between firms in the industry, the result of one firm's not
acquiescing in a round of price increases in late 1976. If
the reluctant firm continues to resist the price increase,
the price rise may be rescinded by other firms. This
experience is likely to cause the industry to be more
cautious concerning price increases.
3.2.3.6 Furfural
Product Uses. Furfural is used as an intermediate in
the manufacture of furfuryl alcohol, which, in turn, is used
to make furan resins. A breakdown of the uses of furfural
and their respective market shares is presented in
Table 3-33. The furfural-derived furan resins are used in
foundry binders. The large export market consists of
shipments by the only domestic producer, Quaker Oats Company,
to European subsidiaries and other companies. The bulk of
the exported furfural is also used in the manufacture of
furfuryl alcohol.
Furfural is also used as a solvent in the refining of
lubricating oils and in the extraction of butadiene from
€4 process streams.
Product Substitutes. There are a number of resins
which can be used as substitutes for furan resins, thus
eliminating the need for furfuryl alcohol and furfural. One
group of these substitutes is phenol-based resins, particularly
phenolic-polymeric isocyanate. Table 3-33 presents a list
of the other principal substitutes in the no-bake binder
market, the principal outlet for furan resins.
Tetrahydrofuran can be produced with acetylene and
formaldehyde in the Reppe process, thus eliminating the need
for furfural. In its use as a solvent in the refining of
lubricating oils, the most widely used solvent for the same
processes is phenol.
Competition and Pricing Behavior. The only domestic
supplier of furfural, the Quaker Oats Company, is currently
enjoying few of the benefits which usually accrue to a
monopolist. In particular, a number of substitute products
(see Table 3-33) have acquired some of the market for
furfural-derived products, particularly furfuryl alcohol.
Unit sales for 1977 of the Chemical Division of Quaker
-129-
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TABLE 3-33
FURFURAL PRODUCT USES AND SUBSTITUTES*
FURFURAL USE
%OF
FURFURAL
MARKET
SUBSTITUTES
DEGREE OF
SUBSTITUTABILITY
Chemical intermediate uses:
Furfuryl alcohol 33.0
(For furan resin production)
Tetrahydroforan 9.1
Furan resin substitutes: High
alkyd polymeric-isocyanate,
phenolic-polymeric isocyanate
and silicate foundry binders
Alternative processes Moderate
Solvent uses:
Lube oils
Butadiene extraction
8.5 Phenol
7.2 Alternative process
Moderate
High
Export
39
n.a.
Miscellaneous
n.a.
*Source: Chemical Marketing Reporter, "Furfural Market Charted," July 21, 1975, p. 7, and
Energy Resources Company Inc. estimates.
-130-
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Oats (which produces only furfural and furfural-derived
products) dropped 7 percent below the 1976 figure. Quaker
Oats' problems in this market stem from the period 1974-75
when it enjoyed strong market power. At this time, a
temporary shortage of furfural caused sharp increases in
prices. The net income for the diversion in 1975 was
260 percent of the 1974 net income figure and 380 percent of
the 1973 figure. Customers responded to the shortage by
turning to alternative products, particularly to other
chemical binders. As a result, the effective monopoly power
of the Quaker Oats Company is limited and the firm currently
finds itself in a rather competitive market situation. The
historical price series for the industry, presented in
Table 3-34, shows a consistent upward trend. The period of
tight supply is suggested by the large price increase in 1974.
Current Production. The U.S. International Trade
Commission does not publish statistics on furfural production
or levels of imports and exports in order to avoid revealing
the production of the only domestic producer, the Quaker
Oats Company. The total production capacity of this company
is believed to have climbed to 172 million pounds in early
1975.10 Assuming 90 percent capacity utilization, domestic
production is estimated at approximately 155 million pounds
per year.
3.2.4 Manufacturing Plants - Operational Data
3.2.4.1 Plant Locations
The 22 firms that have been identified as domestic
producers of at least one of the highly impacted chemicals
maintain 43 plants involved in that production within the
continental United States and one impacted plant in Puerto
Rico. The geographical distribution of these 44 plants is
displayed in Figure 3-9. As can be seen from this figure,
approximately one-half of the plants are clustered on the
Gulf Coast in Louisiana and Texas. The industry has clustered
here near reliable and inexpensive sources of natural gas,
because gas is an important raw material in organic chemical
manufacture. In general, proximity to desirable raw material
feedstocks (which comprise 60 to 70 percent of the production
costs) is the most important factor governing location
decisions for organic chemical manufacturing plants. Other
factors influencing plant location include proximity to
other plants that use the product as an intermediate, and
proximity to rail and water transportation.
This geographical distribution actually understates
the relative importance of the Gulf Coast plants because
-131-
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TABLE 3-34
FURFURAL PRICE STATISTICS,
1960-74
FURFURAL PR ICE
YEAR ($0.01/Ib)
1974 28.00
1973 18.75
1972 17.50
1971 16.50
1970 16.00
1969 16.00
1968 14.50
1967 14.50
1966 13.50
1965 12.50
1964 11.50
1963 11.50
1962 11.50
1961 11.50
1960 12.00
Source: Chemical Marketing Reporter.
-132-
-------
I
(-•
OO
I
Puerto Rico (16B
Figure 3—9. Geographical distribution of highly impacted plants.
-------
HIGHLY
PRODUCT
1 5 •-
_ff *"
1 1 '
I i -
PLANT | | .'
FIRM PLANT LOCATION CODE e'. D i
Allied Chemical Baton Rouge. La. 1A
Allied Chemical Moundsville, W.Va. IB C
American Cyanamid Fortier, La. 2
Borden Geismar, La. 3
Conoco Westlake. La. 4A c
Conoco Lake Charm, La. 4B
Diamond Shamrock Belle. W.Va. 5A C
Diamond Shamrock Deer Park, Tex. SB P
Dow Freeport. Tex. 6A PC
Dow Pittsburg, Calif. 68 PC
Dow Plaquemine, La. 6C PC
Dow Oyster Creek, Tex. 6D
Dow-Corning Csrrollton, Ky. 7A C
Dow-Coming Midland, Mich. 7B C
DuPont Corpus Christi, Tex. 8A PC
DuPont Niagara Falls, N.Y. 86 C
DuPont Beaumont, Tex. 8C
OuPont Memphis, Tenn. 8D
Ethyl Baton Rouge. La. 9A P C
Ethyl Houston, Tex. 96
FMC South Charleston. W.Va. 10 C
General Electric Waterford. N.Y. 11 C
B.F. Goodrich Cilvert City. Ky. 12
Hooker Taft, La 13 p
Monoeh«m Gvivnar. La. '*
Monamto Al»in. Tex. 19A
Momanto T««4»Ciry, Te« 18B
PPG Lake Charles, La. 18A P
PPG Guayanilla, P.R. 18B
Quaker Oats Belle Glade, Fla. 17A
Quaker Oats Cedar Rapids, Iowa 17S
Quaker Oats Memphis. Tenn. 17C
Quaker Oats Omaha. Nebr. 17D
Shell Oeer Park. Tex. 18A
Shell Norco. La. 18S
Shell Houston, Tex. 18C
Stauffer LeMoyne. Ale. 19A C
Stauffer Loulnille. Ky. 168 P C
Siauffer Niagara Fells. N.Y 19C C
Siaufter Long Beach, Calif . 190
Union Carbide Institute. W.Va. 20 C
Vistron Lime. Ohio 21
Vulcan Geismar. La. 22A P C
Vulcan Wichita. Kans. 226 PC
IMPACTED
•S PRODUCED
;
1 3 .
§ | I
S 6 § 1
; > i J
a .£ S 5
u > < u.
V
A
V
V
E V
V
V
A
A
V
V
V
V
A
A
V
V
F
F
F
F
V
E V
E
V
A
Key for Figure 3-9.
-134-
-------
it does not show relative capacities of manufacturing
plants. Table 3-35 shows the percentage of identified
capacity located in either Texas or Louisiana. As is shown,
with the exception of furfural, all of the chemicals have
more than half of their productive capacities located on the
Gulf Coast, and four of the six have more than 75 percent
of their capacity located there. Furfural is presently
produced by Quaker using graham processing wastes and,
therefore, proximity to gas supplies is not important.
The map key to Figure 3-9 also indicates which highly
impacted chemicals each plant produces. As can be seen
from the key, only 10 plants produce more than one highly
impacted product line with the remaining 34 plants producing
only one highly impacted product. Figure 3-10 shows the
distribution of firms by the number of plants producing
highly impacted products. Only 5 of the 22 firms have more
than two such plants.
3.2.4.2 Production Processes Used
Basic production process data for each of the six
chemical products being analyzed in depth in this study are
provided by the Assessment Study,H as explained above in
Section 2.1.1.1. Most organic chemicals, including the six
selected, can be manufactured by more than one production
process. It was, therefore, necessary to determine the
appropriateness of the process selected for analysis in
the Assessment Study by identifying the process actual
manufacturers currently employ. This information is not
always made available by manufacturers. The data that were
obtained are presented in Table 3-36. This table includes
all six highly impacted organic chemicals. As can be seen,
the process chosen by the Assessment Study seems to be the
one most widely used by manufacturers of all the organic
chemicals, with the exception of perchloroethylene production,
It is believed that very few manufacturers use the chlorine/
acetylene-based process described in the Assessment Study.
In that study (based on 1973 data), it was noted: "About 20
percent of the perchloroethylene manufactured uses chlorine
and acetylene as starting materials."12 since that time
this process has probably become even less widely used.
Instead, an ethylene-based process is used.
3.2.4.3 Products
The magnitude of the economic impact of hazardous waste
regulation at the plant level depends in part on the mix of
products manufactured at the plant. In addition to products
-135-
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TABLE 3-35
GULF COAST PRODUCTION CAPACITY OF HIGHLY IMPACTED CHEMICALS
(TEXAS AND LOUISIANA) *
CHEMICAL
%OF PRODUCTION LOCATED
ON THE GULF COAST
Chloromethanes
Carbon Tetrachloride
Methylene Chloride
Chloroform
Methyl Chloride
Perchloroethylene
Acrylonitrile
Epichlorohydrin
Vinyl Chloride Monomer
Furfural
54
45
63
57
68
88
76
100
76
0
' Source: See Table 3-38.
-136-
-------
10
9
8
7
6
U)
Z
c
uZ
NUMBER OF
A at
3
2
1
0
-
—
—
-
-
Borden
American
Cy»n amid
FMC
General
Electric
B.F. Goodrich
Hooker
Vistron
Union
Carbide
Monochem
Conoco
Diamond
Shamrock
Dow
Coming
Ethyl
Monsanto
PPG
Allied
Chemical
Vulcan
Materials
Shell
DuPont
Dow
Chemical
Quaker
Oats
Stauffer
234
NUMBER OF HIGHLY IMPACTED PLANTS
Figure 3—10. Distribution of firms by the number of plants manufac-
turing selected highly impacted chemicals. (From Figure 3—9 Key.)
-137-
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TABLE 3-36
PROCESSES USED IN HIGHLY IMPACTED CHEMICAL PRODUCTION*
HIGHLY
IMPACTED
SEGMENT
Perchloroethylene
Chloromethanes
Eoichlorohydrin
Acrylonitrile
Vinyl Chloride
Furfural
FIRM
Diamond Shamrock
Dow
DuPont
Ethyl
Hooker
PPG
Stauffer
Vulcan
Allied Chemical
Conoco
Diamond Shamrock
Dow
Dow Corning
DuPont
Ethyl
FMC
General Electric
Stauffer
Union Carbide
Vulcan
Dow
Shell
American Cyanamid
DuPont
Monsanto
Vistron
Allied
B or den
Conoco
Dow
Ethyl
8.F. Goodrich
Monochem
PPG
Shell
Stauffer
Quaker Oats
PLANT
Deer Park, Tex.
Freeport, Tex.
Pittsburg, Calif.
Plaquemine, La.
Corpus Christi, Tex.
Baton Rouge, La.
Taft, La.
Lake Charles, La
Louisville, Ky.
Geismar, La.
Wichita, Kans.
Moundsville, W.Va.
Weitlake, La.
Belle, W.Va.
Freeport, Tex.
Pittsburg, Calif.
Plaquemine, La.
Carrol Iton, Ky.
Midland, Mich.
Corpus Christi, Tex.
Niagara Falls, N.Y.
Baton Rouge, La.
S. Charleston, W.Va.
Waterford, N.Y.
LeMoyne, Ala.
Louisville, Ky.
Niagara Falls, N.Y.
Institute, W.Va.
Geismar, La.
Wichita, Kani.
Fraeport, Tex.
Norco, La.
Houston, Tex.
Fortier, La.
Beaumont, Tex.
Memphis, Tenn.
Chocolate Bayou, Tex.
Texas City, Tex.
Lima, Ohio
Baton Rouge, La.
Geijmar, La.
Lake Charles, La.
Freeport, Tex.
Oy»t«r Creek, Tex.
Plaquemine, La.
Baton Rouge, La.
Houston, Tex.
Calvert City Ky.
Geismar, La.
Lake Charles, La.
Guayanilla.P.R.
Deer Park, Tex.
Norco, La.
Long Beach, Calif.
Memphis, Tenn.
Belle Glade, Fla.
Cadar Rapids, Iowa
Omaha, Nebr.
AGREEMENT VW
AssfssMeur
PROCESS STUDY
From EDC
From EDC
From acetylene
From propylene
Chlorinate methanol
Chlorinate methanol (?)
Chlorinate methanol
Chlorinate methanol
Chlorinate methanol
Chlorinate methanol
From C$2 and chlorine
From propylene
Chlorinate methanol
From allyl chloride
Sohio
Sohio
Sohio
Sohio
Sohio
Sohio
EDC based
EDC based
EDC based
EDC based
EDC based
EOC baied
EDCbas«d(?)
EDC based
E DC based
Acetylene based
EDC based
EDC based
EDC based
EDC based
EDC based
Acid digestion
(steam distillation)
Acid digsttion
Acid digestion
Acid digestion
No
No
Yes
No
Yes
Yes
Yes
Yes
Yes
Yes
No
No
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Ye*l?)
Yes
No
Yei
Yes
Yes
Yes
Source: Telephone interviews with industry contacts, corporate data.
-138-
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directly affected by regulations, the manufacture of related
products not directly influenced by regulations may be
affected because of upstream or downstream price increases
for the directly impacted products. It is important to
distinguish between products that are completely independent
and products that are related to impacted products because
the production of one can provide a source material for the
other, or one can be produced as a byproduct of the manufacture
of the other. Thus, if an impacted product line were to be
discontinued, another product for which its production
provided a raw ma-terial might also be discontinued or be
redesigned to utilize a new input chemical. On the other
hand, the presence of related production processes that
allow the sharing of abatement costs might reduce the impact
of regulation on a particular manufacturing operation at the
plant level. Table 3-37 presents the available information
on the products produced at the 44 plants manufacturing at
least one of the six highly impacted products. While the
available information is sketchy, it is clear from the table
that completely independent chemical production processes
under the same roof are relatively rare. It is generally
economical to locate processes that can generate source
material for each other within the same facility to avoid
transportation and storage costs, and to make the best
possible use of all production byproducts. For example,
the Diamond Shamrock facility at Belle, West Virginia
manufactures chloromethanes. As a byproduct of this
process, hydrochloric acid is produced, which is sold
as muriatic acid.
3.2.4.4 Plant Sizes
Due to the significant economies of scale involved in
organic chemicals production, plant size can be an important
factor affecting the plant-level impacts of hazardous waste
regulation. It is possible that relatively small plants
(with higher unit costs) might be more severely impacted
than larger plants which can spread fixed costs of abatement
equipment over a larger volume. It is also true, however,
that many of the smaller plants are fully depreciated because
they are relatively old, adding to their profitability.
The distribution of plant sizes is discussed in
Section 2.1.1.3. Table 3-38 shows the capacities of
highly impacted plants by firm for each of the six chemicals
selected for study. As the table illustrates, the 22 firms
vary significantly in the amount of highly impacted capacity,
with Dow Chemical having the largest total capacity for
highly impacted chemicals.
-139-
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TABLE 3-37
PRODUCTS PRODUCED AT HIGHLY IMPACTED PLANTS*
HIGHLY 1
PRODUCTS
S v, c
1 1 s
111
€ | .5
FIRM PLANT LOCATION tj 0 >*>
Allied Baton Rouge, La
Allied Moundsville, W.Va. C
American Cyanamid Fortier, La.
Bordcn Geismar. La.
Conoco Westlake. U. C
Conoco Lake Chares, La.
Diamond Shamrock Belle, W.Va. C
Diamond Shamrock Dear Park, Tex. P
Dow Freeport, Tex. P C E
Dow Pittsburg. Calif. P C
Dow Plaauamine. La. P C
Dow Oyster Creek, Tex.
Dow Corning Carrollton. Ky. c
Dow-Corning Midland, Mich. Q
OuPont Corpus Christi, Tex. p <;
DuPont Niagara 'Falls, N.Y. c
DuPont Beaumont, Tex.
OuPont Memphis. Tenn.
Ethyl Baton Rouge, La. PC
Ethyl Houston. Tex.
FMC South Charleston. W.Va, Q
General Electric Waterford, N.Y c
8 F Goodrich Calvert Cay. Ky
Hook.r Taft. La. p
Monoch«m Gtiimar. La
Mo'uinto Alvin. Tex
Monianto Texas City, Tex,
PPG Lake Charles, La. P
PPG Guayanilla. P.R.
Quaker Cat! Belle Glade. Fie.
Quaxer Oats Cedar Rapids, Iowa
Quaker Oats Memphis, Tenn.
Quaker Oats Omaha. Nebr.
Shell Deer Park. Tex.
Shell Norco. La. £
Shell Houston. Tex. £
Stau'fir LaMoyne, Ala. C
Stauf'er Louisville, Ky. P C
Stauf'er Niagara Falls, N.Y. C
Stai.f'sr Long Beach. Calif
'j.-non Cjroiue Institute. W Va. C
V'-.trcm Lima, Ohm
Vui.-»n 'Jeiim.r, La PC
v.ji.-an Wicnica Kam f C
MPACTED
PRODUCED
3 .
5 ?
S 1 ^
111
> < uT OTHER PRODUCTS PRODUCED
V Chlorine caustic soda
Chlorine, caustic soda, TO1
A Ammonia, sulphuric acid, YP soda.
Assorted polymers
V NA
NA
V EDC
Mvoleric acid
Trichloroethylene. ethylene dichloritc
V Petrochemical complex, EPl, UCM
NA
V
V NA
Silicone probably
NA
NA
NA
A NA
A NA
V Sodium, EDC, anti-knock compounds
V NA
NA
Ebstorus. fluids, resins
v Other products
Chlorine, caustic coda and a solvent section
V Adeylene
A NA
A NA
V NA
V NA
F NA
p Oatmeal
F Furfuryl alcohol, tstrachyoren, furan chemicals
F Furfuryl alcohol
V NA
V Ethylent. glycerin
Benzene, ethyl alcohol , epoxy resins, ethylene
NA
Sulphuric acid
NA
v Glycerin, ethyl lead. PVC
Silicone
A Ammonia, resin producing facility
NA
Chlorine, cauillc led a EDC
' :ource- Tsieonone mrervi«w» .vitn .nauitry conucu.
-140-
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TABLE 3-38
CAPACITIES OF HIGHLY IMPACTED PLANTS*
HIGHLY IMPACTED
PRODUCT
Perch loroethy lane
Chloromethanes
Methyl Chloride
.
Methylene Chloride
Chloroform
FIRM
Diamond Shamrock
Dow
DuPont
Ethyl
Hooker
PPG
Stauffer
Vulcan
Allied Chemical
Conoco
Diamond Shamrock
Dow
Dow-Corning
Ethyl
General Electric
Stauffer
Union Carbide
Allied Chemical
Diamond Shamrock
Dow
DuPont
Stauffer
Vulcan
Allied Chemical
Diamond Shamrock
Dow
Stauffer
Vulcan
PLANT
Deer Park, Tex.
Freeport, Tex.
Plttsburg, Calif.
Plaquemine, La.
Corpus Christi, Tex.
Baton Rouge, La.
Tart, La.
Lake Charles, La.
Louisville, Ky.
Geismar, La.
Wichita, Kans.
Moundsville, W.Va.
Westlake, La.
Belle, W.Va.
Plaquemine, La.
Freeport, Tex.
Carro^lton, Ky.
Midland, Mich.
Baton Rouge, La.
Waterfor, N.Y.
Louisville, Ky.
Institute, W.Va.
Moundsville, W.Va.
Belle, W.Va.
Fraeport, Tex.
Plaquemine, La.
Niagara Falls, N.Y.
Louisville, Ky.
Geismar, La.
Wichita, Kans.
Moundsville, W.Va.
Belle, W.Va.
Freeport, Tex.
Plaquemine, La.
Louisville, Ky.
GeUmar, La.
Wichita, Kans.
CAPACITY
(1,OOOMT/yr)
91
54
g
68
73
23
18
91
32
68
23
11
45
11
68
32
9
7
45
23
7
23
23
45
90
18
27
36
14
14
18
45
45
34
21
18
"Sources: Stanford Research Institute, Chemical Economics Handbook; Chemical Marketing
Reporter, "Chemical Profiles", telephone communications with industry personnel; corporate
reports.
-141-
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TABLE 3-38 (CONTINUED)
HIGHLY IMPACTED
PRODUCT
Carbon tetrachloride
Epichlorohydrin
Acrylonitrile
Vinyl Chloride
Furfural
FIRM
Allied Chemical
Dow
DuPont
FMC
Stauffer
Vulcan
Dow
Shell
American Cyanamid
DuPont
Monsanto
Vistron
Allied Chemical
Borden
Conoco
Dow
Ethyl
B.F. Goodrich
Monochem
PPG
Shell
Stauffer
Quaker Oats
PLANT
Moundsville, W.Va.
Freeport, Tex.
Pittsburg, Calif.
Plaquemine, La.
Corpus Christi, Tex.
South Charleston, W.Va.
LeMoyne, Ala.
Louisville, Ky.
Niagara Falls, N.Y.
Geismar, La.
Wichita, Kans.
Freeport, Tex.
Houston, Tex.
Norco, La.
Fortier, La.
Beaumont, Tex.
Memphis, Tenn. •
Chocolate Bayou, Tex.
Texas City, Tex.
Lima, Ohio
Baton Rouge, La.
Geismar, La.
Lake Charles, La
Freeport, Tex.
Oyster Creek, Tex.
Plaquemine, La.
Baton Rouge, La.
Houston, Tex.
Calvert City, Ky.
Geismar, La.
Lake Charles, La.
Guayanilla, P.R.
Deer Park, Tex.
Norco, La.
Long Beach, Calif.
Memphis, Tenn.
Belle Glade, Fla.
Cedar Rapids, Iowa
Omaha, Nebr.
CAPACITY
(1,000 MT/yr)
4
61
36
56
225
135
90
16
68
41
27
113
63
27
109
186
125
391
286
182
136
136
182
227
n.a.
n.a.
n.a.
n.a.
-142-
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3.2.4.5 Capacity Utilization
In an industry such as the organic chemicals industry,
where significant economies of scale exist, the ability to
maintain equipment utilization rates is the key to efficient
production. Capital equipment is designed for maximum
efficiency near the full utilization level with unit costs
rising dramatically when capital is under-employed. Industry
experts contacted agreed that capacity utilization rates in
the range of 80 to 90 percent of nameplate design capacity
are a reasonable goal for organic chemical producers in
general, and for the producers of highly impacted chemicals
in particular. -*
Data are not readily available for a calculation of
historical capacity utilization rates for highly impacted
chemicals. Nonetheless, some indication of the level and
variability of capacity utilization rates can be obtained by
comparing the U.S. International Trade Commission's production
figures with current capacity estimates under the assumption
that capacity has remained substantially the same over the
last 3 years. The capacity utilization rates generated in
this way are presented below in Table 3-39. Even though
these estimates may be subject to some bias (probably
downward since earlier capacity totals are likely to be
overstated), the table does show that utilization rates in
the neighborhood of 80 percent are not uncommon during
nonrecossionary times. In addition, it can be seen that
theso rates can fall off sharply during times of decreased
demand, often to the neighborhood of 50 percent. Thus, unit
costs can rise during a period of declining demand due to
capital under-utilization.
3.2.4.6 Employment
Employment statistics for the organic chemicals industry
are not available because of joint production. Firms involved
in the production of organic chemicals also manufacture
other products, and the organic chemicals component of plant
employment is difficult to isolate. It is likely, however,
that industrial organic chemicals industry employment
closely parallels industry-wide chemical employment trends,
for which statistics are available.
Table 3-40 presents recent employment and earnings
statistics for the industrial chemicals industry. The
effects of the 1975 recession may be discernable in the
slight reduction of the number of production workers and
of the length of the workweek in that year, and in the
near-zero growth of total employees. However, employment
-143-
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TABLE 3-39
CAPACITY UTILIZATION RATES
(1,OOOMT/yr)*
CHEMICAL
Perchloroethylene
Chloromethanes
Methyl Chloride
Meihylene Chloride
Chloroform
Carbon Tetrachloride
Epichlorohydrin
Acrylonitrile
Vinyl Chloride Monomer
Furfural
CAPACITY
550
282
341
196
767
205
1.280
3.189
n.a.
1975 PRODUCTION
309
166
226
119
412
n.a.
552
1.907
n.a.
1974 PRODUCTION
334
224
227
137
529
n.a.
1.542
2,555
n.a.
1975 UTILIZATION
RATE (%)
56
59
66
61
53
n.a.
43
60
n.a.
1974 UTILIZATION
RATE (%)
61
80
81
70
69
n.a.
50
80
n.a.
* Source: Chemical Marketing Reporter, Chemical Profiles. U.S. Tariff Commission.
-------
TABLE 3-40
INDUSTRIAL CHEMICAL EMPLOYMENT AND EARISHNGS*
Total employees (thousands)
Production workers (thousands)
Workweek (hours)
Hourly earnings (S)
Weekly earnings (S)
1976
336
180
42.1
6.57
276.60
1975
324
171
41.4
5.93
245.50
1974
322
173
42.6
5.38
229.19
1973
311
169
42.7
4.97
212.22
* Sources: U.S. Department of Labor, Chemical and Engineering News, June 7, 1976 and June 6,
1977.
-145-
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in the industrial chemicals industry was not as severely
reduced by the recession as it was in the synthetic fibers
industry and other chemical product areas. As is shown,
recovery was fairly swift for industrial chemicals (unlike
other chemical industries) and 1976 employment has more than
recouped 1975 losses. In addition, Table 3-40 illustrates
the steady growth of nominal wages which has characterized
the industrial chemicals industry labor force.
The number of employees that would be forced out of
work if a product line were closed down due to hazardous
waste regulation would depend primarily on the number of
workers at the plant level engaged in the production of
that product. However, since most plants produce several
chemicals, it is difficult to assess the number of employees
required for manufacture of any specific organic chemical.
Table 3-41 shows total employment for each of the plants
producing a highly .impacted chemical. Because organic
chemical manufacture is not labor intensive, cutbacks in
production levels have little effect on employment. A
minimum number of production workers are required to run a
production process and this number is relatively insensitive
to the volume produced by a particular facility. Employment
reductions are likely to occur only if processes are shut
down entirely, but the production workers may merely be
transferred to production of a substitute for the product
shutdown. The fraction of these employees potentially
affected depends on (1) the severity of impact on the highly
impacted products and the other products produced at that
plant (see Section 3.2.4.3) and (2) the ability of firms to
substitute other products for discontinued lines.
3.2.4.7 Waste Streams Produced
Actual production processes used by manufacturers
of the six highly impacted products closely conform to
Assessment Study model processes (with the exception
of perchloroethylene production), as noted above in
Section 3.2.4.2. The Assessment Study characterizations
of process waste streams which are, therefore, likely to
be representative of the industry's wastes are displayed
in Table 3-42. In the case of perchloroethylene, it is
believed that the waste stream described in the Assessment
Study, which is based on an acetylene process, is very
similar to the waste streams generated by the more common
ethylene-based process.
-146-
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TABLE 3-41
ESTIMATED EMPLOYMENT AT HIGHLY IMPACTED PLANTS*
FIRM
Allied Chemical
American Cyanamid
Borden
Conoco
Diamond Shamrock
Dow
Dow-Corning
DuPont
Ethyl
FMC
General Electric
B.F. Goodrich
Hooker
Monochem
Monsanto
PPG
Quaker Oats
Shell
Stauffer
Union Carbida
Vistron
Vulcan
LOCATION
Baton Rouge, La.
Moundsville, W.Va.
Fortier, La.
Geismar, La.
Westlake, La.
Lake Charles, La.
Belle, W.Va.
Deer Park, Tex.
Freeport, Tex.
Pittsburg, Calif.
Plaquemine, La.
Oyster Creek, Tex.
Carrollton, Ky.
Midland, Mich.
Corpus Christ!, Tex.
Niagara Falls, N.Y.
Beaumont, Tex.
Memphis, Tenn.
Baton Rouge, La.
Houston, Tex.
South Charleston, W.Va.
Waterford, N.Y.
Calvert City, Ky.
Taft, La.
Geismar, La.
Alvin, Tex. >
Texas City, Tex. /
Lake Charles, La.
Guayanilla, P.R.
Belle Glade, Fla.
Cedar Rapids, Iowa
Memphis, Tenn.
Omaha, Nabr.
Houston, Tex.
Deer Park, Tex.
Norco, La.
LeMoyne, Ala.
Louisville, Ky.
Niagara Falls, N.Y.
Long Bsach, Calif.
Institute, W.Va.
Lima, Ohio
Geismar, La.
Wichita, Kans.
NUMBER OF EMPLOYEES
1,000
400 (north and south)
500
100
100
n.a.
n.a.
500
2,600
600
1,200
200
100
2,000
n.a.
n.a.
n.a.
500
1,000
n.a.
200
n.a.
600
300
100
2,500
1,200
n.a.
n.a.
n.a.
200
100
3,000
n.a.
300
100
100
n.a.
n.a.
1,800
300
100
400
* Source: Marketing Economics Institute, Inc., Marketing Economics Key Plants,
1975-76 Guide to Industrial Purchasing Power, 4,000 Plants with 100 Employees or Mora.
-147-
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TABLE 3-42
WASTE STREAM CHARACTERIZATION FOR ASSESSMENT STUDY PROCESSES'
CHEMICAL
PROCESS BASE
WASTE STREAM CHARACTERIZATION
Perchloroethylene
Acetylene Based
Chloromethanes
Methanol Based
Epichlorohydrin
Allyl Chloride
Acrylonitrile
Vinyl Chloride
Propylene (Sohio)
EDC
Furfural
Digester/Distillation
Dehydration
A two-phase sludge from the purification
columns, containing hexachlorobutadiene
(77%), chlorobenzenes (7%), chloro-
ethanes (3%), chlorobutadiene (3%), tars
(7%), and 3% miscellaneous.
Solid tails (bottom) from the distillation
column yielding carbon tetrachloride,
composed of hexachlorobenzene (45%),
hexachlorobutadiene (45%), and tars,
etc. (10%)
Heavy ends from the fractionator, com-
posed of epichlorohydrin (2%), dichloro-
hydrin (11%), chloroethers (14%), tri-
chloropropane (70%), tars, resins and
others (3%).
Impurities from the product purification
step, consisting of complex nitrite
compounds, polymers and tars.
The heavy ends from the ethylene
dichloride recovery still, composed of 1,2
dichloroathane (23%), 1,1,2 trichloro-
ethane (38%), 1,1,1,2 tetrachloroethane
(38%), tars (1%).
Still bottoms from the stripping column,
composed of polymers and tars (89%),
and sulfuric acid (11%), and filter solids
from the dehydrating column bottom
stream, which is composed of fines and
participates and contains furfural.
Source: TRW, \nc.. Assessment of Industrial Hazardous Waste Practices: Organic Chemicals, Pesticides
and Explosives Industries, prepared for U.S..Environmental Protection Agency, 1976.
-148-
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3-2.5 Manufacturing_Firms -Financial Data
3.2.5.1 Economics of Abatement
As discussed above in Section 2.1.3, a firm's decision
to continue or discontinue impacted operations will be
made on a process by process basis and will be based on
the profitability of manufacture under regulation. This
determination of profitability will take into account
marginal unit cost increases due to pollution control
as well as the ability to finance the capital investment
to comply with hazardous waste regulations. Unfortunately,
financial data at the process level necessary to
characterize the decision process of firms are not readily
available. In most cases, the best financial information
available is aggregated to the firm level. The purpose
of this section is to examine firm level data on the
profitability of operations and on the availability
of capital. Section 3.2.5.4 then presents model plant
financial data as estimates of the actual process economics
that the impacted firms will face. These model plant
estimates will be used in the economic impact analysis.
It is assumed that the profitability of firms that
are major participants in the organic chemicals industry
gives some indication of the general profitability of
manufacturing processes. While this approach does not
distinguish relative profitabilities of various product
lines, it is believed that it can suggest whether organic
ehomicnl manufacture ir, more or less profitable than other
manufacturing activities. If organic chemicals manufacture
is relatively profitable, it is less likely that operations
will be discontinued under regulation.
The capital position of the industry will be examined
from the perspective of identifying unusual investment
strengths or weaknesses of firms, rather than through a
detailed firm by firm financial analysis. The interactions
of a firm's major financial variables are explained. The
capital flows are then surveyed in an attempt to derive
industry level conclusions and to highlight unique
situations of particular firms.
j . 2. 5. 2 Profitability
Several market characteristics and pricing policies
that are common in the organic chemical markets, as well as
in chemical markets in general, suggest that these firms
will be more profitable than most manufacturing firms. As
discussed above in Section 3.2.2.1, most chemical markets,
-149-
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including the organic chemical markets, are characterized
by an oligopolistic structure. In addition to the
"nonpredatory" pricing policies common among these firms
that recognize their interdependence, this oligopolistic
structure implies some ability to price products so as to
obtain relatively high rates of return.
Table 3-43 illustrates that greater-than-normal
profitability is precisely what is observed for the 10-firm
organic chemicals industry sample. The table presents
10-year comparisons of two basic measures of corporate
profitability: the ratio of income to sales and the ratio
of income to stockholders equity (net worth) for both the
organic chemical manufacturers sample and for all domestic
manufacturers. As can be seen in the table, the difference
between income as a percent of sales for organic chemical
producers and all domestic manufacturing firms averages
approximately 2.5 percentage points and is never less than
2.0 percentage points. The return on equity for the organic
chemicals industry firms, as measured by the income/equity
ratio, is greater than the manufacturing return in every
year except two, and the differential appears to be widening
over time.
The current profitability situation of the 22
manufacturers of at least one of the six chemical groups is
described in Table 3-44 by four measures of profitability.
The table shows that there is significant variation in
profitability among firms, ranging from the poor showing of
the rubber companies to the high profitability of Dow and
Dow-Corning. However, the table does not allow the inference
that any of the producers of highly impacted organic chemicals
are in a difficult financial position.
3.2.5.3 Investment Constraints
Capital Flows Within a Firm. In order to appreciate
the capital structure and investment position of a firm or
industry through an examination of its basic financial
statistics, it is necessary to understand basic capital
flows within the corporate structure. Figure 3-11 illustrates
these simplified flows. As is shown, there are two basic
sources of capital: funds generated through the operation
of the firm and funds raised from outside sources. Operations
sources include income from the sale of the firm's products,
the sale of its property, or an increase in the value of
its investments as well as factors that diminish the amount
that the firms must pay out such as deferred taxes and
depreciation.14 Nonoperations sources include new funds
raised through the capital markets.
-150-
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TABLE 3-43
COMPARATIVE PROFITABILITY OF CHEMICAL INDUSTRY SAMPLE
WITH ALL MANUFACTURERS*
PROFITABILITY
MEASURE 1976 1975 1974** 1973 1972 1971 1970 1969 1968 1967
Income/ Sales.
All Manufacturing (%) 5.3t 4.6 5.5 4.7 4.3 4.1 4.0 4.8 5.1 5.0
Income/Sales,
Industry Sample (%) 7.3 7.2 8.3 8.1 7.0 6.3 6.2 7.1 7.3 7.3
Income/Equity,
All Manufacturing (%) 13.7t 11.6 14.9 12.8 10.6 9.7 9.3 11.5 12.1 11.7
Income/Equity,
Industry Sample (%) 15.5 15.0 18.1 15.3 11.8 10.1 10.0 11.9 12.0 11.31
'Sources: Economic Report of the President 1977, p. 283; Quarterly Financial Report for Manufac-
turing, Mining, and Trade Corporations, Federal Trade Commission.
** Federal Trade Commission data underwent significant procedural changes, making comparisons with
earlier years difficult.
t Data for 3rd Quarter 1976 annualized.
-151-
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TABLE 3-44
PROFITABILITY MEASURES, 1976*
COMPANY
Allied Chemical
American Cyanamid
Borden
Conoco
Diamond Shamrock
Dow
Dow-Corning
DuPont
Ethyl
FMC
G.E.
B.F.Goodrich
Monsanto
Occidental
PPG
Quaker Oats
Shell
Sohio
Stauffer
Union Carbide
Uniroyal
Vulcan
OPERATING
PROFIT
MARGIN
1%)
8.8
9.7
6.5
13.4
18.8
19.2
23.1**
11.0
12.7
9.4
8.8
4.8
15.6
13.6
13.1
10.4
16.1
8.1
17.0
12.8
3.5
11.9
NET INCOME
GROSS
REVENUES
<%)
4.4
6.5
3.3
5.8
10.3
10.8
12.1
5.5
6.0
3.5
5.9
0.8
8.6
3.3
6.7
3.6
7.6
4.7
10.3
7.0
0.9
9.1
EARNINGS
SHARE
(%)
4.52
2.73
3.64
4.38
3.90
3.30
17.10
9.30
7.18
3.43
4.12
0.95
10.05
2.76
4.85
2.31
5.06
3.55
5.20
7.15
0.57
3.19
EARNINGS
EQUITY
{%)
10.5
12.2
12.0
17.5
20.8
21.4
21.7
11.4
14.5
9.2
17.7
2.1
16.3
14.1
14.8
12.3
15.4
8.8
18.9
14.4
3.2
18.5
Sources: Fortune Magazine, 1976-77; and Moody's Handbook of Common Stocks, Summer 1977
Edition.
Energy Resources Company estimate.
-152-
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SOURCES OF CAPITAL
USES OF CAPITAL
Ul
UJ
I
OPERATIONS:
NET INCOME
INCREASES IN DEFERRED TAXES
SALE OF PROPERTY, PLANT AND EQUIPMENT
EQUITY IN EARNINGS OF OTHER FIRMS
DEPRECIATION/AMORTIZATION
ACQUISITION OF PROPERTY, PLANT AND EQUIPMENT
INVESTMENT IN OTHER COMPANIES
REDUCTION IN DEBT
REPURCHASE OF OUTSTANDING SECURITIES
FOR TREASURY
DIVIDENDS FOR SHARE HOLDERS
NONOPERATIONS:
INCREASES IN DEBT
DIVIDENDS FROM OTHER FIRMS
NEW EQUITY ISSUES
COLLECTION OF LONG TERM RECEIVABLES
NET ADDITIONS TO WORKING CAPITAL
Figure 3—11. Capita! flows within a firm.
-------
Working capital can be thought of as a measure of the
company's capital needs for running its business.15 The
figure illustrates that in addition to funding changes in
this amount, capital can be used for expansion, outside
investment, alterations in capital structure, and dividends
for corporate shareholders.
Any investment that hazardous waste regulations might
require would be included in the category "acquisition of
property, plant, and equipment." A firm's ability to
generate sufficient capital for such an investment is thus
influenced by its ability to raise capital from outside
sources at reasonable prices, its ability to maintain
satisfactory operating incomes.and its ability to divert
existing capital funds from other potential uses, as well as
by the size of required incremental investment relative to
the capital budget.
Operations Profile. As mentioned previously, identifying
the firms included in the organic chemicals industry is not a
straightforward task as most organic chemical producers
are large firms engaged in diverse chemical and nonchemical
activities. Similarly, aggregate operations statistics for
the 22 firms identified as producers of at least one of the
six highly impacted product lines contain much information
unrelated to the chemical industry. Since most companies do
not disclose data by product line, it is impossible to
eliminate unrelated activities.
In order to control this problem as much as possible,
financial statistics were calculated based on the 10 largest
impacted firms that are recognized as being primarily in the
chemical business. While this does not solve the problem,
it reduces the amount of nonchemical "noise" in the
statistics. The 10 firms selected are the following:
1. Allied Chemical
2. American Cyanamid
3. Diamond Shamrock
4. Dow Chemical
5. DuPont
6. Ethyl
7. Monsanto
8. Stauffer
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9. Union Carbide
10. FMC Corp.
Table 3-45 presents operating statistics for this group
over the last 10 years. The statistics in Table 3-45 suggest
several conclusions. First, the industry is fundamentally
cyclical in nature. Profitability, as measured by the
ratios of income to (1} sales, (2) assets, and (3) net
worth, fell off markedly in response to the recessions
of 1970 and 1975, and recovered only slowly in the following
year. Similarly, the growth pattern of net income is
interrupted in these recession years. Second, the industry
has been expanding. Nominal net sales have grown over the
period at a rate greater than 15 percent annually. Net
income has also more than doubled. Third, the industry
is highly capital intensive and this trend is increasing.
The entire chemical industry in 1976 accounted for nearly
13 percent of the capital spending of all domestic
manufacturers while the industry accounted for only
8.6 percent of manufacturers shipments. Working capital
requirements and capital expenditure ratios have
significantly exceeded manufacturing averages over the
10-year period.
The organic chemicals segment of the chemical industry is
also significantly more capital intensive than manufacturing
in general. Capital expenditures as a percentage of assets
have averaged 11.5 over the 10-year period, compared with a
figure of 4.2 for all manufacturing.-^ The recent trends
of the ratios of capital expenditures to (1) assets and
(2) sales, as shown in the table, are strongly upward.
Capital expenditures have averaged more than 1.6 times
greater than net income, suggesting the industry's dependence
on nonincome sources of funds.
The cash flow estimates for the 10 firm sample, shown
in Table 3-46, are consistent with what would be expected of
a rapidly growing capital-intensive industry. The large
capital needs of firms have led to a negative net cash flow
over the last 10 years, requiring firms to raise capital
from outside sources. While the calculations in Table 3-46
are only an approximation to strictly defined cash flows,
they do show clearly that funds generated within the industry
have been insufficient to fund expenditures, and, thus, the
dependence on debt and equity financing is significant.
Capital Structure. The ability of a firm to raise
capital and the cost of that capital depend on the existing
capital structure of the firm. Two features of that structure
-155-
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TABLE 3-45
10-YEAR INDUSTRY FINANCIAL STATISTICS*
Net Sales
Net Income
Total Assets
Net Worth
Capital Expenditufe5
Income/Sales (%)
Income/Assets (%!
Income/Net Worth (%l
Capital Expenditures/
Total Assets !%)
Capital Expenditures/
Net Income
Capital Expenditures/
Net Sales (%)
1976
35 ,107,765
2.578,271
34,047,193
16,606,025
4,941,235
7.3
7.S
15.5
14.5
1.9
14.1
1975 1974
31,001.205 29,580,373
2,238,197 2,456,754
29,829,787 26.270,907
14.945,216 13,548,689
4.476,911 3,713,742
7.2 8.3
7.5 9.4
15.0 18.1
15.0 14.1
2.0 1.5
14.4 12.6
1973
22,445.871
1,823,926
21,978.177
11,919.645
2,237,765
8.1
. 8.3
15.3
10.1
1.2
10.0
1972 1971 1970 1969 1968 19G7
18,405.367 16,631,426 15,860,114 15,683,170 14,765,619 13,910,500
1,283,616 1,040,652 978.853 1.113,649 1,078.304 1,021,900
19,427,172 18,304,704 17.346,195 16,418,392 15,546.023 15,428.383
10,909,471 10.263,818 9,821,462 9,382,370 8,986,336 8,955,973
1.737,533 1,824,200 1,958,409 1,742,B9t 1,451,842 1,586,651
7.0 6.3 6.2 7.1 7.3 7.3
6.6 5.7 5.6 6.8 6.9 6.6
11.8 10.1 10.0 11.9 12.0 11.4
8.9 10.0 11.3 10.6 9.3 10.3
1.4 1.8 2.0 1.6 1.3 1.6
9.4 11.0 12.3 11.1 9.8 11.4
* Based on the 10 largest impacted chemical companies. Sources: Mcody's Handbook of Common Stocks, Summer 1977 Edition; Chemical and
Engineering News. "Facts and Figures for the Chemical Industry," June 7, 1976, June 5, 1972, Juna 6, 1977, Investment Survey, and Corporation Reports.
-------
TABLE 3-46
INDUSTRY CASH FLOW APPROXIMATIONS*
($($1.000)d)
CASH FLOW
COMPONENT
1976
1975
1974
1973
1972
1971
1970
1969
1968
1967
Net income alter taxes
Depreciaiion
Cash in flow
iL Dividends"
J\
I Capital expenditures
Cash outflow
Net cash flow
2,578,271 2,238.197 2.456,764 1.823.S26 1,283.6)6 1.040.6S2 978,853 1,113,649 1,078,304 1.021,900
2,024,600 1,787,300 1,627.300 1.444,300 1,398,900 1,332,000 1,294,600 1,233.300 1,181,500 1,146,590
4,602,871 4,025,497 4,084,064 3,268.3:26 2,682,516 2,372,652 2,273,453 2,346,949 2,259,804 2,163,490
909,466 791,018 765,022 724.494 685.333 658.S79 652,86i 662,177 670,785 687,865
4,941,235 4,476,911 3,713,742 2,237.765 1,737,533 1,824,200 1,953.403 1,742,891 1,451,842 1,586,751
6,860.701 5,267,929 4.478,764 2.962,256 2,422.846 2.483,179 2,61 i.270 2.405,068 2,122.657 2,274.656
(1,247,830) 11,242.432) (394.700) 3©5.3e? 259,650 (110,627) (337.817) (58,119) 137,177 (106,126)
'* Based on 10-firm sample. Sources: Chemical and Engineering News, "Faci? and Figures for the Chemical irrfustry." June 5, 1972, June 7, 1976,
June 6, 1977, Value Line Investment Survey, Moody's Handbook of Common Stocks, Summer 1977 Edition. Corporation Reports.
** Number of shares x dividends/share.
-------
are examined below, one dealing with capital from inside
sources and one dealing with sources outside the firm.
The structural statistic most widely analyzed is some
form of a debt/equity ratio. It is generally true that debt
financing is less expensive than new equity issues when the
amount of debt is moderate. However, as the amount of debt
rises, the interest obligations of the firm also rise.
Unlike dividends, these interest payments are a contractual
obligation that must be met during bad times as well as
good times under pains of bankruptcy and default. Hence,
as the interest obligation rises, the risk of bankruptcy
or default during income dov/nturns increases. This is
particularly important in a cyclical industry such as
organic chemicals. Therefore, a firm desires some debt
financing to exploit lower capital costs, but not so much
as to raise its bankruptcy risk excessively and increase
the risk borne by lenders to the firm (a risk ultimately
expressed in demands by lenders of a higher interest rate).
Table 3-47 presents a profile of the debt structure of
industry firms over the previous 10-year period. The
percentages displayed represent the amount of total invested
capital accounted for by long-term debt issues. While there
is some variance between selected firms, with Dow Chemical
relying more heavily and Dupont relying less heavily on debt
financing than average, all firms are within a rough
rule-of-thumb acceptable range; this is to say, no obvious
financial dangers are apparent. It is interesting to note
that Dow and Dupont have been approaching the mean levels
over the last several years.
Over the 10-year period, no other obvious trend among
these firms toward or away from debt financing is apparent.
As would be expected, debt financing, which is a substitute
for operating income as a source of funds, becomes more
important during times of declines in operating income.
This is observed in 1975. However, it is not clear that
this represents a trend. It is true, however, that debt
financing became relatively more important for the chemical
industry as a whole during this period. This possible
discrepancy between the chemical industry and the organic
chemicals segment might be explained by the relatively high
profits often returned by organic chemical product lines.
Another statistic which describes part of the capital
formulation process is the dividend payout ratio (the
percent of earnings paid out to shareholders in the form of
dividends). By reducing dividends, a firm can increase the
amount of retained earnings available for use in the capital
budget. Management, on the other hand, also wishes to
-158-
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TABLE 3-47
FINANCIAL LEVERAGE (%) OF SELECTED INDUSTRY FIRMS*
1
[ •
U1
1
FIRM
Allied Chemical
American Cyanamid
Diamond Shamrock
Dow Chemical
DuPont
Monsanto
PPG
Stauffef
Union Carbide
Vulcan**
Average
1976
32
27
40
36
23
29
29
40
32
29
28.8
1975
34
21
36
36
17
29
32
31
30
29
29.5
1974
28
19
33
37
16
25
28
27
24
20
25.7
1973
30
20
29
43
6
28
25
31
28
20
26.0
1972
33
20
30
44
7
30
27
31
29
20
27.1
1971
32
19
32
45
7
31
28
29
31
22
27.6
1970
32
13
26
46
5
32
27
27
32
19
25.9
1969
36
14
28
42
5
27
18
24
33
19
24.6
1968
35
13
27
39
4
27
19
25
33
18
24.0
1967
36
14
33
37
4
28
20
27
34
17
25.0
* Long-term debt/total invested capital. Sources: Chemical and Engineering News, "Facts and Figures for the Chemical Industry," June 5,
1972, June 7, 1976, June 6, 1977; Corporation Reports.
" Vulcan is used here in place of FMC because of lack of data for FMC.
-------
maintain dividends at a high, steady level to maximize
the price of its outstanding equity. Table 3-48 shows the
10-year dividend payout ratio for 10 industry firms. It is
readily apparent that the high payout rates of the 1960's
and the early 1970's have been drastically reduced, even
in times of earnings growth. This represents an attempt on
the part of the industry to raise additional funds from
within the firm.
The current structural position of all 22 manufacturers
of at least one selected highly impacted chemical is
summarized in Table 3-49. Included in this chart is the
current ratio, the ratio of current assets to current
liabilities. This statistic is a measure of the short-run
liquidity position of the firm. An unusually low current
ratio would suggest a large amount of cash outflow in the
near future relative to short-run ability to pay. Generally
a current ratio in the neighborhood of 2 to 1 is regarded as
satisfactory. However, it must be emphasized that the
proper level of the ratio varies significantly between firms
and industries and should be regarded only as the first step
in a detailed financial analysis. Table 3-49 illustrates
that several firms, particularly Dow Chemical and General
Electric, have relatively low current ratios, while the
majority are well within the standard range.
3.2.5.4 Model Plants
Because data were unavailable on the production costs,
profitability and cash flows of the six highly impacted
product linos, costs for a model plant were estimated.
Those modol production data will serve to characterize the
present condition of the hypothetical typical plant for each
product line.
The sizing of the model plants is discussed in
Section 2.1.1.5 and the size selected for each model is
displayed in Table 2-5. The actual production processes
for which costs have been developed are considered the most
common processes used in the production of each chemical by
the Assessment Study. In the case of perchloroethylene,
however, recent shifts in production techniques have caused
a change to a process using ethylene instead of the acetylene
identified in the Assessment Study.
It should be noted that the production costs for the
model plants for each of the six highly impacted product lines
are displayed in Tables 3-50 through 3-55. It should also
be noted that the cost data presented are for representative
plants. Plant size, process used, and the various estimated
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TABLE 3-48
DIVIDEND PAYOUT RATIOS (%) OF SELECTED INDUSTRY FIRMS'
FIRM
Allied Chemical
American Cyanamid
Diamond Shamrock
Dow Chemical
DuPont
FMC
Monsanto
PPG
Stauffer
Union Carbide
Average
1976
40
55
24
27
56
29
27
28
26
35
34.7
1975
43
49
23
21
78
29
30
40
24
38
37.5
1974
28
45
21
16
67
38
25
38
27
25
33.0
1973
37
56
36
32
48
37
28
36
41
44
39.5
1972
50
58
59
43
64
42
52
37
54
58
51.7
1971
64
63
88
52
68
59
68
46
73
79
66.0
1970
77
65
74
59
73
48
83
93
69
75
71.6
1969
49
62
92
52
69
42
S3
53
57
67
10.1
1968
-
65
77
52
69
50
57
58
77
60.1
1967
76
79
54
49
74
40
53
61
57
71
61.4
* Source: Moody's Handbook of Common Stocks, Summer 1977 Edition. Dividend payout ratio: dividends paid/net earnings.
-------
TABLE 3-49
CAPITAL STRUCTURE FINANCIAL RATIOS, 1976*
FIRM
Allied Chemical
American Cyanamid
Borden
Continental Oil Company
Dow Chemical
Dow-Corning
Diamond Shamrock
E.I. DuPont de Nemours
Ethyl
FMC
General Electric
B.F. Goodrich
Occidental (Hooker)
Monsanto
PPG
Quaker Oats
Shell
Stauffer
Union Carbide
Uniroyal (Monochem)
Sohio (Vistron)
Vulcan
DEBT/
CAPITALIZATION**
0.29
0.27
0.26
0.25
0.37
0.34
0.36
0.22
0.33
0.33
0.21
0.33
0.39
0.27
0.29
0.24
0.19
0.37
0.29
0.40
0.68
0.28
DEBT/
EQUITYt
0.47
0.38
0.37
0.40
0.66
0.55
0.66
0.32
0.55
0.53
0.25
0.54
0.71
0.41
0.46
0.34
0.26
0.68
0.52
0.74
2.3
0.46
CURRENT
RATIOtt
2.0
2.3
2.2
1.6
1.4
2.9
1.9
2.4
3.4
1.8
1.40
2.40
1.5
2.9
2.7
2.0
1.5
3.1
2.3
2.3
1.6
2.8
DIVIDEND
PAYOUT
RATIO?
0.40
0.55
0.37
0.26
0.27
0.24
0.56
0.20
0.29
0.40
0.85
0.36
0.27
0.28
0.37
0.28
0.26
0.35
0.88
0.38
0.31
Sources: Moody's Handbook of Common Stocks, Summer 1977 Edition, Value Line Investment
Survey, Chemical and Engineering News. "Facts and Figures on the Chemical Industry," June 5,1972,
June 7, 1976, June 6, 1977.
Long term debt/long term debt + preferred stock + deferred taxes + common equity + surplus.
t Long term debt/equity.
tt Current assets/current liabilities.
t Dividends paid/net earnings.
-162-
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TABLE 3-50
MODEL PLANT FOR PRODUCTION OF PERCHLOROETHYLENE*
CAPITAL COST**
Plant
$10,800,000
OPERATING COSTS**
ITEM
Ethylene
Chlorine
"Stabilizer"
Steam
Cooling Water
Process Water
Electricity
Fuel
Refrigeration
Labor and Overhead
Maintenance
Depreciation
Gross Return
Total
PRESENT MERCHANT MARKET
Perchloroethylene
Trichloroethylene
HC!
Total
BASIS (per Ib of product)
0.178lb@SG.0012/lb
1.71 ib @ 80.0675/lb
1 Ib @ S0.0003/!b
4.5 Ib @ S0.002/lb
36 gal @ SO .05/1 ,000 gal
3gai @ $0.30/1, 000 gal
0.091 kWh @ $0.02/kWh
572 Btu@ $2.00/1 0<5Btu
171 Btu@ SI 2.50/1 O^Stu
6/shift @ $25,000 man yr. .
6% of capital
9% of capital
25% of capital
VALUEt
0.80/Ib@S0.1625/lb
0.20/lb@S0.2075/lb
0.85/lb @ $0.054/lb
S1,000/YR
1,610
8,683
23
677
135
68
135
33
158
450
648
972
2,700
16,342
9,783
3,123
3,454
16,360
S/LB
0.0214
0.1154
0.0003
0.0090
0.0018
0.0009
0.0018
0.001 1
0.0021
0.0060
0.0086
0.0129
0.0359
0.2172
0.1300
0.0415
0.0459
0.2174
* Based on the following assumptions:
Model plant capacity: 86 million/yr (39,000 MT/yr)
Process: Toaglosei Chemical Company process from ethylene
Capacity utilization factor: 70%
Total annual production: 107.5 million/!b perchloroethylene and trichioroethylene
Source: Energy Resources Company estimates.
t Source: Chemical Markering Reporter, August 15, 1977.
-163-
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TABLE 3-51
MODEL PLANT FOR PRODUCTION OF CHLO ROM ETHANES*
CAPITAL COST"
Plant
59,800.000
OPERATING COSTS**
ITEM
Steam
Cooling water
Power
Chemicals and Supplies
Methanol
HCI
Oper. Labor & Overhead
Maintenance
Depreciation
Gross Return
Total
BASIS (per Ib of product)
3.6 Ib/lb @ 50.002/lb
36gal/lb@S0.05/1,OOOgal
0.16kWh@$0.02/kWh
S0.12/lb
0.37 Ib @ S0.0637/lb
0.80 Ib @ S0.0775/lb
S100,000/shiftx3
6% of capital
9% of capital
34% of capital
$1,000/YR
554
139
246
92
1,815
4,774
300
588
882
3,332
12,722
S/L.B
0.0072
0.0018
0.0032
0.0012
0.0236
0.0620
0.0039
0.0076
0.0114
0.0433
0.1652
PRESENT MERCHANT MARKET VALUEt
CH3CI
CH2CI2
CHCI3
CCI4
Total
0.70lb@S0.15/lb
0.15lb@S0.21/lb
0.10lb@$0.21/lb
0.05lb@S0.15/lb
8,085
2,425
1,617
577
12,704
0.1050
0.0315
0.0210
0.0075
0.1650
* Based on following assumptions:
Model plant capacity: 400 million Ib/yr (181,000 MT/yr)
Process: Chlorinatlon of methane
Capacity utilization factor: 70%
Source: Energy Resources Company estimates.
I Source: Chemical Marketing Reporter, August 15, 1977.
-164-
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TABLE 3-52
MODEL PLANT FOR PRODUCTION OF EPICHLOROHYDRIN*
CAPITAL COST"*
Plant $7.900,000
OPERATING COSTS**
ITEM BASIS (per Ib of pnduct) Sl.OOO/YR S/LB
Utilities S0.024/lb 3,960 0.0240
Lime 1.G ib/lb @ S0.015/lb 2,475 0.0150
Allyl chloride 1.04 Ib/lb @ S0.28/lb 48,048 0.2912
Chlorine 0.90 Ib/ib @ S0.0675/!b 10,032 0.0608
Labor and overhead $0.01/lb 1,650 0.0100
Maintenance 6% of capital 474 0.0032
Depreciation 9% of capital 711 0.0048
Gross return 28% of capita! 2,212 0.0134
Total 69,J62 0.4224
PRESENT MERCHANT MARKET VALUEt
Epichiorohydrin S0.44/lb 72,600 0.4400
Based on followinq assumotions:
Model plant capacity: 165 million Ib/yr (75,000 MT/yr)
Process: From allyl chloride
Capacity utilization factor: 90%
Note that - 69% of cost is due to allyl chloride which is usually made upstream by the same manufac-
turer.
"" Source: Energy Resources Company estimates.
T Source: Chemical Marketing Reporter, August 15, 1977.
-165-
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TABLE 3-53
MODEL PLANT FOR PRODUCTION OF VINYL CHLORIDE*
CAPITAL COST"
Plant
522,000,000
OPERATING COSTS**
ITEM
Chlorine
Ethylene
Catalyst
Net steam and fuel
Cooling water
Electricity
Royalty
Local taxes, insurance
Oper. labor, supervision
Overhead and admin.
Maintenance
Depreciation
Gross return
Total
BASIS (per Ib of product) $1.000/YR $/LB
0.63lb/lbVCM@S0.1675/lb 11,475 0.0425
0.47lb/lbVCM@S0.125/lb 15,876 0.0588
S0.15/lb 405 0.0015
0.0033 MM Btu/lb @ S2.00/MM Btu 1.782 0.0066
31 gal/lb@S0.05/1,OOOgal 432 0.0016
0.1 kWh/lb @ S0.02/kWh 540 0.0020
2% of capital 440 0.0016
1.5% of capital 333 0.0012
7/shift @ S25,000/yr 525 0.0019
50% of labor and maintenance 922 0.0034
6% of capital 1,320 0.0049
9% of capital 1,980 0.0073
20% of capital 4,400 0.0163
44,800 ~0.1496
PRESENT MERCHANT MARKET VALUEt
Vinyl chloride
1.0lb@S0.145-S0.150/lb
43,500-45,000 0.1450-0.1500
Based on the following assumptions:
Model plant capacity: 40 million Ib/yr (18,000 MT/yr)
Process: B.F. Goodrich oxychlorination (Badger process) from ethylene and chlorine
(includes EOC step)
Capacity utilization factor: 90%
Source: Energy Resources Company estimates.
t Source: Chemical Marketing Reporter, August 15, 1977.
-166-
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TABLE 3-54
MODEL PLAIXT FOR PRODUCTION OF ACRYLONITRILE*
CAPITAL COST*'
Plant
353,000,000
OPERATING COSTS"*
ITEM
Propylene
Ammonia
Catalyst
Utilities
Labor and overhead
Maintenance
Depreciation
Sales, R&D, admin.
Gross profitt
Subtotal
Acetonitrile credit
Total
BASIS (per Ib of product)
i.18 ib/lb@30.10/ib
0.4 Ib/lb @ S0.06/lb
S0.0099/ib
S0.0264/ib
S0.0099/ib
5% of capital
10% of capital
30.0094/ib
40% of capital
O.t lb@S0.24/lb
5^000/YR
42,480
8,640
3,564
9,504
3,564
2,650
5,300
3,384
21.200
100,286
(8,640)
91,646
S/LB
0.1180
0.0240
0.0099
0.0264
0.0099
0.0074
0.0147
0.0094
0.0589
0.2786
(0.0240)
0.2546
PRESENT MERCHANT MARKET VALUEtt
Acrylonitrile
1.0ib@S0.27/lb
108,000
0.2700
Based on the following assumptions:
Model plant capacity: 400 million Ib/yr (181,000 MT/yr)
Process: Sohio process
Capacity utilization factor: 90%
** Source: Energy Resources Company estimates.
t 50% tax rate.
tt Source: Chemical Marketing Reporter, August 15, 1977.
-167-
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TABLE 3-55
MODEL PLANT FOR PRODUCTION OF FURFURAL*
CAPITAL COST **
Plant 814,000,000
OPERATING COSTS*'
ITEM BASIS (per Ib of product) $1,000/YR S/LS
Sulphuric acid 1.0 Ib/lb @S0.024/lb 864 0.024
Steam 16 Ib/lb @ S0.0020/lb 1.152 0.032
Electricity 2.0 kWh/lb @ S0.02/kWh 1,440 0.040
Raw materials S75/ton, 20% yield 6,750 0.188
Waste disposal 4 Ib/lb @ 30.005/lb 720 0.020
Credits f S0.045/lb (1,620) (0.045)
Operating labor 7/shift @ 324,000 man yr 504 0.014
Maintenance 4% of capital 560 0.016
Depreciation 9% of capital 1,260 0.035
Gross return 35% of capital 4,900 0.136
Total 16,530 0.460
PRESENT MERCHANT MARKET VALUEtt
Furfural 1.0 Ib/lb @ S0.47/lb 18,800 0.470
* Based on the following assumptions:
Model plant capacity: 40 million Ib/yr (18,000 MT/yr)
Process: Hydrolysis of pentosans
Capacity utilization factor: 90%
** Source: Energy Resources Company estimates.
t From methanol and firing some of the waste under boilers.
tt Source: Chemical Markatir.g Reponer, August 15, 1977.
-168-
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cost components will vary from plant co plant. However,
assuming chat all producers remain competitive, the model
plants presenced are believed to represent a reasonable basis
for the development of process economics cost data to be
used in the economic impact analysis.
-169-
-------
NOTES TO CHAPTER THREE
1. Statistical__Ahstjract of the U.S. 1976, Table 640,
National Tnoomo~'wl FTiout" capitoT consumption adjustments
by industrial origin 1950-1975.
2. Moody's Industrial Manual, 1976.
3. Personal communication, Regis Schultis, Smith,
Barney and Co., to John Eyraud, ERCO, September 1977.
4. Personal telephone communication, Tom Holcomb,
Vulcan Materials, to Jeffery Stollman, ERCO, September 12,
1977.
5. ABS resins are manufactured from acrylonitrile, and
currently represent only a small portion of the acrylonitrile
end-use market. Within the limits provided by current
capacities, a large increase in ABS resin production would
require some decrease in the other uses of acrylonitrile.
6. Personal communication, Merlin Kennigy, Ethyl
Corporation, to John Eyraud, ERCO, August 1977.
7. Chemical Marketing Reporter, September 19, 1977.
8. Chemical Marketing Reporter, September 19, 1977.
9. Personal communication, Diane Hamburger, Quaker
Oats Company, to John Eyraud, ERCO, August 1977.
10. Furfural market charted. Chemical Marketing
Reporter, July 21, 1975.
11. TRW, Inc., Assessment of industrial hazardous
waste practices of the organic chemicals, pesticides and
explosives industries, prepared for the U.S. Environmental
Protection Agency, 1976.
12. TRW, Inc., Assessment study, 1976, p. 5-3.
13. Mr. Jim French, American Cyanamid; Mr. Jack Devoe,
Allied Chemical; Mr. Web Fox, Diamond Shamrock; Mr. Rich
Moeller, General Electric; Mr. Stan Paist, ERCO consultant.
14. Depreciation is subtracted from income before
tax liability is calculated but it involves no cash outflow.
Hence, it provides capital by reducing tax liability.
-170-
-------
15. The technical definition of working capital is
the difference between current assets and current liabilities
16. U.S. Bureau of Census, Annual survey of
manufacturers, 1968-77. Note that capital expenditure
data were not available yet for 1975 and 1976. Accordingly,
the average for all manufacturing contains data only for the
8-year period 1967-74.
-171-
-------
15. The technical definition of working capital is
the difference between current assets and current liabilities,
16. U.S. Bureau of Census, Annual survey of
manufacturers, 1968-77. Note that capital expenditure
data were not available yet for 1975 and 1976. Accordingly,
the average for all manufacturing contains data only for the
8-year period 1967-74.
-171-
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CHAPTER FOUR
THE COSTS OF COMPLIANCE
This chapter deals with the cleveloprnenc of estimates
for the coses to be incurred by producers of highly impacted
chemicals in comolyinc, with expected hazardous waste
regulations. The chapter consists of four sections.
Section 4.1 presents the estimates that will be used
in the economic impact analysis presented in Chapter Five.
Two sets of estimates were developed, a best estimate and a
worst-case estimate. The best estimate of cost was derived
for treating the waste streams of each product according to
the use of proven current technology. In addition, a
worst-case estimate of cost was also developed to account
for unusual circumstances that could result in higher than
average costs.
Section 4.2 presents the results of the technology
assessments of potential hazardous waste treatment processes
provided in the previous studies performed for EPA. A
discussion is included of the comparability of these studies
and of che choice of treatment to be used in the economic
impact analysis. The cost estimates from these studies of
implementing the hazardous waste treatment technologies are
presented and analyzed in Section 4.3. In addition, the
sensitivity of these estimates to the assumptions is reviewed,
and the methodology used to generate the estimates of
Section 4.1 is discussed. This chapter concludes with a
short discussion in Section 4.4 of costs for hazardous waste
treatment to be incurred by very small plants not included
in available data sources.
4.1 Cost Estimates
In its evaluation of hazardous waste practices, the
Assessment Study, discussed in detail in Section 4.2,
identified the following three levels of treatment and
disposal technology:
Level I: Current average practice in the industry.
Level II: Best technology in commercial use at one
or more plants.
-173-
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Level III: Technology necessary to provide adequate
environmental protection.
In certain cases, the technologies for two or all of these
levels may be identical. In performing the economic
analysis, Level III was assumed to represent compliance with1
the regulations addressed in this project. The costs of
compliance are therefore the incremental costs incurred by
each facility which has a hazardous waste stream to upgrade
their existing waste* treatment practice to Level III.
The Assessment Study and the Alternatives Study,2 which
are discussed in detail in Section 4.2, developed estimates
of the costs of hazardous waste treatment for a number of
significant production processes in the organic chemicals,
pesticides, and explosives industries. These estimates were
then subjected to review and comparative analysis in order
to develop a best estimate of compliance cost for model
plants producing each of the six highly impacted product
lines. These best estimates are presumed to represent the
most likely capital costs and total treatment costs per unit
of product applicable to all plants in the industry. The
estimates are the net costs of upgrading the hazardous waste
treatment system from Level I (average current practice)
to Level III (adequate for environmental protection).
The best estimates of compliance cost are presented
in Table 4-1. The table shows that unit treatment cost
ranges from less than $0.40/MT of acrylonitrile to over
$7/MT of perchloroethylene. The table also shows these
incremental costs as a percentage of merchant market price
for each product line. Perchloroethylene appears to be
hardest hit by treatment with abatement costs equal to
2.1 percent of price.
A sensitivity analysis revealed that the cost estimates
presented in Table 4-1 were highly sensitive to a 25 percent
uncertainty in the cost estimation procedure as well as
site-specific factors, in particular the actual level of
existing waste treatment at each plant. Accordingly, a
second set of cost estimates was developed to yield an
estimate o£ compliance costs for those plants potentially
subject to a worst-case cost situation. The worst-case cost
estimates presume that no waste treatment is currently
practiced at the plant and that the full 25 percent cost
uncertainty will be incurred in facility installation and
operation.
The worst-case estimates of compliance costs are
presented in Table 4-2. As can be seen from this table
perchloroethylene remains the hardest hit product with
-174-
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TABLE 4-1
BEST ESTIMATES OF TREATMENT COSTS'
1
--J
l_n
t
INDUSTRIAL
PRODUCT
Perchloroelhylene
Cliloromethanes
Epichlorohydrin
Vinyl Chloride
Acrylonitrile
Furfural
MODEL
PLANT SIZE
(MT/yr)
39,000
50,000
75,000
136.000
181,000
18,000
LEVEL II!
TREATMENT
TECHNOLOGY
Controlled Incineration
Controlled incineration
Controlled incineration
Controlled incineration
Controlled Incineration
Controlled incineration
ASSUMED EXISTING
LEVEL 1
TREATMENT
Landfill
Chemical Landfill tt
Landfill
Landfii!
Chemical Landfill tt
Landfill
CAPITAL
INVESTMENT
COSTW
1,178,000
184,000
866.000
860,000
226,570
1.140.700
COST
PER MT OF
PRODUCT ($)
7.69
0.59
2.03
1.22
0.37
1.95
%OF
PRODUCT
PR ICE t
2.1
0.2
0.2
0.4
0.1
02
* Energy Resources Company !nc. estimates based on costs from tha Alternatives Study.
** Adjusted to a 1976 base year,
t Price sources from tha CMR, 1976.
tt Not specified as environmentally adequate in Assessment Study because wastes are not detoxified or neutralized.
-------
TABLE 4-2
WORST-CASE ESTIMATES OF TREATMENT COSTS*
1
~J
Ol
1
INDUSTRIAL
PRODUCT
Perchloroethylene
Chloromethanes
Epichlorohydrin
Vinyl Chloride
Acrylonitrilett
Furfural
MODEL
PLANT SIZE
IMT/yr)
39.000
50.000
75,000
136.000
181,000
18,000
COMPLYING TREATMENT
TECHNOLOGY
Controlled Incineration
Controlled Incineration
Controlled Incineration
Controlled Incineration
Controlled Incineration
Controlled Incineration
CAPITAL
INVESTMENT
COSTISI"
1,472.500
230.000
1.082.500
1,075.000
393,109
1,425.875
COST
PER MTOF
PRODUCT ($)
13.46
1.70
3.67
1.75
0.65
9.88
%OF
PRODUCT
PRICEt
3.7
0.5
0.4
0.6
0.1
0.9
* Energy Resources Company Inc. estimates based on costs from the Alternatives Study.
* * Inflated 25 percent to reflect overall engineering uncertainty.
t Source: Chemical Marketing Reporter, October 1976.
tt Original costs from the Alternatives Study were adjusted linearly to match the model size, and thus reflect no economies of scale.
-------
abatement costs equal to 3.7 percent of price - nearly twice
the best estimate ratio. The ratios for the other products
have increased by similar magnitudes.
4.2 Technology Assessment
Three studies have been conducted for EPA to assess
th** technology applicable to hazardous waste treatment
and disposal for the organic chemicals industry. These
aro:
1. Assessment of Industrial Hazardous Waste
Practices of the Organic Chemicals, Pesticides
and Explosives Industries by TRW, Inc.
(referred to here as Assessment Study).
2. Analysis o£ Potential Application of Physical,
Chemical and Biological Treatment Techniques to
Hazardous Waste Management by Arthur D. Little
Co. (referred to here as Techniques Study). •*
3. Alternatives for Hazardous Waste Management
in the Organic Chemicals, Pesticides and
Explosives Industries by Processes Research
Incorporated (referred to as Alternatives
Study) .
Each of these studies and their contributions to the
economic analysis are discussed below. In addition, the
Level III technologies chosen as representing compliance
with the anticipated regulation are identified.
4.2.1 The Assessment Study
In addition to establishing the technology levels
mentioned in Section 4.1, the Assessment Study serves three
functions: (1) it provides a technical characterization of
the production processes used in the organic chemicals,
pesticides, and explosives industries; (2) it analyzes the
hazardous waste streams that result from these processes and
estimates the volumes produced; and (3) it assesses the
applicability of the technologies and their costs for
achieving Levels I, II, and III. The waste and process
characteristics presented are not only the basis of the
technology assessment presented in this report, but are
also the basis of the Alternatives Study discussed in
Section 4.2.3. A summary of the technology assessment is
presented after a brief discussion of the study methodology.
-177-
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The explosives industry and the pesticide formulation
and preparation industry required special attention in the
Assessment Study due to the difficulty of obtaining production
and financial data. This difficulty has precluded detailed
consideration of explosives or pesticide formulation industries
in the current study. These industries and the data presented
for them in the Assessment Study will not be discussed in
this chapter. Technical organic pesticides, which fall
under SIC 2869, are, however, included in the purview of
this analysis.
The data sources for the Assessment Study included the
open literature, prior EPA studies, industry and government
sources, and prior TRW studies. The data search was keyed
towards estimating production rates, processes used, waste
quantities, waste components, waste stream destination, and
waste hazard classification for individual components.
The chemicals considered were initially restricted by
the following criteria:
1. Individual organic chemical compounds whose
production in the United States was 10 million
pounds per year or more.
2. Groups of closely related organic compounds for
which production data were readily accessible,
or for which group production was 10 million
pounds per year or more.
3. Organic chemical compounds closely related to the
compounds of (1) above.
4. Suspected carcinogens, 14 of which were not
included under (1), (2), or (3) above.
5. Technical organic pesticides for which U.S.
production was 1 million pounds per year or
more.
These criteria limited the study to 899 plant sites and
373 chemicals, estimated to account for 90 percent of the
total industry tonnage produced in 1973. For each of the
373 chemicals produced, detailed production process
descriptions, including waste characterizations and volume
generation factors, were developed and classified into
general production process used. From this list, 26 chemical
processes were chosen and a hypothetical typical plant was
developed for each. This selection was made on the basis of
the significance of a product and its waste streams, its
national production volume, and the importance of the
-178-
-------
chemical products group it represented. For each of the
26 processes, a detailed analysis of the process and the
wastes produced was performed, based on the hypothetical
typical plant models which represented as closely as possible
the actual plants in the industry. Wastes were characterized
as highly dangerous, moderately dangerous, and other according
to specific criteria, and estimates were made of 1973, 1977,
and 1983 quantities of waste requiring land disposal.
In the Assessment Bt_u_dy_, 15 of the identified processes
were selected for analysis of applicable hazardous waste
treatment technologies. The processes were chosen on the
basis of waste stream volume and hazardous character. Each
of the three levels of treatment/disposal technology was
examined.
Table 4-3 presents the data on the 15 hypothetical
typical processes chosen for technology assessment. These
data were used as the basis of the cost estimations discussed
in Section 4.3. Table 4-3 shows that Level III technology,
with two exceptions (atrizine and trifluralin), is identical
to Level II technology. This implies that technologies
currently in use in at least one commercial application are
sufficient to achieve adequate environmental protection.
In particular, this fact applies to the five entries in
Table 4-3 which were chosen for the economic analysis. The
sixth product chosen, furfural, was not analyzed in depth in
the Assessment Study.
It should be noted that the five products in Table 4-3
selected for economic analysis all require controlled
incineration at Level III. Although this indicates that the
six-product sample for economic analysis does not include a
broad range of technologies, there are two good justifications
for this selection. First, controlled incineration is by
far the dominant Level III technology, as it is well suited
to wastes in the organic chemicals industry. Second,
controlled incineration is generally a more costly alternative
than other potential Level III technologies. Thus, the
economic costs are likely to be higher for those products
requiring controlled incineration, and the ratio of abatement
cost to product price - a surrogate criterion for economic
impact - will consequently tend to be greater. By selecting
these processes, therefore, attention will be focused on the
areas of most significant impact.
A major drawback of the Assessment Study is that it deals
with the standard, established technologies for hazardous
waste management, primarily incineration and landfilling.
However, the identified Level III technology might not be
the best treatment option on either economic or environmental
-179-
-------
TABLE 4-3
DATA FOR THE FIFTEEN HYPOTHETICAL TYPICAL PLANTS EXAMINED IN THE ASSESSMENT STUDY*
1
1— '
en
o
1
INDUSTniAL PRODUCT
Perditoroethylene"
Nilrobeniene
Chloiomethanes" "
Epichlorohydrin* "
Toluene
Drrsocyanate
Vinyl Chloride"
Methyl
Metlucrylate
Acrytanilrile**
Malcic Anhydride
Lead Alky Is
Atruine
Trilluralin
AJririn
Malalhion
Parathion
SIC
28.692
28.651
20,692
28.692
28.651
28.692
28.692
28.692
28.692
28.692
28.694
28.694
28.694
28.694
2B.694
TOTAL I9H US
PRODtlCTION
ll.OOOMI)
370
140
1.115
225
230
2.432
320
614
128
506
41
11
0
14
62
ANNUAL
PRODUCTION
OF THE
MOOt L PLANT
(MT)
39,000
20.000
50.000
75.000
27.500
136.000
55.000
80.000
11.000
60.000
20.000
10.000
4.500
14.000
20.000
WASTE HAZARD
Liquid Heavy
Ends
Liquid Heavy
Ends
Solid Tailt
Liquid Heavy
End:
Residue Sludge
Liquid Heavy
Ends
Liquid Heavy
Ends
Liquid Heavy
Impurities
Sludge and
Residue
Lead Sludge
Alkali
Scrubber
Solution
Solid Spent
Carbon
Area and
Equipment
Filter Cake .
Sulfur Sludge
ANNUAL
PRODUCTION
OF WASTE
BY THE MODEL
(Mil
12.000
50
300
3.975
588
1.400
4,730
60
333
30.000
224.600
1.150
289.000
1.826
2.300
CONTROL TECIWOt-OGjeS
LEVEL 1
Deep Well
Injection
OnSite
Landfill
Contract or
LandlM
On- Site
Storage
On Site
L and 1 ill
Contractor
Incineration
Uncontrolled
Inckieation
Uncontrolled
Incineration
LMHllBI
Incineration
with Lead
Recovery
Deep Well
Disposal
Drum
Storage
Lined Pond
NaOH
Addition
and Bur la)
Uncontrolled
Incineration
i.EVFL it
Controlled
Incineration
Controlled
Incineration
Controlled
Incineration
Controlled
Incineration
Controlled
Incineration
Controlled
Incineration
Controlled
Incineration
Controlled
Incineration
Secured
Landfill
Controlled
Incineration
and Recovery
Deep Well
Disposal
Trench
Storage
Lined Pond
NaOH
Addition
and Bur rat
Secured
LandfW
LEVEL III
Contiolleil
Incineration
Controlled
Incinef ation
Controlled
Incineration
Controlled
IncinCT ation
Controlled
InriiMT ation
Controlled
Incineration
Controlled
Incineration
Coritroll«1
Incineration
Sea ire\l
LandliM
Controlled
Incineration
arrd Rer-overy
O/onation
and Deep Well
Disposal
Reuwieratioo
of Carhon
Lined Pond
NaOH
AdiKtion
artd Duri
-------
grounds, if alternative control tecnniquea ore considered.
The identification of alternative techniques, was the goal of
the T,o_chn_u2u^-, _S_tuJy;, d i :unj a n o d in the following section.
The appl icahi ii ty of these alternatives to ti^ waste streams
identified in the Assessment Study is analyzed in the
Alternatives Study, which is discussed in Section 4.2.3.
4.2.2 The Techniaues_S_tudj]/
The Techniques _S_tudiy_ analyzed cne potential
applicability of 44 physical, chemical, and biological
treatment techniques to hazardous waste management. The
techniques were characterized according to current and
likely future availability and according to the categories
of waste for which they would most likely be applicable.
Table 4-4 presents a list of the categories of potential
availability. Eleven of the 44 techniques were classified
as I or II and were not considered in the Alternatives Study
as potential alternative hazardous waste treatment techniques
for use by the organic chemicals, pesticides, and explosives
industries. The 33 remaining techniques and their
availability are presented in Table 4-5. The most promising
techniques were analyzed in detail, and the data provided
included the efficiency and engineering characteristics
of the technique, the environmental characteristics, the
energy use, and the impact on water use, in addition to its
availability. These data were used in the Alternatives
Study to determine the applicability and advantages of the
techniques for treating hazardous wastes in the organic
chemicals, pesticides, and explosives industries.
4.2.3 The Alternatives Study
In the Alternatives Study, a total of 20 waste streams
(from 13 production processes)1* were selected from the
Assessment Study and analyzed in conjunction with
33 alternative treatment methods selected from the Techniques
Study. The objective of the Alternatives Study was to
identify attractive alternative treatments for each of the
hazardous waste streams. The treatments were selected on
the bases of (1) resource or energy recovery, (2) level of
detoxification, (3) technical viability, and (4) economic
feasibility. The study emphasizes that the practices of
secure landfilling and controlled incineration, although
they may be relatively inexpensive and can be made
environmentally sound, are not always the best available
technology. For each waste stream, the most attractive
alternative treatment was chosen and analyzed. Table 4-6
presents the selected alternative treatments.
-181-
-------
TABLE 4-4 I
CATEGORIES OF AVAILABILITY USED IN THE TECHNIQUES STUDY*
NUMBER
DESCRIPTION
LEVEL OF CHARACTERIZATION
IN REPORT
IV
Process is not applicable in a
useful way to wastes of interest
to the OSW/HWMD program.
Process may be available after
5-10 years of research.
Process is available or will soon
be available and may provide
attractive alternative for
h^ardous waste management.
Process is available and developed
but not commonly used for
hazardous wastes.
Process will be common to most
industrial waste processing
practices.
Category assignment.
Category assignment and a
description of technical
problems which need to be
resolved.
Category assignment, descrip-
tion of technical problems,
and projections of the applica-
tions to industrial wastes.
Category assignment, descrip-
tion of technical problems, and
projections of the applications
to industrial wastes.
Description of current applica-
tions and potential including
costs, environmental effects,
energy requirements, etc.
Source: Processes Research, Inc., Alternatives for Hazardous Waste Management in the
Organic Chemical, Pesticides and Explosives Industries, prepared for Office of Solid Waste Manage-
ment Programs, Hazardous Waste Management Division, December 1976.
-182-
-------
TABLE 4-5
33 ALTERNATIVE TECHNIQUES FROM THE TECHNIQUES STUDY"
TYPE
Physical
Chemical
TREATMENT
Air Stripping
Carbon Adsorption
Centrifugation
Distillation
Evaporation
Filtration
Flocculation
Flotation
Ion Exchange
Resin Adsorption
Reverse Osmosis
Sedimentation
Solvent Extraction
Steam Distillation
Steam Stripping
Ultraflltration
Crushing and Grinding
Calcination or Incineration
Catalysis
Chlorinolysis
Electrolysis
Hydrolysis
Neutralization
Oxidation (includes chlorination)
Ozonation
Precipitation
Reduction (includes dechlorination)
CATEGORY
n.s.**
n.s.
V
IV
HI
V
n.s.
n.s.
n.s.
ill
n.s.
V
II!
IV
IV
II
V
V
III
III
n.s.
Ill
V
IV
III
n.s.
IV
Biological
Activated Sludge
Aerated Lagoon
Anaerobic Digestion
Composting
Trickling Filter
Waste Stabilization Pond
IV
III
IV
V
n.s
n.s.
" Source: Processes Research, Inc., Alternatives for Hazardous Waste Management in
the Organic Chemical, Pesticides and Explosives Industries, prepared for Office of Solid
Waste Management Programs, Hazardous Waste Management Division; December 1976.
** Not specified.
-183-
-------
TABLE 4-6
MOST ATTRACTIVE ALTERNATIVE HAZARDOUS WASTE TREATMENT
TECHNOLOGIES IDENTIFIED IN THE AL TERNATIVE STUDY*
INDUSTRIAL
PRODUCT
Perchloroethylene**
Nitrobenzene
Chloromethanas**
Epichlorohydrin**
Toluene diisocynate
Vinyl chloride**
Methyl methacrylate
Acrylonitrile**
Maleic anhydride
Leadalkyls
Ethanolamines
Furfural**
Fluorocarbon
Chlorobenzene
Atrozine
TriMuralin
Malathion
Parathion
WASTE
STREAM
Liquid heavy ends
Liquid heavy ends
Solid tails
Liquid heavy ends
Residue sludge
Liquid heavy ends
Liquid heavy ends
Liquid heavy impurities
Sludge and residues
Lead sludge
TEA and tars
Sulfuric acid, tars and
polymers, and fines
and particulates
Chlorides and
organic:
Resins
Alkali scrubber
Solid spent carbon
Filter cake and
liquid wastes
Sulfur sludge
ALTERNATIVE
TREATMENT
PROCESS
Distillation
Steam distillation
Distillation
Solvent extraction
Hydrolysis
Distillation
None
None
None
Filtration
Centrifugation or
sedimentation
Sedimentation
and Distillation
Reduction or
distillation
None
Neutralization
Crushing and grinding
Hydrolysis and
sedimentation
Sedimentation
BENEFITS DERIVED
Volume reduction, detoxifi-
cation and materials recovery
Volume reduction, byproduct
recovery
Volume reduction, byproduct
recovery
Volume reduction, product
recovery
Detoxification and product
recovery
Volume reduction and
materials recovery
-
-
-
Volume reduction, detoxifi-
cation and materials recovery
Materials recovery, low
energy use, or volume reduc-
tion and detoxification
Volume reduction, product
and materials recovery
Materials recovery, low
energy use, or volume reduc-
tion and detoxification
-
Detoxification, materials and
byproduct recovery
Volume reduction, byproduct
recovery
Volume reduction, detoxifi-
cation, materials and product
recovery
Volume reduction, materials
recovery.
Source: Processes Research, Inc., Alternatives for Hazardous Waste Management in the Organic
Chemical, Pesticides and Explosives Industries, prepared for Office of Solid Waste Management Programs,
Hazardous Waste Management Division; December 1976.
Selected for economic analysis.
-184-
-------
Most of the selected techniques involve significant
advantages in reducing waste volume and in reclaiming and
reusing economically valuable components in the waste
stream. These techniques, unlike those characterized in the
Assessment Study, have generally not been demonstrated in
commercial use for the application suggested. For this
reason, there may be some resistance in the industry
against instituting the alternatives, especially in the case
where no cost advantage over demonstrated Level III
technologies exist. However, in those cases where a cost
advantage exists, in particular for the industry segments
subject to the largest impact, the alternative techniques
will provide an opportunity for firms to reduce the impact
of meeting environmental goals. In the cases where a
significant cost advantage exists for the alternative due to
the reclamation of valuable components, the alternative may
be adopted throughout the industry. This result will reduce
the impact of meeting environmental goals on the industry at
the same time as it increases the recovery of valuable
resources.
The Alternatives Study also examined the costs of
standard treatment technologies such as incineration and
landfilling. However, the large variations in costs
estimated for similar technologies by this and the Assessment
Study, discussed in Section 4.3.2, hint that the technical
assumptions used may be quite different. Therefore, the
technologies analyzed in the two studies may not be strictly
comparable. For example, "controlled incineration" as
specified in the Assessment Study is probably not identical
to "incineration" as specified in the Alternatives Study.
However, both incineration and the alternative treatments in
the Alternatives Study are identified as adequate to protect
the environment. In this study, they were therefore assumed
to be appropriate Level III technologies, and the choice of
which of the two studies to use for characterizing Level III
technology was based on the choice of which cost estimates
to use. These are discussed in Section 4.3.
An exception to this rule is furfural, which has two
separate hazardous waste streams. The Alternatives Study
presents two possible treatment alternatives which will
adequately protect the environment, namely, incineration
and a process utilizing sedimentation and distillation. The
Assessment Study did not analyze hazardous waste treatments
for furfural. Chemical landfilling was not considered to
be adequate because it does not provide for detoxification
or recovery of hazardous materials. The incineration
alternative was chosen as the most likely technique to be
adopted because it is an accepted and prevalent method for
treating hazardous wastes and is considerably less costly.
-185-
-------
The sedimentation and distillation treatment process is
considered as an alternative which may be used in certain
cases.
4 . 3 Cost Analysis
In addition to their technical assessment of hazardous
waste treatment, the Assessment Study and Alternatives Study
present data and estimates of the costs of the treatment
technologies they investigated. The cost estimates developed
are summarized in Section 4.3.1 and are analyzed in
Section 4.3.2. Section 4.3.3 presents the methodology used
to develop the best and worst-case estimates of the costs of
compliance.
4.3.1 Cost Estimates
The cost estimates for achieving Levels I, II, and III
using the standard technologies identified in the Assessment
Study are presented in Table 4-7 for the 15 products covered.
The corresponding costs estimated for the 23 products
considered in the Alternatives Study for Level III technologies
were not available in similar detail at the writing of this
report. However, summary estimates, expressed as the
treatment cost per metric ton of waste on a dry basis, are
presented in Table 4-8.
While it can be expected that the Level III Alternatives
Study costs for landfill and incineration should be very
close to the Level III Assessment Study costs for the same
products, this is not the case. The treatment and cost
estimates from the two studies are presented in Table 4-9,
and a significant divergence among the costs developed in
each study is evident. A discussion of the bases for the
estimations and an assessment of the comparability of the
costs developed in the two reports are therefore required.
In addition, an attempt must be made to identify sources of
error and of uncertainty. These issues are addressed in the
following section.
4.3.2 Comparative Analysis of Costs
Because of the striking differences in costs for
similar treatments between the Assessment Study and the
Alternatives Study, the bases for cost estimation used
in each study were reviewed. Table 4-10 displays the
assumptions used in each of the reports for the development
of cost estimates. As can be seen from the table, the
-186-
-------
TABLE 4-7
HAZARDOUS WASTE TREATMENT COST ESTIMATES IIS) THE ASSESSMENT STUDY*
I
M
CO
I
INDUSTRIAL
PRODUCT
Perch loroethylene
Nitrobenzene
Chlorornethana
solvents
ANNUAL WASTE**
PRODUCTION
OF MODEL PLANT
(MT)
12,000 Treatment
investment
Annual cost
Capital
Operating
Energy
Total
Cost/metric ton
of waste
50 Treatment
Investment
Annual cost
Capital
Operating
Energy
Contractor
Total
Cost/metric ton
of waste
300 Treatment
Investment
Annual cost
Capital
Operations
Energy
Contractor
Total
Cost/metric ton
of waste **
LEVEL 1
Deep well injection
$262,000
26,200
7^,000
67,600
167,800
16
On-site landfill
$27,000
2.700
9,100
100
0
11,900
238
Contractor landfill
$ 0
0
7,100
0
16,100
23,200
77
COST ESTIMATES
LEVEL II LEVEL III
Controlled incineration Controlled incineration
$7,080,000 Same as Level I
108,000
430,700
64,200
602,900
57
Controlled incineration Controlled incineration
$4,900 Same as Level I!
4,500
6,600
200
0
9,100
182
Controlled incineration 'Controlled incineration
$170,000 SameasLeveM!
17,000
95,900
1,100
0
114,000
380
Source: TRW, Inc., Assessment of Industrial Hazardous Waste Practices: Organic Chemicals, Pesticides and explosives Industries, prepared for
U.S. Environmental Protection Agency; 1976.
Based on dry weight .
t No credit for lead recovery.
tt Credit taken for regenerated carbons.
-------
TABLE 4-7 (CONTINUED)*
oo
CD
I
INDUSTRIAL
PRODUCT
Trifluralin
Parathion
Malathion
AMNUAL WASTE"
PRODUCTION
OF MODEL PLANT
(MT)
1,150 Treatment
Investment
Annual cost
Capital
Operating
Energy
Total
Cost/metric ton
of waste **
2,300 Treatment
Investment
Annual cost
Capital
Operating
Energy
Contractor
Total
Cost/metric ton
of waste * *
1,826 Treatment
Investment
Annual cost
Capital
Operating
Energy
Contractor
Total
Cost/metric ton
of waste * *
LEVEL I
Storage in drums
537,200
3,700
331,600
0
335,500
192
Uncontrolled incineration
$130,700
13,100
83.300
2,900
0
99,300
43
NaOH addition and burial
$34,300
3,400
28,100
800
0
32,300
18
COST ESTIMATES
LEVEL II
Storage in trendies
$34,400
3,400
29.500
0
33,900
19
Secured landfill
$38,500
3,800
22,800
1,200
0
27,800
12
NaOH addition and burial
Same as Level 1
LEVEL III
Regeneration of carbon
$2,250,000
225,000
30,000
0
267.000M
153
Secured landfill
Same as Level II
NaOH addition and burial
Same as Level 1
* Source: TRW, Inc., Assessment of Industrial Hazardous Waste Practices: Organic Chemicals, Pesticides and Explosives Industries, prepared for
U.S. Environmental Protection Agency; 1976.
** Based on dry weight .
t No credit for lead recovery.
It Credit taken for regenerated carbon.
-------
TABLE 4-7 (CONTINUED)*
h»'
CO
INDUSTRIAL
PRODUCT
Methyl
mclhacrylate
Acrylonitrile
Maleic anhydride
ANNUAL WASTE"
PRODUCTION
OF MODEL PLANT
(MT)
4,730 Treatment
Investment
Annual cost
Capital
Operating
Energy
Contractor
Total
Cost/metric ton
of waste * *
60 Treatment
Investment
Annual cost
Capital
Operating
Energy
Contractor
Total
Cost/metric ton
of waste
333 Treatment
Investment
Annual cost
Capital
Operating
Energy
Contractor-
Total
Cost/metric ton
of waste
LEVEL 1
Uncontrolled incineration
$114,500
11,400
81,100
5,700
0
98,300
21
Uncontrolled incineration
$4.100
4,400
14,800
200
19.400
38,800
323
Landfill
$23,000
2,300
15,900
400
0
18,600
56
COST ESTIMATES
LEVEL II LEVEL III
Controlled incineration Controlled incineration
$134,800 Same as Level II
13,500
84,500
5,900
0
103,900
22
Controlled incineration Controlled incineration
$4,600 Same as Level II
5,600
24,500
300
31,400
61,800
523
Secured landfill Secured landfill
$30,700 Same as Level II
$3,100
22,100
400
0
25,600
77
„_ ...
* Source: TRW, Inc., Assessment of Industrial Hazardous Waste Practices: Organic Chemicals, Pesticides and Explosives Industries, prepared for
U.S. Environmental Protection Agency; 1976.
** Based on dry weight
t No credit for lead recovery.
tt Credit taken for regenerated carbons.
-------
TABLE 4-7 (CONTINUED)1
VD
O
I
INDUSTRIAL
PRODUCT
Epichlorohyclrin
Toluene
diisocyanate
Vinyl chloride
ANNUAL WASTE--
PRODUCTION
OF MODEL PLANT
IMTI
3,975 Treatment
Investment
Annual cost
Capital
Operating
Energy
Contractor
Total
Cost/metric ton
of waste**
588 Treatment
Investment
Annual cost
Capital
Operating
Energy
Contractor
Total
Cost/metric ton
of waste**
1,400 Treatment
Investment
Annual cost
Capital
Operating
Energy
Contractor
Total
Cost/metric ton
of waste
LEVEL I
On-site storage
$984.000
98,400
102,900
100
0
201,400
51
On-site landfill
$28,500
2,900
35,600
100
0
38,600
66
Contractor incineration
$ 0
0
0
0
266,500
266,500
190
COST ESTIMATES
LEVEL II
Controlled incineration
$934,000
93,400
753,900
2,400
0
849,700
214
Controlled incineration
$349,000
34,900
90,100
2,400
0
129,400
215
Controlled incineration
$473,000
47,300
738.700
1,600
0
787,600
563
LEVEL III
Controlled incinceration
Same as Level II
Controlled incineration
Same as Level 1 1
Controlled incineration
Same as Level 1 1
"
* Source: TRW, Inc., Assessment of Industrial Hazardous Waste Practices: Organic Chemicals, Pesticides and Explosives Industries, prepared for
U.S. Environmental Protection Agency; 1976.
** Based on dry weight .
t No credit for lead recovery.
tt Credit taken for regenerated carbons.
-------
TABLE 4-7 (CONTINUED)'
INDUSTRIAL
PRODUCT
Lead alkyls
Aldrin
Atrazine
ANNUAL WASTE"
PRODUCTION
OF MODEL PLANT
-------
TABLE 4-8
HAZARDOUS WASTE TREATMENT COST ESTIMATES FROM
TH E A L TERN A 71VES STUD Y *
ANNUAL WASTI
PRODUCTION 0
INDUSTRIAL MODEL PLANT
PRODUCT (MT)
Pe'chloroethylene
Nitrobenzene
Chloromethane
Epichlorohydrin
Toluene dusocyanate
Vinyl chloride
Methyl methacrylate
Acrylonitnie
Malaic anhydride
Lead alkyls
Ethanolamines
Furfural
Furfural
Fluoroca'bon
Chlorotoluene
Chlorobenzene
Atrazine
Tri fluralin
Aldrm
Malathion
Malathion
P«rrtthion
Explosivm
Explosives
Explosives
12,000
50
300
3,975
588
1,400
4,730
60
333
30.000
1,120
19,600
350
18
15
1,400
224,600
1,150
289,000
1,826
350
(jolidi)
2,300
200
(solids)
15,000
250
E
F
ALTERNATIVE /
TREATMENT
Distillation
Steam
distillation
Distillation
Solvent
extraction
Hydrolysis
Distillation
-
-
-
Filtration
Centrifugation
or sedimentation
Sedimentation
Distillation
Reduction or
distillation
-
-
Neutralization
Crushing and
grinding
-
Hydrolysis
Sedimentation
Sedimentation
Solvent
extraction
Incineration
and selide
recovery
Crushing and
grinding ,
wet oxidation or
reauction
TREATMENT COSTS (S/MT of Waste)
\LTERNATIVE
TREATMENT
20
1,324
230
(7)tt
260
24
-
-
-
27$
69
30
68
2,500
(670)tt
—
-
2
437
_
72
(12)tt
51
667
101
992
1,470
SANITARY
LANDFILL
10
98
97
17
97
17
17
98
98
n
18
8
98
73
17
6
18
_
18
18
17
_
_
CHEMICAL
LANDFILL
48
157
128
55
156
67
76
153
166
ei't
77
70
117
156
70
69
326
326
76
70
_
_
_
INCINERA-
TION
35
_
226"
393 T
55
206
136
22
260"
148 1
323
-
102
g
136
-
-
82
-
104
73
167
58
1,120
183
895
Source Processes Research, Inc., Alternatives for Hazardous Waste Management in the Organic Chemical,
Pesticides and Explosives Industries, nreoared for Office of Solid Waste Management Programs, Hazardous Waste
Manjgement Di'.ision Decemne1 19?6.
Assu'Tiin^1 one ihitt
f Assuimnj t o sMifrs
T! Figures in pjrent'teses indicate crevlirs. —192 —
No credit for le.ici recovered
-------
TABLE 4-9
COMPARISON OF COST ESTIMATES FOR SIMILAR TREATMENTS
FROM THE ASSESSMENT STUDY AND THE ALTERNATIVES STUDY'
INCINERATION** COST
(S/MT of waste)
LANDFlUt COST
(S/MT of waste)
PRODUCT
Perchloroethylene
Nitrobenzene
Chloromethanes
Epichlorohydrin
Toluene diisocyanate
Vinyl chloride
Methyl rnsthjcrylats
Acrilonytrila
Maleic anhydride
Parathion
ASSESSMENT
STUDY
57
182
380
214
215
563
22
523
-
-
ALTERNATIVES
STUDY
35
-
393
55
206
136
22
260
323
57
ASSESSMENT
STUDY
-
238
77
-
66
-
-
-
77
12
ALTERNATIVES
STUDY
48
157
128
55
156
67
76
158
166
70
* Source: Tables 4-7 and 4-8.
** Assumed to be controlled.
t Assumed to be chemical landfill (secured).
-193-
-------
ITEM
TABLE 4-10
COMPARISON OF COST-ESTIMATING ASSUMPTIONS FROM THE
ASSESSMENT STUD Y AND TH E AL TERNA T/VES STUD Y
ASSESSMENT STUD Y" AL TERNA Tl VES STUD Y * "
Base year
Technical specifications of technologies
Component cost assumptions
Cost of capital
Depreciation
Estimated lifetime — lagoons
— mobile equipment
- all else
Salvage value considered
Engineering costs
Contingency
Land
Taxes and insurance
Maintenance
Labor
Supervision
Incineration air use
Sodium hydroxide use in scrubbers
Waste/supplies freight distance
Unit Costs
Electricity
Freight
Sodium hydroxide
Activated carbon
Fuel oil
Utility water
Boiler feed water
Institutional air
Steam
Clay
55 gal steel drums
Concrete
Excavation
Surface finishing
1973
Defined as Level II
10% of capital
Straight line
25 yr
5 yr
10 yr
Yes
n.s.tt
n.s.
S6,000/acre
n.s.
6% of investment
57.50/hr
Included in labor
125% of stoichiometric
1 10% of stoichiometric
250 mi
S0.02/kWh
532/ton
3114/ton
S0.30/lb
S2.04/MBtu
S0.30/1,000gal
n.s.
n.s.
n.s.
38/ton
S1 5(57.50 used)
S20/yd3
S0.68/yd3 (shallow)
S1.98/yd3(deep)
S0.37/yd2
1976
Not definedt
10% of capital
Straight line
10 yr
10 yr
10 yr
No
10% of capital
20% of capital plus engineering
S5,000/acre
4% of installed capital
4% of installed capital
$9/hr
50% of labor
n.s.
n.s.
n.s.
S0.03/kWh
n.s.
n.s.
n.s.
S2.00/MBtu
S0.30/1,000gal
S0.50/1,000gal
S20/M scf
S4/1,OOOIbs
n.s.
n.s.
n.s.
n.s.
n.s.
Source: TRW, Inc., Assessment of Industrial Hazardous Wast* Practices: Organic Chemicals, Pesti-
cides and Explosives Industries, prepared for U.S. Environmental Protection Agency, 1976.
Sources: Processes Research, Inc., Alternatives for Hazardous Waste Management in the Organic
Chemical, Pesticides and Explosives Industries, prepared for Office of Solid Waste Management Programs,
Hazardous Waste Management Programs; December 1976; and conversation, Alexandria Tierney, EPA,
with G. Gantz, ERCO, June, 1977.
t Final report not available at this writing.
Tt Not specified.
-194-
-------
three predominant differences in the cost estimates from
the Assessment Study and the Alternatives Study result
from (1) different time bases, (2) different, definitions
of the technical requirements for similar treatments,
and (3) different component cost assumptions and costing
procedures.
The time bases are not a significant problem, as the
cost data can be updated in a reasonably accurate manner
using a standard cost index for updating the older Assessment
Study costs. However, this tends to introduce further error
in the analysis and should be avoided if possible.
The definitions of the technical requirements for
similar treatments are not explicitly identified in either
of the two studies, but the large cost variability evident
in Table 4-9 implies that significant differences are
likely. It is beyond the scope of this study to determine
which treatments reflect a more accurate interpretation of
the requirements for environmental protection. According
to the claims made in these two studies, the Level III
technologies from the Assessment Study and incineration
and the alternative treatments from the Alternatives Study
will provide adequate protection of the environment.
Both the Assessment Study and the Alternatives Study
used cost estimating procedures which were based on an
engineering design analysis of the specified waste treatment
technology applied to the hypothetical typical plants.
Detailed estimates were derived for capital, operating, and
energy costs of the treatment facilities, and were summarized
by calculating the cost of the treatment per metric ton of
waste on a dry basis. These procedures should yield comparable
results if they are based on comparable component cost
assumptions.
Although many of these assumptions (displayed in
Table 4-10) are the same (e.g., the cost of capital), the
two sets of assumptions do exhibit some differences. These
differences may be attributable to several different factors.
For example, the higher costs assumed for labor in the
Alternatives Study may be due to the need for more highly
trained personnel. Also, the apparent difference in the
equipment lifetime estimates used in the depreciation
calculations can be attributed to the fact that the
Alternatives Study does not examine lagoons or landfills
with the same detail as does the Assessment Study. For all
other treatment and disposal methods,the two studies are in
accord with equipment lifetimes estimated at 10 years.
-195-
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Some of the disparity in assumptions reflects fluctuations
in contractor and supplier price estimates which resulted
from cost changes due to time, location, and individuals
contacted. For this reason, an attempt was made to verify
the unit cost assumptions used by contacting independent
contractors in the hazardous waste management industry. In
general, there was close agreement between estimated item
costs and quoted prices. However, substantial disagreements
between total costs for hazardous waste treatments were
prevalent. Table 4-11 presents a comparison of data from
two independent sources with the assumptions used in the
Alternatives Study and Assessment Study. The wide range and
disparity among total treatment costs shown in this table
for incineration or landfill are due to the variable
requirements for different types of waste. Factors impacting
the total cost include (1) whether the wastes are in small
batches or bulk, (2) whether flue gas scrubbing and stack
monitoring are required, (3) the amount of fuel required for
incineration, (4) the requirements for handling and
transporting the waste, (5) the methods required to protect
the environment, etc. These parameters vary so widely that
no significant conclusions can be drawn from the data in
Table 4-11.
•
With respect to the component costs presented in
Table 4-10, the most variant cost is for land. In the case
of New England, the estimated cost is 3 to 4 times higher
than the costs assumed in the two studies. This fact is
understandable, however, as land is currently at a premium
in New England, particularly for unpopular uses such as
landfilling. The New England costs for fuel and water are
also hiqher on average than national costs. But on the
whole there is general agreement between the four estimates
tabulated in Table 4-11. (Because New England hosts only
a small segment of the organic chemicals industry, this
regional disparity will have little effect on the industry
at large.)
One difference between the two sets of assumptions
in Table 4-10 which cannot be explained as being due to
variations in contractor estimates or in the technologies
being considered is the figure for maintenance costs. The
Assessment Study uses 6 percent of installed costs and the
Alternatives Study uses 4 percent. Although the difference
does not alter the total estimated costs too greatly, the
change has raised objections from industry sources.*
It can be seen that the hazardous waste treatment cost
estimates are based upon varying assumptions and do not
necessarily indicate faulty methodologies. The methods used
in the Assessment Study and the Alternatives Study are both
-196-
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TABLE 4-11
COMPARISON OF HAZARDOUS WASTE TREATMENT COSTS
COST
COMPONENT
Treatments
Incineration
(controlled)
Chemical Landfill
Item Cost
Land
Transportation
Electricity
Oil (No. 2 Fuel)
55-gal Drums
Activated carbon
Water
ASSESSMENT
STUDY
% S200/MT average
•v $3Q/MT average
$6.0t)Q/acre
$35.3Q/MT (250 m)
$0.02/kWh
$2.04/MBtu
$15 new. $7.50 used
$0.3Q/tt>
$0.30/1,000 gal
ALTERNATIVES
STUDY
-\.$135/MT average
% $90/MT average
$5.000/acre
-
$.03/kWh
$2.00/MBtu's
-
-
$0.30/1 ,000 gat
HAZARDOUS
WASTE FACILITY*
$80/MT (no scrubbers)
$80 to S220/MT
$20,000/acre
$31.25/MT(500m)or
$62.50/MT (with return)
$0.03/kWh
$2.86/MBtu
$16 new. $8 used
-
$.50/1. 000 gal
HAZARDOUS
WASTE FACILITY"
$22to$102/MT
-
S3 .000 to $20.000/acre
-
$0.03 to $o.035/kWh
-
-
$0.35 to $0.5O/lb
-
* Source: Don Corey, Recycling Industries, Inc., Bratntree, Massachusetts.
1 * Source: Ed Ashby, Rollins Environmental Services, Inc., Swedesborough, New Jersey.
-------
standard acceptable methods, but the estimates will still
diverge from costs incurred in the development of treatment
at actual sites. It is generally accepted that these
methods will provide estimates in the reasonable range
of costs for actual plants and specific treatments, but
that they can be relied upon to be accurate within only
25 percent.6 This 25 percent uncertainty accounts for
uncertainties in engineering design, in details of financing,
in site-specific problems, and in cost-estimating assumptions,
For the purpose of the present study, 25 percent will be
used as the estimated margin of error for the cost estimates
developed. A thorough analysis of uncertainty and of the
errors in the data is beyond the scope of this study.
On the basis of this analysis, no overriding factors
were uncovered which would indicate which set of cost
estimates should be used for the economic analysis. The
decision was therefore based on three considerations which
differentiate between the two studies. First, the Assessment
Study estimates were based on a 1973 base year and error
would be introduced by updating these to 1976. Second,
using cost estimates from one and not both studies would
insure that the economic impact study results would be
comparable. Third, the Alternatives Study estimates were
developed with cognizance of the Assessment Study and this
earlier study was reviewed as an input to the Alternatives
Study. For these reasons, the cost estimates from the
Alternatives Study were chosen for use in developing the
costs of compliance estimates.
4.3.3 Cost Estimating Methodology
4.3.3.1 Best Estimates of Cost
The best estimates of treatment costs for the institution
of Level III technology for the six highly impacted industry
segments must be based on (1) the best choice of treatment
and (2) the best estimates of costs for that treatment. The
choice of treatment in all six cases must be made between
incineration and the alternative technology specified in the
Alternatives Study, in accordance with the choice of best
cost estimates made in the previous section.
Incineration was chosen as the disposal technique to
be employed for the economic analyses because it is standard
accepted practice for hazardous waste disposal and will
probably be chosen by most firms attempting to achieve
Level III environmental protection. Although the alternative
treatment technology may eventually be used in many facilities,
it has not as yet been proven commercially.
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The only major calculation required to generate best
estimates of the costs of compliance from the Alternatives
Study estimates was to determine the credit for costs
currently incurred for waste treatment. That is, the costs
of compliance are actually the costs of upgrading the
treatment system from current levels to Level III.
For the purpose of crediting existing waste treatment
expenditures, it was assumed that all manufacturers currently
used Level I technology (Level I is defined as current
average industry practice), and that the cost burden of
meeting Level III requirements is equal to the incremental
cost of going from Level I to Level III. This assumption
is justified because most Level I costs are operating
charges rather than costs for plant and equipment.
Therefore, there are no sunk costs and the present level
of labor and other variable expenditures can be applied to
the variable portions of Level III costs. Level I technology
was assumed to be the existing treatment methods identified
in the Alternatives Study. These methods in all six cases
were either sanitary or chemical landfill. In two cases,
perchloroethylene and epichlorohydrin, the existing method
specified was chemical landfill, which was estimated as
equal to or more expensive than incineration. In these
cases, the conservative choice of sanitary landfill as the
Level I technology was made so that an impact of some kind
would be estimated for these industry segments.
One factor remains to be considered in developing best
estimates of the costs for compliance with Level III
requirements. This factor is the relative size of the
hypothetical typical plant used in the cost estimations in
the Alternatives Study compared to the model plant size
chosen for the economic analysis. These sizes are the same
for four of the selected industry segments, as discussed in
Chapter Two. In the case of acrylonitrile, the hypothetical
typical plant is smaller than the model plant and in the
case of furfural, it is larger. The treatment cost data
should be adjusted to reflect the fact that larger plants
benefit from the economies of scale. The standard
six-tenths rule was used for adjusting the cost estimates
for the change in size. This rule states that a change in
plant size will change the annual costs according to the
formula:
new cost = old cost • (new size/old size)0'**
Therefore, the new treatment cost per ton for acrylonitrile
is somewhat lower, reflecting the benefits of the larger-sized
plant. The new treatment cost per ton for furfural is
somewhat higher due to the decrease in plant size.
-199-
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4.3.3.2 Worst-Case Cost Estimation
The befit estimates of costs of compliance for hazardous
waste treatment are reasonable, conservative estimates given
the constraints discussed in Section 4.3.2. However, the
cost estimates cannot be totally relied upon as reflections
of the actual costs to be faced by plants on an individual
basis. Because it is important to assure that the economic
analysis is sensitive to the most severe impacts that may
occur in actual practice, the economic analysis will also
include an assessment of impact using worst-case costs. It
is presumed that using these worst-case costs will serve as
an accurate indication of the maximum potential of economic
impact on plants that are most strongly affected. This
assessment will be based on worst-case cost estimates for
Level III treatment technology. In particular, these
estimates will be used in the plant closure analysis
presented in Chapter Five.
There are several factors which exhibit considerable
uncertainty and which must therefore be incorporated into
the worst-case cost estimates. One of these factors is the
present status of waste treatment at a facility. Not all
plants can be expected to be spending at a level equal to
the costs of Level I technology. Many plants may have no
treatment at all. Therefore, the worst-case cost estimates
should presume a zero cost baseline and reflect the full
cost of Level III. Another factor to be considered is the
uncertainty of the engineering estimates. These estimates
are reported to be accurate to within 25 percent; therefore,
the best estimate should be inflated by 25 percent to
reflect the worst possible case. This adjustment provides
a considerable safety margin for the worst-case estimate.
One other factor must be considered that applies only
to the acrylonitrile industry. Since the Alternatives Study'
hypothetical typical plant is smaller than the economic
analysis model plant, the original cost estimates for
treatment at this plant would tend to be pessimistic. This
is the result of the fact that the industry is actually
composed of larger plants which benefit from economies of
scale for waste treatment technology. Although the original
treatment cost estimates were adjusted to reflect this fact
in developing best estimates, the adjustment introduced a
potential for error and need not be made for the worst-case
cost estimates. By using the original costs (but inflated
linearly to match the size of the model plant), an extra
margin of error is incorporated at the same time that a
potential source of error is avoided. This argument does
not apply to furfural, however, as the economic analysis
model plant is smaller than the hypothetical typical plant
-200-
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and the diseconomy of a smaller scale must be reflected in
the cost estimates. Therefore, the costs were scaled for
the worst-case estimate just as they were for the best
estimate.
4.4 Small Plant Costs
This report includes data only for those plants
producing 1,000 pounds of product annually (0.45 MT/year)
or more. As can be surmised from the capacity figures in
Table 2-4, the production levels of plants producing highly
impacted chemicals are 3 orders of magnitude above this
cutoff. It is therefore unlikely that any plants below the
1,000-pound cutoff are producing these products economically,
if at all.
It is possible that a small plant whose entire
production is captively used may exist, however. Even
though economic reasoning would predict that no plants exist
in this small range, unique circumstances may exist that
keep such a plant operating. These plants are still subject
to regulation and will be forced to deal with their hazardous
waste streams. It is presumed that all such small plants
will deal with their waste streams in the same way - storage
of wastes in sealed drums and eventual landfill.
The volume of wastes expected from the largest possible
plant in the small-plant category (1,000 Ib/year) is
displayed in Table 4-12. It can be seen from the table that
the annual waste streams from the operations of small plants
will require less than two 55-gal drums per year and, for
three of the six products, one drum will last a plant
lifetime. For the remaining products, drums can be stored
at the plant site until a truckload accumulates, whereupon
they can be delivered to a chemical landfill. It is
estimated that the total annualized cost for this process
will range from $1 to $30 annually.
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TABLE 4-12
EXPECTED WASTE VOLUME FROM A 1,000 LB/YR PLANT
FOR EACH HIGHLY IMPACTED PRODUCT LINE
ESTIMATED WASTE
ESTIMATED WASTE VOLUME
PRODUCT (!b)* (gal)
Perchloroethylene** 308 37
Chloromethanes*" 6 1
Epichlorohydrin** 53 6
Vinyl Chloride** 3 1
Acrylonitrile** 0.75 1
Furfuralt 559 66
* Assuming specific gravity of 1.0 for waste.
TRW, Inc., Assessment of Industrial Hazardous Waste Practices: Organic Chemicals, Pesticides and
Explosives Industries, prepared for U.S. Environmental Protection Agency; 1976.
t Processes Research, Inc., Alternatives for Hazardous Waste Management in the Organic Chemical,
Pesticides and Explosives Industries, prepared for Office of Solid Waste Management Programs, Hazard-
ous Waste Management Programs; December 1976.
-202-
-------
NOTES TO CHAPTER FOUR
1. TRW, Inc., Assessment of industial hazardous
waste practices of the organic chemicals, pesticidies and
explosives industries, prepared for the U.S. Environmental
Protection Agency, 1976.
2. Processes Research Inc., Alternatives for hazardous
waste management in the organic chemicals,, pesticides and
explosives industries, Draft Report prepared for the U.S.
Environmental Protection Agency, 1977.
3. A.D. Little, Inc., Analysis of potential application
of physical, chemical and biological treatment techniques to
hazardous waste management, prepared for the U.S. Environmental
Protection Agency, 1976.
4. Three additional waste streams from the explosives
industry were also selected.
5. Personal communication, Alexandria Tierney,
EPA/OSW/HWMD, to George Gantz, ERCO, June 1977.
6. Personal communication, Dr. Gerald Gruber, TRW,
Inc., to George Gantz, ERCO, June 1977.
-203-
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CHAPTER FIVE
ECONOMIC IMPACT ANALYSIS
This chapter prosonta the analysis of the economic
effects on the organic chemicals industry of promulgating
hazardous waste regulations. The analysis focuses on the
six highly impacted segments, namely (1) perchloroethylene,
(2) chloromethanes, (3) epichlorohydrin, (4) vinyl chloride,
(5) acrylonitrile, and (6) furfural. The impacts on each
of these segments are reviewed in detail using a model plant
analysis. The results of this analysis are then supplemented
with actual industry data for a final assessment of projected
impacts. These analyses are followed by more general
analyses of impacts on the industry as a whole. The analyses
of the highly impacted segments are believed to provide an
upper bound on impacts on the entire organic chemicals
industry. The chapter concludes with an assessment of the
aggregate impacts on the nation.
The regulations in general will require small
expenditures for hazardous waste treatment and disposal
relative to the manufacturing costs of organic chemicals and
financing these investments should not present a problem.
In addition, industry-wide costs will be reduced because
some firms have already instituted sufficient treatment and
disposal techniques for compliance with potential regulations
at many of their plants. These abatement leaders have not
suffered noticeable impact from their investment in treatment
and disposal facilities. Table 5-1 presents a summary of
the total costs of compliance that the industry is expected
to incur. The table shows that while the incremental
annualized cost of abatement totals $137 million, this
represents only 0.6 percent of the value of shipments for
the industry. The inflationary effect of this cost increase
will be reflected in a barely perceptible (0.01 percent)
increase in the Wholesale Price Index for all commodities.
Within the industry, however, costs may range from
zero percent of the shipment value to over 10 percent for
some plants producing particular chemicals. Table 5-2
displays estimates of the percentage increase in manufacturing
costs for the six-product highly impacted sample. The table
includes estimates for two scenarios of compliance costs.
The best estimate of cost is a conservative estimate of the
cost increases to be incurred by an average plant. The
worst-case cost estimates represent an upper bound for cost
increases incurred by the hardest hit plants in the industry.
-205-
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TABLE 5-1
THE IMPACTS OF COMPLIANCE FOR THE ORGANIC CHEMICALS,
PESTICIDES AND EXPLOSIVES INDUSTRIES
Estimated incremental annual cost (S million)* 137
Total annual cost (S million)*' 243
Estimated incremental annual cost/value of shipments (1973)t 0.6%
Total annual cost/value of shipments (1973) 1.1%
Increase in wholesale price index for all commoditiest t 0.011%
Source: Energy Resources Company Inc. estimates.
Source: Assessment Study,
t Source: U.S. International Tariff Commission.
TT Source: U.S. Bureau of Labor Statistics.
-206-
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TABLE 5-2
ESTIMATED PERCENTAGE INCREASE IN MANUFACTURING COST
DUE TO COMPLIANCE FOR SIX HIGHLY IMPACTED SEGMENTS*
HIGHLY IMPACTED SEGMENT
TREATMENT COST SCENARIO
BEST ESTIMATE
OF COST
WORST-CASE
COST ESTIMATE
Perchloroethylene
Chloromethanes
Epichlorohydrin
Vinyl chloride
Acrylonitrile
Furfural
3.1
0.2
0.2
0.4
0.1
0.3
5.0
0.6
0.4
0.6
0.2
1.4
'Source: Energy Resources Company Inc. estimates.
-207-
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As can be seen from the table, the cost increases for five
of these six product lines (selected because of their high
vulnerability to impact) are not large. Only perchloroethylene,
with a best estimate cost increase of 3.1 percent and a
worst-case cost increase of 5.0 percent, stands out as
highly vulnerable to cost impacts of the regulation.
In-depth analysis of these six segments revealed that
plant shutdowns are unlikely to result from hazardous
waste regulations except for plants particularly vulnerable
to other market pressures. Table 5-3 displays a summary of
the vulnerability of plants to shutdown due to regulation.
The table shows that three perchloroethylene plants may
cease operations with the addition of hazardous waste costs
to their already vulnerable market positions. The
chloromethane plant that is designated as vulnerable to the
regulation is one of the three perchloroethylene plants so
designated. This plant utilizes a joint perchloroethylene/
carbon tetrachloride production process so that carbon
tetrachloride (one of four chloromethanes) production would
cease if the perchloroethylene plant closed. The two vinyl
chloride plants subject to possible shutdown are faced with
marginal competitive positions and hazardous waste
regulations will serve only to aggravate their difficulties.
The regulations alone should not be sufficient to cause the
plants to close, but combined with significant expected
market shifts caused by competitors building new larger and
more efficient plants, the future of these two facilities is
in question.
5.1 Economic Impact Analysis of the Six Highly Impacted
Segments
5.1.1 Perchloroethylene
The perchloroethylene market will be the hardest hit of
the highly impacted chemical markets. Perchloroethylene has
the highest cost/price ratio of the products for which cost
data were developed and has the highest estimated price
elasticity of demand of the highly impacted products.
Additionally, the perchloroethylene market is suffering from
strong foreign competition, carcinogenicity concerns, and a
slow rate of demand growth.
5.1.1.1 Model Plant Analysis
Price Elasticity of Demand. The market conditions
that perchloroethyleneTisubjected to cause it to have
the highest price elasticity of demand of the market
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TABLE 5-3
SUMMARY OF IMPACTS ON PLANTS PRODUCING HIGHLY IMPACTED CHEMICALS*
HIGHLY IMPACTED
SEGMENTS
NO. OF PLANTS
IN SEGMENT
NO. OF PLANTS
SUBJECT TO
SMALL IMPACT
NO.OF PLANTS
SUBJECT TO
SIGNIFICANT
IMPACT (SHUTDOWN
POSSIBLE)
Perchloroethylene
Chloromethanes
Epichlorohydrin
Vinyl chloride
Acrylonitrile
Furfural
TOTAL OF SIX SEGMENTS
11
19
3
15
6
4
57"*
8
17
3
13
6
4
51
3
2
0
2
0
0
6"
* Source: Energy Resources Company Inc. estimates.
*" Totals are less than the sum of entries because of Stauffer's coproduct perchloroethylene/chloro-
methanes (carbon tetrachloride) plant, which is counted in both segments. Other coproduct processes
are colocated with separate chloromethane plants circumventing double counting.
-209-
-------
segments studied. rn Table 5-4 the components of the
perchloroethylene market are presented with an estimate of
their influence on a baseline price elasticity of 1.0. From
the table it has been estimated that the price elasticity
for perchloroethylene is high (between 1.0 and 2.0). This
is due in part to the fact that perchloroethylene is unique
among the highly impacted products since it is sold primarily
as a final product rather than as an intermediate. Consumers
of intermediate chemicals frequently find that they must
redesign or retool their process equipment if they switch to
another intermediate chemical. However, the consumers of
perchloroethylene, principally dry cleaning establishments,
would be able to switch to another product without such
retooling. There are presently only fair substitutes for
perchloroethylene, as noted in Table 5-4, but fears
concerning the carcinogenicity of the chemical may serve as
an impetus to the development of an adequate replacement.
In the short run, the price elasticity of demand facing
domestic producers is also increased by the substantial
import volumes of the chemical. Imports are an unsteady
influence given the tendency for import volumes to fluctuate.
But in the near term, imports which utilize surplus chlorine
generated in European caustic soda production are expected
to apply continued pressure to the domestic market.
Likelihood of Full-Cost Passthrough. The high price
elasticity of demand combined with the high cost of hazardous
waste treatment make a full-cost passthrough unlikely for
this industry. The size of the required cost increase
shown in Table 5-5 along with the principal competitive
influences which may inhibit a cost passthrough. The
estimates of treatment costs, calculated as a percentage of
unit manufacturing costs for the model plant, are the
largest of the highly impacted segments. Both the best
estimate of abatement costs (3.1 percent) and the worst-case
cost estimate (5.0 percent) are more than twice that of any
other highly impacted chemical. Price increases of this
magnitude would result in a significant loss of sales
for firms, given the high price elasticity of demand. This
decline in demand will reduce production, thereby lowering
capacity utilization and further injuring profitability.
The relatively low capacity utilization rate is significant
because it makes a firm reluctant to be a price leader.
Price leadership exposes a firm to the risk of a still
qroat-^r Ions of production volume if other firms do not
follow price increases. As described in Section 3.2.2.2
above, if other firms remain at the old price, they may
gain some of the price leader's market share. The loss of
customers and the resulting lowering of the capacity
utilization rate lowers the manufacturer's profit margins.
At this writing, perchloroethylene manufacturers were
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TABLE 5-4
ESTIMATION OF THE PRICE ELASTICITY OF DEMAND
FOR PERCHLOROETHYLE1SIE
MARKET
CHARACTERISTIC
PRESENT DATA*
PRICE ELASTICITY ESTIMATE: High (1.0 to 2.0).**
INFLUENCE ON
BASELINE PRICE
ELASTICITY (1.0)'
Demand growth
Historical
Projected
Captive usage
Use as intermediate
Significance of price as
basis for competition
Substitutability
Foreign competition
Low '
1965-75: 6%/yr
Through 1980:
3% to 4%/yr
0% to 15%- Low
Low
High
Moderate
Substantial imports
Increase
Increase
Increase
Increase
Neutral
Increase
* Source: Chapter Three.
** Source: Energy Resource Company Inc. estimates.
-211-
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TABLE 5-5
LIKELIHOOD OF FULL-COST PASSTHROUGH FOR PERCHLOROETHYLENE'
COST
PASSTHROUGH
FACTOR
Price elasticity of demand
Variation in abatement costs
among firms
Required cost increase as %
of manufacturing cost
Best estimate
Worst-case
Expected capacity utilization
LIKELIHOOD OF FULL-COST
PRESENT DATA
High (1.0 to 2.0)
Moderate
Large
3.1%
5.0%
60% - Low
PASSTH ROUGH : Poor; incomplete cost
EFFECT ON
LIKELIHOOD OF FULL
COST PASSTHROUGH
Decrease
Neutral
Decrease
Decrease
passthrough for some
firms.
Source: Energy Resources Company Inc. estimates.
-212-
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already operating with extremely slim profit margins. Any
price increase is likely to be limited to that absolutely
necessary for firms to avoid operating at a loss.
Net Income and Investment Analysis. The calculation
of ne"tincome figures indicates that even after abatement cost
increases the model plant manufacturers would continue to
operate in this industry. The calculations were based on
an assumed operating rate of 70 percent of capacity in order
to reflect the market uncertainties for the industry. (A
90 percent capacity utilization rate is usually desired.)
The model plant achieves profitability in all the cases
examined, as presented in Table 5-6. The large treatment
costs, however, do cause a fall in net income of 8 percent
in the best estimate case and 14 percent in the worst-case
scenarios.
The investment analysis, displayed in Table 5-7,
indicates that the model plant would make the required
treatment investment. Cash flows for the best estimate and
worst-case scenarios are nearly the same (both are rounded
off to $2.1 million per year, as shown in the table), but
the larger size of the worst-case investment causes it to
have a lower net present value. Both values are significantly
positive, $7.50 million in the best estimate and $6.93
million in the worst-case estimate.1
Plant Shutdowns. The model of the plant decision-making
process indicates that plant shutdowns are a potential
problem. In Table 5-8 the inputs to the decision and their
independent effects on the likelihood of plant shutdown are
presented. Two factors, the unlikelihood of a full-cost
passthrough and the moderately high cost of the treatment
investment, operate to increase the likelihood of plant
shutdowns. The low degree of vertical integration in the
industry also makes closings more likely but is not considered
to be as strong an influence. The positive results of the
investment analysis and the extensive integration of
perchloroethylene manufacturing with other plant processes
work to decrease the likelihood of plant shutdowns. Given
the mixed influences which affect this important decision
the model can only conclude that shutdowns are possible. A
firm-by-firm analysis of the industry follows in the next
section.
5.1.1.2 Projected Impacts
The future market situation for perchloroethylene
indicates an absence of significant growth possibilities.
Strong European competition is dramatically undercutting
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TABLE 5-6
MODEL PLANT NET INCOME CALCULATION
FOR PERCHLOROETHYLENE*
TREATMENT COST SCENARIO
MODEL PLANT
FINANCIAL DATA
Revenue (S/MT)
Manufacturing cost (S/MT)
Treatment cost (S/MT)
Gross profit (S/MT)
After-tax profit (S/MT)**
Total annual net income (S million)
NO NEW
TREATMENT
358
259
0
99
50
1.4
BEST ESTIMATE
OF COST
358
259
8
91
46
1.3
WORST-CASE
COST ESTIMATE
358
2b9
13
86
43
1.2
Assumes average annual production of 27,300 MT (70% of capacity). Source: Energy Resources
Company Inc. estimates.
Assumes 50% corporate tax rate.
-214-
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TABLE 5-7
MODEL PLANT INVESTMENT ANALYSIS
FOR PERCHLOROETHYLENE*
TREATMENT COST SCENARIO
MODEL PLANT
INVESTMENT MEASURES
After-tax profit (S/MT)
Depreciation (S/MT)
After-tax cash flow (S/MT)**
Total annual cash flow (S million)
Investment outlay (S million)
Working cjpital requirement (S million)t
Net present value of investment (S million)tt
BEST ESTIMATE
OF COST
46.0
32.0
78.0
2.1
1.2
1.6
7.5
WORST-CASE
COST ESTIMATE
43.0
33
76
2.1
1.5
1.6
6.9
* Source. Energy Resources Company Inc. estimates.
** After tax cash flow = profit + depreciation.
T Working capital requirement = 1/4 (manufacturing cost - depreciation).
ft Assumes a 15% discount rate and an investment life of 10 years.
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TABLE 5-8
MODEL PLANT SHUTDOWN DECISION FACTORS USING
WORST-CASE TREATMENT COST FOR PERCHLOROETHYLENE
DECISION FACTOR
Net present value of
investment
Ratio of investment to met
fixed investment
Degree of vertical integration
(forward or backward)
Integration with other on-site
production processes
Other environmental/
regulatory problems
Likelihood of full-cost
passthrough
LIKELIHOOD OF PLANT SHUTDOWN:
PLANT DATA'
S6.9
13.9% - High
Low
Extensive integration
Significant
Poor — little chance of
full-cost passthrough
: Plant shutdowns are possible **
EFFECT ON LIKELIHOOD
OF PLANT SHUTDOWN**
Negative
Positive
Positive
Negative
Positive
Positive
Source: Chapter Three.
Source: Energy Resources Company Inc. estimates.
-216-
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domestic prices. Imported perchloroethylene from Italy and
Spain is available at port of entry in New Jersey for
$0.09/lb while domestic product costs $0.17/lb. This
competition has created large domestic inventories and
squeezed domestic profit margins making further investment
for hazardous waste treatment for perchloroethylene operations
unlikely in the short term.2 Several small firms in the
industry presently regard their perchloroethylene operations
as marginal and the cessation of production could be a
possibility. These firms will want to minimize any additional
expenditures in their perchloroethylene operations and the
required investments for hazardous waste treatment could
therefore hasten their exit from the industry. In order to
obtain a more accurate analysis of this issue, it is necessary
to examine all the factors which impact competition in the
industry.
Table 5-9 displays the likely impacts on the present
domestic producers of perchloroethylene. Firm size and
production volume appear to be important determinants of
profitability in the industry. The largest producers can
derive cost advantages both in production and in hazardous
waste treatment. The large producers also tend to be
the firms which have already invested in the necessary
incinerators for perchloroethylene. As can be seen from
the table, the firms which are known to be currently
incinerating wastes include Dow Chemical, Diamond Shamrock,
PPG, and Vulcan Materials Co. DuPont has also stated
that regulations will have a negligible impact on their
operation. However, even those firms may elect to shift
their incineration capacity to more profitable operations
forcing closure.
Small firms have less volume over which to spread
normal production costs, although economies of scale are not
the only consideration in looking at relative size. The
small firms tend to be able to run at higher utilization
rates during market slumps. They normally require this high
capacity utilization factor to stay profitable, and they
secure the necessary market share by undercutting the price
of the larger firms. Small firms, however, are losing their
ability to operate in this fashion, as the long-term slump
in the perchloroethylene market causes the larger firms to
also become price aggressive. Survival becomes principally
a question of producing at the lowest costs.
While the hazardous waste regulations will clearly
worsen the cost disadvantages of small firms, several other
supply characteristics are thought to be particularly
important to the willingness and ability of firms to stay in
the industry. These supply characteristics include:
-217-
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TABLE 5-9
SUMMARY OF PROJECTED IMPACTS FOR PERCHLOROETHYLENE
MANUFACTURER PLANT LOCATIONS
Diamond Shamrock Deer Park, Tex
Dow Chemical Freeport, Tex.
Plaquemine. La.
Pittsburg, Calif.
DuPont Corpus Christi, Tex.
I
NJ Ethyl Baton Rouge, La
t— '
CD
1
Hooker Taft, La.
PPG Lake Charles, La.
Stauf fer Chemical Louisville, Ky.
Vulcan Materials Geismer, La.
Wichita. Kans.
CURRENT TREATMENT'
Incineration
Incineration
Incineration
Incineration
Incineration
Deep well disposal
N.A.
Incineration
Contractor used for
landfill disposal
Plan to incinerate
Incineration
CURRENT
COMPETITIVE
POSITION"
Good
Good
Good
Good
Good
Vulnerable
Vulnerable
Good
Vulnerable
Good
Good
MANUFACTURER
RESPONSE
REGARDING
IMPACT *
-
Negligible
Negligible
Negligible
Negligible
-
Significant
Negligible
Negligible
PROJECTION OF
REGULATORY
IMPACT * *
Small
Small
Small
Small
Small
Significant impact
possible
Significant impact
possible
Small
Significant impact
possible
Small
Small
* Source: Contacts with industry personnel.
'* Source: Energy Resources Company Inc. estimates.
-------
1. The need to purchase raw materials outside
the firm.
2. Outdated production processes.
3. Integration of the perchloroethylene process
with other firm operations.
The plants which are thought to be in the worst
competitive position and, therefore, the most threatened by
hazardous waste treatment, are listed below:
1. Ethyl, Baton Rouge, Louisiana (capacity
22,700 metric tons). Ethyl runs a combined
perchloroethylene-trichloroethylene process which
produces a large volume of wastes. The firm
currently disposes of the waste through deep-well
disposal, and has yet to incur the costs of
incineration. Ethyl also must purchase its
chlorine inputs, whereas other firms produce
their own supplies. The same plant produces
tetramethyllead and vinyl chloride monomer (VCM).
The former market has declined substantially and,
as will be discussed in Section 5.1.4, the Ethyl
VCM operation is also not in a strong competitive
position.
2. Stauffer Chemical, Louisville, Kentucky
(capacity 84,000 metric tons). Stauffer produces
its perchloroethylene as a coproduct with carbon
tetrachloride, a product whose market is declining
significantly (see Section 5.1.2). Faced with two
marginal products, Stauffer may see no point in
staying in either market. Stauffer is also a net
purchaser of chlorine, a factor which tends to
correlate with a weak competitive position. The
firm views the addition of controlled incineration
into their process as quite expensive, and
anticipates that a number of technical problems
will need to be solved to accomplish this addition.
3. Hooker Chemical, Taft, Louisiana (capacity
18,100 metric tons).Hooker is the only firm
which still uses an acetylene-based process. They
can currently obtain the necessary acetylene under
a long-term contract with a natural gas supplier
on the Gulf Coast. It is generally felt in the
industry that when their current gas contract
expires (the actual expiration date is unknown),
Hooker may have to pay substantially higher gas
prices. The increased input costs could threaten
-219-
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the viability of their operation. In these
circumstances, a substantial investment in an
EPA-required pollution abatement system may not be
made if the firm feels that it will have to close
its doors shortly in any case.
5.1.2 Chloromethanes
Three of the four chloromethanes should face negligible
impact from hazardous waste regulations. Carbon tetrachloride
will be subject to limited impact except where it is a joint
product with perchloroethylene in a marginal perchloroethylene
plant.
5.1.2.1 Model Plant Analysis
Price Elasticity of Demand. A summary of the estimates of
the price elasticity of demand for the four chloromethanes
is presented below in Table 5-10. Table 5-10 is developed
from separate estimations of the price elasticity for each
of the chloromethane solvents presented in Tables 5-11
through 5-14. For all of these products, their effectiveness
vis-a-vis substitutes is a major factor in price elasticity
determination. Carbon tetrachloride is estimated to have a
higher price elasticity than the other chloromethanes
because there exist numerous substitute products developed
to replace carbon tetrachloride-based fluorocarbons in their
use as aerosol propellants. Chloroform is subject to
similar pressures in its aerosol uses, but it is expected to
maintain its advantage over other products in its larger
refrigerant market. The other chloromethanes face only
moderate substitutability. Methyl chloride is essential as
an intermediate to the silicone industry. Methylene chloride
is well established in its primary solvent uses and is
increasing its share of the aerosol market where it is often
used in place of carbon tetrachloride.
The other factors listed in Tables 5-11 through 5-14
are weaker influences than the degree of substitutability.
Foreign competition is negligible for all the chloromethane
marke ts.
In order not to understate any possible economic effects,
the overall elasticity for the chloromethane solvents will
be assumed to be in the 0.5 to 1.0 range (medium).
Likelihood of Full-Cost Passthrough. Table 5-15
displays the cost passthrough analysis. The required cost
increase for chloromethane solvents is quite small, at only
-220-
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TABLE 5-10
SUMMARY OF ELASTICITY ESTIMATES FOR
CHLOROMETHANE PRODUCTS
PRODUCT ELASTICITY ESTIMATE
Methyl chloride Low (0.0-0.5)
Methylene chloride Low (0.0-0.5)
Chloroform Low (0.0 - 0.5)
Carbon tetrachloride Medium (0.5 -* 1.0)
-221-
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TABLE 5-11
ESTIMATION OF THE PRICE ELASTICITY OF DEMAND
FOR METHYL CHLORIDE
INFLUENCE ON
MARKET BASELINE PRICE
CHARACTERISTIC PRESENT DATA* ELASTICITY (1.0)'
Demand growth Moderate Increase
Historical 1965-75: 5.3%/yr
Projected Through 1980:
6%/yr
Captive usage 55% to 65% - Moderately high Decrease
Use as intemediate High Decrease
Significance of price as Low Decrease
basis for competition
Substitutability Moderate Neutral
Foreign competition Negligible Decrease
PRICE ELASTICITY ESTIMATE: Low (0.0 to 0.5).°H
Source: Chapter Three.
Source: Energy Resources Company Inc. estimates.
-222-
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TABLE 5-12
ESTIMATION OF THE PRICE ELASTICITY OF DEMAND
FOR METHYLENE CHLORIDE
MARKET
CHARACTERISTIC
PRESENT DATA"
INFLUENCE ON
BASELINE PRICE
ELASTICITY (1.0)*
Demand growth
Historical
Projected
Captive usage
Use as intermediate
Significance of price as
basis for competition
High
1965-75: 13%/yr
Through 1980:
10% to 12%/yr
5% to 15%- Low
High
Low
Decrease
Increase
Decrease
Decrease
Substitutability
Foreign competition
PRICE ELASTICITY ESTIMATE:
Moderate
Negligible
Low (0.0 to 0.5).**
Neutral
Decrease
Source: Chapter Three.
Source: Energy Resources Company Inc. estimates.
-223-
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TABLE 5-13
ESTIMATION OF THE PRICE ELASTICITY OF DEMAND
FOR CHLOROFORM
MARKET
CHARACTERISTIC
PRESENT DATA-
INFLUENCE ON
BASELINE PRICE
ELASTICITY (1.0)*'
Demand growth
Historical
Projected
Captive usage
High
1965-75: 9.2%/yr
Through 1980:
8% to 10%/yr
15% to 25%-Low
Decrease
Increase
Use as intermediate
Significance of price as
basis for competition
SubitiUitahilitv
Foreign competition
High
Low
Low to moderate
Negligible
Decrease
Decrease
Decrtau
Decrease
PRICE ELASTICITY ESTIMATE: Low (0.0 to 0.5).**
* Source: Chapter Three.
Source: Energy Resources Company Inc. estimates.
-224-
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TABLE 5-14
ESTIMATION OF THE PRICE ELASTICITY OF DEMAND
FOR CARBON TETRACHLORIDE
MARKET
CHARACTERISTIC
PRESENT DATA*
INFLUENCE ON
BASELINE PRICE
ELASTICITY (1.0)*'
Demand growth
Historical
Projected
Captive usage
Use as intermediate
Significance of price as
basis for competition
Substitutability
Foreign competition
Poor
1964-74: 6.8%/yr
Through 1979:
+3%to(-10%)/yr
10% to 30%-
Low to medium
High
Low
High
Negligible
Increase
Neutral
Decrease
Decrease
Increase
Decrease
PRICE ELASTICITY ESTIMATE: Medium (0.5 to 1.0).*'
* Source: Chapter Three.
** Source: Energy Resources Company Inc. estimates.
-225-
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TABLE 5-15
LIKELIHOOD OF FULL-COST PASSTHROUGH FOR CHLOROMETHANES*
COST EFFECT ON
PASSTHROUGH LIKELIHOOD OF FULL-
FACTOR PRESENT DATA COST PASSTHROUGH
Price elasticity of demand Medium (0.5 to 1.0) Neutral
(Combined estimate)
Variation in abatement costs Moderate Neutral
among firms
Required cost increase as % Small Positive
of manufacturing cost
Best estimate 0.2%
Worst-case 0.6%
Expected capacity utilization 70% to 80% — Medium Neutral
LIKELIHOOD OF FULL-COST PASSTHROUGH: Poor; incomplete cost passthrough for some firms.
* Source: Energy Resources Company Inc. estimates.
-226-
-------
0.6 percent for the worst-case costs scenario. As displayed
in the table, this suggests that manufacturers will be able
to recover costs. The other influences on the cost passthrough
decision are all estimated to have no significant effect.
The degree of capacity utilization was high for the industry
in 1974 but has since fallen. This decline is due to the
uncertain future for carbon tetrachloride, the largest
volume chloromethane, the production of which dominates
industry capacity. Capacity utilization is estimated to be
"medium" to reflect this change. Abatement cost differences
are of some note because of the wide range of sizes for
operating plants. However, the smallest plants in the
industry tend to produce for captive use and, therefore,
should still be able to pass on a cost increase.
Investment Analysis. The uncertainties about future
market conditions for chloromethane manufacturers were
accounted for, in the investment analysis, by lowering the
anticipated level of capacity utilization. It was assumed
that the model plant would be running at 70 percent of
capacity for the expected life of the investment (10 years).
The model plant net income calculation is displayed in
Table 5-16. The treatment costs have a negligible effect on
profitability in the best estimate scenario, and a 6 percent
drop in the worst case.
The components of the investment decision are shown in
Table 5-17, and one notable statistic is the small size of
the required investment, $0.23 million in the worst case.
The net present value of the investment was calculated to be
roughly $9 million in both cases, which means that firms
which are in a situation at least as favorable as that of
the model plant under a worst-case cost scenario would
probably make the necessary expenditures.
Plant Shutdowns. Hazardous waste treatment expenditures
will not seriously affect chloromethane manufacturers, except
through their effect on marginal perchloroethylene/carbon
tetrachloride coproduct plants. The elements of the plant
shutdown decision are presented in Table 5-18. In the
table, the only other factor indicating the possibility of a
plant shutdown is the environmental problems for carbon
tetrachloride. Carbon tetrachloride is the largest-volume
chemical of the chloromethane group and a ban on fluorocarbons
would bring a number of changes to the industry. The
factors relating directly to hazardous waste treatment, such
as the size of the required investment, are not sufficient
to cause the industry problems.
-227-
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TABLE 5-16
MODEL PLANT NET INCOME CALCULATION
FOR CHLOROMETHANES*
TREATMENT COST SCENARIO
MODEL PLANT
FINANCIAL DATA
Revenue (S/MT)
Manufacturing cost (S/MT)
Treatment cost (S/MT)
Gross profit (S/MT)
After tax profit (S/MT)**
Total annual net income (S million)
NO NEW
TREATMENT
364
269
0
95.0
47.5
1.7
BEST ESTIMATE
OF COST
364
269
0.6
94.4
47.2
1.7
WORST-CASE
COST ESTIMATE
364
269
1.7
93.3
46.7
1.6
Assumes average annual production of 35,000 MT (70% of capacity). Source: Energy Resources
Company Inc. estimates.
** Assumes 50% corporate tax rate.
-228-
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TABLE 5-17
MODEL PLANT INVESTMENT ANALYSIS
FOR CHLOROMETHANES*
TREATMENT COST SCENARIO
MODEL PLANT
INVESTMENT MEASURES
After-tax profit (S/MT)
Depreciation (S/MT)
After-tax cash flow (S/MT)**
Total annual cash flow (S million) •
Investment outlay (S million)
Working capital requirement (S million)!
Net present value of investment (S million) ft
BEST ESTIMATE
OF COST
47.2
20.1
67.3
2.4
0.18
2.2
9.3
WORST-CASE
COST ESTIMATE
46.7
20.3
67.0
2.3
0.23
2.2
9.1
* Source: Energy Resources Company Inc. estimates.
"After-tax cash flow=profit + depreciation.
T Working capital requirement = 1/4 (manufacturing cost — depreciation).
tt Assumes a 15% discount rate and an investment life of 10 years.
-229-
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TABLE 5-18
MODEL PLANT SHUTDOWN DECISION FACTORS USING
WORST-CASE TREATMENT COST FOR CHLOROMETHANES
DECISION FACTOR
Net present value of
investment
Ratio of investment to net
fixed investment
Degree of vertical integration
(forward or backward)
Integration with other on-site
production processes
Other environmental/
regulatory problems
Likelihood of full-cost
passthrough
LIKELIHOOD OF PLANT SHUTDOWN:
PLANT DATA*
S9.1 million
2.3% - small
Moderate
Integrated with threatened
perchloroethylene processes
Significant
Good likelihood of full -
cost passthrough
Small chance of plant shutdown.
EFFECT ON LIKELIHOOD
OF PLANT SHUTDOWN * '
Negative
Negative
Neutral
^
Positive
Positive
Negative
# »
* Source: Chapter Three.
Source: Energy Resources Company Inc. estimates.
-230-
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5.1.2.2 Projected Impacts
While the markets for the chlororaethanes, particularly
the high-volume product carbon tetrachloride, are subject
to great uncertainty about future demand, it. appears that
the small costs of waste treatment for these products will
preclude a strong regulatory impact. The projected impact
for each manufacturer is displayed in Table 5-19.. As can
be seen from the table, a significant impact is considered
possible for two plants, those of Ethyl Corp. and Stauffer
Chemical Co. Ethyl produces methyl chloride at its Baton
Rouge plant, where it also produces perchloroethylene and
vinyl chloride monomer. Both of these other operations
are thought to have a weak competitive position in their
respective markets (see Sections 5,1.1 and 5.1.4 for
information on the regulatory impact in these markets).
Thus, even though there is no indication of a distinct
treatment problem for methyl chloride wastes, the operation
could be threatened by the possibility that the entire plant
would be closed.
The Stauffer plant in Louisville, Kentucky houses a
joint perchloroethylene-carbon tetrachloride process. The
process generates a relatively large volume of wastes
(worst-case estimates may be applicable) and Stauffer has
indicated that the addition of controlled incineration would
be quite expensive. Therefore, Stauffer would be faced with
the decision of whether to make a fairly large investment in
order to continue production of the two chemicals, each of
which currently faces a weak market. In these circumstances,
they may choose to
cease production.
Several other chloromethane producers also manufacture
perchloroethylene but should not be threatened by hazardous
waste treatment regulations. Diamond Shamrock and Vulcan
Materials send their chloromethane wastes for treatment to
their perchloroethylene plants, where incineration is
currently taking place. In the case of Diamond Shamrock,
this involves transporting the chloromethane wastes from
Belle, West Virginia to Deer Park, Texas.4 Dupont runs a
joint perchloroethylene-carbon tetrachloride process and
they have indicated that the regulatory impact will be
negligible.5
Chloromethane producers who do not also make
perchloroethylene have only a small waste disposal problem.
Allied Chemical, for instance, uses a contractor to dispose
of its hazardous waste. The volume of waste generated would
not economically support in-house incineration in this case.^
-231-
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TABLE 5-19
SUMMARY OF PROJECTED IMPACTS FOR CHLOROMETHANES
MANUFACTURER
Allied Chemical
Conoco
Diamond Shamrock
Dow Chemical
1 Doxv-Cornincj
K)
U)
, DuPont
Ethyl
FMC
General Electric
Inland Chemical
Stauffer Chemical
Union Carbide
Vulcan Materials
PLANT LOCATIONS
Moundsville, W.Va.
Wesllake, La.
Belle, W.Va.
Freeport, Tex.
Plapuemine, La.
Pittsburg, Calif.
Carrollton, Ken.
Midland, Mich.
Coipus Christi, Tex.
Niagara Falls. N.Y.
Baton Rouge, La.
South Charleston, W.Va.
Waterford, N.Y.
Manati, Puerto Rico
Louisville, Ky.
LeMoyne, Ala.
Institute, W.Va.
Geismer, La.
Wichita, Kans.
CURRENT TREATMENT*
Contractor used for
treatment
N.A.
Wastes shipped to Deer
Park, Tex. plant for
incineration
Incineration
Incineration
Incineration
N.A.
N A.
Incineration
-
Deep well disposal
N.A.
Incineration
None
Contractor used for
treatment
N.A.
N.A.
Plan to incinerate
Incineration
CURRENT
COMPETITIVE
POSITION**
Good
Good
Good
Good
Good
Good
Good
Good
Good
Not operating
Vulnerable
-
Good
Good
Vulnerable
Good
Good
Good
Good
MANUFACTURER
RESPONSE
REGARDING
IMPACT *
Negligible
Negligible
Negligible
Negligible
Negligible
Negligible
Negligible
Negligible
Negligible
—
_
-
Negligible
Negligible
Significant
Negligible
Negligible
Negligible
Negligible
PROJECTION OF
REGULATORY
IMPACT**
Small
Small
Small
Small
Small
Small
Small
Small
Small
—
Significant
impact possible
Small
Small
Small
Significant
impact possible
Small
Small
Small
Small
* Source: Contacts with industry personnel.
** Source: Energy Resources Company Inc. estimates.
-------
5.1.3 Epichlorohydrin
The epichlorohydrin market should not be seriously
impacted by hazardous waste treatment regulations. The
investment in treatment equipment will be fairly expensive,
but the additional operating costs should add little to the
cost of the product. Only two firms, Shell Oil and Dow
Chemical, manufacture epichlorohydrin and both should
be able to meet new regulatory requirements with little
difficulty. Both presently have incinerators running and
their plants are large integrated facilities that allow
abatement costs to be spread over many products.
5.1,3.1 Model Plant Analysis
Price Elasticity of Demand. An estimate of the price
elasticity of demand for epfcHTorohydrin was made despite
the lack of market sales of the chemical (see Table 5-20).
The estimation of market conditions for this chemical, as
for the other intermediates studied, is made on the basis of
evidence about the continued use of the chemical as an input
to other processes. In this case, the analysis focuses on
the effect of changes in the epichlorohydrin price on its
use in the manufacture of synthetic glycerin and epoxy
resins. Both markets are expected to be insensitive to
price changes. The extensive captive use of epichlorohydrin
effectively reduces the price sensitivity of its market
since the existing processes of the two producing firms are
dependent upon the continued manufacture of the chemical.
In the past, the producer/users of epichlorohydrin have
shown some tendency to reduce their use of the chemical by
employing alternative processes for the manufacture of
synthetic glycerin. However, changes of this type require
some retooling costs and therefore indicate moderate but not
strong sensitivity to price (or in this case, manufacturing
costs). Epichlorohydrin is well established as an intermediate
in epoxy resin manufacturing and, while there are possibilities
for substitution through alternative manufacturing processes,
the degree of substitutability is limited. The influence of
substitute products on the baseline price elasticity is,
therefore, not strong and is considered to have a neutral
impact in terms of the analysis. On the other hand, the
influence of high captive use is to decrease the price
elasticity. Captive users are likely to favor using their
own supplies even if they are more expensive than other
producers' because the extra costs for compliance are likely
to be less than the increased overhead costs resulting from
shutting down the supplying plant. High levels of captive
use will therefore lessen users' sensitivity to price.
-233-
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TABLE 5-20
ESTIMATION OF THE PRICE ELASTICITY OF DEMAND
FOR EPICHLOROHYDRIN
MARKET
CHARACTERISTIC
PRESENT DATA"
Source: Chapter Three.
Source: Energy Resources Company Inc. estimates.
INFLUENCE ON
BASELINE PRICE
ELASTICITY (1.0)'
Demand growth
Historical
Projected
Captive usage
Use as intermediate
Significance of price as
basis for competition
Substitutability
Foreign competition
PRICE ELASTICITY ESTIMATE:
Low to moderate
n.a.
3% to 6%/yr
High
High
Low
Moderate
Negligible
Low (0.0 to 0.5).**
Neutral
Decrease
Decrease
Decrease
Neutral
Decrease
-234-
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The markets for epichlorohydrin are mature, particularly
that of intermediate use in synthetic glycerin manufacturing,
and future growth is likely to be slow. Markets with
falling growth rates resulting from increasing product
substitution may be indicative of a high price elasticity of
demand. However, the epichlorohydrin market is not subject
to this substitution effect, and slow future growth does not
indicate a high price elasticity.
Likelihood of Full-Cost Passthrpugjh. The two
manufacturers of epichlorohydrfrT aTre~~Ehe largest consumers
of the chemical, allowing them to pass on the increased
costs of manufacture to the next level of processing. The
data which makes this conclusion possible are summarized in
Table 5-21. Most notably, the size of the required cost
increase as a percentage of manufacturing cost is small,
estimated in the worst case as 0.42 percent. The low price
elasticity indicates that the resulting fall in demand
should be negligible. Both firms in this industry make
epichlorohydrin as one product line in huge petrochemical
complexes. As a result, there is no significant difference
in the scale of operation and no interfirm differences in
the cost of abatement are expected. Expected capacity
utilization is projected to be between 65 and 80 percent,
buoyed mainly by demand for use in epoxy resins. A healthy
level of capacity utilization also eases the passthrough of
abatement costs.
Net Income and Investment Analysis. Treatment costs
should add only $3 to the $900 cost of manufacturing a
metric ton of epichlorohydrin. Table 5-22 presents the net
income calculation to determine whether treatment costs can
be absorbed while maintaining profitability. Comparing the
model plant net income projection with and without treatment
costs shows that treatment using the best estimate of costs
reduces net income from $3.0 million to $2.9 million. Net
income under a worst-case cost scenario is only slightly
lower at $2.8 million. These treatment costs represent
declines in net income of 3 percent and 7 percent respectively,
The investment required for epichlorohydrin producers
would be roughly $1 million. Table 5-23 presents the
investment analysis. In terras of the model plant costs, the
worst-case investment of $1.1 million is one-eighth of the
net fixed investment of $7.9 million. However, the cash
flows summarized in the table indicate that the investment
would be a profitable one. On the basis of an after-tax
cash flow of more than $50/MT, the net present values of the
investment are $6.0 million and $5.6 million for the best
estimate and worst-case costs respectively. These figures,
it can be safely said, are conservative estimates of
-235-
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TABLE 5-21
LIKELIHOOD OF FULL-COST PASSTHROUGH FOR EPICHLOROHYDRIN*
COST
PASSTHROUGH
FACTOR
Price elasticity of demand
Variation in abatement costs
among firms
Required cost increase as %
of manufacturing cost
Best estimate
Worst-case
Expected capacity utilization
LIKELIHOOD OF FULL-COST
PRESENT DATA
Low (0.0 to 0.5)
Negligible
Small
0.23%
0.42%
70% to 85% -
Medium to high
PASSTHROUGH: Good likelihood
EFFECT ON
LIKELIHOOD OF FULL
COST PASSTHROUGH
Positive
Positive
Positive
Positive
of full-cost passthrough.
"Source: Energy Resources Company Inc. estimates.
-236-
-------
TABLE 5-22
MODEL PLANT NET INCOME CALCULATION
FOR EPICHLOROHYDRIN*
TREATMENT COST SCENARIO
MODEL PLANT
FINANCIAL DATA
Revenue (S/MT)
Manufacturing cost (S/MT)
Treatment cost (S/MT)
Gross profit (S/MT)
After-tax profit (S/MT) '*
Total annual net income (S million)
NO NEW
TREATMENT
970
882
0
88.0
44.0
3.0
BEST ESTIMATE
OF COST
970
882
2.0
86.0
43.0
2.9
WORST-CASE
COST ESTIMATE
970
882
3.7
84.3
42.2
2.8
Assumes average annual production of 67,500 MT (90% of capacity). Source: Energy Resources
Company Inc. estimates.
Assumes 50% corporate tax rate.
-237-
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TABLE 5-23
MODEL PLANT INVESTMENT ANALYSIS
FOR EPICHLOROHYDRIN*
TREATMENT COST SCENARIO
MODEL PLANT
INVESTMENT MEASURES
After-tax profit (S/MT)
Depreciation (S/MT)
After-tax cash flow (S/MT)**
Total annual cash flow (S million)
Investment outlay (S million)
Working capital requirement (S million)!
Net present value of investment (S million) tt
BEST ESTIMATE
OF COST
43.0
11.9
54.7
3.7
0.87
14.7
6.0
WORST-CASE
COST ESTIMATE
42.0
12.1
54.2
3.7
1.08
14.7
5.6
* Source: Energy Resources Company Inc. estimates.
** After-tax cash flow = profit + depreciation.
t Working capital requirement = 1/4 (manufacturing cost — depreciation).
Tt Assumes a 15% discount rate and an investment life of 10 years.
-238-
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profitability given the probable market power of the two
epichlorohydrin producers, Shell Oil Company and Dow Chemical,
Plant Shutdowns. As suggested by the previous
discussion, plant shutdowns are unlikely for epichlorohydrin
manufacturers. The various components of the shutdown
decision are listed in Table 5-24. The only factor that
has a positive effect on the likelihood of a plant shutdown
is the large size of the initial treatment investment,
calculated here as a percentage of the net fixed investment.
However, the net fixed investment figure used for the model
plant analysis is only an estimate of the actual requirements
for the epichlorohydrin process equipment. In reality, the
investment required for a petrochemical complex is many
times larger than the model plant figure, but the coats of
treating epichlorohydrin wastes will be spread over the
manufacturing and treatment costs for a number of chemicals.
The burden of the hazardous waste treatment investment on
epichlorohydrin is therefore lessened significantly. All
of the other factors listed indicate that there should not
be serious difficulties for this industry. The most
significant factors are the strong likelihood of a full-cost
passthrough and the high degree of vertical integration.
The latter point suggests that this manufacturing process
could not be easily separated from the other plant operations
and shutdown.
5.1.3.2 Projected Impacts
Regulations for hazardous waste management should
not seriously impact either of the two epichlorohydrin
manufacturers, Shell Oil Company or Dow Chemical. A
summary of the projected impacts for each of the plants is
presented in Table 5-25. Both companies manufacture the
chemical in large petrochemical complexes, which allows them
to spread the costs of treatment (controlled incineration)
over a number of products. The results of the investment
analysis presented above are likely, therefore, to overstate
the incremental costs of treatment for epichlorohydrin
alone.
Communication with the representatives of Shell and
Dow during the course of this project indicated that both
firms have taken steps to meet the anticipated regulations.7
Each firm is using, or planning to use, controlled
incineration processes which should meet any governmental
regulatory standards. To the extent that the firms are
moving towards controlled incineration in anticipation of
regulation, these regulations will have made their primary
economic impact prior to being instituted.
-239-
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TABLE 5-24
MODEL PLANT SHUTDOWN DECISION FACTORS USING
WORST-CASE TREATMENT COST FOR EPICHLOROHYDRIN
DECISION FACTOR
Net present value of
investment
Ratio of investment to net
fixed investment
Degree of vertical integration
(forward or backward)
Integration with other on-site
production processes
Other environmental/
regulatory problems
Likelihood of full-cost
passthrough
LIKELIHOOD OF PLANT SHUTDOWN:
PLANT DATA*
S5.6 million
13.7%- large
High
Extensive integration
Moderate
Good likelihood of full-
cost passthrough
Small chance of plant shutdown.*
EFFECT ON LIKELIHOOD
OF PLANT SHUTDOWN**
Negative
Positive
Negative
Negative
Negative
Negative
•*
* Source: Chapter Three.
** Source: Energy Resources Company Inc. estimates.
-240-
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TABLE 5-25
SUMMARY OF PROJECTED IMPACTS FOR EPICHLOROHYDRIN
MANUFACTURER PLANT LOCATIONS
Dow Chemical
Shell Oil
Source:
1 ** Source:
Isj
Freeport, Tex.
Houston, Tex.
Norco, La.
Contacts with industry personnel
Energy Resources Company Inc.
CURRENT TREATMENT'
Incineration
Incineration
Incineration
estimates.
CURRENT
COMPETITIVE
POSITION"
Good
Good
Good
MANUFACTURER
RESPONSE
REGARDING
IMPACT
Negligible
Negligible
Negligible
PROJECTION OF
REGULATORY
IMPACT"
Small
Small
Small
-------
5.1.4 Vinyl Chloride
While the model plant for vinyl chloride has among the
highest treatment costs of any plant and worst-case
treatment costs are 0.6 percent of production costs, the
booming VCM/PVC market should have little trouble absorbing
the costs. Two small producers presently suffering from
weak positions in the market may be subject to significant
impact from the regulation only because of the combination
of treatment costs and their vulnerable market positions.
5.1.4.1 Model Plant Analysis
Price Elasticity of Demand. Vinyl chloride is
expected to have one of the lowest price elasticities of the
highly impacted chemicals. The price elasticity estimation
is presented in Table 5-26. While examination of price and
sales data over the past 15 years shows significant increases
in demand accompanied by dramatic price declines, it is
believed that both the demand growth and the price reduction
were the results of the boom in the market. The current price
elasticity of the market is believed to be better represented
by its recent performance. Recently, vinyl chloride has
been subject to sharp price increases which have not had
sizeable effects on demand. These increases were not
sufficient to price PVC (a derivative of vinyl chloride) out
of the numerous markets where it has been found to be
extremely effective in a broad range of applications.
The limited substitutability for VCM/PVC is believed
to exercise the strongest influence on the baseline
elasticity. All other determinants are estimated to have
a negative effect except the significance of price on
competition, which is believed to have a neutral influence.
The 4 to 5 percent estimate of future demand growth may w-ell
be conservative given the strong sales growth in 1976 and '
1977. Furthermore, the industry has planned to increase
capacity by over 50 percent by 1980. The continued sales
growth is seen as a sign of price firmness and the effect of
the expansion of capacity on prices is likely to swamp any
increase in price due to hazardous waste treatment.
Substitutability and foreign competition are not
significant at this time and high, increasing rates of
captive use will minimize the effects of cost increases. If
the National Energy Plan is enacted, however, then the price
of the necessary feedstocks for VCM production will increase
substantially. The price rise could eliminate the export
market for VCM and PCV and stimulate importing of these
chemicals.
-242-
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TABLE 5-26
ESTIMATION OF THE PRICE ELASTICITY OF DEMAND
FOR VINYL CHLORIDE
MARKET
CHARACTERISTIC
PRESENT DATA*
INFLUENCE ON
BASELINE PRICE
ELASTICITY (1.0)'
Demand growth
Historical
Projected
Captive usage
Use as intermediate
Significance of price as
basis for competition
Substitutabillty
Foreign competition
Moderate Decrease
1964-74: 13.2%/yr
Through 1979: 4% to 5%/yrt
40% to 50% - Decrease
Moderately high
High Decrease
Moderate Neutral
Low Decrease
Negligible Decrease
PRICE ELASTICITY ESTIMATE: Low (0.0 to 0.5).**
* Source: Chapter Three.
** Source: Energy Resources Company Inc. estimates.
t Dow Chemical Company projects 7% growth into the 1980's. (Source: Chemical Marketing
Reporter. October 24, 1977.)
-243-
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Likelihood of Full-Cost Passthrough. The required cost
increase and other elements of the cost passthrough decision
are presented in Table 5-27 and the results suggest an easy
passthrough of costs. Treatment costs are quite low,
0.4 percent of total manufacturing costs for the best
estimate scenario and 0.6 percent for the worst-case costs.
Also, the low price elasticity will encourage producers to
pass through abatement costs.
There are, however, some mildly restraining influences
on price increases. Expected capacity utilization has been
projected conservatively at between 65 and 80 percent in
order to account for the possibility of a glut in the VCM
market. As will be discussed below in Section 5.1.4.2
(Projected Impact), a number of new plants will be coming on
stream by 1980 and this will increase competitive pressures
in the industry. Firms in a weak competitive position or
those with worst-case costs may not be able to fully recover
the cost increase through price increases.
Net Income and Investment Analysis. The analysis of
revenues and costsindicates continued profitability for the
model plant in this industry. Net income figures are
displayed for the plant with and without treatment costs in
Table 5-28. The substantial difference in best estimate and
worst-case costs is noteworthy. The model plant net income
figure falls 5.1 percent with the best estimate treatment
costs and 9.8 percent with the worst-case costs.
Another view of the effect of regulations on the model
plant is presented by the investment analysis in Table 5-29.
For the investment analysis, the difference between the best
estimate and worst-case costs is relatively unimportant.
The annual cash flow for the worst case, $3.01 million, is
only 9 percent below that of the best estimate case. The
net present value of the investments in each case is
significantly positive.
Plant Shutdowns. Hazardous waste management
regulations should not have a strong impact on the vinyl
chloride industry. The regulations might help precipitate
some plant shutdowns, but the current vulnerability of
certain firms is caused largely by general market and
production conditions. Table 5-30 presents the relevant
plant shutdown decision factors and their estimated effects
under a worst-case cost scenario. OSHA regulations are
considered significant in increasing the likelihood of plant
shutdown even though most firms have met or will be able to
successfully meet these other regulations. Because of the
possibility that some plants may not be able to fully
recover costs (although the industry as a whole should have
-244-
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TABLE 5-27
LIKELIHOOD OF FULL-COST PASSTHROUGH FOR VINYL CHLORIDE'
COST EFFECT ON
PASSTHROUGH LIKELIHOOD OF FULL
FACTOR PRESENT DATA COST PASSTHROUGH
Price elasticity of demand
Variation in abatement costs
among firms
Required cost increase as %
of manufacturing cost
Best estimate
Worst -case
Expected capacity utilization
LIKELIHOOD OF FULL-COST
Low (0.0 to 0.5)
High
Small
0.4%
0.6%
65% to 80% -
Medium to high
PASSTHROUGH: Strong likelihood
Positive
Negative
Positive
Neutral
of full-cost passthrough.
with worst-case costs may not fully recover
Plants
costs.
* Source: Energy Resources Company Inc. estimates.
-245-
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TABLE 5-28
MODEL PLANT NET INCOME CALCULATION
FOR VINYL CHLORIDE*
TREATMENT COST SCENARIO
MODEL PLANT
FINANCIAL DATA
Revenue (S/MT)
Manufacturing cost (S/MT)
Treatment cost (S/MT)
Gross profit (S/MT)
After-tax prof it (S/MT)**
Total annual net income (S million)
NO NEW
TREATMENT
320
294
0
26.0
13.0
1.6
BEST ESTIMATE
OF COST
320
294
1.2
24.8
12.4
1.5
WORST-CASE
COST ESTIMATE
320
294
1.8
24.2
12.1
1.5
Assumes average annual production of 122,400 MT (90% of capacity). Source: Energy Resources
Company Inc. estimates.
** Assumes 50% corporate tax rate.
-246-
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TABLE 5-29
MODEL PLANT INVESTMENT ANALYSIS
FOR VINYL CHLORIDE*
TREATMENT COST SCENARIO
MODEL PLANT
INVESTMENT MEASURES
After-tax profit (S/MT)
Depreciation (S/MT)
A fter -tax cash flow (S/MT)**
Total annual cash flow (S million)
Investment outlay (S million)
Working capital requirement (S million) t
Net present value of investment (S millionltt
BEST ESTIMATE
OF COST
12.4
16.9
29.3
3.6
0.9
8.5
9.1
WORST-CASE
COST ESTIMATE
12.1
17.1
29.2
3.6
1.1
8.5
8.8
* Source: Energy Resources Company Inc. estimates.
*" After-tax cash flow = profit + depreciation.
t Working capital requirement * 1/4 (manufacturing cost — depreciation).
tt Assumes a 15% discount rate and an investment life of 10 years.
-247-
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TABLE 5-30
MODEL PLANT SHUTDOWN DECISION FACTORS USING
WORST-CASE TREATMENT COST FOR VINYL CHLORIDE
DECISION FACTOR
(forward or backward)
Integration with other on-site
production processes
Other environmental/
regulatory problems
Likelihood of full-cost
passthrough
PLANT DATA'
EFFECT ON LIKELIHOOD
OF PLANT SHUTDOWN**
Net present value of
investment
Ratio of investment to net
fixed investment
Degree of vertical integration
S8.8 million
4.9% - small
Medium
Negative
Negative
Neutral
Low — isolated plant Positive
Substantial - OSHA Positive
regulations
Fair likelihood of full-cost Neutral
passthrough; small plants
may not recover costs fully
LIKELIHOOD OF PLANT SHUTDOWN: Some likelihood of plant shutdown. Small plants are most
vulnerable.**
* Source: Chapter Three.
Source: Energy Resources Company Inc. estimates.
-248-
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no trouble), the cost passthrough factor is accorded a
neunral influence. The investment analysis, as discussed
above, indicated that firms are likely to make the necessary
investment. However, struggling enterprises may see only a
limited future for themselves in the industry and in such
a case, almost any investment may be considered wasteful.
Plant shutdowns are, therefore, possible as the combined
result of environmental regulations and the weakening
competitive position of small producers in the industry.
5.1.4.2 Projected Impacts
Expectations of a continuation of the rapid growth of
the VCM/PVC market in recent years and the attractive
profitability of 1974 have encouraged firms to expand or
enter the industry. As of this writing, four firms have
announced plans for the construction of new plants or
expansion of existing plants scheduled to come on line
within a few years. In each case the expansions amounted to
an additional 455,000 metric tons per year (1 billion pounds
per year) of VCM capacity. The four firms and their
respective capacity increases are listed in Table 5-31.
Sales growth for the industry has been impressive,
with a yearly growth of 13,2 percent from 1964 to 1974
ami new peaks of production in 1976 and again in 1977
(projected). However, the four new plants constitute an
increase in capacity of over 50 percent. As a result, there
is some expectation of a glut in vinyl chloride production
and this will increase the competitive pressures within the
industry. It has been noted that economies of scale are
very significant for VCM producers. The capacity of the new
plants suggests that 455,000 metric tons is recognized as an
optimum plant size.
A summary of the projected impacts of hazardous waste
regulations on the vinyl chloride producers is developed in
Table 5-32. The existing smaller and often older plants are
t-houqht to be at a cost disadvantage in comparison to the
new ijiants. The one exception is the new Borden VCM plant
which, although built for a capacity of only 136,000 metric
tons per year, should be adaptable (1) to environmental
controls and (2) to expansions. Also, Borden's VCM production
will be used internally for PVC production and should,
therefore, be less vulnerable to competitive pressures.
Several plants will be particularly vulnerable to
the new competitive pressures and to the impact of hazardous
waste management regulations. These are described below:
-249-
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TABLE 5-31
PLANNED EXPANSIONS IN VCM CAPACITY
FIRM
PRIOR EXPERIENCE
IN VCM
CAPACITY
(1.000MT)
Georgia Pacific
Diamond Shamrock
PPG
Dow
New entrant
New entrant
Currently VCM producer
Currently VCM producer
455(1979)
455 (1978)
455(1980)
273(1977)
182(1980)
-250-
-------
TABLE 5-32
SUMMARY OF PROJECTED IMPACTS FOR VINYL CHLORIDE
MANUFACTURER
Allied Chemical
Borden
Conoco
Dow Chemical
1
to
£ Ethyi
1
B.F. Goodrich
Monochem
PPG
Shell Oil
Stauffer Chemical
PLANT LOCATIONS
Baton Rouge, La.
Geismer, La.
Lake Charles. La.
Freeport, Tex.
Plaquemine, La.
Oyster Creek, Tex.
Baton Rouge, La.
Houston, Tes.
Calvert City, Ky.
Geismer, La.
Lake Charles, La.
GuayaniHa, P.R.
Deer Park, Tex.
Norco, La.
Long Beach, Calif.
CURRENT TREATMENT"
N.A.
N.A.
Plan to incinerate
Incineration
Incineration
Incineration
Deep well disposal
N.A.
Incineration
Incineration
N.A.
Incineration
Incineration
N.A.
CURRENT
COMPETITIVE
POSITION"
Vulnerable
Good
Good
Good
Good
Good
Vulnerable
Not operating
Good
Vulnerable
Good
Good
Good
Good
N.A.
MANUFACTURER
RESPONSE
REGARDING
IMPACT"
-
-
Moderate
Negligible
Negligible
Negligible
-
Negligible
_
Negligible
Negligibis
-
PROJECTION OF
REGULATORY
IMPACT"
Significant
impact possible
Small
Small
Small
Small
Small
Significant
impact possible
Small
Small
Small
Smali
Small
Small
Small
Source: Contacts with industry personnel.
Source: Energy Resources Company Inc. estimates.
-------
1. Allied Chemical, Baton Rouge, Louisisana
(capacity 136,000 metric tons). Allied has
announced that it will sell or expand its VCM
plant, suggesting strongly that the firm cannot
run its operation profitably at its current
level. With 136,000 metric tons of capacity per
year, it is among the smaller VCM manufacturers
in the industry. It is also known that Allied has
had considerable problems in meeting the OSHA
standard for emissions. (The OSHA regulations
presented a serious problem for the industry, but the
obstacle has largely been overcome by most firms.)
2. Ethyl Corporation, Baton Rouge, Louisiana
(capacity 136,000 metric tons). This same
Ethyl Corp. plant has been described in
Section 5.1.1.2 on perchloroethylene as one
which is vulnerable to competitive pressures
in that industry. The firm's problems in VCM
manufacturing stem most likely from similar
sources, namely, the cost disadvantages of this
particular plant. However, there are several
indications of specific difficulties in the VCM
market where Ethyl is a "swing supplier" (i.e.,
they sell to captive producers during periods when
their customers' demand outprices their in-house
supply) absorbing most of the customers' risk of
incremental changes in demand. Ethyl has already
closed one VCM plant, in Houston, Texas. At their
Baton Rouge plant, Ethyl makes ethylene dichloride
(EDC), some of which is used in VCM manufacturing
and some of which is sold to B.F. Goodrich for use
in their VCM plant in Calvert City, Kentucky. The
latter customer, however, is expected to cease its
purchases from Ethyl as soon as it develops its
own EDC production capability. The loss of this
major customer could result in a lower utilization
rate for the EDC facility and this, in turn, may
accentuate VCM production cost problems. Like
the Allied plant, Ethyl's plant is small for
the industry, creating further cost disadvantage.
5.1.5 Acrylonitrile
The acrylonitrile industry will not be hard hit by
hazardous waste regulations. Both the required investments
and the increases in manufacturing costs will be small. The
impact that is felt by the industry should be distributed
fairly evenly among firms because all firms use the same process
and are currently disposing of wastes by similar techniques.
-252-
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5.1.5.1 Model Plant Analysis
Price Elasticity of Demand. There is little
indication from the market history of acrylonitrile that
demand is sensitive to price increases. Table 5-33 presents
the estimate of price elasticity. All of the principal
determinants of price elasticity, such as the characteristics
of competition as delineated in the table, suggest a low
price elasticity. There is no direct substitute for
acrylonitrile, which is used to produce acrylic fibers,
although wool and other fabrics can be substituted in some
clothing products and the majority of production is used
captively by firms, thus further reducing the sensitivity of
customers to price changes. Also, demand growth for the
next half decade should continue to be strong. Demand
growth represents an outward shifting of the demand curve
but is also used here as an indication of the tightness
of supply. Where demand is strong, there can be some
possibility of shortages and customers are known to be
considerably less concerned about price changes than about
interruption in supplies.
Likelihood of Full-Cost Passthrough. The small size
of the cost increase required by hazardous waste treatment
for acrylonitrile means that a full-cost passthrough should
take place. The elements of the cost passthrough decision
are presented in Table 5-34. The cost increase is only
0.2 percent of the manufacturing costs using the worst-case
cost estimates and represents the smallest cost increase
among the highly impacted segments. The cost increase is so
small that other factors are of only secondary importance.
The low price elasticity for the chemical suggests there
will be ample leeway for the required price rise. Abatement
cost differences between firms are not of particular
importance since it is expected that most firms will be
required to make similar adjustments for hazardous waste
treatment. Economies of scale as they affect treatment
costs will exist, but none of the plants in the industry is
exceptionally small. The current high level of capacity
utilization is expected to be sustained so that firms are
not likely to be reticent about initiating a small price
r ise.
Net Income and Investment Analysis. The analysis of
net income for the model plant is presented in Table 5-35.
The table indicates continued profitability despite hazardous
waste treatment. The net profit earned per metric ton of
product (over $80) is quite high for the industry. The
profit level reflects the need to provide an adequate
return on the large investment required for acrylonitrile
manufacturing. The estimated capital costs for the model
-253-
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TABLE 5-33
ESTIMATION OF THE PRICE ELASTICITY OF DEMAND
FOR ACRYLONITRILE
MARKET
CHARACTERISTIC
PRESENT DATA*
INFLUENCE ON
BASELINE PRICE
ELASTICITY (1.0)'
Demand growth
Historical
Projected
Captive usage
High Decrease
1965-75: 11%/yr
Through 1981: 8% to 10%/yr
55% to 65% - Decrease
Moderately high
Use as intermediate
Significance of price as
basis for competition
Substitutability
Foreign competition
High
Moderate
Low
Minimal
Decrease
Neutral
Decrease
Decrease
PRICE ELASTICITY ESTIMATE: Low (0.0 to 0.5)**
* Source: Chapter Three.
** Source: Energy Resources Company Inc. estimates.
-254-
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TABLE 5-34
LIKELIHOOD OF FULL-COST PASSTHROUGH FOR ACRYLOWTRILE1
COST EFFECT ON
PASSTHROUGH LIKELIHOOD OF FULL
FACTOR PRESENT DATA COST PASSTHROUGH
Price elasticity of demand
Variation in abatement costs
among firms
Required cost increase as %
of manufacturing cost
Best estimate
Worst-case
Expected capacity utilization
LIKELIHOOD OF FULL-COST
Low (0.0 to 0.5)
Moderate
Small
0.1%
0.2%
70% to 80% -
Medium
PASSTHROUGH: Good
Positive
Neutral
Positive
Neutral
likelihood of full-cost passthrough.
Source: Energy Resources Company Inc. estimates.
-255-
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TABLE 5-35
MODEL PLANT NET INCOME CALCULATION
FOR ACRYLONITRILE*
TREATMENT COST SCENARIO
MODEL PLANT
FINANCIAL DATA
Revenue (S/MT)
Manufacturing cost (S/MT)
Treatment cost (S/MT)
Gross profit (S/MT)
After-tax profit (S/MT)**
Total annual net income (S million)
NO NEW
TREATMENT
595
431
0
164
82.0
13.4
BEST ESTIMATE
OF COST
595
431
0.4
163.6
81.8
13.3
WORST-CASE
COST ESTIMATE
595
431
0.7
163.3
81.7
13.3
* Assumes average annual production of 163,000 MT (90% of capacity). Source: Energy Resources
Company Inc. estimates.
** Assumes 50% corporate tax rate.
-256-
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plant are $53 million. Net income per annum is likewise quite
high, with the treatment costs having a negligible impact.
The figures used in deriving the net present value
of investment are presented in Table 5-36. The required
treatment investments are small. The worst-case estimate of
the investment is under $0.5 million. The net present value
of investment is, as a result, quite large and positive for
acrylonitrile producers.
Plant Shutdowns. The impact of hazardous waste
treatment regulations should not cause any plant shutdowns
in the acrylonitrile industry. The plant-specific data most
relevant to the shutdown decision are listed in Table 5-37,
and none of the influences suggest serious difficulties.
The profitable results of the investment analysis and small
size of the required investment both indicate strongly that
firms will incur the additional costs. The fact that the
largest firms use their production captively and that all
acrylonitrile plants are tied into refineries makes it clear
that the closing of any acrylonitrile operations would
complicate the other production activities for the firms.
The industry will soon become subject to OSHA regulations
regarding the exposure of employees to chemical emulsions.
The possibility of problems with OSHA regulations is accorded
only a neutral influence because it is not clear that these
will seriously impact the industry. Regarding the treatment
costs of hazardous wastes, a full-cost passthrough is
expected. To conclude, there is a remote chance of plant
shutdowns in this industry.
5.1.5.2 Projected Impacts
Unlike several other highly impacted segments, the
distribution of the impact will be more or less evenly
distributed among firms in this industry. None of the
plants are extremely small so cost differences should
not be pronounced. A summary of the projected impacts is
presented in Table 5-38. Most of the plants are currently
discharging their wastes through deep well disposal and
will therefore require some future outlay for the treatment
investment.8 The small size of the treatment costs precludes
the need for further analysis.
5.1.6 Furfural
The Quaker Oats Company with its four plants is the
sole producer of furfural and is therefore the focus of the
economic impact analysis. The monopoly power of the company
-257-
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TABLE 5-36
MODEL PLANT INVESTMENT ANALYSIS
FOR ACRYLONITRILE*
TREATMENT COST SCENARIO
MODEL PLANT
INVESTMENT MEASURES
After-tax profit (S/MT)
Depreciation (S/MT)
After-tax cash flow (S/MT)**
Total annual cash flow (S million)
Investment outlay (S million)
Working capital requirement (S million)t
Net present value of investment (S million) tt
BEST ESTIMATE
OF COST
81.8
32.6
114.4
18.6
0.23
16.3
77.0
WORST-CASE
COST ESTIMATE
81.7
32.7
114.4
18.6
0.39
16.3
76.8
* Source: Energy Resources Company Inc. estimates.
** After-tax cash flow = profit + depreciation.
T Working capital requirement = 1/4 (manufacturing cost - depreciation).
Tt Assumes a 15% discount rate and an investment life of 10 years.
-258-
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TABLE 5-37
MODEL PLANT SHUTDOWN DECISION FACTORS USING
WORST-CASE TREATMENT COST FOR ACRYLONITR1LE
DECISION FACTOR
Net present value of
investment
Ratio of investment to net
fixed investment
Degree of vertical integration
(forward or backward)
Integration with other on-site
production processes
Other environmental/
regulatory problems
Likelihood of full-cost
passthrough
LIKELIHOOD OF PLANT SHUTDOWN
PLANT DATA*
S76.8 million
Less than 1% - very small
Medium to high
Extensive integration
OSHA regulations
Good likelihood of full-
cost passthrough
: Remote chance of plant shutdown
EFFECT ON LIKELIHOOD
OF PLANT SHUTDOWN* *
Negative
Negative
Negative
Negative
Neutral
Negative
* *
* Source: Chapter Three.
** Source: Energy Resources Company inc. estimates.
-259-
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TABLE 5-38
SUMMARY OF PROJECTED IMPACTS FOR ACRYLONITRILE
1
CT\
O
I
MANUFACTURER PLANT LOCATIONS
American Cyanamid Fortier, La.
OuPont Beaumont, Tex.
Memphis, Tenn.
Monsanto Chocolate Bayou, Tex.
Texas City, Tex.
Vistron Lima, Ohio
CURRENT TREATMENT*
Deep well disposal
Incineration
Incineration
Deep well disposal
Deep well disposal
Deep well disposal and
and biological treatment
MANUFACTURER
CURRENT RESPONSE
COMPETITIVE REGARDING
POSITION" IMPACT*
Good —
Good Negligible
Good Negligible
Good -
Good -
Good -
PROJECTION OF
REGULATORY
IMPACT**
Small
Small
Small
Small
Small
Small
* Source: Contacts with industry personnel.
1 * Source: Energy Resources Company Inc. estimates.
-------
TABLE 5-37
MODEL PLANT SHUTDOWN DECISION FACTORS USING
WORST-CASE TREATMENT COST FOR ACRYLONITR1LE
DECISION FACTOR
Net present value of
investment
Ratio of investment to net
fixed investment
Degree of vertical integration
(forward or backward)
Integration with other on-site
production processes
Other environmental/
regulatory problems
Likelihood of full-cost
passthrough
LIKELIHOOD OF PLANT SHUTDOWN:
PLANT DATA"
S76.8 million
Less than 1% - very small
Medium to high
Extensive integration
OSHA regulations
Good likelihood of full-
cost passthrough
: Remote chance of plant shutdown
EFFECT ON LIKELIHOOD
OF PLANT SHUTDOWN**
Negative
Negative
Negative
Negative
Neutral
Negative
» *
* Source: Chapter Three.
** Source: Energy Resources Company Inc. estimates.
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TABLE 5-38
SUMMARY OF PROJECTED IMPACTS FOR ACRYLONITRILE
1
ro
o\
o
l
MANUFACTURER
American Cyanamid
DuPont
Monsanto
VisUon
PLANT LOCATIONS
Fortier, La.
Beaumont. Tex.
Memphis. Tenn.
Chocolate Bayou, Tex.
Texas City, Tex.
Lima, Ohio
CURRENT TREATMENT*
Deep well disposal
Incineration
Incineration
Deep well disposal
Deep well disposal
Deep well disposal and
and biological treatment
MANUFACTURER
CURRENT RESPONSE
COMPETITIVE REGARDING
POSITION" IMPACT*
Good -
Good Negligible
Good Negligible
Good
Good
Good -
PROJECTION OF
REGULATORY
IMPACT"
Small
Small
Small
Small
Small
Small
* Source: Contacts with industry personnel.
'* Source: Energy Resources Company Inc. estimates.
-------
has been sharply reduced in recent years by the market surge
of other chemical binders in the foundry industry - the
principal end-use market for furfural-derived products.
Overcapacity will be the principal cause of any future plant
shutdowns, although hazardous waste management regulations
may help precipitate the exit.
5-1.6.1 Model
The price elasticity
-
estimate for furfural is presented in Table 5-39. Market
data on furfural, as is the case for epichlorohydrin, is
scarce, making the estimation of the price elasticity
slightly more difficult. However, the two countervailing
forces from among those listed in the table appear to be the
principal market influences. One influence which operated
to decrease price elasticity was a supply shortage, as the
output of the Quaker Oats Company, the sole producer, lagged
behind demand. Shortages, actual or anticipated, tend to
put customers at a very inelastic point on their demand
curve and reduce the importance of prices on sales. On the
other hand, past supply shortages have forced customers to
consider alternative inputs (particularly for furan resins
in the adhesive-binder market) so that some end-use markets
have become fairly competitive and price sensitive.
The other influences in the baseline price elasticity
are weaker. The extent of captive usage is high, because
most furfural is used by Quaker Oats to make furfuryl
alcohol. However, furfuryl alcohol is then sold to furan
resin producers. The degree of captive usage is, therefore,
misleading in this market, and has been accorded a neutral
influence on the price elasticity estimate. Foreign
competition is significant in this industry because it is
estimated that 40 percent of domestic furfural production is
exported. Quaker Oats competes with foreign producers for
international customers although there are no data on the
level of imports of furfural to the United States.
L i k e 1 i hood of F ^uJJ^Cc >s 1 Pa 8 s t h i rjUjiffh. . The costs of
hazardous waste treatrnent'~are likely to be passed through.
Table 5-40 displays the cost passthrough analysis. The
required cost increase should represent, at worst,
1.4 percent of costs. The high rate of capacity utilization,
estimated here as 90 percent, makes it relatively easy for
the Quaker Oats Company to increase costs despite the
presence of competing products. Abatement cost differences
between firms are obviously not relevant because there is
only one firm producing the product.
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TABLE 5-39
ESTIMATION OF THE PRICE ELASTICITY OF DEMAND
FOR FURFURAL
MARKET
CHARACTERISTIC
PRESENT DATA*
PRICE ELASTICITY ESTIMATE: Medium (0.5 to 1.0)"'
INFLUENCE ON
BASELINE PRICE
ELASTICITY (1.0)'
Demand growth
Historical
Projected
Captive usage
Use as intermediate
Significance of price as
basis for competition
Substitutability
Foreign competition
Low
1970-76: 6%/yr
3%/yr
High
High
Low
High
Significant competition
for foreign markets
Increase
Neutral
Decrease
Decrease
Increase
Neutral
* Source: Chapter Three.
Source: Energy Resources Company Inc. estimates.
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TABLE 5-40
LIKELIHOOD OF FULL-COST PASSTHROUGH FOR FURFURAL*
COST EFFECT ON
PASSTHROUGH LIKELIHOOD OF FULL
FACTOR PRESENT DATA COST PASSTHROUGH
Price elasticity of demand Medium (0.5 to 1.0) Neutral
Variation in abatement costs None Positive
among firms
Required cost increase as % Small Positive
of manufacturing cost
Best estimate 0.3%
Worst-case 1.4%
Expected capacity utilization 90% - High Positive
LIKELIHOOD OF FULL-COST PASSTHROUGH: Good likelihood of full -cost passthrough.
* Source: Energy Resources Company estimates.
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Net Income and Investment Analysis. The net income
calculations for the model plant are shown in Table 5-41.
The table indicates that treatment costs will have only a
small effect on the profitability of the model plant. The
after-tax profit rate is large in each case, with the
difference between the best estimate and worst-case treatment
costs being moderated by the effect of the 50 percent
corporate income tax rate. The reduction in estimated net
income due to the addition of treatment costs is negligible.
In order to derive the model plant cash flow figures,
the after-tax profit per metric ton is added to the
depreciation charges. The cash,flow figures and the
investment analysis calculations are presented in Table 5-42.
The depreciation charges are substantial because the capital
cost per metric ton of furfural is quite high. The required
investments are large, $1.1 million for the best estimate
of cost and $1.4 million for the worst-case cost estimate.
Nevertheless, the net present value of the investment is
significantly positive at $15.82 and $15.32 million
respectively.
Plant Shutdowns. The requirement of an investment in
hazardous waste treatment could help precipitate a plant
shutdown; however, it should not be the actual cause of the
shutdown. The costs of incineration are not sufficient to
cause the elimination of an otherwise profitable operation.
The results of the worst-case investment analysis arid
plant-specific data which may influence the shutdown decision
are presented in Table 5-43. The highly profitable results
of the investment analysis, as were discussed above, indicate
a minimal impact of regulation on this market. The only
factor which increases the likelihood of a plant shutdown
is the fact that the Quaker Oats plants tend to be isolated
manufacturing operations. Furfural production is not tied
into other manufacturing processes which would then be
adversely affected by the shutting down of the furfural
operations. The issue of other environmental or regulatory
problems is accorded a neutral influence due to the
possibility that recent startup difficulties with the new
Bayport plant may be related to environmental problems.
Such concerns are not sufficiently important to deter the
conclusion that there is a small chance of plant shutdowns.
5.1.6.2 Projected Impacts
The Chemical Division of the Quaker Oats Company
has recently suffered a period of poor performance and is,
therefore, somewhat vulnerable to environmental regulations.
In fiscal 1977, the division showed an operating loss of
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TABLE 5-41
MODEL PLANT NET INCOME CALCULATION
FOR FURFURAL*
TREATMENT COST SCENARIO
MODEL PLANT
FINANCIAL DATA
Revenue (S/MT)
Manufacturing cost (S/MT)
Treatment cost (S/MT)
Gross profit (S/MT)
Aftertax profit (S/MT)**
Total annual net income (S million)
NO NEW
TREATMENT
1,036
714
0
322
161
2.6
BEST ESTIMATE
OF COST
1,036
714
2.0
320
160
2.6
WORST-CASE
COST ESTIMATE
1,036
714
9.9
312
156
2.5
* Assumes average annual production of 16,200 MT (90% of capacity). Source: Energy Resources
Company Inc. estimates.
"* Assumes 50% corporate tax rate.
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TABLE 5-42
MODEL PLANT INVESTMENT ANALYSIS
FOR FURFURAL*
TREATMENT COST SCENARIO
MODEL PLANT
INVESTMENT MEASURES
After-tax profit (S/MT)
Depreciation (S/MT)
After-tax cash flow (S/MT)**
Total annual cash flow (S million)
Investment outlay (S million)
Working capital requirement (S million) t
Net present value of investment (S millionltt
BEST ESTIMATE
OF COST
160
85.8
245
4.0
1.1
2.6
15.8
WORST-CASE
COST ESTIMATE
156
86.6
243
3.9
1.4
2.6
15.3
Source: Energy Resources Company Inc. estimates.
** Aftar-tax cash flow • profit + depreciation.
t Working capital requirement » 1/4 (manufacturing cost — depreciation).
tt Assumes a 15% discount rate and an investment life of 10 years.
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TABLE 5-43
MODEL PLANT SHUTDOWN DECISION FACTORS USING
WORST-CASE TREATMENT COST FOR FURFURAL
DECISION FACTOR
Net present value of
investment
Ratio of investment to net
fixed investment
Degree of vertical integration
(forward or backward)
Integration with other on-site
production processes
Other environmental/
regulatory problems
Likelihood of full-cost
passthrough
LIKELIHOOD OF PLANT SHUTDOWN:
PL ANT DATA*
S15.0 million
2.6% - small
Medium to high
Low - isolated plants
Moderate
Good likelihood of full-
cost passthrough
Small chance of plant shutdown.
EFFECT ON LIKELIHOOD
OF PLANT SHUTDOWN* *
Negative
Negative
Negative
Positive
Neutral
Negative
# *
* Source: Chapter Three.
~* Source: Energy Resources Company Inc. estimates.
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$8.H million, compared with an operating income of $11.8
during tho previous year. The company's annual report
states that operating costs were up, due to expenses at the
new Bayport, Texas furfural plant. The plant had been
scheduled to come on line in 1977 but production runs
revealed serious operating problems, and the reopening has
been delayed until 1978.
Further problems for the division stem from the
depressed state of the furfural market. Unit sales declined
by 7 percent in fiscal 1977, and the annual report lists
three reasons for the decline:
1. Reduced production in the foundry industry, which
is the principal market for furfuryl alcohol.
2. The working off of large product inventories
by customers built up during a previous furfural
shortage.
3. Increased competition from other chemical binders
and from foreign furfural producers.
Given the decline in sales and the additional new
capacity to be available shortly, there is some prospect for
underutilization in the older plants. A list of the Quaker
Oats plants and a summary of the regulatory impact at the
firm level is presented in Table 5-44. At the Belle Glade,
Florida plant, adjustments have already been made to improve
the operating efficiency by changing production schedules to
more closely coincide with the seasonal inputs of raw materials
(byproducts from sugar cane grinding). However, concern about
underutilization may be premature given the temporary nature
of some of the furfural market difficulties, particularly
the running down of excess inventories.
5.2 Aggregate Impacts on the Industry
Because of the diverse nature of the organic chemicals
industry, the six highly impacted segments that are expected
to suffer the strongest impacts due to the proposed hazardous
waste regulation have been studied. This detailed study
presents an upper bound for impacts on the remaining segments
of the industry. These remaining segments are expected to
be less affected than the highly impacted segments; however,
the aggregate effect of the regulation on the industry
warrants further discussion. This section will treat three
topics significant to the regulation's effect on the industry
as a whole. These are: (1) prices and profits, (2) capital
availability, and (3) competition.
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TABLE 5-44
SUMMARY OF PROJECTED IMPACTS FOR FURFURAL
MANUFACTURER PLANT LOCATIONS
CURRENT TREATMENT'
CURRENT
COMPETITIVE
POSITION"
MANUFACTURER
RESPONSE
REGARDING
IMPACT'
PROJECTION OF
REGULATORY
IMPACT"
Quaker Oats Co. Memphis, Tenn.; Belle {No plant-specific Vulnerable - Small
Glade. Fla.; Cedar information available)
Rapids, Iowa; Omaha,
Nebr.; and Bayport, Tex.
(on-line, 19781
I ————— !— —_________________—______—______________—_________
10 * Source: Contacts with industry personnel.
vo ** Source: Energy Resources Company Inc. estimates.
-------
5.2.1 Prices and Profits
By volume, 98 percent of the organic chemicals produced
have a hazardous waste stream." Therefore, it can be
expected that most organic chemicals produced have hazardous
waste streams and their manufacturers are likely to incur
new costs for compliance with hazardous waste regulations,
unless existing treatment is sufficient for compliance. The
only available estimates of anticipated compliance costs for
the entire industry were developed in the Assessment Study
and are displayed in Table 5-45. The table displays the
incremental annual cost of compliance with Level III along
with an estimate of the value of production for the industry
(both values are in 1973 dollars). It is assumed in the
table that the full costs of Level I are credited to
Level III. While it is likely that some present abatement
expenditure will not be applicable to Level III processes,
this is believed to be compensated for by the increases in
treatment that have occurred since 1973. As can be seen
from the table, the average incremental cost increase
necessary to cover the additional costs incurred due to
compliance with the regulation will be less than 1 percent
for the industry as a whole. This figure includes the
costs to the six highly impacted product lines discussed
in Section 5.1. In fact, it is expected that incremental
treatment costs as a percentage of price will exceed
1 percent for only a few chemicals. This is predicated on
reviewing the sample data in Figure 2-1. While these data
represent the total costs for achieving Level III (not just
the incremental costs), they are good surrogates for the
relative magnitude of incremental cost. This figure does
not contain data for all organic chemicals but is believed
to be representative of the industry as a whole.10 The
average incremental increase in cost of 0.6 percent is so
small that, even under high price elasticities, it should
not cause a significant change in either product prices or
industry profits. It is expected, therefore, that these
costs will be borne by the industry until price increases
are instituted for other reasons. When price increases are
initiated, they are expected to contain the incremental cost
of compliance. In general, compliance costs alone are not
sufficient to warrant price increases.
Due to a large variability in the actual abatement
costs incurred by each plant, the actual passthrough of
costs will vary from firm to firm. Some firms may react
to high abatement costs (relative to other firms) by
suffering a small reduction in profitability in order to
keep their price at the market equilibrium. Other firms may
be able to raise their profit margins if their abatement
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TABLE 5-45
THE COSTS OF COMPLIANCE FOR THE ORGANIC
CHEMICALS, PESTICIDES AND EXPLOSIVES INDUSTRY, 1973^
TREATMENT LEVEL
COST CATEGORY LEVEL I
Total annual cost (S million) 106
Value of shipments 1973 (S million) 21,740
Total annual cost/value of shipments (%) 0.5
ESTIMATED
INCREMENTAL
LEVEL I II COST**
243 137
21,740 21,740
1.1 0.6
* Source: Assessment Study (1973 data).
'* Energy Resources Company Inc. estimates.
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costs are relatively low and the market price reflects the
higher cost incurred by competitors.
5.2.2 Capital Availability
As has been discussed in the case of the highly impacted
segments, the capital costs required for compliance with
hazardous waste regulations are expected to be sufficiently
low so as not to impose a large burden on organic chemical
manufacturers. In fact, the magnitude of capital costs
discussed in the analysis of the highly impacted segments
is likely to overstate the impacts on large multiproduct
facilities in which manufacturers will be able to exploit
economies of scale in joint treatment facilities.
Unfortunately, no data on the total capital costs of the
regulation have yet to be developed to bear this out.
However, should any individual firms be particularly severely
affected by the capital costs of abatement, the opportunity
exists to contract out hazardous waste treatment disposal to
private hazardous waste facilities subject to the limits of
the size of this small industry. In this way, the initial
costs of developing a hazardous waste treatment facility can
be circumvented.
5.2.3 Competition
Serious competitive effects due to brand switching
or product switching are not expected due to the regulation
on the hazardous waste streams in the organic chemicals
industry. However, due to the diverse nature of the industry,
the magnitude of cost on the various producers of each of
the products will be highly variant. Accordingly, competitive
forces may cause certain firms to reduce their profitability
in order to maintain prices set by firms with lower abatement
costs or to increase their profitability by meeting costs
set by firms with higher abatement costs. As discussed in
Section 5.2.1, however, the overall magnitude of cost should
be small and therefore the resulting impacts are not expected
to cause plant shutdowns or serious brand or product switching.
The impacts that are felt are likely to be less severe on
large diversified plants which generally are owned by larger
firms. Accordingly, industry concentration is potentially
subject to marginal increases.
Evidence of the small magnitude of the probable impacts
of the regulations appears to be found in present industry
practice. Many of the required hazardous waste treatment
technologies have already been instituted by producers on
their own initiative. Producers have been able to justify
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these pollution control expenditures predicated on the
reduction of liability from removing hazardous wastes
from possible leakage into vulnerable ecosystems. These
investments have been made on a firra-by-firm basis and are
not industry-wide. It nonetheless appears that firms can
support such systems without marked changes in product
prices or profits even if their competition incurs negligible
costs.
5.3 Impacts on the Nation
The economic impacts of regulating the organic chemicals
industry will extend to the nation as a whole. This section
integrates the impacts resulting from the costs incurred by
the industry into the fabric of the national economy. The
discussion concerns itself with impacts on the following
national parameters: (1) inflation, (2) employment,
(3) regional dislocations, (4) foreign trade, and '(5) GNP.
5.3.1 Inflationary Impacts
Organic chemicals find widespread use in the existing
national economy. They are used as inputs for other
manufacturing processes and in a wide variety of end uses.
Accordingly, any cost increases for the organic chemical
products will reverberate throughout the economy. Because
no increases in productivity will accompany price increases
resulting from hazardous waste treatment, these increases
will be inflationary. Table 5-46 displays three estimates
of the percent contribution of hazardous waste abatement
costs in the organic chemicals industry to the wholesale
price index for all commodities. As can be seen from
this table, the expected change in the wholesale price
index ranges from 0.007 to 0.015 percent. Accordingly, a
noticeable inflationary impact will result from hazardous
waste regulations on the organic chemicals, pesticides, and
explosives industries.
S.3.2 Employment Impacts
Because a rather limited decline in demand is expected
to occur as a direct result of these regulations, and
because organic chemicals production utilizes minimal
amounts of labor, no decrease in production employment
is anticipated due to the regulation. In fact, overall
employment is expected to increase slightly due to the
necessity of firms' hiring workers to operate hazardous
waste treatment facilities. Unfortunately, no data have
-273-
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TABLE 5-46
PERCENT CONTRIBUTION OF HAZARDOUS WASTE REGULATIONS
ON THE ORGANIC CHEMICALS INDUSTRY TO INFLATION OF THE
WHOLESALE PRICE INDEX (ALL COMMODITIES)
ESTIMATE
High estimate
Mid-range
Low estimate
WEIGHT OF
ORGAN 1C CHEMICALS.
PESTICIDES
AND EXPLOSIVES
IN WPI*
0.01849
0.01849
0.01849
PERCENT
INCREASE
IN COST**
0.8
0.6
0.4
PERCENT
INCREASE
IN WPI
0.015
0.011
0.007
* Source: U.S. Bureau of Labor Statistics
*" Source: Energy Resources Company Inc. estimates.
-274-
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yet been developed quantifying the employment required
nationally to operate Level III treatment and disposal
facilities.
5.3.3 Regional Dislocations
The entire organic chemicals industry tends to be
clustered in the Gulf Coast in a fashion similar to the
six highly impacted segments. Accordingly, any significant
changes in business levels and/or employment will be felt
most strongly in this region. However, as a direct result
of hazardous waste regulation on the organic chemicals
industry, only small-scale increases in employment and
business levels are anticipated. The Gulf Coast area will
be the recipient of the greater part of these increases, but
the regulation is not likely to cause any dramatic shifts in
this or other regions of the nation.
5.3.4 Impacts on Foreign Trade
The small scope of this study makes it difficult to
generalize about the impacts of this regulation on foreign
trade. Few other nations have regulations equivalent to
those anticipated domestically. Therefore, foreign producers
will be able to manufacture organic chemicals without
incurring the costs for hazardous waste treatment. The
abatement cost alone is not likely to be large enough to
create a new market for imported chemicals but will add
further pressures on domestic manufacturers of those products,
such as perchloroethylene, which are already subject to
significant foreign competition. Similarly, costs of
exported American products will face a small-scale increase
while the foreign competition will not. However, just as
domestic firms have already been able to undertake abatement
on their own and remain competitive with those firms which
have not undertaken hazardous waste treatment, foreign
markets for domestic chemicals are not likely to be affected.
5.3.5 Impacts on GNP
The marginal impact of the regulation on sales in the
industry is likely to be a small reduction in expected
industry growth. The magnitude of this reduction will be
deoendent upon the price elasticity of demand for the
industry. The larger the elasticity, the larger the decline
in sales. This decline in chemicals production will be
offset to some extent by sales associated with waste
treatment activities.
-275-
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Although no new products are likely to result from
this regulation, the economy will experience an increase in
the waste treatment sector due to the operation of new
treatment facilities. Accordingly, GNP will be expected to
increase by the full cost of anticipated hazardous waste
treatment while it is reduced by a slackening in demand for
organic chemicals. A price elasticity of demand of 1.0 for
the industry as a whole will leave real GNP unchanged. A
lower elasticity will increase GNP while a higher one will
reduce it. If chemical sales do not decline, the estimated
$137 million increase in GNP due to waste treatment will
increase GNP by less than one-hundredth of a percent from
its 1975 level.
-276-
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NOTES TO CHAPTER FIVE
1. The analysis assumed a 15 percent cost of capital
and a 10-year life for the investment. The latter assumption
will not be applicable in cases where firms feel a 3- to
4-year planning horizon better reflects their uncertainties
about the market,
2. Personal communication, Tom Plonlin, Dow Chemical
Co., to Jeffery Stollman, ERCO, December 9, 1977.
3. Personal communication, Donald Smith, Administrative
Assistant, Office of the Director of Environmental Affairs,
DuPont, to John Eyraud, ERCO, August 29, 1977.
4. Personal communication, David Hill, Sales
Manager, Chloromethane Solvents, Diamond Shamrock,, to
John Eyraud, ERCO, September 22, 1977.
5. Personal communication, Donald Smith, Administrative
Assistant, Office of the Director of Environmental Affirs, ,
Dupont, to John Eyraud, ERCO, August 29, 1977.
' 6. Personal communication, Mr. Shields, Allied
Chemical, to John Eyraud, ERCO, September 22, 1977.
I
7. Personal communication, L.P. Haxby, Manager, ,
Environmental Affairs, Shell Oil Co., to ERCO, August 30,
1977; personal communication, Charles Sercu, Director
of Environmental Quality, Dow Chemical, U.S.A., to John
Eyraud, ERCO, August 30, 1977.
8. DuPont, however, may currently be incinerating their
wastes as noted in a personal communication, D.W. Smith,
Administrative Assistant, Office of the Director of
Environmental Affairs, DuPont, to J. Eyraud, ERCO, August 29,
1977.
9. TRW, Inc., Assessment of industrial hazardous
waste practices: Organic chemicals, pesticides and
explosives industries, prepared for the U.S. Environmental
Protection Agency, 1976.
10. Personal communication, Dr. Gerald Gruber, TRW,
Inc., to Jeffery Stollman, ERCO, October 21, 1977. Certain
explosives purchased by the government are likely to have
dramatically higher abatement cost/price ratios. However,
because these are produced only in response to government
orders for defense purposes, there will be negligible
economic impact on these segments of the industry.
yo 1660
SW-158C
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