United States
Environmental Protection
Agency
Office of
Radiation Programs
Washington, D.C. 20460
EPA 520/1 84-025
October 1984
Radiation
v>EPA Radionuclides
Regulatory Impact Analysis
of Emission Standards for
Elemental Phosphorus Plants
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EPA 520/1-84-025
40 CFR Part 61
National Emission Standards
for Hazardous Air Pollutants
REGULATORY IMPACT ANALYSIS
OF
EMISSION STANDARDS FOR
ELEMENTAL PHOSPHORUS PLANTS
October 1984
Prepared by:
Jack Faucett Associates
5454 Wisconsin Avenue
Suite 1155
Chevy Chase, Maryland 20815
Office of Radiation Programs
U.S. Environmental Protection Agency
Washington, D.C. 20460
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ACKNOWLEDGEMENTS
This study of the impacts of alternative standards for radionuclide emissions under the
Clear Air Act Amendments of 1977, (PL 95-95) was conducted by Jack Faucett
Associates under the direction of Michael F. Lawrence. The principle analyses were
conducted by and the report prepared by Dr. Harry Chmelynski, Jan T. Jablonski and
Mr. Lawrence. Other JFA analysts contributing to the study included David Cozad and
Dorothy Lehrman. The manuscript was prepared by Don Hutson and Polly Davis.
Technical direction and review of this study was provided by Dr. Byron M. Hunger and
Paul Magno of the Office of Radiation Programs, US EPA.
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TABLE OF CONTENTS
PAGE
1. Introduction and Summary 1
2. Industry Profile 6
2.1 Demand ^ 6
2.2 Supply 10
2.3 Competitive Products and Processes 19
2.4 Economic and Financial Characteristics 20
2.5 Outlook 23
3. Current Emissions, Risk Levels, a"nd Feasible Control Methods .... 24
3.0 Introduction 24
3.1 Current Emissions and Estimated Risk Levels 25
3.2 Control Technologies for Elemental Phosphorus Plants 29
*
4. Benefit-Cost Analysis 35
4.0 Introduction 35
4.1 Least-Cost Control Technologies for Affected Plants 36
4.2 Health Benefits of Controlling Polonium-210 Emissions 41
4.3 Benefit-Cost Comparisons 44
4.4 Sensitivity Analysis 46
4.5 Addendum on Levelized Annual Cost and Present Value 53
5. Industry Cost and Economic Impact Analysis 59
5.0 Introduction 59
5.1 Production Costs 62
5.2 Measuring Economic Impacts 67
5.3 Regulatory Flexibility Analysis 72
V
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LIST OF EXHIBITS
EXHIBIT PAGE
2-1 Production And Shipments Of Elemental Phosphorus 7
2-2 Uses For Phosphorus Chemicals 8
2-3 Elemental Phosphorus Producers And Estimated Capacity, 1984 . . 12
2-4 Production Capacity By Producer 13
2-5 Revenues From Elemental Phosphorus Production and
Total Corporate Revenues 14
2-6 Price Per Pound: 1977 To 1984 22
3-1 Emission Rates From Elemental Phosphorus Plants 26
3-2 Emission Rates Per Unit Of Elemental Phosphorus 27
3-3 Estimated Risks Due To Radionuclide Emissions From
Elemental Phosphorus Plants 28
3-4 Available Control Technologies (Selected Examples) 33
4-1 Cost Per Ton For Selected Control Technologies 37
4-2 Least-Cost Control Strategies 39
4-3 Least-Cost Control Technologies By Plant For
Selected Standard Options 40
4-4 Estimated Risk Levels By Alternative Standard 43
4-5 Average And Incremental Cost-Effectiveness For
Alternative Standards 45
4-6 Sensitivity Of Costs To Assumed Useful Life And Discount Rate. . 48
4-7 Cost Per Ton For Selected Control Technologies For
Sensitivity Analysis 49
4-8 Least-Control Cost Strategies For Sensitivity Analysis 51
4-9 Sensitivity Of The Cost Of Least-Cost Control Technologies
For Alternative Standards . 52
4-10 Sensitivity Of Average And Incremental Cost Per
Statistical Death Avoided 54
4-11 Annualization Factors 57
5-1 Cost Of Elemental Phosphorus 63
5-2 Phosphate Rock 65
5-3 Electricity Costs 66
5-4 Labor Costs 68
5-5 Summary Of Cost Estimates, By Plant 69
5-6 Revenues From Elemental Phorphorus Production And
Total Corporate Revenues 71
5-7 Impact On Capital Expenditures. 73
5-8 Impact On After Tax Profits 74
vi
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CHAPTER 1
INTRODUCTION AND SUMMARY
On November 8, 1979, EPA listed radionuclides as a hazardous air pollutant under the
provisions of Section 112 of the Clean Air Act. Pursuant to Section 112, EPA on April
6, 1983 proposed standards for sources of emissions of radionuclides in four categories:
(1) Department of Energy facilities, (2) Nuclear Regulatory Commission licensed
facilities and non-DOE Federal facilities, (3) underground uranium mines, and (4)
elemental phosphorus plants. The standard proposed for elemental phosphorus plants,
the subject of this analysis, was 1 curie per year of polonium-210 for each source.
There are currently six plants producing elemental phosphorus. These plants are owned
by Monsanto Company (2 plants), FMC Corporation, Stauffer Chemical Company (2
plants), and Occidental Petroleum Company. EPA sampling of emissions at four plants
and estimates of emissions at the remaining two indicate that, with current output
levels and operating characteristics, only two plants will be affected by a 1 curie per
year standard. These two are Monsanto's plant in Soda Springs, Idaho, and FMC's plant
in Pocatello, Idaho. EPA measurements show the polonium-210 (Po-210) emissions of
these plants are currently 21 Ci/year and 9 Ci/year, respectively. At these emission
levels, the lifetime probability of cancer for nearby individuals is estimated to be
0.0005 at FMC and 0.001 at Monsanto. The risks to the populations around these plants
are estimated to be 0.027 fatal cancers per year as a result of FMC emissions and 0.018
fatal cancers per year as a result of Monsanto emissions.
Three alternatives to the 1 curie per year standard were considered in performing the
regulatory impact analysis: 2.5 Ci/year, 10 Ci/year, and no control. For each of these
control options and for each plant, the analysis considered the technologies that are
available to reduce emissions to the required level, examined the costs of these
technologies, identified the least-cost options, evaluated the cost per fatal cancer
eliminated, and assessed the economic impacts of the regulation. Findings in each of
these areas are summarized in the following paragraphs.
The costs and emission reductions of seven control technology options were considered:
venturi scrubbers at three pressure drops, wet electrostatic precipitators with three
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specific collection areas, and a pulse-jet fabric filter. Of the three types of control
technologies, scrubbers have the lowest estimated capital costs and the highest
operating costs. Capital costs for precipitators., and fabric filters are approximately
twice those for scrubbers, while operating costs are greatly reduced. The efficiency of
Po-210 removal varies from 65 to 98 percent for these control technologies, with fabric
filters the most efficient and scrubbers the least efficient. Both affected plants can
achieve compliance under any of the alternative standards using currently available
particulate control technologies, although fabric filters have not been used in the
elemental phosphorus industry.
Given the costs and efficiencies of available control technologies, and the current
emissions levels, the least-cost control technology for each plant at each level of the
standard was determined. The least-cost method was the lowest cost technology which
would allow the plant to meet the standard with a 10 percent safety margin. Under the
most restrictive standard, 1 Ci/year, least-cost control methods are estimated to have
a before-tax real-resource cost of less than $17 per ton of elemental phosphorus, or 0.9
percent of the current selling price. The after-tax cost is less than $13 per ton. The
capital costs, and costs per ton of phosphorus before and after taxes, for each plant and
control level are summarized below.
LEAST-COST CONTROL TECHNOLOGIES BY PLANT
FOR SELECTED STANDARD OPTIONS
Alternative
Standard
(Ci/year)
10
2.5
1
Levelized
Unit Control Cost
Least-Cost (before taxes)
Technology ($/ton)
FMC
None
250 SCA
precipitators
400 SCA
precipitators
i
Monsanto FMC Monsanto
10 to 15 0 9.2
inch P
Scrubber
400 SCA 13.6 13.2
precipitators
Fabric 16.4 15.2
Filter
Levelized
Unit Control Cost
(after taxes)
($/ton)
FMC Monsanto
0 8.3
10.7 11.2
13.2 12.9
A sensitivity analysis was performed to determine the effects of a larger safety margin,
reduced control equipment life, and a higher risk* factor on control technology choice
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and costs. Assuming a 25 percent safety margin, equipment life of 10 instead of 20
years, and a risk premium of 15 instead of 10 percent, least-cost control methods are
estimated to have a before-tax real-resource cost of less than $23 per ton, or $17 per
ton after taxes for the 1 Ci/year standard. Additional information on the cost per ton
of the least-cost technologies is given in Exhibit 4-3 for the 10 percent safety margin,
and Exhibit 4-9 for the sensitivity analysis.
The health benefits which accrue to society over time from the control of Po-210
emissions at the affected elemental phosphorus plants consist largely of the reduction
in expected fatal lung cancers and, to a smaller degree, the reduction in particulate
emissions near the sites. The health benefits associated with reduction of Po-210
emissions are the major component of the total health benefits due to emission
reductions at these plants. Total industry benefits amount to 0.009 avoided fatal
cancers per year at the 10 Ci/year standard alternative, while 0.035 and 0.041 fatalities
per year are avoided at the 2.5 and 1.0 Ci/year levels, respectively. Due to
uncertainty, the level of these estimates may range up to a factor of 10 higher or
lower.
Cost-effectiveness, defined as the ratio of the levelized annual cost to the annual
benefit, is shown for the alternative standards in the following table.
AVERAGE AND INCREMENTAL COST-EFFECTIVENESS
FOR ALTERNATIVE STANDARDS
Alternative Average Cost Incremental Cost
Standard Per Death Avoided Per Death Avoided
(Ci/yr) (mil $/fatality) (mil $/fatality)
10 78 78
2.5 70 67
1 71 75
The estimated average cost per statistical death avoided ranges from $78 million for a
10 Ci/year standard to $70 million for a 2.5 Ci/year standard. Given the potential
errors in the benefits estimates, the actual cost per death avoided is uncertain.
Additional information on cost-effectiveness is provided in Exhibit 4.5.
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The economic impact of these standards on the elemental phosphorus industry was
considered for each alternative control level. The transitional nature of this exhaus-
tible resource industry prevented definitive forecasts of the future structure of the
industry and thus quantification of the likelihood that manufacturers will pass along
increases in cost to consumers. As most of the phosphorus produced is consumed by the
parent company in another company-owned plant and the products are sold as inputs in
highly competitive consumer goods such as detergents and soft drinks, it was assumed
that each plant faced a flat demand curve. This demand curve and the existence of
slightly less desirable substitute products led to the conclusion that price increases
could not be utilized to mitigate the effect of increased cost on profitability. Thus
prices and demand would not change and there would be no impact on employment,
competition, consumers, or the communities where the plants were located. The only
economic impacts anticipated are effects on the profitability of affected plants.
The two affected plants are the low cost producers in this industry and would remain so
under all alternative standards evaluated. The pollution control costs would reduce the
annual profitability of the FMC and Monsanto plants by $630,000 to $1,400,000. The
present values of these losses are $5 million and $12 million, respectively. Reductions
in profits for all manufacturers under each alternative are detailed below.
IMPACT ON AFTER-TAX PROFITS
Producer
Monsanto
FMC
Staufifer
Occidental
Profits After
Taxes, 1983
($ in millions)
$ 369.0
$ 168.8
$ (12.4)
$ 566.7
Standard
Option
(Ci/year)
10
2.5
1
10
2.5
1
10
2.5
1
10
2.5
1
Present Value
of Profit
Reduction
(in millions)
$ 5.4
7.3
8.4
$ 0
9.7
11.9
$ 0
0
0
$ 0
0
0
Parentheses are used to indicate a loss.
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The costs of emissions control used in this analysis are based on engineering studies
performed by Midwest Research Institute (MRI) under contract to EPA. MRI's studies
were completed in late summer 1984. They were then placed in the docket and the
public given an opportunity to comment on them. The short time between closure of
the docket (September 21, 1984) and publication of this regulatory impact analysis
prevented any revaluation of MRI's cost estimates in response to public comments. All
comments received by the date of closure of the docket, and EPA's response to these
comments, are available in Volume II of EPA's Response to Comments (EPA 520/1-84-
023-2).
The remainder of this report is organized into four chapters. Chapter 2 contains
background information on the elemental phosphorus industry, including characteristics
of demand, supply, competitive products and processes, other economic characteristics,
and outlook. Chapter 3 presents the current emissions for each elemental phosphorus
plant, risk levels associated with the emissions, and the cost and efficiency of each of
seven technologies for controlling the emissions. Chapter 4 is a benefit-cost analysis of
the standard. The chapter identifies least-cost control technologies for the plants that
would be affected by the standard, describes the health benefits of controlling
polonium-210 emissions, and compares costs and benefits. Chapter 5 concludes the
report with an evaluation of the costs to industry of the regulation, including an
analysis of the current cost structure of the industry by plant, and assesses the
economic effects of the regulation.
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CHAPTER 2
INDUSTRY PROFILE
Phosphate rock is the starting material for the production of elemental phosphorus and
all phosphorus products. Of all the marketable phosphate rock mined in the United
States, only about ten percent is used for the production of elemental phosphorus.
Elemental phosphorus is used primarily for the production of high grade phosphoric
acids and their salts, and organic chemicals. In the U.S., major end uses are in laundry
detergents and other products for homes and industry.
2.1. DEMAND
Elemental phosphorus (PJis used primarily for the production of high-grade phosphoric
acid, phosphate-based detergents, and organic chemicals. In 1983, shipments of
2
elemental phosphorus totalled about 350,000 tons, a 7 percent increase over 1982.
Plant production and shipments between 1964 and May 1984 are listed in Exhibit 2-1.
Products
In 1983-1984, 85 percent of the elemental phosphorus supply was used for production of
phosphoric acid and derivatives, 10 percent was used to produce other chemicals, and 5
percent was exported. End uses of elemental phosphorus products include detergents
(45 percent), metal treatment (15 percent), foods and beverages (10 percent), and
o
chemicals (10 percent). A chart of the intermediate and end products of the elemental
phosphorus industry is provided in Exhibit 2-2.
Sodium phosphates, used extensively as builders and water treatment chemicals in
4
detergents, have historically been the primary product of the elemental phosphorus
Mining of phosphate rock is the fifth largest mining industry in the United States in
terms of quantity of material mined. Phosphate rock mines of significant commercial
importance are located in Florida, North Carolina, Tennessee, Idaho, Wyoming, Utah,
and Montana.
2
Estimate: Shipments for 1978 to 1982 were compared to production for those years and
the average ratio, 0.9575, applied to 1983 production data.
3
"Key Chemicals: Phosphorus," Chemical and Engineering News, July 30, 1984, p. 19.
4
"Builder" is an industrial term for any ingredient that increases the detergent power of
a soap or surfactant.
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EXHIBIT 2-1;
PRODUCTION AND SHIPMENTS OF ELEMENTAL PHOSPHORUS
1964-1984
(tons)
Year Production
1984 (January-May) 155,409
1983 366,050
1982 361,189
1981 426,067
1980 431,730
1979 459,541
1978 441,274
1977 430,291
1976 436,655
1975 449,506
1974 524,175
1973 525,523
1972 540,089
1971 545,089
1970 596,555
1969 622,982
1968 613,343
1967 587,006
1966 565,550
1965 555,368
1964 503,880
Total Shipments
Including
Interplant
Transfers
148,8041
350,49s1
327,472
376,262
429,462
462,259
442,619
423,620
425,374
424,305
497,612
488,527
502,197
502,197
549,920
567,997
567,531
536,166
512,583
512,459
452,324
Estimated. Total shipments were compared to production for 1978 to 1982, and the
average ratio (0.9575) applied to production for 1983 and 1984.
Source: Bureau of the Census, U.S. Department of Commerce, Current Industrial
Reports; Inorganic Chemicals, May 1984, p. 1; and annuals, 1968-1982,
Table 4.
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oo
.
OR PHOSPHORUS
CHEMICALS EXHIBIT
2-2
Phosphoric acid
T
rTUS
F_F ,*[
H
„
— UMeUUicphosahldm 1 . I"
1 ' I
l\
- |Jr j.^, „
1.
*
>•
^ PhosDhorus oicy-, _
ana penTasulDmcfe
>
•*•
. fc Phosphorus
sesquisulphide P
ft
^HvooDhosohites .
1 I
»
Polyphosphoric add
Drying agent
Plame-reslstani
textile finish
Sea flares
Vermin poison
Metallic alloys
Iron brake blocks
Organic synthesis
Dyestuffs
.w Superphosphate
~ fertilisers
"W Compound fertilisers
> Liquid fertiliser.
-W Pickling steel
"W Metal cleaning
•^ Ruat-prooflng
solutions
^^jChemleal and
^^Telectrphftl c
P*J3oft drinks
.
L ^ Activated carbon
"MCatalysta
r
^Wwool dyeing
k— '
Phosphorous arid [ ' ^Organic synthesis
Phosphorates 1 M
Organic phosphates,
Smoke and flame
signals
Matches
Electroless plating
Pharmaceuticala
^•WB
ater treatment
™W Insecticides
^—
~^hntifoam agents
— *4)11 additives
^
Plastic! zers
Flotation agents
*J Dl- and triealeium f—
Uaatato 1
ft
^1 Dlsodium pyro- and |
^1 monocalcium r~ '
1 nhnopha|t*Q J
I
H Sodium __
monoflurophosphate
^ Ammonium phosphates r—
^ Ammonium I— ™
polyphosphates |
M^otasstum ortho, pyro •«
^nd polyphosphates 1
Jsodlum ortho, pyro J
T*nd polyphosphates
tiStyrene .
^polymerisation
.. Anti-corrosive
paints
1 Pharmaceuticals
{Dentifrice
Food supplements
•j Antl-caktng agents
J Biking powder
• Self-raising Hour
H Bread improvers
*j Dentifrice
J Yeast food
» Phosphors for
fluorescent lights
^ Flame-proofing
» Oil well drilling
k Dlspersants
> Food processing
M Water treatment
M Detergents
M Textile processing
MPmpermaldng
^ Tanning
^ Electroplating
» Animal feeds
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industry. The detergent market is comprised of household detergent (85 to 90 percent)
and industrial detergents (10 to 15 percent). Accounting for 60 percent of elemental
phosphorus use 15 years ago, detergent applications declined in the early 1970's because
of environmental concern over the effects of phosphates on fresh water bodies in some
areas. Controls or bans on the use of phosphates in detergents have been imposed in
New York, Indiana, Michigan, Wisconsin, Minnesota, Connecticut, Maine, and miscel-
o
laneous localities. These controls resulted in the halving, to about 6 percent, the
average phosphate content of detergents.3
Metals treating is a second major end use of elemental phosphorus. Valuable in
controlling corrosion, phosphorus is used in aluminum polishing and paint bases.
Demand for phosphorus in metals treating depends heavily on demand for automobiles
and durable goods, the major end users of these products, and thus tends to fluctuate
with the business cycle. For example, with a slump in the automobile and other
consuming industries between 1979 and 1980, consumption of elemental phosphorus
products by these industries fell by 25 to 33 percent. In 1984, this use was the most
active in growth, due to the increased demand for durable goods, especially automo-
biles.
For use by the food and beverage industry, elemental phosphorus is converted to
phosphoric acid and other derivatives. Phosphoric acid is used in soft drinks, powdered
drinks, baby foods, puddings, baking powder, and dentrifices, for example. Demand for
these products, which has grown slowly in the past decade, has been below the industry's
forecasts, possibly because of the effect of recession on demand for convenience foods,
the decline in sales of cakes and cookies as part of the national trend toward physical
fitness, and reformulation of soft drinks. Demand was up, however, in 1983, possibly
because of inventory needs of producers of newly introduced noncaffeine and other soft
drinks.
"Key Chemicals: Phosphorus," Chemical and Engineering News, March 23, 1981, p. 27;
and July 30, 1984, p. 19.
o
SRI, Chemical Economics Handbook, January, 1983.
o
"Key Chemicals: Phosphorus," Chemical and Engineering News, April 24, 1978, p. 26.
4"Key Chemicals," op, cit., July 30, 1984, p. 19; and March 23, 1981, p. 27.
5"Key Chemicals," op. cit., March 23, 1981, p. 27; and July 11, 1983, p.ll.
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Chemical derivatives of phosphorus, other than phosphoric acid, at 10 percent of
consumption, are equal to the food and beverage industry in importance to the
elemental phosphorus market. Current uses include lubricating oils, insecticides,
flame-resistant textile finishes, matches, and Pharmaceuticals. In the last half of the
1970's, these uses were considered the market with the highest growth potential. Some
companies added capacity during the period to produce pentasulfide, trichloride, and
oxychloride phosphorus compounds, which are then used in agricultural chemicals,
lubricating oil additives, and many other products. However, growth in these uses has
been impeded by the longer life of lubricating oils, and competition from substitute
products. Furthermore, though in the early 1980's producers increased investment in
R&D, no new significant uses of phosphorus products have been discovered. Growth in
non-acid uses has approximated 3 percent per year since the middle 1970's.
The export market is the only other major consumer of U.S. produced elemental
phosphorus. Most countries that have a continuing requirement for phosphorus produce
it domestically, largely because water transportation requires extensive precautions.
However, exports have accounted for some 5 to 7 percent of U.S. elemental phosphorus
production since the middle 1970's.2 In 1982, most of the exports were destined for
Japan (45 percent), Brazil (38 percent), and Canada (8 percent). In 1984, exports are
expected to equal 20,000 tons, or 5.3 percent of production.
2.2. SUPPLY
Producers
There are four corporations operating a total of six elemental phosphorus plants in the
United States today. The largest producer is Monsanto Company (two plants), followed
"Key Chemicals: Phosphorus," Chemical and Engineering News," April 24, 1978, p. 26;
and March 23, 1981, p. 27.
9
"Key Chemicals: Phosphorus," Chemical and Engineering News, July 30, 1984; July 11,
1983; March 23, 1981; April 24, 1979.
3William Stowasser, "Phosphate Rock," Minerals Yearbook, Vol. 1, 1982, p. 666. In the
past, Mexico has been a major export market, accounting for 40 to 55 percent of the
export market since the mid-1970's (7,500 - 13,500 metric tons per year). In 1982, after
Mexico installed its own elemental phosphorus production facilities, exports to that
country dropped to only 236 metric tons.
4"Key Chemicals," op. cit., July 30, 1984, p. 19.
10
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closely by FMC Corporation (one plant), with Stauffer Chemical Company a distant
third (two plants), and Occidental Petroleum Corporation fourth (one plant). The
corporations, plants, capacity, and plant employment are listed in Exhibit 2-3.
Elemental phosphorus producers are vertically integrated. All producers operate
phosphate rock mines in the vicinity of their elemental phosphorus plants. After
manufacturing the elemental phosphorus, producers ship it to burning plants, where it is
converted to other chemicals for use in consumer and industrial products. These plants,
operated by the elemental phosphorus producers, are typically located near the market
for the product. The mix of chemicals produced varies, depending on the producer's
cost and market structure.
The current production capacity of the industry and each producer was listed in Exhibit
2-3. Total capacity, at about 450,000 tons per year, has been reduced substantially
since its peak of 686,000 tons per year in 1969 in response to slack demand and
forecasts of little or no growth. Plants in Florida, operational until the early 1980's,
have probably been closed permanently because electricity costs, which account for at
least 20 percent of total production costs, are especially high in that state. Capacity in
other locations has also been declining, with installed capacities reduced to lower
operating capacity levels. Overcapacity places financial strain on the industry because
of high capital investment in electric furnace plants. At current capacity, the
operating rate for the industry is about 83 percent, a more desirable level for the
prod
2-4.
o
producers. Capacity in the industry for 1964 to 1984, by producer, is shown in Exhibit
All elemental phosphorus producers are major corporations, with the smallest corpora-
tion, Stauffer, ranked in 1983 as number 213 in Fortune's list of the 500 largest U.S.
companies. Elemental phosphorus represents a relatively small portion of the total
revenues from corporate production, ranging from an estimated 0.5 percent for
Occidental to 10.9 percent for Stauffer (Exhibit 2-5). However, since the phosphorus is
an intermediate good which is consumed in other company products, its importance to
company operations is more significant than revenues would indicate.
The operating and market characteristics of each producer are described below.
Industry estimates.
2"Key Chemicals," op. cit., July 30, 1984, p. 19.
11
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EXHIBIT 2-3;
ELEMENTAL PHOSPHORUS PRODUCERS AND ESTIMATED CAPACITY. 1984
Producer Plant Location Capacity Employment
(Tons per year, 1984) (1983)
Monsanto Columbia, TN 75,000 440
Soda Springs, ID 90,000 397
FMC Pocatello, ID 125,000 600
Stauffer Mt. Pleasant, TN 50,000 305
Silver Bow, MT 40,000 185
Occidental Columbia, TN 57,000 275
TOTAL 437,000 2,202
Source: Industry information.
12
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EXHIBIT 2-4:
PRODUCTION CAPACITY BY PRODUCER
Producer
AAC,1 Pierce, FL
FMC, PocateUo, ID
Occidental, Columbia, TN
Occidental, Niagara Falls,
NY
Monsanto, Columbia, TN
Monsanto, Soda Springs, ID
Stauffer, Mt. Pleasant, TN
Stauffer, Silver Bow, MT
Stauffer, Tarpon Springs, FL
TVA, Wilson Dam, AL
Mobil, Charleston, SC
Mobil, Nichols, FL
Mobil, Mt. Pleasant, TN
TOTAL
Capacity (thousands of tons per year)
1964
40
75
69
6
110
40
80
30
13
36
8
6
—
513
1966
30
100
69
—
110
80
80
30
13
36
10
6
20
584
1969
22
145
70
—
135
110
63
42
23
40
8
4
24
686
1972
11
145
45
—
135
110
55
42
25
18
—
5
—
591
1975
11
145
57
—
135
110
45
42
25
36
—
5
—
610
1978 1981 19842
20 20 —
145 145 125
57 57 57
— — —
120 134 75
110 95 90
45 45 50
37 37 40
23 23 -
_____
_ — _
8 — -
_____
565 556 437
Producer became Continental Oil, (1966),..Agrico (1972), Holmes (1975), Electro-Phos (1978), and Mobil
(1981).
2
Industry estimate. Chemical and Engineering News estimates capacity for 1984 at 450,000 tons
(C&EN, op. cit., p. 19).
3
"—" represents "no production".
Sources: "Chemical Profile: Phosphorus," Chemical Marketing Reporter, 1964-1981 (for 1964 to 1981
data); and industry information (for 1984 estimates).
13
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EXHIBIT 2-5:
REVENUES FROM ELEMENTAL PHOSPHORUS PRODUCTION
AND
TOTAL CORPORATE REVENUES
Producer
Elemental Phosphorus
Revenue
(in millions)
Total Corporate
Revenue
(in millions)
Elemental
Phosphorus as
a Percent of
Total Revenue
Monsanto
FMC
Stauffer
Occidental
$ 266.5
$ 201.9
$ 145.4
$ 92.1
$ 6,299.0
$ 3,572.0
$ 1,339.9
$ 19,709.9
4.2%
5.7%
10.9%
0.5%
Source: 1983 annual reports, for total corporate revenue. Stauffer revenues are for
the fiscal year ending September 30, 1983. JFA estimates for elemental
phosphorus revenues.
14
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Monsanto Company
Monsanto, with a total of 165,000 tons per year of operating capacity in two elemental
phosphorus plants, is the largest producer of elemental phosphorus. The Soda Springs,
Idaho plant, with three furnaces, was built in the middle and late 1960's and is currently
rated at 90,000 tons per year of capacity. The Columbia, Tennessee plant, with six
furnaces, was constructed in the 1940's and modernized in the 1960's.1 Originally rated
at 134,000 tons per year, operating capacity has been reduced to 75,000.2
Phosphate rock for Monsanto's operations is obtained from 5,320 acres surrounding
Columbia, where in 1980 it had an estimated 11 to 20 million tons of ore reserves, and
from a mine near Henry, Idaho. When the Henry mine is depleted in 1985 to 1986, the
company will likely shift to mines in nearby North Henry, Idaho, then eventually to
property in Trail Creek, Idaho. The latter location may be a more expensive source of
the rock because of problems in transporting the rock to Soda Springs. All phosphate
rock mined by Monsanto is used to produce elemental phosphorus.
Monsanto is the most diversified producer of elemental phosphorus, dominating in most
of the nonagricultural markets. The company has been aggressive in developing new
markets and upgrading P4 into high-value specialty products. The company's share of
each end use market within the industry, and the share of each end use within the
o
company's line of phosphorus products, are listed below.
Share of Share of
Monsanto's Phosphorus Products Industry Market
Products (1982) (1982)
Acid Uses
Builders and
Water Treatment 50 35
Foods, Beverages, and
Toothpaste 14 34
Metals Treating 2 9
Exports, Other 19 35
Non-Acid Uses 15 35
TOTAL 100 29
SRI, Chemical Economics Handbook, January 1983.
2"Key Chemicals," op. cit., July 30, 1984, p. 19.
3
SRI, Chemical Economics Handbook, March 1980.
4
In 1982, part of the market for elemental phosphorus was held by wet-process acid
producers and by Mobil, a furnace acid producer who is not currently in the market.
Thus, market shares for the producers discussed here do not sum to 100 percent.
15
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The value of production from Monsanto's elemental phosphorus plants in 1983 is
estimated to have amounted to $266.5 million (Exhibit 2-5), or 4.2 percent of total
corporate revenues of $6,299.0 million.
FMC Corporation
The second largest producer of elemental phosphorus is FMC Corporation. FMC
operates a single plant, with four furnaces and an operating capacity of 125,000 tons
per year, in Pocatello, Idaho. Furnaces in the plant are maintained on a rotating
schedule in which each furnace is completely refitted or rebuilt every six to eight
years.
Phosphate rock for FMC's elemental phosphorus plant is obtained from the low grade
shale at the Gay mine, a mine operated jointly by FMC and Simplot. All of FMC's share
of the Gay mine's output is used to produce elemental phosphorus. With the Gay mine
expected to be depleted in the last half of the 1980's, FMC will probably shift its mining
to land it has leased or subleased from Federal and state governments in Caribou
County, Idaho. The company is believed to hold all the permits required for this
, 2
change.
FMC's largest market area for its elemental phosphorus products is in builders and
water treatment for detergents, with other market areas small by comparison. Details
3
of FMC's market position are provided below.
Share of Share of
FMC's Phosphorus Products Industry Market
_ Products _ _ (1982) (1982)
Acid Uses
Builders and
Water Treatment 62 38
Foods, Beverages, and
Toothpaste 8 16
Metals Treating 4 14
Exports, Other 20 29
Non-Acid Uses 6 12
TOTAL 100 28
SRI, op. cit., January 1983.
2SRI, op. cit., March 1980.
3SRI, op. cit., January 1983.
16
-------
In 1983, the value of elemental phosphorus production for FMC was approximately
$201.9 million, or 5.7 percent of total corporate revenues of $3,572.0 million (Exhibit 2-
5).
Stauffer Chemical Company
The third largest producer of elemental phosphorus is Stauffer Chemical Company, with
two plants and annual capacity of 90,000 tons. Stauffer's Mt. Pleasant, Tennessee plant
has three furnaces and capacity of 50,000 tons per year. The Silver Bow, Montana plant
has two furnaces and capacity of 40,000 tons per year.
The source of phosphate rock for Stauffer's Tennessee plant is the company's Globe
mine in Mt. Pleasant, which is operated at about 0.4 to 0.5 million metric tons per year
of ore and in 1980 had 3.5 to 4.0 million metric tons of reserves. The sources of rock
for the Montana plant are mines in Wooley Valley, Idaho; Wyoming; and Utah. The first
is the primary source, with 45 million metric tons of reserves in 1980. All rock mined
by Stauffer in Tennessee is used to produce elemental phosphorus. A portion of the
rock mined in the western states is sold to other users, possibly phosphate producers in
Canada.
Stauffer is considered the second most diverse producer of elemental phosphorus. In
the early 1970's when environmental concerns were mounting, Stauffer turned its focus
away from the laundry detergent market to produce phosphorus compounds for end-use
areas that at the time were more highly valued. One such product is chlorinated
trisodium phosphate, a cleanser and bacteriocide used in dishwashing compounds and
metal cleaners. The company is expected to continue its focus on these areas, plus food
uses and miscellaneous phosphorus chemicals. The market position of Stauffer in each
2
end-use area is indicated below.
I, op. eit., March 1980.
2
SRI, op. cit., January 1983.
17
-------
Share of Share of
Stauffer's Phosphorus Products Industry Market
Products (1982) _ (1982)
Acid Uses
Builders and
Water Treatment neg. neg.
Foods, Beverages, and
Toothpaste 35 50
Metals Treating 3 8
Exports, Other 31 25
Non-Acid Uses 31 29
TOTAL 100 16
In 1983, the value of production from Stauffer's elemental phosphorus plants was
estimated to equal $145.4 million. This represents 10.9 percent of Stauffer's total
revenues of $1,339.9 million (Exhibit 2-5).
Occidental Petroleum Corporation
The smallest producer of elemental phosphorus is Occidental Petroleum, with one
three-furnace plant in Columbia, Tennessee. The annual capacity of the plant is 57,000
tons.
Phosphate rock for the Occidental plant is obtained from a local mine where the
company owns 2,300 acres of reserves. In 1980, the reserves were estimated at 8 to 10
million metric tons, about 12 to 14 years of remaining life.
Occidental's market has been dominated by builder phosphates manufactured at
facilities in Texas and Indiana. Little change is expected in the next few years, though
some decline in the company's position in phosphorus pentasulfide (P0S,) products may
L D
occur due to the entry of FMC into this market. The position of Occidental in each
o
end-use market is detailed below.
1SRI, op. cit., March 1980.
o
SRI, op. cit., January 1983.
18
-------
Share of Share of
Occidental's Phosphorus Products Industry Market
Products (1982) (1982)
(96)(%)
Acid Uses
Builders and
Water Treatment 60 15
Foods, Beverages, and
Toothpaste neg. neg
Metals Treating 5 8
Exports, Other 23 14
Non-Acid Uses 12 10
TOTAL 100 14
In 1983, elemental phosphorus is estimated to have contributed $92.1 million to
Occidental's total corporate revenues of $19,709.9 million, or 0.5 percent (Exhibit 2.5).
The company is known to have attempted to sell its industrial phosphate operations and
may continue to seek a buyer.
2.3. COMPETITIVE PRODUCTS AND PROCESSES
Demand for elemental phosphorus has been substantially affected by bans on their use
and the availability of alternative products and processes. The prices of substitutes
compared to phosphoric acid and elemental phosphorus derivatives are a critical
factor.
Consumption in detergents, the major end use of elemental phosphorus, has been
particularly affected by the availability of substitutes. With the controls or bans on
phosphates in some states imposed in the 1970's, and threat of regulation by others,
detergent manufacturers have reformulated their products, replacing phosphorus with
carbonates, silicates, citrates, zeolites, and NT A. Sodium carbonate (soda ash) is used
in markets that have completely banned phosphorus. Though cost-effective, sodium
carbonate is less effective in cleaning than sodium tripolyphosphate (STPP), sometimes
leaving residues on fabrics and being less thorough as a soil deflocculant. (FMC and
Stauffer are among the producing firms). Citrates are another cost-effective alterna-
tive. With their high solubility characteristics, citrates have become the major builder
used in heavy-duty liquid laundry detergents. However, citrates may cake when
prepared in powders and thus are not attractive substitutes in powder formulations.
SRI, op. cit., January 1983.
2"Key Chemicals: Phosphorus," Chemical and Engineering News, 1980.
19
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A third product competing with STPP for use in detergents is zeolites, sodium
aluminosilicates that soften water by ion exchange. Alone, zeolites are not as effective
as STPP in cleaning, but are often combined with it to produce a builder system with
lower phosphate content. Since 1978, zeolites have become commercially significant.
The fourth challenge to STPP in detergents is NTA, nitrilotriacetic acid. In 1970, use
of NTA as a builder was voluntarily suspended in response to an unpublished government
report suggesting the compound was teratogenic. In 1980, EPA issued a statement that
NTA posed no threat to human health. NTA is now considered among the most
attractive alternatives to STPP.
Another source of competition for the elemental phosphorus industry is the phosphoric
acid produced through wet-process methods. Wet-process acid has historically been less
pure than acid produced from elemental phosphorus (called furnace-method acid). When
furnace acid costs and prices were low, it was not economical for wet-process acid
producers to purify their product to compete with the furnace acid. However, the
increasingly high costs and prices of furnace-method acid have opened some tradi-
tionally furnace acid markets to wet-process acid manufacturers who can now produce
comparably pure acids at a competitive price. For example, Olin Corporation, a wet
acid producer, now has a seven percent share of the market for phosphorus in
detergents.
2.4. ECONOMIC AND FINANCIAL CHARACTERISTICS
The major economic and social factors affecting demand for phosphorus derivatives are
population growth, GNP growth, and to a lesser extent, demand for certain durable
goods.
The largest end use for elemental phosphorus, detergents, has historically grown about 1
percent per year, approximately equal to population growth. With the controls on
phosphates imposed in some states and subsequent reformulation of detergents, this use
declined in the 1970's. By 1981, demand appeared to have restabilized at a 1 percent
per year growth rate.
"Key Chemicals," op. cit., March 23, 1981, p. 27.
20
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Demand for phosphorus in food and beverages has reached maturity and closely follows
changes in GNP. Oil additives uses have historically grown at GNP rates or less. Uses
in metal treating are more cyclical, fluctuating with demand for durable goods,
especially automobiles.
Prices
Most elemental phosphorus is shipped by the producer to another of its own plants for
use as an input to other products. The meaning of the price data available for
elemental phosphorus is thus somewhat ambiguous. However, since at least a small
portion is sold outside of the companies, comparison of the changes in the phosphorus
prices listed in industry publications may indicate changes in supply and demand
relationships.
The 1984 price for elemental phosphorus is $0.90 to $1.00 per pound, approximately
equal to the 1983 price. In constant dollars, the 1984 price is marginally lower than the
o
1983 price, but higher than any other year since 1977. Given the highly
competitive market for elemental phosphorus, prices do not vary much among the
3
producers. Prices in constant 1972 dollars for 1977 to 1984 are shown in Exhibit 2-6.
Employment
In 1983, approximately 2200 persons were employed directly by the elemental phospho-
rus industry. Employment in each
each plant was listed in Exhibit 2-3.
4
rus industry. Employment in each state is listed below. Estimated employment in
Number of
State Employees
Idaho 1,000
Tennessee 1,000
Montana 200
Direct employment in the elemental phosphorus industry represents only a part of the
employment that could be affected by a change in demand for elemental phosphorus.
lnKey Chemicals," op. cit., April 24, 1978, p. 26; and July 30, 1984, p. 19.
2Ibid., p. 19.
3
Industry information.
Industry information.
21
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EXHIBIT 2-6:
PRICE PER POUND; 1977 TO 1984
(constant 1972 dollars)
$0.50 _
$0.40 "
$0.30 _
1977
.-r
'78 '79 '80' '81 *82 *83
Source: "Key Chemicals: Phosphorus," Chemical and Engineering News; and Council of
Economic Advisers, "Economic Indicators," July 1984, p. 2.
22
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Others potentially affected would include phosphate rock miners and workers in other
phosphorus chemical manufacturing facilities.
2.5 OUTLOOK
Current forecasts for the elemental phosphorus industry indicate low growth and low
prospects for industry expansion. Major factors leading to the forecast are increasing
costs of production, competition from substitutes, consumer and social trends, and lack
of new uses for elemental phosphorus and its derivatives.
Costs of elemental phosphorus in recent years have been determined largely by
electricity costs, which have been increasing steadily and are expected to continue to
increase. The increased cost of phosphorus and its derivatives has made substitutes
more attractive. Substitutes in detergents, such as zeolites, NTA, and wet-process
phosphoric acid, are attractive both economically and because of environmental
concerns and, in the case of zeolites and NTA, restrictions on phosphate use. Other
uses of elemental phosphorus are deterred by substitutes and/or social factors.
Phosphate-containing insecticides, a small market for the industry which had been
growing at about 10 percent per year, face competition from non-phosphate insecti-
cides. Uses in lubricating oils are increasing, but the lubricating oils are also lasting
longer, offsetting the gains. Detergent uses resumed a slight upward trend in 1981-
1984, but are still threatened by growth in consumer use of liquid detergents, trends
toward lower washing temperatures, and use of zeolite builders in place of phosphates
in formulas. Bans on phosphates have been imposed, removed, and re-imposed in some
states. Additional states may join New York, Indiana, Michigan, Wisconsin, Minnesota,
Connecticut, and Maine in banning or controlling phosphates. On the brighter side for
detergent uses are the continued consumer demand for the new concentrated detergent
powders, which have high concentrations of phosphates, and demand for phosphates in
industrial detergents, which has been growing in the 1980's at 3 percent per year or
greater. Industrial detergents account for 10 to 15 percent of the total detergent
market for phosphorus, or 4 to 7 percent of total phosphorus demand.
llTKey Chemicals," op. cit., July 30, 1984, p. 19; March 23, 1981, p. 27.
23
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CHAPTER 3;
CURRENT EMISSIONS, RISK LEVELS, AND FEASIBLE CONTROL METHODS
3.0 INTRODUCTION
Radionuclides are listed as a hazardous pollutant under Section 112 of the Clean Air
Act. The U.S. Environmental Protection Agency (EPA) is in the process of developing
national emission of standards for hazardous air pollutants (NESHAPS) for the emission
of radionuclides. The standards must limit emissions to values that will protect public
health with an adequate margin of safety. This analysis examines alternative standards
for emissions of radionuclides from calcining operations in the manufacture of
elemental phosphorus.
Radionuclides of the uranium series, including polonium 210 (Po-210), lead 210 (Pb-210),
and uranium 238 (U-238), occur naturally in phosphate rock. The exhaust gases from
phosphate rock nodulizing calciners at elemental phosphorus plants are considerably
enriched with radionuclides because the Po-210 and Pb-210 volatilize at the elevated
temperatures in the calciner. As the exhaust gases cool, the radionuclides condense on
the surface of mineral particulate matter or condense to form new particles. In the
absence of adequate particulate controls, these emissions are vented to stacks for
release to the atmosphere. The EPA conducted emission tests at several elemental
phosphorus plants to characterize and quantify uncontrolled particulate and radionu-
clide emissions from the calciners and controlled emissions from the existing control
systems. Estimated levels of emissions from the six elemental phosphorus plants in the
U.S. range from 0.1 to 21 Ci/year of Po-210 and .05 to 5 Ci/year of Pb-210 with current
controls. These emissions increase the risk of radiation-induced cancer for individuals
living near these plants.
Emissions of particulate matter and condensed radionuclides from these plants can be
reduced by the application of modern particulate control technology. Presently, low
pressure drop scrubbers are being used to reduce emissions of particulate matter from
the nodulizing calciners. Emission control efficiencies for these low-pressure-drop
scrubbers are relatively low compared to those for high-pressure-drop scrubbers, wet
electrostatic precipitators (ESP's), or fabric filters (baghouses). These more efficient
devices could potentially be used to control particulate and condensed radionuclide
emissions from calciners at elemental phosphorus plants.
24
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3.1 CURRENT EMISSIONS AND ESTIMATED RISK LEVELS
The EPA conducted emission sampling at four of the six domestic elemental phosphorus
plants. The results of this sampling are presented in Exhibit 3-1. Estimated emission
rates for the unsampled Tennessee plants operated by Stauffer and Occidental are also
shown. Estimated Po-210 emission rates for the two Idaho plants, FMC and Monsanto,
are more than a factor of ten greater than those for the remaining four plants in
Tennessee and Montana.
Emission rates per unit output would be expected to be the lowest in Tennessee, due to
the lower uranium content of Tennessee phosphate rock as compared with rocks mined
in Montana or Idaho. Exhibit 3-2 shows emissions per million tons of elemental
phosphorus for the three radionuclides. The Idaho and Montana plants show higher Po-
210 emissions per unit output than the Tennessee plants.
Examination of Exhibits 3-1 and 3-2 demonstrates that there is a wide range of
variation in the efficiency of current particulate control methods at the elemental
phosphorus plants. The estimated health impacts, primarily lung cancers due to
inhalation of the Po-210, also vary widely across plants due to the range of population
density near the plants. These health effects were estimated using EPA's AIRDOSE
model for estimating exposures to individuals and RADRISK computer code to estimate
the health impacts of these exposures. The results of this analysis are presented in
Exhibit 3-3, which shows the expected fatal cancers per year in the population within an
80 km (50 mile) radius of the plants due to the measured or estimated emissions given in
Exhibit 3-1. The exhibit also shows the estimated lifetime risk to nearby individuals,
which is the probability of a fatal cancer during the lifetime of an individual residing at
a distance of 1500 meters (1 mile) from the plant.
Although the regional population densities are higher near the Tennessee plants than for
the western plants, the regional population risk is highest near the Idaho plants operated
by FMC and Monsanto. Out of the total regional population risk of 0.058 fatal
cancers/year, the Idaho sites account for 0.045 fatal cancers/year, or approximately 80
percent. The risk to nearby individuals is higher by a factor of 5 at FMC than the
plants outside of Idaho, and Monsanto's Soda Springs plant has an individual risk twice
that of the FMC plant. It should be noted that the estimated risks shown in Exhibit 3-3
have a large degree of uncertainty. It is clear, however, that the Po-210 emissions of
25
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EXHIBIT 3-1:
EMISSION RATES FROM ELEMENTAL PHOSPHORUS PLANTS
Location/Plant
Idaho
(c.)
FMC, Pocatello^ '
(a)
Monsanto, Soda Springs
Tennessee
(a)
Monsanto, Columbia
Occidental, Columbia
Stauffer, Mt. Pleasant ^
Emission Rate (Ci/yr)
U-238
4 E-3
6 E-3
2 E-3
2 E-4
2 E-4
Pb-210
0.1
5
0.4
0.05
0.05
Po-210
9
21
0.6
0.1
0.1
Montana
Stauffer, Silver Bow
TOTAL
(a)
6 E-4
3.5E-2
0.1
5.7
0.7
31.5
(a) - measured emission rates
(b) - estimated emission rates
26
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EXHIBIT 3-2:
EMISSION RATES PER UNIT OF ELEMENTAL PHOSPHORUS
Location/Plant
Idaho
FMC
(a)
Monsanto
(a)
Emission Rate (Ci/10 ton)
U-238
.038
.078
Pb-210
0.9
65
Po-210
85
275
Tennessee
Monsanto
(a)
Occidental
Stauffer(b)
(b)
.031 6.3
.004 1.0
.005 1.2
9.4
2.1
2.4
Montana
(a)
Stauffer
Production Weighted Average
.018
.035
2.9
15
21
85
(a) - based on measured emission rates.
(b) - based on estimated emission rates.
27
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EXHIBIT 3-3
ESTIMATED RISKS DUE TO RADIONUCLIDE EMISSIONS
FROM ELEMENTAL PHOSPHORUS PLANTS
Location/Plant
Idaho
Risks to Nearby
Individuals
(lifetime proba-
bility of fatal
cancer)
Regional Population
Risks (within 80 km)
(fatal cancers/yr.)
FMC
(a)
Monsanto
(a)
5 E-4
I E-3
.027
.018
Tennessee
Monsanto
(a)
Occidental
Stauffer(b)
(b)
6 E-5
9 E-6
1 E-5
.007
.002
.001
Montana
Stauffer(a)
TOTAL
1 E-4
(a) - based on measured emission rates.
(b) - based on estimated emission rates.
28
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the Idaho plants are much higher than those for other plants. Adjusting for population
density reduces the ratio of the risks for Idaho as compared to the remaining plants
from a factor of 10 for emissions to a factor of 3 for regional population risk. The
operations and current control methods of the two Idaho plants are examined in detail
in the next section.
3.2 CONTROL TECHNOLOGIES FOR ELEMENTAL PHOSPHORUS PLANTS
Methods of reducing radionuclide emissions through the application of more efficient
particulate control technologies at FMC's Pocatello plant and Monsanto's Soda Springs
plant, and the costs of these methods, were studied by the Midwest Research Institute
(MRI). The results of this analysis are summarized in this section. The study
determined the costs and the polonium 210 emission reductions achievable for a sample
of seven control technology options: venturi scrubbers at three pressure drops, wet
electrostatic precipitators (ESP's) with three specific collection areas (SCA's), and a
pulse-jet fabric filter (baghouse). The cost and performance of the seven control
technologies were based on adding new controls to the existing low-energy scrubber
systems.
The FMC Corporation's Phosphorus Chemicals Division facility at Pocatello, Idaho,
produces elemental phosphorus from phosphate ore. Phosphate rock is crushed,
screened, and briquetted before being fed into a moving grate calciner. The phosphate
rock is heated in the calciner to approximately 1315°C (2400°F) to remove organic
material and to heat-harden the briquettes (nodules) so that they will withstand further
processing without disintegrating. The nodules are cooled and passed through a
proportioning building where they are blended with sized coke and silica into a material
called the "burden," which is fed into a reducing furnace.
FMC operates two similar calciners. The exhaust gases from each calciner enter
manifolds which split the exhaust into two parallel streams. The two parallel
"Analysis of Achievable Po-210 Emission Reductions and Associated Costs for FMC's
Pocatello, Idaho, Plant" and "Analysis of Achievable Po-210 Emission Reductions and
Associated Costs for Monsanto's Elemental Phosphorus Plant at Soda Spring, Idaho."
Prepared by Midwest Research Institute for the Office of Radiation Programs, EPA,
under Contract No. 68-02-3817, August 1984.
29
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exhaust streams from each calciner pass through a fan, slinger scrubber/fluoride
absorber (a spray/quench chamber, a horizontal scrubber, and a mist eliminator/spray
chamber), a second fan, and out the stack.
At the second Idaho plant, the Monsanto Industrial Chemical plant at Soda Springs,
Idaho, the process involves feeding the ore to a rotary kiln calciner to form heat-
hardened nodules, reducing the nodules in one of three electric furnaces, and collecting
the elemental phosphorus from the furnace off-gases. The ore feed rate, fuel input
rate, induced draft fan volumetric flow rate, and kiln speed are controlled so that the
finely divided ore feed forms into the larger, stable agglomerates (nodules) needed for
proper operation of the electric furnaces. The hot nodules pass through a cooler and
crusher before being conveyed to storage.
Exhaust gases from the kiln pass through an emission control system prior to entering
the atmosphere. The initial emission control device is a settling chamber where large
particles from the kiln off-gas are collected. In normal operation, a damper in the
settling chamber directs the exhaust gases to a waste heat boiler. The waste heat
boiler and settling chamber both serve as particulate matter collectors. The collected
particulate matter (settling chamber dust) is recycled to the kiln.
After exiting the settling chamber, the exhaust gases go to a concrete spray tower,
where the gases pass through a water spray to remove soluble gases and particulate
matter. After exiting the spray tower and passing through the induced draft fan, the
exhaust gases enter a redwood demister assembly prior to entering the atmosphere.
The exhaust gases enter the demister tangentially to impart a cyclonic action that
removes the entrained moisture in the flue gas. The entrained water removed in the
demister drains back into the spray tower.
The liquid effluent from the spray tower is collected in a clarifier, where lime is added
for pH control. The solids from the clarifier are dried and collected and eventually are
recycled into the process by blending with the feedstock.
In the MRI study, seven higher efficiency control technologies were selected for cost
and performance analyses. Venturi scrubbers at pressure drops of 3.7, 7.5, and 11.2
kilopascals (kPa) (15, 30, and 45 inches water column), electrostatic precipitators
with specific collection areas of 200, 300, and 400 ft2/!,000 cubic feet per minute of
30
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airflow, and one pulse jet baghouse with an air-to-cloth ratio of four to one were
selected as representative of state-of-the-art, higher efficiency control devices. The
sample scrubber sizes selected for cost analysis span the mid-range of feasible scrubber
control units. Pressure drops ranging from 4 to over 75 inches water column pressure
are considered feasible for Venturi scrubbers. Similarly the ESP's sampled for cost
analysis span the mid-range of feasible wet precipitator controls. Wet ESP's ranging
from 100 to 600 SCA are technologically feasible. Fabric filters down to a 2 to 1 air-
to-cloth ratio are considered feasible. Hence the scales of technology selected for
detailed cost analysis are not meant to give the feasible range of sizes for the available
control technologies, but rather these scales are all representative of the mid-range of
feasible sizes for each type of control. Cost estimates presented in the benefit-cost
analysis of the following chapter are based on interpolations and extrapolations of the
costs of sampled scales of each technology where necessary.
The capital and annualized costs for each of the three types of control technologies
considered were determined following the guidelines established in Capital and Oper-
ating Costs of Selected Air Pollution Control Systems (GARD Manual). This manual
was prepared for the EPA to provide technical assistance to regulatory agencies in
estimating the cost of air pollution control systems. The costs in the GARD Manual are
based on December 1977 dollars. The costs were adjusted to January 1984 dollars using
2 3
indices provided in Chemical Engineering and by the Bureau of Labor statistics. '
The costs were calculated assuming that each of the higher efficiency control
alternatives were added-on to control the exhaust from the existing scrubber control
systems. The existing system removes most of the large particles, quenches and cools
the exhaust gas stream (thus, reducing gas volume and ensuring condensation of gaseous
radionuclide emissions), and properly conditions the stream for treatment by the ESP
options. Assuming that the existing system is retained substantially reduces the costs
associated with each control technology. The annualized costs for each control system
include the total utility costs, the total operating labor costs, the total maintenance
costs, the total overhead costs, the capital charges, and the total waste disposal costs.
The annualized costs were based on 7,400 hours per year of operation.
GARD, Inc., Capital and Operating Costs of Selected Air Pollution Control Systems.
U.S. Environmental Protection Agency. Research Triangle Park, North Carolina.
Publication No. EPA-45/5-80-002.
o
MRI, "Monsanto," op. cit., p. 4-1.
3U.S. Department of Labor, Bureau of Labor Statistics, Producer Prices and Price
Indexes, Data for February 1984. Washington, D.C., April 19~84"I~~
31
-------
The capital costs for each control technology include the direct and indirect costs to
purchase and install the necessary ductwork, control devices, fan systems, and stack.
Direct capital costs include instruments, controls, taxes, freight, foundations, supports,
erection and handling, electrical work, piping, insulation, painting, and site preparation.
Indirect capital costs include the engineering and supervision, construction and field
expenses, construction fee, start-up performance test, and contingencies. The fan costs
are based on a facility altitude of 1,220 m (4,000 ft) above sea level. All stack heights
are assumed to be 30 m for the add-on equipment.
The quantity of sludge or dry waste collected by the add-on control devices was
determined based on the efficiency of particulate removal. The cost to dispose of the
waste in a secured landfill was assumed to be $23.50/ton (1984 dollars). The waste is
considered to be hazardous for these calculations because of the concentration of
radioactive material in the sludge. For comparison, it should be note that the cost of
disposal of nonhazardous wastes is approximately $5/ton.
The efficiency of removal of Po-210 emissions from the exhaust gas stream from the
current control devices was also estimated by MRI for each add-on technology. This
estimation is based on the percent efficiency of each control technology, by particle
size, as applied to the measured particle size distribution of emissions from the FMC
plant. The estimated costs and efficiencies of Po-210 removal are shown in Exhibit 3-4.
Of the three types of control technologies, scrubbers have the lowest estimated capital
cost and the highest operating costs. Capital costs for precipitators and fabric filters
are approximately twice those for scrubbers, while operating costs are greatly reduced.
The annualized capital costs in the exhibit were calculated assuming that the private
discount rate is 10% and that the useful life of the control system is 20 years. A four
percent annual surcharge based on purchase value was added for administrative costs (2
percent), property tax (1 percent), and insurance (1 percent). Alternative assumptions
for annualizing the capital costs are considered in the sensitivity analysis of section 4.5.
Total annualized costs for the scrubbers selected for analysis range from $1.6 to $3.5
million for FMC and from $0.9 to $2.0 million for Monsanto, depending on the scale of
the equipment. Wet electrostatic precipitator annualized costs range from $1.4 to $1.7
million for FMC and from $0.8 to $1.1 million for Monsanto. The fabric filter
technology has costs which are slightly higher than precipitators, but lower than the
32
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EXHIBIT 3-4;
AVAILABLE CONTROL TECHNOLOGIES (Selected Examples)
CO
CO
Efficiency of
Technology Po-210 Removal
Type Scale (%)
Capital Cost , *
Total Annualized
(mil $) (mil $/yr)
FMC
Scrubbers
Electrostatic
Precipitators
Fabric
Filters
15" p
30" p
45" p
200 SCA
300 SCA
400 SCA
(b)
65
77
83
72
83
90
98
2
2
3
5
5
6
7
.1
.8
.7
.2
.9
.7
.3
Monsanto
1.1
1.5
2.0
2.9
3.2
4.3
4.2
FMC
.32
.43
.59
.82
.93
1.05
1.15
Monsanto
.17
.23
.31
.45
.50
.68
.65
Operating
Costs
(mil $/yr)
FMC
1.3
2.1
3.0
.6
.6
.7
.7
Monsanto
.7
1.2
1.6
.3
.4
.4
.6
TotaTw
Annualized
Cost
(mil $/yr)
FMC
1.6
2.5
3.5
1.4
1.5
1.7
1.9
Monsanto
.9
1.4
2.0
.8
.9
1.1
1.3
(a) - Assumes a 10 percent real social rate of time preference over 20 year useful life. All direct resource costs are expressed in
constant 1984 dollars. Also includes a charge of four percent of original purchase value for administrative costs (2 percent),
property tax (1 percent), and insurance (1 percent).
(b) - Only one scale evaluated; assumes a pulse-jet cleaning mechanism and 4-to-l air-to-cloth ratio.
(c) - Totals for FMC and Monsanto combined are inappropriate; proposed alternative standard imply different technologies for each
plant under most alternatives.
-------
costs of high energy scrubbers. Annualized costs for fabric filters at FMC are $1.9
million, and $1.3 million at Monsanto.
The efficiency of Po-210 removal varies from 65 to 98 percent for the selected
examples. The 300 SCA precipitators have the same efficiency as the 45 inch
pressure-drop scrubbers, with 40 percent lower annualized costs. Hence, high-pressure
-drop scrubbers do not appear to be a cost-effective method of control. This issue is
discussed in detail in the following chapter. As noted above, larger precipitators than
the examples selected for cost analysis are also feasible up to the 500-600 SCA range.
However, for efficiencies greater than approximately 95 percent, fabric filters appear
to be more cost-effective.
34
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CHAPTER 4
BENEFIT-COST ANALYSIS
4.0 INTRODUCTION
This chapter examines the benefits and costs of alternative polonium 210 (Po-210)
standards for emissions from elemental phosphorus plants. Current emission levels of
this isotope indicate that for the range of alternatives under consideration only FMC's
Pocatello plant and Monsanto's Soda Springs plant would incur additional particulate
control costs. The remaining four plants of the six discussed in the previous chapters
have current emissions below the most stringent annual standard under consideration.
If the geographical source of the supply of phosphate rock, or the level of output of any
of these four plants, changes dramatically, these plants may also incur additional
particulate control costs in the future. This eventuality has not been considered in this
analysis. Costs and benefits are examined only for the Idaho plants.
The analysis of the costs and cost-effectiveness of controlling Po-210 emissions at the
two affected plants is based on the results of cost studies performed by Midwest
Research Institute (MRI), under contract to the EPA. These studies provide estimates
of the expected capital and operating costs at each plant for seven alternative
particulate control technologies. The efficiency of Po-210 removal was also estimated
for each technology. These estimates indicate that both affected plants can achieve
compliance with all alternative standards by using the currently available particulate
control technologies described in the previous chapter.
The analysis presented below indicates that estimated control costs per unit of
elemental phosphorus are not significantly different at the two plants, although the
least-cost choice of control technology differs for the two plants. The only exception is
the 10 Ci/year standard alternative which would necessitate controls only at the
Monsanto plant. For all alternatives considered, least-cost control methods are
estimated to have a real-resource cost of less than $25 per ton of elemental phosphorus,
which currently sells for approximately $1900 per ton. Private costs to the manu-
"Analysis of Achievable Po-210 Emission Reductions and Associated Costs for FMC's
Pocatello, Idaho, Plant" and "Analysis of Achievable Po-210 Emission Reductions and
Associated Costs for Monsanto's Elemental Phosphorus Plant at Soda Springs, Idaho."
Prepared by Midwest Research Institute for the Office of Radiation Programs, EPA,
under Contract No. 68-02-3817.
35
-------
facturers are estimated to be somewhat smaller, due to current tax provisions, which
allow deductions and tax credits for investments. The impact of these private costs on
the financial and market positions of the affected firms is discussed in the following
chapter.
The health benefits of reducing Po-210 emissions from the two affected plants were
estimated using the AIRDOS model to determine individual exposures at current levels
of emissions and the RADRISK computer code to determine the expected fatal cancers
which may result from the estimated cumulative exposure. The health benefits
resulting from alternative standards were defined to be the avoided fatal cancers per
year within an 80 km radius of each plant. While no attempt is made to place a
monetary value on the individual lives saved by controlling emissions at these plants,
the estimated real-resource costs range from $70 to $80 million per statistical death
avoided. Also, no attempt has been made to quantify other monetary benefits
associated with reduced particulate emissions from the plants or avoided morbidity
costs. These monetary benefits are estimated to be small, and including them in the
analysis would reduce only slightly the cost per statistical death avoided.
4.1: LEAST-COST CONTROL TECHNOLOGIES FOR AFFECTED PLANTS
The control technologies described in the previous chapter lead to unique cost-effective
choices of technology for each plant under each alternative standard. The efficiency of
polonium-210 control is, by assumption, the same for a given control technology applied
to either plant. However, the plants have markedly different levels of emissions from
the low-pressure-drop scrubber control units currently in place. This leads to the
selection of different cost-effective technologies at each plant under some of the
alternative standards. The least-cost choice of particulate control technology for each
plant may be determined by examination of Exhibit 4-1. The exhibit shows the
levelized control cost per unit output (expressed in dollars per ton of elemental
phosphorus) for each plant and for each type of control technology, as functions of the
statutory level of the standard. The relative efficiencies of Po-210 removal given in
Exhibit 3-4 were applied to current emission levels to calculate expected emissions for
each technology option. (A "safety margin" was applied which required expected
emissions to be 10 percent greater than engineering estimates at each level of the
standard in the graphs in Exhibit 4-1. In the final section of this chapter, a sensitivity
analysis is presented which shows results for a larger, 25 percent, safety margin.)
36
-------
EXHIBIT 4-1:
COST PER TON FOR SELECTED CONTROL TECHNOLOGIES
CO
-a
$30 -
o
f.
cx
en
O
•§,
•a
5 $20 -
o
o
x $10
0)
t-
o
• - Monsanto
A -PMC
FMC-
Fabric Filters ^.
/ "I.
40Q/
I--~T
Monsanto
Fabric
Filters
Level of Standard
(Ci/yr)
-------
The shape of the control cost curves for Venturi scrubbers, electrostatic precipitators,
and fabric filters applied to each plant are quite similar when expressed in cost per ton
of phosphorus. The horizontal difference between the curves is accounted for by the
fact that the current Po-210 emissions are 21 Ci/year for Monsanto, and 9 Ci/year for
FMC.
Exhibit 4-2 shows the control cost per ton for the least-cost methods of control for
each plant, as a function of the level of the standard. The exhibit also shows the
weighted average control cost per ton for these two affected plants which constitute
approximately one-half of the production of the industry. For this set of assumptions,
control costs using the least-cost control methods remain below $17 per ton of
phosphorus for all alternative standards.
Different levels of the standard affect FMC and Monsanto quite differently. At 10
Ci/year, FMC has a 10 percent safety margin given current emission levels and may
choose not to adopt new controls. Monsanto, however, is forced to adopt a scaled-down
version of the 15 inch pressure drop system shown in Exhibit 3-4 at a cost of $10 per
ton. For standards below 10 Ci/year, electrostatic precipitators become the least-cost
control option for Monsanto, while FMC may choose to remain with less than 15 inch
pressure drop scrubbers down to a level of 4 Ci/year. Below 4 Ci/year, the wet
electrostatic precipitator technology is cost-effective for both plants, although
Monsanto must adopt a higher scale version than FMC. For a 2.5 Ci/year standard, the
control costs per unit are roughly equal for both plants, approximately $14 per ton. At
this standard Monsanto may adopt a 400 SCA precipitator while FMC may adopt a 250
SCA precipitator. At a 1.0 Ci/year standard, Monsanto must rely on very high energy
precipitators (500 SCA or more) or choose to adopt fabric filters which have roughly the
same cost-effectiveness as the precipitators. At this level FMC may choose a 400 SCA
or higher precipitator or move to fabric filters which appear to be slightly more cost-
effective and offer the security of a greater safety margin.
The above discussion of the graphs in Exhibits 4-1 and 4-2 is summarized in Exhibit
4-3, which presents the control technology choices and estimated capital costs for
each plant under each alternative standard. Annualized unit control costs before
taxes are also shown. In this table annualized capital costs were based on the assumption
of a 20-year useful life and a real discount rate of 10 percent. The annualized capital
38
-------
EXHIBIT 4-2:
LEAST-COST CONTROL STRATEGIES
CO
co
$30
o
CO
O
£
•a
•4-1
c
O>
O
O
O
*no -
0)
o
11
Level of Standard
(Ci/year)
-------
EXHIBIT 4-3:
Alternative
Standard
(Ci/year)
10
2*
1
LEAST-COST CONTROL TECHNOLOGIES BY PLANT
FOR SELECTED STANDARD OPTIONS
Levelized , ^
Capital Costs Unit Control Costw
Least-Cost (before taxes) (before taxes)
Technology (mil $) ($/ton)
FMC
None
250 SCA
precipitators
400 SCA
precipitators
Monsanto FMC Monsanto Total FMC Monsanto
10 to 15 inchap o 0.8 0.8 0 9.2
Scrubber
400 SCA 5.2 4.3 9.5 13.6 13.2
precipitators
Fabric 6.7 3.8 10.5 16.4 15.2
Filter
Levelized /
Unit Control Costs.1
(after taxes) (0>
($/ton)
FMC Monsanto
0 8.3
10.7 11.2
13.2 12.9
Annualized capital cost plus annual operating costs of control equipment, in dollars per ton of elemental phosphorus output. See Exhibit
3-4 for definition of annualized capital cost.
""includes adjustment for investment tax credit and 5-year straight-line depreciation, based on 1984 tax practices.
-------
cost also includes administrative costs, property tax and insurance, estimated at 2
percent, 1 percent, and 1 percent, respectively, based on purchase value. Tax benefits
for capital investments result in after-tax unit control costs which are 10 to
20 percent lower than before-tax costs for each plant.
After-tax costs are calculated by including adjustments to the purchase cost of control
equipment to account for the 10 percent investment tax credit (ITC) and for the present
value of the stream of tax deductions allowed for depreciation assuming a straight-line,
five-year method. The basis for the depreciation is 95 percent of the purchase value, in
accordance with current tax provisions. Given these assumptions, the present value of
the stream of cost savings from allowable deductions on a $1 basis is given by z =
5 -t
t^j , where u is the marginal tax rate of the firm (.46) and r is the private
discount rate. If r = .10, then z = $0.349. Hence the after-tax cost of control
equipment is given by C = (1 - .10 - .95 z) C = .569 C , where C is the original
purchase cost of the equipment. Thus the credits and deductions allowed by current tax
provisions provide a 43 percent reaction m the original purchase cost of control
equipment. Annualized capital costs are also reduced 43 percent. This adjustment was
not applied to the 4 percent surcharge for administrative costs, property tax and
insurance since the ability of the firms to deduct these costs is more uncertain.
4.2: HEALTH BENEFITS OF CONTROLLING POLONIUM-210 EMISSIONS
The health benefits which accrue to society over time from the control of Po-210
emissions at the affected elemental phosphorus plants consist largely of the reduction
in expected fatal lung cancers and, to a smaller degree, the reduction in non-hazardous
particulate emissions near the sites. The health benefits associated with reduction of
Po-210 emissions are determined to be the major component of the total health benefits
due to emission reductions at these plants. The efficiency of the particulate control
technologies in terms of Po-210 control, as presented in Exhibit 3-4, are therefore of
greatest importance in the the calculation of the expected health benefits under
alternative control scenarios.
Examination of Exhibit 3-4 shows that the control strategies result in efficiencies of
Po-210 control ranging up to 98 percent. In this section the expected benefits of the
proposed alternative standards are estimated by applying proportionate reductions to
the estimated health risks currently generated in the population in areas of radius 80
km around each site. This method assumes a proportionate reduction in fatal cancers
41
-------
for given statutory reductions in Po-210 emissions at the sites. The proportionate
reduction assumption is consistent with the AIRDOS computer code procedures for
evaluating population exposures in the affected areas and with the RADRISK code for
translating exposures into expected fatal cancers, based on the linear dose-response
model.
The health benefits of emission reduction for each alternative standard and the risks to
nearby individuals are presented in Exhibit 4-4. The estimates of fatal cancers at each
alternative were generated using the proportionate reduction assumption. Although
safety margin considerations in the previous section led to the selection of control
technologies with design performance which exceed the standards, the calculations in
Exhibit 4-4 are based on the assumption that in practice the plants will actually emit at
a level equal to the standard. Risk levels for all four unaffected phosphorus plants
combined are also shown for purposes of comparison. Total industry benefits amount to
0.009 avoided fatal cancers per year at the 10 Ci/year standard alternative, while 0.035
and 0.041 fatalities per year are avoided at the 2.5 and 1.0 Ci/year levels, respectively.
The uncertainty of the level of these estimates may range up to a factor of 10 higher or
lower.
Examination of Exhibit 4-4 shows that FMC and Monsanto, which combined produce
one-half of the industry's output, account currently for 78 percent of the total
population risk of the industry, 0.045 out of a total of 0.058 fatal cancers per year.
Risks to nearby individuals are highest at the Monsanto plant, 0.001 lifetime risk,
followed by FMC at 0.0005, then all other plants at 0.0001 or less. Control at a
statutory level of 10 Ci/year affects risks only at the Monsanto plant, reducing both the
lifetime risk to nearby individuals and population risk by 50 percent. At a statutory
level of 2.5 Ci/year, risks for Monsanto are further reduced by 75 percent, with
equivalent percentage reductions for the FMC plant. At the 2.5 Ci/year level of
emissions, the risks to nearby individuals for Monsanto, FMC, and all other plants are
approximately equal. Also, the regional population risk for the Monsanto and FMC
plants combined are approximately equal to those for the combined total of all other
plants, 0.010 as compared to 0.013 fatal cancers per year. If the standard were set at 1
Ci/year, risk to individuals living near the Idaho plants would be a factor of two below
those at all other plants. The regional population risks for FMC and Monsanto combined
are also significantly below those of the rest of the industry for this standard. At this
42
-------
EXHIBIT 4-4:
ESTIMATED RISK LEVELS BY ALTERNATIVE STANDARD
Alternative Lifetime Risks to ^
Standard Nearby Individuals
(Ci/year) FMC Monsanto All Others
None 5 E-4 1 E-3 1 E-4
10 5 E-4 5 E-4 1 E-4
2.5 1 E-4 1 E-4 1 E-4
1 5 E-5 5 E-5 1 E-4
Regional Population Risk (80 km)
FMC Monsanto All Others Total
.027 .018 .013 .058
.027 .009 .013 .049
.008 .002 .013 .023
.003 .001 .013 .017
(a) - Lifetime probability of fatal cancer for individuals living 1500 meters from plant.
(b) - Expected additional fatal cancers per year in population within 80 km radius of each plant.
43
-------
level for the standard, emissions at FMC and Monsanto are respectively 90 percent and
95 percent below current levels.
4.3: BENEFIT-COST COMPARISONS
Exhibit 4-5 summarizes the benefit-cost analysis presented in this chapter. For each
alternative standard, the exhibit shows the estimated levelized costs and health risk
reductions (benefits) for FMC, Monsanto, and for both plants combined. Levelized costs
were obtained using the before-tax unit control costs from Exhibit 4-3 and the current
production estimates in Exhibit 2-2. Total annualized costs amount to $0.70 million per
year at a 10 Ci/year standard, and rise to approximately $3 million per year at a 1.0
Ci/year standard. Below the 10 Ci/year standard, costs for FMC are approximately 50
percent higher than for Monsanto. This reflects the 40 percent higher production at the
FMC plant and the slightly higher unit control costs shown in Exhibit 4-3.
The estimated reductions in regional population risk range from a level of 0.009 to
approximately 0.041 avoided fatal cancers per year. (This range may also be
interpreted as extending from 1 avoided cancer every 25 years to 1 every 110 years in
the affected population of both plants). At 10 Ci/year, reductions occur only for the
Monsanto plant and amount to 0.009 fatal cancers per year. At the 2.5 Ci/year
statutory level, total reductions at the Monsanto and FMC sites are both approximately
equal, i.e., 0.016 and 0.019 fatal cancers per year, respectively. Lowering the standard
to 1 Ci/year gives a small increase in total reductions for both plants.
The cost-effectiveness of alternative standards is also shown in Exhibit 4-5. The
average cost-effectiveness is defined as the ratio of the levelized annual cost to the
levelized annual benefit. Calculation of this ratio is equivalent to calculating the
present value of the 20 year stream of costs and benefits, assuming a constant dollar
willingness-to-pay, w, to save a life in any future year, and then solving for w by setting
the present values equal. (Equivalence of the levelized cost approach and the present
value approach is demonstrated in section 4.5 of this chapter).
The estimated average cost per statistical death avoided is $78 million for a 10 Ci/year
standard. The average cost falls to $70 million at a 2.5 Ci/year statutory level, then
rises slightly to $71 million at the 1.0 Ci/year level. Given the potential errors in the
44
-------
EXHIBIT 4-5;
AVERAGE AND INCREMENTAL COST-EFFECTIVENESS
FOR ALTERNATIVE STANDARDS
tn
(a)
Alternative Annualized Costv
Standard (mil $/yr)
FMC
10 0
2.5 1.44
1 1.74
Monsanto
.70
1.01
1.16
Total
.70
2.45
2.90
x.v Average Cost
Risk Reduction^ Per Death Avoided
(fatal cancers/yr) (mil $/fatality)
FMC
0
.019
.024
Monsanto
.009
.016
.017
Total
.009 78
.035 70
.041 71
Incremental Cost
Per Death Avoided
(mil $/fatality)
78
67
75
(a) Based on before-tax unit control costs shown in Exhibit 4-3.
(b) Based on estimated regional population risk for FMC and Monsanto in Exhibit 4-4.
-------
benefits estimates presented in this analysis, the absolute level of these estimates is
subject to a large degree of uncertainty.
Incremental cost-effectiveness is defined as the ratio of the additional annualized costs
to the additional annual benefits which arise as the level of the standard is lowered
from one alternative (10 Ci/year, for example) to a second, more stringent alternative
(2.5 Ci/year, for example). The incremental cost-effectiveness of the 10 Ci/year
standard is defined to be equal to the average cost-effectiveness of that standard, $78
million per statistical death avoided. The incremental cost of lowering the statutory
level to 2.5 Ci/year is $1.75 million ($2.45 million at 2.5 Ci/year, less $0.7 million at 10
Ci/year). The incremental benefit is 0.026 additional avoided fatal cancers per year.
The incremental cost-effectiveness of moving from a 10 Ci/year standard to 2.5
Ci/year is $1.75 million divided by 0.026, yielding $67 million per additional life saved.
A similar calculation yields $75 million per life saved for shifting from a 2.5 to 1.0
Ci/year standard.
It is generally expected that both the incremental and average cost-effectiveness
defined here will rise monotonically in numerical value at increasingly stringent
standards. This relationship will generally hold true for a single type of control
technology applied to a single plant. In the case of controls on the two affected
elemental phosphorus plants, the incremental costs shown in Exhibit 4-5 are estimated
to fall with a change in the standard from 10 Ci/year to 2.5 Ci/year, then to rise again
slightly with a change from 2.5 to 1 Ci/year. This anomalous behavior is due to the
summation of costs and benefits over two plants, each with different initial emission
levels and requiring different control technologies to comply with the same standard.
The lower total incremental cost for moving from the 10 Ci/year to the 2.5 Ci/year
level is due to the small marginal cost of control (slope) of the electrostatic
precipitator cost curve in this region for Monsanto, as shown in Exhibits 4-1 and 4-2.
This lower incremental cost results in a lower average cost-effectiveness for the 2.5
Ci/year standard than for the other levels of the standard.
4.4: SENSITIVITY ANALYSIS
The control costs, benefits and cost-effectiveness estimates presented above are based
on several key assumptions concerning the costs, efficiencies, and useful lifetime for
installed control equipment. The levelized cost method for comparing costs and
46
-------
benefits is also sensitive to the assumed equality of the private and social discount
rates. The sensitivity of the main results in the exhibits above to these key assumptions
is examined in this section.
The costs and efficiencies presented in Exhibit 3-4 for the selected examples of more
efficient control technologies are based on engineering cost analysis. These technol-
ogies have not yet been applied to particulate control for the calciners in the elemental
phosphorus industry. The presence of currently installed low energy scrubbers on these
calciners also creates a special engineering situation which has not been encountered in
practice. The current scrubbers serve a useful role in Po-210 control by removing large
particulates and ensuring the condensation of the volatilized polonium onto existing
particles or into new particles. The scrubbers also add additional moisture to the
airstream, while lowering the temperature. This creates moisture problems in the
effluent airstream, which may "clog" the add-on control equipment when precipitators
or fabric filters are employed. The unique corrosive environment at the calciners also
is a cause for concern.
The additional risk elements introduced into the analysis by these factors may be
reflected in the benefit-cost analysis by adjusting the private discount rate to account
for a risk premium and by introduction of a safety margin in the selection and design of
appropriate control equipment. For the sensitivity analysis, a risk premium of 5
percent was added to the assumed 10 percent real discount rate and the useful life of
the equipment was shortened from twenty years to ten years. This adjustment causes
upward revisions in the annualized capital costs (excluding administrative costs, taxes
and insurance).
The revised annualized costs under these assumptions are compared to the original cost
estimates in Exhibit 4-6. This revision in the annualized capital cost affects the ESP's
and fabric filters by a greater amount, relative to the scrubbers, due to their higher
capital cost. The change in amortization rate and period increases scrubber costs by
approximately 10 percent and ESP and fabric filter costs by 30 percent.
The engineering considerations above also introduce an element of uncertainty con-
cerning the estimated efficiencies of the control equipment. This uncertainty may be
modeled by the introduction of a design safety margin. In section 4.1 the safety margin
was selected to be 10 percent, indicating that the expected efficiency of the designed
47
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EXHIBIT 4-6
SENSITIVITY OF COSTS TO ASSUMED USEFUL LIFE AND DISCOUNT RATE
oo
Technology
Type
Scrubbers
ESP's
Fabric Filter
Scale
15"
30"
45"
200 SCA
300 SCA
400 SCA
(c)
(a)
1.6
2.5
3.5
1.4
1.5
1.7
1.9
FMC
(b)
1.8
2.8
3.8
1.8
2.0
2.3
2.5
Monsanto
% Change
11
9
8
30
31
32
33
(a)
.9
1.4
2.0
.8
.9
1.1
1.3
(b)
1.0
1.5
2.1
1.0
1.1
1.4
1.6
% Change
10
9
9
29
30
34
29
(a) - Capital costs amortized at 10 percent for 20 years.
(b) - Capital costs amortized at 15 percent for 10 years.
(c) - Only one scale evaluated.
-------
CO
$30 I
3
o
Oi
•a
•4-1
0)
a $20
O
x
a}
o>
DQ
$10
11
EXHIBIT 4-7;
COST PER TON FOR_SELECTED CONTROL TECHNOLOGTFS FOR SENSITIVITY ANALYSIS
• - Monsanto
10
Monsanto
Fabric Filters
Monsanto - Scrubbers
Level of Standard
(Ci/year)
-------
control equipment must be 10 percent below the statutory level of the standard. The
engineering uncertainties discussed above may lead to larger safety margins for all
control devices. The fabric filters are particularly sensitive to additional moisture and
may require special pre-heating of the airstream for efficient operation. For this
sensitivity analysis, the safety margins for scrubbers and ESP's were increased to 25
percent, and a safety margin of 50 percent was used for the fabric filters.
The graphs corresponding to Exhibits 4-1 and 4-2 with a revised safety margin and the
higher annualized capital costs are shown in Exhibits 4-7 and 4-8. Although the revision
in costs and safety margins leads to increased costs at all levels of the standard, there
are no substantial changes in the choice of the least-cost technology at each alternative
standard.
The least-cost technologies for each plant are shown in Exhibit 4-9 for the alternative
standard. For each standard the exhibit shows the selected technology and its capital
costs. Unit control costs are shown both before and after taxes. The tax adjustment
was recalculated to reflect the higher private discount rate for the present value of
depreciation deductions. The percentage changes in these values over the base case
shown in Exhibit 4-3 are given in parentheses. Capital costs for FMC and Monsanto are
only slightly higher as a result of the increase in safety margin. The changes in the
capital amortization parameters increase the before-tax unit costs substantially, with
cost increases ranging from 27 to 45 percent, depending on the plant and technology
selected. After-tax unit costs are seen to rise approximately 30 percent for all cases,
except for FMC at the 10 Ci/year standard. For this case, only slight additions to the
current scrubber control equipment will enable FMC to meet the standard with the 25
percent safety margin.
The revised average and incremental cost per statistical death avoided for the revised
cost estimates may be calculated using the estimated risk reductions in Exhibit 4-4 and
the revised cost estimates in Exhibit 4-9. Although the private discount rate was
increased from 10 percent to 15 percent for this sensitivity analysis, the appropriate-
ness of making a corresponding adjustment to the social discount rate used for
discounting the benefits is questionable. The levelized cost method of comparing costs
and benefits can be derived from the present value method when the private and social
rate of time preference are the same (See section 4.5). Hence, for a 15 percent social
rate of discount, the average cost per statistical life saved may be calculated by
50
-------
EXHIBIT 4-8;
LEAST-CONTROL COST STRATEGIES FOR SENSITIVITY ANALYSIS
$30 -
.
o
-a
•»->
c
S
(U
"cu
§
s
o
X
C8
$20 -
$10 _
Level of Standard
(Ci/year)
-------
EXHIBIT 4-9:
en
CO
SENSITIVITY OF THE COST OF LEAST-COST CONTROL TECHNOLOGIES
FOR ALTERNATIVE STANDARDS
Alternative
Standard
(Ci/year)
10
2*
1
Least-Cost
Capital Costs
(before taxes)
Technology
FMC
Slight
Additional
Scrubbing
250 SCA
Precipitators
425-450 SCA
Precipitators
Monsanto
15" P
Scrubbers
425-450 SCA
Precipitators
Fabric
Filter
FMC
.02
(_)c
5.5
(6)
6.9
(3)
(mil $)
Monsanto
1.0
(19)d
4.5
(5)
4.1
(8)
Levelized , v
Unit Control CosVa)
(before taxes)
($/ton)
Total
1.0
(20)
10
(5)
11
(5)
FMC
0.1
(_)
17.7
(30)
22.3
(36)
Monsanto
11.7
(27)
19.1
(45)
20.9
(38)
Levelized , >
Unit Control Cos;ts;a;
(after taxes) w
($/ton)
FMC
0.1
( — )
13.7
(28)
17.2
(30)
Monsanto
10.7
(29)
14.5
(29)
16.7
(29)
aAnnualized capital cost plus annual operating cost of control equipment, in dollars per ton of elemental phosphorus. See Exhibit 3-4 for
definition of annualized capital cost.
Includes adjustment for investment tax credit and 5-year straight-line depreciation, based on 1984 tax practices.
cBase-case costs were zero; new safety margin implies small additional scrubbing costs.
Percent increase over base-case estimate shown in parentheses.
-------
dividing the levelized annual costs by the expected annual number of statistical deaths
avoided. These results are shown in Exhibit 4-10. The exhibit shows the average and
incremental cost per statistical death avoided based on the higher control costs of the
sensitivity analysis case and an implicit 15 percent social rate of discount for the
benefits. Percent increases in the average and incremental costs over the base case
shown in Exhibit 4-5 are given in parentheses. The increases in cost per life saved
range from 28 to 40 percent.
The right-hand column of Exhibit 4-10 shows the effect of restricting the social rate of
discount applied to the benefit stream at the original value of 10 percent, while costs
are discounted at the risk-adjusted private rate of 15 percent. The necessary
corrections to the levelized cost approach to account for different rates of discount for
benefits and costs are presented in the addendum to this chapter. Estimated costs per
statistical death avoided are lower under these assumptions, due to the larger present
value of society's willingness-to-pay for each death avoided in future years. In this
case, the percent increases in cost per death avoided range from 5 to 15 percent higher
than those for the base case.
4.5 ADDENDUM ON PRESENT VALUE AND ANNUALIZED COSTS
It is generally agreed that benefit-cost analysis is to be conducted by comparing the
present value of the achieved benefits to the present value of the real-resource costs of
alternative actions. The methodology of this chapter was based on the annualized cost
approach. The annualized cost is defined as the stream of constant yearly payments
which has the same present value as the actual cost stream. In this addendum the
method of annualized costs and benefits is shown to lead to identical conclusions to
those of the present value method under the assumptions that the rate of time
preference for benefits is the same as the rate of time preference for costs. When
these two rates differ, a simple correction to the annualized cost method is required to
correspond to the present value approach. Consider the following example:
Plant A is required to invest C dollars in control equipment at time zero. This
equipment is expected to control emissions for T years. For simplicity, assume
that annual operating costs, F, are constant over the time period, expressed in
real dollars. The annualized cost is given by a TCrt+F, where a,, T is an
Ij 1 O Ij 1
annualization factor which is defined in equation (1) below.
53
-------
EXHIBIT 4-10;
en
SENSITIVITY OF AVERAGE AND INCREMENTAL COST PER
STATISTICAL DEATH AVOIDED
(a)
Alternative Annualized Cost
Standard (mil $/year)
(Ci/year) FMC
10 .01
1\ 1.87
(30)
1 2.36
936)
Monsanto
.89
(27)
1.46
(45)
1.60
(38)
Total
.90
(29)
3.33
(36)
3.96
(37)
(c)
Cost per Death Avoidedv
,,} (15% rate for costs;
Risk Reduction 15% rate for benefits)
(Fatal cancers/yr) (mil $/fatality)
Total Average
Cost
.009 100
(28)
.035 95
(36)
.041 97
(37)
Incremental
Cost
100
(28)
93
(39)
105
(40)
Cost per Death Avoided^1
(15% rate for costs;
10% rate for benefits)
(mil $/fatality)
Average
Cost
82
(5)
78
(11)
79
(ID
Incremental
Cost
82
(5)
76
(13)
86
(15)
(a)
(b)
(c)
(d)
Based on before-tax unit control costs shown in Exhibit 4-9. Percent change over base-case shown in Exhibit 4-5 are given in parentheses.
Based on regional population risk for FMC and Monsanto plants shown in Exhibit 4-4.
Levelized cost per statistical death avoided based on assumed 15 percent discount rate for both costs and benefits.
Levelized cost per statistical death avoided based on a 15 percent risk-adjusted discount rate for private costs and a 10 percent social
discount rate for benefits.
-------
It is also assumed that installation of the control equipment is expected to avoid
an estimated number n of premature fatalities per year during the operation of
the plant. Rather than assign a value to each premature death avoided, it is
sufficient to define the symbol w as our willingness-to-pay (in real dollars in year
t) to avoid a premature death in year t. The principle of equity across
generations requires that w be constant, when expressed in real dollars. If n
deaths are avoided in each year, then the annual benefit stream is n • w dollars per
year for each year of operation of the plant with control equipment in place.
The present value approach may be stated in the following way. If society is willing to
adopt a control method, then the present value of the control costs must be equal to or
less than the present value of the benefit stream. Rather than assign a single value to
w, one may set the present value of costs equal to the present value of the benefits and
then solve for the corresponding value of w from each alternative. This gives the
smallest value of the willingness-to-pay for which the present value of the benefits of
this alternative exceeds the present value of the costs.
To demonstrate that the annualized cost approach and the present value approach lead
to the same value of the willingness-to-pay to avoid a premature death w, the present
values of all costs and benefits are calculated over the appropriate time period:
(a) Capital costs, C , are expended at time zero; and hence the
present value is C .
(b) Operating costs must be discounted to the present time. We
assume a social rate of time preference, r, for the discount
rate. Then:
T , „ v t (1)
t=l
T
)•*•
where:* a r = r/ [ 1 - (l+r)~T] is the appropriate
discount factor.
Equation (1) relies on the identity:
7 xk = <£- (l~xN). Letting x = l/(l+r), gives the desired result.
k=l J~*
55
-------
(c) In a similar fashion to (b), the present value of the benefit
stream is:
PV = nw/aT (2)
•»•*
The value of the willingness-to-pay is then calculated by equating the present value of
costs and benefits. The subscripts on the discount factor may be dropped for
convenience of notation. Then calculations (a) through (c) imply that
nw/a = C + F/ a
w = (aCo+F)/n, (3)
which is simply the ratio of the levelized annual cost, aC + F, to the annual benefit,
expressed in deaths avoided per year.
A table of the discount factors for several discount rates and time periods is shown in
Exhibit 4-11. For the base-case scenario a -. „ ™ was used to annualize the capital costs.
(Four percent of the purchase value was then added each year to account for
administrative costs, property tax and insurance).
Risk Premiums
When the control methods are unproven, the generally accepted procedure is to add a
risk premium to the social rate of time preference when calculating levelized annual
capital costs. The risk-adjusted rate of discount for the cost stream then is defined as
r. It is inappropriate to also apply the risk premium to calculate the present value of
the benefit stream, however, and benefits continue to be discounted at the social
discount rate r. In this case a simple correction must be made to the levelized cost
approach when estimating the willingness-to-pay, w.
In this case, the present value of the cost of control is:
PV(costs) = C +F/a-T (4)
\J I • JL
while the present value of the benefit stream is given by equation (2). Then the value
of w is obtained by setting the present values of costs and benefits equal:
56
-------
EXHIBIT 4-11;
ANNUALIZATION FACTORS
rt
"V
.05
.10
.15
.20
5
.23098
.26380
.29832
.33438
10
.12950
.16275
.19926b
.23492
20 years
.08024
.11746a
.15976
.20535
(b)
Factor for annualizing capital costs in base case.
Factor for annualizing capital costs in sensitivity analysis.
57
-------
nw _ c + t1
V " ° ar,T
w = ^ . r'T ° . (5)
ar,T n
Comparison of equations (3) and (5) shows, in this case, that the ratio of the levelized
costs to the annual benefit must be multiplied by the factor a T/a- T to obtain the
appropriate willingness-to-pay.
58
-------
CHAPTER 5
ECONOMIC IMPACT ANALYSIS
5.0. INTRODUCTION
Economic impacts occur when regulations alter the costs of production. Changes in the
cost of production may lead to a change in product price and demand, thus altering the
structure of the market in which the product is sold. The impacts on producers,
consumers, workers and communities may be positive or negative, may depend on the
overall state of the economy, and may be transitional or permanent. The impacts may
represent losses in economic efficiency or they may be distributional, indicating shifts
among economic entities (e.g., among firms or among groups of workers).
Government regulations generally occur when the market fails to meet all of the
objectives of society. Regulations are designed to mend the market imperfections by,
for example, internalizing to a polluter the cost of environmental damage caused by
that pollution. In the case of the elemental phosphorus industry, the market has
provided no incentive for two high volume western manufacturers to reduce their
particulate emissions since other producers, utilizing phosphate inputs of different
quality and quantity and generally producing less elemental phosphorus, do not emit the
same volume of hazardous particulates, and have no need to incur costs for pollution
control equipment.
As shown in the previous chapters of this report, limiting the allowable emissions of
polonium 210 at various alternative levels would require one or two of the six plants
operating in 1984 to install and operate pollution control equipment designed to reduce
their particulate emissions. The technology selected by the affected plants would
depend on the level of standards and individual firm preferences. Varying levels and
proportions of capital and operating expenses would be incurred by each plant based on
the technology selected. These costs would result in an increase in the unit production
cost of the affected facilities. The total of these pollution control expenditures is
referred to as the private real resource cost.
When a regulation imposes real resource costs on firms that change the unit cost of
production, manufacturers will attempt to minimize the effect on profitability. This
59
-------
may result in attempts to reduce input costs including raw materials and wages, or to
increase prices. If there is an increase in price, demand for the product may be
reduced, and demand for competitors' output or substitute products may increase.
These changes can lead to layoffs at the affected plant, reduced income in the
community where the plant is located, and effects on the structure of the market.
These effects on market structure include shifts in the price elasticity for the product,
decreases in overall demand, and redistribution of market positions for each competitor
and producer of substitute products.
The extent to which a regulated manufacturer may effectively pass on increases in cost
will depend on the competitive environment in which the products are produced and sold
and on the elasticity of demand. The elasticity of demand is a measure of the
sensitivity of the consumers to changes in price. In some markets a small change in
price could lead to a large reduction in volume sold, while in other markets large price
changes may have only marginal effects on volume. As a regulated manufacturer
increases prices, demand for the products will usually fall. The rate at which volume
»
falls will determine the change in total revenues that results from a change in price. If
the market price of the product changes (all manufacturers incur higher costs),
consumers use less of the product and some of the utility associated with consumption
of the product will be lost. Consumers who continue to use the same amount of the
product at higher prices will have to allocate a larger portion of their budget to this
consumption, thus reducing savings or consumption of other goods and services.
The control of Po-210 emissions through the setting of a Ci/year standard will result in
changes in the cost of producing elemental phosphorus at some plants. The structure of
this industry and the nature of the markets in which the output is utilized adds
significant uncertainty to the measurement and allocation of expected economic
impacts. Some of these characteristics include the following:
• The industry has contracted substantially over the past two decades,
closing over half the plants and reducing capacity by almost 40 percent.
• Elemental phosphorus is an intermediate product utilized to produce
chemical compounds used in consumer goods that are sold in highly
competitive markets (detergents, soft drinks, etc.).
60
-------
• All plants are owned by large, highly integrated Fortune 500 firms that
consume virtually all of the elemental phosphorus output in company-
owned chemical plants.
• The owners of the elemental phosphorus plants own or have extraction
leases for phosphate rock, an exhaustible resource that is the principle
input to production.
• The two plants most likely to require new emissions control equipment are
the two largest plants, accounting for about half the industry capacity.
• The affected plants have the lowest production costs due to scale
economies and regional differences in input prices.
• One of the potentially regulated low cost plants is owned by a firm that
also owns and operates one of the non-regulated plants.
« The long range prospects for current elemental phosphorus markets are
uncertain, and extensive industry R&D efforts over the past decade have
failed to develop any significant new markets.
• Substitutes for phosphorus compounds are available at reasonable prices.
• Bans or restrictions on phosphate use in detergents have been imposed in
some states.
These and other factors make it difficult to predict the ability or desirability of the
regulated plants to pass on all or part of these pollution control costs to consumers
through price increases. In the next section the costs of producing elemental
phosphorus at the currently operating plants are compared. A subsequent section
presents some methods for bounding the potential economic impacts of the proposed
alternatives and the final section reviews the Regulatory Flexibility Act implications of
these regulations.
61
-------
5.1: PRODUCTION COSTS
The primary components of the cost of producing elemental phosphorus are phosphate
rock, coke, electricity, and labor. Together, these account for 80 to 88 percent of the
cost of producing a ton of phosphorus. Prices of these materials for each producer and
plant vary, with the western plants having a significant cost advantage compared to
Tennessee plants. The components of cost for elemental phosphorus and estimated
costs for each plant are described in the following section.
Components of Cost
The inputs to elemental phosphorus production have been investigated for a hypo-
1 2
thetical Tennessee plant by Arthur D. Little, and for FMC by EPA in 1984. Additional
data on costs are published in SRI's Chemical Economics Handbook. The ranges in the
amounts and prices of each input needed to produce a ton of phosphorus seen in these
studies are provided in Exhibit 5-1.
As the exhibit shows, the total cost per ton could range from $955 to $1,811; however,
it is unlikely that the variation in costs is this broad. The primary inputs to production
and estimates of their cost for each plant are discussed below.
Phosphate Rock
Phosphate rock costs from $11.48 to $25.84 per ton, delivered. At the high end of the
range is the washed and/or beneficiated rock used by Tennessee plants. When this
higher quality rock is used, less rock may be required (10 tons per ton of phosphorus
o
compared to 12.5 tons). Lower grade material is usually less expensive, but the
proximity and convenience of transporting the rock to the plant is the most important
cost factor. FMC and Monsanto's Idaho rock is relatively low cost because it is
obtained from captive mines close to elemental phosphorus plants. Stauffer's phosphate
rock costs for its Montana plant are relatively higher because of greater transportation
Arthur D. Little, Economic Analysis of Proposed Effluent Guidelines for the Industrial
Phosphate Industry. Prepared for the Environmental Protection Agency, August, 1973.
2
"Preliminary Analysis of Potential Impacts of $20 Million Compliance Cost at FMC
Plant," Memorandum from Rod Lorang and Barry Galif, Sobotka, Inc., to Byron Bunger,
Environmental Protection Agency, February 6, 1984, p.B-3.
3
Arthur D. Little, op.cit.; and Lorang and Galif, op. cit., p. B-3.
62
-------
EXHIBIT 5-1
COST OF ELEMENTAL PHOSPHORUS
(35
CO
Cost Item
RAW MATERIALS
Phosphate Rock
Silica
Coke
Electrodes
UTILITIES
Electricity
Water
Fuel
OTHER
Labor
Operating Supplies
Maintenance
Taxes
Subtotal
GS&A(10%)
TOTAL COSTS
Units Units/Ton of Phosphorus
tons 10-12,5J
tons 0.79"*
tons 1.4-1.5^
Ibs 0.421
kwh 13,000-15,200^
Mgal 20.00*
MSCF 12.001
n.a. n.a.
n.a. n.a.
n.a. n.a.
n.a. n.a.
n.a. n.a.
n.a. n.a.
Cost/Unit
$11.48-$25.8-r
12.29*
113.0Q5
0.736
0.0160-O.JD4611
0.13°
1.303
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
Cost/Ton of Phosphorus
$114.80-$323.00
9.71
158.20-169.50
0.31
208.00-700.70
2.60
15.57
190.25-256.3210
12.72VL
127.31V
28.6411
868.11-1646.38
86.81-164.64
- 954.92-1811.02
Arthur D. Little, op.eit.; and unpublished EPA data.
o
SRI, Chemical Economics Handbook, January 1983. Updated to 1984 prices using index for phosphate rock in Bureau of
Labor Statistics, Producer Prices and Price Indexes, June 1984, p.ll.
3Unpublished EPA data.
4
Unpublished EPA data, updated from 1982 to 1984 using index for "other industrial inorganic chemicals" in Bureau of
Labor Statistics, op.eit., p.101.
Energy Information Administration, Quarterly Coal Report, April 1984, p.55.
c
Unpublished EPA data, updated to 1984 using index for arc welding electrodes in Bureau of Labor Statistics, op.eit.,
June 1982, p.75.
7
SRI, op.eit., January 1983, and JFA estimates.
o
Unpublished EPA data, updated to 1984 using index for water and sewerage maintenance in Bureau of labor Statistics,
CPI Detailed Report, June 1984, p.20; and June 1982, p.22.
Q
Unpublished EPA data, updated to 1984 using index for fuels in CPI, op.eit., June 1984, p.ll; and June 1982, p.13.
10Industry information for 1983 updated to 1984 using GNP deflator in "Economic Indicators," op.eit., p.2.
•^Unpublished EPA data updated to 1984 using GNP deflator in "Economic Indicators," op.cit., p.2.
-------
costs. * Additional information on the phosphate rock resources of each producer are
provided in Chapter 2. The estimated costs of phosphate rock for each plant and
producer are summarized in Exhibit 5-2.
Coke
For each ton of phosphorus produced, 1.4 to 1.5 tons of coke are required, depending on
quality. The cost of the coke per ton to the producer depends on its quality, grade, and
value at which it is transferred when captively produced. The cost of coke per ton of
phosphorus is levelled across producers by this cost and input structure: lower quality
coke is lower priced but more is required, while higher quality coke is higher priced and
less is required. The cost of coke per ton of phosphorus used for this analysis was
3
$160.46. This cost assumes 1.42 tons of coke are used per ton of phosphorus and that
4
the price per ton is $113.00, the national average market price of coke.
Electricity
Production of a ton of phosphorus requires 13,000 to 15,200 kwh of electricity.
Estimates of the cost of this electricity range from 0.0160 to 0.0408 per kwh.
Plants served by TVA have witnessed steadily increasing rates since 1976, as rates have
been more and more dependent on coal purchase commitments. Power rates in Idaho
were stable until the last part of the 1970's, and for the Montana plant until 1980.
Rates are expected to continue to grow for FMC and Monsanto in Idaho because of
increasing reliance on coal-fired electricity. Stauffer, which was previously purchasing
f*
power from Bonneville, changed sources in late 1982 in an effort to control its costs.
The estimated cost of electricity for each plant and producer is shown in Exhibit 5-3.
SRI, op.eit., January 1983.
2Ibid.
o
Unpublished EPA data and Arthur D. Little, op.eit., p. 17.
4
Energy Information Administration, Quarterly Coal Report, April 1984, p. 55.
SRI, op.eit., January 1983 and Energy Information Administration, Financial Statistics
of Selected Electric Utilities; 1982, February 1984.
o
SRI, op.eit., January 1983.
64
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EXHIBIT 5-2
PHOSPHATE ROCK
OS
VI
Producer
Monsanto
FMC
Stauffer
Occidental
Location
Columbia, TN
Soda Springs, ID
Pocatello, ID
Mt. Pleasant, TN
Silver Bow, MT
Columbia, TN
$/Ton1
25.75
17.80
17.80
25.75
17.80
25.75
Tons of Phosphate Rock Mined/
Ton of Phosphorus
10.002
12.503
12.503
10.002
12.503
10.002
$/Ton of
Phosphorus($)
257.50
222.50
222.50
257.50-
222.50
257.50
Source: William Stowasser, Bureau of Mines. Prices shown for Idaho and Montano plants are the prices of
domestically consumed phosphate rock in the western states. Prices are average prices for January -
June, 1984.
Arthur D. Little, op.cit., p.17. Phosphate rock required per ton of phosphorus in sample Tennessee plant was
assumed to apply to all Tennessee plants.
3
Unpublished EPA data for FMC. Phosphate rock required per ton of phosphorus at FMC plant was assumed to apply
to all Idaho and Montana plants.
i
Stauffer's Montana plant is believed to have higher costs for phosphate rock than FMC and Monsanto's Idaho plants
because of high transportation costs. In the absence of plant specific data however, the Bureau of Mines "western
states" price was assumed to apply.
-------
EXHIBIT 5-3
ELECTRICITY COSTS
Producer
Monsanto
FMC
Stauffer
Occidental
Unpublished
Location
Columbia, TN
Soda Springs, ID
PocateUo, ID
Mt. Pleasant, TN
Silver Bow, MT
Columbia, TN
EPA data for FMC. Applied
kwh/Ton 1
Phosphorus
13,000
13,000
13,000
13,000
13,000
13,000
to all plants.
Energy Information Administration, Financial Statistics of Selected
$/kwh2
.0461
.0220
.0220
.0461
.0220
.0461
Electric Utilities, 1982
$/Ton of
Phosphorus
599.70
286.60
286.60
599.70
286.60
599.70
-------
Labor
The fourth major cost of producing phosphorus is labor. Average labor cost in the
industry are estimated to range from $33,465 to $40,158 per year per worker and labor
o
costs per ton of phosphorus from $189.75 to $255.65. Labor costs for each producer
and plant are detailed in Exhibit 5-4.
Total Costs by Plant
The cost of producing a ton of phosphorus is estimated to range from approximately
$1,180 in Montana and Idaho plants, to over $1,600 in the Tennessee plants. These
estimates are comparable to the estimates provide by SRI in the Chemical Economics
Handbook (January 1983) of $1,070 to $1,180 per ton of phosphorus in the western states
o
and $1,315 to $1,555 in Tennessee. Costs by plant are summarized in Exhibit 5-5.
5.2 MEASURING ECONOMIC IMPACTS
The degree to which the elemental phosphorus industry will be affected by pollution
control costs, and the ability of producers to mitigate these impacts through price
changes will be determined by the market structure of the industry. As noted in
Chapter 2 and in section 5.1, several alternative theories could be used to describe this
market. First, the output of each plant in this industry is almost totally consumed by
other plants owned by the parent corporation. The downstream plants process this
elemental phosphorus into various compounds of phosphorus that are mostly sold as
inputs to the production of highly competitive consumer goods such as detergents and
soft drinks. Substitute inputs for the phosphorus are available and widely utilized. Thus
the demand for elemental phosphorus is derived from the demand for products in highly
competitive markets that are price sensitive. Therefore, phosphorus producers may
face a flat demand curve, as in a competitive market, even though there are only four
manufacturers. A flat or nearly flat demand curve suggests that the manufacturer
would have little opportunity to pass on increases in unit costs through price increases.
1Industry information for 1983, updated to 1984 using GNP Implicit Price Deflator
in Council of Economic Advisors, op.eit., p. 2.
o
JFA estimates.
SRI, Chemical Economics Handbook, January 1983. 1982 estimates updated to 1984
using GNP implicit price deflator in Council of Economic Advisors, op.eit., p. 2.
67
-------
OS
00
EXHIBIT 5-4
LABOR COSTS
Plant
Monsanto
FMC
Stauffer
Occidental
Location
Columbia, TN
Soda Springs, ID
PocateUo, ID
Mt. Pleasant, TN
Silver Bow, MT
Columbia, TN
Employees
440
397
600
305
185
275
$/Manyear
37,069
40,158
37,069
33,465
37,069
33,465
$(miUion)
16.31
15.94
22.24
10.20
6.86
9.20
o
Production (tons)
63,800
76,500
106,300
42,500
34,000
48,500
$/Ton Phosph
255.65
208.40
209.24
240.15
201.70
189.75
Source: Industry estimates of 1983 salaries and employees, updated to 1984 using GNP Implicit Price Deflator in Council of Economic
Advisors, op.cit., p.2.
Production is estimated 1984 production.
-------
EXHIBIT 5-5
SUMMARY OF COST ESTIMATES, BY PLANT
01
to
Producer
Monsanto
FMC
Stauffer
Location
Columbia, TN
Soda Springs, ID
Pocatello, ID
Mt. Pleasant, TN
Silver Bow, MT
Occidental Columbia, TN
Phosphate
Rock
257.50
222.50
222.50
257.50
222.501
257.50
Electricity
599.70
286.60
286.60
599.70
286.60
599.70
Labor
255.65
208.40
209.24
240.15
201.70
189.75
Coke
Subtotal
Other
Costs
Total
Excluding
GS&A
Total
Including
GS&A
at 10%
160.46
160.46
160.46
160.46
160.46
160.46
1,273.31
877.96
878.80
1,257.81
871.26
1,207.41
196.86
196.86
196.86
196.86
196.86
196.86
1,470.17
1,074.82
1,075.66
1,454.67
1,068.12
1,404.27
1,617.19
1,182.30
1,183.23
1,600.14
1.174.931
1,544.70
1
Stauffer costs of phosphate rock per ton of phosphorus are probably higher than this average phosphate rock price in western states provided by the
Bureau of Mines. Stauffer's phosphate rock costs are adversely affected by high transportation expenses.
-------
An alternative description of the elemental phosphorus industry is that it is an oligopoly
with strong price leadership. There are only four manufacturers and production costs at
the western plants are lower than at plants elsewhere. The low cost manufacturers
have the ability to set the market price at a profit maximizing production level. The
higher cost manufacturers would thus be price takers because, if market price were set
at the marginal cost of the low cost producers, the higher cost producers would have to
sell their product at this price, even if it meant losing money on each unit sold, or leave
the industry. As seven higher cost plants have been closed over the past two decades it
would appear that the cost of closing these plants was less than the cost of selling
products below their individual marginal cost of production.
A collusive oligopoly will attempt to operate as a monopoly, setting industry marginal
revenue equal to industry marginal cost to determine output. The price is then
established by the demand curve at a level above that which would exist in a
competitive market. Thus industry maximizes its profit. Output and revenue for each
manufacturer are determined by the manufacturer's marginal costs and the price level.
While it may not be possible in the absence of collusion for the oligopoly to operate in
this fashion, firms in such an industry would likely be able to maintain price above
marginal cost (the competitive price) and thus earn excess profits.
Firms in any market will determine their level of output based on their marginal cost.
By definition, fixed costs do not vary with the level of output. Therefore, they do not
enter into the production rate decision since firms in general will continue to produce
as long as marginal revenue is greater than or equal to marginal cost. The cost of
regulatory compliance presents a special case. While the expenditures for pollution
control capital equipment are clearly fixed costs, operating costs for this equipment are
not so clearly categorized. Usually operating cost is thought of as a variable cost.
That is, if no production occurs, no operating costs are accrued. However, in the case
of these particular regulations of the elemental phosphorus industry, the capital and
operating costs vary little with output. The two regulated plants are the most
profitable operating facilities, a fact which will not change with the additional pollution
control expenditures. It is unlikely that either facility would consider stopping
operation or significantly reducing output in place of purchasing and operating control
equipment sufficient to meet the standards. In addition, the operating cost for these
systems will not vary significantly over a wide range (50-90 percent) of capacity
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utilization. Thus, almost all of the costs required to meet these standards may be
viewed as fixed costs, suggesting that no changes in output or price would be expected
as a result of the compliance with the standards. In this case, all the impacts will be
born by the affected manufacturers in the form of lower profits.
The fact that phosphate rock is an exhaustible resource owned by the regulated industry
requires some special consideration. The resource stock is an asset held by its owner,
the value of which is determined by the size of the asset and the present value of the
difference between market price and extraction cost in any period. The rate of
extraction selected by the owner of the resource will depend on the structure of the
market in which the resource is sold, forecasts of the future prices of the product, and
forecasts of interest rates. If, for example, the resource owner expected the rate of
growth in the net price (market price less extraction cost) to be less than the interest
rate, he would extract the resource as quickly as possible and convert it to a new asset
which would return at least the market rate of interest. In general, we would expect a
monopolist to establish prices high enough that the extraction rate would be slower than
that of a producer in a competitive market. In an oligopoly the resource would be
extracted faster than in the monopoly, but slower than in the competitive market, with
the price and extraction rates approaching the competitive case as the number of firms
in the industry became larger. In this case several stocks of the exhaustible resource
are available with each plant being fed by a specific mine. The potentially regulated
plants, as the lower cost producers, are able to earn a higher return from their resource
than are the other plants. This higher return allows these producers to earn an
economic rent on their stocks of phosphate rock. By imposing a new environmental cost
that is mostly a fixed cost, as discussed above, the available rent that could be earned
by these producers is reduced by the amount of the pollution abatement costs.
While it is uncertain to what extent product prices and demand for elemental
phosphorus will be affected by these standards, the available information indicates that
there would be relatively little change in production levels at the regulated facilities.
Thus, for the purpose of this analysis, we will assume that product price is unchanged;
therefore, there are no consumer impacts, no change in employment levels and no
community impacts. The entire impact of the standards is thus calculated as a
reduction in profits for the impacted firms. Exhibit 5-6 presents the estimated value of
elemental phosphorus production, the total revenue of the parent corporation, and the
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EXHIBIT 5-6:
REVENUES FROM ELEMENTAL PHOSPHORUS PRODUCTION
AND
TOTAL CORPORATE REVENUES
0^83)
Producer
Elemental Phosphorus
Revenue
(in millions)
Total Corporate
Revenue
(in millions)
Elemental
Phosphorus as
a Percent of
Total Revenue
Monsanto
FMC
Stauffer
Occidental
$ 266.5
$ 201.9
$ 145.4
$ 92.1
$ 6,299.0
$ 3,572.0
$ 1,339.9
$ 19,709.9
4.2%
5.7%
10.9%
0.5%
Source: 1983 annual reports, for total corporate revenue. Stauffer revenues are for
the fiscal year ending September 30, 1983. JFA estimates for elemental
phosphorus production revenues (Exhibit 5-1).
71(b)
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percent of total revenues accounted for by elemental phosphorus. Monsanto and FMC,
the two potentially impacted firms under current output and production conditions,
have 4.2 and 5.7 percent of their revenues associated with elemental phosphorus
production. As Monsanto operates a plant that will not be affected by these standards,
the portion of its revenues and profits affected by the standard should be about 40
percent lower than shown in Exhibit 5-6. Exhibit 5-7 shows the level of capital
expenditures normally undertaken by these firms, required capital expenditures under
different regulatory alternatives and the percentage of total capital expenditures
represented by the pollution control capital expenditures.
Exhibit 5-8 summarizes the analysis of impacts on profits, showing the effect of the
required after-tax pollution control expenditures for each plant and the effect on the
profits of each firm under three alternate standards. The 1983 present value of the
stream of profit reductions for Ci/year standards of 10, 2.5 and 1 for Monsanto were
$5.4, $7.3 and $8.4 million respectively. FMC incurs no cost or profit loss at a 10
Ci/year standard. At 2.5 and 1 Ci/year standards, the present value of FMC losses
would be an estimated $9.7 and $11.9 million, respectively.
5.3 REGULATORY FLEXIBILITY ANALYSIS
The Regulatory Flexibility Act (RFA) requires regulators to determine whether
proposed regulations would have a significant economic impact on a substantial number
of small businesses or other small entities. If such impacts exist, they are required to
consider specific alternative regulatory structures to minimize the small entity impacts
without compromising the objective of the statute under which the rule is enacted.
Alternatives specified for consideration by the RFA are tiering regulations, perform-
ance rather than design standards, and small firm exemptions.
The four firms operating plants in this industry are major diversified corporations, the
smallest of which was ranked 213 on the Fortune list of the 500 largest manufacturing
firms in 1983. The three emission control levels evaluated affect, at most, two of these
plants. The two potentially affected plants are the largest operating plants in the
industry and enjoy the lowest cost structure due to economies of scale and regional cost
differences. These two plants account for approximately half of the annual production
of elemental phosphorus and are probably the most profitable units. This profitability
rank will not be affected by any of the proposed alternatives.
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EXHIBIT 5-7:
IMPACT ON CAPITAL EXPENDITURES
Producer
Monsanto
FMC
Stauffer
Occidental
Capital Expenditures, 1983
(in millions)
$ 560.0
$ 173.6
$ 170.0
$ 951.0
Standard
Option
(Ci/year)
10
2.5
1
10
2.5
1
10
2.5
1
10
2.5
1
Estimated Capital
Costs of Emissions
Control
0.8
4.3
3.8
0
5.2
6.7
0
0
0
0
0
0
Emissions Costs
as a Percent of
1983 Capital Costs
.14
.77
.68
0
3.
3,
0
0
0
0
0
0
00
86
Source: 1983 annual reports for Monsanto, FMC, and Occidental. Projection of 1983 expenditures in
1982 annual report for Stauffer. (1982 expenditures by Stauffer were $176.9 miUion).
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EXHIBIT 5-8:
IMPACT ON AFTER TAX PROFITS
Annualized
Producer
Monsanto
FMC
Stauffer
Profits After
Taxes, 1983
(in millions)
$ 369.0
$ 168.8
$ (12.4)fl
Occidental $ 566.7
Standard
Option
(Ci/year)
10
2.5
1
10
2.5
1
10
2.5
1
10
2.5
1
Costs of Emissions Estimated
Control Reduction in „
(mil $/year) Profits After Taxes
.63
.86
.99
0
1.14
1.40
0
0
0
0
0
0
Percent
.17
.23
.27
0
.68
.83
0
0
0
0
0
0
Present Value
of Prof it 5
Reduction
(in millions)
5.4
7.3
8.4
0
9.7
11.9
0
0
0
0
0
0
Parentheses are used to indicate a loss.
2
Costs of emissions control are detailed in Exhibit 4-3.
3
The elemental phosphorus industry is highly competitive and prices are essentially uniform for all
producers. FMC and Monsanto, the lowest marginal cost producers, will not raise the market price of
phosphorus. If prices do not change, demand (and hence, revenue) will also be unaffected by the
regulation. Thus, the increase in costs translates directly into a decrease in profits.
i
Profits after taxes for Stauffer are for the fiscal year ending September 30, 1983.
^Present value of 20 years of profit loss discounted at 10 percent per year.
Source: 1983 annual reports and JFA estimates.
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In light of the fact that the four smallest plants in this industry are expected to incur
no compliance costs as a result of any of the regulatory alternatives under consid-
eration, no significant small business impact will occur.
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