DRAFT
REGULATORY IMPACT ANALYSIS OF THE
NATIONAL AMBIENT AIR QUALITY STANDARDS
FOR CARBON MONOXIDE
Prepared for:
Office of Air Quality Planning and Standards
Environmental Protection Agency
Durham, North Carolina
Prepared by:
Energy and Environmental Analysis, Inc.
1111 North 19th Street
Arlington, Virginia 22209
April 2, 1980
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This report was prepared for the U.S. Environmental Protection
Agency by Energy and Environmental Analysis, Inc. The report is
circulated for review and comment; anyone interested in commenting or
providing information should address their comments/data to
Thomas McCurdy, Ambient Standards Branch, MD-12, U.S. Environmental
Protection Agency, Research Triangle Park, N.C., 27711. Questions on
the stationary source economic analysis and the overall methodology
used to calculate economic impacts should be addressed to Allen Basala,
Economic Analysis Branch, MD-12, U.S. Environmental Protection Agency,
Research Triangle Park, N.C., 27711, 919-541-5310 (FTS 629-5310).
Questions concerning the mobile source analysis should be addressed to
Thomas McCurdy, 919-541-5355 (FTS 629-5355).
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PREFACE
In accordance with the provisions of Sections 108 and 109 of the Clean
Air Act as amended, the Environmental Protection Agency has conducted a
review of the criteria upon which the existing primary and secondary carbon
monoxide standards are based. The Act specifically requires that National
Ambient Air Quality Standards be based solely on scientific criteria relating
to the level that should be attained to adequately protect public health and
welfare. Based on the wording of the Act and its legislative history, EPA
interprets the Act as excluding any consideration of the costs of achieving
those standards or the existence of technology to bring about the needed
reductions in emissions. However, in compliance with the requirements of
Executive Orders 11821 and 11949 and OMB circular A-107 and with the provisions
of Executive Order 12044, EPA has prepared an assessment of the potential cost
and economic impacts associated with efforts to attain alternative levels of
the standard. This document presents the results of this assessment.
The purpose of the analysis contained herein is to estimate the relative
ranges of national control costs for alternative levels of the carbon monoxide
standard. In addition, in order to compare the relative implications of
alternative standards, the estimated number of counties which might be expected
to attain the alternative standards given various assumptions is also inidicated.
Because of the many uncertainties in projecting emission levels and air quality
levels and in determining effective control strategies throughout the nation, it
is important to fully recognize that the results of the analysis should be
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viewed only as general guidance which provides an indication of relative
differences in the attainment picture and the associated costs between
alternative levels of the standard. The analysis cannot be used to
precisely determine how many or which specific counties will attain a
given carbon monoxide standard through particular control strategies.
Rather, attainment status and control requirements for attainment will
have to be determined for each geographical area based on the unique
conditions that are inherent for that area. Likewise, this analysis
cannot ascertain with a great degree of precision the costs of control
strategies that will be required for all areas of the country to attain
alternative standards. Since the actual control costs will be extremely
variable, this analysis is useful in only presenting the relative
implications for costs between alternative levels of the standard.
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EXECUTIVE SUMMARY
This report presents economic impact information for alternative
eight-hour carbon monoxide (CO) national ambient air quality standards
of 7 ppm, 9 ppm, and 12 ppm.
Alternative one hour standards are not evaluated because attainment
of any alternative 8-hour standard will assure attainment of any 1-hour
standard under consideration. Impacts are assessed in terms of cost of
control to affected industries, impacts on various consumer groups,
impacts on distressed cities, and impacts on selected stationary and
mobile sources.
Economic impact estimates in this report reflect 1987 annualized
costs. These costs include direct costs of the Federal Motor Vehicle
Control Program (FMVCP), annualized capital charges and annual operating
and maintenance costs for air pollution control equipment for large
stationary sources of carbon monoxide air pollution, annualized costs of
operating inspection and maintenance (I&M) programs for mobile sources,
and annualized capital charges for installing or constructing transportation
control measures (TCM) for mobile sources pollution reduction. This
assessment does not include costs incurred by state and local air pollution
control agencies in implementing CO control activities because the
proposed standard does not change the kind or amount of such activities
undertaken by these agencies.
The estimated 1987 total nationwide cost to achieve a 9 ppm standard
is approximately 3 billion dollars.
8-Hour Cost of Cost of Cost of Cost of Total
Standard FMVCP,- I&M,- TCM c Stationary Costs.
(ppm) ($106) ($105) ($10b) Source ($106)
Control
($106)
7 2,380 450 60 10 2,900
9 2,380 410 40 10 2,840
12 2,380 210 0 20 2,610
11 i
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The major portion of these costs, or approximately 2.4 billion
dollars, is attributable to the control of motor vehicles under the FMVCP.
Since this $2.4 billion is a fixed cost for all alternative standards,
there is little difference in the total cost for any of the standards
under consideration. Other major costs include those associated with
motor vehicle inspection and maintenance programs. Less significant
costs are associated with transportation control measures and emission
controls on large stationary sources of CO air pollution. Depending on
the level of the standard, these costs can range from approximately $0.2
to $0.5 billion.
Mobile source control programs are needed to control emissions
of other air pollutants besides carbon monoxide. The programs also reduce
emissions of volatile organic compounds and nitrogen oxides. Thus,
there are joint costs involved in setting up and operating these control
programs. The estimates in this document reflect only the CO portion of
these costs.
Comparing total CO costs, the apparent incremental cost of going from
a 12 ppm to a 9 ppm standard is $230 million. $200 million of this is
attributable to I&M costs. However, because of the uncertainty in estimating
the CO portion of total I&M costs, this value could be as low as $48
million, reducing the total incremental difference to $78 million. The
apparent incremental cost of going from a 9 ppm to a 7 ppm standard is $60
million. Again, because of the uncertainty in estimating the CO portion
of this cost, there could be a difference of only $36 million.
The impact of alternative CO standards on various consumer groups
is investigated in the Urban and Community Impact Analysis (UCIA) portion
of the report. This analysis shows that no particular segment of the :
population is forced to pay a disproportionate amount of the total cost
of mobile source control. Therefore, there are no significant adverse
income distribution impacts associated with any of the alternative CO
standards.
The UCIA also investigates the impact of alternative CO standards
on "distressed" cities. These cities are generally characterized by
declining population, high unemployment, and low per-capita income. The
analysis shows that around 80 percent of the urbanized areas that have
to implement I&M and transportation control programs include a distressed
city. This is not unexpected since it is principally a function of
urbanized area size. The probable.impact of CO control programs on dis-
tressed cities is negligible, however, since I&M is largely self-supporting
(from consumer charges) and transportation control measures are mostly paid
for by the federal government (via transportation systems management funds).
Cost and economic impacts of the three 8-hour alternatives were
investigated for selected stationary sources. The analysis included
capital and annualized industry control costs, availability of financial
capital for control requirements, and potential product price and output
impacts. Major findings are:
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Estimated capital costs range from $50 million for a
12 ppm standard to $80 million for a 7 ppm standard; capital
costs for a 9 ppm standard are estimated to be $60 million.
Estimated stationary source annualized control costs for the
12 ppm, 9 ppm, and 8 ppm alternatives are about $20 million,
$10 million, and $10 million respectively. Fuel savings
associated with control devices for the 9 ppm and 7 ppm
alternatives account for the unusual ordering of control
costs among the alternatives.
Financial capital for pollution control is found to be generally
available for plants requiring control for any of the three
alternative standards.
For affected industries and plants, controls associated with the
alternative standards are judged to be economically affordable. No
significant product output adjustments are anticipated in response
to product price changes, which will be quite small for all
alternative standards.
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TABLE OF CONTENTS
1. SCOPE AND PURPOSE 1-1
1.1 Regulatory Context 1-1
1.2 Study Objective 1-2
1.2.1 Cost Estimates 1-3
1.2.2 Economic Impacts 1-3
1.2.3 Sensitivity Analysis 1-4
1.3 Organization of the Regulatory Impact Analysis 1-5
2. STUDY METHODOLOGY AND TOTAL COST 2-1
2.1 Control Programs 2-1
2.1.1 Federal Motor Vehicle Control Program 2-1
2.1.2 In-Use Mobile Source Control 2-3
2.1.3 Stationary Source Control 2-3
2.2 Total Cost 2-4
3. MOBILE SOURCE COST 3-1
3.1 Cost Estimation Process 3-1
3.1.1 Baseline Emissions 3-1
3.1.2 Air Quality Design Values 3-4
3.1.3 Assumptions Made in Calculating Needed
Reductions in Mobile Source Emissions 3-7
3.1.4 Calculation Procedure 3-7
3.2 Control Strategies: Cost Development and Emission
Reduction 3-9
3.2.1 Inspection/Maintenance Program 3-10
3.2.2 Transportation Control Measures 3-14
3.2.3 Total Cost of Mobile Source Control 3-16
3.3 Cost of Attaining Current and Alternative Standards .... 3-16
3.3.1 Primary Case Assumptions 3-16
3.3.2 Federal Motor Vehicle Control Program 3-17
3.3.3 Cost of Attaining Current and Alternative
NAAQS Level 3-19
3.4 Sensitivity Analyses 3-21
3.4.1 I/M Effectiveness 3-21
3.4.2 VMT and Area Source Growth Rate 3-30
VII
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TABLE OF CONTENTS (Continued)
3.4.3 Form of the NAAQS 3-31
3. A. 4 Design Values 3-32
3.4.5 Combined Sensitivity 3-33
3.5 Incremental Costs of CO Control 3-34
3.5.1 Incremental Costs of FMVCP 3-34
3.5.2 Incremental Costs of I/M and TCM 3-35
4. STATIONARY POINT SOURCE CONTROL 4-1
4.1 Stationary Point Source Costs 4-1
4.1.1 Attainment of Current Eight-Hour Standards. . . . 4-4
4.1.2 Attainment of Alternative Eight-Hour Standards. . 4-4
5. MOBILE SOURCE ECONOMIC ANALYSIS 5-1
5.1 Introduction 5-1
5.2 Analytical Procedure and Assumptions 5-2
5.2.1 Federal Motor Vehicle Control Program 5-2
5.2.2 Inspection/Maintenance Program 5-3
5.2.3 Transportation Control Measures 5-9
5.3 Economic Impacts. . 5-10
5.3.1 Federal Motor Vehicle Control Program 5-10
5.3.2 Inspection/Maintenance Program 5-14
5.3.3 Transportation Control Measures 5-22
5.4 Urban and Community Impact Analysis 5-24
5.4.1 Fiscal Condition 5-26
5.4.2 Income 5-29
5.4.3 Employment 5-36
5.5 Conclusion 5-37
6. ECONOMIC IMPACT ON INDUSTRIAL POINT SOURCES 6-1
6.1 Economic Analysis Procedure 6-1
6.1.1 Data and Data Adjustments 6-1
6.1.2 Capital Availability Analysis 6-3
6.1.3 Annualized Cost Impact Analysis 6-4
viii
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TABLE OF CONTENTS (Continued)
Page
6.2 Economic Impact to Industry 6-6
6.2.1 Determination of Industries with Significant
Impact 6-6
6.2.2 Profile of Industries with Significant Impact . . 6-7
6.2.3 Capital Cost Impacts 6-10
6.2.4 Annualized Cost Impacts 6-23
APPENDIX A FEDERAL MOTOR VEHICLE EMISSION CONTROL
PROGRAM (FMVCP) A-l
APPENDIX B STATIONARY SOURCES: METHODOLOGY AND ASSUMPTIONS . . . B-l
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LIST OF TABLES
2-1 Total Annualized Cost of Attainment 2-5
3-1 Percentage Reductions Made in Mobile Source Emissions in
Target Year 1987 from I/M Programs for LDV's 3-11
3-2 Total Annual Cost of the FMVCP in 1987 . 3-28
3-3 Annual Cost in 1987 of Attaining Current and Alternative
CO Standards, Primary Case 3-20
3-4 Sensitivity Analysis Scenarios 3-22
3-5 Annual Cost in 1987 of Attaining Current and Alternative
CO NAAQS, Scenario 1 3-23
3-6 Annual Cost in 1987 of Attaining Current and Alternative
CO NAAQS, Scenario 2 3-24
3-7 Annual Cost in 1987 of Attaining Current and Alternative
CO NAAQS, Scenarios 3, 4, 5, and 6 3-25
3-8 Annual Cost in 1987 of Attaining Current and Alternative
CO NAAQS, Scenario 7 3-26
3-9 Annual Cost in 1987 of Attaining Current and Alternative
CO NAAQS, Scenario 8 3-27
3-10 Annual Cost in 1987 of Attaining Current and Alternative
CO NAAQS, Scenario 9 3-28
3-11 Annual cost in 1987 of Attaining Current and Alternative
CO Standards, Increased Design Values 3-29
3-12 Incremental Annual Costs in 1987 of Attaining Alternative
CO Standards 3-37
4-1 Capital Costs for Stationary Point Sources, by Industry:
Eight-Hour Alternative CO Standards 4-2
4-2 Annualized Costs for Stationary Point Sources, by Industry:
Eight-Hour Alternative CO Standards 4-3
4-3 Tons of CO Reduction, by Industry: Eight-Hour Alternative
CO Standards 4-5
5-1 Age-Failure Index 5-6
5-2 Distribution of Mobile Source Cost Factors 5-7
5-3 Total Annual Cost of the FMVCP in 1987 5-11
5-4 Distribution of FMVCP Costs by Income 5-12
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LIST OF TABLES (Continued)
Page
5-5 Initial Investment Cost. . 5-15
5-6 Distribution of Inspection Costs 5-17
5-7 Distribution of I/M Repair Costs 5-18
5-8 Distribution of Fuel Savings from I/M 5-20
5-9 Net I/M Repair and Fuel Savings 5-21
5-10 Annual TCM Gross Cost. 5-23
5-11 Distribution of TCM Fuel Savings 5-25
5-12 Number of Distressed Cities Requiring Source Controls 5-27
5-13 Number of Distressed Cities by Category for Five Alternative
CO Standards 5-28
5-14 Percentage Distribution of Income by Racial Group 5-30
5-15 Precent Distribution of Racial Group by Income Category 5-31
5-16 Summary of Costs and Fuel Savings by Occupation 5-32
5-17 Percentage Distribution of Income by Occupational Group 5-34
5-18 Percent Distribution of Occupational Group by Income
Category 5-35
5-19 Summary of Costs and Fuel Savings by Occupation 5-37
6-1 Maleic Anhydride: Financial Profile 6-11
6-2 Carbon Black: Financial Profile 6-12
6-3 Steelmaking: Financial Profile 6-13
6-4 Gray Iron Foundries: Financial Profile 6-14
6-5 Primary Aluminum: Financial Profile 6-15
6-6 Capital Requirements for the Average Maleic Anhydride Firm . . .6-18
6-7 Capital Requirements for the Average Gray Iron Firm. 6-20
6-8 Captial Cost to the Average Aluminum Firm 6-22
6-9 Capital Cost to the Average Carbon Black Firm 6-24
6-10 After-Tax Annualized Cost for an Average Aluminum Firm 6-25
6-11 After-Tax Annualized Cost for an Average Gray Iron Firm 6-27
6-12 Average After-Tax Return from Control of CO for an Average
Maleic Anhydride Firm . 6-28
XII
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LIST OF TABLES (Continued)
Page
6-13 Average Annualized Return per Firm in the Steelmaking
Industry „ 6-30
6-14 Average Annualized Return per Firm in the Carbon Black
Industry 6-32
A-l Cost of Components in a Three-Way Plus Oxidation Catalyst
System A_3
A-2 Annualized Capital Cost Increases for LDV's Due to CO
Controls in 1987 A-4
A-3 Maintenance Changes Over 100,000 Miles A-6
A-4 Annual Operating and Maintenance Savings for LDV's Due to
the FMVCP in 1987 A-7
A-5 Annual Fuel Economy Savings for LDV's due to the FMVCP in 1987 . A-9
A-6 Costs to LDV's of Using Unleaded Fuel due to FMVCP in 1987 . . . A-12
A-7 Capital Cost of LOT CO Control due to FMVCP in 1987. A-15
A-8 Annualized Cost of FMVCP for LDT's due to CO Control in 1987 . . A-16
A-9 Increase in Annual Fuel Cost for LDT's due to Use of Unleaded
Gasoline A-17
A-10 Capital Costs for HDV's A-19
A-ll Annualized Cost of FMVCP for HDV Controls in 1987 A-20
A-12 Total Annual Cost of the FMVCP in 1987 A-22
B-l Potentially Significant Process Sources of CO B-2
B-2 PTMAX Modeling Results B-4
XTH
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LIST OF FIGURES
Page
2-1 Study Methodology for Cost of Attaining CO Standard 2-2
5-1 Cars per Household vs. Income 5-13
6-1 Annualized Cost Methodology. ..... 6-5
B-l Schematic of Incineration System with Primary Heat Recovery. . . B-12
B-2 Schematic of Incineration System with Primary and Secondary
Heat Recovery B-13
XIV
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1. SCOPE AND PURPOSE
The Clean Air Act, as amended in 1977, requires periodic review of the
ambient air quality standard. This study, which reviews the National
Ambient Air Quality Standard (NAAQS) for carbon monoxide, analyzes 1)
the potential impact that feasible changes in the standard would have on
national costs of control and on attainment status for various areas of
the country, and 2) the potential socioeconomic impacts of these costs.
This section presents the study's background, scope, and organization.
1.1 REGULATORY CONTEXT
Executive Order 12044, Improving Government Regulations, calls for care-
ful analysis of available regulatory alternatives, including the current
standard, for new, significant regulations and for regulations already
issued. The Environmental Protection Agency presented its plan to imple-
ment the Executive Order in the Federal Register of May 24, 1979 (Vol.
44, No. 104 FR 30988). The Regulatory Impact Analysis (RIA) presented
here is designed to fulfill the requirements of Executive Order 12044.
At the present time there are two NAAQS's for carbon monoxide: an eight-
hour standard of 9 parts per million (ppm), and a one-hour standard of
35 ppm.* Only the costs and impacts of the eight-hour standards are
addressed in this study because: preliminary examination indicates that,
in all cases, both the current and the alternative one-hour standards
impose less stringent control requirements on both stationary and mobile
sources than do the eight-hour standards. In all but a few cases, the
* Both standards are not to be exceeded more than once each year.
1-1
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control techniques used to attain the eight-hour standard are assumed
adequate to guarantee attainment of the one-hour standard. The cost
differences in those counties are more than compensated by more strin-
gent eight-hour requirements in other counties. Therefore, there would
be no significant incremental cost due to compliance with the one-hour
standard.
The regulatory analysis presented here examines the current eight-hour
standard of 9 ppm as well as alternative levels of 7 ppm and 12 ppm.
The revised NAAQS for CO is expected to fall within this range.
This study also examines potential cost and economic implications of a
change in the form of the standard. Under its present form, attainment
is determined by comparing the second highest monitor reading in any
year to the standard. This "second-high" form of the NAAQS, while pro-
viding a relatively simple method for determining attainment, can lead
to a designation of nonattainment if a meteorological anomaly should
occur. To account for this distortion, several statistical forms of the
standard are considered, with particular attention paid to the standard
which uses the expected value of the daily high reading for the year.
This daily form is the same form of standard chosen for the new ambient
standard for ozone (EPA, 1979). A complete discussion of the alternative
forms of the standard and the implication of each is presented in Section 3,
"Mobile Source Costs."
1.2 STUDY OBJECTIVE
The primary objectives of this study are to:
• Determine the cost of attaining the National Ambient Air Qual-
ity Standard by
- providing costs for the current standard
estimating the differential cost between alternative
levels and forms of the standard
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• Study the economic impacts of the control on
consumers and motorists
State and local government fiscal situations
industry production and pricing
• Determine the major sensitivity of results to certain study
variables.
Each of these objectives is discussed below.
1.2.1 Cost Estimates
The cost estimates consist of the direct costs of control measures which
require carbon monoxide control including the Federal Motor Vehicle Con-
trol Program. In cases where the control of more than one pollutant is
achieved by a particular control measure, the costs are apportioned among
the various pollutants. The method of apportionment is described in the
Cost Methodology sections.
The cost estimates reflect the total annualized cost of attainment of
the CO standard. This includes annualized capital charges on equipment
as well as annual operating and maintenance/repair costs. Also included
in the annualized cost are estimates of potential savings due to decreased
energy requirements resulting from control strategies.
It should be noted that no consideration is given here to SIP develop-
ment costs.
1.2.2 Economic Impacts
The second primary objective of this study is to assess the economic
impacts of the costs imposed by the control requirements. The economic
impacts are divided into three areas depending on where the direct effect
1-3
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is felt. The particular cost components differ between various control
techniques but include estimates of costs imposed on industry, government,
and individuals.
Impacts on individual consumers arise primarily from mobile source control
costs and are examined in two ways: per capita impacts and macro-economic
impacts on the distribution of income.
Related to and presented with the consumer impacts is an Urban and Com-
munity Impact Analysis (UCIA). Mandated by the Office of Management and
Budget (OMB, 1978), the UCIA provides analysis of the impacts on minori-
ties, employment, income, and cost of living.
The second area of economic impact analysis involves the ability of State
and local governments to handle the cost of establishing and maintaining
the programs required to meet the standards. These government units
bear the direct cost of the programs. The extent to which any burdens
are placed on already distressed cities is examined in the UCIA.
The final area of economic impact analysis concerns the effect of control
costs on industry. These impacts result from the costs of stationary
source control and are examined both in terms of the capital require-
ments imposed on industry and the ability of companies to bear the capital
expense and in terms of the inflationary and competitive impact of annualized
costs on production costs and product prices.
1.2.3 Sensitivity Analysis
The final objective of the study is to determine how sensitive the re-
sults are to certain assumptions. Exogenous variables such as growth
rates and control effectiveness are examined using different assumptions
to determine sensitivity of resulting costs. The different forms of the
standard also are analyzed to determine the significance of any such
1-4
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changes. Certain of the sensitivity analysis scenarios are deemed to be
significant and therefore are subject to complete analysis.
1.3 ORGANIZATION OF THE REGULATORY IMPACT ANALYSIS
Section 2 presents the study methodology. While it provides an overall
view of the study, it does not present complete methodologies of each
analytical component; rather, it indicates what the components of the
study are and shows how the various analytical pieces interact to produce
the estimated cost of attainment. Section 2 also presents the total
annual costs of attaining the current as well as the alternative eight-
hour standards. The costs represent a summary of the components calcu-
lated in later chapters.
Section 3 presents the methodology for and results of the cost estimation
for mobile source control measures. Included is a discussion of the
procedures used to determine the amount of emission reduction needed,
the control strategy selected to attain the standard, and the degree of
reduction and associated cost produced by the control measures. Esti-
mates are made of the number of counties which will comply with the stan-
dard by 1987 using the control strategies under consideration. Results
for various sensitivity analysis scenarios also are presented.
Section 4 presents the results of the stationary source cost analysis by
industry. The methodology and assumptions used to calculate these costs
are presented in Appendix B.
Section 5 contains an analysis of the economic impacts of the mobile
source control requirements. The impacts are discussed for each level
of the standard. Also examined are the sensitivity analyses for sce-
narios deemed to show significant impact on the results. Section 5 also
presents the results of Urban and Community Impact Analysis.
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Section 6 shows the results of the stationary source economic impact
analysis. The results are intended to indicate industries for which the
cost of control may present potential problems. No Urban and Community
Impact Analysis is included for stationary sources since their costs were
always less then one percent of the total cost of CO control from all sources.
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REFERENCES FOR SECTION 1
U.S. Environmental Protection Agency. January 1979. "Cost and Economic
Impact Assessment for Alternative levels of the Ambient Air Quality
Standard Ozone."
U.S. Office of Management and Budget. August 16, 1978. Circular No.
A/16.
1-7
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2. STUDY METHODOLOGY AND TOTAL COST
This section presents the total annualized cost of attaining alternative
National Ambient Air Quality Standard (NAAQS) and various alternative
standards for carbon monoxide. Figure 2-1 depicts the general procedure
followed to determine the total cost of control. The program through
which attainment is achieved consists of three areas of emission con-
trol: the Federal Motor Vehicle Control Program (FMVCP), in-use mobile
source control, and stationary source control.
2.1 CONTROL PROGRAMS
2.1.1 Federal Motor Vehicle Control Program
The Federal Motor Vehicle Control Program provides substantial emission
reductions across the country and their resulting costs comprise a basic
component of the program to attain the NAAQS for carbon monoxide. While
FMVCP control requirements are not directly related to the NAAQS program,
they provide a baseline emission reductions guideline upon which the
current and alternative standards can be based.
FMVCP includes a series of increasingly stringent tailpipe emission
standards with which new motor vehicles must comply. The program
includes control of light-duty vehicles, light-duty trucks, heavy duty
trucks, motorcycles, and aircraft. The emission standards set by the
program become increasingly stringent for later model years; thus, as
more early model vehicles are retired, total fleetwide emissions are
reduced.
Since the emission standards require different control technologies, the
costs are calculated separately for each model year. A complete discus-
sion of the methodology and results of the costs incurred due to FMVCP
appears in Appendix A.
2-1
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FIGURE 2-1
STUDY METHODOLOGY
FOR COST OF ATTAINING CO STANDARD
Cost per Vehicle
Model Year
Number of Vehicles
by Model Year
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2.1.2 In-Use Mobile Source Control
Control programs used to achieve additional reductions in mobile source
emissions necessary to attain NAAQS are aimed at reducing emissions from
in-use vehicles. For purposes of this analysis, such measures include
Inspection and Maintenance (I/M) programs for light-duty vehicles and
Transportation Control Measures (TCM) which reduce emissions by reducing
travel and improving traffic flow. In designated nonattainment counties
(those needing emission reduction), the amount of reduction is determined
by current emissions, projected future emissions, and the air quality
levels that are present within any county.
While the actual cost of these measures will vary considerably among
local areas, this analysis uses average costs based on studies of pro-
grams already implemented in local areas. The magnitude of the cost in
individual counties is dependent on the county vehicle population and
the degree of emission reduction required. The particulars of the cost
algorithm are presented in Section 3.
Because of the different nature of mobile source and stationary source
emission problems and the location of the existing monitoring network,
it is believed that recorded violations in nonattainment areas are a
result of mobile sources and localized area sources. As part of this
study, an analysis of the stationary source problem was conducted which
indicates that stationary source emissions had negligible effects on
monitor readings in most counties. Therefore, all of the needed reduc-
tions in each nonattainment county are provided by control of mobile
source emissions.
2.1.3 Stationary Source Control
Stationary source control requirements were determined by examining the
maximum air quality impact from individual sources in isolation. Source-
specific data for emission and stack parameters were used to determine
the maximum air quality impact of the plant's emissions.
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Model plants were used to estimate the unit cost of alternative control
techniques for each source category. The total cost of controlling point
source emissions was calculated by applying the average unit cost data
to actual levels of operation at each source. The costs were aggregated
to obtain a national total. A more complete discussion of the calcula-
tion methodology is presented in Appendix B; the results are discussed
in Section 4.
2.2 TOTAL COST
As discussed in Section 1.1, while the NAAQS for CO is expressed as both
a one-hour and eight-hour standard, only the eight-hour standard alter-
natives are examined here since, for purposes of this study, compliance
with the eight-hour standard assumes compliance with the one-hour standard.
The control requirements estimated by this study for the current eight-hour
standard levels of 9 ppm and two alternatives of 7 ppm and 12 ppm provide
emission reductions necessary to meet almost all one-hour standards as
well. While there are some exceptions, the total control expenditures
for the eight-hour standard will exceed any one-hour expenditure within
the level of confidence of this study.
Table 2-1 presents the costs of complying with the alternative NAAQS's.
It should be noted that these costs do not include estimation of any
cost of administering the standard. All costs represent net annualized
costs incurred in 1987 measured in 1979 dollars. Any benefits in fuel
consumption for mobile and stationary sources are included. The costs
estimated for compliance with each standard depend on assumptions made
for each scenario. These assumptions include varied estimates of growth
in emissions, control program effectiveness, and initial air quality
levels as well as policy decisions regarding the level and form of the
standard. In addition to the three levels of primary case, which assume
the form of the standard consistent with the revised ozone standard,
costs are presented for the 9 ppm second-high standard and the 9 ppm
daily standard (the latter assuming regional variation in emission growth).
A complete discussion of these assumptions appears in Section 3.
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TABLE 2-1
TOTAL ANNUALIZED COST OF ATTAINMENT
(1979 $106)
Ln
Control
FMVCP
Stationary Source
Additional Mobile
Source
I/M
TCM
TOTAL
Percentage from
9 ppm primary case
7 ppm
$2378
9
449
57
Primary
Case37
9 ppm
$2378
15
411
36
12 ppm
$2378
22
214
-4.7
9 ppm 2nd
High
$2378
15
507
35
c/
9 ppm Daily
Regional Growth
$2378
15
458
84
$2893
+1.1
$2840
$2609
-8.1%
$2935
+3.3%
$2935
+3.3%
a/ Primary case assumptions categorize CO air quality problems as being "hot spot" rather than
area-wide. The primary case also assumes the choice of the daily form of the standard.
b/ The second-high standard is the current form of the CO standard. This scenario assumes a
1 percent per annum increase in emissions.
c/ Regional growth scenario assumes an area-wide CO problem. Emissions are grown by regional
statistics in this case.
-------
The assumptions contained within the primary case were chosen by EPA as
the basis for this study in order to provide an examination consistent
with the ozone standard. It should be noted throughout this report that
the primary case is not the current standard. The 9ppm second-high case
is the current eight-hour standard.
The total cost of control under the 9ppm primary case is $2.8 billion.
Over 84 percent of this cost results from FMVCP control costs with only
one-half of one percent resulting from control of stationary sources.
Using the same assumption, the 7ppm primary case costs $2.9 billion.
This is an increase of less than two percent above the 9ppm standard.
Of interest is the decrease in the stationary source control cost from
$15 million to $9 million per year. This results from fuel credits
obtained from the carbon monoxide control technology. A complete dis-
cussion of these credits is presented in Chapter 4 (Costs) and Appendix
B (Methodology).
The 12ppm primary case has a total annualized cost of $2.6 billion or a
reduction in cost of 8.1 percent relative to the 9ppm level. This results
from 53 percent decline in the total cost of additional mobile source
control (i.e., control above minimum inspection/maintenance requirements).
Under this scenario, the stationary sources account for 0.8 percent of
the total cost. This is the largest contribution for all scenarios.
The 9ppm second-high standard results in a 3.3 percent increase in
annualized cost above the 9ppm primary case. Since this represents the
current standard, an estimated cost of $2.9 billion per year would occur
if the standard is not changed.
2-6
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Also presented is a 9ppm daily regional growth scenario. This case uses
the same form and level of the standard as the primary case but assures
a larger emissions base line.
Again, the result is an estimated cost which is 3.3 percent greater than
the primary case. This results mainly from an increase of 233 percent
in required transportation control measures.
No difference in the cost of control for FMVCP or stationary sources is
assumed for scenarios considering alternative forms of the standard.
Neither of the programs depends upon measured air quality and, therefore,
the costs are not dependent upon the form of the standard or the emission
growth scenario. In fact, FMVCP costs are completely independent of the
level of the standard as well.
When the cost of mobile source control is added to the cost of stationary
source control and FMVCP, the total fluctuation in cost between these
scenarios runs from +3.3 to -8.1 percent. Under the primary case as-
sumption, the cost increases as the stringency of the standard increases •
a result which is not unexpected, due to additional control requirements
of the more stringent standard.
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3. MOBILE SOURCE COST
Mobile sources account for over 80 percent of the mass of carbon monoxide
emitted in the United States (EPA, 1979d). Since the CO problem in most
urban areas is caused by mobile sources, the majority of CO control costs
will be borne by the mobile source sector.
This section provides information about 1) the process by which the cost
estimates were made, including the method by which needed reductions are
calculated, 2) control strategies, and 3) costs of control. In addition,
the critical assumptions made are presented along with their sensitivity
analyses.
Complete details of the procedure for determining mobile control require-
ments and resulting costs can be found in a report produced by Stanford
Research Institute, entitled "Methodologies to Conduct Regulatory Impact
Analysis of Ambient Air Quality Standard for Carbon Monoxide" (SRI, 1979)
3.1 COST ESTIMATION PROCESS
The process by which cost estimates were made includes determining base-
line emissions, air quality design values, and needed reductions.
3.1.1 Baseline Emissions
Baseline emissions data are calculated to provide information on the
magnitude of CO emissions in each of 272 counties. These counties are
considered either to be in nonattainment under the current standard or
to be potentially in nonattainment under one or more of the alternative
standards. The base year emission inventory comes from EPA's existing
emission data base. Projections of emissions for three critical future
years are made taking into account growth as well as the mandated tail-
pipe emission standards for motor vehicles.
3-1
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Emissions projections are made for the years 1982, 1984, and 1987. 1982
represents the year in which areas must demonstrate attainment of the
standard (Clean Air Act, 1979); however, this date is relevant only if
the NAAQS is either maintained at the present level or relaxed. If the
standard is made more stringent than the current level, areas are given
a two-year extension because of the lead time for rulemaking provisions
and SIP revisions. In that case, the emissions projection for 1984 is
used. If the standard cannot be met by the dates indicated, an extension
to 1987 is allowed, provided that the area implements an inspection/
maintenance program and demonstrates reasonable further progress in
attaining the standard. The projection of 1987 baseline emissions is
used as an estimate of emissions that would be present in that year in
the absence of additional control programs.
The baseline emissions data include contributions from both mobile and
area sources, with mobile source emissions as the primary contributors.
The current mobile source data are obtained from the National Emission
Data System (NEDS) file for 1976-1979 (EPA, 1979a) and were assumed to
represent 1976 emissions; growth factors therefore were used to transform
1976 emissions to the 1979 baseline.
Projection of future mobile source emissions in 1982, 1984, and 1987
were calculated using MOBILE1, EPA's mobile source emission model which
incorporates the latest emission factors (EPA, 1978). The emission
projections take into account growth in vehicle miles traveled (VMT) and
reductions in tailpipe emissions expected from the Federal Motor Vehicle
Control Program. The projections assume that the 3.4 gram/mile CO stan-
dard for light duty vehicles is instituted in 1981 as mandated by the
Clean Air Act. The impact of the recent waiver decision is not incor-
porated, though the change in fleet-wide emissions will be small and
will have a negligible impact on the results of this analysis (see p. A-13)
3-2
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MOBILE1 accounts for the increase in CO emissions as ambient temperature
decreases. There are four different classes of vehicles which were used
to model the emissions versus temperature relationship given in MOBILE1:
1) pre-1968 model year vehicles, 2) 1968-1974 model year vehicles,
3) 1975 model year non-California vehicles, and 4) 1975 model year
California vehicles. Each class of vehicles has its own CO versus tem-
perature adjustment factor curve.
Special attention must be given to the CO-versus-temperature adjustment
curves for the 1975 and later model year category. The data that were
used to generate the relationship used in MOBILE1 came primarily from
1975 model year vehicles. Since technology for the 1975-1979 model year
vehicles did not change substantially, the relationship of the 1975 model
year Federally owned vehicles is assumed applicable through 1979. For
1980 and later models, the relationship of the 1975 model year California
vehicles was used. However, the emission control technology that will
be used on future model year vehicles (especially those for model year
1981 and later) is expected to be substantially different from that used
on the 1975 model year California vehicles. Therefore, it is also pos-
sible that the CO versus temperature behavior of the future vehicles
also could be substantially different.
Because of the sophisticated nature of future systems, the possibility
exists that the CO versus temperature relationship could be relatively
worse or relatively better than is estimated by MOBILE1. This introduces
some uncertainty into the analysis. EPA is conducting studies to improve
the estimates of the CO versus temperature effect for future vehicles,
but they are not complete at this time. In order to perform this analy-
sis, the MOBILE1 projections were used as a best estimate.
The estimation of emissions is based on county-specific data including
ambient temperature and altitude, since these factors influence total CO
3-3
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emissions. A special category for California counties is created to
account for more stringent State standards for mobile sources.
Area source emissions also contribute to the baseline emissions inventory.
Area sources include residential heating and some processes too small to
be individually identified. Current area source emissions were also
obtained from the NEDS data file. Future area source emissions were
calculated using the current emission and a one percent per year growth
rate in emissions (SRI, 1979).
The total baseline emissions are equal to the sum of mobile source and
area source emissions. This calculation was performed for all counties
in the analysis.
3.1.2 Air Quality Design Values
The design value for an area represents the estimated ambient CO concen-
tration from which emission reductions are calculated in the strategy
planning process. Design values which are used in this analysis were
obtained from a review of 1976-1978 ambient air quality data in EPA's
SAROAD data base, which comes from an extensive monitoring network.
The data base represents the only readily available source of consistent
data for all of the areas investigated. Sufficient data are contained
in the data base to estimate the approximate values based on the alter-
native forms of the standard.
The design values included in this analysis are approximate and suitable
only for analytical purposes in this assessment. In SIP revisions sub-
mitted to EPA, States will calculate the actual design values used for
attainment determinations and for planning purposes. The values will be
calculated for the appropriate form of the standard based on guidance
provided by EPA (see CFR Part 51.)
3-4
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The current CO standards specify that the eight-hour averages must not
be exceeded more than once per year. In addition to assessing alterna-
tive standard levels in this analysis, alternative procedures for cal-
culating exceedances of the standard also are considered. These pro-
cedures affect the form of the standard. Not only does the form
influence the determination of the number of exceedances of the standard,
but it also impacts the calculation of an area's design value.
In its current form, the standard is based on the highest monitored value
during a year in an area. However, this deterministic (once-per-year)
approach has limitations in that it does not account for the probabilistic
nature of maximum CO concentrations. To maintain such a standard year
after year necessitates a zero probability that the second-high value
will ever exceed the standard. On a practical basis, permitting only a
single absolute exceedance in a year means that there is some possibility
of occasionally having two or more exceedances in a particular year.
To remedy this conflict and to adjust for the effect of missing data,
EPA is considering defining the standard on a statistical basis whereby
the expected number of exceedances per calendar year is determined.
Statistical forms of the standard vary depending on whether all possible
values or just daily values are used, and how running averages are han-
dled for the eight-hour standard.
For purposes of the analysis contained in this document, two interpreta-
tions of the statistical standard are used. For the one-hour standard,
the hourly interpretation bases the design value on the ambient hourly
concentration that on average will be exceeded once per year in each
area. The daily interpretation, on the other hand, bases the standard
on the number of days with maximum hourly CO averages above the level of
the standard. This means that a day with two or more hourly values over
the standard level counts as one exceedance of the standard level rather
than two or more.
3-5
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Statistical forms of the eight-hour standard follow the same basic
approach, but the interpretation is complicated by running averages, as
discussed by EPA in "Guidelines for the Interpretation of Air Quality
Data with Respect to the National Ambient Air Quality Standards" (EPA,
1977). The current CO standard is chosen so that the second exceedance
will not 'come from an eight-hour period which contained at least one hour
in common with the first exceedance.
In calculating design values for use in this analysis, the daily inter-
pretation uses overlapping eight-hour averages in computing the expected
number of exceedances. For each day, the highest of the 24 possible
eight-hour averages is the daily maximum eight-hour average. With this
method, the possibility arises that two daily exceedances could have
common hourly values. The other statistical approach (the hourly inter-
pretation) employed in this analysis uses all possible eight-hour averages
for the year so that more than one exceedance per day could be counted.
This is more stringent than the current form of the standard in that
exceedances could be overlapping.
In the analysis of the three years of data from 1976 to 1978, design
values based on the eight-hour statistical forms of the standard are
expected to fall between the third and fourth highest maximum value
(whether hourly or daily). In selecting design values, the fourth
highest value over the three year period was used. If only two years of
data were available, the third highest value was chosen.
While design values are available for all major urban areas which comprise
60 to 70 percent of the nation's population, many non-urbanized areas of
the country do not have valid air quality monitoring data from which to
judge whether the area has a CO problem. For these areas, emission den-
sities in the county were obtained in order to gain an indication of the
potential problem in the county. These values then were compared to
3-6
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equivalent emission densities which serve as compatible surrogates for
the various standard levels. A basic air pollution model was used to
calculate equivalent emission densities that would lead to a concentra-
tion equal to the levels of the standard under a certain set of conser-
vative conditions (SRI, 1979). Thus, for those counties not having design
value data, emission densities are used as design value surrogates.
3.1.3 Assumptions Made in Calculating Needed Reductions in Mobile Source
Emissions
One of the most controversial areas of air pollution analysis is the
relationship between emissions and monitored air quality values. Changes
in relative location of emission sources and air quality monitors can
radically alter the air quality readings. Therefore, all emissions within
a county do not contribute equally to air quality readings.
The amount of emission reduction required in each county to meet each of
the standards under consideration is calculated through the use of the
modified rollback procedure (SRI, 1979) which assumes a linear relation-
ship between emissions and air quality. In other words, a 10 percent
improvement in the air quality design value is calculated to require a
10 percent reduction in emissions.
3.1.4 Calculation Procedure
The percent rollback was calculated for each county with a design value
in the following manner:
_ . TTI. i -,nn (Design value) - (Standard)
Percent rollback = 100 x —=- :— £ -
Design value
This provides a percentage indicating the amount of improvement in air
quality necessary to meet the standard. For counties where design values
do not exist, the rollback is calculated by the following equation based
on emission density data:
3-7
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2
„ r> in. i -inn (Total emission density, tons/mi /yr)- (Standard-Density)
Percent Rollback = 100 x - -- ^ . , - : - : - " — —7— •* - •* - - - *—
Total emission density
where the standard density is an estimate, calculated by EPA, of emissions
per square mile that result in air quality readings equal to the standards.
Both of these calculation procedures provide an estimate of the percent
improvement in air quality required to meet the standard. Once this is
accomplished, the allowable emissions are calculated for each county
under each standard. The allowable emissions are defined as the maximum
level of effective emission within a county that produces air quality
readings that comply with a particular standard, as calculated by the
rollback procedure:
Allowable emissions - (1 ' % r°ack) x (Current Effective 1979 emissions)
The concept of effective emissions is used to reflect the relative impact
of various source categories. The effective emissions are obtained by
considering the current or future baseline emissions and weighting the
components by factors chosen to estimate the relative contributions of
different sources to air quality readings. Based on results of modeling
studies, the assumption is made that only a portion of the total area
source emissions contributes to an area's maximum CO values, which comes
from sites that reflect more localized sources. For purposes of this
study, the effective emissions which are assumed to impact monitored
values are equal to 100 percent of mobile source emissions and 20 percent
of area source emissions (SRI, 1979).
Since point source emissions do not affect air quality readings and no
area source control measures are considered, any reduction required to
meet the allowable emissions level must be supplied through control of
mobile source emissions. Thus, the needed mobile source reduction equation
is :
3-8
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Needed mobile source reduction = (Total effective emissions in any year)
(Allowable effective emissions)
The needed reductions were calculated for 1982, 1984, and 1987 for cur-
rent and relaxed standards and for 1984 and 1987 for more stringent alter-
native standards.
Point source emissions (i.e., those from major industrial processes) are
not considered to contribute to monitored CO values. The stationary
source analysis (presented in Section 4 and Appendix B) indicates that
point source emissions have negligible effects on monitored readings in
most counties.
Since it is the design value and not the emissions which determines
whether or not a county requires additional control, no counties are
exempted from the need for additional control by the assumption of the
reduced effect of area source emissions. The assumption causes mobile
source emissions to be weighted more heavily in attainment strategies to
simulate observed contributions. A further discussion of this is pre-
sented as part of the discussion on growth sensitivity in Section 3.4.2.
3.2 CONTROL STRATEGIES: COST DEVELOPMENT AND EMISSION REDUCTION
The mobile source control strategies considered in this study are divided
into two types: Inspection and Maintenance (I/M), and Transportation
Control Measures (TCM). The TCM programs include both area-wide measures,
which are designed to reduce total travel in an area, and localized mea-
sures, which respond to "hot spot" problems by improving traffic flow.
While the cost and effectiveness of both I/M and TCM programs vary depend-
ing upon the characteristics of the individual areas and programs, this
study uses average cost and reduction estimates for the programs to cal-
culate total cost. These average costs are based on studies of programs
that have been implemented in selected local areas across the country.
3-9
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3.2.1 Inspection/Maintenance Program
3.2.1.1 Description of Programs Used
The nonattainment provisions of the Clean Air Act (Sec. 172(b)ll-13)
require that an area that cannot demonstrate attainment by 1982 must
establish an I/M program (Clean Air Act, 1977). The intention o£ Congress
was to have this control measure operate as the basic technique in reducing
mobile source emissions from in-use vehicles by requiring maintenance
and repair of vehicles which do not pass a tailpipe emission test. EPA's
interpretation of the Act and subsequent policy decisions has resulted
in the requirement that I/M programs be implemented, where necessary, no
later than December 31, 1982.
Fleet-wide emission reductions will be dependent on a number of factors,
one of which is the percentage of vehicles that are designed so that
they fail the test and thus have to undergo repairs. Other influencing
factors include ambient temperature, location, year of implementation,
and extent of mechanic training achieved by an I/M program.
Table 3-1 presents the emissions reductions in the target year (1987)
for I/M programs using 20 and 30 percent failure rates. The table also
indicates that the amount of reduction obtained in 1987 is dependent
upon the number of years the program has been in operation, while the
year in which the program starts is dependent upon a status schedule
generated by EPA (EPA, 1979c). Presently, many areas in the United States
are required to establish I/M programs for the control of CO/HC emissions
in order to meet current ambient air quality standards for CO and/or
ozone. It is assumed that any area with this designation will initiate
its I/M program in .July 1982.
Some counties are identified as needing emission reduction for attainment
of one of the more stringent alternative CO standards, without currently
3-10
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TABLE 3-1
PERCENTAGE REDUCTIONS MADE IN
MOBILE SOURCE EMISSIONS IN TARGET
YEAR 1987 FROM I/M PROGRAMS
FOR LDV'S3/
Location
Low Altitude
High Altitude
California
Percent
Failure Rate
20%
30
20
30
20
30
Percent Reductions
Initiation Year
1982 1983 1984
19%
23
19
23
17
20
17%
20
17
20
15
18
14%
17
14
17
12
15
a/
Reductions achieved in total mobile source emission resulting
from I/M programs for light duty vehicles. Other vehicle classes
are not required to be inspected.
3-11
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needing an I/M program. If such a county is Located in a State which
has I/M legislation, it is assumed that the county will implement I/M in
July 1983. In a State where there is no previous legal authority for
I/M, a county needing reductions is assumed to begin the program in July
1984. This is to account for the lead time needed to obtain legislative
authority at the State level.
In urban areas, auto emissions affect the air quality of the entire area,
not just the county in which the specific problem occurs. Emission re-
ductions can be guaranteed only if every county in the urban area imple-
ments an I/M program similar to that required in the problem county. It
therefore is assumed that an urbanized area (as specified by the Bureau
of Census) which requires control in some of its counties must implement
an I/M program at the tightest stringency level required for them and
then must implement the same program in all of its other counties as well.
3.2.1.2 I/M Costs
Costs for I/M programs which are presented in this analysis are indicated
for the year 1987; this is the year by which the CO NAAQS should be attained.
The annual expenditure required for an I/M program is divided into inspection
cost, repair cost, and fuel savings (a negative cost)„ The total costs for
each area implementing I/M are calculated by estimating the vehicle population
in 1978 and multiplying the number of cars affected by the unit costs.
The inspection cost, levied on each car, is designed to include the costs
of operating and maintaining the program and an annual capital charge to
pay for the inspection facility. While these costs can vary from $2.50
to $14.00 depending on the particular program, the average cost is assumed
to be $7.00 for each car inspected (EPA, 1979b). Cars which fail the
inspection will be required to undergo repairs in order to correct the
problem. Preliminary data from EPA's intensive study of the I/M program
in Portland, Oregon, indicate that the average cost of necessary repairs
3-12
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is $28 per failed vehicle. This average cost was used to generate total
repair costs for this study (EPA, 1979b).
While improved operation of repaired vehicles might be expected to result
in savings in fuel consumed,* recent information indicates that current
technology cars are not experiencing fuel economy benefits. Data from
the Portland study indicate that repaired vehicles representing current
model years are not realizing the fuel economy benefits once anticipated.
However, because of the configuration of future emission control systems,
it is anticipated that fuel economy benefits may result from improved
maintenance in post-1980 cars. In order to capture this uncertainty,
two cases are presented whereby 1) no fuel economy benefits are included
for any model years, and 2) a fuel economy benefit is estimated for post-
1980 cars only. In this latter case, EPA's motor vehicle technical staff
indicates that, based on engineering judgement, an estimated fuel economy
improvement of an average of 7.5 percent may be realized for affected
vehicles under a 20 percent stringency program and an average of 6.0 per-
cent under a 30 percent stringency program. The average fuel economy
improvement per repaired vehicle decreases as the stringency increases,
due to the reduced incremental improvement of the additional cars repaired,
Unit costs presented here do not include allowances for the costs of
peoples' time to have their cars inspected and repaired. While people
admittedly will suffer some inconvenience from I/M programs, the costs
of such losses in time are not expected to be large since the actual
inspection lasts only a few minutes and likely will be coupled with normal
travel in the vicinity of the inspection station. Moreover, the real
maintenance costs may be overstated somewhat since much of the maintenance
will be performed during normal auto care. As a result, the
Total fuel savings are calculated based on assumed values of 430
gallons per year per car and $1.00 per gallon of gasoline.
3-13
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overstatement of the repair costs probably offsets any costs attributed
to peoples' time.
3.2.1.3 Allocation of I/M Costs for CO Control
The costs calculated in the previous section represent the total cost of
implementing I/M in any county. Recall, however, that counties specified
by EPA as implementing I/M in 1982 do so because of the need for both CO
and HC emission control. Total I/M costs should not be attributed totally
to CO control, rather they should be equally divided between the two
pollutants. Therefore, annual I/M costs are divided by two for all
counties instituting I/M in 1982. For other areas which are identified
in this analysis as needing I/M for CO control but which do not have
current plans to implement a program by 1982, all of the costs are
attributed to CO since HC control is not necessarily needed.
3.2.2 Transportation Control Measures
3.2.2.1 Program Description
Transportation Control Measures reduce emissions by reducing vehicle
miles traveled (VMT) or by improving traffic flow. Control measures
include transit system improvements, ridesharing programs, road user
charges and congestion pricing, traffic signal system improvement, and
exclusive bus or car pool lanes. These methods are categorized as either
local or area TCM measures.
Local TCM's include signal timing, computerized control of street flow,
freeway surveillance and control, and truck restrictions on certain streets
These measures are intended to improve traffic flow and alleviate CO
"hot spot" problems. Areawide TCM's, which include ridesharing, express
buses, local bus improvements, work rescheduling, and monitoring criteria
are intended to reduce total emissions in an area by reducing VMT and
the number of trips.
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TCM options are used in addition to I/M in counties where I/M is not
sufficient to provide needed reductions or where the needed reduction is
5 percent or less (assuming no other county in the urbanized area requires
I/M. See Section 3.2.1.1).
3.2.2.2 TCM Cost
Emission reductions and costs per unit of reduction of TCM controls can
vary significantly depending on local conditions. However, EPA has under-
taken an assessment of TCM's in order to determine generalized emission
reductions and costs for use in this analysis (SRI, 1979). As a result,
an estimate of up to a 3 percent reduction in mobile source emissions is
assumed to be obtained through local TCM. Although the measures will be
somewhat different depending on the locality, the cost of such measures
is estimated at $170/ton of CO reduction (SRI, 1979).
Area-wide TCM may reduce emissions by an additional 2 percent. The
marginal cost of these reductions, however, is not constant. The first
one percent reduction in emissions from area TCM is estimated to cost
$400/ton of CO reduced with the last one percent costing $9400/ton
reduced (SRI, 1979). The last one percent includes such costly measures
as transit improvements.
A byproduct of reducing VMT is a reduction in fuel consumption. By re-
ducing total travel, a factor of 1088 gallons/ton of CO reduced is used
to estimate these fuel savings (SRI, 1979). This value then is subtracted
from the annual cost to estimate the net annual cost of the program.
As in the case of I/M, only a portion of these costs are attributable to
CO control. Since TCM also can be used to control HC, reduce traffic
congestion and travel time, and save energy, this analysis allocates a
maximum of 50 percent of the cost and savings to CO control.
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3.2.3 Total Cost of Mobile Source Control
The total annual net cost of mobile source control is the sum of three
components for each area: 1) the CO portion of the cost of FMVCP plus,
2) the I/M cost plus, 3) the TCM cost.
3.3 COST OF ATTAINING CURRENT AND ALTERNATIVE STANDARDS*
3.3.1 Primary Case Assumptions
The cost of the regulatory primary case reflects expenditures required
in response to the NAAQS for CO plus the costs of complementary mobile
source emission programs (e.g., FMVCP) which will not change under alter-
native NAAQS's. Further, the primary case includes the incremental ex-
penditures required to eliminate current nonattainment, assuming the
current standard is retained.
In this analysis, primary case costs consist of the CO share of expendi-
tures for FMVCP and for the 9 ppm, 8-hour average standard. Several
assumptions underlie these baseline costs:
0 Form: the eight-hour average is calculated as a daily interpre-
tation of the statistical form
• Effectiveness: I/M realizes all of expected reductions at cold
temperatures
• Growth: VMT and area source emissions grow at a one percent per
annum rate ("hot spot" growth scenario)
• FMVCP: a tailpipe standard of 3.4 grams/mile is instituted in 1981
In the following subsections, the costs of this primary case will be
presented for the alternative levels of the standard. In addition the
The costs presented here deal with the eight-hour standard
only (see Section 1.1).
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impact on cost of changing one or several of the above assumptions will
be examined and compared to the primary case as a test of the sensitivity
of the cost to the analytical assumptions and the eventual regulatory
structure.
3.3.2 Federal Motor Vehicle Control Program
The FMVCP controls tailpipe emissions of CO, hydrocarbons, and nitrogen
oxides from cars, trucks, motorcycles, and aircraft. Appendix A presents
an analysis of the program's cost for these vehicle categories as well
as a discussion of the rationale for allocating certain FMVCP costs to
CO. Table 3-2 summarizes the total 1987 FMVCP cost attributable to CO.
In general, costs were divided equally among the pollutants controlled
by each phase and/or component of the program (i.e., one, two, or all
three).
The costs for light-duty vehicles assume that 1981 and later model year
cars meet the 3.4 grams/mile emission standard as mandated by the Clean
Air Act. While there are several alternative technologies which might
be used to achieve the standard, most auto manufacturers plan to use a
three-way catalytic converter in combination with an oxidation catalyst,
the latter primarily for CO control. The costs presented in this analysis
reflect the allocation of estimated costs for such a system among CO, HC, and NO
In addition to the hardware costs, the annualized costs also include
estimates of the costs or savings resulting from changes in operation
and maintenance, changes in fuel economy, and fuel price differentials.
The underlying rationale for these estimates is presented in Appendix A.
The total annualized cost in 1987 attributed to CO, $2.5 billion is incurred
regardless of the level or form of the standard; hence, it remains a
constant cost in all scenarios. It should be noted, however, that the
cost of FMVCP and the emission reduction achieved will both be reduced
by any two-year waiver of the 3.4 grams/mile standard for two years.
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TABLE 3-2
TOTAL ANNUAL COST OF THE FMVCP IN 1987
(1979 $10 )
Type of Vehicle
Passenger Cars (LDV)
Hardware
Fuel economy
Unleaded gasoline cost
Operating and maintenance
Altitude controls
Total
Light-Duty Trucks (LPT)
Hardware
Fuel economy
Unleaded gasoline cost
Operating and maintenance
Altitude controls
Total
Heavy-Duty Vehicles (HDV)
Hardware
Unleaded gasoline cost
Total
Motorcycles
All costs
Aircraft
Annual Cost of CO Control
All costs
$2003
(1710)
733
( 639)
278
665
740
0
354
0
100
1194
126
305
431
46
a/
a/
TOTAL
42
$2378
b/
a/
Costs savings.
Preliminary aircraft cost subject to future conformation or change.
3-18
-------
3.3.3 Cost of Attaining Current and Alternative NAAQS Level
Table 3-3 presents the annualized cost, by control program element, of achiev-
ing a 9 ppm standard (daily eight-hour average). The cost presented is
a net cost, accounting for fuel savings obtained through I/M, TCM, and
FMVCP. Total costs amount to approximately $2.66 billion in 1987. The
gross cost (i.e., without fuel savings) is $2.82 billion.
Under the eight-hour, 9 ppm daily standard, most counties will be able
to achieve emission reductions sufficient to demonstrate attainment.
Table 3-3 indicates, for each standard level, the number of counties
which will remain in nonattainment after full utilization of the control
strategies considered in this analysis. Using the primary case assump-
tions, only a couple of counties may not be able to achieve the standard
in 1987 with FMVCP, I/M, and TCM.
The costs associated with alternative levels of the air quality standard
for CO also are presented in Table 3-3. Under a 7 ppm standard, the
total annualized gross cost (excluding fuel savings) increases to $2.88 billion
(about a 2 percent increase) due to a 9 percent increase in I/M costs
and a 57 percent increase in TCM costs. The increase results from more
counties requiring programs since the number of counties unable to achieve
the standard by 1987 increases from two under 9 ppm to approximately
twelve under 7 ppm. Part of the reason the cost of the more stringent
7 ppm standard is only 2 percent greater than the 9 ppm standard is because
the former has an initial date of 1984. Certain counties which might
have needed I/M in 1982 to meet the 7 ppm are brought into attainment by
FMVCP by 1984. These counties thus do not require I/M.
Under a 12 ppm standard, all counties are projected to attain the standard
at a gross cost of $2.59 billion. The reduction in cost represents
approximately a 8.2 percent savings relative to the current level. The
largest component of the decrease in cost results from the change in net
3-19
-------
TABLE 3-3
ANNUALIZED COSTS IN 1987 OF ATTAINING ALTERNATIVE CO STANDARDS, PRIMARY CASE
(1979 $106)
a/
OJ
I
Number of
Nonattainment
Annual!zed
(ppm)
7
9
12
Base Year
119
115
44
1987
12
2
0
Cost of FMVCP
$2378
2378
2378
c/
Gross Net
$449 $268
411 246
214 131
Cost of TCM
$57
36
-4.7
Annual Cost
$2703
2660
2504
Annual Cost
$2884
2825
2587
a/
b/
c/
Primary case assumes that the daily maximum form of the standard is chosen, the CO problem is
confined to "hot spots" within the areas, MOBILE1 accurately models the effectiveness of I/M, and
the tailpipe standard of 3.4 grams/mile is implemented in 1981 without waivers.
Base year for 9 and 12 ppm standards is 1982 with 1984 used for the more stringent 7 ppm standard.
Gross costs exclude fuel savings.
-------
TCM cost. As shown in the table, TCM costs change to a net savings of
$4.7 million from a cost of $36 million.
Only a few areas will need TCM and these tend to be localized in nature.
These are for the most part the least expensive control measures whose
costs are offset by fuel savings.
3.4 SENSITIVITY ANALYSES
As indicated in Section 3.3.1, several assumptions affecting cost were
made for the primary case estimates. In order to examine the sensitivity
of costs to analytical assumptions and the configuration of the stan-
dard, analyses were performed under alternative assumptions. The permu-
tations of analytical variables are presented as Scenarios 1 through 9
in Table 3-4 (in addition to the base case). Tables 3-5 through 3-10
present the costs, percent change from the primary case, and number of
remaining nonattainment counties under each scenario. Table 3-11 presents
a summary of the costs calculated for each scenario. All of the costs
are compared to the primary case scenario for that level of the standard.
The following sections discuss briefly which variables were altered as
well as the rationale and the alternatives selected for sensitivity
analyses.
3.4.1 I/M Effectiveness
One of the sensitivity concerns related to the estimation of control
costs and effectiveness is that I/M programs imposed in cold areas
(defined as average temperature below 50°F) will be less effective in
reducing total emissions than presently modeled by MOBILEl. As tempera-
ture decreases, emissions during warmup of the vehicle increase, due at
least in part to the inherently inefficient cold-start operation of
engines; inadequate maintenance is responsible only in part and to an
3-21
-------
TABLE 3-4
SENSITIVITY ANALYSIS SCENARIOS
Scenario
Primary Case
1
2
3
i
10 /
K> if
5
6
7
8
9
Averaging
Time
8-hour
8-hour
8-hour
8-hour
8-hour
8-hour
8-hour
8-hour
8-hour
8-hour
Form of the
Standard
daily*
daily
daily
2nd high
2nd high
2nd high
2nd high
daily
statistical
statistical
Growth
"hot spot"
"hot spot"
regional
"hot spot"
"hot spot"
regional
regional
regional
"hot spot"
"hot spot"
I/M
Effectiveness
100%
50%
100%
100%
50%
100%
50%
50%
100%
50%
Tailpipe
Standard
3.4
3.4
3.4
3.4
3.4
3.4
3.4
3.4
3.4
3.4.
*The highest of the 24 possible overlapping eight-hour averages for a day is used in computing the
expected number of exceedances.
+A11 of the possible overlapping eight-hour averages in a year are used in computing the expected
number of exceedances.
-------
TABLE 3-5
ANNUALIZED COST IN 1987 OF ATTAINING CURRENT AND ALTERNATIVE CO NAAQS, SCENARIO 1*
(1979 $106)
No
a/
b/
Number of
Nonattainment
Annual!zed
O LctUUciLU
(ppm)
7
9
12
mmuaj.j.z.eu
Base Year 1987 Cost of FMVCP
119 22 $2378
114 7 2378
44 1 2378
Gross Net
$458 $273
410 245
225 132
Aimuci J.X z, t:u
Cost of TCM
$114
47
2
j-UUdj. lieu
Annual Cost
$2765
2670
2512
j-uua-L vjtusa
Annual Cost
$2950
2835
2605
/o LI LL UlU
Primary Case
+2.2%
+0.3
+0.1
Eight-hour daily, hot spot, 50% effectiveness of I/M in areas with average temperature below 50°F.
1982 for 9 and 12 ppm, 1984 for 7 ppm.
-------
TABLE 3-6
ANNUALIZED COST IN 1987 OF ATTAINING CURRENT AND ALTERNATIVE CO NAAQS, SCENARIO 2
(1979 $106)
a/
Number of
Nonattainment
Annual!zed
O LdUUdLU
(ppm)
1
hO
-e-
7
9
12
Base Year 1987
144
135
59
41
15
3
Aiinueij. j.^t;u
Cost of FMVCP Gross
$2378
2378
2378
$551
458
284
Net
$333
293
173
AimuciJ. x^eu lULcii iNei.
Cost of TCM Annual Cost
$160
84
47
$2871
4755
2598
Annual cost
$3089
2920
2709
Primary Case
+7.1%
+3.4
+4.7
a/
b/
Eight-hour daily, regional growth, cold-start reductions modeled correctly.
1982 for 9 and 12 ppm, 1984 for 7 ppm.
-------
TABLE 3-7
ANNUALIZED COST IN 1987 OF ATTAINING CURRENT AND ALTERNATIVE CO NAAQS, SCENARIOS 3, 4, 5, and 6
(1979 $106)
a/
Number of
Nonattainment
Counties
Annual!zed
Cost of I/M
T-J HLiima j. xzeu
Scenario Base Year ' 1987 Cost of FMVCP
3b/
4C/
5d/
OJ
i
NJ
Cn
125
125
143
143
All scenarios examine
Eight-hour
C' Eight-hour
Eight-hour
e/
FT oh1" -hniii"
2nd high,
2nd high,
2nd high,
9nH h-ioh
3
7
16
28
only the
hot spot,
hot spot,
regional
T^cn* nn a 1
$2378
2378
2378
All
Gross Net Cost
$507
468
540
2378 550
9 ppm standard.
cold-start
cold-start
$321
281
326
332
iiua_i_J.£t:u louaj. INCL
of TCM Annual Cost Annual Cost Primary Case
$35
44
91
124
$2734 $2920 +3.4%
2703 2890 +2.3
2795 3009 +6.5
2834 3052 +8.0
reductions from I/M modeled correctly.
reductions cut by 50%
growth, cold-start
cn-nwfh rol c
1-Rl-art
reduction from
rpHiirl" i' nns riif
for
I/M
hv c
counties below 50°F.
modeled correctly.
if)0/ fnr fmm1--ip>Q hplntj ^n°Tr
-------
TABLE 3-8
ANNUALIZED COST IN 1987 OF ATTAINING CURRENT AND ALTERNATIVE CO NMQS, SCENARIO 7
(1979 $106}
a/
CO
I
a/
Number of
Nonattainment
Annual!zed
(ppm)
7
9
12
, , rtliUUd-L J.
-------
TABLE 3-9
ANNUALIZED COST IN 1987 OF ATTAINING CURRENT AND ALTERNATIVE CO NAAQS, SCENARIO 8
(1979 $106)
a/
Number of
Nonattainment
Annualized
Standard
(ppm)
7
9
12
Counties
Base Year
130
126
61
1987
23
6
1
Annual ized
Cost of FMVCP
$2378
2378
2378
Cost of I/M A -, ,. _„
Gross
$534
474
334
Net
$331
283
199
rtllllUdJ. i^.cu
Cost of TCM
$124
51
13
Total Net
Annual Cost
$2833
2712
2590
Total Gross
Annual Cost
$3036
2903
2725
% A from
Primary Case
+5 . 2%
+2.8
+5.3
a/
Eight-hour statistical, hot spot, cold-start reductions modeled correctly.
-------
TABLE 3-10
ANNUALIZED COST IN 1987 OF ATTAINING CURRENT AND ALTERNATIVE CO NAAQS, SCENARIO 9
(1979 $106)
a/
LO
I
00
a/
Number of
Nonattainment
Annual!zed
(ppm)
7
9
12
v: / muiua-L-Lzeu • annual i^eu louai INCL
Base Year 7 1987 Cost of FMVCP Gross Net Cost of TCM Annual Cost
130 23 $2378 $677 $326 $248 $2952
126 11 2378 484 289 37 2704
61 2 2378 334 199 12 2589
Annual Cost Primary Case
$3303 +14.5%
2899 + 2.6
2724 + 5.3
Eight-hour statistical, hot spot, 50% I/M reductions in counties below 50°F.
-------
TABLE 3-11
ANNUALIZED COST IN 1987 OF ATTAINING CURRENT AND ALTERNATIVE CO STANDARDS
INCREASED DESIGN VALUES3'
(1979 $106)
Annual!zed Cost
Total Net
CO
I
Standard
(ppm)
9 Daily
7 Daily
12 Daily
9 2nd High
No. of Counties Annualized of I/M Annualizea Cost AnnualizedTotal Gross
Base Year 1987 FMVCP Gross Net of ICM Cost Annual Cost
152
157
90
154
9 $2378
32 2378
1 2378
13 2378
$528
562
376
545
$315
335
214
326
$112
240
-24
137
$2805
2953
2568
2841
$3018
3180
2730
3060
% A from
Primary Case
+6.8%
+10.3
+5.5
+8.3
a/ "Hot spot," cold start reduction modeled correctly.
-------
unknown extent. As a result, the overall emissions in cold areas may
not be reducible due to I/M to the extent assumed in MOBILE1.
To account for possible lower effectiveness at low temperatures, I/M
programs in areas with below 50°F average temperatures were credited
with only 50 percent of the otherwise expected reductions in MOBILE1.
Table 3-5 presents these costs for the 9 ppm standard (daily high) using
the 50 percent I/M effectiveness assumption.
The reduction in program effectiveness increases the cost of attainment
as well as the number of nonattainment counties. The lack of complete
I/M effectiveness means that additional emission reduction will be required
through more stringent I/M programs and increased use of TCM controls.
The total gross cost of all mobile source control including FMVCP
increases by less than one percent. For each county, the net cost
increase of I/M using a 30 percent stringency level compared to a 20
percent stringency level is not significant; while greater repair costs
result from the 30 percent stringency level, greater fuel savings also
occur. Virtually all of the cost increase is incurred in TCM costs.
The primary effect of "cold start" assumptions is on the ability of counties
to attain the standard, not on cost (although there are increases), as
an additional five areas may not be able to meet the standard.
3.4.2 VMT and Area Source Growth Rate
The second area of sensitivity analysis involves the rate of growth in
VMT and area source emissions. A scenario was considered in which growth
in emissions is based on a regional area-wide estimate, using the Bureau
of Economic Analysis (Department of Commerce) projections and VMT pro-
jection from the Federal Highway Administration. Since these statistics
tend to be based on higher estimates of growth, this scenario generally
requires greater emission reductions. Table 3-6 presents the cost esti-
mates using these growth rates and compares the cost to the primary
case.
3-30
-------
The nature of the primary case "hot spot" analysis indicates that the CO
problem exists primarily in high density portions of the particular areas,
thus precluding large amounts of growth around that hot spot. Recent
evidence indicates that in some areas the CO problem may be more area-wide
than previously believed in that high readings of CO values may result
from emissions from a broader area than just the localized central busi-
ness district. The alternative scenario treats the CO attainment problem
from this area-wide perspective and uses regional growth predictions to
estimate growth in emissions. In addition to the increase in future
emissions, the regional growth scenario includes 100 percent of the area
emissions in the effective emissions. This compares with 20 percent of
area emissions included under the primary case scenario.
The regional growth scenario has a marked effect since both future
emissions and needed reductions are increased. The total gross cost of
control for a 9 ppm daily standard increases by about 3 percent -- more
than $80 million. It is, in fact, a larger increase in cost than the
alternative 7 ppm standard under primary case assumptions. The most
significant area of cost increase is in TCM where the increase is close
to $50 million or 133 percent. This occurs since more counties are unable
to meet the standard with I/M alone. The increase in I/M costs is $35
million or 17 percent.
Fifteen counties may not achieve the current standard even with TCM under
the regional growth projections, whereas only two counties were poten-
tially in nonattainment under the low growth scenario.
3.4.3 Form of the NAAQS
Another area of sensitivity analysis considers the form of the standard,
that is, the method by which the design value is calculated and attainment
is determined. Recall that the design value serves as the basis for
determining the needed rollback in emissions. In addition to the daily
3-31
-------
maximum, EPA has evaluated the impact of alternative forms of the
standard as discussed in Section 3.1.2. Tables 3-7 and 3-9 present the
costs of attainment for both variants of the standard and compare them
to the daily form.
Comparing the cost for the different forms of the standard to the
primary case indicates the increased stringency of the mobile source
control required under each alternative. Relative to the 9 ppm daily
standard, the total gross costs are about 2.8 percent and 3.4 percent
higher for the 9 ppm statistical and second-high, respectively. Again,
the majority of the increase results from greater amounts of TCM required.
Up to six counties may not be able to attain the hourly interpretation
of the statistical form of the 9 ppm standard, compared to three counties
under the daily interpretation. There is no difference between the number
of counties not meeting the second-high standard and the daily standard,
since the change in design values is not enough to change any county's
ability to attain the 9 ppm level.
3.4.4 Design Values
As indicated previously, the design values used in this analysis were
obtained from a review of CO ambient air quality data in EPA's SAROAD
data base, which represents the only readily available source of con-
sistent data for all of the areas investigated. Sufficient data are
contained in the data base to estimate the approximate values based on
the alternative forms of the standard.
The emission reductions needed in any county are extremely sensitive to
the design value, since a change in the design value changes the emission-
to-air quality relationship used to determine the allowable emissions.
There is some concern that design values as registered by the monitoring
system (see Section 3.1.2) may not represent the true air quality readings
actually present in the county or those values which will be used in the
3-32
-------
actual State planning process; many monitor locations do not meet EPA's
siting criteria and thus are not recording proper values. Monitoring
data were obtained from SAROAD in four cities -- Phoenix, San Jose,
Seattle, and Chicago -- with data gathered independently for EPA by a
private contractor (Jordon, 1979). A comparison shows that there are
certain differences between the SAROAD data and on-street monitor
readings. The independent data were gathered for an eight-day period at
each site and then compared to SAROAD data used to determine the design
values in this study. The result was generally that at least one of the
independent monitoring sites recorded higher values than corresponding
SAROAD data. The data from Chicago were the major exception.
Based on the results of the above analysis and on a comparison of SAROAD
values with values generated by EPA's Regional Offices, there may be
some inaccurate values in the SAROAD data base. In order to account
for this suspected discrepancy, a sensitivity analysis has been conducted
whereby the design values are adjusted by increasing the SAROAD value
by 20 percent. Such an increase will account for the maximum possible
impact of potential design value underestimations.
Table 3-11 presents the cost of CO control under the increased design
values. These costs are generated assuming a one percent growth of VMT
and area emissions and complete effectiveness of I/M emission reductions.
3.4.5 Combined Sensitivity
The effect on the cost of a single change in the assumptions can be
estimated by the changes already noted (Sections 3.4.1 to 3.4.3). For
instance, regardless of other assumptions, the hourly interpretation of
the statistical standard will be more costly and more difficult to attain
than the daily interpretation. Likewise, reducing the effectiveness of
I/M in cold areas or increasing the VMT growth projections increases the
cost and reduces the expected success of the overall programs. The com-
bined scenarios illustrate the relative strength of each variable, in
terms of a net impact, and the result of their combined effect.
3-33
-------
3.5 INCREMENTAL COSTS OF CO CONTROL*
Costs presented in previous sections represent the portion of the costs
allocated to CO control as opposed to the total costs of the programs.
Tailpipe emission control systems as well as in-use programs such as I/M
provide for the simultaneous control of more than one pollutant. Thus,
the most accurate indication of the costs of programs for CO control is
obtained from this equal allocation of costs among multi-pollutant programs.
Nonetheless, presentation of the incremental costs of CO control is also
informative from the standpoint of those costs resulting directly from
setting the ambient air quality standard. In this case, the costs of
programs or portions of programs where CO control is the sole emphasis
are isolated. Programs which are being implemented for the control of
other pollutants and which would be required regardless of the need for
CO control are not considered. The following discussion presents the
incremental costs for controlling CO through the FMVCP as well as through
the I/M and TCM programs.
3.5.1 Incremental Costs of FMVCP
Estimating the costs of controlling CO only through the FMVCP is exceedingly
difficult. Since control of CO, HC, and NO has been mandated simultaneously,
all estimates present costs for systems which control all three pollutants.
Little attention has been given to the situation of assessing the configura-
tion and costs of control systems given the premise that control of CO
is not required. As a result of the lack of pertinent data, the assumption
is made that the three-way catalyst would be used in future technology
cars (1981 and later) even without the CO control requirements.
However, the inclusion of the oxidation catalyst in combination with the
three-way catalyst can be attributed solely to the requirement of control-
ling CO to the statutory limit of 3.4 grams/mile. Hence, the incremental
costs of CO control resulting from the FMVCP can be viewed as the costs
*This section deals in a partial sense with reversibility of control costs
associated with systems designed to reduce HC and NO emissions, as well as CO
emissions. It is not meant to describe total incremental costs for the
alternative standards.
3-34
-------
of requiring oxidation catalysts on future technology cars. Based on
information from auto manufacturers as well as independent sources, EPA
estimates that the cost of adding an oxidation clean-up catalyst to a
three-way catalytic converter ranges from $14 to $40 per auto. Using
the approach outlined in Appendix A (Table A-2) for determining the
annualized hardware costs, the fleet-wide annualized costs will range
from $200 million to $600 million in 1987. This takes into account
hardware costs only and does not assume any maintenance or fuel benefits
or penalties associated with the oxidation catalyst.
3.5.2 Incremental Costs of I/M and TCM
While the majority of areas that will be implementing I/M programs
experience both ozone and CO problems and thus need control of both HC
and CO, several areas have just a CO problem. While these areas also
receive benefits of HC control from I/M programs, the programs are
instituted primarily because of the need for CO control. As a result,
the incremental costs of I/M for CO control represent the costs of
programs in these areas. These areas include those with current plans
to institute programs in 1982 that are designated as nonattainment for
CO only, as well as the areas identified in this analysis as possibly
needing I/M programs for CO in the future but which are not currently
designated nonattainment.
Using this approach for determining the incremental CO control require-
ments, 50 areas could need I/M programs for CO only under a 9 ppm daily
standard (primary case assumptions). The gross costs are estimated to
be around $120 million while the net costs, assuming fuel economy bene-
fits, will be close to $70 million. Under a 12 ppm standard, 14 areas
could require I/M, with the incremental cost ranging from $15 to $30
million annually. While the number of areas requiring I/M only increases
to 53 under a 7 ppm standard, many of the areas will require more strin-
gent programs than with the other standards. The gross cost of I/M
3-35
-------
would be about $145 million while the net cost would be around $80 million
These results are summarized in Table 3-12.
The incremental cost of TCM for CO cannot be estimated readily because
of the variability of the effectiveness of similar strategies for HC and
CO. An area-wide program implemented to combat an ozone problem may not
necessarily alleviate an area's CO problem, particularly if the problem
area is a hot spot. Moreover, meaningful conclusions cannot be drawn
concerning the incremental costs of TCM in areas for CO control alone.
Thus, the aspects of TCM costs are ignored in this analysis of incremental
costs.
3-36
-------
TABLE 3-12
INCREMENTAL ANNUALIZED COSTS IN 1987 OF ATTAINING ALTERNATIVE CO STANDARDS
($1979 106)
a/
Number of Areas
Incremental
Incremental
Total Incremental
Standard
(ppm)
7
9
12
CO
i
CO
-J
Implementing I/M Annualized
for CO only Gross
53 145
50 120
14 30
a/
Based on primary case assumptions, which
Incremental costs of I/M pertain only to
assume a fuel economy benefit.
c/
Incremental costs of FMVCP include costs
order to meet 3.4 gm/mi standard-
Costs of I/M
Net
1 Annualized Costs Annualized Costs '
of FMVCPC/
$80 $200-600 $345-745
70 200-600 320-720
15 200-600 230-630
are outlined in Table 3-3.
those areas needing I/M for CO control only. Net costs
of adding oxidation clean-up catalyst on post-1980 cars in
THUrP r^na-l-c
-------
REFERENCES FOR SECTION 3
Jordon, Bruce C., Environmental Protection Specialist. 1979. Memorandum
to Ken Lloyd, Economic Analysis Branch, EPA. "Comparison of CO Data
from SRI 'Hotspot' Study to Data in SAROAD."
Stanford Research International (SRI). December 1979. "Methodologies
to Conduct Regulatory Impact Analysis of Ambient Air Quality Standards
for Carbon Monoxide." Prepared for U.S. EPA.
U.S. Congress. August 7, 1977. Clean Air Act. 42 U.S.C. 1857 as amended
1977, PL 95-95.
U.S. Environmental Protection Agency (U.S. EPA). February 1977. "Guide-
lines for the Interpretation of Air Quality Data with Respect to the
National Ambient Air Quality Standards." Guidelines Series OAQPS 1.2-008.
U.S. EPA. March 1978. "Mobile Source Emission Factors." EPA 400/9-78-006
U.S. EPA. February 1979a. National Emission Data System. NE 204.
U.S. EPA, Inspection and Maintenance Staff (OMSAPC). April 1979b.
"Questions and Answers Concerning the Technical Details of Inspection
and Maintenance."
U.S. EPA. May 1979c. "Inspection/Maintenance Status Sheets."
U.S. EPA. October 1979d. "Proposed National Ambient Air Quality Standards
for Carbon Monoxide Draft Environmental Impact Statement."
3-38
-------
4. STATIONARY POINT SOURCE CONTROL
This section presents the costs of stationary point source control require-
ments to meet the current and alternative CO ambient air quality standards.
The sources were examined in isolation, using an assumed background CO
level of 2ppm; the control requirements and costs were selected to meet
the ambient standard at the lowest annualized cost of control including
any steam credit obtained from burning CO (PEDCo, 1979). Since these
sources were examined based on projected maximum impact, there is no
difference in cost between different forms of the standard.
A complete description of the methodology used and assumptions made in
this simulation is presented in Appendix B.
4.1 STATIONARY POINT SOURCE COSTS
Tables 4-1 and 4-2 present the results of the modeling and costing proce-
dures (the method for making these calculations is presented in Appendix B).
Capital costs (Table 4-1) and annualized costs (Table 4-2) are presented
for alternative eight-hour standards by industry. Each table also indicates
the number of facilities which require control under any alternative.
Costs are presented in 1979 dollars and reflect the total initial capital
cost and the annualized cost for a 1987 attainment date. It should be
noted that the results shown here are applicable to attainment dates
prior to 1987 due to the exclusion of growth (see Appendix B.4) and retire-
ment. The latter would tend to reduce costs for existing sources as it
would deplete the existing source inventory to some degree between 1979
and 1987. Lacking information on equipment age, the assumption was made
that the equipment population would remain static, that is, retirement
of obsolete equipment would not occur during the period of concern.
4-1
-------
TABLE 4-1
CAPITAL COSTS FOR STATIONARY POINT SOURCES, BY INDUSTRY:
EIGHT-HOUR ALTERNATIVE CO STANDARDS
(1979 $103)
Number of Controlled Sources
Capital Costs o£ CO Control
SIC
2865
2895
As 3312
3321
3334
3711
4953
TOTAL3'
Industry
Maleic anhydride
Carbon black
Steelmaking
Gray iron
Primary aluminum
Automobile manu-
facturing
Incineration
7 ppm
3
12
2
18
2
1
1
39
9 ppm
2
11
1
12
2
0
1
29
12 ppm
2
6
1
4
2
0
1
16
$ 1,900
26,630
21,400
281
32,000
19
5
$82,235
9 ppm
$ 1,140
23,650
4,400
170
32,000
0
5
$61,365
i?_PPJB
$ 1,770
13,610
4,900
54
32,000
0
5
$52,339
a/
Figures may not sum due to rounding.
-------
TABLE 4-2
ANNUALIZED COSTS FOR STATIONARY POINT SOURCES, BY INDUSTRY:
EIGHT-HOUR ALTERNATIVE CO STANDARDS
(1979 $103)
Number of Controlled Sources
Capital Costs of CO Control
SIC
2865
2895
.P. 3312
GO
3321
3334
3711
4953
Industry
Maleic anhydride
Carbon black
Steelmaking
Gray iron
Primary aluminum
Automobile manu-
facturing
Incineration
7
7 ppm
3
12
2
18
2
1
1
39
9 ppm
2
11
1
12
2
0
29
12 ppm
2
6
1
4
2
0
1
16
7 ppm
-$404
-13,336
-9,230
412
32,000
67
5
$9,514
9 ppm
-$164
-12,010
-230
297
32,000
0
5
$14,898
12 ppm
-$1,380
-6,471
-2,300
81
32,000
0
5
$21,935
a/
Figures may not sum due to rounding.
-------
4.1.1 Attainment of Current Eight-Hour Standards
4.1.1.1 Costs
Attainment of the eight-hour 9 ppm standard results in a capital expen-
diture of almost $331 million (see Table 4-1) and an annualized cost of
$9.9 million (see Table 4-2). Three industries incur positive annualized
costs: primary aluminum amounts to $32.0 million, followed by gray iron
with $297,000, and incineration with $5,000. The bulk of the negative
annualized cost stems from carbon black, which accounts for $13.3 million
in annualized savings. Steel incurs an annualized cost of -$230,000 and
maleic anhydride shows -$164,000.
4.1.1.2 Tonnage Reduction
Table 4-3 shows the degree of CO emission reduction under alternative
eight-hour standards. The eight-hour 9 ppm standard results in 964,100
tons of reduction, over 75 percent of which is produced by the carbon
black industry. Steel accounts for 9 percent of the reduction; gray
iron represents 8.5 percent of the reduction (82,000 tons); and primary
aluminum accounts.for 4.4 percent (42,000 tons).
4.1.2 Attainment of Alternative Eight-Hour Standards
4.1.2.1 Costs
The capital cost required by industry under the alternative eight-hour
standards (Table 4-1) indicates that a 34 percent increase is caused by
the 7 ppm alternative. The most significant increases under 7 ppm occur
for maleic anhydride (67 percent), steelmaking (386 percent), and gray
iron (65 percent). The 7 ppm standard shows a positive annualized cost
(Table 4-2) for four industries: gray iron, primary aluminum, automobile
manufacturing, and incinerators. The largest increase in cost occurs in
the gray iron industry. This happens since 50 percent more sources must
control than under the current standard.
4-4
-------
TABLE 4-3
TONS OF CO REDUCTION, BY INDUSTRY: EIGHT-HOUR ALTERNATIVE CO STANDARDS
en
SIC
(NEDS) Industry
2865 Maleic anhydride
2895 Carbon black
3312 Steelmaking
3321 Gray iron
3334 Primary aluminum
3711 Automobile manufacturing
4953 Incineration
TOTAL
(103
7 ppm
29.8
853.9
157.0
105.9
42.0
16.0
1.0
1208.6
tons)
Eight-Hour Alternative CO
9 ppm
21.8
729.0
88.0
82.3
42.0
0.0
1.0
964.1
Standard
12 ppm
15.8
443.0
19.0
17.6
42.0
0.0
1.0
538.4
-------
Three industries--maleic anhydride, carbon black, and steelmaking--pro-
vide negative annualized costs sufficient to reduce the annual cost to
$9.5 million compared to the $19.9 million under the current standard.
Under a relaxed alternative eight-hour standard (i.e., 12ppm), the total
capital expenditure decreases by 14.7 percent. Relaxation of the standard
for both maleic anhydride and steelmaking under the 12 ppm standard
decreases the capital expenditure. This happens because the control
strategies which may be used to comply with a 12 ppm standard provide a
greater benefit in terms of lower annualized costs. This control strategy re-
moves less CO, however (see Table 4-3), and therefore could not be used
for the 7 or 9 ppm standards.
Three industries show positive annualized cost for the 12 ppm standard:
primary aluminum, gray iron, and incinerators. Under the 12 ppm standard,
however, the total annualized cost increases by 10 percent. Again, this
happens because the reduced stringency eliminates some control on carbon
black which provided a net savings of $5.5 million.
4.1.2.2 Tonnage Reduction
The reduction in CO emissions attributable to the alternative standards
is shown in Table 4-3. The 7 ppm alternative results in a 25 percent
incremental reduction over the current standard. This alternative rep-
resents the most restrictive concentration level of any standard as
indicated by the level of CO reduction achieved in response.
The less stringent alternative reduces emissions by 538,400 tons from
current levels and represents a 44.2 percent decrease from the reduction
required to attain current standards.
4-6
-------
REFERENCES FOR SECTION 4
Pedco Environmental, Inc. (PEDCo). February 1979. "Control Techniques
and Costs for Carbon Monoxide Emissions -- Interim Report #1•"
4-7
-------
5. MOBILE SOURCE ECONOMIC ANALYSIS
5.1 INTRODUCTION
The mobile source control costs presented in Section 3 consist of
obligations to be paid by local governments or by individual car owners.
The impact of these costs is analyzed in terms of their effect on these
two sectors.
Five scenarios were chosen for economic analysis. They include the
three levels (7, 9, and 12 ppm) of the eight-hour daily standard under
the primary case assumptions, the 9 ppm daily standard assuming regional
growth of VMT and area source emissions, and the 9 ppm second-high
standard with primary case assumptions. Separate economic analyses were
not performed on any of the cases assuming reduced I/M effectiveness
because there was little difference in the costs between the 50 percent
effectiveness and the 100 percent effectiveness cases.
It was assumed that the payments made by local government, primarily for
initial investment of I/M and gross annual TCM costs, are paid directly
from local government revenues. The relative ease or difficulty in
paying the cost depends on the revenue received. The costs therefore
are compared to typical government revenues for the localities involved.
The costs paid by individual car owners, which include FMVCP, inspec-
tion, and I/M repairs, were calculated from average cost estimates. The
impact of these costs on average individuals would be difficult to
specify. In addition, the variance of costs around the average esti-
mates is not known and could be more significant than the averages
themselves.
*It should be noted that because of the user charge, or fee, that the I/M
program, once developed, is self-supporting.
5-1
-------
Examination of costs borne by motorists may be more useful if performed across
income levels, that is, by determining the relative burden on
different economic classes of motorists. The fuel savings provided by
I/M programs and TCM are examined in the same manner. Fuel savings can
help reduce the net cost of the control programs to groups of motorists,
but they are received by this portion of the population only and cannot
be transferred to cover other costs. The lack of liquidity of costs and
savings makes the economic analysis not only a question of direct and
indirect impacts, but also one of the progressive or regressive nature
of costs. In other words, is the cost being paid by those individuals
best able to pay, or is a disproportionate amount of the cost paid by
lower income groups?*
5.2 .ANALYTICAL PROCEDURE AND ASSUMPTIONS
5.2.1 Federal Motor Vehicle Control Program
Regardless of the ambient air quality standard level, the cost of FMVCP
must be paid. FMVCP, while separate from the National Ambient Air
Quality Standards (NAAQS) program, provides emission reductions necessary
to attain a standard. In the absence of FMVCP, emission reductions pro-
vided by the program in a nonattainment area would have to be obtained
through additional control measures.
The cost of the program (see Appendix A) is derived through control of
five sectors: heavy-duty vehicles, light-duty vehicles, light-duty
trucks, motorcycles, and aircraft. Over 80 percent of total annual cost
of the program results from control of light-duty vehicles, light-duty
trucks, and motorcycles. It is assumed that costs from these sectors
are borne by the owners of these vehicles. The costs then, can be
divided by income group using automobile ownership information obtained
from the Department of Transportation (DOT, 1974). It is assumed that
*It should be stressed that this analysis ignores benefits of control accruing
to all income groups", thus, it is unfair to just focus on cost burdens to
different income groups. Even if the control requirements are regressive on
net, they are consistent with the "polluter pays" principle.
5-2
-------
ownership patterns for light-duty trucks and motorcycles are similar to
those of light-duty vehicles.
The cost of FMVCP for heavy-duty vehicles and aircraft comprises less
than 20 percent of the cost of the program. It is assumed that most
heavy-duty vehicles and aircraft are used in industry or for commercial
purposes. Because these costs are imposed on all heavy-duty vehicles
and aircraft, the cost of control can be passed through to the final
consumer. The magnitude of these costs, $431.1 million for all heavy-duty
vehicles and $41 million for all aircraft, indicates that pass-through
of costs would have virtually no measurable effect on the prices of the
goods and services involved.
5.2.2 Inspection/Maintenance Program
5.2.2.1 Initial Capital Investment
The estimate of initial capital required to start an I/M program is
dependent solely upon the number of cars inspected under the program.
An average figure of $13.21/car generates the cost.
It is assumed that initial expenditure is made by the county government.
Problems in budgeting and allocating the county funds are not considered
in this analysis; instead, the initial investment is compared to total
county revenues including transfers from Federal and State sources.
Since both the cost and the governmental revenues depend on the popula-
tion of the county, the analysis presents the data separately for urban-
ized counties and other counties.
Recall from Section 3 that I/M programs implemented in one county of an
urbanized area must be extended to all counties within the area. Since
governmental revenue data are not available by urbanized area, a factor
must be added to account for multiple-county urbanized areas.
5-3
-------
In this analysis, urbanized areas, as defined here, are separated into
two groups: large urbanized areas containing multiple counties, and
individual counties that are not part of the larger urbanized area. The
maximum adverse impact would occur if there were only two counties in
each area, since the cost would be divided by the minimum number of
revenue sources. Initial investments within urbanized areas are examined
in this manner. The average investment cost per urbanized area is
divided by two and then calculated as a percentage of large county total
revenue.
The investment costs in other counties are compared to a range of revenues
for counties across the country. This provides an indicator showing any
difficulties in meeting the capital requirements of the program at the
extremes of county income levels.
5.2.2.2 Inspection Costs
Under an I/M program, all registered passenger vehicles would be inspected
each year. A fee of $7.00 per vehicle is estimated to be the annualized
cost of the inspection. This fee is designed to cover the capital costs
and operating expenses of the inspection and would be paid by the owner
of the car.
The total inspection cost, therefore, can be divided into the income
groups of car owners who pay for the inspection. The Department of
Transportation statistics again are used to accomplish this. The
resulting distribution of cost by income group is examined to determine
where the burden of cost is heaviest. It already is known that the
average car owner pays $7.00, but this distribution does not tell what, if any,
redistributive effect results from the program.
5-4
-------
5.2.2.3 Repair Costs
Any automobile failing the inspection test is required to undergo main-
tenance, with the cost of repairs estimated at $28 per vehicle. Each
State, in its State Implementation Plan (SIP) for attainment, will
determine the test criteria for passing and failing the test. A given
stringency factor (i.e., number of failures) can result in several
emissions criteria for failure. For each State, test thresholds could
be different.
Historically, even with this variation, there is a correlation between
the age of the vehicle and failure rate. Data regarding this correla-
tion were published by the Air Pollution Control Association (APCA,
1979). Using these data, a statistic indicating likelihood of failure
by age was created. The probability of failure was divided by the
probability of failure of a car of mean age (DOT, 1974). This age-failure
index is presented in Table 5-1. The statistic then can be applied to
any stringency factor to determine the increased or decreased probability
of failure as a function of age.
A distribution of age of car by income of the owner was found in the
National Personal Transportation Study (DOT, 1974). These data are
presented in Table 5-2. For each income level and corresponding mean
age of car, the table also shows the age-failure index, which is calcu-
lated by linear interpolation between years.
A distribution of repair costs is determined from these statistics by
multiplying income group ownership by the corresponding age-failure
index. The resulting distribution is normalized by dividing by the
summation of the age-failure index times the percent of cars by income
in order to indicate a distribution of cost. In functional form, the
statistic is calculated as follows:
5-5
-------
TABLE 5-1
AGE-FAILURE INDEX
Year
1
2
3
4
5
6 and above
Mean
Observed Failures
(percent)
55%
49
60
69
70
71
65.8%
Index
Observed -r Mean
0.085
0.745
0.911
1.049
1.063
1.079
1.000
5-6
-------
TABLE 5-2
DISTRIBUTION OF MOBILE SOURCE COST FACTORS
Income Level
<$4800
4800-6400
6400-8000
8000-9600
9600-12,100
12,100-16,000
16,000-24,100
>24,100
Unreported
Age
7.0
6.1
6.2
6.0
5.6
4.8
4.6
4.0
5.5
Age-Failure
Index
1.079
1.079
1.079
1.079
1.073
1.060
1.057
1.049
1.069
Percent
of Cars
5.91%
4.74
4.68
7.40
12.60
18.02
24.53
12.50
9.61
Age X
Percent
0.0637689
0.0511446
0.0504972
0.0798460
0.1351980
0.1910120
0.2592821
0.1311250
0.1027309
Distribution
by Income
0.05989890
0.04804900
0.04743280
0.07500060
0.12699360
0.17942059
0.24354777
0.12316778
0.09649676
-------
IG x AF
*(IG x AF)
where
IG = Percentage of cars by income group
AF = Age-failure index
^
= Summation over all income groups.
Each factor is presented in Table 5-2.
It should be noted that implicit within this calculation is the assump-
tion that the mean failure rate of a car whose owner is part of a par-
ticular income group can be estimated by the failure rate of a car of
mean age within that group. Strictly, this would be true only if the
age distribution within each income group were normal. The resulting
distribution therefore provides only an indicator of the burden of cost.
The normal distribution of repair cost is multiplied by the total repair
cost for each scenario to indicate the relative burden of repair cost by
income group.
5.2.2.4 I/M Fuel Savings
The fuel savings accrued by I/M programs are a direct result of the
maintenance performed on vehicles that fail the emission test. The fuel
savings benefit is received only by car owners that pay repair costs.
The value of fuel savings can be divided using the same statistic created
for the distribution of repair costs presented in the preceding section.
The money saved by reduced fuel consumption is subtracted directly from
the repair costs since the costs and savings are not independent.
5-8
-------
5.2.3 Transportation Control Measures
5.2.3.1 Gross Annual Cost
The annual cost of TCM is assumed to be paid by the local county govern-
ment (there is no direct charge to the motorist) and is treated as if it
were paid by general county revenue. Since this is an annual cost, the
revenue must meet the cost each year. The county cannot issue bonds or
assume a loan and still remain solvent. It is possible that some por-
tion of the cost could be paid by state or federal funds. Placement of
the burden on the counties estimates the maximum possible impact for
each county requiring TCM.
The average cost of control per county is compared to a range of county
revenues obtained from the 1972 Census of Governments (Bureau of Census)
The revenues were inflated to 1979 dollars using Federal Reserve Bank
GNP deflators. This provides an indicator of the ability of a county to
meet the obligation imposed by TCM annual costs.
5.2.3.2 TCM Fuel Savings
Fuel savings result from TCM by reducing the number of miles or hours
traveled (see Section 3). The reduction in gasoline consumption is
assumed to be constant per ton of CO reduced by TCM (see Section 4).
This corresponds directly to the reduction in VMT. The fuel savings
therefore are divided equally among all drivers on the basis of current
VMT.
The National Personal Transportation Study (DOT, 1974) also provides
data on the percent of total VMT traveled by each income group. Multi-
plying these percentages by the total value of TCM fuel savings under
each scenario gives an estimate of the benefits of fuel savings to each
income group.
5-1
-------
5.3 ECONOMIC IMPACTS
5.3.1 Federal Motor Vehicle Control Program
Table 5-3 shows the annual cost of FMVCP, with the total cost for passenger
cars, light-duty trucks, and motorcycles equaling $1.9 billion. Table 5-4
shows the distribution of these costs by income group.
The distribution indicates that the largest portion of the cost is felt
by the $16,000-$24,000 income group. This group owns approximately 1.6
cars per household and pays 24.7 percent of the total cost or $470
million. The smallest portion of the cost is paid by the $6,400-$8,000
income group which pays only 4.7 percent of the total cost or $90 million.
The number of cars per household increases with income as illustrated in
Figure 5-1. Once the $4800 mean level is reached, the marginal increase
in number of cars per increased dollar in income diminishes at higher
incomes. This can be seen from the distance between the midpoint of the
distribution and the broken line. Therefore, in proportion to the
income, a low income household will face a larger burden from FMVCP than
will a high income family. This does not imply that the total burden on
the low income group is disproportionate to its segment of the popula-
tion. In 1979, approximately 12.8 percent of all households earned less
than $6400 per year. By comparison, the same group pays only 10.6 percent
of the total FMVCP. The result, therefore, indicates that there is no
real additional burden to low income households as a group, although
individual households within the low income group pay a substantially
higher portion of their income for FMVCP than do individuals from higher
income households.
This impact is present with all other scenarios discussed. The cost
distribution by income group presented will serve as a basis for com-
parison with the costs of the other control techniques.
5-10
-------
TABLE 5-3
TOTAL ANNUAL COST OF THE FMVCP IN 1987
(1979 $106)
Type of Vehicle
Annual Cost of CO Control
Passenger Cars (LDV)
Hardware
Fuel economy
Unleaded gasoline cost
Operating and maintenance
Altitude controls
TOTAL
Light-Duty Trucks (LPT)
Hardware
Fuel economy
Unleaded gasoline cost
Operating and maintenance
Altitude controls
TOTAL
Heavy-Duty Vehicles (HDV)
All costs
Motorcycles
All costs
Aircraft
All costs
$2003
740
0
354
0
100
1194
431
46
42
TOTAL
$2378
a/
Negative costs.
5-11
-------
TABLE 5-4
DISTRIBUTION OF FMVCP COSTS ' BY INCOME
a/
Income Group
<$4800
4800 - 6400
6400 - 8000
8000 - 9600
9600 - 12,100
12,100 - 16,000
16,000 - 24,100
>24,000
Unreported
TOTAL
a/ Costs for LDV's,
b/
Percent
of Cars
5.91%
4.74
4.68
7.40
12.60
18.02
24.53
12.50
9.61
LDT's ai
Average Number of
Autos Per Household
0.4
0.8
0.9
1.0
1.2
1.3
1.6
1.9
1.2
FMVCP Costs ($10 )
$113
90
90
142
241
345
470
240
174
$1905
Mean number of autos per household
-------
FIGURE 5-1
CARS PER HOUSEHOLD VS. INCOME
CARS PER HOUSEHOLD
2.5 T
2.0 -
1.5 -
1.0 J
0.5-
0.0
2,000 6,000 10,000 14,000 18,000
20,000 24,000
INCOME IN DOLLARS
5-13
-------
5.3.2 Inspection/Maintenance Program
5.3.2.1 Initial Investment Cost
Table 5-5 presents the initial investment cost in the five scenarios for
which economic analysis is being performed. There is relatively little
fluctuation in the average investment costs between scenarios.
The range of average investment costs for urbanized areas runs from
$8.61 to $9.52 million. Recalling that each urbanized area contains at
least two counties, the average investment cost per county is between
$4.3 and $4.76 million.
The 1972 Census of Governments indicates that for counties with popula-
tions of 100,000 or more, the average revenue is $354.4 million per year
in 1979 dollars. Hence, the range of initial investments per county in
urbanized areas represents between 1.2 and 1.3 percent of the county
revenue.
The initial investment costs for other counties range from $1.96 million
to $2.41 million. The most expensive scenario is the 9 ppm daily standard
assuming regional growth. The least expensive case is the 12 ppm level
primary case.
The Census of Governments also provides average revenue figures for
counties ranging in size from 10,000 to 25,000 or more people. Small
counties on average receive $9.29 million per year in 1979 dollars. The
average for all counties is $51.4 million. While a $2 million expenditure
(average for the 9 ppm primary case) represents less than 3.9 percent of
the average county revenue, it conceivably could consume 21.6 percent of
the county revenue if the cost were borne by a small county. A county
in this predicament would require either additional revenue or a reduction
in services. To the extent that urbanized areas contain more than one county,
these cost estimates tend to overestimate the impact on individual counties.
5-14
-------
TABLE 5-5
INITIAL INVESTMENT COST
(1979 $106)
Primary Case .
9 ppm 2nd High 9 ppm Daily
Investment Cost 7 ppm 9 ppm 12 ppm Low Growth Regional Growth
Initial
Urbanized area
Total
Average
$326.3 $297.4 $188.6
9.32 9.59 11.8
$314.9
9.00
$352.9
8.61
Other counties
Total 116.3 114.2 37.2
Average 2.00 2.00 1.96
148.6
2.36
166.4
2.41
TOTAL
$442.6 $411.6 $225.8
$463.5
$519.3
5-15
-------
5.3.2.2 Inspection Cost
Table 5-6 presents the distribution of inspection costs by income group
for the five scenarios under analysis. Since the distribution of cost
is dependent upon the number of cars in each income group, the portion
of the total inspection cost paid by each income group remains constant.
Any fluctuation in cost of each inspection results from a change in the
number of cars tested under the program.
As in the case of FMVCP, the inspection cost is regressive in nature.
As income rises, there is a diminishing marginal increase in the number
of cars owned by a household (see Figure 5-1); since the cost is directly
proportional to the number of cars, the relative cost of inspection
decreases for higher income levels. In simple terms, this indicates
that a greater portion of the income of low income families is spent on
inspection than that spent by higher income families.
This does not indicate that the proportional burden on the low income
group as a whole is greater than their portion of the population.
Approximately 12.8 percent of all households earn less than $6,400 per
year while the same group pays only 10,6 percent of the total cost. The
additional burden is placed on the individual low income household with
a car.
5.3.2.3 Repair Costs
The repair costs of the I/M programs are divided by income group using
the statistics created from the age-failure relationship (see Table 5-2).
The results of these distributions of cost are presented in Table 5-7.
It should be remembered that the distribution of cost by income group
represents a distribution based on historical failure rates. The actual
distribution of the cost could differ from the estimates presented
depending on the individual threshold values of emissions used to deter-
mine failure in each program.
5-16
-------
TABLE 5-6
DISTRIBUTION OF INSPECTION COSTS
(1979 $106)
Primary Case
Income Group 7 ppm
<$4800
4800-6400
6400-8000
8000-9600
9600-12,100
12,100-16,000
16,000-24,100
>24,100
Unreported
TOTAL
7 ppm
$13
11
11
17
29
42
57
29
22
.9
.1
.0
.4
.6
.3
.5
.3
.5
9 p]
$12
10
10
16
27
39
53
27
21
pm
.9
.3
.2
.1
.5
.3
.5
.3
.0
12 ppm
$7.
5.
5.
8.
15.
21.
29.
14.
11.
1
7
6
8
1
6
3
9
5
:? pj-*ni i-iiu 11-Lgn
Low Growth
$14
11
11
18
30
44
60
30
23
.5
.4
.2
.2
.9
.2
.2
.7
.6
j pj/iu
Regional
$14.
11.
11.
18.
31.
44.
61.
31.
23.
L/CI.J- ±y
Growth
7
8
7
4
4
9
1
1
9
$234.5 $218.1
$119.6
$245.6
$249.1
5-17
-------
TABLE 5-7
DISTRIBUTION OF I/M REPAIR COSTS
(1979 $106)
Primary Case
Income Group
<$4800
4800-6400
6400-8000
8000-9600
9600-12,100
12,100-16,000
16,000-24,100
>24,100
Unreported
7 ppm
$12.8
10.3
10.2
16.0
27.1
38.5
52.1
26.4
20.6
9 ppm
$11.6
9.2
9.1
14.4
24.5
34.6
47.04
23.8
18.7
12 ppm
$5.6
4.48
4.48
7.0
11.9
16.8
22.8
11.6
9.1
? ppm ^.nu iij-gn
Low Growth
$12.9
10.3
10.2
16.2
27.2
38.6
52.4
26.5
20.8
? jjjJiu uaj.j.y
Regional Growth
$13.8
11.1
11.0
17.3
29.4
41.4
56.4
28.5
22.3
TOTAL
$214.0 $193.0
$93.8
$215.1
$231.2
5-18
-------
The effect of increased failure in the older cars tends to exacerbate
the problems of the low income group. As Table 5-2 shows, the inclusion
of the age-failure index causes the distribution of repair costs to be
skewed towards low income groups compared to the original distribution
of car ownership. The shift in distribution, while never more than 0.1
percent for any income group, adds to the adverse income distribution
impact of the mobile source costs. Again, the total burden on the
income group is not disproportionate; it is individual low income house-
holds that may by adversely affected.
Since the percentages calculated to distribute the repair costs are
independent of the scenario, the relative impacts between income groups
is the same for all five scenarios. The difference in absolute impacts
is brought about by the increases or decreases in program stringency and
number of counties in which programs are required.
5.2.3.4 Fuel Savings for I/M
The fuel savings for I/M are related directly to the repairs performed
on vehicles that fail inspection. The fuel savings therefore can be
distributed among income groups using the same percentages used to
distribute the repair costs; Table 5-8 presents the results of this
distribution of fuel savings.
Since the fuel savings occur directly from maintenance, the value of
these savings can be subtracted directly from the repair cost to estimate
a total of repair. In all cases, the amount of fuel savings for each
income group exceeds the corresponding repair cost. The total annual
impact of repairs including fuel savings is a net savings. Table 5-9
presents these net savings for each income group.
The statistical nature of the repair cost and the fuel savings (i.e.,
using the average costs for each without a distribution of costs) makes
5-19
-------
TABLE 5-8
DISTRIBUTION OF FUEL SAVINGS FROM I/M
(1979 $106)
Primary Case
Income Group
<$4800
4800-6400
6400-8000
8000-9600
9600-12,100
12,100-16,000
16,000-24,100
>24,100
Unreported
7 ppm
$10.8
8.6
8.5
13.5
22.9
32.3
43.8
22.2
17.4
9 ppm
$9.9
7.9
7.8
12.4
21.0
29.6
40.2
20.3
15.9
12 ppm
$6.2
5.0
4.9
7.8
13.2
18.7
25.3
12.8
10.0
Low Growth
$11.1
8.9
8.8
13.9
23.5
33.2
45.1
22.8
17.8
Regional Growth
$11.5
9.3
9.1
14.5
24.5
34.6
46.9
23.7
18.6
TOTAL
$180.0 $65.1 $104.0
$185.1
$192.7
5-20
-------
TABLE 5-9
NET I/M REPAIR AND FUEL SAVINGS
(1979 $106)
Primary Case
Income Group
<$4800
4800-6400
6400-8000
8000-9600
9600-12,100
12,100-16,000
16,000-24,100
>24,100
Unreported
7 ppni
$2.0
1.7
1.7
2.5
4.2
7.2
8.3
4.2
3.2
9 ppm
$1.7
1.3
1.3
2.0
3.5
5.0
6.8
3.5
1.8
12 ppm
$0.6
0.5
0.4
0.8
1.3
1.9
2.5
1.2
0.8
9 ppm 2nd High
Low Growth
$1.8
1.4
1.4
2.3
3.7
5.4
7.3
3.7
3.0
9 ppm Daily
Regional Growth
$2.3
1.8
1.9
2.8
4.9
6.8
9.5
4.8
3.7
TOTAL
$35.0 $26.9 $10.0
$30.0
$38.5
5-21
-------
it impossible to guarantee that every car owner who requires repairs
will receive a net savings. There is no assurance of interdependency
within the magnitude of the repair costs and the fuel savings for each
motorist. A motorist might be stuck with a repair bill and no fuel
savings. However, in terms of the macroeconomic impact, the combined
fuel savings and repair costs provide a greater savings in proportion to
income for low income groups than for high income groups.
5.3.3 Transportation Control Measures
5.3.3.1 Gross Annual Cost
TCM's are necessary in a relatively few number of counties compared to
I/M programs. The number of counties requiring this kind of control
ranges from 27 under the 9 ppm daily regional growth scenario to 2 under
the 12 ppm primary case.
TCM's are expensive to operate. The average gross annual cost per
county ranges from $24.96 million for the 9 ppm primary case to $0.68
million under the 12 ppm primary case. The results for all five scenarios
are presented in Table 5-10.
The gross costs are assumed to be paid by the local county governments.
The average gross cost per county is calculated as a percentage of the
total revenue for a range of county sizes. This provides an indication
of the difficulty involved in paying the TCM cost. Table 5-10 displays
these values. According to the Census of Governments (DOC, 1972), the
range of county revenues in 1977 was from $109.4 million* for a county
of 100,000 to 250,000 people to $9.29 million for a county of 10,000 to
25,000 people. The mean revenue for counties is $51.33 million.
Apparently, some counties could have considerable problems in paying for
TCM without Federal assistance. If a small county with revenue on the
All of these revenues are in 1979 dollars.
5-22
-------
TABLE 5-10
ANNUAL TCM GROSS COST
(1979 $106)
Primary Case
Cost:
Total
Average
^
$286.3
25.9
9 ppm
$174.7
13.6
12 ppm
$1.4
0.7
9 ppm 2nd High
Low Growth
$176.9
17.7
9 ppm Daily
Regional Growth
$407.0
15.1
Average percent
of revenue by
population:
100,000-
250,000 23.7%
10,000-
25,000 278.8
Mean county
revenue $50.5
12.4% 0.6%
146.4
7.5
$26.5 $1.3
16.2%
190.5
$34.5
13.8%
162.5
$29.4
5-23
-------
low end of the range is forced to implement TCM, the cost could consume
so much revenue that it would make continuation of county services
practically impossible without additional revenue, A cost of $24.96
million corresponds to a tax increase of $383 per person using an average
county population of 65,181 people (DOC, 1972). Examination of county
populations indicates that none of the counties thought to need TCM have
populations of less than 50,000. Therefore, while there is some potential
for problems in affording TCM, it does not appear to be overly burdensome
to any county.
5,3.3.2 TCM Fuel Savings
Fuel savings accrued under TCM cannot be used to offset the cost of con-
trol measures since no tax revenue can be gained. The savings are
received directly by the motorist.
It is assumed that savings are proportional to VMT traveled. Table 5-11
indicates the percent of VMT traveled by income group. Also shown is
the distribution of fuel savings by income.
Because of a lack of sufficient data points indicating the VMT per
household by income class (only four points), it is impossible to make a
meaningful estimate of the marginal increase in VMT by income. Without
these data, the total effect of distribution of income as a result of
TCM fuel savings cannot be estimated.
5.4 URBAN AND COMMUNITY IMPACT ANALYSIS
The purpose of this Urban and Community Impact Analysis (UCIA) is to
examine the anticipated socioeconomic impacts of alternative NAAQS's for
CO. To determine if revised air quality standards will adversely affect
national urban policy, minority populations, and distressed communities,
the following subsections evaluate the impacts of five alternative
NAAQS's for CO on fiscal condition, income, and employment.
5-24
-------
TABLE 5*
DISTRIBUTION OF TCM FUEL SAVINGS
(1979 $106)
Primary Case
Income Category
<$6400
6400-8000
8000-16000
16000-24100
>24100
Unreported
$15.2
6.5
60.1
41.8
24.9
14.7
9 ppm
$9.5
4.1
37.8
26.3
15.7
9.2
12 ppm
$0.8
0.4
3.2
2.2
1.3
0.8
9 ppm 2nd High
Low Growth
$10.0
4.3
39.6
27.5
16.5
9.7
9 ppm Daily
Regional Growth
$22.1
4.6
87.7
61.1
36.5
21.5
TOTAL $163.3 $102.6 $8.7 $107.6 $238.4
5-25
-------
5.4.1 Fiscal Condition
One of the primary purposes of the UCIA is to identify those cities or
types of cities likely to incur an additional economic burden due to the
increased costs of a revised CO NAAQS. The following discussion details
how revised CO standards might affect the fiscal condition of State and
local governments, particularly those supporting larger urban areas.
There have been many studies identifying the most economically depressed
cities in the United States. A recent study by the Urban Institute
(1978) examined the country's 153 largest cities on the basis of three
distress indicators:
• Population decline between 1970 and 1976 of 2 percent or more
• Per capita increases less than the all-city average in 1970
• Unemployment rates greater than the all-city average in 1976.
These cities were grouped into four categories, with category 0 compris-
ing cities not exceeding any of the distress indicators and category 3
comprising cities exceeding all the distress indicators. Table 5-12
shows the number of urbanized areas requiring area source controls to
meet five alternative CO standards and the number and percentage of
these areas considered distressed, based on the above indicators.
Table 5-13 shows the further disaggregation of these distressed urban
areas by the four categories detailed in the Urban Institute study.
These tables indicate that a large number of the cities that would
require CO source controls rank among the nation's most distressed
cities. The percentage of cities requiring controls that are catego-
rized as distressed range from 80 percent under the 9 ppm, second-high,
low-growth scenario to 87.5 percent under the 12 ppm primary case scenario
These cities, largely older industrial centers in the northeast and
midwest, will have to bear most of the costs imposed by a revised CO
5-26
-------
Table 5-12
NUMBER OF DISTRESSED CITIES
REQUIRING SOURCE CONTROLS
Standard
(PP"0
7 Primary Case
9 Primary Case
12 Primary Case
9 2nd High,
Low Growth
9 Daily,
Regional Growth
Total # of
Cities Requiring
Source Controls
35
31
16
35
39
# of Distressed
Cities Requiring
Source Controls
29
25
14
28
33
% of Cities Re-
quiring Source
Controls that
are Distressed
82.9%
80.6
87.5
80.0
84.6
5-27
-------
TABLE 5-13
NUMBER OF DISTRESSED CITIES BY CATEGORY FOR FIVE ALTERNATIVE CO STANDARDS
01
i
CO
Category 3
Standard (ppm)
7
9
12
9
9
Primary
Primary
Primary
2nd High
Case
Case
Case
, Low Growth
Daily, Regional Growth
All
12
12
5
12
14
Subset
l+3a/
9
7
5
9
9
Category
Subset
l+2a/
2
1
0
2
2
2
Subset
2+3a/
0
0
0
0
0
Category 1
Subset
lb/
5
5
3
5
6
Subset
2C/
1
0
0
0
2
Subset
3d
1
1
1
1
1
Category 0
None
2
2
0
2
2
a/
b/
c/
d/
Subsets within categories can be summed to indicate total number of cities in each category.
Subset 1: Cities with population decline between 1970 and 1976 of 2% or more.
Subset 2: Cities with per capita incomes less than all-city average in 1970.
mployment rates greater than all-city average in 1975.
SOURCE: The Urban Institute. 1978. "Distressed City Indicator." Cited in the President's National
Urban Policy Report, 1978. Prepared by the Department of Housing and Urban Development.
-------
standard. Tables 5-12 and 5-13 also illustrate that the actual number
of distressed cities incurring costs due to required controls would be
lowest under the 12 ppm primary case scenario and highest under the
9 ppm daily, regional growth alternative.*
5.4.2 Income
Another of the primary purposes of the UCIA is to examine the potential
impacts of alternative CO NAAQS's on income levels. To project these
impacts, this subsection discusses the costs and the fuel savings incurred
by each income group and disaggregates these totals by race and by occu-
pation.
Table 5-14 illustrates the distribution of people in each income category
by racial group. Because these percentages reflect actual population
numbers, the percentage of whites is greater than the percentage of
non-whites in each category. The table, however, does reflect the fact
that the ratio of non-whites to whites decreases as income levels in-
crease.
Table 5-15 details the population distribution for each racial category
among income groups. Both racial groups exhibit a substantial percentage
concentration in the middle income categories. In the lowest two income
categories, however, the percentage of non-whites is 37.8, almost twice
the amount of whites in these income groups. Conversely, the percentage
of whites in the highest two income groups is 45.5, nearly double the
percentage of non-whites. Thus, despite the larger number of whites in
each income category, non-whites comprise a disproportionate percentage
of the lower income groups.
The distribution of FMVCP costs, inspection costs, I/M repair costs, I/M
fuel savings, and TCM fuel savings is illustrated in Table 5-16 for each
of the five alternative CO standards. It shows the total amount of
*It is important to reemphasize that distressed cities are characterized
by declining conditions. In this analysis, these cities are required to
implement I/M and TCM programs in part due to a positive growth rate in
emissions (1% per year). The positive growth rate may be inconsistent with
other socio-economic characteristics in distressed areas, thus over-estimating
the amount of control needed and cost burden imposed on area residents.
5-29
-------
Table 5-14
PERCENTAGE DISTRIBUTION OF INCOME BY RACIAL GROUP
Income Category Percent White Percent Non-White
($1979) Populationa/ Population
<$4800 79.1% 20.9%
4800-6400 83.2 16.8
6400-8000 85.6 14.4
8000-9600 86.7 13.3
9600-12,000 87.6 12.4
12,000-16,000 90.4 9.6
16,000-24,000 91.7 8.3
>24,000 93.9 6.19
Note that each income category sums to 100 percent.
SOURCE: U.S. Bureau of the Census. 1977. Current Population Reports,
Series P-60, No. 105. Washington, B.C.: U.S. Government
Printing Office.
5-30
-------
Table 5-15
PERCENT DISTRIBUTION OF RACIAL GROUP BY INCOME CATEGORY
Income Category Percent White Percent Non-White
($1979) Population37 Population
<$4800 13.6% 26.9%
4800-6400 7.3 10.9
6400-8000 6.2 7.5
8000-9600 5.9 6.7
9600-12000 8.5 9.0
12000-16000 13.0 12.4
16000-24000 19.4 13.2
>24000 26.1 13.4
TOTAL 100.0% 100.0%
a/ Note that each racial category sums to 100 percent.
SOURCE: Derived from data in the U.S. Bureau of Census, 1977. Current
Population Reports. Series P-60, No. 105. Washington, D.C.:
U.S. Government Printing Office.
5-31
-------
TABLE 5-16
SUMMARY OF COSTS AND FUEL SAVINGS
BY OCCUPATION
(1979 $106)
Primary Case
Costs & Savings
a/
FMVCP Costs
White
Non-white
Inspection Fees
White
Non-white
I/M Repair Costs
White
Non-white
I/M Fuel Savings
White
Non-white
TCM Fuel Savings
White
Non— white
Net Costs
White
Non-white
7
$1804
218
189
23
172
21
145
17
132
16
2050
248
ppm
.00
.00
.00
.10
.2
.3
.0
.6
.15
.35
.53
.27
9 ppm
$1804
218
175
21
155
18
133
16
83
10
2081
251
.00
.00
.80
.30
.40
.80
.1
.0
.04
.36
.54
.56
12 ppm
$1804
218
92
15
75
9
83
10
7
2044
231
.00
.00
.60
.50
.60
.10
.40
.00
.03
.87
.25
.73
•3 jjfui, *-
High, Low
$1804.
218.
197.
23.
173.
21.
149.
18.
87.
10.
2101.
253.
uu
Growth
00
00
50
80
40
00
20
10
18
72
0
8
? JJ \J Ul , L>
Regional
$1804
218
200
24
186
23
155
18
193
23
2004
243
d.Lj_y
Growth
.00
.00
.70
.40
.20
.40
.30
.80
.24
.76
.84
.06
a/
b/
FMCVP Costs are assumed to be constant for all scenarios
Net costs equal total costs minus total savings
5-32
-------
costs and fuel savings resulting from each CO standard; it also disaggre-
gates these absolute costs by racial group. The table, a best estimation
of the costs and savings incurred by each racial group, is based on the
assumption that the racial distribution of the population equals the
racial distribution of car owners. It also is assumed that the costs
for the FMVCP will be constant for all alternative standards.
The remainder of the costs and savings categories were calculated using
the racial distributions shown in Table 5-14, thus indicating that
whites will bear a larger share of the costs and savings than non-whites
in each income group. As suggested by the relative impacts shown in
Table 5-15, however, it appears that non-whites will bear a dispropor-
tionate share of the costs, particularly in the lower income areas.*
Note that the level of all costs and the distribution of these costs by
racial group remain relatively constant for all scenarios but the 12 ppm
primary case standard. The costs for this latter scenario are significantly
lower than the costs imposed by the other alternative standards. Con-
currently, however, the fuel and cost savings achieved by this standard
are substantially lower than those achieved with other standards, thus
mitigating the lower costs.
Table 5-17 shows the distribution of people in each income category by
major occupational groups. Again, because these percentages are based
on actual population figures, the percentage of white collar workers
dominates every income category. As the income level increases, however,
the percentage of white collar workers increases while the percentage of
service and farm workers decreases.
Table 5-18 shows the population distribution of each occupational group
among income categories. Rather than helping detail the actual costs
incurred by each occupational group, this table can be used to determine
the relative impacts felt by each occupational group. For example, only
*However, by ignoring the distribution of control benefits, it may be misleading
bo say this share of costs is disproportionate.
5-33
-------
TABLE 5-17
PERCENTAGE DISTRIBUTION OF INCOME BY OCCUPATIONAL GROUP
(Persons 14 Years and Older by Total Income, 1975)
a/
Income Category
($1979) White Collar Blue Collar Service Workers Farm Workers
<$4,800
4
6
8
9
12
16
,800-6,
,400-8,
,000-9,
,600-12
,000-16
,000-24
>24,000
400
000
600
,000
,000
,000
40
43
46
48
51
51
53
74
• 9%
.0
.4
.7
.7
.4
.9
.9
23
32
34
36
36
40
40
20
.9%
.2
.4
.0
.0
.6
.3
.0
30
20
16
13
10
6
4
2
-1%
.6
.2
.0
.1
.6
.5
.8
5
4
3
2
2
1
1
2
-1%
.2
.0
.3
.2
.4
.3
.3
a/ Note that each income category sums to 100 percent.
SOURCE: Derived from data in U.S. Department of Commerce, Bureau of the Census
1977. Current Population Reports. Series P-60, No. 105. Washington,
D.C.: U.S. Government Printing Office.
5-34
-------
TABLE 5-18
PERCENT DISTRIBUTION OF OCCUPATIONAL
GROUP BY INCOME CATEGORY
(Persons 14 Years and Older by Total Income, 1975)
Income Category .
($1979) White Collar3' Blue Collar Service Workers Farm Workers
<$4800
4800-6400
6400-8000
8000-9600
9600-12000
12000-16000
16000-24000
>24000
18 . 3%
6.6
7.4
7.6
11.1
15.0
18.6
15.4
16.6%
7.7
8.6
8.7
12.0
18.4
21.6
6.4
49 . 0%
11.5
9.4
7.4
7.9
7.1
5.6
2.1
40.8%
11.5
8.9
6.4
8.3
7.3
8.0
8.8
TOTAL 100.0% 100.0% 100.0% 100.0%
a/ Note that each occupational category sums to 100 percent.
SOURCE: Derived from data in the U.S. Bureau of the Census, 1977. Current
Population Reports Series P-60, No. 105. Washington, D.C.
U.S. Government Printing Office.
5-35
-------
24.9 percent of all white collar workers are in the two lowest income
ranges while 50.2 percent of all farm workers and 60.5 percent of all
service workers fit into these lower income categories. Conversely 34
percent of all white collar workers are in the two highest income groups
compared with 7.7 percent of all service workers and 16.8 percent of all
farm workers. Clearly then service and farm workers comprise a dispro-
portionate percentage of the lower income groups.
Table 5-19 illustrates the distribution of FMVCP costs, inspection
costs, I/M repair costs, I/M fuel savings, and TCM fuel savings by
occupation for each CO scenario. These tables disaggregate total costs
and savings by white collar, blue collar, service worker, and farm
worker categories. This table also is based on the assumption that the
occupational distribution of car owners equals the occupational distri-
bution of the population. It also is assumed that FMVCP costs will not
vary with the stringency of alternative standards. Because this table
was calculated using the percentages based on actual population, the
actual costs incurred by white collar workers will be greater than those
incurred by any other group. As indicated by the relative impacts shown
in Table 5-18, however, service and farm workers will bear a dispropor-
tionate share of the costs, especially in the lower income groups.*
As illustrated in Table 5-15, the costs and the distribution of costs by
occupational group remain relatively constant for all scenarios except
the 12 ppm primary case. As before, the lower costs for this scenario
are mitigated by lower savings, resulting in a similar relative economic
impact of all scenarios, regardless of stringency.
5.4.3 Employment
The current level and/or distribution of employment is not expected to
shift significantly as a result of revised CO standards. Employment
levels will increase as jobs are generated by the greater number of I/M
*However, the impact may be overstated since service and farm workers may not be
located in urbanized areas having a CO problem and needing I/M and TCM programs.
It may also be overstated because the distribution of control benefits is ignored.
5-36
-------
TABLE 5-19
SUMMARY OF COSTS AND FUEL SAVINGS
BY OCCUPATION
(1979 $10 )
Primary Case
FMVCP Costs3'
White Collar
Blue Collar
Service Workers
Farm Workers
Inspection Fees
White Collar
Blue Collar
Service Workers
Farm Workers
I/M Repair Costs
White Collar
Blue Collar
Service Workers
Farm Workers
I/M Fuel Savings
White Collar
Blue Collar
Service Workers
Farm Workers
TCM Fuel Savings
White Collar
Blue Collar
Service Workers
Farm Workers
Net Costs
White Collar
Blue Collar
Service Workers
Farm Workers
7 ppm
$1086.0
425.0
188.0
43.0
114.0
73.9
19.7
4.5
104.0
67.3
18.0
4.1
87.2
56.7
15.1
3.6
18.6
5.0
0.7
0.6
1296.4
868.1
226.5
51.3
9 ppm
$1086.0
425.0
188.0
43.0
105.8
68.6
18.4
4.3
93.6
60.7
16.2
3.7
79.9
52.0
14.0
3.2
11.8
3.1
0.4
0.4
1291.9
887.8
224.8
51.3
12 ppm
$1086.0
425.0
188.0
43.0
58.2
37.7
9.9
2.3
45.3
29.6
8.0
1.8
50.2
32.6
8.6
2.0
1.0
0.3
0.0
0.0
1236.5
883.0
213.9
48.9
9 ppm
2nd High
Low Growth
$1086.0
425.0
188.0
43.0
119.0
77.1
20.5
4.7
104.3
67.8
18.2
4.1
89.8
58.4
15.5
3.6
12.3
3.3
0.5
0.4
1317.9
871.8
227.3
51.6
9 ppm
Daily
Regional
Growth
$1086.0
425.0
188.0
43.0
121.0
78.2
21.0
4.9
107.4
71.6
19.2
4.48
93.6
60.4
16.3
3.8
27.4
7.3
1.0
0.8
1377.9
870.7
227.5
51.6
a/ FMVCP costs are assumed to be constant for all scenarios
b/ Net costs equal total costs minus total savings
5-37
-------
programs. Increased employment due to these programs, however, will not
be extensive and must be attributed to all air quality standards requiring
transportation compliance measures, thus making it difficult to discern
that portion of increased employment resulting specifically from a
revised CO standard.
Although the level of automotive repairs should increase due to implemen-
tation of an I/M program, this increase is not expected to significantly
alter current employment levels in the automotive repair industry.
Total national revenues from all automotive repairs, services, and
garages equal $17 billion (1979 dollars) (DOC, 1977). The total
revenues generated by repair costs under the 9 ppm primary case standard
are $155.1 million or 0.9 percent of the total national revenues.
The greatest repair costs generated by an alternative standard equal
$185.9 million under the 9 ppm daily regional growth standard and the
least amount of repair costs equal $75.2 million under the 12 ppm,
primary case standard. Because the repair costs for the five alterna-
tive standards examined comprise only 0.4 to 1.1 percent of total
revenues in the automotive repair industry, it is not anticipated that
the number of repairs required under alternative standards would signifi-
cantly increase revenues or employment levels.
5.5 CONCLUSION
The results of the economic analysis and the UCIA indicate that no
particular segment of the population is forced to pay a disproportionate
amount of the total cost of mobile source control. Therefore, there are
no significant adverse income distribution impacts.
The incremental nature of ownership of automobiles does indicate, however,
that some individual households may face a disproportionate cost. This
is due to the relatively small increase in numbers of .automobiles owned
5-38
-------
by higher income households. (In other words, a constant portion of
total income is not used to purchase more cars for all households.) As
a result, a cost proportional to the number of cars may place additional
burden on individual low income households.
5-39
-------
REFERENCES FOR SECTION 5
Air Pollution Control Association. June 25, 1979. "Reducing Air Pollu-
tion From Motor Vehicles -- Developments in In-Use Strategy." APCA
Paper No. 79-7.1.
U.S. Department of Commerce, Bureau of the Census (U.S. DOC). 1972.
Census of Government. Vol. 3: Governmental Finance.
U.S. DOC. 1977. County and City Data Book.
U.S. Department of Transportation. December 1974. National Personal
Transportation Survey. U.S. DOT Report 11.
The Urban Institute. 1978. "Distressed City Indicator." Cited in the
President's National Urban Policy Report, 1978. Prepared by the Department
of Housing and Urban Development.
5-40
-------
6. ECONOMIC IMPACT ON INDUSTRIAL POINT SOURCES
6.1 ECONOMIC ANALYSIS PROCEDURE
Section 4 presented data for both capital and annualized costs. In this
section the data for both are presented in aggregate for each industry
along with the number of plants controlled under each standard. The
average cost per controlled plant to a company within the industry is estimated
by dividing the total control cost by the number of plants controlling.
6.1.1 Data and Data Adjustments
6.1.1.1 Cost Data
The average annualized cost figures for plants requiring control must be
altered to account properly for the effect of taxes. In their present
form the figures represent the sum of operating costs, capital charges,
and credits obtained from the use of CO as a fuel. Operating costs are
the day-to-day expenditures required to operate the system. Capital
charges are those items associated with owning the equipment including
depreciation, property taxes, insurance, and interest on borrowed capital.
A uniform capital recovery factor of 13.6 percent was chosen to estimate
the effect of depreciation and interest (PEDCo, 1979). This portion of
the capital charge is assumed to represent the only after-tax expense of owning the
equipment. All other portions of the annualized cost represent before-
tax expenses.* The cost of insurance, property taxes, and operating cost
are deductible for tax purposes; thus, the magnitude of these costs is
reduced by 48 percent, the corporate income tax rate.
Steam credits produced by heat recovery represent an income stream into
the firm and are therefore taxable. This is true regardless of whether
*Some financial analysts may disagree. For example, the uniform capital recovery
factor could yield a stream of rental payments that is a before-tax expense
item. Moreover, there is no room for investment tax credits and rapid write-off
considerations using this approach.
6-1
-------
the steam is sold or used to reduce energy expenditures. The credits,
therefore, also must be reduced by 48 percent. The tax-adjusted com-
ponents of annualized cost, then, were added again to represent the
average after-tax cost of regulation to firms within each industry.
6.1.1.2 Financial Data
In addition to the cost data, financial data collected to construct a
profile of the industries were used to determine the impacts. The data
form a set of "typical" firms in each industry.
Financial characteristics of firms in four major industries -- primary
aluminum, carbon black, gray iron, and maleic anhydride -- were compiled
in order to present a composite picture of the capital structure of each
industry. The primary sources of this information were Moody's Indus-
trial Reports (1979) and the Value Line Investments Survey (Bernhard,
1979), with background material on the industry provided by U.S. Depart-
ment of Commerce, 1979 U.S. Industrial Outlook.
Production figures for the companies were used to determine typical
size, while long-term debt, current liabilities, total stockholders'
equity, and 1977 or 1978 capital investments were used to measure the
financial strength of an average company in each industry. Also
collected were debt/equity ratios and beta values; the latter is an
estimator of risk as measured by the covariance between stock market
activity and company stock prices. These figures are used by investors
to determine whether or not an investment in a company is wise. As
such, they serve to indicate whether it would be difficult to generate
capital.
Where data were available for most of the firms within an industry, the
mean of the values collected was used to represent a typical firm. In
other instances, the data collected are used to establish a range within
which a typical firm would fall. For example, the gray iron industry
6-2
-------
comprises 1300 separate companies, but data are available for only a few
of each size; therefore, the range of data collected establishes a range
within which any firm is likely to fall.
6.1.2 Capital Availability Analysis
The following steps were used to determine the ability of a firm to
shoulder the burden of capital expenses incurred by pollution control
requirements:
• Screen for industries significantly affected
• Compare capital required to historical capital expenditures
of a typical company
• Compare capital cost to total long-term debt of a typical
company
• Examine debt/equity ratios and beta values to determine the
ability of a typical company to raise additional capital.
Screening consisted of examining the capital requirements for 1) the
number of sources requiring control, and 2) the percentage of recent
capital expenditure represented by controls under the most stringent
standards. If the number of sources was limited (e.g., one plant) and
capital costs were less than one percent of recent expenditures, the
industry was removed from the study. (Fluctuations of one percent and
less are assumed to be normal.) However, an industry comprised mostly
of small firms is retained in the study since smaller changes in cost
can affect small companies more significantly. *
The percentage of recent capital expenditure represented by the control
cost then was used to determine whether large amounts of additional
capital need be raised or whether other investments would be delayed.
Capital costs also were compared to total long-term debt to indicate the
ability of a company to absorb the expense. Small changes in debt will
*They can affect large companies with a low profit margin.
6-3
-------
not affect the posture of a firm; large changes are examined for the
effect on the debt/equity ratio. An increase in the debt/equity ratio
or an already high ratio together with a high beta value is an indicator
that raising capital may prove difficult.
6.1.3 Annualized Cost Impact Analysis
Figure 6-1 presents a diagram of the components of the annualized cost
analysis. A screen for significant impact within the industries was
used to eliminate industries whose price impact was less than 5 percent.*
The average cost impact was calculated by dividing the tax-adjusted ag-
gregate annualized cost for each industry by the number of sources con-
trolled under each standard. It is assumed that this cost is represen-
tative of the cost faced by a typical firm.
By further assuming full pass-through of cost, the increase in the
average cost of production corresponds to the price increase, that is,
increases in production cost would be offset by increases in price.
Accounting for the effect of taxes (since 48 percent of the marginal
revenue goes to corporate income tax), the price impact is approximately
twice the increase in the average cost of production. The magnitude of
the cost impact, viewed in terms of a percentage price increase, can be
identified by comparing the price increase to a weighted average product
price.
The price impact is examined to determine if there would be interference
with the firm's competitive posture within its own industry. Foreign
competition, transportation cost, and availability of sources of subs-
titute products are considered within this effort.
Five percent was chosen for consistency with the EPA's "Criteria
for Conducting Regulatory Analysis" (44 Federal Register 30988
(May 29, 1979)).
6-4
-------
FIGURE 6-1
ANNUALIZED COST METHODOLOGY
Annualized
Costs
Adjust for
After-Tax Cost
Screen for
5 Percent
i
Cn
Price Impact
Impact to Firm
Full Cost
Pass-Through
Domestic
Competition
Import
Competition
-------
Because credits may be obtained by incineration and heat recovery, the
annualized cost can be negative; that is, the value of the heat recovered
(in steam) exceeds the annual cost of equipment operation. In these
cases, the pollution control investment has been viewed as an exogenous
investment; any benefits obtained are distributed to the shareholders
and not reflected in a product price decrease. This conservative estimate is
consistent with the economic theory that "the dollar price of goods and
services resists being pushed down" (Solow, 1979). It is assumed,
therefore, that corporations simply would not pass the cost savings on
to the consumer.
6.2 ECONOMIC IMPACT TO INDUSTRY
6.2.1 Determination of Industries with Significant Impact
The regulatory impact analysis indicated that seven industries would require
control under any alternative NAAQS investigated in this report; they are:
• Maleic anhydride
• Carbon black
« Steelmaking
* Gray iron
• Primary aluminum
• Automobile manufacturing
• Incineration.
The latter two industries, at maximum, show only one source controlling
even under the most stringent standards.
The maximum capital expenditure incurred by the automobile manufacturing
industry is $19,000 under any alternative. This amount is insignificant
compared to investments made within the industry. General Motors, for
6-6
-------
example, invested $4.6 billion in 1978. Even for the much smaller
American Motors Corporation, the $19,000 would represent less than 0.05
percent of the $41,233,000 invested in 1978.* The annualized cost of
control to automobile manufacturing is $67,000. While the figures are
not readily available, it seems safe to assume that the operating budget
of a company is not less than its capital investments. Therefore, even
for the small automotive corporation, the cost increase would be less
than 0.02 percent.
The most stringent standard requires control of CO emissions from one
municipal incinerator. Both the capital and the annualized cost of
control are approximately $5000. Since the incinerator is operated by a
State or local government, the increased expenditure would come from
governmental revenues. The aggregate of local government revenues
across the United States for 1977 was $105 billion. Wyoming, with $170
million, ranked last in revenues received. Individual counties had
revenues ranging from $1.7 million to $29 million (EEA, 1979). A $5000
expense represents only 0.29 percent of the smallest county revenue.
Therefore, because of control requirements, incineration is considered
not to have a significant impact.
6.2.2 Profile of Industries Facing Regulatory Impacts
6.2.2.1 Maleic Anhydride
g
Seven companies produce 117 gigagrams (10 grams) of maleic anhydride
annually at eight separate plants. The corporations have a mean debt/
equity ratio of 31.9 percent and mean beta value of 0.96. The value in-
dicates that the firms manufacturing maleic anhydride are of average
risk from the investor's point of view.
Telephone interview with staff of Automotive Information Council.
6-7
-------
For five of the companies, 1978 capital expenditures data were available.
Three of the companies are large integrated corporations showing capital
expenditures in excess of $500 million per company. Two smaller corpora-
tions' expenditures were investments for chemical production alone, not
for the entire corporation, and these were around $33 million each.
6.2.2.2 Carbon Black
Carbon black, an organic compound often used as a reinforcing compound
in rubber and plastic products, is produced by nine companies; financial
data were available for six companies which produce approximately 4.3
billion pounds per year. The corporations producing carbon black have a
mean debt/equity ratio of 30.5 percent and a mean beta value of 0.97.
In 1977, four of these companies invested more than $1.7 billion in
capital expenditures, an average of about $440 million each. The industry
is associated with the petroleum refining industry by ownership and is
concentrated in Louisiana, Texas, and Oklahoma.
6.2.2.3 Steel
The steelmaking industry was profiled using 10 of the largest firms in
the industry, which account for almost all steel produced in the United
States, or 97.1 million tons in 1978. The 10 companies have a mean
debt/equity ratio of 31.9 percent, with the median at 34.5 percent.
The mean beta value for steel companies is 0.99, indicating that return
on steel investments historically has been almost identical to that of
the market as a whole. The 1977 capital expenditures of these companies
ranged from a low of $30.2 million to a high of $865 million, with a
mean of $236.5 million.
6-8
-------
6.2.2.4 Gray Iron
It is difficult to describe a typical gray iron company because of the
vast numbers and varieties of plants. (*ray iron is produced at over
1300 foundries in the United States, ranging from giant casting foundries
owned by auto manufacturers to small, family owned and operated foundries.
A representative cross section was drawn from the Iron Casting Society's
Source Book. Data were collected for five companies ranging in size
from 100 to 9000 tons per month; the results show wide variety. The
debt/equity ratio ranged from 15 to 80 percent with no correlation to
size; in fact, the two largest companies set the limits to the range.
Four of the companies were able to provide annualized cost data on pollution
control presently installed to control other nonspecified pollutants.
They ranged from $7500 to $800,000 per year with the larger values
occurring in the larger firms. This range will be compared with required
expenditure to indicate increased burden.
Total 1977 capital expenditures for all investments ranged from $60,000
to $24,000,000. The latter figure could be a one-year anomaly since it
is far greater than any of the other firms; $300,000 is a more reasonable
upper limit.
6.2.2.5 Aluminum--Primary Smelting
According to the Aluminum Association, primary aluminum is produced by
12 companies in 32 locations across the country. Approximately 5.19
million short tons of aluminum were produced in 1978. Financial infor-
mation was available for 9 companies which account for 75 percent of the
total or an average production rate of 432,783 tons per year per company.
6-9
-------
The mean debt/equity ratio is 38 percent, with a range of 23.17 to 54.7
percent and a median of 36.1 percent. Capital expenditures (1977) could
be found for only three companies with values ranging from $0.9 billion
to $1.7 billion.
Complete presentation of financial and production data gathered for the
industries discussed in Section 6.2.2 is shown in Tables 6-1 through
6-5. All of the ratios, percentages, and price impacts shown in later
sections of this chapter are derived from the data presented in these
tables.
6.2.3 Capital Cost Impacts
6.2.3.1 Maleic Anhydride
Two sources in the maleic anhydride industry require control to meet the
current eight-hour standard (9 ppm). Compliance with the standard
requires a capital expenditure of $1.14 million, an average of $570,000
for each plant. This represents less than 0.14 percent of the average
1977 capital investment for the companies. The cost represents only 1.7
percent of the smallest 1977 capital expenditure for any of the companies
for which financial data were available.
The mean beta value for the firms producing maleic anhydride is 0.96,
indicating both a slightly less-than-average risk associated with share-
holders' investment and, combined with a debt/equity ratio of 31.9, a
strong financial position. Even if the expenditures all were placed in
long-term debt, (i.e., 100 percent debt financed), it would represent
only a 0.04 percent increase in debt.
In addition to the current 9 ppm standard, three alternatives are being con-
sidered for the eight-hour standard. The most stringent option, 7 ppm,
requires three plants to control for CO (compared to two plants under
6-10
-------
TABLE 6-1
MALEIC ANHYDRIDE: FINANCIAL PROFILE
Company
1
2
3
4
5
6
7
Annual
Production3
(MG)
15
15
27
19
7
21
13
No. of ,
Plants37
1
1
1
2
1
1
1
Long-Term
Debtb/
($io3)
$2,007,379
684,696
1,030,600
98,366
2,390,900
2,300,000
N/A
Stockholders
Equity '
($103)
$6,840,594
962,733
2,430,200
191,080
3,079,500
5,157,200
N/A
Debt/Equity
Ratiob/
(%)
27.0%
41.6
30.0
29.1
43.7
N/A
N/A
Total
Capitalization
($103)
$8,847,973
1,647,429
3,460,800
296,446
5,470,400
7,457,200
N/A
Beta
Factor0'
0.95
0.85
1.05
1.00
0.85
1.05
N/A
a/
b/
c/
EEA, Inc. 1979. "Estimate of Control Costs and Simulation of Markets in Emission and Air Quality
Offsets in Nonattainment Areas."
Moody's Industrial Reports. 1979.
Arnold Bernhard Co., Inc. June 1979. Value Line Investment Survey.
-------
TABLE 6-2
CARBON BLACK: FINANCIAL PROFILE
Total
Company
1
2
3
4
o-x a/
to
6
a/Data
b/EEA,
Long-Term
Plant Capacity , No. of, , DebtC/
(1977 106 lb)D/ Plants 7 ($103)
670
912
1031
472
427
130
given are for a parent
Inc. 1979. "Estimate
5 $ 684,696
5 124,978
8 785,552
3 766,658
4 1,066,074
1 387,000
corporation which
of Control Costs
Stockholders
Equity
($io3)
$ 962,733
284,675
1,937,558
3,087,117
2,880,397
651,400
owns more than
and Simulation
Debt/Equity
RatioC//
41.6%
30.5
26.2
19.9
27.2
37.3
60 percent
of Markets
Total ,
c/
Capitalization
($io3)
$1,647,429
409,653
2,723,110
4,309,174
3,946,471
1,038,400
of the company.
in Emission and
Capital
Investment
($io6)
$401.0
N/A
501.0
N/A
584.4
174.8
Beta
Factor
0.85
1.00
0.85
1.10
1.10
0.90
Air Quality Offsets in Nonattainment Areas."
Moody
's Industrial Reports.
1979.
d/
Arnold Bernhard Co., Inc. June 1979. Value Line Investment Survey.
-------
TABLE 6-3
STEELMAKING: FINANCIAL PROFILE
Company
1
2
3
4
5
6
7
8
9
10
Total
Capacity
Annual ,
o /
Production
(1978 106 tons)
8.5
18.8
8.6
1.1
2.3
1.9
10.5
10.0
31.3
4.1
No. of ,
Plants '
8
8
1
N/A
1
4
3
10
N/A
2
Long-Term
Debtb/
($io3)
$ 505,649
140,800
613,979
85,233
77,845
135,892
406,416
452,252
2,300,000
209,220
Total
Stockholders
Equity^
($io3)
$1,451,514
2,248,200
1,145,580
324,926
464,834
160,560
1,285,864
1,334,029
5,157,200
283,082
Debt/Equity
Ratiob'C/
(%)
25 . 72%
34.62
34.92
31.01
34.62
42.01
36.10
25.32
20.01
35.01
Total
Capitalization
($io3)
$1,957.163
2,399,000
1,759,559
410,159
296,452
542,679
1,692,280
1,786,281
7,457,200
492,302
Capital
Investment
(1977 $106)
$146.4
532.1
282.0
30.2
32.4
117.3
161.7
155.5
865.0
45.1
Beta
Factor
0.92
1.20
0.80
0.90
0.95
1.15
0.75
1.05
1.05
1.20
a/
b/
c/
EEA, Inc. 1979. "Estimate of Control Costs and Simulation of Markets in Emission
and Air Quality Offsets in Nonattainment Areas."
Moody's Industrial Reports. 1979.
Arnold Bernhard Co., Inc. June 1979. Value Line Investment Survey.
-------
TABLE 6-4
GRAY IRON FOUNDRIES: FINANCIAL PROFILE
Total
Long-Term Stockholders Debt/Equity
1978 Production37 Plants/
Company (net tons/month) Foundries
1
2
3
os 4
i
£ 5
a/EEA, Inc
and Air
Moody ' s
100
500
1,000
500
9,000
. 1979. "Estimate
Quality Offsets in
Industrial Reports
1
1
1
1
1
of Control
Debt Equity Ratio Capitalization
($103) ($103) (%) ($103)
$ 200.0 $1,000 80% $1,200
1,000.0 1,600 100 2,600
240.0 3,000 15 3,240
323.9 697 40 1,000
23,000.0 71,000 80 94,000
Costs and Simulation of Markets in Emission
, , i~ajj.Li.a-L
Expenditures Beta
($103) Factor
$250 N/A
275 N/A
N/A N/A
60 N/A
24,000 N/A
Nonattainment Areas."
. 1979.
c/
Arnold Bernhard Co., Inc. June 1979. Value Line Investemnt Survey.
-------
PRIMARY ALUMINUM: FINANCIAL PROFILE
Total
Primary No. of Long-term
Total Capacity Plants DebtC/
Company (103 short tons) (primary) ($103)
1
2
3
4
5'
t 6
01
7
8
9
10
11
12
a/
b/
c/
1,675
975
724
352
a/ 300
218
218
210
200
140
90
90
Data given are
.0
.0
.0
.0
.0
.7
.7
.0
.0
.0
.0
.0
for a parent
EEA, Inc. 1979. "Estimate
Nonattainment Areas".
Moody 's Industrial Reports.
9 $1
7
N/A
2
2 2
N/A
N/A
4
2
N/A
6
N/A
corporation
,166,000
738,503
677,500
N/A
,718,834
77,555
N/A
218,873
132,221
588,881
406,416
N/A
Stockholders Debt/Equity
* i i ota 1 ,
Equity0 Ratio*" Capitalization Beta ,.
($103) (%) ($103) Factor7
$1,853,100
994,414
N/A
4,983,245
339,560
334,560
N/A
725,644
153,972
766,127
1,885,864
N/A
which owns more than
of Control Costs and
1979
Simulation of
83 . 6%
42.6
N/A
N/A
35.4
N/A
N/A
23.2
46.2
N/A
36.1
N/A
60 percent of
$3,019,100
1,732,917
1,530,200
N/A
7,702,084
417,115
N/A
944,517
286,191
1,355,008
1,692,280
N/A
the company.
Markets in Emissions and Air Quality
1.10
1.30
1.25
N/A
0.90
N/A
N/A
0.95
1.00
0.80
0.75
N/A
Offsets
d/ Arnold Bernhard Co., Inc. June 1979. Value Line Investment Survey.
-------
the current standard). The total capital cost is $1.9 million for the
three plants, an average of $633,000 per plant. This is an 11 percent
increase per plant over the current eight-hour standard requirements.
The increase in capital required is approximately 0.1 percent of the
capital invested in 1977- If the expenditure were 100 percent debt-
financed, the incremental cost of the alternative over the current
standard would increase long-term debt by 0.0044 percent.
The capital requirements for the maleic anhydride industry are shown in
Table 6-6. The average capital cost imposed by the eight-hour alter-
native differs from the current standard by as much as 55 percent. The
magnitude of the impacts relative to base investment reduces the significance
of this increase. The impact against 1977 expenditures (i.e., less than one
percent in all cases), indicates little real problem with capital availability;
the difference between 0.14 and 0.2 percent should not hinder the formation
of capital.
6.2.3.2 Steelmaking
To meet the proposed 9-ppm eight-hour standard, only one steelmaking plant
must control CO emissions. The capital cost for the single plant is
$4.4 million. The mean value of capital expenditures in 1977 for the
steel industry was $236.5 million.
The control equipment capital cost, therefore, represents an average of
1.8 percent of the capital budget for typical corporations within the
industry. 1977 capital investments ranged as low as $30.2 million for a
single company; a $4.4 million cost would represent 14.6 percent of the
capital expenditure" for that firm.*
Despite problems with competition from foreign steel products, the
industry maintains a mean beta value of 0.99 and a relatively low debt/
equity ratio of 31.9. This indicates that while expansion of the indus-
try may not occur, its financial structure is reasonably sound.
*To look at capital requirements in isolation can give misleading results.
Recall from Chapter 4 that on an annualized cost basis, CO control requirements
result in a net cost savings, or credit.
6-16
-------
Long-term debt for a typical steel producer is $494 million. Total debt
financing of the capital investment would be only a 0.8 percent increase
in debt. Complete debt financing would raise the debt/equity ratio to
32.2, an increase of 0.3 percent.
The 7 ppm eight-hour standard requires $21.4 million for the control of
two plants or $10.7 million for each plant. A capital investment of
this magnitude represents 4.4 percent of the average firm's capital
investment in 1977. It should be noted, however, that since some firms
invested in the range of $30 to $45 million in 1977, the pollution
control requirements could use as much as one-third of the total capital
spent in one year. This could cause a significant decrease in other
investments. The magnitude of the expenditure is equivalent to 2.1
percent of the total long-term debt held by the average company. Such
an increase, while not changing the debt/equity ratio significantly
could cause a delay in some of the investment which would occur in the
absence of control requirements.
The capital expenditure to meet the 12 ppm alternative is equal to $4.9
million to control one plant. This is an increase of $500,000 over the
current standard. The more lenient standard allows the plant to choose
the control strategy which produces the lowest annualized cost. It
picks that option even though the capital costs are more. The expenditure
represents 2 percent of the average capital investment for steel firms.
6.2.3.3 Gray Iron
The 9 ppm eight-hour standard requires 12 gray iron plants to control CO
emissions at a capital cost of $120,000, averaging $14,167 per plant.
This represents from 0.06 to 23.6 percent of the capital expenditures of
foundries in 1977 (Company 2, Table 6-4). The expenditure represents
5.2 percent of the capital expentitures of our benchmark firm. The
expenditure is 1.4 percent of the company's long-term debt.
6-17
-------
TABLE 6-6
CAPITAL REQUIREMENTS FOR THE AVERAGE MALEIC ANHYDRIDE FIRM
% °f 197?
8-Hour _ # of Plants Capital % Increase in
Standard ($10 ) Controlling Expenditure Long-Term Debt
9 ppm $ 570 3 0.14% 0.040%
7 ppm 633 2 0.15 0.044
12 ppm 885 2 0.20 0.062
6-18
-------
The 7 ppm eight-hour standard controls 18 plants at a capital cost of
$281,000. This is an average of $15,611 per plant compared to the
$14,167 under the current standard. The percentage of 1977 capital
expenditures ranges from 0.06 to 26 percent and represents 5.6 percent
of the benchmark firm. For a company whose capital investments are
constrained, the change from current to a 7 ppm standard could reduce
other capital investments hy 3 percent.
The 12 ppm eight-hour standard shows that four foundries require control
for attainment. The capital cost for the four plants is $54,000 or an
average of $13,500 per plant. This represents the lowest average capital
cost for gray iron control for any of the standards under consideration.
This capital expenditure is within the 0.056 to 22.5 percent range
compared to the 0.06 to 23.6 percent range. The capital expenditure
thus falls by less than 1.1 percent vis-a-vis the current standard.
Table 6-7 presents the average capital cost for the gray iron industry.
The percentage of 1977 capital expenditures is calculated from the
expenditure of the benchmark firm.
In the case of the gray iron industry, the effect on the individual firm
of changing the standard is not very significant. The maximum difference
between the capital requirements under any of the standards is $2500.
The primary effect of a change is to alter the number of sources subject
to the control requirements. Even so, the maximum number of plants in-
volved (12) is less than one percent of the foundries in the United
States.
6.2.3.4 Primary Aluminum
To meet the 9 ppm eight-hour standard, a capital expenditure of $32
million is required for the control of two plants, an average cost of
$16 million per plant. 1977 capital expenditure data were available for
6-19
-------
TABLE 6-7
CAPITAL REQUIREMENTS FOR THE AVERAGE GRAY IRON FIRM
Capital
p pi t % of 1977
8-Hour _ // of Plants Capital % Increase in
Standard ($10 ) Controlling Expenditure Long-Term Debt
7 ppm $15.61 18 5.7% 1.5%
9 ppm 14.17 12 5.2 1.4
12 ppm 13.50 4 4.9 1.3
6-20
-------
only three companies which are of small size compared to the mean pro-
duction of the industry. The figures for capital expenditure ranged
from $90 million to $1.6 billion. This means that the capital required
to meet the eight-hour standard should represent between 1.0 and 17.8
percent of the capital investment in any year for these aluminum-pro-
ducing companies. The cost is 2.4 percent of the average capital expend-
iture.
The mean value for debt is $746.7 million; thus, the control expenditure
would be 2.1 percent of the total debt for the company. This might
delay some other non-mandatory investments by requiring generation of
equity to cover the expenditure.*
Table 6-8 shows that the average capital requirements for firms controlling
for CO vary only slightly between most of the standards. The difference
between any of the possible eight-hour NAAQS's is limited, only 0.6
percent of the capital investment of the typical firm. Thus, the differ-
ential involved in changing the standards is small for the primary
aluminum industry.
6.2.3.5 Carbon Black
Capital investments for the corporations producing carbon black totaled
between $174.8 million and $584.4 million in 1977 with a mean of $440
million. The current eight-hour standard requires control of 11 sources,
which make up almost 35.5 percent of all the sources (31) that produce
carbon black. The total capital cost is $23.65 million or $2.15 million
per plant. This is 0.5 percent of the mean expenditure or 1.3 percent
of the smallest 1977 capital expenditure of companies within the industry.
The industry should have little difficulty raising the capital for such
investments, since 1) the debt/equity ratio of the firms is lower than
for most industries (between 19.9 and 41.6), 2) the amount of credits
obtained from investments is substantial, and 3) profits are up among
most oil companies with which carbon black production is connected.
*Remember, capital expenditures are being considered at this state of the
analysis in isolation of cost pass-through possibilities. Both capital
expenditures and cost pass-through, or price impacts, must be considered
in evaluating net impact on the primary aluminum industry.
6-21
-------
TABLE 6-8
CAPITAL COST TO THE AVERAGE ALUMINUM FIRM
% °f 1978
8-Hour # of Firms Capital Percent of
Standard ($10 ) Controlling Investment Long-Term Debt
7 ppm $16,000 2 2.4% 2.1%
9 ppm 16,000 2 2.4 2.1
12 ppm 16,000 2 2.4 2.1
6-22
-------
The most stringent option, the eight-hour 7 ppm standard, requires
control by 12 sources -- 39 percent of all the plants in the United
States -- at an average capital cost of $2.2 million per plant. The
average cost increase per plant is $70,000 over the current standard, an
increase in capital cost of only 3 percent for the project, representing
less than 0.02 percent of the mean capital investment of the industry.
A change to the 12 ppm standard requires six sources to control. The
average capital cost is $2.26 million, an increase of $110,000 over the
current standard and an increase in the percentage of 1977 capital
expenditure of only 0.06 percent.
Table 6-9 compares the average capital cost for firms needing control
under each standard. The average capital cost does not differ by very
much so that the difference in impact on the average firm is not signif-
icant. The primary effect would be a change in the number of sources
subject to control requirements.
6.2.4 Annualized Cost Impacts
6.2.4.1 Industries with Positive Annualized Cost of Control
6.2.4.1.1 Primary Aluminum
Table 6-10 presents the after-tax annualized costs for the NAAQS options
for the typical firm within the primary aluminum industry. A price in-
crease of this magnitude may not have a significant effect on the industry
for two reasons. First, transportation of aluminum costs approximately
$0.014 per pound per ton-mile (EEA, 1979). Therefore, an increase in
transportation distance of an alternative source of aluminum of 150
miles would completely offset the price increase. Second, the aluminum
industry presently is experiencing increases in demand. Operating at 90
percent of full capacity (Bureau of Mines, 1978), sources within the
6-23
-------
TABLE 6-9
CAPITAL COST TO THE AVERAGE CARBON BLACK FIRM
Capital Cost % Qf
8-Hour Per P1^nt # of Plants Capital % of
Standard ($10 ) Controlling Investment Long-Term Debt
7 ppm $2,220 12 0.50% 0.35%
9 ppm 2,150 11 0.48 0.34
12 ppm 2,260 11 0.51 0.36
6-24
-------
TABLE 6-10
ANNUALIZED COST FOR AN AVERAGE ALUMINUM FIRM
After-Tax
8 -Hour
Standard
7 ppm
9 ppm
12 ppm
rt-unucij-j-zeu vjijsu
($io3)
$9,180
9,180
9,130
# of Sources
Controlling
2
2
2
% Increase in Prid
((? $0.62/lb)
3.4%
3.4
3.4
*Calculated by dividing before-tax annualized cost by annual revenue.
6-25
-------
industry are in a strong position to pass through cost fully without
causing a significant shift in intra-industry competitive posture.
6.2.4.1.2 Gray Iron
Table 6-11 compares the average after-tax annualized cost for gray iron
foundries. As can be seen, none of the options under consideration
cause an increase greater than one percent in product price for a foundry
requiring control.
The after-tax annualized cost of the 9 ppm standard is $13,794 per
plant, corresponding to an increase in the average cost of production of
$0.001 to $0.006 per pound, depending on the size of the foundry. The
increase in cost to our benchmark firm (Company 2, Table 6-4) would be
$0.001,reflecting a 0.6 percent increase in price.
6.2.4.2 Industries with Negative Annualized Cost of Control
6.2.4.2.1 Maleic Anhydride
Two sources in the maleic anhydride industry must control CO to meet the
current eight-hour NAAQS. The after-tax annualized cost is equal to
-$17,500 per plant, which is assumed to be distributed among the stockholders.
However, since the mean stockholders' equity for a company producing
maleic anhydride is approximately $3.11 billion, this is only a $0.0005
per dollar return to the stockholders. The negative annualized cost
does indicate that this is an investment which would not change the
ability of a company requiring control to operate within the market.
All of the NAAQS options result in either no cost or negative annualized
cost to the maleic anhydride industry. The magnitude of these after-tax
costs are presented in Table 6-12.
6-26
-------
TABLE 6-11
ANNUALIZED COST FOR AN AVERAGE GRAY IRON FIRM
After-Tax
8-Hour Annualized Cost # of Sources % Increase in Price*
Standard ($103) Controlling (@ $0.62/lb)
7 ppm $12,921 18 0.57%
9 ppm 13,794 12 0.60
12 ppm 11,411 4 0.50
*Calculated by dividing before-tax annualized cost by annual revenue,
6-27
-------
TABLE 6-12
AVERAGE AFTER-TAX RETURN FROM CONTROL OF CO FOR AN
AVERAGE MALEIC ANHYDRIDE FIRM
8-Hour Annualized Return
Standard ($103)
7 ppm
9 ppm
12 ppm
$28.9
17.5
131.5
# of Sources
Controlling
3
2
2
-------
The annualized cost associated with the investment for the 7 ppm standard
is -$28,900 per firm, adjusted for taxes. This negative cost is an in-
significant additional dividend to stockholders, approximately 0.0009
percent, but it is a savings to the average firm of $11,400 per year
over the current standard.
6.2.4.2.2 Steelmaking
The current eight-hour standard requires controls for one steelmaking
facility. The after-tax annualized cost was calculated to be -$40,000
per year per plant, representing a $0.003 payment for each dollar of
stockholders' equity.
Table 6-13 compares the negative annualized costs incurred under the
various alternatives. It should be noted that the steel industry has
the largest fluctuation of average impact of any of the industries
affected. The level of control required changes the profitability of
the pollution control investment.
For the most stringent eight-hour standard, the after-tax annualized
cost per plant is -$802,000. This is a 20-fold increase in the benefits
above the current option and represents $0.06 per dollar in additional
dividends over normal returns for companies using controls. Since no
other standard has capital or annualized cost greater than that incurred
under the 7 ppm eight-hour standard, it can be concluded that the steel
industry does not experience a significant price impact due to alternative
ambient CO standards.
6.2.4.2.3 Carbon Black
The after-tax annualized cost under the current eight-hour standard is
-$478,000 per plant. The savings translates into a $0.028 return on
each dollar of equity. Table 6-14 presents the annualized return for
the current standards and the regulatory options under consideration.
6-29
-------
TABLE 6-13
AVERAGE ANNUALIZED RETURN PER FIRM IN THE STEELMAKING INDUSTRY
Annual Return
8-Hour per plant # of Sources C/$ Return on
Standard ($103) Controlling Stockholders' Equity
7 ppm $ 40 1 $ 0.003
9 ppm 802 2 0.060
12 ppm 400 1 0.030
6-30
-------
The after-tax annualized savings due to the most stringent standard (7
ppm eight-hour) is -$504,000 per plant. This is only $0.001 per dollar
of equity increase over the current standard, while the 12 ppm standard
yields an after-tax annualized cost for each plant of -$472,000 or a
reduction in benefits of $6,000 per year. Again, this change does not
affect any operations of these large corporations.
Since the impact on the operation of the firm is not affected by an in-
crease in dividends of less than one percent, the differential impact of
the regulatory options is not significant.
6-31
-------
TABLE 6-14
AVERAGE ANNUALIZED RETURN PER FIRM IN THE CARBON BLACK INDUSTRY
Annual Return
8-Hour per plant # of Sources C/$ Return on
Standard ($103) Controlling Stockholders' Equity
7 ppm $504 11 $ 0.031
9 ppm 478 11 0.029
12 ppm 472 6 0.029
6-32
-------
REFERENCES FOR SECTION 6
Arnold Bernhard Co., Inc. June 1979. Value Line Investments Survey.
Energy and Environmental Analysis, Inc. 1979. "Estimate of Control
Costs and Simulation of Markets in Emission and Air Quality Offsets in
Nonattainment Areas."
Federal Register. May 29, 1979. Vol. 44, No. 104, p. 30988.
Iron Casting Society. 1978. Source Book.
Moody's Industrial Reports. 1979.
PEDCo Environmental, Inc. June 1979. "Carbon Monoxide Control Costs
for Selected Processes."
Solow, Robert. January 1979. "Understanding Inflation: The Impossible
Dream," Technology Review.
U.S. Bureau of Mines. 1978. Mineral Yearbook, Vol. 1.
U.S. Department of Commerce, Bureau of the Census. 1977. City
and County Data Book.
U.S. Department of Commerce, Industry and Trade Administration. 1979.
1979 U.S. Industrial Outlook.
6-33
-------
APPENDIX A: FEDERAL MOTOR VEHICLE EMISSION
CONTROL PROGRAM (FMVCP)
The costs of the FMVCP are estimated for the following vehicle categories:
• Light-duty vehicles
• Light-duty trucks
• Heavy-duty vehicles
• Motorcycles
• Aircraft.
The primary source of cost estimates for the vehicle emission standards
was the regulatory analysis for ozone (EPA, 1979a). All costs are expressed
in 1979 dollars.
The FMVCP controls gaseous emissions from combustion and evaporative
emissions from fuel storage. Evaporative emissions consist of hydrocar-
bons only and, therefore, are not included in this discussion. FMVCP
costs are presented by initial cost of emission controls, annualized
capital charges, maintenance costs, changes in fuel economy, and costs
for control at altitude,
A.I LIGHT-DUTY VEHICLES
A.1.1 Initial Cost of Emission Control Systems
Effective standards of control for automobile carbon monoxide emissions
began with the 1972 model year; the CO standard, effective through 1974,
was 39.0 grams/mile. The standard was achieved using an air pump, which
added an initial cost per vehicle of $30.00 (EPA, 1979a; Automotive News,
1979). The control system also reduced hydrocarbon emissions; the initial
A-l
-------
cost is apportioned equally between these pollutants, making the cost
attributable to CO approximately $15.00 per vehicle.
In the 1975-79 model years, an oxidation catalyst (also called a dual
catalyst) is used to achieve a standard of 15 grams/mile. The initial
cost of the oxidation catalyst is $176 per vehicle (EPA, 1978a). Of
this cost, approximately $12 is attributable to an exhaust gas ^circu-
lation (EGR) system used for NO reduction only. Therefore, $164 per
X
vehicle was spent to reduce CO and hydrocarbons; again, the CO share is
half, or $82 per vehicle.
The 1980 model year requires emissions of not more than 7.0 grams/mile;
such a reduction is achieved using a three-way catalyst at an initial
cost of $283 per vehicle (EPA, 1978a). Removing the EGR cost ($12) and
allocating a share to hydrocarbons and NO., the CO portion is approximately
$91.
The emission standard again is lowered, beginning with the 1981 model
year, to 3.4 grams/mile. The three-way catalyst is augmented with an
oxidation cleanup catalyst at an additional cost of $14 to $40 per vehicle
The total control system cost to achieve a combined standard of 0.41/
3.4/1.0 gram/mile for hydrocarbons, CO, and NO , respectively, ranges
X
from $296 to $313 per vehicle (EPA, 1978a) (see Table A-l). Adjusting
for the .$12 EGR cost, the CO share is reduced to one-third or $100 per
vehicle.*
The initial capital charges of FMVCP for CO in 1987 are estimated by
multiplying the model year cost per vehicle by the projected or actual
new car sales for any model year between 1972 and 1987. These products
are summed to obtain the cumulative cost; Table A-2 presents these esti-
mates.
EPA's Office of Mobile Source Pollution Control recommends equal
apportioning.
A-2
-------
TABLE A-l
COST OF COMPONENTS IN A THREE-WAY PLUS OXIDATION CATALYST SYSTEM
Component
Throttle position sensor
PCV valve
HEI (less breaker point distributor)
TVS (spark)
Electric choke
EFE
EGR (backpressure)
TVS (EGR)
Stainless steel exhaust pipe (less steel pipe)
Air injection system
Air switching system
Feedback carburetor (less open loop carburetor)
Three-way plus oxidation catalyst
ECU
0~ Sensor
H»0 temperature sensor
Inlet air temperature sensor
Engine speed sensor
Crank angle position sensor
EGR pintle position sensor
Evaporative system
TOTAL
SOURCE: Lingren, LeRoy H. (Rath and Strong, Inc,
Estimation for Emission Control Related
and Cost Methodology Description." EPA-
Cost ($1979)
Minimum Maximum
$
1.1
7.7
1.1
4.4
7.7
9.9
33.0
2.2
8.8
172.7
33.0
3.3
11.0
$296.0
$ 2.2
1.1
7.7
2.2
1.1
4.4
7.7
2.2
9.9
33.0
2.2
8.8
172.7
33.0
3.3
2.2
2.2
2.2
2.2
2.2
11.0
$313.0
). March 1978. "Cost
Components/Systems
•460/3-78-002.
A-3
-------
TABLE A-2
ANNUALIZED CAPITAL COST INCREASES FOR LDV'S DUE TO CO CONTROLS IN 1987
($1979)
Model Year
TOTAL
New Car Sales
10e
a/
176.5
Initial Cost
Increase Per Car
($)
Total
Capital Cost
($1Q6)
Scrappage Rate
a/
$13,993.0
Annualized Cost
($106)
b/
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
1977
1976
1975
1974
1973
1972
12.4
12.3
12.3
12.0
11.5
11.0
11.1
11.5
10.9
11.3
11.2
9.9
8.2
8.8
11.5
10.6
$ 100.0
100.0
100.0
100.0
100.0
100.0
100.0
91.0
82.0
82.0
82.0
82.0
82.0
15.0
15.0
15.0
$ 1240.0
1230.0
1230.0
1200.0
1150.0
1100.0
1110.0
1046.5
893.8
926.6
918.4
811.8
672.4
132.0
172.5
159.0
1.00
1.00
1.00
0.99
0.99
0.97
0.91
0.82
0.71
0.59
0.47
0.37
0.27
0.20
0.16
0.10
$ 223.2
221.4
221.4
213.8
204.9
192.1
181.8
154.5
114.2
98.4
77.8
54.0
32.6
4.7
4.9
2.9
$2,003.0
a/ McNutt, B., Dulla, R. , and Lax, D. February/March 1979. "Factors Influencing Automotive Fuel Demand."
SAE Paper 790226.
b/ Calculated assuming an 18 percent capital recovery factor (discount rate=12.5 %. average life=10 years).
-------
A.1.1.1 Annualized Capital Charges
Table A-2 also presents the annualized capital costs of FMVCP in 1987.
These costs were calculated by multiplying the total capital expenditure
for each model year by a capital recovery factor of 18 percent (assuming
the discount rate for households is 12.5 percent and that cars have an
average life of 10 years) and a scrappage rate determined by vehicle
age.
A.1.2 Maintenance Costs
The use of certain emission control systems leads to different costs
and/or savings on typical maintenance relative to uncontrolled vehicles.
Cars equipped with oxidation or three-way catalysts are assumed to real-
ize a net annual $5.50 savings (EPA, 1979a) (CO portion, see Table A-3) .
The items in Table A-3 indicate expected changes in the needed maintenance
between uncontrolled vehicles and 1987 model year vehicles. The costs
presented are considered to be a case of minimum savings since the prices
assumed for sparkplug and point/condenser changes are probably low. The
increase in oil change intervals, which at least in part is due to the
use of unleaded fuel, is not considered. Also, 0? sensor change intervals
may be more than 30,000 miles by 1987, as that interval is being used or
exceeded by some vehicles in production today. The $55 miscellaneous
cost for repair of emission control systems is in addition to an amount
for any repairs attributable to inspection and maintenance programs.
No maintenance charges are experienced in pre-1975 vehicles. Table A-4
presents the estimated maintenance savings in 1987, calculated by multi-
plying the savings per vehicle by the 1987 population for each model
year (i.e., new car sales for each model year times the scrappage rate).
A-5
-------
TABLE A-3
MAINTENANCE CHANGES OVER 100,000 MILES
Total Cost of Cost Related to
Maintenance Maintenance CO Control
Change 0 sensor three times 3 x 16.5 = $49.5 1/3 x 49.5 = $16.5
Miscellaneous emissions system AC-C •, ,~ cic _ <;io o
vJJ J-/--5 X DC) — oJ_o. 3
repairs
Save five plug changes 5 x 11 = $(-)55 1/2 x (-55) = $-27.5
Save 10 point/condenser changes 10 x 11 = $(-)110 1/2 x (-110) = $-55
Save one muffler change $(-)22 1/3 x (-22) = $-7.33
TOTAL $(-082.5 per 10 yrs $ (-)55 per 10 yrs
SOURCE: Michael P. Walsh, Assistant Administrator, for Mobile Source Air
Pollution Control. December 1, 1978. Memorandum to Walter C. Barber
Office of Air Quality Planning and Standards
A-6
-------
TABLE A-4
a/
ANNUAL OPERATING AND MAINTENANCE SAVINGS FOR LDV'S
DUE TO THE FMVCP IN 1987
($1979)
Annual , , / Total
Model Year
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
1977
1976
1975
1974
1973
1972
TOTAL
O&M Savings '
($)
$ 5.5
5.5
5.5
5.5
5.5
5.5
5.5
5.5
5.5
5.5
5.5
5.5
5.5
0.0
0.0
0.0
Vehicle Population
12.4
12.3
12.3
11.9
11.4
10.7
10.1
9.4
7.7
6.7
5.3
3.7
2.2
1.8
1.8
1.1
120.8
Annual Saving
($106)
$ 68.2
67.7
67.7
65.5
62.7
58.9
55.6
51.7
42.4
36.9
29.2
20.4
12.
0.0
0.0
0.0
ftfi^Q n
a/ Assumes no change in savings between the dual catalyst and the three-
way catalyst.
b/ Assumes 100,000 miles over a 10-year vehicle life
c/ New car sales x scrappage rate.
A-7
-------
A.1.3 Fuel Economy Credits
EPA's Emission Control Technology Division (Ann Arbor, Michigan) esti-
mates the composite fuel economy of catalyst-equipped vehicles to be
seven percent better than uncontrolled cars (EPA, 1979a; Murrell, 1979).
Data found in "Light Duty Automotive Fuel Economy Trends Through 1978"
(Murrell, 1979) show the composite economy of 1978 California vehicles,
which are controlled, to be about 7 or 8 percent better than uncontrolled
vehicles at a constant weight mix (EPA, 1979a; Murrell, 1979). While it
could be argued that fuel economy will continue to improve until 1987, a
conservative representation of fuel economy benefits will use the 7 percent
figure as a minimal fuel savings. No fuel economy is realized from air
pump-equipped vehicles (1972-74 model years).
Table A-5 presents the savings due to FMVCP-related fuel economy. The
average annual vehicle miles traveled (VMT) per car by vehicle age and
the composite in use fuel economy for each model year are used to estimate
the average gasoline consumption per vehicle by model year. Using a
formula developed by the EPA Office of Mobile Source Pollution Control in
Ann Arbor, Michigan, the EPA certified mileage data are converted to esti-
mates of in-use road fuel economy. This number is generally lower than
the certified mileage. Assuming a gasoline price of $1,00/gallon, the
per vehicle cost of gasoline is obtained. Savings are calculated by
multiplying per vehicle fuel costs by each model year's vehicle popula-
tion (i.e., the new car sales times scrappage) and the fuel economy bene-
fit. To obtain that portion due to CO, 1975-79 savings are divided by
two, and 1980-87 savings are divided by three.* The total savings at-
tributed to the CO standard is then approximately $1.8 billion.
Since catalysts are required by CO and HC only prior to 1981, the
costs are shared equally by the two pollutants. After 1981, NO ,
CO, and HC equally share the savings. x
A-8
-------
TABLE A-5
ANNUAL FUEL ECONOMY SAVINGS FOR LDV'S DUE TO THE FMVCP IN 1987
Fuel Economy (mpg)
Model
Year
1987
1986
1975
1984
1983
1982
st981
?980
1979
1978
1977
1976
1975
1974
1973
1972
Annua 1 ,
VMT/Cara/
15,900
15,000
14,000
13,100
12,200
11,300
10,300
9,400
8,500
7,600
6,700
6,600
6,200
5,900
5,500
5,100
EPA Certifiedb/
(mpg)
27.5
27.5
27.5
27.0
27.0
25.1
23.5
21.7
20.1
19.6
18.3
17.5
15.8
14.2
14.2
14.5
In-UseC/
(mpg)
21.8
21.8
21.8
21.4
21.4
20.2
19.1
17.9
16.9
16.5
15.7
15.1
14.0
12.9
12.9
13.1
Total Per Car
Consumption
(gallons)
729
688
642
612
570
559
539
525
503
461
427
437
443
457
426
389
Model Year
Vehicle
Population
(io6)
12.4
12.3
12.3
11.9
11.4
10.7
10.1
9.4
7.7
6.7
5.3
3.7
2.2
1.8
1.8
1.1
Fuel
Economy
Improvement
0.07
0.07
0.07
0.07
0.07
0.07
0.07
0.07
0.07
0.07
0.07
0.07
0.07
-
-
-
Savings: ,.
CO Share '
(IO6 $)
$ 210.9
197.5
184.3
169.9
151.6
139.6
127.0
115.2
135.6
108.1
79.2
56.6
34.1
-
-
-
TOTAL
120.8
$1709.6
Footnotes on following page.
-------
TABLE A-5
ANNUAL FUEL ECONOMY SAVINGS DUE LDV'S DUE TO THE FMVCP IN 1987
(continued)
a/ EEA. August 1979. "Alternative Short-Term NO Standards: Second Round Analyses." Prepared for U.S.
EPA. Table 4-10. l
b/ McNutt, B.; Dulla, R.; and Lax, D. February/March 1979. "Factors Influencing Automotive Fuel Demand."
SAE Paper 790226; Murrell J.D., March 2, 1979. "Light Duty Automobile Fuel Economy Trends Through 1978.
SAE Paper 780036.
c/ Based on Ann Arbor analysis of in-use to certified mileage relationship.
d/ Switches from 1/2 to 1/3 after 1979; assumes $1.00/gallon.
i
i—i
o
-------
A.1.4 Use of Unleaded Fuel
Catalyst control systems require the use of unleaded fuel. Presently,
unleaded gasoline is $0.04 to $0.05/gallon more expensive than regular
gasoline, with some fluctuation. This trend is due in part to a slightly
higher refining cost of unleaded fuel and in part to pricing strategies
of gasoline retailers. Some experts predict that as unleaded fuel becomes
the "high volume" fuel towards 1987, the price differential will be reduced.
In any case, with the DOE proposed "tilt" rule as published in the April 11,
1979, Federal Register, the price differential will not be greater than
$0.04/gallon. The rule provides maximum allowable price differentials
between leaded and unleaded gasoline."'
Table A-6 shows that a $2.0 billion cost is incurred by the use of unleaded
instead of leaded fuel in 1987. Again, this cost is incurred due to the
entire FMVCP. To determine the CO portion, 1975-79 costs are divided by
two, while 1980-87 costs are divided by three, yielding a total CO cost
due to unleaded fuel of approximately $733 million.
A.1.5 Emission Control at Altitude
Emission control at altitude is not required for model years 1979-80 as
a result of the 1977 Clean Air Act Amendments (EPA, 1979a, Appendix D),
although altitude regulations may be in force again by the 1981 model
year. The final form of these regulations was presented for the 1981
and subsequent model years in Federal Register Vol. 45, No. 17 on
January 24, 1980, at a cost of $10.3 million or 5.1 for CO. In addi-
tion, the Clean Air Act requires stringent altitude controls beginning
with the 1984 model year. Thus, the program cost can be estimated only
within a fairly wide range, from $55 million to $1,039 million (EPA,
1978b,c). To consider only CO control, the dollar amounts are divided
in half, yielding $27.5 million to $519.5 million. The mid-point of the
Consistent with the direction of EPA's Office of Mobile Source Air
Pollution Control, Ann Arbor, Michigan, a value of $0.03 per gallon
is assumed.
-------
TABLE A-6
COSTS TO LDV'S OF USING UNLEADED FUEL DUE TO FMVCP IN 1987
($1979)
Model Year
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
1977
1976
1975
Fuel Consumed ,
Annually Per Car
(gallons)
729
688
642
612
570
559
539
525
503
461
427
437
443
Vehicle
Population
(106)
12.4
12.3
12.3
11.9
11.4
10.7
10.1
9.4
7.7
6.7
5.3
3.7
2.2
Unleaded
Price Differential
($/gallon)
$ 0.03
0.03
0.03
0.03
0.03
0.03
0.03
0.03
0.03
0.03
0.03
0.03
0.03
CO Portion
($io6)
$ 90
85
79
73
65
60
54
49
58
46
34
24
15
b/
TOTAL
733
a/ Calculated from VMT per year per car (USEPA, OQWM, Mobile Source Emission Factors, EPA-400/9-78-005,
March 1978) divided by typical model year miles per gallon. (B. McNutt, R. Dulla, and D. Lax.
February/March 1979. "Factors Influencing Automotive Fuel Demand". SAE Paper 790226).
b/ Switches from 1/2 to 1/3 after 1979.
-------
range will be used or 273. Adding the cost for previous years, a cost
of $275 million is estimated.
A.1.6 Tailpipe Standard Waivers
The nation's automobile manufacturers have been petitioning the EPA for
a waiver from meeting the 1981 3.4 grams/mile emission standard. EPA
has granted two-year waivers to five companies: Chrysler Corporation
(one-half of projected production), American Motors' (four-fifths of
production), British Leyland (one-fifth of production) (Federal Register, Vol
49^223, 1979), Toyota (small fraction of production), and General Motors
(a one-year waiver for a small portion of its production).
In total, approximately 20 percent of 1981-1982 model year vehicles (about
4.4 million cars) will continue to meet a 7.0 grams/mile versus a 3.4 grams/
mile standard at a per vehicle saving of $9.00 (see Table A-l). The
impact on estimated cost is approximately $39.8 million in initial capital
cost savings and annualized cost savings of almost $6.8 million. These
savings account for 0.2 percent of the cumulative capital cost without
any waivers and0.3 percent of the total annualized cost.
In addition, new requests for waivers were made by Toyota, Lotus, Chrysler,
AMC, and GM (Federal Register Vol. 1397, No. 7, draft). Preliminary indi-
cations are the waivers will be granted for a portion of the engine families
for Lotus, General Motors, and American Motors Corporation. The engines
will be subject to an interior standard of 7.0 gpm for the 1981 model
year. These additional waivers involve an additional 10 percent of the
1981-1982 model years at a savings of $9.00 per vehicle for an additional
capital savings of $19.9 million or annualized savings of $3.4 million.
A.2 LIGHT-DUTY TRUCKS
A.2.1 Initial Cost of Emission Control Systems
The initial costs of emission control systems for light-duty trucks (LDT)
were assumed to be the same as for automobiles from 1972 to 1982. The
A-13
-------
standard schedule is slightly different from that for LDV's in the 1979-82
period, however, since the most stringent standards are implemented in
1983 instead of 1981 and the interim standard applies for four years
while it is only one year for LDV's. The estimate of cost for emission
control for model years 1983 to 1987 was taken from the regulatory analysis
for LDT's (EPA, 1979b). The cost represents only that portion attributed
to the CO standard.
The calculation of 1987 cumulative capital costs is shown in Table A-7.
A.2.2 Annual Costs of LPT Emission Control
Table A-8 presents the annualization of these capital charges. To be
conservative, no maintenance savings or fuel economy savings are credited
to LDT. The annual costs, therefore, represent the annualized capital
charges and the added costs of unleaded gasoline. Table A-9 presents
the calculation procedure for estimates of the latter.
A.2.3 Emission Control at Altitude
The method for determining the cost of LDT emission control at altitude
is taken directly from the ozone analysis (i.e., the ratio of LDT to LDV
multiplied by the cost of LDV). The cost is thus 36 percent of the LDV
altitude cost or $100 million.*
A.3 HEAVY-DUTY VEHICLES
A.3.1 Initial Cost of Emission Control Systems
Heavy-duty vehicle (HDV) control equipment costs for model years 1983-1987
were obtained from the regulatory analysis of heavy-duty vehicles (EPA,
1978d). Since control costs for HDV's for model years prior to 1983 are
not available, an estimation technique recommended by EPA's Office of
* Assuming 120.8 million LDV's and 43.31 million LDT's (see Tables A-3
and A-8).
A-14
-------
TABLE A-7
CAPITAL COST OF LDT CONTROL DUE TO FMVCP IN 1987
($1979)
Model Year
New LDT Sales3/
(106 vehicles)
Initial
Cost Increase
Per Vehicle
($)
Total
Capital Cost
($106)
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
1977
1976
1975
1974
1973
1972
TOTAL
4.61
4.54
4.50
4.31
4.03
3.75
3.83
3.88
3.53
3.78
3.50
2.90
2.09
2.25
2.56
2.00
$ 105.72
105.72
105.72
105.72
105.72
82
82
82
82
82
82
82
82
15
15
15
$ 487.4
480.0
475.8
455.7
426.1
307.5
314.1
318.2
289.5
310.0
287.0
237.8
171.4
33.8
38.4
30.0
$4662.7
a/ McNutt, B.; Dulla, R.; and Lax, D. February/March 1979. "Factors
Influencing Automotive Fuel Demand." SAE Paper 790226.
A-15
-------
TABLE A-8
ANNUALIZED COST OF FMVCP FOR LOT'S DUE TO CO CONTROL IN 1987
($1979)
Capital Cost
Model Year
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
1977
1976
1975
1974
1973
1972
TOTAL
($io6)
$ 487.4
480.0
475.8
455.7
426.1
307.5
314.1
318.2
289.5
310.0
287.0
237.8
171.4
33.8
38.4
30.0
Scrappage Rate
1.00
1.00
0.99
0.97
0.95
0.93
0.90
0.86
0.83
0.77
0.71
0.65
0.57
0.50
0.44
0.38
Annualized
Capital Charge
($106)
$ 87.7
86.4
84.8
79.6
72.9
51.5
50.9
49.3
43.3
43.0
36.7
27.8
17.6
3.0
3.0
2.1
$739.6
b/
a/ McNutt, B.; Dulla, R. ; and Lax, D. February/March 1979. "Factors
Influencing Automotive Fuel Demand." SAE Paper 790226.
b/ Based on 100,000 miles per vehicle over a 10-year life; assumes a 12.5
percent discount rate.
A-16
-------
TABLE A-9
INCREASE IN ANNUAL FUEL COST FOR LDT'S DUE TO USE OF UNLEADED GASOLINE
3>
i
Model Year
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
1977
1976
1975
VMT Per
Car Per Yeara/
15,900
15,000
14,000
13,100
12,200
11,300
10,300
9,400
8,500
7,600
6,700
6,600
5,900
Certified3/
(mpg)
22.8
22.8
22.1
22.2
21.6
20.0
18.7
17.5
17.3
17.0
16.5
15.5
12.9
In-Use
(mpg)
18.6
18.6
18.2
18.2
17.8
16.8
15.8
15.1
15.0
14.8
14.4
13.8
12.1
Aiiuudj- r ue_i_ use
Per Vehicle
(gallons)
855
806
769
720
685
673
652
623
567
514
465
478
488
Veil-LL AC
Population
(io6)
4.61
4.54
4.46
4.18
3.83
3.49
3.45
3.34
2.93
2.91
2.49
1.89
1.19
CO Share
(1979 $106)
$39
37
34
30
26
35
34
31
25
23
17
14
9
TOTAL
43.31
$354
a/
b/
EEA. August 1979. "Alternative Short-Term NO Standards: Second Round
Analyses." Prepared for U.S. EPA.
Assumes $1.00/gallon.
-------
Mobile Source Air Pollution Control was used.* It is assumed that emis-
sion control costs for pre-1983 model years are roughly equal to the
incremental cost of model years 1983 to 1987. Since these costs are
divided between two pollutants (hydrocarbons and carbon monoxide), the
cost for CO may be estimated by the incremental cost of the later model
years. These hardware costs are approximately $185 per diesel vehicle
and $204 per gasoline vehicle. The total capital cost is presented in
Table A-10.
A.3.2 Annualized Cost of HDV Emission Control
Table A-11 presents the annual capital cost of emission control systems.
Since no maintenance or fuel economy savings have been substantiated,
none are credited to HDV. There is, however, the additional cost of un-
leaded fuel for gasoline-powered HDV's. Using projections of gasoline
HDV mileage and population in 1987 (Argonne, 1979), and assuming a $.03
per gallon premium for unleaded fuel, the annual cost of unleaded fuel
attributed to CO is approximately $305 million.
The total annualized cost is the sum of capital charges and unleaded fuel
costs, or $431 million.
A.4 MOTORCYCLES
The cost to the consumer of the 1978 and 1980 motorcycle emission stan-
dards will be approximately $138.8 million over the 1978-82 time frame
(EPA, 1976). This figure includes costs due to fuel consumption. The
share attributable to carbon monoxide is 50 percent, yielding $69.4
million. Dividing by five to obtain a simple annual cost (i.e., total
cost divided by five years of implementation) yields $13.5 million.
* Michael P- Walsh, Assistant Administrator for Mobile Source Air Pol-
lution Control. December 1, 1978. Memorandum to Walter C. Barber,
Office of Air Quality Planning and Standards.
A-18
-------
TABLE A-10
CAPITAL COSTS FOR HDV'S
($1979)
Model Year
New Gasoline
HDV Sales (103)
New Diesel
HDV Sales (103)
Gasoline Capital
Cost ($10fe)
Diesel Capital
Cost ($10b)
Total Capital
Cost ($106)
1987
1986
1985
1984
1983
505
492
480
468
456
251
239
227
216
206
$103.0
100.4
98.0
95.5
93.0
$46.4
44.2
42.0
40.0
38.1
$149.4
144.6
140.0
135.4
131.1
TOTAL
$700.5
-------
TABLE A-11
ANNUALIZED COST OF FMVCP FOR HDV CONTROLS IN 1987
($1979)
Model Year
1987
1986
1985
1984
1983
TOTAL
Capital Cost
($106)
$149.4
144.6
140.0
135.4
131.1
Annualized Capital
Charge ($106)
$26.9
26.0
25.2
24.4
23.6
$126.1
A-20
-------
Motorcycle emission standards for the 1983-84 model years and for the
1985 and subsequent model years have not yet been proposed. The cost of
these regulations was estimated to be $100 per motorcycle relative to
uncontrolled vehicles (EPA, 1976). This represents a $150/motorcycle
initial cost and a $50/motorcycle fuel savings. Assuming one million
motorcycles are sold annually, the cost of this program in any year is
approximately $100 million. The CO share of this estimate is one-third
or $33 million; HC and CO are reduced by 90 percent and NO could be
X
reduced by 75 percent. The total annual cost of the motorcycle program
for CO control, therefore, is $46.5 million.
A.5 AIRCRAFT
Using an estimated cost of $1.5 billion over 18 years,* an annualized
cost of $41.7 million dollars is calculated to estimate the portion
of aircraft FMVCP attributable to CO. This estimate is a preliminary
estimate and is subject to change in the future.
A.6 SUMMARY
Table A-12 presents a summary of the FMVCP cost attributable to CO in
1987.
* Provided by EPA's Office of Mobile Source Air Pollution Control,
A-21
-------
TABLE A-12
TOTAL ANNUAL COST OF THE FMVCP IN 1987
Annual Cost of CO Control
(1979 $106)
Passenger Cars (LDV)
Hardware
Fuel economy
Unleaded gasoline cost
Operating and maintenance
Altitude controls
Light-Duty Trucks (LPT)
Hardware
Fuel economy
Unleaded gasoline cost
Operating and maintenance
Altitude controls
Heavy-Duty Vehicles (HDV)
Hardware
Unleaded gasoline cost
Motorcycles
All costs
Aircraft
All costs
$2003.0
a/
(1709.6)
733.0
(639.0)a/
278.0
665.4
739.6
0.0
354.0
0.0
100.0
1193.6
126.1
305.0
431.0
46.5
41.6
TOTAL
$2378.1
a/
Indicates negative costs
A-22
-------
REFERENCES FOR APPENDIX A
Air and Water Pollution Report 17 No. 36. September 3, 1979.
Argonne National Laboratory. August 1979. "Projections of Direct Energy
Consumption by Mode: 1975-2000 Baseline Energy and Environmental Systems
Liaison."
Automotive News. April 25, 1979. "Increase in Retail Price of Automo-
biles Due to Federal Requirements, 1968-1978." 1979 Market Data Book
Issue #4573, p. 95.
Energy and Environmental Analysis, Inc. August 1979. "Alternative Short-
term NO Standards: Second Round Analyses." Prepared for U.S. EPA.
Federal Register (FR). April 11, 1979.
FR. December 3, 1979. Vol. 49, No. 233.
FR. January 24, 1980. Vol. 45, No. 17.
FR. n.d. 1397-7. Draft.
Lingren, LeRoy H. (Rath and Strong, Inc.). March 1978. "Cost Estimation
for Control Related Components/Systems and Cost Methodology Description."
Prepared for U.S. EPA, EPA-460/3-78-002.
McNutt, B., Dulla, R. and Lax, D. February/March 1979. "Factors Influencing
Automotive Fuel Demand." SAE Paper 790226.
Murrell, J.D. March 2, 1979. "Light-Duty Automobile Fuel Economy Trends
Through 1970." SAE Paper 780036.
U.S. Environmental Protection Agency (U.S. EPA). December 1976. "Exhaust
and Crankcase Regulations for The 1978 and Later Model Year Motorcycles."
Environmental and Economic Impact Statement.
U.S. EPA. Emission Control Technology Division. March 1978a. "Analysis
of Technical Issues Related to California's Request for Waiver of Federal
Preemption With Respect to Exhaust Emission Standards and Test Procedures
for 1981 and Subsequent Model Years LDV."
U.S. EPA. September 19, 1978b. "Draft Environmental and Economic Impact
Statement for 1981-1983 High Altitude Emission Standards." Table III.
A-23
-------
U.S. EPA. October 27, 1978c. "Draft Report to Congress in Response to
Section 206(f)(2) of The Clean Air Act as Amended in August 1977.
U.S. EPA. Office of Mobile Source Air Pollution Control. December 8,
1978d. "Draft Regulatory Analysis: Proposed Gaseous Emission Regulation
for 1982 and Later Model Year Heavy-Duty Engines.
U.S. EPA. 1979a. "Cost and Economic Impact Assessment for Alternative
Levels of the National Ambient Air Quality Standards for Ozone."
EPA-450/5-79-002.
U.S. EPA. Office of Mobile Source Air Pollution Control. June 28, 1979b.
"Draft Regulatory Analysis of Proposed Emission Regulations for 1983 and
Later Model Year Light-Duty Trucks."
A-24
-------
APPENDIX B
STATIONARY SOURCES: METHODOLOGY AND ASSUMPTIONS
B.I INDUSTRY COVERAGE
B. 1.1 Selection Criteria
The industries included for evaluation were selected from a preliminary
list of potentially significant CO sources (PEDCo, 1979b). Average process
and stack parameters were gathered from recent EPA regulatory and engineering
studies for approximately 25 industrial processes. Table B-l lists those
source categories identified. The resulting data (PEDCo, 1979b) indi-
cated, for each process, two production sizes typical of the range of
operation and the uncontrolled emission rate, stack height and exhaust
gas velocity, temperature, and volume appropriate to each size. Probable
control equipment and efficiencies also were identified.
In order to focus the derivation of process-specific control costs on
those processes likely to experience some need for emission reduction
under any of the alternative standards, it was decided to screen the
source list by evaluating the air quality impact of each "model" source.
B.I.2 Air Quality Modeling of "Model Sources"
A single source dispersion model, PTMAX, was used to calculate a predicted
maximum concentration for each source (and size of source). PTMAX is an
interactive program which calculates the maximum short-term (one-hour)
ambient concentration from any point as a function of exhaust and stack
characteristics, wind speed, and stability. The program is part of the
User's Network for Applied Modeling of Air Pollution (UNAMAP) maintained
B-l
-------
TABLE B-l
POTENTIALLY SIGNIFICANT PROCESS SOURCES OF CO
a Petroleum refineries
0 Carbon black
furnace/oil
furnace/gas
a Kraft pulp and paper
» Iron foundries
0 Steelmaking
sintering
basic oxygen furnace (EOF)
® Primary aluminum
• Gas pipelines
0 Electric utilities
• Acrylonitrile
0 Maleic anhydride
• Industrial combustion
• Charcoal
• Formaldehyde
0 Dimethylterephthalate
0 Phthalic anhydride
• Coke production
0 Cyclohexanol
0 Gas-fired process heaters
a Ethylene dichloride
« Reciprocating internal combustion engines
B-2
-------
by the Division of Meteorology, EPA. To determine their maximum impact,
sources were modeled using their uncontrolled emission rate; no back-
ground level was assumed.
PTMAX predicts one-hour levels only. Because the ambient standards con-
sider both one- and eight-hour averaging periods, a method for converting
the predicted one-hour into expected eight-hour concentrations was necessary
Persistence factors of 0.5 and 0.7, which represent ratios of eight-hour
to one-hour concentrations exhibited by monitored data, were used (Schewe,
1979). The 0.7 factor represents a ratio of maxima and, therefore, produces
a worst case estimate. The results of the PTMAX air quality modeling
are presented in Table B-2.
Eight of the model processes experienced potentially significant air
quality impacts. For the screen, "significant" was defined as 50 percent
or more of the most stringent ambient standard to be considered. These
processes were:
• Basic oxygen furnace
• Aluminum anode prebake
• Aluminum prebake cells
• Maleic anhydride
• Cyclohexanol
• Formaldehyde
• Ethylene dichloride
• Coke oven charging.
B.I.3 NEDS Screen
The PTMAX modeling indicated potential impacts for source categories
with a specific set of process and stack characteristics. The probabil-
ity that actual sources may deviate from those "model" parameter sets
created the need to screen further process categories which might cause
ambient violations.
B-3
-------
TABLE B-2
PTMAX MODELING RESULTS
8-hour Bounds
Industry
Petroleum refining
Carbon black
Kraft pulp
Kraft pulp
Gray iron
Iron and steel
Steelmaking
Steelmaking
Primary aluminum
Primary aluminum
Primary aluminum
Gas pipeline
Electric utility""1
Electric utility*
Electric utility*
Process Source
Catalytic
cracking
Furnace process
Recovery boiler
Kiln
Cupola
Sinter plant
Electric arc
EOF
Prebake cells
Anode prebake
HSS cell
Engine exhaust
Coal
Residual oil
Gas
Size
25,000 BPD
90,000 BPD
176,000 TPY
44,000 TPY
1,500 TPD
1,000 TPD
1,500 TPD
1,000 TPD
25 TPH
1 TPH
3.65 MTPY
1.19 MTPY
0.10 MTPY
1.13 MTPY
1.61 MTPY
3.78 MTPY
225,000 TPY
140,000 TPY
225,000 TPY
140,000 TPY
225,000 TPY
140,000 TPY
1,500 HP
1,000 MWe
100 MWe
1,000 MWe
100 Mwe
1,000 MWe
100 MWe
Lower
(ppm)
1.49
1.58
1.77
2.54
0.003
0.002
0.19
0.17
1.71
0.79
1.00
0.91
0.02
0.03
29.92
62.20
0.87
1.12
7.32
6.64
0.45
0.55
0.004
0.001
0.000
0.001
0.000
0.001
0.000
Upper
(ppm)
2.09
2.21
2.48
3.55
0.004
0.003
0.26
0.23
2.40
1.09
1.40
1.27
0.03
0.04
41.89
87.02
1.21
1.56
10.24
9.30
0.63
0.77
0.005
0.001
0.001
0.001
0.001
0.001
0.000
Distance
(km)
0.80
1.56
17.50
0.62
2.07
1.82
0.51
0.40
0.37
0.21
1.13
0.58
0.63
1.58
0.62
0.60
1.01
0.36
0.36
0.38
1.44
0.99
0.22
2.50
1.15
2.24
1.15
2.29
41.93
* 75 m. stack height.
B-4
-------
TABLE B-2 (cont'd)
PTMAX MODELING RESULTS
Industry
Acrylonitrile
Maleic anhydride
Industrial boilers
Industrial boilers
Industrial boilers
Charcoal
Charcoal
Formaldehyde
Dimethyltereph-
thalate
Phthalic anhydride
Iron and steel
Cyclohexanol
Process heater
Ethylene dichloride
Internal combustion
8-hour Bounds
Process Source
Absorber vent
Condenser
Coal
Distillate
Gas
Kiln
Continuous
furnace
wood-drying
Absorber vent
Scrubber
Condensors
Coke oven
charging
Product recovery
vent
Gas-fired
Fractionation
vent
Diesel
Dual fuel
Natural gas
Size
0.154 MTPY
0.121 MTPY
0.027 MTPY
0.006 MTPY
50 lO^Btuh
250 10 Btuh
1 lO^Btuh
10 10 Btuh
1 lO^Btuh
10 10 Btuh
215 Lbh
7.5 TPH
7.5 TPH
0.100 MTPY
0.040 MTPY
0.120 MTPY
0.030 MTPY
0.065 MTPY
0.047 MTPY
0.35 MTPY
0.72 MTPY
0.110 MTPY
0.025 MTPY
150 lO^Btuh
50 10 Btuh
0.440 MTPY
1,200 HP
4,300 HP
1,500 HP
4,400 HP
Lower
(ppm)
0.60
0.57
5.65
4.33
0.001
0.001
0.000
0.001
0.000
0.001
0.10
0.04
1.21
1.48
2.67
0.52
0.44
0.63
0.56
0.82
1.24
7.13
3.99
0.000
0.000
3.31
0.03
0.08
0.004
0.01
Upper
(ppm)
0.83
0.80
7.90
6.06
0.002
0.002
0.000
0.002
0.000
0.001
0.15
0.06
1.70
2.08
3.73
0.73
0.62
0.88
0.78
1.14
1.73
9.98
5.58
0.000
0.000
4.63
0.04
0.12
0.01
0.01
Distance
(km)
0.61
0.61
0.31
0.29
0.41
0.58
0.21
0.25
0.21
0.25
0.17
1.06
0.40
0.18
0.20
0.44
0.27
0.48
0.44
0.24
0.22
0.27
0.17
0.62
0.41
0.37
0.20
0.31
0.22
0.48
B-5
-------
To conduct a second screen, the PTMAX program was modified to calculate
each source's effective plume rise (a measure of the dispersion character-
istics of emissions) and to determine, for that plume rise, the CO emis-
sion rate that would yield a carbon monoxide ambient concentration of
0.5 ppm (under worst case meteorological conditions, i.e., wind speed of
2.0 m/s and stability class A). The modified PTMAX program was applied
to the source data in the National Emission Data System (NEDS) point
source subfile. Therefore, based on actual rather than "model" stack
and emission characteristics, this PTMAX screen produced a subfile com-
prised of those point sources in NEDS which would produce ambient con-
centrations above 0.5 ppm; the 0.5 ppm concentration was selected as a
conservative threshold of potential to cause ambient violations even
under the most stringent alternative.
The resulting subfile included over 700 point sources. Additional source
categories beyond those eight previously listed then were identified for
control cost development based on 1) their expected magnitude of air
quality impact, or 2) the number of sources within that category con-
tained in the subfile.
Data validity checks were performed on a number of sources in the subfile.
Emission rates (AP-42 uncontrolled vs. NEDS) and their consistency with
operating and stack data were verified. After correction for apparent
data errors, six additional process categories were identified for cost
development; they were:
• Carbon black
• Iron sintering
• Electric arc furnace
• Gray iron cupola
• Conical wood incinerator
• Municipal incinerator.
B-6
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B.I.4 Source Category Control Cost Development
For the 14 potentially significant processes screened in the preceding
two steps, capital and annualized costs were obtained for two typical
operating rates within each process category."" The technology selection
was based on currently demonstrated control equipment; no experimental
technology was considered (PEDCo, 1979a).
As indicated, costs (capital and annualized) were developed for two pro-
cess sizes which are deemed reflective of the range of typical opera-
tion. The two cost estimates were used to construct an exponential
equation for each process category which, upon inputting a source's
specific annual capacity or production level, would produce the costs of
a unit of appropriate size. The log-log curve represented by the equa-
tion is used to capture economies or diseconomies of scale inherent in
the two size-specific point estimates.
In three cases, a single process size was indicated, hence the control
costs for that size were assumed to be linear per unit of production (a
uniform $/ton of product). For one process, the conical wood incinerator,
the costs of control do not vary by size; therefore, the capital and
annualized costs are level.
B.2 TOTAL COST METHODOLOGY
B.2.1 Evaluation of Ambient Impact
In order to determine the costs incurred by each alternative standard,
the evaluation of the extent to which existing sources violate mandated
concentration levels constitutes the first step. PTMAX was applied to
the 700 point sources in the NEDS subfile. For the purposes of costing,
* There are several exceptions where only one size was costed. See
PEDCo, 1979b.
B-7
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the meteorological assumptions were stability class B and a wind speed
of 2.5 m/sec, as it was felt that these represent more realistic atmos-
pheric conditions and would produce consistently valid results from PTMAX
(i.e., plume rises of less than 500 m).*
A background level of 2 ppm CO was included to reflect the probable con-
centration of area sources at points of maximum point source impacts.
The 2 ppm background was assumed sufficient since point sources generally
are removed from highways and other major transportation routes where
high CO concentrations from area sources occur. No natural background
was considered.
The background level, assumed equal for all point sources, can be consi-
dered either to increase the point's impacts on air quality (since the
source's concentration is no longer considered truly in isolation) or to
reduce effectively, by 2 ppm, each alternative ambient standard. For
ease of analysis, the background was incorporated in the latter manner.
Each point source's maximum concentration was calculated using PTMAX and
revised atmospheric conditions. The concentrations of multiple points
at any facility were aggregated to the plant level, thereby assuming
that the plant impact equals the sum of the process maximum impacts.
This procedure will overestimate the actual plant impact because it
assumes that these maxima occur at the same location. No interaction
among plants was assumed; the source file produced under the revised
meteorological assumptions contained 275 sources which did not exhibit a
significant degree of co-location. It was believed that the level of
source interaction would not be of a magnitude that would jeopardize the
conclusions reached using PTMAX,
PTMAX will calculate ambient concentrations for plume rises above 500 m,
but will identify the prediction as invalid.
B-8
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The calculated plant concentration level then was compared to each alter-
native CO standard adjusted for background. (The plant total was cor-
rected by the 0.7 persistence factor for comparison with eight-hour stan-
dards.) It should be noted that the form of the standard, whether statisti-
cal or second-high, was not considered. The calculated impact was used
directly. The adjustment to a statistical form or calculation of a second
high would require the variation of the meteorological conditions to
produce the variability exhibited by monitored data. Such a data manipu-
lation was beyond the scope of this analysis. The result is, as with
the sum of process maxima, a bias upward in the forecasted impacts.
B.2.2 Calculation of Required Emission Reductions
Emission reductions required under each alternative standard were calcu-
lated assuming proportionality between reduction in emissions and air
quality levels; a linear rollback equation was used:
0, „ . . ~ , Plant Concentration - (Ambient Standard - Background)
% Emission Reduction = fi -
Plant Concentration
If the plant impact does not violate any standard, the equation produces
a negative result and no reductions are calculated.
B.2.3 Least-Cost Strategy Determination
The required reduction in emissions refers to plant totals. Since many
plants constitute the combined impact of multiple emission points, emis-
sion reductions can be produced by a variety of control option combinations.
For this analysis, the required emission reductions were obtained through
an option or combination of options which resulted in the lowest total
annualized cost for the plant, thus accounting for initial capital outlays.
Each plant's control options were calculated and ranked by cost effective-
ness, that is, lowest to highest cost per ton of CO removed. All options
needed to produce the tonnage emission reduction are applied to each
B-9
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source in order of decreasing cost effectiveness; that is, the lowest
$/ton removed controls and sources are selected first.
Because of the discrete nature of control technology, it is possible
that a plant might employ a less cost-effective means of control simply
by choosing control options which have the lowest average annualized
cost per unit of reduction. For example, a facility consists of two
points: point A emits 100 tons per year and point B emits 200 tons per
year. Assume that the required emission reduction is 50 percent for the
plant, or 150 tons; point A can be controlled at 90 percent efficiency
for $l/ton; point B may be controlled at 75 percent efficiency for $2/ton.
By a cost-effective ranking, the choice would be to control point A first;
however, since point A only provides 90 tons of reduction, point B also
must be controlled. As a result, the plant expends $390 in annualized
cost for 240 tons of reduction. However, if only point B were controlled,
it could achieve the entire 150 ton reduction at a total annualized cost
of $300. A verification procedure was used, therefore, to ensure lowest
total annual cost, in this example, to check whether the controls on
point A were necessary;* since they were not, the least-cost algorithm
would control point B only. The results of the costing procedure are
presented in Section 3.5.
B.3 BENEFITS FROM STEAM CREDITS
The burning of carbon monoxide is an exothermic reaction. If the exhaust
stream of CO from a process is sufficiently dense, the energy released
from burning the gas may be used in one of two manners. The energy from
combusted CO can be used to heat the continuing stream of process gas
The need for controls on point B are not reverified, however, since
point B's controls obviously were necessary to achieve the total reduction
B-10
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before combustion. This procedure, called primary heat recovery and
illustrated in Figure B-l, can reduce the amount of supplemental fuel
needed to burn the process gas. Secondary heat recovery, as illustrated
in Figure B-2, generates steam from the heat released from the combusted
CO. This steam may be used in certain processes within the plants thereby
reducing costs of burning fossil fuels to produce needed steam.
The use of secondary heat recovery increases capital cost, however. For
example, using incineration with primary heat recovery to control CO
from an iron ore sinter plant producing 1.19 x 10 tons per year incurs
a capital cost of $3.4 million. With the addition of secondary heat
recovery the capital cost becomes $3.86 million, an increase of over 13
percent.
However, the secondary heat recovery provides enough annual steam credit*
to more than offset the capital cost increase; using the same sinter
plant, control with primary heat recovery operates at an annual cost of
$3.5 million. The addition of secondary heat recovery provides enough
steam to provide a net annual savings of $3.3 million (PEDCo, 1979b).
It should be noted that not all sources can use secondary heat recovery.
Its application will depend on the quantity/concentration of CO in the
off-stream and the degree of steam-heating requirement (i.e., if supple-
mental fuel for combustion is necessary). Moreover, it is possible that
certain processes would not be amenable to secondary heat recovery because
no steam is required. In this event, credits for steam are not valuable
since steam normally is not purchased or produced. As a result, firms,
in choosing to minimize expenditures, likely would select primary recovery
since, without credits, secondary recovery is more expensive.
The steam credit is a product of calculating the cost of steam (based
on fossil fuel combustion) times the quantity of steam produced by a
CO boiler.
B-ll
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FIGURE B-l
SCHEMATIC OF INCINERATION SYSTEM
WITH PRIMARY HEAT RECOVERY
SUPPLEMENTAL
FUEL
PRIMARY
HEAT
EXCHANGER
Source: PEDCO Environmental, Inc. June 1979. "Carbon Monoxide Control Costs for Selected
Processes." Prepared for U.S. EPA.
B-12
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FIGURE B-2
SCHEMATIC OF INCINERATION SYSTEM WITH PRIMARY
AND SECONDARY HEAT RECOVERY
TO STACK
WATER
lh>
SECONDARY
HEAT
EXCHANGER
k
STEAM
PRIMARY
HEAT
EXCHANGER
SUPPLEMENTAL
FUEL
COMBUSTION
CHAMBER
PROCESS
Source: PEDCO Environmental, Inc. June 1979. "Carbon Monoxide Control Costs
for Selected Processes." Prepared for U.S. EPA.
B-13
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The application of secondary heat recovery by any process was based on
engineering judgment concerning the off-stream characteristics and the
utility of the steam output. Since secondary recovery produces a nega-
tive cost, it always is selected by the costing algorithm for those
processes where it is an option. The possibility that actual units may
not be appropriate for secondary recovery, as opposed to the "model"
processes costed, implies that the credits calculated may be optimistic.
In the event that, say, half the credits were not technologically or
economically feasible, the annualized costs presented in Section 4 are
understated while the capital costs are overstated. Because the capital
cost picture changes in the absence of steam utility, it is not necessarily
the case that annual costs merely are halved. Rather, on a case-specific
basis, a determination would be needed regarding the advantage of secondary
versus primary recovery relative to the degree of steam needed. For the
purpose of this analysis, 100 percent credit was assumed.
B.4 CO SOURCE GROWTH
Inclusion of growth in CO emission sources would serve two purposes:
® To add costs automatically incurred due to New Source Perfor-
mance Standards (NSPS) to the baseline costs
» To identify the level and cost of new source control motivated
by the ambient air quality standard for CO.
Towards these ends, an evaluation was made of the extent to which new
source controls are mandated by air quality limitations for CO.
At present, two process categories have NSPS promulgated for CO: the
catalytic cracker (petroleum refining) and the electric submerged arc
furnace (ferroalloy production). The control technology for the cata-
lytic cracker is a CO boiler. For a new source, this type of control
would be used in the absence of the standard because its operation
B-14
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provides a net credit due to steam generation and, thus, an economic
benefit. Since economics, rather than emissions control, constitutes
the prime motive for CO recovery, the costs are not attributed to NSPS.
Moreover, even uncontrolled FCCU have negligible ambient impact (refer
to Table B-2); it is improbable that any of the alternative standards
would motivate more stringent control, or significant costs.
Ferroalloy furnaces do not employ end-of-pipe controls specifically for
CO reduction. In open furnaces, the CO combusts as part of the process
while, in semi-enclosed furnaces, flaring the exhaust gas to reduce visible
emissions also reduces CO. For this reason, the NSPS for this process
was not considered to incur cost. Further, since the NEDS screen did
not capture any ferroalloy furnace, it appears logical to conclude that
this process does not constitute a significant source of ambient impact.
Accordingly, additional control or costs under any alternative standard
are not likely.
Beyond NSPS, other processes and industries were examined. Since incor-
poration of growth would be made, analytically, on a model source basis,
only five processes would exhibit potential impacts (see Table B-2) at
uncontrolled levels, thus motivating controls and incurring costs.
However, an examination of the typical control measures for these processes
revealed either of two practices:
• Use of secondary heat recovery (e.g., CO boilers) to capture
CO as a fuel, or
• Use of incineration of hydrocarbons to reduce adequately CO
emissions.
In either case, it would be inappropriate to assign the total costs or
credits associated with these types of measures to the carbon monoxide
standard. Moreover, because the total costs incurred by existing point
B-15
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sources are relatively small," the significance of a growth increment
likely would be small as well. The analysis indicated, therefore, that
the incorporation of growth would not have noticeable effects on the
magnitude of the costs estimated for attaining CO standards. For this
reason, especially, the cost analysis is confined to the existing base
of stationary point sources.
Vis-a-vis mobile source total costs.
B-16
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REFERENCES FOR APPENDIX B
PEDCo Environmental, Inc, (PEDCo). May 14, 1979a. Letter to EEA,
Report PN3264-BB.
PEDCo. June 1979b. "Carbon Monoxide Control Costs for Selected
Processes."
Schewe, G. (EPA). April 12, 1979. Memo to J. Sommers (OMSAPC). "Reply
to Request for Concentration Estimates Near Roadways Due to Mobile Source
Emissions of Sulfuric Acid and Diesel Particulates (TSP and BaP)."
B-17
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TECHNICAL REPORT DATA
(Please read Instructions on the reverse before completing)
1. REPORT NO.
2.
3. RECIPIENT'S ACCESSION NO.
4. TITLE AND SUBTITLE
Regulatory Impact Analysis of the National Ambient
Air Quality Standards for Carbon Monoxide
5. REPORT DATE
April 2. 1980
6. PERFORMING ORGANIZATION CODE
7. AUTHOR(S)
B.-uce Henning
8. PERFORMING ORGANIZATION REPORT NO.
9. PERFORMING ORGANIZATION NAME AND ADDRESS
Energy and Environmental Analysis, Inc.
1111 North 19th Street
Arlington, VA 22209
10. PROGRAM ELEMENT NO.
11. CONTRACT/GRANT NO.
12. SPONSORING AGENCY NAME AND ADDRESS
U.S. Environmental Protection Agency
Strategies and Air Standards Division (MD-12)
Research Triangle Park, NC 27711
13. TYPE OF REPORT AND PERIOD COVERED
Final
14. SPONSORING AGENCY CODE
15. SUPPLEMENTARY NOTES
This report was prepared under the direction of Kenneth H. Lloyd.
now the economist to whom questions should be addressed.
Allen Basala is
16. ABSTRACT
This report presents economic impact information for alternative eight-hour
carbon monoxide national ambient air quality standards. The alternatives are 7 ppm, 9
ppm, and 12 ppm (on a daily maximum basis, where the highest eight-hour average for
a day is used to determine if the expected number of exceedances of the standard is
less than or equal to one per year).
Annualized 1987 societal costs of controlling carbon monoxide emissions for the
three alternative standards are $2.9, $2.85, and $2.61 billion, respectively. An
Urban and Community Impact standard is included as part of the report. It shows
that there are no significant income distribution impacts associated with any of the
alternative CO standards.
Cost and economic impacts of CO emission controls on selected industries were
investigated. The analyses included capital and annualized control costs, availabi-
lity of financial capital for control requirements, and potential product price and
output impacts. Generally, the impact of any of the alternative standards on these
items was minor.
This report is intended to meet the requirements of a regulatory impact analyses.
(See Executive Order 12044 and 44 Federal Register 30988 (May 29, 1979).)
17.
KEY WORDS AND DOCUMENT ANALYSIS
DESCRIPTORS
b.IDENTIFIERS/OPEN ENDED TERMS
c. COSATI Field/Group
Regulatory Impact Analysis
Economic Impacts / Economics
Cost Impacts / Costs
Air Pollution Control Costs
Urban and Community Impact Analysis
18. DISTRIBUTION STATEM6N1
Unlimited
19. SECURITY CLASS (This Report)
Unclassified
21. NO. OF PAGES
186
20. SECURITY CLASS {This page)
Unclassified
22. PRICE
EPA Form 2220—1 (Rev. 4-77) PREVIOUS EDITION is OBSOLETE
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