S-EPA
United States
Environmental Protection
Agency
Office of Analysis and Evaluation
Office of Water and
Waste Management
Washington, DC 20460
EPA-440/2-80-002
November 1979
Water
Economic Impact Analysis of
Proposed Revised Effluent
Guidelines and Standards for the
Ink Manufacturing Industry
QUANTITY
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EPA - 440/2-80-002
November 1979
ECONOMIC ANALYSIS OF PROPOSED REVISED
EFFLUENT GUIDELINES AND STANDARDS FOR
THE INK MANUFACTURING INDUSTRY
Prepared for
OFFICE OF WATER PLANNING AND STANDARDS
ENVIRONMENTAL PROTECTION AGENCY
Washington, D. C. 20460
under
Contract No. 68-01-4466
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This report has been reviewed by the Office of
Planning and Evaluation, EPA, and approved
for publication. Approval does not signify that
the contents necessarily reflect the views and
policies of the Environmental Protection
Agency, nor does mention of trade names or
commercial products constitute endorsement or
recommendation for use.
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PREFACE
The attached document is a contractor's study prepared for the Office of Analysis and
Evaluation of the Environmental Protection Agency ("EPA"). The purpose of the study is to
analyze the economic impact which could result from the application of alternative BPT, BAT,
PSES, NSPS, PSNS guidelines established under the Federal Water Pollution Control Act (the
Act), as amended.
The study supplements the technical study ("EPA Development Document") supporting
the proposal of regulations under the Act. The Development Document surveys existing and
potential waste treatment control methods and technology within particular industrial source
categories and supports proposed limitations based upon an analysis of the feasibility of these
limitations in accordance with the requirements of the Act. Presented in the Development
Document are the investment and operating costs associated with various alternative control and
treatment technologies. The attached document supplements this analysis by estimating the
broader economic effects which might result from the required application of various control
methods and technologies. This study investigates the effect of alternative approaches in terms of
product price increases, effects upon employment and the continued viability of affected plants,
effects on production, effects upon foreign trade, and other community and competitive effects.
The study has been prepared with supervision and review of the Office of Analysis and
Evaluation of the EPA. This report was submitted in fulfillment of Contract No. 68-01-4466 by
Arthur D. Little, Inc. This report reflects work completed as of October 1979.
This report is being released and circulated at approximately the same time as publication
in the Federal Register of a notice of proposed rule making. The study is not an official EPA
publication. It will be considered along with the information contained in the Development
Document and any comments received by EPA on either document before or during proposed rule
making proceedings necessary to establish final regulations. Prior to final promulgation of
regulations, the accompanying study shall have standing in any EPA proceeding or court
proceeding only to the extent that it represents the views of the contractor who studied the
subject industry. It cannot be cited, referenced, or represented in any respect in any such
proceeding as a statement of EPA's views regarding the ink manufacturing industry.
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TABLE OF CONTENTS
Page
List of Tables jv
I. EXECUTIVE SUMMARY 1
A. PURPOSE AND SCOPE 1
B. METHODOLOGY 1
C. PRESENT ECONOMIC CONDITIONS 1
D. SUMMARY OF ECONOMIC IMPACT 1
E. LIMITS OF THE ANALYSIS 3
II. PURPOSE AND AUTHORITY 4
A. BAT EFFLUENT LIMITATIONS 4
B. NEW SOURCE PERFORMANCE STANDARDS 4
C. PRETREATMENT STANDARDS FOR EXISTING SOURCES 5
D. PRETREATMENT STANDARDS FOR NEW SOURCES 5
III. METHODOLOGY 6
A. INDUSTRY SEGMENTS AND MODEL PLANTS 6
B. PRELIMINARY DETERMINATION OF IMPACT 6
C. ECONOMIC IMPACTS 6
IV. PRE-REGULATION INDUSTRY CONDITIONS 7
A. INDUSTRY CHARACTERISTICS 7
B. INDUSTRY SEGMENTATION 11
V. CONTROL COSTS 13
A. OPTIONS 13
VI. ECONOMIC IMPACT 15
A. IMPACT SCREENING 15
VII. LIMITS OF THE ANALYSIS 20
A. MODEL PLANTS 20
B. CONTROL INVESTMENT COST 20
C. AMOUNT OF EFFLUENT 20
D. PRICE INCREASE 20
E. CONTRACT HAULING COSTS 20
VIM. REFERENCES 22
111
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LIST OF TABLES
Table No. Page
1 Ink Industry Control Costs - Option 1 2
2 Ink Industry Control Costs — Option 2 2
3 Summary of Impact of Wastewater Treatment Costs 3
4 Distribution of Ink Plants by Type of Organization 9
5 Distribution of Ink Plants by Site Status 9
6 Distribution of Employees Per Ink Plant 10
7 Distribution of Ink Plants by Age of Operation 10
8 Distribution of Ink Plants by 1976 Production 11
9 Financial Profiles of Model Plants 12
10 Physical Chemical Pretreatment Costs 13
11 Manually Operated Physical Chemical Pretreatment Costs 14
12 Contract Hauling Costs 14
13 Impact of Physical Chemical Pretreatment Costs 15
14 Impact of Manually Operated Physical Chemical
Pretreatment Costs 15
15 Impact of Contract Hauling Costs 16
16 Summary of Impact of Wastewater Treatment Costs 16
17 Average Price Increase to Maintain Return on Investment
Option 1 — Physical Chemical Pretreatment 18
18 Average Price Increase to Maintain Return on Investment
Option 2 — Zero Discharge by Contract Hauling 18
19 Ink Industry Control Costs — Option 1 Physical Chemical
Pretreatment 19
IV
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LIST OF TABLES (Continued)
Table No. Page
20 Ink Industry Control Costs — Option 2 Zero Discharge by
Contract Hauling 19
21 Sensitivity of Contract Hauling Costs on Physical Chemical
Pretreatment Costs 20
22 Sensitivity of Contract Hauling Costs on Zero Discharge by
Contract Hauling 21
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I. EXECUTIVE SUMMARY
A. PURPOSE AND SCOPE
The work covered in this report was authorized by the Environmental Protection Agency
under Contract Number 68-01446. The objective of the work was to examine the economic impact
of various options for the control of wastewater from ink manufacturing plants. The control of
wastewater from ink manufacturing plants will be covered under BAT, PSES, PSNS and NSPS
regulations. BAT is the best available technology covered in the Development Document and will
affect all plants which discharge wastewater. PSES is pretreatment standards for existing sources
and the regulation will cover all plants which are currently indirect dischargers. PSNS and NSPS
are regulations for new sources and cover pretreatment standards for indirect dischargers and
performance standards for direct dischargers.
Technical data concerning costs for various control options, numbers, and sizes of ink plants
and their respective wastewater discharge characteristics were furnished by the technical con-
tractor to the Effluent Guidelines Division. Other information and data were obtained from
National Association of Printing Ink Manufacturers, Morton Research Corporation, Company
Annual Reports, various Trade Journals, Department of Commerce, and Arthur D. Little, Inc.
estimates.
The regulations will be established to control discharge of pollutants by plants manufac-
turing ink as defined in SIC 2893. Captive plants owned by printers are not included in this study.
B. METHODOLOGY
The Ink Manufacturing Industry was characterized by a review of public data, company
annual reports, a previous EPA economic study, Morton Research Corporation reports on the ink
industry, National Association of Printing Ink Manufacturers data, and Arthur D. Little, Inc.,
estimates. Using these data, the industry was segmented by plant production size and financial
models made for each size. Using before tax return on investment and investment for control as a
percent of fixed assets, impacts were determined for each model. Price effects and total industry
costs were calculated. Closure effects were not studied since there were no predicted closures.
C. PRESENT ECONOMIC CONDITIONS
The Ink Industry comprises some 460 plants. While many of these are small (50%), many
are owned by large corporations and this is one of the major differences between ink plants and
paint plants. In general, profits and return on investment are greater for ink plants than for paint
plants.
D. SUMMARY OF ECONOMIC IMPACT
1. Industry Costs for Compliance
Two control options were examined to determine total industry costs. One, Physical Chem-
ical Pretreatment, is expected to cost the industry $1.9 million as shown in Table 1. Option 2,
Zero Discharge by contract hauling is expected to cost $3.0 million annually as shown in Table 2.
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TABLE 1
INK INDUSTRY CONTROL COSTS - OPTION 1
(Physical Chemical Pretreatment)
($000)
Segment
No. Plants
Annual Cost/Plant
Total Annual Cost
Total Investment Cost
Cost/Lb. Ink (rf)
Small
66
$2.7
$178.2
$244.2
1.2
Large
96
$17.6
$1689.6
$2985.6
0.5
Total
162
$1867.8
$3229.8
0.5
TABLE 2
INK INDUSTRY CONTROL COSTS - OPTION 2
(Zero Discharge by Contract Hauling)
($000)
Segment
No. Plants
Annual Cost/Plant
Total Annual Cost
Total Investment Cost
Cost/Lb. Ink (
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2. Summary of Impacts
The economic impact of physical chemical pretreatment costs and zero discharge costs on
small and large ink plants is shown in Table 3.
TABLE 3
SUMMARY OF IMPACT OF WASTEWATER TREATMENT COSTS
($000)
Segment Small Large
Treatment A B A B
Physical Chemical 8.7* 65.2* 17.0 8.5
Manually Operated Physical
Chemical 11.4 15.3
Contract Hauling 13.1 9.9 16.7 3.2
A = Before Tax Return on -Investment After Treatment
B = Control Investment as % of Fixed Assets
"Potential Impact
The only potential for high impact is shown for small plants using physical chemical
pretreatment. Since these plants would probably use manually operated physical chemical
pretreatment, then no potentially high impact occurs. No plant closures or unemployment effects
are predicted.
E. LIMITS OF THE ANALYSIS
1. Model Plants
It is assumed that all plants in the model have the same financial data. Any serious
discrepancy in the 1976 (Base year) profitability data could leave an effect on impact.
2. Control Investment Availability
Small plants usually have a difficult time raising capital for non-productive equipment
except by self financing. Since the investment for control is not a large percentage of fixed assets,
then even small plants should be able to borrow the necessary funds.
3. Contract Hauling Costs
Sensitivity analyses show that as contract hauling costs increase above GOit/gal. then small
plants become potentially impacted.
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II. PURPOSE AND AUTHORITY
The Federal Water Pollution Control Act Amendments of 1972 established a comprehensive
program to "restore and maintain the chemical, physical, and biological integrity of the Nation's
waters," Section 101(a). By July 1, 1977, existing industrial dischargers were required to achieve
"effluent limitations requiring the application of the best practicable control technology cur-
rently available" ("BPT"), Section 301(b) (1)(A); and by July 1, 1983, these dischargers were
required to achieve "effluent limitations requiring the application of the best available tech-
nology economically achievable . . . which will result in reasonable further progress toward the
national goal of eliminating the discharge of all pollutants" ("BAT"), Section 301(B)(2)(A). New
industrial direct dischargers were required to comply with Section 306 new source performance
standards ("NSPS"), based on best available demonstrated technology; and new and existing
dischargers to publicly owned treatment works ("POTW's") were subject to pretreatment stand-
ards under Sections 307(b) and (c) of the Act. While the requirements for direct dischargers were
to be incorporated into National Pollutant Discharge Elimination System (NPDES) permits
issued under Section 402 of the Act, pretreatment standards were made enforceable directly
against dischargers to POTW's (indirect dischargers).
A. BAT EFFLUENT LIMITATIONS
The factors considered in assessing best available technology economically achievable
(BAT) include the age of equipment and facilities involved, the process employed, process
changes, non-water quality environmental impacts (including energy requirements) and the costs
of application of such technology [(Section 304 (b)(2)(B)]. In general, the BAT technology level
represents the best economically achievable performance of plants of various ages, sizes, proc-
esses or other shared characteristics. BAT may include process changes or internal controls, even
when not common industry practice.
The Agency has considered the volume and nature of discharges, the volume and nature of
discharges expected after application of BAT, the general environmental effects of the pollutants,
and the costs and economic impacts of the required pollution control levels.
Despite this expanded consideration of costs, the primary determinant of BAT is effluent
reduction capability. As a result of the Clean Water Act of 1977, the achievement of BAT has
become the principal national means of controlling toxic water pollution. Although discharges of
ink wastewater from ink manufacturing operations are small, the Agency is setting BAT limita-
tions which are also applicable to existing indirect dischargers who might convert to direct
discharge. The ink formulating industry discharges over 15 different toxic pollutants and EPA
has considered three available BAT technology options which will reduce this toxic pollution by a
significant amount.
B. NEW SOURCE PERFORMANCE STANDARDS
The basis for new source performance standards (NSPS) under Section 306 of the Act is the
best available demonstrated technology. New plants have the opportunity to design the best and
most efficient ink manufacturing processes and wastewater treatment technologies, and there-
fore, Congress directed EPA to consider the best demonstrated process changes, in-plant controls,
and end-of-pipe treatment technologies which reduce pollution to the maximum extent feasible.
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Because BAT represents the limit of current technology, the three options considered for NSPS
are identical to the three options described above under BAT Effluent Limitations. No further
improvement in technology is anticpated in new sources. However, a new plant may reduce the
hazardous waste generated in meeting NSPS as a result of extensive in-plant control being
incorporated into plant design.
C. PRETREATMENT STANDARDS FOR EXISTING SOURCES
Section 307(b) of the Act requires EPA to promulgate pretreatment standards for existing
sources (PSES), which must be achieved within three years of promulgation. PSES are designed
to prevent the discharge of pollutants which pass through, interfere with, or are otherwise
incompatible with the operation of POTWs. The Clean Water Act of 1977 adds a new dimension
by requiring pretreatment for pollutants, such as heavy metals, that limit POTW sludge manage-
ment alternatives, including the beneficial use of sludges on agricultural lands. The legislative
history of the 1977 Act indicates that pretreatment standards are to be technology-based,
analogous to the best available technology for removal of toxic pollutants. The general pre-
treatment regulations (40 CFR Part 403), which served as the framework for these proposed
pretreatment regulations for the ink formulating industry, can be found at 43 FR 27736 (June 26,
1978).
D. PRETREATMENT STANDARDS FOR NEW SOURCES
Section 307 (c) of the Act requires EPA to promulgate pretreatment standards for new
sources (PSNS) at the same time that it promulgates NSPS. New indirect dischargers, like new
direct dischargers, have the opportunity to incorporate the best available demonstrated tech-
nologies, including process changes, in-plant controls, and end-of-pipe treatment technologies,
and to use plant site selection to ensure adequate treatment system installation. The pre-
treatment options for new dischargers to POTWs are the same as those for PSES, presented in the
preceding section.
The purpose of this report is to provide the economic impact support for any BAT, BCT, or
NSPS pretreatment standards for existing sources (PSES), and pretreatment standards for new
segments of the Ink Industry, under Sections 301, 304, 306, 307 and 501 of the Clean Water Act.
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I. METHODOLOGY
A. INDUSTRY SEGMENTS AND MODEL PLANTS
After the Ink Industry was characterized in a general way, the plants were segmented by size
in terms of sales/production. Sizes were selected to correspond with available financial data. For
each segment, a model statement of revenues minus total costs was prepared. The major item
from which control costs were to be subtracted is profit before tax. Other features such as plant
fixed assets, working capital, etc., were also calculated. Return on investment before tax was
selected as a key financial indicator because there is little difference in this value for each of the
model plants. It therefore offers the opportunity of comparing the impact of various control costs
regardless of plant size-by applying a single criterion for evaluating the impacts.
B. PRELIMINARY DETERMINATION OF IMPACT
Applying costs for control to the profit before tax for each model resulted in an estimated
profit before tax after treatment. This value divided by the total plant investment (Net Fixed
Assets plus Working Capital) resulted in a Before Tax Return on Investment After Treatment.
For purposes of screening, it was assumed that any plant having a Before Tax Return on
Investment After Treatment of 10% or less would be in the highly impacted category. For plants
whose Before Tax Return on Investment After Treatment is significantly above this value no
further detailed analyses were made. However, the cost for compliance for those plants was
calculated and included in the total industry costs. In addition, any control option whose
investment cost was greater than 25% of plant fixed assets was also considered to be highly
impacted.
C. ECONOMIC IMPACTS
Any plants in the highly impacted category, as determined by the initial screening, were to
be further examined by determining the sensitivity to variables such as contract hauling costs,
capital payback periods, ratio of wastewater to product, etc.
1. Price Effects
Since one method of recovering costs would be to raise prices, the average cost per gallon of
product was calculated for each segment to maintain its Before Tax Return on Investment Before
Treatment. From this data, an average industry price increase was calculated by dividing
industry costs by gallons produced.
2. Capital Costs and Availability
Assuming that the necessary capital must be raised from outside financial assistance,
capital costs were calculated on the basis of a five year direct reduction payback at 12% annual
interest.
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IV. PRE-REGULATION INDUSTRY CONDITIONS
A. INDUSTRY CHARACTERISTICS
The ink industry is essentially a service industry for the printing industry. Unlike the paint
industry, which is dominated by single-location companies, printing ink manufacturers are
characterized by a relatively large proportion of companies with branch plants. (See Figure 1.)
The product is manufactured by blending raw materials, using unsophisticated technology.
About 95% of production is sold directly to printers, with the other 5% being sold through jobbers
or merchant wholesalers. A few very large plants manufacture some of their own raw materials;
many of these are subsidiaries of large chemical companies or oil refiners.
An overview of this industry shows that about one-half of the 460 plants are privately
owned, 65% of the plants are branches, and only about 28% are single-company, single-location
operations. About 75% of the plants have fewer than 20 employees, and the facilities are mostly in
the 10- and 20-year age category. About 30% of the plants each produce less than 200,000 pounds
of ink annually and about 40% report sales from printing ink of less than $500,000.
Little wastewater is generated in an ink plant. An estimated 60% of the industry practices
zero discharge and 80% of the industry probably discharges less than 100 gallons per day.
1. Description of the Products
The ink industry manufactures a wide variety of products, dependent primarily on the
process used by the printer; that is, the inks are generally classified as those used on letterpress,
offset, flexo, or gravure printing presses. Some inks, such as those for newspapers and some
periodicals, are manufactured in bulk and sold at very low prices. Newspaper ink is frequently
sold in tank car or tank truck quantities to the larger users. For the most part, however, the
industry is characterized as distributing their product in small units with five pound cans the
most popular.
Inks are classified as paste inks or liquid inks depending upon end use. Paste inks generally
are used in letterpress or litho printing while liquid inks are used for gravure and flexo. Both types
are available in a wide variety of colors, drying characteristics, and in many cases are formulated
specifically for certain pressroom requirements.
2. Industry Pricing
The cost of ink is not usually a major factor in the cost of the finished printed product.
Demand in the industry is inelastic, i.e., the number of pounds of ink sold per year is reasonably
independent of price and more dependent upon printing sales.
In spite of the apparently competitive situation on prices and the price structure of the
newspaper, flexo, litho, and letterpress portions of the printing business, there is an opportunity
for the independent ink manufacturer to provide service that allows it to compete with the larger
and more highly organized companies. For well-managed and well-organized companies, the
opportunities to make a reasonable margin of profit are good. For those that are not well-
organized, the borderline between profit and loss may be tenuous.
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Alaska
oo
Hawaii
Puerto Rico &
Virgin Islands
Source: 308 Survey.
FIGURE 1 GEOGRAPHICAL DISTRIBUTION OF INK MANUFACUTRING PLANTS
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At present, the cost of most raw materials used by the printing ink manufacturers is rising
and how much more of an increase could be tolerated is open to question. Labor rates, like those
in the paint industry, are also increasing. The opportunities for higher productivity are question-
able, principally because of the small scale of production in most commercial printing ink plants.
There may be some opportunities for higher productivity where large volumes of ink are gener-
ated, such as for newspapers, etc.
3. Types of Plants
A survey of the industry by the EPA, the previous economic study, and public data have
provided enough information to characterize individual plants. The structure of the ink industry
is such that a high percentage of ink plants are publicly owned, (Table 4) and this industry is
characterized by a large number of branch plants and divisions of large companies (Table 5).
Some ink manufacturing plants are owned by printing plants, and may be rather large, such as
the ink manufacturing operation of the Bureau of Engraving and Printing; others are very small
and really amount to color-matching or ink-blending operations. For the most part these captive
plants have been eliminated from consideration in this study and will be included in the study on
printing. Tables 6 through 8 show the average number of employees per plant, the distribution of
plants by age of operation and the average production by plant.
TABLE 4
DISTRIBUTION OF INK PLANTS BY
TYPE OF ORGANIZATION
No. Plants %
Public 192 41.7
Private 242 52.6
Partner 6 1.3
Proprietorship 9 2.0
Cooperative 7 1.5
Unknown 10 2.2
Source: 308 Survey
TABLE 5
DISTRIBUTION OF INK PLANTS
BY SITE STATUS
No. Plants %
Only location 128 27.8
Branch 293 63.7
Division 26 5.6
Captive 7 1.5
Other 6 1.3
Source: 308 Survey
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TABLE 6
DISTRIBUTION OF EMPLOYEES PER INK PLANT
Average No.
Employees
Under 10
11-20
21-30
31-40
41-50
51-60
61-70
71-80
81-90
91-100
101-150
Over 150
Unknown
Source: 308 Survey
No. Plants
193
131
59
25
14
3
5
3
4
3
8
4
8
42.0
28.5
12.8
5.4
3.0
0.6
1.1
0.6
0.9
0.6
1.7
0.9
1.7
TABLE 7
DISTRIBUTION OF INK PLANTS
BY AGE OF OPERATION
No. Plants
Less than 3 years
3-5
6-10
11-20
21-30
Over 30
Unknown
49
51
95
125
59
63
18
10.6
11.1
20.6
27.2
12.8
13.7
3.9
Source: 308 Survey
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TABLE 8
DISTRIBUTION OF INK PLANTS
BY 1976 PRODUCTION
(Pounds)
No. Plants %
Less than 250,000 120 26.1
250,001-500,000 76 16.5
500,001-1,000,000 76 16.5
1,000,001-3,000,000 74 16.1
Over 3,000,000 68 14.8
Unknown 46 10.0
Source: 308 Survey
4. Seasonality
The ink industry, much like the paint industry, suffered the problem of tremendous price
increases for certain raw materials at the time of the 1974 petroleum shortage and has had to
spend a considerable amount of money in reformulating products to satisfy its customers' needs.
In general, these increases have been passed on to the customer and, as a result, profitability in
the industry has made a small upturn. The ink industry is not as seasonal as some industries such
as paint manufacturing and, because it is looked upon as a raw material, demand is fairly
constant, although some cycling occurs with changes in the volume of printing production. For
instance, in an economic downturn, when fewer advertising dollars are spent, this cutback will
have a direct bearing on ink sales.
B. INDUSTRY SEGMENTATION
1. Model Plant Development
One of the difficulties in looking at profitability, cash flow, return on investment, etc., for
the printing industry is that no data are available on a plant-by-plant basis. Large ink com-
panies, however, would probably tend to keep a small plant open, even though its profitability
was lower than that of other plants in the system, simply because it served printers in a certain
area. This is particularly true where large printers with branch printing plants like to make their
ink purchases through the corporate headquarters of the ink company but have the ink locally for
quick delivery. Ink manufacturing plant models (Table 9) were constructed based on data from
the National Association of Printing Ink Manufacturers, individual company data, and Arthur D.
Little, Inc., estimates.
2. Model Plants
a. Large Ink Plants
Plants in this category have sales of $2.5 million annually and generally produce more than
three million pounds of ink. They average more than 30 employees per plant.
11
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TABLE 9
FINANCIAL PROFILES OF MODEL PLANTS
($000)
Segment Small Large
No. Plants 230 230
Annual Sales 300 2500
No. Employees 4 34
Annual Production (000 Ibs.) 230 3750
Plant Profit Before Tax 18.3 220
Plant Net Worth 60 625
Plant Working Capital 74.7 792
Plant Total Assets 115 1356
Plant Fixed Assets 24.2 366
Plant Total Investment 98.92 1158
Before Tax Return on Investment (%) 18.5 19.0
6. Small Plants
Plants in this category have sales of $300,000 and produce less than 250,000 pounds of ink.
They average four employees per plant.
The ink industry, like the paint and allied product industries, spends relatively little money
on new capital equipment and buildings. An average of 2.2% of sales is a figure that has been used
for estimating the amount of capital investment made annually. Most of this investment is made
by the large plants, whereas the small plants tend to spend less money or to purchase used
equipment to stretch their capital further.
Since the industry comprises many small, privately owned single-plant firms, these com-
panies would probably self-finance any capital investment necessary to meet proposed regu-
lations. The large plants that are part of large corporations would appear to have little difficulty
in obtaining capital for this purpose.
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V. CONTROL COSTS
A. OPTIONS
The EPA studied three alternative methods for controlling pollution from wastewater
discharged by the ink manufacturing industry. They are:
1. Physical Chemical Pretreatment.
2. Manually Operated Physical Chemical Pretreatment.
3. Contract Hauling.
Investment and operating costs have been provided for several size plants. These costs are
presented in detail in the Development Document and are also summarized in the following
tables. Some interpolation of these costs was necessary to adjust to the financial model plants and
to adjust the 1978 cost data to the 1976 base year. A deflation factor of 0.835 was used in
accordance with ENR construction costs for 20 cities. (ENR 12,21,78 page 69) Total investment,
annual capital costs, annual operating costs and total annual costs are shown. The investment
capital necessary for control is assumed to be borrowed on a five-year direct reduction annual
payback at 12% interest. Depreciation figures shown in the Engineering Report under operating
costs have been deleted so that operating costs show only operating and maintenance costs.
Annual investment cost shows the debt payback for control equipment only.
TABLE 10
PHYSICAL CHEMICAL PRETREATMENT COSTS
($000)
Segment Small Large
Total Investment 15.8 31.1
Annual Investment Cost 4.3 8.6
Annual Operating Cost 4.0 9.0
Total Annual Cost 8.3 17.6
13
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TABLE 11
MANUALLY OPERATED PHYSICAL CHEMICAL
PRETREATMENT COSTS
($000)
Small
Segment Small at 9.2 gal/day
Total Investment 3.7 3.7
Annual Investment Cost 1.0 1.0
Annual Operating Cost 5.6 1.7
Total Annual Cost 6.6 2.7
TABLE 12
CONTRACT HAULING COSTS
($000)
Segment Small Large
Total Investment 2.4 11.8
Annual Investment Cost 0.7 3.3
Annual Operating Cost 4.3 21.1
Total Annual Cost 5.0 24.4
14
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VI. ECONOMIC IMPACT
A. IMPACT SCREENING
To examine the degree of impact of control costs on the ink industry, the costs for control for
each option were included in both model financial statements. It is assumed that all plants in
each segment are identical to the financial model. The criteria used to determine potential
closure was a 10% or less before tax return on investment after treatment and/or that the
investment for control equipment is greater than 25% of plant fixed assets.
The effects of these costs on the model plants are shown in the following tables:
TABLE 13
IMPACT OF PHYSICAL CHEMICAL PRETREATMENT COSTS
($000)
Segment Small Large
Fixed Assets (Before Treatment) 24.2 366
Investment % Fixed Assets 65.2 8.5
Profit Before Tax 18.3 220
Total Annual Cost 8.3 17.6
Profit Before Tax after Treatment 10.0 202.4
Total Investment after Treatment 114.7 1189.1
Before Tax Return on Investment
After Treatment (%) 8.7 17.0
TABLE 14
IMPACT OF MANUALLY OPERATED PHYSICAL
CHEMICAL PRETREATMENT COSTS
($000)
Small
Segment Small at 9.2 gal/day
Fixed Assets 24.2 24.2
Investment % Fixed Assets 15.3 15.3
Profit Before Tax 18.3 18.3
Total Annual Cost 6.6 2.7
Profit Before Tax After
Treatment 11.7 15.6
Total Investment After
Treatment 102.6 102.6
Before Tax Return on
Investment After
Treatment (%) 11.4 15.2
15
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TABLE 15
IMPACT OF CONTRACT HAULING COSTS
($000)
Segment Small Large
Fixed Assets 24.2 366
Investment % Fixed Assets 9.9 3.2
Profit Before Tax 18.3 220
Total Annual Cost 5.0 24.4
Profit Before Tax After Treatment 13.3 195.6
Total Investment After Treatment 101.3 1169.8
Before Tax Return on Investment
After Treatment (%) 13.1 16.7
TABLE 16
SUMMARY OF IMPACT OF WASTEWATER TREATMENT COSTS
($000)
Segment Small Large
Treatment A B A B
Physical Chemical 8.7* 65.2* 17.0 8.5
Manually Operated Physical
Chemical 11.4 15.3
Contract Hauling 13.1 9.9 16.7 3.2
A = Before Tax Return on Investment after Treatment
B = Control Investment as % of Fixed Assets
'Potential Impact
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Table 16 indicates that the only area of potential impact is with small plants using Physical
Chemical Pretreatment. Small plants would probably use a manually operated physical chemical
pretreatment system. The costs for this system in the Development Document were based on a
plant discharging 30 gallons waste water per day. The model plant has an average discharge of 9.2
gallons per day. If one assumes linear operating costs, but no change in capital costs, then the
before tax return on investment after treatment for small plants becomes 15.2%.
On the basis of the above screening, no plant closures are predicted for the ink manufac-
turing industry. Therefore no analyses were made on closure effects, production effects or
employment effects.
1. Plants Affected
According to the 308 survey 237 plants discharge no wastewater. 76 plants did not respond to
that particular question. An examination of the answers to discharge practice by these 76 plants
indicate that some 39 practice zero discharge. Of those plants discharging some 22 plants treat
wastewater while 162 discharge untreated wastewater. In a follow-up of the survey, EPA deter-
mined that there were no direct dischargers. A summary of discharge practice is as follows:
276 Zero discharge
0 Direct dischargers
184 Indirect dischargers
460 Total
The 22 plants discharging treated wastewater are assumed to be able to meet Option I - Physical
Chemical Pretreatment. A breakdown of affected plants therefore is as follows:
Plants Affected S L Total
Option I - Physical Chemical
Pretreatment 66 96 162
Option 2 - Zero Discharge 75 109 184
While no plant closures are predicted, the industry, nevertheless, will be impacted by
control costs. One method for recovering these costs is through a price increase to pass on the cost
to the customer. Assuming all plants affected will pass on costs, an average price increase can be
calculated. This can be done by calculating the increase necessary to maintain pre-control return
on investment. This is shown in the following tables assuming that Option 1 is a regulation based
on physical chemical pretreatment and Option 2 is zero discharge by contract hauling.
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TABLE 17
AVERAGE PRICE INCREASE TO MAINTAIN RETURN ON INVESTMENT
OPTION 1 - PHYSICAL CHEMICAL PRETREATMENT
Needed Total Ink Cost per
No. Plants Revenues Lbs. Pound
Segment to Comply ($000) (MM) (4)
Small* 66 223.1 15.2 1.6
Large 96 2258.8 360.0 0.63
Total 162 2481.9 375.2 0.66
*For small plants using manually operated Physical Chemical Pretreatment, total
annual costs of $2,700 were used.
TABLE 18
AVERAGE PRICE INCREASE TO MAINTAIN RETURN ON INVESTMENT
OPTION 2 - ZERO DISCHARGE BY CONTRACT HAULING
Needed Total Ink Cost per
No. Plants Revenues Pounds Pound
Segment to Comply ($000) (MM) (4)
Small 75 408.0 17.25 2.4
Large 109 2906.2 408.8 0.7
Total 184 3314.2 426.05 0.8
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On the basis of the price increase which would maintain the Return of Investment, a
price increase due to controls is forecast.
2. Industry Costs for Compliance
Total industry costs for compliance are shown in the following tables:
TABLE 19
INK INDUSTRY CONTROL COSTS - OPTION 1
PHYSICAL CHEMICAL PRETREATMENT
($000)
Segment
No. Plants
Annual Cost/Plant
Total Annual Cost
Total Investment
Cost/Lb. Ink (4)
Small
66
$2.7
$178.2
$244.2
1.2
Large
96
$17.6
$1689.6
$2985.6
0.5
Total
162
$1867.8
$3229.8
0.5
TABLE 20
INK INDUSTRY CONTROL COSTS - OPTION 2
ZERO DISCHARGE BY CONTRACT HAULING
($000)
Segment
No. Plants
Annual Cost/Plant
Total Annual Cost
Total Investment
Cost/Lb. Ink (<*)
Small
75
$5.0
$375.0
$180
2.2
Large
109
$24.4
$2659.6
$1286.2
0.6
Total
184
$3034.6
$1466.2
0.7
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VII. LIMITS OF THE ANALYSIS
A. MODEL PLANTS
Only two financial models were constructed because of the limited availability of financial
information in the ink industry. Many plants will have much higher sales, production and profits
than those shown. However, since the cost of control will have the greater impact on small plants,
the models were constructed to accentuate this effect. Since control costs higher than those
anticipated for the smallest plants were used in the impact analysis, no serious change in impact
will result for plants which differ from the model.
B. CONTROL INVESTMENT COST
The investment for control can be difficult to obtain for very small plants. Any under-
estimates of these costs might indicate impact on small plants.
C. AMOUNT OF EFFLUENT
It is recognized that many plants will have wastewater ratios different than that shown by
the engineering model. No serious change in impact will result, however, at ratios which are
greater than those shown.
D. PRICE INCREASE
To fully recover costs and return on investment, small plants may have to achieve a 2.2
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TABLE 22
SENSITIVITY OF CONTRACT HAULING COSTS ON
ZERO DISCHARGE BY CONTRACT HAULING
($000)
Segment Small Large
Hauling Cost (ti/gal)
Profit Before Tax
Total Annual Cost
Profit Before Tax After Treatment
Before Tax Return on
Investment After Treatment 13.1 10.8 8.7 16.7 15.1 13.5
From this data it can be seen that for the zero discharge option the small plants are highly
impacted when control costs for contract hauling increase to somewhere between 60 and 90 cents
per gallon.
30
18.3
5.0
13.3
60
18.3
7.3
11.0
90
18.3
9.5
8.8
30
220
24.4
195.6
60
220
43.1
176.9
90
220
61.9
158.1
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VIII. REFERENCES
1. Economic Analysis of Proposed Effluent Guidelines Paint and Allied Products and Printing
Ink Industries EPA-230/1 -74-052 August 1974.
2. The Printing Ink Industry, an Economic, Marketing, and Financial Study. Morton Research
Corp.
3. Selected Financial and Operating Ratios 1975-1976, National Association of Printing Ink
Manufacturers, Inc.
4. Draft Engineering Report for Development of Effluent Limitations Guidelines for the Ink
Manufacturing Industry. Burns and Roe.
5. U.S. Department of Commerce, Census of Manufactures.
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