&EPA
United S*i6
EiKviraimenlal Protection
Agency
Regulatory Impact Analysis for the Plywood
and Composite Wood Products NESHAP
Final Report
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EPA-452/R-04-005
February 2004
Regulatory Impact Analysis for the Plywood and Composite Wood Products NESHAP
U.S. Environmental Protection Agency
Office of Air Quality Planning and Standards
Air Quality Strategies and Standards Division
Innovative Strategies and Economics Group
Research Triangle Park, NC
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TABLE OF CONTENTS
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Executive Summary ES-1
1 Introduction .
1.1 Scope and Purpose of the Report
1.2 Need for Regulatory Action
1.3 Requirements for the Regulatory Impact Analysis
1.4 Other Federal Programs
1.5 Organization of the Regulatory Impact Analysis . .
1.6 References
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2 Profile of the Plywood and Composite Wood Industries 2-1
2.1 Introduction 2-1
2.2 The Supply Side 2-3
2.3 The Demand Side 2-20
2.4 Industry Organization 2-29
2.5 Markets 2-42
2.6 References 2-58
3 Regulatory Alternatives, Emissions, Emission Reductions, and Control and Administrative Costs
3.1 Regulatory Alternatives 3-1
3.2 Emissions and Emission Reductions 3-10
3.3 Control Equipment and Costs 3-22
3.4 Testing, Monitoring, Reporting, and Recordkeeping Costs 3-33
3.5 References 3-36
4 Economic Impact Analysis 4-1
4.1 Results in Brief 4-1
4.2 Introduction 4-1
4.3 Economic Impact Analysis Inputs 4-2
4.4 Economic Impact Analysis Methodology 4-4
4.5 Economic Impact Analysis Results 4-6
4.6 Analysis of Economic Impacts on Engineered Wood Products Sector 4-15
4.7 References 4-22
5 Small Business Impacts 5-1
5.1 Results in Brief 5-1
5.2 Introduction 5-1
5.3 Screening Analysis Data Sources 5-2
5.4 Screening Analysis Methodology 5-2
5.5 Screening Analysis Assumptions 5-3
5.6 Screening Analysis Results 5-3
5.7 Screening Analysis Conclusions 5-10
5.8 EIA Results for Small Businesses 5-1
5.9 References 5-12
6 Qualitative Assessment of Benefits of Emission Reductions 6-1
6.1 Identification Of Potential Benefit Categories 6-1
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6.2 Qualitative Description of Air Related Benefits - HAP and CO 6-1
6.3 Qualitative Description of Effects from Reductions and Increases in Emissions from
Other Pollutants Due to HAP Controls 6-6
6.4 Lack of Approved Methods to Quantify HAP Benefits 6-8
6.5 Summary 6-10
6.6 References 6-11
Appendix A Summary of Impacts Associated with the Delisted Low-Risk Subcategory A-l
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LIST OF EXHIBITS
Exhibit 2-1: SIC &NAICS Codes for the Plywood and Composite Wood Industries 2-2
Exhibit 2-2: Other Primary SIC Codes for the Plywood and Composite Wood Industries 2-3
Exhibit 2-3: SIC andNAICS Codes and Products 2-12
Exhibit 2-4: Specialization and Coverage Ratios, 1982 - 1997 2-13
Exhibit 2-5: Summary of Annual Costs and Shipments, 1992 -1997 2-14
Exhibit 2-6: Materials Consumed By Kind for Softwood Plywood and Veneer, 1997 2-17
Exhibit 2-7: Materials Consumed by Kind for Reconstituted Wood Products, 1997 2-18
Exhibit 2-8: Industry Outputs, by SIC Code 2-21
Exhibit 2-9: MDF Shipments by Downstream Market, 1997 2-23
Exhibit 2-10: Particleboard Shipments by Downstream Market, 1997 2-24
Exhibit 2-11: Housing Market Indicators, 1988 - 1997 2-25
Exhibit 2-12: Trade for Household Furniture (SIC 251), 1989 - 1996 2-25
Exhibit 2-13: Use of Wood and Non-wood Products in Residential Construction
1976 - 1995 2-27
Exhibit 2-14: Demand Elasticities 2-29
Exhibit 2-15: Concentration Ratios by SIC Code, 1982-1992 2-30
Exhibit 2-16: Facilities with Compliance Costs 2-31
Exhibit 2-17: Full Production Capacity Utilization Rates, Fourth Quarters, 1992-1997 2-33
Exhibit 2-18a: 1998 Employment at Facilities with Compliance Costs 2-34
Exhibit 2-18b: 1998 Employment at Facilities with Compliance Costs 2-34
Exhibit 2-19: Number of Mills, Average Capacity and Utilization, 1977 - 1997 2-36
Exhibit 2-20: Summary of Capital Expenditures, 1992 - 1997 2-37
Exhibit 2-21: Size Distribution of Firms Owning Affected Facilities 2-38
Exhibit 2-22: Types of Firm Ownership for Lumber and Wood Products (SIC 24), 1992 2-39
Exhibit 2-23: Indicators of Financial Condition, 1995-1997 2-41
Exhibit 2-24: Trade Balance and Selected Statistics 2-44
Exhibit 2-25: Production, Trade and Consumption Volumes for Selected Products (1988-1997) .... 2-45
Exhibit 2-26: 1997 U.S. Wood Products Imports by Region and Major Trading Partner 2-48
Exhibit 2-27: 1997 U.S. Wood Product Exports by Region and Major Trading Partner 2-50
Exhibit 2-28: Lumber and Wood Products Producer Price Index, 1988-1997 2-51
Exhibit 2-29: Producer Price Indices of Plywood and Wood Composite Products 2-52
Exhibit 2-30: F.O.B. Prices of Southern plywood, OSB, and Particleboard 2-53
Exhibit 2-31: APA Forecasted Structural Panel Production and Demand 2-56
Exhibit 2-32: APA Actual and Forecasted Structural Panel Capacity and Production 2-57
Exhibit 3-1: Illustration of Total HAP Calculation for an Emission Source 3-5
Exhibit 3-2: Summary of MACT for PCWP Process Units at New and Existing Sources 3-6
Exhibit 3-3: Cost-Effectiveness Analysis Of Beyond-The-Floor Control Options 3-8
Exhibit 3-4: Illustration Of Total HAP Calculation For An Emission Source 3-13
Exhibit 3-5: Uncontrolled and Baseline HAP Emissions Estimates 3-17
Exhibit 3-6: Speciated Nationwide Uncontrolled HAP Emissions by Product 3-18
Exhibit 3-7: Speciated Nationwide Baseline HAP Emissions by Product 3-19
Exhibit 3-8: Estimated Number of Major Sources By Product 3-20
Exhibit 3-9: Estimated Nationwide Reduction in Total HAP and THC 3-21
Exhibit 3-10: Press Enclosure Exhaust Flow Rates and Capital Costs 3-29
Exhibit 3-11: Control Equipment Costed for Process Units with Controlled MACT Floor 3-31
Exhibit 3-12: Default Flow Rates 3-32
Exhibit 3-13: Estimated Nationwide Control Costs for the PCWP Industry 3-34
Exhibit 3-14: Dollars (In Total Annualized Costs) Per Ton Of HAP And THC Reduced 3-35
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Exhibit 4-1: Baseline Characterization of Plywood and Composite Wood Markets: 1997 4-3
Exhibit 4-2. Market-Level Impacts of the NESHAP 4-7
Exhibit 4-3. Industry-Level Impacts of the NESHAP 4-10
Exhibit 4-4: Distribution of Industry-Level Impacts of NESHAP:
Affected and Unaffected Producers 4-12
Exhibit 4-5: Distribution of Social Costs Associated with the NESHAP 4-13
Exhibit 4-6: Primary Uses and Substitutes for LSL 4-16
Exhibit 4-7: Characteristics of LSL Plants 4-17
Exhibit 4-8: Primary Uses and Substitutes for PSL 4-17
Exhibit 4-9: Characteristics of PSL Plants 4-18
Exhibit 4-10: Retail Prices of GL and PSL Beams Delivered to Los Angeles 4-18
Exhibit 5-1: Net Profit Margins by Product Type 5-3
Exhibit 5-2: Affected Firms by Size 5-4
Exhibit 5-3: Affected Firms by Process Type 5-5
Exhibit 5-4: Affected Firms with C/S Ratios of 3 Percent or Greater 5-6
Exhibit 5-5: Affected Firms with C/S Ratios of 1 Percent or Greater 5-7
Exhibit 5-6: C/S to R/S Comparison for Firms with C/S of One Percent or Greater 5-8
Exhibit 5-7: Economic Impacts on Small Businesses Associated with
Projected Market Adjustments 5-11
Exhibit 6-1: Key Health Effects of Exposure to Ambient Carbon Monoxide 6-5
LIST OF FIGURES
Figure 2-1: Plywood and Veneer Production 2-6
Figure 2-2: Softwood Plywood and Veneer Value of Shipments and Production Costs,
1992 - 1997 2-15
Figure 2-3: Reconstituted Wood Products Value of Shipments and Production Costs,
1992 - 1997 2-16
Figure 2-4: Materials Consumed by Softwood Plywood and Veneer Products, 1997 2-17
Figure 2-5: Materials Consumed by Reconstituted Wood Product Producers, 1997 2-19
Figure 2-6 Industry Outputs of Softwood Plywood and Veneer Industry 2-22
Figure 2-7: Industry Outputs of Reconstituted Wood Products Industry 2-23
Figure 2-8: Plywood and Composite Wood Facility Locations 2-32
Figure 2-9: Full Production Capacity Utilization, Fourth Quarters, 1992-1997 2-33
Figure 2-10: Value of Product Shipments, 1989-1995 2-46
Figure 2-11: Apparent Consumption, 1989-1995 2-47
Figure 2-12: APA Projected Housing Starts (000) 2-55
Figure 3-1: Variation in RTO Purchased Equipment Cost with Flow Rate 3-24
Figure 3-2: Relationship between RTO Electricity Consumption and Flow Rate 3-25
Figure 3-3: Relationship between RTO Natural Gas Consumption and Flow Rate 3-25
Figure 3-4: Variation in RTO Total Capital Investment with Flow 3-27
Figure 3-5: Variation in RTO Total Annualized Cost with Flow 3-27
Figure 4-1: Supply Curves for Affected Facilities 4-5
Figure 4-2: Market Equilibrium Without and With Regulation 4-6
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EXECUTIVE SUMMARY
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EPA is issuing a rule to reduce hazardous air pollutant (HAPs) emissions from existing and new
plywood and composite wood products facilities that are major sources. This rule, which will be
promulgated in February 2004, is a National Emission Standards for Hazardous Air Pollutants
(NESHAP), and will reduce HAP emissions by requiring affected plywood and composite wood products
facilities to meet a level of emissions reductions needed to meet the Maximum Achievable Control
Technology (MACT) floor for these sources. This MACT floor level of control is the minimum level
these sources must meet to comply with the final rule. The major HAPs whose emissions will be reduced
are formaldehyde, acetaldehyde, acrolein, methanol, phenol, and propionaldehyde. The proposed rule
will also lead to emission reductions of other pollutants such as volatile organic compounds (VOC),
particulate matter (PM10), carbon monoxide (CO), and emission increases in nitrogen oxides (NOx) due to
the application of incineration-based controls. Increased electricity use due to application of controls will
also lead to general increases in the levels of sulfur dioxide (SO2) and NOx emitted from electric utilities.
This rule allows an affected source to use a production-based compliance option, defined in units
of mass of pollutant per unit of production, or any of six control system compliance options if an affected
source is equipped with an add-on control system. As explained in the Federal Register notice, the
options entail HAP reductions of 90 percent or limiting the concentration of HAPs in the exhaust from the
control system. In addition, an affected source may choose to comply with an emissions averaging
option that allows the sources to not control or under-control some process units while controlling other
affected process units. Finally, a source can be eligible to become part of a delisted low-risk subcategory
and thus not be required to control HAP emissions to meet the final rule requirements if the source's
emissions have a sufficiently low risk level.
The rule is expected to reduce HAP emissions by 11,000 tons per year in the third year after its
issuance. The rule is also expected to reduce VOC emissions, measured as total hydrocarbon, by 27,000
tons per year, PM10 emissions by 13,000 tons per year, and CO emissions by 11,000 tons per year in the
third year. The increased electricity required to operate the control systems is also expected to increase
NOx and SO2 emissions at electricity generating utilities by 1,200 and 2,000 tons, respectively. It should
be noted that the NOx SIP call and Acid Rain emission trading programs would likely reduce or eliminate
any increases in emissions at utilities. The compliance costs, which include the costs of control and
monitoring, recordkeeping and reporting requirements, are estimated at $143 million (1999 dollars).
The total social costs, which account for the behavioral response of consumers and producers to higher
pollution control costs, are estimated at $135.1 million (1999 dollars). Economic impacts associated with
these costs include price increases nationally of 0.9 to 2.5 percent for products affected by this rule, and a
reduction in output of only 0.1 to 0.7 percent nationally for the affected industries. An analysis of small
business impacts shows that there are 17 small firms affected, with 10 of them having annual compliance
costs of 1 percent or greater than their sales, and 3 of these having annual compliance costs of 3 percent
or greater than their sales. The Agency has certified that there is no significant impact on a substantial
number of small entities (SISNOSE) associated with this rule. Also, an analysis of the energy impacts
associated with this rule indicates that there is no significant adverse effect on supply, distribution, or use
of energy from implementation of this rule. Impact results considering the effect of a delisted low-risk
subcategory show reductions in all impacts with a particular effect on costs.
The Agency is unable to monetize the benefits from the HAP, VOC, and CO emissions
reductions due to lack of credible data for assigning a benefits value to these reductions. While the
Agency has done so in past RIAs and may do so in the future, for this rule, the Agency has not monetized
the benefits and disbenefits associated with the criteria pollutant (PM, NOx, SO2) emission decreases and
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increases, respectively. This lack of inclusion of a monetized benefits estimate for criteria pollutant
emission changes is not meant to imply that the Agency will choose not to provide such monetized
benefit estimates for other NESHAPs and other standards.
Results associated with a compliance alternative to the final rule, an alternative which is based on
the eligibility of sources to become part of a delisted low-risk subcategory, can be found in Appendix A.
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1 INTRODUCTION
Under the authority of Section 112(d) of the Clean Air Act as amended in 1990, the U.S.
Environmental Protection Agency (EPA or the Agency) is a regulation requiring facilities that
manufacture plywood and composite wood products to reduce their emissions of hazardous air pollutants
(HAPs). This regulation, a National Emission Standard for Hazardous Air Pollutants (NESHAP), will
apply to major sources of HAPs in this industry. This regulatory impact analysis (RIA) presents the
supporting documentation and analyses developed by the Agency that describe and quantify the expected
impacts of the Plywood and Composite Wood Products NESHAP.
1.1 Scope and Purpose of the Report
The NESHAP will require the manufacturers of plywood and composite wood products to install
additional pollution controls to reduce their emissions of HAPs to the air. The purpose of this EIA is to
present the results of the Agency's evaluation of the cost, economic impacts, and benefits from
compliance with the requirements of the NESHAP.
The NESHAP will apply to all new and existing major sources of HAPs that manufacture
plywood and composite wood products. These sources emit HAPs associated with heating of wood and
related to their use of resins, adhesives, and additives in the pressing and drying stages of the production
process. The EPA estimates that there are 447 facilities that produce plywood and composite wood
products. Of these, the EPA determined that 223 facilities are major sources of HAPs.
1.2 Need for Regulatory Action
The purpose of this NESHAP is to protect public health by reducing emissions of HAP from
plywood and composite wood products facilities. The authority for doing this lies in Section 112 of the
Clean Air Act (CAA), which requires EPA to list categories and subcategories of major and area sources
of HAP and to establish NESHAP for the listed source categories and subcategories. The plywood and
composite wood products source category was originally listed as the plywood and particleboard source
category on July 16, 1992 (57 FR 31576). The name of the source category was changed to plywood and
composite wood products on November 18, 1999 (64 FR 63025) to more accurately reflect the types of
manufacturing facilities covered by the source category. A major source of HAP is defined as any
stationary source source or group of stationary sources within a continuous area and under common
control that emits or has the potential to emit, considering controls, in the aggregate, 9.1 Megagrams
(Mg)/year (10 tons/yr) or more of any single HAP or 22.7 Mg/year or more (25 tons/yr) of multiple HAP.
Section 112 of the CAA requires EPA to establish NESHAP for the control of HAP from both
existing and new sources. The CAA requires the NESHAP to reflect the maximum degree of reduction in
emissions of HAP that is achievable. This level of control is commonly referred to as the maximum
achievable control technology (MACT).
The MACT floor is the minimum level of control allowed for NESHAP and is defined under
section 112 (d) (3) of the CAA. In essence, the MACT floor ensures that the standard is set at a level that
assures all major sources achieve the control level that is at least as stringent as that already achieved by
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the better-controlled and lower-emitting sources in each source category or subcategory. For new
sources, the MACT floor cannot be less stringent than the emission control that is achieved in practice by
the best-controlled similar source. The MACT standards for existing sources can be less stringent than
standards for new sources, but they cannot be less stringent than the average emission limitation achieved
by the best-performing 12 percent of existing sources in the category or subcategory (or, the best-
performing 5 sources for categories or subcategories with fewer than 30 sources.)
In the course of rule development, we may also consider control options that are more stringent
than the floor. EPA may establish standards more stringent than the floor based on the consideration of
cost of achieving the emissions reductions, any non-air quality health and environmental impacts, and
energy requirements.
1.3 Requirements for this Regulatory Impact Analysis
This section describes various legislative and executive requirements that govern the analytical
requirements for Federal rulemakings, and describes how each analytical requirement is addressed in this
EIA.
1.3.1 Executive Order 12866
Under Executive Order 12866 (58 FR 51735, October 4, 1993) as amended by Executive Order
13258 (67 FR 9385, February 28, 2002), the EPA must determine whether the regulatory action is
"significant" and therefore subject to review by the Office of Management and Budget (OMB) and the
requirements of the Executive Order. The Executive Order defines "significant regulatory action" as one
that is likely to result in a rule that may:
1) Have an annual effect on the economy of $100 million or more or adversely affect in a material way
the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or
safety, or state, local, or tribal governments or communities;
2) Create a serious inconsistency or otherwise interfere with an action taken or planned by another
agency;
3) Materially alter the budgetary impact of entitlements, grants, user fees, or loan programs, or the rights
and obligation of recipients thereof;
4) Raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the
principles set forth in the Executive Order.
Pursuant to the terms of Executive Order 12866 as amended by Executive Order 13258, it has been
determined that this rule is a "significant regulatory action" because the annual costs of complying with
the rule are expected to exceed $100 million. Consequently, this action was submitted to OMB for
review under Executive Order 12866 as amended by Executive Order 13258.
1.3.2 Regulatory Flexibility Act and Small Business Regulatory Enforcement Fairness Act of 1996
The Regulatory Flexibility Act (RFA) of 1980 (PL 96-354) generally requires that agencies
conduct a screening analysis to determine whether a regulation adopted through notice-and-comment
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rulemaking will have a significant impact on a substantial number of small entities (SISNOSE), including
small businesses, governments, and organizations. If a regulation will have such an impact, agencies
must prepare an Initial Regulatory Flexibility Analysis, and comply with a number of procedural
requirements to solicit and consider flexible regulatory options that minimize adverse economic impacts
on small entities. Agencies must then prepare a Final Regulatory Flexibility Analysis that provides an
analysis of the effect on small entities from consideration of flexible regulatory options. The RFA's
analytical and procedural requirements were strengthened by the Small Business Regulatory Enforcement
Fairness Act (SBREFA) of 1996 to include the formation of a panel if a proposed rule was determined to
have a SISNOSE. This panel would be made up of representatives of the EPA, the Small Business
Administration (SBA), and OMB.
For reasons explained more fully in Chapter 5 of this economic impact analysis for the rule, EPA
has determined that there is no SISNOSE for this rule. While there are some impacts to some small
firms, these impacts are not sufficient for a SISNOSE. Therefore, the EPA has not prepared a Final
Regulatory Flexibility Analysis for this rule.
The RFA and SBREFA require the use of definitions of "small entities," including small
businesses, governments, and organizations such as non-profits, published by the SBA.1 Screening
analyses of economic impacts presented in Chapter 5 of this report examine potential impacts on small
entities.
1.3.3 Unfunded Mandates Reform Act of 1995
The Unfunded Mandates Reform Act (UMRA) of 1995 (PL-4) was enacted to focus attention on
federal mandates that require other governments and private parties to expend resources without federal
funding, to ensure that Congress considers those costs before imposing mandates, and to encourage
federal financial assistance for intergovernmental mandates. The Act establishes a number of procedural
requirements. The Congressional Budget Office is required to inform Congressional committees about
the presence of federal mandates in legislation, and must estimate the total direct costs of mandates in a
bill in any of the first five years of a mandate, if the total exceeds $50 million for intergovernmental
mandates and $100 million for private-sector mandates.
Section 202 of UMRA directs agencies to provide a qualitative and quantitative assessment (or a
"written statement") of the anticipated costs and benefits of a Federal mandate that results in annual
expenditures of $100 million or more. The assessment should include costs and benefits to State, local,
and tribal governments and the private sector, and identify any disproportionate budgetary impacts.
Section 205 of the Act requires agencies to identify and consider alternatives, including the least costly,
most cost-effective, or least burdensome alternative that achieves the objectives of the rule.
Since this rule may cause a mandate to the private sector of more than $100 million, EPA did
provide an analysis of the impacts of this rule on State and local governments to support compliance with
Section 202 of UMRA. A summary of this analysis is in Chapter 4 of this EIA. In short, no government
entity is affected by this rule - only businesses.
1 Where appropriate, agencies can propose and justify alternative definitions of "small entity." This Rf A
and the screening analysis for small entities rely on the SBA definitions.
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1.3.4 Paperwork Reduction Act of 1995
The Paperwork Reduction Act of 1995 (PRA) requires Federal agencies to be responsible and
publicly accountable for reducing the burden of Federal paperwork on the public. EPA has submitted an
OMB-83I form, along with a supporting statement, to the OMB in compliance with the PRA. The OMB-
831 and the supporting statement explains the need for additional information collection requirements and
provides respondent burden estimates for additional paperwork requirements to State and local
governments associated with this rule.
1.3.5 Executive Order 12898
Executive Order 12898, "Federal Actions to Address Environmental Justice in Minority
Populations and Low-Income Populations," requires Federal agencies to consider the impact of programs,
policies, and activities on minority populations and low-income populations. Disproportionate adverse
impacts on these populations should be avoided to the extent possible. According to EPA guidance,
agencies are to assess whether minority or low-income populations face risk or exposure to hazards that is
significant (as defined by the National Environmental Policy Act) and that "appreciably exceeds or is
likely to appreciably exceed the risk or rate to the general population or other appropriate comparison
group." (EPA, 1996). This guidance outlines EPA's Environmental Justice Strategy and discusses
environmental justice issues, concerns, and goals identified by EPA and environmental justice advocates
in relation to regulatory actions. The plywood and composite wood products rule is expected to provide
health and welfare benefits to populations around the United States, regardless of race or income.
1.3.6 Executive Order 13045
Executive Order 13045, "Protection of Children from Environmental Health Risks and Safety
Risks," directs Federal agencies developing health and safety standards to include an evaluation of the
health and safety effects of the regulations on children. Regulatory actions covered under the Executive
Order include rulemakings that are economically significant under Executive Order 12866 as amended by
Executive Order 13258, and that concern an environmental health risk or safety risk that the agency has
reason to believe may disproportionately affect children. EPA has developed internal guidelines for
implementing E.G. 13045 (EPA, 1998).
The plywood and composite wood products rule is a "significant economic action," because the
annual costs are expected to exceed $100 million. Exposure to the F£APs whose emissions will be
reduced by this rule are known to affect the health of children and other sensitive populations. However,
this rule is not expected to have a disproportionate impact on children.
1.3.7 Executive Order 13211
Executive Order 13211, "Actions Concerning Regulations That Significantly Affect Energy
Supply, Distribution, or Use," was published in the Federal Register on May 22, 2001 (66 FR 28355).
This executive order requires Federal Agencies to weigh and consider the effect of regulations on supply,
distribution, and use of energy. To comply with this executive order, Federal Agencies are to prepare
and submit a "Statement of Energy Effects" for "significant energy actions." The executive order defines
"significant energy action" as the following:
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1) an action that is a significant regulatory action under Executive Order 12866 or any successor order,
and
2) is likely to have a significant adverse effect on the supply, distribution, or use of energy; or
3) that is designated by the Administrator of the Office of Information and Regulatory Affairs as a
significant energy action.
An analysis of the effects of this rule on supply, distribution, and use of energy is summarized in
Chapter 4.
1.4 Other Federal Programs
The only other federal program that may have an effect on these sources is the wood building
products surface coating NESHAP, a rulemaking promulagated in February, 2003. However, the overlap
of coverage of these rules will be minimal. The wood furniture manufacturing operations NESHAP, a
rule signed in December 1995, may apply to some facilities that will be affected by the plywood and
composite wood products rule, but there are no overlapping requirements for individual process units.
1.5 Organization of the Regulatory Impact Analysis
This report includes six chapters and an appendix that present a description of the industry, the
costs associated with the regulatory control options and compliance alternatives associated with the
NESHAP, results of the economic impact analysis, and a summary of impacts on small businesses.
• Chapter 2 profiles the plywood and composite wood products industries.
Chapter 3 summarizes the approach to estimating the costs of the NESHAP, presents the results
of the cost analysis, and provide the emissions reductions for the final rule.
Chapter 4 summarizes the approach to performing the economic impact analysis of the NESHAP
and presents the results of the analysis. An analysis of impacts on energy distribution, supply, or
use is also in this chapter.
• Chapter 5 includes the results of the analyses of the NESHAP's impact on small businesses.
Chapter 6 presents a qualitative assessment of the benefits associated with this final rule.
• Appendix A presents impacts associated with a delisted low-risk subcategory that could allow
various PCWP sources to not have to put on controls to comply with the final rule.
Throughout this report, a distinction is made between "affected" and "unaffected" facilities and
firms. Affected facilities are those that will incur compliance costs (control and monitoring,
recordkeeping, and reporting ) to comply with the rule. In general, unaffected facilities and firms have no
compliance costs. However, of the group of unaffected facilities, 51 of these will incur costs associated
with monitoring, reporting, and record keeping (MRR). MRR costs are estimated to be $25,194 per year.
The distinction between affected and unaffected facilities and firms will be noted throughout the
document.
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1.6 References
Federal Register, 1993. Executive Order 12866, Regulatory Planning and Review. Vol. 58, October 4,
1993, pg. 51735.
U.S. Environmental Protection Agency, 1996. Guidance for Providing Environmental Justice Concerns
in EPA 's NEPA Compliance Analyses (Review Draft). Office of Federal Activities, Washington, B.C.,
July 12, 1996.
U.S. Environmental Protection Agency, 1996. Memorandum from Trovato and Kelly to Assistant
Administrators. Subject: "Implementation of Executive Order 13045, Protection of Children from
Environmental Health and Safety Risks." April 21, 1998.
Federal Register, 2001. Executive Order 13211, Actions Concerning Regulations That Significantly
Affect Energy Supply, Distribution, or Use. Vol. 66, May 22, 2001, pg. 28355.
Federal Register, 2002. Executive Order 13258, Amending Executive Order 12866 - Regulatory Planning
and Review. Vol.67 , February 28, 2002, pg. 9385.
2 PROFILE OF THE PLYWOOD AND COMPOSITE WOOD PRODUCTS INDUSTRIES
2.1 Introduction
Through a 1998 information collection request (ICR), the EPA identified plants potentially
impacted by the NESFIAP. This profile presents information on several industries that comprise the
plywood and composite wood source category because they will be impacted by the regulation in some
way. These industries fall into three categories based on their Standard Industrial Classification (SIC) or
North American Industry Classification System (NAICS) classifications.
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Softwood plywood and veneer
• Reconstituted wood products
Structural wood members
The industries are represented by the three SIC codes and four NAICS codes presented in Exhibit
2-1. The NAICS codes replaced SIC codes in federal statistical data beginning in 1997. The SIC code
for Structural Wood Members, Not Elsewhere Classified (n.e.c.) was divided into two NAICS codes for
Engineered Wood Members and Truss Manufacturing. The ICR surveyed 416 potentially impacted
facilities (EPA, 1998), and an additional 15 facilities were identified that either did not respond to the
survey or have commenced operation since the date of the survey. The Agency determined that of these
431 facilities, 223 were impacted facilities, owned by 52 firms.
EPA expects this rule to primarily impact certain facilities engaged in the manufacturing of
softwood plywood, reconstituted wood products, and structural wood members. Exhibit 2-1 shows, for
each of the three industry categories, the number of facilities EPA expects will experience compliance
costs as a result of this MACT standard and the total number of facilities. The total estimated capital
costs associated with the new MACT standard are $479 million. The annualized costs for affected
facilities are $139 million on an annual basis, including monitoring, reporting, and record keeping costs
(in 1999 dollars). Some unaffected facilities will also have monitoring, reporting, and record keeping
costs of approximately $4 million per year. Therefore, the total annualized compliance costs are $143
million (1999 dollars).
Including costs associated with monitoring, reporting, and record keeping requirements, EPA
expects 88 softwood plywood and veneer facilities to experience approximately 22 percent of the costs,
38 oriented strandboard facilities to experience approximately 18 percent of the costs, 82 other wood
composite (including medium density fiber (MDF), particle board (PB), and hardboard (HB)) to
experience approximately 58 percent of costs, and engineered wood product facilities to bear the
remaining 2 percent. Most of the discussions contained in this profile will emphasize the softwood
plywood and reconstituted wood products industries because facilities in these industries will experience
the greatest impacts associated with the new MACT standard. A discussion of the affected EWP facilities
is presented in Section 4.4 of this chapter.
2-1
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Exhibit 2-1: SIC & NAICS Codes for the Plywood and Composite Wood Industries
SIC Code
2436
2493
2439
SIC Description
Softwood Veneer and
Plywood
Reconstituted Wood
Products
Structural Wood
Members, Not
Elsewhere Classified
NAICS Code
321212
321219
321213
321214
NAICS
Description
Softwood Veneer
and Plywood
Reconstituted
Wood Products
Engineered Wood
Members (Except
Truss)
Truss
Manufacturing
Impacted
Facilities*
66
Total: 97
OSB: 23
PB/MDF: 56
HB: 18
3
0
Total
Facilities in
Category
155
317
53
992
* Does not include number of facilities with MRR costs only.
Sources: MRI (1999), U.S. Environmental Protection Agency (1998), Dun & Bradstreet (1999a), U.S. Department of
Commerce (1999a).
Producers of plywood and composite wood products also engage in additional manufacturing
activities including furniture and wholesale timber production. In some cases, their primary SIC code2
may be one other than those listed in Exhibit 2-1. The facilities with a primary SIC codes other than for
plywood and wood composite manufacturers are shown in Exhibit 2-2. The operations related to these
other SIC codes are unlikely to be affected by the MACT standard. In addition, the number of facilities
identified as potentially affected by this rule relative to the total number of establishments in all categories
is extremely small (under one percent for all categories). Therefore, this profile focuses on the SIC and
NAICS listed in Exhibit 2-1. In particular, the profile will focus on the softwood plywood and veneer and
reconstituted wood products industries. All facilities that are impacted by the MACT standard are
included in these analyses, regardless of their primary SIC or NAICS code.
2See section 2.4.3.1 for a description of how primary SIC codes were assigned to the surveyed facilities.
2-2
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Exhibit 2-2: Other Primary SIC and NAICS Codes for the Plywood and Composite Wood Industries
SIC
2421
2426
2448
2499
2511
Description
Sawmills
and
Planning
Mills,
General
Hardwood
Dimension
and Flooring
Mills
Wood
Pallets and
Skids
Wood
Products,
Not
Elsewhere
Classified
Wood
Household
Furniture,
Except
Upholstered
NAICS
321113
321912
321918
321999
321113
321912
321918
387215
321920
321920
333414
339999
321999
337122
337215
NAICS Title
Sawmills
Cut Stock, Resawing Lumber, & Planning
Other Millwork (including Flooring)
All Other Miscellaneous Wood Product
Manufacturing
Sawmills
Cut Stock, Resawing Lumber, & Planning
Other Millwork (including Flooring)
Showcase, Partition, Shelving, and Locker
Manufacturing
Wood Container and Pallet Manufacturing
Wood Container and Pallet Manufacturing
Heating Equipment Manufacturing
All Other Miscellaneous Manufacturing
All Other Miscellaneous Wood Product
Manufacturing
Non-upholstered Wood Household
Furniture Manufacturing
Showcase, Partition, Shelving, and Locker
Manufacturing
Facilities
inlCR
32
5
1
4
13
Impacted
Facilities
13
0
0
0
0
Total
Facilities in
Category
5,815
833
1,929
2,760
2,785
Sources: MRI (1999), U.S. Environmental Protection Agency (1998), Dun & Bradstreet (1999a), U.S. Department of
Commerce (1999a).
Section 2.2 of this chapter describes the supply side of the affected industries and characterizes the
production process, the products concerned, and the costs of production. Section 2.3 examines the
demand side of the affected industries, product uses, and consumers. Section 2.4 characterizes the
facilities and firms that comprise the industry, their organization, and their financial conditions. Finally,
Section 2.5 describes the markets and discusses domestic production and consumption, international
trade, and prices.
2.2 The Supply Side
The following section contains information concerning the supply of plywood and composite
wood products. This section describes the production processes of each of the aforementioned industries.
It then presents the products, by-products, and co-products of each industry. Lastly, the costs of
production for each of the three industries are presented. Factors, such as industry shipments, costs of
materials, fuels and electricity, payroll, capital expenditures, and materials consumed are all examined.
2-3
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2.2.7 Production Process
This section discusses three categories of plywood and composite wood production: plywood and
veneer; particleboard, strand and fiber composites; and structural wood members. The construction of
plywood, consists basically of combining an odd number of layers of veneer, with each layer having one
or more plies. Hardwood plywood is generally made by applying a hardwood veneer to the face and back
of a softwood plywood, MDF, or particleboard panel. The differences between the hardwood and
softwood processes occur because of different inputs and markets. Particleboard, oriented strandboard,
fiberboard, and hardboard are all processed similarly. These three types of reconstituted wood products
are manufactured by combining fragmented pieces of wood and wood fiber into a cohesive mat of wood
particles, fibers, and strands. Structural wood members are the products of multiple manufacturing
techniques. This section describes the production of glue-laminated timber and the three types of
structural composite lumber: laminated veneer lumber, parallel strand lumber, and laminated strand
lumber.
2.2.1.1 General Considerations for Plywood and Composite Wood Product Manufacturing
Release of hazardous air pollutants (HAPs) is primarily associated with drying and pressing
processes in the manufacturing of plywood and composite wood products. Coating processes are
intrinsically related to the manufacturing process and result in further emissions through drying and
pressing. Conventional composite wood products are generally made with a thermosetting or heat-curing
resin or adhesive that holds wood fiber together. Commonly used resin-binder systems include phenol-
formaldehyde, urea-formaldehyde, melamine-formaldehyde, and propionaldehyde. A number of
additives are used in the manufacturing of wood composites as well. Most notably, wax is used to
provide finished products with resistance to water penetration. Other additives include preservatives, fire
retardants, and impregnating resins.
While there is a broad range of plywood and composite wood products and many applications for
such products, this section of the profile groups the production processes of these products into three
general categories: plywood and veneer; particle board, strand and fiber composites; and structural wood
members. Further descriptions of the production processes for each of these categories are provided in
this section.
2.2.1.2 Plywood and Veneer3
Construction of plywood relies on combining an odd number of layers of veneer. Layers consist
of one or more than one ply with the wood grain running in the same direction. Outside plies are called
faces or face and back plies, while the inner plies are called cores or centers. Layers may vary in number,
thickness, species, and grade of wood. To distinguish the number of plies (individual sheets of veneer in
a panel) from the number of layers (number of times the grain orientation changes), panels are sometimes
described as three-ply, three-layer, or four-ply, three-layer.
As described above, veneer is one of the main components of plywood. Most softwood plants
produce plywood veneer for their own use. Of facilities reporting drying of veneer, 86 percent of the
veneer produced was used for in-facility plywood production. Only approximately 7 percent of the
3The descriptions contained in this section rely primarily on U.S. EPA's Lumber and Wood Products Sector
Notebook (1995).
2-4
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facilities in the ICR survey produced veneer solely for outside sales and non-internal plywood use (EPA,
1998).
The general processes for making softwood includes: log debarking, log steaming and/or soaking,
veneer cutting, veneer drying, veneer preparation, glue application, pressing, panel trimming, and panel
sanding. Softwood plywood is generally made with relatively thick faces (1/10 inch and thicker) and
with exterior or intermediate glue. This glue provides protection in construction and industrial uses
where moderate delays in providing weather protection might be expected or conditions of high humidity
and water leakage may exist. Figure 2-1 below presents a diagram of the plywood production process.
Logs delivered to a plant are sorted, then debarked and cut into peeler blocks. Almost all
hardwood and many softwood blocks are heated prior to peeling the veneer to soften the wood. The
peeler blocks are heated by steaming, soaking in hot water, spraying with hot water, or combinations of
these methods. Heated blocks are then conveyed to a veneer lathe. The block, gripped at either end and
rotated at high speed, is fed against a stationary knife parallel to its length. Veneer is peeled from the
block in continuous, uniform sheets. Depending on its intended use, veneer may range in thickness from
1/16 to 3/16 (1.6mm to 4.8mm) for softwood and much thinner for hardwood and decorative plywood
uses (Youngquist, 1999). Slicing methods are also used to produce hardwood decorative veneers
generally in thicknesses of 1/24 inch and thinner.
After peeling, the continuous sheets of veneer are transported by conveyor to a clipping station
where it is clipped. In softwood mills and some hardwood mills, high-speed clippers automatically chop
the veneer ribbons to usable widths and defects are removed. In many hardwood mills, clipping may be
done manually to obtain the maximum amount of clear material. Wet clipped veneer is then dried.
Proper drying is necessary to ensure moisture content is low enough for adhesives to be effective.
Dryers
Two types of dryers are used in softwood veneer mills: roller resistant dryers, heated by forced
air; and "platen" dryers, heated by steam. In older roller dryers, also still widely used for hardwood
veneer, air is circulated through a zone parallel to the veneer. Most plants built in recent years use jet
dryers (also called impingement dryers) that direct a current of air, at a velocity of 2,000 to 4,000 feet per
minute, through small tubes on the surface of the veneer. Veneer dryers may be heated indirectly with
steam, generated by a separate boiler, which is circulated through internal coils in contact with dryer air.
Dryers may also be heated directly by the combustion gases of a gas- or wood-fired burner. The gas-fired
burner is located inside the dryer, whereas combustion gases from a wood-fired burner are mixed with
recirculating dryer air in a blend box outside the dryer and then transported into the dryer. Veneer dryers
tend to release organic aerosols, gaseous organic compounds, and small amounts of wood fiber into the
atmosphere. Once dried, veneer is sorted and graded for particular uses.
2-5
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Figure 2-1:
Flow Diagram of Veneer and Plywood Production
w
-------
Adhesives
Plywood manufacturing begins with the veneer sent to a lay-up area for adhesive application.
Various adhesive application systems are used including hard rolls, sponge rolls, curtain coaters, sprayers,
and foam extruders. The most common application for softwood plywood is an air or airless spray system,
which generally uses a fixed-head applicator capable of a 10-foot wide spray at a nozzle pressure of 300
pounds per square inch (psi). The phenol-formaldehyde (PF) adhesives typical in softwood plywood
manufacturing is made from resins synthesized in regional plants and shipped to individual plywood
mills. At the mills, the resins are combined with extenders, fillers, catalysts, and caustic to modify the
viscosity of the adhesive. This glue mixing has several additional effects: allowing the adhesive to be
compatible with the glue application method (curtain, roll, spray, foam); allowing for better adhesive
distribution; increasing the cure rate; and lowering cost.
Presses
Following the application of glue, the panels must be pressed. The purpose of the press is to bring
the veneers into close contact so that the glue layer is very thin. At this point, resin is heated to the
temperature required for the glue to bond. Most plywood plants first use a cold press at lower pressure
prior to final pressing in the hot press. This allows the wet adhesive to "tack" the veneers together,
permits easier loading of the hot-press, and prevents shifting of the veneers during loading. Pressing is
usually performed in multi-opening presses, which can produce 20 to 40 4x8-foot panels in each two- to
seven-minute pressing cycle.
Finishing
After pressing, stationary circular saws trim up to one inch from each side of the pressed plywood
to produce square-edged sheets. Approximately 20 percent of annual softwood plywood production is
then sanded. As sheets move through enclosed automatic sanders, pneumatic collectors above and below
the plywood continuously remove the sander dust. Sawdust in trimming operations is also removed by
pneumatic collectors. The plywood trim and sawdust are burned as fuel or sold to reconstituted panel
plants.
2.2.1.3 Particle, Strand, and Fiber Composites4
This group of products falls into the SIC or NAICS code category of reconstituted wood
products. The impacted facilities in this category manufacture the following products (MRI, 1999).
• Medium density fiberboard
Oriented stand board
• Particleboard
Hardboard
All particle, strand and fiber composites are processed in similar ways. Raw material for
particleboard, oriented strandboard (OSB), fiberboard, and hardboard is obtained by flaking or chipping
wood. The general process then includes wood drying, adhesive application, and forming a mat of wood
4The descriptions in this section rely primarily on Chapter 10 of the USDA's Forest Products Laboratory
Wood Handbook (Youngquist, 1999).
2-7
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particles, fibers, or strands. The mat is then pressed in a platen-type press under heat and pressure until
the adhesive is cured. The bonded panel is finally cooled and further processed into specified width,
length, and surface qualities. Specific details regarding the production processes for different products
are provided below.
Particleboard
Generally, particleboard is produced by mechanically reducing wood materials into small
particles, applying adhesive to the particles, and consolidating a loose mat with heat and pressure into a
panel product. Particleboard is typically made in three layers with the faces consisting of finer material
and the core using coarser material. Particleboard can also be made from a variety of agricultural
residues, including kenaf core, jute stick, cereal straw, and rice husks depending on the region. EPA does
not expect facilities that produce particleboard made from agricultural residues, also called agriboard, to
experience compliance cost impacts associated with the new MACT standard. EPA expects only one
facility that produces molded particleboard to experience compliance cost impacts (MRI, 1999).
The raw materials, or "furnish," that are used to manufacture reconstituted wood products can be
either green or dry wood residues. Green residues include planer shavings from green lumber and green
sawdust. Dry process residues include shavings from planing kiln-dried lumber, sawdust, sander dust,
and plywood trim. The wood residues are ground into particles of varying sizes using flakers, mechanical
refiners, and hammermills, and are then classified according to their physical properties.
After classification, the furnish is dried to a low moisture content (two to seven percent) to allow
for moisture that will be gained by the adding of resins and other additives during blending. Most dryers
currently in operation in particle and fiber composite manufacturing plants use large volumes of air to
convey material of varied size through one or more passes within the dryer. Rotating drum dryers
requiring one to three passes of the furnish are most common. The use of triple-pass dryers predominates
in the United States. Dryer temperatures may be as high as 1,100 - 1,200° F with a wet furnish.
However, dry planer shavings require that dryer temperatures be no higher than 500° F because the
ignition point of dry wood is 446° F. Many dryers are directly heated by dry fuel suspension burners.
Others are heated by burning oil or natural gas. Direct-fired rotary drum dryers release emissions such as
wood dust, combustion products, fly ash, and organic compounds evaporated from the extractable portion
of the wood. Steam-heated and natural gas-fired dryers will have no fly ash.
The furnish is then blended with synthetic adhesives, wax, and other additives distributed via
spray nozzles, simple tubes, or atomizers. Resin may be added as received (usually as an aqueous
solution), or mixed with water, wax emulsion, catalyst, or other additives. Waxes are added to impart
water repellency and dimensional stability to the boards upon wetting. Particles for particleboard are
mixed with the additive in short retention time blenders, through which the furnish passes in seconds.
The furnish and resin mixture is then formed into mats using a dry process. This procedure uses air or a
mechanical system to distribute the furnish onto a moving caul (tray), belt, or screen. Particleboard mats
are often formed of layers of different sized particles, with the larger particles in the core, and the finer
particles on the outside of the board. The mats are hot pressed to increase their density and to cure the
resin. Most plants use multi-opening platen presses. Though more popular in Europe, the continuous
press is currently being used in particleboard plants in the United States.
Primary finishing steps for all reconstituted wood panels include cooling or hot stacking, grading,
trimming/cutting, and sanding. Cooling is important for UF-resin-cured boards since the resin degrades at
high temperatures after curing. Boards bonded using PF resins may be hot-stacked to provide additional
2-8
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curing time. Secondary finishing steps include filling, painting, laminating, and edge finishing. The vast
majority of manufacturers do not apply secondary finishes to their panels; panels are finished primarily by
end-users such as cabinet and furniture manufacturers. Panels are also finished by laminators who then
sell the finished panels to furniture and cabinet manufacturers.
Oriented Strandboard (OSB)
OSB is an engineered structural-use panel manufactured from thin wood strands bonded together
with waterproof resin under heat and pressure. OSB manufacturing begins with debarked logs usually
heated in soaking ponds sliced into wood strands typically measuring 4.5 to 6 inches long (114 to
152mm). Green strands are stored in wet bins and then dried in a traditional triple-pass dryer, a single-
pass dryer, a combination triple-pass/single-pass dryer, or a three-section dryer. A recent advance in
drying technology is a continuous chain dryer, in which strands are laid between two chain mats so the
strands are held in place as they move through the dryer.
After drying, blending and mat formation take place, blending of strands with adhesive and wax
takes place in separate rotating blenders for face and core strands. Different resin formulations are
typically used for face and core layers. Face resins may be liquid or powdered phenolics, while core
resins may be phenolics or isocyantes. Mat formers take on a number of configurations to align strands
along the length and width of the panel. Oriented layers of strands are dropped sequentially (face, core,
face, for example), each by a different forming head. The mat is then transported by conveyer belt to the
press. Hot pressing involves the compression of the loose layered mat of oriented strands under heat and
pressure to cure the resin. Most plants utilize multi-opening presses that can form as many as sixteen 12-
by 24-ft (3.7- by 7.3m) panels simultaneously. Recent development of a continuous press for OSB can
consolidate the oriented and layer mat in 3 to 5 minutes.
Fiber Composites
Fiber composites include hardboard, medium-density fiberboard (MDF), fiberboard, and
insulation board. In order to make fibers for these composites, bonds between the wood fibers must be
broken. This is generally done through refining of the material, which involves grinding or shearing of
the material into wood fibers as it is forced between rotating disks. Refining can be augmented by water
soaking, steam cooking (digesting), or chemical treatments as well.
Fiber composites are classified by density and can involve either a wet process or a dry process.
High and medium density boards, such as hardboard and MDF, apply a dry process. Wet processes can
be used for high-density hardboard and low-density insulation board (fiberboard). Dry process involves
adhesive-coated fibers that are dried in a tube dryer and air-laid into a mat for pressing.
Wet processes differ from the dry processes. This process involves the utilization of water as a
distributing medium for fibers in a mat. Further differences lie in the lack of additional binding agents in
some wet processes. The technology is very much like paper manufacturing in this pulp-based aspect.
Natural bonding in the wood fibers occurs in this process. Refining in this process relies on developing
material that can achieve this binding with a degree of "freeness" for removal from mats. The wet
process involves a continuously moving mesh screen, onto which pulp flows. Water is drawn off through
the screen and through a series of press rolls. The wet fiber mats are dried in a conveyor-type dryer as
they move to the press. Wet process hardboard is then pressed in multi-open presses heated by steam.
Fiberboard is not pressed.
2-9
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Manufacturers use several treatments alone or together to increase dimensional stability and
mechanical performance of both wet and dry process hardboards. Heat treatment exposes pressed
fiberboard to dry heat, reducing water absorption and improving fiber bonding. Tempering is the heat
treatment of pressed boards preceded by the addition of oil. Humidification is the addition of water to
bring board moisture content into equilibrium with the air.
2.2.1.4 Structural Wood Members5
Structural wood members, such as glue-laminated timbers and structural composite timber, are
manufactured using a number of methods. Glue-laminated timber, or glulam, is an engineered product
formed with two or more layers of lumber glued together in which the grain of all layers, called
laminations, is oriented parallel to the length of the lumber. Glulam products also include lumber glued
to panel products, such I-joists and box beams. Structural composite lumber consists of small pieces of
wood glued together into sizes common for solid-sawn lumber.
Glue-Laminated Timber (Glulam)
Glulam is a material that is made from suitably selected and prepared pieces of wood, either
straight or curved, with the grain of all pieces essentially parallel to the longitudinal axis of the member.
The manufacturing process for glulam involves four major steps: (1) drying and grading, (2) end jointing,
(3) face bonding, and (4) finishing and fabricating.
Structural Composite Lumber
The are three major types of structural composite lumber: laminated veneer lumber, parallel
strand lumber, and laminated strand lumber. Each is described in more detail below, however, the general
manufacturing process for these composites is similar.
Laminated veneer lumber (LVL) is manufactured by laminating veneer with all plies parallel to
the length. This process utilizes veneer 1/8 to 1/10 inches. (3.2 to 2.5 mm) thick, which are hot pressed
with phenol-formaldehyde adhesive to form lumber of 8 to 60 feet (2.4 to 18.3 m) in length. The veneer
used for LVL must be carefully selected to achieve the proper design characteristics. Ultrasonic testing is
often used to sort veneer required for LVL. Once the veneer has been selected, end jointing occurs
followed by adhesive application and continuous pressing.
Parallel strand lumber (PSL) is a composite of wood strand elements with wood fibers primarily
oriented along the length of the member. PSL is manufactured using veneer about 1/8 inch (3 mm) thick,
which is then clipped into 3/4 inch (19 mm) wide strands. The process can utilize waste material from a
plywood or LVL operation. Strands are coated with a waterproof structural adhesive, and oriented using
special equipment to ensure proper placement and distribution. The pressing operation results in
densification of the material. Adhesives are cured using microwave technology. As with LVL, the
continuous pressing method is used.
Laminated strand lumber (LSL) is produced using an extension of the technology used to produce
oriented strandboard structural panels. LSL uses longer strands than those commonly used in OSB
5The descriptions in this section rely primarily on Chapter 11 of the USDA's Forest Products Laboratory
Wood Handbook (Moody and Liu, 1999).
2-10
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manufacturing. LSL is pressed into a billet several inches thick in a steam-injection press, as opposed to
an OSB panel pressed in a multi-opening platen press. The product also requires a greater degree of
alignment of the strands at higher pressures, which result in increased densification.
2.2.2 Products, By-Products, and Co-Products
Exhibit 2-3 presents products, corresponding SIC and NAICS codes, and product examples of the
plywood and composite wood products industry.
The plywood and composite wood products industries have unique manufacturing processes in
their use of waste wood products as an input for additional products. Planer shavings, sawdust, edgings,
and other wood by-products are inputs to many wood composites. Structural wood members were
developed in response to the increasing demand for high quality lumber when it became difficult to obtain
this type of lumber from forest resources. Therefore, many of the by- and co-products from one process
may be used in another.
2-11
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Exhibit 2-3: SIC and NAICS Codes and Products
Product Description
Softwood Veneer and
Plywood
Reconstituted Wood
Products
Structural Wood
Members, Not
Elsewhere Classified
SIC
2436
2493
2439
NAICS
321212
321219
321213
321214
Example Products
Panels, softwood plywood
Plywood, softwood
Softwood plywood composites
Softwood veneer or plywood
Veneer mills, softwood
Board, bagasse
Flakeboard
Hardboard
Insulating siding, broad-mitse
Insulation board, cellular fiber or hard pressed
Lath, fiber
Medium density fiberboard (MDF)
Particleboard
Reconstituted wood panels
Strandboard, oriented
Wafer-board
Wall tile, fiberboard
Wallboard, wood fiber
Arches, glue-laminated or pre-engineered wood
Fabricated structural wood members
Finger joint lumber manufacturing
I-joists, wood
Laminated structural wood members
Laminated veneer lumber
Parallel strand lumber
Structural wood members (except trusses)
Floor trusses, wood, glue-laminated or pre-engineered
Roof trusses, wood, glue-laminated or pre-engineered
Source: U.S. Department of Labor, OSHA (no date).
Exhibit 2-4 provides ratios of specialization and coverage (product mix) calculated by the U.S.
Census Bureau for the last three Censuses of Manufacturers. The Census assigns a "primary" SIC code to
each establishment which corresponds to the SIC code for the largest (by value) single type of product
shipped by the establishment. The products shipped from that establishment that are classified in the
same industry as the establishment are considered "primary," and all other products shipped by the
establishment are considered "secondary." The Census then calculates various measures to illustrate the
product mix between primary and secondary products in each industry. The specialization ratio
represents the ratio of total primary product shipments to total product shipments for all establishments
classified in the industry. The coverage ratio represents the ratio of primary products shipped by the
establishments classified in the industry to the total shipments of these products shipped by all
establishments classified in all industries.
2-12
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As Exhibit 2-4 illustrates, all three industries have specialization ratios well above 80 percent and
coverage ratios above 90 percent. This implies that most establishments with these SIC codes are highly
specialized, and that most product shipments of each type originate in establishments with these SIC
codes. Therefore, the Census data on these SIC and NAICS industries provide information on the
primary production of facilities engaged in plywood and composite wood products manufacturing. These
ratios have been stable overtime.
Exhibit 2-4: Specialization and Coverage Ratios, 1982 - 1997
SIC
2436
2493 j
2439 i
2439 !
Source
NAICS 1 Description
321212 \SoftwoodVeneerandPlywood
! Primary products specialization ratio
j Coverage ratio
321219 '-.Reconstituted Wood Products
i Primary products specialization ratio
! Coverage ratio
321213 [Structural Wood Members, N.E.C./Engin
1 Primary products specialization ratio
i Coverage ratio
321214 '-.Structural Wood Members, N.E.C./Truss
j Primary products specialization ratio
1 Coverage ratio
1982 1 1987 1 1992
87 ! 87 ! 84
96 j 95 j 94
96 i 97 i 96
97 ! 95 ! 95
eered Wood Members
96 1 97 1 96
95 i 97 i 97
Manufacturing
96 i 97 i 96
95 1 97 1 97
1997
88
95
97
97
95
96
96
94
U.S. Department of Commerce (1999a and 1995b).
2.2.3 Costs of Production
Exhibit 2-5 provides information on the overall value of shipments (VOS) and production costs (a
component of operating expenses) by SIC code as reported by the Bureau of the Census. Typical of many
intermediate goods, the cost of materials is the largest portion of production costs, with payroll
constituting 15-20 percent of VOS. In particular, timber supply plays a large role in industry costs. In
this decade, reductions in public timber supply, especially reductions in National Forest timber harvests,
combined with the economy's continued demands for wood has led to substantial increases in the cost of
timber (Spelter, 1997).
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Exhibit 2-5: Summary of Annual Costs and Shipments, 1992 -1997
(Thousands of 1997 Dollars)
1992 !
1993 !
1994 !
1995 !
1996 !
1997 !% Change
Softwood Veneer and Plywood (SIC 2436, NAICS 321212)
Industry Shipments
Cost of Materials
Fuels & Electricity
Payroll
Ratio of Costs to
Shipments
7
4
1
,321,641!
,169,048!
220,039!
,112,158!
75%!
6,400,683!
3,671,638!
178,592!
897,839!
74%!
6,755,571!
4,097,921!
178,601!
883,819!
76%!
Reconstituted Wood Products (SIC 2493, NAICS 321219)
Industry Shipments
Cost of Materials
Fuels & Electricity
Payroll
Ratio of Costs to
Shipments
5
2
Structural wood members
Industry Shipments
Cost of Materials
•"••
Fuels & Electricity
Payroll
Ratio of Costs to
Shipments
3
1
,350,565!
,400,670!
327,706!
825,718!
66%!
4,951,902!
2,144,060!
250,814!
699,627!
62%!
5,517,234!
2,342,362!
268,934!
707,179!
60%!
7,725,037!
4,736,984!
183,507!
1,047,092]
77%!
5,827,821!
2,582,565!
316,876!
810,753!
64%!
6,525
4,330
176
1,006
5561
2,697
321
855
,702!
,167!
,759!
,7921
84%!
099 i
,4711
,390!
,237!
70%!
5,748,
3,795,
161,
912,
047!
985!
239!
613!
-21
-8
-26
-17
.5°A
.9%
.TA
.9%
85%!
5978
2,633,
350,
798,
809 i
t—
139!
950!
767!
-1
9
3°A
.TA
1.1%
-3
3°A
72%!
(SIC 2439, NAICS 321213 and 321214)
,367,525!
,958,576!
35,486]
692,377!
80%!
3,281,578!
1,966,635!
33,406]
604,180!
79%!
All dollars adjusted to 1997 using Producer Price
Source: U.S. Department of Census (1999aY
4,295,002!
2,584,765!
34,585]
740,318!
78%!
4,739,339!
2,863,098!
39,595]
867,510!
80%!
5096
3 154
42
947
809 i
997 i
,621 1
,4031
81%!
Index for Lumber and Wood Products
5 119
3007
42,
954,
873!
103i
090!
694!
51
53
18
37
%°A
.5°A
.6%
.9°A
78%!
(SIC 24).
From these data, one can estimate the sector-wide ratio of production costs to VOS. The ratio of
costs (materials, fuels and electricity, and payroll) to the VOS has been increasing over the 1992 to 1997
period for softwood plywood and veneer and reconstituted wood products. The data in Exhibit 2-5 show
that 1997 cost to shipment ratios range between 72 percent (reconstituted wood products) and 85 percent
(softwood veneer and plywood). This measure indicates the proportion of the revenues received for the
goods produced that are associated with production expenses (materials, fuel and electricity, and payroll).
Figures 2-2 and 2-3 present cost and VOS data for the softwood plywood and reconstituted wood
products industries, respectively.
2-14
-------
Figure 2-2: Softwood Plywood and Veneer Value of Shipments and Production Costs, 1992 -1997
8,000,000
i^"
a>
E 6,000,000
JB
"5
? 4,000,000
o
$ 2,000,000
o
1992 1993 1994 1995 1996
Year
1997
• VOS-Total Costs
D Payroll
• Fuels & Electricity
D Cost of Materials
Source: U.S. Department of Commerce (1999a).
Note: Total costs in this figure is the sum of payroll, fuels & electricity, and materials costs.
2-15
-------
Figure 2-3: Reconstituted Wood Products Value of Shipments and Production Costs, 1992 -1997
6,000,000
| 5,000,000 -
2 4,000,000 -
o
Q
o 3,000,000 -
ra 2,000,000 -
1,000,000 -
1VOS- Total Costs
D Payroll
I Fuels & Electricity
D Cost of Materials
1992 1993 1994 1995 1996 1997
Year
Source: U.S. Department of Commerce (1999a).
Note: Total costs in this figure is the sum of payroll, fuels & electricity, and materials costs.
The cost to shipment ratio does not reflect other operating expenses such as non-payroll
employment expenses, taxes, interest, or depreciation. Nor does it indicate whether the expenses are of a
variable or fixed nature. However, it does provide an approximate measure of how much cash, at a gross
level, the industries are generating to cover all operating expenses, use for capital investment, and provide
a return to owners. While this measure is somewhat crude, it indicates that the impacts of the rule may
potentially be more significant for the softwood plywood and veneer industry than for reconstituted wood
products.
Exhibit 2-6 and Exhibit 2-7 provide information on materials consumed by kind in 1997 for the
three sectors. In softwood plywood and veneer manufacturing, 81.6 percent of material costs result from
timber and veneer purchasing. Glues and adhesives represent 5.7 percent of the material costs in the
softwood plywood and veneer industry.
2-16
-------
Exhibit 2-6: Materials Consumed By Kind for
Softwood Plywood and Veneer, 1997
Materials Consumed
Stumpage cost (cost of timber, excluding land,
cut and consumed at same establishment)
Hardwood logs and bolts
Softwood logs and bolts
Hardwood veneer
Softwood veneer
Glues and adhesives
All other materials
TOTAL
Delivered Cost !
($1,000)* ;
346,854 !
64,617|
2,218,800!
27,355 I
363,583 1
210,1051
471,717!
3,703,031 j
% of Total
Materials
9.4%
1.7%
60.0%
0.7%
9.8%
5.7%
12.7%
100%
* Excludes costs of resales and contract work.
Source: U.S. Derailment of Commerce (1999a).
Figure 2-4 shows the percentage materials consumed by kind by the softwood plywood and veneer
industry in 1997.
Figure 2-4: Materials Consumed by Softwood Plywood and Veneer Products, 1997
Softwood logs &
bolts
60.0%
Hardwood logs &
bolts
1.7%
Hardwood veneer
0.7%
J
Softwood veneer
9.8%
Glues & adhesives
5.7%
Stumpage cost
9.4%
All other materials
12.7%
Source: U.S. Department of Commerce (1999a).
2-17
-------
Exhibit 2-7: Materials Consumed by Kind for Reconstituted Wood Products, 1997
Material Consumed
Logs and bolts
Pulpwood
Chips, slabs, edgings, sawdust, and other
wood waste, and planer shavings
Hardboard, MDF, and particleboard
Paints, varnishes, lacquers, stains, shellacs,
enamels, and allied products
Adhesives and resins
Petroleum wax
Vinyl and paper overlays
All other materials, components parts,
containers and supplies
TOTAL
Delivered Cost ($1,000)*
80,891
400,579
399,446
346,052
69,488
548,553
61,173
101,405
538,183
2,545,770
% of Total Materials
3.2%
15.7%
15.7%
13.6%
2.7%
21.5%
2.4%
4.0%
21.2%
100%
* Excludes costs of resales and contract work.
Source: U.S. Derailment of Commerce C1999aX
As with the plywood industry, timber products are the largest portion of costs for the
reconstituted wood product industry. Logs, pulpwood, wood materials, and other wood products account
for a combined 48.2 percent of material costs. Unlike plywood and veneer manufacturing, reconstituted
wood products have higher material costs for adhesives and resins, compromising 21.5 percent of costs.
Figure 2-5 shows the percentage of materials consumed by kind by the reconstituted wood products
industry for 1997.
2-18
-------
Figure 2-5: Materials Consumed by Reconstituted Wood Product Producers, 1997
All other materials,
components' parts,
containers & supplies
21.2%
Logs & bolts
3.2%
Pulpwood
15.7%
Vinyl & paper overlays
4.0%
Petroleum wax
2.4%
Chips, slabs, edgings,
sawdust, & other wood
waste, & planner
shavings
15.7%
Adhesives & resins
21.5%
Paints, varnishes,
lacquers, stains,
shellacs, enamels, &
allied products
2.7%
Hardboard, MDF, &
parti cleboard
13.6%
Source: U.S. Department of Commerce (1999a).
Wood costs for plywood and composite wood product manufacturing vary according to plant
location, wood species, and facility efficiency. While there may be considerable variability in wood
prices across regions, the last decade has seen substantial increase in wood prices across all regions.
Wood use efficiency depends on wood species used, log temperature, speed of cutting, board compaction,
and other process variables. Next to wood, adhesives and wax play an important role in industry costs,
especially for the production of reconstituted wood products such as OSB, particleboard, and MDF
(Spelter et al, 1997).
In 1995, sixteen percent of the output from the adhesive and sealant industry, SIC 2891, went to
the wood products market. As such, a MACT standard that greatly reduces the demand for adhesives and
sealants (or coatings) could potentially have a significant impact in the adhesive and sealant industry (Abt
Associates Inc., 1997). The response on the part of the softwood plywood and veneer and reconstituted
wood products industries will depend on the final requirements of the MACT standard and the
attractiveness of comparable resin, adhesive and sealant products that do not contribute to HAP
emissions. There will be many constraints on the ability of the impacted industries to switch away from
current adhesives, as their products generally must meet certain requirements related to building codes.
These properties are discussed in the next section.
2-19
-------
2.3 The Demand Side
The following section contains information concerning the demand for plywood and veneer,
reconstituted wood products, and structural wood members. The characteristics of plywood and wood
composites are examined first, highlighting the numerous uses of these types of wood products. The
consumers and users of plywood and composite wood products are then examined, specifically analyzing
the distribution of consumption. Substitution possibilities are addressed, looking at both wood and non-
wood options. Lastly, the elasticities of demand of the plywood and composite wood products industries
are discussed.
2.3.1 Product Characteristics
Plywood and composite wood products provide a more stable product over solid wood by
reducing the variations between wood species, among trees of the same species, and even between wood
from the same tree. Unlike solid wood which is evaluated at a cellular level, composite wood is evaluated
at fiber, particle, flake, or veneer level. Properties of products can be changed by combining,
reorganizing, or stratifying these different elements. Control of the size of particles used in producing
composite wood products provides the chief means by which materials can be produced with
predetermined properties (Youngquist, 1999).
Strength is a crucial factor in determining the applicability of plywood and composite wood
products to structural and other manufacturing uses. Stiffness and strength properties of a wood product
depend primarily on the constituents from which these products are made. The basic wood elements can
be made in a great variety of sizes and shapes, and may utilize any number of wood species. Plywood
can be manufactured from over 70 species of wood. The choices available for composite wood products
are almost unlimited. Types of adhesives and bonding-agents also play an important role in the strength
of a composite wood product.
Durability will also determine the market for composite wood products. Panels used for exterior
applications will have a fully waterproof bond and are designed for permanent exposure to weather and
moisture. Interior panels may lack the waterproof bond and be manufactured with glue products designed
for interior use.
Depending on the composite wood product, a range of sizes and thicknesses are available. The
range of structural applications for which these products are used requires production of several
standardized sizes as well as custom-made pieces. Sizes and thicknesses will depend on the type of wood
composite product and the market for which it is primarily produced.
Wood panels and other composite wood structures are subject to performance-type standards as
outlined by various industry organizations. A number of organizations including American Plywood
Association - The Engineered Wood Association, Composite Panel Association (CPA), American
Hardboard Association, and others monitor products produced by their member firms to assure high-
quality production and industry conformity with testing and performance standards.
2.3.2 Consumers and Uses
Exhibit 2-8 shows industry output by SIC code. Output of plywood and veneer goes mainly to
the construction sector, primarily to the residential housing and repair industries. Almost one third of
plywood goes to the manufacturing sector, part of which is used as an input for other plywood
2-20
-------
production, and part of which goes for furniture and other durable goods manufacturing. The "Other"
category is made up of foreign trade, inventory change, and wholesale trade. The outputs for
reconstituted wood products, including particleboard, are more evenly split between construction and
manufacturing, The "Other" category for reconstituted wood products is made up of sales to state and
local government, foreign trade, and services (Gale Business Resources, 1999).
Exhibit 2-8: Consumption of Industry Outputs, by SIC Code
SIC
2436
2493
2439
SIC Description
Softwood veneer and plywood
Reconstituted wood products
Structural wood members
Construction
63.5%
45.7%
94.8%
Manufacturing
27.9%
47.6%
0.6%
Other
8.6%
6.7%
4.6%
Source: Gale Business Resources (1999).
The major use of structural panel products is for construction activities. Panel products include those
products such as plywood, OSB, particleboard, and others formed as a panel. These products may be
used for floor systems, exterior walls, roofing, and exterior siding. Figure 2-6 shows the industry outputs
by percentage for the softwood plywood and veneer industry.
Figure 2-6 Industry Outputs of Softwood Plywood and Veneer Industry
Construction^
63.5%
Manufacturing
27.9%
Other
8.6%
Source: Gale Business Resources (1999).
2-21
-------
Figure 2-7 shows the industry outputs by percentage for the reconstituted wood products industry.
Figure 2-7: Industry Outputs of Reconstituted Wood Products Industry
Construction
45.7%
Manufacturing
47.6%
Other
6.7%
Source: Gale Business Resources (1999).
MDF and particleboard are two products of the reconstituted wood products industry. Exhibits 2-9 and 2-
10 below show the downstream uses of MDF and particleboard in 1997. For each of the products, about
20 percent of the output is used for household furniture, and the remainder is used for construction,
shelving, cabinetry and other customized applications.
Exhibit 2-9: MDF Shinments
Downstream Use
Household Furniture
Custom Laminators
Stocking Distributors
Kitchen and Bath
Molding
Millwork
Partitions and fixtures
All Other
Other (n.e.c.)
Total
bv Downstream Market. 1997
Million ft2
247.8
208.6
286.9
65.2
130.4
65.2
65.2
182.6
52.2
1,304.0
Percent
19%
16%
22%
5%
10%
5%
5%
14%
4%
100%
Source: Comrjosite Panel Association (1998).
2-22
-------
Exhibit 2-10: Particleboard Shipments by Downstream Market, 1997
Downstream Use
Household Furniture
Custom Laminators
Stocking Distributors
Kitchen and Bath
Flooring Products
Office Furniture
Door Core
All Other
Other (n.e.c.)
Total
Million ft2
889.0
711.2
755.7
711.2
400.1
266.7
177.8
400.1
133.4
4,445.2
Percent
20%
16%
17%
16%
9%
6%
4%
9%
3%
100%
Source: Composite Panel Association (1998).
Construction Activities
Over sixty percent of the softwood plywood and veneer industry output and approximately 50
percent of the reconstituted wood products industry output goes to the construction sector, primarily to
the construction, remodeling and repair of single and multiple family dwellings. The majority of the
work performed by the construction sector is associated with single family dwellings, and the largest
share of their costs is associated with materials such as wood-based materials. As Exhibit 2-11 shows,
housing starts have been quite strong since 1996 and are expected to continue through at least this year.
Housing start activity is closely linked to general economic conditions, employment, income, and interest
rates. Renovation and remodeling expenditures have declined in real terms, as would be expected.
Generally, more renovation and remodeling takes place during periods when fewer new houses are being
constructed (U.S. Department of Commerce, 1995a).
Exhibit 2-11: Housing Market Indicators. 1988 - 1997
Year
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
New Housing Units
(thousand)
,706
,574
,381
,185
,411
,542
,761
,694
,838
,828
Renovation and Remodeling
Expenditures
(million current $)
101,117
100,891
106,773
97,528
103,734
108,304
115,030
111,683
114,919
118,423
Renovation and Remodeling
Expenditures
(million 1992 $)
110,874
106,425
109,175
98,813
103,734
104,339
106,411
99,362
99,756
99,431
Source: Howard (1999).
2-23
-------
Because economic conditions can vary between regions in the U.S., the impact of housing starts
on demand for wood-based construction materials can vary. This regional variation is further amplified
by differing local preferences, housing codes, and availability of specific wood-based products.
Wood Furniture Industry
The wood furniture industry produces output for a high value added market. Exhibit 2-12 below
shows the value of shipments from the household furniture sector. Wood household furniture is a portion
of this sector. Domestic shipments and apparent consumption of household wood furniture have
experienced modest growth since 1989, indicating that the shipments from the softwood plywood and
veneer and reconstituted wood products industries to the furniture sector has had limited experience for
growth.
Exhibit 2-12: Trade for Household Furniture (SIC 251), 1989 -1996
(Millions of 1997 Dollars)*
Value of product
shipments
Value of imports
Value of exports
Apparent Consumption
1989
23,056
3,301
565
25,792
1990
22,477
3,200
884
24,793
1991
21,521
3,117
1,091
23,547
1992
21,949
3,368
1,252
24,065
1993
22,823
3,723
1,298
25,248
1994
24,038
4,201
1,385
26,854
1995
24,355
4,586
1,361
27,580
1996
na
5,047
1,342
na
%
Change
6
53
237
7
* Values adjusted to 1997 dollars using PPI for Furniture and Household Durables
Source: U.S. Department of Commerce (1999a).
Wood furniture manufacturers constitute a large portion of the demand, 20 to 30 percent, of the wood-
based products other than structural panels and structural members. Much of the growth in retail demand
is being met by imports. This translates into a large lost opportunity for domestic furniture manufacturers,
as well as for their suppliers, including the industries that are the subject of this profile. The potential
causes for this increase in imports are lower material and labor costs in exporting countries, and declining
availability of timber products to domestic producers (CINTRAFOR, 1999 and Dirks, 1991).
The 1992 Census of Manufacturers showed that 21 percent of the delivered cost of materials in
the manufacture of wood household furniture is associated with plywood and composite wood products.
As a result, significant price changes in the cost of plywood and composite wood products have the
potential to affect production costs of wood household furniture. As the demand for wood household
furniture is highly elastic with respect to price (see discussion in section 2.3.4), increased input costs
could affect both the demand for wood household furniture and for plywood and composite wood
products supplied to furniture manufacturers.
2.3.3 Substitution Possibilities
The basic substitution in these industries is between different wood products, although non-wood
substitutes exist as well for some applications. Composite wood products were originally manufactured
in response to the growing demand for wood products as the availability of larger sized timber declined.
As new wood composites products were developed, they further replaced sawn lumber and other types of
wood products. Plywood and veneer production lost market share during the late 1980s and early 1990s
2-24
-------
to new products that are categorized as reconstituted wood products, largely as a result of several
challenges: legislation protecting federal timber lands; recession in the early 1990s; price increases and
instability; and supply shortages. To provide an indication of the structural uses of wood panel products
and substitutes, Exhibit 2-13 outlines the use of various products in new single-family and multi-family
residential construction in the United States.
2-25
-------
Exhibit 2-13: Use of Wood and Non-wood Products
1976 - 1995
Application
in Residential Construction
Incidence of Use (%)
Single-family houses
1976 ! 1988
Floor Sheathing
Dumber
structural Panels
Softwood Plywood
OSB
Monstructural Panels
^ightweight Concrete
Concrete Slab
1|
51;
51!
0!
12;
0;
30!
Exterior Wall Sheathing
Dumber
structural Panels
Softwood Plywood
OSB
"iberboard
"oamed Plastic
"oil-faced kraft
Gypsum, other
^fone
16;
16;
0!
34!
7|
18!
25!
Roof Sheathing
Dumber
structural Panels
Softwood Plywood
OSB
Dther
14;
85;
84!
1!
Exterior Siding
Dumber
structural Panels
Softwood Plywood
OSB
Cardboard
Mon-wood
Vinyl
Masonry, stucco
Dther
10;
22!
22!
16;
52!
14!
38;
0;
5
56
48
9
9
0
30
2
33
26
7
13
22
17
8
5
6
91
70
21
3
12
23
23
-
16
49
15
34
0
! 1995
Multi-family houses
1976 ! 1988
;
1 55
! 31
! 24
I 9
I o
! 35
2;
51;
51!
Oi
10;
5;
32;
!
I 52
1 19
i 33
! 6
; 29
! 2
! 8
17;
17;
0;
32!
2;
0;
18;
31;
: 1
; 98
! 37
i 61
i o
11!
87;
87;
1;
; 7
i 9
i 4
; 5
i 6
! 77
! 29
; 48
9;
32;
32;
0;
7;
49;
12!
37;
! 1995
6!
52:
46!
7!
9!
7|
26!
40;
28|
12!
11!
18;
13;
15;
5;
2;
94;
78;
16!
16;
15;
15!
HI
58;
14!
44;
54
2^
3(
7
q
36
•
43
1C
33
C
o /
5L
8
c
94
1(
7f
5
2
4
A
1
s
89
41
4£
•
source: Spelter etal. (1997).
Structural wood panels hold the majority of the market share for floor, exterior wall, and roof sheathing in
single and multi-family housing construction. The major substitution effect in this market has occurred
between OSB and softwood plywood, with OSB capturing much of the market from softwood plywood
by 1995. Much of the trade-off between softwood plywood and OSB is due to lower cost for OSB.
2-26
-------
However, questions of exterior durability with OSB have led many builders to continue plywood use
despite higher initial costs.
Fiberboard has also seen reduction in market share for exterior wall systems due to increases in
OSB use. Non-wood products, mainly masonry, have captured 77 percent of the market for exterior
siding, greatly reducing the market share of structural panels in this market. Other major substitutes
include concrete slab for floor sheathing and foamed plastic, which gained major shares of the exterior
wall sheathing market from wood-based structural panels.
2.3.4 Demand Elasticities
The price elasticity of demand is the percentage change in the quantity of product demanded by
consumers divided by the percentage change in price. Demand curves slope downward, signifying a
negative response (less demand) to an increase in price. If demand is elastic (an absolute value of greater
than one) a small price increase will lead to a relatively large decrease in demand. Conversely, if demand
is inelastic with respect to price, or an absolute value less than one, the quantity demanded will change
very little relative to a change in price.
For the purposes of performing an economic analysis, short-term price elasticities are relevant as
impacts of the regulation fall directly on the entities owning facilities faced with compliance
responsibilities. In appropriating compliance costs to facilities impacted by this rule, the economic
analysis assumes that these facilities have a fixed capital stock in the short term. This method allows an
evaluation of the severity of impacts using static measures of profit and loss. This short-term analysis
approach, which is described in more detail in Chapter 4, differs from other behavioral approaches that
take into account adjustments made by producers, such as changing input mixes, that can generally affect
the market environment in which they operate over the longer term.
In the case of plywood and reconstituted wood production that is going to the construction
industry, the overall price elasticity of demand for these products is relatively inelastic. This is because
the wood product component of construction is fixed once the decision to construct has been made. The
other factors that contribute to the inelastic nature of demand for structural wood panels include local
building codes, home buyer and home owner preferences, and building industry investment in the training
and infrastructure required to construct with wood panels as opposed to a substitute.
The demand for each individual type of product may differ, depending on several factors,
including the product's own-price elasticity, the availability and price of other wood based and non-wood
products with comparable characteristics, and the availability and price of imported products. Cross price
elasticities are often difficult to identify or estimate. However, if available, cross price elasticities of
substitutes and imports might be considered when developing an approach to the economic analysis. For
example, analysis of the softwood plywood market may incorporate the cross-price elasticity of OSB, a
major substitute for plywood. When analyzing the OSB market, the converse would also be true. Even if
such cross price elasticities were available, other considerations would also determine whether the
economic analysis incorporates the market substitution dynamic.
We examined several recent and historical studies of price elasticities of demand. Most of these
studies were concerned with the softwood lumber sector, most likely due to the limited availability of
relevant price and consumption information at a disaggregated product level. Our review focused on the
1996 study by Joseph Buongiorno, a forestry economist, who noted that previous econometric studies of
the wood products sector have produced estimates of demand elasticities for softwood lumber, a product
2-27
-------
with similar demand drivers, inputs, input costs, and uses, between zero and -0.96. Buongiorno also
reported that other studies have estimated the cross elasticity of lumber with respect to the price of
plywood to be between 0.5 and zero. Buongiorno developed a model using a price-endogenous linear
programming system (PELPS) that endeavored to address the entire wood products market using a system
dynamics approach. The results of this model included short-term price elasticities of demand for wood-
based products, as shown in Exhibit 2-14.
Exhibit 2-14: Demand Elasticities
Product
Plywood
Fiberboard
Particleboard
Source: Buongiorno
Price Elasticity of Demand
-0.16
-0.10
-0.27
(1996).
Buongiorno's results provide the basis for imputing price elasticities for the other products that
are the subject of this MACT standard. In addition, further review of identified studies may produce
information useful in the final determination of appropriate elasticities for use in the economic analysis of
the impacts of a MACT standard on the softwood plywood and reconstituted wood products industries.
In the case of softwood plywood and reconstituted wood production going to the furniture
industry, the price elasticity of demand is highly elastic. This is because the price elasticity of demand for
wood furniture is highly elastic itself and the softwood plywood and reconstituted wood component of
production costs for wood furniture is also quite high, over twenty percent. The EPA's study of the
economic impacts of alternative NESHAPS on the wood furniture industry estimated the price elasticity
of demand for wood furniture as -3.477 (U.S. EPA, 1992). This result forms the basis for a derived price
elasticity of demand for use in the economic analysis of the impacts of the MACT standard.
2.4 Industry Organization
The following section contains information pertaining to the organization of the plywood and
veneer, composite wood , and structural wood members industries. This section will provide the basis
for understanding the following.
• The industry structure
The characteristics of the manufacturing facilities
• The characteristics of the firms that own the manufacturing facilities
A detailed examination of these three topics is essential, as it provides the basis for much of the
approach to estimating economic impacts of the MACT standard. In addition, this section also provides
detailed information about facilities and firms that are important inputs to the analysis itself as well as to
analysis of how the MACT standard might affect firms of different sizes.
6The majority of studies reviewed estimated price elasticity of demand as being between -0.15 and -0.4.
2-28
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2.4.1 In dustry Structure
Exhibit 2-15 shows concentration ratios by SIC code for the three census years, 1982, 1987, and
1992. The m-firm concentration ratios are equal to the sum of the market shares for the largest m number
of firms in the industry. A market is generally considered highly concentrated if the 4-firm concentration
ratio is greater than 50 percent. Exhibit 2-15 also shows the Herfindahl-Hirschman (HH) index, which is
an alternative measure of concentration equal to the sum of the squares of the market shares for the 50
largest firms in the industry. The higher the index, the more concentrated the industry is at the top. The
U.S. Justice Department uses 1,000 as a benchmark for the presence of market concentration, where any
industry with a Herfindahl-Hirschman index less than 1,000 is considered to be unconcentrated (Arnold,
1989).
Exhibit 2-15: Concentration Ratios by SIC Code, 1982-1992*
j j Percent of value of industry shipments shipped by
1 Number of i largest (in terms of shipment value)
the \
• Herfindahl-
Vear • Companies i v ~. nirscnman
: : A : Q *>fi ^fi :
i in Industry: 4 i 8 zu 3U -Index**
; ; Companies ; Companies Companies Companies ;
Softwood Veneer and Plywood (SIC 2436)
1982= 135: 41: 56 74
1987 1 131 1 38 1 56 74
1992J 123J 47| 66 82
92! 619
93| 571
96 1 797
Reconstituted Wood Products (SIC 2493)
1982 1 N/A
1987! 158J 48 j 65 j 82 j
1992J 193J 50 1 66| 81 1
95 1 743
94 1 765
Structural wood members (SIC 2439)
1982J 649J 15! 22 1 35 1
1987! 831! 13 j 18 j 30!
1992J 830J 19! 25J 34 1
50 1 104
44! 92
46 1 166
"The latest year for which data is currently available.
**The index is based on the 50 largest companies in each SIC code.
Source: U.S. Derailment of Commerce (1992).
The concentration ratios presented in Exhibit 2-15 show very little evidence of market
concentration in the plywood and composite wood products industries. Four-firm concentration ratios for
the three sectors are below 50 with the exception of reconstituted wood products (classified as "General"
in the ICR survey) which is 50. The HH indices for all SIC codes are well below the benchmark of 1000.
While concentration appears to have increased in general between 1982 and 1992, there is no clear trend
as all appear to have been less concentrated in 1987.
2.4.2 Man ufacturing Plants
Through an ICR, the U.S. Environmental Protection Agency identified plants potentially affected
by this rule. EPA categorized the surveyed facilities according to their production processes and
developed estimates of compliance costs for each facility. Exhibit 2-16 below presents information on the
2-29
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number of potentially impacted facilities, and their corresponding primary SIC code. The exhibit also
shows the percent of potentially impacted facilities as a percent of total facilities for each SIC.
Exhibit 2-16: Facilities with Compliance Cost Impacts
SIC Code
2436
2493
2439
Description
Softwood Veneer and
Plywood
Reconstituted Wood
Products
Structural Wood Members
Facilities
Impacted*
66
Total
OSB
PB/MDF
HB
97
23
56
18
3
Total in SIC
155
317
53
% of Total
42.6%
30.6%
5.7%
* Does not include number of facilities with MRR costs only.
Note: Percentages represent survey facilities' share of total facilities in the category.
Sources: U.S. Environmental Protection Agency (1998), U.S. Department of Commerce (1999a), MRI
(1999).
2.4.2.1 Location
Nationally, facilities that produce softwood plywood and reconstituted wood products are
clustered in distinct geographic regions of the South, Pacific Northwest, and the upper Mid-West of the
U.S. Based on the 1997 Census of Manufacturers, the softwood plywood and veneer facilities have the
highest employment in Oregon, Washington and Louisiana. The Census showed that reconstituted wood
product facilities had the highest employment in Oregon, California, North Carolina, Texas, and
Michigan (source: U.S. Department of Commerce, 1999a).
Figure 2-87 is a map of locations of impacted and total ICR facilities as identified by EPA (MRI,
1999, EPA, 1998). For this figure, all types of facilities are combined. The map shows the state-by-state
distribution of the potentially impacted facilities relative to the total ICR facilities in the state. The states
with the greatest number of potentially impacted facilities are Oregon (36), Louisiana (16), Georgia (8),
Mississippi (7), Virginia (10), Texas (8), and North Carolina (7). Major producing states where impacted
facilities constitute a significant portion of all facilities in the state include Louisiana (66 percent), Oregon
(57 percent), Washington (77 percent), Georgia (38 percent) and Texas (44 percent).
7 Map developed based on original survey database dated July 23, 1999.
2-30
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Figure 2-8: Plywood and Wood Composite Facility Locations
(Potentially Impacted Facilities and Total ICR Facilities by State)
Sources: U.S. Environmental Protection Agency (1998), MRI (1999)
| | States
Impacted Facilities
0
1 -9
10- 18
19-27
2-31
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2.4.2.2 Production Capacity and Utilization
Exhibit 2-17 shows the capacity utilization rates by SIC code and for all manufacturing industries
for 1992 through 1997. The rates for softwood plywood and veneer, and reconstituted wood products are
significantly higher than the average for all lumber and wood products and for all industries. Capacity
utilization for structural wood members is below industry averages but has increased over the 1992 - 1997
period.
Exhibit 2-17: Full Production Capacity Utilization Rates, Fourth Quarters, 1992 - 1997
SIC
2436
2493
2439
24
2000-3999
SIC Description
Softwood Veneer and Plywood
Reconstituted Wood Products
Structural Wood Members
All Lumber and Wood Products
All Manufacturing Industries
1992
87
87
65
80
77
1993
92
92
66
81
78
1994
1995
1996
1997
Change
95
92
66
80
80
95
88
74
77
76
86
86
77
78
76
84
82
72
75
75
-3.4%
-5.7%
10.8%
-6.3%
-2.3%
Source: U.S. Department of Commerce (1997).
Figure 2-9 presents the capacity utilization rates of softwood plywood and veneer and reconstituted wood
products from 1992-1997.
Figure 2-9: Full Production Capacity Utilization, Fourth Quarters, 1992-1997
—,
= ?
i 8
Softwood, plywood &
veneer
] Reconstituted wood
products
1996
Source: U.S. Department of Commerce (1997).
The capacity utilization for softwood plywood and veneer, and reconstituted wood peaked in 1994,
consistent with utilization peaks for all manufacturing industries. Interestingly, utilization rates for
reconstituted wood product facilities declined, while softwood plywood and veneer was unchanged in
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1995, the year that shows the highest value of shipments for all (see Exhibit 2-17). This maybe
explained, in part, by capacity expansions driven by the increased capital expenditures by softwood
plywood and veneer producers in 1994 and subsequent years.
The ICR provided further information on capacity utilization. A sample of general facilities
responding to questions regarding their production processes reported production and capacity. From this
data, capacity utilization for general facilities was 78 percent, slightly below the figures in Exhibit 2-17
2.4.2.3 Employment
Exhibit 2-18 provides information on employment at the softwood plywood veneer and
reconstituted wood products facilities responding to the ICR in 1998.
Exhibit 2-18a: 1998 Employment at Facilities with Expected Compliance Cost Impacts
Number of
Employees
Not reporting
<50
50 to 99
100 to 249
250 to 499
500 to 999
1,000 to 1,499
>1,500
TOTAL
Softwood Plywood and
Veneer
Facilities
in Size
Category
2
0
0
18
34
11
j
0
66
% of All
Impacted
Facilities
3.0%
0.0%
0.0%
27.3%
51.5%
16.7%
1.5%
0.0%
100%
Oriented Strandboard
Facilities
in Size
Category
0
0
0
21
1
1
0
0
23
% of All
Impacted
Facilities
0.0%
0.0%
0.0%
91.3%
4.3%
4.3%
0.0%
0.0%
100%
Medium Density
Fiberboard/
Particleboard
Facilities in
Size
Category
0
1
12
30
r\
2
i
56
% of All
Impacted
Facilities
0.0%
1.8%
21.4%
53.6%
3.6%
14.3%
3.6%
1.8%
100%
Sources: U.S. Environmental Protection Agencv (1998). MRI (1999).
Exhibit 2-18b: 1998 Employment at Facilities with Expected Compliance Cost Impacts
Number of
Employees
Not reporting
<50
50 to 99
100 to 249
250 to 499
500 to 999
1,000 to 1,499
>1,500
TOTAL
Hardboard
Facilities
in Size
Category
0
0
1
8
4
5
0
0
18
% of All
Impacted
Facilities
0.0%
0.0%
5.6%
44.4%
22.2%
27.8%
0.0%
0.0%
100%
Engineered Wood
Products
Facilities
in Size
Category
0
0
0
1
2
0
0
0
3
% of All
Impacted
Facilities
0.0%
0.0%
0.0%
33.3%
66.7%
0.0%
0.0%
0.0%
100%
Total Facilities
Facilities in
Size
Category
r*
J
13
77
41
25
3
1
166
% of All
Impacted
Facilities
1.2%
0.6%
8.0%
47.2%
25.1%
15.3%
1.8%
0.6%
100%
Sources: U.S. Environmental Protection Agency (1998), MRI (1999).
20
-3
-------
Potentially impacted facilities engaged in the production of plywood and composite wood
products tend to be small- to medium-sized. Just over half of the facilities reported having less than 250
employees. Softwood plywood producers tend to have larger facilities, while facilities producing
reconstituted wood products tend to be smaller.
2.4.2.4 Facility Population Trends
Plant age may be of particular significance to potential regulatory impacts. Older plants may be
less efficient as compared with newer plants utilizing technological improvements in production
efficiency. One example mentioned earlier is the development of the continuous press, enabling recently
constructed plants to produce more panel products in less time than older manufacturers. Newer plants
may utilize better volatile organic compound emission control technologies and have adapted their
processes to meet indoor air quality requirements.
While specific age information for all facilities is not available, an analysis performed by Spelter
et al. (Spelter, 1997) provides insights into the changing nature of plywood and composite wood facilities
over time. In their analysis, they traced the number of mills, average mill capacity, and capacity
utilization over the course of 20 or more years. The analysis does not present information on specific
plant closures and openings over time, but presents the total number of operating mills, which reflects the
net change resulting from both closures and openings. Exhibit 2-19 provides information on the results of
the analysis for selected years from 1977 to 1997, using census years to provide some comparison to
overall industry figures presented elsewhere in this chapter.
2-34
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Exhibit 2-19: Number of Mills, Average Capacity and Utilization, 1977 - 1997
Softwood Plywood
Number of Mills
Average Mill Capacity (1000 m3)
Capacity Utilization
Oriented Strandboard
Number of Mills
Average Mill Capacity (1000 m3)
Capacity Utilization
Particleboard
Number of Mills
Average Mill Capacity (1000 m3)
Capacity Utilization
Medium-density Fiberboard
Number of Mills
Average Mill Capacity (1000 m3)
Capacity Utilization
Laminated Veneer Lumber
Number of Mills
Average Mill Capacity (million m3)
Capacity Utilization
Engineered Joists
Number of Mills
Average Mill Capacity (million meters)
Capacity Utilization
1977
62
110
97
8
88
54
137
86
12
95
69
1982
69
138
79
21
115
44
43
151
87
13
105
66
2
0.078
73
12
3
69
1987
58
180
99
39
148
90
44
168
89
17
122
87
6
0.075
60
12
4
73
1992
56
201
95
44
187
99
45
181
89
17
141
91
12
0.063
75
18
5
90
1997
57
215
97
66
259
84
45
196
97
26
151
86
17
0.085
93
35
9
58
% Change
-8%
95%
0%
725%
194%
91%
-17%
43%
13%
117%
59%
25%
750%
9%
27%
192%
200%
-16%
information not available for some years. For softwood plywood, particleboard, and MDF, 1997
figures are from 1996. For particleboard, 1984 figures are used for 1982.
Source: Spelter etal. (1997).
Average facility capacity has shown substantial increases over the last twenty years for all
product groups. While the number of softwood plywood facilities declined by 8 percent between 1977
and 1997, the average mill capacity increased substantially, nearly 100 percent. Particleboard has
experienced some capacity growth while the number of plants has declined.
The OSB industry has shown the largest increase in per facility capacity, 194 percent, along with
large net additions of facilities. Most notably, there were nine more OSB plants than softwood plywood
plants in 1997, whereas in 1977 plywood plants outnumbered OSB plants nearly 8 to one. Recent facility
additions for OSB and MDF show these sectors have newer facilities, while the softwood plywood and
particleboard industries are generally composed of older facilities.
2-35
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A review of recent capital investment trends provides some insights into the facility population
trends of the softwood plywood and reconstituted wood products industries. Exhibit 2-20 shows capital
expenditures by industry sector. Capital expenditures have seen substantial overall increases in the last
five years for all three sectors, indicating increasing investment, particularly in the reconstituted wood
product and structural wood members sectors. However, investment by the softwood plywood and
veneer and reconstituted wood products sectors declined sharply from 1996 to 1997. This trend indicates
the connection between declining capital expenditures and the sharp increase in products costs' share of
the value of shipments (as shown in Exhibit 2-5) that began after 1995. If such conditions in the baseline
continue into the future, it is possible that certain firms may experience difficulty accessing capital to
cover these costs in addition to compliance costs associated with the MACT standard.
Exhibit 2-20: Summary of Capital Expenditures, 1992 - 1997
(Thousands of 1997 Dollars)
1992! 1993!
Softwood Plywood & Veneer ^ 110,125] 128,490]
Reconstituted Wood Products 159,330! 185,452!
Structural Wood Members* 47,420; 70,659;
All dollars adjusted to 1997 using GDP Deflator.
* 1997 figure is sum of capital expenditures for NAICS
Source: U.S. Department of Commerce (1999a).
1994!
159,685]
353,665!
220,523;
321213 and
1995!
192,090]
367,057!
143,523;
321214.
1996!
212,277]
583,659!
108,889;
1997!
168,142}
329,744 |
138,880;
% Change
52.7%
107.0%
192.9%
For softwood plywood, the level of capital investment constitutes only 3 percent of the industry's
total value of shipments. With the number of mills in decline and average mill capacity growing, it
appears that the majority of capital expenditures made by the softwood plywood industry occur at
existing plants. This conclusion is supported by U.S. Industry & Trade Outlook '99, which reported that
only one new softwood plywood facility has opened in the last 10 years (U.S. Department of Commerce,
International Trade Administration, 1999).
Conversely, results of the growing capital investments made by the reconstituted wood products
industry can be observed in the large increases in the number of OSB and MDF plants, and the rising
average plant capacities of reconstituted wood products producers. As a group, these producers invested
6 percent of the value of shipments in 1997, twice the investment rate of the softwood plywood
producers. For example, in September of 1999, Willamette Industries announced that it will build an $85
million particleboard plant in South Carolina. The plant will have a capacity of 210 million square feet
per year and will be in operation in late 2001.
2.4.3 Firm Characteristics
Several factors will likely be of importance in determining the distribution of impacts generated
by the proposed MACT standard on companies. Size may play a role in a company's ability to absorb an
increase in compliance costs. Ownership is a second factor that may play a role. Because firms have
different legal and financial guidelines based on ownership, their approaches to complying with the
MACT standard may vary. Vertical and horizontal integration, or lack there of, in plywood and
composite wood product firms may affect the manner in which they absorb the potential costs of the
MACT standard. Lastly, the overall financial condition of the plywood and composite wood industries is
assessed, attempting to determine the industry's ability to withstand adverse conditions.
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2.4.3.1 Size Distribution
Firm size is likely to be a factor in the distribution of the impacts of the proposed MACT on
companies. Under the Regulatory Flexibility Act (RFA) and its 1996 amendment, SBREFA, SBA
definitions are used to designate which businesses are considered to be small. The SBA has set size
standards under the NAICS system, using various thresholds for the number of employees or revenues.
In determining the size of a company, the SBA treats a facility that has a substantial portion of its assets
and/or liabilities shared with a parent company as part of that company. In this analysis, the company's
primary NAICS code is used to determine the appropriate SBA threshold.
Exhibit 2-21 provides information on firm size for plywood and wood composite firms owning
facilities with expected compliance cost impacts. In the ICR, facilities were asked to provide information
on employment size for domestic parent firms. Many facilities did not report information on the ultimate
domestic parent. For this reason, information on ultimate domestic parent primary SIC and NAICS code
and employment size were obtained from Dun and Bradstreet's DUNS Database. Exhibit 2-21 shows the
number of firms and the facilities owned by the firms in the first two data columns. In the absence of Dun
& Bradstreet information on the owner, the facility's primary SIC and NAICS code from Dun &
Bradstreet was used to determine the appropriate SBA threshold. Based on this SIC code, facility
employment information from the ICR was used to make a size determination. Exhibit 2-21 shows the
number of firms and the facilities owned by the firms in the third and fourth data columns. In the absence
of facility primary SIC code from DUNS, the standard for lumber and wood products (all SIC 24 codes)
of 500 employees was used as the threshold. A full list of the facilities and their size determination is
provided in the economic impact analysis for this proposed rule.
Exhibit 2-21: Size Distribution of Firms Owning Facilities with Expected Compliance Cost Impacts
Size
Small
Large
Total
SIC Based on
DUNS
Firms
8
29
37
Facilities
Owned by
Firms*
10
231
241
SIC Based on ICR
Firms
5
4
9
Facilities
Owned by
Firms*
5
8
13
Other Sources
Firms
6
9
8
Facilities
Owned by
Firms*
7
2
9
Total
Firms
19
35
54
%
35.2%
64.8%
100%
Facilities
Owned by
Firms*
22
241
263
%
8.4%
91.6%
100%
* Includes all facilities reported, impacted and non-impacted.
Sources: U.S. Environmental Protection Agency (1998), MRI (1999). SBA Size Standards from SBA website:
http://www.sba.gov/regulations/siccodes/.
While over 35 percent of firms in the industry are considered small, 91 percent of facilities are
owned by large firms. Given the concentration ratios presented in Exhibit 2-15, there does not appear to
be any significant market power to these larger firms. However, the ability of larger firms to deal with
compliance costs, as compared to smaller firms, may have impacts on the industry organization.
The larger parent firms have both impacted and non-impacted facilities. Firms such as Georgia-
Pacific (43 ICR facilities), Louisiana-Pacific (32 ICR facilities), Willamette Industries (23 ICR facilities),
Columbia Forest Products (13 ICR facilities), Weyerhaeuser (19 ICR facilities), and Boise-Cascade (12
ICR facilities) may be able to make trade-offs between facilities and shift production to more efficient
facilities in response to compliance costs associated with the MACT standard.
2-37
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2.4.3.2 Ownership
The form of firm ownership has a set of legal and financial characteristics that may influence a
firm's regulatory compliance alternatives. The legal form of ownership impacts the cost of capital,
availability of capital, and effective tax rate faced by the firm. Debt-equity issues for these firm types will
play a role in financing capital-intensive controls. Firm ownership may generally be one of three types.
Sole proprietorships (companies with a private single-owner)
• Partnerships (non-corporate firms with more than one owner)
Corporations (publically or privately owned companies formed through incorporation)
Exhibit 2-22 provides information on ownership type for the lumber and wood products industry.
While specific information by 4-digit SIC or 5-digit NAICS is not available, the table provides a general
sense of ownership types in the industry, assuming that ownership structure for the three industries
profiled is similar to that of the overall lumber and wood products industry.
Exhibit 2-22: Types of Firm Ownership for Lumber and Wood Products (SIC 24/NAICS
Single-Facility Firms
Multi-Facility Firms
All Firms
Corporation
1,291
17,617
18,908
Sole
Proprietorship
10,447 !
321), 1992
Other/
Partnerships Unknown
14,909
61
2,336 !
2,187
Source: U.S. Dept of Commerce (1992).
Over ninety percent of single facility wood and lumber products firms are owned by sole
proprietorships, partnerships, or some other/unknown entity. Nearly all multi-facility firms are owned by
corporations. Just over half of all lumber and wood products firms are a corporation, while the remainder
are sole proprietorships (30 percent), partnerships (7 percent), or other (6 percent). These data support the
conclusion that single-facility firms owned by sole proprietors are more likely to be classified as small
businesses, while multi-facility firms owned by corporations are more likely to be classified as large
businesses.
2.4.3.3 Vertical and Horizontal Integration
The data presented in Section 2.2 on concentration and specialization ratios for the plywood and
composite wood industries, combined with the information on establishment size and ownership type
demonstrate that the majority of firms in the three industries examined in this profile are predominantly
not, or minimally, vertically or horizontally integrated. However, there are several exceptions to this
conclusion. The six largest firms that own multiple facilities are for the most part both vertically and
horizontally integrated. These firms, described in more detail below, are large multi-billion dollar
concerns that are vertically integrated through their ownership of timberland, their production facilities,
and their involvement in product distribution. Their horizontal integration is attributed to their other
product lines, generally pulp and paper.
Georgia-Pacific, a large, horizontally and vertically integrated firm, manufactures and distributes
building products, pulp and paper, and resins. The company's wood product line includes wood panels,
plywood, and hardboard. It also produces lumber, gypsum products, chemicals, and packaging. Georgia-
Pacific grows and sells timber, and participates in several other activities related to forestry management.
Its 1998 net sales revenues exceeded $13 billion, and it has 45,000 employees at 400 locations. Its
building products division reported record profits during the second quarter of 1999. It currently has
2-38
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plans to build an OSB plant in Arkansas and recently merged with Unisource, a major distributor of
imaging paper and supply systems (Financial Times, 1999b; PRNewsWire, 1999b).
Louisiana-Pacific is principally a manufacturer of building products, but also produces pulp and
building insulation, and owns almost one million acres of timberland. Its sales of structural lumber,
industrial panels, and exterior building products made up nearly 75 percent of the company's revenues,
which reached $2.3 billion in 1998. The company manufactures OSB, I-joists, LVL, MDF, fiberboard,
particleboard, hardboard, softwood plywood and hardwood veneer. Louisiana-Pacific has been involved
in a series of mergers and acquisitions that include Le Goupe Forex of Canada, Evans Forest Products,
and ABT Building Products (Louisiana-Pacific, 1999; Financial Times, 1999c).
Willamette Industries, a forest products manufacturing company, has three main lines of business:
brown paper, white paper, and building products. The building products division manufactures plywood,
lumber, particleboard, MDF, OSB, LVL and I-joists, among others. Approximately one third of the
company's $3.7 billion in total revenue is from its building materials segment. Most of Willamette's
recent merger and acquisition activity has been with firms in France and Mexico. It also owns plants in
Ireland and 1.8 million acres of timberland in the U.S. (Financial Times, 1999d; PRNewsWire, 1999c,
1998, 1997).
Columbia Forest Products describes itself as North America's largest manufacturer of hardwood
veneer, and laminated products. They sell their products through a network of wholesale distributors,
mass merchandisers and major original equipment manufacturers (OEMs). Their products include
decorative, interior veneers and panels used in high-end cabinetry, fine furniture, architectural millwork
and commercial fixtures. Columbia Forest Products is an employee-owned company with 13 plants in the
U.S. and four in Canada (Columbia Forest Products, 1999).
Weyerhaeuser is an integrated international forest products company. It is involved in growing
and harvesting timber, and the manufacturing and distributing of several categories of forest products.
Among its wood products are plywood, OSB, and wood composites. The company bills itself as the
world's largest private owner of saleable softwood timber and the country's largest producer of softwood
lumber and pulp. In addition, it is the top U.S. exporter of forest products. The company has
approximately 36,000 U.S. and Canadian employees and sales of $11 billion, ten percent of which comes
from exports (Weyerhaeuser, 1999).
Boise Cascade, an integrated international paper and forest products company, manufactures and
distributes paper and wood products, distributes office products and building materials, and owns and
manages over 2 million acres of timberland. Its building products include lumber, plywood,
particleboard, veneer, and engineered wood products. Sales of these products constitute 27 percent of the
company's $6.2 billion annual revenue (Financial Times, 1999a; PRNewsWire, 1999a).
2.4.3.4 Financial Condition
The financial condition of an industry's firms will affect the incidence of impacts of the costs
associated with complying with a new MACT standard. While information necessary to determine which
specific firms might experience adverse impacts is not available, one can examine industry-wide
indicators of financial condition. Each year, Dun & Bradstreet (D&B) publishes Industry Norms & Key
Business Ratios, which reports certain financial ratios for a sample of firms in the industry. This section
focuses on measures of profitability and solvency.
2-39
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Profitability Ratios
The return on sales ratio, also known as the net profit margin, is an indicator of a firm's ability to
withstand adverse conditions such as falling prices, rising costs, and declining sales, and is calculated by
dividing net profit after taxes by annual net sales.
Return on assets is calculated by dividing a firm's net profit after taxes by its total assets. This
ratio is a key indicator of both profitability and operating efficiency by comparing operating profits to the
assets available to earn a return. According to Dun & Bradstreet, companies that use their assets
efficiently will have a relatively higher return on assets than those firms that do not use their assets
efficiently.
The return on equity shows the profitability of the company's operations to owners, after income
taxes, and is calculated by dividing net profit after taxes by net worth. According to Dun & Bradstreet,
this ratio is looked to as a 'final criterion' of profitability, and a ratio of at least 10 is regarded as desirable
for providing dividends plus funds for future growth.
Solvency Ratios
The current ratio is calculated by dividing a firm's current assets by its current liabilities. This is
a measure of liquidity that gauges the ability of a company to cover its short-term liabilities. The standard
guideline for financial health is 2. The quick ratio is slightly different than the current ratio, because it
does not include inventories, advances on inventories, marketable securities, or notes receivables. The
quick ratio measures the protection afforded creditors in cash or near-cash assets. Any time this ratio is 1
or greater, the firm is said to be in a liquid condition.
Exhibit 2-23 shows various measures of the financial condition of the plywood and composite
wood industry over the period 1995 to 1997. The trends shown in Exhibit 2-23 confirm that the softwood
plywood and reconstituted wood products industries have experienced a profit squeeze due to increasing
costs and falling prices in recent years.
Exhibit 2-23: Indicators of Financial Condition, 1995-1997*
Indicator
Return on Sales
Return on Assets
Return on Equity
Current Ratio
Quick Ratio
Softwood Plywood
and Veneer
1995 1996 1 1997
5.8 3.6 1 1.7
15.7 13.51 6.0
28.7 22.9 1 8.7
3.2 2.6 1 2.7
1.1 1.3 I 1.2
Reconstituted Wood
Products
1995 1996 1 1997
3.8 3.1! 3.5
7.8 5.91 3.5
15.2 10.0 1 5.7
2.8 2.7 1 1.7
1.8 1.2 1 1.1
Structural
Wood Members
1998
5.0
13.0
NA
2.3
1.3
*Includes 1998 data for Structural Wood Members, the only data reported for this sector.
Source: Dun & Bradstreet (1999). Indicator values are based on median values of the industrial sample.
For SIC 2436, there were 14 establishments in the sample in 1995, 15 in 1996, and 11 in 1997. For SIC 2493,
there were 28 establishments in the sample in 1995, 30 in 1996, and 3 1 in 1997. For SIC 2439, there were 135
establishments in 1998.
The softwood plywood and veneer industry has not maintained its relatively strong degree of
financial health, with many of its profitability indicators significantly lower in 1997 than in 1995. In
particular, the softwood plywood and veneer industry experienced 60 to 70 percent declines in all three
profitability ratios. The falling profitability of this industry is now at a level that indicates the presence of
firms that are not using their assets efficiently, are not providing the cash needed for future growth, and
2-40
-------
may more acutely experience adverse conditions associated with MACT standard compliance costs. The
currently low net profit margin is indicative of an industry that is experiencing increasing production
costs as a percentage of its value of shipments and falling capacity utilization (Exhibits 2-5 and 2-18).
The reconstituted wood products industry also saw fairly dramatic decreases in its financial
indicators over the time period shown, resulting in a relatively low return on assets and return on equity,
as well as a current ratio lower than generally considered healthy. These indicators are consistent with
recent trends in the industry associated with increases in production costs relative to the value of
shipments (Exhibit 2-5), rapid expansion of production capacity (Exhibit 2-20) and competitive pressures
on prices from overseas producers. This industry also includes firms that are not using their assets
efficiently or providing the cash needed for future growth. The reconstituted wood products industry's
profit margin is also somewhat low, but typical of all firms in the lumber and wood products sector (Dun
and Bradstreet, 1999b).
In the fall 1999 issue of Engineered Wood Products Journal, industry analyst Evadna Lynn
discussed investor response to the industry's current financial performance (APA, 1999c). Lynn
attributes several recent trends to stockholder pressure for improved financial performance.
• Separating timber assets
Corporate restructuring
• Cost control through consolidation
These trends have contributed to a dynamic market structure in recent years. By selling or otherwise
spinning off timber assets, forest products companies are converting them to cash and improving financial
performance. Restructuring activities have focused on gaining higher returns from core business
activities through the closure or divestiture of less profitable facilities or products. Some of the divested
facilities, particularly plywood mills, have been reopened by new owners as sawmills. The industry has
seen several major corporate mergers and acquisitions in the late 1990s, including: Weyerhaeuser and
MacMillan Bloedel, International Paper and Union Camp, and Louisiana Pacific and Le Groupe Forex (of
Canada). Most post-merger cost reductions are gained from streamlining operations, including closure of
production facilities (APA, 1999c; International Paper, 1998).
2.5 Markets
This chapter discusses general market conditions for the plywood and composite wood products
industries. In particular, this chapter discusses market structure, provide background on current market
volumes, prices, and international trade. It also presents information on future market volumes, prices
and international trade. The purpose of this chapter is to describe the current status of the industry and to
support the development and implementation of the economic impact analysis that is summarized in this
RIA.
2.5.1 Market Structure
Based on the data, background and analyses reviewed while preparing this industry profile, it is
reasonable to conclude that these industries exhibit clear signs of a competitive market for the products
that are the subject of this MACT standard. There are several reasons for this conclusion. First, as
discussed in section 2.4.2, the plywood and composite wood products industries are unconcentrated.
There is little concentration of market power evidenced by each separate industrial category having a 4-
firm concentration ratio of 50 or below (often well below) and HH indices below the 1000 benchmark.
Next, the output of several of the production sectors are substitutes for each other, putting competitive
pressures on suppliers. There are also competitive pressures from alternative products, either traditional
sawn lumber or non-wood materials. This chapter will focus on other factors of the competitive nature of
2-41
-------
these industries. For the most part, the markets for these goods also experience competitive pressures by
the presence of imported products. Finally, several industry experts have observed trends where prices of
the products respond negatively to the presence of excess capacity. The remainder of this chapter will
provide additional details related to these observations on industry competitiveness.
2.5.2 Market Volumes
This section will present a discussion of market consumption and production volumes for the three
industrial sectors examined in this study. For the most part, this discussion will rely on the data contained
in Exhibit 2-24 and Exhibit 2-25. Exhibit 2-24 shows the value of product shipments by product class for
the period 1989 to 1995s as reported by the International Trade Administration of the U.S. Department of
Commerce. Note that value of shipments data for Structural Wood Members is not available for inclusion
in this table. Exhibit 2-25 shows the physical volume of output produced, traded and consumed between
1988 and 1997 for selected products as reported by Spelter et al. in their 1997 statistical report.
International trade is discussed later in the section.
Exhibit 2-24: Trade Balance and Selected Statistics, Thousands of 1997 Dollars
Softwood Veneer and Plywood (SIC 2
Value of product shipments
Value of imports
Value of exports
Trade Surplus (Deficit)
Apparent Consumption
Ratio of Imports to Consumption
Ratio of Export to Product Shipments
Ratio of Imports to Exports
Reconstituted Wood Products (SIC 24
Value of product shipments
Value of imports
Value of exports
Trade Surplus (Deficit)
Apparent Consumption
Ratio of Imports to Consumption
Ratio of Export to Product Shipments
Ratio of Imports to Exports
1989
436, N/
7,125
81
452
371
6,755
0.01
0.06
0.18
193, NA
5,013
461
261
(200)
5,213
0.09
0.05
1.76
1990
UCS32
6,887
69
509
440
6,447
0.01
0.07
0.14
ICS321
4,761
409
334
(75)
4,836
0.08
0.07
1.22
1991
1212)
6,185
55
428
373
5,812
0.01
0.07
0.13
219)
4,743
364
350
(14)
4,757
0.08
0.07
1.04
1992
6,422
79
452
372
6,050
0.01
0.07
0.18
5,359
540
328
(212)
5,572
0.10
0.06
1.65
1993
5,643
82
391
310
5,333
0.02
0.07
0.21
4,940
616
271
(345)
5,285
0.12
0.05
2.27
1994
5,885
100
333
234
5,651
0.02
0.06
0.30
5,511
861
301
(560)
6,070
0.14
0.05
2.86
1995
6,671
111
375
263
6,407
0.02
0.06
0.30
5,772
1,080
345
(735)
6,507
0.17
0.06
3.13
%
Change
-6%
37%
-17%
-29%
-5%
45%
-11%
65%
15%
134%
32%
268%
25%
88%
15%
77%
Source: U.S. Department of Commerce, International Trade Administration (1998).
81995 is the latest year for which data is available.
2-42
-------
Exhibit 2-25: Production, Trade and Consumption Volumes for Selected Products (1988-1997)
Softwood Plywood (M ft3, 3/8 in basis)
Product shipments
Imports
Exports
Apparent Consumption
Other Structural Panels (M ft3, 3/8 in basis)
Product shipments
Imports
Exports
Apparent Consumption
Particleboard/Medium Density Fiberboard (M ft3,
Product shipments
Imports
Exports
Apparent Consumption
Hardboard (M ft3, 1/8 in basis)
Product shipments
Imports
Exports
Apparent Consumption
1988 1
22,089}
96!
1,004!
21,181!
4,604!
815!
!
5,416}
3/4 in basis
4,768!
1,634!
163!
6,239!
5,118;
633!
322!
5,429!
1989 1
21,3851
49!
1,442!
19,991!
5,105!
1,111!
!
6,213j
)
4,828!
425!
333!
4,920!
5,196;
718!
427!
5,487!
1990 !
20,919}
38!
1,613!
19,344!
5,418!
1,313!
!
6,728}
4,856!
363!
373!
4,746!
5,025;
689!
552!
5,162!
1991 !
18,652}
28!
1,322!
17,358!
5,613!
988!
57;
6,544}
4,730!
293!
369!
4,654!
4,895 i
571!
606!
4,860!
1992 !
19,332}
47!
1,442!
17,937!
6,653!
1,572!
49;
8,176}
5,046!
405!
394!
5,057!
5,273 i
571!
836!
5,008!
1993 !
19,315!
41!
1,409!
17,946!
7,002!
2,163!
60 i
9,105!
5,402!
572!
318!
5,656!
5,248 i
639!
917!
4,970!
1994 !
19,368}
47!
1,211!
18,474!
7,486!
2,588!
78;
9,995}
5,793!
775!
297!
6,271!
5,206 i
1,119}
1,190!
5,135!
1995 !
19,367}
60!
1,267!
18,160!
7,903!
3,214!
82 i
11,036}
5,307!
840!
319!
5,828!
4,930 i
1,152}
1,377!
4,705!
! ! %
1996 ! 1997 ! Change
19,181} 17,
85!
1,248! 1,
18,018! 16,
9,314! 10,
4,414! 5,
157;
13,572} 15,
5,705! 5,
814!
154!
6,365! 6,
5,280 i 4,
1,183} 1,
1,426! 1,
5,037! 4,
963!
104!
548J
519!
534^
272!
167 i
639!
916J
963!
188!
691 !
501 i
306!
259!
548J
-19%
8%
54%
-22%
129%
547%
193%*
189%
24%
-41%
15%
7%
-12%
106%
291%
-16%
Source: Spelter etal. (1997).
* since 1991
2-43
-------
2.5.2.1 Domestic Production
As Exhibit 2-24 shows, the value of shipments (representing production) of softwood plywood and
veneer was slightly lower in 1995 than it was in 1989. During the period, production reached its lowest
level in 1993 and then began to climb, in response to meeting demand from rising expenditures for
renovation and remodeling and new housing starts. The value of shipments of reconstituted wood
products rose 15 percent between 1989 and 1995, linked to the underlying growth in the construction
sector and the growth in market share of structural panel products over softwood plywood.
Figure 2-10 compares the value of product shipments of softwood plywood and veneer to
reconstituted wood products from 1989-1995.
Figure 2-10: Value of Product Shipments, 1989-1995
D Softwood plywood &
veneer
• Reconstituted wood
products
1989
1990
1991
1992
1993
Year
1994
1995
Source: U.S. Department of Commerce, International Trade Administration (1998).
Trends in product shipments by volume (Exhibit 2-25) have been mixed for this group of industries.
A statistical report produced by the U.S. Forest Service's Forest Products Laboratory (Spelter et al., 1997)
focused on production of softwood plywood, Other Structural Panels (OSB and waferboard),
particleboard and MDF as a group, and hardboard. Production by the Other Structural Panels category
experienced high growth during the period, with 1997 production almost 130 percent greater than it was
in 1988. Most of this increase can be attributed to the rapid increase in OSB's share of the structural
panel market in recent years. Particleboard and MDF production grew a moderate 24 percent, while
production of softwood plywood and hardboard declined by 19 percent and 12 percent respectively.
Historically, softwood plywood production made a continuous steady climb through the late 1980's. At
that point, the product began losing market share to OSB and production leveled off. This trend was
accompanied by a certain amount of mill attrition (Spelter et al., 1997).
2.5.2.2 Domestic Consumption
2-44
-------
Domestic, or apparent, consumption is the sum of domestic production and imports, less exports. The
dollar value of apparent consumption (Exhibit 2-25) for softwood plywood and veneer was slightly lower
in 1995 than it was in 1989. During the period, demand for softwood plywood and veneer dropped
slightly in the early 1990s and reached its lowest level in 1993 and then began to climb. The value of
domestic consumption of reconstituted wood products followed a similar pattern, increasing by 25
percent overall between 1989 and 1995. Drivers of consumption trends described here are the same as
those presented in the previous section on production (increased demand for renovation, remodeling and
new housing starts).
Figure 2-11 compares the apparent consumption of softwood plywood and veneer to reconstituted
wood products from 1989-1995.
Figure 2-11: Apparent Consumption, 1989-1995
7,000
6,000 —
I 5,000-
o
o
£ 4,000-
97
= 3,000
o
Q
§> 2,000
1,000
.__
198
r-
U
9 -IQC
^n
— r—
in ,
tj
~r~~
L
i —
^B
t.
1
-
r-
~~
D Softwood plywood &
veneer
• Reconstituted wood
products
Year
Source: U.S. Department of Commerce, International Trade Administration (1998)
Further examination of consumption volumes (Exhibit 2-25) shows the following trends for softwood
plywood, other structural panels, particleboard and MDF as a group, and hardboard.
• By volume, apparent consumption of softwood plywood fell by over 20 percent in the last 10
years.
• At the same time, consumption of other structural panels increased by almost 200 percent.
Particleboard and MDF were consumed at a slightly higher level in 1997 than they were in 1988,
following a decline that ended in 1992.
Hardboard consumption has fluctuated during the same 10 years, with a 16 percent decline from
1988.
2-45
-------
Demand for softwood plywood and OSB combined experienced an annual average growth rate of 2-3
percent from 1970 to 1996 (Spelter et al., 1997). Most of this demand was met by increased production
of OSB by both domestic and imported producers.
2.5.2.3 International Trade
Imports
Import value trends during the 1989-1995 period (Exhibit 2-24) show the constant dollar value of
softwood plywood and veneer imports grew by 37 percent, particularly during the later years when the
price for the commodity was rising rapidly and supplies of timber were declining. The ratio of imports to
consumption of softwood plywood and veneer, while only 0.02, grew by 45 percent. The trade surplus
for softwood plywood and veneer fell by 37 percent. Imports of reconstituted wood products more than
doubled from 1989 to 1995 and the value of imports' share of consumption grew by almost 90 percent
and the trade deficit nearly quadrupled.
Looking at import volumes (Exhibit 2-25) for softwood plywood, other structural panels,
particleboard and MDF as a group, and hardboard, imports have made the biggest gains in the other
structural panel category, taking advantage of the overall growth in demand for those products. Imports
now supply over a third of the other structural panel market. Imports of hardboard have also grown, more
than doubling in volume since 1988. There was a slight increase in imports of softwood plywood over
the 10 years, and a decline of 40 percent in imports of particleboard and MDF. Exhibit 2-26 shows U.S.
imports of by major region and trading partner.
Exhibit 2-26: 1997 U.S. Wood Products
Trade Areas
NAFTA
Latin America
Western Europe
Japan/Chinese Economic Areas
Other Asia
Rest of World
World Total
Imports by Region and Major Trading Partner
Value*
(Smillions)
8,128
541
234
35
458
150
9,554
Top 5 Countries
Canada
Indonesia
Brazil
Mexico
Chile
7,991
340
303
137
108
Share
85.1
5.7
2.5
0.4
4.8
1.6
100.0
83.6
3.6
3.2
1.4
1.1
includes Sawmills (SIC 2421), Softwood Plywood and Veneer (SIC 2436), Reconstituted
Wood Products (2435), and Hardwood Plywood and Veneer (SIC 2435).
Source: U.S. Department of Commerce, International Trade Administration (1999).
2-46
-------
Exhibit 2-26 shows that a vast majority, 85.1 percent, of U.S. imported wood products originated in
the North American Free Trade Agreement (NAFTA) trade zone, of which only 1.5 percent originates in
Mexico. The U.S. is also importing a significantly greater value of wood products than it is exporting.
In 1997 the U.S. exported about $3,683 million of wood products while it imported $9,554 million.
Imports of softwood plywood and veneer grew by 24 percent from 1996 to 1997. Seventy-seven
percent of U.S. softwood plywood and veneer imports are from Canada. This growth is consistent with
the strong demand for softwood plywood and veneer during this period. The overall penetration of
imports into the U.S. market is quite small (2 percent), which is attributed to the efficiency and low costs
of U.S. softwood plywood and veneer producers (U.S. Department of Commerce, International Trade
Administration, 1999).
Imports of reconstituted wood products grew by seven percent from 1996 to 1997. Seventy-eight
percent of U.S. reconstituted wood products imports are from Canada. The overall penetration of imports
into the U.S. market is significant (18 percent), which is attributed to recent capacity additions by
Canadian reconstituted wood products producers (U.S. Department of Commerce, International Trade
Administration, 1999).
Exports
Export trends during the 1989-1995 period (Exhibit 2-24) show the value of softwood plywood and
veneer exports fell by 17 percent, particularly during the later years when the price for the commodity
was rising rapidly and supplies of timber were declining. Economic crises in several Asian economies
and the falling value of the Canadian dollar relative to the U.S. dollar played a role in this trend. The
ratio of exports to value of shipments of softwood plywood and veneer fell by 11 percent. Exports of
reconstituted wood products grew by 32 percent from 1989 to 1995 and the proportion of exports to
shipments grew by almost 15 percent.
Export volumes (Exhibit 2-25) of hardboard quadrupled between 1988 to 1997, and constitute a
significant portion of the total shipments from this industry. Exports of softwood plywood grew by 50
percent, and have become an increasingly important part of the sector's overall production. While total
exports of other structural panels grew significantly, this market still remains a small portion of
production. Exports of particleboard and MDF grew significantly through 1992 but have dropped
steadily in recent years and are now just 15 percent higher than they were seven years ago. Exhibit 2-27
shows U.S. exports by major region and trading partner.
2-47
-------
Exhibit 2-27: 1997 U.S. Wood Product Exports by Region and Major Trading Partner
Trade Areas
NAFTA
Latin America
Western Europe
Japan/Chinese Economic Areas
Other Asia
Rest of World
World Total
Value*
(Smillions)
1,001
203
1,230
837
205
161
3,638
Top 5 Countries
Canada 800
Japan 636
Germany 292
United Kingdom 244
Mexico 202
Share
27.5
5.6
33.8
23.0
5.6
4.4
100.0
22.0
17.5
8.0
6.7
5.5
includes Sawmills (SIC 2421), Softwood Plywood and Veneer (SIC 2436), Reconstituted
Wood Products (SIC 2493), and Hardwood Plywood and Veneer (SIC 2435).
Source: U.S. Department of Commerce, International Trade Administration (1999).
By region, the U.S. exports its largest share (33.8 percent) of wood products to Western Europe.
However, no single country in Europe imports the most significant share of U.S. wood products. Canada
imports the largest share, 22 percent, due to two reasons. First, Canada's economy has strengthened.
Second, on January 1, 1998 Canada completed its final stage of tariff removal as directed under the U.S.-
Canada Free Trade Agreement. For the two aforementioned reasons, U.S. wood product exports to
Canada increased 21 percent to $800 million in 1997 (U.S. Department of Commerce, International
Trade Administration, 1999).
Continued growth in U.S. exports of wood products is dependent on an Asian economic revival,
particularly in Japan's economy. In 1996, prior to the economic crisis, Japan was the largest importer of
U.S. wood products. By 1997, Japan's share of U.S. wood product exports fell to 17 percent, a 24
percent decrease from the previous year. To further exacerbate the problem, U.S. exports to Japan are
expected to decline an additional 30 percent in 1998 and 1999. Japan has undertaken several steps to
revitalize its economy, such as the implementation of the Enhanced Initiative on Deregulation and
Competition Policy. However, an increase in the Japanese consumption tax from 3 percent to 5 percent
in 1996 is believed to have canceled out the potential gains of the Policy, resulting in the expected
continuing decline in Japanese demand for U.S. plywood and wood products (U.S. Department of
Commerce, International Trade Administration, 1999).
In 1997, exports of softwood plywood and veneer accounted for about 10.6 percent of wood product
exports from the U.S. This was a 24 percent increase from the previous year, raising the total value of
softwood plywood and veneer exports to $392 million, the highest level in eight years. Exports to the
United Kingdom, Canada, and Germany, the top three importers of U.S. softwood plywood and veneer,
experienced strong gains in 1997. A healthy European market has increased the demand for softwood
plywood and veneer. In particular, the construction sector throughout Europe has seen an increase in
2-48
-------
activity. However, the recent strong performance of softwood plywood and veneer is not expected to
continue due to an increasing international acceptance of OSB, and increasing competition from Canada,
Brazil, and Indonesia (U.S. Department of Commerce, International Trade Administration, 1999).
Reconstituted wood products accounted for about 9.75 percent of U.S. wood product exports in
1997. Both the value and volume of reconstituted wood product exports increased by 15 percent from
the previous year. Canada, the United Kingdom, Mexico, and Japan are the largest export markets for
U.S. reconstituted wood. The continuing increase in exports is mainly attributable to a growing
international acceptance of OSB. Exports are expected to continue to grow in the upcoming years, but at
a slower rate than they did in 1997 (U.S. Department of Commerce, International Trade Administration,
1999).
2.5.3 Prices
An index of the change in producer prices for lumber and wood products is shown below in Exhibit
2-28 This index was compiled by the Bureau of Labor Statistics.
Exhibit 2-28
1988
Lumber;
and wood!
products ;
(SIC 24) i
Change j
from!
Previous !
year!
Lumber and Wood Products Producer Price Index, 1988-1997
(1982 = 100)
1989
125 7
2.9%
1990
1246
-0.9%
1991
124 9
0.2%
1992
1447
15.9%
1993
1834
26.7%
1994
1884
2.7%
1995
1734
-8.0%
1996
179 8
3.7%
1997
194 5
8.2%
88-97
59.3%
source: U.S. Bureau of Labor Statistics (1999).
The biggest annual price increases for lumber and wood products occurred in 1992 and 1993 and the
overall price increase between 1988 and 1997 was nearly 60 percent. Another source, the Forest
Products Laboratory (FPL), that is part of the U.S. Department of Agriculture, provides a statistical
report with disaggregated price indices presented in Exhibit 2-29. Note that the base year of the BLS
index is 1982 while the base year for the FPL data is 1992.
Exhibit 2-29: Producer Price Indices of Plywood and Composite Wood Products
(1992 =100)
Year j 1988
Softwood • 74 2
Plywood j
Change from i
Previous year i
Particleboard ! 103 4
Change from i
Previous year 1
Hardboard '• 100 8
Change from !
Previous year j
Source: Howard (1999).
1989
845
0
106 0
0
100 9
0
1990
814
0
967
0
98 6
0
1991
822
0
96 5
0
96 7
0
1992
1000
0
100 0
0
100 0
0
1993
1154
0
114 8
0
106 5
0
1994
1203
0
128 5
0
109 1
0
1995
1280
0
128 4
0
113 2
0
1996
1183
0
123 3
0
115 8
0
1997
1193
0
117 6
0
119 0
0
88-97
1
0
0
2-49
-------
Softwood plywood experienced the biggest price increase, 61 percent over the 1988 to 1997 period,
with volatile price changes within the period with the biggest annual increases came in 1992 and 1993.
Overall prices for particleboard rose 14 percent, but the large price increases in 1993 and 1994 have been
offset by price declines in the last three years presented. Hardboard prices grew by 18 percent, with
mostly steady annual price increases from 1994 on.
The market conditions and the factors that affect softwood plywood prices, supply and demand are
somewhat analogous to those that affect prices for softwood lumber. For example, the cost of timber and
transportation, foreign supply and demand, inventory levels as well as construction-driven demand are
factors that affect market prices for softwood lumber, as well as softwood plywood and other structural
panels.
A recent study produced by WEFA (Wharton Economic Forecast Associates) on trends in the
softwood lumber market provides some clues about the future of the three industries examined here.
Softwood lumber prices have climbed steadily since November of 1998. This climb included some
higher than expected price increases in the early summer of this year. The WEFA report cites strong
domestic demand related to housing construction as one underlying cause of the price increases in
softwood lumber. Current price conditions are partially explained by the expectation that housing
demand has peaked while remaining strong, exports to Asia will increase as those economies recover,
and imports from Canada will decrease.
For the most part, the WEFA report indicates that the construction industry has responded to
climbing prices by switching to "just-in-time" buying of products. Buyers are hoping that prices will
begin falling and are postponing inventory build-up during this period of climbing prices. Another
short-run factor affecting prices during the second quarter of this year was a constraint on truck and rail
transportation availability. WEFA concludes that the market has reached equilibrium for the moment,
although this could change if inventories increase at the same time that construction-driven demand
levels off or falls (WEFA, 1999).
Exhibit 2-30 presents the industry-reported free on board (f.o.b.) prices of southern plywood, OSB
and particleboard from 1989 to 1996. These are the product prices prior to shipping costs and distributor
mark-ups. On an adjusted basis, these prices reflect the trends demonstrated in the previous exhibit, with
large price increases during early 1992, falling back to or below 1989 levels by 1996.
2-50
-------
Exhibit 2-30:
F.O.B. Prices of Southern plywood, OSB, and
($ per cubic meter)
Year j Southernjplywood }
1 As 1
I Reported i
1989! 184!
1990! 168!
1991! 175!
1992! 226!
1993! 257!
1994! 274!
1995! 267!
1996! 231!
89-96! !
Adjusted !
$1997 !
229!
200!
201!
252!
279!
291!
277!
235!
2.8%!
OSB !
As !
Reported !
166!
124!
144!
208!
227!
252!
242!
184!
;
Adjusted !
$1997 I
206!
148!
165!
232!
247!
268!
251!
187!
-10.1%!
Particleboard
Particleboard
As !
Reported !
129!
122!
120!
129!
152!
171!
173!
165!
;
Adjusted
$1997
160
145
138
144
165
182
180
168
4.5%
Prices adjusted by the GDP deflator.
Source: Spelter, etal. (1997).
Softwood Plywood
Long-term price trend data presented in the report "Review of the Wood Panel Sector in the U.S."
showed a fairly stable price pattern for softwood plywood between 1977 and 1991. At that point, prices
increased steadily from 1992 to their peak in 1994. Prices declined over 15 percent from 1994 to 1996.
The report authors observe that with softwood plywood prices at their current high levels, producers will
have a difficult time competing against the newer, more cost effective OSB producers. However, the
authors note that softwood plywood producers may be able to hang on to market share and justify the
higher prices by differentiating their product as a premium construction material (Spelter et al., 1997).
Oriented Strand Board
The "Review of the Wood Panel Sector in the U.S." report presents OSB price data over time that
shows a 27 percent decline in price during 1995 and 1996, after a continuous trend of price increases
since 1977. The report's authors attribute this weakening to a rapid increase in capacity that contributed
to an increase in production, putting downward pressure on prices. Due to the ability of users to
substitute plywood for OSB, these low OSB prices have only added to the growing market share enjoyed
by OSB. Falling prices have cut into the net revenues of OSB producers, after a period from 1992 to
1995 where the industry enjoyed excellent cost/price margins, drawing more investment to OSB
production capacity (Spelter et al., 1997).
Particleboard
Particleboard price data from 1984 to 1992 presented in the report, "Review of the Wood Panel
Sector in the U.S." show some variation within a relatively small range, with a substantial price increase
in the years 1993 to 1995, declining slightly in 1996. The price trend for particleboard from 1977 to
1996 is very similar to that of plywood. One reason for this similarity is the close relationship of
particleboard input costs to the plywood manufacturing industry. About 25 percent of industry
production cost is for wood inputs, which are primarily made up of wastes from lumber and plywood
production (Spelter et al., 1997).
2-51
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Medium Density Fiberboard (MDF)
Producer-reported MDF prices were $235 per ton in September of 1996 and declined by 15 percent
to $205 per ton as of April, 1997. Despite this drop, there continues to be a price gap between MDF and
less costly particleboard, although increasingly narrow. The price drop was attributed to MDF
production capacity expansions that resulted in an increase in supply, putting pressure on the profits of
MDF producers (Spelter et al, 1997).
Structural Wood Members
Producer-reported prices for I-joists reach a high in 1994 and have been declining since that time.
Recent price conditions have made I-joists more competitive with traditional 2" by 10" lumber on an
installed cost basis, typically for floor framing applications. In particular, I-joists are price competitive
with lumber when lumber prices are high. However, precise estimates of market prices are difficult to
obtain. The authors found that prices varied depending on whether the product was being sold under a
brand name, on sale, or under a volume discount. Laminated veneer lumber, presented in the Review at
$550/m3 f.o.b., is generally more expensive than 2" by 10" lumber, and is used mostly for structural
applications or as an input to I-joists (Spelter et al., 1997).
2.5.4 Market Forecasts
Production and Consumption
A study published by WEFA in the summer of 1999 examined housing starts and concluded that
housing starts will decline throughout 1999, resulting in a decline in lumber demand (WEFA, 1999).
However, housing starts continue to remain strong well into 1999, keeping demand for lumber and other
wood products for construction strong as well. The WEFA study also noted that another factor affecting
demand for softwood lumber is interest rates and concluded that rising interest rates could have a
dampening effect on demand. Higher interest rates will not only affect the affordability of new homes,
but also will curtail purchases of existing homes and mortgage refinancing activity, both major sources
of demand for materials used in home remodeling. Based on the relationship between housing starts,
purchases of existing homes, and remodeling and renovation (the construction-based demand for
plywood and other products examined in this profile), this decline in demand can be expected to affect
the plywood and composite wood industries, as 60 to 70 percent of their output goes to the construction
sector. WEFA expects the industry to experience most of this decline in 2000 (WEFA, 1999).
The most recent wood products market outlook published by APA - The Engineered Wood
Association (APA) shows U.S. housing starts exceeding expectations in 1999 (APA, 1999d). Similar to
the WEFA study, the forecast expects higher interest rates in the future to play a role in reducing future
housing demand in the period from 2000 to 2002. The report also forecasts the same trends for
residential improvements and repairs, but notes the long-term outlook for remodeling to be good as
home ownership increases. Figure 2-12 below provides information from the APA on U.S. housing
starts. The APA forecast also reports the industrial outlook is good for other wood-consuming sectors.
The APA expects demand for furniture and fixtures to remain healthy, but not at peak levels as existing
home sales will be declining from the current peak rates. Nonresidential construction is forecasted to
peak in 1999 and 2000 with declines in 2001 and 2002. Increased school construction will be a driving
factor in the upward trend for nonresidential construction (APA, 1999d).
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Figure 2-12: APA Projected Housing Starts (OOOs)
1997 1998 1999 2000 2001 2002
D US Single Family • US Multi-Family
Source: APA (1999d).
In addition to providing overall forecasts for the market demand, the APA outlook includes detailed
forecasts of the demand for and production of structural panels, specifically softwood plywood and
OSB.9 These forecasts, summarized in Exhibit 2-31, show the demand from each of the major markets
for structural panels, in order of their share of market demand: new residential construction, remodeling,
industrial uses including furniture and materials, nonresidential construction, and foreign demand. The
industrial use category will have the largest domestic demand increase over the forecast period, 8
percent. Foreign demand shows significant increase of 78 percent. However, reductions in U.S.
production as imports gain a large market share point to increased pressure from imports.
Exhibit 2-31: APA Forecasted Structural Panel Production
(million sq. ft. 3/8" basis)
1
New Residential
Remodeling
Industrial/Other
Nonresidential
Domestic Demand
Foreign Demand
Total Demand
Imports (Canada only)
Total Domestic Production
Plywood
OSB
1999|
18,415!
7,440!
6,575!
3,800!
36,230!
990!
37,220.00!
(7,345)!
29,875.00!
18,135!
11,740|
2000 1
17,715!
7,440!
6,720!
3,800!
35,675!
1,275}
36,950.00!
(7,400)!
29,550.00!
17,450!
12,100;
200 1|
17,585!
7,475!
6,875!
3,735!
35,670!
1,705}
37,375.00!
(8,300)!
29,075.00!
16,575!
12,500|
and Demand
2002 1% Change
18,435!
7,550j
7,085!
3,670j
36,740!
1,760}
38,500.00}
(9,330)!
29,170.00}
16,295!
12,875!
0.00
1%
8%
-3%
1%
78%
3%
27%
-2%
-10%
10%
Source: APA (1999dY
9While the report does not specify whether the forecast is exclusively for softwood plywood or includes
hardwood plywood, it is assumed to cover softwood plywood only, as hardwood plywood is typically not used for
structural panels.
2-53
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The APA forecasts for panel capacity and production provide additional insight into substitution
between softwood plywood and OSB. Exhibit 2-32 below shows these projected trends. Softwood
plywood shows significant decreases in capacity (down 24 percent) and production (down 16 percent)
from 1992 to 2002. Meanwhile, OSB has shown significant increases in capacity and production and is
projected to continue to capture the market for structural panels. The relatively constant capacity
utilization in the plywood sector with significant decreases in production supports the forecast of
expected plant closures in the future, while the opposite is true for OSB with expected increases in the
number of facilities.
Exhibit 2-32: APA Actual and Forecasted Structural Panel Capacity and Production
(million Sq Ft, 3/8" Basis)
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
% Change
Plywood
Capacity
23,700
Production
19,332
23,300! 19,315
21,875 1 19,638
22,070 1 19,367
21,1501 19,181
19,275 ! 17,965
19,075 1 17,776
19,2751 18,135
18,835 1 17,450
18,260 ! 16,575
18,010! 16,295
-0.24 1 -0.16
Utilization
82%
83%
90%
88%
91%
93%
93%
94%
93%
91%
90%
OSB
Capacity
7,040
7,560
7,920
8,830
11,285
11,575
12,050
12,250
13,120
13,725
14,380
1.04
Production
6,653
7,002
7,486
7,903
9,314
10,534
11,227
11,740
12,100
12,500
12,875
0.94
Utilization
95%
93%
95%
90%
83%
91%
93%
96%
92%
91%
90%
Shaded areas represent estimated values.
Source: APA (1999d).
The spring edition of the APA's on-line Engineered Wood Journal reports that the expectation of
overall production of structural panels in 1999 would be roughly the same as it was in 1998 (APA,
1999b). However, the long term prospects for the softwood plywood and veneer sector indicates that the
industry is in for a difficult time. APA members are bracing for a battle to preserve market share, a
particularly challenging goal in the face of expected declines in housing starts. Further, the APA's
spring journal focuses on the multiple pressures on its market share. A primary source of pressure is
from the expanding sentiment that wood products are not environmentally sensitive. They are concerned
that environmental advocacy groups are becoming increasingly successful at convincing major
corporations that the use of wood products should be curtailed in order to preserve trees and forested
land (APA, 1999b).
Shipments of reconstituted wood products are expected to increase 4 percent in 1998 and 1999
according to the U.S. Industry and Trade Outlook 1999. Strong demand in the furniture market has
proved beneficial to particleboard, MDF, and hardboard producers. For reconstituted wood products, the
forecast predicts an increase in growth of 3.3 percent per year from 1998 to 2003 as furniture markets
2-54
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and residential construction remain healthy (U.S. Department of Commerce, International Trade
Administration, 1999).
In their article, "A Look at the Road Ahead for Structural Panels, " authors Spelter and McKeever
compare the situation of the OSB industry in 1996 to that of the MDF industry in the 1970's. The MDF
industry experienced a major upheaval in the 1970's when an economic slump hit the U.S. right when the
industry had added a significant amount of capacity. In this article, Spelter looks at whether the OSB
industry is in danger of experiencing the same process. While the OSB industry's capacity additions
reflect those of the MDF industry, the economic conditions in the late 1990's lead the author to conclude
that the OSB industry conditions probably will not lead to closures like those experienced by the MDF
sector in the seventies. However, Spelter does not expect that the OSB producers will continue to enjoy
the gains in market share they have experienced over the last 10 to 15 years. He cites the near 100
percent market share held by OSB in the northeast and the Midwest as the peak of growth opportunity in
those markets. Further, the market share split in the south and west may have stabilized due to the
entrenchment of softwood plywood in those areas (Spelter and McKeever, 1996).
At the same time, manufacturers of substitutes for wood-based construction such as steel, cement
and plastic, are aggressively pushing their products hard on the construction industry using the argument
that their products are environmentally friendly, and have advantages in the areas of price stability,
quality, and performance. In-roads by these competing non-wood substitutes are expected to continue as
overall costs for wood-based products continue to climb and the underlying price advantage that wood-
products have traditionally held is undermined. Other concerns expressed the Engineered Wood Journal
include having adequate supply of timber in the long run to meet producers' needs (APA, 1999b).
International Trade
The hope for the plywood and composite wood products export markets is that declining domestic
prices and economic recovery, particularly of the Asian economies, will boost the demand for U.S.
produced wood-based products. This is of particular importance to the softwood plywood industry, as
they are currently exporting approximately 10 percent of their production. Another international driver
of demand for domestically produced wood-based building products is the effect of regulatory changes
in countries such as Japan and Korea to promote wood-based housing construction. WEFA attributes
most of the increases in exports from North America during 1999 to the U.S. rather than Canada.
Continued growth in this market is limited by expected falling housing starts in Japan (WEFA, 1999).
Any future changes in the U.S.-Canadian exchange rate will likely have a positive effect on exports in
the short-term (in the next 2-3 years), as will any modifications to tariff structures in place for U.S.
exports.
The APA outlook includes an international forecast that projects a positive outlook for wood product
exports from 2000 to 2002. This projection is based on expectation that the markets in Europe, Mexico,
South America, and Japan will pick up in 2000, causing a weaker dollar and belter overall climate for
exports as (APA, 1999d). The strength of the dollar in 1999 placed U.S. wood products at a
disadvantage in world markets, but APA projects significant increases in exports from 2000 to 2002 (see
Exhibit 2-31 for structural panel export forecast). The 1999 fall edition of the APA's Engineered Wood
Journal pointed to continuing pressures on U.S. exports coming from recent increases in European
production capacity as posing a sizeable challenge to structural wood panel products in the U.S. (APA,
1999c).
The U.S. Industry & Trade Outlook notes growth in European markets and removal of tariff barriers
throughout the world as contributing to modest growth in the wood products industry. At the same time,
the report cautions that economic conditions in Asia, especially Japan, may be of some concern. While
OSB is making significant strides in residential construction in Japan and elsewhere, an Asian recession
2-55
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could threaten this progress. Softwood plywood is still considered the material of choice in many
markets unfamiliar with OSB. Nontraditional markets such as South America, eastern Europe, and
China could provide significant opportunity for growth in the wood products industry, especially
softwood plywood (U.S. Department of Commerce, International Trade Administration, 1999).
Prices
The recently published WEFA report on softwood lumber forecasts a 5 percent increase in the price
index for those products during the third quarter of 1999 from the previous quarter. Because of the
expected leveling off or decline in construction, prices are expected to decline during the year's fourth
quarter. Based on WEFA's forecast, overall annual prices in 1999 are expected to be about 8 percent
higher than they were in 1998. Year 2000 prices are forecast to rise only marginally over 1999.
The "Review of the Wood Panel Sector in the U.S. and Canada" presents a forecast for structural
wood panels (softwood plywood and OSB combined). In the 1997 report, Spelter and his co-authors
assume that the long run average annual growth in demand for softwood plywood and OSB combined
will continue at the historical 3 percent rate. Using that assumption, these industries will have excess
capacity until 2001, when capacity utilization reaches 95 percent (Spelter et al., 1997).
This forecast concluded that current and planned production capacity will exceed demand until
2001. This excess capacity will continue to put downward pressure on prices, a trend that began in
1996. The report authors expect that this price pressure will result in a market correction, requiring both
the plywood and the OSB sectors to adjust capacity through the closure of some high cost, low
productivity plants.
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2.6 References
Abt Associates Inc. 1997. Market Profile of the Adhesive Industry. Prepared for Wendy Hoffman,
Regulatory Impacts Branch, Office of Pollution Prevention and Toxics, U.S. Environmental
Protection Agency, 401 M Street, SW, Washington, DC 20460.
American Plywood Association - The Engineered Wood Association. 1999a. Web page information on
product characteristics and manufacturing. Tacoma, WA: APA - The Engineered Wood
Association, http://www.apawood.org/
American Plywood Association - The Engineered Wood Association. 1999b. Engineered Wood
Journal Online. Tacoma, WA: APA - The Engineered Wood Association. Spring.
http://www.apawood.org/news/journal/spring99.html
American Plywood Association - The Engineered Wood Association. 1999c. Engineered Wood Journal
Online. Tacoma, WA: APA - The Engineered Wood Association. Fall.
http://www.apawood.org/news/journal/fall99.html
American Plywood Association - The Engineered Wood Association. 1999d. Market Outlook. Lumber,
Structural Panels, and Engineered Wood Products: 2000 - 2002. Tacoma, WA: APA - The
Engineered Wood Association.
American Plywood Association - The Engineered Wood Association. 1998. Engineered Wood Journal
Online. Tacoma, WA: APA - The Engineered Wood Association. Fall.
http://www.apawood.org/news/journal/fall98.html
American Plywood Association - The Engineered Wood Association. 1997. Design/Construction
Guide: Residential & Commercial. Tacoma, WA: APA — The Engineered Wood Association.
Bentley, Jerome T., C. C. Lawson, and D. Crocker (Mathtech, Inc.) 1992. Economic Impacts of
Alternative NESHAPS on the Wood Furniture Industry. Prepared for U.S. Environmental Protection
Agency, Cost and Economic Impact Section, Emissions Standards Division, office of Air Quality
Planning and Standards. September.
Buongiorno, Joseph. 1996. "Forest sector modeling: a synthesis of econometrics, mathematical
programming, and system dynamics methods. International Journal of Foresting, 12, pp. 329-343.
CINTRAFOR. 1999. "Asian Crisis Hits PNW: Export Revenues Down 27% Between 1998-1998."
Fact Sheet #29. January. http://www.cintrafor.org/FS29.htm
Columbia Forest Products. 1999. "About our Company." Portland, OR.
www. columbiafore stproducts. com
Composite Panel Association. 1998. 1997 Annual Shipments Report & Downstream Market Survey:
U.S./Canada Particleboard & Medium Density Fiberboard Industry. Gaithersburg, MD: Composite
Panel Association, http://www.pbmdf.com/pubs/shipments97.html
Dirks, John. 1991. Perspectives on Wood Furniture Production, Marketing and Trade: A Survey of
Research Results. CINTRAFOR Special Paper # 1. http://www.cintrafor.org/SPO 1 .htm
Dun & Bradstreet. 1999a. D-U-N-S Number Database. Murray Hill, NJ: Dun & Bradstreet. May 24.
http: //www. dnb. com/dunsno/dunsno .htm
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Dun & Bradstreet. 1999b. Industry Norms & Key Business Ratios 1998-1999, Information for SIC
Codes 2435, 2436, 2439, and 2493.
Eastin, Ivan, C. Lane, T. Waggener, R. Fight, J Barbour. 1996. An Assessment of the Market for
Softwood Clearwood Lumber Products. CINTRAFOR Working Paper No. 59.
http://www.cintrafor.orgAVP59.htm
Financial Times Limited. 1999a. "Boise Cascade Corporation." Company Briefs/Company Financials.
http://www.ft.com
Financial Times Limited. 1999b. "Georgia-Pacific Corporation." Company Briefs/Company
Financials. http://www.ft.com
Financial Times Limited. 1999c. "Louisiana-Pacific Corporation." Company Briefs/Company
Financials. http://www.ft.com
Financial Times Limited. 1999d. "Willamette Industries, Inc." Company Briefs/Company Financials.
http://www.ft.com
Gale Business Resources. 1999. Online business database. Essays by industry SIC code downloaded
from http://www.gale.com.
Howard, James L. 1999. U.S. Timber Production, Trade Consumption, and Price Statistics 1965-1997.
General Technical Report FPL-GTR-116. Madison, WI: U.S. Department of Agriculture, Forest
Service, Forest Products Laboratory, 76p. July.
International Paper. 1998. "International Paper, Union Camp Corporation Announce Merger." Release,
November 24.
http://www.internationalpaper.com/ca/page/press_releases.cgi?funcs=links&ID=493957&back=arch
ive
Louisiana-Pacific Corporation. 1999.
"Headquarters: Product Lines Overview" http://www.lpcorp.com/hq/products.html
"Louisiana-Pacific Corp. Successfully Completes Tender Offer for ABT Building Products Corp."
Release No.: 112-2-9. February 24. http://www.lpcorp.com/pressrel/19990224_gen_pr.html
"Louisiana-Pacific to Acquire Evans Forest Products, Ltd." Release No.: 138-8-9. August 24.
http://www. lpcorp.com/pressre l/19990824_gen_pr.html
"Louisiana-Pacific Corp. Successfully Completes Tender Offer for Le Groupe Forex." Release No.:
140-9-9. September 10. http://www.lpcorp.com/pressrel/19990910_gen_pr.html
McKeever, Davis B. 1997. Engineered Wood Products: A Response to the Changing Timber Resource.
Pacific Rim Wood Market Report, November.
Midwest Research Institute. 1999. Memorandum from Becky Nicholson and Melissa Icenhour to Mary
Tom Kissell and Larry Sorrels, U.S. EPA: "Preliminary facility-specific cost estimates for
implementation of the plywood and composite wood products NESHAP." October 20.
Moody, Russell C. and J. Y. Liu. 1999. "Chapter 11: Glue Structural Members," Wood
handbook—Wood as an engineering material. Gen. Tech. Rep. FPL-GTR-113. Madison, WI: U.S.
Department of Agriculture, Forest Service, Forest Products Laboratory.
PRNewsWire. 1999a.
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"Boise Cascade to Acquire Furman." June 15.
"Boise Cascade Reports Sharply Increased Second-Quarter Earnings." July 15.
http://www.prnewswire.com/gh/cnoc/comp/109525.html
PRNewsWire. 1999b.
"Georgia-Pacific Group Reports Fourth Quarter and 1998 Results." January 26.
"Georgia-Pacific to Construct Oriented Strand Board Plant in Arkansas." February 23.
"Georgia-Pacific Group Reports Improved First Quarter Earnings and Ail-Time Quarterly Record
for Building Products." April 22.
"Georgia-Pacific Completes Merger with Unisource Worldwide, Appoints Key Leadership; Sets
Target for Resumption of Share Repurchases." July 6.
http://www.prnewswire.com
PRNewsWire. 1999c.
"Willamette Industries Reports Fourth Quarter Earnings." January 20.
"Willamette Industries Completes Darbo Acquisition." June 22.
"Willamette Industries to Build Particleboard Plant; Name New CFO." August 5
http://www.prnewswire.com/comp/971763.html
PRNewsWire. 1998. "Willamette Industries Finalizes Purchase of French Plant." March 4.
http://www.prnewswire.com/gh/cnoc/comp/109525.html
PR NewsWire. 1997. "Willamette Industries to Acquire Mexico City Box Plant." December 15.
http://www.prnewswire.com/comp/971763.html
Spelter, Henry. 1998. Substitution, Timber Processing, March.
Spelter, Henry, D. McKeever, and I. Durbak. 1997. Review of Wood-Based Panel Sector in United
States and Canada, General Technical Report FPL-GTR-99. Madison, WI: U.S. Department of
Agriculture, Forest Service, Forest Products Laboratory. 45p.
Spelter, Henry. 1996. "Emerging Nonwood Building Materials in Residential Construction." Forest
Products Journal, 46(7/8).
Spelter, Henry and T. McKeever. 1996. "A Look at the Road Ahead for Structural Panels." C. C. Crow
Publications, Inc., 11(5). October.
Spelter, Henry. 1995. "Capacity Changes in U.S. Particleboard, Southern Pine Plywood, and Oriented
Strandboard Industries." Canadian Journal of Forest Resources, 25: 614-620.
U.S. Bureau of Labor Statistics. 1999. Website, http://stats.bls.gov/ppihome.htm
U. S. Department of Commerce. 1999a. 7997 Census of Manufactures, Industry Series:
Hardwood Veneer and Plywood, EC97M-3212A
Softwood Veneer and Plywood, EC97M-3212B
Engineered Wood Member (Except Truss) Manufacturing, 1997 Economic Census, Manufacturing
Industry Series, EC97M-3212C
Truss Manufacturing, EC97M-3212D
Reconstituted Wood Products Manufacturing, EC97M-3212E
U. S. Department of Commerce. 1999b. 7997 Census of Manufactures, Industry Series:
Adhesive Manufacturing, EC97M-3255B
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Wood Office Furniture Manufacturing, EC97M-3372A
U.S. Department of Commerce. 1997. Current Industrial Reports, Survey of Plant Capacity, 1997.
U.S. Department of Commerce. 1995a. 7992 Census of Construction Industries, Industry Series:
General Contractors — Single-Family Houses, Industry 1521. CC92-I-1. Washington, D.C.: U.S.
Government Printing Office. June.
U. S. Department of Commerce. 1995b. 7992 Census of Manufactures, Industry Series, Millwork,
Plywood, and Structural Wood Members, Not Elsewhere Classified, Industries 2431, 2434, 2435,
2436, and 2439. MC92-I-24B. Washington, D.C.: U.S. Government Printing Office.
U. S. Department of Commerce. 1995c. 7992 Census of Manufactures, Industry Series, Household
Furniture, Industries 2511, 2512, 2514, 2515, 2517, and2519. MC92-I-25A. Washington, D.C.:
U.S. Government Printing Office.
U. S. Department of Commerce. 1992. Census of Manufactures, Subject Series: General Summary, MC-
92-SC-l.
U.S. Department of Commerce. No date. Census of Manufactures:
Industry 2435, Hardwood Veneer and Plywood
Industry 2436, Softwood Veneer and Plywood
Industry 2439, Structural Wood Members, N.E.C.
Industry 2493, Reconstituted Wood Products
U.S. Department of Commerce, International Trade Administration. 1999. U.S. Industry &Trade
Outlook.
U.S. Department of Commerce, International Trade Administration. 1998. "Outlook Trend Tables."
http://www.ita.doc.gov/industry/otea/usito98/tables.htm.
U.S. Department of Labor, Occupational Safety and Health Administration. No date. SIC descriptions.
http://www.osha.gov/oshstats/sicser.html.
U.S. Environmental Protection Agency. 1998. Industry Specific Information Collection Request (ICR)
for the Development of Plywood and Particleboard Maximum Achievable Control Technology
(MACT) Standards.
U.S. Environmental Protection Agency. 1995. Lumber and Wood Products, Office of Compliance
Sector Notebook Project.
U.S. Environmental Protection Agency. 1992. "Economic Impacts of the Alternative NESHAPS on the
Wood Furniture Industry."
U.S. Small Business Administration. 1999. Small Business Size Standards Matched to SIC Codes,
http://www.sba.gov/regulations/siccodes/siccodes.html.
WEFA. 1999. Informational Web site on softwood lumber.
http: //www .we fa. com/news/storie s/99/lumber. cfm
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Weyerhaeuser. 1999a. "Weyerhaeuser Completes Acquisition of MacMillan Bloedel; Haskayne to Join
Weyerhaeuser Board of Directors. Release. November 1.
http://www.weyerhaeuser.com/news/mb/default.asp
Weyerhaeuser. 1999b. "Facts About Weyerhaeuser." Tacoma, WA: Weyerhaeuser Company.
http://www.weyerhaeuser.com/facts/weyer.htm
Willamette Industries, Inc. 1999. "Willamette Industries to Build $85 Million Facility in South
Carolina." Release, http://www.wii.com/newsexp.htm
Youngquist, John A. 1999. "Chapter 10: Wood-Based Composite and Panel Products." Wood
handbook—Wood as an engineering material. Gen. Tech. Rep. FPL-GTR-113. Madison, WI:
U.S. Department of Agriculture, Forest Service, Forest Products Laboratory.
REGULATORY ALTERNATIVES, EMISSIONS, EMISSION REDUCTIONS, AND
CONTROL AND ADMINISTRATIVE COSTS
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3.1 Regulatory Alternatives
3.1.1 Background
Section 112 of the Clean Air Act (CAA) requires that EPA establish NESHAP for the control of
hazardous air pollutants (HAP) from both new and existing major sources. A major source of HAP is
defined as any stationary source or group of stationary sources within a contiguous area and under
common control that emits or has the potential to emit, considering controls, in the aggregate, 10 tons
per year or more of any single HAP or 25 tons per year of combined HAP. The CAA requires the
NESHAP to reflect the maximum degree of reduction in emissions of HAP that is achievable. This level
of control is commonly referred to as the maximum achievable control technology, or MACT. The
MACT floor is the minimum control level allowed for NESHAP and is defined in Section 112 (d) (3) of
the CAA.
The requirements for new sources are potentially more stringent than those for existing sources.
For new sources, Section 112(d)(3) of the CAA requires EPA to set standards for each category or
subcategory that are at least as stringent as "the emission control that is achieved in practice by the best
controlled similar source." For existing sources, Section 112(d)(3) requires the HAP standards to be no
less stringent than "the average emission limitation achieved by the best-performing 12 percent of the
existing sources" for source categories or subcategories with at least 30 sources and "the average
emission limitation achieved by the best-performing five sources" for source categories or subcategories
with fewer than 30 sources.1
In a previous rulemaking, the EPA promulgated a final rule (59 FR 29196) that presented the
Agency's interpretation of the statutory language regarding the basis of the MACT floor.2 The EPA's
interpretation of the "average emission limitation" is that it means a measure of central tendency, such as
the median. If the median is used when there are at least 30 sources, then the emission level achievable
by the source and its control system that is at the bottom of the top 6 percent of the best-performing
sources (i.e., the 94th percentile) then becomes the MACT floor. For example, assume that there are 100
sources, and HAP emissions from approximately 15 of these sources (15 percent nationwide) are
controlled using thermal oxidizers and the HAP emissions from the remainder of the sources are
uncontrolled. In this example, the 94th percentile is represented by the control system applied to the
source ranked at number 6 (6/100 = 6 percent). However, in this example, the same type of add-on
control technology used by the source at the 94th percentile (thermal oxidizer) is used by sources ranked
below the 94th percentile. Assuming that there are no significant design or operational differences
between the different thermal oxidizers that would affect their performance, all 15 sources equipped with
thermal oxidizers would be considered representative of the MACT floor. Thus, when determining the
performance level of the MACT floor technology, EPA would evaluate the available data for any and all
of the sources equipped with thermal oxidizers.
When there are less than 30 sources, the emission level achievable by the source and its control
system that is the median of the 5 sources represents the MACT floor. For example, if there are 10
sources nationwide and the emissions from 2 of these sources are controlled with thermal oxidizers and
the emissions from the remaining 8 are uncontrolled, then the MACT floor is "no emission reduction"
because the top 5 sources include the 2 that are controlled, plus 3 that are uncontrolled. In this example,
the median source (the source ranked "number 3") is uncontrolled.
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3.1.2 Control Technologies and Practices in MACT Floor Determination
Control systems in use in the plywood and composite wood products (PCWP) industry include
add-on control systems and incineration of process exhaust in an onsite combustion unit. The potential
for pollution prevention also exists in the PCWP industry; however, there are no known and
demonstrated pollution prevention techniques that can be universally applied across the industry. The
emissions from PCWP process units are associated with the wood and/or resin processed. Thus,
switching to alternative fuels (e.g., switching from wood fuel to natural gas) would not significantly
reduce emissions and would not be economical for many facilities that use their wood waste as fuel.
Facilities cannot readily switch wood types (e.g., from softwoods to hardwoods) for several reasons: (1)
equipment at each facility is often designed for a particular wood type; (2) product characteristics would
change; and (3) PCWP facilities are located near their wood source. Over the past decades, the PCWP
industry and its resin suppliers have responded to pressure to reduce the HAP content of resins. It is
expected that this trend will continue into the future (e.g., resins with lower HAP content are likely to be
developed). Resin reformulation is a slow, trial-and-error process that must be completed by individual
facilities and their resin suppliers so that product quality is maintained. At this time, no information is
available to determine the degree of emission reduction that can be achieved through resin reformulation.
The achievable emission reduction would be very facility-specific, and may not be comparable to the
emission reduction achievable with add-on control systems because emissions from the wood would
remain. At the present time, few (if any) facilities use pollution prevention measures to achieve an
emission reduction comparable to that of add-on incineration-based control systems. Therefore, this
analysis focuses on add-on control devices.
Available data on control device performance were reviewed to determine which add-on control
systems are best at reducing HAP emissions. Because total hydrocarbons (THC), formaldehyde, and
methanol are the most prevalent pollutants emitted from the PCWP industry and represent the majority
of the available data on control device performance, the control systems were analyzed based on their
ability to reduce emissions of these three pollutants. Although THC is not a HAP, control systems that
are effective in reducing THC emissions are generally effective in reducing HAP emissions.
The available control device performance data for the PCWP industry shows that only two types
of add-on air pollution control devices consistently and continuously reduce HAP emissions:
incineration-based controls (including regenerative thermal oxidizers [RTOs], regenerative catalytic
oxidizers [RCOs], and incineration of pollutants in onsite process combustion equipment [process
incineration]) and biofilters. For control systems that use onsite process combustion equipment (e.g.,
power boilers or fuel cells) to reduce emissions, only those systems that route 100 percent of the process
unit's exhaust to the combustion equipment are included in the "incineration-based controls" category.
Several of the process incineration systems are fully integrated systems that combine heat/energy
recovery with pollution control. Systems that only incinerate a portion of the process unit exhaust
stream (e.g., less than 75 percent) are referred to as "semi-incineration" and are not included in the
incineration-based controls category.
Those PCWP facilities that practice semi-incineration take a portion of the exhaust stream and
then route these emissions to a burner for use as combustion air. In those situations, the HAP emissions
in the slip stream are actually combusted. However, some facilities with direct-fired dryers (i.e., dryers
that receive hot exhaust air directly from combustion source) that practice semi-incineration may also
use the dryer exhaust gas slip stream (or fresh air) to cool the exhaust gas from the burners in "blend
chambers." 3 When the exhaust gas is routed to the blend chamber, the HAP in the exhaust gas are not
combusted in the dryer, and if the dryer emissions are uncontrolled, these HAP are ultimately emitted to
the atmosphere. The amount of exhaust gas recycled either to the burner or to the blend chamber can
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vary over time. Decisions about how much of the recycled exhaust stream are used as combustion air
and when and how much exhaust air is used in a blend chamber generally are made by the equipment
operators and are affected by process conditions such as the moisture content of the incoming wood
furnish (which affects the target dryer operating temperature) and the desired amount of water removal.4
Thus, semi-incineration is used to maintain the heat balance in the drying system (e.g., combustion unit
and dryer). There is a lack of detailed information on how the semi-incineration process works at each
facility, and thus, the actual HAP emission reductions that are achieved at PCWP facilities that practice
semi-incineration cannot be determined/verified. In addition, it may not be possible to retrofit semi-
incineration onto existing process units, and therefore, semi-incineration may not be an option for
process units that were not originally designed to incorporate semi-incineration. For the reasons stated
above and for the purpose of establishing MACT floors for the PCWP source category, semi-
incineration is not considered a verified control technique for reducing HAP emissions. However, as
explained later in the technical support document for the cost analysis, there are only two process unit
groups (bagasse fiberboard mat dryers and hardwood veneer dryers) where semi-incineration is the only
available candidate for the MACT floor technology.
The available control device efficiency data show that control devices installed for particulate
matter (PM) abatement had no effect on gaseous HAP or THC emissions.5 These control devices include
cyclones, multiclones (or multicyclones), baghouses (or fabric filters), and electrified filter beds (EFBs).
The performance data for wet electrostatic precipitators (WESPs) and wet scrubbers installed for PM
control also showed no effect on HAP and THC emissions. These wet systems may achieve short-term
reductions in THC or gaseous HAP emissions, however, the HAP and THC control efficiency data,
which range from slightly positive to negative values, indicate that the ability of these wet systems to
absorb water-soluble compounds (such as formaldehyde) diminishes as the recirculating scrubbing liquid
becomes saturated with these compounds.5 One wet scrubbing system, a combination water tray
tower/high energy venturi scrubber that uses treated water and is designed to minimize emissions of both
PM and odorous compounds from a hardboard press, did achieve notable HAP and THC emissions
reductions. This system reduces formaldehyde and methanol emissions by 65 percent and 50 percent,
respectively, and reduces THC emissions by 86 percent.5
The THC, methanol, and formaldehyde control device performance data for incineration-based
control and biofilters are presented in the MACT floor memo included in the public docket.6 The
information in this memo was extracted from a separate memorandum which provides information on
the available control device performance data for the various types of control devices applied to PCWP
process units. The performance data for the incineration-based controls and biofilters showed methanol
and formaldehyde emission reductions equal to or greater than 90 percent, except in some cases where
the pollutant loadings of the emission stream entering the control systems were very low. The
performance data for THC showed that incineration-based control systems could achieve THC emission
reductions equal to or greater than 90 percent. The THC emission reductions achieved with biofilters
varied somewhat, with THC reductions ranging from 73 percent to 90 percent. Although biofilters are
effective in reducing the HAP compounds emitted from process units in the PCWP industry, they can be
less effective in reducing some of the less water-soluble non-HAP compounds, such as pinenes, that can
make up a portion of the THC measurements.
The MACT floor technology for the process units was either determined to be no emission
reduction or equivalent to the emission reduction achievable with incineration-based control systems or
biofilters. Although some process units are equipped with add-on controls that perform at a level
somewhere between zero (no control) and the performance level achievable with incineration-based
controls and biofilters, none of these control systems were identified as MACT floor control
technologies because they (1) do not reduce HAP emissions (e.g., bag houses) or (2) do not reduce HAP
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emissions on a consistent basis (e.g., wet electrostatic precipitators), or (3) achieve lower HAP emission
reductions than biofilters and incineration-based controls (e.g., semi-incineration). Therefore, the
MACT floor analysis focused on incineration-based controls and biofilters.
For the purpose of establishing the performance level of the MACT floor control systems, all
available data on incineration-based controls and biofilters were grouped together. This "group
approach" was used because some of the control systems treat HAP emissions from multiple types of
process units, such as primary tube dryers, reconstituted panel presses, and board coolers.
Determinations of the performance of the control system on emissions from each type of process
unit were not possible. Also, for some process unit groups, limited data were available for the control
systems applied to the process units in that group. By considering all of the performance data for
incineration-based controls and biofilters together, the amount of available data upon which the MACT
floor level of performance was based was maximized.
The available data for incineration-based controls and biofilters (provided in the MACT floor
memo)6 shows variability in performance from process unit to process unit and over time. In some
cases, it was not possible to directly compare the performance of different control systems because data
were not available for the same pollutant (i.e., not all test reports included data for THC, methanol, and
formaldehyde). Comparison of the performance of the different types of incineration-based control
systems with other incineration-based controls and with biofilters was also hampered by the fact that the
uncontrolled emissions being treated by the different control systems varied with respect to pollutant
loading (inlet concentration) and pollutant type. Because the control device efficiency is somewhat
dependent on the amount of HAP entering the device, the variability in the uncontrolled emissions from
process units both within and among the different process groups meant that the control device
efficiencies also varied. With a few exceptions, when the concentration of methanol, formaldehyde, or
THC in the uncontrolled emission stream was greater than 10 parts per million dry volume (ppmvd), the
associated HAP emission reductions ranged from 90 to 99 percent. In general, lower control efficiencies
were achieved when the inlet pollutant concentrations were below 10 ppmvd; however, in some cases,
the control efficiency exceeded 90 percent even at the lower inlet concentrations.
To account for the variability in the type and amount of HAP in the uncontrolled emissions from
the various process units and the effect of this variability on control system performance, it is
recommended that the MACT floor performance level be based on all three of the pollutants analyzed
and include maximum concentration levels in the outlet of the control systems as an alternative to
emission reductions. The MACT floor performance level is a 90 percent reduction in THC or methanol
or formaldehyde emissions. The maximum concentration level in the outlet of the MACT floor control
system is 20 ppmvd for THC, or 1 ppmvd for methanol, or 1 ppmvd for formaldehyde. The 20 ppmvd is
recommended as the alternative maximum concentration for THC because 20 ppmvd represents the
practical limit of control for THC. The 1 ppmvd is recommended as the maximum outlet concentration
for both methanol and formaldehyde because this concentration is achievable by the MACT floor control
systems and the method detection limits for these compounds using the National Council of the Paper
Industry for Air and Stream Improvement (NCASI) impinger/canister emission test method (NCASI
Method IM/CAN/WP-99.01) are less than 1 ppmvd.7
3.1.3 MACT Floor Options
The six recommended options for representing the MACT floor are shown in Exhibit 3-1. These
six options reflect the emission reductions and maximum outlet pollutant concentrations achievable at
the MACT floor for all process units with a MACT floor technology represented by incineration-based
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controls or biofilters. As shown in Exhibit 3-1, it is recommended that a restriction be placed on the use
of the outlet concentration options for methanol and formaldehyde. The restriction would be that the
concentration of the pollutant (methanol or formaldehyde) entering the MACT control system must be at
least 10 ppmvd for the facility to use the outlet concentration option. The purpose for this restriction is
that some process units may have very low uncontrolled methanol or formaldehyde emissions, while still
emitting significant quantities of HAP, and facilities with these process units could claim that they are
achieving MACT floor levels of control without doing anything to reduce HAP emissions. All of the
MACT floor control systems evaluated can meet at least one of the six control options for add-on control
devices, based on the available data. Only a few of the MACT floor control systems evaluated can meet
all six options; in those cases, the control systems tend to be applied to process units with both
moderately high HAP emissions and moderately high THC emissions, which would allow them to meet
the outlet concentration-based options for methanol and formaldehyde as well as the percent reduction
options. Therefore, it is recommended that facilities be required to meet only one of the six emission
options in Exhibit 3-1.
Exhibit 3-1. MACT FLOOR CONTROL OPTIONS
Pollutant
methanol
Reduce by
90 percent
OR achieve emissions <
1 ppm3
...OR...
formaldehyde
90 percent
1 ppm3
...OR...
THCb
90 percent
20 ppm
aThis option would only be applicable to units with uncontrolled emissions of that HAP that are > 10 ppm.
bMills will be allowed to adjust THC measurements to subtract methane.
3.1.4 Summary of MACT for Existing and New Process Units
Exhibit 3-2 summarizes MACT for each type of process unit at new and existing PCWP
facilities. The MACT represents the level of control that would be required by the PCWP NESHAP.
The technologies listed below achieve that control level.
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Exhibit 3-2. SUMMARY OF MACT FOR PCWP PROCESS UNITS
AT NEW AND EXISTING SOURCES
Process unit
MACT for process units at existing
sources
MACT for process units at new
sources
Tube dryers; Rotary strand
dryers; Conveyor strand dryers;
Green particle rotary dryers;
Hardboard ovens; Softwood
veneer dryers; Pressurized
refiners
emission reduction achievable with
incineration-based control"
emission reduction achievable with
incineration-based control3
Reconstituted wood product
presses
emission reduction achievable with
incineration-based control3 or
biofilter
emission reduction achievable with
incineration-based control3 or
biofilter
Fiberboard mat dryers (wood);
Hardboard press preheat ovens
No emission reduction
emission reduction achievable with
incineration-based control3
Reconstituted wood product
board coolers
No emission reduction
emission reduction achievable with
incineration-based control3 or
biofilter
Rotary agricultural fiber dryers;
Dry particle rotary dryers;
Paddle-type particle dryers;
Hardboard humidifiers
Fiberboard mat dryers (bagasse);
Veneer kilns; Radio-frequency
veneer redryers; Hardwood
veneer dryers; Particleboard
press molds; Particleboard
extruders; Engineered wood
products presses; Agriboard
presses; Plywood presses; Stand-
alone digesters; Atmospheric
refiners; Blenders; Formers;
Sanders
Saws; Fiber washers; Chippers;
Log vats; Lumber kilns
No emission reduction
No emission reduction
Incineration-based control includes RTOs, RCOs, TCOs, TOs, and incineration of process exhaust in combustion
unit.
3.1.5 Beyond the MACT Floor Options and Related Technologies
Because the control devices that represent MACT levels of control are the same for all process
units that have a controlled MACT floor for both new and existing units, the only beyond the floor
options considered were for existing process unit groups that had MACT floors equal to "no emission
reduction." The annual total HAP emissions from the following equipment are very low compared to the
emissions from other process units used in the PCWP industry:
agriboard dryers
particleboard press molds
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• dry particle rotary dryers • particleboard extruders
• paddle-type particle dryers • engineered wood products presses
• hardboard humidifiers • agriboard presses
• bagasse fiber mat dryer • atmospheric refiners
• veneer kilns • lumber kilns
• RF veneer redryers • resin storage tanks
• hardwood veneer dryers • other miscellaneous equipment (formers,
sanders, saws, fiber washers, chippers, and log
vats)
No beyond-the-floor control options were considered for these equipment because emissions
from these process units would not be cost-effective to control. In addition, no beyond-the-floor
analyses of wastewater operations, wastewater tanks, and miscellaneous coating operations were
conducted because sufficient information is not available to make beyond-the-floor determinations and it
is not known (or expected) that emissions from these operations would justify control.
Based on a review of the HAP emissions data for process units with MACT floors of no
emission reduction, blenders and stand-alone digesters were selected for a beyond-the-MACT-floor
analysis because these equipment emit higher levels of HAP emissions relative to other process units.
Beyond-the-floor analyses were also conducted for process units with a MACT floor of no emission
reduction for existing units and a MACT floor represented by the emission reduction achievable with
incineration-based controls for new units. These process units include fiberboard mat dryers, press
preheat ovens, and reconstituted wood products board coolers.
This analysis of beyond-the-floor options was based on the industry average exhaust flow for
each process unit, the typical number of each process unit per plant, the industry average amount of HAP
emitted from the process units, and assuming that an RTO would be used to control emissions from each
process unit. The average exhaust flow rates and typical number of process units per plant were
determined using the results from EPA's MACT survey. The average HAP emissions and emission
reductions were determined using the methodology described in the baseline emissions memo.9 The
annualized RTO cost was calculated based on flow rate using the methodology described later in this
chapter. The cost per ton values were calculated by dividing the total annualized cost (TAC) for the
RTO by the HAP reduction. This analysis assumes that facilities will not be able to route the emissions
from process units to an existing control device or to a new control device installed to meet the PCWP
standards (i.e., that a separate RTO must be purchased to handle the additional flow from the process
units). Exhibit 3-3 below presents the results of this analysis.
Exhibit 3-3. Cost-Effectiveness Analysis Of Beyond-The-Floor Control Options
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Process Unit
Fiberboard mat dryer at FB
plant
Fiberboard mat dryer at w/d
HB plant
Fiberboard mat dryers
(average)
Press preheat oven - w/d HB
plant
Board cooler - PB
Board cooler - MDF
Board cooler (average)
Stand-alone digester - FB
Stand-alone digester - HB
Stand-alone digester (average)
Blender - PB
Blender - OSB
Blender (average)
Average
flow, dscfm
49,389
19,491
34,440
21,812
41,423
79,483
60,453
7,587
7,587
7,587
13,590
13,590
13,590
Typical
no.
per plant
1
1
1
1
1
1
1
2
2
2
2
2
2
RTO
TAC
$471,187
$370,952
$421,070
$377,904
$442,096
$599,447
$520,772
$358,359
$358,359
$358,359
$394,486
$394,486
$394,486
Average
HAP
emitted, tpy
8
12
10
15
5
o
6
4
14
14
14
45
11
28
Tons HAP
reduced, tpy
7.6
11
9.3
14
4.8
2.9
3.9
13
13
13
43
10
27
Cost
effectiveness
$/ton(1998
dollars)
$30,076
$26,520
$133,531
$26,944
$14,610
In all cases, the emission reductions that could be achieved from requiring controls for these
existing units did not appear to be justified by the cost. Many of the existing control devices at well-
controlled facilities would not have the additional capacity to treat the emissions from these process
units, and thus, these facilities would have to install new controls.
For more information, refer to the MACT memo for this rule and the BID.8
3.1.6 Considerations of Possible Risk-Based Alternatives to Reduce Impacts to Sources
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The Agency has made every effort in developing this rule to minimize the cost to the regulated
community and allow maximum flexibility in compliance options consistent with our statutory obligations.
However, we recognize that the rule may still require some facilities to take costly steps to further control
emissions even though their emissions may not result in exposures which could pose an excess individual
lifetime cancer risk greater than one in one million or which exceed thresholds determined to provide an
ample margin of safety for protecting public health and the environment from the effects of hazardous air
pollutants. We are, therefore, on whether there are further ways to structure the rule to focus on the
facilities which pose significant risks and avoid the imposition of high costs on facilities that pose little
risk to public health and the environment.
Industry representatives provided EPA with descriptions of three mechanisms that they believed
could be used to implement more cost-effective reductions in risk. The docket for today's rule contains
"white papers" prepared by industry that outline their proposed approaches (see docket number A-98-44,
Item # II-D-525). The Agency has taken comment on these approaches. We believe that one of the three
suggested approaches warrant consideration. We believe it could be used to focus regulatory controls on
facilities with significant risks and avoid the imposition of high costs on facilities that pose little risk to
public health or the environment. This approach, subcategorization and delisting, would be implemented
under the authority of CAA sections 112(c)(l) and 112(c)(9). The maximum achievable control
technology, or MACT, program outlined in CAA section 112(d) is intended to reduce emissions of HAP
through the application of MACT to major sources of toxic air pollutants. Section 112(c)(9) is intended to
allow EPA to avoid setting MACT standards for categories or subcategories of sources that pose little risk
to public health and the environment.
3.1.6.1 Subcategory Delisting Under Section 112(c)(9)(B) of the CAA
EPA is authorized to establish categories and subcategories of sources, as appropriate, pursuant to
CAA section 112(c)(l), in order to facilitate the development of MACT standards consistent with section
112 of the CAA. Further, section 112(c)(9)(B) allows EPA to delete a category (or subcategory) from the
list of major sources for which MACT standards are to be developed when the following can be
demonstrated: 1) in the case of carcinogenic pollutants, that "no source in the category . . . emits
[carcinogenic] air pollutants in quantities which may cause a lifetime risk of cancer greater than one in one
million to the individual in the population who is most exposed to emissions of such pollutants from the
source"; 2) in the case of pollutants that cause adverse noncancer health effects, that "emissions from no
source in the category or subcategory . . . exceed a level which is adequate to protect public health with an
ample margin of safety"; and 3) in the case of pollutants that cause adverse environmental effects, that "no
adverse environmental effect will result from emissions from any source."
Given these authorities and the suggestions from the white paper prepared by industry
representatives (see docket number A-98-44, Item # II-D-525), EPA has considered whether it would be
possible to establish a subcategory of facilities within the larger PCWP category that would meet the risk-
based criteria for delisting. Since each facility in such a subcategory would be a low-risk facility (i.e., if
each met these criteria), the subcategory could be delisted in accordance with section 112(c)(9), thereby
limiting the costs and impacts of the MACT rule to only those facilities that do not qualify for
subcategorization and delisting. Facilities seeking to be included in the delisted subcategory would be
responsible for providing all data required to determine whether they are eligible for inclusion. Facilities
that could not demonstrate that they are eligible to be included in the low-risk subcategory would be
subject to MACT and possible future residual risk standards.
Establishing that a facility qualifies for the low-risk subcategory under section 112(c)(9) will
necessarily involve combining estimates of pollutant emissions with air dispersion modeling to predict
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exposures. The EPA will promote a tiered analytical approach for these determinations. A tiered analysis
involves making successive refinements in modeling methodologies and input data to derive successively
less conservative, more realistic estimates of pollutant concentrations in air and estimates of risk.
As a first tier of analysis, EPA developed a series of simple look-up tables based on the results of
air dispersion modeling conducted using conservative input assumptions. By specifying a limited number
of input parameters, such as stack height, distance to property line, and emission rate, a facility could use
these look-up tables to determine easily whether the emissions from their sources might cause a hazard
index limit to be exceeded.
A facility that does not pass this initial conservative screening analysis could implement
increasingly more site-specific but more resource-intensive tiers of analysis using EPA-approved modeling
procedures, in an attempt to demonstrate that their facility does not exceed the hazard index limit. The
EPA's guidance could provide the basis for conducting such a tiered analysis.10
Another approach would be to define a subcategory of facilities within the PCWP source category
based upon technological differences, such as differences in production rate, emission vent flow rates,
overall facility size, emissions characteristics, processes, or air pollution control device viability. If it
could then be determined that each source in this technologically-defined subcategory presents a low risk
to the surrounding community, the subcategory could then be delisted in accordance with 112(c)(9).
With the adoption of this his section 112(c)(9) approach, EPA indicates that the rule does not
apply to any source that demonstrates, based on a tiered approach that includes EPA-approved modeling of
the affected source's emissions, that it belongs in a subcategory which has been delisted under section
3.2 Emissions and Emission Reductions
As mentioned in Chapter 1, the U.S. Environmental Protection Agency (EPA) is developing
national emission standards for hazardous air pollutants (NESHAP) for the plywood and composite
wood products source category. This part of the RIA presents emission reductions expected to occur
from compliance with the final (MACT floor) alternative.
3.2.1 Some Results in Brief
The plywood and composite wood products NESHAP will reduce HAP emissions by about
11,000 tons in the third year after its issuance.9 The major HAP reduced, as mentioned in the rule
preamble, are acrolein, acetaldehyde, formaldehyde, phenol, propionaldehyde, and methanol. In
addition, nearly 27,000 tons of VOC (reported as total hydrocarbon) emissions will be reduced. Nearly
11,000 tons of CO emission reductions will occur, along with 13,000 tons of PM (coarse) emission
reductions. There will also be 2,400 tons of additional NOx emissions and 4,000 tons of SO2 emissions
added to the atmosphere due to the additional incineration-based controls that may be necessary for
affected facilities to meet the MACT floor alternative.
10"A Tiered Modeling Approach for Assessing the Risks due to Sources of Hazardous Air
Pollutants." EPA-450/4-92-001. David E. Guinnup, Office of Air Quality Planning and Standards,
USEPA, March 1992.
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3.2.2 General Approach
The methodology used to estimate the HAP emission reductions associated with this rule is
summarized in this section. Before the emissions reductions could be estimated, the baseline emissions
level for each pollutant had to be determined. This was conducted by first estimating emissions without
considering current air pollution controls, and then calculating the emissions levels with current controls
applied. The first, uncontrolled emission estimates, are developed without consideration of air
pollution controls currently in use at wood products plants. Baseline estimates reflect the level of
pollution control that is presently used. The remainder of this section discusses the general methodology
used to estimate uncontrolled and baseline emissions.
Estimating uncontrolled and baseline emissions involves the following four steps:
(1) Identification of hazardous air pollutant (HAP) emission sources,
(2) Characterization of emission sources (e.g., assignment of throughput and other
characteristics),
(3) Application of emission factors, and
(4) Calculation of emissions.
3.2.2.1 Identifying Emission Sources
Emission sources were identified based on responses to the EPA's maximum achievable control
technology (MACT) surveys and available emissions test data. The EPA gathered plant-specific
information with three MACT surveys. The results of the three surveys are documented in separate
memoranda.10'11'12 Available emissions test data include data from nearly 100 test reports collected
through EPA's MACT survey, data from EPA's Compilation of Air Pollutant Emission Factors, Volume
I: Stationary Point and Area Sources (commonly referred to as AP-42), and extensive data from the
industry-sponsored test program performed by the National Council of the Paper Industry for Air and
Stream Improvement (NCASI). Emissions were estimated for sources that were identified in the EPA's
MACT survey (e.g., dryers, presses, board coolers) and for additional miscellaneous sources (e.g.,
digesters, refiners, fiber washers) for which applicable emission test data were available. Process flow
diagrams submitted with the MACT surveys provided information about the presence (or absence) of
miscellaneous sources at plants. The EPA's MACT survey also provided information on the control
devices used for most unit operations.
Some plants have begun operation and other plants have added equipment and controls since
EPA conducted the MACT survey. Such changes have been accounted for in the nationwide emission
estimates. A separate memorandum summarizes the changes to plants that have occurred following the
EPA's MACT survey.13
3.2.2.2 Characterizing Emission Sources
After the emission sources were identified, each source was assigned a throughput and further
characterized. In most cases, plant-specific dryer and press throughput was provided in EPA's MACT
survey. If the dryer or press throughput was claimed confidential or was not provided, then a default
throughput was assigned. For dryers, the default throughput was the average throughput for the same
type dryers for the product manufactured. 10-n'12 If available, plant production (or capacity if production
3-11
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was unavailable) was used as the default throughput for presses; otherwise, presses were assigned the
average press throughput for the product manufactured.
Throughput for miscellaneous equipment was based on either dryer or press throughput,
depending on the units of measure for the applicable emission factor (e.g., pounds per oven dry ton
[Ib/ODT] or pounds per thousand square feet [lb/MSF]). Collective throughputs for digesters, refiners,
fiber washers, blenders, and formers were generally approximated as the total dryer throughput (ODT/yr)
for the plant. Board cooler, sander, and saw throughput was generally approximated as the total press
throughput (MSF/yr) for the plant. By assigning either the total dryer or press throughput to
miscellaneous processes, no assumption about the number of miscellaneous operations (e.g., number of
refiners) at each plant was necessary.
Following assignment of throughput for each emission source, sources were further
characterized (as necessary for application of emission factors) based on wood species, resin type, or
other characteristics. Further characterization of emission sources is discussed in the baseline emissions
memo for this rule. If characterization of an emission source was not possible due to claims of
confidentiality or missing information in the survey response, then default characterizations were applied
based on practices most commonly observed at other plants.
3.2.2.3 Applying Emission Factors
As emission sources were characterized, the available emission factors were reviewed for
applicability to each emission source. The emission factors used in developing the nationwide estimates
are documented in a separate memorandum.14 Emissions were generally estimated for total hydrocarbon
as carbon (THC as C , referred to as "THC" in this RIA) and the following HAP's as shown in the
following table:
acetaldehyde methyl isobutyl ketone (MIBK)
acrolein phenol
benzene propionaldehyde
cumene styrene
formaldehyde toluene
methanol m,p-xylene
methylene chloride o-xylene
methyl ethyl ketone (MEK)
When used in this document, the terminology "complete set" refers to the set of emission factors
for the above list of HAP's, THC, and any other additional HAP's that may have been measured at levels
above a test method detection limit.
Total F£AP was taken to be the sum of the individual HAP's. If all test data for a pollutant at a
source were below the test method detection limit (denoted as "BDL" in reference 5), then the emission
factor was treated as zero. For a few specific sources, HAP's other than the ones listed above were
tested for and detected. These HAP were included in the total HAP estimate for that source. Exhibit 3-4
illustrates how the total HAP emission factors were developed.
3-12
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Exhibit 3-4. ILLUSTRATION OF TOTAL HAP CALCULATION
FOR AN EMISSION SOURCE
HAP
acetaldehyde
acrolein
benzene
cumene
formaldehyde
methanol
methylene chloride
MEK
MIBK
phenol
propionaldehyde
styrene
toluene
m,p-xylene
o-xylene
Total HAP
Emission Factor (from reference 5)
0.0012
BDL3
BDL
BDL
0.015
0.076
BDL
BDL
BDL
0.0047
BDL
BDL
BDL
BDL
BDL
0.0012 + 0.015 +0.076 + 0.0047 = 0.097
a BDL (below detection limit); all test runs for this pollutant and this source were below the test method detection
limit.
Test data were not available for all of the HAP's considered for some sources (i.e., a complete
set of emission factors was not available). In some cases, it was necessary to apply emission factors for
one source to a similar source for which factors were not available. In other situations, it was necessary
to group emission factors so that emissions of all the likely pollutants could be estimated for a particular
emission source. Grouped emission factors were calculated from emission test averages using the
methodology described in the emission factor memo that is in the public docket for this rule14. Specific
application of the emission factors for each unit operation is discussed in the baseline emissions memo
for this rule.
3.2.2.4 Calculating Emissions
Applicable emission factors were used to estimate uncontrolled emissions from each unit
operation as follows:
E = EF x T / 2000
where:
E = annual emissions (ton/yr)
EF = emission factor (Ib/ODT or Ib/MSF-specified basis)
T = process throughput (ODT/yr or MSF/yr-specified basis)
3-13
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To estimate baseline emissions, the emission reduction achieved by air pollution control devices
(APCD's) in place on unit operations was taken into account. Control devices that achieve significant
reduction of HAP and THC include biofilters and incineration-based controls (e.g., regenerative thermal
oxidizers [RTO's], regenerative catalytic oxidizers [RCO's], thermal oxidizers [TO's], and thermal
catalytic oxidizers [TCO's]). Emission factors were available for several, but not all, of the unit
operations that are presently controlled with biofilters and incineration-based controls. If a complete set
of emission factors based on inlet and outlet test data for a single control device was available, the set of
emission factors was used to estimate baseline emissions. Otherwise, the achievable percent reduction in
emissions for the control device was used as follows:
E = EFxT/2000x(l-R)
where:
R = percent reduction achievable with the control device (see table below)
Control device HAP reduction THC reduction
Biofilter 95% 80%
RTO, RCO, TO, & TCO 95% 95%
If only a portion of an exhaust stream was controlled (e.g., as with semi-incineration where only
a portion of the exhaust is routed to a combustion unit), then controlled emissions were estimated for the
controlled portion of the exhaust and uncontrolled emissions were estimated for the remaining exhaust.
Because plant-specific capture efficiency information is not readily available, presses and board coolers
without a permanent total enclosure that are routed to an APCD were assumed to operate with 50 percent
capture efficiency.
Following estimation of uncontrolled and baseline emissions for each unit operation, annual
emissions for each facility were totaled. If there were facilities with no available information was
available (e.g., plants that claimed their entire MACT survey confidential or plants that never responded
to the survey), then the average facility-specific emissions for plants making the same product was used
to approximate the emissions from plants with no available information. The emissions from all
facilities were summed to obtain nationwide emission estimates.
3.2.3 Nationwide HAP Emission Estimates
Exhibit 3-5 presents the total nationwide uncontrolled and baseline emission estimates for each
product type. Uncontrolled emissions are the emissions that occur before the application of a HAP
emission control device. Baseline emission estimates take into account the HAP emission controls
currently in place on HAP sources in the industry. Exhibits 3-6 and 3-7 present the nationwide
uncontrolled and baseline speciated HAP emission estimates for each product type.
3-14
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To estimate the emissions and emission reductions associated with compliance with this
proposed rule, it is necessary to determine the number of major sources that may be subject to the rule.
Major sources are facilities with the potential to emit 10 or more tpy of any single HAP or 25 or more
tpy of any combination of HAP. The number of major sources was approximated using the uncontrolled
emission estimates (scaled up to reflect potential to emit) for each facility.
The emission estimates presented in this chapter are based on equipment throughput at plant
production levels. Plant capacity typically exceeds plant production. Thus, a facility's potential to emit
may be greater than the emissions estimated for each facility at plant production levels. To account for
this, an average ratio of plant production to plant capacity was determined based on the non-CBI
responses to EPA's MACT survey. On average, plywood (hardwood and softwood) and reconstituted
wood products plants were found to operate at around 75 percent of their plant capacity. Engineered
wood products plants were found, on average, to operate at 60 percent of their capacity. For purposes of
determining which facilities may be major sources based on potential to emit, the uncontrolled emission
estimates for each facility were scaled up by 25 or 40 percent before comparison to the 10- or 25-tpy
major source thresholds. Exhibit 3-8 presents the estimated number of major sources by product type.
Because of the uncertainty in the emission estimates and lack of knowledge about the specific
operations at facilities the numbers of major sources presented in Exhibit 3-8 are merely estimates.
Major source determinations depend on the types of operations at a facility and facility-specific factors.
There may be operations and HAP emission sources at wood products facilities that have not been
accounted for in the emission estimates (e.g., plants that manufacture furniture in addition to
particleboard). Plants with additional onsite operations may be major sources regardless of their
plywood and composite wood products operations. Then again, there may be plants that were
determined to be major sources in this analysis that are not major sources due to uncertainty in the
emission estimates or potential to emit. The purpose of the analyses discussed in this document is to
estimate - on a nationwide scale - emissions from plywood and composite wood products plants and the
number of major sources. On a nationwide scale, it is unlikely that the uncertainties in the emission
estimates or number of major sources will have a significant impact on the direction of the plywood and
composite wood products rulemaking.
The reduction in emissions of total HAP and THC is the difference between baseline emissions
and the emissions expected to remain following implementation of the MACT floor level of control
identified for the PCWP standards. Baseline emissions reflect the level of air pollution control that is
currently used at PCWP plants. The MACT floor control level reflects the level of control that will be
used following implementation of the PCWP standards. The following assumptions were used when
estimating emissions at the MACT floor control level: (1) plants will install RTO on all process units
that require controls to meet the MACT floor; (2) presses at conventional particleboard, MDF, OSB, and
hardboard plants will be fully enclosed by a PTE that captures and routes 100 percent of the emissions
from the press area to an RTO; and (3) WESP will be installed upstream of RTO for new RTO
installations on rotary strand dryers. The nationwide HAP and THC emission reduction was calculated
by subtracting the emissions remaining at the MACT floor control level from the baseline emissions.
Exhibit 3-9 presents the nationwide HAP and THC emissions reduction.14
3.2.4 Nationwide Emission Estimates - Non-HAP Species
As mentioned earlier in this chapter, there are reductions in pollutants other than HAPs as a
result of compliance with this rule. There are reductions of coarse particulate matter (PM10), volatile
organic compounds (VOC), and carbon monoxide (CO), and increases in nitrogen oxides (NOx), and
3-15
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sulfur dioxide (SO2). The reductions of PM10 are estimated at 13,000 tons, the reductions of VOC
(reported as total hydrocarbon) are estimated at 27,000 tons (see Exhibit 3-9), and the reductions of CO
are estimated at 11,000 tons. The increase of NOx emissions is estimated at 2,400 tons, and there are
potentially as many as 4,000 tons of additional SO2 emissions. All emission estimates are estimated for
the fifth year after the issuance of the rule. The methodology used to prepare these estimates is
contained in the BID for this rule.15
3-16
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Exhibit 3-5. UNCONTROLLED AND BASELINE HAP EMISSIONS ESTIMATES
Product
MDF
Particleboardd
Hardboard
Fiberboard
OSB
Softwood plywood
Hardwood plywood
EWP
Nationwide total6
No. of
plants*
24
51
18
7
37
105
166
39
447
Uncontrolled emissions, ton/yrb
Total HAP
4,000
5,700
3,500
78
7,100
4,000
150
310
25,000
THC as C
8,200
13,000
5,800
400
19,000
24,000
640
990
73,000
Baseline emissions, ton/yr°
Total HAP
2,400
5,400
3,300
78
3,500
3,700
150
290
19,000
THC as C
4,800
13,000
5,500
400
5,400
20,000
640
790
50,000
Some plants make multiple products and are counted once for each product they make (e.g., a particleboard and softwood plywood plant).
Uncontrolled emissions represent the emissions that occur before the application of HAP emission control devices.
Baseline emissions reflect the application of HAP emission controls in the industry as of April 2000.
Includes conventional and molded particleboard.
Nationwide emission totals may not exactly match sum due to rounding.
3-17
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Exhibit 3-6. SPECIATED NATIONWIDE UNCONTROLLED HAP EMISSIONS BY PRODUCT TYPE
Product
MDF
Particleboardb
Hardboard
Fiberboard
OSB
Softwood
plywood
Hardwood
plywood
EWP
Totalf
Estimated HAP's emitted, ton/yr
Acetaldehyde
48
230
320
9
1,500
450
20
53
2,600
Acrolein
1
56
76
1
540
26
0
4
700
Formaldehyde
1,700
1,300
580
17
890
280
11
36
4,800
Methanol
2,200
3,800
2,100
45
3,500
2,900
81
140
15,000
Phenol
93
150
99
1
340
150
15
46
890
Propionaldehyde
1
20
250
0
88
24
0
8
390
Other HAPa
27
160C
52d
6
280e
170
22
19e
730
Totalf
4,000
5,700
3,500
78
7,100
4,000
150
310
25,000
a Other HAP's include benzene, cumene, methylene chloride, MEK, MIBK, styrene, toluene, m,p-xylene, and o-xylene.
b Includes conventional and molded particleboard.
0 Includes HAPs listed in footnote "a" plus acetophenone, biphenyl, bis-(2-ethylhexyl phthalate), bromomethane, carbon disulfide, carbon tetrachloride,
chloroform, chloromethane, di-n-butyl phthalate, ethyl benzene, hydroquinone, n-Hexane, 1,1,1-trichloroethane, and 4-methyl-2-pentanone.
d Includes HAPs listed in footnote "a" plus chloroethane, chloromethane, ethyl benzene, m.p-cresol, and o-cresol.
e Includes HAPs listed in footnote "a" plus MDI.
f Totals may not exactly match sum due to rounding.
3-18
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Exhibit 3-7. SPECIATED NATIONWIDE BASELINE HAP EMISSIONS BY PRODUCT
Product
MDF
Particleboardb
Hardboard
Fiberboard
OSB
Softwood
plywood
Hardwood
plywood
EWP
Totalf
Estimated HAP's emitted, ton/yr
Acetaldehyde
29
200
270
9
570
390
20
47
1,500
Acrolein
1
50
61
1
200
20
0
4
330
Formaldehyde
1,000
1,200
570
17
370
230
11
30
3,400
Methanol
1,300
3,700
2,100
45
2,000
2,700
81
140
12,000
Phenol
51
140
96
1
210
130
15
46
690
Propionaldehyde
0
18
200
0
32
17
0
7
270
Other HAPa
17
150C
48d
6
69e
150
22
16e
480
Totalf
2,500
5,400
3,300
78
3,500
3,700
150
290
19,000
a Other HAP's include benzene, cumene, methylene chloride, MEK, MIBK, styrene, toluene, m,p-xylene, and o-xylene.
b Includes conventional and molded particleboard.
0 Includes HAPs listed in footnote "a" plus acetophenone, biphenyl, bis-(2-ethylhexyl phthalate), bromomethane, carbon disulfide, carbon tetrachloride,
chloroform, chloromethane, di-n-butyl phthalate, ethyl benzene, hydroquinone, n-Hexane, 1,1,1-trichloroethane, and 4-methyl-2-pentanone.
d Includes HAPs listed in footnote "a" plus chloroethane, chloromethane, ethyl benzene, m.p-cresol, and o-cresol.
e Includes HAPs listed in footnote "a" plus MDI.
f Totals may not exactly match sum due to rounding.
3-19
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Exhibit 3-8. ESTIMATED NUMBER OF MAJOR SOURCES BY PRODUCT
Product
MDF
Particleboard0
Hardboard
Fiberboard
OSB
Softwood plywood
Hardwood plywood
EWP
Total
No. of plants"
24
51
18
7
37
105
166
39
447
No. of major sources'5
24
42
18
3
37
87
0
12
223
No. of potentially
non-major sourcesb
0
9
0
4
0
18
166
27
224
Some plants make multiple products and are counted once for each product they make (e.g., a particleboard and softwood plywood plant).
Major sources are defined as facilities with the potential to emit 10 or more tons per year (tpy) of any single HAP or 25 or more tpy of any combination of
HAP. Sources with HAP emissions estimated to be below the 10/25 thresholds in this analysis are labeled as potentially non-major sources. The emission
estimation methodology described in this document does not account for onsite operations (e.g., furniture manufacture) not included in the plywood and
composite wood products source category.
Includes conventional and molded particleboard. Five of the potentially non-major particleboard sources manufacture molded particleboard.
3-20
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Exhibit 3-9. ESTIMATED NATIONWIDE REDUCTION IN TOTAL HAP AND THC
Product type
Softwood plywood/veneer
Hardwood plywood/veneer
Medium density fiberboard
Oriented strandboard
Particleboard0
Hardboard
Fiberboard
Engineered wood products
TOTAL
Total HAP (ton/yr)
Baseline*
3,700
161
2,469
3,513
5,377
3,291
78
298
18,933
MACT floor
3,043
161
345
753
2,787
752
78
230
8,196
Reduction
657
Ob
2,124
2,760
2,590
2,539
Ob
68
10,737
THC (ton/yr)
Baseline"
19,631
640
4,763
5,362
12,632
5,478
398
793
49,706
MACT floor
9,709
640
572
1,755
6,724
2,103
398
617
22,529
Reduction
9,922
Ob
4,191
3,607
5,908
3,374
Ob
176
27,178
a The baseline emissions presented in this table may differ slightly from the values presented in Exhibits 3-4 through 3-6 because of slight differences in
calculation procedures (i.e., use of a total HAP emission factor instead of summing speciated HAP emissions) and rounding.
b There is no impact because no plants are impacted by the PCWP standards at the MACT floor control level.
0 Includes conventional and molded particleboard.
3-21
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3.3 Control Equipment and Costs
Traditional add-on pollution control devices are expected to be the types of control measures
that firms will choose in order to comply with the rule. Add-on air pollution control devices that are
most likely to be used to comply with the plywood and composite wood products rule include
incineration-based controls. Among these types of controls are regenerative thermal oxidizers (RTO),
regenerative catalytic oxidizers (RCO), and process incineration. Biofilters is another add-on control
that may be applied. The control device most commonly used to control emissions from plywood and
composite wood products plants is the RTO. Therefore, it was assumed that most plants would install
RTO's to comply with the rule. A number of RCO's and biofilters are also presently used by plywood
and composite wood products plants, and plants may choose to install these technologies to comply with
the plywood and composite wood products rule. There may be cost advantages to using RCO's or
biofilters instead of RTO's for some plants. However, the cost analyses focus on use of RTO's for
simplicity (e.g., to minimize the number of cost algorithms developed and to avoid judgements regarding
which plants may choose a particular technology).
Several facilities with large capacity heat energy systems currently use process incineration as a
method of emissions control. Facilities may elect to use process incineration to comply with the rule.
However, the applicability of process incineration is limited to those plants that have or may later install
large onsite heat energy systems. The capital and operating costs of process incineration are expected to
be significantly lower than the costs of add-on controls.
The plywood and composite wood products rule contains emissions averaging provisions and
production-based emission limits. It may be possible for some plants to reduce their control costs by
complying with either the emissions averaging provisions or production-based emission limits.
However, because there is no way to predict which plants might use the emissions averaging provisions
or production-based emission limits, the cost estimates did not account for these options. Instead, the
control cost estimates were developed assuming that all facilities would install RTO(s) to meet the 90
percent HAP reduction emission limit in the plywood and composite wood products rule.
Oriented strandboard plants typically install wet electrostatic precipitators (WESP's) upstream
of rotary dryer RTO's to protect the RTO media from plugging. Thus, the capital and annual costs
associated with WESP's were modeled for rotary strand dryers.
Enclosures must be installed around presses in order to ensure capture of the press emissions that
are routed to a control device. Thus, the capital costs of permanent total enclosures (PTE's) were
included in the costing analyses. Annual costs associated with PTE's (if any) were assumed to be
minimal and were not included in the cost analyses.
This chapter presents the estimated nationwide capital and annualized costs for compliance with
the PCWP rule. Compliance costs include the costs of installing and operating air pollution control
equipment and the costs associated with demonstrating ongoing compliance (i.e., emissions testing,
monitoring, reporting, and recordkeeping costs). Section 3.3.1 discusses the estimated air pollution
control costs. Cost estimates associated with testing, monitoring, reporting, and recordkeeping are
discussed in the Paperwork Reduction Act submission for the PCWP standards and are summarized in
Section 3.4.
3.3.1 Basis For Control Costs
3-22
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As discussed above, add-on air pollution control devices most likely to be used to comply with
the PCWP rule include incineration-based controls (e.g., RTO, RCO, and process incineration) or
biofilters. The control device most commonly used to control emissions from PCWP plants is the RTO.
Therefore, for costing purposes, it was assumed that most plants would install RTO's to comply with the
rule. A number of RCO's and biofilters are also presently used by PCWP plants. In addition, several
plants with large capacity heat energy systems currently use process incineration. However, the
applicability of process incineration is limited to those plants that have, or may later install, large onsite
heat energy systems. There may be cost advantages to using RCO's, biofilters, process incineration,
other add-on control devices, or pollution prevention measures instead of RTO's for some plants. Plants
may elect to use any of these technologies to comply with the rule, provided the technology limits HAP
emissions to the levels specified in the rule. However, the cost analyses described in this chapter focus
on use of RTO's due to their prevalence in the industry and to minimize the number of cost algorithms
developed and to avoid judgements regarding which plants may choose a particular technology.
Oriented strandboard plants typically install WESP's upstream of rotary dryer RTO's to protect
the RTO media from plugging. Thus, the capital and annualized costs associated with WESP's were
modeled for rotary strand dryers. Available information indicates that WESP's are not necessary for
protecting RTO's installed of other types of dryers (e.g., tube dryers) or on presses.16 Therefore, with the
noted exception of OSB dryers without WESP's, the existing particulate abatement equipment on
process units was assumed to be sufficient for protecting the RTO media.17
Enclosures must be installed around presses to ensure complete capture of the press emissions
before routing these emissions to a control device. Thus, the capital costs of permanent total enclosures
(PTE's) were included in the costing analyses. Annualized costs associated with PTE's were assumed to
be minimal and were not included in the cost analyses.
The following sections discuss the RTO, WESP, and PTE costs. Section 3.3.1.4 describes how
plant-by-plant control costs were estimated, and Section 3.3.1.5 summarizes the nationwide control
costs.
3.3.1.1 RTO Costs
An RTO cost algorithm was developed based on: (1) information from an RTO vendor with
numerous RTO installations at PCWP plants, and (2) the costing methodology described in the EPA Air
Pollution Control Cost Manual.18'19 The RTO cost algorithm was used to determine RTO total capital
investment (TCI) and total annualized cost (TAG) based on the exhaust flow to be controlled and annual
operating hours. Development of the algorithm is discussed in Sections 3.4.1.1.1 and 3.4.1.1.2.
RTO Total Capital Investment.18'19
Equipment costs (including equipment, installation, and freight) were provided by the RTO
vendor for four sizes of RTO's. The 1997 equipment costs were not escalated because the Vatavuk Air
Pollution Control Cost Index (VAPCCI) for 1997 (107.9) was slightly greater than the preliminary
VAPCCI for RTO's in fourth quarter 1999 (107.8).20 According to the EPA Air Pollution Control Cost
Manual, instrumentation is typically 10 percent of equipment cost (RTO and auxiliary equipment); sales
tax is typically 3 percent of the equipment cost; and freight is typically 5 percent of the equipment cost.
Figure 3-1 presents the purchased equipment costs (PEC) supplied by the RTO vendor (minus freight),
and shows that the equipment costs vary linearly with gas flow rate. The regression equation presented
in Figure 3-1 was included in the RTO cost algorithm to calculate the equipment cost for the oxidizer
3-23
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and auxiliary equipment for various gas flow rates. Instrumentation, sales tax, and freight were added to
the calculated equipment costs to obtain the total PEC.
Direct installation costs for handling and erection, electrical, and piping were included in the
equipment cost provided by the RTO vendor. Start-up costs were also included in the equipment cost
provided by the RTO vendor. These costs are typically 22 percent of the PEC. Thus, these costs were
subtracted from the PEC before further calculations based on the PEC were performed. Direct
installation costs including foundation and support, insulation for ductwork, and painting were estimated
2,500,000
2,000,000
01
o
O
'c
01
Q.
'3
0"
UJ
1,500,000
ro
.c
o
3
Q.
1,000,000
500,000
y = 8.5101X + 499194
R2 = 0.991
50,000
100,000 150,000
Flow rate, dscfm
200,000
250,000
Figure 3-1. Variation in RTO purchased equipment cost with flow rate.
according to the procedures in the EPA Air Pollution Control Cost Manual. Because PTE's were costed
separately, no enclosure building was costed in the RTO algorithm. Site preparation costs and indirect
installation costs (e.g., engineering, field expense, contractor fees, performance tests, and contengencies)
were estimated according to the procedures in the EPA Air Pollution Control Cost Manual. The TCI
was calculated by summing the PEC, direct and indirect installation costs, and site preparation cost.
RTO Total Annualized Cost
Total annualized costs consist of operating and maintenance labor and material costs, utility
costs, and indirect operating costs (including capital recovery). Operating and maintenance labor and
material costs were estimated based on the RTO vendor information because the RTO vendor
assumptions led to higher costs than the EPA Air Pollution Control Cost Manual and were assumed to be
more representative of the PCWP industry. The operator labor rate supplied by the RTO vendor was
$19.50 per hour.
3-24
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The RTO electricity use and natural gas use was provided by the RTO vendor for the four RTO
sizes. Figures 3-2 and 3-3 present the relationships between flow rate and electricity and flow rate and
natural gas use, respectively. As shown in the figures, there is a linear relationship between RTO
electricity consumption and flow rate, and an exponential relationship between RTO fuel consumption
and flow rate.
1500
0 50000 100000 150000 200000 250000
Flow rate, dscfm
Figure 3-2. Relationship between RTO electricity consumption and flow rate.
a: 6
y = 0.1479e2E-°5x S
R2 =
0.9981 /
^^
, —*—^
50000
100000 150000
Flow rate, dscfm
200000
250000
Figure 3-3. Relationship between RTO natural gas consumption and flow rate.
3-25
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Electricity costs were estimated by the RTO vendor at $0.045 per kilowatt-hour (kWh). The
RTO vendor estimated natural gas costs at $3 per million British thermal units (MMBtu). Both of these
energy prices match closely with currently published nationwide average prices.21'22 Thus, the electricity
and natural gas prices supplied by the RTO vendor were used in the cost algorithm.
Indirect operating costs were estimated using the methodology described in the EPA Air
Pollution Control Cost Manual. The capital recovery cost was estimating assuming an RTO equipment
life of 15 years (based on the RTO vendor information) and a 7-percent interest rate. The TAC was
calculated by summing the direct and indirect annual operating costs.
Application of the RTO Cost Algorithm to Estimate Capital and Annualized Costs.
The complete RTO cost algorithm, which predicts RTO capital and annualized costs as a
function of operating hours and flow rate, was run several times assuming 8,000 operating hours per year
and various flow rates. The 8,000-hr operating time was selected based on the results of the EPA's
MACT survey, which show industry average operating hours of slightly less than 8,000-hr/yr.10
Although several plants operate process lines more than 8,000 hr/yr, their equipment and control devices
may or may not be operated for more than 8,000 hr/yr. Thus, 8,000 hr/yr was selected as the control
device operating time for purposes of costing.
The TCI and TAC values generated for each flow rate using the RTO cost algorithm are
presented in the BID for this rule. A regression equation was developed based on the calculated TCI and
TAC for each flow rate. Figures 3-4 and 3-5 present the relationships between flow rate and RTO
capital costs and flow rate and annualized costs, respectively, and the associated regression equations.
3.3.1.2 WESP Costs
A WESP cost model was developed based on: (1) information from a WESP vendor with many
WESP installations at wood products plants, and (2) the costing methodology described in the EPA Air
Pollution Control Cost Manual for electrostatic precipitators (ESP's).19'23 The cost model was used to
determine TCI and TAC for WESP's used to control particulate emissions from OSB rotary dryers. The
WESP vendor provided cost information for a WESP sized to treat 27,650 dry standard cubic feet per
minute (dscfm) of OSB rotary dryer exhaust. This flow rate matches closely with the flow rates for
3-26
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c. nnn nnn
4 000 000
3?
"~ 3 000 000
o nnn nnn
1 nnn nnn
0
y = 13.797X + 809310
R2=1 ^^^^^
^
^**^*~~r"^
+~~~~**^^
50,000 100,000 150,000 200,000 250,000 300,000 350,000
Flow rate, dscfm
Figure 3-4. Variation in RTO total capital investment with flow.
uncontrolled OSB. Thus, the model TCI and TAG could be applied for each dryer to be controlled (i.e.
3,500,000
3,000,000
2,500,000
S 2,000,000
<( 1,500,000
1
000,000
500,000
y = 317394e
8E-06X
FT = 0.9887
50,000 100,000 150,000 200,000 250,000 300,000 350,000
Flow rate, dscfm
Figure 3-5. Variation in RTO total annualized cost with flow.
the model need not calculate different costs for varying flow rates). The WESP cost model is presented
in the BID for the rule. Development of the model is discussed below.
WESP Total Capital Investment.
The WESP and auxiliary equipment costs (which makeup the PEC) were provided by the WESP
vendor. These PEC include the cost of the WESP; pumps, piping, and tanks; ducting (including the
quench); fans; and a 1-gallon per minute (gpm) blowdown solids removal system. Instrumentation costs
were also provided by the WESP vendor. Sales tax and freight were added into the total PEC based on
the methodology described in the EPA Air Pollution Control Cost Manual.
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The direct installation costs such as foundation and support, handling and erection, electrical,
piping, insulation for ductwork, and painting were included in the PEC provided by the WESP vendor.
It was assumed that no building would be necessary for the WESP and that there would be no additional
site preparation costs. Several indirect costs were also included in the equipment cost supplied by the
WESP vendor, including engineering, construction and field expense, start-up, and contingencies.
Because WESP's are already widely used at OSB plants, it was assumed that no model study would be
necessary for the WESP although the EPA Air Pollution Control Cost Manual mentions model-study
costs for ESP's.
The cost of a performance test was included in the WESP cost model. According to the EPA Air
Pollution Control Cost Manual, the performance test is typically 1 percent of the PEC. Thus, 1 percent
of the model PEC (minus the direct and indirect installation costs included in the PEC) was used as the
cost of the performance test. The direct and indirect costs were summed to arrive at the WESP TCI.
WESP Total Annualized Cost
The direct annualized costs include operating and maintenance labor and materials, utilities, and
waste disposal. The operating labor cost was based on 1,146 hr/yr (provided by the WESP vendor) at
$19.50/hr (the labor rate used in the RTO cost algorithm). The annual cost of operating materials,
including caustic and defoamer, was provided by the WESP vendor. The maintenance labor rate was
estimated as 110 percent of the operating labor rate. The maintenance hours per year were estimated
based on information supplied WESP vendor. The cost of maintenance materials (including replacement
of one pump seal per year, and one voltage controller every 4 years, and miscellaneous materials) was
supplied by the WESP vendor.
The electricity necessary to power the WESP components (approximately 2,076,000 kWh/yr for
all WESP components) was based on information provided by the WESP vendor. An electricity cost of
$0.045/kWh was used (the same as used in the RTO cost algorithm). A $0.20/gal cost for makeup water
was used based on the EPA Air Pollution Control Cost Manual. The WESP water recirculation rate,
makeup water addition rate, and blowdown generation rates were provided by the WESP vendor. The
EPA Air Pollution Control Cost Manual indicated that wastewater treatment costs may range from $1.30
to $2.15 71,000 gallons. Methods of WESP wastewater treatment and disposal could include evaporation
from settling ponds, discharge to a municipal water treatment facility, or spray irrigation. The
wastewater treatment and disposal cost for the blowdown was assumed to be $2.15 per gallon. The
wastewater percent solids of 7.6 percent was based on the average from the MACT survey responses.11 It
was assumed that the solids would ultimately be disposed in a landfill (although they could be burned
onsite or used for soil amendment). The trucking cost for hauling sludge to landfill was estimated to be
$0.20 yd3-mi.22 The landfill was assumed to be 20 miles away, and a $20/ton landfill tipping fee was
used.22 The density of the solids was assumed to be 0.5 ton/yd3 for wet wood particulate (given that the
density of water is 0.84 ton/yd3 and the density of wood is from 30 to 50 percent of the density of
water).
The indirect operating costs were estimated based on the methodology described in the EPA Air
Pollution Control Cost Manual. The capital recovery cost was estimated assuming a WESP equipment
life of 20 years (based on the EPA Air Pollution Control Cost Manual and WESP vendor information)
and a 7-percent interest rate. The TAC was calculated by summing the direct and indirect annual
operating costs.
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3.3.1.3 Permanent Total Enclosure (PTE) Costs
The capital costs associated with installation of a PTE were based on available information in
the project files on the capital cost of PTE's for particleboard, MDF, and OSB presses.24 These costs
included the following elements:
installed cost of the PTE (including fan system)
• ductwork
instrumentation and wiring
• fire suppression (in some cases)
site supervision
• start-up and testing
Based on the available cost information, the following algorithm was developed to estimate the PTE
costs for various exhaust flowrates:
TCIPTE= 1.203 lxQdscfcl + 425,760
where:
TCIPTE = the total capital cost of the permanent total enclosure, $
Qdscfm = design exhaust flow rate from PTE, dry standard cubic feet per minute
Available information on actual exhaust flow rates from PTE's installed around reconstituted wood
product presses was used to develop model flow rates for the various press applications.25 Information
on press vent flow rates from unenclosed presses was available, but not used, because unenclosed press
flow rates are altered when a PTE is installed around a press.26 The cost algorithm was then applied to
the model flow rates to estimate the capital costs of the model PTE's as shown in Exhibit 3-10. The
costs were rounded to the nearest $1,000. In the case of the particleboard press PTE, the cost was set at
$485,000 (instead of $481,000, which is the value derived from the cost algorithm) because the PTE
model flow rate was similar to those for the MDF and hardboard presses, and applying the same cost to
all three types of press PTE's simplified the costing analyses. Annualized costs were not developed for
PTE's because the annualized cost of the fans is already accounted for in the estimated costs of the
RTO's.
Exhibit 3-10. PRESS ENCLOSURE EXHAUST FLOW RATES AND CAPITAL COSTS
Equipment type
Particleboard press
OSB press
MDF or dry/dry hardboard press
Wet/dry or wet/wet hardboard press
Flow rate, dscfm
45,524
97,509
49,413
49,209
PTE capital cost
$485,000
$543,000
$485,000
$485,000
3.3.2 Plant-by-Plant Costing Approach
The control costs associated with the PCWP standards were estimated for each plant and were
summed to arrive at a nationwide estimate of control costs. The PCWP standards apply only to major
sources of HAP emissions. Therefore, cost estimates were developed for only those plants that were
assumed to be major sources.15 The information used to estimate the plant-by-plant control costs is
described below.
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3.3.2.1 Application of Control Costs to Process Units
The cost models discussed in Section 3.3.1 were applied to each plant that would likely need to
install air pollution controls in order to meet the PCWP standards. Plant-specific information on process
units (e.g., dryers, presses) and controls was taken from the MACT survey responses.10'11'12 In addition,
information about the presence of PTE's on presses was taken from the MACT survey responses.10 If
information about press enclosures was not provided in the MACT survey responses, or was claimed
confidential, the press was assumed to be unenclosed if it was uncontrolled or enclosed if it was
controlled for purposes of costing.
Some plants have begun operation and other plants have added equipment or controls since EPA
conducted the MACT survey. Such changes were accounted for in the nationwide cost estimates. A
separate memorandum summarizes the changes to plants that have occurred following the EPA's MACT
survey.13
The process units and controls present at each plant were reviewed to determine which of the
assumed what control equipment (i.e., RTO, WESP, or PTE) the plant would need to install to meet the
PCWP standards based on the MACT floor control levels. The MACT floor control levels are based on
the information presented in the BID for this rule.6 Exhibit 3-2 summarizes the process units for which
control equipment would be required to meet the MACT floor and the control equipment costed for these
process units. At each plant, the exhaust gas flow rates from the applicable uncontrolled process units
listed in Exhibit 3-11 were summed to yield a plant-wide uncontrolled exhaust gas flow rate. Process
units already equipped with controls to meet the MACT floor were not included in the plant-wide
uncontrolled gas flow rate estimates. The procedures for estimating the uncontrolled gas flow rates from
process units and the application of the cost algorithms is discussed in the following section.
3-30
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Exhibit 3-11. CONTROL EQUIPMENT COSTED FOR PROCESS UNITS WITH
CONTROLLED MACT FLOOR
Existing process units with
control requirements
Tube dryers (primary and
secondary)
Rotary strand dryers
Conveyor-type strand
dryers
Rotary green particle dryers
Hardboard ovens
Softwood veneer dryers
Pressurized refiners
Reconstituted wood
products presses
Control
equipment costed
RTO
WESP and RTO
RTO
RTO
RTO
RTO
None
PTE and RTO
Notes
Tube dryers are located at particleboard, MDF, and
hardboard plants
Rotary strand dryers are located at OSB and LSL plants.
Assumed that the WESP is not needed for plants that
already have an RTO without a WESP. Assumed that
plants that currently operate an EFB or multiclone alone
(i.e., with no RTO) would install a WESP with the RTO.
Conveyor strand dryers are located at OSB and LSL plants.
Rotary green particle dryers are located at particleboard,
MDF, or hardboard plants and process furnish with >30%
(dry basis) inlet moisture content at dryer inlet temperature
of>600°F
Includes bake and tempering ovens
Softwood veneer dryers are located at softwood plywood,
hardwood plywood, LVL, and PSL plants and dry > 50% (by
volume, annually) softwood veneer
The exhaust from pressurized refiners typically passes
through a tube dryer and exits through the tube dryer control
device. Therefore, it was not necessary to cost separate
control equipment for pressurized refiners. Pressurized
refiners are located at MDF and hardboard plants.
Reconstituted wood products presses are located at
hardboard, MDF, OSB, and particleboard plants
Exhaust Flow Rate to Be Controlled
If provided in the non-confidential MACT survey responses, process-unit specific exhaust flow
rate, temperature, and percent moisture were used to determine the dry standard flow rate for each
process unit. If sufficient information was not provided in the MACT survey response to determine dry
standard flow rates (or the information was claimed confidential), then default values were used for the
flow rate. The default values were based on the average value for other similar process units at plants
that provided enough non-confidential information to calculate the dry standard flow rate. Exhibit 3-12
summarizes the default flow rates used in the costing analyses. The average flow rates from press
enclosures are described in Section 3.3.1 and were used for all presses.
3-31
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Exhibit 3-12. DEFAULT FLOW RATES
Process line
Particleboard
OSB
MDF
Plywood
Hardboard
Equipment type
Rotary green particle dryer
Tube dryer
Rotary strand dryer
Conveyor-type strand dryer
Primary tube dryer (single-stage or first
stage of staged dryer)
Secondary tube dryer (second stage of
staged dryer)
Softwood veneer dryer
Bake oven
Tempering oven
Primary tube dryer (single-stage or first
stage of staged dryer)
Secondary tube dryer (second stage of
staged dryer)
Flow rate (dscfm)
35,731
14,955
32,478
37,810
79,173
18,195
12,062
4,742
4,055
37,436
31,728
Several plants have multiple process units requiring controls. The flow rates for these process
units were summed and divided across control equipment as necessary. In most cases, the total dryer
flow was assumed to be routed to one or more RTO's dedicated to controlling dryer exhaust and the total
press flow was assumed to be routed to one or more RTO's dedicated to controlling press exhaust.
Because RTO fuel costs increase exponentially with gas flow rate, RTO sizes were assumed to remain
less than about 150,000 dscfm. (The largest RTO in mentioned in the MACT survey responses was
around 150,000 dscfm.)
In some cases, dryers and presses were assumed to be routed to the same RTO, provided that the
total dryer and press flow remained under 150,000 dscfm. For example, two RTO's (103,500 dscfm
each) would be costed for a MDF plant with 2 dryers (79,000 each) and 1 press (49,000) assuming that
the flow for both dryers and the press could be combined and split equally across the two RTO's. This
approach seems reasonable given that several MDF plants currently route dryer and press exhaust to the
same RTO.
3-32
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Calculation of Nationwide Control Costs
The total plant-by-plant control cost was calculated by summing the control cost associated with
each RTO, WESP, and PTE costed for each plant. The number of control devices at each plant
depended on the number of process units and the exhaust flow to be controlled at the plant. In some
cases, only one control device was costed, while in other cases, multiple control devices were costed for
a plant.
Some plants claimed all relevant portions of their MACT survey responses confidential. In
addition, a MACT survey response was not available for a few plants likely to be impacted by the PCWP
standards. Without a non-confidential MACT survey response, information was not available to develop
plant-specific cost estimates. Therefore, the average cost for all other plants manufacturing the same
product was used to approximate the costs for plants for which there was no non-confidential plant-
specific information.
The nationwide capital and annualized control costs were determined by summing the total
plant-specific costs.
3.3.3 Summary of Nationwide Control Costs
Exhibit 3-13 summarizes the nationwide control costs for different product types. The
nationwide total capital cost for control equipment is estimated to be $473 million and the nationwide
total annual cost for control equipment is estimated as $139 million (1999 dollars). Exhibit 3-14
presents the dollars of total annualized costs per ton of HAP and THC reduced.
3.4 Testing, Monitoring, Reporting, And Recordkeeping Costs
Compliance with the PCWP standards must be demonstrated through performance testing,
ongoing monitoring of process or control device operating parameters or emissions, periodic reporting to
the government agency that implements the PCWP rule, and recordkeeping. There are capital and
annualized costs associated with these testing, monitoring, reporting, and recordkeeping activities.
These costs, which are estimated and documented in the supporting statement for the Paperwork
Reduction Act submission, and are summarized in this section.27
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Exhibit 3-13. ESTIMATED NATIONWIDE CONTROL COSTS FOR THE PCWP INDUSTRY
Product type
Softwood plywood/veneer
Hardwood plywood/veneer
Medium density fiberboard
Oriented Strandboard
Particleboard
(conventional and molded)
Particleboard (agriboard)
Hardboard
Fiberboard
Engineered wood products
TOTAL:
No. of plants"
105
166
24
37
51
5
18
7
41
454
No. of plants
impacteda'b
66
0
18
23
38
0
18
0
3
166
Process units impacted
softwood veneer dryers
N/A
dryers, presses
dryers, presses
green rotary particle
dryers, presses
N/A
tube dryers, presses,
ovens
N/A
softwood veneer dryers,
strand dryers
Control equipment
RTO
no control
RTO for dryers and
PTE/RTO for presses
WESP/RTO for dryers and
PTE/RTO for presses
RTO for dryers and
PTE/RTO for presses
no control
RTO for dryers and
PTE/RTO for presses
no control
RTO for veneer dryers and
WESP/RTO for strand dryers
Total capital
costs, $MM
$87.1
$0.0
$71.3
$94.6
$125.2
$0.0
$84.4
$0.0
$10.3
$473
Total annual
costs, $MM
$28.4
$0.0
$21.5
$26.5
$34.2
$0.0
$24.5
$0.0
$3.2
$139
a Some plants manufacture more than one product type. These plants are listed once for each product type manufactured.
b The number of plants impacted may be different from the number of plants nationwide for one of the following reasons: (1) some plants are not major sources;
(2) some plants already have all of the necessary control equipment; or (3) a few plants are major sources but do not operate any process units for which there
are control requirements (e.g., glu-lam plants).
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Exhibit 3-14. DOLLARS (IN TOTAL ANNUALIZED COSTS) PER TON OF
HAP AND THC REDUCED
Product type
Softwood plywood/veneer
Hardwood plywood/veneer
Medium density fiberboard
Oriented Strandboard
Particleboard (all types)
Hardboard
Fiberboard
Engineered wood products
Overall industry
HAP, $/ton
$43,000
NA
$10,000
$9,200
$13,000
$9,300
NA
$47,000
$13,000
THC, $/ton
$2,900
NA
$5,100
$7,100
$5,800
$7,000
NA
$18,000
$5,000
The annual costs associated with testing, monitoring, reporting, and recordkeeping activities
include reporting and recordkeeping labor; annualized capital for monitoring equipment, file cabinets,
and performance tests; and the operation and maintenance costs associated with monitoring equipment.
The capital costs include capital for monitoring equipment, file cabinets and performance tests.
Performance tests are considered to be capital costs because plants will typically hire a testing contractor
to conduct the performance tests.
The total nationwide capital cost associated with testing, monitoring, reporting, and
recordkeeping is estimated to be $5.8 million and the total nationwide annualized cost is estimated to be
$5.6 million (1999 dollars). These costs were developed based on the information presented in the
Paperwork Reduction Act submission for the first 3 years following the effective date of the PCWP rule.
The costs apply for the 223 PCWP plants that are expected to be major sources. There are 57 facilities
that incur monitoring, recordkeeping, and reporting costs but do not incur control costs from compliance
with this rule.
3.5 REFERENCES
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1. United States Congress. Clean Air Act, as amended October 1990. 42 U.S.C. 7401 et seq.
Washington, DC. U.S. Government Printing Office.
2. U. S. Environmental Protection Agency. National Emission Standards for Hazardous Air
Pollutants for Source Category: Organic Hazardous Air Pollutants from the Synthetic Organic
Chemical Manufacturing Industry and Other Processes Subject to the Negotiated Regulation for
Equipment Leaks; Determination of MACT "Floor." 59 FR 29196. Washington, DC. U.S.
Government Printing Office. June 6, 1994.
3. Memorandum from K. Hanks and B. Nicholson, MRI, to P. Lassiter, EPA/ESD. April 16, 1998
(Finalized 5/28/98). Trip report for February 12, 1998 site visit to Timber Products Company
particleboard and hardwood plywood plant in Medford, Oregon.
4. R Nicholson, MRI, to D. Word, NCASI. February 17, 2000 (Confirmed via Email on 9/7/00).
Contact report to (1) find out if oxygen measurement data were available from the NCASI
MACT emissions test program, and (2) to get some information on typical oxygen
concentrations in dryer and press exhaust at plywood and composite wood products plants.
5. Memorandum from R. Nicholson, MRI, to M. Kissell, EPA/ESD. May 26, 2000. Control
Device Efficiency Data for Add-on Control Devices at PCWP Plants.
6. Memorandum from K. Hanks and B. Nicholson, MRI, to M. Kissell, EPA/ESD. July 13, 2000.
Determination of MACT floors and MACT for the Plywood and Composite Wood Products
Industry.
7. National Council of the Paper Industry for Air and Stream Improvement (NCASI) Method
IM/CAN/WP-99.01, Impinger/Canister Source Sampling Method for Speciated HAPs at Wood
Products Facilities. 1999.
8. Reference 6.
9. Memorandum from K. Hanks and D. Bullock, MRI, to M. Kissell, EPA/ESD. June 9, 2000.
Baseline Emission Estimates for the Plywood and Composite Wood Products Industry.
10. Memorandum from D. Bullock, K. Hanks, and B. Nicholson, MRI to M. Kissell, EPA/ESD.
April 28, 2000. Summary of Responses to the 1998 EPA Information Collection Request
(MACT Survey) ~ General Survey.
11. K. Hanks, B. Threatt, and B. Nicholson, MRI to M. Kissell, EPA/ESD. May 19, 1999.
Summary of Responses to the 1998 EPA Information Collection Request (MACT Survey) ~
Hardwood Plywood and Veneer.
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12. K. Hanks, B. Threatt, and B. Nicholson, MRI to M. Kissell, EPA/ESD. January 20, 2000.
Summary of Responses to the 1998 EPA Information Collection Request (MACT Survey) ~
Engineered Wood Products.
13. Memorandum from K. Hanks, MRI, to Project Files. April 18, 2000. Changes in the population
of existing plywood and composite wood products plants and equipment following the
information collection request.
14. Memorandum from D. Bullock and K. Hanks, MRI, to M. Kissell, EPA/ESD. April 27, 2000.
Documentation of Emission Factor Development for the Plywood and Composite Wood
Products Manufacturing NESHAP.
15. Background Infomation Document for the Proposed Plywood and Composite Wood Products
NESHAP. U.S. EPA/OAQPS, September 2000.
16. Suchsland, O., and G. Woodson, FiberboardManufacturing Practices in the United States, John
Wiley & Sons, New York, 1991, pp. 151-153.
17. K. Corrigan, North Dakota Department of Health, Division of Environmental Engineering.
February 11, 1997. Performance Test Report Review: Primeboard, Inc.
18. Facsimile from J. Seiwert, Smith Environmental Corporation, to L. Kesari, EPA/OECA.
October 31, 1997. Revised emissions abatement systems RTO pricing (Smith Proposal BO7-95-
156-1, Trinity Consultants)
19. EPA Air Pollution Control Cost Manual (Sixth Edition), U.S. Environmental Protection Agency,
April 26, 2002. EPA -452/B-02-001. Found on the Internet at
www. epa. gov/ttn/catc/products .html#cccinfo.
20. Vatavuk Air Pollution Control Cost Indexes (VAPCCI), Chemical Engineering, March 2000,
p. 150.
21. Energy Information Administration, Form EIA-826, "Monthly Electric Utility Sales and
Revenue Report with State Distributions."
22. Energy Information Administration, Natural Gas Monthly, February 2000, p. 60.
23. Letter and attachments from S. Jaasund, Geoenergy International Corporation, to B. Nicholson,
MRI. March 28, 2000. Geoenergy WESP Capital and Operating Costs.
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24. Memorandum from B. Nicholson, MRI, to Plywood and Composite Wood Products Project File.
July 31, 2000. Cost of Permanent Total Enclosures. (Confidential Business Information)
25. Memorandum from B. Nicholson, MRI, to Plywood and Composite Wood Products Project File.
July 31, 2000. Exhaust Gas Flowrate Information for Enclosed Presses. (Confidential Business
Information)
26. Memorandum from D. Bullock and K. Hanks, MRI, to P. Lassiter, EPA/ESD. October 27,
1998. Trip report for visit to Temple-Inland Forest Products plant in Diboll, Texas.
27. Paperwork Reduction Act Submission, Supporting Statement, Plywood and Composite Wood
Products, 2000.
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ECONOMIC IMPACT ANALYSIS
4.1 Results in Brief
This economic impact analysis presents the results of modeling the effects of the plywood and
composite wood products NESHAP upon affected facilities, firms, markets, and industries. The
analysis shows that product prices increase for each of the four industry sectors included in the economic
model, from 0.9 percent for the softwood plywood industry to 2.5 percent for the particleboard and
medium density fiberboard industry. Output is expected to decrease from 0.1 percent for the softwood
plywood industry to 0.7 percent for the particleboard and medium density fiberboard industry. Exports
of these products are expected to decline by no more than 0.7 percent for these four industries, while
imports are expected to rise. Only one product line closure at an affected facility is expected, and
employment at affected firms is expected to decline by only 0.3 percent. In addition, an analysis of
effects of this rule on the supply, distribution, or use of energy finds that these effects are not significant.
The economic and energy impacts depending on eligibility of sources to become part of a
delisted low-risk subcategory can be found in Appendix A of this RIA.
4.2 Introduction
This NESHAP addresses the emissions of hazardous air pollutants (HAPs) from facilities that
produce plywood and composite wood products. As described in Chapter 3, the rule will result in some
facilities in this industry incurring costs associated with controlling HAP emissions. The addition of
these control costs will directly affect the individual facilities because their costs of production will
increase. In addition, the addition of compliance costs may also have an effect on the overall markets for
plywood and composite wood products through market price changes. Depending on market conditions,
these changes could occur if facilities with compliance costs increase their prices, reduce their output, or
cease operations altogether.
This chapter presents the result of the Economic Impact Analysis (EIA) performed to estimate
the economic changes that are expected to occur as a result of the NESHAP for the plywood and
composite wood products industry U.S. EPA, 1999a). The goal of the assessment is to develop estimates
of the following impact measures.
• Market price changes
Market quantity changes
• International trade effects
Size and distribution of social costs
4-1
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Chapter 2 presented a profile of the different sectors within the plywood and composite wood
industry, which provides market information necessary to design and implement the EIA for this
industry. The plywood and composite wood products manufacturing industry affected by the proposed
NESHAP rule includes five distinct market sectors.
Softwood Plywood and Veneer (SWPW)
• Oriented Strandboard (OSB)
Other Wood Composites (OWC), including
• Particleboard and Medium Density Fiberboard (PB/MDF)
Hardboard (HB)
• Engineered Wood Products (EWP)
For all but the EWP market sector, the Agency applied partial equilibrium (P/E) modeling
techniques to estimate the economic impacts of the NESHAP rule for plywood and composite wood
products. For reasons presented in Section 4.4 below, developing an estimate of the economic impacts
of the rule on the EWP sector required a qualitative approach.
Section 4.3 presents the inputs for the P/E economic analysis, including producer
characterization, market characterization, and compliance costs of the regulation. Section 4.4 describes
the approach to estimating the economic impacts on the SWPW, OSB, PB/MDF, and HB industry
sectors, and Section 4.5 presents the results of the economic impact analysis. Section 4.6 presents the
qualitative analysis of the EWP market sector. The economic analysis methodology and inputs are
described more fully in the EIA.
4.3 Economic Impact Analysis Inputs
The first step of an impact assessment is developing information used to characterize the
baseline conditions of the industry. Key information needed for EIA inputs is used to characterize the
following.
• Individual producers
Product markets
• Compliance costs
4.3.1 Producer Characterization
The primary source of baseline data on individual producers used in the EIA is a database
developed using the data collected by 1998 ICR described in Chapter 2 (U.S. EPA, 1998). The
information in the facility database allowed the characterization of facilities according to several features
needed for the analysis, including major products (SWPW, OSB, etc), baseline production volumes, and
facility capacity. The baseline year for the analysis is 1997 as it corresponds to the year for which
plywood and composite wood producers provided this information for the ICR.
4-2
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For certain facilities, production and capacity information was not available, and was
supplemented by additional research. Those facilities without specific production and capacity data
were assigned an estimate based on the average production and capacity data for facilities within the
same market sector and size category (as determined by employment).
4.3.2 Plywood and Composite Wood Markets
The Plywood and Composite Wood Products industry is a broad category encompassing the four
distinct markets listed above: (1) SWPW, (2) OSB, (3) OWC, and (4) EWP. For reasons discussed in
the EIA, the OWC sector is decomposed into two markets: PB/MDF and HB. The Agency developed
P/E models representing each of these four markets.
Market level data used in this EIA are presented in Exhibit 4-1. The market prices and
elasticities for each of the four markets were obtained from various industry market reports and
economic literature as described in Chapter 2. Total market volumes used in the models for each product
are the sum of the production of all identified U.S. facilities (from the facility database) and imports
from foreign producers. Total U.S. production for each market is the total production of all facilities
identified in the EPA's facility database. The production was also separated in to two subsets - the total
production of affected facilities and the total production of unaffected facilities.11 The source of foreign
trade data on exports and imports of these products was presented in Chapter 2.
"As mentioned in Chapter 1, some facilities in the "unaffected" category have monitoring, reporting, and
record keeping costs of $25,194 peryear.
4-3
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Exhibit 4-1: Baseline Characterization of Plywood and Composite Wood Markets: 1997
Market price (1997$/cubic meter)
Price Elasticity of Demand
Construction
Manufacturing/Other
Price Elasticity of Supply
Market quantity
(thousand cubic meters)
Domestic production
Affected
Unaffected
Exports
Imports
Softwood
Plywood
$235
-0.1034
-0.2585
0.42
17,568,254
17,568,162
11,680,778
5,887,384
1370
92
Oriented
Strandboard
$185
-0.1034
n/a
0.42
9,595,121
9,590,456
4,691,645
4,898,811
148
4,666
"Other Composites"
PB/MDF HB
$169
-0.1149
-0.2872
0.42
11,646,227
11,644,523
9,670,639
1,973,884
333
1,705
$1,322
-0.1149
-0.2872
0.42
1,768,930
1,768,545
1,768,545
n/a
371
385
Sources: U.S. EPA facility database; Section 2; and Appendix B of the Economic Impact Analysis.
4.3.3 Facility Compliance Costs
As described in Chapter 3, the Agency developed compliance costs estimates for those facilities
that must control HAP emissions in accordance with the regulatory requirements of the NESHAP rule.
The EIA uses these costs to develop a "with regulation" market equilibrium scenario used to estimate
changes in individual facility production, total market volumes, market price, and social costs.
Typically, the Agency adjusts the compliance cost estimates from nominal dollars to baseline dollars
using the plant cost indices to be consistent with the baseline industry characterization of the economic
model (U.S. EPA, 1999b). In this case, there was virtually no change in the plant cost indices between
the baseline year of 1997 and current period, so no adjustment was made to the costs used in this
analysis.
4.4 Economic Impact Analysis Methodology
The following section presents a summary of the approach used to assess the economic impacts
of the NESHAP . The EIA contains a more detailed description of the methodology used to analyze the
economic impact of this regulation on each of the markets analyzed. The purpose of the EIA is to model
the responses of individual producers and the overall market to the imposition of compliance costs. For
this EIA, the agency used a market-based economic model that reflects the production choices producers
make in the face of changes in their individual production costs and changes in overall market prices.
4-4
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The economic model used in this analysis simulates the short run decisions of the producers in
response to operating cost and price changes within a given market. For each of the four markets, the
model used in this analysis assumes that the market is perfectly competitive, based on the conclusions
drawn from the information in the industry profile. In a competitive market, each individual facility
takes the price as determined by the market because they do not have the power to set the market price of
the product. The approach used for this EIA assumes that the competitive market for each of the four
products determines both prices and quantities (U.S. EPA, 1999b).
In the short run, a firm with an existing plant will decide, based on the market price, how much
output to produce with its capital stock (e.g., fixed investment in the plant and equipment) considered as
constant. In this decision, the firm considers the costs of inputs that vary with output levels, such as
materials and labor (U.S. EPA, 1999b). When the market price is equal to the average variable
(operating) costs, the firm is only recouping the cost of its variable inputs. When the price is less than
the firm's variable costs, it will no longer produce output because it cannot recover all of its variable
costs in the short run. When the market price exceeds variable costs, the firm can also recover a part of
its fixed investment in the plant and equipment. In the long run, the firm must cover all of its fixed
investment in the plant and equipment. Under this more stringent condition, the market price must
exceed its average total costs, which include capital and variable input costs. In this analysis, which is
short-run in timeframe, the model assumes that all firms wish to maximize its profits and will produce
output using their existing plants as long as the market price even marginally exceeds their variable costs
of producing output. The short-run focus for this analysis is appropriate since full implementation with
this rule is required by 3 years from promulgation. Thus, implementation by affected firms must occur
by 2007. Most of the economic impacts associated with this rule are therefore likely to occur between
promulgation and 2007. In addition, the statutes and Executive Orders that call for economic impact
analyses for regulations implicitly call for an assessement of impacts on current producers and
consumers. Therefore, a long-run approach has some weaknesses in addressing the requirements that an
analysis like this one must adhere to. Thus, short-run modeling of the economic impacts of this rule,
which means presuming the capital stock as a constant, is a reasonable approach.
The market model developed by the Agency for this EIA is based on a series of equations that
represent the market supply and demand functions for a given product. The demand functions use
baseline price, total domestic production, import, and export data, as well as estimates of the price
elasticity of demand for a given product as inputs. The market supply function is based on an estimated
supply function for each plywood or composite wood product at all production facilities. The Agency
developed a spreadsheet model for each of the four markets to represent the conceptual model described
below. The EIA provides a description of this process.
Figure 4-1 shows a generalized upward-sloping supply function that characterizes the production
function of each facility included in the analysis (affected and unaffected). In the EIA model, this
function represents the marginal cost curve for each supplier of the product within the market. The
minimum constraint on this function is zero, and the maximum constraint is each facility's capacity. If
the market price is above a given facility's average variable cost, the facility will produce output up to
the point where production equals the facility's production capacity. If a given facility's marginal
production cost is above the market price, it will produce zero output (EPA, 1999b).
4-5
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The model then aggregates the supply functions of the individual facilities within a market to
$/lb
Ibs/year
Figure 4-1. Supply Curves for Affected Facilities
Source: U.S. EPA, 1999b.
represent the market level supply curve. Next, the model equilibrates the market demand curve and the
market supply curve according to the baseline market price and quantity values. Figure 4-2 shows that
market prices and quantities are set in the baseline according to the intersection of the supply and
demand curves in the baseline (the period prior to the imposition of compliance costs on affected
facilities). The baseline scenario equilibrium market price and quantity (P, Q) are the points on the
graph's axes points where the downward-sloping market demand curve (DM) intersects with the upward-
sloping market supply curve (SM). In the baseline, at price P, the industry produces total output, Q, with
affected facilities producing the amount qa and unaffected facilities producing qu(EPA, 1999b).
Next the same facility-specific supply functions in the model are recalculated after taking into
account the increase in production costs associated with the imposition of annual compliance costs on
some producers. The costs are expresses in terms of dollars per unit of output in the baseline (in this
case per thousand cubic meter of product). Figure 4-l(b) show the effect of the compliance costs: the
supply curve for the affected producers shift upward Sa to Sa' . This raises the point at which market
price must cover variable production costs from pa to pa'. The supply curve Su for the unaffected
facilities remain the same. When the supply curves for the affected and unaffected facilities are
aggregated to represent the market level supply curve, the market supply curve also shifts upward from
SM to SM. Using the original market demand curve, DM, the new equilibrium price increases from P to P'
and market output declines from Q to Q'. This reduction in market output is the net result from
reductions at affected facilities and increases at unaffected facilities (EPA, 1999b).
4-6
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4-7
-------
+ p
= p
Q
Affected Facilities Unaffected Facilities
Market
a) Baseline Equilibrium
SM7 SM/
Affected Facilities
Unaffected Facilities
Q' Q
Market
b) With Regulation Equilibrium
Figure 4-2. Market Equilibrium Without and With
Regulation
Source: U.S. EPA, 1999b.
4.5 Economic Impact Analysis Results
The following section presents the results of the Agency's implementation of the EIA models
described in the previous section. The results are presented at three levels: market, industry, and
societal. The market level results present the impacts in terms of changes in price and quantity for each
of the four markets. The industry level impacts include changes in revenues, production, employment,
and number of operating production lines.
4.5.1 Market-Level Results
Exhibit 4-2 presents the expected impacts of the regulation at the market-level. These changes
include the new price and quantity for each product and changes in foreign trade. In each market, prices
4-8
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increase and production quantities decrease due to the imposition of compliance costs on the affected
producers. The reduction in market quantities of each product reflect reductions in domestic production
(including production for exports) and increases in foreign imports. The reduction in domestic
production reflects production decreases by affected producers and increases by unaffected producers
(EPA, 1999b).
For softwood plywood, the market price is expected to increase by 0.9 percent, while market
quantity declines by 0.1 percent, or 26,207 thousand cubic meters (or M cubic meters) per year. For
oriented strandboard, the market price is expected to increase by 1.3 percent, while market quantity
declines by 0.1 percent, or 12,945 M cubic meters per year. For particleboard and medium density
fiberboard, the market price is expected to increase by 2.5 percent, while market quantity declines by 0.7
percent, or 78,595 M cubic meters per year. Finally, for hardboard, the market price is expected to
increase by 1.0 percent, while market quantity will decline by 0.3 percent, or 4,727 M cubic meters per
year.
Generally, increases in market price result in changes in foreign trade of these products: exports
decrease and imports increase. Exhibit 4-2 shows that exports of softwood plywood from the United
States are expected to decline by 0.2 percent (or 2 M cubic meters per year); exports of oriented
strandboard are expected to decline by 0.1 percent (or 0.2 M cubic meters per year); exports of
particleboard and medium density fiberboard are expected to decline by 0.7 percent (or 2 M cubic meters
per year); and exports of hardboard are expected to decline by 0.2 percent (or 1 M cubic meter per year).
Imports of each of these products to the United States are expected to increase as follows: SWPW by
685 percent (or 630 M cubic meters per year), OSB by 28.82 percent (or 1,345 M cubic meters per
year), PB/MDF by 85 percent (or 1,451 M cubic meters per year), and HB by 100 percent (or 387 M
cubic meters per year).
Exhibit 4-2. Market-Level Impacts of the NESHAP
Industry Sector
Softwood Plywood
Market price (1997$/cubic meter)
Market output (M cubic meters/yr)
Domestic production
Affected Facilities
Unaffected Facilities
Exports
Imports
Oriented Strandboard
Market price (1997$/cubic meter)
Market output (M cubic meters/yr)
Domestic production
Baseline
$235
17,568,254
17,568,162
11,680,778
5,887,384
1,370
92
$185
9,595,121
9,590,456
With
Regulation
$237.20
17,542,048
17,541,326
11,629,258
5,912,067
1,368
722
$187.43
9,582,176
9,576,165
Changes from
Absolute
$2.20
-26,206
-26,837
-51,520
24,683
-2
630
$2.43
-12,945
-14,291
Baseline
Percent
0.9%
-0.1%
-0.2%
-0.4%
0.4%
-0.2%
685.1%
1.3%
-0.1%
-0.1%
4-9
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Exhibit 4-2. Market-Level Impacts of the NESHAP
With Changes from Baseline
Industry Sector Baseline Regulation Absolute Percent
Affected Facilities 4,691,645 4,654,117 -37,528 -0.8%
Unaffected Facilities 4,898,811 4,922,048 23,237 0.5%
Exports 147.8 147.6 -0.2 -0.1%
Imports 4,666 6,011 1,345 28.8%
4-10
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Exhibit 4-2. Market-Level Impacts of the NESHAP
Industry Sector
Particleboard and Medium Density Fiberboard
Market price (1997$/cubic meter)
Market output (M cubic meters/yr)
Domestic production
Affected Facilities
Unaffected Facilities
Exports
Imports
Hardboard
Market price (1997$/cubic meter)
Market output (M cubic meters/yr)
Domestic production
Affected Facilities
Unaffected Facilities
Exports
Imports
Baseline
$169
11,646,228
11,644,523
9,670,639
1,973,884
333
1,705
$1,322
1,768,930
1,768,545
1,768,545
n/a
371
385
With
Regulation
$173.29
11,567,633
11,564,477
9,553,510
2,010,967
331
3,156
$1,335.17
1,764,203
1,763,431
1,763,431
n/a
370
772
Changes from
Absolute
$4.29
-78,595
-80,046
-117,129
37,083
-2
1,451
$13.17
-4,727
-5,114
-5,114
0
-1
387
Baseline
Percent
2.5%
-0.7%
-0.7%
-1.2%
1.9%
-0.7%
85.1%
1.0%
-0.3%
-0.3%
-0.3%
n/a
-0.2%
100.5%
4.5.2 Industry-Level Results
Industry impacts associated with the NESHAP for the plywood and composite wood industry
are presented in Exhibit 4-3. Industry-level impacts include changes in revenue, production, numbers of
operating product-lines, and changes in employment. The estimates for changes in production lines and
employment are described in Section 4.5.3 below.
The EIA model estimates the change in prices and production levels after the imposition of the
compliance costs on the affected facilities. Exhibit 4-3 shows that overall revenues for each industry
increase slightly. Industry revenues increase because demand elasticities for these four markets mean
that the change in price (in percentage terms) is greater than the percentage reduction in output.
Affected facilities will experience an increase in revenues due to the increase in the market price, but this
effect is likely to be offset by the increase in production costs. Changes in profits, however, could not be
estimated due to lack of information on production costs at the facility level.
4-11
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Exhibit
Softwood Plywood
Revenues ($ million/yr)
Production (M cubic meters/yr)
Operating product lines (#)
Employment*
Oriented Strandboard
Revenues ($ million/yr)
Production (M cubic meters/yr)
Operating product lines (#)
Employment*
Particleboard & Medium Density
Revenues ($ million/yr)
Production (M cubic meters/yr)
Operating product lines (#)
Employment*
Hardboard
Revenues ($ million/yr)
Production (M cubic meters/yr)
Operating product lines (#)
Employment*
4-3. Industry-Level
Baseline
$4,128.5
17,568162
108
36,877
$1,774.2
9,590,456
38
6,681
Fiberboard
$1,967.9
11,644,523
83
20,424
$2,338.0
1,768,545
18
6,271
Impacts of the NESHAP
With Regulation
$4,161
17,541,326
107
36,821
$1,794.9
9,576,164
38
6,671
$2,004.0
11,564,477
83
20,284
$2,354.5
1,763,431
18
6,252
Changes from
Absolute
$32.4
-26,836
-1
-56
$20.7
-14,292
0
-10
$36.1
-80,046
0
-140
$16.5
-5,114
0
-18
Baseline
Percent
0.78%
-0.15%
-0.93%
-0.15%
1.17%
-0.15%
0.00%
-0.15%
1.83%
-0.69%
0.00%
-0.69%
0.71%
-0.29%
0.00%
-0.29%
*Baseline employment estimates are based total production and employment of all facilities in each market as
reported in the EPA facility database. Average production per employee was calculated using the sum of
facility-specific production and employment. Because facilities reported employment as a range, they are
assigned an employment estimate using the mid-point of the reported range. Post-regulation employment was
then estimated by dividing post-regulation production by the baseline production per employee.
4.5.3 Distribution of Impacts
The distribution of regulatory impacts is presented in Exhibit 4-4. This table presents the same
information as in Exhibit 4-3, but provides details on how the rule impacts affected and unaffected
facilities differently.
One important result from the EIA model is the projection of process line closures that could
occur following promulgation of the NESHAP. The model's estimate of process line closures may be
sensitive to the accuracy of the baseline characterization of the facilities. Characteristics such as baseline
production levels, revenues (as a function of production and price), the underlying supply function that
4-12
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represents production costs, and the compliance cost estimates are all factors that affect the distribution
of the rule's impacts.
Exhibit 4-4: Distribution of Industry-Level Impacts of the NESHAP:
Affected and Unaffected Producers
Softwood Plywood
Affected Process Lines
Revenues ($ million/yr)
Production (M cubic meters/yr)
Operating process lines (#)
Employment*
Unaffected Process Lines
Revenues ($ million/yr)
Production
Operating process lines (#)
Employment*
Oriented Strandboard
Affected Process Lines
Revenues ($ million/yr)
Production (M cubic meters/yr)
Operating process lines (#)
Employment*
Unaffected Process Lines
Revenues ($ million/yr)
Production
Operating process lines (#)
Employment*
Particleboard & Medium Density
Affected Process Lines
Revenues ($ million/yr)
Production (M cubic meters/yr)
Operating process lines (#)
Employment*
Unaffected Process Lines
Baseline
$2,745.0
11,680,778
66
24,519
$1,383.5
5,887,384
42
12,358
$868.0
4,691,645
20
3,268
$906.3
4,898,811
18
3,413
Fiberboard
$1,634.3
9,670,639
53
16,962
With
Regulation
$2,758.5
11,629,258
65
24,411
$1,402.4
5,912,067
42
12,410
$872.3
4,654,117
20
3,242
$922.6
4,922,048
18
3,429
$1,655.6
9,553,510
53
16,756
Changes From
Absolute
$13.5
-51,520
-1
-108
$18.9
24,683
0
52
$4.4
-37,528
0
-26
$16.3
23,237
0
16
$21.2
-117,129
0
-205
Baseline
Percent
0.49%
-0.44%
-1.52%
-0.44%
1.37%
0.42%
0.00%
0.42%
0.50%
-0.80%
0.00%
-0.80%
1.80%
0.47%
0.00%
0.47%
1.30%
-1.21%
0.00%
-1.21%
4-13
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Exhibit 4-4: Distribution of Industry-Level Impacts of the NESHAP:
Affected and Unaffected Producers
With Changes From Baseline
Baseline Regulation Absolute Percent
Revenues ($ million/yr) $333.6 $348.5 $14.9 4.47%
Production 1,973,884 2,010,967 37,083 1.88%
Operating process lines (#) 30 30 0 0.00%
Employment* 3,462 3,527 65 1.88%
4-14
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Exhibit 4-4: Distribution
Affected
Hardboard
Affected Process Lines
Revenues ($ million/yr)
Production (M cubic meters/yr)
Operating process lines (#)
Employment*
Unaffected Process Lines
Revenues ($ million/yr)
Production
Operating process lines (#)
Employment*
Total
Affected Process Lines
Revenues ($ million/yr)
Production (M cubic meters/yr)
Operating process lines (#)
Employment*
Unaffected Process Lines
Revenues ($ million/yr)
Production
Operating process lines (#)
Employment*
All Process Lines (net)
Revenues ($ million/yr)
Production
Operating process lines (#)
Employment*
of Industry-Level Impacts of the
and Unaffected Producers
Baseline
$2,338.0
1,768,545
18
6,271
n/a
n/a
n/a
n/a
$7,585.3
27,811,607
157
51,020
$2,623.4
12,760,079
90
19,233
10,209
40,571,686
247
70,252
With
Regulation
$2,354.5
1,763,431
18
6,252
n/a
n/a
n/a
n/a
$7,640.9
27,600,316
156
50,662
$2,673.4
12,845,082
90
19,366
10,314
40,445,398
246
70,028
NESHAP:
Changes From
Absolute
$16.5
-5,114
0
-18
n/a
n/a
n/a
n/a
$55.6
-211,291
-1
-358
$50.1
85,003
0
133
$105.6
-126,288
-1
-225
Baseline
Percent
0.70%
-0.29%
0.00%
-0.29%
n/a
n/a
n/a
n/a
0.73%
-0.76%
-0.64%
-0.70%
1.91%
0.67%
0.00%
0.69%
1.03%
-0.31%
-0.40%
-0.32%
n/a = not applicable
*Baseline employment estimates are based total production and employment of all facilities in each market as
reported in the EPA facility database. Average production per employee was calculated using the sum of
facility-specific production and employment. Because facilities reported employment as a range, they are
assigned an employment estimate using the mid-point of the reported range. Post-regulation employment was
then estimated by dividing post-regulation production by the baseline production per employee.
4-15
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Exhibit 4-4 shows that one softwood plywood production line is expected to prematurely cease
operations. The model does not predict any closures in all of the other product markets. The affected
entity that closes following adoption of the regulation is a small SWPW producer that incurs higher
control costs per unit of production than other SWPW production lines. This facility, with one process
line, did not respond to the EPA's ICR survey. Therefore, it was necessary to estimate baseline
production and compliance costs based on very little facility-specific information. Total baseline
production of SWPW by the facility that closes was roughly 9,500 M cubic meters per year, or less than
0.05 percent of the 17,568,162 M cubic meters of SWPW produced by all SWPW facilities during 1997.
As a result of the closure and reductions in production at other affected facilities, the EIA model
estimates a total net loss in employment of 225 employees (0.3 percent) attributable to the NESHAP
across all four market sectors. Affected facilities experience employment loss of 358, which is offset by
employment gains at unaffected facilities of 133. Overall the four sectors together experience a 1
percent increase in revenues, and a 0.3 percent decrease in production.
4.5.4 Social Costs of the NESHAP
The social costs of a regulation are measured according to the impacts that it has on both
consumers and producers. The NESHAP, because it is expected to result in changes in both market price
and market quantity, will impact the consumers and producers of softwood plywood and composite
wood products. Social costs, also called welfare impacts, are the measure of overall gains and losses
experienced by the two groups that may result from the imposition of costs associated with the
regulatory requirements.
The economic benefits producers experience when participating in a market is called producer
surplus. Producers experience impacts when their revenues change either because of a new market price,
increased production costs, or both. These impacts change the amount of producer surplus relative to the
baseline. Likewise, the economic benefits consumers experience is called consumer surplus. Consumer
surplus changes when consumers experience impacts when the amount of product they consume or the
product price changes. The economic principles behind the measurement of social costs are presented in
detail in the EIA.
The estimate of the social cost of the NESHAP, presented in Exhibit 4-5, is the sum of the
change in producer and consumer surplus. The EIA model estimates the social cost of the proposed
NESHAP as $135.1 million annually (1999 dollars). These costs are distributed across both consumers
and producers of plywood and composite wood products according to projected changes in market price
and quantity associated with the NESHAP.
Consumer surplus is reduced by $136.1 million annually due to the increase in prices and
reductions in consumption. Consumers of softwood plywood are worse off by $38.7 million annually;
consumers of oriented strandboard are worse off by $23.3 million annually; consumers of particleboard
and medium density fiberboard and of hardboard are worse off annually by $49.8 million and $23.3
million, respectively.
4-16
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Producers (in aggregate) are slightly better off because of the imposition of the NESHAP, with
an increase in producer surplus of just under $1 million annually. Essentially all of this is change
associated with domestic producers. Because the market prices for these products increase, certain
individual domestic producers gain at the expense of their competitors. The size of this gain at any
given facility depends on how much their production costs change (as a result of new compliance costs)
relative to the change in market price and quantity that increases revenues. The benefit to foreign
producers associated with higher market prices is quite small, under $100,000.
Exhibit 4-5: Distribution of Social Costs Associated with the NESHAP
Change in Value ($ million -1999
Stakeholder dollars)
Social Costs of Regulation
-------
Exhibit 4-5: Distribution of Social Costs Associated with the NESHAP
Change in Value ($ million -1999
Stakeholder dollars)
Hardboard
Producer surplus, total $-0.8
Domestic producers $-0.8
Affected Facilities $-0.8
Unaffected Facilities n/a
Foreign producers $0.0
4.5.5 Energy Impact Analysis
Executive Order 13211, "Actions Concerning Regulations That Significantly Affect Energy
Supply, Distribution, or Use" (66 FR 28355, May 22, 2001), provides that agencies shall prepare and
submit to the Administrator of the Office of Information and Regulatory Affairs, Office of Management
and Budget, a Statement of Energy Effects for certain actions identified as "significant energy actions."
Section 4(b) of Executive Order 13211 defines "significant energy actions" as "any action by an agency
(normally published in the Federal Register) that promulgates or is expected to lead to the promulgation
of a final rule or regulation, including notices of inquiry, advance notices of proposed rulemaking, and
notices of proposed rulemaking: (1) (i) that is a significant regulatory action under Executive Order
12866 or any successor order, and (ii) is likely to have a significant adverse effect on the supply,
distribution, or use of energy; or (2) that is designated by the Administrator of the Office of Information
and Regulatory Affairs as a significant energy action." The rule is not a "significant energy action"
because it is not likely to have a significant adverse effect on the supply, distribution, or use of energy.
The basis for the determination is as follows.
As stated in Chapter 2, this rule affects manufacturers in the softwood veneer and plywood
(NAICS 321212), reconstituted wood products (NAICS 321219), and engineered wood products
(NAICS 321213) industries. There is no crude oil, fuel, or coal production from these industries.
Hence, there is no direct effect on such energy production related to implementation of this rule. In fact,
as mentioned in section IV.D. of this preamble, there will be an increase in energy consumption, and
hence an increase in energy production, resulting from installation of regenerative thermal oxidizers
(RTOs) and wet electrostatic precipitators (WESPs) likely needed for sources to meet the requirements
of the rule. This increase in energy consumption is equal to 718 million killowatt-hours/year (kWh/yr)
for electricity and 45 million cubic meters/year (mVyr) for natural gas. These increases are equivalent
to 0.012 percent of 1998 U.S electricity production and 0.000001 percent of 1998 U.S. natural gas
4-18
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production.12 It should be noted, however, that the reduction in demand for product output from these
industries may lead to a negative indirect effect on such energy production, for the output reduction will
lead to less energy use by these industries and thus some reduction in overall energy production.
For fuel production, the result of this indirect effect from reduced product output is a reduction
of only about 1 barrel per day nationwide, or a 0.00001 percent reduction nationwide based on 1998 U.S.
fuel production data13. For coal production, the resulting indirect effect from reduced product output is a
reduction of only 2,000 tons per year nationwide, or only a 0.00001 percent reduction nationwide based
on 1998 U.S. coal production data. For electricity production, the resulting indirect effect from reduced
product output is a reduction of 42.8 million Kilowatt-hours per year (kWh-yr), or only a 0.00013
percent reduction nationwide based on 1998 U.S. electricity production data. Given that the estimated
price increase for product output from any of the affected industries is no more than 2.5 percent, there
should be no price increase for any energy type by more than this amount. The cost of energy
distribution should not be affected by this proposal at all since the rule does not affect energy
distribution facilities. Finally, with changes in net exports being a minimal percentage of domestic
output (0.01 percent) from the affected industries, there will be only a negligible change in international
trade, and hence in dependence on foreign energy supplies. No other adverse outcomes are expected to
occur with regards to energy supplies. Thus, the net effect of this rule on energy production is an
increase in electricity output of 0.012 percent compared to 1998 output data, and a negligible change in
output of other energy types. All of the results presented above account for the passthrough of costs to
consumers, as well as the cost impact to producers. These results also account for how energy use is
related to product output for the affected industries.14 More detailed information on the estimated energy
effects and the methodology employed to estimated them are in the background memo15 that provides
such details for the proposed rule.
Therefore, we conclude that the rule when implemented is not likely to have a significant
adverse effect on the supply, distribution, or use of energy.
4.6 Analysis of Economic Impacts on Engineered Wood Products Sector
4.6.1 Overview
12U.S. Department of Energy, Energy Information Administration. Annual Energy Review, End-Use
Energy Consumption for 1998. Located on the Internet at http://www.eia.doe.gov/emeu/aer/enduse.html.
13 Ibid.
14 U.S. Department of Energy, Energy Information Administration. 1998 Manufacturing Energy
Consumption Survey. Located on the Internet at
http://www.eia.doe.gov/emeu/mecs/mecs98/datatables/contents.html.
15 U.S. Environmental Protection Agency. "Energy Impact Analysis of the Proposed Plywood and
Composite Wood Products NESHAP." July 30, 2001.
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The engineered wood products (EWP) sector is much different than the other four sectors
examined in this analysis. Due to both the nature of the products and their markets as mentioned in
Section 4.6.4 below, and the limited availability of data, a quantitative analysis was not performed.
EWP products are characterized by differentiated structural beam products, although some can
also be used as columns. EWPs are produced by firms using differentiated production systems. There
are a number of large firms with market power, allowing them to set prices. Although many of the
products in this market sector can be substituted for one another to an extent, each product's design
usually provides it with an advantage over others in the design of final structures. Product
differentiation allows each product to dominate particular market niches, but also makes many of the
products complements as well as substitutes. Even when substitution is possible, some large firms use
their market power to influence purchase decisions and persuade consumers to purchase their products.
Consequently, these products are not standard commodities as are products in the other plywood and
composite wood sectors. Therefore, commodity prices and other standard information that is
characteristic of competitive markets are not available. These factors limit the ability of EPA to quantify
the impact of the NESHAP on this sector using the same quantitative method applied to the other
sectors.
Three of the fifty-three EWP facilities in the U.S. will have compliance costs are a result of the
NESHAP. This includes the country's two LSL plants, and one of the country's two PSL plants.
Weyerhaeuser, Inc. purchased these four plants when they acquired Trus Joist MacMillan.
(Weyerhaeuser-Trus Joist MacMillan will be referred to as W/TJM for the remainder of this report.)
W/TJM is currently the only manufacturer of LSL and PSL in the world.
4.6.2 Characteristics of EWP Products
EWPs include laminated veneer lumber (LVL), laminated strand lumber (LSL), parallel strand
lumber (PSL), wood I-joists (I-J), and glue laminated timber (GL). These are value added lumber
products designed to be used in applications that are not suitable for ordinary framing lumber. The
design and composition of each of these products differ, providing them with different strength,
stiffness, cost, and dimensional properties. Strength properties allow products to carry heavier loads
without breaking. Strength is particularly important for uses such as carrying beams in floors or bridge
girders, which are used to support structures. Stiffness prevents materials from shaking as objects are
moved over them. This is particularly important in floors and bridge decks where structure shakes or
squeaks are uncomfortable or dangerous. Each product's strength and stiffness is partially a function of
its dimensional characteristics. For example, I-J are strong, stiff and typically less expensive than the
other products. However, their structural integrity does not hold beyond certain lengths.
Laminated-Strand Lumber
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W/TJM introduced LSL in 1992. Its dimensional characteristics match nominal 2x4 and 4x4
framing lumber, but it provides greater and more uniform strength and stiffness properties.16 Unlike
many of the other EWPs, one of the primary uses of LSL is in vertical applications, as a stud or column.
PSL is also used in vertical applications, but its primary uses are in horizontal applications, as a beam.
The uses of LSL are summarized in Exhibit 4-6.
Exhibit 4-6: Primary Uses and Substitutes for LSL
Application Uses Substitutes
Columns or studs Wall, window, and door framing Framing lumber, PSL, solid sawn
lumber, steel
Headers Garage door, other wide span doors and Framing lumber, GL, LVL, PSL, steel
windows
Beams Light applications, low load bearing Solid sawn lumber, GL, LVL, PSL, I-J
Rim Board Floor systems, nailing surface for Plywood
sheathing, decks and siding
Source: http://www.trusjoist.com
Because W/TJM is the sole producer of LSL, very little information is available about their costs
or profits. Exhibit 4-7 below identifies the production information that is known. Note that neither plant
operates near full capacity. The two plants combined operate at less than 50 percent of their combined
capacity (EWP survey). This may be due to a decline in demand or an immature market.
Exhibit 4-7:
Location
Deerwood, MN
Chavies, KY
Source: EPA facility survey,
Characteristics of LSL Plants
Item
Capacity
Production
Capacity
Employees
Plant Age
Capacity
Production
Capacity
Employees
Plant Age
1998.
7,900,000 ftVyr
4,900,000 ftVyr
62%
100-249
1992 (estimate)
14,900,000 ftVyr
5,400,000 ftVyr
36%
250-499
1992 (estimate)
Parallel-Strand Lumber
16 LSL bending strength = 1700psi; stiffness (modulus of elasticity or MOE) = 1.3-1.5E.
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PSL is a slightly older technology than LSL. It was introduced to the market in the mid-1980's
by W/TJM. PSL is a high performance beam and header product that can also be used as a column. It is
designed with exceptional strength, stiffness characteristics that is capable of spanning much longer
distances than most other EWPs.17 Only GL can match or beat PSL's ability to carry heavy loads over
long spans.18 Furthermore, PSL is a balanced beam, which means it has no top or bottom. This
property is particularly desirable to the residential framing industry. Balanced beams save on labor costs
due to lower skill required to install the product, providing PSL with an edge over GL for a number of
years. However, Anthony Forest Products recently developed a line of balanced GL beams with
comparable strength and stiffness properties to PSL, and a number of other GL manufacturers have since
done the same. This has lead to a competitive more environment. However, PSL still maintains a share
of the residential market. Exhibit 4-8 summarizes the uses of PSL.
Exhibit 4-8: Primary Uses and Substitutes for PSL
Application Uses Substitutes
Columns or studs Wall framing, street lights Steel, solid sawn lumber, steel
Headers Garage door, other wide span doors and GL,LVL, steel
windows
Beams Heavy applications, high load bearing GL, steel, solid sawn lumber, LVL
Because W/TJM has been the only producer of this product, very little is known about their
production costs and profits. Exhibit 4-9 below identifies the production information that is known
about the two U.S. PSL production facilities.
Exhibit 4-9: Characteristics of PSL Plants
Location Item
Colbert, GA
(affected by rule)
Buckhannon, WV
(not affected by rule)
Capacity
Production
Capacity Factor
Employees
Plant Age
Capacity
Production
Capacity Factor
Employees
Plant Age
3,000,000ft3/yr
2,770,000ft3/yr
92%
250-499
mid-1980s (estimate)
2,500,000ft3/yr
I,929,000ft3/yr
77%
250-499
mid-1980s (estimate)
source: EPA facility survey, 1998.
17 PSL bending strength = 2900psi; stiffness = 2.0E.
18 GL bending strength = 2400-3000psi; stiffness = 1.8 - 2.1E
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Since PSL does compete directly with GL in some applications, there is slightly more information
available on it than on LSL. There is one published source of EWP prices that includes some retail PSL
delivered prices: Engineered Lumber Trends produced by The Irland Group in Winsor, ME. Exhibit 4-
10 presents a comparison of retail prices for PSL and GL. However, it is not possible to estimate firm
revenue using these prices because they are retail prices and there is considerable markup from the
producer to retail level. The prices listed in the table below show that PSL is more expensive than GL.
Exhibit 4-10: Retail Prices of GL and PSL Beams
Delivered to Los Angeles
Beam* Width Depth Price
(inches) (inches) per linear foot
PSL
(strength = 2900psi 3-1/2 11-7/8 $8.16
stiffness = 2.0E)
GL
(strength = 2400psi 3-1/8 12 $5.90
stiffness = 1.8E)
GL**
(strength = 3000psi 3-1/8 12 $7.08
stiffness = 2. IE)
Source: Engineered Lumber Trends (December 1999)
*Beam bending strength measured in pounds per square inch and
stiffness the beams modulus of elasticity or E
**Price of the 3000-psi GL is estimated by marking up the 2400psi
GL by 20% based on conversations with GL manufacturers
W/TJM has stated that PSL could be manufactured using waste material from plywood and
LVL. Other industry members dispute this due to the high quality material required for the product.
They feel that there is actually considerable wasted material in the production process in order to acquire
the high-quality wood fiber. Consequently, there are two conflicting arguments why PSL is able to sell
their product at the higher price.
Consumers view it as a superior product despite the availability of substitutes, providing it with
a higher profit margin.
W/TJM has used strategic behavior to maintain the price it requires to provide its product on the
market.
4.6.3 Comparison to Other EWP Products
Substitution among EWPs is a complicated dynamic. While the products can be viewed as
distinct commodities, they are integral components in the engineering design of a structure. Therefore, it
is possible for two EWP products to be both substitutes and complements. This is particularly true for
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W/TJM's products because they sell both the individual products and entire framing systems that include
either LSL or PSL, or both.
LSL is more comparable to framing lumber and solid sawn lumber than most other engineered
wood products. As a header it competes with LVL, GL, and PSL. However, as a column or stud, it is
fairly unique. It is also a very new technology, which may partially explain why competing firms have
not developed comparable products to date. Furthermore, LSL is marketed as a complementary product
to W/TJM's other engineered wood products (I-J, LVL, PSL) in various structures they design.
As an individual product, PSL has more direct substitutes than LSL. In shorter spanning
applications (such as headers or floor joists) LVL, I-J, GL, or LSL can be substituted for each other
depending on the application. In longer spanning applications, PSL competes with GL and steel.
W/TJM also designed PSL to complement their other products in pre-designed framing systems. If an
architect or engineer purchases the pre-designed framing system, PSL will be specified in the system.
This eliminates the possibility of substitutes in these applications. These characteristics are discussed in
greater detail below.
4.6.4 Market Ch aracterization
The EWP sector is characterized by imperfect competition among firms, particularly. In the case
of LSL and PSL, W/TJM is a monopoly producer because it operates all four facilities that produce
products affected by the rule. Although a number of other products can be substituted for both LSL and
PSL at the commodity level, W/TJM has a monopoly on these two products. In addition, they have
some ability to control material choice within the residential framing market because they produce
Computer Automated Design (CAD) programs used by architects, engineers, and lumber product
distribution companies to design structures. The individual using the program is actually purchasing a
complete architectural design, which competes with other architectural designs on the basis of total
design cost. Other EWP companies have not developed such programs to the same extent that W/TJM
has.
By pre-specifying its products as material inputs in these design packages, W/TJM assures that
they are used in the structure. Moreover, the individual product prices are less important to W/TJM
because the price the buyer using the program is concerned with is the price of the whole structure.
Further, because W/TJM makes all the products used in the design, they can sell any one of the
components at a loss provided the loss is made up by profits on the whole structure. In addition, W/TJM
also sells pre-designed floor, roof, and wall systems that incorporate its EWP products.
Therefore, W/TJM is a price setter in both these markets. The high price of PSL allows
producers of comparable GL a substantial markup over its costs. However, GL manufacturers offered
the opinion that PSL could not raise its price without suffering a loss in demand . Those same producers
believe that PSL is already selling at a loss to promote the sale of its other products, although this
information cannot be confirmed. Another complicating factor is the purchase of TJM by
Weyerhaeuser, Inc. Even if TJM had been selling PSL at a loss, Weyerhaeuser may not be willing to do
this, particularly if costs increase due to the NESHAP.
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4.6.5 Appropriateness of Partial Equilibrium Economic Analysis for the EWP Market
It is not appropriate to use a partial equilibrium analysis to quantify the impact of the rule on the
EWP sector. The EWP facilities that will have compliance costs due to the rule are not part of a
competitive market. W/TJM has a monopoly on both PSL and LSL because they are the only company
in the world producing both these products. Although the products compete to an extent with other
EWPs, W/TJM is able to use its market power to influence consumer purchasing decisions and prices.
Also, W/TJM may be able to absorb cost increases on one product with profits from another.
4.6.6 Analysis
The estimated total annual compliance costs for the three impacted EWP facilities are $3.2
million, which is only 2.4 percent of the overall compliance cost of the rule of $142 million per year.
Moreover, the costs are incurred by one of the largest wood products companies in the world. The costs
incurred by W/TJM are less than 1 percent the corporation's total annual revenues, which now include
revenues from the facilities purchased from TJM. Although the specific impact on W/TJM's
profitability cannot be determined, it is likely that W/TJM can afford the costs at the corporate level.
The Agency cannot be certain of the impact that these cost increases will have on the markets for
LSL and PSL. W/TJM could decide use their price setting power to increase the price of PSL and/or
LSL. This could lead to a decrease in consumer surplus. However, it is important to note the
distributional impact of this potential price increase. EWPs are often used in high end residential and
commercial construction. They typically provide luxury features, such as squeak proof floors, large
open rooms with high ceilings and no support columns.
Alternatively, W/TJM may choose not to raise the prices of PSL and LSL. For example, PSL is
already more expensive than GL, a substitute product. A rise in PSL prices could lead to a loss in
market share. Furthermore, production data showed that the PSL market is functioning at about 50
percent of its full capacity. These factors indicate that a PSL price increase may not be favorable to
W/TJM. W/TJM could choose to absorb the cost increase with profits from its other products in the
short run. In the long run they could abandon production of these products. In order to meet the demand
for their pre-designed structural systems, they could either produce or buy a substitute product to use in
the structural systems.
If W/TJM chooses to shut down these plants, there may be a number of unfavorable short run
impacts. First, the closures could mean the loss of 600-1250 jobs, spread over three communities. EPA
expects that the reduction in employment at these facilities would be offset by an increase in
employment at a competing firm, but the community impacts may remain.
The impact of the NESHAP on both consumers and the individual facilities and firms will
depend upon corporate strategy. Given the acquisition of Trus Joist MacMillan by Weyerhaeuser,
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corporate decisions and long term strategy are more influential than what could be represented in a
model.
4.6.7 Con elusions
Although the specific impacts to the EWPs sector cannot be determined, it is unlikely that
substantial economic losses will result. The cost burden of this sector is minimal in comparison to the
other sectors. Furthermore, the affected facilities are all owned by W/TJM, which has sufficient
resources to handle the compliance costs. Even if W/TJM passes this cost on to consumers, the price
increase is likely to be minimal as substitute products are available.
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4.7 References
Abt Associates Inc. 1999. Profile of the Plywood and Wood Composite Industries. Prepared for Larry
Sorrels, Innovative Strategies and Economic Group, Air Quality Strategies and Standards
Division, Office of Air Quality Planning and Standards, U.S. Environmental Protection Agency,
Research Triangle Park, NC. December
Abt Associates Inc. 2000. Economic Analysis Methodology for the Plywood and Wood Composite
Industries. Prepared for Larry Sorrels, Innovative Strategies and Economic Group, Air Quality
Strategies and Standards Division, Office of Air Quality Planning and Standards, U.S.
Environmental Protection Agency, Research Triangle Park, NC. March.
U.S. Environmental Protection Agency. 1998. Industry Specific Information Collection Request (ICR)
for the Development of Plywood and Particleboard Maximum Achievable Control Technology
(MACT) Standards. Air Quality Strategies and Standards Division, Office of Air Quality
Planning and Standards, U.S. Environmental Protection Agency, Research Triangle Park, NC.
U.S. Environmental Protection Agency. 1999a. OAQPS Economic Analysis Resource Document. Air
Quality Strategies and Standards Division, Office of Air Quality Planning and Standards, U.S.
Environmental Protection Agency, Research Triangle Park, NC.
U.S. Environmental Protection Agency. 1999b. Economic Impact Analysis for the Polymers & Resins
IIINESHAP. Air Quality Strategies and Standards Division, Office of Air Quality Planning and
Standards, U.S. Environmental Protection Agency, Research Triangle Park, NC.
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5 SMALL BUSINESS IMPACTS
Under the requirements of the Regulatory Flexibility Act (RFA) of 1980, Federal regulatory
agencies must give special consideration to small entities that are affected by regulatory actions. In
1996, amendments to the RFA under the Small Business Regulatory Enforcement Fairness Act
(SBREFA) added certain requirements associated with analyses and procedures associated with
determining whether a regulatory action will have a significant impact on a substantial number of small
entities (U.S. EPA, 1999a, 1999b).
5.1 Results in Brief
The screening analysis of small business impacts presented in this EIA chapter indicates that 17
of the 83 businesses affected by this rule are small. Of these 17 small firms, ten have annual compliance
costs of 1 percent or greater of their sales. Of these 10 firms, three have annual compliance costs of 3
percent or greater of their sales. Of the 32 facilities owned by these 17 small firms, only one facility is
predicted to close in order to avoid incurring costs associated with compliance with the rule. This
analysis supports a certification of no significant impact on a substantial number of small entities
(SISNOSE) for this rule because, while a few small firms may experience significant impacts, there will
not be a substantial number incurring such a burden.
The small business impacts depending on the eligibility of sources to become part of a delisted
low-risk subcategory can be found in Appendix A of this RIA.
5.2 Introduction
The NESFIAP for the plywood and composite wood industries will affect the owners of the
facilities that will incur compliance costs to control their F£AP emissions. The owners, either firms or
individuals, are the entities that will bear the financial impacts associated with these additional operating
costs. The rule has the potential to impact all firms owning affected facilities, both large and small. This
section presents the results of EPA's small business impact analysis of the impact the NESHAP for the
Plywood and Composite Wood Industries on small businesses. The analysis was performed in two
stages: a screening-level analysis, and an examination of impacts on small businesses developed using
the models described in Chapter 4.
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The screening analysis provides EPA with a preliminary estimate of the magnitude of impacts
the NESHAP may have on the ultimate domestic parent companies that own facilities EPA expects to be
impacted by the standard. The analysis focused on small firms because they may have more difficulty
complying with a new regulation or affording the costs associated with meeting the new standard. This
section first describes the data sources used in the screening analysis, the methodology we applied to
develop estimates of impacts, the results of the analysis, and conclusions about the results. The results
of the impact assessment specific to small businesses that own affected facilities follows. Detailed
documentation of the screening analysis presented in this section is contained in the economic impact
analysis (EIA).
5.3 Screening Analysis Data Sources
The screening analysis was based on the following information:
Industry Specific Information Request (ICR) for the Development of Plywood and Particleboard
MACT Standards (U.S. EPA, 1998).
Profile of the Plywood and Composite Wood Products Industries (Abt Associates, January
2000).
• Estimated Nationwide Costs of Control: Plywood and Composite Wood Products (MRI, April
14, 2000).
• Dun & Bradstreet, Ward's Business Directory, and Internet research on facility and firm
employment and sales.
5.4 Screening Analysis Methodology
Cost Analysis
After summing annual compliance costs for each affected facility associated with a given parent
firm, EPA developed ratios of firm-level compliance costs to firm-level sales. The preparation of cost to
sales ratios is atypical part of screening analyses such as this one. The analysis incorporated firm level
compliance costs from the most recent facility compliance cost estimates for all affected facilities. The
firm sales data for the majority of the firms with affected facilities was obtained through a search of the
Dun & Bradstreet (D&B) company database. The information obtained from D&B was supplemented
with data from firm web sites and several other business databases available through the Internet (e.g.,
Zapdata, Hoover's Online, Thomas' Register, and Lycos Companies Online).
Profitability Analysis
5-2
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For the second step in the screening analysis, EPA reviewed the profitability of only those firms
with affected facilities with a cost to sales ratio (C/S) greater than 1 percent. Specifically, EPA
examined a measure of profitability called the net profit margin, also known as the return on sales ratio
(R/S), calculated by dividing net profit after taxes by annual net sales. Profitability data is not publicly
available for those affected firms with cost /sales ratios greater than 1 percent because they are all
privately held firms. EPA estimated profitability according to industry-wide average profitability
measures available from public sources. Exhibit 5-1 presents the profitability measure of R/S by product
category.
Exhibit 5-1: Net Profit Margins by Product Type
Product Category 1997 Return on Sales Ratio
Softwood, Plywood, and Veneer 1.7
Oriental Strandboard 3.5
Other Wood Composites 3.5
Engineered Wood Products* 5.0
Multiple Processes** 2.6
Notes:
Source: Dun & Bradstreet (1999). Indicator values are based on median
values of the industrial sample.
*Inchides 1998 data for Structural Wood Members, the only data
reported for this sector.
"Firms with multiple product lines were assigned an R/S ratio based on
the average of the R/S ratios for firms with Softwood Plywood and
Other Wood Composite product lines.
5.5 Screening Analysis Assumptions
Because there were certain gaps in the data, EPA had to make assumptions regarding some
affected firms' employment and sales data as follows.
• For those affected facilities for which no parent company data were available, EPA assumed that
the facility represents the ultimate parent. EPA then assumed that the employees or the sales
associated with the facility were the same for the parent firm.
For 8 affected firms for which Dun & Bradstreet, Ward's, or Internet sales data was not available
at the firm or facility level, EPA applied a sales estimate based on the average sales for firms in
the same product and employee size category.
• For one affected firm, EPA obtained employment information for all three of its identified
facilities and sales information for two of the three. EPA extrapolated the sales data on a dollar
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per employee basis from the two facilities with complete data to the facility with only
employment data and added those sales to estimate the firm's total sales.
5.6 Screening Analysis Results
Cost Analysis
Based on the results of the C/S ratio test, EPA developed the following summary information.
• The total number and percent of affected firms with C/S ratios greater than 3 percent.
• The total number and percent of affected small firms with C/S ratios greater than 3 percent.
The total number and percent of affected firms with C/S ratios greater than 1 percent.
The total number and percent of affected small firms with C/S ratios greater than 1 percent.
• The median and mean C/S ratios for the following groups of firms:
• All firms.
• Small firms.
• Firms owning affected softwood plywood and veneer facilities.
• Firms owning affected oriented strand board facilities.
• Firms owning affected other wood composite products facilities.19
Firms owning affected engineered wood product facilities.
Firms owning affected facilities that make multiple products.
The screening analysis showed that of the 52 firms that own facilities incurring both capital and
monitoring, recordkeeping , and reporting (MRR costs), 17 of them (33 percent) are small firms
according to the U.S. Small Business Administration's "Small Business Size Standards Matched to
NAICS Codes" (U.S. SBA, 2000). Small firms with affected facilities had a median C/S of 1.22 percent.
The remaining 35 firms (67 percent) are large, with a median C/S ratio of 0.33 percent. Overall, the
weighted median C/S ratio for all firms is 0.62 percent. Exhibit 5-2 summarizes this information, along
with the mean, maximum and minimum C/S by firm size category.
1'Medium density fiberboard, hardboard, conventional particle board and molded particleboard.
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Firm
Size1
Small
Large
Total/
Weighted
Average
Number of
Affected
Firms2
17
35
52
Exhibit 5-2:
Percent of
Total Affected
Firms
33.0%
67.0%
100.0%
Affected Firms by Size
Median C/S
Ratio
1.2%
0.3%
0.6%
Mean
C/S Ratio
2.3%
0.6%
1.2%
Maximum
C/S Ratio
8.3%
5.1%
8.3%
Minimum
C/S Ratio
0.53%
0.01%
0.01%
Notes:
'For those firms for which firm size information was not available, EPA assumed a typical firm size
within the product type category.
2Based on affected facilities only. Includes the firm that has capital costs but no annual costs.
When screened by process type,20 EPA found that the affected softwood plywood and veneer
firms (40 percent of all firms), other composite wood firms (25 percent of all firms) and firms with
multiple processes (29 percent of all firms) make up the majority of affected firms. The firms owning
facilities that produce softwood plywood have the highest median C/S ratio, 0.82 percent, followed by
the owners of other composite wood facilities, with a mean C/S ratio of 0.41 percent. See Exhibit 5-3
for a summary of the data by process type, including mean, maximum and minimum C/S ratios.
20Firms categorized according to the process types associated with the affected facilities. Firms owing
facilities with more than one process type were assigned to the "Multiple Processes" category.
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Process Type1
Softwood Plywood/Veneer
Oriented Strand Board
Other Wood Composites2
Engineered Wood Products
Multiple Processes
Total/Weighted Average3
Exhibit 5-3:
Number of
Affected
Firms3
21
3
13
0
15
52
Affected Firms by Process Type
Percent of Total
Affected Firms
40.4%
5.8%
25.0%
0.0%
28.8%
100.0%
Median
C/S Ratio
0.8%
0.2%
0.4%
n/a
0.4%
0.6%
Mean
C/S
Ratio
1.1%
0.7%
2.1%
n/a
0.6%
1.2%
Maximum
C/S Ratio
8.3%
1.9%
8.2%
n/a
2.0%
8.3%
Minimum
C/S Ratio
0.01%
0.01%
0.03%
n/a
0.01%
0.01%
Notes:
'Firms categorized according to the process types associated with the affected facilities. Firms owing facilities
with more than one process type were assigned to the "Multiple Processes" category.
Includes Medium Density Fiberboard, Hardboard, and Particleboard (conventional and molded).
3Based on affected facilities only (facilities incurring capital and MRR costs). Includes one firm that has
capital costs but no annual costs.
Of the four firms with C/S ratios of 3 percent or greater, three are small. Ten small firms have
C/S ratios of one percent or greater out of 16 in this category. One large firm has a C/S ratio of 3 percent
or greater and six of them have C/S ratios of one percent or greater. The other wood composite category
has the most firms with C/S ratios of 3 percent or greater (three out of the four). The softwood plywood
has seven firms followed by other wood composites with five firms with C/S ratios of one percent or
greater (out of 16). The C/S screening results are presented in Exhibits 4 and 5, below. These tables
also compare the number of affected firms (i.e., firms with facilities incurring only MRR costs as well as
those incurring capital and MRR costs) to the estimated total number of firms nationally.
5-6
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Exhibit 5-4: Affected Firms with C/S Ratios of 3 Percent or Greater
Number of Firms Number of Firms as a Percent Firms as a Percent
Category Nationwide* Affected Firms of National Firms of Affected Firms
Firm Size
Small
Large
Undetermined
Total/Weighted Average
Softwood Plywood/Veneer
Oriented Strand Board
Other Wood Composites
Engineered Wood Products
Multiple Processes
Total/Weighted Average
38
42
3
83
Process Type
30
2
19
11
21
83
o
J
1
n/a
4
1
0
3
n/a
0
4
7.9%
2.4%
n/a
4.8%
3.3%
0.0%
15.8%
n/a
0.0%
4.8%
17.6%
2.9%
n/a
7.7%
??
??
??
n/a
??
7.7%
Notes:
See notes to Exhibits 5-2 and 5-3 above.
* Estimate.
5-7
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Exhibit 5-5:
Category
Affected Firms with C/S Ratios of
1 Percent or
Greater
Firms as a Firms as a Percent of
Number of Firms Number of Percent of Affected Firms by
Nationwide* Firms National Firms Category
Firm Size
Small
Large
Undetermined
Total/Weighted Average
38
42
3
83
10
6
n/a
16
26.3%
14.3%
n/a
19.3%
58.8%
17.1%
n/a
30.8%
Process Type
Softwood Plywood/Veneer
Oriented Strand Board
Other Wood Composites
Engineered Wood Products
Multiple Processes
Total/Weighted Average
30
2
19
11
21
83
7
1
5
0
o
J
16
23.3%
50.0%
26.3%
0.0%
14.3%
19.3%
??
??
??
n/a
??
??
Notes:
See notes to Exhibits 5-2 and 5-3 above.
* Estimate. In a few cases, a firm's process type changed when all facilities were taken into account.
Profitability Analysis
Based on the results of the profitability analysis performed as described above, EPA developed
the following information.
The total number and percent of affected firms21 whose C/S ratio: 1) exceeds their profitability
ratio by 50 percent or more; 2) is between zero and 50 percent; or 3) is less than or equal to their
profitability ratio.
The total number and percent of affected small firms whose C/S ratio: 1) exceeds their
profitability ratio by 50 percent or more; 2) is between zero and 50 percent; or 3) is less than or
equal to their profitability ratio.
21 That is, firms with C/S ratios greater than one percent.
5-8
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When EPA compared the C/S ratio to the R/S ratio for those firms with C/S ratios greater than one
percent, EPA found that in 14 of the 16 cases, the C/S ratio exceeded the R/S by over 50 percent. Two
firms' C/S ratio exceeded their R/S ratio by between zero and 50 percent. Exhibit 5-6 presents these
results in tabular form.
Exhibit 5-6: C/S to R/S comparison for firms with C/S of one percent or greater
Firm Size
Small
Large
Total/
Weighted
Average
C/S exceeds R/S by over 50
percent
Number Percent of Total
of Firms Firms with Costs
10 ??
4 ??
14 ??
C/S exceeds R/S by between 0
and 50 percent
Number Percent of Total
of Firms Firms with Costs
1 ??
1 ??
C/S is less
Number
of Firms
0
0
0
than or equal to R/S
Percent of Total
Firms with Costs
n/a
n/a
n/a
Notes:
See notes to Exhibits 5-2 and 5-3 above.
EPA focused its review of the results for the 16 firms with C/S ratios greater than one percent.
For 4 of the 10 small firms in this category, no sales data were available. EPA developed sales estimates
for these firms according to the average sales for firms with the same number of employees in the same
product category. It is possible that in reality, these firms have parent-level sales that differ from those
assumed in the current analysis. However, based on extensive research into domestic parent-level
employment and sales data, EPA expects that this information is not publicly available for these firms.22
For the remaining 6 small firms with C/S ratios greater than one percent, EPA assumed that the domestic
parent firm sales information obtained from D&B, Wards, or the other Internet sources are reliable for
the purpose of this analysis.
EPA assumed that the firm size and sales data are reliable for 5 of the 6 large firms with C/S
ratios greater than 1 percent. One firm, Sierra Pine (a California Limited Partnership), should be
22Research indicates that one of the small firms with particularly high impacts, Dominance Industries (d.b.a.
Pan Pacific Products) is a single location private corporation owned Philip Ling. However, Dr. Ling is also the
owner of a group of companies around the world and is the chairman of Malaysian-based Pan Pacific Asia Berhad,
an investment holding company that also provides management services. Pan Pacific Asia's 1998 sales were $88
million (U.S.). The group manufactures and distributes timber logs and timber moldings. Other activities of the
company are stockbroking and investment holding. While this information is not necessarily applicable to the
ultimate domestic parent of Dominance Industries' affected facility, is indicates that the facility's owner has access
to financial capital beyond what the sales from the facility generate.
5-9
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regarded as a special case. Sierra Pine recently purchased three affected facilities from Weyerhaeuser,
greatly increasing the total costs associated with Sierra Pine. However, Sierra Pine's sales data is from a
query of D&B data performed in late 1999. As a result, the sales associated with recent acquisition of
the three plants are not reflected in Sierra Pine's sales data. If, for instance, Sierra Pine's total
compliance costs were prorated to exclude the costs attributed to the plants previously owned by
Weyerhaeuser, Sierra Pine's C/S would change from 4.9 percent to 1.7 percent.
EPA also tested the sales estimates applied to large firms. The one large firm for which EPA
assumed sales had a C/S ratio well below one percent. In this case, the firm's actual sales would have to
be approximately half of the assumed sales in order for the firm's C/S ratio to exceed one percent. EPA
believes that while the assumed sales are potentially higher than the actual sales of this firm, it is less
likely that the firm has actual sales that would result in a C/S ratio over one percent.
EPA used industry-wide measures of profitability because such information is not available for
privately held firms. Because all the affected firms with C/S ratios above one percent are privately held,
firm-specific information regarding R/S is not publicly available. If firm specific profitability measures
were available, it is likely that a comparison of firms' C/S ratio to their R/S ratio would produce
significantly different results. It should be noted that while overall industry return on sales may be low,
it is not necessarily the case for any given firm.
All ten small firms with C/S ratios of one percent or greater had a C/S ratio that exceeded the
industry profitability measure of return on sales. For the three small firms whose C/S ratios were three
percent or greater, the comparison of compliance costs and profitability measures showed that their C/S
ratios exceeded the industry R/S by over 100 percent. This divergence between the C/S ratios for these
firms and the industry R/S is an indicator that these three firms may experience high impacts as a result
of incurring the costs of compliance associated with the rule. However, the results of the economic
impact analysis show that the affected facilities owned by these firms will continue to operate after
controls have been applied to comply with the rule. Therefore, the impact on these firms, while
relatively high, are not enough to lead them to cease operations at these facilities.
5.7 Screening Analysis Conclusions
The Regulatory Flexibility Act (RFA) generally requires an agency to prepare a regulatory
flexibility analysis of any rule subject to notice and comment rulemaking requirements under the
Administrative Procedure Act or any other statute unless the agency certifies that the rule will not have a
significant economic impact on a substantial number of small entities. Small entities include small
businesses, small organizations, and small governmental jurisdictions.
5-10
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For purposes of assessing the impacts of today's rule on small entities, small entity is defined as:
(1) a small business according to Small Business Administration size standards by 5-digitNAICS code
of the domestic parent owning entity (in this case, 500 employees); (2) a small governmental jurisdiction
that is a government of a city, county, town, school district or special district with a population of less
than 50,000; and (3) a small organization that is any not-for-profit enterprise which is independently
owned and operated and is not dominant in its field.
After considering the economic impact of today's rule on small entities, we certify that this
action will not have a significant impact on a substantial number of small entities. In accordance with
the RFA, we conducted an assessment of the standard on small businesses in the industries affected by
the rule. Based on SBA size definitions for the affected industries and reported sales and employment
data, the Agency identified 17 of the 52 companies, or 32 percent, owning affected facilities as small
businesses. These facilities incur capital and MRR costs associated with the rule. There 31 other firms
that only incur MRR costs; and all of these firms are small. Although small businesses represent 32
percent of the affected companies within the source category, they are expected to incur only 6 percent
of the total industry compliance costs of $143 million. There are only three small firms with compliance
costs equal to or greater than 3 percent of their sales. In addition, there are seven small firms with cost-
to-sales ratios between 1 and 3 percent.
We performed an economic impact analysis to estimate the changes in product price and
production quantities for the firms affected by this rule. The analysis shows that of the 32 facilities
owned by affected small firms, only one would be expected to shut down rather than incur the cost of
compliance with the rule. Although any facility closure is cause for concern, it should be noted that the
baseline economic condition of the facilities predicted to close affects the closure estimate provided by
the economic model. Facilities which are already experiencing adverse economic conditions for reasons
unconnected to this rule are more vulnerable to the impact of any new costs than those that are not.
This analysis indicates that therule should not generate a significant impact on a substantial
number of small entities for the coatings manufacturing source category for the following reasons. First,
of the 10 small firms that have compliance costs greater than 1 percent of sales, only 3 have compliance
costs of greater than 3 percent of sales. Second, the results of the economic impact analysis show that
only 1 facility owned by a small firm out of the 32 facilities owned by affected small firms may close
due to the implementation of this rule. The facility that may close rather than incur the cost of
compliance appear to have low profitability levels currently. It also should be noted that the estimate of
compliance costs for this facility is likely to be an overestimate due to the lack of facility-specific data
available to assign a precise control cost in this case. In sum, this analysis supports today's certification
under the RFA because, while a few small firms may experience significant impacts, there will not be a
substantial number incurring such a burden.
Although this rule will not have a significant economic impact on a substantial number of small
entities, we minimized the impact of this rule on small entities in several ways. First, we considered
5-11
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subcategorization based on production and throughput level to determine whether smaller process units
would have a different MACT floor than larger process units. Our data show that subcategorization
based on size would not result in a less stringent level of control for the smaller process units. Second,
in light of cost considerations, we chose to set the emission limitation at the MACT floor control level
and not at a control level more stringent than the MACT floor control level. Thus, the control level
specified in the PCWP rule is the least stringent allowed by the CAA. Third, the rule contains multiple
compliance options to provide facilities with the flexibility to comply in the least costly manner while
maintaining a workable and enforceable rule. The compliance options include emissions averaging and
production-based emission limits which allow inherently low-emitting process units to comply without
installing add-on control devices and facilities to use innovative technology and pollution prevention
methods. Fourth, the rule includes multiple test method options for measuring methanol, formaldehyde,
and total HAP.
5.8 Economic Impact Analysis Results for Small Businesses
Exhibit 5-7 provides a summary of the economic impact on small businesses associated with the
estimated market adjustments due to compliance with the NESHAP. As shown, the Agency's economic
analysis indicates that the 17 small businesses that own 18 affected process lines will be affected as
follows:
Exhibit 5-7: Economic Impacts on Small Businesses Associated with
Projected Market Adjustments*
Baseline
Revenues ($ 394,393
thousands/yr)**
Production (million 1,791,408
m3/yr)
Compliance Costs ($ 0
thousands/yr)
Operating Process 1 8
Lines
Employment loss 3,621
(FTEs)
Changes
With Regulation Absolute
387,229 7,164
1,737,969 53,439
9,194 9,194
17 1
3,513 108
from Baseline
Percent
-1.82
-2.98
n/a
-5.56
-2.98
5-12
-------
Notes:
* Does not include small businesses that own facilities with
MRR costs only.
** Estimated using production and price data in economic
impact model
FTEs = full-time equivalents
The one process line closure predicted by the economic impact model is owned by a small
business. This results in a 5.6 percent decrease in the number of process lines owned by small business.
Overall, the small businesses' revenues decrease by just under 2 percent, their production decreases by
just under 3 percent, and their total employment decreases by just under 3 percent, or 108 FTEs. The
estimate of employment loss assumes that the production per employee at the affected facilities owned
by small firms is the same as the industry average.
5.9 References
Abt Associates Inc. 2000a. Small Business Screening Analysis for the Plywood and Wood Composite
Industries: Revised Draft. Prepared for Larry Sorrels, Innovative Strategies and Economic
Group, Air Quality Strategies and Standards Division, Office of Air Quality Planning and
Standards, U.S. Environmental Protection Agency, Research Triangle Park, NC. June.
Abt Associates Inc. 2000b. Corporate employment and sales data collected through Internet business
information resources, including Dun & Bradstreet, Hoover's On-line, Lycos Companies On-
line, Thomas' Register, Ward's Business Directory, and Zapdata.com.
Abt Associates Inc. 1999. Profile of the Plywood and Wood Composite Industries. Prepared for Larry
Sorrels, Innovative Strategies and Economic Group, Air Quality Strategies and Standards
Division, Office of Air Quality Planning and Standards, U.S. Environmental Protection Agency,
Research Triangle Park, NC. December.
Midwest Research Institute. 1999. Memorandum from Becky Nicholson and Melissa Icenhour to Mary
Tom Kissell and Larry Sorrels, U.S. EPA: "Preliminary facility-specific cost estimates for
implementation of the plywood and composite wood products NESHAP." October 20.
Midwest Research Institute. 2000. "Estimated Nationwide Costs of Control: Plywood and Wood
Composite Products." April 14.
U.S. Environmental Protection Agency. 1998. Industry Specific Information Collection Request (ICR)
for the Development of Plywood and Particleboard Maximum Achievable Control Technology
5-13
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(MACT) Standards. Air Quality Strategies and Standards Division, Office of Air Quality
Planning and Standards, U.S. Environmental Protection Agency, Research Triangle Park, NC.
U.S. Environmental Protection Agency. 1999a. OAQPS Economic Analysis Resource Document. Air
Quality Strategies and Standards Division, Office of Air Quality Planning and Standards, U.S.
Environmental Protection Agency, Research Triangle Park, NC.
U.S. Small Business Administration. 2000. "Small Business Size Standards Matched to NAICS
Codes."
5-14
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6 QUALITATIVE ASSESSMENT OF BENEFITS OF EMISSION REDUCTIONS
6-15
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The emission reductions achieved by this environmental regulation will provide benefits to
society by improving environmental quality. This chapter provides information on the types and levels
of social benefits anticipated from the plywood and composite wood products (PCWP) NESHAP,
including the health and welfare effects associated with the HAPs and other pollutants emitted by
affected sources.
In general, the reduction of HAP emissions resulting from the regulation will reduce human and
environmental exposure to these pollutants and thus, reduce potential adverse health and welfare effects.
This chapter provides a general discussion of the various components of total benefits that may be
gained from a reduction in HAPs through this NESHAP. The rule will also achieve reductions of coarse
particulate matter (PM10), volatile organic compounds (VOC), and carbon monoxide (CO). There will
also be emissions increases in nitrogen oxides (NOx) and sulfur dioxide (SO2) associated with the use of
incineration-based controls. The benefits and disbenefits of the PM, NOx, and SO2 emissions
reductions and increases are presented separately from the benefits associated with HAPs and CO. The
benefits and disbenefits associated with PM, NOx, and SO2, along with the benefits associated with
HAPs and CO are presented in this chapter.
6.1 Identification Of Potential Benefit Categories
The benefit categories associated with the emission reductions predicted for this regulation can
be broadly categorized as those benefits which are attributable to reduced exposure to HAPs, which are
also VOCs, and those attributable to reduced exposure to other pollutants. Some of the HAPs associated
with this regulation have been classified as probable or possible human carcinogens. As a result, one of
the benefits of the regulation is a reduction in the risk of cancer. Other benefit categories include:
reduced incidence of neurological effects and irritants associated with exposure to noncarcinogenic
HAPs, reduced incidence of cardiovascular and central nervous system problems associated with CO.
In addition to health impacts occurring as a result of reductions in HAP and CO emissions, there are
welfare impacts which can also be identified. In general, welfare impacts include effects on crops and
other plant life, materials damage, soiling, and acidification of estuaries. Each category is discussed
separately in the following section.
6.2 Qualitative Description Of Air Related Benefits - HAPs and CO
The operation of plywood and composite wood product sources produces emissions of
acetaldehyde, acrolein, benzene, formaldehyde, manganese, methanol, methylene chloride, and phenol.
The qualitative health and welfare benefits of these HAPs, and CO reductions are summarized separately
in the discussions below.
6.2.1 Benefits of Reducing HAP Emissions
6-1
-------
According to emission estimates, the regulation will reduce approximately 11,000 tons of
emissions of HAPs such as acetaldehyde, acrolein, benzene, formaldehyde, manganese, methanol,
methylene chloride, and phenol at all affected plywood and composite wood products sources.
Human exposure to these HAPs may occur directly through inhalation or indirectly through
ingestion of food or water contaminated by HAPs or through dermal exposure. HAPs may also enter
terrestrial and aquatic ecosystems through atmospheric deposition. HAPs can be deposited on vegetation
and soil through wet or dry deposition. HAPs may also enter the aquatic environment from the
atmosphere via gas exchange between surface water and the ambient air, wet or dry deposition of
particulate HAPs and particles to which HAPs adsorb, and wet or dry deposition to watersheds with
subsequent leaching or runoff to bodies of water.1 This analysis is focused only on the air quality
benefits of HAP reduction.
6.2.1.1 Health Benefits of Reduction in HAP Emissions.
The HAP emission reductions achieved by this rule are expected to reduce exposure to ambient
concentrations of acetaldehyde, acrolein, benzene, formaldehyde, manganese, methanol, methylene
chloride, and phenol, which will reduce a variety of adverse health effects considering both cancer and
noncancer endpoints. Acrolein is classified as a possible human carcinogen, according to the Integrated
Risk Information System (IRIS) 2, an EPA system for classifying chemicals by cancer risk. This means
that there is some evidence to indicate that exposure to this chemical could cause an increased risk of
cancer in humans. Acrolein may also cause general respiratory congestion and upper respiratory tract
irritation. Formaldehyde and acetaldehyde are classified as probable human carcinogens, according to
IRIS. Therefore, a reduction in human exposure to acrolein, formaldehyde, and acetaldehyde could lead
to a decrease in cancer risk and ultimately to a decrease in cancer mortality.
The remaining HAP emitted by plywood and composite wood products sources, phenol and
methanol, have not been shown to cause cancer. However, exposure to these pollutants may still result
in adverse health impacts to human and non-human populations. In particular, methanol has been shown
to be an irritant causing dizziness, headaches, and slight visual impairment.
For the HAPs covered by the NESHAP, evidence on the potential toxicity of the pollutants
varies. However, given sufficient exposure conditions, each of these HAPs has the potential to elicit
adverse health or environmental effects in the exposed populations. It can be expected that emission
reductions achieved through the NESHAP will decrease the incidence of these adverse health effects.
6.2.1.2 Welfare Benefits of Reduction in HAP Emissions.
The welfare effects of exposure to HAPs have received less attention from analysts than the
health effects. However, this situation is changing, especially with respect to the effects of toxic
substances on ecosystems. Over the past ten years, ecotoxicologists have started to build models of
ecological systems which focus on interrelationships in function, the dynamics of stress, and the adaptive
potential for recovery. This is consistent with the observation that chronic sub-lethal exposures may
affect the normal functioning of individual species in ways that make it less than competitive and
therefore more susceptible to a variety of factors including disease, insect attack, and decreases in habitat
quality.3 All of these factors may contribute to an overall change in the structure (i.e., composition) and
function of the ecosystem.
6-2
-------
The adverse, non-human biological effects of HAP emissions include ecosystem and recreational
and commercial fishery impacts. Atmospheric deposition of HAPs directly to land may affect terrestrial
ecosystems. Atmospheric deposition of HAPs also contributes to adverse aquatic ecosystem effects.
This not only has adverse implications for individual wildlife species and ecosystems as a whole, but
also the humans who may ingest contaminated fish and waterfowl. In general, HAP emission reductions
achieved through the NESHAP should reduce the associated adverse environmental impacts.
6.2.2 Benefits of Reduced CO Emissions Due to HAP Controls
As is mentioned above, controls that will be required on plywood and composite wood products
sources to reduce HAPs will also reduce emissions of CO. The EPA Staff Paper for CO provides a
summary of the health effects information pertinent to the NAAQS for CO4. This information is a
summary of information from the CO Criteria Document (CD)5, which provides a critical review of a
wide variety of health effects studies, including a limited number of newer health effects studies, as well
as older studies. Some were conducted at extremely high levels of CO (i.e. much higher than typically
found in ambient air); however, the focus of this Staff Paper is on those key controlled-exposure
laboratory studies and newer epidemiology studies, which were conducted with human subjects at COHb
levels that are most relevant to regulatory decision making.
Based on the CD, staff concludes that human health effects associated with exposure to CO
include cardiovascular system and central nervous system (CNS) effects. In addition, consideration is
given in the CD to combined exposure to CO, other pollutants, drugs, and the influence of environmental
factors. Cardiovascular effects of CO are directly related to reduced oxygen content of blood caused by
combination of CO with Hb to form COHb, resulting in tissue hypoxia. Most healthy individuals have
mechanisms (e.g. increased blood flow, blood vessel dilation) which compensate for this reduction in
tissue O2, although the effect of reduced maximal exercise capacity has been reported in healthy persons
at low COHb levels. Several other medical conditions such as occlusive vascular disease, chronic
obstructive lung disease, and anemia can increase susceptibility to potential adverse effects of CO during
exercise.
Effects of CO on the CNS involve both behavioral and physiological changes. These include
modification of visual perception, hearing, motor and sensorimotor performance, vigilance, and
cognitive ability. Developmental toxicity effects of low-level ambient CO exposures, though not well
studied in humans, may pose a threat to the fetus. Finally, environmental factors (e.g. altitude,
temperature), drug interaction, and pollutant interaction also can play a role in the public health impact
of ambient CO exposure. There is little new information on these effects.
Exhibit 6-1 is a summary of key health effects and studies which have been identified as being
most pertinent to a regulatory decision on the NAAQS for CO6. Each of the key studies is considered in
light of limitations discussed in the CD and the Staff Paper. For example, epidemiological studies are
limited by factors such as exposure uncertainties and confounding variables, and many of the controlled
exposure studies of CO health effects have been hampered by uncertainties regarding COHb
measurements, relatively small sample sizes, and lack of "real world" exposure conditions.
-------
Exhibit 6-1. Key Health Effects Of Exposure To Ambient
Carbon Monoxide
Target
Organ
Health Effectsa'b
Tested Population0
References
Lungs
Heart
Heart
Heart
Heart
Brain
Reduced maximal exercise duration with 1-h
peak CO exposures resulting in >2.3% COHb
(GC)
Reduced time to ST segment change of the
ECG (earlier onset of myocardial ischemia)
with peak CO exposures resulting in >2.4%
COHb (GC)
Reduced exercise duration because of increased
chest pain (angina) with peak CO exposures
resulting in >3% COHb (CO-Ox)
Increased number and complexity of arrhythmia
(abnormal heart rhythm) with peak CO
exposures resulting in >6% COHb (CO-Ox)
Increased hospital admissions associated
with ambient pollutant exposures
Central nervous system effects, such as
decrements in hand-eye coordination (driving or
tracking) and in attention or vigilance (detection
of infrequent events), with 1-h peak CO
exposures Q=5 to 20% COHb)
Healthy individuals
Individuals with
coronary artery
disease
Individuals with
coronary artery
disease
Individuals with
coronary artery
disease and high
baseline ectopy
(chronic arrhythmia)
Individuals >65 years
old with
cardiovascular
disease
Healthy individuals
Drinkwater et al. (1974)
Raven etal. (1974b)
Horvathetal. (1975)
Allredetal. (1989a,b;
1991)
Anderson et al. (1973)
Sheps etal. (1987)
Adams etal. (1988)
Kleinmanetal. (1989,
1998*)
Allredetal. (1989a,b;
1991)
Sheps etal. (1990)
Schwartz and Morris
(1995*)
Morris et al. (1995*)
Schwartz (1997*)
Burnett etal. (1997*)
Horvathetal. (1971)
Fodor and Winneke (1972)
Putzetal. (1976, 1979)
Benignusetal. (1987)
aThe EPA has set significant harm levels of 50 ppm (8-h average), 75 ppm (4-h average), and 125 ppm (1-h
average). Exposure under these conditions could result in COHb levels of 5 to 10% and cause significant health
effects in sensitive individuals.
bMeasured blood COHb level after CO exposure.
Tetuses, infants, pregnant women, elderly people, and people with anemia or with a history of cardiac or
respiratory disease may be particularly sensitive to CO.
"This table is a reproduction of Table 6-7 of the CD (p. 6-36, U.S. EPA, 1999a).
*Newer studies, published since completion of the last CO NAAQS review.
6-4
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Although acute poisoning induced by CO can be lethal and is probably the best known health
endpoint of CO, this only occurs at very high concentrations of CO (greater than 100 ppm, hourly
average), which are not pertinent to the setting of the NAAQS. In the ambient air, exposures to lower-
levels of CO predominate. Very little data are available demonstrating human health effects in healthy
individuals caused by or associated with exposures to low CO concentrations. Decrements in maximal
exercise duration and performance in healthy individuals have been reported at COHb levels of > 2.3%
an d > 4.3% (GC), respectively; however, these decrements are small and likely to affect only athletes in
competition. No effects were seen in healthy individuals during submaximal exercise, representing more
typical daily activities, at levels as high as 15 to 20 % COHb7. Most recent evidence of CNS effects
induced by exposure to CO indicates that behavioral impairments in healthy individuals should not be
expected until COHb levels exceed 20% (CO-Ox), well above what would be caused by typical ambient
air levels of CO8. Evidence of CO-induced fetal toxicity or of interactions with high altitudes, drugs,
other pollutants, or other environmental stresses remains uncertain or suggests that effects of concern
r^ ? oo
will occur in healthy individuals only with exposure to much higher levels of CO than are likely for
offsite receptors for these facilities 9.
6.3 Qualitative Description of Effects from Reductions and Increases in Emissions from Other
Pollutants Due to HAP Controls
As is mentioned above, controls that will be required on PCWP sources to reduce HAPs will
also reduce emissions of other pollutants, namely: PM10, PM25, and increase NOx and SO2 emissions.
For more information on these non-HAP emissions and emission reductions, please refer to Chapter 3 of
this PJA, the preamble for this rule, and the docket. The effects associated with exposure to PM (both
coarse and fine), NOx, and SO2 emissions are presented below.
6.3.1 Effects of NOx and Ozone Emissions.
Emissions of NOX produce a wide variety of health and welfare effects. Nitrogen dioxide can
irritate the lungs at high occupational levels and may lower resistance to respiratory infection, although
the research has been equivocal. NOX emissions are an important precursor to acid rain and may affect
both terrestrial and aquatic ecosystems. Atmospheric deposition of nitrogen leads to excess nutrient
enrichment problems ("eutrophication") in the Chesapeake Bay and several nationally important
estuaries along the East and Gulf Coasts. Eutrophication can produce multiple adverse effects on water
quality and the aquatic environment, including increased algal blooms, excessive phytoplankton growth,
and low or no dissolved oxygen in bottom waters. Eutrophication also reduces sunlight, causing losses
in submerged aquatic vegetation critical for healthy estuarine ecosystems. Deposition of nitrogen-
containing compounds also affects terrestrial ecosystems. Nitrogen fertilization can alter growth patterns
and change the balance of species in an ecosystem.
Nitrogen dioxide and airborne nitrate also contribute to pollutant haze (often brown in color),
which impairs visibility and can reduce residential property values and the value placed on scenic views.
NOX in combination with volatile organic compounds (VOC) also serves as a precursor to ozone.
Based on a large number of recent studies, EPA has identified several key health effects that may be
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associated with exposure to elevated levels of ozone. Exposures to ambient ozone concentrations have
been linked to increased hospital admissions and emergency room visits for respiratory problems.
Repeated exposure to ozone may increase susceptibility to respiratory infection and lung inflammation
and can aggravate preexisting respiratory disease, such as asthma. Repeated prolonged exposures (i.e., 6
to 8 hours) to ozone at levels between 0.08 and 0.12 ppb, over months to years may lead to repeated
inflammation of the lung, impairment of lung defense mechanisms, and irreversible changes in lung
structure, which could in turn lead to premature aging of the lungs and/or chronic respiratory illnesses
such as emphysema, chronic bronchitis, and asthma.
Those who work , play, or otherwise are active outdoors have the highest ozone exposures.
Children who are active playing outdoors during the summer have particularly high exposures. Further,
children are more at risk than adults from the effects of ozone exposure because their respiratory systems
are still developing. Adults who are outdoors and moderately active during the summer months, such as
construction workers and other outdoor workers, also are among those with the highest exposures.
These individuals, as well as people with respiratory illnesses such as asthma, especially children with
asthma, may experience reduced lung function and increased respiratory symptoms, such as chest pain
and cough, when exposed to relatively low ozone levels during periods of moderate exertion. In addition
to human health effects, ozone adversely affects crop yield, vegetation and forest growth, and the
durability of materials. Ozone causes noticeable foliar damage in many crops, trees, and ornamental
plants (i.e., grass, flowers, shrubs, and trees) and causes reduced growth in plants.
Particulate matter (PM) can also be formed from NOX emissions. Secondary PM is formed in the
atmosphere through a number of physical and chemical processes that transform gases such as NOX, SO2,
and VOC into particles. A discussion of the effects of PM on human health and the environment are
discussed further below. Overall, emissions of NOX from PCWP sources can lead to some of the effects
discussed in this section - either those directly related to NOX emissions, or the effects of ozone and PM
resulting from the combination of NOX with other pollutants.
6.3.2 Benefits of PM Reductions.
Scientific studies have linked PM (alone or in combination with other air pollutants) with a
series of health effects 10. Fine particles (PM25) can penetrate deep into the lungs to contribute to a
number of the health effects. These health effects include decreased lung function and alterations in lung
tissue and structure and in respiratory tract defense mechanisms which may be manifest in increased
respiratory symptoms and disease or in more severe cases, increased hospital admissions and emergency
room visits or premature death. Children, the elderly, and people with cardiopulmonary disease, such as
asthma, are most at risk from these health effects.
PM also causes a number of adverse effects on the environment. Fine PM is the major cause of
reduced visibility in parts of the U.S., including many of our national parks and wilderness areas. Other
environmental impacts occur when particles deposit onto soil, plants, water, or materials. For example,
particles containing nitrogen and sulfur that deposit onto land or water bodies may change the nutrient
balance and acidity of those environments, leading to changes in species composition and buffering
capacity. Particles that are deposited directly onto leaves of plants can, depending on their chemical
composition, corrode leaf surfaces or interfere with plant metabolism. Finally, PM causes soiling and
erosion damage to materials.
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Thus, reducing the emissions of PM and PM precursors from PCWP sources can help to
improve some of the effects mentioned above - either those related to primary PM emissions, or the
effects of secondary PM generated by the combination of NOX or SO2 with other pollutants in the
atmosphere.
6.3.3 Effects ofSO2 Emissions.
Very high concentrations of sulfur dioxide (SO2) affect breathing and ambient levels have been
hypothesized to aggravate existing respiratory and cardiovascular disease. Potentially sensitive
populations include asthmatics, individuals with bronchitis or emphysema, children and the elderly. SO2
is also a primary contributor to acid deposition, or acid rain, which causes acidification of lakes and
streams and can damage trees, crops, historic buildings and statues. In addition, sulfur compounds in the
air contribute to visibility impairment in large parts of the country. This is especially noticeable in
national parks.
PM can also be formed from SO2 emissions. Secondary PM is formed in the atmosphere
through a number of physical and chemical processes that transform gases, such as SO2, into particles.
Overall, emissions of SO2 can lead to some of the effects discussed in this section - either those directly
related to SO2 emissions, or the effects of ozone and PM resulting from the combination of SO2 with
other pollutants.
6.4 Lack Of Approved Methods To Quantify HAP Benefits
The most significant effect associated with the HAPs that are controlled with the rule is the
potential incidence of cancer. In previous analyses of the benefits of reductions in HAPs, EPA has
quantified and monetized the benefits of potential reductions in the incidences of cancer 11>12. In some
cases, EPA has also quantified (but not monetized) reductions in the number of people exposed to non-
cancer HAP risks above no-effect levels13.
Monetization of the benefits of reductions in cancer incidences requires several important inputs,
including central estimates of cancer risks, estimates of exposure to carcinogenic HAPs, and estimates of
the value of an avoided case of cancer (fatal and non-fatal). In the above referenced analyses, EPA
relied on unit risk factors (URF) developed through risk assessment procedures. The unit risk factor is a
quantitative estimate of the carcinogenic potency of a pollutant, often expressed as the probability of
contracting cancer from a 70 year lifetime continuous exposure to a concentration of one i-ig/m3 of a
pollutant. These URFs are designed to be conservative, and as such, are more likely to represent the
high end of the distribution of risk rather than a best or most likely estimate of risk.
In a typical analysis of the expected health benefits of a regulation (e.g., the Interstate Air
Quality Rule benefit analysis), health effects are estimated by applying changes in pollutant
concentrations to best estimates of risk obtained from epidemiological studies. As the purpose of a
benefit analysis is to describe the benefits most likely to occur from a reduction in pollution, use of high-
end, conservative risk estimates will over-estimate of the expected benefits of the regulation. For this
reason, we will not attempt to quantify the health benefits of reductions in HAPs unless best estimates of
risks are available. While we used high-end risk estimates in past analyses, recent advice from the EPA
Science Advisory Board (SAB) and internal methods reviews have suggested that we avoid using high-
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end estimates in current analyses. EPA is working with the SAB to develop better methods for
analyzing the benefits of reductions in HAPs.
While not appropriate for inclusion in our primary quantified benefits analysis, to estimate the
potential baseline risks posed by the PCWP source category and the potential impact of applicability
cutoffs, EPA performed for the proposal a "rough" risk assessment for 185 of the 223 facilities in the
PCWP source category. There are large uncertainties regarding all components of the risk quantification
step, including location of emission reductions, emission estimates, air concentrations, exposure levels
and dose-response relationships. However, if these uncertainties are properly identified and
characterized, it is possible to provide upper bound estimates of the potential reduction in inhalation
cancer incidence associated with this rule. It is important to keep in mind that these estimates will not
cover non-inhalation based cancer risks and non-cancer health effects.
The HAP included in this "rough" risk assessment at the proposal were acetaldehyde, acrolein,
benzene, formaldehyde, manganese, methanol, methylene chloride, and phenol. Of these HAP, four are
presently not considered to have thresholds: acetaldehyde, benzene, formaldehyde, and methylene
chloride.
Of the 185 facilities assessed, 148 facilities were found to pose cancer risks equal to or greater
than 1 in 1,000,000 to their surrounding population. Forty-six facilities were predicted to pose cancer
risks of 1 in 100,000 or greater, and two PCWP facilities were found to pose cancer risks equal to or
greater than 1 in 10,000.
If this rule is implemented at all PCWP facilities, annual cancer incidence would be reduced
from about 0.09 cases/year to about 0.02 cases/year, while the number of people at or above a cancer risk
level of 1 in a million would be reduced from about 900,000 to 150,000. In addition, the number of
people exposed to hazard index (HI) values equal to or greater than 1 was estimated to be reduced from
about 270,000 to about 30,000, and the number of people exposed to HI values of 0.2 or greater was
predicted to decrease from about 1,500,000 to about 250,000. (Details of these analyses are available in
the docket).
EPA has prepared a more refined risk assessment for the final rule as part of evaluating the
development of a low-risk subcategory of sources which could be delisted and thus not have to put on
controls associated with the rule 14. This more refined assessment included 26 HAPs, and these HAPs
include those that were in the "rough" risk assessment plus: antimony, arsenic, beryllium, cadmium,
chromium, cobalt, cumene, ethylbenzene, lead, mercury, methyl ethyl ketone (MEK), methyl isobutyl
ketone (MIBK), methylene diphenyl diisocyanate, nickel, selenium, styrene, toluene, and xylene.
There were 181 facilities included in this more refined risk assessment. Twenty-four facilities
were found to pose cancer risks equal to or greater than 1 in 1,000,000 to their surrounding population.
No facilities were predicted to pose cancer risks of 1 in 100,000 or greater. The reduction in annual
cancer incidence and the number of people to particular HI levels were not estimated in among affected
populations, and these reductions were not estimated since the focus of the more refined assessment was
on affected PCWP sources.
EPA has not tried to monetize this reduced incidence of inhalation cancer for several important
technical reasons. The primary reasons include the lack of information on the latency period for the
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onset of the disease and the fact that we have no information on the proportion of fatal versus nonfatal
cancers which may occur. These factors prevent us from providing monetized estimates.
For non-cancer health effects, previous analyses have estimated changes in populations exposed
above the reference concentration level (RfC). However, this requires estimates of populations exposed
to HAPs from controlled sources. Due to data limitations, we do not have sufficient information on
emissions from specific sources and thus are unable to model changes in population exposures to
ambient concentrations of HAPs above the RfC. As a result, we are unable to place a monetary value of
the HAP related benefits associated with this rule.
6.5 Summary
The HAPs that are reduced as a result of implementing the plywood and composite wood
products NESHAP will produce a variety of benefits, some of which include: a possible reduction in the
incidence of cancer to exposed populations, neurotoxicity, irritation, and crop or plant damage. The rule
will also produce benefits associated with reductions in CO. Human health effects associated with
exposure to CO include cardiovascular system and central nervous system (CNS) effects. Although we
are unable to place a monetary value on these benefits, the information on the variety of effects
associated with these pollutants and the level of reductions anticipated from the NESHAP indicate that
the benefits of the rule will be substantial.
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6.6 REFERENCES
1. U.S. Environmental Protection Agency. Regulatory Impact Analysis for the National Emissions
Standards for Hazardous Air Pollutants for Source Categories: Organic Hazardous Air
Pollutants from the Synthetic Organic Chemical Manufacturing Industry and Seven Other
Processes. Draft Report. Office of Air Quality Planning and Standards. Research Triangle
Paik,NC. EPA-45 0/3-92-009. December 1992.
2. U.S. Environmental Protection Agency. Integrated Risk Information System; website access
available at www.epa.gov/ngispgm3/iris.
3. Reference 1. p. 3-5.
4. U.S. Environmental Protection Agency. Ecological Exposure and Effects of Airborne Toxic
Chemicals: An Overview. EPA/6003-91/001. Environmental Research Laboratory. Corvallis,
OR. 1991.
5. U.S. Environmental Protection Agency; Staff Paper for the Carbon Monoxide NAAQS; Office
of Air Quality Planning and Standards, Research Triangle Park, N.C.; 2000.
6. U.S. Environmental Protection Agency; Criteria Document for Carbon Monoxide; Office of Air
Quality Planning and Standards, Research Triangle Park, N.C.; 1999.
7. Reference 6..
8. Reference 6.
9. Reference 6.
10. US Environmental Protection Agency. 1996. Review of the National Ambient Air Quality
Standards for Paniculate Matter: Assessment of Scientific and Technical Information. Office of
Air Quality Planning and Standards. Research Triangle Park. NC EPA report no. EPA/4521R-
96-013.
11. Reference 10.
12. U.S. Environmental Protection Agency. 1992. Draft Regulatory Impact Analysis of National
Emissions Standards for Hazardous Air Pollutants for By Product Coke Oven Charging, Door
Leaks, and Topside Leaks. Office of Air Quality Planning and Standards, Research Triangle
Park, NC.
13. U.S. Environmental Protection Agency. 1995. Regulatory Impact Analysis for the Petroleum
Refinery NESHAP. Revised Draft for Promulgation. Office of Air Quality Planning and
Standards, Research Triangle Park, NC.
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14. U.S. Environmental Protection Agency. 2004. Risk Assessment for the Final Maximum
Achievable Control Technology (MACT) Rule for the Plywood and Composite Wood Products
(PCWP) Source Category. Office of Air Quality Planning and Standards, Research Triangle
Park, NC.
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Appendix A: Summary of Impacts Associated with the Delisted Low-Risk Subcategory
Background
One of the compliance alternatives to the final rule is allowing PCWP sources to demonstrate
that their HAP emissions are sufficiently low-risk to avoid being subject to the MACT compliance
requirements. Such sources would then be part of a low-risk subcategory and can be delisted.
For your affected source to be part of the delisted low-risk subcategory, you must have a low-
risk demonstration approved by EPA, and you must then have federally-enforceable conditions
reflecting the parameters used in your EPA-approved demonstration incorporated into your title V permit
to ensure that your affected source remains low-risk. Low-risk demonstrations for eight facilities were
conducted by EPA and no further demonstration is required for them, and they will now need to obtain
title V permit terms reflecting their status. (We will provide these sources and their title V permitting
authorities with the necessary parameters for establishing corresponding permit terms and conditions.)
These facilities are listed in the preamble. Other facilities may demonstrate they are low risk to EPA by
using the look-up tables in appendix B to subpart DDDD or conducting a site-specific risk assessment as
specified in appendix B to subpart DDDD. Appendix B to subpart DDDD also specifies which process
units and pollutants must be included in your low-risk demonstration, emissions testing methods, the
criteria for determining if a affected source is low risk, risk assessment methodology (look-up table
analysis or site-specific risk analysis), contents of the low-risk demonstration, schedule for submitting
and obtaining approval of your low-risk demonstration, and methods for ensuring that your affected
source remains in the low-risk subcategory. If you demonstrate that your affected source is part of the
delisted low-risk subcategory of PCWP manufacturing facilities, then your affected source is not subject
to the MACT compliance options, operating requirements, and work practice requirements in the final
PCWP rule (subpart DDDD).
Low-risk Criteria
We may approve your affected source as eligible for membership in the delisted low-risk
subcategory of PCWP sources if we determine that it is low risk for both carcinogenic and
noncarcinogenic effects. To be considered low risk, the PCWP affected source must meet the following
criteria: (1) the maximum off-site individual lifetime cancer risk at a location where people live is less
than one in one million for carcinogenic chronic inhalation effects; (2) every maximum off-site target-
organ specific hazard index (TOSHI) at a location where people live is less than or equal to 1.0 for
non-carcinogenic chronic inhalation effects; and (3) the maximum off-site acute hazard quotients for
acrolein and formaldehyde are less than or equal to 1.0 for noncarcinogenic acute inhalation effects.
These criteria are built into the look-up tables included in appendix B to subpart DDDD. Facilities
conducting site-specific risk assessments must explicitly demonstrate that they meet these criteria.
Facilities need not perform site-specific multipathway human health risk assessments or ecological risk
assessments since EPA performed a source category-wide screening assessment which demonstrates that
these risks are insignificant for all sources.
More details on the delisted low-risk subcategory can be found in the preamble.
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Number of Affected Facilities
Facilities with estimated potential to emit 25 tons or more of total F£AP or 10 or more tons of an
individual F£AP are major sources of F£AP and are subject to the final rule. Approximately 223 PCWP
major source facilities nationwide are expected to meet the applicability criteria defined in today's final
rule. These major source facilities generally manufacture one or more of the following products:
softwood plywood, softwood veneer, medium density fiberboard (MDF), oriented strandboard (OSB),
particleboard, hardboard, laminated strand lumber, and laminated veneer lumber. However, only 212 of
these facilities have equipment that is subject to the control requirements of the final rule. In addition,
there are approximately 34 major source sawmill facilities that produce kiln-dried lumber; although these
major source sawmill facilities meet the applicability criteria in the final rule, there are no control
requirements for any of the equipment located at the sawmills.
The number of impacted facilities was determined based on the estimated potential to emit (i.e.,
uncontrolled F£AP emissions) from each facility, whether each facility has any process units subject to
the compliance options, whether or not the facility already operates control systems necessary to meet
the final rule, and whether or not the facility is currently eligible (or may later demonstrate eligibility)
for inclusion in the delisted low risk subcategory. Of the 223 major source facilities, an estimated 162
are expected to install add-on control systems to reduce emissions. The remaining facilities already have
installed add-on controls, do not have any process units subject to the compliance options, are expected
to comply with work practice requirements only, or are one of the eight facilities currently eligible for
inclusion in the delisted low-risk subcategory. We estimate that eventually as many as 147 of the 223
major source PCWP facilities may demonstrate eligibility for the low-risk subcategory, leaving 58
facilities expected to install add-on control systems to reduce emissions. Some of the 147 facilities
expected to eventually be included the low-risk subcategory were not expected to install controls to meet
MACT because they either already have the necessary controls or do not have process units subject to
the compliance options in today's final rule.
The impacts presented in this appendix to the RIA represent the estimated impacts for the range
of facilities, from 58 facilities estimated to be impacted following completion of eligibility
demonstrations for the low-risk subcategory, to 162 facilities estimated to be impacted today. The
impact estimates were based on the use of RTO (or in some cases a combination WESP and RTO)
because RTO are the most prevalent F£AP emissions control technology used in the PCWP industry.
However, technologies other than RTO could be used to comply with today's final rule. For a facility
that we feel already achieves the emissions reductions required by today's final rule, only testing,
monitoring, reporting and recordkeeping cost impacts were estimated.
Emission Reductions
We estimate nationwide baseline HAP emissions from the PCWP source category to be
17,000 Mg/yr (19,000 tons/yr) at the current level of control. We estimate that today's final rule will
reduce total HAP emissions from the PCWP source category by about 9,900 Mg/yr (11,000 tons/yr). In
addition, we estimate that today's final rule will reduce VOC emissions (approximated as THC) by about
25,000 Mg/yr (27,000 tons/yr) from a baseline level of 45,000 Mg/yr (50,000 tons/yr). Depending on
the number of facilities eventually demonstrating eligibility for the low-risk subcategory, these emission
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reductions could change to 5,900 Mg/yr (6,600 tons/yr) for HAP or 13,000 Mg/yr (14,000 tons/yr) for
voc.
In addition to reducing emissions of HAP and VOC, today's final rule will also reduce emissions
of criteria pollutants, such as carbon monoxide (CO) from direct-fired emission sources and particulate
matter less than 10 microns in diameter (PM10). We estimate that today's final rule will reduce CO
emissions by about 9,500 Mg/yr (10,000 tons/yr). We also estimate that the final rule will reduce PM10
emissions by about 11,000 Mg/yr (12,000 tons/yr). Depending on the number of facilities eventually
demonstrating eligibility for the low-risk subcategory, these emission reductions could change to 7,600
Mg/yr (8,400 tons/yr) for CO and 5,300 Mg/yr (5,900 tons/yr) for PM10.
Combustion of exhaust gases in an RTO generates some emissions of nitrogen oxides (NOX).
We estimate that the nationwide increase in NOX emissions due to the use of RTO will be about 2,100
Mg/yr (2,400 tons/yr). This estimated increase in NOX emissions may be an overestimate because some
plants may select control technologies other than RTO to comply with today's final rule. Depending on
the number of facilities eventually demonstrating eligibility for the low-risk subcategory, the estimated
NOX emission increase could fall to 1,100 Mg/yr (1,200 tons/yr).
Secondary air impacts of today's final rule would result from increased electricity usage
associated with operation of control devices. The secondary air emissions of NOX, CO, PM10, sulfur
dioxide (SO2) depend on the fuel used to generate electricity. Assuming as a worst-case that PCWP
plants will purchase electricity from a coal-fired utility plant, we estimate that the final rule may increase
secondary emissions of PM10 by 99 Mg/yr (110 tons/yr), SO2 by 4,000 Mg/yr (4,500 tons/yr), NOX by
2,000 Mg/yr (2,200 tons/yr), and CO by 66 Mg/yr (72 tons/yr). Depending on the number of facilities
eventually demonstrating eligibility for the low-risk subcategory, these emission increases could fall to
52 Mg/yr (57 tons/yr) for PM10, 2,200 Mg/yr (2,400 tons/yr) for SO2, 1,000 Mg/yr (1,100 tons/yr) for
NOX, and 35 Mg/yr (39 tons/yr) for CO. However, The EPA believes SO2 emissions may not increase
from electric generation since that the requirements of the Acid Rain trading program will keep power
plants from increasing their SO2 emissions. Furthermore, we believe that NOx emissions increases from
power plants may be limited. The EPA expects the emissions trading program that is part of the NOx
SIP call will likely keep NOx emissions in the eastern United States from increasing as result of
additional power generation to operate RTOs.
Wastewater impacts
Wastewater is produced from WESP blowdown, washing out of RTO, and biofilters. We based
all of our impact estimates on the use of RTO (with or without a WESP upstream depending on the
process unit). We estimate that the wastewater generated from WESP blowdown and RTO washouts
will increase by about 100,000 cubic meters per year (m3/yr) (27 million gallons per year (gal/yr)) as a
result of today's final rule. Depending on the number of facilities eventually demonstrating eligibility
for the low-risk subcategory, the wastewater impacts could fall to 89,000 cubic meters per year (m3/yr)
(24 million gallons per year (gal/yr)). According to the data in our MACT survey, this nationwide
increase in wastewater flow is within the range of water flow rates handled by individual facilities.
Facilities would likely dispose of this wastewater by sending it to a municipal treatment facility, reusing
it onsite (e.g., in log vats or resin mix), or hauling it offsite for spray irrigation. In addition, we are
amending the effluent limitations, guidelines for the timber products processing point source category to
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allow facilities (on a case-by-case basis) to obtain a permit to discharge wastewaters from APCD
installed to comply with today's final rule.
Impacts on Solid Waste
Solid waste is produced in the form of solids from WESP and by RTO or RCO media
replacement. We estimate that 4,500 Mg/yr (5,000 tons/yr) of solid waste will be generated as a result of
today's final rule. Depending on the number of facilities eventually demonstrating eligibility for the
low-risk subcategory, the solid waste increase could change to 2,800 Mg/yr (3,000 tons/yr). Some
PCWP facilities have been able to use RTO or RCO media as aggregate in onsite roadbeds. Some
facilities have also been able to identify a beneficial reuse for wet control device solids (such as giving
them away to local farmers for soil amendment).
Additional Energy Use from Control Equipment Applications
The overall energy demand (i.e., electricity and natural gas) is expected to increase by about 4.3
million gigajoules per year (GJ/yr) (4.1 trillion British thermal units per year (Btu/yr)) nationwide under
today's final rule. The estimated increase in the energy demand is based on the electricity requirements
associated with RTO and WESP and the fuel requirements associated with RTO. Electricity
requirements are expected to increase by about 711 gigawatt hours per year (GWh/yr) under today's
final rule. Natural gas requirements are expected to increase by about of 44 million nvVyr (1.5 billion
cubic feet per year (ft3/yr)) under the final rule. Depending on the number of facilities eventually
demonstrating eligibility for the low-risk subcategory, these energy estimates could fall to 2.3 million
GJ/yr (2.2 trillion Btu/yr) for overall energy demand, 378 GWh/yr for the increase in electricity
requirements, and 23 million m3/yr (0.8 billion ft3/yr) for the increase in natural gas requirements.
Compliance Cost Estimates
The cost impacts estimated for today's final rule represent a high-end estimate of costs.
Although the use of RTO technology to reduce HAP emissions represents the most expensive
compliance option, we based our nationwide cost estimates on the use of RTO technology at all of the
impacted facilities because: (1) RTO technology can be used to reduce emissions from all types of
PCWP process units; and (2) we could not accurately predict which facilities would use emissions
averaging or PBCO or install add-on control devices that are less costly to operate, such as RCO and
biofilters. Therefore, our cost estimates are likely to be overstated as we anticipate that owners and
operators of impacted sources will take advantage of available cost saving opportunities.
The high-end estimated total capital costs of today's final rule are $471 million. Depending on
the number of facilities eventually demonstrating eligibility for the low-risk subcategory, the capital
costs could fall to $240 million. These capital costs apply to existing sources and include the costs to
purchase and install both the RTO equipment (and in some cases, a WESP upstream of the RTO) and the
monitoring equipment, and the costs of performance tests. Wood products enclosure costs are also
included for reconstituted wood products presses.
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The high-end estimated annualized costs of the final standards are $140 million. Depending on
the number of facilities eventually demonstrating eligibility for the low-risk subcategory, the annualized
costs could fall to $74 million. The annualized costs account for the annualized capital costs of the
control and monitoring equipment, operation and maintenance expenses, and recordkeeping and
reporting costs. Potential control device cost savings and increased recordkeeping and reporting costs
associated with the emissions averaging provisions in today's final rule are not accounted for in either
the capital or annualized cost estimates.
Economic Impacts
The economic impact analysis shows that the expected price increases for affected output would
range from only 0.4 to 1.3 percent as a result of the NESHAP for PCWP manufacturers. The expected
change in production of affected output is a reduction of 0.06 to 0.4 percent for PCWP manufacturers as
a result of today's final rule. No plant closures are expected out of the 223 facilities affected by the final
rule. Therefore, it is likely that there is no adverse impact expected to occur for those industries that
produce output affected by the final rule, such as hardboard, softwood plywood and veneer, engineered
wood products, and other composite wood products.
The economic impact analysis for the final rule estimates effects upon employment and foreign
trade for the industries affected by the rule. The total reduction in employment for the affected
industries is 0.3 percent of the current employment level (or 225 employees). This estimate includes the
increase in employment among firms in these industries that do not incur any cost associated with the
final rule. There is also minimal change in the foreign trade behavior for the firms in these industries
since the level of imports of affected composite wood products only increases by less than 0.1 percent.
There will be reductions in effects on the national economy associated with eligibility of sources for the
delisted low-risk subcategory. The employment level will now be reduced by 126 employees, which is
99 fewer than the reduction estimated for the final rule. The increase in the level of imports is half as
large as that for the final rule.
Social Costs and Benefits
Our assessment of costs and benefits of today's final rule is detailed in the "Regulatory Impact
Analysis for the Plywood and Composite Wood Products MACT." The Regulatory Impact Analysis
(RIA) is located in Docket number A-98-44 and Docket number OAR-2003-0048.
It is estimated that 3 years after implementation of the final rule requirements, reductions of
formaldehyde, acetaldehyde, acrolein, methanol, phenol and several other HAP from existing PCWP
emission sources would be 5,900 Mg/yr (6,600 tons/yr) to 9,900 Mg/yr (11,000 tons/yr), depending on
how many affected sources are in the low-risk subcategory. The health effects associated with these HAP
are discussed earlier in this preamble.
As for social costs, the high-end estimated annualized social costs of the final standards are
$135.1 million. Depending on the number of facilities eventually demonstrating eligibility for the low-
risk subcategory, the annualized social costs could fall to $75 million.
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At this time, we are unable to provide a comprehensive quantification and monetization of the
HAP-related benefits of the final rule. Nevertheless, it is possible to derive rough estimates for one of
the more important benefit categories, i.e., the potential number of cancer cases avoided and cancer risk
reduced as a result of the imposition of the MACT level of control on this source category. Our analysis
suggests that imposition of the MACT level of control would reduce cancer cases by less than one case
per year, on average, starting some years after implementation of the standards. We present these results
in the RIA. This risk reduction estimate is uncertain and should be regarded as an extremely rough
estimate and should be viewed in the context of the full spectrum of unqualified noncancer effects
associated with the HAP reductions. The risk reduction estimate will be somewhat less depending on the
number of facilities eventually demonstrating eligibility for the low-risk subcategory.
The control technologies used to reduce the level of HAP emitted from PCWP sources are also
expected to reduce emissions of CO, PM10, and VOC. Human health effects associated with exposure to
CO include cardiovascular system and CNS effects, which are directly related to reduced oxygen content
of blood and which can result in modification of visual perception, hearing, motor and sensorimotor
performance, vigilance, and cognitive ability. The VOC emissions reductions may lead to some
reduction in ozone concentrations in areas in which the affected sources are located. There are both
human health and welfare effects that result from exposure to ozone, and these effects are listed earlier in
the RIA and in the preamble..
At the present time, we cannot provide a monetary estimate for the benefits associated with the
reductions in CO. We also did not provide a monetary estimate for the benefits associated with the
changes in ozone concentrations that result from the VOC emissions reductions since we are unable to
do the necessary air quality modeling to estimate the ozone concentration changes. For PM10, we did not
provide a monetary estimate for the benefits associated with the reduction of the emissions, although
these reductions are likely to have significant health benefits to populations living in the vicinity of
affected sources.
There may be increases in NOX emissions associated with today's final rule as a result of
increased use of incineration-based controls. These NOX emission increases by themselves could cause
some increase in ozone and particulate matter (PM) concentrations, which could lead to impacts on
human health and welfare as listed in Table 3 of this preamble. The potential impacts associated with
increases in ambient PM and ozone due to these emission increases are discussed in the RIA. In addition
to potential NOX increases at affected sources, today's final rule may also result in additional electricity
use at affected sources due to application of controls. These potential increases in electricity use may
increase emissions of SO2 and NOX from electricity generating utilities. As such, the final rule may
result in additional health impacts from increased ambient PM and ozone from these increased utility
emissions. However, it is possible that the Acid Rain trading program will serve to keep SO 2 emissions
from increasing, and the NOx SIP call may serve to mitigate increases of NOX. We did not quantify or
monetize these health impacts. All of these impacts will be reduced
In determining the overall economic consequences of the final rule, it is essential to consider not
only the costs and benefits expressed in dollar terms but also those benefits and costs that we could not
quantify. A full listing of the benefit categories that could not be quantified or monetized in our analysis
is provided in Chapter 6 of the RIA. All of these benefits and effects will be mitigated depending on the
number of facilities eventually demonstrating eligibility for the low-risk subcategory.
A-6
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Small Business Analysis
As discussed in earlier sections of this preamble, we present the impacts of the rule associated
with allowing PCWP facilities to demonstrate eligibility for the delisted low-risk subcategory and
thereby avoid MACT altogether. The number of small businesses impacted is reduced to seven from the
original 17, and the total number of businesses impacted is reduced to 42, down from the original 52.
Small businesses represent 17 percent of the companies within the source category, which is down from
the 32 percent estimate for the final rule. These small businesses are expected to incur 4 percent of the
total industry compliance costs of $75 million (the costs considering inclusion of the delisted low-risk
subcategory). There are no small firms with compliance costs equal to or greater than 3 percent of their
sales as compared to three for the final rule. In addition, there are four small firms with cost-to-sales
ratios between 1 and 3 percent, which is down from seven for the final rule.
Energy Impact Analysis
The impacts from consideration of a low-risk subcategory are a reduction in all of the energy
impacts listed above. For fuel production, the result of this indirect effect from reduced product output
is a reduction of only about 0.6 barrel per day nationwide, or a 0.000007 percent reduction nationwide
based on 1998 U.S. fuel production data.5 This is a 0.4 barrel smaller reduction than that estimated for
the final rule. For coal production, the resulting indirect effect from reduced product output is a
reduction of only 950 tons per year nationwide, or only a 0.0000044 percent reduction nationwide
based on 1998 U.S. coal production data. This is a smaller reduction than that estimated for the final
rule by 1,050 tons per year. For electricity production, the resulting indirect effect from reduced
product output is a reduction of 20.7 million kWh/yr, or only a 0.00006 percent reduction nationwide
based on 1998 U.S. electricity production data. This is a smaller output reduction than that estimated
for the final rule by 22.1 million kWh/yr. Given that the estimated price increase for product output
from any of the affected industries is no more than 2.5 percent, there should be no price increase for any
energy type by more than this amount. The cost of energy distribution should not be affected by the
final rule at all since the rule does not affect energy distribution facilities. Finally, with changes in net
exports being a minimal percentage of domestic output (0.006 percent, or practically the same as that
for the final rule) from the affected industries, there will be only a negligible change in international
trade, and hence in dependence on foreign energy supplies. No other adverse outcomes are expected to
occur with regards to energy supplies. Thus, the net effect on energy production if facilities are eligible
for the low-risk source category is an increase in electricity output of 0.008 percent compared to 1998
output data, and a negligible change in output of other energy types. This is a 0.004 percent smaller
increase in electricity output compared to the impact of the final rule. All of the results presented above
account for the passthrough of costs to consumers, as well as the cost impact to producers. These
results also account for how energy use is related to product output for the affected industries.6
5 Ibid.
6U.S. Department of Energy, Energy Information Administration. 1998 Manufacturing Energy
Consumption Survey. Located on the Internet at http://www.eia.doe.gov/
emeu/mecs/mecs98/datatables/contents.html.
A-7
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TECHNICAL REPORT DATA
(Please read Instructions on reverse before completing)
1. REPORT NO.
EPA-452/R-04-005
3. RECIPIENT'S ACCESSIONNO.
4. TITLE AND SUBTITLE
Regulatory Impact Analysis for the Plywood and Composite Wood
Products NESHAP
5. REPORT DATE
February 2004
6. PERFORMING ORGANIZATION CODE
7. AUTHOR(S)
8. PERFORMING ORGANIZATION REPORT NO.
9. PERFORMING ORGANIZATION NAME AND ADDRESS
Air Quality Strategies and Standards Division
Innovative Strategies and Economics Group
10. PROGRAM ELEMENT NO.
11. CONTRACT/GRANT NO.
12. SPONSORING AGENCY NAME AND ADDRESS
13. TYPE OF REPORT AND PERIOD COVERED
Office of Air Quality Planning and Standards
U.S. Environmental Protection Agency
Research Triangle Park, NC 27711
14. SPONSORING AGENCY CODE
EPA/200/04
15. SUPPLEMENTARY NOTES
16. ABSTRACT
This report contains costs, economic impacts, and benefits information for the final Plywood and
Composite Wood Products NESHAP. This MACT standard has annualized social costs of $135
million. No significant small business impacts are expected.
17.
KEY WORDS AND DOCUMENT ANALYSIS
DESCRIPTORS
b. IDENTIFIERS/OPEN ENDED TERMS
c. COSATI Field/Group
Air Pollution control, Economic
Impacts, Small Business Impacts,
Benefits
18. DISTRIBUTION STATEMENT
Release Unlimited
19. SECURITY CLASS (Report)
Unclassified
21. NO. OF PAGES
180
20. SECURITY CLASS (Page)
Unclassified
22. PRICE
EPA Form 2220-1 (Rev. 4-77) PREVIOUS EDITION IS OBSOLETE
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