ve/EPA
United States
Environmental Protection
Agency
Office of Pesticides and
Toxic Substances
Washington DC 20460
EPA 560/11-80-21
Toxic Substances
TSCA Economic
Analysis Series
Economic Impact Analysis of
Proposed Test Rule for
Chloromethane and Chlorobenzenes
Support Document for Proposed
Health Effects Test Rule
Toxic Substances Control Act
Section 4
'A
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EPA-560/11-80-021
June 1980
ECONOMIC IMPACT ANALYSIS
OF PROPOSED TESTING REGULATIONS FOR
CHLOROMETHANE AND CHLOROBENZENES
by
David Mayo
Joanne Collins
Barrett Riordan
MATHTECH, Inc.
1611 North Kent Street
Arlington, VA. 22209
Contract No. 68-01-5864
Project Officer:
Sammy K. Ng
OFFICE OF REGULATORY ANALYSIS
OFFICE OF TOXIC SUBSTANCES
Washington, DC 20460
U.S. ENVIRONMENTAL PROTECTION AGENCY
OFFICE OF PESTICIDES AND TOXIC SUBSTANCES
WASHINGTON, DC 20460
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PREFACE
The attached document is a contractor's study done
with the supervision and review of the Office of Pesticides
and Toxic Substances of the U.S. Environmental Protection
Agency. The purpose of the study is to analyze the potential
economic impact on manufacturers complying with proposed
testing rules. These proposed rules were prepared by the
EPA Office of Pesticides and Toxic Substances to implement
Section 4 of the Toxic Substances Control Act.
This report was submitted in fulfillment of Task Order
Number 1 of Contract Number 68-01-5864, by MATHTECH, Inc.
Work was completed as of May 1980.
This report is being released and circulated at approx-
imately the same time as publication in the Federal Register
of a proposed health effects test rule under Section 4 of
TSCA. The study is not an official EPA publication. It will
be considered along with any comments received by EPA before
or during the proposed rulemaking proceedings in establishing
final regulations. Prior to final promulgation of these test
rules, the accompanying study shall have standing in any EPA
proceeding or court proceeding only to the extent that it
represents the views of the contractor who performed the study.
It cannot be cited, referenced, or represented in any respect
in any such proceedings as a statement of EPA's views regarding
the subject industry or the economic impact of the regulation.
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TABLE OF CONTENTS
ECONOMIC IMPACT ANALYSIS FOR TESTING REGULATIONS
CHLOROMETHANE AND CHLOROBENZENE
CHAPTER I. EXECUTIVE SUMMARY,
I.A,
I.B,
I.B,
I.B,
I.C,
I.C,
I.C,
I.C.
I.D.
1.
2.
1.
2.
3,
-Introduction
Objectives and Methodology
Level I Economic Impact Analysis . .
Level II Economic Impact Analysis. .
Conclusions
Acrylamide
Chloromethane—Level I Analysis. . .
Chlorobenzenes—Level I and Level II
Analysis
Limits to Analysis
CHAPTER II. ECONOMIC IMPACT METHODOLOGY
II.A.
II.B.
II.B.I.
II.B.2.
II.B.3.
II.B.4.
II.B.5.
II.C.
II.C.I.
II.C.2.
II.C.3.
II.C.4.
II.C.5.
II.C.6.
II.C.7.
Introduction . .
Level I Economic Impact Analysis .
Demand Sensitivity ,
Market Expectations
Cost Characteristics ,
Industry Structure .
Summary
Level II Economic Impact Analysis.
Direct Costs
Demand and Substitution
Production Costs and Industry
Structure
Expectations .
Impact Assessment ,
Additional Considerations. . . . ,
Summary ,
CHAPTER III.
III.A.
III.A.
III.A.
III.A.
III.A.
III.A.
III.A.
III.A.
III.B.
III.B.
III.B.
III.B.
III.B.
III.C.
LEVEL I ECONOMIC EVALUATION:
CHLOROMETHANE
II- 1
II- 1
II- 2
II- 3
II- 4
II- 5
II- 7
II- 7
II- 8
II- 9
11-10
11-12
11-13
11-14
11-16
11-17
III- 1
1.
2.
3.
4.
4.a
4.b
4.c
1.
2.
3.
4
Overview Ill- 1
Direct Costs of Testing Ill- 1
Production and Producers Ill- 2
Manufacturing Process Ill- 4
Product Uses Ill- 4
Silicones Ill- 6
Lead Alky Is Ill- 8
Other Uses Ill- 8
Potential for Economic Impact Ill- 9
Demand Sensitivity Ill- 9
Market Expectations Ill-10
Cost Characteristics Ill-10
Industry Structure III-ll
Conclusions III-ll
References to Chapter III 111-12
. (Continued)
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TABLE OF CONTENTS (Continued)
Page
CHAPTER IV. ECONOMIC EVALUATION: CHLOROBENZENE IV- 1
IV.A. Level I Analysis IV- 1
IV. A.I. Overview IV- 1
IV.A.I.a Direct Testing Costs IV- 2
IV.A.l.b Production Process IV- 4
IV.A.l.c Production and Manufacturers IV-13
IV.A.l.c.lMonochlorobenzene IV-13-
rv.A.l.c.2Dichlorobenzenes IV-16
IV.a.l.c.3 Trichlorobenzenes. . IV-17
rv.A.l.c.4 Tetrachlorobenzenes. . . IV-17
IV.A. l.c.5 Pentachlorobenzene IV-18
IV.A.l.d Imports and Exports IV-18
IV.A.l.e Product Uses IV-26
IV.A. I.e.lMonochlorobenzene IV-26
IV.A.l.e.2 o-Dichlorobenzene IV-27
IV.A.l.e.3 p-Dichlorobenzene IV-27
IV.A.l.e.4 Trichlorobenzenes IV-28
IV.A.l.e.5 Tetrachlorobenzenes IV-28
TV.A.I.e.6 Pentachlorobenzene IV-28
IV.A.2. Potential for Economic Impact IV-29
IV.A.2.a Demand Sensitivity IV-29
IV.A.2.b Market Expectations TV-30
IV.A.2.C Cost Characteristics IV-30
rv.A.2.d Industry Structure IV-31
IV. A. 3. Summary IV-31
IV.B. Level II Evaluation IV-32
IV.B.l. Overview IV-32
TV.B.2. Demand Analysis IV-33
IV.B.2.a Specifications IV-33
IV.B.2.b Estimation IV-35
IV.B.2.C Interpretation IV-43
IV.B.3. Industry Structure and Competition . . IV-46
TV.B.3.a Methodology IV-46
rv.B.S.b Change in Industry Structure IV-47
IV.B.3.C Regional Structure IV-50
rv.B.3.d Individual Plant Characteristics . . . IV-52
rv.B.3.d.l Dow Chemical; Midland, Michigan. . . . IV-53
IV.B.3.d.2 Monsanto Chemical; Sauget, Illinois. . IV-54
rv.B.3.d.3 Montrose Chemical; Henderson, Nevada . IV-54
rv.B.3.d.4 Olin Corporation; Mclntosh, Alabama. . IV-54
IV.B.3.d.5 PPG Industries; Natrium,
West Virginia IV-56
IV.B.3.d.6 Standard Chlorine Chemical; Delaware
City, Delaware and Kearney,
New Jersey IV-56
IV.B.3.d.7 Specialty Organics; Irwindale,
California IV-57
(Continued)
ii
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TABLE OF CONTENTS (Continued)
IV.B.3.e. Interpretation IV-59
IV.B.4. Market Expectations IV-60
IV.B. 5. Alternative Approaches IV-65
IV.B.S.a. Proposed Approach IV-65
IV.B.S.b. Alternative I IV-68
IV.B.S.c. Alternative II IV-69
IV. B. 6. Impact IV-69
IV.B.6.a. Methodology IV-71
IV.B.6.a.l.Annualized Direct Costs of Testing. . IV-72
IV.B.6.a.2."Worst Case" Scenario IV-74
IV.B. 6.a. 3.Results IV-77
IV.B.S.b. Summary and Interpretation rv-85
IV.B. 7. Limits of Analysis IV-87
IV.B.8. Conclusions IV-89
References to Chapter IV IV-92
APPENDIX: Econometrics, Regression Analysis . . A-l
iii
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LIST OF TABLES
TABLE III-l:
TABLE IV-1:
TABLE IV-2:
TABLE IV-3:
TABLE IV-4 :
TABLE IV-5 a s
TABLE IV-5b:
TABLE IV-Sc;
TABLE IV-5d!
TABLE IV-5e:
TABLE IV-5fj
TABLE IV-6:
TABLE IV-7 :
TABLE IV-8 :
TABLE IV-a:
TABLE IV-10:
TABLE IV-1X:
TABLE IV-12 :
TABLE IV-13 •
TABLE IV-14 ;
CHLOROMETHANE.
ESTIMATED TEST COSTS,
CHLOROBENZENES. . .
PRODUCTION SUMMARY, LOWER CHLORO-
BENZENES, MONOCHLOROBENZENE . . ,
MANUFACTURERS 'OF CHLOROBENZENES. ,
IMPORTS OF CHLOROBENZENES
USES OF MONOCHLOROBENZENE. . . . ,
USES OF 0-DICHLOROBENZENE. . . . ,
USES OF p-DICHLOROBENZENE. . . . ,
USES OF 1,2,4- and 1,2,3-
TRICHLOROBENZENE. . . . ,
USES OF 1,2,4,5-
TETRACHLOROBENZENE.
USES OF PENTACHLOROBENZENE . . .
CHLOROBENZENES PRODUCTION AND
PRICES
CAPACITIES OF RECENTLY CLOSED
CHLOROBENZENE PLANTS
CHLOROBENZENE PRODUCERS, 1979. . ,
IMPORTS BY COUNTRY OF ORIGIN . . .
EXPORTS BY COUNTRY OF DESTINATION.
CHLOROBENZENES REQUIRING TESTING .
SUMMARY OF ESTIMATED TEST COSTS. ,
OVERALL ANNUALIZED TEST COSTS. . .
PER-UNIT ANNUALIZED TEST COSTS . .
Page
III-3
IV-5
IV-14
IV-15
IV-19
IV-21
IV-22
IV-23
IV-24
IV-25
IV-26
IV-37
IV-4 9
IV-58
IV-61
IV-62
IV-6 6
IV-67
IV-7 4
IV-7 8
(Continued)
IV
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LSIT OF TABLES (CONTINUED)
Paqe
TABLE IV-15: PRICE AND CONSUMPTION IMPACTS
OF TESTING COSTS FOR THREE
REGULATORY ALTERNATIVES IV-80
TABLE IV-16: COST INCREMENT FOR PCNB IV-84
TABLE IV-17: SENSITIVITY ANALYSIS OF ANNUALIZED
COSTS FOR CHLOROBENZENES IV-90
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LIST OF FIGURES
Page
FIGURE III-l: END USES OF CHLOROMETHANE. . . . III-5
FIGURE III-2: END USES OF SILICONES III-7
FIGURE IV-la-d: SCHEME FOR PRODUCTION OF
CHLOROBENZENES IV-6
FIGURE IV-2: SEQUENTIAL REACTIONS SHOWING
RELATIVE RATES IN THE LIQUID
CHLORINATION OF BENZENE .... IV-12
FIGURE IV-3a: MONOCHLOROBENZENE, QUANTITY
PRODUCED (Q) AND REAL
PRICE (P) IV-38
FIGURE IV-3b: ORTHO-DICHLOROBENZENE, QUANTITY
PRODUCED (Q) AND REAL
PRICE (P) IV-39
FIGURE IV-3C: PARA-DICHLOROBENZENE, QUANTITY
PRODUCED (Q) AND REAL
PRICE (P) IV-40
FIGURE IV-4: CHLOROBENZENES PRODUCERS AND
PROCESSORS, LOCATIONS IV-51
FIGURE IV-5: SHIFT IN SUPPLY CURVE DUE TO
TESTING COSTS IV-76
FIGURE IV-6: CHLOROBENZENES MATERIAL FLOW
FOR PCNB PRODUCTION IV-83
Vi
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CHAPTER I
EXECUTIVE SUMMARY
I. A. Introduction
The Toxic Substance Control Act (TSCA, 15 USC 2601)
was signed into law in October 1976. It was the culmina-
tion of several years of debate and evaluation regarding
the role of the Federal government in protecting the
populace from the effects of toxic substances in the
environment. One of the major focuses of TSCA is to
determine the toxic effects of existing and potential
substances.
In order to implement this objective of TSCA,
sets of testing requirements are being developed on a
case by case basis. Section 4CbiCU of TSCA instructs
the EPA Administrator to consider the relative costs of
various test protocols and methodologies which may be re-
quired. In general, emphasis is placed on considering the
economic impacts of actions taken under the Act in addi-
tion to environmental and social impacts.
The purpose of this study is to determine when sig-
nificant economic impacts may occur as a result of parti-
cular testing regulations and to estimate the magnitude of
these impacts. Although benefits to society, such as a
1-1
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reduction of disease incidence, may result from the testing
of chemical substances, this study deals only with the
economic costs associated with imposing testing regulations.
I.E. Objectives and Methodology
In order to determine the economic impact of testing
requirements, a two-level impact analysis scheme has been
devised. The overall objectives of these analyses are (1)
to determine whether there is any significant potential
for adverse economic impact resulting from testing regula-
tions; and (2) where the possibility of an adverse impact
exists, to estimate the magnitude of the economic impact.
Level I economic impact analysis is concerned with the
first objective, whereas Level II deals with in-depth analysis
of impacts.
I.B.I. Level I Economic Analysis
Level I Analysis involves determining whether the poten-
tial for adverse impact exists. As such, it investigates
those market characteristics which indicate the likelihood
of economic impacts due to the regulation. The market
characteristics investigated in Level I analysis include:
(1) demand sensitivity, (2) cost characteristics, (3)
industry structure, and (4) market expectations.
The information concerning these factors must be
readily developed, so that all substances recommended for
EPA consideration by the Interagency Testing Committee,
1-2
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or selected by EPA for possible testing/ can be subjected
to Level I Analysis. In light of this, the tests chosen
and the variables examined to determine the potential for
impact must be conservative in nature. That is, we wish to
minimize the probability of falsely rejecting a chemical
substance for Level II analysis; i.e., a Level II analysis
should be indicated if there is any possibility of adverse
economic impact.
I.B.2. Level II Economic Impact Analysis
For those chemical substances where Level I analysis
indicates a significant potential for adverse economic
impacts, a comprehensive -economic impact analysis is
conducted. At this level an in-depth investigation
concerning the market characteristics is undertaken and
estimates of the important variables are made. The direct
cost of the test protocol is integrated with these
estimates in order to determine the magnitude of the
economic impacts.
I.C. .Conclusions
I.C.I. Acrylamide
No testing requirement for acrylamide is being proposed,
Therefore, an economic impact analysis was not performed on
this chemical.
1-3
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I.C.2. Chloromethane—Level I Analysis
As described above and discussed in Chapter II, a
set of four market attributes are investigated in order
to determine the potential impact of testing requirements.
The results of these investigations indicate that the chloro-
methane industry should be relatively well-insulated from
significant adverse economic impacts.
This conclusion is based upon the following considera-
tions: First, demand for chloromethane appears to be
insensitive to changes in price. That is, an increase in
price is expected to result in a proportionately smaller
decrease in the quantity demanded. The primary use of
chloromethane is in the production of silicones, and the
demand for silicones is particularly insensitive to price.
In addition, the market for silicone products is clearly
expanding, indicating that the demand for chloromethane
will be increasing.
The cost structures for each firm in the industry
appear to be relatively similar. This is because the pro-
duction process is simple and almost universally employed.
This would indicate a competitive market situation and no
individual firm can be singled out as particularly suscep-
tible to adverse impact due to testing costs.
In light of the results, a Level II analysis does not
appear to be required.
1-4
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I.C.3. Chlorobenzenes—Level I and Level II Analysis
From a Level I investigation of the four market charac-
teristics discussed in Chapter II, it was determined that a
potential for economic impact exists for the Chlorobenzenes
industry.
The highest volume chlorobenzene is monochlorobenzene,
which is used primarily as an organic intermediate for the
manufacture of numerous organic compounds. The market for
monochlorobenzene is characterized by many potential substi-
tutes which suggests that the demand for monochlorobenzene could
be price sensitive. The commercial dichlorobenzenes (para-
and ortho-) appear to face similar market conditions. Although
the higher Chlorobenzenes appear to face less competition from
substitutes, their production levels are significantly lower.
In addition to these market characteristics, the expectations
for the chlorobenzene market appear to be quite low. This is
due to their weak market performance over the past few years
and pessimism regarding the outlook for end-uses of chlorobenzene,
On the cost side, due to the fact.that the higher Chloro-
benzenes are produced sequentially, the cumulative effect of
testing Chlorobenzenes could be significant. The cost structures
for firms in the industry appear to be similar and there are
no unique factor inputs. Thus, in addition, the industry can
be characterized as competitive.
1-5
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On the basis of competitiveness, potential price sensi-
tivity, and production complementarity, the chlorobenzenes
can be considered a potentially sensitive product group and,
thus, a candidate for Level II economic impact analysis.
The major findings of the Level II analysis do not support
the conclusion of a significant economic impact from the impo-
sition of testing regulations. Although the Level I analysis
indicated potential price sensitivity, when the demands for
the three lower chlorobenzenes were estimated all three demands
were characterized as price inelastic. In addition to this,
the testing costs, on an annualized basis, will not be large
either in absolute or a relative sense, even when the effects
of sequential "cascading" are considered.
The industry appears to have reorganized along more viable
lines, as several financially marginal producers have abandoned
the chlorobenzenes market in recent years. Although the
domestic market outlook is static, growth in the export markets
for chlorobenzenes may tend to mitigate these level expectations,
These factors lead to a conclusion that the economic
impact of a chlorobenzenes testing rule will be minimal, at
worst. This conclusion is valid for any of the three testing
options considered, however, the proposed approach clearly
produces the least impact.
1-6
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I.D. Limits to Analysis
Analysis, such as described here, is invariably an
uncertain instrument. For this reason, an approach based on
the "worst case" has been developed. The objective is to
never overlook a situation where substantial adverse economic
impact may arise as a result of regulatory action.
The overall approach used here to analyse economic
effects is that of partial equilibrium analysis. This
approach considers all factors not directly accounted for in
the analysis to be held constant.
Also, note that processors (according to common industry
usage of the term) are not included in the impact analysis.
To the extent that processors share the burden of test costs
the costs to producers will be lower; thus, in the analysis,
the impact on producers is probably overstated.
1-7
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CHAPTER II
ECONOMIC IMPACT METHODOLOGY
II.A. Introduction
In keeping with the overall objectives of the Toxic
Substances Control Act, EPA intends to analyze the economic
impact of proposed Section 4 test rules. The objectives
of these analyses are (1) to determine if there exists a
potential for significant adverse economic impact as a
result of imposition of a test rule, either at the level
of the firm, the industry, or the economy as a whole; (2)
to determine if that impact potential will actually be
realized through .imposition of a specific test rule; and
(3) to estimate the magnitude of the potential economic
impact.
The analytical methodology adopted to satisfy these
objectives reflects the hierarchial nature of the objectives,
Initially all chemicals and chemical groups subjected to
testing requirements are examined to determine the potential
for adverse economic impact. Those found to possess a
significant potential are further examined to determine the
extent to which specific rules will cause this potential to
be realized. Ultimately those deemed sensitive to testing
requirements (i.e., high testing costs and vulnerable market
characteristics) are examined in detail in order to quantify
the full range of economic impacts that may be associated
with the rule.
IT-1
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The methodology for determining impact potential for
all chemicals is termed, "Level I Analysis." The in-depth
analysis of economic impacts for chemicals targeted during
the initial procedure is termed, "Level II Analysis." The
following sections outline these methodologies in more
detail.
II.B. Level I Economic Impact Analysis
As described above, Level I analysis acts as a filter
to allow those chemical substances potentially adversely
impacted to be differentiated from others. This is deter-
mined by the incidence of testing costs and the existence
of certain market characteristics. The market characteris-
tics of interest are those readily available parameters
that can signal the presence of potential for economic
impact as a result of regulatory action.
EPA's approach to screening chemicals for economic effects
due to testing requirements is conservative in nature. That
is, EPA has decided that for this purpose, it is more desir-
able to err on the side of signalling potentially significant
impact when there is none, than it is to conclude that fur-
ther economic analysis of the impact on a chemical is unneces-
sary, when in fact there may be economic effects.
The market characteristics selected for Level I
consideration are also those important for Level II analysis
and fall, generally, into four major categories: demand
sensitivity, market expectations, cost characteristics, and
II-2
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industry stucture. Level II analysis treats these categories
in a more rigorous and quantitative manner.
II.B.I. Demand Sensitivity
The imposition of testing rules under the Toxic Sub-
stances Control Act manifests itself, in an economic sense,
principally through the price mechanism. This is the basic
premise upon which both Level I and Level II analyses are
based.
The cost of testing chemical substances can be considered
an additional fixed cost; the total cost of testing does not
vary with the total level of production of the chemical.
(However, depending on the reinbursement scheme decided upon,
the cost to an individual firm may be affected by that firm's
level of production, processing or sales.) As such, the cost
of testing raises the firm's total costs and average cost
(average cost is the total cost divided by the quantity
produced). For those firms where the average cost exceeds
the price received, the rational decision is to allocate
resources to other more productive uses rather than to con-
tinue producing the chemical in question. Thus, the industry
becomes willing to supply less and the price of the product
rises.
Adverse economic impacts generally arise through reduc-
tions in the quantity demanded of the regulated chemical
due to the higher price. The magnitude of this demand
II-3
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reduction (and thus, of impact) is critically dependent
upon the sensitivity of demand to price; that is, how much
demand declines when the price rises.
Level I methodology requires a detailed description of
the uses for the subject chemical substance. Each use is
examined to determine principal and potential substitute
substances and their prices. Given this information, it
is possible to judge the probable sensitivities of the
various markets for the chemical, i.e., many good substitutes
lead to an initial presumption of sensitivity to impact, and
conversely, lack of good substitutes leads to a presumption
of insensitivity- This is true even for "captive" markets
where vertically integrated firms produce chemicals for their
own use alone. In the long run, no firm can be expected to
continue consuming its own products if it can buy comparable
materials externally at a lower overall cost.
While sensitivity information is assigned consider-
able importance in deciding whether or not to subject a
substance to Level II analysis, demand cannot often be un-
ambiguously labeled either "sensitive" or "insensitive."
Thus, information on substitutability must be integrated
with information from other categories in order for an
informed judgement to be made.
II.B.2. Market Expectations
Level I analysis requires an investigation of chemical
end-use markets to determine their broad, long term outlook.
II-4
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In the absence of specific information, current and recent
historical trends are assessed on the presumption that
expectations are conditioned, in large part, by near term
performance. High market expectations, of course, will
tend to lessen the potential for economic impact from
testing regulations, while low expectations will increase it.
Firms will treat the costs of EPA's testing rules in
a manner analogous to conventional capital investment. This
means that firms will consider not only current profitability
but also future expectations for the chemical to be
regulated. Obviously, many factors enter into a firm's
assessment of the future, and many exist on a totally ad hoc
basis with .little applicability in a categorical sense among
different firms and products. Others are capable of at
least limited assessment. For instance, regulatory require-
ments addressing air and water pollution problems may have
powerful market effects quite unrelated to TSCA.
II.B.3. Cost Characteristics
The behavior of production costs at the level of the
firm and of the plant is an important indicator of the
probability of impact. Generally speaking, if a plant is
f
operating at a point where product price just covers
average cost, imposition of testing costs will force it to
abandon the market (assuming other factors do not change).
On the other hand, if the industry as a whole is operating
at a point where price exceeds average cost, there is a
II-5
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good probability that testing costs can be absorbed (i.e.,
in the form of decreased profit) with no effect on price or
production at all.
There are two particularly important points to be
examined in this area at Level I. The first is the existence
of unique production factors. These could take the form of
a proprietary, low cost production process, a unique source
of raw material, or a particularly advantageous geographical
location (when transportation costs are a factor). The pre-
sence of any of these factors signals that firms are in a
position to at least partially absorb testing costs.
Another major factor is the presence of complementarity
in production. Often several chemicals are produced jointly
within the same process. While the proportions of each
might be subject to variation within physical limits, it is
impossible to produce one without producing significant
quantities of the others. Thus, an investment decision
involving one of such a group of chemicals must be examined
in light of the entire group. In such cases, the presence of
a commercially valuable by-product can mitigate the effects
of testing costs, since the incremental average cost would be
distributed over a larger quantity of outputs. This situa-
tion will tend to insulate the target chemical from the
imposition of testing costs. On the other hand, if testing
costs make the entire group unattractive economically.- the
resulting economic impact can have multiple effects.
I.T-6
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II.B.4. Industry Structure
Industry structure refers in an economic sense to the
number and size distribution of producers. It is usually
cited as an indicator of the presence of competitive or
noncompetitive forces in a particular market. The existence
of a single producer, for instance, is usually a strong
indication of monopolistic market behavior, while many small
producers probably indicate competition.
Markets that to one extent or another are noncompetitive
are much more likely to absorb the cost of testing rules
without adverse impact, than are competitive markets^ Again,
this result follows from the fact that noncompetitive
behavior results in price being set in excess of average cost.
It should be noted that examination of industry structure
does not encompass the overall size of firms. This is because
testing costs represent an investment in the continuation
of activity in certain markets and, as such, will be evaluated
in the same manner as any other investment opportunity faced
by a firm (i.e., will the return in the particular invest-
ment exceed the firm's cost of capital?). Each investment
in testing costs will have to stand on its own, regardless
of the size or structure of.the firm.
II.B.5. Summary
Level I analysis is a means of selecting for further
economic analysis those chemicals or groups of chemicals
II-7
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which are most likely to be adversely impacted by EPA test-
ing rules. In general, those selected for in-depth (Level
II) analysis will possess some combination of the following
market characteristics:
o A number of good technical and economic substi-
tutes in its most important end uses;
o An "impact prone" industry structure, characterized
by intense price competition;
o Regional markets uninsulated by transportation
costs;
o Absence of special production situations that
would allow cost absorption;
o Nonoptimistic expectations for future market
performance.
The process for ultimately weighing and balancing
these factors at Level I is by necessity somewhat judgemental
and qualitative; however, a key objective is to not
mistakenly reject a substance for Level II consideration.
Therefore, errors will be on the side of additional Level II
analysis (i.e., for chemicals not impacted).
II.C. Level II Economic Impact Analysis
For each chemical substance for which it is determined
through Level I analysis that a potential for adverse economic
effect exists, an intensive economic impact analysis is conducted,
Economic impact is considered within the conventional economic
concept of opportunity cost, which is the value of foregone
opportunities. The following section outlines the general
approach followed in. such an analysis and discusses the
II-8
-------
important factors in estimating the economic impacts. The
steps involved in conducting Level II analysis build upon
the foundation formed by the Level I analysis. Whereas/
the Level I objective is to identify cases where a potential
for economic impact exists, the Level II analysis attempts
to quantify the factors considered to be of greatest impor-
tance. In order to estimate the economic impact of testing
requirements, five areas of investigation are involved:
o Direct cost of the tests;
o Demand characteristics and substitution
possibilities;
o Production cost behavior;
o Industry structure- and competition; and
o Future market expectations.
Each of these will be discussed in turn.
II.C.I. Direct Costs
The initial step in determining the economic effects
of test requirements is to determine the costs of the tests
that may be required. The direct costs of testing are the
costs of all tests required in the test rule. Direct costs
are principally those associated with the testing laboratory.
However, compliance with the test rules will also involve
costs of an administrative nature. Since costs may vary
substantially depending on the laboratory doing the testing
and the specified parameters (level and number of doses,
II-9
-------
duration, labor productivity, and wage rates) a range of
costs will generally be calculated. This range of costs
is expected to encompass the minimum and maximum.
For economic impact evaluation, the total direct
testing costs are computed on an annualized basis. Annual-
ized costs depend on expectations about the future markets
for the chemical. Therefore, the proper procedure is to
discount the costs of testing over the expected life of
the product. In most cases, a capitalization period of 20
years, and a pre-tax cost of capital of 20 percent, will be
used. The capitalization period will be revised as necessary
in light of the expectations concerning future markets.
II.C.2. Demand and Substitution
After the direct costs of the testing program have
been determined, it is necessary to investigate the manner
in which these costs interact with demand and other market
factors to determine changes in price and output. The
impact on price is of predominate importance, since price
changes are the driving variables behind almost all
subsequent impacts.
The effect of testing costs on the price of the sub-
stance is the result of the interaction of cost and demand
factors. On the supply side, the total cost of a test rule
can be considered an increase in the fixed cost of producing
the chemical. That-is, the cost depends on the number of
tests required, not on the quantity of the chemical produced,
11-10
-------
Thus, the marginal cost of producing the chemical is unaf-
fected (marginal cost is additional cost of producing an
additional unit of output) and the supply curve shifts
principally in response to the decisions of individual
firms to dispense with unprofitable facilities or to shift
resources to more productive activities.
The degree to which the price of the chemical product
will increase depends also on the demand for the product.
The price elasticity of demand is used to measure this
sensitivity. It is defined as the proportionate change
in quantity demanded as a result of a small proportionate
change in price (ED = %A Q/%A P) . The elasticity of demand
reflects such factors as the end-uses for the substance (and
the demand for the final products), the substitutes for it
(and their supply costs), and any complementary goods
associated with it. Generally, through the use of econo-
metric methods, the relevant variables (e.g., "own" price
elasticity, cross-price elasticities, etc.) are estimated
in order to determine the impact of the testing program on
the production of the chemical substance and the effect on
products which are substitutes for it.
Estimates of demand elasticity, when combined with
information on direct testing costs, provide the essential
basis for impact estimation. To fully understand the process,
however, supply side variables must also be estimated.
11-11
-------
II.C.3. Production Costs and Industry Structure
This component of the analysis links the outputs of the
previous section to subsequent impacts on production, employ-
ment, and profitability, etc. It focuses primarily on the
capital and operating costs associated with the chemical
production process. Behavior of such costs is of interest
initially in order to assess the ability of producers to
absorb testing costs, and thus, on their ability to
continue production.
In this respect, production costs are investigated
from several standpoints. First of all, the peculiarities
of the production processes involved are of central interest.
The presence of joint products and complementarities may
have considerable bearing on the economics of production
for the substance being regulated. For joint products
the costs of production must be considered together, in
comparison to the revenues from all of the products. Thus,
if testing costs are imposed on one product, the impact on
total costs may be minor. On the other hand, if testing costs
are imposed on several, or all, products, the cumulative
impact on costs may be significant. In addition, fixed
factors of production, such as patents and inputs from
existing, upstream processes, can greatly affect cost functions,
Such factors are extremely important in determining the ability
of firms to absorb testing costs without adjusting price or:
quantity. They are evaluated through detailed engineering
analysis.
11-12
-------
Also important are questions of. industry structure.
These also reflect on the relationship between price and
average cost, and help specify firm and industry behavior.
The' number of firms in the national market, as well as
their plant size and size distribution, are examined.
Transportation costs and market regional!zation are investi-
gated in order to determine if geographical location is a
factor insulating firms from the effect of testing costs.
II.C.4. Expectations
Expectations play a very significant role in the firms'
investment decision concerning testing costs. The costs of
*
testing are a form of investment which may provide no
increase in revenue and, thus, may decrease the overall rate
of return on the company's investments. In estimating the
effect of the testing costs on the investment decision,
expectations about the demand for the product, future costs
of capital, and the future costs of production inputs are
crucial. If for example, demand: is expected to increase
significantly for a product due to the introduction of a
new end use, the firm may be willing to "invest" in the
testing rather than shut down the operation, which may have
been the decision in the absence of the new market.
Unfortunately, expectations are a most difficult factor
to quantify. Expectations formation models have been derived
for various uses and these can be applied whenever feasible.
11-13
-------
However, direct expectational information from the industry
sources is perhaps more relevant. This is collected on an
ad hoc basis and integrated to provide a picture of future
trends.
II.C.5. Impact Assessment
The final step in the economic impact analysis brings
together the results of each step of the investigation. At
this point, the econometric estimates of demand elasticities
are combined with the estimates of direct costs in order to
determine price adjustments. These results are integrated
with the results of the investment and industry analyses in
order to predict the effects on production and employment,
profitibility changes, and effects on other markets, etc.
For purposes of this analysis, it is assumed that each pro*
ducing firm pays a share of the test costs for those chemicals
it produces, based on its proportion of production (processing
firms are not considered at this point, since a definition of
such will be clarified through comment on the proposed test rule)
U) C^ - aAj T£
where
Cjj • Test cost for the i chlorobenzene
13 paid by the jth firm
a,, - Pij/TP1
JL J A
Tt • Total cost for testing the i
chlorobenzene
th
P4. • Production of the i chlorobenzene
13 by the jra firm
TPt - Total production of the i
chlorobenzene
11-14
-------
The total cost imposed by tasting a chemical substance i§
the sum of the costs to those firms producing it)
(2) Ct •
where
th
C, • Total cost imposed by testing the i
chemical.
it follows that tha total costs of tasting a group of chem
ioals (such as the chlorobenzenes) is the sum of the indi-
vidual costs t
(3) TC - | C1
where
TC - Total direct costs of tasting
chlorobenzenes .
It should b« notad furthar that this analysis traats
tasting costs as though thay ara all inourrad in a singla
yaar. In raality, thay will probably ba inourrad ovar a
two-to-thraa-yaar pariod. To tha axtant that costs fall
in othar yaars, rathar than immadiataly, tha impact will
ba lass, thus tha "singla yaar" assumption raflacta tha
philosophy of consarvatism (i.a., tha "worst casa" approach).
In addition to tha diract af facts, tha impact on tha
usars of tha product (i.a., its consumers) dua to tha increase
in price can be estimated. This utilizes the price elasticity
of demand and the predicted price change to estimate the
effects on consumers of the product. The measure of this
effect is the change in consumers' surplus, which is the
11-13
-------
amount consumers would be willing to pay, to purchase given
amounts, in excess of the amount actually paid. This can
be considered the change in the net benefits consumers
derive from the product. Of course, the consumers of the
product will in most cases be producers themselves, and the
change in consumers' surplus measures the impact on these
subsequent producers.
In this manner, the results of all parts of the investi-
gation are integrated and summarized. Thus, the quantified
impacts are combined with the qualitative factors to produce
a unified estimate of the probable economic impact of
testing requirements.
II.C.6. Additional Considerations
Analysis such as described above, no matter how well
executed, is invariably an uncertain instrument. Such uncer-
tainty necessitates the use of the most conservative data
and procedures in order that each estimate account for the
"worst case." This is an overall policy applying to all
components of the analysis at all times. The objective is
never to overlook a situation where substantial adverse
economic impact arises from regulatory actions.
The overall approach used here to analyze economic
effects is that of partial equilibrium analysis. The approach
considers all factors not directly considered in the analy-
sis to be held constant. In most cases, this assumption is
11-16
-------
valid; the incremental costs of testing are small relative
to total costs and no impacts outside the directly affected
industry are expected. Thus, for example, the direct costs
of testing are calculated by summing the costs of individual
tests. However, depending on the tests required and their
temporal sequence, a demand may be placed on testing
laboratories and other specialized resources which, when
combined with the supply or availability of factors may
significantly affect the costs of testing. The result of
^
this is that the cumulative impact of testing requirements
may, in fact, be greater than the sum of the individual
economic impact analyses.
It should also be noted that EPA's policy on testing
cost reimbursement is a major uncertainty and is not thus
far incorporated into the methodology in any rigorous way.
The manner, distribution, and timing of reimbursement cash
flows could conceivably affect the estimation of economic
impact very broadly.
II.C.7. Summary
In summary, an economic impact analysis of EPA's
test rules involves in-depth investigation of several
factors related to the chemical production process. These
factors are, for the most part, identified in the Level I
analysis. The Level II analysis investigates these factors
in more detail and attempts, where possible, to quantify
the important variables.
11-17
-------
After the direct costs of the test rules are ascer-
tained, econometric and investment analyses are required
to determine the impact of these costs on prices and
quantities, which in turn, determine the impacts on pro-
duction and employment. The result is consciously biased
9
to present the "worst case" arising from the imposition
of testing regulations.
11-18
-------
CHAPTER III
LEVEL I ECONOMIC EVALUATION
CHLOROMETHANE (METHYL CHLORIDE)
III.A. Overview
III.A.I. Direct Costs of Testing
The proposed tests for chloromethane are shown below,
together with their estimated costs;
Tests Dollars (thousands)
Oncogenic (Hamster and Mouse;
Inhalation) $650 - $1,200
Teratology (Rabbit and Mouse;
Inhalation) 50 - 100
TOTAL $700 - $1,300
Based on: Cost Analysis Methodology and Protocol Esti-
mates, TSCA Health Standards and FIFRA Guidelines.Draft
Report submitted to U.S. Environmental Protection Agency,
Office of Regulatory Analysis, by Enviro Control, Inc.,
April 3, 1980. Adjusted to correspond to proposed test rule,
Annualizing the total cost at 20 percent cost of capital
for 20 years gives a range of-$144,000 to $266,500. The broad
range reflects considerable variability in cost among testing
laboratories. This variability probably greatly outweighs
variation among firms in cost of capital and investment time
horizon.
III-l
-------
III.A.2. Production and Producers
Domestic production of chloromethane was 478 million
Ibs. in 1977, and 454 million Ibs. in 1978.lf2 Preliminary
production data for 1979 indicate that 449 million Ibs. of
chloromethane were produced , approximately the same volume
as 1978. These production figures are understated since at
least three companies (General Electric, Diamond Shamrock,
and Vulcan Materials) produce other products from chloromethane
in a continuous process which does not require separation of
chloromethane from the process stream, and therefore do not
4
report production to the International Trade Commission.
Exports for chloromethane for 1978 amounted to 8.-3 million
14
Ibs. Exports of chloromethane cannot be compared with pre-
vious years since export data for this chemical were not pub-
lished prior to 1978.
Import data for chloromethane are not reported separately
by the government, but since total imports for all chlorinated
14
hydrocarbons amounted to only 15.8 million Ibs. in 1978,
chloromethane imports are probably not a significant factor.
The plant capacities for companies which produce chloro-
methane are given in Table III-l.
There are at least 13 producers of chloromethane with
plants at 17 locations. ' ' ' The total annual capacity of
these plants is over 750 million Ibs. Of these plants, three
companies with more than 50 percent of total capacity are
located in the Gulf Coast area of Texas and Louisiana. With
III-2
-------
TABLE III-l: CHLOROMETHANE (METHYL CHLORIDE)
PRODUCTION SUMMARY
Production
Year
1977
1978
1979
Million
Lba.
478
454
449 (P)
Price
$
14
14
~
Value of Shipments
Quantity
Sold
Million U>s.
195.9
Sales
Million $
26.9
—
Unit
$
.14
Imports
Million UJB.
Not Reported
Separately
8.3
Exports
Not Reported
Separately
I
OJ
SOURCE: 1,2,3,15.
END USES OF CHLOROMETHANE
MANUFACTURERS
Percent
Chi or ome thane
Production
50 %
30-35%
3- 4%
3- 4%
3- 4%
4%
Used
in
Manufacture of
Si 11 cones
Tetraroethyllead
and
Tetramethylethyllead
Herbicides
Butyl Rubber
Methylcellulose
Miscellaneous
Projected
Growth Rate
10% - 12%
negative
stable
stable
stable
stable
Substitute
for
Chloromethane
none
none
methyl alcohol
•"" •"••
SOURCEi 4,6
Company
Allied Chemical
Ansul
Conoco Chemicals
Diamond Shamrock
Dow Chemical
Dow Corning
B.I. DuPont
Ethyl
General Electric
Shell Chemical
Stauffer Chemical
Union Carbide
Vulcan Materials
TOTAL
Location
Moundsville, MV.
Marinette, HI
West lake, LA
Belle, HV
Plaquemine, LA
Preeport, TX
Carrol ton, KV
Midland, MI
Deepwater, NJ
Baton Rouge, LA
Louisville, KY
Naterford, NY
Axis, AL
Louisville, KY
Institute, HV
Geismar, LA
Hichita, KS
Approx.1978
Capacity
Million Lbs.
25
n.a.
100
> 50
150
70
20
15
50
100
50
50
10
15
50
n.a.
775
Percent
Captive
Use
100%
100%
100%
100%
100%
SOURCEi 5,6,7,16.
n.a.-Hot Available.
-------
the exception of one plant in Kansas, the remaining chlorome-
thane plants are located east of the Mississippi River in
West Virginia, Kentucky, Michigan, New York, New Jersey, and
Wisconsin.
It should be noted that some of the companies do not iso-
late chloromethane prior to using it as an intermediate in the
manufacture of further chlorinated hydrocarbons such as methyl-
ene chloride (CH-CIO, chloroform (CEUC1), and carbon tetra-
chloride (CC14).
III.A.3. Manufacturing Process
Chloromethane can be manufactured either by the hydro-
4
chlorination of methanol or by the direct chlorination of methane.
The vast majority of the present capacity is based on methanol as
a starting material. The reason for the almost universal use of
the hydrochlorination of methanol process may be the availability
1 4
and low price (64 per Ib. in 1978) of synthetic methanol. '
III.A.4. Product Uses
Most methyl chloride production is used captively for the
production of silicone fluids, silicone resins, silicone .elas-
tomers, chlorinated hydrocarbons, surfactants (surface active
agents), lubricants, and as a catalyst carrier in the production
of butyl rubber.
Figure III-l shows the percentage of the chloromethane
production which entered the manufacture of various products
during 1978. Approximately 50 percent went to the manufacture
III-4
-------
FIGURE III-1: END USES OF CHLOROMETHANE, 1978
H
H
•ethyl
alcohol
CH4
ethane
HC1
hydrochloric
acid
CH3C1
or
chloroMthane
chlorine
•iacellaneoua
4%
aerosols
carbon tetrachloride
chlorofom
•ethylene chloride
•ethyl aercaptan, 2,2,3-tri*ethyl butane
tetra«ethyllea.d
and —| antiknock compounds
tetra*ethylethy1lead
30-35%
herbicidea
(•ethyl arsenatea, etc.)
3-4%
•agneaiua ^ ^
ithyl
silicon
+ tetrachloride
•agneaiuM
chloride
Manufacture
of
butyl rubber
3-4%
quaternary aMonium
coapounda
3-4%
•ethylcelluloae
3-4%
export!
2%
haloailanaa * >Mter > ailiconea
50%
SOURCE: 4,6,7,8,9,10,11
-------
of halosilicanes which were, in turn, used for the manufacture
of silicone (siloxanes and polysiloxanes). '6'7 This is a
growing market with informal estimates projecting silicone
production increases in the vicinity of 10 to 12 percent
»
annually. Silicone production is divided into three major
types: silicone fluids, silicone resins, and silicone elastomers;
with the silicone fluids having the largest production (142.4
million Ibs. in 1977)1 (see Figure III-2).
III.A.4.a. Silicones
Currently, the largest single use of silicones is for
construction sealants and adhesives. These materials are
solventless, liquid-reactive products used to produce long-
lasting bonds between durable substrates such as metals, ceramics,
glass, plastic, and wood. They often replace various types of
8 9 10 11
metal fasteners such as screws, rivets, welds, etc. ' ' '
In general, almost all silicones end-use markets are
expanding; a very rough consensus estimate of the growth rate
would seem to lie between 8 and 14 percent per year. Overall,"
the use of silicones as foam stabilizers for polyurethanes
appears to be the single most rapidly growing area, but others
are expanding as well. For example, silicones are increasingly
being used in place of PCBs in transformers and in place of
fluorocarbons in antiperspirants. Surface coatings for wire
4 7
and cable are another growing use for silicones. '
III-6
-------
FIGURE III-2: END USES OF SILICONES
H
H
I
Silicones
growth rate
10% per year
in 1980
Silicone Fluids
* 142.4*
million Ibs.
i'l
o
"3
3
adhesives
lubricants
protective coatings
coolant
mold-release agent
-^dielectric fluid
heat transfer agent
wetting agent
foam stabilizer for polyurethanes
diffusion pumps
antifoaming agent
textile finishes
weatherproofing concrete
Silicone Resins
' 18.6*
million Ibs.
sealants
laminate (with glass cloth)
filament winding
molding compounds
troom temperature curing agent
electrical insulation
impregnating electrical coils
modifier for alkyd resins
vibration-damping devices
Silicone Elastomers
52.5*
million Ibs.
encapsulating electronic parts
electrical insulation
gaskets
-^surgical membranes
automobile engine components
flexible windows for face masks, air locks,
medical devices used within the body
miscellaneous mechanical devices
etc.
*1977 Data from Synthpt;tc ftrgajn;tc Chcpicalpf' U.S. International Trade Commission,
-------
Although silicone resins in many cases cost more than
substitute products, they are very often preferred because
of their performance characteristics. In particular, the
cost of silicone products does not seem to be a deterrent to
their use where their excellent heat resistance, durability, and
4 7
dielectric properties are of primary concern. '
III.A.4.b. Lead AlkyIs
The second major use for chloromethane is lead alkyIs
for gasoline additives (i.e., tetramethyl- and tetramethyl-
ethyllead). This market is shrinking dramatically due to
Federal standards limiting the amount of lead that may be added
to gasoline. Ethyl chloride and methyl tertiarybutyl ether
are expected to be the main substitutes. However, lead alkyIs
will continue to be manufactured for export and for vehicles-
weighing over 6,500 Ibs., even when more stringent lead limita-
6 7
tions go into effect. '
III.A.4.C. Other Uses
Chloromethane is also a catalyst carrier solvent for the
manufacture of butyl rubber, a widely used material for inner
tubes for truck and bus tires. Another use is the manufacture
of quaternary ammonium compounds which are surfactants having
many applciations. Chloromethane is also utilized in the manu-
r
facture of methylcellulose, although a process using methanol
t
*- — ^
may be substituted. In addition, chloromethane is used for
the manufacture of methyl arsenate, a herbicide widely used
6,7,11
on cotton.
III-8
-------
III.B. Potential for Economic Impact
•
As described in Chapter II, Economic Impact Methodology,
a series of market characteristics are considered in assessing
the potential impact of testing requirements on chloromethane.
These are (1) demand sensitivity, (2) market expectations,
(3) cost characteristics, and (4) industry structure.
III.B.I. Demand Sensitivity
The first factor of importance is demand sensitivity as
approximated by the availability of substitutes in consumption.
It is clear from the discussion above that the central market
for consideration is that for silicones. While lead gasoline
additives currently consume 30-35 percent of current production,
this market might be seriously diminished for regulatory reasons
other than those potentially imposed under TSCA and, thus, need
not be considered here. Other uses amount to around ten percent,
none of which merit significant Level I attention.
As can be seen from Figure III-2, silicones produced from
chloromethane have a multitude of uses. While each use has
available substitutes, they are in general, technically inferior.
Silicones are often employed for their heat resistant properties
and very few substitutes offer their physical and chemical
characteristics. In the construction adhesive area, which
provides the largest single market for silicones, these materials
-.£.'->O-n.
substitute not only for other materials, but for skilled labor
as well. In such cases, demand is particularly insensitive
,±«*
to price. Over all, demand for silicones appears to be
III-9
-------
quite price insensitive, and thus, also the demand for chloro-
methane.
III.B.2. Market Expectations
Closely tied to the above observation is the clear
optimism of the chemical industry regarding the future of
silicone products. Uses for silicones are expanding, and
the markets for almost every silicone use are growing
rapidly. Silicones fluids, for example, have recently been
found to make excellent mold-release agents and are expected
to penetrate this important market rapidly. In additionr the
increasing use of silicones as replacements for PCBsr and
fluorocarbons suggests rapid growth in the markets for sili-
cones. As noted previously, the industry appears to expect
an annual eight-to-ten percent growth rate in the silicones
market.
III.B.3. Cost Characteristics
In terms of technological structure, the production of
chloromethane is generally uniform. This is due to the preva-
lence of the methanol process in the production of chloromethane.
t
As mentioned above, the widespread use of this process may be
due to the availability and lower relative prices of the
feedstocks used in this process, as well as the relative ease
of handling the raw materials and control of the chemical
reaction. It is not expected that the imposition of testing costs
will alter this cost structure.
111-10
-------
III.B.4. Industry Structure
Cost structure for the industry appears homogeneous,
that is, it appears to vary little among firms. There are no
unique factor inputs and the production process is simple and
almost universally employed. Transportation costs are not
significant. The existence of an entire range of plant sizes
indicates that scale economies are not an important factor.
Under such conditions, the existence of 13 producers would
tend to signal presence of a competitive industry.
III.C. Conclusions
Although a competitive industry with low transportation
costs would often be regarded as possessing potential for
economic impact and, thus, a candidate for further analysis,
the insensitivity of demand with respect to price changes in
the silicones market and the extremely optimistic industry
outlook point to very minor repercussions as a result of the
imposition of testing requirements.
This conclusion is reinforced considerably when estimated
direct testing costs are annualized on a per-pound basis. If
annual production remains at a 450 million pound level la very
f--'
conservative assumption), the additional cost will be only
.06 cents per pound, certainly an extremely small amount by
any standard and, in this case, amounting to only .4 percent
of current price. For this reason, no production and employ-
ment effects are anticipated.
III-ll
-------
REFERENCES FOR CHAPTER III
Synthetic Organic Chemicals, United States Production
and Sales, 1977, USITC Publication 920, U.S. International
Trade Commission, U.S. Government Printing Office, Washington,
D.C.
Syntheti'c Organic Chemicals, United States Production
and Sales, 1978, U.S. International Trade Commission, U.S.
Government Printing Office, Washington, D.C.
Preliminary Report on U.S. Production of Selected Syn-
thetic Organic Chemicals (Including Synthetic Plastics and
Resin Materials) Preliminary Total, 1979, S.O.C. Series C/P-80^1
U.S. International Trade Commission, Washington, D.C. March 198'0,
4
Draft Preliminary Evaluation of the Economic Positions
of Selected Chemcals, prepared for Office of Toxic Substances
U.S.Environmental Protection Agency, August 1979,
Directory of Chemical Producers, 1979, SRI International,
Menlo Park, California.
Initial Report of the Interagency Testing Committee to
the Administrator, Environmental Protection Agency, EPA-560-
10-78/0001, January 1978.
Chemical Product Synopsis, Mannsville Chemical Products,
Mannsville, New York, December 1978.
8"Market Newsletter," Chemical Week, February 29, 1979.
9Chemical Week, March 21, 1979, page 40.
Chemical and Engineering News, October 29, 1979, page 11.
^Condensed Chemical Dictionary, Ninth Edition, Van
Nostrand, 1977.
12Foreign Trade Reports, FT410, United States Exports,
Schedule E, Commodity by Country, Quantity, and Value, Current
and Cumulative, Bureau of the Census, U.S. Department of Com-
merce, Decembe'r 1978.
111-12
-------
Foreign Trade Reports, FT135, United States General
Imports, Schedule A, Commodity Groupings, Commodity by
Country, Bureau of the Census, U.S. Department of Commerce,
December 1978.
14
Imports of Benzenoid Chemicals and Products, 1978,
USITC Publication 990, U.S. International Trade Commission,
Washington, D.C., July 1979.
"Synthetic Chemicals Price List," Chemical Marketing
Reporter, January 1 of each year.
Toxic Substances Control Act Chemical Substance Inventory,
Volumes" 1-5, U.S. Environmental Protection Agency, Office of
Toxic Substances, Washington, D.C., May 1979.
111-13
-------
CHAPTER IV
ECONOMIC EVALUATION: CHLOROBENZENES
IV.A. Level I. Analysis
IV.A.I. Overview
The chlorobenzene group of chemicals totals 12 compounds,
of which 11 are considered under the proposed test rule.*
These 11 compounds are as follows:
Monochlorobenzene;
o-Dichlorobenzene, (1,2-);
p-Dichlorobenzene, (1,4-);
m-Dichlorobenzene, (1,3-);
1,2,4-Trichlorobenzene;
1,2,3-Trichlorobenzene;
1,3,5-Trichlorobenzene;
1,2,4,5-Tetrachlorobenzene;
1,2,3,4-Tetrachlorobenzene;
1,2,3,5-Tetrachlorobenzene; and
Pentachlorobenzene.
Commercially, monoehlorobenzenes .and dichlorobenzenes are manu-
factured from chlorine and benzene feedstocks in a joint
process where the relative amounts of monochlorobenzene, o-,
and p-dichlorobenzenes can be partially altered by choice of
process conditions. Trichlorobenzenes, tetrachlorobenzenes,
and pentachlorobenzenes are produced sequentially.
Hexachlorobenzene is not considered in the test rule.
IV-1
-------
Chlorobenzenes are currently produced domestically by
six companies, are imported by several others, and processed
by an undetermined number of firms. The overall production
capacity probably exceeds 600million Ibs. per year. Chlorobenzenes
are primarily used as organic intermediates and as solvents
in chemical processes.
IV.A.I.a. Direct Testing Costs
The direct costs of conducting required tests are those
costs borne specifically in the laboratory accomplishment
of the tests. In addition to these laboratory-related costs,
manufacturers and processors will also bear other indirect
costs of an administrative nature in connection with overall
TSCA Section 4 compliance.
The costs estimated here for the purpose of impact
analysis are those of meeting testing requirements.
Actual costs may be greater to the extent that optional
testing is performed, but such optional testing is not con-
sidered to be a true cost of the regulation. In particular-, it
is assumed that an industry reimbursement system will be
successfully implemented, and thus, that required tests will be
performed only once for the benefit of the entire group.
It is recognized that the actual costs of any testing
scheme can vary substantially in practice for any' chemical
tested, depending upon a number of factors; including
for example, the laboratory performing the test, number of
IV-2
-------
dose levels, species, routes of exposure, extent of pathology
conducted, duration of tests, labor productivity, and wage
rates. Thus, for this analysis, a range of costs was calcu-
34
lated. Such a range should bracket the actual expected
value of the direct costs. Calculations were performed by
Borriston Laboratories, a commercial testing laboratory
owned by Enviro Control, Inc. under contract to MATHTECH, Inc.
Under the proposed regulation, the 11 chlorobenzene com-
pounds specified for testing can be grouped according to the
level of chlorination. These groups are:
o Monochlorobenzene
o Dichlorobenzene: l,2-(ortho); 1,4-(para);
l,3-(meta)
o Trichlorobenzene: 1,2,4-; 1,2,3-; 1,3,5"
o Tetrachlorobenzene: 1,2,4,5-; 1,2,3,4-;
1,2,3,5-
o Pentachlorobenzene
These compounds will be subjected to a testing regime,
whereby a number of tests are specified on six of the chemicals.
Further tests may be required if positive results from the initial
set of- tests indicate a need for further testing. The set of tests
varies for some of the chlorobenzenes but, generally is made up of
the following:
o Subchronic;
o Oncogenicity;
o Structural teratology;
o Reproductive,
IV-3
-------
Table IV-1 shows the range of costs for the specified
tests by chlorination level. It should be noted that
the proposed test rule specifies tests and protocols only for
the six "representative sample" chlorobenzenes—monochlorobenzene,
ortho- and para-dichlorobenzene, 1,2,4-trichlorobenzene,
1,2,4,5-tetrachlorobenzene, and pentachlorobenzene. In order
to analyze the economics of the alternative approaches to
testing, a worst case analysis has been conducted, assum-
ing the imposition of testing requirements for the addi-
tional five compounds. Table IV-1 costs cannot be totaled
since they do not reflect the specific reimbursement and
exemption alternative approaches. These will be examined
in Section IV.B.5. et seq.
Differing costs among the various compounds for the same.
tests reflect the different species and application requirements
of the test rule. Exemptions for NCI testing have been
included. Note, as mentioned above, that this total includes
neither indirect costs nor the value of tests that could be
additionally required. These adjustments will be made on a
general basis as part of overall impact assessment.
IV.A.l.b. Production Process
Chlorobenzenes are produced by the chlorination of benzene
in the presence of various catalysts. Commercial production
of the mono-, di-, tri-, tetra- and pentachlorobenzenes takes
place in a series of chlorination reactions, each of which is
a chlorination of the previous chlorination products in the series.
IV-4
-------
TABLE IV-1: ESTIMATED TEST COSTS, CHLOROBENZENES
($ thousands)
2
Compound
Monochlorobenzene
Dichlorobenzene
Trichlorobenzene
Tetrachlorobenzene
Pentachlorobenzene
Oncogen ic
Effects
a
a
$328-983
328-983
328-983
Teratogenic
Effects
$ 50-100
50-100
27- 81
27- 81
Reproduc-
tive
Effects
$110-220
110-220
57-171b
57-171
57-171
Subchronic
Effects
$ 32-96
32-96
28-84
28-84
28-84
SOURCE: Cost Analysis Methodology and Protocol Estimates, TSCA Health
Standards and FIFRA Guidelines"!Draft Report submitted to U.S. Environmental
Protection Agency, Office of Regulatory Analysis, by Enviro Control, Inc.,
April 3, 1980. Adjusted to correspond to proposed test rule.
aTesting for oncogenic effects for monochlorobenzene and ortho- and
para-dichlrobenzene will be carried out by the National Cancer Institute and
is exempted from the test rule. Oncogenic effects are not exempted for meta-
dichlorobenzene. This cost would be $650-1,200 thousand.
bl,2,4-trichlorobenzene is exempted from reproduction effects testing.
-------
FIGURE IV-la:
MONOCHLOROBENZBNE AND
O- and p-DICHLOROBENZENES
PRODUCTION SCHEME
C12
Chlorine
Monochlorobenzene
C6»6
Benzene
Ferric Chloride
or other Catalyst
Recycle
Mixture
o- and p-
Dichlorobenzenes
Highly Chlorinated
Benzenes
Sale
to
Further
Chlorination
Waste
Separation
i
Sale
as
Mixture
o-dichlorobenzene
p-dichlorobenzene
-------
FIGURE IV-lb: TRICHLOROBENZENES PRODUCTION SCHEME
Cl
Cl.
Mixture
o- and p-dichlorotenzenes + Chlorine
Ferric Chloride
or Other Catalysts
Mixture
Trichlorobenzenes
to
Further
Chlorination
v
Sale
as
Mixture
Y
Separation
1,2,4-
trichlorobenzene
1,2,3-
trichlorobenzene
-------
FIGURE IV-lc: TETRACHLOROBENZENES PRODUCTION SCHEME
Cl
oo
\*A. \*-l
?B1 X^Sci ^*S
and 1 1 and f 1
Mixture of
Trichlorobenzene
- . ^
_JMix
Tetrachlor
i
1
Separation
(difficult)
i
1,2,4,5- 1,2,3,
+ ci2
Chlorine
f
:ure
6 benzenes
f
I
Sale
L
Waste
4-
trachlorobenzene Tetrachlorobenzene
1 1
O-n
+ ci2
Cl
1,2,4- Chlorine
Trichlorobenzene
>
z
r
L
1 ]C1
Clkj^
Cl
1,2,4,5-
Te trachlorobenzene
>
/
Sale
to
Further
Chlorination
y J^
Sale t<
o
Further
Chlorination
Sale
to
Further
Chlorination
-------
FIGURE IV-Id: PENTACHLOROBENZENE PRODUCTION SCHEME
A.
o
Benzene
Chlorine
Pentachlorobenzene
VO
Y
Sale
V
Intermediate
in
Manufacture
of Other
Chemicals
*Not in use at this time.
B.
ci
O
ci
and
ci
Cl
Tetrachlprobenzenes
Mixture
Chlorine
Iodine and
Aluminum Chloride
Catalyst
V
ci
Pentachlorobenzene
4
Sale
Intermediate
in
Manufacture
of Other
Chemicals
-------
In the past, most chlorobenzenes were produced in a one-
step, batch process and separated from each other by physical
properties using appropriate techniques, such as crystalization
and distillation. As of now, using more exact operating
conditions and specific catalysts, the products are obtained
from separate chlorination steps using distinct processes.
Therefore, various manufacturers may be producers at one stage
in the chlorination series but not at another; for example,
a firm may purchase tetrachlorobenzenes and produce pentachloro-
benzenes.
Monochlorobenzene is produced by the catalytic chlorination
of benzene, o- And p-Dichlorobenzene are produced at the same
time. The monochlorobenzenes may be recycled along with un-
reacted benzene. This procedure, along with the appropriate
choice of catalyst, results in some flexibility in the pro-
duction ratios of monochlorobenzene and the dichlorobenrenes,
as well as the production ratios of o-dichlorobenzene to p-
dichlorobenzene. Hydrochloric acid is a by-product of the
reaction, and a small proportion of 1,3-dichlorobenzene (meta)
is also obtained, although the current procedure appears to
be to dispose of the 1,3-dichlorobenzene while recovering the
hydrochloric acid.
The trichlorobenzenes consist of three isomers; 1,2,4-
trichlorobenzene; 1,2,3-trichlorobenzene; and 1,3,5-
trichlorobenzene. The trichlorobenzene isomer produced and
the quantity produced depend upon the choice of starting (raw)
IV-10
-------
material for the chlorination reaction, and the relative rate
of reaction (K values) for the specific chemical reactions
involved (see Figure IV-2). A mixture of o- and p-
dichlorobenzene results in a mixture of 1,2,4- and 1,2,3-; and
chlorination of o-dichlorobenzene yields a mixture of 1,2,3-
and 1,2,4-trichlorobenzene—primarily 1,2,4-trichlorobenzene.
No 1,3,5- is formed at all. Chlorination of p-dichlorobenzene
yields 1,2,4-trichlorobenzene only. Any m-dichlorobenzene
present in the mixture as an impurity will be chlorinated to
a mixture of 1,2,4-trichlorobenzene and 1,3,5-trichlorobenzene.1
In actuality, either a mixture of o- and p-dichlorobenzenes
or o-dichlorobenzene is chlorinated in the presence of ferric
chloride catalyst at 25°-30°C. 1,2,4-Trichlorobenzene is
obtained by distillation from a mixture of 1,2,3- and 1,2,4-
trichlorobenzenes. Although 1,3,5-trichlorobenzene is formed
in small quantities during chlorination of dichlorobenzenes,
it is normally only obtained by special methods. Two of
these are diazotization of 2,4,6-trichloroaniline followed
1 28
by alcohol treatment ' and reaction of hexachloro-
27
benzene and alcoholic caustic potash.
There are three isomers of tetrachlorobenzene: 1,2,4,5-
tetrachlorobenzene; 1,2,3,4-tetrachlorobenzene; and 1,2,3,5-
tetrachlorobenzene. 1,2,3,4-tetrachlorobenzene is produced
by chlorination of 1,2,3-trichlorobenzene in the presence of
a catalyst. 1,2,4,5-Tetrachlorobenzene is produced by chlorina-
tion of 1,2,4-trichlorobenzene using iodine and antimony
chloride catalyst.
IV-11
-------
FIGURE IV-2: SEQUENTIAL REACTIONS SHOWING
RELATIVE RATES IN THE LIQUID
CHLORINATION OP BENZENE
SOURCE; Kirk-Othroer Encyclopedia of Chemical
Technology, ThTrd Edition/ Volume 5, 1979, p. 801.
IV-12
-------
1,2,3,5-Tetrachlorobenzene may be produced by chlorination
of 1,3,5-trichlorobenzene using an aluminum amalgam as a catalyst.
It is believed that this process has not been used commer-
cially. In fact/ it is believed that this isomer is presently
2
only manufactured as an impurity and disposed of as waste.
Pentachlorobenzene is produced by chlorination of tetra-
chlorobenzenes in the presence of a catalyst.
IV.A.I.c. Production and Manufacturers
Table IV- 2 gives production data for the various chloro-
5345
benzenes. ''' The data are understated because quantitites
used internally are not fully reported. Current manufacturers
of chlorobenzenes, along with plant locations and capacities,
are listed in Table IV-3. Three manufacturers, Dow, Monsanto,
and Standard chlorine/ account for more than 75 percent of
chlorobenzenes capacity.
IV.A.I.c.l Monochlorobenzene
Monochlorobenzene is the highest volume product in the
chlorobenzene group, although production has generally been
declining over the past decade. Statistics for 1977 and 1978,
as shown in Table IV-2, indicate that production of monochloro-
benzene dropped from 325.5 million Ibs. in 1977 to 295.4 million
Ibs. in 1978, a decrease of almost ten percent. Cumulative
production, as of September 1979, was 249 million Ibs. indicat-
ing a small recovery. Total production for 1979 is estimated
to be 325.5 million Ibs—equal to the 1977 production levels.
IV-13
-------
TABLE IV-2: PRODUCTION SUMMARY, LOWER CHLOROBENZENES
MONOCHLOROBENZENE
h*
Jfc
Production
Year
1977
1978
Million
Ibs.
325.5
295.4
Price0
C/lb.
low high
26* 29*
26* 29*
Sales
Quantity
(Million Ibs.)
174.8
96.4
Million $
35.1
21.2
$/lb.
.20
.22
Exports
Million
Ibs.
Not
reported
separately
Imports
Million
Ibs.
1.05
.98
o-DICHLOROBENZENE
Production
Year
1977
1978
Million
Ibs.
47.4
41.1
Price0
«/lb.
27*
26 £
Sales
Quantity
(Million Ibs )
55.7
44.0
Million $
15.3
11.8
$/lb.
.27
.27
Exports
Million
Ibs.
7.7
20 .Ob
Imports a
Million
Ibs.
.86
p-DICHLOROBENZENE
Production
Year
1977
1978
Million
Ibs.
65.1
41.2
Price0
C/lb.
23$
27 $
Sales
Quantity
(Million Ibs.]
62.0
38.1
Million $
14.2
10.3
$/lb.
.23
.27
b
Exports
Million
Ibs.
Not
reported
separately
a
Imports
Million
Ibs.
.02
SOURCE: Imports: FT135, U.S. Dept. of Commerce and Imports of Benzenoid Chemicals, USITC;
Exports: FT410, U.S. Dept. of Commerce.
a!977 Imports of o-, p-dichlorobenzene mixture were .33 million Ibs.; 1978 imports of o-,
p-dichlorobenzene mixture were 0.5 million Ibs.
^Exports are reported for o- and p-dichlorobenzene combined.
Asking price for- early January (Chemical Marketing Reporter).
-------
TABLE IV-3; MANUFACTURERS OF CHLOROBENZENES
a
in
Company
Dow Chemical
Monsanto
Montrose Chemical Corp.
(50% owned by Stauffer,
50% by Chris Craft)
Olin Corporation
PPG Industries
Specialty Organ ics Inc.
Standard Chlorine Chenjv-
ical Co. t Inc.
TOTAL
Location
Midland, MI
Sauget, IL
Henderson, NV
Mclntosh, AL
Natrium, WV
Irwindale, CA
(processor)
Delaware City, DE
Kearny, NH
(processor)
1978 Capacity, million Ibs.
mono*
220
150
70
90
150
680
0*
30
X
20
2
50
16
118
P*
30
X
30
2
75
15
152
1,2,4
tri*
X
X
X
1,2 ,4 £
tetra*
X
X
penta*
X
SOURCES: SRI Directory Chemical Producers, 1979, and Synthetic Organic
Chemicals, International Trade Commission, 1978.
* mono=monochlorobenzene; o=ortho-dichlorobenzene; p=para-dichlorobenzene
1,2,4 tri=lf2,4-trichlorobenzene; 1,2,4,5 tetra=l,2,4,5-tetrachlorobenzene;
penta=pentachlorobenzene.
Information on plant capacity is not available.
-------
Dow Chemical, PPG Industries, Monsanto, Montrose, and
Standard Chlorine Chemical Co. are producers of monochloroben-
zenes, with total available capacity in excess of 680 million
Ibs. per year. Vertac, Allied, and Dover Chemical were formerly
important producers of MOrlochlorobenzenes. All three have now
left the market, the latter two since 1977.6'7 Others are also
believed to have ceased production, indicating a clear deficiency
in demand relative to production potential.
IV.A.I.e.2. Dichlorobenzenes
The second highest volume group of chlorobenzenes is the
dichlorobenzenes. Although the ratio of total production of
the o- and p-dichlorobenzenes has fluctuated widely, the unit
value of o-dichlorobenzene has exceeded that for p-dichlorobenzene
in recent years.
As a result of the joint nature of the chlorobenzenes
production process, all producers of monochlorobenzene—-except
Montrose—also produce o- and p-dichlorobenzenes. Two com-
panies, Specialty Organics, Inc. in California and Standard
Chlorine Chemical Company in Delaware, do not produce mono-
chlorobenzene, but instead resolve o- and p-dichlorobenzene
mixtures into their component isomers.
Production of o-dichlorobenzene was 47.4 million Ibs. in
19775and 41.1 million Ibs. in 1978?35 while p-dichlorobenzene
production was 65.1 million Ibs. and 41.2 million Ibs. in 1977
and 197835 respectively. Data for 1979 is not yet available.
IV-16
-------
IV.A.I.e.3 Trichlorobenzenes
An estimated 45 million Ibs of trichlorobenzenes were
produced in 1976, with production levels off considerably
during 1978 and 1979. At present, the International Trade
Commission lists only Dow Chemical Company and Standard Chlo-
rine Chemical Company as producers of 1,2,4-trichlorobenzene;
and PPG Industries along with Standard Chrorine as producers
of mixed 1,2,3- and 1,2,4-trichlorobenzenes.
Present annual production of trichlorobenzenes is esti-
mated at 15 to 20 million Ibs. per year by Dow Chemical?^- Pro-
duction increased from 9.3 million Ibs. in 1970 to 28.3 million
Ibs. in 1973. Production data is not available from the ITC
for 1974 to present. However, based upon the isomer composition
of 1,2,3- and 1,2,4-trichlorobenzenes mixtures, and information
from Dow Chemical, ' , MATHTECH estimates of the isomers within
the total trichlorobenzene production for 1978 have been made.
They are 1,2,4-trichlorobenzene, 16 million Ibs.; 1,2,3-
trichlorobenzene, four million Ibs.; and 1,3,5-trichlorobenzenes,
six thousand Ibs.
IV.A.I.e.4 Tetrachlorobenzenes
For tetrachlorobenzenes, it is estimated that the production
r
of ten million Ibs. of tetrachlorobenzenes includes six million
Ibs. of l,2,4,5-tetrae|Llorobenzene. The quantity of 1,2,3,5-
• r
isomer formed as a by-product is estimated from Dow data and
specific reaction rates to be approximately three million Ibs.
per year.20'21
IV-17
-------
Production of tetrachlorobenzenes appears to be down from
the reported 1973 consumption of 18 million Ibs. of 1,2,4,5-
tetrachlorobenz ene.2 °'21
According to the TSCA Inventory there are two producers
of tetrachlorobenzenes.
IV.A.I.e.5 Pentachlorobenzene
Production for pentachlorobenzene is reportedly five to
ten million Ibs. per year. This chemical is used for the manu-
facture of pentachloronitrobenzene (PCNB). Production data for
PCNB is included in a composite of data for 11 cyclic fungicides
and is not available separately. The 01in Corporation is the
only domestic manufacturer of pentachlorobenzene and uses it
captively.
IV.A.l.d. Imports and Exports
Exports are not reported separately for o- and p-
dichlorobenzenes. As a group, 20.8 million Ibs., valued at
$6.2 million, were exported worldwide in 1978, with 85 percent
g
shipped to Canada, Mexico, and Japan. Exports accounted for
about 25 percent of the total United States production of o-
and p-dichlorobenzenes in 1978.
Imports of chlorobenzenes are tabulated in Table IV-4 for
years 1974 to 1978. The total imports of all isomers of chloro-
benzenes were 4.6 million Ibs., valued at $1.3 million in 1978.
rt
This was up from 2.3 million Ibs. in 1977. Although combined
imports of chlorobenzenes were up in 1978 over 1977, imports of
IV-18
-------
TABLE IV-4: IMPORTS OF CHLOROBENZENE8 (Lbs.)
'MJ/1&
1974
1975
1976
1977
1978
*
1,485,106
8,373,478
6,185,753
1,053,402
902,957
0
1,631,404
110,230
887,375
864,655
none
reported
o<9*
none
reported
2,608,238
855,370
331,390
50,000
4
i' —
—
—
24,030
4
31,006
6,506
4,851
25,575
106,021
"»
—
3,912,144
266,990
J6.614
1,102
V
2,770,245
1,934,578
_^
—
—
21,525
33,680
9,460
26,655
—
' «?«
940,715
(Mixture)
—
: •'
2,074,151
£•0-
1,467,819
79,366
39,683
39,683
1,371,261
•:•*
—
—
—
—
—
8.347,820
17.058,220
8,249,482
2.348.074
4.609,522
vo
SOURCES: References 12 through 16
-------
o- and p-dichlorobenzenes and trichlorobenzenes were down.
A large part of the increase in combined imports is attributed
to an increase of 1,2,4,5-tetrachlorobenzene imports, up from
approximately 39 thousand Ibs. in 1977 to 1.4 million in 1978;
and an increase in imports of 1,3-dichlorobenzene. There is
no indication that pentachlorobenzene is currently being
imported.12'16
IV.A.I.e. Product Uses (See Tables IV-5a through f.)
IV.A.l.e.l. Monochlorobenzene
Monochlorobenzene is used primarily In the manufacture
of organic intermediates for dyes and herbicides, and as a
solvent in pesticide and degreasing formulations. In the past/
monochlorobenzene was an important raw material for the manu-
facture of phenol and DDT. However, in recent years monochloro-
benzene production has declined as phenol producers have shifted
„ ,1
to less expensive cumene as a raw material and as the use of
DDT (a downstream product of monochlorobenzene ' ) has become
severely restricted. In addition, imports recently have made
considerable inroads into the domestic benzenoid dye market.
The use of monochlorobenzene and o-dichlorobenzene as a
solvent carrier in the manufacture of isocyanates is expected
to increase. Isocyanates are used in the manufacture of
polyurethanes, and polyurethane production is predicted to
be 7.5 percent greater in 1979 than in 1978? Also, Rubicon
Chemicals is expected to bring onstream a new plant for
IV-20
-------
TABLE IV-5a: USES OF MONOCHLOROBENZENE
Percent
MONOCHLOROBENZENE
Production
Usage
Growth
Rate
Substitute
for
MONOCHLOROBENZENE
60%
29% u
30-50%
1%
10%
Organic Intermediate (dyes, organo-
phosphorous chemicals, parathion, and
o- and p-dichloronitrobenzene)
Solvent manufacture diisodyanate (poly-
urethanes, phenol formaldehyde resin
formulations, bonding rubber to nylon
and rayon)
Solvent (degreasing, pesticides)**
DDT (export and emergency only)
DPO (diphenyl oxide)
static
increasing
1-2%
static
static
none
o-dichlorobenzene
perchloroethylene in
degreasing formulations
none
SOURCES: References 20 and 4.
Information in parentheses indicates, areas of manufacture or end-use of product
obtained subsequent to use of o-dichlorobenzene.
-------
TABLE IV-5b: USES OF O-DICHLOROBENZENE
Percent
O-DICHLOROBENZENE
Production
Usage
Growth
Rate
Substitute
O-DICHLOROBENZENE
65%
15%
10%
ro
5%
5%
Organic intermediates (3,4-dichloro-
aniline, urea herbicides)**
Solvent manufacture toluene diisocya-
nates (polyurethanes, cross-linking
agent for nylong)
Miscellaneous solvents
static or
declining
increasing
1-2%
static
Dyestuff manufacture
Fumigants and insecticides
static
monochlorobenzene
industrial solvents,
perchloroethylene, etc.,
nitrobenzene in some
processes.
none
SOURCES: References 20, 4, 26.
**
Information in parentheses indicates areas of manufacture or end-use of product
obtained subsequent to use of o-dichlorobenzene.
-------
TABLE IV-5c: USES OF p-DICHLOROBENZENE
Percent
p-DICHLOROBENZENE
Production
Usage
Growth
Rate
Substitute
for
p-DICHLOROBENZENE
50%
30%
10%
10
Ul
10%
Space deodorant
Moth control
Organic intermediates (pesticides,
Pharmaceuticals, other organic inter-
mediates) **
Soil fumigant
PPS - Polyphenyl Sulfide
static
statis
static
naphthalene
none
SOURCES: References 25, 27, 21, 20.
* * v
Information in parentheses indicates areas of manufacture or end-use of product
obtained subsequent to use of o-dichlorobenzene.
-------
TABLE IV-5d: USES OF 1,2,4- and 1,2,3-TRICHLOROBENZENE
Percent
1,2,4- and 1,2,3-
TRICHLOROBENZENE
Production
Usage
Growth
Rate
Substitute
for
TRICHLOROBENZENES
10
*».
50-60%
20-30%
5-10%
5-10%
Organic intermediates (Tetraqhloroben-
zenes, dyes)**
Dye carrier
Synthetic transformer oils and
dielectric fluids
Solvent in chemical manufacture
declining-to-
static
none
other dielectric fluids
such as jydrocarbon oils,
silicone oils, etc.
SOURCES: Refernces 20, 21, 4.
**
Information in parentheses indicates areas of manufacture or end-use of product
obtained subsequent to use of o-dichlorobenzene.
-------
TABLE IV-5e i USES OP 1,2,4 ,5-TETRACHLOROBENZENE
Percent
1,2,4,5-TETRACHLDHOBENZENE
Production
Usage
Growth
Rate
Substitute
for
1,2,4,5-TEnWCHLOHOBENZENE
to
UI
100%*
Pentachlorobenzene
none
Estimates compiled from various sources.
SOURCES: Reference 31.
-------
TABLE IV-5f: USES OF PENTACHLOROBENZENES
Percent
PENTACHLOROBENZENES
Production
Usage
Growth
Rate
Substitute
for
PENTACHLOROBENZENES
100%*
to
a\
Pentachloronitrobenzene (fungicide,
slime preventor)**
none
SOURCES: References 6, 21, 31,
Information in parenthesis indicates end-use of pentachloronitrobenzene.
-------
MDI (diphenylmethane diisocyanate) with a capacity of 25
million Ibs. in late 1980J0 This plant will require either
monochlorobenzene or o-dichlorobenzene for use as a solvent
in the production process.
IV.A.I.e.2. .o-Dichlorobenzene
o-Dichlorobenzene is used primarily as an organic inter-
mediate for the production of amide (propanil) and urea herbi-
cides (diuron, neburon). The main substitute for propanil
(nine million Ibs. in 1975) is the thiocarbamate herbicies,
molinate.
Dyes currently made from o-dichlorobenzene are C.I.
Mordant Red 27, D.I. Direct Blue 108, and C.I. Direct Violet
54. At present, there is no substitute for o-dichlorobenzene
in the manufacture of C.I. Mordant Red 27. However, a pro-
cess using nitrobenzene may be used in the production of
C.I. Direct Violet 54, and D.I. Direct Blue 108 can also
be produced by a process not requiring o-dichlorobenzene.
IV.A.I.e.3. p-Dichlorobenzene
p-Dichlorobenzene is mainly used as a space deodorant,
where o-dichlorobenzene may be a substitute, and for moth
control, where it has entered markets formerly dominated by
naphthalene. If synthetic fibers continue to penetrate
wool markets, then a decline in the consumption of p-
dichlorobenzene for moth control might be expected.3
IV-27
-------
IV.A.I.e.4. Trichlorobenzenes
1,2,4-Trichlorobenzene and 1,2,3-trichlorobenzene are
used primarily as organic intermediates in the production of
dyes and pesticides (for example, 2,4-D). The trichloroben-
zenes are also used extensively as dye carriers and find
some use as solvents in chemical processed and as dielectric
fluids.20'21'4
IV.A.I.e.5. Tetrachlorobenzenes
At present all 1,2,4,5-tetrachlorobenzene production is usec*
for the manufacture of pentachlorobenzene. In the past the pri-
mary use was for manufacture of herbicides 2,4,5-T- and silvex.
However, recent restrictions on uses of 2,4,5-T and silvex
have caused this market to decline significantly.
IV.A.I.e.6. Pentachlorobenzene
Pentachlorobenzene is used only for the production of
pentachloronitrobenzene which is used as a fungicide and
slime preventor.
Although there is no substitute for pentachlorobenzene
in the production of pentachloronitrobenzene (PCNB), there
are numerous fungicides presently manufactured, some of which
are likely to be substitutes for pentachloronitrobenzene..
However, PCNB is a broad spectrum fungicide and has found
increasing use since the early 1970s. This may be due to the
restriction on use of mercury fungicides which occurred at
about the same time.18'19'23'24
IV-28
-------
IV,A.2. Potential for Economic Impact
As described in Chapter II, Economic Impact Methodology,
a series of market characteristics are considered in assess-
ing the potential impact of testing requirements on chloro-
benzenes. These are (1) demand sensitivity, (2) market
expectations, (3) cost characteristics, and (4) industry
structure.
IV.A.2.a. Demand Sensitivity
The first factor of importance is demand sensitivity
as approximated by the availability of substitutes in
consumption. The largest use for monochlorobenzene—the
highest volume chlorobenzene—is in organic intermediates and
dyes. In this area imports have in recent years been extremely
attrictive substitutes for domestic products, presumably on
the basis of price differentials. Thus, monochlorobenzene
demand appears sensitive to price factors. The second largest
market for monochlorobenzenes is in industrial solvents. This
is an area with a large array of potential substitutes, both
in economic and technical terms, implying significant demand
sensitivity for monochlorobenzene.
o- and p-Dichlorobenzene appear to face similar market
conditions. o-Dichloroberizene has a number of good substitutes
in the markets for herbicides and dyes that consume the bulk
of its production. p-Dichlorobenzene competes heavily with
naphthalene for the moth control market.
The less prominent chlorobenzenes—1,2,4-trichlorobenzene,
1,2,4,5-tetrachlorobenzene, and pentachlorobenzene—appear to
IV-29
-------
face somewhat less competition in their markets. Even here,
however, proportions of 1,2,4-trichlorobenzene-based herbicides
could, for instance, be cut back in the face of price increases.
IV.A.2.b. Market Expectations
Closely tied to the above observations is the very weak
market performance of chlorobenzenes over the past few years,
and what must probably be the pessimism with which the industry
regards the future, in 1977, for instance, there were ten
producers and two processors (using the general industry defi-
nitionl of dichlorobenzenea across the nation. Today, that num-
ber has declined to six producers and two processors. While those
firms leaving the market were generally small with older plant
facilities, such behavior would be ublikely were there strongly
optimistic expectations among chlorobenzenes producers.
Of all the markets surveyed for chlorobenzenes, only
that for solvent carriers used in the manufacture of
ispcyanates appears to be growing. Overall, this market alone
does not appear large enough to counteract a continued down-
trend in other markets.
IV.A.2.C. Cost Characteristics
The highest volume chlorobenzenes (moaochlorobenzene,
o- and p-dichlorobenzenes) are produced as complementary
products. While the proportions of the products can be varied
fairly widely, none can go to zero. That is, if one product
is desired, all must be produced, if only in minor quantities.
However, the higher chlorobenzenes are produced by further
IV-30
-------
chlorination of para- and ortho-dichlorobenzene in a stepwise
manner. This suggests the possibility of cascading effects
from testing on the higher chlorobenzenes; that is, at each
successive level, the production process combines the testing
costs with the higher cost of the input chlorobenzene. Given
that all joint products might be separately faced with the
expense of testing requirements and the possibility of cas-
cading costs,there is the potential that this could lead to
situations associated with significant economic impacts.
(see Section II.B.3.)
IV.A.2.d. Industry Structure
As pointed out above, industry structure has changed
rapidly over the past few years. Cost structure for the
industry appears to be quite homogeneous. There are no
unique factor inputs and no unique production processes.
Transportation costs are not significant.
Today, a relatively small number of producers, each with
relatively large production capacities, populate the industry.
Given the declining nature of the market and homogeneity of
costs, there is no reason to believe that industry behavior
is other than competitive.
IV.A.3. Summary
On the basis of competitiveness, low transportation
costs, and production complementarity alone, chlorobenzenes
could be regarded as a potentially sensitive chemical product,
and thus, a candidate for a Level II economic analysis. In
IV-31
-------
addition, the existence of highly price-sensitive markets and
declining demand call for a Level II analysis, so that the
potential impact of testing requirements may be quantified.
IV.B. Level II. Evaluation
IV.B.I. Overview
As stated in the discussion of economic impact method-
ology, the steps involved in conducting Level II analysis
build upon the foundation of the Level I analysis. Whereas
the Level I objective is to identify cases where a potential
for economic impact exists, the Level II analysis attempts
to quantify the factors considered to be of greatest importance.
Thus, Level II evaluation does not stand on its own.
.The information presented at Level I is not.repeated here;
however, much of it is required for the Level II analysis.
In particular, the description of the chlorobenzene produc-
tion process and the discussion of product uses contained in
Level I are necessary for a full understanding of Level II.
Six compounds of the chlorobenzene group are
examined here. These are:
o Mgnochlorobenzene;
o Ortho-dichlorobenzene;
o Para-dichlorobenzene;
o 1,2,4-Trichlorobenzene;
o 1,2,4,5-Tetrachlorobenzene;
o Pentachlorobenzene.
IV-32
-------
Of these, the first three are the most prominent
in terms of physical quantities and economic value. These
three are sufficiently described by existing data to analyze
in some detail. Data on the last three chlorobenzenes (the
"higher level" chlorobenzenes), are very limited.
The following sections adhere closely to the methodology
described earlier.
IV.B.2. Demand Analysis
IV.B.2.a. Specification
As was discussed in Section IV.A.2.a. the most
important factor in the demand for chlorobenzenes is the
availability of substitutes. Demand for a product can,
in general, be divided into two distinct categories:
final consumption demand and intermediate input demand.
The determinants of final demand are derived from utility
maximization, whereas, demand for the products as a factor
of production is based on profit maximization by the firm.
The demand for a final product derived from utility
maximization depends upon:
a) The price of the product (referred
to as "own" price);
b) The prices of other products consumed;
c) The consumer's income;
IV-33
-------
c) Other "shift" factors, such as tastes,
income distribution, total population,
etc.
For purposes of estimation through multivariate regression
analysis (see Appendix for an explanation of this common
statistical methodology), the consumer demand function is
specified as follows:
QD " f
-------
P = Price of the output product
Q = Quantity of the output produced
Z = Exogenous shock factors affecting
production
u = Stochastic disturbance term
The estimation of demand for the three major
chlorobenzenes will be discussed in the following section.
IV.B.2.b. Estimation
Chlorobenzenes are utilized in a wide range of
products. These products include consumer products such as
space deodorants, and producer products, such as organic
intermediates. Hence demand for chlorobenzenes is a
composite of final consumer demand, as well as demand by
other manufacturing firms. The demand functions for these
two types of purchasers of chlorobenzenes.are based on dif-
ferent assumptions regarding their economic behavior. Hence,
it is not immediately obvious which form of the demand speci-
fication discussed in the previous section is appropriate. In
addition to this, economic theory has not developed a model
which satisfactorily incorporates both sources of demand for
a single product.
Thus, the demand functions to be estimated for the
three principal chlorobenzenes will be of a simple nature
and will employ commonly used multivariate regression
techniques (See Appendix). In general, the demand for the
product is estimated as a function of its own price, the price
of an important technical substitute and national
IV-3 5
-------
income, as measured by real (i.e., price deflated) GNP.
The purpose of including GNP as an explanatory variable
is an attempt to bridge the gap between the two types of
demand functions. GNP is used as a measure of income for
final demand and as a measure of business activity or output
for intermediate demand.
The date used for this study are time-series data
compiled from various sources, including trade publications
and government documents (see Table IV-6). All prices are
expressed in real terms, deflated by the Producers Price Index.
The period covered by the data is from 1962 through 1978.
The total production and real prices for the three chlorobenzenes
considered in this demand analysis (monochlorobenzene, ortho-
dichlorobenzene, and para-dichlorobenzene) are plotted in
Figures IV-3a, b, and c.
For the purposes of the current analysis, it was
felt a simple functional form for the demand equations
would yield satisfactory results. Although linear demand
equations have been estimated, a log-linear specification
provides better fits and facilitates interpretations of
the coefficients. The results reported here are from the
log-linear specification.
The demand for monochlorobenzene is estimated as a
function of its own price, the price of perchloroethylene
(a competing solvent in some uses) and real GNP. The estimated
equation is:
IV-3 6
-------
TABLE IV-6sCHLOROBENZENES PRODUCTION AND PRICES
Year
Mono-chlorobenzene
Production
(Million Ifco J
Real Price^
<$ per Ib.)
Ortho-dichlorobenzene
Production
Real Price
Para-dichlorobenzene
Production
Real Price
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
554*3
518*8
537.5
546*3
576.7
483.3
575*8
602*0
484.9
408.9
403.5
397.4
379.4
306*0
329*1
325*5
295.4
7.3840
7.4074
6*3358
6.2112
6*0120
6*0000
5*8537
5*6338
5*4348
4*3898
5*0378
5.1967
13.3666
14.2939
14.2077
10.2987
10*5112
"^Sources: Compiled from
Organic Chemicals, U.S.I.T.C.
46.7 10.5485
52.3 10.5820
52.3 11.6156
41.1 11.3872
51.4 10*0200
50*4 10.0000
60.6 10.7317
70.4 9.3897
66.2 9*0580
53.6 8.7796
62.4 10.0756
66*0 9.6511
54.7 10.3061
54.6 16*0091
48*9 16*9399
47.7 13.9032
41.1 12.4224
74.6 10.5485
74.6 10.5820
63.2 9.5037
65*8 9*3168
66.3 9.0180
66*5 9.0000
70*3 9.7561
52*1 8.4507
69.6 8.1522
70*4 7.0237
77.3 7.5567
62.7 6.6815
. .
48.5 14.2939
36.7 13.1148
65.1 11*8435
41*2 12.9001
various publications, including Synthetic
» and Chemical Marketing Reporter.
'Deflated by the Producer's Price Index, U.S. Department of Commerce.
-------
FIGURE IV-3s;MONOCHLOROBENZENE, QUANTITY PRODUCED (Q) AND REAL PRICE (P)
Klrtll'H \
\
\
voo »
\
\
\
\
800 +
\
X
\
\
700 t
\
X
X
\
400 # a
\ an
\ a
\ oo
NO
BOO f
\ 00
5
\
400 t a a a
\ a
\
\
\ oa
300 t a a
\
\
x
\
200 t
\
x
x
x
100 t
X
x
x
X f> f F f P
OtPPPppppppppp
+ + 1 f f f f 1 + 4 f + + f 1 + f_.
1962 1963 1964 1965 1966 1967 196S 1969 1970 1971 1972 1973 1974 1975 1976 1977 1970
YEAR
-------
FIGURE IV-3b: ORTHO-DICHLOROBENZENE, QUANTITY PRODUCED (Q) AND REAL PRICE (P)
3
1
Ul
10
RHIIM:IIB
90
BO
70
60
so
4O
30
20
10
o
X
X
X
*
X
X
X
X
t
X
X
X
X
+
X
X
X
X
t
X
X
X
X
X
X
X
*
X
X
X
*
X
X
X
X
*
X
X
X
X
*
X
X
X
*
a
o o
0
a
o a o
ao n
a
o a
0
a n
p P
p
p p p
pp PPPPP PPP
p
1962 196.1 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978
YEAR
-------
FIGURE W-3c;PARA-DICHLOROBENZENE, QUANTITY PRODUCED (Q) AND REAL PRICE (P)
VO
/O
AO
50
40
.40
10
\
\
I-
\
N
\
\
+
\
\
\
\
*
\
\
\
\
I
\
N
N
\
I
\
\
NO IE!
1962 1943 1V64 1945 I9A4 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 197B
YEAR
'? OHS HAD HISSING VAI .IIEB
-------
JZ,n QM = 12.52 - .24fcn PM + .09Hn P - . 88Jln GNP
(4.22)* (-2.73)* (0.34) (-2.49)*
R2 * .79 F = 16.32 N = 17 DW = 1.48
where
Q« ~ Quantity of monochlorobenzene produced
M
P = Average annual selling price of monochloro-
benzene
P = Average annual price of perchloroethylene
GNP = Real Gross National Product in 1972 dollars
The values in parentheses below each estimated coefficient
are the t-statistics , used to test the hypothesis that
the value of the coefficient is zero. An asterisk indicates
that the coefficient is significant at the 95 percent level
of significance (t>95 = ± 2.160). The coefficient of
determination R indicates that 79 percent of the variation
in monochlorobenzene production is explained by the model.
The F-statistic indicates that the null hypothesis that all
coefficients are equal to zero is rejected. The Durbin-Watson
statistic lies between the upper and lower bounds and, hence,
the test for autocorrelation is inconclusive. The coefficients
on the variables will be interpreted in the next section.
The demand for ortho-dichlorobenzene is estimated
to be a function of its own price, that of perchloroethylene,
and of real GNP . The estimated equation i s :
In Qnn = 1.83 - . 5Un Pn_ + .14fcn P + .44fcn GNP
UO UD p
(0.48) (-2.17)* (0.91) (0.38)
R2 = .29 F = 1.79 N = 17 DW = 1.32
An asterisk after the reported t-statistic indicates
significance at the 95 percent level.
IV-41
-------
Although the coefficient on own price is negative, reflecting
2
a negatively sloped demand curve, the R is low and from the
statistic we cannot reject the null hypothesis that the model
explains none of the variation in quantity demanded. Again,
the Durbin-Watson statistic lies in the nonconclusive range.
The primary uses for p-dichlorobenzene are in the
space deodorant and moth control markets. As noted above,
the major substitute for p-dichlorobenzene in the moth
control market is naphthalene. Thus, the quantity of para-
dichlorobenzene is estimated as a log-linear function of
its own price, the price of naphthalene, and real GNP.
The estimated equation is:
fcn Q = 8.52 - .16£nP - - .28£n PN - ,51£n GNP
(4.46)* (-0.47) (-1.15) (-1.97)
R2 = .64 F = 6.95 N = 16 DW = 2.81
In this case as well, the equation implies a negatively
sloped demand curve; however, the coefficient on own price
is not statistically significant. In fact, none of the
variables is found to be significant at the 95 percent level
of significance. In spite of this, the overall equation
does account for 69 percent of the variation in quantity
demanded, and from the F-statistic we reject the hypothesis
that all coefficients are equal to zero. A possible expla-
nation for this discrepancy is that significant multi-
colinearity may exist among the independent variables.
This has the effect of increasing the standard error for
each coefficient (and, hence, reducing the t-statistics),
IV-42
-------
whereas the overall model may fit the data very well.
Once more, the Durbin-Watson statistic lies between the two
bounds and no conclusion may be drawn regarding serial correla-
tion. The number of observations for this regression is 16,
due to the fact that some data is unavailable for 1974.
IV.B.2.C. Interpretation
The specification of log-linear demand functions
allows simple interpretation of the estimated coefficients.
This functional form implies a hyperbolic demand curve
which exhibits a constant price elasticity of demand along
all portions of the curve. The estimate of the elasticity
is the same as the estimated coefficient for the own price
variable. In addition, the other coefficients can be
interpreted as elasticities of demand with respect to the
other variables.
The price elasticity of demand measures the proportionate
change in quantity demanded due to a small proportionate
change in the price of the product CeDsa%AQ/%AP).* The basic
determinants of the (own) price elasticity of demand are:
a) The availability of substitutes;
b) The nature and number of uses for the product;
c) The time horizon;
d) The proportion of income spent on the product.
For monochlorobenzene,-the estimated equation appears to
be a reasonable model of demand. The own price coefficient
Demand is termed inelastic (insensitive to price) when
E_|<1, and elastic (sensitive to price) when |en|>l.
IV-43
-------
is statistically significant and of the expected sign. The
(own) price elasticity of demand is low (-.24), indicating
rather inelastic demand. This usually occurs if the product
has very specialized uses with few good substitutes. This
appears to be borne out by the equation: the cross-price
elasticity of demand for the best substitu%e, perchloroethylene,
is low (inelastic) and statistically insignificant. This
would imply that either perchloroethylene is not the major
substitute, or there is no reasonable substitute for monochloro-
benzene. The coefficient on real GNP is negative, indicating
that as real GNP has risen, the quantity of monochlorobenzene
produced has dropped. This is explained by a shift in tech-
nology away from monochlorobenzene in the production of several
end products. Ideally, a shift variable would be specified in
the equation to account for this trend.
With respect to ortho-dichlorobenzene, the equation
appears to be a less than satisfactory model for demand.
In spite of the fact that a negatively sloped demand curve
results, the equation overall fits poorly. No other variable
is significant, although the expected signs are obtained.
According to the equation, demand is price inelastic (-.51)
and the cross-price elasticity with respect to the substitute
is also low (0.14). Econometrically the reason for the low
explanatory power of the equation is that the independent
variables exhibit less variation over time than the dependent
variable.
IV-44
-------
For both monochlorobenzene and o-dichlorobenzene, the
coefficient on the price of perchloroethylene variable is not
statistically significant at the 90 percent level. The reason
for this is the fact that these chlorobenzenes have a wide
range of uses with many competing substitutes. Thus, no single
product accounts for the major substitution possibilities and
results in a statistically significant effect on the chloro-
benzenes. In light of comments received from industry on these
models, alternative hypotheses were tested for substitute pro-
ducts. These included nitrobenzene and phenol, as well as
toluene diisocyanate and xylene. In each case the effects were
insignificant and the results less satisfactory. The reason
for this may be that perchloroethylene better represents the
class of substitutes for these chlorobenzenes (i.e., is more
highly correlated with changes in the prices of other actual
substitutes) than the alternative substitutes. This is, of
course, speculative. Because the data are derived from the
same sources, there is no reason to suspect differences in
the quality of the data. However, this may well be the case.
Unfortunately, there is no way to evaluate this or to incor-
porate such discrepancies into the model.
For p-dichlorobenzene, demand appears to be price
inelastic (-.16); however, as noted above, the coefficient
is not statistically significant. Also, all estimates of the
coefficients are negative and insignificant. Thus, although
naphthalene is a known substitute for p-dichlorobenzene,
in the estimated equation it appears as a complement. Again,
demand for p-dichlrobenzeno appears to be necratively correlated
with real GNP. IV-45
-------
Since the major objective of this estimation section is
to obtain estimates of the price elasticities of demand, the
specification of simple demand functions has yielded useful
results. The (constant) elasticities of demand for the chloro-
benzenes are:
EOD
The following section will begin to develop some of the
information that will be necessary to interpret these results
for the chlorobenzenes industry. Specifically, the relation-
ships estimated to this point have ignored the supply side of
the chlorobenzenes markets and this must be included. Integra-
tion of supply and demand will take place in Section IV. B. 6
Impact Analysis.
IV . B . 3 . Industry Structure and Competition
IV.B.S.a. Methodology
The objective of this section is to present and
interpret information on the production system for chloro-
benzenes in order to illuminate further (1) the nature of
the industry supply function and (2) the pathways through
which regulatory impacts might proceed. Information com-
piled in this section will help link the outputs of previous
sections to subsequent potential impacts or production,
employment, profitability, etc.
IV-46
-------
Several factors are of particular interest with
regard to industry supply. First of all, it is important
to determine whether there are differences in the average
costs of producing chlorobenzenes among the several firms
participating in the market. Economic theory suggests that
the equilibrium price for chlorobenzenes will be set below
the costs of the most efficient firm excluded from the
market, but about or equal to the costs of the least efficient
producer included. Thus, the greater the diversity of costs
among firms, the greater the economic rents earned for the
industry and the greater its ability to absorb testing costs
without major dislocation. On the other hand, the more
uniform are costs, the greater the potential for significant
impact since the firms are not able to absorb the additional
costs.
While the cost diversity can result from a number of
causes, particularly entrepreneurial abilities, this level
of analysis focuses primarily upon those factors determined
external to the firm itself, namely, raw material inputs
and transportation costs. Such factors are relatively
easy to observe and to examine for cost advantages.
The following section also examines evidence
bearing upon an important related factor: the significance
of scale economies.
IV.B.3.b. Change in Industry Structure
Chlorobenzenes have been produced domestically
since 1915 when Hooker Electrochemical Company opened a
IV-47
-------
20 million Ib. monochlorobenzene facility at Niagara Falls,
Nelw York. Dow Chemical began production later in the same
year, and since then for more than 60 years, chlorobenzenes
have been a major industrial organic chemical group.
Recently however, the continued commercial viability of
this established chemical group has appeared open to question.
In particular, the past two years have witnessed a significant
decline in the number of chlorobenzene producers. The total
number has dropped from ten in 1977 to six in 1979. An addi-
tional facility appear to have exited in 1975 or 1976.
Table IV-7 lists information regarding the facilities
recently closed. All closed facilities produced the three
basic chlorobenzenes—monochlorobenzene, o-dichlorobenzene,
and p-dichlorobenzene—but the extent to which the higher
order chlorobenzenes were produced is unknown. Capacity is
listed in terms of monochlorobenzene production, and this
indicates that the decline in capacity was not nearly as
significant as the decline in the number of producers. Those
producers leaving the industry were extremely small, with
none exceeding 20 million Ibs. per year capacity. Total
monochlorobenzene capacity fell by only five to ten percent,
even though the number of producers was nearly halved.
Although the exit of small producers is certainly
an indication of the existence of scale economies in the
production of chlorobenzenes, it should also be noted, first,
that despite reduced monochlorobenzene capacity, the industry
IV-48
-------
TABLE 3V- 7: CAPACITIES OF RECENTLY* CLOSED CHLOROBENZENE PLANTS
Manufacturer
Location
Plant Capacity
Millions Ibs.
Per Year
Allied Chemical Corp. Syracuse NY 20
Dover Chemical Corp. Dover OH 10
(Subsidiary of ICC
Industries, Inc.)
Guardian Chemical Corp. Hauppauge NY n.a.
Solvent Chemical Co. Maiden MA 3
Niagara Balls NY 20
Vertac Jacksonville AR n.a.
Closed during raid-to-late 1970s.
-------
capacity utilization rate appears to have fallen significantly/
and second, that four of the six closed facilities were located
in the northeast, with three of these in New York State. Thus,
falling demand and geographical location may have had as much
to do with commercial viability as plant scale and costs.
Another factor with possible significant influence
is the loss of inexpensive benzene supplies from coke ovens.
Problems in the domestic steel industry have lead to a general
reduction in coking capacity nationwide, with particularly
drastic reductions in some localities. While this factor is
not examined in depth here, it may well have been a factor in
the closing of the plants in upstate New York and in Ohio.
The following sections examine the individual
characteristics of the chlorobenzene plants currently in
operation and their regional configuration.
IV.B.S.c. Regional Structure
Chlorobenzene plants are located in the eastern, southern,
midwestern, and western areas of the United States (see Figure
IV-4). By far the majority of the production capacity is
located west of the Alleghenies. These facilities are Dow
Chemical at Midland, Michigan; Monsanto at Sauget, Illinois.
PPG Industries is located at Natrium, West Virginia.
The plants in the west are Montrose Chemical at Henderson,
Since captive production tends to obscure overall produc-
tion figures, it is not possible to quote an absolute capacity
utilization figure. In relative terms, capacity utilization
appears to have dropped by about ten percentage points from
1974 to 1978.
IV- 50
-------
FIGURE 3V-4: CHLOROBENZENES PRODUCERS AND PROCESSORS,
LOCATIONS
-------
Nevada and Specialty Organics (a processor) at Irwindale,
California. In the east, Standard Chlorine has a production
plant located at Delaware City, Delaware and a processing
facility at Kearney, New Jersey; Olin Corporation has a plant
at Mclntosh, Alabama.
For all of the production plant locations, chlorine
—a .basic raw material for chlorobenzene manufacture—
together with benzene, is available nearby. Since chlorine
is a gas at ambient temperature and atmospheric pressure
and highly reactive, it is difficult and dangerous to handle
and to ship. This is an important factor in determining the
location of chlorobenzene plants.
The products of a chlorobenzene plant, however, are
generally readily transportable at reasonable cost. This
characteristic effectively precludes insulation of local
markets against national competition. For instance, although
there are no chlorobenzene producers on the West Coast (and
only one processor)* monochlorobenzene sells there for only
a penny a pound more than it does in the Bast.
IV.B.S.d. Individual Plant Characteristics
Each existing chlorobenzene plant is unique. Each
exists in the context of related operations at the same
site, in relation to raw material supplies and to product
markets. Such characteristics are examined below.
Montrose in Nevada does not market chlorobenzenes.
XV-52
-------
IV.B.3.d.l. Dow Chemical; Midland, Michigan
Dow Midland has the largest chlorobenzene produc-
tion capacity in the nation. The annual capacity for mono-
chlorobenzenes is 220 million Ibs. and that for o- and p-
dichlorobenzenes is 30 million Ibs. each. This facility
alone accounts for nearly one-third of the total domestic
monochlorobenzene capacity. Dow Midland is also a producer of
1,2,4-trichlorobenzene and 1,2,4,5-tetrachlorobenzene.
However, the production capacity of these chemicals is not
available. The other isomers of tri- and tetrachlorobenzenes
are also produced, but only as by-products and are probably
disposed of.
Dow's Midland chemical facilities and production
center at Midland, Michigan is also Dow Chemical corporate
headquarters. Approximately 10,000 persons are employed by
Dow in the Midland area. Of this number, between 6,500 and
7,000 are employed at the production plants, and another
3,000 at headquarters offices. The number of employees
20
specifically associated with chlorobenzene production is 60.
Dow Midland produces the chlorine input to the
chlorobenzene process on site. There is no specific infor-
mation regarding the source of its benzene supply; however,
Dow Chemical owns the 22,000 bbl/day Bay Oil Refinery in
nearby Bay City, Michigan.
The chlorobenzenes produced at Midland are used both
as chemical intermediates on site and as marketable products.
Those used internally are made into various pesticides, herbi-
cides, flocculants, cosmetics, and medicinals. It can be
IV-53
-------
surmised that a large portion of those chlorobenzenes pro-
duced at Midland and sold externally are purchased by Dow
Coming's adjacent plant as input to its silicone manufacture.
IV.B.3.d.2. Monsanto Chemical; Sauget, Illinois
Monsanto Chemical maintains a facility of 150
million Ibs. annual monochlorobenzene capacity at its Sauget,
Illinois plant near East St. Louis, Illinois. The chemicals
produced at this plant include phosphorous compounds, chlori-
nated amines, hydrochloric acid, chlorine-caustic soda,
3
sulphur compounds, and phenols. Approximately 1,250 persons
are employed at this location.
The Sauget plant produces its own chlorine and has
ready access to petrochemicals including benzene from the
oil refineries concentrated at Wood River, Illinois, a few
miles north of East St. Louis.
All the monochlorobenzene produced at Sauget is
used internally, probably in the synthesis of amine compounds.
p—Dichlorobenzene production reportedly is committed dbn its
entirety ot three large industrial customers, while o-
dichlorobenzene is sold on a spot basis.
IV.B.3.d.3. Montrose Chemical; Henderson, Nevada
Montrose Chemical (owned jointly by Chris Craft and
Stauffer Chemical Co.,) produces chlorobenzene at Henderson,
Nevada. Although statistics are almost nonexistent, this
company uses its total chlorobenzenes production captively for
22
the manufacture of DDT, a pesticide. As noted earlier, DDT
IV-54
-------
domestic use has been severely restricted by Federal regulation
in recent years. It is believed that today Montrose Chemical
is the only producer of this substance in the United States,
and that almost all is exported.
Other chemicals produced by Montrose Chemical at this
location are chloral and hydrochloric acid. The total opera-
tion requires 112 employees. Chlorine is probably purchased
from a nearby Stauffer plant. The source of benzene is not
known. It is believed that the Henderson plant is the only
location of the Montrose Chemical Corporation.
IV.B.3.d.4. 01in Corporation; Mclntosh, Alabama
01in Corporation produces pentachlorobenzene as an in-
the-pipe intermediate for the manufacture of pentachloronitro-
benzene (PCNB) at its plant at MeIntosh,. Alabama. Fungicidal
®3
are also prepared here. 01in
Corporation produces chlorine and sodium hydroxide on this
site. Therefore, a ready supply of chlorine is available for
20
the chlorination of tetrachlorobenzene to pentachlorobenzene.
Although Olin Corporation produces a wide range of halo-
genated benzenes and toluenes, cyclic amines, and isocyanates
at a number of locations, none of these chemicals are produced
at Mclntosh.3
IV-55
-------
IV.B.3.d.5. PPG Industries; Natrium, West Virginia
PPG Industries produces chlorinated benzenes at its
Natrium, West Virginia plant. Monochlorobenzene, o- and p-
dichlorobenzenes, and 1,2,4-trichlorobenzene and mixed 1,2,3-
and 1,2,4-trichlorobenzenes are all manufactured here.
Other chemicals produced at this site are sulfur compounds,
sodium hydroxide, hydrogen, and ammonia. Approximately 818
people are employed by PPG at the Natrium plants.
PPG Industries produces chlorine at this location
and thus, has it readily available for use in production of
chlorobenzenes. The source of benzenes is not known, but
might be at least partially drawn from the byproduct dis-
charges of nearby coke ovens. It is believed that a large
portion of PPG's monochlorobenzene production at Natrium is
claimed by the adjacent Mobay Chemical Co. plant for use as
a solvent in the manufacture of isocyanates.
rv.B.3.d.6. Standard Chlorine Chemical; Delaware City,
Delaware and Kearny, New Jersey
Standard Chlorine, the only producer of chloroben-
zenes on the East Coast, has two facilities. The first is
located at Delaware City, Delaware and produces a full range
of chlorinated benzenes, while the second is in Kearny, New
Jersey and processes only o- and p-dichlorobenzene mixtures.
The company has 150 million Ibs. production
capacity for monochlorobenzene at Delaware City, Delaware,
IV-56
-------
while the combined total capacity for o-dichlorobenzene for
both locations is 66 million Ibs., and for p-dichlorobenzene
is 90 million Ibs. Each of the plants employs fewer than
100 persons.
As might be expected from the chemistry of the
manufacture of chlorobenzenes, hydrochloric acid is also
produced at Standard Chlorine's Delaware City plant. No
other chemicals are produced at either site. A subsidiary
of Standard Chlorine, Chloroben, Inc., operates a manufac-
turing facility adjacent to the Kearny processing plant
that produces waste and septic system chemicals and it is
believed that much of the p-dichlorobenzene production is
used there. As the nation's largest producer of o- and p-
dichlprobenzenes, Standard Chlorine is also thought to be
a major exporter of these chemicals.
IV.B.3.d. 7. Specialty Orqanics; Irwindale, California
Specialty Organics of Irwindale, California, is one of
two processors (in terms of conventional industry definition) of
o- and p- dichlorobenzenes in the nation, and is the only pro-
ducer or processor of o- and p-dichlorobenzenes on the West
Coast. Processors separate mixtures of o- and p-dichlorobenzenes
into their individual components. The Irwindale processing
capacity for o- and p-dichlorobenzene is 2 million Ibs. each.
In comparison, Dow,_PPG, and Standard Chlorine have
dichlorobenzene capacities of 30, 20, and 66 million Ibs.,
respectively; and p-dichlorobenzene capacities of 30, 30
and 90 million Ibs.
IV-5 7
-------
Processing of dichlorobenzenes accounts for
approximately 80 percent of Specialty Organics' business
which is approximately a million dollars a year. The
Company employs ten persons The source of its materials
is not known.
Table VI-8 summarizes the information on chloro-
benzene producers presented above.
IV.B.3.e. Interpretation
Several observations may be drawn from the dis-
cussion above.
o There appear to be economies of scale in
the production of chlorobenzene but the
relative importance of scale is not clear.
o Transportation costs in the acquisition of
chlorine are potentially important. But,
since all existing producers have onsite
sources of chlorine, this* is not a com-
petitive factor*.
o Transportation costs for chlorobenzene
products are not a factor. Local markets
can be insulated only to a very small
extent.
o No existing producer appears to have an
assured low-cost source of benzene.
Sources appear plentiful and competitively
priced.
o The upperbound for the number of employees
necessary to support a large chlorobenzene
production facility appears to be 100, as
based upon the Standard Chlorine Chemical
Delaware City plant, and as confirmed by
the Montrose Chemical plant. The employees
incremental to chlorobenzene production,
particularly in larger, integrated chemical
refineries, are probably considerably fewer.
IV-58
-------
TABLE IV-8: CHLOROBENZENBS PRODUCERS, 1979
Company
Dow Chemical
Monsanto Chemical
Intermediates
Hontrose Chemical
Olin Corporation
PPG Ind.
Specialty Organics
Standard
Chlorine Co. , Inc.
TOTAL
Location
Midland, MI
Sauget, IL
Henderson, NV
Mclntosh, AL
Natrium, WV
Irwindale,CA
Delaware
City ,DE
KearnyrNJ
Employees
6,500-
7,000
1,250
112
100
818
10
51-100
100
Monochloro-
benzene
Capacity
(MiUion Ibs.)
220
150
70
0
90
0
150
0
>680
Products
Manufactures more than 150 chemical products,
including halogenated organics, pesticides,
methylcellulose, flocculants, cosmetics,
heat transfer agents, medicinals, etc.
Manufactures industrial organic chemicals, in-
cluding phosphorous compounds, chlorinated
benzenes, chlorinated amines, hydrochloric
acid, chlorine-caustic soda, sulfur compounds,
phenols.
Manufactures chloral, chlorinated benzenes,
hydrochloric acid, DDT.
Manufactures pantachloronitrobenzene and PCNB.
Chlorine-caustic soda, sulfur compounds,
chlorinated benzenes, hydrogen, ammonia.
Processor of chlorinated benzenes.
Chlorinated benzenes, hydrochloric acid.
Processor of chlorinated benzenes.
m
vo
SOURCES: References 1,2,4,11,22,23,25,26,31,33,35,
-------
Thus, given these conclusions in conjunction with
a common, relatively uncomplicated production process, it
is probable that the cost distribution for chlorobenzene
production is quite uniform across producers. This implies
a rather flat (elastic) industry supply curve. ,
While an elastic supply function would ordinarily
imply a potential for significant impact, this situation
is mitigated by other structural factors. The recent closing
of a number of small, marginal producers has left the chloro-
benzene industry with a smaller number of relatively large
producers with highly devloped product supply arrangements.
Generally speaking, only a very large demand shift would
threaten the least efficient producer of those left in the
industry. However, in this case one processer may be vulnerable
to a decrease in demand.
IV.B.4. Market Expectations
The Level I analysis documented and emphasized
the stagnant demand outlook for chlorobenzenes. Little has
occurred in this phase of the analysis to indicate any
revision of this view.
It does, however, appear that changes are taking
place in the international trade of chlorobenzene that, while
rather limited in current impact, could affect the long term
outlook. Tables IV-9 and IV-UO set forth the intercountry
trade flows with the United States during recent years.
While the data does not allow examination of specific com-
pounds, the Tables show a very large increase in chlorobenzene
IV-60
-------
TABLE IV-9 : UNITED STATES IMPORTS BY COUNTRY OP ORIGIN
Mono-, Pi-, and Tri-chlorobenzene (MM Ibs.)
Prom
1977
1978
1979 (9mo.)
Canada
Japan
United Kingdom
Netherlands
Belgium
France
Germany
Poland
Italy
Other
TOTAL
.68
.009
.04
.08
.017
.12
.094
1.04
.028
.044
1.025
1.004
1.031
.01
1.02
.08
4.242
.01
.06
.04
5.4
.04
.02
5.57
IV-61
-------
TABLE IV-10: U.S. EXPORTS BY COUNTRY OF DESTINATION
o- and p-Dichlorobenzene (MM Ibs.)
To
1977
1978
1979 (9
TOO.)
Canada
Mexico
Costa Rica
Other, Central America
Brazil
Venezuela
Other, South America
United Kingdom
Other, Europe
Israel
Other, Middle East
Japan
Hong Kong
Taiwan
Ottjer, Asia
Rest of World
TOTAL
1.4
2.8
3.0
.5
7.7
3.5
2.5
.22
.027
.96
.28
.01
.12
.038
.308
.007
11.714
.132
.'158
.049
20.023
8.7
3.5
.26
.001
.70
.183
.005
10.9
.044
.196
.04
24.529
IV-62
-------
trade flows over the past three years. Based on the nine-
month annual rate for 1979, imports have increased sevenfold
in two years; while exports, starting from a much larger base,
have grown by nearly a factor of five.
The export figures are even more startling when it is
recognized that the figures do not include monochlorobenzene
or the higher level chlorobenzenes. Based on a gross estimate
of 1979 combined domestic production of o- and p-dichlorobenzene,
it can be seen that domestic consumption is dropped dramatically
while exports are becoming a dominant market factor.
Year
1977
1979
Total
Production
(MM Ibs.)
112.8
(est.) 80.0
Exports
(.MM Ibs.)
7.2
32.7
Domestic
Consumption
CHM Ibs.)
105.6
47.3
Exports as
Percent of
Production
6.4 %
41.0 %
Today, exports to a single country, Japan, are equivalent
to a quarter of the total domestic consumption.
While there is little hard information on the
causes of such a dramatic change, it is possible to speculate.
Benzenoid dyes, once a major item of domestic manufacture,
are now imported into the United States in large quantity.
It is possible that domestic health and safety regulations
on workplace exposure to benzene have had a role in the
transfer of this industry overseas. In addition, rapidly
growing textile production in Asian countries such as Taiwan
IV-63
-------
and Korea may have lead the Japanese to expand their bensenoid
dye capabilities. Japan hai neither the cheap energy to manu-
facture chlorine nor the aromatic petroleum feedstocks to pro-
duct lignifleant quantities of benzene, and thu§, muit Import
ohlorobenzenes.
Another factor may be domeitic regulation of pesticides.
At a growing number of peiticidea have been banned from use
in the United Statea, production capabilities that formerly
produced large volumes for export may have been transferred
to other countries. Thus, instead of exporting the finished
product, the United States might instead be exporting feed-
stocks.
Overalli while domestic market prospects for o- and p-
diohlorobenzenes and their products are not bright, prospects
for foreign markets appear to be somewhat brighter.
On the* import side, figures are given for chlorobenasenes
as a group and some data is available by compound. However,
it is interesting to note that while o- and p-diohlorobenzene
are exported in trivial amounts to Europe, certain European
countries (particularly France) have become important exporters
of ohlorobenzenes, particularly the tetrachlorobenzenes.
It is not clear, however, why imports of these substances
should be increasing when domestic monochlorobeniene capacity
utilisation is generally felt to be low. One theory is that
these imports are displacing the production capacity lost in
the Northeast during the past several years. Whatever the
1V-64
-------
ration, it is clear that foreign imports of ohlorobantanei are
competitive with domestic product*.
IV.B.5. Alternative Approaches
Under the proposed test rule, EPA has advanced three
possible regulatory approaches. Th«aa were formulatad with
ragard to considerations of lampling within the ohlorobenzenea
group. Where a deoiaion to sample within a group is made, it
also must be decided whether the chemicals selected should be
formally treated as individual chemicals or whether the group
should continue to be treated as a category for purposes of
allocating testing costs. EPA is proposing one approach and
considering two alternative approaches for exemptions and
reimbursement. Any of the three approaches described below
might be adopted in the final rule.
IV.B.S.a. Proposed Approach
This approach envisions a rule requiring testing only of
a representative sample of chemicals, sufficient to charac-
terise the category. Manufacturers and processors of all
ohlorobensenes, however, would be required to share the costs
of testing the sample compounds. EPA specifies its choice
of a representative sample as shown in Table IV-11 .
IV-65
-------
TABLE IV-11
Representative Other
Chlorobenzenes Chlorobenzenes
Monochlorobenzene Meta-dichlorobenzene
Ortho-dichlorobenzene 1,2,3-Trichlorobenzene
Para-dichlorobenzene 1,3,5-Trichlorobenzene
1,2,4-Trichlorobenzene 1,2,3,4-Tetrachlorobenzene
1,2,4,5-Tetrachlorobenzene 1,2,3,5-Tetrachlorobenzene
Pentachlorobenzene
While the testing regulations do not prescribe the manner
in which testing costs are shared among producers, it is
necessary for the purpose of impact analysis to assume a cost
distribution scheme. The first component of a distribution
scheme is to establish the appropriate cost pool. Generally
speaking, this can be done in one of two ways: pool costs by
compound, or pool costs by compound groups. In the case of
the proposed approach, costs are assumed to be distributed on
a group basis; i.e., some producers share in the testing costs
for compounds they do not produce.
Secondly, after the cost pool is established, a scheme
must be adopted to distribute the pooled costs. This is most
easily done on the basis of production volume, although it
could conceivably be done on the basis of production capacity,
or even on a uniform producer-by-producer basis. Since production
volume seems to be a likely measure, it is assumed to prevail in
each of the options examined.
The direct costs of testing the representative sample are
shown in Table IV-12 below. The procedure for annualizing these
IV-6 6
-------
TABLE IV-12 : SUMMARY OF ESTIMATED TEST COSTS FOR CHLOROBENZENES ($ thousands)
Compound
Monochlorobenzene
o-Dichlorobenzene
p-Dichlorobenzene
1,2, 4-Trichlorobenzene
1,2,4, 5-Tetrachlorobenzene
Pentachlorobenzene
SUBTOTAL (Proposed
Approach)
m-Dichlorobenzene
1,2, 3-Trichlorobenzene
1,3, 5-Trichlorobenzene
1,2,3, 4-Tetrachlorobenzene
1,2,3, 5-Tetrachlorobenzene
SUBTOTAL
GRAND TOTAL
Oncogen ic
Effects
—
—
$ 328- 983
328- 983
328- 983
$ 984-2,949
$ 650-1,200
328- 983
328- 983
328- 983
328- 983
$1,962-5,132
$2,946-8,081
Teratogenic
Effects
$ 50-100
50-100
50-100
27- 81
27- 81
$204-462
$ 50-100
27- 81
27- 81
27- 81
27- 81
$158-424
$362-886
Reproductive
Effects
$110- 220
110- 220
110- 220
57- 171
57- 171
$444-1,002
$110- 220
57- 171
57- 171
57- 171
57- 171
$338- 904
$782-1,906
Subchronic
Effects
$ 32- 96
32- 96
32- 96
28- 84
28- 84
28- 84
$180-540
$ 32- 96
28- 84
28- 84
28- 84
28- 84
$144-432
$324-972
Total by
Compound
(Alternatives 1&2)
$ 192- 416
192- 416
192- 416
383-1,148
440-1,319
413-1,238
$1,812-4,953
$ 842-1,616
440-1,319
440-1,319
440-1,319
440-1,319
$2,602-6,892
$4,414-11,845
en
Guidelines. Draft Report, Submitted to U.S. Environmental Protection Agency, Office of
Regulatory Analysis, by Enviro Control, Inc., April 3, 1980. Adjusted to correspond to pro-
posed test rule.
-------
costs is described in Section IV.B.6. following. The total for
the six compounds—$1,812,000 to $4,953,000—represents the
overall cost pool to be divided among the producers of the eleven
chlorobenzenes.
IV.B.S.b. Alternative I
This alternative is the most difficult to characterize in
terms of cost, it requires that all chemicals in the chloroben-
zenes category be tested in stages' with the designated
representative sample comprising the initial testing
stage. If this stage were adequate to characterize the
entire category, manufacturers and/or processors of the
untested chemicals would obtain an exemption and reimburse
the manufacturers and processors who sponsored the first-stage
tests.
If the first stage were found to be inadequate to charac-
terize the entire group of chlorobenzenes, the second stage of
testing would be required. Producers would be respon^
sible for a share of the test' costs for only those com~
pounds they produce.
The principal difficulty with analysis of such an
approach is that it involves assigning a probability tq the.
second stage of testing, and such a probability would be
almost entirely speculative. To circumvent this difficulty,
it is assumed here that the probability is one; that is, second
stage testing is a certainty. Such an assumption willobviously
bias the cost and impact calculations upward, consistent
IV-6 8
-------
with the "worst case11 methodology explained in a later
section.
For purposes of analysis, the grand total of $4,414,000-
$11,845,000 from Table IV-12 will represent the testing cost
pool applicable to Alternative I.
IV.B.S.c. Alternative II
Although chlorobenzenes would be analyzed as a group for
purposes of a Section 4 finding, six chemicals would be selected
from the category and tested as individual cheifticals. Exemp-
tion and reimbursement considerations would be the same as for
single chemicals, with only the manufacturers and/or processors
of the selected chemicals subject to testing requirements;
i.e., no producer would pay for tests of chemicals he did
not produce (or process).
Under this alternative, there would be the equivalent of
six separate cost pools established—one for each chemical
in the representative sample. These costs would be distributed
in an equitable manner, assumed for purposes of analysis to be
based on production volume.
IV.B.6. Impact Analysis
In this section, the results of previous steps are brought
together in order to determine the economic impact of the
testing regulations. It is assumed that the costs of the
tests will be distributed among the firms according to a reim-
bursement scheme yet to be devised. As discussed in Chapter
IV-69
-------
II, it is assumed that each producing firm pays a share of the
test costs for chlorobenzenes, based on its proportion of
total production:
TC
firm
where
L • P./TP Proportion of ill chlorobenzenes
J -1 produced by the jtn firm
*4 " X p<4 where i refers to the chlorobenzene
-1 i 3 chemical
TP =
TC
In the case of Alternative II, each producing firm
pays a share of the test costs for those chlorobenzenes
it produces, based on its proportion of total production
of each individual chemical.
a.. T. where i refers to the chlorobenzene
^ 1 j refers to the firm
The total cost imposed by testing a chlorobenzene is the sum
of the costs to those firms producing it:
where
C. = Total cost imposed by testing the i
chlorobenzene
th
IV-70
-------
The total costs of testing the chlorobenzenes is the sum of
the individual costs:
TC = 2 C.
i 1
It should again be noted that this analysis treats
testing costs as though they are incurred in a single year.
The "single year" assumption reflects the philosophy of con-
servatism (i.e./ the "worst case" approach) in estimating
economic impacts, since the costs may, in fact/ be incurred
over a two-to-three year period.
IV.B.6.a. Methodology
•As discussed in Section II.C.2., the testing costs
represent a lump sum or fixed cost to the producers in the
chlorobenzene industry. That is, the total cost of testing is
not affected by total chlorobenzene production and, hence, the
short-run decisions of the firm are unaffected. In the long
run, however, firms view all costs as variable. Thus, prior
to payment of the costs, firms must determine whether the ex-
pected stream of revenues, minus all costs, will yield a
IV-71
-------
positive net present value (NPV). Those firms projecting
negative NPV will, if rational, decide to leave the industry.
Thus, testing costs may have an impact on the long-run decisions
of the firm. This will, in turn, affect the quantity produced
and price of the chemical.
In general, an external or exogenous lump sum disturbance
is likely to produce the following impacts on a market:.
o Aside from the perfectly inelastic demand
case, output will fall as the industry
supply curve shifts to the left in response
to higher costs;
o The price paid by the consumer or buyer
is likely to increase, while the seller or
producer will realize a lower net return;
o As output falls, industry employment will
decrease unless increased production of
other chemicals absorbs excess labor.
In order to evaluate the impacts on these factors, a "worst
case" methodology has been developed. This will be discussed
following the treatment of the direct costs of testing.
IV.B.6.a.l. Annualized Direct Costs of Testing
The annual industry cost of testing depends upon
critical expectations concerning the chlorobenzene market
in the future. The economically correct procedure here is
to discount the cost of testing over the expected life of
different chlorobenzenes. As has already been indicated,
the market has declined substantially over the past several
years. Projecting the future economic life of each chemical
IV-72
-------
is extremely uncertain and has not been attempted here. For
this reason, it is important that assumptions made regarding
the time horizon and the rate at which future revenues are
discounted be biased on the conservative side.
For the purposes of this study, it is assumed that the
testing costs are capitalized at the before-tax rate of 20
percent. The time horizon used in this study is 20 years.
(capital recovery factor=.20536). These are important assump-
tions and are subjected to sensitivity analysis in a subsequent
section.
In addition to these assumptions, an upper bound
to the costs of testing has been derived in order to account
for nonlaborabory administrative costs and for the pos-
sibility that additional in-depth testing is required.
In the absence of hard data on the probabilities that these
tests will be required, as well as on the actual cost of
these tests, it was decided to increase the high estimate
of the direct testing costs by a factor of two. Thus,
for the proposed approach and the two alternatives', estimates
for the annualized, industry-wide costs of testing are derived
as shown in Table IV-13. The low and medium estimates are
derived form the range of test costs presented in Table IV-12
for the different alternatives. The high annualized cost
estimate is derived as discussed above.
IV-7 3
-------
TABLE IV-1*
OVERALL ANNUALIZED TEST
COSTS ($ thousands)
High Range
Medium Range
Low Range
Proposed
Approach
$2,034
1,017
372
Alternative I
$4,865
2,432
906
Alternative II
$2,034
1,017
372
SOURCE: Table IV-13
These costs are utilized in the "worst case" scenarios in
the following sections.
IV.B.6 .a.2.
'Worst Case" Scenario
The"worst case? that is, the situation in which
the market will be most sensitive to economic disturbances
is the long-run, competitive equilibrium case. This market
scenario has the following characteristics:
o All firms have identical costs;
o Each firm produces at a point where price
equals per-unit costs, thus eliminating
any economic profit or rent;
o Within the range of relevant output, the
industry supply curve is horizontal, or
perfectly elastic; that is, no firm will
operate if price falls below the current
level.
while it is unlikely that the chlorobenzenes
industry conforms exactly to these characteristics, from
the discussion in Section IV.B.4. we cannot rule out the
possibility that the firms in this industry behave in a
similar manner. In addition, we consider the worst case
scenario for the following reasons:
IV-74
-------
o It will provide an upper-bound estimate
of the potential economic disturbances
attributable to TSCA testing requirements;
o It requires only the specification of a
demand function, that is, estimates of
impacts are feasible even if econometric
estimates of the supply curve fail;
Some a priori statements concerning the economic
impacts can be made in this situation:
Price will increase by the full amount of
the per-unit cost of testing; in other
words, buyers will bear the full burden
of testing costs;
The decrease in output will depend solely
upon the elasticity of demand for chloro-
benzenes (of course, if demand is inelastic,
no change in output will occur).
This case can be depicted graphically as in Figure
IV-5. As we have previously indicated, the cost of TSCA
testing requirements is essentially a lump sum cost imposed
on the industry which will be viewed as a long-run variable
cost by firms participating in the industry. However, in
order to determine its impact on the industry supply curve,
this lump sum fee must be converted to a per-unit cost.
Let the annualized industry cost of testing be, a. The
per-unit cost, t, can then be expressed as
t = a/Q
In general, the per-unit burden of testing depends on the
industry output; that is, the per-unit cost (or supply curve
shift) will be simultaneously determined by the impact of
the cost on output. However, in the worst case situation,
IV-75
-------
FIGURE IV-5
EXAMPLE OP SHIFT IN SUPPLY CURVE
DUE TO TESTING COSTS
IV-76
-------
the supply curve shifts so that the entire amount of the
per-unit cost is passed on to the consumer.
IV.B.6.a. 3- Results
The differential impacts of each alternative are com-
pared through examination of resultant product price changes.
These price changes are calculated on a "worst case" basis;
i.e., all costs are fully passed through to prices, no "eva-
sive" actions by producers are possible, testing costs are
at the high end of the feasible range and production volumes
are at the low end of the minimal range. Such assumptions
result in per-unit impacts probably much greater than can be
expected in the real world.
Simulated price increases (full pass-through of. per-unit
test costs) due to the imposition of testing requriements are
shown in Table IV-14. The proposed approach results in con-
stant, across-the-board increases, small in relation to sales
price. In this case, total testing costs are lumped together
and divided by the overall production volume of the represen-
tative chlorobenzenes.
•
The by-product chlorobenzenes are those that are produced
in low volume and primarily as by-products. Most are sold in
mixture along with the principal products, some are disposed
of in reactor tars, and in at least one case, the by-product is
purposely separated from the principal product and dealt with
a. 21
as waste.
IV-77
-------
TABLE IV-14: PER-UNIT ANNUALIZED TEST COSTS, CHLOROBENZENES
PRIMARY PRODUCT
Monochlorobenzene
Ortho-dichlorobenzene
Para-dichlorobenzene
1,2,4-
Trichlorobenzene ,
1.2.4,5-
Tetracblorobenzene ,
<
Pentachlorobenzene
By-Product
Meta-dichlorobenzene
Heta-dichlorobenzene
a) 1,2.3-
Trichlorobenzene
b) 1.3.5-
Trichlorobenzene
a) 1,2,3,4-
Tetrachlorobenzene
b) 1,2,3,5-
Tetrachlorobenzene
*
TOTAL
Total Produc-
tion Primary
Product1
(million IDS.,
1978)
296.3
41.1
41.3
17.1
6.4
6.7
740.3
Sales Price
Primary
Product2
(fc/lb., 1978)
26$
26
27
36
n.a.
n.a.
ALTBRNA'
Total Direct
Test Costs3
(Primary C By-
product)
($ x 1000)
$192-416
613-12245
613-12245
1263-3786
•
1320-3957
413-1238
$4414-11845
1VE I
Per-0nit4
Annualized
Cost
(«/lb.)
.06*
1.2
1.2
9.1
25.4
7.6
ALTBRNA'
Total Direct
Test Coats3
(Primary only)
($ x 1000)
$192-416
192-416
192-416
383-1148
440-1319
413-1238
$1812-4953
1VE II
Per-Onit4
Annualized
Cost
($/lb.)
.06*
.4
.4
2.8
8.5
7.6
PROPOSED
APPROACH
Per-Unit«
Annualized
Cost
(*/lb.)
.27$
.27
.27
.27
.27
.27
-J
00
.Total production - domestic production plus imports. See Tables JV-2 and XV-4.
,See Table IV-2.
^See Table ZV-12.
Prom Table XV-13? ; upper figures from cost distribution multiplied by two for High Range Estimate and annualized. Divided by production on indivi-
dual ehemcial basis for Alternatives I and II. Total production equals divisor for Proposed Approach.
Test cost for m-dlchlorobenzene apportioned on a 50 percent basis to both o- and p-dichlorobenxene.
-------
Application of testing requirements to these compounds
will have the effect of increasing the costs of their associated
principal products/ even when the by-product is not present in
the commercial mixture. Thus, a figure representing testing
costs per-pound for these secondary chlorobenzenes is not
relevant, since they are almost never sold as such. (The sole
possible exception is meta-dichlorobenzene, which is imported
in small amounts as a separate compound.)
Alternatives I and II produce price increases specific
to the particular primary chemicals, including allocated by-
product testing costs when appropriate. These price incre-
ments vary widely from .06$/lb. on monochlorobenzene to 25.4$/
Ib. for 1,2,4,5-tetrachlorobenzene under Alternative I. It
can be seen that the very high volume of monochlorobenzene
relative to the other chlorobenzenes (40 percent) greatly
effects the distribution of test costs among products from one
alternative to the other.
It is now possible to combine the results of the demand
analysis in order to determine consumption decrements due to
the price increases for the lower chlorobenzenes. For mono-
chlorobenzene the increase in price ranges from .27C/lb.
(proposed approach) to .064/lb. (Alternatives I & II). Apply-
ing the statistically derived elasticity factor (.24), quantity
is estimated to fall by amounts ranging between 902,000 and
193,000 Ibs. per year—decreases of .31 and .07 percent,
respectively. (See Table IV-15.) Due to the large quantity
of monochlorobenzene produced annually and the relatively large
IV-79
-------
TABLE IV-15:
PRICE AND CONSUMPTION IMPACTS
OP TESTING COSTS BOR THREE
REGULATORY ALTERNATIVES
Mono ch lorobenz ene
Proposed Approach
Alternative I
Alternative II
Increase
in Price
(cents)
.27$
.06
.06
Percent
of 1978
Price*
1.27%
0.27
0.27
Decrease
in Con-
sumption
(000 Ibs)
902.3
193.4
193.4
Percent
of 1978
Consumption
.31%
.07
.07
Ortho- di chlorobenzene
Proposed Approach
Alternative I
Alternative II
Par a- di chlorobenzene
Proposed Approach
Alternative I
Alternative II
.27
1.20
.40
.27
1.20
.40
1.04
4.44
1.48
1.04
4.44
1.48
217.4
931.6
310.5
68.4
293.0
97.7
.53
2.25
.75
.17
.71
.24
1Using 1978 actual (not deflated) sales prices
-------
size of the plants producing it, this would appear to consti-
tute a minor impact on the monochlorobenzene producers.
With respect to o-dichlorobenzene, the burden of the
additional costs is distributed over a smaller quantity of
production and, hence, the increase in price is greater—
ranging from .27 to 1.2 cents (1.0 to 4.4 percent). Since
the demand for o-dichlorobenzene is more price elastic (although
still inelastic: e =-.51), the additional cost translates into
a decrease in quantity consumed of greater magnitude. The
decrease in consumption is estimated to range from 217,000 Ibs.
to 932,000 Ibs., representing decreases of .53 and 2.25 percent
of 1978 production, respectively. Given the nature of this
worst case model, the decrease in production is predicated upon
the decisions of some firms to move these resources into more
productive uses. However, the analysis is incapable of pre-
dicting which companies or plants, if any, would be affected.
The 1978 production and price for p-dichlorobenzene are
approximately the same as for o-dichlorobenzene, and hence, the
increases in price are similar, ranging from .27 to 1.2 cents
(1.0 to 4.4 percent). However, demand for p-dichlorobenzene
is more inelastic (-.16), causing the decrease in consumption
to be less. This decrease ranges from 68,000 to 293,000 Ibs.
(.17 to .71 percent) of 1978 production. Again, for the analysis
we cannot determine which producers will be most affected.
However, as mentioned in Section IV.B.4.b, the possibility
exists that scale economies may place a smaller firm in a less
competitive position.
IV-81
-------
As previously pointed out, while it is statistically
possible to derive meaningful demand functions for the lower
chiorobenzenes, it is not possible to follow the same procedure
for the "higher" compounds in the category. This is a difficult
problem to cope with, since on the basis of per-unit costs and
production volumes, the higher chlorobenzenes would appear to
be more heavily impacted by the proposed test rule. Futher,
one of the most important characteristics of the chlorobenzenes
system is that the majority of the compounds are manufactured
sequentially; e.g., the tri- group is made from the di- group,
tetras from the tri- group, and penta- from tetra-. While only
a small volume of ortho- and para-dichlorobenzene production
goes to produce trichlorobenzenes, one-third to a half of all
trichlorobenzenes serve as inputs to tetrachlorobenzene, and all
tetra- production goes to pentachlorobenzene.
In addition, all pentachlorobenzene is used to produce a
single product; pentachloronitrobenzene (PCNB), a widely used
agricultural fungicide. The Olin Corporation is the sole United
20
States producer of pentachlorobenzene and of PCNB. PCNB obvi-
ously will have to absorb not only the testing costs associated
with its primary product, pentachlorobenzene, but also the test-
ing costs imposed on its "upstream" raw materials, the chloro-
benzenes in sequence. This cumulative loading of test costs
into a single downstream product is termed "cascading."
Figure IV-6 shows the material flow of chlorobenzenes neces-
sary to produce a pound of PCNB. Weighting the per-pound test-
int cost increments by material requirements gives the cumulative
IV-8 2
-------
FIGURE IV-6 : CHLOROBENZENE MATERIAL FLOW
FOR PCNB PRODUCTION
Dichlorobenzene
< Chlorine
0.4 Ib.
Trichlorobenzene
^ Chlorine
0.54 Ib.
Tetrachlorobenzene
t; Chlorine
0.645 Ib.
Pentachlorobenzene
^ Nitrogen
0.86 Ib.
Pentachloronitrobenzene
(PCNB)
1.0 Ib.
IV-83
-------
cost effect imposed on PCNB. These are shown by regulatory
option in Table IV-16.
TABLE IV-16 :
Cost Increment for
PCNB (Worst Case Basis)
(C/lb.)
Proposed Approach .7$
Alternative I 28.34
Alternative II 13.7C
•
As would be expected, the range of cost increments accru-
ing to PCNB is quite wide. The question still remains, however,
as to the impact of such cost increments, and this reduces to
a question of the specific attributes of PCNB and of the
market for it.
PCNB is a broad-spectrum fungicide used on a wide variety
of corps, including cotton, peanuts, field crops, and fruits
and vegetables. It appears to be extremely effective and
easy to use. Fungicides that are potential substitutes for
PCNB are not only viewed as inferior technological replacements,
but also as more expensive in terms of overall application
23 24
cost. ' There is no specific price for PCNB publicly available,
but the average price for the group of fungicides to which it
belongs is well in excess of $2.00 per Ib.
Thus, at least preliminarily, it would appear that demand
for PCNB is relatively inelastic. If the^ price of PCNB is
taken to be around $2.00 per Ib.,a 28.3$ increase (Alternative
IV-84
-------
I) would amount to 14.2 percent, and would cover the worst
possible increment due to testing cost regulations.
An increase of this magnitude must be considered to be
significant, but the actual magnitude of impact would be
wholly dependent upon demand elasticity. If demand were totally
inelastic/ industry impact would be zero.
One important unknown involves the role of PCNB imports.
Imports of PCNB would not be subject to test cost reimbursement
since PCNB is not a TSCA chemical. Thus, it is conceivable that
imports could undercut domestic PCNB price and cause a signifi-
cant shift of resources. The most recent import figures are
14
for 1976 when 33,000 Ibs. of PCNB were reportedly received.
Roughly, this amounted to one percent of total domestic con-
sumption in that year. This figure, however, sheds little light
on whether or not imports are currently a potentially signifi-
cant market factor.
IV.B.6.b. Summary and Interpretation
The next step in assessing the economic impact of
testing requirements would be to evaluate the effect on
employment in the industry. This is, typically, derived
from employment per unit (e.g., million Ibs.) of output
for the industry. From the estimate of the decrease in
production, an estimate for the decline in industry employ-
ment is obtained. Alternatively, from financial information
about the production process for each firm, a cost of capital
IV-85
-------
analysis may predict the closing of particular plants, if the
existing resources have no alternative uses.
For the present analysis, neither of these methods appears
appropriate. First, the decreases in production for the high
volume, lower chlorobenzenes represent a small percentage of
total production and, in most cases, is a small fraction of the
capacity of each company. In addition, as noted in Section
IV.B.4.d., the producing companies manufacture a wide range of
products at the. particular plants and it is believed that in
many cases, the resources involved in chlorobenzenes production
potentially could be transferred to other activities with a
minimum of disruption.
In summary, the maximum decrease in consumption of the
three lower chlorobenzenes is estimated to be of 1.30 million
Ibs., representing a decrease of less than one percent in total
production. It appears that the industry would be able to
absorb this with minor disruptions.
While the effect of the proposed test rule on the higher
chlorobenzenes is not as clear-cut, it is possible to make a
tentative presumption that the impact would be minor. The
greatest impact due to cost "cascading" would clearly fall on
the fungicide, PCNB; but its apparent demand inelasticity,
its relatively high price, and the inconclusiveness of evidence
on import competition leads to the conclusion that even with
the most inflated possible projection of test costs, PCNB will
still remain a viable commercial product.
IV-8 6
-------
IV.B.7. Limits of Analysis
The above analysis has been conducted using limited
information and information of varying reliability. It is
essential to consider the analysis in terms of its overall
reliability and to judge whether or not the conclusions reached
are sound and useable in a regulatory sense.
The strongest results of the analysis rest on two basic
sources: (1) estimates of testing costs, and (2) estimates of
demand elasticity. Estimates of testing costs have been made
on the basis of current market intelligence; however, because
these estimates are believed to be highly variable from lab to
lab and from test to test, and because specific test
protocols are not available, these data are given as ranges
rather than point estimates.
Tn addition to the testing costs estimated here,
there are the costs of additional tests that would be required
were positive results to occur on the set of minimum test re-
quirements. Further, there are administrative and regulatory
costs associated with testing requirements that are not yet
well, understood and not included. Also, as discussed above,
due to the timing of the entire sequence of tests, costs ex-
ternal to those estimated here may be imposed. To compensate
for these deficiencies, the "worst case" analysis includes a
scenario doubling the high estimate of laboratory testing
costs. It is believed that this case should more than compen-
sate for unknown quantities.
IV-87
-------
Testing costs are formulated here under the assumption
that each compound is tested once, in its pure form.
In terms of demand estimation, the methodology employed
is very commonly accepted as valid and incorporates its own
measures of validity, as explained in the Appendix. The data
are more questionable.
Price, for instance, as officially quoted may not
be representative of the year's transactions. It may vary
widely and quoted figures often do not reflect actual values
of the chemicals traded (due, for example, to discounts). How-
ever, considerable volumes of chemicals are- traded on the open
market, and thus, in many respects, these price data are more
representative statistically than many other price figures
commonly employed in similar studies.
In terms of sensitivity, it is important to note
that even if the testing costs are multiplied by, say, a factor
of two, as was done to derive the maximum costs, the results
are little affected. The results are also very robust with
respect to the estimated demand elasticities. For example,
if the elasticities are doubled, in order to greatly increase
the potential for impact, there is little relative effect on
prices and quantities. Thus, while demand estimates might be
wide of the mark, there is little reason to believe that this
would alter the conclusions to a significant extent.
IV-88
-------
The assumptions behind annualization of the test costs are
also open to criticism. However, a sensitivity analysis of
the annualized costs demonstrates that using a shorter
capitalization period (10 instead of 20 years) and/or a lower
cost of capital (10 percent) has the effect of lowering annual-
ized costs, except when a 20 percent cost of capital is used
in conjunction with a 10-year period. In this case, the
annualized costs increase about 17 percent. The results of this
sensitivity analysis are presented in Table IV-17. The potential
error in costs introduced by these assumptions is well within
the doubling of costs to account for external factors built
into the maximum cost figures. Thus, the results appear to be
very robust with respect to the parameters in this model.
IV.B.7. Conclusions
The foregoing analysis leads to the general conclusion
that imposition of testing requirements on chlorobenzene pro-
ducers will, at worst, be small and, at best, be negligible.
This general conclusion follows from several separate
findings:
o Annualized testing costs will not be unduly
burdensome, particularly if the proposed
approach is adopted.
o The elasticity of demand for high volume
chlorobenzene compounds is inelastic with
respect to price;
o The small, financially marginal producers
have already abondoned the chlorobenzene
market;
o The growth of export markets has the poten-
tial to mitigate the otherwise static out-
look for chlorobenzene demand;
iv-sa
-------
TABLE IV-17: SENSITIVITY ANALYSIS OF ANNUALIZED
COSTS FOR TETRACHLOROBENZENES
Low Cost
Estimate C$440)
(From TABLE IV-13)
period (yrs)
10
20
Cost of Capital
10% 20%
$72
52
105
90
High Cost
Estimate ($1,319)
CProm TABLE IV-13)
period (yrs)
10
20
\
Cost of Capital
10% 20%
$215
154
315
271
All values are in '000 dollars.
IV-90
-------
o The price and quantity impacts presented
in Table IV-16 have been calculated on a
"worst case" basis and appear relatively
insensitive to data deficiencies and to
methodological manipulations;
o Impacts on the higher chlorobenzenes, while
not insignificant on a "worst case" basis,
will probably be manageable given the nature
of demand for these substances;
There-are two principal caveats associated with this
overall conclusion, however;
o Estimates of demand shifts for o- and p-
dichlorobenzenes appear to be of a magni-
tude that could produce significant impacts
on small or marginal firms. This potential
would be exacerbated were costs assessed on
a per establishment basis, rather than on a
production basis;
o If the price elasticity of demand for PCNB
imports is high, the conclusions relative
to impact on the higher chlorobenzenes
could be overly optimistic.
IV-91
-------
REFERENCES FOR CHAPTER IV
Kirk-Othmer Encyclopedia of Chemical Technology, Third
Edition, 1979, Volume 5, pp. 797-808.
Kirk-Othmer Enclyclopedia of Chemical Technology, Second
Edition/ 1964, Volume 5, pp. 253-267.
Directory of Chemical Producers, 1979, SRI International,
Menlo Park, California.
4
Draft Preliminary Evaluation of the Economic Positions
of Selected Chemicals, Office of Toxic Substances, U.S. Environ-
mental Protection Agency, August 1979.
Synthetic Organic Chemicals, United States Production and
Sales, USITC Publication 920, 1977, U.S. International Trade Com-
mission, U.S. Government Printing Office, Washington, D.C., 1978.
Condensed Chemical Dictionary, Ninth Edition, Hawley, G.G.,
editor, Van Nostrand, 1977.
Foreign Trade Reports, FT410, United States Exports,
Schedule E, Commodity by Country, Quantity, and Value, Current
and Cumulative, Bureau of the Census, U.S. Department of Com-
merce, December 1978.
Q
Foreign Trade Reports, FT135, United States General Imports,
Schedule A, Commodity Groupings, Commodity by Country, Bureau of
the Census, U.S. Department of Commerce, December 1978.
Q
Chemical and Engineering News, October 15, 1979, p. 12.
Chemical and Engineering News, August 20, 1979, p.11.
1J>A Study of Industrial Data on Candidate Chemicals for
Testing, Report PB274-264, U.S. Environmental Protection Agency,
Office of Toxic Substances, Washington, D.C.
12
U.S. International Trade Commission, Imports of Benzenoid
Chemicals and Products, 1978, Publication 990, U.S. Government
Printing Office, Washington, D.C. 1979.
U.S. International Trade Commission, Imports of Benzenoid
Chemicals and Products, 1977, Publication 900, U.S. Government
Printing Office, Washington, D.C. 1978.
IV-92
-------
14
U.S. International Trade Commission, Imports of Benzenoid
Chemicals and Products, 1976, Publication 828, U.S. Government
Printing Office, Washington, D.C. 1977.
U.S. International Trade Commission, Imports of Benzenoid
Chemicals and Products, 1975, Publication 816, U.S. Government
Printing Office, Washington, D.C. 1977.
U.S. International Trade Commission, Imports of Benzenoid
Chemicals and Products, 1974, Publication 762, U.S. Government
Printing Office, Washington, D.C. 1976.
Grant, E., W.G. Ireson, and R.S. Leavenworth, Principles
of Engineering Economy, Sixth Edition, John Wiley and Sons,
New York, 1976.
18
Eichers, T., and P. Andribenas, Evaluation of Pesticide
Suppliers and Demand for 1979, U.S. Department of Agriculture,
Agriculture Economic Report No. 422, 1979.
19
Eichers, T., Evaluation of Pesticide Supplies and Demand
for 1980, U.S. Department of Agriculture, Agriculture Economic
Report No. 454, 1980.
Hagerman, R.L., Comment of Dow Chemical U.S.A. regarding
Third Report of the Interagency Testing Committee, March 30, 1977.
Burgess, Kenneth L., Dow Chemical Company, response to
Draft of Proposed TSCA Section 4 Testing Rules for Chlorobenzenes,
April 23, 1980.
22
Rotrosen, Samuel, Montrose Chemical Corporation of Cali-
fornia, comments on Draft TSCA Section Test Rules, May 1, 1980.
23
U.S. Environmental Protection Agency, Office of Pesticide
Programs, Initial Scientific Review of PCNB, EPA540/1-75-016,
1976.
24
Natural Cotton Council of America, Statement in Response
to Rebuttable Presumption Against Continued Regulation of Pesti-
cide Products Containing PCNB, February 27, 1978.
25
"Chemical Profiles: p-Dichlor©benzenes," Chemical Marketing
Reporter, January 22, 1979.
26
"Chemical Profile: o-Dichlorobenzenes," Chemical Marketing
Reporter, June 4, 1979.
27
Materials Balance for Chlorobenzenes—Level I Preliminary,
Review Copy, EPA 560/13-80-001, U.S. Environmental Protection
Agency, Office of Toxic Substances, Washington, D.C., January 1980,
IV-9 3
-------
28
Merck Index, Ninth Edition, Rahway, New Jersey,
Merck and Co., Inc., 1976.
29
National Occupational Hazard Survey Data Base/ U.S.
Department of Health, Education, and Welfare, National Institute
for Occupational Safety and Health, Washington, D.C. 1977.
Toxic Substances Control Act Chemical Substances Inventory,
Volumes 1-5, U.S. Environmental Protection Agency, Office of
Toxic Substances, Washington, D.C., May 1979.
Holmes, P., Olin Chemicals Group to U.S. Environmental
Protection Agency, Washington, D.C., March 20, 1979.
32
Cost Analysis Methodology and Protocol Estimates; Envi-
ronmental Standards, Borriston, Laboratories, Inc. and Enviro
Control Inc., April 28, 1980.
Barone, N.J., Olin Corporation to Mr. Newburg-Rinn
comments concerning Draft TSCA Section 4 Test Rules, May 8, 1980.
34
Cost Analysis Methodology and Protocol Estimates TSCA
Health Standards and FIFRA Guidelines, Draft Report submitted
to U.S. Environmental Protection Agency, Office of Regulatory
Analysis by Enviro Control, Inc., April 5, 1980.
Synthetic Organic Chemicals, United States Production and
Sales, 1978, USITC Publication 1001, U.S. International Trade Com-
mission, U.S. Government Printing Office, Washington, D.C. 1979.
Chemical and Engineering News, Frbruary 4, 19PO, p. 14.
37Synthetic Organic Chemicals, United States Production and
Sales, 1973, USITC Publication 728, U.S. International Trade Com-
mission, U.S. Government Printing Office, Washington, D.C., 1975.
IV-94
-------
APPENDIX; ECONOMETRICS AND REGRESSION ANALYSIS
Regression analysis is the statistical tool used
by econometricians to estimate relations among variables.
Sometimes referred to as "curve-fitting," regression analysis
involves representing an economic relationship in the form
of a mathematical model or equation. The commonly used form
is a linear model:
(1) y = a + 6X + u
where
y = Dependent variable;
a = Constant term or slope intercept;
B = Vectors of slope coefficients;
X = Vector of independent variable(s);
u = Stochastic disturbance term.
The distrubance term, u, reflects the randomness
of economic variables and is assumed to be normally and
independently distributed with mean zero and constant variance:
(2) u~ NI(0,02I)
Using these assumptions we can estimate the coefficients of
the model from data on the dependent and independent vari-
ables and test hypotheses about the relationship.
In order to estimate the parameter coefficients,
we wish to derive the curve (for each independent variable,
holding all others constant) which best fits the data.
A-l
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That is, we wish to minimize the combined difference
between the curve and each data point. The common method
is that of "least squares," where the sum of squared dif-
ferences is minimized. Of course, squaring the differences
eliminates any negative differences and, thus, summing the
squared idfferences yields a positive value. The curve
which results in the smallest "sum of squares" is the curve
which best fits the data.
Any relationship which can be transformed into a
linear equation (e.g., by taking logs, squaring, etc.) can
be estimated in this manner. One of the most popular rela-
tions estimated is the hyperbolic function:
(3) y = oXBeu
This is estimated after taking (natural) logs of both sides
of the equation, yielding:
(4) Jin y = a + 0Un X) + u
The predominant feature of this relationship is that it
implies a constant elasticity of y with respect to X (see,
Section II.C.2.).
From the estimates of the parameter coeficients
and residual statistics, hypotheses concerning the model and
its estimation can be tested. The tests fall into two
general categories: (a) tests concerning the parameters of
the model, and (b) tests concerning the statistical assump-
tions made.
A-2
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In this study, we generally report the results of
these tests; two of type (a) and the remainder of type (b).
The first of these tests is for statistical significance
of the estimated equation. This is equivalent to testing
whether the true values of all coefficients estimated are all
simultaneously equal to zero. This test utilizes the "F-
statistic" derived from residual statistics of the estimated
equation. The calculated F-statistic is compared to the F-
statistic at a given level of significance (e.g., 95 percent)
for the appropriate degrees of freedom to accept or reject
the hypothesis that the model is insignificant.
To test whether each X has a linear influence on
y (or equivalently, whether each 3, separately, is equal to
zero) we utilize the "t-statistic." This statistic is derived
by dividing the coefficient estimate by its estimated standard
error. The t-statistics generally are reported in parentheses
under the coefficient estimates. When compared with the
"critical value" for t, based on the level of significance
and degrees of freedom, it is used to test whether the true
value of the coefficient is zero.
The final hypothesis test we investigate is the
Durbin-Watson test for serial correlation (positive or negative)
among the residuals. This tests whether the assumption of
independently distributed disturbances is violated. If so,
an alternate means of estimation (other than ordinary least
squares) which accounts for this is required. Since the
A-3
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July 198Q
method of testing is not as straightforward as for the
other tests, we do not attempt to describe it here.*
*
For a discussion of this, as we!3 as all other methods
mentioned in this section, see any good econometrics text*
Three examples are: Johnston, J., Econometric Methods, 2nd
Edition, McGraw Hill, New York, 1972; Intriligator, Michael D.
Econometric Models, Techniques, and Applications, Prentice-
Hall, New Jersey, 1978; and Pindyck, Robert S. and Daniel L.
Rubinfeld, Econometric Models and Economic Forecasts, McGraw-
Hill, New York, 1976.
A-4
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TECHNICAL REPORT DATA
(Please read Instructions on the reverse before completing}
1. REPORT NO.
EPA 560/11-80-021
2.
3. RECIPIENT'S ACCESSION-NO.
4. TITLE AND SUBTITLE .
Economic Impact Analysis of Proposed Testing
Regulations for Chloromethane and
Chlorobenzenes
5. REPORT DATE
June 1980
6. PERFORMING ORGANIZATION CODE
7. AUTHOR(S)
David R. Mayo, Joanne V. Collins, and
Barrett J. Riordan
8. PERFORMING ORGANIZATION REPORT NO.
#2152-185
9. PERFORMING ORGANIZATION NAME AND ADDRESS
MATHTECH, Inc.
Suite 200, 1611 North Kent Street
Arlington, Virginia 22209
10. PROGRAM ELEMENT NO.
2L5811
11. CONTRACT/GRANT NO.
68-01-5864
12. SPONSORING AGENCY NAME AND ADDRESS
Office of Pesticide and Toxic Substances
U.S. Environmental Protection Agency
401 M Street, S.W.
Washington. D.C, 20460
13. TYPE OF REPORT AND PERIOD COVERED
Proposed Report
14. SPONSORING AGENCY CODE
15. SUPPLEMENTARY NOTES
EPA Project Officer: Mr Sammy K.Ng
16. ABSTRACT
This report presents the methodology that will be used for analyzing the economic impact
of this and future test rules. The methodology follows a two-stage approach. All chemi-
cals are subjected to a Level I Analysis. This analysis consists of evaluating four mar-
ket characteristics: demand sensitivity, costs, industry structure, and market expectations
The results of the Level I analysis (along with a consideration of the costs of the required
tests) indicate the potential for significant adverse economic impacts. Where the indica-
tion is negative, no further economic analysis is required. However, for those chemical
substances or groups where the Level I analysis indicates a potential for significant eco-
nomic impact, a more detailed and comprehensive analysis is conducted. This Level II anal
ysis attempts to predict more accurately whether or not this potential will be realized,
and, if so, its magnitude.
The Level I analysis for Chloromethane indicates that the proposed health effects test
rule will not impose any significant economic impact on manufacturers of Chloromethane.
For the chlorobenzenes group, the results of the Level I analysis indicated that a poten-
tial for economic impacts exists; however, the Level II analysis concludes that the eco-
nomic impacts are expected to be minor.
17.
KEY WORDS AND DOCUMENT ANALYSIS
DESCRIPTORS
b. IDENTIFIERS/OPEN ENDED TERMS
c. COSATI Field/Group
Chloromethane
Chlorobenzenes
TSCA Section 4 Health Effects Test
Rule
Economic Impact Analysis
18. DISTRIBUTION STATEMENT
Release Unlimited
19. SECURITY CLASS (TillsReport/
Unclassified
21. NO. OF PAGES
144
20. SECURITY CLASS (This page)
Unclassified
22. PRICE
EPA Form 2220-1 (9-73)
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