IMPACT OF TAXING COPPER, LEAD, ZINC OXIDE, FERTILIZER
FEEDSTOCKS, COAL-DERIVED SUBSTANCES, AND RECYCLED METALS
CERCLA SECTION 301 (a) (1) (H/l) STUDIES
Final Report
Office of Solid Waste and Emergency Response
U.S. Environmental Protection Agency
December 1934
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Substantial portions of this report were prepared by ICF Incorporated for
the U.S. Environmental Protection Agency under Contract Number 68-01-6872.
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TABLE OF CONTENTS
Page
EXECUTIVE SUMMARY ES-1
Chapter 1: Introduction 1-1
1.1 Purpose of Section 301(a)(l)(H) Study 1-1
1.2 Purpose of Section 301(a)(l)(I) Study 1-3
1.3 Scope of this Report 1-3
1.4 Organization 1-5
PART I: COPPER, LEAD, ZINC OXIDE, AND RECYCLED METALS
Chapter 2: CERCLA Taxes and Expenditure Experience of the
Fund with Respect to Copper, Lead, Zinc Oxide, and
Associated Substances 2-1
2.1 Context of Section 301(a)(l)(H) and (I) Studies .... 2-1
2.1.1 The H Study 2-1
2.1.2 The I Study 2-6
2.2 Expenditure Experience of the Fund with Respect
to Copper, Lead, Zinc Oxide, and Associated
Substances 2-7
2.2.1 Alternative 1 - National Priorities List
Sites as Proxy for Expenditure
Experience of the Fund 2-7
2.2.2 Alternative 2 - Historical and Planned
Remedial and Removal Actions as Proxy
for Expenditure Experience of the Fund 2-22
2.3 Summary 2-22
Chapter 3: Methodology for Analyzing the Economic Impact of
Copper, Lead, and Zinc Oxide Exemptions and of
Taxing Recycled Metals 3-1
3.1 Description of Industry Profiles 3-1
3.2 Description of Economic Framework 3-2
3.2.1 Assumptions 3-4
3.2.2 Starting Point—Equilibrium of Demand
and Supply 3-6
3.2.3 Imposition of a CERCLA Tax 3-7
3.3 Selection of Recycled Metals for Analysis--
Copper, Lead, and Zinc 3-10
3.3.1 Taxable Quantity 3-11
3.3.2 CERCLA Tax as a Percentage of Metal Price ... 3-13
3.3.3 Toxicity 3-15
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TABLE OF CONTENTS (continued)
Page
Chapter 4: Economic Impact of Taxing Copper, With and Without
an Exemption for Recycled Copper 4-1
4.1 Profile of the Copper Industry 4-1
4 . 2 Data Inputs . . 4-5
4.3 Findings and Sensitivity Analysis 4-5
Chapter 5: Economic Impact of Taxing Lead, With and Without an
Exemption for Recycled Lead 5-1
5.1 Profile of the Lead Industry 5-1
5.2 Data Inputs 5-5
5.3 Findings and Sensitivity Analysis 5-6
Chapter 6: Economic Impact of Taxing Zinc Oxide and of
Exempting Recycled Zinc from Potential Taxation
of Zinc 6-1
6.1 Profile of the Zinc and Zinc Oxide Industries .... 6-1
6.2 Zinc Oxide 6-6
6.2.1 Data Inputs • 6-6
6.2.2 Findings and Sensitivity Analysis 6-6
6.3 Zinc 6-9
6.3.1 Data Inputs 6-10
6.3.2 Findings and Sensitivity Analysis 6-10
PART II: FERTILIZER FEEDSTOCKS
Chapter 7: Expenditure Experience of the Fund with Respect
to Fertilizer Feedstocks and Associated Substances
. . 7-1
7.1 U.S. Production and Distribution of Fertilizers .. 7-1
7.2 Defining "Expenditure Experience of the Fund" .... 7-6
7.3 Alternative 1 - Historical and Planned Removal
and Remedial Actions 7-8
7.3.1 Historical Removal Actions: Removal
Tracking System Data Base 7-8
7.3.2 Historical Remedial Actions: Six
Remedial Actions 7-11
7.3.3 Planned Remedial Actions: Records of
Decision 7-11
7.3.4 Findings 7-11
7.4 Alternative 2 - Other Proxies for Expenditure
Experience of the Fund 7-13
7.4.1 Release Data 7-13
7.4.2 Hazard Ranking System Data Base 7-15
7.4.3 Summary . . . '. 7-18
7 .5 Summary : 7-18
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TABLE OF CONTENTS (continued)
Page
Chapter 8: Economic Impact of Taxing Fertilizer Feedstocks 8-1
8. 1 Profile of the Fertilizer Industry 8-1
8.2 Impact on Fertilizer Markets 8-9
8.3 Impact on Farmers 8-11
8 .4 Summary 8-15
PART III: COAL-DERIVED SUBSTANCES
Chapter 9: Economic Impact of Taxing Coal-Derived Substances 9-1
9 .1 Overview and Findings 9-1
9.2 Coal-Derived Substances from Coke Ovens 9-4
9.3 Coal-Derived Substances from Synthetic Fuel
Operations 9-25
9 .4 Summary ' 9-31
SUPPLEMENTARY REPORT
Appendix A: Hazardous Wastes Associated with Tax Exempt
Substances A-l
Appendix B: Hazardous Wastes Associated with Major Uses of Tax
Exempt Substances B-l
Appendix C: Technical Description of the Economic Framework for
Copper, Lead, Zinc Oxide, and Recycled Metals C-l
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EXECUTIVE SUMMARY
Sections 301(a)(l)(H) and (1) of the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980 (CERCLA or "Superfund") call for a
report to Congress on the following:
The Section 301 (a) ( 1) (H) Study ("H Study") of "[A]n
exemption from or an increase in the substances or the
amount of taxes imposed by section 4661 of the Internal
Revenue Code of 1954 for copper, lead, and zinc oxide,
and for feedstocks when used in the manufacture and
production of fertilizers, based upon the expenditure
experience of the Response Trust Fund;" and
The Section 301 (a) (1) (I) Study ("I Study") of "[T]he
economic impact of taxing coal -derived substances and
recycled metals."
This report presents data and analyses for responding to CERCLA Sections
Together, the H and I Studies require analyses of various issues
surrounding potential CERCLA taxation of: (1) copper, lead, zinc oxide, and
recycled metals; (2) fertilizer feedstocks and associated subst.ances; and (3)
coal-derived substances. These three areas form the three parts of this
report. This Executive Summary presents the major findings of the report in
each of these areas.
I. COPPER, LEAD, ZINC OXIDE, AND RECYCLED METALS
Copper, lead, and zinc oxide are exempt from the excise taxes imposed by
CERCLA. It appears that there was also agreement within Congress at the time
of CERCLA's passage that recycled metals should also be exempt from taxation.
However, apparently because no administratively feasible method of exemption
was suggested, CERCLA does not exempt recycled metals from the tax.
Furthermore, because the three metals which are most extensively recycled --
copper, lead, and zinc -- are not currently taxed, the need for a recycling
exemption was essentially moot when CERCLA was passed. The H and I Studies
are to assist Congress in: (1) re-examining whether copper, lead, and zinc
oxide should continue to be exempt from taxation; and (2) determining the
economic impact of taxing these substances and of taxing recycled metals. To
this end, this report provides background information and analyses with
respect to two issues:
• Expenditure experience of the Response Trust Fund
("Fund") with respect to copper, lead, zinc oxide, and
associated substances; and
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• Economic impact of taxing copper, lead, zinc oxide,
and recycled metals.
The work performed and major findings on each of these two issues are
described below.
Expenditure Experience of the Fund with Respect to Copper, Lead, Zinc
Oxide, and Associated Substances
Expenditure experience of the Fund with, respect to copper, lead, zinc
oxide, and associated substances can be defined broadly to include all
National Priorities List (NPL) sites. The NPL is a reasonable proxy for the
expenditure experience of the Fund because Fund monies have already been spent
characterizing the NPL sites, some Fund resources have been spent carrying out
or approving remedial or removal actions at NPL sites, and -- perhaps most
important — these sites represent the universe of remedial actions likely to
be undertaken. Alternatively, the definition could be narrowed to include
only expenditures pertaining to historical removal actions, historical
remedial actions, and planned remedial actions. However, the available data
from the approximately 210 approved immediate and planned removals in the
period December 1980 to September 1983, the six remedial actions as of June
1984, and the 24 planned remedial actions for which records of decision are
available may not be sufficient to assess the true extent of the problem.
When the broad definition of Fund expenditure experience (i.e., NPL sites)
is employed, the evidence indicates that copper, lead, zinc,1 and associated
substances are found at a number of NPL sites, and that Fund expenditures will
be attributable to releases of these substances. In particular, the analysis
of NPL sites yielded the following cbnclusions:
• Copper, lead, and zinc are among the most frequently
detected substances at NPL sites and adjoining
environmental media. Copper and compounds are reported
at 48 of the 538 updated NPL sites (nine percent), lead
is reported at 162 NPL sites (30 percent), and zinc and
compounds are reported at 74 NPL sites (14 percent).
Lead is the second most frequently occurring hazardous
substance at NPL sites.
• Based on a sample of 73 NPL sites where laboratory
tests have been performed, copper, lead, and zinc each
*It is not possible to determine from the HRS data base whether copper,
lead, or zinc are present in metallic form at a site, or what specific
compounds of each metal are present. Copper is listed in the data base as
"copper and compounds," zinc as "zinc and compounds," and lead simply as
"lead." Furthermore, there is no separate listing for "zinc oxide," one of
the substances listed specifically in the H study.
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exceed detectable limits in 85-95 percent of all water
samples and in 96-99.7 percent of all soil samples.
Associated substances were also present above detectable
limits. Furthermore, a significant fraction of samples
showed extremely high concentrations of copper, lead,
and zinc because mean concentrations were many times
higher than median concentrations for both soil and
water samples.
When the narrower definition of Fund expenditure experience is employed,
there is less evidence to indicate that Fund resources have been used to
respond to releases of copper, lead, zinc oxide, and associated substances.
Nonetheless, because these substances have been found at a number of sites
where removal and remedial actions have been approved, it appears that even
under this restrictive definition, expenditures are scheduled at sites where
these substances exist. The analysis of historical removal actions,
historical remedial actions, and planned remedial actions yielded the
following findings:
• Copper, lead, and/or zinc are present at seven of the
26 NPL sites (27 percent) where there are EPA Records of
Decision for remedial actions. One of these sites,
Celtor Chemical Works, is an abandoned sulfide ore
processing plant contaminated with copper, zinc, and
cadmium.
• Of approximately 210 approved immediate and planned
removals in the period December 1980 to September 1983,
17, or eight percent, involved copper, lead, and/or
zinc. Lead was found in 13, or six percent, of the
removals.
• For the six sites for which remedial actions have been
completed as of June, 1984, copper, lead, or zinc were
not reported at four of the sites; information is
unavailable for the other two sites.
Economic Impact of Taxing Copper, Lead, Zinc Oxide, and Recycled
Metals
A partial equilibrium economic model was developed for estimating the
impact of taxing copper, lead, zinc oxide, and recycled metals under CERCLA.
The model estimates the effects of alternative CERCLA tax rates on: (1) the
quantity of U.S. primary production; (2) the quantity of U.S. recycled
production, if applicable; (3) the quantity of U.S. imports; and (4) the
market price. Two types of CERCLA taxes can be examined by the model: (1) a
tax on U.S. primary production, U.S. recycled production (if applicable), and
U.S. imports; and (2) exempting from taxation U.S. recycled production while
taxing the other sources.
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The recycled metals selected for analysis are copper, lead, and zinc.
These metals were chosen on the basis of three criteria: (1) the taxable
quantity of the metal must exceed 1,000 short tons to insure that the
administrative costs of imposing the tax exceed the tax receipts; (2) the
current CERCLA tax rate for elemental metals (S4.45/short ton) must be at
least 0.25 percent of the current price of the metal, otherwise the impact of
the tax on the recycling industry is likely to be negligible; and (3) the
metal, a significant proportion of the compounds containing the metal, or
wastes from the processing of the metal must be toxic.
The results of the model are highlighted below:
• A tax on copper comparable to the current CERCLA tax
on other elemental metals ($4.91 per metric ton) would
result in only a minimal long-run decrease in total
copper consumption per year of one-tenth of one percent,
about 2,000 metric tons annually (base case). The price
of copper would increase 0.2 percent (base case), or
53.50 per metric ton, at the average 1982 producer price
of $1,605 per metric ton.
• A tax on lead comparable to the current CERCLA tax on
other elemental metals also would result in only a
minimal long-run decrease in annual domestic lead
consumption of one-tenth of one percent, or about 1,500
metric tons annually (base case). The price of lead
would increase 0.6 percent (base case), or $3.14 per
metric ton, at the average 1982 producer price of $563
per metric ton.
• A tax on zinc oxide of $3.93 per metric ton2 also
would result in only a minimal long-run decrease in
total annual domestic zinc oxide consumption of one-half
of one percent, or about 750 metric tons annually (base
case). The price of zinc oxide would increase 0.4
'percent (base case), or $3.84 per metric ton, at the
average 1982 producer price of $981 per metric ton.
• A tax comparable to current CERCLA tax rates would
have little significance for recycled copper, lead, or
zinc supply, whether an exemption is granted or not.
2This tax rate is based on existing CERCLA tax rates of $4.91 per metric
ton on elemental metals multiplied by the amount of zinc (on a molecular
weight basis) required to produce zinc oxide (80 percent).
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A tax of two percent of price would yield the
following results under the base case assumptions:
Copper consumption would decline by an estimated 0.6
percent while its price would rise 1.4 percent;
Lead consumption would decline by an estimated 0.6
percent while its price would rise 1.5 percent; and
Zinc oxide consumption would decline by an estimated
2.8 percent (most of which would be foreign
supplied) while its price would rise 2.0 percent.
If supply and/or demand are more price-sensitive than
assumed in the base case, price effects would be less
and quantity effects would be greater, suggesting that
more of the tax would be absorbed by these industries.
A tax of three percent of price would yield the
following results under the base case assumptions:
Copper consumption would decline by an estimated 0.9
percent while its price would rise 2.1 percent;
Lead consumption would decline by an estimated 0.8
percent while its price would rise 2.2 percent; an
and
Zinc oxide consumption would decline by an estimated
4.2 percent (most of which would be foreign
supplied) while its price would rise 2.9 percent.
II. FERTILIZER FEEDSTOCKS
The H Study requires an analysis of the exemption from the taxes imposed
by CERCLA for feedstocks when used in the manufacture and production of
fertilizer, based upon the expenditure experience of the Fund. CERCLA exempts
the following feedstocks from taxation when used in the production of
fertilizers: ammonia, methane used to make ammonia, sulfuric acid, and nitric
acid. As with metals, the analysis was conducted in two parts:
• Expenditure experience of the Fund with respect to
fertilizer feedstocks and their derivatives; and
• Economic impact of taxing fertilizer feedstocks.
Expenditure Experience of the Fund with Respect to Fertilizer
Feedstocks and Their Derivatives
Fertilizer-related releases are likely to be spills which occur in the
normal course of distribution, so removal experience may be more relevant than
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remedial action experience in assessing the expenditure experience of the
Fund. Expenditure experience of the Fund with respect to fertilizer-related
materials can be defined narrowly as expenditures pertaining to historical
removal actions, historical remedial actions, and planned remedial actions.
Alternatively, the definition could be broadened to include potential removal
and remedial actions (i.e., potential releases).
When the narrower definition is employed, there is little hard and fast
evidence that Fund resources are used to respond to fertilizer-related
releases. Of approximately 210 approved immediate and planned removals
described in the Removal Tracking System for the period from December 1980
through September 1983, only seven might be fertilizer-related, based on the
list of materials involved. Closer inspection of these seven removal actions
suggests that only one is likely to be fertilizer-related. Furthermore, the
On-Scene Coordinator's report for this removal says that most of the
fertilizer on site was removed by a farming supply company, at no expense to
the Fund. Fund resources were used to remove pesticides and some small
amounts of suspected fertilizer materials however (Gebhart Fertilizer Co.,
Latham, Illinois, June 16, 1983). Analysis of historical and planned remedial
actions could uncover no information which clearly suggests fertilizer-related
Fund expenditure experience.
When the broader definition of expenditure experience is employed, it is
possible to find evidence of fertilizer-related releases, but it appears that
responsible parties generally respond to them. For example, of 101 releases
since January 1981 in Region VIII which could be fertilizer-related,
responsible parties completed action on 80, while the Federal government
completed action on zero. The other 21 releases were either not responded to,
responded to by local government, or it was not known whether there was a
response.
In summary, regardless of the definition used, the evidence that Fund
resources are used or likely to be used to respond to fertilizer-related
releases is slight, particularly when contrasted with the evidence on metals.
Economic Impact of Taxing Fertilizer Feedstocks
The impact of taxing fertilizer feedstocks at levels currently specified
in CERCLA is unlikely to significantly affect farmers. Although demand for
fertilizers is relatively insensitive to price changes, so the tax would
likely be passed on to farmers, the tax at current levels constitutes less
than one percent of ammonia prices, and less than 0.5 percent of sulfuric acid
and nitric acid prices. Because fertilizers constitute approximately seven
percent of farm input costs, even if the tax were fully passed on to farmers,
it would constitute no more than 0.07 percent total cost increase to farmers.
This would be a minor factor when contrasted with the volatility of other
factors affecting agriculture, such as interest rates, foreign trade policy,
and the weather. Furthermore, because the demand and supply of fertilizers
are both relatively insensitive to price changes and the CERCLA tax at current
rates constitutes only a small percentage of the price, the effect on
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fertilizer markets will also be small. Finally, the increasing availability
of fertilizer materials from low-cost feedstock countries and the rebound in
demand in 1984 due to the end of the Payment-In-Kind Program and the general
economic recovery, are likely to render any potential CERCLA tax effects
insignificant in the near term future.
III. COAL-DERIVED SUBSTANCES
The I Study requires an analysis of the economic impacts of taxing
coal-derived substances. At present, a tax on coal-derived feedstocks would
affect two industries -- the metallurgical coke industry and the synthetic
fuels industry. Feedstocks produced from coke oven by-products include
benzene, toluene, xylene, naphthalene, and ammonia. For the coal-based
synthetic fuel projects which may come on-line in the near future, only
limited amounts of ammonia production would be subject to the tax.
Assuming the list of feedstocks and tax rates currently in Title II of
CERCLA, a tax on coal-derived substances would generate approximately $2
million to S4 million annually, of which over ninety percent would be from
coke oven by-products. The elimination of the exemption would probably have
at most minor effects on the quantity of coal-derived substances produced for
the following reasons:
• Generally, a tax will not affect the amount of crude
by-products recovered in the coke-making process. The
objective in the coke industry is the production of
high-quality coke. Crude by-products are recovered as
an ancillary benefit of coke-making, but the basic
process is not altered to change the type and quantity
of by-products produced.
• Some of the chemicals produced from coke oven
by-products -- such as the aromatic hydrocarbons
benzene, toluene, xylene, and naphthalene -- must be
refined from the crude substances recovered directly
from the coke ovens. In recent years, the cost of
refining these products has increased as the amount
produced has declined with decreases in coke
production. As a result, many operators have ceased
their advanced refining processes, choosing instead to
use the by-products internally (e.g., as fuel), or sell
them in their crude stage to other refiners.
Elimination of the CERCLA tax exemption could
theoretically accelerate this trend and lead to a small
reduction in the amount of the coke oven by-products
refined into CERCLA-taxed feedstocks. However, the
markets for these feedstocks would be affected only
marginally, as they are dominated by petroleum-derived
substances.
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• The price that producers receive for their coal-
derived substances is often determined by petroleum-
derived substances. In most instances, the
petrochemical industry produces substantially more of a
particular product (or a close substitute). Producers
of coal-derived substances typically accept the price
set by other producers (i.e., the petrochemical
industry), making it very difficult to pass on the cost
of a feedstock tax in the form of higher prices. As a
result, the tax would be an additional operating cost to
the coke producers, a cost that would generally have to
be absorbed by the U.S. steel industry.
• Not all of the steel produced in the U.S. requires
coke. About 30 percent of U.S. steel production is from
electric arc furnaces, which use virtually no coke to
produce steel. As a result, steel produced from
electric arc furnaces does not generate coal-derived
chemicals. The proportion of total steel production
from electric arc furnaces has been increasing in recent
years and is likely to continue to do so since this
process competes very effectively in several market
segments with the more traditional, less efficient basic
oxygen process (which does generate coal-derived
substances). The potential tax revenues which would
result from an elimination of the exemption are not
likely to be large enough to affect significantly the
comparative economics of steel production.
For the coal-based synthetic fuel projects which may come on-line in the
future, only limited amounts of ammonia production would be subject to the
tax. Tax revenues resulting from up to three projects which (under optimistic
assumptions) may possibly come on-line and produce taxable substances would be
less than $400,000 annually. These costs would have to be absorbed by the
synthetic fuel projects as the price of ammonia is determined by other
economic factors. Because these synthetic fuel projects would in all
likelihood be subsidized, the level of the subsidy would need to be increased,
or a lower return would have to be accepted on the project. If the level of
subsidy were increased, the tax would not raise any additional federal
revenues, as the tax would be paid through additional federal subsidies for
synthetic fuels projects (i.e., a transfer between federal accounts would
occur).
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1. INTRODUCTION
Section 301(a)(l) of the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980 (CERCLA or "Superfund") requires the
President to submit several studies to Congress by December 11, 1984. The
President has delegated the responsibility to conduct the studies to the U.S.
Environmental Protection Agency (EPA), in consultation with the Secretary of
the Treasury.1 This report provides information and analyses with respect
to two of those studies:
The Section 301(a)(1)(H) Study ("H Study") of "[A]n
exemption from or an increase in the substances or the
amount of taxes imposed by section 4661 of the Internal
Revenue Code of 1954 for copper, lead, and zinc oxide,
and for feedstocks when used in the manufacture and
production of fertilizers, based upon the expenditure
experience of the Response Trust Fund;" and
The Section 301(a)(l)(I) Study ("I Study") of the
economic impact of taxing coal-derived substances and
recycled metals under CERCLA.
This introduction is organized in four parts: (1) the purpose of the H
Study; (2) the purpose of the I Study; (3) the scope of this report; and (4)
the organization of this report.
1.1 PURPOSE OF SECTION 301(a)(l)(H) STUDY
CERCLA established the Hazardous Substance Response Trust Fund (the Fund)
to pay for the cleanup of hazardous substance sites and to restore natural
resources damaged by releases of hazardous substances. The Fund is financed
largely by a tax on petroleum and certain chemical feedstocks. During the
Congressional debate on CERCLA, the issue of taxing copper, lead, zinc oxide,
and fertilizer feedstocks to finance the Fund was controversial. The debate
included both economic and toxicological arguments.
Opponents of taxing copper, lead, and zinc oxide characterized the metal
industries as declining industries with low profit margins. They argued that
the primary producers of these metals may not be able to pass through a CERCLA
feedstock tax to consumers because the prices for the metals are competitively
established in international markets. Primary processors of zinc and lead
argued that the tax would accelerate the decline in domestic production, which
could be adverse to the nation's strategic interests. In addition, the
copper and zinc oxide producers argued that neither substance was a
significant toxicant.2
Executive Order 12316, Section 8(c)(l), August 14, 1980.
2See, for example, pages S14975-S14977 of the Congressional Record for
November 24, 1980.
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The proponents of taxing copper, lead, and zinc oxide, on the other
hand, argued that:3
• The metals were already designated as hazardous
substances in their elemental form or were the primary
building blocks of designated hazardous compounds and
their processing generated hazardous wastes;
• The metals were implicated in many releases which
damaged natural resources; and
• It might be impossible to pass through a CERCLA
feedstock tax in bad years, but over several years of an
economic cycle, no problem was evident.
In the debate over the CERCLA feedstock tax, the opponents of taxing
fertilizer feedstocks argued that such feedstocks seldom appear in hazardous
waste sites and that the impact of the tax could be detrimental to many
farmers. Analyses submitted by EPA to Congress in 1980 largely refuted the
economic and environmental impact claims of the opponents.*
CERCLA as enacted does not tax copper, lead, or zinc oxide to finance the
Hazardous Substance Response Trust Fund. In addition, nitric acid, sulfuric
acid, ammonia, and methane used to make ammonia are expressly exempt from the
CERCLA tax when used as feedstocks in the production of fertilizer.5
However, CERCLA Section 301(a)(l)(H) does require a study of:
"[A]n exemption from or an increase in the substances or
the amount of taxes imposed by [CERCLA] . . . for copper,
lead, and zinc oxide, and for feedstocks when used in the
manufacture and production of fertilizers, based upon the
expenditure experience of the Response Trust Fund."
The purpose of the H Study is to assist Congress in re-examining whether
copper, lead, zinc oxide, and fertilizer feedstocks should continue to be
exempt from the excise taxes imposed by CERCLA. The study should address
issues related to: (1) the extent to which these inorganics and associated
substances contribute to hazardous substance release problems and the
3Many of these arguments are presented in February 21, 1980 analysis by
EPA entitled "Superfund Fee System As It Affects the Metal Smelting and
Re f in ing Indus t ry."
"See EPA, "Superfund Fee System As It Affects Those Raw Materials Used
by the Fertilizer Industry," undated; and Development Planning and Research
Associates, Inc., "The Economic Impact of the Superfund Fee System on the Farm
Sector - Fertilizer Usage," June 1980 (prepared for EPA).
5CERCLA Section 211.
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expenditure experience of the Fund in response to such releases; and (2) the
economic impact of taxing such substances.
Other possible criteria for examining whether copper, lead, and zinc oxide
should continue to be exempt from CERCLA taxes, such as the health hazards
associated with these substances, are not specifically addressed in this
report. The H Study does not require such an examination. For a general
discussion of other evaluative criteria, including the criteria used by
Congress in selecting taxable substances in 1980, see "The Feasibility and
Desirability of Alternative Tax Systems for Superfund, CERCLA Section
301(a)(l)(G) Study," December 1984.
1.2 PURPOSE OF SECTION 301(a)(1)(l) STUDY
Two additional issues that arose during the Congressional debate on CERCLA
were whether (1) coal-derived substances and (2) recycled metals should be
taxed to help finance the Hazardous Substance Response Trust Fund. The
legislative record of CERCLA contains little discussion or analysis of either
issue.
With respect to coal-derived substances, the opponents of taxing such
substances argued that an exemption was desirable to provide additional
incentives for the production of chemicals from coal. Proponents of taxing
coal-derived substances argued that the substances produced from coal are no
less hazardous than the same chemicals produced from oil and natural gas and
that coal processes involve the threat of releases. The opponents were
victorious; CERCLA, as enacted, does not tax coal-derived substances.6
With respect to recycled metals, it appears that there was widespread
agreement within Congress that recycled metals should not be subject to the
CERCLA feedstock tax. However, apparently no administratively feasible method
of exemption was suggested and therefore CERCLA does not exempt recycled
metals from the feedstock tax. However, as discussed in Section 3.3 of this
report, the metals that are most extensively recycled (copper, lead, and
zinc), are currently not subject to the CERCLA feedstock tax. Therefore, most
recycled metal is not taxed under CERCLA.
As part of the compromise bill enacted by Congress, CERCLA Section
301(a)(l)(I) requires the President to submit to Congress a study of "the
economic impact of taxing coal-derived substances and recycled metals." The I
Study does not require analysis of the environmental consequences of
coal-derived substances and recycled metals and associated processes and
substances; it requires only an analysis of the economic impact of taxing
coal-derived substances and recycled metals.
6CERCLA Section 211.
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1-4
1.3 SCOPE OF THIS REPORT
This report provides information and analyses for both the H Study and the
I Study. A single report addresses both studies because two separate reports
would overlap significantly. In particular, the copper, lead, and zinc
industries would be a major focus of both studies. The H Study specifically
requires copper, lead, and zinc oxide to be addressed; and, as part of the I
Study analyses, the recycled metals selected for analysis of the impact of a
CERCLA tax are copper, lead, and zinc.7
This report provides information and analyses of the issues related to the
H and I Study requirements. An examination of releases of copper, lead, zinc
oxide, fertilizer feedstocks, and associated substances has been performed.
The relative occurrence of such substances at sites on the National Priorities
List (K7PL) and their presence in soil and waster samples taken at NPL sites
has been documented. A methodology for analyzing the economic impact of
taxing copper, lead, and zinc oxide under CERCLA (and for taxing, or
exempting, recycled metals as part of the I study), has been developed. The
effects on output and prices of a CERCLA tax are presented for copper, lead,
and zinc oxide (and for recycled copper, lead, and zinc as part of the I
study).
The expenditure experience of the Fund with respect to copper, lead, zinc
oxide, fertilizer feedstocks, and associates substances is addressed only
partially in this report. At present, it is not feasible to assign the costs
of Superfund response actions to individual chemicals or groups of chemicals
found at a site or in a spill. In order to be equitable in theory, as well as
practical to administer, such a cost allocation would require rather exact
information about the mix and quantities of chemicals present. It would also
require an understanding of the response methods required or recommended for
different classes of substances, to the extent that these methods and their
costs may differ.
The scope of analysis required for the I Study is less extensive than for
the H Study. CERCLA Section 301(a)(l)(I) requires analysis only of the
economic impact of taxing coal-derived substances and recycled metals. The
economic impact of taxing recycled metals is incorporated in the analyses of
7As is described in more detail in Section 3.3, the recycled metals to
be examined were selected on the basis of three criteria: (1) the taxable
quantity of the metal must exceed 1,000 short tons to insure that the
administrative costs of imposing the tax exceed the tax receipts; (2) the
current CERCLA tax rate for elemental metals (S4.45/short ton) must be be at
least 0.25 percent of the current price of the metal, otherwise the impact of
the tax on the recycling industry is likely to be negligible; and (3) the
metal, a significant proportion of the compounds containing the metal, or
wastes from the processing of the metal must be toxic. Three metals satisfied
these criteria: copper, lead, and zinc.
-------
1-5
the effects of taxing primary metals (Chapters 4-6). Chapter 9 provides
background information and preliminary analysis of the effects of taxing
coal-derived substances. Because the I Study does not require an examination
of the expenditure experience of the Fund with respect to coal-derived
substances, this type of analysis is not included in this report. Such an
analysis would be difficult because it is probably impossible to determine
whether a particular substance found at a site was derived from coal-based
feedstocks, oil-based feedstocks, or natural gas-based feedstocks.
1.4 ORGANIZATION
To summarize, this report is organized into nine chapters:
• Chapter 1 is this introduction;
Part I: Copper, Lead, Zinc Oxide, and Recycled Metals
• Chapter 2 addresses the expenditure experience of the
Fund with respect to copper, lead, zinc oxide, and
associated substances;
• Chapter 3 introduces the methodology for analyzing the
economic impact of taxing metals for purposes of both
the H and I Study analyses and selects the recycled
metals for analysis as part of the I Study analysis;
• Chapter 4 presents the economic impact of taxing
copper, with and without an exemption for recycled
copper;
• Chapter 5 presents the economic impact of taxing lead,
with and without an exemption for recycled lead;
• Chapter 6 presents the economic impact of taxing zinc
oxide and of exempting recycled zinc from potential
taxation of zinc;
Part II: Fertilizer Feedstocks
• Chapter 7 addresses the extent to which fertilizer
feedstocks and associated substances have contributed to
the problems of hazardous substance releases;
• Chapter 8 presents the economic impact of taxing
fertilizer feedstocks; and
Part III: Coal-Derived Substances
• Chapter 9 addresses the economic effects of taxing
coal-derived substances.
-------
1-6
Three technical appendices are contained in "Impact of Taxing Copper,
Lead, Zinc Oxide, Fertilizer Feedstocks, Coal-Derived Substances, and Recycled
Metals, CERCLA Section 301(a)(1)(H/I) Study, Supplementary Report," December
1984:
• Appendix A identifies hazardous wastes associated with
tax exempt substances;
• Appendix B identifies hazardous wastes associated with
major uses of tax exempt substances; and
• Appendix C provides a technical description of the
economic framework used for analyzing copper, lead, zinc
oxide, and recycled metals.
-------
PART I: COPPER, LEAD, ZINC OXIDE, AND RECYCLED METALS
-------
2. CERCLA TAXES AND EXPENDITURE EXPERIENCE OF
THE FUND WITH RESPECT TO COPPER, LEAD,
ZINC OXIDE, AND ASSOCIATED SUBSTANCES
The requirements for the CERCLA section 301(a)(l)(H) and (I) studies are
complex. Therefore, some preliminary discussion and analysis is necessary
before presenting the methodology used to analyze CERCLA taxes and exemptions
for the substances covered in these studies. This chapter provides both a
backdrop for the following chapters and explores the issue of the Fund's
experience with these substances. It is organized into three sections.
Section 2.1 discusses the context of the H and I Studies. Section 2.2
explores the expenditure experience of the Fund with respect to copper, lead,
zinc oxide, and associated substances. Section 2.3 provides a summary of the
chapter.
2.1 CONTEXT OF SECTION 301(a)(1)(H) AND (I) STUDIES
2.1.1 The H Study
[Experience with the implementation of this Act regarding]
an exemption from or an increase in the substances or the
amount of taxes imposed by section 4661 of the Internal
Revenue Code of 1954 for copper, lead, and zinc oxide, and
for feedstocks when used in the manufacture and production
of fertilizers, based upon the expenditure experience of the
Response Trust Fund.
The intent of the H study is complicated by the fact that certain
derivatives of copper, lead, and zinc are currently taxed. Indeed, the
language of the study could be interpreted as requesting a study of the impact
of (1) continuing to exempt copper, lead, and zinc oxide, while maintaining
current taxes on some of their derivatives, (2) taxing copper, lead, and zinc
oxide at rates to be determined and removing the tax on the currently taxed
derivatives, or (3) taxing only certain substances that are made using copper,
lead, and zinc oxide at rates to be determined (these would not be identical
to the substances currently taxed). For purposes of this report, the
interpretation of the language of the H study was developed in the manner
explained below.
First, copper, lead, and zinc oxide are not presently taxed. Thus, one
interpretation of the study is that the impacts of taxing these currently
exempt substances should be examined. The H Study description also implicitly
asks what tax rates should be applied if these currently exempt substances
were to be taxed by suggesting that the expenditure experience of the Fund be
consulted to suggest what rates might be appropriate for these substances.
-------
2-2
Second, although copper and lead are not presently taxed, some compounds
and chemicals made from these substances are, such as cupric sulfate, cuprous
oxide, cupric oxide, and lead oxide. Clearly, the intent of the H Study would
not be to add a tax on copper or lead without eliminating the existing taxes
on downstream compounds. If this were the case, then double-taxation of the
intermediate products would occur -- an input (copper) to a substance that is
itself taxed (cupric sulfate) would be taxed. Therefore, a reasonable
interpretation of the H Study is that of replacing taxes on certain compounds
of, e.g., copper, with a tax on the feedstock itself.
Two of the four substances mentioned in the H Study -- copper and lead --
have both taxed and untaxed compounds downstream. Exhibits 2-1 and 2-2 show
the major derivatives of these two metals and indicate which branches of
derivatives are currently taxed and which are not. Thus, the analysis of
copper and lead in this report assumes that the taxes on the downstream
derivative compounds would be removed and replaced with taxes on the metals
themselves.
Third, zinc oxide requires a slightly different treatment. Exhibit 2-3
shows zinc and its major derivatives. Currently, two compounds derived from
zinc are taxed -- zinc sulfate and zinc chloride. Zinc oxide, however, is
exempt from the CERCLA tax. Therefore, to analyze the impact of removing the
tax exemption for zinc oxide, there is no need to consider removing the taxes
on the other zinc compounds since these are not "downstream" from zinc oxide.
Thus, taxing zinc oxide simply adds a tax parallel with the existing taxes on
zinc compounds.
The H Study also calls for analyzing taxes on copper, lead, zinc oxide,
and fertilizer feedstocks in light of the expenditure experience of the Fund.
The above interpretation of the H Study also has substantial implications for
the meaning of "Fund experience." In the cases of copper and lead, the change
contemplated is one of replacing taxes on downstream compounds with a tax on
the primary feedstock. The context of the H Study suggests that an important
determinant of whether taxes on copper and lead should replace taxes on
compounds derived from them is the differential experience (if any) of the
Fund with substances and their derivatives that are taxed and those that are
not taxed.
This issue is best understood by examining Exhibits 2-1 and 2-2. Suppose
that Fund experience has involved expenditures caused by the presence of
substances derived, in the case of copper, from both the taxed and the untaxed
compounds of copper. That is, many of the substances along the untaxed
branches of the copper products "tree" have been at least partially
responsible for Fund expenditures. This establishes at least a prima facie
case for replacing the taxes on compounds downstream with a single tax on the
major feedstock to all of the branches that cause Fund expenditures -- for
purposes of equity, incentives, and administrative feasibility. Of course, it
may be that few, if any, of the substances produced through the untaxed
branches of the copper and lead "trees" have been, or will be, responsible for
Fund expenditures. In that case, Fund experience argues against replacing the
downstream taxes with taxes on the metals themselves.
-------
EXHIBIT 2-1
COPPER AND DERIVATIVES
Copper Ores
Copper Scrap
Copper Metal
"Copper Forma*
(i.e., wire,rods.
powder, bara,
alloys, tubes)
•End Uses (I.e., metallurgy, chemical plants.
construction, tranaportatlon,
ordnance, machinery)
r— Cuprlc Sullate-
•End Uses (I.e., chromium plating.
electroplating, leather tanning.
preservatives, aynthetlc rubber)
—"Other Copper Compounds1
— Cuprous Oxide-
— Cupric Oxide-
• End Uses (I.e.. pigmenta, ceramics,
electroplating, fungicides)
•End Usea (I.e.. batterlea. paints, ceramlca.
ceramic colorant)
•End Uses (I.e.. pigments,
catalysis, soap.
enamel. Ink.
photography)
•Cuprlc Oxide (aee below
for end usea)
—•Other Copper Compounds-
•Other Copper-
Compounds
End Uses (I.e.. dyes. Pharmaceuticals.
paint pigment, preservatives)
— Cuprlc Oxide (aee above for end uses)
End Uses (i.e.. fungicides.
photography, wood
perservatlvea)
I
Ul
Branches Currently Taxed
Alternative Branches to be Taxed
^Current Points of Taxation
££ Alternative Point of Taxation
Source: SRI. Chemical Origins and Markets 5th ed. (1977), pp. 38. 39.
-------
EXHIBIT 2-2
LEAD AND DERIVATIVES
Lead Ores-
-fr-ft
Lead Metal .
Lead Oxide-
(Litharge)
-Lead Sodium-
Alloys
•Other Lead-
Compounds
—End Uses (I.e.. enamels, glazes,
lead glass)
•Leady Oxide*
-End Uses (I.e.. lead-acid storage
batteries)
•—Other Lead Compounds*
•End Uses (I.e., gasoline additives)
-End Uses (I.e., lead-acid storage
batteries, pigments. Insecticide.
pharmaceutical*, lubricants,
: wood preservative)
•End Uses (I.e.. pigments, glazes.
storage batteries, dyeing.
paint, photoconductor.
plastic, lead glass)
•End Uses (I.e.. type metal, caulking,
ammunition, storage batteries.
brass and,, bronze)
Branches Currently Taxed
Alternative Branches to be Taxed
^Current Point of Taxation
££ Alternative Point of Taxation
Source: SRI. Chemical Origins and Markets 6th ed. O977). p. 48.
-------
EXHIBIT 2-3
ZINC AND DERIVATIVES
Zinc Ore <
—Zinc Metal-
>Zlnc 8ulfat<
Oxftf
•Zinc Oxide'
•End Uses (I.e., cosmetics, lotions.
enamels, pigments,
photoconductor)
•Other Zinc*
Compounds
•End Uses (I.e.. pigments, paints,
fungicides, Pharmaceuticals.
lubricating oil additive)
•Other Zinc-
Compounds
'End Uses (I.e.. Pharmaceuticals,
ceramics, bleaching)
•Zinc Chloride^
•End Uses (see below)
•Zinc Oxfde
•End Uses (see above) j
•Alloys-
• End Uses (I.e., brass, bronze)
——-Galvanizing-
•End Uses (I.e.. construction.
agriculture,
automotive uses)
'End Uses (I.e., rayon,
Pharmaceuticals,
perservatlves)
•Other Zinc-
Compounds
•End Uses (I.e.. Pharmaceuticals,
photography, ceramics, paints.
electroplating, pyrotechnics)
--Zinc Chloride
End Uses (I.e.. catalyst.
electroplating.
Pharmaceuticals)
•Other Zinc-
Compounds
-End Uses (i.e.. dry batteries,
galvanizing, fuel)
Branches Currently Taxed
Additional Branches to be Taxed
•^Current Points of Taxation
Additional Points of Taxation
to
en
Source: SRI. Chemical Origins and Markets 5th ed. (1977). pp. 74-75.
-------
2-6
The case of zinc oxide is similar, but not parallel. The Fund experience
investigation in this case must determine whether substances derived from
untaxed zinc oxide are responsible for Fund expenditures, along with
substances derived from the taxed compounds of zinc. If so, then the case for
including zinc oxide among the taxed compounds of zinc is bolstered. If not,
then the opposite case is supported.
The point of this discussion is worth repeating. Evaluating the impact of
taxing copper, lead, and zinc oxide based on the expenditure experience of the
Fund is a more complicated exercise than determining whether copper, lead, and
zinc oxide have been at least partially responsible for Fund expenditures.
Instead, the relevant question in each of the three cases discussed here is
whether Fund experience has been (or will be) the same or different for
substances that are derived from taxed compounds versus those that are derived
from those that are not currently taxed. The analysis in Section 2.2 of this
chapter addresses this issue directly and in detail, and reports data from
several sources to answer these questions as well as possible given available
information.
2.1.2 The I Study
[Experience with the implementation of this Act regarding] the
economic impact of taxing coal-derived substances and recycled metals.
Coal derived substances are treated separately in Part III of this report,
so the discussion here concerns only recycled metals. The I Study calls for
an analysis of the economic impacts of taxing recycled sources of supply of
metals. Clearly, such a study only really makes sense if the primary metal is
taxed under CERCLA. Thus, supposing that a metal is subject to a CERCLA tax,
the issue is to determine the difference between taxing recycled sources of
supply and not taxing such recycled sources.
In the next chapter of this report, three criteria are presented that were
used to determine which metals that have recycled sources would be examined
under the analysis required for the I Study. Application of these criteria
led to the selection of copper, lead, and zinc for analysis. A primary reason
for their.selection is that these are the only metals that have appreciable
amounts of supply from secondary (recycled) sources. Thus, the potential
impact of not exempting recycled sources of these metals might be significant,
at least in terms of reduced quantities of these metals supplied from these
sources.
The selection of copper, lead, and zinc as the metals to study for the I
Study does, however, introduce some complication, because none of these metals
are presently taxed. As the previous section pointed out, only derivatives of
copper, lead, and zinc currently are subject to CERCLA taxes. Thus, to
analyze the impact of taxing recycled sources of these metals, it was
necessary to assume that CERCLA taxes would be imposed on the primary sources
of supply of these metals. Then, the economic impacts of exempting or not
exempting recycled sources of supply can be determined.
-------
2-7
2.2 EXPENDITURE EXPERIENCE OF THE FUND WITH RESPECT TO COPPER,
LEAD, ZINC OXIDE, AND ASSOCIATED SUBSTANCES
One important consideration in deciding whether to impose CERCLA taxes on
substances is whether expenditures of the Fund have been made in response to
problems caused, at least in part, by the substances. Indeed, this equity
issue is at the root of many policy discussions of the rationale for, and the
consequences of, imposing CERCLA taxes on different substances. Furthermore,
the H Study specifically requests that the analysis of the effects of taxes
and exemptions for copper, lead, and zinc oxide be evaluated in light of the
Fund's experience with these substances.
However, determining the experience of the Fund with these substances is
not a straightforward task. As Exhibits 2-1 through 2-3 illustrated, the
metals under consideration here have many derivatives, some of which are taxed
and some of which are not. Ultimately, to determine whether, from this equity
standpoint, it is desirable to replace taxes on compounds of these metals with
taxes on the metals themselves, the Fund experience with each of the
derivatives and with the metals must be estimated.
There are two difficulties with determining the Fund experience with these
metals and their derivatives. First, none of the existing sources of
information on what substances are found at sites that have required (or will
require) Fund expenditures allow for identification of substances below the
level of, e.g., "copper and its compounds." Therefore, it is difficult to
tell whether a particular finding of say "copper and its compounds" comes from
a currently taxed or untaxed source, since the find could have been cupric
oxide, not copper metal. Second, the concept of "expenditure experience of
the Fund" is subject to interpretation, ranging from the sites where remedial
actions have already occurred to the entire National Priorities List (NPL).
To attack the first problem, descriptions of sites at which Fund monies
have been spent, or might be spent, have been consulted. These descriptions
yield indications of whether the copper, for example, found at the site came
from copper metal activities or from compounds of copper.
The second problem, that of determining the appropriate purview of the
term "Fund experience," can be addressed by using several definitions of the
scope of actual and potential Fund expenditures. Two alternatives are
proposed and analyzed. Alternative 1, discussed in Section 2.2.1, is to use
the NPL sites as a proxy for the "expenditure experience of the Fund."
Alternative 2, discussed in Section 2.2.2, uses the records of historical and
planned remedial and removal actions as a proxy for the expenditure experience
of the Fund.
2.2.1 Alternative 1 - National Priorities List Sites as Proxy For
Expenditure Experience of the Fund
NPL sites are a reasonable proxy for the substances that have caused and
will cause Fund expenditures for several reasons. Fund resources have already
been spent characterizing the NPL sites, some Fund monies have been spent
-------
2-8
carrying out or approving remedial or removal actions at NPL sites, and --
perhaps most significant -- these sites represent the universe of remedial
actions likely to be undertaken. Hence, they are a reasonable proxy for the
future expenditure experience of the Fund.
In the original ranking of these sites, in order to select the NPL set of
sites, the Hazard Ranking System (HRS) employed information on both the
substances present at each site, the media (air, water, etc.) in which they
were found, and related data. This information can be used to determine what
substances were found at the NPL sites. If copper, lead, or zinc, or their
compounds are listed, then a more thorough study of the site records might
determine whether the substance found is a metal or a compound of the metal.
In addition to the HRS data base, the Contract Laboratory Program (CLP)
data base can be used to supplement NPL data. This data set contains
information on not only the substances found at sites, but also their
concentrations. The latter piece of information is potentially valuable in
that higher concentrations of certain substances may increase the likelihood
of Fund expenditures.
HRS Data Base Results
The frequency with which copper, lead, and zinc were reported at the 538
sites currently listed on the NPL was determined from the HRS data base. The
occurrences of substances associated with copper, lead, and zinc ore
processing, as described in Appendices A and B in the accompanying
supplementary report, were also recorded. These substances were considered
"associated" only when they were reported at the same sites as the metals with
which they are found in ore processing (for example, cadmium, which may be
associated with zinc ore processing, was counted only when it occurred
simultaneously with zinc at a site). Exhibit 2-4 shows the number of NPL
sites at which copper, lead, and zinc, their compounds, and associated
substances were reported; the number of NPL mining sites at which they were
reported; and the number of times they were reported in ground water, surface
water, and air. Exhibit 2-5 shows the occurrences of copper and substances
associated with copper ore processing; occurrences of lead and associated
substances are presented in Exhibit 2-6; and Exhibit 2-7 shows occurrences of
zinc and associated substances. Copper, lead, and/or zinc were reported at
182 sites, or 34 percent, of the 538 NPL sites. Lead, reported at 162 sites,
is the second most frequently occurring chemical at NPL sites. 'Heavy metals,
which may include lead and/or zinc, were reported at an additional 25 sites.
Copper, lead, and/or zinc were reported at 10 of the 12 NPL sites listed
as mining sites in the HRS data base. Exhibit 2-8 shows the NPL mining sites
where copper, lead, and/or zinc occur and the exempt and associated substances
reported at each site.
It was not possible to determine from the HRS data base or from the CLP
data base, discussed in the next section, whether copper, lead, or zinc were
-------
rXHIBIT 2-'l
COPPLR, LLAD, ZINC, AND ASSOCIA[[[) SUHSIANCl.S KF.rORIFU
AT 538 UPDATED NATIONAL PRIORITIES I.ISI (NPL) SIIES
Exempt Si i.b s.t a nee
Copper and Compounds
Copper Cyanide
Lead
Lead Chroma to
Lead-Molybderium
Zinc and Compounds
Zinc Cyanide
Associated Substances
HeEoJlted_at Same Sites
Arsen ic
Arsenic and Compounds
Cadmium
CaIc i urn Chromate
Calcium Metasilicate
Cyanides (Soluble)
Iron and Compounds
Manganese and Compounds
Mercury
Nickel and Compounds
Selenium •
Selenium and Compounds
Sodium and Compounds
Sulfate (Ion)
Number Frequency
Times Relative Number of
Reported to Other limes Reported
3A._Sj.te_. Sj.lb.stanc.es I/ a t Min ing Si tes
'17
1
162
1
1
74
1
15
2
38
1
1
13
12
11
2
1
1
2
-18
2
12
6
0
9
0
0
9
0
3
0
8
0
0
0
Number of
Ii mcs Reported
i n_.Grouridw_a te r
17
(1
77
0
I)
28
9
1
13
0
H
6
1
0
0
1
Number of
I i inor.
I'.epo i tod i M
Sur;fence Water
16
0 '
6'l
0
0
?7
Niimbo r
of I i nies
(| in Aj_r
0
0
3
0
0
0
U
1
0
0
0
0
KJ
I
I/ To illustrate: lead is the second most frequently reported substance at updated NPL sites.
Source: ICF tabulation of Mitre Corporation, Hazard Ranking System (MRS) data base and Appendices A and B of the
supplementary report.
-------
EXIIIBI f 2-5
COPPER AND ASSOCIATED SUBSTANCES REPORTED AT 538 UPDATED
NATIONAL PRIORITIES LIST (NPL) SITES
Exempt Substance
Copper and Compounds
Copper Cyanide
Associated Substances
Reported at Same Sites
Arsenic
Arsenic and Compound's
CaIc ium Chromate
Iron and Compounds
Lead
Nickel and Compounds
SeI en iurn
Selenium and Compounds
Sodium and Compounds
Zinc and Compounds
Zinc Cyanide
Number
Times
Reported
at Si te
U7
1
15
2
1
8
36
13
2
1
1
32
1
Frequency
Relative Number of
to Other Times Reported
Substances ]_/ at Mining Sites
Number or
T imes Reported
in Grouridwater
Number oF
r imes
Reporter! in
Surface Water
18
6
0
3
0
0
3
5
0
0
0
0
6
0
17
0
9
1
0
2
10
3
1
0
0
11
0
16
(.1
6
I)
0
1
Hi
6
0
0
0
13
0
Number of rimes
IA9.P-P.Eted_j n A i r
1
0
0
0
0
0
0
0
0
0
0
1
0
I
I-1
o
J7 To iI lust rate:
Source:
lead is the second most frequently reported substance at updated NPL sites.
ICF tabulation of Mitre Corporation, Hazard Ranking System (MRS) data base and Appendices A and B of the
supplementary report.
-------
EXHIBIT 2-6
LEAD AND ASSOCIATED SUBSTANCES REPORIEI) AT 53fi UPDATED
NATIONAL PRIORITIES LIST (NPL) SITES
Exempt Substance
Lead
Lead Chromate
Lead-Molybdenum
Number
T i me s
Reported
at Si te
162
1
1
F roquency
Re 1 a t i ve
to Other
Substances J./
2
Number of
Times Reported
at Mining Si tes
9
0
0
Number of
T imps Reported
in Groundwa te r
77
0
0
Niiiubnr of
1 i uies
Reported in
Surf nee Wa_te.r
6'l
n
(1
Number of
Reported
7
0
0
t hues
in Air
Associated Substances
Reported at Same Sites
Calcium Metasilicate
Copper and Compounds
Nickel and Compounds
Sulfate (Ion)
Zinc and Compounds
1
36
18
2
58
0
5
0
1
8
0
1 1
6
1
21
n
13
7
0
2l|
NJ
1
I-1
(-'
1
0
0
0
2
iy To illustrate: lead is the second most frequently reported substance at updated NPL. sites.
Source: ICF tabulation of Mitre Corporation, Hazard Ranking System (MRS) data base and Appendices A and R of the
supplementary report.
-------
Associated Substances
Reported at Same Sites
EXHIRIr 2-7
ZINC AND ASSOCIATED SUBSTANCES REPORTED AI 538 UPDATED
NATIONAL PRIORITIES LI SI (NPI.) SITES
Exempt Substance
Number
Times
Reported
at Si te
Frequency
Relative
to Other
Substances J/
Number of
Times Reported
at Mi nfng Si tes
Number of
Iimes Reported
in Groundwater
Number or
I i me s
Reported in
Surface Water
Number of Iimes
rted i n Ai r
Zinc and Compounds
Zinc Cyanide
74
1
12
28
(1
27
, 0
?.
0
Cadmium
Chloride (Ion)
Copper and Compounds
Copper Cyanide
Cyanides (Soluble)
Iron and Compounds
Lead
Manganese and Compounds
Mercury
38
1
32
1
13
9
59
12
11
8
0
6
0
0
l|
,8
<4
0
13
0
8
0
3
l|
26
'4
6
.13
1
1 1
0
'i
?
26
3
l|
3
0
0
0
0
0
'1
0
1
to
l-1
NJ
jy To illustrate: lead is the second most frequently reported substance at updated NPL sites.
Source: ICF tabulation of Mitre Corporation, Hazard Ranking System (MRS) data base and Appendices A and R of the
supplementary report.
-------
EXHIBIT 2-8
NPL MINING SITES WHERE COPPER, LEAD, AND/OR ZINC ARE REPORTED
Si te Name Locji tjon
United Nuclear Corp. Church Rock, NM
Tar Creek
Cherokee County
Ca I i form a Gulch
Ottawa County, OK
NPL Rank
381
148
Cherokee County, KS 49
Leadvi Me, CO
Central City, C.lear Idaho Springs, CO 126
Creek
Anaconda Smelter-
Anaconda
Mi I I town Reservoir
Sediments
Anaconda, MT
Mi I I town, MT
Silver Bow/Deer Lodge Silver Bow Creek, MT
CeI tor ChemicaI
Works
Iron Mountain Mine
Hoopa, CA
Redd ing, CA
198
21
383
Copper, Lead and/or Zinc
and Associated Substances Reppxjted
Lead, arsenic, cadmium, mercury, sulfate
(ion)
Lead, zinc and compounds, iron and
compounds, cadmium
Lead, zinc and compounds, cadmium
Copper and compounds, lead, zinc and
compounds, cadmium, iron and compounds,
manganese and compounds
Copper and compounds, lead, zino and
compounds, iron and compounds, manganese
and compounds
Lead, zinc and compounds, cadmium,
arsenic, manganese and compounds
Copper and compounds, lead, zinc and
compounds, manganese and compounds
Copper and compounds, lead, zinc and
compounds, cadmium
Lead, zinc and compounds, copper and
compounds, cadmium, arsenic, iron and
compounds
Copper and compounds, zinc and compounds,
cadmium
Substance used to Score
_!P_x.lc_LtyZ Pen? i s tajice
Groundwater: Lead
Surface water: lead
Air: Uranium & compounds
Groundwater: Cadmium
Surface water: Cadmium
Air: Not scored
Groundwater: Cadmium
Surface water: Cadmium
Air: Not Scored
Groundwater: Cadmium
Surface water: Cadmium
Air: Not Scored
Groundwater: Cadmium
Surface water: Cadmium
Air: Not Scored
Groundwater: Arsenic w
Surface water: Arsenic
Air: Arsen i c
Ground water: Arsenic
Surface water: Arsenic
Air: Not Scored
Groundwater: Arsenic
Surface water: Arsenic
Air: Not Scored
Groundwater: Lead
Surface water: Lead
Air: Not Scored
Groundwater: Cadmium
Surface water: Cadmium
Air: Not Scored
Source: ICF tabulation of Mitre Corporation, Hazard Ranking System (MRS) data base.
-------
2-14
present in metallic form at a site, or what compounds of each metal were
present. (Copper is listed in the HRS data base as "copper and compounds,"
zinc as "zinc and compounds," and lead simply as "lead;" a few compounds of
each are also listed. ) Because some .copper, lead, and zinc compounds
currently are taxed, an attempt was made to assess the likelihood of copper,
lead, or zinc occurring in the form of taxed compounds at the NPL sites based
on descriptions of the waste sites and the.types of wastes found at each site
given in the HRS data base and EPA's Waste Site Descriptions. As shown in
Exhibit 2-9, it is unlikely that taxed compounds are present at 73 of the
sites, or 40 percent of the 182 sites.where copper, lead, and/or zinc are
found. Wastes at these sites included mining, smelting, and metal processing
wastes; organic wastes; and wastes from known processes which do not involve
the taxed compounds. It is likely that taxed compounds may be present at 35
sites, or 19 percent of the total. The-wastes at many of these sites include
paints, pigments, or paint sludges, which may contain taxed compounds. A few
other sites are included because lead batteries (containing lead oxide) are
found or galvanizing wastes are included (zinc chloride is used in
galvanizing). A few sites were included because the wastes were generated by
chemical companies whose products were unknown; it is possible that taxed
compounds might be produced or used .by these companies. An additional 26
sites (14 percent) contain industrial.wastes which could possibly include
taxed compounds; the remaining 48 sites were not described in enough detail to
make any judgment. • . '
Contract Laboratory Program Data Base
The results of inorganic sample analysis, were examined for 73 NPL sites
where laboratory test results were available as of June, 1983 as part of the
Contract Laboratory Program. The tests were performed on both soil and water
samples. Results of this testing were made available to ICF by VIAR and
Company, Alexandria, Virginia, manager of the Contract Laboratory Program.
The results were for sites where laboratory analysis was recent and in
conformity with current, standard testing procedures. ICF entered these
results into a data base. The total number of samples reviewed for the 73
sites was 1,200 (800 water samples and 400 soil samples).1
Exhibits 2-10 and 2-11 summarize the sampling data for the three exempt
and 13 associated substances in water'and soil, respectively. Several key
findings emerge. The three exempt substances individually exceed detectable
limits in 85-95 percent of all water samples and in 96-99.7 percent of all
soil samples. Extremely high percentages of the samples analyzed for
associated substances also showed that these were present above detectable
limits.
1The exact number of sites represented by these samples cannot be
known. The samples were organized into 73 cases, each case consisting of
samples collected at approximately the same location. A case corresponds
generally, but not exactly, to a site.
-------
2-lr5
EXHIBIT 2-9
POSSIBLE PRESENCE OF TAXED COMPOUNDS OF COPPER,
LEAD, AND ZINC AT UPDATED NPL SITES1
Likelihood of
Occurrence of Number- '
Taxed Compounds of Sites Types of Wastes
Unlikely . 73 : Mining, smelting, metal
processing. Oil processing.
Organics, solvents. Wastes
from processes not involving
taxed compounds.
Likely 35 - . Paints, pigments, paint
sludges, dyes. Lead
• -. • batteries. Chemical
companies (if producers of
taxed compounds or if
products unknown).
Galvanizing.
Possible 26 Unspecified industrial wastes
Unknown 48 Insufficient information for
determination.
1 Taxed compounds of copper, lead, and zinc are cupric sulfate, cuprous
oxide, lead oxide, zinc chloride, and zinc sulfate.
Sources: ICF, from MITRE Corporation, Hazard Ranking System Data Base and
EPA, Waste Site Descriptions.
-------
(1)
EXHIBIT 2-10
ANALYSIS OF WATER SAMPLES FROM NATIONAL PRIORITIES LIST SITES
(2) (3) («4) (5) (6)
(7)
[8)
Water Not
Samples Analyzed a/
(4) As
Less Than Greater Than Percentage of
Detectable Detectable All Samples
Limit Limit Ana lyzed
(4) As Mean Value Median Value
Percentage or of (4) in of (4) in
AI I Cases b/ U.9/J L'Jl/.]
Exempt Substances:
Zinc
Copper
Lead
Associated Substances :
Ant imony
Arsen ic
Cadmi urn
Ca Ic i urn
Chloride
Chromium
1 ron
Manganese
Mercury
Nickel
Se (en i urn
Sod i urn
Vanad ium
800
800
800
800
800
800
800
800
800
800
800
800
800
800
800
800
51
82
40
90
77
46
752
765
83
29
26
97
65
98
758
86
38
102
114
148
103
123
2
0
87
33
50
139
99
128
0
110
711
616
646
562
620
631
46
35
630
738
724
564
636
574
42
604
95
86
85
79
86
84
96
1 00
88
96
94
80
87
82
100
90
97
89
92
77
85
97
12
5
93
99
95
82
89
79
10
81
1,377.
122.
218.
26.
41.
4.
10.684.
17.432.
105.
37,011.
2. 106.
I .
269.
3.
28,563.
286.
1
6
2
9
9
2
2
5
1
2
6
?.
5
4
7
3
91.
50.
5.
20.
10.
1 .
82.
90.
100.
396.
139.
0.
40.
2.
160.
200 .
0
0
0
0
0
0
0
to
0 M
en
0
5
5
2
0
0
5
0
a/ A case is a series of samples collected at the same approximate location. Cases correspond generally, but not
precisely, to sites; the 203 NPL sites for which samples have been collected to date represent 250 cases.
b/ According to Viar & Company, analysis was attempted for all listed substances, but not possible for the number listed
in this column. A common reason was interference caused by the presence of other elements.
Source: ICF analysis of data from 73 case studies performed as part of the Contract Laboratory Program.
-------
(1)
EXHIBIT 2-11
ANALYSIS OF SOIL SAMPLES FROM NATIONAL PRIORITIES LIST SITES
(2) (3) (H) (5) (6)
(7)
(8]
(U) As
Less Than Greater Than Percentage of ('i) As Mean Value Median Value
Water Not Detectable Detectable All Samples Percentage of of ('4) in of (4) in
Samp I es Ana lyzed a/ Limit Limit Ana lyzed Al I Cases b/ Jf!fl.Ziifl mS/.K9
Exempt Substances :
Zinc
Copper
Lead
Associated Substances:
Antimony
Arsenic
Cadmium
Ca Ic ium
Chloride
Chromium
1 ron
Manganese
Mercury
Nickel
Se 1 en ium
Sod i urn
Vanadium
400
400
400
400
400
400
400
400
400
400
400
400
400
400
400
400
10
80
12
114
100
57
335
364
104
9
11
149
95
150
351
145
1
12
5
23
13
9
0
0
11
0
0
13
11
18
0
10
389
308
383
233
287
334
6
36
285
391
389
238
294
232
49
245
99.7
96
99
81
96
97
25
1 00
99
100
100
95
96
93
100
96
100
87
82
72
85
90
10
5
90
100
100
79
87
69
8
82
132
29
175
3
4
1
1,217
647
26
6, 128
175
0
26
0
348
36
.3
.3
.7
.3
.9
.9
.6
.0
.7
.3
.3
.4
.0
.3
.8
.3
13
8
9
1
1
0
450
245
2
540
99
0
6
0
120
20
.8
.9
.0
.0
.6
.2
•« M
1
'° ^J
.8
.0
.0
.02
.6
. 1
.0
.0
a/ Cases defined on Exhibit 2-2.
b/ Explained on Exhibit 2-2.
Source: ICF analysis of data from 73 case studies performed as part of the Contract Laboratory Program.
-------
2-18
The second key finding is that the concentrations of both exempt and
associated substances in water and soil samples are widely scattered, with
most samples showing low values but a significant fraction showing extremely
high values. This conclusion can be drawn after comparing the values
represented by the mean concentrations (column 7) and the median
concentrations (column 8), respectively.2 If the concentration data are
normally distributed, the data would be well-centered about the mean, with the
mean values closely approximating the median values. However, taken as a
whole, the mean values are typically many multiples of median values (see
Exhibit 2-12). These data indicate that while half of the samples are below
the median, a sufficient fraction of the samples occur with very high values
to shift the mean to many multiples of the median.
To investigate further the relationship between concentrations in the soil
and toxicity, the distribution of the concentrations in water have been
evaluated relative to National Interim Drinking Water (NIDW) standards,
established under the Safe Drinking Water Act. Maximum Contaminant Levels
(MCLs) were established for one of the three exempt substances -- lead -- and
five of the associated substances -- arsenic, cadmium, chromium, mercury, and
selenium. Exhibit 2-13 presents the distributions of samples relative to MCLs
for these substances. As can be seen in the exhibit, with the exception of
lead, 90 to 96 percent of the contaminants in the water samples were below the
MCL, with the substantial portion of the remainder falling within the category
of 1 to 5 times the MCLs. In the case of lead, however, a substantial
percentage of samples -- 61 percent -- were above the MCL, with 34 percent of
all values 5 or more times the MCL. Caution should be taken in interpreting
these findings, however, as information on the sampling procedures, types and
locations of samples relative to drinking water supplies are not available.
They do, however, indicate a major potential for contamination of. water
supplies. Because of the absence of sufficient information, similar analyses
could not be performed for soil samples.
Finally, there is a high correlation between occurrence of exempt
substances and associated substances at NPL sites. As shown in Exhibit 2-14,
over half of the samples with at least one exempt substance present also had
10 or more associated substances present.3 More than 97 percent of the
samples with at least one exempt substance had one or more associated
substances detected above background concentrations.
2The mean defines the average concentration of all samples. The median
defines the middle concentration: 50 percent of the concentrations are above
and 50 percent of the concentrations are below the median.
'Because each of the exempt substances was found in high percentages of
the samples and because of the large overlap in substances associated with
each exempt substance, similar analyses by individual exempt substance were
not performed.
-------
2-19
EXHIBIT 2-12
RATIOS OF MEAN TO MEDIAN CONCENTRATIONS OF EXEMPT AND
ASSOCIATED SUBSTANCES IN WATER AND SOIL SAMPLES
TAKEN AT SELECTED NPL SITES
Ratios
Water Soil
Exempt Substances
Zinc 15.1 9.6
Copper 2.5 3.3
Lead 43.6 19.5
Associated Substances
Antimony 1.3 3.3
Arsenic 4.2 3.7
Cadmium 4.2 9.5
Calcium 130.3 2.7
Chloride 193.6 2.6
Chromium 1.1 9.5
Iron 93.5 11.3
Manganese 15.1 1.8
Mercury 6.0 20.U
Nickel 6.8 3.9
Selenium 1.7 3.0
Sodium 178.0 2.9
Vanadium 1.4 1.8
-------
Distribution of Water Samples
Above Maximum Contaminant Levels
100%
94.8%
93.5%
90.0%
95.7%
95.6%
75%
50%
39.0%
27.4% '10.3% . 23.3%
Arsenic
4.2% 0.3% 0.6%
Cadmium
5.7% 0.5% 0.3%
• Chromium
7.3% 1.6% 1.1%
Mercury
3.0% 0.9% 0.4%
I Selenium
4.0% 0.3% 0.0%
25%
MCL
25%
50%
MCL
(microgram per liter)
Lead " SO
50
10
75%
50
10
100%
m
X
I
CP
H
N>
i
w
t-O
O
10x MCL
-------
100
90
80
•ercent of Samples _
:h Exempt Substances
60
50
40
30
20
10
Distribution of Samples with Exempt Substance(s)
By Number of Associated Substances Also Present
- Soil Sample ^H - Water Sample
m
X
I
2?
H
K)
I
8
9 10 & Over
No. of Associated Substances
NJ
I
M
-------
2-22
2.2.2 Alternative 2 - Historical and Planned Remedial and Removal
Actions as Proxy for Expenditure Experience of the Fund
Although the NPL represents a reasonable proxy for expenditure experience
of the Fund, a narrower definition of "expenditure experience" might be
proposed which would restrict it to remedial and removal actions carried out
or approved under the Fund. Because, the number of historical and planned
remedial actions is not large (six remedial actions have been completed.and
Records of Decision exist for an additional 26), this proxy may not provide a
sufficient sample to assess the true extent of the problem. Nevertheless,
this narrower proxy is presented for completeness. This section uses the
following for this narrower proxy:
• Completed remedial actions;
• Planned remedial actions; and .
• Historical removal actions.
Remedial action has been taken at six waste disposal sites. These sites
are listed in Exhibit 2-15. Copper, lead, and zinc were not reported at four
of these sites, according to the site descriptions provided by the Superfund
Hotline. One site (Walcott Chemical Warehouse) was remedied by the owner, and
no information is available according to EPA Region IV, where the site is
located. Information has not yet been obtained on the sixth site (Luminous
Processes).
An analysis of EPA's Records of Decision (RODs) for planned remedial
actions at NPL sites shows that copper, lead, and/or zinc are present at seven
of the 26 sites for which there are Records of Decision, or 27 percent of the
total. These seven sites are shown in Exhibit 2-16. One of these sites,
Celtor Chemical Works, is an abandoned sulfide ore processing plant contamined
with copper, zinc, and cadmium. Information on concentrations is not
currently available.
Data from the Removal Tracking System, which summarizes removals and
planned removals, show that copper, lead, and/or zinc have been involved in a
number of removal actions. Exhibit 2-17 presents immediate and planned
removals for 1981 to 1983 which have included copper, lead, and/or zinc.
Seventeen removals, or eight percent of the 210 immediate removals approved
during this period, involved one or several of these substances, with lead
mentioned in 13 of the removals. An additional 10 removals involved heavy
metals and three more involved unspecified metals. Lead was also included in
one of the 14 planned removals, while heavy metals and unspecified metals were
each included in two planned removals.
2.3 SUMMARY
Copper, lead, and/or zinc are found at about one third of the NPL sites.
These substances have also been found in a number of cases where removal
actions have been approved, and at a number of sites where there have been
Records of Decision. Using either the NPL list as a proxy for expenditure of
the Fund or a more restricted definition, this analysis indicates that Fund
-------
2-23
EXHIBIT 2-15
REMEDIAL ACTIONS WHICH HAVE BEEN COMPLETED AS OF JUNE 1984
,;••. A_ Name of Site
Chemical Metals Industry, Baltimore, MD
Walcott Chemical Warehouse, Greenville,•MS
Luminous Processes, Athens, GA
Butler Tunnel, Pittson, PA
Chemical Minerals, Cleveland, OH .
Gratiot County Golf Course, St. -Louis, MI
Types of Wastes
Cyanide, organic
solvents, acid
Information not
available - cleaned up
by owner
Trichloroethylene,
cyanide, toluene,
xylene, dichlorobenzene
1,1,1-Trichloroethane,
toluene,
perchloroethylene,
chromic acid, antimony
chloride
PBB's, Tris, benzene
Sources: Superfund Hotline, CERCLA Docket, EPA Region IV.
-------
2-24
EXHIBIT 2-16
SITES WITH COPPER, LEAD, AND/OR ZINC FOR WHICH
THERE ARE RECORDS OF DECISION1
Cost of Approved Clean-up
Name of Site Plan (Thousand Dollars)
Burnt Fly Bog, Marlboro Township, New Jersey 7,000
Bruin Lagoon, Bruin Borough, Pennsylvania
New Brighton/Arden Hills, Minnesota 181
Celtor Chemical Company, Hoopa, California 340
Lipari Landfill, Pitman, New Jersey 2,000
Price Landfill, Pleasantville, New Jersey
Berlin and Farro, Swartz Creek, Michigan 181
1EPA, Office of Solid Waste and Emergency Response, Records of Decision,
Remedial Alternative Selection.
-------
2-25
EXHIBIT 2-17
APPROVED IMMEDIATE REMOVALS AND PLANNED REMOVALS INVOLVING
COPPER, LEAD, AND ZINC, 1981-1983
Metal
Copper
Lead
Zinc
Lead and Copper
Lead and Zinc
Subtotal
Number of
Immediate
Removals
1
11
2
1
_2
17
Total
Cost Ceiling I/
(thousand dollars)
86.7
2,205.0
446.4
350.0.
735.5
3,823.6'
Number of
Planned
Removals
0
1
0
0
0
Total
Cost Ceiling
(thousand dollars)
0
350
' 0
0
. 0
350
Heavy Metals
Unspecified
Metals
Subtotal
TOTAL
10
3
13
30
1,905
213
2,118
5,941.6
2
2
423
659
1,082
1,432
_!/ Total of approved cost ceilings for each removal.
Source: Analysis of ERD Removal Request Processing, prepared by
Headquarters Technical Assistance Team (TAT).
-------
2-26
expenditures have been made on releases involving copper, lead, zinc, and
their derivatives. Furthermore, as demonstrated in Exhibit 2-9, it is likely
that many of these releases result from currently untaxed sources of copper,
lead, and zinc.
-------
3. METHODOLOGY FOR ANALYZING THE ECONOMIC IMPACT
OF COPPER, LEAD, AND ZINC OXIDE EXEMPTIONS
AND OF TAXING RECYCLED METALS
This chapter describes the methodology developed to examine the economic
impact of taxing copper, lead, zinc oxide, and recycled metals under CERCLA.
The methodology is designed to analyze the ability of an affected industry to
bear a tax and the potential stimulus to recycling that could be provided by a
tax exemption. The economic analysis described in this and succeeding
chapters is tailored to the needs of the H and I Studies. Accordingly, the
emphasis is on the following economic factors: (1) output and price effects on
the industries studied; (2) the economic health and vulnerability of the
industries; and (3) the effects on the mix of imports and domestic production.
Two major steps are involved in the methodology:
• Developing a brief economic profile of the relevant
industry to identify its important structural and
performance characteristics; and
• Developing a partial equilibrium demand-supply model
to estimate the effect of a CERCLA tax on (1) the
quantity of U.S. primary production; (2) the quantity of
U.S. recycled production; (3) the quantity of U.S.
imports; and (4) the price of the metal.
The first section of this chapter describes the scope of the industry
profiles. The second section presents the quantitative method that has been
developed to estimate the economic impact of taxing copper, lead, zinc oxide,
and recycled metals. The final section of this chapter describes the selection
of recycled metals for analysis in this report -- copper, lead, and zinc.
3.1 DESCRIPTION OF INDUSTRY PROFILES
Chapters 4, 5, and 6 present the results of the economic analysis of the
impact of taxing copper, lead, zinc oxide, and recycled metals (copper, lead,
and zinc) under CERCLA. To place the results of the economic analysis in
perspective, these chapters begin with brief profiles of the copper, lead,
zinc, and zinc oxide industries. The zinc and zinc oxide profiles are
presented together, as they are closely related industries. The intent of the
profiles is to provide basic background information rather than an exhaustive
analysis of. all facets of an industry. These profiles are particularly
oriented towards understanding the "economic health" of these industries, both
over the short and long-term. Accordingly, the profiles are organized in the
following manner:
(1) Introduction -- characteristics of the substance, its
uses and strategic value;
-------
3-2
(2) Demand for the substance -- consumption and price trends
for 1978-1982 by industry, important long-term trends in
consuming sectors;
(3) Supply of the substance -- world and U.S. reserves,
production processes, trends in primary and secondary
production and U.S. imports in 1978-1982; and
(4) Industry structure and performance -- number of
companies involved in primary and secondary production,
recent performance of these companies in terms of
profits/losses, outlook for the industry and review of
foreign competition, environmental concerns, and
competition from substitute products.
Each profile supplies the information necessary to place our analysis of
economic impacts in its proper context. Data and other information in the
profiles were obtained from the U.S. Bureau of Mines, the U.S. Industrial
Outlook for 1983 and 1984, and publications such as World Metal .Statistics.
As stated above, the zinc oxide industry profile is presented as part of an
overall profile of the zinc industry, as little data are easily available on
the zinc oxide industry alone, and some zinc producers are also important zinc
oxide producers.
3.2 DESCRIPTION OF ECONOMIC FRAMEWORK
The industry profiles, together with the results of a comprehensive
literature search on the economics o~f the mineral industries, have been used
to develop a method for quantitatively estimating the output and price effects
of a CERCLA tax on these substances. Two types of CERCLA taxes can be
examined by the framework: (1) a tax on U.S.-produced primary, U.S.-produced
recycled, and imported forms of a metal (or one of its chemical derivatives,
such as zinc oxide); and (2) exempting from taxation the U.S. produced
recycled metal while taxing the other sources. This demand-supply framework
is described in qualitative terms below. Appendix C in the supplementary
report presents a more detailed discussion of the derivation of the framework,
including, the algebraic form of the model.
Before developing the framework, an effort was made to review past
economic studies of the mineral industries, particularly the U.S. copper
industry, and their alternative modeling approaches. It was determined that
previous econometric models of the mineral industries were either not
well-suited for the analysis of a CERCLA tax or tax exemption or could not be
readily reproduced to perform the analysis needed. For example, the models
required very extensive time-series data on a large number of variables, and
have not been very successful in forecasting industry performance. Moreover,
despite the extensive research on the industries that was done in support of
these models, there are serious shortcomings in the availability of reliable
data for this analysis. These shortcomings include:
-------
3-3
• The estimation periods of supply and demand elasticity
coefficients are not recent; most of the models,
especially of the copper industry, were fitted to
1950-1970 data;*
• There is considerable variability in supply and demand
elasticity estimates due to different estimation
techniques;2
• Little quantitative research has been done on
measuring the extent to which the primary and recycled
forms of a metal are substitutes for one another; and
• Existing models, despite their often dynamic nature,
have not been able to project future prices with
sufficient accuracy.
Given these empirical considerations, a framework was developed that is
simple enough to sensibly employ the available data and comprehensive enough
to reliably represent the copper, lead, zinc, and zinc oxide industries for
purposes of analyzing the impact of a CERCLA tax or tax exemption. The
interactions of the framework's supply and demand components are generally
consistent with those modeled in existing econometric studies of primary
metals industries.3 The assumptions underlying the framework are spelled
out below.
*The principal exception appears to be an econometric model of primary
commodity markets by the World Bank that recently estimated various
elasticities over the 1976-1980 period. See World Bank, The Outlook for
Primary Commodities (World Bank: Washington, B.C., 1983), pp. 134-135.
2This variability for copper is briefly discussed in Raymond F.
Mikesell, The World Copper Industry (Johns Hopkins University Press:
Baltimore, 1979), pp. 154-186. Elasticity of demand is a number indicating
how responsive consumers are to price changes. The elasticity of demand
coefficient reflects the percent change in quantity demanded resulting from a
one percent change in price. The concept of elasticity of 'supply is similar
to elasticity of demand. It measures the responsiveness of producers to price
changes and is defined as the percentage change in quantity supplied resulting
from a one percent change in price. Demand and supply curves which are
relatively elastic are relatively "flat," indicating greater than one percent
quantity changes for each one percent price change.
3Franklin M. Fisher, Paul H. Cootner, Martin N. Baily, "An Econometric
Model of the World Copper Industry," The Bell Journal of Economics and
Management Science (A.T.&T.: New York, 1972), Vol. 3, No. 2, pp. 568-609;
Kenneth T. Wise, "The Effects of OSHA Regulations on the U.S. Lead Industry:
An Economic Impact and Econometric Modeling Analysis," Ph.D. Thesis,
Department of Economics, Massachusetts Institute of Technology, December 1978;
and S. Gupta, "An Econometric Analysis of the World Zinc Markets," Empirical
Economics, Vol. 7, 1982, p. 227.
-------
3-4
3.2.1 Assumptions
The framework developed for this analysis rests on several assumptions:
• Perfect competition exists among producers and among
consumers;
• The U.S. primary, U.S. recycled, and imported forms of
copper and of lead are perfect substitutes for a significant
share of consuming industries, and, thus, can be viewed as a
market for a homogeneous good in .the relevant range of price
and quantity variation; **
• Demand for a metal (or one of its derivatives, such as zinc
oxide) equals total supply from all sources; and
• The relevant time period for analysis is the long run,
i.e., after all short-run adjustments have taken place.5
The demand-supply framework is illustrated in Exhibit 3-1.6 Because the
framework is a partial equilibrium model, it estimates effects on the copper
industry, for example, without allowing for changes in other sectors of the
economy (including changes in the prices of substitute products, such as
aluminum). In addition, the framework does not estimate effects on individual
"downstream" markets, such as the markets for electric motors, power
generators, fans, transformers, and electrical lighting equipment that require
copper as an input. 'To analyze potential effects on individual downstream
""Zinc recovered from old scrap technically cannot be refined to as pure
a state as the metal refined from ore and, therefore, it is not substitutable
for most applications of primary zinc. However, all that is required for the
assumption of perfect substitutability to be valid for this modeling of zinc
is that the uses to which some demanders put zinc allow either the recycled
form or the primary form to be used. It is within the relevant range of price
and quantity variation that the assumption must hold. There is sufficient
evidence to suggest that enough demanders can switch from primary to recycled
zinc so that the assumption is warranted for zinc as well.
5Long-run elasticity coefficients are used because the primary interest
of those proposing a tax exemption for recycled metals has been to bring about
long-run changes in how the nation uses materials. Consequently, the relevant
time period for analysis is the long-run. However, if suppliers and consumers
view a CERCLA tax or tax exemption for recycled metals as a temporary
phenomenon, then short-run elasticity coefficients would be more appropriate.
In general, demand and supply are more inelastic in the short run, except for
scrap and for industries with large excess capacity.
6The framework can be applied for any metal that satisfies the above
assumptions.
-------
3-5
EXHIBIT 3-1
ILLUSTRATION OF THE ECONOMIC FRAMEWORK
BEFORE THE IMPOSITION OF A CERCLA TAX
Price
($ per metric
ton)
Quantity
(thousand metric tons)
Note: The subscripts i, r, p, and t on the supply schedules refer to the
amount of imported, U.S. recycled (old scrap), U.S. primary, and total
copper supplied in the U.S., respectively. Linear demand and supply
schedules are presented in this exhibit for simplicity. The framework
approximates the effect of a CERCLA tax by assuming the demand and
supply schedules are linear in the relevant range of price and quantity
variations. Such linear estimation techniques have also been used in
other studies of the copper industry; see, for example, Charles River
Associates, Inc., Policy Implications of Producer Country Supply
Restrictions: The World Copper Market (C.R.A.: Cambridge, 1976), for
National Bureau of Standards, PB-264 389.
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3-6
products would require a comprehensive econometric model beyond the scope of
this project. Furthermore, the legislative histories of CERCLA Sections
301(a)(l)(H) and (I) appear to indicate that most concern has been expressed
over potential first-order effects on metals themselves.
The first-order effects of a CERCLA tax are measured by the framework in
terms of changes in quantities demanded and supplied, and prices. Potential
implications for other important variables such as employment, competitiveness,
and the macroeconomy are not estimated. To estimate mathematically the effect
of a CERCLA tax on these other variables would require the development of an
econometric model that incorporates the complex interdependencies within the
copper industry. Such a model may not be well-suited for analyzing the impact
of a tax where the effects are likely to be small under a reasonable range of
assumptions.
An economic factor that the framework does not explicitly take into consi-
deration is the long-run interdependence between the supply of a primary metal
and the supply of its recycled counterpart from old scrap. This supply
interdependence exists because the more primary metal that is produced, the
more such material is available in the future for recycling. We believe that
this interdependence is not likely to be a significant omission in the present
analysis because of the relatively small changes in the availability of metal
that can be recycled in the future induced by the CERCLA tax rates analyzed
here. Therefore, this dynamic effect probably is not important when there are
relatively small changes in prices and quantity demanded.
3.2.2 Starting Point -- Equilibrium of Demand and Supply
Exhibit 3-1 represents the framework's starting point: an equilibrium in
the market for a metal, say copper. The intersection of supply with demand at
A represents the summation of three separate supply schedules: the supply of
primary copper by U.S. producers, the supply of recycled copper by U.S.
producers, and the supply of copper imported by the U.S. (both primary and
recycled forms).7 There are three supply schedules shown in the exhibit
7 For purposes of this analysis, the amount of primary copper supplied
by U.S. producers refers to U.S. production of refined primary copper from
both domestic and imported ores. The amount of recycled copper supplied by
U.S. producers refers to U.S. production of old scrap (refined and unrefined)
copper. The amount of net imports of copper by the U.S. refers to both
primary and recycled forms of refined copper. Net imports of recycled copper
are included with net imports of primary copper because a CERCLA tax would be
applied to all imports, making imported recycled copper, effectively, imported
primary copper in the context of this analysis. Currently, CERCLA tax
treatment of imported products is the same as for products that are
domestically produced.
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3-7
corresponding to the three main sources of copper supply.8 There is one
demand schedule, however, because under the assumption of perfect
substitution, a significant number of copper users are indifferent between the
U.S. primary, U.S. recycled, and imported forms of copper in the relevant
range of price variation.
This assumption of perfect substitution is well-founded for copper. For
example, according to Bonezar and Tilton in 1975, "Secondary copper ... is a
perfect substitute for primary copper."9 In addition, a study of the U.S.
copper industry by Charles River Associates, Inc. in 1970 noted that "...
Secondary refined copper is physically equivalent to a corresponding grade of
virgin refined copper."10
3.2.3 Imposition of a CERCLA Tax
Exhibits 3-2 and 3-3 show the demand-supply apparatus at work for
estimating the impact of imposing a CERCLA tax on copper. Exhibit 3-2
illustrates the output and price effects of a tax on the U.S. primary, U.S.
recycled, and imported forms of copper. Exhibit 3-3 portrays the output and
price effects of a CERCLA tax on U.S. primary and imported copper only, with a
tax exemption for U.S. recycled (old scrap) copper.
8 There is also a fourth supply schedule for new scrap collections.
Because new scrap supply is not found in most cases to be measurably influenced
by price, but rather is influenced primarily by total consumption, it is not
helpful to present graphically this supply schedule when considering the impact
of a price increase caused by a tax. However, this supply schedule is incor-
porated in the framework, when appropriate, and is described in Appendix C in
the supplementary report.
9 Elizabeth S. Bonezar, John E. Tilton, An Economic Analysis of the
Determinants of Metal Recycling in the United States: A Case Study of
Secondary Copper (Pennsylvania State University: Pennsylvania, 1975), for the
U.S. Bureau of Mines, PB-245 832, p. 49.
10 Charles River Associates, Inc., Economic Analysis of the Copper
Industry (C.R.A.: Cambridge, 1970), for U.S. General Services Administration
under contract GS-OO-DS-(P)-85005, p. 40. The report also noted that:
Technically, the conclusion is that the cross-elasticity of
demand for any two types of copper [refined copper, scrap,
or alloy ingot] is infinite. The essential basis of the
conclusion is that it is always possible to convert one
type of copper to another. Hence, at equilibrium, the
prices of any two types of copper cannot differ by more
than the costs of converting one to another, or the
difference in the costs of using the two, whichever is
smaller. At this differential in price, then, substitution
will go on freely. (Page 41.)
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3-8
EXHIBIT 3-2
IMPOSITION OF A CERCLA TAX ON
U.S. PRIMARY, U.S. RECYCLED, AND IMPORTED COPPER
Price
(S per metric
ton)
(a)
Demand
Quantity
(thousand metric tons)
Price
($ per metric
ton)
(b)
Demand
Q! Q.
* *
Q
*
3P5P
Q;
Quantity
(thousand metric tons)
-------
Price
($ per metric
ton)
3-9
EXHIBIT 3-3
IMPOSITION OF A CERCLA TAX ON U.S. PRIMARY
AND IMPORTED COPPER ONLY,
EXEMPTING U.S. RECYCLED COPPER
(a)
Demand
Quantity
(thousand metric tons)
Price
($ per metric
ton)
P1
P
(b)
Demand
i
Q! Q. 0 Q' Q1 Q
i i ~r r p p
Q;
Quantity
(thousand metric tons)
-------
3-10
Graph (a) in Exhibit 3-2 depicts the market for copper before the
imposition of the CERCLA tax and graph (b) shows the market once the CERCLA
tax is imposed. A convenient way of thinking about the tax on all forms of
copper is that it decreases the net price per unit received by producers for
any given quantity of the metal supplied. This corresponds to upward shifts
of the supply schedules as shown in graph (b). In other words, producers will
not sell the same amount, unless they receive the same net price for that
amount as before. This implies that the price to consumers (P) must rise by
the amount of the tax to call forth the original supply (Q ).
i1
The shift of the supply schedules upward due to the tax now causes a new
intersection of total supply and demand at B. At this new intersection, the
price of copper is higher than it was at A, and the quantity demanded is
lower. The supply of copper from imported sources, U.S. recycled production,
and U.S. primary production have each decreased; the amount of the drop for
each depends on the slopes of the different supplies and on the slope of the
demand curve. When the curves are relatively "flat," signifying that
producers and consumers are very sensitive to price changes, the total
quantity decreases the most.
Exhibit 3-3 shows the effects of the imposition of a CERCLA tax on U.S.
primary and imported copper only, exempting U.S. recycled copper. Generally,
the effects are similar. However, a crucial difference is that the supply
schedule for U.S. recycled copper does hot shift upward because, unlike the
other suppliers, the suppliers of recycled copper are not taxed. As a result,
producers of recycled copper tend to supplant the others as suppliers of the
market.
3.3 SELECTION OF RECYCLED METALS FOR ANALYSIS
A preliminary step in the economic analysis of taxing recycled metals
under CERCLA is selecting the recycled metals to be examined. This section
explains how the metals were selected on the basis of three criteria:
• Taxable Quantity. The estimated taxable quantity of
the metal (domestic primary production plus imports)
mus.t equal or exceed 1,000 short tons.
• Price. The current CERCLA tax rate for metals as a
fraction of the price of the metal must be at least 0.25
percent.
• Toxicity. The metal, a significant proportion of the
compounds containing the metal, or a large volume of
wastes from processing the metal, must be toxic.
1 *A common simplifying assumption is to assume full pass-through of a
tax. In practice, however, the pass-through effects of an excise tax vary
according to underlying supply and demand conditions in specific industries.
-------
3-11
A metal must meet all three criteria to be selected for analysis. Three
recycled metals meet these criteria: copper, lead, and zinc.
3.3.1 Taxable Quantity
Twenty-two non-precious metals12 that are recycled in the United States
have been identified.13 (See Exhibit 3-4.) One criterion to determine
which of the 22 metals should be examined in this study is the amount of the
metal that would be subject to the tax. This criterion is based on the
argument that if the quantity of metal to be taxed is very low, the
administrative costs to the government of collecting the tax may exceed the
tax revenues.
The cutoff point selected was 1,000 short tons per year of domestic
primary production plus U.S. imports. EPA used a similar cutoff criterion in
its study of how the Superfund tax system should apply to the metal smelting
and refining industry.lfc This criterion suggested by EPA was reasonable,
and therefore, this report adopts a similar approach in determining which
recycled metals to examine.
The cutoff point is measured in terms of domestic primary production plus
all imported metal. Domestically recycled metal is not included in the
calculations because it would be exempt from the CERCLA tax that will be
hypothetically imposed on the metals selected. Implicit in the use of this
12Precious metals, because of their high value, are extensively
recycled. Exemption from a small tax would not have any observable effect on
recycled output. Accordingly, precious metals are not considered here.
13The effects of exempting recycled metals that are not currently
recycled is not investigated in this report. Although a tax exemption for
recycled metals might create incentives to recycle metals that are not
currently recycled, analyzing the significance of such incentives would
involve technological matters that are likely to be specific. to each metal.
Thus, it would be difficult to select currently non-recycled metals to examine
and the analysis would properly be at least as technological as it would be
economic in nature. This list of 22 recycled metals does not include
compounds of recycled metals that are not themselves recycled (e.g., zinc
sulfate, lead oxide), nor metals that are produced only by primary production
and/or as a byproduct of the production of other metals. In addition,
antimonial lead is considered as a type of lead.
1<*U.S. Environmental Protection Agency, "Superfund Fee System as It
Affects the Metal and Recycling Industry," February 21, 1980. The study used
a cutoff of 1,000 tons annual usage for two reasons: annual usage of less
than 1,000 tons of a metal would be unlikely to create a significant national
hazard; and the revenues from substances used in quantities less than 1,000
tons annually would not sufficiently exceed administrative costs to merit fee
collection.
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3-12
•• EXHIBIT 3-4
ESTIMATED TAXABLE TONNAGE OF RECYCLED ^METALS IN 1982
(Short Tons)
Aluminum 4,577,000 Mercury 1,318
Antimony 25,669 a/ Molybdenum 1,994 f/
Beryllium 150 b/ Nickel 174,743
Cadmium 3,650 Selenium 650
Chromium 29,230 c/ Tantalum 36 g/
Cobalt 6,435 • Tin \ 34,655
Columbium , 5 d/ Titanium 16,954
Copper^ 1,636,916 Tungsten - 5,566 h/
Iron and Steel 135,600,000 e/ . Vanadium 3 i/
Lead 680,119 Zinc 753,973
Magnesium 104,000 Zirconium ' • 276 j/
a/ Includes antimonial lead.
b/ U.S. demand for beryllium. There is no significant recycling.
c/ Includes U.S. produced exothermic chromium additives and other
miscellaneous chromium alloys, and imported alloys, waste, and scrap.
d/ Imports only. Production data were withheld.
e/ Includes production and imports of pig iron, and production and imports
of steel and cast iron.
f/ Includes 1,921 tons of U.S. produced metal powder, 34 tons of imported
unwrought metal (powder), and 39 tons of imported wrought metal.
g/ Imports only. Production data were not available.
h/ Tungsten content of tungsten concentrate.
i/ Imports only. Production data were withheld; however, production is
assumed to be less than 1,000 tons because of the very small and
specialized use of the metal.
j/ Imports only. Production data were withheld; however, production is
assumed to exceed 1,000 tons because exports may have been as high as 878
tons (exports are reported to include zirconium metal, alloys, and scraps)
Source: Bureau of Mines, U.S. Department of the Interior, Mineral Commodity
Summaries 1984 (Washington, B.C.: GPO, 1984).
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3-13
curoff point is the assumption that the recycling exemption would apply only
to domestic recycled metals and not to imports of recycled metals. Such an
assumption is reasonable for two reasons. First, if a fundamental purpose of
a tax exemption is to reduce U.S. reliance on imported metal, then imports,
whether from recycled metal or primary production, should be taxed.
Otherwise, the purpose of the tax exemption would be undermined. Second, data
on foreign recycling of metals are difficult to find.
As displayed in Exhibit 3-4, the cutoff point, eliminates four recycled
metals from further consideration: beryllium, selenium, tantallum, and
vanadium. . ' .
3.3.2 CERCLA Tax as a Percentage of Metal Price
Exhibit 3-5 shows the size of the current or assumed CERCLA tax15 in
relation to the prices of the 22 recycled non-precious metals. Because of the
high prices of most of these metals, the tax tends to be very small in
comparison to the price. Only two of the 22 metals face a tax that is greater
than one percent of price and only four have a tax that is greater than 0.5
percent of price.
For those metals for which the tax/price ratio is relatively small, less
than 0.25 percent, an exemption for recycling the metal is not likely to have
a noticeable effect on recycled output. This hypothesis is supported by
various studies indicating that the responsiveness of the supply and demand of
recycled metals to price changes is rather low.16 For example, in 1979, the
U.S. Department of the Treasury concluded that even removing the sizable tax
subsidies given to copper and iron ore mining -- estimated to range from eight
to 12 percent of the value of output -- would not "markedly increase" the
amount of recycling of scrap copper and iron.17
Another reason for selecting a tax/price ratio cutoff of 0.25 percent, is
that under any lower cutoff, the measurable impact of the tax could be
15The tax rates used in deriving hypothetical tax/price ratios for
untaxed metals are based on the principles employed by Congress in determining
the current CERCLA tax rates. Specifically, a tax rate of $4.45 per short ton
for elemental metals is assumed.
16ICF Incorporated, Recycling the Materials in Municipal Solid Waste:
Estimates of the Elasticities of Secondary Material Substitution and Supply,
January 31, 1979; Gordon H. Geiger, "Government Regulations and Their Effect
on Metallic Resource Recovery," Resources and Conservation, Vol. 9, 1982, pp.
29-43; and Elizabeth S. Bonezar, John E. Tilton, An Economic Analysis of the
Determinants of Metal Recycling in the United States: A Case Study of
Secondary Copper (Pennsylvania State University: Pennsylvania, 1975).
170ffice of Tax Analysis, U.S. Department of the Treasury, Federal Tax
Policy and Recycling of Solid Waste Materials, February, 1979.
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3-14
EXHIBIT 3-5
TAX AS A PERCENTAGE OF THE METAL'S PRICE
Aluminum
Antimony
Beryllium a/
Cadmium
Chromium
Cobalt
Columbium
Copper
Iron
Lead
Magnes ium
Mercury
Molybdenum
Nickel
Selenium a/
Steel
Tantallum a/
Tin
Titanium
Tungsten
Vanadium a/
Zinc
Zirconium
Tax Rate (?)
Short Ton
A.45 c/
4.45 b/
4.45 c/
4.45 b/
4.45 b/
4.45 b/
4.45 c/
4.45 c/
4.45 c/
4.45 c/
4.45 c/
4.45 b/
4.45 c/
4.45 b/
4.45 c/
4.45 c/
4.45 c/
4.45 c/
4.45 c/
4.45 c/
4.45 c/
4.45 c/
4.45 c/
Price per
Short Ton ($)
on 7/29/83
1,520
3,160
5,500 d/
2,300
8,200
25,000
12,570 d/
1,560
205 d/
380
2,580
10,263 e/
27,000
6,900
26,000
484 d/
412,000
13,149
1,530 d/
29,400 d/
29,000 d/
760
187,500
Tax as a
Percent
of Price
0.29
0.14
0.002
0.19
0.05
0.02
0.04
0.28
17
17
0.17
0.04
0.02
0.06
0.02
0.92
0.0001
0.03
0.03
0.02
0.02
0.58
0.002
2,
1,
a/ Does not satisfy production cutoff criterion.
b/ Current CERCLA tax rate.
c/ Assumed tax rate; not taxed under CERCLA.
d/ Average 1981 price.
e/ Average 1982 price.
Sources: Chemical Marketing Reporter, August 1, 1983; Bureau of
Mines, U.S. Department of the Interior, Minerals
Yearbook, Volume 1, Metals and Minerals, 1982, and
Mineral Industry Surveys, December 30, 1982.
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3-15
rendered insignificant by the more dramatic movements of normal market
forces. For example, the tax on mercury is only 0.04 percent of its price.
In the 40-day period from May 30 to July 22, 1983, the standard deviation in
the daily cash price of mercury equaled four percent of its average price.
Accordingly, the standard deviation in price during this brief period was more
than 100 times larger than the amount of the tax.18
As displayed in Exhibit 3-5, only five recycled metals satisfy the
tax/price -cutoff criterion: aluminum, copper, iron and steel, lead, and zinc.
3.3.3 Toxicity
Some recycled metals may be produced in large volumes at relatively low
prices and yet not cause environmental problems significant enough to justify
the imposition of a tax on the metal itself. An EPA study19 of the
applicability of a Superfund tax to the metal industry used a set of five
toxicity criteria to select the metals that should be taxed:
(1) The raw material is hazardous in some form (e.g., raw
material, intermediate, or final product);
(2) The raw material is hazardous if spilled;
(3) Hazardous waste is generated in the production of the
raw material, its intermediates, or final products;
• (4) Some form of the raw material is capable of increasing
the hazard potential of other substances; and
(5) The raw material is produced in large amounts.
A metal had to satisfy three of the five criteria to be considered
eligible for Superfund taxation. Three of the five metals that satisfied the
taxable quantity and tax/price ratio criteria also satisfied at least three of
the toxicity criteria: copper, lead, and zinc. Each of these metals was
determined to satisfy the first, second, third, and fifth criteria.20 Based
on that judgment, these three metals were selected for analysis of the
economic impact of taxing recycled metals.
18Mercury was selected because its daily cash price is reported in the
Wall Street Journal. Nickel, which is the only other recycled metal with
daily price quotations in the Wall Street Journal, recorded no price changes
during this period.
19U.S. Environmental Protection Agency, "Superfund. Fee System as It
Affects the. Metal and Recycling Industry," February 21, 1980.
20 Ibid., p. 3-4, Table 1.
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4. ECONOMIC IMPACT OF TAXING COPPER, WITH AND
WITHOUT AN EXEMPTION FOR RECYCLED COPPER
This chapter applies the economic framework described in Chapter 3 to the
copper industry. To place the results of the economic analysis in perspective,
Section 4.1 first presents a brief profile of the U.S. copper industry,
identifying its important structural and performance characteristics. Section
4.2 then provides the data used as inputs to the economic framework. Section
4.3 presents estimates of the effects of a CERCLA tax on copper supply and
prices and of the impact of a tax exemption for recycled copper. Tax rates
roughly equivalent to 0.3 percent, two percent, and three percent of price are
analyzed.
4.1 PROFILE OF THE COPPER INDUSTRY
Copper is used in a wide range of industries due to its combination of
high electrical and thermal conductivity, chemical stability, and workability,
and is a designated strategic material for its military and industrial
applications. The copper industry has experienced severe difficulties in
recent years caused by: (1) depressed prices for its products due to the
recession; (2) increasing costs of environmental regulations; (3) competition
from foreign government-subsidized or controlled sources of supply; and (4)
declining intensity of copper use as key consuming industries shift to
substitutes such as fiber optics and plastics. In this section, we shall
briefly review demand for and supply of copper, the structure of the copper
industry, and recent trends in copper prices and industrial performance to
provide a background to the analysis of the effects of a CERCLA tax on copper
contained in Section 4.3.
4.1.1 Copper Demand
Exhibit 4-1 shows the evolution of demand in the major copper-consuming
sectors and price trends for the 1978-1982 period. Consumption of refined
copper increased about 15 percent between 1982 and 1983, and is expected to
increase slightly again in 1984, according to the U.S. Industrial Outlook
1984. Even with these increases, total consumption will remain below the
1978-1982 average. The decline in demand for copper between 1978 and 1982 was
due primarily to the recession which severely affected the durable goods,
automotive, and construction sectors. In addition, there has be'en a recent
pattern of substitution for copper combined with a lack of new markets.
According to the U.S. Industrial Outlook 1984:
For the past decade, the intensity of copper use, when
measured in tons per dollar of output of the consuming
industry, has been declining in about 70 percent of the
copper-using sectors. These long-term declines result from
substitution, miniaturization, and automotive downsizing.
-------
4-2
Further significant substitution for copper is likely to occur in the
important telecommunications market between now and 1988. Total copper demand
is, therefore, projected by the U.S. Bureau of Mines to increase at only about
two percent per year until 1990.
Exhibit 4-1 shows that U.S. producer copper prices reflected depressed
demand for the products in 1981-82. In 1983, prices recovered somewhat, to
SI,720 per metric ton, but have since fallen rapidly to SI,346 per metric ton
by June 1984 largely due to increased imports.1 In the long term, prices of
SI,874 to S2,205 per metric ton may be necessary to keep many U.S. copper
facilities in operation.
4.1.2 Copper Reserves and Output
Exhibit 4-2 shows the world copper reserve base for 1982 as reported by
the U.S. Bureau of Mines. In the U.S., five states -- Arizona, Utah, New
Mexico, Montana, and Michigan -- account for 90 percent of all reserves. The
recent recession has had a severe impact on employment in small copper-mining
communities in these states.
Copper supply in the U.S. is composed of primary production, secondary
(scrap) production, and imports. Primary output involves a sequence of four
processes: mining, milling, smelting, and refining. The basic raw material
for secondary copper processing is copper and copper-based alloy scrap.
Copper-based scrap can be either new scrap, a by-product of fabricating
operations, or old scrap from copper-containing goods and equipment, such as
automobiles.
Exhibit 4-3 shows trends in U.S. copper supply for 1978-1982. All
components of supply except imports of raw ore and industry stocks fell
between 1981 and 1982. Imports of refined ore rose dramatically in 1983, from
357,000 tons to 528,000 tons leading to calls for trade restrictions. On June
14, 1984, the U.S. International Trade Commission (ITC) ruled that U.S.
producers are being seriously injured by the high level of imports and should
receive protection. On September 6, 1984, however, the Reagan administration
rejected the ITC's recommendation to impose quotas or higher tariffs on copper
imports, citing the likely adverse effects this would have on employment and
U.S. exports of copper fabricated products. Continued low domestic output
levels caused by foreign competition and low prices could lead to permanent
closure of some U.S. mines and cancellation of plans for new domestic
production capacity.
4.1.3 U.S. Industry Performance and Outlook
U.S. primary copper production is dominated by a small number of companies
engaged in all stages of primary production. The six largest mining companies
produced over 80 percent of all copper ore mined in the U.S. in 1981. Three
companies -- ASARCO, Kennecott Copper Company, and Phelps Dodge Copper Company
-- operated 79 percent of total primary copper smelting capacity in the U.S.
in the same year.
1 Wall Street Journal. May 14, 1984, June 18, 1984, p. 2,
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4-3
EXHIBIT 4-1
U.S. CONSUMPTION AND PRICES OF COPPER, 1978-1982
U.S. Consumption
(Thousand metric tons)
Electrical
Construction
Machinery
Transportation
Ordinance
Other
Total
U.S. Producer Price
($/metric ton)
Sources: U.S. Bureau of
Copper; and U.
Outlook 1984,
1978
1,284 1
472
273
198
24
118
2,369 2
1979 1980
,318 1,194
487 423
292 271
195 152 -
18 27
122 109
,432 2,176
1981
1,223
449
293
174
25
114
2,278
1,451 2,033 2,233 1,856
Mines, Mineral Commodity Profiles, 1983:
S . Department
Chapter 19, "
of Commerce, U.S.
Nonferrous Metals.'
Industrial
11
1982
1,039
322
187
100
25
88
1,761
1,605
-------
4-4
EXHIBIT 4-2
WORLD COPPER RESERVES, 1982
Country
Chile
United States
U . S . S . R .
Zambia
Peru
Canada
Zaire
Other
World Total
Reserve Base
(Million Metric Tons)
97
90
34
34
32
32
30
161
510
Percent of
World Total
19
18
7
7
6
6
6
31
100
Source: U.S. Bureau of Mines, 1983 Mineral Commodity Profiles: Copper.
EXHIBIT 4-3
U.S. COPPER SUPPLY, 1978-82
(Thousand Metric Tons)
Refined Production:
Domestic Mines
Old Scrap
Imports of Ore, etc.
Imports of Refined
Old Scrap Unrefined
Industry Stocks
1978
1,327
254
122
403
247
522
1979
1,412
275
104
204
329
414
o
1980
1,122
340
89
427
274
232
1981
1,430
334
114
331
264
294
1982
1,065
298
162
258
220
465
Total U.S. Supply
2,875
2,738
2,484
2,767
2,468
Source: U.S. Bureau of Mines, 1983 Mineral Commodity Profiles: Copper.
-------
4-5
Low prices, foreign competition, and environmental protection costs have
severely damaged the domestic industry recently. In 1982, 60 percent of the
copper workforce in Arizona, which produces 67 percent of the nation's copper,
was laid off, and about 90 percent of the copper workforce nationwide suffered
some period of layoff. U.S. producers sustained combined losses of over S360
million in 1983, when aggressive sales by foreign producers led to major
increases in imports. On June 17, 1984, Kennecott Corporation announced that
it would cut operations by two-thirds at its Utah copper division, and lay off
about 2,000 employees out of a total workforce of 4,400. Kennecott blamed low
copper prices caused by oversupply as foreign producers have responded to
declines in copper prices by increasing their output in an effort to maintain
foreign exchange earnings.2 ASARCO, also citing depressed copper prices,
environmental regulations and shortages of copper concentrates, announced in
mid-1984 that it would close its Tacoma, Washington copper smelter by the end
of June 1985.3
Thus, the outlook for the domestic copper industry is for slow recovery
from recession hampered by foreign competition, environmental costs, and
continued substitution by copper consumers.
4.2 DATA INPUTS
This section presents the data used as inputs to the copper model. The
data include: (1) the annual amount of copper produced in the U.S. (primary,
old scrap, and new scrap); (2) the annual amount of U.S. copper imports and
exports; (3) the price of copper; (4) various demand and supply elasticity
coefficients; and (5) the hypothetical CERCLA tax rates. These values -- for
1982, the most recent year for which comprehensive data were available -- and
their sources are presented in Exhibit 4-4.
4.3 FINDINGS AND SENSITIVITY ANALYSIS
In this section we present estimates of: (1) the effects of a CERCLA tax
(roughly equivalent to current rates) on copper supply and prices; (2) the
impact of a tax exemption for recycled (old scrap) copper; and (3) sensitivity
analyses for taxes roughly equivalent to two and three percent of price.
These estimates were generated by the economic framework described in Section
3.2. The data input values shown in Exhibit 4-4 were used to develop the base
case scenario, and then the elasticities of demand and supply were varied to
test the sensitivity of the results to various assumptions about the copper
market.
2 Wall Street Journal, June 18, 1984, p. 2.
3The Bureau of National Affairs, Inc., "Tacoma ASARCO Copper Smelter to
Close in June 1985, Company Board Announces," Environmental Reporter (July 6,
1984), pp. 388-389.
-------
EXHIBIT I4-4
DATA INPUTS FOR ANALYSIS OF CERCLA TAX ON COPPER
Input
Long-run own-price elasticity or
demand for copper
Va I ue
-0.73
Source
Based on estimates in Franklin M.
Fisher, Paul H. Cootner, and Martin N.
Baily, "An Econometric Model of the
World Copper Industry," The Bel I
Journal of Economics and Management
Science (A.T.frT.: New York, 1972),
Vol. 3, No. 2, p. 587.
Comments
Long-run Price Elasticity of
Supply for U'.S. Recycled
(Old Scrap) Copper
0.315 Fisher, p. 582.
The Fisher study is based on an econo-
metric model of the world copper
industry, fitted to 19'i8-l968 data. The
model is disaggregated to incorporate
different supply and demand equations
for each of the major producing and con-
suming countries. This demand elasti-
city estimate falls between those of
three other studies using data for
similar time periods: Arthur D. L'ittle,
Inc. estimated -0.6'l, D. McNicol esti-
mated -0.77, and Charles River Associ-
ates, Inc. estimated -2.88; see Raymond
F. Mikesol I, The World Copper Industry
(Johns Hopkins University Press:
Baltimore, 1972), Vol. 3, No. 2, p. 155.
Because these studies show considerable
variance in demand elasticity estimates,
which Mikesell attributes to different
estimation techniques, the importance of
this parameter is tested under sensiti-
vity analysis. In addition, because 15
years have elapsed since the time of the
data used in the studies, sensitivity
analysis is required as the coefficient
may have changed with changes in the
underlying structure of tho demand sche-
dule. For example, because of technolo-
gical progress in the uses of aluminum,
the major substitute for copper, the
coefficient is probably more elastic now
than during the estimation period.
This supply elasticity estimate falls
between those of two other studies using
data for similar time periods: Elizabeth
S. Bonczar estimated 0.26 and Charles
River Associates, Inc. estimated O.'i7.
See Elizabeth S. Bonczar, An Economic
Ana Ivsi s of the Determinants of Metal
RecycIi nq in the United States: A Case
Study of Secondary Copper (PennsyIva n i a
State University: Pennsylvania, 1975),
for U.S. Bureau of Mines, PB-2'i5 832, p.
70, and Charles River Associates, Inc.,
Economic Analysis of the Copper
Industry (C.R.A.: Cambridge, 1970),
prepared for G.S.A., GS-00-DS-jPJ-85005,
p. 310.
I
01
-------
EXHIBIT U-U (Continued)
DATA INPUTS FOR ANALYSIS OF CERCLA TAX ON COPPER
Input
Va I ue
Long-run Price Elastic!ty of 1.02
Supply for U.S. Primary Copper
Sou rce
Based on Fisher, p. 577.
Comments
Long-run Price Elasticity of
Supply for Imported Copper
3.27
Based on Fisher, p. 595.
U.S. Produced Primary
(metric tons)
1,227,061 U.S. Bureau of Mines, "Copper,"
Mi neraI Commod i ty Profiles.
1983.
This includes primary copper refined from
domestic mines and from imports of ore,
blister, etc. This 1982 quantity is the
lowest among those reported for the years
1972-1982. However, it is not expected to
increase substantially.
U.S. Produced Old- Scrap
(metric tons)
U.S. Produced New Scrap
(metric tons)
331,000 U.S. Bureau of Mines, "Copper,"
M i ne ra I Commod i t.v Prof i les 1983.
137,000 U.S. Bureau of Mines} "Copper," M i ne raI
Commodity Profiles 198
-------
4-8
The following three sections contain the results of the base case scenario
and of several other scenarios chosen to illustrate the widest possible range
of effects. Section 4.3.1 addresses the effects on supply, prices, and
revenues of a S4.91 per metric ton tax on copper. Section 4.3.2 focuses on
the changes in supply, prices, and revenues if recycled (old scrap) copper is
exempted from the CERCLA tax on U.S.-produced primary and imported copper.
Section 4.3.3 presents the effects on supply, prices, and revenues of higher
tax rates on copper -- two percent of price (the maximum tax rate considered
by Congress at the time of CERCLA's passage), and three percent of price.
4.3.1 Effects of a CERCLA Tax on Copper
Exhibit 4-5 summarizes the effects of a CERCLA tax on the price, domestic
output, and U.S. imports of copper, and on the tax revenues raised. The base
case scenario in Exhibit 4-5 incorporates the data presented in Section 4.2.
In the other cases, the elasticities of demand and supply have been changed to
test the sensitivity of the results in the base case.
In case A, the price elasticity of demand for copper, which is an
estimated -0.73 in the base case, has been multiplied by a factor of ten, thus
increasing the elasticity. Imposition of a CERCLA tax tends to raise prices
faced by consumers. The intent here is to determine the effect of the tax if
consumers are much more sensitive to price increases than we have assumed in
the base case scenario.
In case B, the price elasticity of supply of imports, which is an
estimated 3.03 in the base case, has been reduced to zero. The intent here is
to determine what would happen if foreign producers do not reduce their supply
after the tax is imposed. Imposition of a CERCLA tax normally would cause
both consumers to reduce the quantity demanded and producers to reduce the
quantity supplied, because the price paid by consumers rises and the net price
received by producers falls (because they have to pay the tax). If, however,
foreign producers maintain their supply in the face of lower net prices (even
though it would seem they would be better off marketing their copper
elsewhere), net-of-tax prices would fall even further, and domestic producers
would be forced to cut their output by a greater amount than if all (both
domestic and foreign) suppliers reduced their shipments. This condition may
reflect to a certain extent the current situation in the U.S. copper market,
as foreign producers have increased their shipments to the U.S. despite low
prices, which has served to weaken prices further, and to force U.S. producers
to cut their output and workforce. Case C is a composite of cases A and B, as
copper demand is ten times more elastic than in the base case, and import
supply is completely inelastic.
Exhibit 4-5 shows that the effects of a CERCLA tax of $4.91 per metric ton
(a tax rate comparable to the current CERCLA tax on other elemental metals) on
copper output would be minimal in all cases, never exceeding one percent of
the 1982 level of output. In the base case, primary output falls only
one-tenth of one percent. The market price increases by an amount equal to
roughly 70 percent of the tax, meaning that producers absorb about 30 percent
-------
EXHIBIT 14-5
EFFECTS OF A CERCLA TAX ON COPPER a/
Tax Rate: $4.91 per metric ton Market Price: $1,605 per metric ton
Case
Base Case
Case A: Elasticity
or Demand Increased
Tenfold
Case B: Import Suppl-y
Elasticity Equal to
Zero
Case C: Cases A and
B Together
Primary Output
Metric
Tons Percent
-1,101* -0.09
-3,079 -0.25
-1,1*75 -0.12
-3,312 -0.27
Estimated Change from 1982 Level
Old Scrap Output_
Metric
Tons Percent
-92
-256
-122
-275
-0.03
-0.08
-0.0'*
-0.08
N_et_Lmp_orts
Metric
Tons Percent
-652
-1,819
-0.29
-0.80
0.0
0.0
Ma rkejt_Prj ce
$/Metric
Ton Percent
3.50
0.98
3.03
0.68
0.22
0.06
0. 19
0.0'l
Aniuia I I ax
Reyenues_Rai sed
Million
8.8
8.7
8.8
8.7
a/ Assumes a tax on recycled (old scrap) copper.
Source: ICF Incorporated.
-------
4-10
of the costs of the tax, or SI. 41 per metric ton, and reduce supply
accordingly. As shown in Exhibit 4-6 revenue losses in the base case stemming
from both reduced output and lower net prices received by producers would
total S3.5 million for primary production, $600,000 for old scrap, and SI.4
million for L'.S. imports. All of these losses represent less than one percent
of the value of 1982 supply from each source.
EXHIBIT 4-6
REVENUE LOSSES DUE TO CERCLA TAX ON COPPER
(Thousand $)
Change in
Case
Primary
Old Scrap a/
Imports
Base
Case
Case
Case
Case
A
B
C
-3
-9
-4
-10
,501
,757
,677
,493
-1
-1
-614
,711
-820
,840
-1
-3
,366
,806
-428
-960
a/ Assumes a tax on recycled copper.
Source: ICF Incorporated.
In case. A, the market price increases only $0.98 per metric ton, producers
absorb most of the tax in the case of greater consumer sensitivity to price
changes. The decrease in supply and revenue from each source is nearly three
.times as great as in the base case.
The results from case B demonstrate that demand elasticity is more
important than import supply conditions in determining the effects of the
tax. The declines in primary output and in old scrap supply are only slightly
greater than in the base case. Decreases in revenue are also more moderate.
In case C, primary output and revenues decline by the greatest amount, and
the market price only increases $0.68, as the combination of high demand
elasticity and constant supply of imports forces suppliers to absorb most of
the $4.91 per metric ton tax. Revenue losses of domestic old scrap producers
are not significantly greater, than in case A, however.
Overall, the impact of a CERCLA tax of $4.91 per metric ton on copper is
slight, with output and sales falling by less than one percent for primary or
secondary producers or foreign suppliers. Total revenue losses in the base
case would be $4.1 million for domestic primary and secondary producers. In
-------
4-11
case C, total revenue losses would be $12.3 million for domestic primary and
secondary producers, or one-half of one percent of total revenues for all
suppliers in 1982. CERCLA tax revenues raised would amount to approximately
S8.7 million to $8.8 million under each case.''
4.3.2 Effects of a Tax Exemption for Recycled Copper
Exhibit 4-7 summarizes the economic effects of exempting recycled (old
scrap) copper from a CERCLA tax on domestic primary production and imported
copper. The exhibit was derived as follows: (1) calculate the effects of a
CERCLA tax on primary, recycled, and imported forms of copper; (2) calculate
the. effects of a CERCLA tax on primary and imported forms of copper only; and
(3) calculate the difference between the two scenarios. The exhibit is
presented in this way to isolate the effects of the possible tax exemption for
recycled copper. To meaningfully assess the effects of a tax exemption, there
must be a presumption that a tax exists in the first place. Thus, the
baseline for the analysis is the situation in which all forms of copper --
primary, recycled, and imported -- are taxed.
The base case and case A shown in Exhibit 4-7 are the same as in Exhibit
4-6 -- that is, the elasticity of demand has been increased tenfold in case
A. In case B, the price elasticity of supply from each source has been
increased by a factor of ten (instead of setting the price elasticity of
import supply equal to zero, as in the previous section). The intent here is
to determine if a substantial increase in the sensitivity of suppliers to
changes in prices would greatly increase the net effects of the tax in terms
of affecting the quantities supplied. In case C, only the elasticity of
supply of old scrap has been increased by a factor of ten.
As shown in Exhibit 4-7, an exemption for old scrap supply of copper would
have minimal effects if copper were subject to a CERCLA tax. Only in case B
does the decline in primary copper production exceed one-tenth of one percent
of all primary copper output. Old scrap output is most affected by the
exemption, increasing by nearly one percent in case B. U.S. imports and the
market price of copper are not significantly influenced by the exemption in
any of the sensitivity cases. CERCLA tax revenues raised would amount to
approximately $7.1 million under each of the cases; or about $1.6 million less
than the situation in which all forms of copper -- primary, old scrap, and
imported -- are taxed.
""This is significantly larger than the current CERCLA tax revenues from
three copper compounds -- cupric sulfate, cupric oxide, and cuprous oxide.
For the 30-month period from April 1981 to September 1983, total tax
collections for these three compounds amounted to $233,000. This is
equivalent to $93,000 in tax revenues on an annual basis.
-------
EXHIBIT 4-7
EFFECTS OF A TAX EXEMPTION FOR RECYCLED COPPER
Tax Rate: $4.91 per metric ton Market Price: $1,605 per metric ton
Case
Base Case
Case A: Elastici ty
or Demand Increased
TenfoId
Case B: Increased
Elast ic i ty of Supply
from AI I Sources
Case C: Increased
Elast icity of Supply
from Old Scrap Only
a/
Est ima ted_.Cha_ruie
P r i ma ry
Metric
Tons
-136
-38
Output
Percent
-0.01
Negl.
Old Scrap
Me t r i c
Tons
308
316
Output
Percent
0.09
0.06
Net
Me t r i c
Tons
-80
-22
Imports
Percent
-0.03
-0.01
Mo rket
$/Metric
Ton
-0.17
-0.05
Price
Percent
-0.01
-0.003
Annua 1 Tax
Revenues Ra i
' M i 1 Tion'T
-1.6
-1.6
sed
-1,832
-1,030
-0.15
-0.08
3,038
2,334
0.92
0.71
-1,082
-609
-0.47
-0.27
-0.23
-1.32
-0.01
-0.08
-1.6
-1.6
a/ These changes were calculated from a baseline in which all forms of copper -- primary, recycled, and imported -- are
taxed (see text).
Source: ICF Incorporated.
-------
4-13
4.3.3 Effects of Higher Tax Rates
Exhibits 4-8 and 4-9 show the effects of higher tax rates -- two percent
of price and three percent of price, respectively -- on copper supply, prices,
and tax revenues. As shown in Exhibit 4-8, a CERCLA tax of $32.10 per metric
ton on copper would result in a decline in primary copper production of 0.6
percent, a fall in old scrap output of 0.2 percent, and a drop in U.S. import
of 1.9 percent in the base case. The price of copper would increase by 1.4
percent in the base case. Annual CERCLA tax revenues raised would amount to
approximately S56.9 million in the base case. If supply and/or demand are
more price-sensitive than assumed in the base case, price effects would be
less and quantity effects would be greater, suggesting that more of the tax
would be absorbed by the copper industry.
As shown in Exhibit 4-9, a CERCLA tax of $48.15 per metric ton on copper
would result in larger declines in output in the base case: a fall in primary
copper production of 0.9 percent; a drop in old scrap output of 0.3 percent;
and a decline in U.S. imports of 2.8 percent. The price of copper would
increase by 2.1 percent in the base case. Annual CERCLA tax revenues raised
would amount to approximately S85.1 million in the base case. Again, if
supply and/or demand are more price-sensitive than assumed in the base case,
the domestic industry would 'assume more of the burden.
-------
tXHIBII '4-8
EfTECFS OF A IWO-PERCENT CERCLA TAX ON COPPER a/
Tax Rate: $32.10 per metric ton Market Price: $1,605 per metric ton
Estimated Chanqe from 198? Level
Case
Base Case
Case A: Elasticity
of Demand Increased
Tenfold
Case B: Import Supply
Elasticity Equal to
Zero
Case C: Cases A and
B Together
P r i ma ry
Metric
Tons
-7,217
-20,131
Output
Percent
-0.59
-1.
6i*
Old Scrap^ Output
Me trie
Tons
-599
-1,671
Percent
-0.18
-0.
.50
Net Imports M.'iiket Price
Me trie
Ions
-<»
-1 1
.264
,89't
$/Metric
Aimua
Revenue
1 1
S |i
Percent Ion Percent Millior
-1
-5
. 8» ??.8M 1.
.?'( 6.3f< (.).
'13 56
'10 56
.9
.?
-9,6*4'4
-21,650
-0.79
-1.76
-800
-1,797
-0.2't
-0.5'4
19.70
1.23
0.2
57.0
56. 5
a/ Assumes a tax on recycled (old scrap) copper.
Source: ICF Incorporated.
-------
E'XHIBI F l|-9
EFFECTS OF A THREE-PERCENT CERCLA TAX ON OOPPFR a/
Tax Rate: $'48.15 per metric ton Market Price: $1,605 por metric ton
Case
Base Case
Case A: Elasticity
of Demand Increased
Tenfold
Case B: Import Supply
Elasticity Equal to
Zero
Case C: Cases A and
B Together
Primary Output
Metric
Tons Percent
-10,826
-30,196
-1'4,466
-32,1175
Estimated Channe_r_rom 1982 Leye[
Old Scrap Output Net Imports
Me trie Me trie
Tons Percent _lons_ .PJLEcent
-0.88
-2.146
-1.18
-2.65
-899
-2,506
-1,201
-2,695
-0.27
-0.76
-0.36
-0.81
-6,397
-17,8't2
-2.82
-7.86
Marhot Price
S/i-iutric
Ion Percent
3'i.32
9.57
6.66
2. Hi
0.60
1.85
O.'t2
Annna I 1 ax
Revenues_Raised
M i I I i ori" $ ' ""
85.1
83.5
85.2
8'l.2
a/ Assumes a tax on recycled (old scrap) copper.
Source: ICF Incorporated.
-------
5. ECONOMIC IMPACT OF TAXING LEAD, WITH AND
WITHOUT AN EXEMPTION FOR RECYCLED LEAD
This chapter applies the economic framework described in Chapter 3 to the
lead industry. To place the results of the economic analysis in perspective,
Section 5.1 first presents a brief profile of the U.S. lead industry,
identifying its important structural and performance characteristics. Section
5.2 then provides the data used as inputs to the economic framework. Section
5.3 presents estimates of the effects of a CERCLA tax on lead supply and
prices and of the impact of a tax exemption for recycled lead.
5.1 PROFILE OF THE LEAD INDUSTRY
Lead is widely used in industry as a metal, as an alloy with other
elements, and as a chemical compound. It is valued for its extremely high
corrosion resistance, its resistance to wear, and other qualities. Lead is
considered to be a strategic and critical material, principally because of its
use in storage batteries, the metal-working industry, and ammunition. The
domestic lead industry and the recycled lead industry in particular have
suffered in recent years from shrinking markets, low prices, and increasingly
stringent environmental regulations. The U.S. remains, however, the world's
largest producer and consumer of lead.
This profile of the lead industry addresses the factors affecting the
demand for and the supply of lead in the U.S., the structure of the lead
industry, the current market situation for lead, and the outlook for the
industry in future years. The profile provides background to the analysis of
the effects of a CERCLA tax on lead presented in Section 5.3.
5.1.1 U.S. Demand for Lead
Exhibit 5-1 displays U.S. consumption by end-use over the period 1978 to
1982. Storage batteries accounted for approximately 65 percent of all lead
consumed in the U.S. in 1982. The next two largest markets are anti-knock
additives in gasoline (11 percent) and pigments (five percent).
During the period 1978 to 1982, overall lead consumption declined
approximately 25 percent. Consumption declined in every end-use market except
for cable coverings, casting metals, and sheet metal. The fall in demand for
lead was due primarily to the recession in the automotive and construction
industries, substitution of plastics for lead in some applications, and
continuing concern about lead's toxicity, which has cut into lead use in
gasoline and paints. Demand remained weak in 1983, increasing less than one
percent. The U.S. Industrial Outlook 1984 forecast a moderate recovery in
1984.
-------
5-2
EXHIBIT 5-1
U.S. CONSUMPTION AND PRICES OF LEAD, 1978 TO 1982
U.S. Consumption
(Thousand metric tons)
Ammunition
Bearing Metal
Brass and Bronze
Cable Covering
Caulking Lead
Casting Metals
Pipes, Traps and Other
Extruded Products
Sheet Lead
Solder
Storage Battery Oxides,
Grids, and Post, etc.
Pigments
Chemicals: Petroleum
Refining
Other
Total1
U.S. Producer Price
1978
55
9
16
13
9
3
10
12
68
879
91
178
82
1,432
741
.8
.5
.5
.9
.9
.6
.5
.6
.4
.3
.6
.3
.8
.7
.8
1979
53
9
18
16
8
22
7
20
54
814
90
186
55
1,358
1,160
.2
.6
.7
.4
.0
.7
.2
.4
.3
.3
.8
.9
.6
.3
.5
1980
48
7
14
13
5
19
8
20
41
645
78
127
40
1,070
936
.7
.8
.0
.4
.7
.0
.6
.0 .
.4
.4
.4
.9
.4
.3
.1
1981
49.
6.
13.
12.
5.
18.
8.
19.
29.
770.
80.
111.
41.
1,167.
805.
5
9
3
1
5
6
8
4
7
2
2
4
6
1
3
1982
44
6
11
15
4
25
8
15
28
704
60
119
32
1,075
563
.2
.1
.4
.2
.1
.1
.7
.2
.5
.3
.9
.2
.6
.4
.1
($/metric ton)
Components may not add to totals shown -because of rounding.
Sources: U.S. Bureau of Mines, Minerals Yearbook 1981 and Mineral
Industry Surveys, October 1983.
-------
5-3
Substitutes for lead exist for some of its applications and are under
development for others. Specifically, several alternatives may eventually
replace lead-acid batteries, including fuel cells and metal-alkali
combinations such as zinc-bromine, zinc chloride, nickel-ir.on, aluminum-air,
and lithium-metal salts. Substitutes in other key markets include plastics
and asbestos-cement in piping, plastics and various metals in construction
applications, titanium and zinc in pigments, and polyethylene and
metallic-organic combinations in cable coverings. Lead's long-term prospects
are, however, more affected by environmental restrictions on its use and on
the trend to less lead per battery than by substitution with other products.
Lead prices reflect the depressed conditions in lead markets, with average
producer prices in 1982 lower than they were in 1978. Prices continued to
fall in 1983 to an average of S462.97 per metric ton (U.S. Industrial Outlook
1984).
5.1.2 U.S. Supply of Lead
The U.S. is the largest producer of lead at all stages (i.e., mined ore,
smelter output, and primary and secondary refined metal) and, with a reserve
base of 25 million metric tons, has over 27 percent of the total world reserve
base (see Exhibit 5-2). Ninety percent of the domestic reserve base is
located in Missouri, Alaska, and Idaho. In 1980, U.S. smelters accounted for
24 percent of world output.
Exhibit 5-3 presents the sources of lead metal supply in the U.S. from
1978 to 1982. Over 90 percent of lead metal used in the U.S. is produced
domestically. Secondary production accounted for over 50 percent of U.S.
production during this time period. In 1983, however, primary production
exceeded secondary production for the first time in ten years, as the price of
the raw materials used in secondary production (scrap) did not fall
proportionately to the fall in the price of primary lead, resulting in raw
materials for secondary production which were often too expensive to reprocess
at a profit.
Primary production's share of the market increased from 38 percent in 1978
to 47 percent in 1982, while secondary production's share of the market
increased slightly from 51 percent in 1978 to 52 percent in 1982. Import
market share dropped from 11 percent in 1978 to only one percent in 1982. In
the period from 1978 to 1982, imports averaged three percent of the market.
5.1.3 Industry Performance and Outlook
The lead industry consists of mines, smelters, and refiners. There are
approximately 40 mines in 18 states but 12 mines account for 99 percent of all
mined ore. Eight of these 12 mines are in southeastern Missouri (the largest
is owned jointly by AMAX Lead and Homestake Lead; four others are owned by St.
Joe Lead), producing 91 percent of the total.
There are 5 lead smelters in the U.S. Three of these smelters are located
in Missouri (owned by St. Joe Lead, AMAX-Homestead, and Asarco) and are also
-------
5-4
EXHIBIT 5-2
WORLD LEAD RESERVES, 1981
(Million metric tons)
Reserve Base as a
Country Reserve Base Percentage of World Total
United States
Missouri, Alaska, &
Idaho
Other
Australia
Canada
USSR
Other
World Total 145.0 100.0
25.0
22.5
2.5
23.0
22.0
19.0
56.0
17
15
1
15
15
13
38
.2
. 5
.7
.9
.2
.1
.6
Source: U.S. Bureau of Mines, Mineral Commodity Profiles, 1983: Lead.
EXHIBIT 5-3
U.S. LEAD METAL SUPPLY, 1978-1982
(Thousand metric tons)
1978 1979 1980 1981 1982
Quantity Quantity Quantity Quantity Quantity
Primary
Production 568 . 578 548 498 517
Secondary
Production
Net Imports
Total U.S.
Supply
769
160
1,497
801
106
1,485
676
(151) a/
1,073
.641
45
1,184
571
13
1,101
a/The U.S. was a net exporter of lead in 1980.
Source: U.S. Bureau of Mines, Mineral Commodity Summaries, 1983 and
1984.
-------
refineries. The two other smelters are owned by Asarco and are located in
Montana and Texas. There is also a refinery owned by Asarco in Nebraska.
The secondary lead industry consists of 40 major operating plants which
produce over 95 percent of all recycled lead metal. New scrap is generated
during the fabrication of lead by the approximately 450 firms that consume
lead.
Industry's performance improved somewhat in 1983 from the slump of the
prior years. Lead consumption and prices were still very weak, with prices
kept down due to high stocks and low demand. Increased zinc output, of which
lead is a byproduct, contributed to the oversupply. The primary lead industry
experienced a slight growth of three percent, but the secondary industry
output fell 11 percent, causing a net decrease in production of five percent.
The lead industry has also been facing pressures from environmental
regulations. According to the U.S. Department of Commerce, pollution control
costs currently represent about 30 percent of industry's total capital
expenditures.l OSHA's blood-level medical removal protection standard for
lead affects smelter refineries and battery plants. The Clean Water Act
regulates toxic waste discharge which affects secondary smelter-refineries,
battery plants, and foundries handling lead alloys. The Clean Air Act
regulates fugitive particulate lead and sulfur dioxide emissions from lead
smelters and refineries, and the lead content in gasoline. In addition, the
production of lead oxide is currently taxed under CERCLA.
According to the U.S. Industrial Outlook 1984 the prospects for the lead
industry in 1984 appear to be for a moderate recovery. A slight increase in
consumption is predicted because of the increase in overall economic activity
and in the demand for new and replacement automobile batteries. Demand for
tetraethyl lead will continue to fall because of its decreasing share of the
gasoline market.
The long-term prospects for lead up to 1988, according to the U.S.
Department of Commerce, depend heavily on the cost of environmental
regulations and on the development of new markets. The U.S. Industrial
Outlook 1984 predicts that lead consumption will increase by about three
percent per year, as will lead consumption in batteries. Tetraethyl lead
consumption will continue decreasing at a rate of about 8 to 10 percent per
year, and may decrease even faster if EPA's proposed new rules requiring a 91
percent cut in the amount of lead in gasoline by 1986 go into effect. It is
likely that secondary lead will increase its share of the lead market.
5.2 DATA INPUTS
This section presents the data used as inputs to the lead model. The data
include: (1) the annual amount of lead produced in the U.S. (primary, old
1Bureau of Industrial Economics, U.S. Department of Commerce, U.S.
Industrial Outlook 1984, p. 19-5.
-------
5-6
scrap, and new scrap); (2) the annual amount of U.S. lead imports and exports;
(3) the price of lead; (4) various demand and supply elasticity coefficients;
and (5) the hypothetical CERCLA tax rate. These values -- for 1982. the most
recent year for which comprehensive data were available -- and their sources
are presented in Exhibit 5-4.2
5.3 FINDINGS AND SENSITIVITY ANALYSIS
In this section we present estimates of: (1) the effects of a CERCLA tax
(roughly equivalent to current rates) on lead supply and prices; (2) the
impact of a tax exemption for recycled lead; and (3) sensitivity analyses for
taxes roughly equivalent to two and three percent of price. These estimates
were generated by the economic framework described in Section 3.2. In the
case of lead, it was necessary to incorporate the effects of removing the tax
on lead oxide in order to avoid double-taxation. This procedure is described
in Appendix C (see the supplementary report). The data input values shown in
Exhibit 5-4 were used to develop the base case scenario and then the
elasticities of demand and supply were varied to test the sensitivity of the
results to various assumptions about the lead market.
The following three sections contain the results of the base case scenario
and of several other scenarios chosen to illustrate the widest variation in
effects. Section 5.3.1 focuses on the effects of a CERCLA tax of $4.91 per
metric ton on lead. Section 5.3.2 reviews the impact of a tax exemption for
recycled lead in the event of a CERCLA tax on lead. Section 5.3.3 presents
the effects of higher tax rates on lead -- two percent of price (the maximum
tax rate considered by Congress at the time of CERCLA1s passage), and three
percent of price.
5.3.1 Effects of a CERCLA Tax on Lead
Exhibit 5-5 summarizes the effects of a CERCLA tax on the price, domestic
output, and U.S. imports of lead, and on the tax revenues raised. The base
case incorporates the data inputs presented in Section 5.2. In case A, the
price elasticity of demand for lead, which is -0.33, has been multiplied by a
factor of ten. In case B, the price elasticity of supply of lead imports has
been reduced to zero, and case C is a composite of cases A and B. All four
scenarios are the same as those used to estimated the effects of a CERCLA tax
on copper.
2As described in Appendix C of the supplementary report, in cases where
the appropriate baseline for the economic analysis is one in which existing
CERCLA taxes should not be included (for example, when lead metal is to be
taxed rather than the substance downstream -- lead oxide), the model generates
a hypothetical baseline of prices and quantities that would exist in the
absence of the current CERCLA taxes. To generate this hypothetical baseline,
additional information beyond what is shown in Exhibit 5-4 is required: the
amount of lead required as input to the manufacture of lead oxide
(input/output coefficient), the annual amount of lead metal consumed by the
lead oxide industry, and the quantity produced and price of lead oxide.
-------
EXHIBIT 5-4
DATA INPUTS FOR ANALYSIS OF CFRCLA TAX ON LEAD METAL
I nput
Price Elasticity of Demand
for Lead
Price Elasticity of Supply
of U.S. Primary Lead
Price Elasticity of Supply
for U.S. Recycled (Old
Scrap) Lead
Price Elasticity of Supply
for Imported Lead
U.S. Production of Primary
Lead (metric tons)
U.S. Production of Recycled
(Old Scrap) Lead
(metric tons)
U.S. Net Imports of Lead
(metric tons)
Consumption of Lead
(metric tons)
Price of Lead
(per metric ton)
CERCLA Tax Rate
(per metric ton)
_ya_U.ie_
-0.3380
0.1(748
0.5133
Source Commonts
Kenneth T. Wise, "The F.ffects of OSIIA
Regulations on the U.S. Lend Industry:
An Economic Impact and Econometric
Modeling Analysis," Ph.D. Thesis. MIT
Department of Economics, December 1978.
Wi se.
Wi se.
§/
6.7809 Wise.
517,218 U.S. Bureau of Mines, Mineral Commodity
Summar i es 1984.
571,536 U.S. Bureau of Mines, MineraI Industriai
Surveys, October 1983.
1,102,188
$563.54
$<4.91
13,434 U.S. Bureau of Mines, M i ne raI Commod i ty
Summaries 1984.
U.S. Bureau of Mines, Minerals Yearbook,
1982 preprint.
U.S. Bureau of Mines, Mineral Industrial
Surveys, October 1983.
Elasticity of -0.3'i5'i (Wise) adjusted t.o
reflect the change associated with the
removal of the lead oxide tax.
Elasticity of 0.4791 based on Wiso. adjusted
to reflect the change associated with the
removal of the load oxide tax.
Elasticity of 0.5131 based on Wise, adjusted
to reflect the change associated with the
removal of the lead oxide tax.
Elasticity of 6.8163 based on the slopes and
elasticities of foreign supply and demand in
Wise. Elasticity then adjusted to reflect
the change associated with the removal of the
Iead ox i de tax.
Estimated production if tax on lead oxide
were lifted. Based on actual production
of 517,000 in 1982.
Estimated production if tax on lead oxide
were lifted. Based on actual production
of 571,276 in 1982.
Estimated net imports if tax on lead oxide
were lifted. Based on actual net imports of
13,000 in 1982.
Estimated consumption if tax on lend oxide
were lifted. Based on apparent
consumption of 1,101,276.
Estimated price if tax on lead oxide were
lifted. Based on actual price of $563.54
per metric ton in 1982.
Calculated based on existing CERCLA tax
rates of $4.91 per metric ton on elemental
metaIs.
a/ It is reasonable for this elasticity to be significantly higher than the domestic
o i EII i s e i a sc i c i cy to ue siyniticauciy nigner r.ucui cue uomest i c supp i y
suppliers have relatively greater ability to change their foreign export markets without much a
probably be better off doing so because a tax in the United States would likely raise the world
net price in other countries.
supply elasticities because foreign
additional expense. They would
price, so they could get a higher
-------
tXIIIRI I 5-5
EFFECTS OF A CERCLA TAX ON LEAD a/
Tax Rate: $i|.91 per metric ton Mnrket Price: $563 per metric ton
Case
Base Case
Case A: Elastic!ty
of Demand Increased
Tenfold
Case B: Import Supply
Elasticity Equal to
Zero
Case C: Cases A and B
Together
Primary Output
Me t r i c
Tons Percent
-3'40
-1,1450
-6«42
-1.6U6
-0.07
-0.28
-0. 12
-0.32
£st i mated Change from 1982 LeveI
Old Serap__Oy_.tDilt__ Net Imports
Me t r i c Me t r i c
Tons Percent Tons Percent
-1405
-1,731
-767
-1,965
-0.07
-0.30
-0.13
-0.3U
-675
-2,88'4
-5.2
-22.2
0.0
0.0
_Ma rke t_Pr i (:e
$/Mei~ric
Ion Percent
0 . 60
0.19
0.56
0.11
O.'t'i
0.03
Arirnia I Tax
Revenues_Ralscd
Million
5.'I
5.'I
5.U
a/ Assumes a tax on recycled (old scrap) lead. Also assumes that the existing CERCLA tax on lead oxide is removed.
Source: ICF Incorporated.
i
00
-------
5-9
Exhibit 5-5 shows that, as in the case of copper, the effects of a CERCLA
tax of S4.91 per metric ton on lead supply would be minimal, especially in the
base case, where the decline in primary and secondary domestic output would be
less than one-tenth of one percent. U.S. imports, however, would decline by a
more significant share of their former level, an estimated five-percent fall
in the base case. The market price of lead increases by an amount equal to
two thirds of the tax in the base case, indicating that producers absorb one
third of the tax, or SI.77 per metric ton. Revenue losses in the base case
stemming from reduced output and lower net prices received by producers would
total less than SI million for either U.S. primary producers or old scrap
producers.
In case A, where consumers are assumed to be more sensitive to price
changes, the market price increases by only SO.60, producers absorb most of
the tax. The decrease in supply and revenue from each source is three to four
times as great as in the base case. The results from case B, as was the
situation with copper, demonstrate that demand elasticity is more important
than import supply conditions in determining the effects of the tax. The
declines in primary and recycled output in case B, where importers do not
reduce the amount supplied, are only twice as large as in the base case. In
case C, primary and recycled output decline by the greatest amount, and the
market price only increases by SO.19, as the combination of high demand
elasticity and the inelastic supply of imports force suppliers to absorb most
of the tax.
Overall, the impact of a CERCLA tax of $4.91 per metric ton on lead, as
was the case with copper, appears slight, with primary and recycled output
never falling by more than one-third of one percent of their 1982 levels.
Foreign suppliers, however, reduce their supplies to a significantly greater
extent. CERCLA tax revenues raised would amount to approximately $5.4 million
under each case.3
5.3.2 Effects of a Tax Exemption for Recycled Lead
Exhibit 5-6 summarizes the economic effects of exempting recycled (old
scrap) lead from a CERCLA tax on primary production and imported lead. The
exhibit was derived as follows: (1) calculate the effects of a CERCLA tax on
primary, recycled, and imported forms of lead; (2) calculate the effects of a
CERCLA tax on primary and imported forms of lead only; and (3) calculate the
difference between the two scenarios. The exhibit is presented in this way to
isolate the effects of the possible tax exemption for recycled lead. To
meaningfully assess the effects of a tax exemption, there must be a
presumption that a tax exists in the first place. Thus, the baseline for the
analysis is the situation in which all forms of lead -- primary, recycled, and
imported -- are taxed.
3This is considerably larger than the $3 million collected in the
30-month period from April 1981 to September 1983 by the current CERCLA tax on
lead oxide. This amount is equivalent to $1.2 million in tax revenues on an
annual basis.
-------
EXHIBIT 5-6
EFFECTS OF A TAX EXEMPTION FOR RECYCLED LEAD
Tax Rate: $4.91 per metric ton Market Price: $563 per metric ton
Case
Base Case
Case A: Elastic i ty
of Demand Increased
Tenfold
Case B: Increased
Elasticity of Supply
from AI I Sources
Case C: Increased
Elasticity of Supply
for Secondary Source
Only
-5,903
-1,559 -0.30
Estimated Change
a/
P r i ma ry
Metric
Tons
-U52
-135
Output
Percent
-0.09
-0.03
Old Scrap^
Metric
Tons
2,017
2,395
Output
Percent
0.35
O.U2
Net
Metric
Tons
-899
-269
Imports
Percent
-7.4
-2. 1
Market
$/Metric
Ton
-1.03
-0.31
Price
Percent
-0.18
-0.06
Annual Tax
Revenues Ra i
Mil I ion 5
-2.8
-2.8
sed
18,515
-11,7'lt -90.3
6,955 1.22 -3,866 -29.7
-1.35
-3.57
-0.2H
-0.63
-2.9
-2.8
a/ These changes were calculated from a baseline in which all forms of lead -- primary, recycled, and imported -- are taxed
(see text).
Source: ICF Incorporated.
-------
5-11
The base case and case A shown in Exhibit 5-6 are the same as in Exhibit
5-5. In case B, the price elasticity of supply from each source has been
increased by a factor of ten (instead of setting the price elasticity of
import supply equal to zero, as in the previous section). The intent here is
to determine if a substantial increase in the sensitivity of suppliers to
changes in prices would greatly increase the net effects of the tax in terms
of affecting the quantities supplied. In case C, only the elasticity of
supply of old scrap has been increased by a factor of ten. This is intended
to see if a much larger relative price sensitivity of old scrap supply
significantly alters the net impact of the exemption on these producers.
As shown in Exhibit 5-6, an exemption for old scrap lead would have
minimal effect if lead were subject to a CERCLA tax. Only in case B does the
decline in primary lead production exceed one percent of all primary lead
output in 1982. Old scrap output is most affected (in terms of the change in
the quantity produced and sold) by the exemption, increasing by three percent
in case B versus only 0.35 percent in the base case. U.S. imports are
significantly influenced by the exemption, falling by 7.4 percent in the base
case and 90 percent in case B, where all suppliers are assumed to be very
sensitive to price changes. The market price is not substantially affected by
the exemption, decreasing by only 0.18 percent in the base case. CERCLA tax
revenues raised would amount to approximately $2.6 million under each case, or
about $2.8 million less than the situation in which all forms of lead --
primary, old scrap, and imported -- are taxed.
5.3.3 Effects of Higher Tax Rates
Exhibits 5-7 and 5-8 show the effects of higher tax rates -- two percent
of price and three percent of price, respectively -- on lead supply, prices,
and tax revenues. As shown in Exhibit 5-7, a CERCLA tax of $11.27 per metric
ton on lead would result in a decline in primary lead production of 0.3
percent, a fall in old scrap output of 0.3 percent, and a drop in U.S. imports
of 22.9 percent in the base case. The price of lead would increase by 1.5
percent in the base case. Annual CERCLA tax revenues raised would amount to
approximately $12.4 million in the base case.
As shown in Exhibit 5-8, a CERCLA tax of $16.91 per metric ton on lead
would result in larger declines in output in the base case: a fall in primary
lead production of 0.4 percent; a drop in old scrap output of 0.5 percent; and
a decline in U.S. imports of 32.7 percent. The price of lead would increase
by 2.2 percent in the base case. Annual CERCLA tax revenues raised would
amount to approximately S18.5 million in the base case.
Exhibits 5-8 and 5-9 also show the economic effects if supply and/or
demand are more price-sensitive than assumed in the base case. If supply
and/or demand are more price-sensitive, price effects are less, quantity
effects are greater, and the lead industry bears a greater proportion of the
tax burden.
-------
EXHIBIT 5-7
EFFECTS OF A TWO-PERCENT CERCLA TAX ON LEAO a/
Tax Rate: $11.27 per metric ton Market Price: $563. 54 per metric ton
Case
Base Case
Case A: Elasticity
of Demand Increased
Tenfold
Case B: Import Supply
Elasticity Equal to
Zero
Case C: Cases A and
B Together
Primary Output
Metric
Tons Percent
-1,1498 -0.29 -1,787 -0.31
-4,0*46 -0.78 -4,829 -0.85
-2,192 -0.42 -2,616 0.046
-4,496 -0.87 -5,366 -0.94
_Es t i maj.ejLChange_f_rom_ 1982__LeyeJ_
Old' Scrap Output "Net Imports
Me t r i c Me t r i c
Tons Percent ' Tons Percent
-2,980
-8,049
-22.92
-61.92
Market Price
$/HRtric
Ton Percent
8.3'l
2.49
6.74
1 .'18
0.44
1 .20
0.26
AnnuaI lax
Revenues_Ra i seji
Mi i'l'i'on'"$'
12.<4
12.2
12.3
a/ Assumes a tax on recycled (old scrap) lead.
Source: ICF Incorporated.
-------
IXIIIBIT 5-8
EFFECTS OF A THREE- PERCENI CF.RCLA TAX ON LEAD a/
Tax Hate: $16.91 per metric ton Market Price: $563.5'i per metric ton
E s t i ma_ted Cha n qe__f _ro ni _ 198?_Le ve I.
Case
Base Case
Case A: Elast ic i ty
or Demand Increased
Tenfold
Case B: Import Supply
Elasticity Equal to
Zero
Case C: Cases A and
B Together
Primary Output
Metric
Tons Percent
-2,138 -0.'41
-5.961 -1.15
-3,180 -0.61
-6,637 -1.28
Old Scrap Output Net Imports Market Price
Metric Metric $/Mc;tr ic R
Tons Percent Ions Percent Ion Percent
-2.552 -O.'i5 -'l,25'J -32. J2 1?.51 «?.??
-7,115 -1.24 -11,861 -91.?') 3.7'i 0.66
-3,795 -0.66 0 0 10.12 1.80
-7,922 -1.39 0 0 ?.19 0.39
Annua 1 lax
e venues Ra i sed
Mi i i ion S
18.5
18.2
18.5
18.'i
Ul
i
a/ Assumes a tax on recycled (old scrap) lead.
Source: ICF Incorporated.
-------
6. ECONOMIC IMPACT OF TAXING ZINC OXIDE AND OF EXEMPTING
RECYCLED ZINC FROM POTENTIAL TAXATION OF ZINC
CERCLA Section 301(a)(1)(E) refers to the exemption from the CERCLA tax on
zinc oxide. Section 301(a)(l)(I) refers to the effects of a possible tax
exemption for recycled metals. Section 3.3 of this report identifies three
metals -- copper, lead, and zinc -- as candidates for an analysis of the net
effect of taxing recycled metals. As zinc and zinc oxide are closely related
substances,-this chapter addresses both the effects of a tax on zinc oxide and
the net impact of a tax exemption for recycled zinc. To assess the impact of
a tax exemption for recycled zinc, it is first necessary to estimate the
effects of a tax on zinc metal itself, because a recycling exemption would be
meaningless in the absence of such a tax.
Section 6.1 of this chapter presents a brief economic profile of the zinc
industry with separate information provided, where possible, on zinc oxide.
Data were available separately for zinc oxide production, consumption,
imports, and substitutes but not for zinc oxide industry performance or
prospects. Certain conclusions about zinc oxide can, however, be inferred
from .zinc industry data and from discussions with experts at the U.S. Bureau
of Mines.
Section 6.2 presents estimates of the effects of a CERCLA tax on zinc
oxide, and includes the results of a sensitivity analysis where the values of
key variables in the model are altered. Tax rates roughly equivalent to
current rates, two percent of price, and three percent of price are analyzed.
Section 6.3 presents estimates of the impact of exempting recycled zinc from a
CERCLA tax, assuming that zinc metal .itself is taxed. A sensitivity analysis
is also contained in Section 6.3. Both Sections 6.2 and 6.3 present a
discussion of the sources and data used to develop the economic estimates.
6.1 PROFILE OF THE ZINC AND ZINC OXIDE INDUSTRIES
Zinc is the fourth most widely used industrial metal, due to its low
melting point for casting, its high electrochemical activity for corrosion
protection in zinc-galvanized steel, and its ability to alloy readily with
copper to make brass. Zinc oxide is the most widely-used compound of zinc,
due to a number of useful properties, and is also the starting point for most
zinc industrial chemical compounds. Zinc is a strategic and critical metal
because of its applications in construction, transportation, electrical
equipment, and machinery.
The domestic zinc and zinc oxide industries have declined in the 1970's
and early 1980's as imports have taken a larger share of the market for both
products. Low prices, declining domestic mine production, less competitive
-------
6-2
older plants, and government environmental regulations have also contributed
to the decline in primary production capacity for zinc. Although substitute
materials are available for many uses of zinc and zinc oxide, both substances
have maintained their position in most key markets. In this section we review
demand for and supply of zinc and zinc oxide, the structure of the domestic
zinc industry, trends in zinc and zinc oxide prices, and recent industrial
performance by zinc producers.
6.1.1 Zinc and Zinc Oxide Demand
Exhibit 6-1 shows demand for zinc and zinc oxide in the major consuming
sectors for the period 1978-1982. Zinc prices are shown for the same period.
According to officials at the U.S. Bureau of Mines, zinc oxide prices
generally average 3-10 cents per pound, or. $66.13 - $220.5 per metric ton,
higher than zinc prices. Thus the pattern of zinc oxide prices can be
inferred from Exhibit 6-1.
Consumption of slab zinc recovered somewhat in 1983 from its depressed
1982 levels and prices rose by 20 percent in the first eight months of the
year, according to the 1984 U.S. Industrial Outlook. The outlook for 1984 is
for more modest increases in demand and prices, with slab zinc demand
remaining below 1978-79 levels. The decline in demand for zinc between 1978
and 1981 was due principally to the recession in the U.S. automotive and
construction industries, which consume most of the zinc used in galvanized
steel and diecastings. Brass consumption, spread across many sectors, was
also affected by the overall economic recession. The increase in rolled zinc
consumption in 1982 was due to the introduction of zinc into pennies, which
constitute a significant new market.
Zinc oxide demand also fell over the 1978-82 period, primarily because of
recession-induced declines in demand for rubber and chemicals, two major
markets. The 1984 U.S. Industrial Outlook projects that overall demand for
zinc should grow slowly back to its 1978 level by 1988, as demands remains
dependent on the automotive market.
Exhibit 6-1 shows that U.S. producer prices for slab zinc have been more
stable than those for copper or lead, although real prices have undoubtedly
fallen since 1979. Again, zinc oxide prices were slightly higher than zinc
prices over the same time period.
Although there has been some substitutions for zinc by plastics and metals
such as cast iron, bronze, and aluminum, in certain markets and a loss of
markets due to automotive downsizing, technological developments in zinc
alloys and increased concern with corrosion resistance have helped maintain
overall zinc demand.
Substitute materials such as aluminum and magnesium provide significant
competition in the chemical and pigment markets for zinc oxide. Zinconium
compounds are substitutes for zinc oxide in ceramic applications. No specific
information was obtained on trends in substitution for zinc oxide, although
general discussions with U.S. Bureau of Mines personnel indicate that zinc
oxide's position is not currently threatened to any great extent.
-------
6-3
EXHIBIT 6-1
ZINC AND ZINC OXIDE DEMAND AND PRICES, 1978-1982
U.S. Consumption
(Thousands of metric tons)
1978
1979
1980
Total
181
178
136
1981
149
1982
A. Slab Zinc
Galvanizing
Diecasting Alloys
Brass
Rolled Zinc
Oxides
Miscellaneous
Total Slab Zinc
Total All Zinclj
B. Zinc Oxide Shipments
Agriculture
Ceramics
Chemicals
Paints
Photocopying
Rubber
Other
454
354
141
25
37
39
1051
1442
5
9
27
13
19
97
10
453
314
141
22
35
35
1001
1394
4
9
27
13
16
93
17
379
254
99
21
27
31
811
1142
7
6
18
12
10
62
22
369
209
111
23
19
103
835
1189
7
8
21
12
10
69
21
310
158
73
37
18
101
697
953
4
5
19
9
10
63
17
127
Average U.S. Producer
Price Metallic Zinc
(^/metric ton)
683
822
826
982
848
1J Includes Slab Zinc ores and concentrates and secondary zinc.
Sources: U.S. Bureau of Mines, various publications; World Bureau of Metal
Statistics, World Metal Statistics, January 1984.
-------
6-4
6.1.2 Zinc Reserves and Output of Zinc and Zinc Oxide
Exhibit 6-2 shows the world zinc reserve base.for 1982 as reported by the
U.S. Bureau of Mines. The largest domestic zinc reserves are located in the
Mississippi Valley and southern Appalachian regions. Major zinc-mining states
include Missouri, Tennessee, and New York, which in 1981 accounted for 66
percent of zinc supply from domestic mines.
EXHIBIT 6-2
WORLD ZINC RESERVES, 1982
Reserve Base . .. Percent of
Country (Million Metric Tons) World Total
Canada 56 19.3
United States 53 18.3
U,S.S.R. 13 4.5
Peru 12 4.1
India 12 4.1
Republic of South Africa 14 4.8
Spain 10 '' ' 3.4
Mexico 8 ' • 2.8
China 7 2.4
Other 117 ' - 40.3
TOTAL 290 ' 100
Source: U.S. Bureau of Mines.
Zinc supply in the U.S. is composed of primary production, secondary
(scrap) production, and imports. Primary production involves the following
steps: mining of zinc ore, concentration of the ore, and reduction to zinc
metal by electrolytic deposition or distillation. Secondary recovery of scrap
zinc utilizes old diecastings, primarily from automobiles, engravers' plate,
and bronze. New scrap is principally zinc-base and copper-base alloys from
manufacturing operations and drosses and skimmings from galvanizing and
diecasting operations.
Zinc oxide is produced either directly from zinc ore (American process) or
directly from slab zinc (French process). In the U.S., about 60 percent of
zinc oxide is produced by the American process. In 1982 domestic zinc-oxide
was produced from 31 percent zinc' ores and concentrates, 36' percent secondary
materials, and 33 percent slab zinc, according to the U.S. Bureau of Mines.
Zinc oxide is not recycled.
-------
6-5
Exhibit 6-3 shows trends in U.S. zinc and zinc oxide supply for
1978-1982. Domestic output continued to decline in 1983, and total domestic
production capacity fell to 320,000 tons, compared to a capacity of over one
million tons in the early 1970's. U.S. production and imports of zinc were
expected to increase in 1984 by a moderate amount. Declines in domestic mine
and smelter production in favor of imports have been caused by obsolete
plants, costly environmental standards, depressed prices, and higher mine
production costs due to lower grade ore. There is some concern over long-term
dependence on zinc imports and increased competitive pressures on the domestic
industry, as zinc output capacity is not expected to expand between now and
1988.
EXHIBIT 6-3
U.S. ZINC AND ZINC OXIDE SUPPLY, 1978-1982
(Thousand metric tons)
1978 1979 1980 1981 1982
A. Zinc Supply
Domestic Mines 303 267 317 313 300
From Old Scrap 77 81 66 86 62
Imports Metal 618 527 411 603 447
Imports, ore, etc. 188 225 130 118 49
Imports, compounds 23 26 27 27 35
Industry stocks 170 137 152 126 106
Total 1379 1263 1103 1273 999
B. Zinc Oxide Supply
Production 181 173 146 145 123
Imports 25 25 30 29 28
Total 206 198 176 174 151
Sources: U.S. Bureau of Mines, World Metal Statistics.
Imports of zinc oxide have increased throughout the. 1970*s and 1980's, in
part due to lower U.S. tariffs than other industrialized countries.
-------
6-6
6.1.3 Industry Structure and Performance
Several large, vertically integrated firms with mines, smelters, and
refineries dominate the U.S. primary zinc industry. In 1979, six companies,
AMAX, ASARCO, bunker Kill, New Jersey Zinc, Jersey Miniere, and St. Joe
Minerals, accounted for over 91 percent of U.S. primary slab zinc production
and 85 percent of mine output. The secondary zinc refinery sector is less
concentrated, with 12 firms owning plants.
As stated above, low prices, declining ore quality, the costs of
environmental regulation, foreign competition, and aging plant have hurt the
domestic zinc industry. Between 1978 and 1982, employment in zinc mining and
smelting fell by some 4,300 persons, or 44 percent of the workforce.
The outlook for zinc beyond the current recovery is for the slow growth in
demand to be met increasingly by imports as domestic capacity, which has
fallen rapidly in the past decade, is not expected to increase. No separate
forecasts were available for zinc oxide.
6.2 ZINC OXIDE
6.2.1 Data Inputs
This section presents the data used as inputs to the zinc oxide model.
The data include: (1) the annual amount of zinc oxide produced in the U.S.;
(2) the annual amount of U.S. imports and exports of zinc oxide; (3) the price
of zinc oxide; (4) various demand and supply elasticity coefficients; and (5)
the hypothetical CERCLA tax rate. These values -- for 1982, the most recent
year for which comprehensive data were available -- and their sources are
presented in Exhibit 6-4.
6.2.2 Findings and Sensitivity Analysis
This section presents estimates of the effects of a CERCLA tax on zinc
oxide supply and prices. The. estimates were generated by the economic
framework described in Section 3.2. The data input values shown in Exhibit
6-4 were used to develop the base case scenario. Elasticities of demand and
supply were then varied in cases A, B, and C to test the sensitivity of the
results to various assumptions about the zinc oxide market.
Exhibit 6-5 shows the effects of a CERCLA tax of $3.93 per metric ton on
the price, domestic output, and U.S. imports of zinc oxide, and on the tax
revenues raised.1 In the base case, effects would be minimal: domestic
output declines by one-tenth of one percent, imports fall by two percent, and
'The hypothetical CERCLA tax rate of S3.93 per metric ton is based on
existing CERCLA tax rates of $4.91.per metric ton on elemental metals
multiplied by the amount of zinc (on a molecular weight basis) required to
produce zinc oxide (80 percent).
-------
EXHIBI F 6-'»
DATA INPUTS FOR ANALYSIS OF CERCLA TAX ON ZINC OX IDF
I riput
Price Elasticity of Demand for
Zinc Oxide
Price Elasticity of Supply for
U.S. Produced Zinc Oxide
Price Elasticity of Supply for
Imported Zinc Oxide
U.S. Production of Zinc Oxide
(metric tons)
U.S. Net Imports of Zinc
Oxide (metric tons)
U.S. Apparent Consumption of
Zinc Oxide (metric tons)
Price of Zinc Oxide
(per metric ton)
CERCLA Tax on Zinc Oxide
(per metric ton)
Va I ue
Source
Comments
-1.418
13.7?0
226.2
123,t461
28.02U
151, '185
$981.05
$3.93
a/
S. Gupta, "An Econometric Analysis
of the World Zinc Markets"
Empirical Economics. Vol. 7,
1982, p. 2?7.
Gupta.
Gupta.
U.S. Bureau of Mines, MineraIs
Yearbook, 1982 preprint.
U.S. Bureau of Mines, Mi neraIs
Yearbook, 1982 preprint.
U.S. Bureau of Mines, Mi neraIs
Yea rbook. 1982 preprint.
U.S. Bureau of Mines, MineraIs
Yearbook. 1982 preprint.
The Gupta study is based on an econometric
model of the world zinc industry over the
period 1956 to 197'l. I ho model incorporates
separate supply and demand equations for each
of the major producer and consumer countries
in the free market economies world.
Based on Gupta.
Net imports were calculated as imports minus
exports. Imports in 1982 wore 28.3'47 tons,
and exports were 323 tons.
Sum of production and net imports.
Calculated based on existing CERCLA tax rates
of $14.91 per metric ton .on elemental metals
multiplied by the amount of .zinc (on a
molecular weight basis) required to produce
zinc oxide (80 percent).
cr>
I
a/ It is reasonable for this elasticity to be significantly higher than the domestic supply elasticities because foreign
suppliers have relatively greater ability to change their foreign export markets without much additional expense. 1 hey would
probably be better off doing so because a tax in the United States would likely raise the world price, so they could get a higher
net price in other countries.
-------
Case
Base Case
Case A: Elasticity
of Demand Increased
Tenfold
Case B: Import
Supply Elasticity
Equal to Zero
Case C: Cases A and
B Together
EXHIBIT 6-5
EFFECTS OF A CERCLA I AX ON ZINC OXIDE
Tax Rate: $3.93 per metric tort Market Price: $981 per metric ton
Estimated Change from 1982 Level
Domestic
Me t r i c
Tons
-75
-1,412
Output
Percent
-0.11
-1.17
Net
Me t r i c
Tons
-661
-5,159
Imports •
Percent
-2.1
-19.5
Market
$/Metric
Ton
3.81
3.15
Price
Percent
0.39
0.32
Annua I I
Revenues Ra
Mi I I ion
0.6
0.6
-770
-3,911
-0.62
-3.19
0.0
0.0
3.51
1.80
0.36
0. 18
0.6
0.6
en
i
oo
Source: ICF Incorporated.
-------
6-9
the market price increases by 0.4 percent, or S3.84 per metric ton. This
increase in the market price of zinc oxide equals 98 percent of the tax,
meaning that producers absorb only two percent of the costs of the tax. As
shown in Exhibit 6-6, revenue losses in the base case stemming from both
reduced output and slightly lower net prices received by producers would total
$184,000 for domestic suppliers and $654,000 for foreign suppliers.
EXHIBIT 6-6
ESTIMATED REVENUE LOSSES DUE TO CERCLA TAX ON ZINC OXIDE
(Thousand $)
Change in:
Case U.S. Produced Imports
Base Case
Case A
Case B
Case C
-184
-1,509
-806
-4,123
-654
-5,373
-12
-60
Source: ICF Incorporated.
In case A, the market price increases less than in the base case (0.3
percent versus 0.4 percent in the base case), as producers absorb more of the
tax in response to greater consumer sensitivity to price changes. The
decrease in domestic output is considerably larger than in the base case (a
drop of 1.2 percent versus a fall of 0.1 percent in the base case) but is .
still minimal. U.S. imports are significantly influenced by the tax in case
A, falling 20 percent or 5,459 metric tons.
In case B, foreign producers are assumed to maintain their supply in the
face of lower demand. The results from case B demonstrate that demand
elasticity is more important than import supply conditions in determining the
effects of the tax. The decline in domestic output and the increase in the
market price in case B are midway between the base case and case A.
In case C (a composite of cases A and B), primary output and revenues
decline by the greatest amount. The market price only increases by 0.2
percent, as the combination of high demand elasticity and constant supply of
imports forces suppliers to absorb most of the tax. Domestic output would
decrease by approximately three percent under the assumptions of this scenario.
-------
6-10
Tax revenues raised by a CERCLA tax of $3.93 per metric ton on zinc oxide
would amount to approximately 5600,000 under each of the cases. This is
significantly larger than the $105,000 collected annually by the current
CERCLA taxes on zinc chloride and zinc sulfate.2
Exhibits 6-7 and 6-8 show the effects of higher tax rates -- two percent
of price and three percent of price, respectively -- on zinc oxide supply,
prices, and tax revenues. As shown in Exhibit 6-7, a CERCLA tax of $19.62 per
metric ton on zinc oxide would result in a decline in domestic production of
0.7 percent and a drop in U.S. imports of 11.8 percent in the base case. The
price of zinc oxide would increase by 2.0 percent in the base case. Annual
CERCLA tax revenues raised would amount to approximately $2.9 million in the
base case.
As shown in Exhibit 6-8, a CERCLA tax of $29.43 per metric ton on zinc
oxide would result in larger declines in'output in the base case: a fall in
domestic production of 1.1 percent and a decline in U.S. imports of 17.8
percent. The price of zinc oxide, would increase by 2.9 percent in the base
case. Annual CERCLA tax revenues raised would amount to approximately $4.3
million in the base case.
Exhibits 6-7 and 6-8 also show the economic effects if supply and/or
demand are more price sensitive than assumed in the base case. If supply
and/or demand are more price sensitive, price effects are less, quantity
effects are greater, and the zinc oxide industry bears a greater proportion of
the tax burden.
6.3 ZINC
6.3.1 Data Inputs
As in Section 6.2, this section presents the data used as inputs to the
zinc model. The data include: (1) the annual amount of zinc produced in the
U.S. (primary, old scrap, and new scrap); (2) the annual amount of U.S. zinc
imports and exports; (3) the price of zinc; (4) various demand and supply
elasticity coefficients; and (5) the hypothetical GERCLA tax rate. These
values -- for 1982, the most recent year for which comprehensive data were
available -- and their sources are presented in Exhibit 6-9.
6.3.2 Findings and Sensitivity Analysis
This section presents estimates of the changes in zinc supply and prices
if recycled (old scrap) zinc were exempt from a CERCLA tax on primary
production and U.S. imports of zinc. The estimates were generated by the
economic framework described in Section 3.2. The data input values shown in
2Based on tax collections for the 30-month period from April 1981 to
September 1983 totaling $263,000 for zinc chloride and zinc sulfate.
-------
EXHIBIT 6-7
EFFECTS OF A TWO-PERCENT CERCLA TAX ON ZINC, OXIDE
Tax Rate: $19.62 per metric ton Mnrket Price: $981.0"} per metric ton
Case
Base Case
Case A: Elast ic i ty
of Demand Increased
Tenfold
Case B: Import Supply
Elasticity Equal to
Zero
Case C: Cases A and
B Together
P_r i ma ry On t put
Metric
Tons Pe rcent
-876
-7.198
-3,81(2
-19,688
Estimated Change from 1982 Level
Net Imports ' .Y~_MFi rke t Price/"
Metric S/MetHc
Tons Percent lot) Percent
-0.71
-5.83
-3. 11
-15.95
-3,317
-27,25'»
-11.83
-97.25
19.1 !">
15.73
17.55
8.99
1 .95
1 . fid
1 . 79
0.9,°
Anima I lax
Rcyeni.ics Raised
I_ J:'J.!'"ioji.'.'.$-'
2.9
2.3
2.9
2.6
Source: ICF Incorporated.
-------
EXHIBIT 6-8
EFFECTS OF A THREE-PERCENT CERCLA TAX ON ZINC OX I [jr.
Tax Rate: $29.'13 per metric ton Market Price: $981.0!') per metric ton
Case
Base Case
Case A: F last ic i ty
of Demand Increased
Tenfold
Case B: Import Supply
Elast ic i ty EquaI to
Zero
Case C: Cases A and
B Together
Estimated .ChajKje ...from__!982 J.ovcI
Primary Output _ _ Not_ijiiport:s_ _ Mnrh
Metric Metric S/Meirir
Tons Percent Ions Percent Ion
- 1, 3 1'(
-10.796
-5.763
-29,532
- 1 . 06
-8.7't
-23.92
-'1.975
-'10,881
-17.75
-1'l5.80
28.72
26.32
13. '19
t. .Prico
Perec ni.
2.93
2. '11
2.68
1.3/
Annua I I nv
RovonuCiS R;> i seil
' '
'1.3
2.9
3.6
Source: ICF Incorporated.
en
I
-------
EXHIBIT 6-9
DATA INPUTS FOR ANALYSIS OF TAX EXEMPTION ON RECYCLED ZINC METAL
Input
Va I ue
Price Elasticity of Demand Tor -0.9807
Zinc
Price Elasticity of Supply for 0.8540
U.S. Primary Zinc
Price Elasticity of Supply for 0.6943
U.S. Recycled (Old Scrap)
Zinc
Source
S. Gupta. "An Econometric
Analysis of the World
Zinc Ma rket," Empi ricaI
Economics. Vol. 7, 1982,
p. 227.
Gupta, p. 227
Gupta, p. 228
Comments
The Gupta study is based on an econometric model of
the world zinc industry over the period 1956 to 1974.
The model incorporates separate supply and demand
equations for each of the major producer and consumer
countries in the free market economics world.
Based on Gupta.
Price Elasticity of Supply for 0.2361
U.S. Recycled (New Scrap)
Zinc
Price Elasticity of Supply for 7.7050
Imported Zinc
U.S. Production of Primary 228,176
Zinc (metric tons)
U.S. Production of Recycled 16,808
(Old Scrap) Zinc
(metric tons)
U.S. Production of Recycled 60,056
(New Scrap) Zinc
(metric tons)
U.S. Net Imports of Zinc 447,101
(metric tons)
U.S. Apparent Consumption of 752,141
Zinc (metric tons)
Price of Zinc (per metric ton) $848.11
CERCL.A Tax Rate (per metric ton) $4.91
Gupta, p. 227
Gupta.
U.S. Bureau of Mines,
HineraIs Yearbook. 1982
preprint.
U.S. Bureau of Mines,
MineraIs Yearbook. 1982,
preprint.
U.S. Bureau of Mines,
Minera I s Yearbook, 1982,
preprint.
U.S. Bureau of Mines,
MineraIs Yearbook. 1982
preprint.
U.S. Bureau of Mines,
MineraIs Yearbook, 1982
preprint.
U.S. Bureau of Mines,
MineraIs Yearbook. 1982
prepri nt.
Based on Cupta.
Based on the elasticities and slope of foreign
supplies and demands in Gupta.
reported only an aggregate
recycled zinc metal (including old
The U.S. Bureau of Mines
figure for recycled zinc ui.:l,«i ( i m, i uu i ,,y uiu
and new scrap). I he value for old scrap was derived
by applying the calculated ratio of "'^ "r "''
forms of zinc to total scrap of all
old scrap of all
forms of zinc.
The U.S. Bureau of Mines reported only an aggregate
figure for recycled zinc metal ( including old
and new scrap). The value for new scrap was derived
the calculated ratio of new scrap of all
to total scrap of all forms of zinc.
by applying
forms of zinc
Net imports were calculated as the difference
between gross imports (447,44? metric tons) and
exports (341 metric tons).
Sum of production plus net imports.
Calculated based on existing CERCLA tax rates
of $4.91 per metric ton on elemental metals.
-------
6-14
Exhibit 6-9 were used to develop the base case estimates. In cases A, B, and
C, the elasticities of demand and supply were varied to test the sensitivity
of the results to various assumptions about the zinc market.
Cases A, B, and C reflect the same assumptions as in cases A, B, and C of
the analysis in Chapters A and 5 of a tax exemption far recycled copper and
recycled lead. In case A, the price elasticity of demand is increased tenfold
to determine the effect of a CERCLA tax if consumers are much more sensitive
to price increases than assumed in the base case. In case B, the price
elasticity of supply from each source is increased tenfold to determine if a
substantial increase in the sensitivity of suppliers to changes in prices
would greatly increase the net effects of the tax in terms of affecting the
quantities supplied. In case C, only the price elasticity of supply of old
scrap zinc is increased by a factor of ten.
Exhibit 6-10 summarizes the economic effects of exempting recycled (old
scrap) zinc from a CERCLA tax on primary production and imported zinc. The
exhibit was derived as follows: (1) calculate the effects of a CERCLA tax on
primary, recycled, and imported forms of zinc; (2) calculate the effects of a
CERCLA tax on primary and imported forms of zinc only; and (3) calculate the
difference between the two scenarios. The exhibit is presented in this way to
isolate the effects of the possible tax exemption for recycled zinc. To
meaningfully assess the effects of a tax exemption, there must be a
presumption that a tax exists in the first place. Thus, the baseline for the
analysis is the situation in which all forms of zinc -- primary, recycled, and
imported -- are taxed.
As shown in Exhibit 6-10, a tax exemption for old scrap zinc would have a
negligible effect if zinc were subject to a CERCLA tax comparable to the
current CERCLA tax or other elemental metals. In the base case, the declines
in domestic primary output and imports are each less than one-hundredth of one
percent of the 1982 level. Only in cases B and C do the drops in imports
exceed one-tenth of one percent. Old scrap output is most affected by the
exemption but even this result appears negligible, especially in the base case
and case A. Only in cases B and C does old scrap output increase by more than
100 tons -- increasing 673 tons in case B (a four-percent increase) and 656
percent in case C (a 3.9-percent increase). The market price of zinc is not
significantly influenced by the exemption in any case. CERCLA tax revenues
raised would amount to approximately S3.3 million under each of the cases, or
about 5100,000 less than the situation in which all forms of zinc -- primary,
old scrap, and imported -- are taxed.
-------
EXHIBIT 6-10
EFFECTS OF A TAX EXEMPTION FOR RECYCLED ZINC a/
Tax Rate: S'l.91 per metric ton Market Price: $8'4fl per metric ton
Case
Base Case
Case A: Increased
Elasticity or Demand
Case B: Increased
Elastic i ty of Supply
from AlI Sources
Case C: Increased
Elasticity of Supply
from Old Scrap Only
Est imated_Ctiange
b/
P r i ma ry
Metric
Tons
-3
-1
-39
Output
Percent
Negl .
Neg 1 .
-0.02
Old Scrap
Me trie
Tons
67
68
673
Output
Percent
O.'tO
O.'iO
tl.OO
Net
Metric
Tons
-51
-19
-616
Imports
Percent
-0.01
Negl .
-0. I'l
Ma rke-t
$/Metric
Ion
-o.o?
-0.01
-0.02
Price
Percent
Neg 1 .
Negl .
Negl .
AUDI 10 1 'lax
Revenues Ra i
" "M!M ion"?
-0. 1
-0. 1
-0. 1
sed
-32
-0.01
656
3.90
-501
-0. 11
-0. I'l
-0.02
-0. 1
a/ Assumes a CERCLA tax on U.S.-produced primary and imported zinc metal.
b/ These changes were calculated from a baseline in which all forms of zinc metal
taxed (see text).
i
M
U1
— p r i inn ry , recycled, and imported — are
Source: ICF Incorporated.
-------
PART II: FERTILIZER FEEDSTOCKS
-------
7. EXPENDITURE EXPERIENCE OF THE FUND WITH RESPECT TO
FERTILIZER FEEDSTOCKS AND ASSOCIATED SUBSTANCES
CERCLA Section 301(a)(l)(H) requires that the impact of exemptions from
taxation for certain substances be examined. The precise language of section
301(a)(l)(H) is as follows:
[Experience with the implementation of this Act regarding]
an exemption from or an increase in the substances or the
amount of taxes imposed by section 4661 of the Internal
Revenue Code of 1954 for copper, lead, and zinc oxide, and
for feedstocks when used in the manufacture and production
of fertilizers, based upon the expenditure experience of
the Response Trust Fund.
Ammonia, methane used to produce ammonia, nitric acid, and sulfuric acid
used for the production of fertilizers, are exempted from CERLCA taxes. The
same feedstocks are taxed at levels specified in Title II of the Act when used
for nonfertilizer-related uses.
Chapter 7 examines the expenditure experience of the Fund with respect to
releases of fertilizer-related materials (feedstocks and final products). It
explores whether Fund resources are being expended for removal/remedial
actions for fertilizer-related materials. Chapter 8 examines the impact of
taxing the currently exempt fertilizer feedstocks.
This chapter is organized as follows:
7.1 Production and Distribution of Fertilizers
7.2 Defining "Expenditure Experience of the Fund"
7.3 Alternative 1 - Historical and Planned Removal and Remedial Actions
7.4 Alternative 2 - Other Proxies for "Expenditure Experience of the Fund"
7.5 Summary of Findings
7.1 PRODUCTION AND DISTRIBUTION OF FERTILIZERS
The term "fertilizer" throughout this report refers to a manufactured
material containing one or more of the essential primary plant nutrients --
nitrogen, phosphorous, and potassium. In this section, the production and
distribution systems for each will be discussed in terms of the potential for
release. Each of the three major types of fertilizers are discussed in turn.
7.1.1 Nitrogenous Fertilizers
Nitrogen, the leading nutrient in terms of tonnage used, is obtained from
the atmosphere. Combining hydrogen from natural gas feedstock (primarily
methane) with atmospheric nitrogen to form ammonia is the first step in making
nitrogenous fertilizers. Ammonia (a CERCLA-tax exempt fertilizer feedstock),
-------
7-2
in combination with other basic fertilizer feedstocks, is used for the
production of the nitrogenous fertilizers outlined in Exhibit 7-1. Eighty
percent of ammonia produced in the U.S. (14.5 million tons in 1983)1J is
used to make fertilizer. The balance is used in the manufacture of explosives
and polymers for fibers and fabricated plastics.2-1 Exhibit 7-2 describes
the use pattern of each of these nitrogenous fertilizers, and certain salient
industry characteristics for each of the materials. This data indicates the
likelihood that a spill occurring during transportation of the material is
fertilizer-related. For example, if 80 percent of the production of a
material is used as fertilizer feedstock and the industry is so highly
integrated that very small quantities of the feedstock are transported over
long distances, then a spill of the feedstock material occurring during
transportation is unlikely to be fertilizer-related.
Exhibit 7-2 shows that ammonia is not transported in large quantities for
the manufacture of the nitrogenous fertilizers listed in the Exhibit. This is
because most of the nitrogenous fertilizer plants are located adjacent to the
ammonia producing plants. However, ammonia is transported either for purposes
of direct application or for the production of phosphatic fertilizers.
Phosphatic fertilizer plants are located close to the raw material sources
because transporting rock is uneconomical compared to transporting ammonia for
fertilizer production.3-1 Since the raw material sources for ammonia (natural
gas wells) occur in different places from phosphatic fertilizer plants,
ammonia has to be transported for the production of phosphatic fertilizers.
Phosphatic Fertilizers
Phosphorus comes from "phosphate rock," a calcium phosphate ore found in
the U.S. in Florida, North Carolina, Tennessee, Idaho, Montana and Wyoming.
Exhibit 7-3 lays out the downstream phosphate fertilizers from phosphate
rock. Nearly 50 percent of the U.S. phosphate rock production, and 55 percent
of its sulfuric acid are used to produce fertilizers.ltj The production of
phosphoric acid is centered around the areas where phosphate rock and sulfuric
acid, the major inputs into phosphoric acid, are produced. Most phosphoric
acid producers produce sulfuric acid at the site, from sulfur purchased in
1J"Key Chemicals —- Ammonia," Chemical and Engineering News, January
30, 1984, p. 11.
2JIbid.
3JDuane A. Paul and R.L. Kilmer, "The Manufacturing and Marketing of
Nitrogen Fertilizers in the United States," Economic Research Service, U.S.
Department of Agriculture, Agricultural Economic Report No. 390, p. 23.
*JPaul and Kilmer, p. 31.
-------
EXHIBIT 7-1
PRODUCTION OF NITROGEN FERTILIZERS
Ammon ia
Nitric Ac i d
Sulfuric Ac id
Phosphoric Acid
Carbon Dioxide
Ammon i a
Sodium Carbonate
Phosphate Rock
Ammon i urn SuIra te
Ammonium Phosphates
Urea
Ammon i urn N i trate
Sod i tint N i trate
Nitric Phosphate
I
w
Source: The Fertilizer Handbook, The Fertilizer Institute, Washington, D.C., 1982, p. '47.
-------
EXHIBI T 7-2
NITROGENOUS FERTILIZER FEEDSTOCKS AND MATERIALS
Feedstocks/Materia Is
Ammon ia
Percent Pert iI izer
Related Use
80
Percent Non-Fertilizer
Related Use
20
Remarks
Plants usually locator! close to natural gas
sources - Mississippi, Arkansas, Louisiana.
Oklahoma, and lexas.
Ammon ium N i trate
N/A
N/A
Requires ammonia and nitric acid for
production. Usually part of ammonia-nitric
acid-ammonium nitrate integrated complex. It
is the most used nitrogenous fertilizer.
Urea
80
Approximately 6 million tons produced in
1983. Other uses include animal fend and
adhesives and plastics. Two thirds of all
urea plants in existence are located adjacent:
to ammonia plants.
Ammon i urn SuI fate
N/A
N/A
Major source is coke ovens where sulf'uric
acid' is used to remove ammonia evolved from
coal. Sinn I I amounts are made directly from
ammonia and sulfuric acid.
Nitrogen Solutions
Nitric Ac i d
100%
79
21
Solutions of urea and ammonium nitrate.
Usually .located adjacent to ammonia plants.
Total industry capacity 12 million tons, 9.5
million tons of which is fertilizer related.
Sulfuric Acid
Tor fertilizer use, plants usually located
adjacent to fertilizer production complexes.
Source: Paul and Kilmer, 1977
Chemical and Engineering News, 198*4
The Fertilizer Institute, 1982.
-------
EXHIBIT 7-3
FERTILIZER PRODUCTION FROM PHOSPHATE ROCK
Phosphate Rock
Sulfiiric Acid (Excess)
Phosphoric Acid
Ammon ium
Sulfuric Acid (Excess)
Phosphoric Acid
Phosphate Rock
Phosphate Rock
Ammon i a
Sulfuric Acid
Phosphoric Acid
J
Ammon i a
Nitric Ac i d
Monoammonium Phosphate
Diammonium Phosphate
Triple Superphosphate
Ammonium Phosphate-SuI fate
Nitric Phosphates
I
in
Sulfuric Acid
Normal Superphosphate
Source: The Fertilizer Institute, 1982.
-------
7-6
Louisiana and Texas.5-1 Transportation of sulfuric acid for phosphoric acid
manufacture, therefore, is minimized. Concentrated superphosphate and ammonium
phosphate production centers are also more closely located to raw material
sources than to markets. Both of these fertilizers can be manufactured at a
lower delivered cost when they are located close to phosphoric acid, phosphate
rock, and ammonia production centers than when located near the product
markets.SJ Clearly, therefore, most of the sulfuric acid and phosphoric
acid used for phosphatic fertilizers is produced and consumed at the sites
where the fertilizer is manufactured. The commodities which are transported
are sulfur and the phosphatic fertilizer products. The structure of the
industry ensures that the transportation of acids and ammonia is minimized.
Potassium Fertilizers
Potassium, the third primary nutrient,- also comes from mineral ores. The
ore, called muriate, can be applied directly to the soil as potassium chloride
or sulfate without extensive chemical conversion. Ninety-five percent of
potash mined in the U.S. is used as fertilizer.7J The ore is mined and
beneficiated at the mine site and shipped directly to the retailer in order to
minimize costs. The production of potassium fertilizers does not involve the
CERCLA feedstocks of ammonia, sulfuric acid, or nitric acid, and they will not
be further addressed in this analysis.
7.2 DEFINING "EXPENDITURE EXPERIENCE OF THE FUND"
As with metals, the concept of "expenditure experience of the Response
Trust Fund" is subject to interpretation with respect to fertilizer feedstocks
and their derivatives. However, for fertilizers, there are additional factors
which complicate the specification of a well-accepted proxy for such
expenditure experience:
• Fertilizers are likely to be accidentally released
during the normal course of their distribution chain,
thus suggesting that removal actions would occur more
frequently than remedial actions.
• Fertilizer feedstocks are exempt from the tax only for
use as fertilizers. Other uses of sulfuric acid, nitric
acid, and ammonia are subject to the tax. Therefore,
the presence of one of these three taxed feedstocks (or
their derivatives) at a release where Fund expenditures
5JDuane A. Paul, Richard L. Kilmer, et al., "The Changing U.S.
Fertilizer Industry," Economic Research Service, U.S. Department of
Agriculture, Agricultural Economic Report, No. 390, p: 36.
6jlbid. , p. 37.
7J"Key Chemicals -- Potash," Chemical and Engineering News, July 11,
1983, p. 10.
-------
7-7
were made is not necessarily by itself a powerful
indicator of whether the Fund is being used to respond
to releases of fertilizers.
The first point above suggests that removal actions are perhaps more important
then remedial actions for determining whether Fund resources have been spent
remedying fertilizer releases. The second point suggests that information
regarding whether Fund resources have been used to respond to releases of
ammonia, nitric acid, sulfuric acid, or their derivatives, must be
supplemented with other information about the conditions of the release. This
will allow for a better determination of whether or not Fund resources have
been used to respond to fertilizer releases.
The most immediate proxy for "expenditure experience of the Fund" for
fertilizers would be historical and planned removal and remedial actions.
Three different data sources need to be accessed in order to determine whether
historical and .planned removal or remedial actions have encountered fertilizer
feedstocks or their derivatives:
• Historical removal actions need to be tracked through
the Removal Tracking System Data Base,
• Historical remedial actions need to be tracked through
data on the six remedial actions taken thus far, and .
• Planned remedial actions need to be tracked through
the Records of Decision (ROD's) which exist for those
sites.
Section 7.3 discusses the findings from these three sources.
Because there is some question as to whether the historical and planned
removal and remedial actions represent a sufficient number of actions on which
to judge the expenditure experience of the Fund, it might be necessary to
define an alternative proxy for "expenditure experience of the Fund." Such a
proxy would entail analyzing a larger set of potential remedial and removal
actions. Such data could be developed from the following sources:
• Data on potential releases (and hence removal actions)
could be obtained from the National Response Center or
the regions (particularly Regions VII & VIII).
• Data on potential remedial actions could be obtained
from the Hazard Ranking System Data Base.
This alternative proxy is discussed in Section 7.4. However, the reader
should be aware that evidence of a release of fertilizer feedstocks or their
derivatives is not by itself a good indicator that Fund resources are used,
because many fertilizer releases are remedied by the responsible party. This
phenomenon is accounted for in the data presented in Section 7.4.
-------
7-8
7.3 ALTERNATIVE 1: HISTORICAL AND PLANNED REMOVAL AND
REMEDIAL ACTIONS
7.3.1 Historical Removal Actions: Removal Tracking System Data Base
Removal activities constitute the emergency response portion of the
Superfund program. Removal activities are short-term responses to immediate
threats from accidental releases and releases from uncontrolled hazardous
waste sites. They thus complement CERCLA remedial activities, which are
long-term responses designed to prevent or mitigate the migration of hazardous
substances into the environment on a more permanent basis. Removal actions
generally cost less than $1 million and take less than six months to complete.
The four major elements of the Superfund emergency response program are:
• Notification -- the methods by which EPA learns of
hazardous substance releases. The primary sources of
release information' are notifications to the NRC or to
the EPA regions;
• Monitoring -- the on-scene or off-scene supervision
of private party or state removal actions by EPA
On-Scene Coordinators (OSCs) and EPA-supervised
contractors;
• Immediate removal actions -- Fund-financed response
actions taken to prevent or mitigate acute threats to
human life or health, or the environment from hazardous
substance releases; and
• Planned removal actions -- Fund-financed response
actions taken in an expedited fashion to prevent or
mitigate significant but not time-critical threa'ts to
public health or welfare or the environment.
The Removal Tracking System, compiled by the EPA Emergency Response
Division of the Office of Emergency and Remedial Response, summarizes
information on all approved immediate and planned removals. The information
provided includes the location of the site/spill, materials involved, threat
posed, and the amount of funds requested in order to mitigate the threat. The
presence of fertilizers at these removal site/spill locations would provide
direct evidence that Superfund resources were used to clean up hazardous waste
problems caused by fertilizers. The listing of "Materials Involved" at each
site was reviewed in order to determine whether any fertilizer feedstocks or
their derivatives were present. The substances searched for include: nitric
acid, sulfuric acid, phosphoric acid, ammonia, ammonium nitrate, sodium
nitrate, nitric phosphate, ammonium sulfate, ammonium phosphates and urea (a
complete listing of substances is given in footnote 10). Of the approximately
210 approved immediate and planned removals described in the Removal Tracking
System for the period from December, 1980 through the end of Fiscal Year 1983,
seven included potential fertilizer feedstocks and their derivatives among the
materials involved at the site/spill. Exhibit 7-4 shows the data provided in
the Removal Tracking System for these sites. Additional information on each
-------
EXHIBIT 7-4
APPROVED IMMEDIATE REMOVALS
9/3/82
6/8/83
Decided Received
6/9/82 6/9/82
9/3/82
12/10/82 12/10/82
2/14/83 2/14/83
6/8/83
6/16/83 6/16/83
6/17/83 6/17/83
Working
Days
Site/Spill Location
Plastifax Corp.
Gulfport, Ms.
Materials Involved
Threat
Phosphorous acid, caustic soda,
sulfuric acid, paraffin and
other unknown chemicals.
Tuba City Acid Tank 8,000 gallons of 75% sulfuric
Coppermine, Az. acid.
Flood Damage
St. Louis, Mo.
Cyanide, nitric acid, propane
gases.
Abandoned Chemicals Chromic acid, bromine liquid,
Cleveland, Oh. hydrochloric acid, sulfuric acid,
procalne, carbon tetrachloride,
potassium cyanide, sodium azide,
and propane.
Standard Chemical Co. Flammables; combustibles;
Huntington, Ca. caustics) triethylaminei nitric
acid; dimethylformamidei enamelj
paints and paint wastes*
Gebhart Fertilizer
Co.
Latham, II.
Pesticides; fertilizers,
oxidizersi petroleum products.
Fire/explosion hazard and
threat of direct contact.
Air, soil, groundwater
and surface water contami-
nation.
Air contamination (threat
of vapor cloud) and direct
contact threats.
Surface water contamina-
tion, threat of direct
contact.
Air, direct contact, and
fire/explosion.
Fire/explosion hazard.
Direct contacti fire/
explosion hazard.
Hampton Cylinder
Site
Hampton, Va.
Carbon dioxide; acetylene;
fluoromethane; ammonia; propane;
TCB.
Direct contact, fire/
explosion hazard.
Initial
Ceiling
|200K
Comments
$50K/RA
flOK
|200K/RA
$122K/RA
I
\o
On 5/19/83, the RA
verbally approved this
request. However, the
RA request severs!
revisions to the 10-
point document which
delayed the final
signing of this
request st the
regional level.
*250K/RA
-------
7-10
site/spill which contained potential fertilizer feedstocks was obtained from
the records maintained for each removal by the Emergency Response Division
(ERD). These records include reports prepared by On-Scene Coordinators and
technical data regarding the site/spill. Assessments about whether the
substances present were used in fertilizer production are based on data about
the other chemicals found at the site, and any relevant information contained
in the records at ERD. This methodology yields no definite conclusions about
the actual uses of the substances found at the site/spill; however, it does
provide a rough indication of whether these releases (or derivatives of any of
these) were fertilizer-related.
Description of Sites/Spills
Tuba City Acid Tank, Coppermine, Az.: The report on the site indicates
that the sulfuric acid found was to be used in a mining reclamation project.
Plastifax Corp., Gulfport, Ms.: The Plastifax Corporation produces
chlorinated paraffin and wax. The emergency involved a fire/explosion at the
site. The sulfuric and phosphorous acid found at the site were probably
destined for use in the company's industrial processes.
Abandoned Chemicals, Cleveland, Oh.: The chemicals involved were found
inside 2 condemned buildings, formerly used to manufacture antiseptics.
Flood Damage, St. Louis, Mo.: The incident involved the removal of
drummed chemicals and waste which were washed away during a flood. All of the
owners of the chemicals drums were not determined. It is possible that the
drums of nitric acid found were destined for fertilizer production usage.
Hampton Cylinder Site, Hampton, Va: The abandoned cylinder testing
facility contained over 45 hundred improperly stored, leaking and
deteriorating drums. Other materials found at the site were: nitrogen,
liquid oxygen, argon, chlorine, helium, sulfur hexachloride, hydrogen
fluoride, sulfur chloride and methyl bromide. The fact that many of the other
materials found at the site were gases used for cylinder testing indicates
that it is unlikely the ammonia found at the facility was to be used in
fertilizer production.
Gebhart Fertilizer Co., Latham, II.: The Gebhart Fertilizer Company is
an abandoned fertilizer and farming chemical distributor. Solid and liquid
pesticides and fertilizers existed on the site, in addition to herbicides.
The On-Scene Coordinator's report on the site indicated that all of the solid
fertilizer and most of the liquid fertilizer were removed from the site by a
farming supply company, at no expense. The more difficult part of the cleanup
involved the disposal of the solid pesticides and herbicides by landfilling.
Standard Chemical Co.. Huntington. Ca.: The nitric acid found in the
fire/explosion at the Standard Chemical Company was among a large number of
chemicals. The materials found at the site along with the nitric acid were
chemicals related to paint; it is unlikely that the nitric acid present was to
be used in fertilizer production.
-------
7-11
Of the 7 sites/spills which possibly involved fertilizer materials, the
Gebhart Fertilizer Co. would seem to provide, the clearest evidence that
expenditures from the Fund were used to remedy hazardous waste sites/spills
involving fertilizers. However, in this case, the removal of fertilizers at
the site, in contrast to the disposal of the pesticides and herbicides
present, was achieved easily and at little or no expense. Though the
potential uses of the nitric acid»found at the Flood Damage site in St. Louis,
Mo. is indeterminate, nitric acid destined for use in fertilizer production
would probably not be transported in drums, but in larger quantities.
Furthermore, nitric acid used in fertilizer is often produced at the same
location as ammonia, and thus is less likely to be transported. It can be
surmised that the chemicals found at the other five sites/spills, based on the
reports at ERD and the concomitant chemicals, were unlikely to be used in
fertilizer production.
7.3.2 Historical Remedial Actions: The Six Remedial Actions
Under the Fund, remedial action has been taken at six waste sites as of
June 1984. These sites are listed in Exhibit 7-5, along with the types of
wastes found at the sites. No fertilizer material was present at the four
sites for which sufficient information was available; sufficient information
is not available about the two remaining sites.8-1
7.3.3 Planned Remedials: Records of Decisions (ROD's)
There have been 26 Records of Decision (RODs) by EPA for remedial actions
at NPL sites; only one of those ROD's involves one of the eight sites
containing possible fertilizer material, the Stringfellow Acid Pits site. The
possible fertilizer materials reported at this site are nitrates and sulfate
ion; there is probably no way to determine whether these wastes are actually
fertilizer-related.
7.3.4 Summary of Findings
Preliminary evidence suggests that there is only weak evidence that Fund
resources are used to respond to releases of fertilizer materials. Of the
approximately 210 removal actions described in the Removal -Tracking System for
the period from December 1980 through the end of fiscal year 1983, only one
removal could, with certainty, be attributed to fertilizer-related materials.
The majority of fertilizer-related material at this site was removed by a
farming supply company, at no expense to the Fund. Under the Fund, remedial
action has been completed at six waste sites. Of these six sites, four
contain no fertilizer-related materials; sufficient information is not
8JThe two sites are Walcott Chemical Warehouse, Greenville, Mississippi
and Luminous Processes, Athens, Georgia. No fertilizer producers are located
in Greenville, Mississipi or Athens, Georgia, according to the National
Fertilizer Development Center publication, Fertilizer Trends 1982; therefore,
the conclusion might be drawn that it is unlikely that any fertilizer-related
materials were found at these two sites.
-------
7-12
EXHIBIT 7-5
SITES FOR WHICH REMEDIAL ACTION HAS BEEN
COMPLETED AS OF JUNE 1984
Name of Site
Chemical Metals Industry, Baltimore, MD
Walcott Chemical Warehouse,
Greenville, Mississippi
Luminous Processes, Athens, Georgia
Butler Tunnel, Pittson, Pennsylvania
Chemicals Minerals, Cleveland, Ohio
Gratiot County Golf Course,
St. Louis, Missouri
Types of Wastes
Cyanide, organic solvents, acid
Information not available --
cleaned up by owner
Information not available
Trichloroethylene, cyanide,
toluene, xylene, dichlorobenzene
1,1,1-Trichloroethane, toluene,
perchloroethylene, chromic acid,
antimony chloride
PBBs, Tris, benzene
Sources: Superfund Hotline, CERCLA Docket, EPA Region IV.
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7-13
available about the other two sites to determine whether fertilizers
contributed to the problem. In the case of planned remedials, of the 26
Records of Decision (RODs) analyzed, only one pertains to a site possibly
containing fertilizer materials. There is no apparent way of determining
whether the wastes at these sites are fertilizer-related. All available data,
therefore, indicate that at best, there is only weak evidence that Fund
resources are being spent on fertilizer-related releases.
7.4 ALTERNATIVE 2 - OTHER PROXIES FOR "EXPENDITURE EXPERIENCE OF
THE FUND"
7.4.1 Release Data (National Response Center, Region VII,
Region VIII)
In order to determine the extent to which fertilizers and the principal
fertilizer raw materials contribute to hazardous substance release problems,
the spills data bases of the National Response Center and EPA Regions VII and
VIII were analyzed. All of these sources have computerized data bases which
could be searched for information regarding releases of particular
substances. KRC data on the spills of fertilizers and principal fertilizer
raw materials was obtained by IGF from OERR for 1982, 1983 and January 1-March
5, 1984. This data had been searched for anything mentioning fertilizer and
also for nitrates, phosphates and ammonia.9-1 The data indicates from what
mode of transportation the spill came, the quantity spilled, and the spill
location.
The data bases of EPA Regions VII and VIII were searched using a more
complete list of substances, including ammonia, nitric acid, sulfuric acid,
phosphoric acid and approximately 20 other fertilizer compounds-1OJ
Information retrieved from these searches included the name of the owner of
the spilled substance. Certain compounds found in the search, e.g., ammonium
nitrate, are definitely fertilizers. The data were also reviewed in order to
eliminate compounds which were clearly not fertilizers. For example, a
9JIn response to a request from Congressman Florio, the Office of
Emergency and Remedial Response (OERR) tabulated fertilizer industry spill
data based on reports to NRC. ICF used the data obtained from this search.
10JThe substances which were searched for in Region VII were: ammonia,
nitric acid, sulfuric acid, phosphoric acid, phosphate, sulfur, ammonium
nitrate, urea, ammonium sulfate, normal superphosphate, triple superphosphate,
ammonium polyphosphate, monoammonium phosphate, diammonium phosphate,
nitrophosphate, nitrogen solutions, superphosphoric acid, sodium nitrate,
nitric phosphate, potash, potassium chloride, potassium sulfate, calcium
sulfate, potassium nitrate and ammonium hydroxide. The Region VIII data base
was searched using an abridged list of words which was thought to encompass
the larger list: ammonia, nitrate, phosphate, sulfate, potash, urea and
potassium.
-------
7-14
substance such as copper ammonium acetate was ultimately excluded because it
is not a fertilizer. The owners of particular raw materials also provided an
indication about whether the material was to be used for fertilizer
production. For example, it was determined that sulfuric acid owned by the
Kennicott Copper Corporation was probably not a fertilizer feedstock. This
methodology was used to arrive at a rough estimate of the number of spills
involving actual fertilizer compounds and probable fertilizer feedstocks.
National Response Center
The number of releases of hazardous substances relating to fertilizer
during 1982, 1983 and 1984 (until March 5, 1984) were 169, 181, and 33,
respectively. Total notifications to the NRC for releases of CERCLA hazardous
substances were 1,914 in 1982, 2,430 in 1983 and approximately 410 between
January 1-March 5, 1984. Spills potentially involving fertilizers thus
comprised 8 percent of all releases of hazardous substances between January,
1982 - March 5, 1984. Reports to the NRC are not necessarily a good proxy for
the expenditure experience of the Fund because an estimated 90 percent of
reported releases are responded to by responsible parties.11
Region VII
The Region VII reporting form included a classification category
"fertilizer," which in addition to specific fertilizer compounds, was used to
search the data base. Computerized records of release events in Region VII
have been maintained since 1983. From January 1983 through May 1984, 1,094
non-oil spills were reported. Non-oil spills are divided into 3 groups:
miscellaneous chemicals, PCBs, and other spills which could not be
identified. It was determined that 112 spills involved either fertilizers or
fertilizer feedstocks. Fertilizers thus comprised 10 percent of non-oil
spills during 1983 and 1984. Region VII Emergency Planning and Response
Branch estimated that 95 percent of all spills that were remedied were
financed by the responsible party. Remaining actions were completed by state
and local governmental authorities, including fire departments, public works
departments, and those organizations responsible for sewer and pollution
control.12J
11J A publication issued by the Office of Emergency and Remedial
Response, "EPA's Emergency Response Program" (April 1982), notes that "in
practice, about 90 percent of all emergency cleanups and removals are handled
by the responsible party -- usually the generator, transporter, or disposer of
the waste. The remainder are cleaned up by an industry-governmental
partnership. If government resources are called upon, a variety of local
state and federal agencies may be called into action.", (p. 7).
12JInformation obtained from a telephone conversation with a
representative of Region VII's Emergency Planning and Response Branch.
-------
7-15
Region VIM
The Region VIII spill report form includes a code indicating the
individual/ organization which "cleaned up" the spill. The search for
fertilizer materials yielded 101 entries, from 1981 to March 15, 1984. The
following results regarding the party which completed action on the spill were
obtained from the data base:
Party Number of Spills
Federal Government 0
State Government 0
Local Government 5
Responsible Party 80
None 9
Unknown 5
Other Private 1
No Information 1
To!
No spills were remedied by the federal government. It was determined that 58
out of the 101 entries were probable fertilizers or fertilizer feedstocks.
The total number of non-oil reported releases from January 1981 to May 15,
1984 was 599. 13j Probable fertilizers and associated raw materials
comprised 10 percent of all reports of non-oil releases.
The fact that most reported spills are remedied by responsible parties
suggests that Fund resources are unlikely to be spent in the future on
removing releases of fertilizer feedstocks and their derivatives. The
proportion of total spills that are fertilizer-related is difficult to
accurately determine, because in many cases, the final uses of the particular
feedstock or its derivative are unknown. The estimate that approximately 10 •
percent of all non-oil spills in Regions VII and VIII are fertilizer-related,
for example, may overstate the expenditure experience of the Fund with respect
to fertilizer feedstocks because (1) these regions are relatively
agriculture-intensive and (2) responsible parties tend to complete actions
taken to remove fertilizer releases.
7.4.2 Hazard Ranking System Data Base
The Hazard Ranking System (HRS) data base was searched for possible
fertilizer materials reported at 538 National Priorities List (NPL) sites. An
initial list was obtained of 31 sites where materials which could be
fertilizer-related were reported. The list was screened using information
from the HRS data base and EPA's Hazardous Waste Site Descriptions, and the
13JIncludes hazardous materials and a "miscellaneous" category, which is
comprised of sewage, water, and substances that could not be identified.
-------
7-16
following types of sites were removed from the list:
• sites with on-site waste generators, such as chemical
companies, known to produce no fertilizer materials;
• sites with on-site waste generators at locations where
no fertilizers are produced;*u-
• landfills where the only possible fertilizer material
present is methane (in such cases, the methane is
probably generated by on-site reactions); and
• sites where descriptions of the wastes and their
sources made it clear that fertilizer materials were not
involved.
After this screening, 8 sites containing materials which could be fertilizer-
related remained on the list.15J Exhibit 7-6 shows the fertilizer-related
chemicals reported at these sites and the number of times each chemical was
reported.
At one of the sites where fertilizer-related materials were reported,
waste is generated on-site by an unnamed company.16-1 Allied Corporation
produces fertilizer in the city where the waste site is located; it is
therefore possible that Allied is the on-site generator and the wastes at this
site are fertilizer-related. No firm determination could be made about
whether this is the case. The remaining seven sites are landfills or dumps.
The origin of the fertilizer-related materials reported at these sites is
unclear. However, in view of the large percentage of ammonia, nitric acid,
phosphoric acid, sulfuric acid, and urea used as fertilizer or for fertilizer
production (see section 7.1), it seems possible that at least some of the
substances reported at the seven waste sites are fertilizer materials, even
given the transportation patterns sketched in Section 7.1.
As mentioned above, only eight sites, or 1.5 percent of the 538 National
Priorities List sites appear to contain chemicals which may be fertilizer
related. Since the origin of these chemicals has not been conclusively
1UJJ. Darwin Bridges, Fertilizer Trends 1982. (Muscle Shoals, AL:
National Fertilizer Development Center, Tennessee Valley Authority, 1982).
15JThe sites are the following: Davie Landfill, Davie, Florida; G&H
Landfill, Utica, Michigan;.Buckeye Reclamation, St. Clairsville, Ohio;
Pristine, Inc., Reading, Ohio; Stringfellow Acid Pits, Glen Avon Heights,
California; Nineteenth Avenue Landfill, Phoenix, Arizona; South Point Plant,
South Point, Ohio; Lee's Lane Landfill, Louisville, Kentucky.
16JSouth Point Plant, South Point, Ohio.
-------
7-17
EXHIBIT 7-6
FERTILIZER RELATED MATERIALS REPORTED AT
538 NATIONAL PRIORITIES LIST (NPL) SITES
Number of
Possible Times
Fertilizer Reported
Material at Sites
Ammonia 4
Ammonium (unspecified) 1
Methane 2
Nitrates 2
Nitric Acid 2
Phosphoric Acid 1
Sulfate (ion) 2
Sulfuric Acid 1
Urea 1
Source: ICF tabulation of MITRE Corporation, Hazard Ranking System (MRS)
data base.
-------
7-18
determined, the figure of eight sites would seem to be more of an upper bound
for sites containing fertilizer related materials; the actual number of sites
may be smaller. Given that this number is likely to be approximately one
percent of the total NPL sites, it is reasonable to conclude that
fertilizer-related materials are a very small problem at NPL sites.
7.4.3 Summary of Findings
Three independent spills data bases, of the National Response Center, EPA
Region VII, and Region VIII were analyzed to determine the extent to which
fertilizer related materials contribute to hazardous substance release
problems. A maximum of 10 percent of spills in Regions VII (January 1983 to
May 1984) and VIII (January 1981 to March 1984) arid 8 percent over a 26 month
period in the case of the NRC data base were fertilizer-related. Furthermore,
the analysis showed that remedial action for most reported spills was taken by
responsible parties and the federal government was rarely, if ever, involved
in the clean up.
A search of the Hazard Ranking System (HRS) data base to identify
fertilizer related materials at National Priorities List (NPL) sites yielded a
maximum of 8 sites which could contain these materials. The fact that only 8
sites could be identified out of a total of 538 (1.5 percent), and that the
evidence suggesting that these eight sites are fertilizer-related is
admittedly weak, clearly indicates that fertilizer materials are likely to be
responsible for only an insignificant percentage of the site clean-up costs to
be borne by the federal government.
Despite the broad definition for "expenditure experience of the Fund", the
evidence that Fund resources are used or likely to be used to respond to
fertilizer-related releases remains weak.
7.5 CHAPTER SUMMARY
When "expenditure experience of the Fund" is defined narrowly as
historical removal actions, historical remedial actions, and planned remedial
actions, the evidence that Fund resources are used to respond to fertilizer-
related releases is weak. Only one of 210 removal actions could be clearly
related to fertilizer releases and in that case, most of the Fund resources
were spent responding to pesticide-related releases. No historical or planned
remedial action could clearly be attributed to fertilizer-related releases.
However, it is possible that some of the materials at the Stringfellow Acid
Pits site are fertilizer-related, although this cannot be determined with
certainty.
When "expenditure experience of the Fund" is defined more broadly, it is
possible to find evidence of fertilizer-related releases. However, it seems
likely that Fund resources are not used to respond to these releases. For
example, of 101 potentially fertilizer-related releases in Region VIII from
January 1, 1981 to March 15, 1984, 80 were acted on by the responsible party
and zero were responded to by the federal government. (The remainder were
-------
7-19
either remedied by local government, were not responded to, or it was not
known whether there was a response.) Thus, even though this broader
definition of expenditure experience of the Fund suggests that in agriculture
intensive regions, as many as 10 percent of the spills might be
fertilizer-related, there is little evidence to suggest that Fund resources
are used to respond to these releases.
In summary, whether using a narrow or broad proxy for expenditure
experience of the Fund with respect to fertilizer-related materials, the
evidence that Fund resources are used or likely to be used to respond to
fertilizer releases is less then compelling, particularly when contrasted with
the clarity of the evidence on metals.
-------
8. ECONOMIC IMPACT OF TAXING FERTILIZER FEEDSTOCKS
This chapter is organized as follows:
8.1 Profile of the Fertilizer Industry
8.2 Impact on Fertilizer Markets
8.3 Impact on Farmers
8.4 Summary
8.1 PROFILE OF THE FERTILIZER INDUSTRY
The fertilizer industry experienced extremely difficult years in 1982 and
1983 due to a large number of factors, including depressed prices for
agricultural products caused by the recession, increased competition from
fertilizer .imports, and declining agricultural exports. The acreage of
farmland cultivated decreased as a result of the Payment-in-Kind (PIK) program
and inclement weather. The situation was exacerbated by the strong dollar and
rising interest rates. This section will review the demand for and supply of
fertilizers, the balance of trade in fertilizers, and the structure of the
industry, in order to provide background to the analysis of the effects of a
CERCLA tax on fertilizer feedstocks.
8.1.1 Fertilizer Demand
Exhibit 8-1 shows the evolution of demand for fertilizer materials.
Growth in consumption of fertilizer materials continued until 1982. Total
fertilizer use in the U.S., including mixed fertilizer and secondary and
micronutrient materials, reached an unprecedented 54 million short tons of
material during the fertilizer year 1981.l Primary nutrient consumption,
comprising nitrogen, phosphate and potash, was 23.7 million tons in 1981.
Total fertilizer consumption in the 1982 fertilizer year (July 1, 1981 to June
30, 1982) declined to 48.7 million short tons, a 10 percent decrease, and
diminished by 13 percent in 1983, to 42.3 million short tons. The
corresponding data for the primary nutrients, nitrogen, phosphate, and potash
(Exhibit 8-1) show a 10 percent overall decrease in consumption between 1981
and 1982, and a 15 percent reduction in 1983.
Predictions about fertilizer usage in 1984 were optimistic, based on the
reductions in the PIK program, and depleted grain stocks. The April 1984
issue of Inputs Outlook and Situation (USDA) predicted a 17 percent increase
primary nutrient consumption in 1984, reaching 21.3 million tons. The causes
of this increase, according to the article, would be the projected 36 percent
increase in acres of corn planted, and an 11 percent rise in overall
1Each fertilizer year extends from July 1 of the previous calendar year
through June 30 of the current year. All chronological references in the text
refer to the fertilizer year.
-------
8-2
EXHIBIT 8-1
DOMESTIC CONSUMPTION OF FERTILIZER
(thousand short tons)
1978
Total Fertilizer
Primary Nutrient
Nitrogen (N)
Phosphate (P2Cv)
Potash (K 0)
Total
a/ 47
Content
9
5
5
20
,497
,965
,096
,526
,587
1979
51
10
5
6
22
,481
,715
,606
,244
,565
1980
52
11
5
6
23
,787
,407
,432
,245
,084
1981
53
11
5
6
23
,988
,924
,434
,320
,678
1982
48
1.0
4
5
21
,733
,974
,810
,623
,407
1983
42,300
9,185
4,160
4 , 842
18,187
DOMESTIC PRODUCTION OF FERTILIZER
(thousand short tons)
1978
Primary Nutrient Content
Nitrogen (N)
Phosphate (P2°5^
Potash (K20)
Total
1979
1980
1981
1982
1983
it
10,466
-8,245
2,176
20,886
11,106
9,432
2,519
23,057
12,323
10,012
2,474
24,809
13,036
10,471
2,262
25,769
11,598
7,818
1,831
21,247
9,855
8,043
1,859
19,757
Note: Year ending June 30
a/ Includes primary nutrient material, mixed fertilizer, secondary and
micronutrient materials.
Source: "Facts and Figures for the Chemical Industry", Chemical and
Engineering News, June 11, 1984, p. 40. Data source was U.S.
Department of Agriculture.
-------
8-3
cultivated acreage.2 Recent data.confirms the optimistic predictions. Net
fertilizer consumption from July 1983 to April 1984 experienced a 12 percent
increase from the level in last year's season.3 The May 1984' Fertilizer
Record, published by The Fertilizer Institute, gives production data for the
period from July 1983 to May 1984. Overall production of fertilizers rose 6
percent during this time period, in comparison with production levels the
previous year. Prices of certain fertilizers have risen during 1984. In May
1984, the price of anhydrous ammonia was 18 percent higher than the price one
year ago. Triple superphosphate prices increased 8 percent during this
period, diammonium phosphate rose by 9 percent, while the price of potash rose
about 3 percent (Exhibit 8-2).
Fertilizer demand is fairly inelastic, with mean elasticities of demand
for nitrogenous, phosphatic and potash fertilizers estimated by one source to
be -0.43, -0.38, and -0.20, respectively." The tax at current levels
constitutes approximately 1.0 percent of ammonia prices and less than 0.5
percent of sulfuric acid and nitric acid prices. Given the high inelasticity
•in demand, small changes in fertilizer prices on account of the CERCLA tax are
unlikely to affect consumption significantly.
8.1.2 Fertilizer Supply
Nitrogeous Fertilizers
There are a large number of producers of nitrogenous fertilizer
materials. In the case of ammonia alone, there were 87 manufacturers in the
beginning of 1983.5 Given the large number of manufacturers, it is not
surprising that the fertilizer material production business has the
characteristics of a commodity chemical business -- high volume, low margins.
Furthermore, the cost structure of these materials is such that the major
percentage of cost of production is accounted for by the price of feedstock,
e.g., in the case of ammonia, by the price of natural gas. U.S. producers,
therefore, do not have the margins to adjust prices so as to compete with
producers who can buy their feedstock cheaply. Domestic producers face
significant competition from fertilizer imports, particularly from countries
such as Mexico, which have large supplies of low-cost ammonia. Shifting
2U.S. Department of Agriculture, Inputs Outlook and Situation, April
1984, p. 18.
'"Fertilizer Movement Posts New Gains," Chemical Week, 13 June 1984, p.
24.
''Thomas J. Lutton and Anthony Prato, "Demand for Fertilizers Under
Uncertainty," U.S. Department of Agriculture, Economic Research Service (not
dated).
SJ. Darwin Bridges, "North American Production Capacity Data,"
Fertilizer Trends, 1982. (Muscle Shoals, Alabama: National Fertilizer
Development Center, Tennessee Valley Authority).
-------
8-4
EXHIBIT 8-2
AVERAGE U.S. FARM PRICES PAID FOR SELECTED
FERTILIZER MATERIALS, 1982 to 19841
(Dollars per short ton)
Year
1981:
1982:
1983:
1984:
March
March
March
May
October
December
March
May
Anhydrous
Ammonia
(82%)
243
255
237
237
226
232
275
280
Triple
Super-
phosphate
(44-46%)
248
230
214
214
205
210
229
231
Diammonium
Phosphate
(18-46-0%)
287
267
249
249
238
245
271
271
Potash
(60%)
152
155
143
143
128
131
144
147
Mixed
Fertilizer
(6-24-24%)
221
219
205
206
196
198
212
217
on a recent survey of fertilizer dealers conducted by the
Statistical Reporting Service, USDA.
Source: U.S. Department of Agriculture, Inputs Outlook and Situation,
April 1984).
-------
8-5
patterns in the international trade of fertilizers is discussed in section
8.1.3.
Nitrogenous Fertilizers
Nitrogenous fertilizer production decreased greatly in 1982 and 1983.
Total U.S. production, of nitrogen declined 11 percent between 1981 and 1982,
and fell 15 percent between 1982 and 1983 (Exhibit 8-1). Individual
nitrogenous fertilizers experienced the following production decreases between
1982 and 1983: anhydrous ammonia, 22 percent; solid ammonium nitrate, 18
percent; urea, 22 percent; and nitrogen solutions, 17 percent.6
The production of all nitrogenous fertilizers, from July 1983 through May
1984, increased 5 percent over the previous year's level. Anhydrous ammonia
production was 1.4 million tons in May 1984, constituting a 20 percent
increase over May 1983.7 Lower natural gas prices resulting from excess
supply have improved the outlook in the near-term for domestic production of
nitrogenous fertilizers. According to some analysts, these developments, in
conjunction with greater fertilizer demand, are responsible for increased urea
production. Effective operating capacity of urea was 7.584 million tons at
the start of the 1984 fertilizer season, while the corresponding figure for
1983 was 6.2 million tons.8
Phosphatic Fertilizers
There have been large increases in the production of phosphate based
fertilizers during 1984. For an eleven month period ending in May 1984,
production of phosphate rock increased by 26 percent, production of wet
process phosphoric acid went up by 25 percent, while diammonium phosphate
production went up 21 percent. Overall production of phosphate fertilizers
during the period from July 1983 through May 1984 increased 18 percent over
the level of the previous year.9
Potassium Fertilizers
The 1983 potash production of 1.8 million nutrient tons represented a 16
percent decrease from the previous year's output. Production from July 1983
6U.S. Department of Agriculture, Inputs Outlook and Situation, February
1984, p. 11.
7Data from two publications of The Fertilizer Institute, Fert Flash,
July 10, 1984 and Fertilizer Record, May 1984.
8"Urea Producers Optimistic, But Cheap Offshore Gas Gives Them Cause for
Concern," Chemical Marketing Reporter, 9 July 1984, p. 5.
9 Fertilizer Record (Washington, D.C.: Fertilizer Institute, May 1984.)
-------
8-6
through May 1984 declined further, by 18 percent.10 Decreasing potash
production is attributable to the fact that domestic potash reserves are
considered to be high-cost in comparison with those of other countries.11
Potassium based fertilizers, including potash, would not be affected by the
proposed CEKCLA tax.
8.1.3 Balance of Trade in Fertilizers
The three largest producers of fertilizer are Canada, the United States,
and the U.S.S.R. The U.S. is a net exporter of fertilizer materials, a
category comprising fertilizer derivatives of nitrogen, phosphate and
potassium. The U.S. has a positive balance of trade in fertilizer materials
because net exports of phosphatic fertilizers are larger than the net imports
of nitrogenous and potassium fertilizers. Exhibit 8-3 shows that in 1983, the
U.S. had a trade surplus valued at $915 million (10,088 thousand metric tons
of fertilizer material). Preliminary data from the 1984 fertilizer year also
shows a positive balance of trade in fertilizer materials. The U.S.
phosphatic fertilizer industry is likely to maintain its dominance in world
trade because of the domestic availability of large supplies of phosphate rock
at prices which are competitive with those of foreign sources. The long-term
prospects of the nitrogenous fertilizer industry are not as favorable, due to
competition with countries such as Mexico which have access to low cost
feedstocks. Widespread closures of ammonia plants in the United States were
attributed to competition from Mexican ammonia producers, who can buy their
feedstock at prices substantially less than the prices faced by their U.S.
counterparts.12 The trend of feedstock-rich countries towards establishing
commodity chemical industries indicates that U.S. nitrogenous fertilizer
production will probably decline over time because the U.S. does not have a
feedstock cost -advantage.
Nitrogenous Fertilizers
U.S. imports of nitrogenous fertilizers continue to increase. Nitrogen
imports during the 1984 fertilizer year were 3.4 million tons, an increase of
47 percent over last year. Imports of ammonia during the first eleven months
(July 1, 1983 to May 1984) of the 1984 fertilizer year increased by 58 percent
over the previous year, while imports of urea rose 28 percent.13
10 Ibid. See also: U.S. Department of Agriculture, Inputs Outlook and
Situation, February 1984, p. 5.
^"Fertilizer—Getting Set for the Big Rebound," Chemical Week, 9
November 1983, p. 37.
12"The Ammonia Crunch—Other' s Cheap Feedstocks Threaten U.S.
Producers," Chemical Week, February 23, 1983, p. 35.
13"Fertilizers Had a Super Year," Chemical Week, 18 July 1984, p. 29.
-------
8-7
EXHIBIT 8-3
BALANCE OF TRADE IN FERTILIZER MATERIALS
(thousand metric tons)
1979
1980
1981
1982
1983
1984 a/
Imports
Nitrogen
Phosphate
Potash
TOTAL
Exports
Nitrogen
Phosphate
Potash
TOTAL
Balance of Trade
Nitrogen
Phosphate
Potash
TOTAL
Balance of Trade
Nitrogen
Phosphate
Potash
TOTAL
3,511
1,171
7,773
12,455
3,190
20,709
1,532
25,431
(321)
19,538
(6,241)
12,976
3 ,.993
1,196
8,258
13,447
3,423
23,008
1,586
28,017
(570)
21,812
(6,672)
14,570
(value in millions
$ (46)
1,290
(330)
$ 914
$ (25)
1,863
(399)
$1,439
3,768
697
8,382
12,848
4,067
21,192
1,334
26,593
299
20,495
(7,048)
13,746
of current
$ 154
2,202
(590)
$1,766
3,906
348
7,316
11,570
3,251
16,766
989
21,006
(655)
16,418
(6,327)
9,436
dollars)
S (105)
1,743
(587)
$1,051
4,368
253
6,719
11,340
2,448
17,962
1,018
21,428
(1,920)
17,709
(5,701)
10,088
$ (338)
1,698
(445)
$ 915
2,104
69
3,001
5,174
841
8,076
305
9,222
(1,263)
8,007
(2,696)
4,048
$ (198)
708
(194)
$ 316
Note: See Appendix A
a/ Data for
Source: USDA
July-November 1983.
, Inputs
Outlook and
Situation,
February 1984
.
USDA, Fertilizer Outlook and Situation, December 1982.
-------
8-8
Phosphatic Fertilizers
Export performance of phosphatic fertilizers during the 1984 fertilizer
season has been strong. The Fertilizer Institute reports that during May
1984, exports of diammonium phosphate reached 704,000 tons, the highest level
since July 1980. Total exports of diammonium phosphate during the period from
July 1983 to May 1984 were 5 million tons, representing a 22 percent increase
over last year. Concentrated superphosphate exports continue to increase,
while remaining lower than 1983 levels, and phosphate rock exports have grown
significantly during the 1984 fertilizer season.1'*
Potassium Fertilizers
Imports of potash have risen sharply during the 1984 fertilizer year.
Imports of muriate of potash from July 1983 to May 1984 totalled 8.2 million
tons, constituting an 18 percent increase over last year's level. The reasons
for large potash imports are different from those explaining growing nitro-
genous fertilizer imports. Domestic consumption demand is too large to be met
by U.S. production. Furthermore, U.S. producers have interests in Canadian
potash mines; Canadian potash accounts for a large share of U.S. imports.15
8.1.4 Industry Structure and Performance
In 1983, the top four firms in ammonia, ammonium nitrate and urea
accounted for 31 percent, 29 percent, and 37 percent of capacity,
respectively. The top eight accounted for 50 percent, 51 percent, and 63
percent of capacity. Therefore, concentration in nitrogenous fertilizers is
relatively low. Concentration of phosphatic fertilizers is higher, with the
top four firms in phosphate rock, ammonium phosphate and concentrated
superphosphate accounting for 53 percent, 46 percent, and 64 percent of
capacity respectively, and the top eight firms accounting for 75 percent, 72
percent, and 94 percent. Potash is very concentrated, with the top four firms
accounting for 69 percent of capacity, and the top eight 94 percent.16
Fertilizer producers tend to be large national multi-line chemical firms as
well as regional specialists. As in other chemical lines, the larger domestic
firms are currently undergoing some restructuring, away from the commodity-like
fertilizer business. Kaiser, Allied, and Reichhold are three firms that have
recently left the fertilizer business.17
1
-------
8-9
8.1.5 Conclusion
The fertilizer industry has rebounded in 1984, with large increases in
both production and consumption of most fertilizers. The principal reason for
this improvement in situation is increased planted acreage, due to reductions
in the PIK program and depleted grain stocks. The outlook for the phosphatic
fertilizer industry is bright; exports are expected to grow as a result of
continued comparative advantage. The long-run prospects of the domestic
nitrogen industry are uncertain, because of competition from countries with
cheap natural gas feedstocks. Large imports of potash will in all likelihood
continue in order to meet domestic demand.
8.2 IMPACT ON FERTILIZER MARKETS
This section discusses the effect of the CERCLA tax on fertilizer
feedstocks on the supply and demand for fertilizers. The tax has a direct
impact on the price of nitrogenous and phosphatic fertilizers because both of
these fertilizer types use CERCLA taxed feedstocks. Potassium containing
fertilizers (e.g., Potash) are mined and applied directly to the soil. They
do not go through any expensive chemical conversion (as explained in Chapter
7), and by the very nature of their production do not use any CERCLA-taxed
feedstocks. The CERCLA tax therefore has no impact on their price. Potassium
fertilizers will not be discussed further in this section.
The subsections which follow empirically analyze the effect of the tax on
two nitrogenous fertilizers, ammonia and urea, and one phosphatic fertilizer,
diammonium phosphate. The two nitrogenous fertilizers are considered because
they are the most widely used fertilizers in the United States. The analysis
is indicative, not conclusive. It does not purport to be a rigorous and
completely accurate account of the effects of the tax. It does, however,
indicate the order of magnitude of the potential demand and supply side
effects of the CERCLA tax.
8.2.1 Nitrogenous Fertilizers
Ammonia: The CERCLA tax on ammonia is $2.64 per ton. This amounts to 1%
of the price of ammonia, which is $275 per ton.18 If it is assumed that the
tax is passed through completely to the consumer, the price of ammonia will go
up by 1%. The impact of this price increase on the demand for ammonia can be
assessed approximately by using data on mean elasticities of demand for the
major plant nutrients. Mean elasticities of demand for nitrogen, phosphorous
and potash have been estimated at -.43, -.38, and -.20 respectively.13 A
1 8
USDA, Inputs Outlook and Situation, April 1984, p. 20.
19Thomas J. Lutton and Anthony Prato, "Demand for Fertilizers Under
Certainty," USDA, Economic Research Service (not dated).
-------
8-10
one percent ammonia price increase, using the nitrogen elasticity figure, will
lead to a 0.43 percent decrease in demand for ammonia. Because both supply
and demand for ammonia are inelastic, the small increase in price and the even
smaller change in demand and supply will have a negligible effect on the
expenditure for direct application ammonia.
Urea: The inputs for the manufacture of urea are anhydrous ammonia (.54
tons/ton of urea) and carbon dioxide (.75 tons/ton of urea).20 Carbon
dioxide is exempt from a CERCLA tax, but the tax imposed by CERCLA section 211
on anhydrous ammonia is $2.64 per ton.21 Given the proportion of ammonia
going into the production of urea, the current tax levels would increase the
cost of producing urea by $1.43 per ton. In December 1982, the price of urea
was $222 per ton.22 Assuming full pass-through of the tax, the percentage
increase in the price of urea would be 0.6 percent. Thus, the effect of the
tax on the market for urea will be even less than the effects described above.
8.2.2 Phosphatic Fertilizers
Diammononium Phosphate (DAP): Raw material requirements for the
production of 1 ton of DAP are as follows:
1.6 tons of phosphate rock;
1.3 tons of 100 percent sulfuric acid; and
0.23 tons of anhydrous ammonia.23
Of these three raw materials, only two are taxes under CERCLA, sulfuric
acid at $0.26/ton and anhydrous ammonia at $2.64/ton. Assuming full pass
through of the tax, the price of DAP will increase by $0.95/ton, or 0.4
percent, based on $27I/ton price of DAP in March 1984.2* The effect of this
price increase on the demand for DAP can be ascertained by using the mean
elasticity of demand for fertilizers containing phosphorus, -0.38.25 A 0.4
percent increase in the DAP price, using the phosphorous fertilizer demand
elasticity data, will lead the 0.15 percent decrease in demand. Similarly,
using the mean supply elasticity of phosphorous fertilizers of 0.55, the
2""Fertilizer-Getting Set for the Big Rebound," Chemical Week, November
9, 1983.
21Kirk and Othmer, Encyclopedia of Chemical Technology, 3rd edition,
(New York: Wiley-Interscience, 1980), X, p. 53.
22USDA, "Agricultural Prices," Statistical Reporting Service, 1982.
23 The Fertilizer Handbook, (Washington, D.C.: The Fertilizer
Institute, 1982), p. 63.
2"USDA, Inputs Outlook and Situation, April 1984, p. 20.
25Lutton and Prato, p. 12.
-------
5-11
increase in DAP supply for a 0.4 percent DAP price increase will be 0.22
percent. The small changes in demand and supply of DAP resulting from the
CERCLA-taxed DAP price will negligibly affect the market for DAP.
8.2.3 Conclusion
It is more than likely that the effect of a CERCLA tax on expenditures for
fertilizers will be very small, as demonstrated in the three examples above.
The relative share of fertilizers in total farm production expenditure (7.5
percent, as explained in Section 8.3) is, therefore, not likely to change on
account of the CERCLA tax on fertilizer feedstocks.
8.3 IMPACT ON FARMERS
A CERCLA tax on fertilizer feedstocks could affect fertilizer prices and
thus affect the major users of fertilizers, namely farmers. This section
analyzes the potential impact on farmers of a tax on fertilizer feedstocks.
Section 8.3.1 briefly highlights the major factors determining fertilizer
demand. Section 8.3.2 presents the regional differences in fertilizer
consumption, which are significant because the demand for fertilizers varies
from region to region. Section 8.3.3 gives an overview of the recent
experience in fertilizer demand; depressed market conditions and acreage
reduction programs have drastically reduced fertilizer demand in 1982 and
1983; the situation of the industry has improved significantly in 1984.
Section 8.3.4 assesses the change in fertilizer prices relative to price
changes of other farm inputs. Section 8.3.5 outlines the potential effects of
a fertilizer price increase on the demand for fertilizer. Given elasticities
of demand and an initial tax rate, the likely impact of a CERCLA tax on
fertilizer prices and demand is estimated. Section 8.3.6 is a conclusion
incorporating the findings of the previous sections.
8.3.1 Farmers Demand for Fertilizers
Fertilizers are a very important input to farming in the United States.
In 1981, total farm expenditures on fertilizers were estimated at $9.9
billion.26 Fertilizer application rates per acre -- which determine the
demand for fertilizer -- are a function of relative input prices, soil
quality, expected output prices, and weather.27 Of these factors, weather
is, of course, the most unpredictable. Relative input prices determine the
optimal input mix. Soil quality is a major factor in determining the
fertilizer application rate per acre, because moister soil requires less
fertilizer to produce the same output as dryer soil. Expected output prices
determine the supply of farm products and consequently affect demand for farm
inputs.
26USDA, "Farm Production Expenditures," Statistical Reporting Service,
1982.
27Lutton and Prato.
-------
8-12
8.3.2 Regional Differences
Fertilizer consumption across the United States is by no means uniform.
The U.S. is a vast country with dramatic regional dif ferenc-es, and the farming
sector is probably more diversified across the U.S. than any other sector of
the U.S. economy. The importance of regional differences is that an increase
in fertilizer prices due to a CERCLA tax will affect farmers' consumption of
fertilizer differently, depending on their region. Exhibit 8-4 gives a
summary of relative fertilizer use in 1982 by region.
Exhibit 8-5 illustrates the major regional differences in relative factor
inputs in farming. The proportion of farm expenditures on fertilizers varies
from 4.3 percent of total farm expenditures in the Mountain states to 10.6
percent in the Southeast. This is due, in part, to the relatively cheap price
of fertilizer in the Southeast, where a lot of fertilizer plants are located.
While there is no "typical" region in terms of relative expenditures on
fertilizers, in the regions which account for the major share of U.S.
fertilizer consumption (Lake States, Corn Belt, Northern Plains), an average
of 7.5 percent of total farm expenditures are for fertilizer. This figure is
close to the national average for the last few years and is a good estimate
for the U.S. The effect of the CERCLA tax on this expenditure on fertilizer
is explored in section 8.3.5.
8.3.3 Recent Experience in Fertilizer Demand
In recent years, fertilizer demand has been very volatile, as federally
induced acreage reduction programs such as the PIK (Payment-In-Kind), combined
with decreased foreign demand for U.S. farm products, have drastically reduced
the amount of acres planted in 1982 and 1983. In an initial assessment of the
PIK program, USDA predicted a 12 to 15 percent decrease in fertilizer
use.28 For the year ended June 1983, fertilizer consumption in the U.S. was
down 13 percent from the previous year.29 All indications are that the PIK
program was a major contributor to the dramatic decline in fertilizer demand
in 1982-1983. The prospects for 1984 are much improved because the PIK
program has been phased out and the surplus of corn and wheat are reduced.
The decreased demand in 1982-83 induced a decrease in the price of
fertilizers.30 The next section.will discuss the price relationships
between fertilizers and other farm inputs.
28USDA, "An Initial Assessment of the Payment-In-Kind Program," Economic
Research Service, 1983.
29USDA, "Commercial Fertilizers, Consumption," Statistical Reporting
Services, Crop Reporting Board, November 1983.
3""Fertilizer -- Getting Set for the Big Rebound," Chemical Week, 9
November 1983.
-------
8-13
EXHIBIT 8-4
USE OF FERTILIZER BY REGION -- 1982 a/
(percent of U.S. total)
Region
Northeast
Lake States
Corn Belt
Northern Plains
Appalachian
Southeast
Delta
Southern Plains
Mountain
Pacific
Nitrogen
Phosphatic
Potassium
2
9
30
15
6
6
4
8
6
8
.9
.8
.6
.2
.2
.6
.8
.7
.2
.7
4
13
33
10
9
7
3
6
5
5
.9
.0
.3
.5
.1
. 1
.7
.8
.5
. 7
5 .
17.
43.
2.
10.
11.
6.
2.
0.
2.
0
5
3
4
7
2
1
3
6
2
a/ USDA, Inputs Outlook and Situation, February 1984.
-------
EXHIBIT 8-5
MAJOR FARM PRODUCTION EXPENDITURES BY REGION
PERCENTAGE OF TOTAL FARM PRODUCTION EXPENDITURES -- 1982 a/
Northeast
Lake States
Corn Belt
Northern Plains
Appalach ian
Southeast
Del ta
Southern Plains
Mountsi n
Pa c i f i c
U.S.
Livestock
6.
7.
12.
18.
6.
9.
6.
19.
19.
3.
11.
9
9
5
6
1
0
7
9
6
3
7
Fa rm
Service
Rent
11
11
20
16
17
11
15
16
11
17
16
.3
.0
. 1
.8
.7
.6
. 1
. 1
.?.
.8
.1
£ee_d
20. 1
1 1 .
12.
11.
12.
16.
19.
1 1 .
12.
11.
13.
8
0
3
2
8
0
1
5
5
3
Wagers
13. 1
6
3
3
11
12
9
8
10
20
8
.9
.3
.6
. 1
.9
.0
.5
. 1
.3
.8
Interest
7.7
13.
11 .
11.
8.
8.
9.
8.
10.
1 0 .
10.
3
0
7
7
3
1
5
9
0
1
Fert i
1 izer
7.
6.
9.
5.
9.
10.
7.
5.
1.
1.
7.
s
3
9
7
9
9
1
0
9
3
9
3
EMLqy
7.3
8.
6.
8.
8.
7.
8.
8.
7.
6.
7.
1
6
2
0
5
8
0
8
6
5
0 the r
26
31
21
23
26
23
25
22
20
22
2
.3
. 1
.8
.9
.3
.5
.0
.0
.6
.6
.6
IP. ta J.
100.0
100
100
100
100
100
100
1 00
1 00
100
100
.0
.0
.0
.0
.0
.0
.0
.0
.0
. 0
03
1
H1
a/ Source: USDA, Statistical Reporting Service, Farm Production Expenditures, Sp Sy 5 (7-83).
-------
8-15
8.3.4 Fertilizer Prices Relative to Other Farm Input Prices
In order to assess the impact of an increase in fertilizer prices on
farmers, the relationship between the price of fertilizer relative to that of
other farm inputs must be ascertained. Exhibit 8-6 shows the change in prices
paid by farmers for major farm inputs. Fertilizer prices have been very
stable in the last few years, and declined in 1983. The major increases were
in the prices of energy, livestock, and in interest costs. In 1983,
fertilizer had the lowest price increase relative to all the major farm
production expenditure items. In 1982-83, fertilizer prices were low, but
have risen in the 1983-84 fertilizer year (see Section 8.1.1).
The impact of a CERCLA tax on fertilizer feedstocks in a period of both
increasing prices and increasing demand should be smaller than when depressed
market conditions prevail, especially since prices of other farm inputs such
as energy and interest show no signs of abating. It is, therefore, likely
that the share of farmer's expenditures on fertilizers relative to other farm
inputs will remain fairly stable.
8.3.5 Conclusion
Although fertilizers are a very important input to the farming industry,
expenditures on fertilizer as a percentage of total farm production
expenditures have remained fairly stable over time despite some regional
differences. The relative inelasticity of demand for fertilizers is likely to
minimize the impact of a tax on the quantity of fertilizer demanded.
As both fertilizer prices and demand are expected to increase in the near
future, the tax effect will be even smaller than in periods of depressed
demand. Even though the fertilizer industry is a volatile one, a tax on
fertilizer feedstocks, which would marginally increase the price of
fertilizers, is not likely to have a strong impact on farmers.
8.4 SUMMARY
The essence of the findings of this section are as follows:
1. The fertilizer industry is entering a rebound period and
appears to be facing relative prosperity, at least in
the short-run.
2. Demand for fertilizers is relatively inelastic, and a
tax at current rates would constitute only a small
percentage of fertilizer prices. Therefore, the effects
of a tax on fertilizer markets would likely not be great.
3. An increase in fertilizer prices due to the CERCLA tax
at current rates would hardly be noticed by farmers
because most farm inputs are subject to economic forces
which dominate the feedstock tax at current rates.
-------
8-16
EXHIBIT 8-6
INDEX OF PRICES PAID BY FARMERS
(1977=100)
300-1
250 -
Relative price
(1977 = 100)
200-
150 -
100 -
50 -
KEY:
Feed—————— Interest"
Rent-
Livestock——- Wages*- --- Energy *** Fertilizer'
77
I
78
I
79
I
80
I
81
82
83
Year
Source: "Agricultural Prices", U.S. Department of
Agriculture, Statistical Reporting Service,
Crop Reporting Board.
-------
PART III: COAL-DERIVED SUBSTANCES
-------
9. ECONOMIC IMPACT OF TAXING COAL-DERIVED SUBSTANCES
9.1 OVERVIEW AND FINDINGS
CERCLA Section 211 exempts from the CERCLA feedstock tax substances
derived from coal. Section 301(a)(l)(I) requires an analysis of the economic
impacts of taxing these substances. This chapter discusses those economic
impacts .
The imposition of a tax on coal-derived substances would primarily affect
two industries -- the metallurgical coke industry and the synthetic fuels
industry. Over the next decade, the metallurgical coke industry is likely to
be the larger industry affected, since synthetic fuels probably will be
produced only on a limited commercial scale.
The first section presents an overview of the markets likely to be
affected by any tax. The second section examines the largest industry to
which the tax would most likely apply -- the metallurgical coke industry. The
third section focuses on the emerging synthetic fuels industry. The final
section summarizes the overall impacts of a tax on all industries producing
taxable substances derived from coal.
Throughout this analysis, it is assumed that the only coal-derived
substances that would be subject to the tax are'those listed under Title II of
CERCLA as taxable chemicals. In the case of coke oven by-products, these
chemicals are benzene, toluene, xylene, naphthalene, and ammonia. For the
coal-based synthetic fuel projects which may come on-line in the near future,
only limited amounts of ammonia production would be subject to the tax.
Production information is presented on all coal-derived substances for
perspective and reference. However, for analyzing the impacts of removing the
feedstock tax exemption for coat-derived substances, it is assumed here that
the products subject to a tax are only those listed under Title II.
Depending upon the amount of substances produced, a feedstock tax could
generate approximately $2 to $4 million annually. Ninety percent or more of
this amount would be from coke oven by-products.
9.1.1 Metallurgical Coke Industry
In order to produce most of the steel in the United States, coke is
required to reduce iron ore to pig iron before the steel can be formed. Coke
itself is created from coal by heating the' coal in the absence of air, a
process called carbonization. In carbonization, the coal is reduced primarily
to a carbon-based substance called coke. During this process, various
chemicals are released from the coal that are often recovered for use
elsewhere. Some of these by-products ,are used to make chemical feedstocks
listed in Title II. If the exemption for coal-derived substances were
eliminated, feedstocks produced from coal-derived substances would be taxed.
-------
9-2
The elimination of the exemption would result in modest tax revenues,
probably with little effects upon operations, other than possibly less on-site
refining of crude by-products and light oil derivatives:
• The value of all products produced from coke oven
by-products (but not necessarily sold) in 1980 was
approximately $1.5 billion (in mid-1982 dollars). Those
substances listed under Title II accounted for about 10
percent of this total value of production. Since many
of the coke oven by-products are consumed on-site rather
than sold, the substances listed under Title II comprise
almost 25 percent of the commercial sales.
• If the exemption is eliminated, tax revenues from
substances derived from coke oven by-products would be
about $2 to $3 million annually, given the current taxes
in Title II.
• Generally, a tax will not affect the amount of crude
by-products recovered in the coke-making process. The
objective in the coke industry is production of
high-quality coke. Crude by-products are recovered as
an ancillary benefit of coke-making, but the basic
process is not altered to change the type and quantity
of by-products produced.
• Some of the chemicals produced from coke oven
by-products, such as the aromatic hydrocarbons, benzene,
toluene, xylene, and naphthalene, must be refined from
the crude substances recovered directly from the coke
ovens. In recent years, the cost of refining these
products has increased as the amount produced has
declined with decreases in coke production. As a
result, many operators have ceased their advanced
refining processes, choosing instead to use the
by-products internally (e.g., as fuel) or sell them in
their crude stage to other refiners. Elimination of the
CERCLA tax exemption could theoretically accelerate this
trend and lead to a small reduction in the amount of
coke oven by-products refined into CERCLA-taxed
feedstocks. However, the market for these feedstocks
would be affected only marginally, as they are dominated
by petroleum-derived substances.
• The price that producers receive for their coal-
derived substances is often determined by petroleum-
derived substances. In most instances, the
petrochemical industry produces substantially more of a
particular product (or a close substitute). Producers
of coal-derived substances typically accept the price
set by other producers (i.e., the petrochemical
-------
9-3
industry), making it very difficult to pass on the cost
of a feedstock tax in the form of higher prices. As a
result, the tax would be an additional operating cost to
the coke producers, a cost that would generally have to
be absorbed by the U.S. steel industry.
• Not all of the steel produced in the U.S. requires
coke. About 30 percent of U.S. steel production is from
electric arc furnaces, which use virtually no coke to
produce steel. As a result, steel produced from
electric arc furnaces does not generate coal-derived
chemicals. The proportion of total steel production
from electric arc furnaces has been increasing in recent
years and is likely to continue to do so since this
process competes very effectively in several market
segments with the more traditional, less efficient basic
oxygen process (which does generate coal-derived
substances). The potential tax revenues which would
result from an elimination of the exemption are not
likely to be large enough to affect significantly the
comparative economics of steel production.
9.1.2 Synthetic Fuels Industry
Since the oil price increases in the early 1970's, there has been
substantial interest in coal-based synthetic fuels projects that could convert
coal to various liquid or gaseous fuels or other useable products. However,
it now appears unlikely that the amount of coal-derived substances from
synthetic fuels will be very significant in the near future. The high oil
prices upon which many of the current synthetic fuels projects were predicated
(e.g., $50-$70 per barrel and higher) are not expected to be realized any time
soon. As a result, most proposed synthetic fuels projects have been
indefinitely deferred or cancelled.
Most of the coal-based synthetic fuels projects still under consideration
are likely to continue only if substantial funding is received from the United
States Synthetic Fuels Corporation (SFC). That is, the cost of production for
synthetic fuels is generally so far above current market prices (with little
hope in the near-term that prices will rise sufficiently to cover costs) that
projects are only going forward at this time if the SFC will subsidize them.
Most synthetic fuels projects do not produce substances that are
considered taxable chemicals under Title II. For those few projects that
would produce taxable chemicals, chiefly forms of ammonia, such taxes become
additional operating costs that the project sponsors did not anticipate. Tax
revenues resulting from up to three projects which may possibly come on-line
and produce taxable substances would be less than $400,000 annually.
Since these projects are already subsidized, alternatives for the project
sponsors would be to approach the SFC to obtain higher subsidies due to
unforeseen operating expenses, accept a lower return on the project, or shut
down. However, if only chemicals currently considered taxable according to
-------
9-4
Title II are taxed, the cost impacts are likely to be minor. To the extent
that a tax would encourage higher subsidy levels, which are already met
through other federal taxes, the elimination of the exemption becomes a
transfer among federal accounts.
One type of synthetic fuels production that may develop without federal
subsidies is methanol production from coal. Currently, one project (the
Tennessee Eastman project) is producing methanol from coal in order to produce
acetic anhydride without funding from any other, sources. However, acetic
anhydride is not currently treated as a taxable chemical.
9.2 COAL-DERIVED SUBSTANCES FROM COKE OVENS
The primary producers of coal-derived chemicals in the United States are
coke oven operators. These chemicals are produced as by-products of the
coke-making process when coal is carbonized to form coke. Coke is one of the
raw materials added into the blast furnace. The molten metal resulting from
this process is used to produce steel in the basic oxygen furnace (EOF), or by
the open hearth method, which together produce approximately 70 percent of the
steel in this country.1 Electric arc furnaces, which use virtually no coke,
account for the remainder of domestic steel production.
The process by which the coke is formed is called carbonization. Exhibit
9-1 is a schematic representation of the coke-making and by-product recovery
process. • - .
. As the coal is heated in the absence of oxygen in the coke ovens, various
substances are emitted. These materials are derived primarily from the
volatile constituents found in coal. While the coal is in the coke ovens,
this volatile matter will become separated from the carbon-based portion of
the coal. The carbon product that remains gradually softens until it becomes
plastic, then is quenched (rapidly cooled) to form coke. The substances
driven off are a combination of various tars, oils, and a medium-Btu gas
(called coke oven gas).2 Under most circumstances, it is characteristic for
coke oven operators to recapture these by-products for commercial sale or use
on-site. In some cases, the substances may simply be flared (burned off) or
disposed of in some other fashion.
When the by-products of the coking process are first captured, they are
typically in the form of crude tars, crude light oils, or a gas composed of
1The basic oxygen process accounts for most of the coke consumption
(about 90 percent). The use of open hearths to produce steel is a very old
technology and has been declining over the years as existing facilities are
retired and not replaced.
2 A medium-Btu gas contains approximately 200-900 Btu per cubic foot. A
low-Btu gas contains less than 200 Bpu per cubic foot and a high-Btu gas more
than 900 Btu per cubic foot. Natural gas typically contains about 1,000 Btu
per cubic foot.
-------
EXHIBIT 9-1
RECOVERY OF BY-PRODUCTS FROM COKE OVENS
RIVCR
I ' IcoAL HOIST
R.R. CAf
DUMPER
TAR
STORAGE
'• -'v : . f
.:•.•;: •/., V.
TOR FURTHER
PROCESSING
OR FOR FUEL
WEAK AMMONIA
LIQUOR
SETTLING
TANKS
COAL
1 STORAGE
v\? V^
'..* ft ML
COAL BRIDGE
FLUSHING LIQUOR
FLUSHING
LIQUOR
DECANTER
« .... r~~ i f^\
[¥:^il-»^ 'VH .,.
TAR L— — J T l||H-'frn2£
i -!i1Xii?OKR
(l.'.illiti'lll 1.. .
a A*
- : iGAS
LiifJ |
— * — l'
" PRIMARY
I !, COOLER
COOLER i
DECANTER ,
i PRECIPITA
1 tm
1 H 1 1
PHENOL 1:5 iitt] rlj
EXTRACTCrt EXHAUSTER
:'': MM.
-!*""' v:'- .:•:• S \ ""•»
•:.;:,=:.:=•:::•.-•: , ::• ,. ( :;) *~
1 AMMONIA
STILL
SODIUM PHENOL ATE
rOR FURTIirR
PROOF SSINf.
Source: McGannon, H.L. The Making, Sh
CONVEYOR BELTS
MIXING — *"] 11: II |r/|
F73!
CRUSHER
OVtNS ' ' COKE I1" ,V"!
,!,.,. !,' *" I j
COKE
CRUSHER METALLURGICAL COKE
_»J Uk- ' l LJ 1', COKE SCREENINGS
1 QUENCHING COKE SCREENING .„
1 STATION WrfARF STATION i
1 . •
1
1
' GAS FOR UNDERFIRING COKE OVENS
ACID
1 AMMONIA L
TOR | ABSORBER S
*fT~| : :i
REHEATER M F|NAL
1 COOLER
SULPHATE
NAPHTHALE
iaping, and Treating of Ste<
1
GHT OIL | P.e
CRUBBER HOLDEH BOOSTER
j—i rrn 1 HOLDER STATION
II J |r I 1 1 GAS'TO ^^
|:|j :!i 1 ....:.. J | (STEEL PLANT
HYDROGEN
SULFIDE
SCRUBBER
OEBENZOL.ZED WASH OIL ^ rRQ|| STR|ppER
BENZOLIZEO WASH OIL f__ Tff 5Tp,ppEr,
NE
2! (Pittsburgh: U.S. Steel, 1971')
-------
9-6
several different substances. In their crude form, these substances are not
listed under Title II of CERCLA as taxable chemicals.
However, some coke oven operators will distill these materials into more
refined products. For example, the crude light oils can be distilled into
benzene, toluene, or xylene, which are listed as taxable chemicals.
Similarly, the crude tars can be used to produce sodium phenolate,
naphthalene, creosote oil, etc.
The coke oven operator will not always choose to produce these more
refined products. In fact, for most coke oven operators, the amount of
refined products that could be produced from their crude by-products is so
small that further distillation on-site is not economical. For example, of
the 60 coke plants operating during 1980, only 23 plants were involved in more
advanced refining, with only 5 plants producing aromatic hydrocarbons
(benzene, toluene, xylene or naphthalene).3 The remaining operators will
either use their crude by-products on-site or sell their supplies to other
chemical producers for further refinement. Because many coke facilities do
not generate enough by-products from the limited amount of coke they produce,
most of the advanced refinement of coke by-products is actually done by the
major steel producers such as Bethlehem Steel or U.S. Steel.
9.2.1 Amount and Value of Chemicals from Coke-Making in 1980
Exhibit 9-2 presents a summary of the market for coal chemicals from coke-
making in 1980. Note that:
• The estimated commercial value of those by-products
that were sold in 1980 is about $500 million. Nearly 40
percent of this revenue is due to the sale of crude tar,
with crude light oil accounting for about another 20
percent. CERCLA feedstocks account for less than 25
percent of the total sold and approximately 10 percent
of coke oven by-products produced.
• Most of the materials produced were left by coke oven
operators in their crude stage (the original form in
which they were produced) rather than processed further
at the coke plant.
• The only substances produced from coke ovens that
would be subject to the CERCLA feedstock tax if the
exemption were removed are benzene, toluene, xylene,
3 Coke and Coal Chemicals in 1980, DOE/EIA 0120(80), p. 33-36. The
number of advanced refining operations among coke producers has declined
somewhat since 1980. In private discussions with coke producers, several have
indicated that the diminishing market has forced them to abandon their more
sophisticated refining operations.
-------
EXHIBIT
COAL CHEMICAL MATERIALS PRODUCED AT
9-2
UNITED STATES COKE PLANTS: 1980
Sold
Coal Chemical Materials
Tar, Crude (thousand gallons)
Tar Derivatives:
Sodium Phenolate or Carbolate (thousand gallons)
Crude Chemical Oil (tar acid oil, thousand gallons)
Pitch of Tar (all grades, thousand short tons)
Other Tar Derivatives a/ (short tons)
Ammonia Products:
Sulfate b/ (thousand short tons)
Liquor ( NH3- Content ) (thousand short tons)
Gas:
Distributed Through City Mains (million cubic feet)
Sold for Industrial Use (million cubic feet)
Total Gas (million cubic feet) d/
Crude Light Oil (thousand gallons)
Intermediate Light Oil (thousand gallons)
Light Oil Derivatives:
Benzene (all grades, thousand gallons)
Toluene (all grades, thousand gallons)
Xylene (all grades, thousand gallons)
Solvent Naphtha (all grades, thousand gallons)
Other Light Oil Derivatives (thousand gallons)
Total Light Oil Derivatives d/ (thousand gallons)
Grand Total --Coal Chemical Materials
Quant i ty
Produced
53*4,068
1,Hl6
16,293
332
197,707
100
8
-
-
c/
72*4,058
e/
159, '403
8,825
50,781
7.812
1 , 36'4
1,252
*4,5'4*4
65.753
-
Quant i ty
357,156
1.035
3,20'l
215
1*16,522
'( 15
7
6.558
' 3,535
10,093
103,085
2,510
50,710
8,026
1 , '(00
1,217
2,863
6'4,216
-
Average Price
Per Unit
(do I lars) (
$ 0.550/gal
0. 158/gal
0.*483/qal
198.252/ton
163/ton
*45.76/ton
99.o*4/ton
1.097/
thousand CM. ft.
1.098/
thousand CM. ft.
1.097/
thousand cu . ft .
1 .073/qa I
1. 120/gal
1.551 /gal
1.216/gal
1.323/gal
0. 705/ga 1
0.697/gal
1 . '4'48/ga I
-
Va I ue
thousand 1>)
$196,558
163
1,5*46
*42,695
23.887
18,978
736
7, 19*1
3,880
1 1 , 07'i
>£
110,591 i
2,811 ^
78, 53'4
9,756
1.852
857
1,99'4
92.99'4
$502.033
a/ Includes creosote oil, naphthalene, and phenols. Note: DOE identifies these quantities in 1000 short tons; we believe
this should have stated short tons.
b/ Includes di- and mono-ammonium phosphate.
c/ Includes gas used for heating ovens and gas wasted.
d/ Data may not add .to totals shown because of independent rounding.
e/ Includes 58,120 thousand gaI Ions refined by coke plant operators to make derived products shown.
Source: Coke and Coal Chemicals in 1980. DOE/EIA-0120(80).
-------
9-8
napthalene, and ammonia.u In 1980, these substances
were sold for about $115 million, or less than 25
percent of the value for-all coke oven by-products sold.
• The production figures for crude light oil include
that portion of the crude light oil refined into other
products. Commercial values are shown for both the
crude and the refined products because many coke plant
operators will sell their crude oils to a larger coke
facility for further processing, which then sells the
upgraded product to someone else. In these circum-
stances, two different products have been sold during
separate commercial transactions; hence, two estimates
of market value are reported, one estimate for each
product.
Not all of the by-product materials produced were sold. Some chemicals
were either consumed at the facility for fuel or wasted. The amount sold
varies by substance:
• If a chemical was not a direct by-product of
coke-making, i.e., it had to be refined further in order
to produce it (e.g., the derivatives), it was likely to
be sold commercially.
• Nearly 99 percent of the coke oven gas produced was
not sold. This gas is typically used on-site as an
energy source.
If all of the by-products produced were valued at the average price for
the portion sold, total value of production would have tripled to about $1.5
billion in I960.5 See Exhibit 9-3. Over one-half of the estimated market
value of all coke oven by-products is due to coke oven gas. Those substances
listed under Title II would have accounted for about 10 percent of this total
value.
""Naphthalene is part of the "other tar derivatives" category in Exhibit
9-2. The available data did not identify how much of the total was
naphthalene. According to Synthetic Organic Chemicals: 1982 (U.S.
International Trade Commission, No. 332-35), naphthalene production from coal
tars since 1972 has ranged from 205,000 tons in 1982 to 116,000 tons in 1982.
Value per ton was $130/ton in 1972 and $450/ton in 1982. Since this amount is
most of the "other tar derivatives" category, we will assume all substances
labelled as such are subject to the tax. It is a relatively small amount, so
this assumption should not unnecessarily distort the analysis.
5This is probably a conservative estimate. In many instances, the coke
oven by-products are consumed on-site in lieu of more expensive oil or gas.
Their value is probably greater than the price indicated when sold as a raw
product, where more refining is typically required to upgrade the value of the
product.
-------
9-9
The value of the by-products summarized in Exhibit 9-2 is not necessarily
a good estimate of the future size of the market. The estimated value of the
by-products from coke-making could change because:
• The various prices received for the by-products could
fluctuate over time. These price changes could be in
response to different production costs or changes in the
prices paid for chemicals that compete with the coke
by-products.
• The overall size of the metallurgical coal market
could change as the demand for steel fluctuates or as
process improvements lead to lower coke demand. A lower
demand for coke would reduce the amount of by-products
generated during coke-making.
Each of these possibilities will be discussed in turn.
A. Price Received for By-Products
The product values listed in Exhibits 9-2 and 9-3 are based on unit prices
during 1980.s Over time, it is likely that these prices will change as the
cost of producing the by-products changes with the price of metallurgical coal
and as the prices of competing chemicals also change. Exhibit 9-4 lists the
prices received for various coke oven by-products from 1972-1982.
During this period, the value of the by-products has generally increased.
The sizes of the price increases are particularly significant following the
world oil price increases of 1973 and 1979. These price increases are to be
expected. Most of the chemicals produced in coke ovens compete with products
that can be refined by the petrochemical industry, particularly the chemicals
most likely to be taxed -- benzene, toluene, xylene, naphthalene, and
ammonia. When the cost of the raw feedstock to petrochemical producers (i.e.,
petroleum) increases, the cost to produce chemicals will rise accordingly.
This price increase allows the coke oven operator to charge a higher price for
the by-products and remain competitive with oil-based products. As a result,
the price received for coke oven by-products should closely track the price
for petroleum-derived chemicals, and therefore, the price for crude oil.
B. Amounts of By-Products Produced
The amount of coke oven by-products produced will depend on the production
of coke. As illustrated in Exhibit 9-5, coke production has been declining in
6We have tried to use the most recent information available for this
analysis. Unfortunately, much data originally reported are either no longer
collected or are not reported in much detail. As a result, detailed data
cited herein are often from 1980; the most recent data available at the time
of this study are 1982. production information.
-------
9-10
EXHIBIT 9-3
ESTIMATED VALUE OF ALL COKE OVEN BY-PRODUCTS PRODUCED: 1980 a/
Average Price Total Value of All
Quantity
Chemicals Produced
Tar, Crude (103 gals) 534,068
Tar Derivatives
- Sodium Phenolate, 1,146
Carbonate (103 gals)
- Crude Chemical Oil 16,293
(103 gals)
- Tar Pitch (103 tons) 322
- Other tar derivatives 198
(103 tons)
Ammonia Products: Sulfate 400
(103 ton)
Liquor (103 ton) 8
Gas (106 cu. ft.) 724,058
Crude Light Oil (103 gal) 159,403
Intermediate Light Oil 8,825
(103 gal)
Light Oil Derivatives 65,753
(103 gal)
Per Unit Sold
(dollars) '
$ 0.55/gal
0.158/gal
0.483/gal
198.252/ton
163/ton
45.76/ton
99.04/ton
1.097/103
cu. ft.
1.073/gal
1.120/gal
1.448/gal
Produced
(103 dollars)
Sold Produced
196,558 293,737
163 181
1,546 7,870
42,695 63,837
23,887 32,274
18,978 18,990
736 792
11,074 794,292
110,591 171,039
2,811 9,884
92,994 95,210
502,033 1,488,106
a/ Using 1980 production quantities and prices paid in 1980 for materials
actuallv sold.
-------
EXHIBIT 9-4
AVERAGE PRICE PER UNIT FOR COKE OVEN BY-PRODUCTS:
(Dollars Per Unit Indicated)
1972-1982
Coal Chemical Materials
Tar, Crude (per gallon)
Gas (thousand cubic Feet)
Crude Light Oil (per gallon)
Intermediate Light Oil (per gallon)
Light Oil derivatives (per gallon)
1972
0.116
.269
.110
.093
.202
1973
. 121
.319
.141
.097
.255
1974
.311
.521
.417
.212
.705
1975
.347
.555
.447
.352
.701
1276
.332
.747
.502
.282
.744
1977
.365
.891
.532
.317
.738
1978
.376
.741
.468
.530
.558
1279 198_Q 12.8.1 198.2
.487 .550 .817 .715
.794 1.097 1.514 1.384
.794 1.073 1.154 .891
.530 1.039 1.120 1.342 .680
.558 1.133 1.448 1.550 N.A.
N. A. = not avaliable.
Source: Coke and Coa I Chemicals: 1972-1975. (U.S. Department or the Interior, Bureau or Mines)
Coke arid Coal Chemicals: 1976-1980. DOE/EIA-0120(76-80)
Coke Plant Reporti Oc_tober-December 1981, DOE/EIA-0121(81/4Q)
Quarterly Coal Report: January-March 1983, DO E/EIA-0121(83/1Q)
-------
9-12
EXHIBIT 9-5
AMOUNT OF COKE AND COAL CHEMICALS PRODUCED
IN U.S. COKE OVENS: 1974-1982
1974 1975 1976 1977 1978 1979 1980 1981 1982
Coal Carbonized 90.2 83.6 84.7 77.7 71.4 77.4 66.7 61.0 40.9
(10s tons)
Coke Produced
(106 rons)
61.6 57.2 58.3 53.5 49.0 52.9 46.1 42.8 28.1
Crude Tar
(106 gal)
677.4 645.5 636.4 592.4 540.6 591.5 534.1 472.2 316.4
Coke Oven Gas
(109 cu. ft.)
967.2 895.3 912.4 841.4 782.2 834.3 724.1 636.9 427.7
Crude Light Oil 217.4 194.8 198.1 178.4 161.8 175.2 159.4 147.0 94.5
(106 gal)
Source: Coke and Coal Chemicals: 1974-1975 (U.S. Department of the
Interior, Bureau of Mines)
Coke and Coal Chemicals: 1976-1980, DOE/EIA-0120(76-80)
Coke Plant Report (October-December 1981), DOE/EIA-0121(81/4Q)
Quarterly Coke Plant Report, January-March 1983, DOE/EIA-0121(83/1Q)
-------
9-13
recent years, resulting in less production of coke oven by-products. The
production of coke is likely to remain at relatively low levels in future
years for several reasons:
• The U.S. steel industry is coming out of the recent
recession as a much smaller industry. Many plants have
been permanently closed and others may be closed over
the next several years. Steel has been displaced in
some market by other metals such as aluminum and by
synthetic materials such as plastics in many uses.
Steel imports have increased their share of the U.S.
market to about twenty percent and may continue to grow.
• The market share held by basic oxygen furnaces and the
older open-hearth furnaces will decline as older
facilities close. These facilities produce steel by
using molten metal from blast furnaces, which use coke
to help reduce iron ore to pig iron for the production
of steel. Electric furnaces, which do not require coke
formed from metallurgical-grade coal, are expected to
increase their market share. As a result, the demand
for coke will be reduced, regardless of whether or not
the CERCLA tax exemption is maintained.
• Further improvements in blast furnace design and
operation will continue to lower the coke rate, defined
as the ratio of the amount of coke consumed to the
amount of iron produced.7
• Less raw steel will be needed to produce finished
products. More steel plants are installing continuous
casting equipment and are realizing better yields from
raw steel in addition to other improvements in
productivity and energy efficiency. Continuous casting
accounted for less than 10 percent of U.S. raw steel
production in 1975 and accounts for nearly 30 percent
today. By 1990, such machines may pour up to 75 percent
of U.S. steel. This in turn could raise the ratio of
finished steel to raw steel from 75 percent in 1980 up
to nearly 80 percent by 1990, which would mean less raw
steel would have to be produced to satisfy demands for
steel in finished products.
9.2.2 Potential Tax Revenues from Coke Oven By-Products
The potential amount of revenues raised in the future as a result of a tax
on coke oven by-products will depend on three factors:
7These improvements include improved coke burdens and burden sizing,
reduced slag rates, improved coke strengths, higher top pressures, and the
phase-out of obsolete furnaces.
-------
9-14
• the chemicals subject to the tax;
• the tax rate; and
• the forecasted amount of the by-products generated.
Chemicals Subject to Tax: In the event that the CERCLA feedstock tax
exemption is rescinded for coal-derived substances, we have assumed that the
only coal-derived sustances that would actually be taxed are those currently
defined as taxable chemicals according to Title II. Since some consideration
has been given to expanding the list of taxable chemicals, we have provided
production estimates for all coal-derived substances. However, the estimated
tax revenues developed in this chapter are calculated only for those chemicals
currently taxed. In the case of coke oven by-products, these chemicals are
benzene, toluene, xylene, naphthalene, and ammonia.
Tax Rate: For purposes of this analysis, it will be assumed that the
tax rate remains unchanged from the levels defined in Title II of CERCLA. For
four of the five taxable chemicals produced from coke ovens -- benzene,
toluene, xylene, and naphthalene -- this rate is $4.87 per ton. For ammonia,
it is $2.64 per ton."
Amount of By-Products: As indicated earlier in Exhibit 9-5, the amount
of coke oven by-products produced has been declining in recent years. Even
though steel demand may increase in the near future, the demand for coke is
likely to remain depressed. To capture the uncertainties associated with the
amount of coke demand through 1990, and therefore, the amount of by-products
recovered, "low" and "high" production cases have been developed:
• In 1980, approximately 46 million tons of coke were
produced. This level of coke demand is relatively
consistent with several forecasts, including DOE's
recent Fourth National Energy Policy Plan. The ^amount
of coke oven by-products that resulted from this level
of coke demand will be treated as the "low production"
case.
• Domestic steel production in 1973 was at its highest
level ever, with about 65 million tons of coke
produced. The amount of by-products generated from this
level of demand will be referred to as the "high
production" case. For a few by-products such as tar
8Ammonia is excluded from taxation if used to make fertilizer. Since
the end-use of ammonia from coke ovens is not known, we will assume it is
taxable. Ammonia accounts for a small percentage of the value of the five
taxable chemicals; accordingly, this assumption should not unnecessarily
distort the analysis. In fact, because 80 percent of ammonia produced is used
for fertilizer, this assumption helps to ensure that potential tax revenues
are not understated.
-------
9-15
acid oil, ammonia liquor, intermediate light oil, and other
light oil derivatives, 1973 production was less than 1980
production; for these items, 1980 production will be used
for the high production case as well.
The production levels that result from these scenarios are listed in Exhibit
9-6. In addition to listing these quantities in the usual production units of
each by-product, this exhibit also converts the production levels into
thousands of tons.
Potential Tax Revenues from Coke Oven By-Products: The tax rate
assumed to apply to coke oven by-products if the exemption is removed is $4.87
per ton for the four aromatic hydrocarbons and $2.64 per ton for ammonia.
These rates are applied to both the high and low production estimates to
determine a range of potential tax revenues for each production scenario.
The potential range of revenues that would be generated from these rates
is illustrated in Exhibit 9-7 for the coke oven by-products that would be
subject to the tax -- benzene, toluene, xylene, naphthalene, and ammonia.
These tax revenues are shown for the high and low production cases discussed
in this analysis. Ppotential tax revenues could range from about $2 to $3
million annually from coke oven by-products.
9.2.3 Impact of Tax on Coke Oven By-Products
As mentioned earlier, the recovery of by-products from coke ovens is an
ancillary result of the coke-making process. In the course of carbonizing
coal to form coke, the by-products are emitted as waste products. Rather than
just dispose of the various substances, coke operators have been able to
recycle them for internal use or commercial sale. In some instances, these
crude by-products are refined into aromatic hydrocarbons such as benzene,
toluene, xylene, and naphthalene. If a tax is imposed on these refined
by-products, what effect is it likely to have on the level of production?
Also, what is the likelihood that the tax will be passed on to the consumer in
the form of higher prices?
Effect on Production: Exhibit 9-8 compares the cost that coke plants
must pay for the metallurgical coal they carbonize versus the value of the
chemicals sold commercially (excluding on-site use). Note that:
• The commercial sale of the coke by-products generates
enough revenue to cover a significant portion of the
costs of the metallurgical coal (typically 10-20
percent).
• The substances that would be taxed if the exemption
was eliminated accounted for less than 25 percent of the
commercial sales.
-------
9-16
EXHIBIT 9-6
PRODUCTION LEVELS FOR COKE OVEN BY-PRODUCTS
Crude Tar (103 gal)
Tar Derivatives:
Sodium phenolate or carbolate
(103 gal)
Tar acid oil (103 gal)
Pitch of Tar (103 tons)
Other tar derivatives
(103 tons)
Ammonia Products:
Sulfate and Diammonium
Phosphate (103 tons)
Liquor--NH^ Content
(103 tons)
Coke Oven Gas (106 cu. ft.)
Crude Light Oil (103 gal)
Intermediate Light Oil (103 gal)
Light Oil Derivatives (103 gal)
Benzene
Toluene
Xylene
Solvent Naphtha
Other Light Oil Derivatives
Low
Production Case a/
High
Production Case b/
Production
Units
534,068
1,146
16,293
322
198
103
Tons
2,537
6
71
322
198
Production
Units
732,455
2,922
16,293 d/
525
271 c/
103
Tons
3,479
16
71 d/
525
271
400
400
600
8 d/
600
8 d/
724,058
159,403
8,825
50,781
7,812
1,364
1,252
4,544
10,861
577
33
186
28
5
5
17
994,916
226,109
8,825 d/
89,175
14,496
3,104
2,306.
4,544
14,924
818
33 d/
327
52
11
11
17 d/
a/ 1980 quantities of by-products produced.
b/ 1973 quantities of by-products produced.
c/ Data were not available. Quantity indicated is an estimate based on ratio of
1973 to 1980 crude tar production, i.e., 732,455,000 gals/534,068,000 gals.
d/ Production in 1973 was below 1980 levels. For high production case, 1980
quantities produced were used.
Sources: Coke and Coal Chemicals in 1973, (U.S. Department of the Interior,
Bureau of Mines); Coke and Coal Chemicals in 1980, DOE/EIA-0120(80).
-------
Tar Derivatives
9-17
EXHIBIT 9-7
RANGE OF POTENTIAL TAX REVENUES FOR
COKE OVEN BY-PRODUCTS PRODUCED
(thousands of mid-1982 dollars)
Low Production
High Production
Naphthalene
Ammonia
Light Oil Derivatives
Benzene
Toluene
Xylene
964.3
21. 1
905.8
136.4
24.4
1,319.8
21.1
1,592.5
253.2
53.6
Total Potential Tax Revenues
$2,052.0
$3,240.2
a/ Assumes tax rate of $4.87 per ton for the aromatic hydrocargons and $2.64
per ton for ammonia liquor.
-------
EXHIBIT 9-8
VALUE Of COKE OVEN BY-PRODUCTS SOLD AS AMOUNT OF COAL COSTS RECOVERED
(nominal dollars per ton of coal carbonized)
1225
Average Cost/Ton Coal Carbonized $14').21
1976
$i4'4.16
1977
$46. 24
1918
$52.05
1979
$50.69
1980
$56.33
128J
$6?. 70
19.82
$65.05
Value or Coal Chemicals Sold
Crude Coal Tar
Tar Derivatives
Gas
Ammonia Products
Crude Light Oil
Int. Light OiI
Light Oil Derivatives
Tota I
As Percent of Coal Cost
1 .
•
3.
6.
15
20
1)2
55
1)0
5')
01
70
82
%
1.15
.51
'1.80
.35
.63
.01
.65
8.10
18%
1.39
.<49
5.80
.141
.65
.01
.76
9.51
21%
1.68
-51
.51 a/
.37
.61
.05
.65
<4.38
8%
2.
•
•
1 .
1 .
5.
11
26
72
12
37
13
0'4
06
70
2.
1 .
•
•
1 .
1 .
7.
95
02
17
30
66
O'l
'10
5')
% 1 3%
').85
1.68 b/
.39
.32
2.25
-
1 .01
1 0 . 50
17%
')
1
1
8
1
.03
.no b/
.22
.1)1
.53
-
.68^
1
.27 t-
03
•tat
J/o
ay From 1978 on, values for certain uses of gas are no longer reported; the value given is just for gas distributed through
city mains and sold for industrial use.
b/ The values for tar and light oil derivatives have been estimated, based on the percent change from the previous year in
the values of crude coal tar and crude light oil.
Sources: Coke and Coal Chemicals in 1975 (U.S. Department of the Interior, Bureau of Mines).
Coke and Coal Chemicals: 1976-1980. DOE/EIA-0120(76-80).
Coke Plant Report (October-December 1981). DOE/EIA-0121(81/UQ)
Quarterly Coal Report (January-March 1983. DOE/EIA-0121(83/1Q)
-------
9-19
• The increase in the value of the by-products over time
has helped to offset any increases in the cost of
metallurgical coal. The value of these by-products has
increased as the cost of substitute chemicals has risen,
primarily as a result of the increase in world petroleum
prices.
Moreover, Exhibit 9-8 accounts only for that portion of recovered
by-products sold commercially. If the value of all chemicals produced is
included, over one-third of the cost of the metallurgical coal may be
recovered, as shown in Exhibit 9-9.9 Much of this increase in recovered
costs is due to coke oven gas, which is typically consumed on-site in the coke
ovens or at the nearby steel plant.
The high value of coke oven by-products generally encourages their
recovery. In order to assess whether a tax on some of the refined by-products
would affect the market for coke oven by-products, several observations on
coke industry operations should be emphasized:10
• The crude coke oven by-products (i.e., the basic tars,
oils, coke oven gas, and ammonia products) are a natural
result of the coke-making process. Their recovery is
relatively simple and inexpensive as long as the coke is
going to be produced in the first place.
• The amount of each crude by-product recovered is a
function of the type of metallurgical coal from which
the coke is derived and the type of coking process
employed. These variables are not changed in order to
produce different by-products. The main objective is
producing high quality coke; any by-products recovered
are only incidental to this goal.
• Some of the products produced from by-products (e.g.,
the different tar and light oil derivatives) can only be
recovered by more advanced refining techniques. This
category includes most substances that would be subject
to the CERCLA feedstock tax if the exemption were
removed. Many coke plants do not generate enough
by-products to warrant further refining. They will
either use the crude by-products or sell them to a
larger coke operation for further refining.
9For those by-products consumed on-site, their value was assumed to be
equivalent to the values reported for those chemicals sold commercially.
1"These points were mentioned on many occasions during conversations
with the operators of several coke plants.
-------
EXHIBIT 9-9
VALUE OF TOTAL COKE OVEN BY-PRODUCTS PRODUCED AS AMOUNTS OF COAL COSTS RECOVERED
(nominal dollars per ton of coal carbonized)
Average Cost/Ton Coal Carbonized
Value of Coal Chemicals Produced
Crude Coa 1 Tar
Tar Derivatives
Gas
Ammonia Products
Crude Light Oi 1
Intermediate Light Oil
Light Oil Deri vat ives
Tota 1
As Percent of Coal Cost
a/ From 1978 on, values for certai
as not ava i lable.
b/ The values for tar and light oi
from the previous year in the values of
1975 1976 1517 1978 1979
$Ua.21 $'i<4.16 $16.21 $52.05 $50.69
2.72 2.52 2.81 2.85 3.72
.56 .60 .61 «LJLQa/ 1.65
6.03 8.1 '4 9.H 8.12 8.56
.'»9 .31 .'»1 .'(1 .36
1.06 1.19 1.23 1.06 1.80
.02 .02 .02 .06 .15
.70 .68 .77 .6't 1.10
$11.58 $13. '16 $15.58 $15.61 $17.3'l
26% 30% 3U% 30% 31%
n ta r derivates are reported, which prior
1 derivatives have been estimated based on
crude coal tar and crude light oil.
19-8Q 19.8J. 1282
$56.33 $62.70 $65.05
1.11 6.32 5.53
1 . 56 2L2J4b/ 1 . 96
11.92 15.80 111.17
.29 .36 .tn
2.57 2.78 2.06
.15 .09 .05
1.13 .99 c/ .73 I
t\j
$22.33 $28.58 $25.20 °
10% 16% 39%
to 1978 were 1 i sted
the percent change
c/ The only derivatives reported are benzene, toluene, and xylene.
Sources: Coke and Coal Chemicals
Coke and Coal Chemicals:
in 1975 (U.S. Department of the Interior,
1976-1980, DOE/EIA-0120(76-80)
Bureau of Mines)
Coke Plant Report: (Oct-Dec 1981). DOE/EIA-0121 (81/I4Q)
Quarterly Coal Report:
(Jan-Mar 1983). DOE/EIA-0121 (83/1Q)
-------
9-21
• Even for those coke operations that can obtain enough
by-products tft justify further refining, other factors
often tend to discourage them from doing so. For
example, the cost of pollution control may put coke oven
operators at a competitive disadvantage vis-a-vis
petroleum refiners. In the case of the aromatic
hydrocarbons -- benzene, toluene, xylene, and
naphthalene -- coke producers must eliminate sulfur to
compete with the petroleum-based products. Petroleum
refiners must also remove the sulfur, but it is
typically removed much earlier in the refining process
at considerably less expense. The cost of this refining
to coke oven operators has often discouraged them from
producing the hydrocarbons.
This last point can be seen in Exhibit 9-10, which compares over time the
production of the aromatic hydrocarbons benzene, toluene, and xylene by type
of producer. Petroleum refiners have been the primary producers of aromatic
hydrocarbons.11 As the demand for these substances has increased, petroleum
refiners have responded with greater production. For coke-oven operators,
their market share has declined substantially, more than would be indicated by
the decrease in coke production.
Presumably, the increases in oil prices in 1979 would have improved the
economic outlook for hydrocarbons from coke oven operations. However, the
data for 1980 and 1981 do not indicate any resurgence in the level of
production. Several coke oven operators have noted that the limited supplies
available for further refining have reduced the size of previous operations,
thereby diminishing some of the economies of scale. Also, recent pollution
control costs associated with the process have made more advanced refining
less economical. The relative economics of refining these hydrocarbons from
coke oven by-products vis-a-vis petroleum-based production will depend on many
site-specific factors that are beyond the scope of this study. However, to
the extent that coke oven operators have already been reducing their level of
advanced refining, any tax may only serve to hasten this trend toward less
production of aromatic hydrocarbons from coke oven by-products.
However, even if a feedstock tax caused coke oven operators to reduce
further their production of aromatic hydrocarbons, it is unlikely that such a
move would have any significant effect on the total market for these
substances. As noted, except for naphthalene, coke oven by-products satisfy
only a very small portion of total demand for aromatic hydrocarbons. Over the
last several years the petrochemical industry has demonstrated that it can
substantially expand or contract the supply of these substances to meet market
llrThe market is somewhat different for naphthalene. About 60 percent of
the market is supplied by coal-based tars, the remainder by petroleum
sources. However, total market demand for naphthalene has been falling in
recent years, even though the price received for the product has increased.
-------
9-22
EXHIBIT 9-10
PRODUCTION OF AROMATIC HYDROCARBONS BY SOURCE
1967 a/ 1970 1975 1979 1980 1981 1982
Amount of Coke 64.0 66.5 57.2 52.9 46.1 42.8 28.1
Produced (106 tons)
Benzene (10s gal)
Coke Oven Operators 90.6 100.0 65.0 60.9 50.8 31.4 16.8
Petroleum Refiners 878.7 1,150.0 959.0 1,611.7 1,533.8 1,307.7 1,051.9
Total 969.3 1,250.0 1,024.0 1,672.7 1,584.6 1,339.2 1,068.7
Coke Oven Market 9.3 8.0 6.3 3.6 3.2 2.3 1.6
Share (%)
Toluene (106 gal)
Coke Oven Operators 19.4
Petroleum Refiners 624.5
Total
Coke Oven Market
Share (%)
Xylene (10s gal)
Coke Oven Operators 5.5
Petroleum Refiners 449.3
Total
Coke Oven Market
Share (%)
19.4
624.5
643.8
3.0
19.0
667.0
686.0
2.8
10.0
695.0
705.0
1.4
9.2
1,000.7
1,009.9
0.9
7.8
1,009.5
1,017.3
0.8
4.8
851.6
856.5
.0.6
1.4
714.1
715.5
0.2
5.5
449.3
454.8
1.2
5.0
449.0
454.0
1.1
1.9
637.0
638.9
0.3
1.4
970.8
972.2
0.1
1.4
907.2
908.5
0.2
0.7
881.8
882.4
0.1
0.2
657.7
658.0
0.05
a/ Base year for Federal Government production indices.
Source: Synthetic Organic Chemicals: 1981, p. 10.
Synthetic Organic Chemicals: 1980, p. 11.
Synthetic Organic Chemicals: 1982, p. 9.
Quarterly Coal Report, April-June 1983, p. 52.
-------
9-23
demand (see Exhibit 9-10). This capability to adjust to changing market
conditions has been far greater than the total amount of aromatic hydrocarbons
produced from coke oven by-products. In the case of naphthalene, declining
market demand for the substance has discouraged petrochemical companies from
expanding production.
Exhibit 9-11 provides further evidence that the imposition of a tax on the
aromatic hydrocarbons refined from the curde coke oven by-products is unlikely
to affect the amount of production of the crude substances. This exhibit
compares the amount of coke oven by-products produced to the price actually
received for the substance. Note that:
• Although the real prices for coke oven by-products
have been increasing in recent years, the amount of
these substances produced has actually been declining.
As discussed earlier (see section 9.2.1), this decline
in the amount of by-products recovered is due to the
decline in the domestic steel industry, not to the
prices received for the substances.
• The amount of each crude substance produced from each
ton of coke produced has remained relatively constant
over time. Presumably, if coke oven operators had the
flexibility, they would alter the amount of each
by-product produced as the price for each substance
changed. However, as prices have increased over time,
coke oven operators have not altered the relative mix of
by-products recovered.
These trends indicate that the production of crude coke oven by-products
is inelastic relative to the price received for the substances. The prices
have increased in real terms, yet total production has declined and the rate
of production has remained fairly constant. Since the rate of production has
remained steady over a broad price range (significantly greater than the
amount of the proposed tax on the aromatic hydrocarbons), the supply of these
crude substances should not change if a tax is imposed on some of the
chemicals that can be refined from the crude by-products.
Effect of Tax on Prices: If a tax is imposed on some of the refined
by-products from coke-making, the coke oven operator would prefer to pass the
tax on to the consumer in the form of higher prices. However, it is unlikely
that the operator will be able to do so. It is beyond the scope of this
analysis to provide a detailed assessment of the amount of the tax for each
specific by-product that will be included in the price of the product.
Nevertheless, several points should help clarify the possibility of higher
product prices due to a tax:
• As discussed previously, most of the by-products from
coke ovens compete with similar substances that can also
be derived from petroleum. For many substances, most of
the market is composed of petroleum-derived chemicals
-------
EXHIBIT 9-11
PRODUCTION OF COKE OVEN BY-PRODUCTS COMPARED TO THE PRICE RECEIVED
Coke Oven By-Product 1974 1975 1976 1977 J_9_7_8 1979 1980 1_9_8J 1982
Crude Tar
6
Amount Produced (10 gal)
Gallons/Ton Coke Produced
Price per Gallon (mid-1982 $)
Crude Light Oil
6
Amount Produced (10 gal)
Gallons/Ton Coke Produced
Price per Gallon (mid-1982 $)
Coke Oven Gas
9
Amount Produced (10 cu. ft.)
Thousand cu. ft. /Ton of Coke
Produced
Price per thousand cu. ft.
(mid-1982 $)
677.
11 .
0.
217.
3.
0.
967.
15.
0.
4
0
54
4
5
72
2
7
90
645
11
0
194
3
0
895
15
0
.5
.3
.57
.8
.4
.74
.3
.7
.92
636.4
10.9
0.52
198.1
3.4
0.79
912.4
15.7
1.17
592.
11.
0.
178.
3.
0.
841.
15.
1 .
4
1
54
4
3
79
4
7
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11.
0.
161.
3.
0.
782.
16.
1.
6
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2
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591
11
0
175
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15
1
.5
.2
.62
.2
.3
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0.
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724.
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. 1
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to
Source: From Exhibits 9-4 and 9-5.
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9-25
(e.g., see Exhibit 9-13). As a result, coke oven
operations are price-takers, where the price of
coal-derived chemicals will usually depend on the price
for the petroleum-derived counterparts.
• The substances produced from coke ovens that would be
subject to a tax if the exemption were removed are
already subject to a tax if petroleum-derived, including
benzene, toluene, xylene, ammonia, and naphthalene. The
prices currently received for these chemicals presumably
reflect the amount of the tax passed on to the consumer
(i.e., to the extent that prices have increased as a
result of the tax on petroleum-based substances, coke
oven operators are already able to charge a higher
price) .
Given these considerations, coke operators will generally not be able to
pass the tax on in the form of higher prices. As a result, the cost of the
tax will come out of the profits of the steel industry (which operates most
coke ovens). Since the prices received by steel producers for their products
are heavily influenced by foreign competition and newer, more efficient
domestic electric arc furnaces, a tax is unlikely to be passed on in the form
of higher steel prices. The extent to which trade policy may shield the
domestic integrated steel producers was considered beyond the scope of this
analysis.
9.3 COAL-DERIVED SUBSTANCES FROM SYNTHETIC FUEL OPERATIONS
The amount of coal-derived substances from synthetic fuel operations is
likely to be quite limited for the next several years. As the development
costs of most synthetic fuel projects have risen over time, the continued
escalation of oil prices that was expected to make coal-based synthetic fuels
development economic has not materialized, causing nearly all projects to be
cancelled or indefinitely deferred.
At this time, only a select handful of projects are moving forward, with
most of these considered likely to reach the production stage only if
substantial funding is received from the U.S. Synthetic Fuels Corporation
(SFC). With the funding policies of the SFC coming under severe scrutiny
during the past several months, there has been much discussion over
substantially reducing the funding authority of the SFC. Further funding cuts
would lower the amount of synthetic fuels likely to be produced.
From those projects still under active consideration, Exhibit 9-12 lists
those coal-related synfuel projects that are or soon could be producing
synthetic fuels. Note that most substances produced from synthetic fuel
operations are not subject to the CERCLA feedstock tax according to Title II.
Because these projects are relatively far advanced toward commercial
production, they can be treated as a reasonable lower bound estimate of
synthetic fuels development. Of these four projects, only the Tennessee
Eastman Project in Kingsport, Tennessee, is totally funded by private sources
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9-26
EXHIBIT 9-12
COAL-BASED SYNTHETIC FUEL PROJECTS
MOST LIKELY TO
ACHIEVE COMMERCIAL PRODUCTION
Plant Name
Tennessee Eastman Co.
Cool Water Coal Gasi-
fication Program
Great Plains Coal Gasifi-
cation Project
Dow Syngas
Product Produced
Acetic. Anhydride a/
Medium-Btu Gas b/
Synthetic Natural Gas
(minimum 977 Btu)
Anhydrous Ammonia
Sulfur
Glauber's Salt
Tar (used for fuel)
Phenols (used for fuel)
Naphtha (used for fuel)
Medium Btu Gas b/
Amount Scheduled
to be Produced
500 million Ibs/year
5,600 million cubic
feet/year
31,250 million cubic
feet/year
23,250 tons/year
22,000 tons/year
7,750 tons/year
35,750,000
gallons/year
5,000,000
gallons/year
4,750,000
gallons/year
8 trillion
Btu/year
a/ Methanol is produced initially, then converted to acetic anhydride.
b/ Medium-Btu Gas: A gas with a heating value ranging from 200 to less
than 900 Btus per cubic foot (normal range 200 to 500).
c/ Low-Btu Gas: A gas with a heating value up to 200 Btu per cubic foot.
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9-27
(i.e., Eastman Kodak). Of the three other projects, production plans are
contingent on substantial financial support from the SFC. At the time of time
analysis, all projects except the Dow Syngas Project in Plaquemine, Louisiana,
had started production or were close to starting.
However, if only chemicals currently considered taxable according to Title
II are taxed, the impacts are likely to be minor. The potential range of tax
revenues from the four projects listed in Exhibit 9-12 is shown in Exhibit
9-13. Given the current list of taxable chemicals, only the Great Plains Coal
Gasification Project would incur any tax liability. Since this project
produces about 23,250 tons of ammonia per year, at a tax rate of S2.64 per
ton, potential tax revenues that would be generated from the most likely coal-
derived synthetic fuel projects were about $60,000 annually.
Exhibit 9-14 expands the list of synthetic fuel projects in Exhibit 9-12
to include other coal-derived synthetic fuel projects that have been given
serious consideration but are less likely to commit to actual production in
the current market. Most of the projects would require SFC funding approval
before actual project construction will start. This list is treated as a
reasonable upper bound on the amount of synthetic fuels production from coal
likely through 1990. However, it is highly unlikely that all of these
projects will proceed. According to the SFC, most coal-related synthetic fuel
projects are very expensive given the amount of fuel they produce. As a
-result, it is unlikely that more than two or three of these projects will
receive sufficient funding to consider full-scale operations.12
If all of these projects do reach full production, Exhibit 9-15 shows the
potential tax revenues that could be generated from each project. The
potential tax revenues amount to about $375,000 million annually.
These projects will produce at a cost substantially above market price,
hence, they will not be able to pass on the cost of a tax. The SFC is
already subsidizing the cost of production. Any increase in costs could only
be recouped by an increase in the level of SFC funding, which is already
supported with other tax revenues.
If such support is not forthcoming, it is not clear what actions the
synthetic fuel projects would take. In order to remain in operation, the
firm(s) operating the project would have to be willing to absorb the total tax
liability as an operating loss. Given the size of the feedstock tax
liabilities (discussed below), most firms would probably absorb the cost
rather than abandon a multi-million dollar investment in synthetic fuels
development.
12Personal communication with Joseph Keefer, August 23, 1983, National
Council for Synthetic Fuels Production. Given recent proposals to reduce
substantially SFC funding authority, even this amount may be optimistic.
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9-28
EXHIBIT 9-13
TOTAL VALUE OF ANNUAL TAX REVENUES
FROM SYNFUEL PRODUCERS:
LOW PRODUCTION CASE
(103 mid-1982 dollars)
Plant Product Tax Liability
Great Plains Anhydrous Ammonia 61.4
Total Annual Potential Tax Revenues 61.4
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9-29
EXHIBIT 9-14
EXPANDED LIST OF POTENTIAL SYNTHETIC FUEL PLANTS:
HIGH PRODUCTION CASE
Plant
Product
Tennessee Eastman Co.
Great Plains
Cool Water
Dow Syngas
Keystone Project
North Alabama Coal
Gasification Consortium
Hampshire Energy
Tennessee Valley
Authority
Basic Resources Inc.
Elgin Butler Brick Co.
World Energy Inc.
Arkansas Power &
Light Co.
Acetic Anhydride
Natural Gas
Anhydrous Ammonia
Sulfur
Glauber's Salt
Phenols
Naphtha
Tar
Medium-Btu Gas
Medium-Btu Gas
Methanol
Methanol
Unleaded Gasoline
Anhydrous Ammonia (85,000 tons/year)
Ammonia (33,750 tons/year)
Dry Gas (230 Btu/cubic
foot)
Low-Btu Gas
Synthesis Gas
Light Oils
Medium-Btu Gas
a/ Hampshire Energy intended to produce a mixture of LPG and ammonia.
For this analysis it is all assumed to be ammonia.
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9-30
EXHIBIT 9-15
TOTAL VALUE OF ANNUAL TAX REVENUES
FROM SYNTHETIC FUEL PRODUCERS:
HIGH PRODUCTION CASE
(103 mid-1982 dollars)
Tax
Project Product Liability
Great Plains Anhydrous Ammonia 61.4
Hampshire Energy Anhydrous Ammonia 224.4
Tennessee Valley Ammonia 89.1
Authority
Total Annual Potential Tax Revenue 374.9
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9-31
9.4 TOTAL POTENTIAL TAX REVENUES
Exhibit 9-16 summarizes the range'of potential tax revenues that could be
generated from .coal-derived substances if the exemption from the CERCLA
feedstock tax were eliminated. Depending on the amount of substances
produced, a feedstock tax on these substances could generate approximately $2
to less than $4 million annually.
EXHIBIT 9-16
TOTAL VALUE OF ANNUAL TAX REVENUES
FROM COAL-DERIVED SUBSTANCES
(103 mid-1982 dollars)
Low High
Production Scenario Production Scenario
Coke Oven By-Products a/ 2,052.0 3,240.2
Synthetic Fuels 61.4 b/ 374.9
Total Potential Tax Revenues 2,113.4 3,615.1
a/ 'From Exhibit 9-7.
b/ From Exhibit 9-13.
c/ From Exhibit 9-15.
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