REGULATORY  IMPACT ANALYSIS:

      PROTECTION OF  STRATOSPHERIC OZONE


VOLUME I:  REGULATORY IMPACT ANALYSIS DOCUMENT
                 PREPARED BY

       STRATOSPHERIC PROTECTION PROGRAM
        OFFICE OF PROGRAM DEVELOPMENT
         OFFICE OF AIR AND RADIATION
     U.S.  ENVIRONMENTAL PROTECTION AGENCY
                AUGUST I,  1988

-------
         REGULATORY IMPACT ANALYSIS:

       PROTECTION OF STRATOSPHERIC OZONE


VOLUME I:  REGULATORY IMPACT ANALYSIS DOCUMENT
                 PREPARED BY

       STRATOSPHERIC PROTECTION PROGRAM
        OFFICE OF  PROGRAM DEVELOPMENT
         OFFICE OF AIR AND RADIATION
     U.S.  ENVIRONMENTAL PROTECTION AGENCY
                AUGUST I, 1988

-------
                                    PREFACE
    This Regulatory Impact Analysis (RIA) document reflects comments received
on the proposed regulation, "Protection of Stratospheric Ozone," Proposed Rule,
40 CFR Part 82, December 14, 1987, and on the draft RIA, and is the final RIA
to accompany the Final Rule, which is to be completed by August 1, 1988.

    This document is contained in three volumes, as follows:

         •    Volume I contains the RIA document itself;

         •    Volume II contains appendices to  the RIA document; and

         •    Volume III,  in ten parts, contains addenda to the RIA.  Parts 1
              through 9 are studies prepared by engineering contractors which
              examine current uses of chlorofluorocarbons and halons and
              possible methods and costs of reducing their use.  Part 10 of
              this volume  is a supplement to these addenda containing
              information  on changes and additions to the data presented in the
              original nine parts.

    Much of the analysis and modeling on which this document is based was
prepared by IGF Incorporated.  Contributing authors from IGF include:  Michael
Earth, Craig Ebert, Michael Gibbs, Kevin Hearle, Brian Hicks,  and William
McNaught.  The data on CFG uses and substitutes was collected and analyzed by
ICF Incorporated, Industrial Economics Corporation, Midwest Research Institute,
and Radian Corporation.

-------
                               TABLE OF CONTENTS
                                                                          Page

PREFACE 	  i

VOLUME I:   REGULATORY IMPACT ANALYSIS DOCUMENT

EXECUTIVE SUMMARY 	  ES-1

             Results in Brief 	  ES-1
             Purpose 	  ES-1
             Methodology 	  ES-2
             Results 	  ES-4

Chapter 1:    Introduction and Organization 	  1-1

             1.1  History of This Regulatory Impact Analysis 	  1-1
             1.2  Organization of Volume I 	  1-2
             1.3  Organization of Volume II 	  1-4
             1.4  Organization of Volume III 	  1-4

Chapter 2:    The Scientific Basis for Concern About the Stratosphere 	  2-1

             2.1  Ultraviolet Radiation 	  2-1
             2.2  Concern About Stratospheric Ozone Depletion 	  2-1
             2.3  The Stratosphere and Global Climate 	  2-9
             2.4  Health and Environmental Effects of Stratospheric
                      Modification 	  2-9
             2.5  Summary 	  2-15

Chapter 3:    Legal Basis for Regulation and Regulatory Impact Assessment   3-1

             3.1  Domestic and International Regulatory History Prior
                      to the 1977 Clean Air Act Revisions 	  3-1
             3.2  EPA Authority Under the Clean Air Act 	  3-4
                  3.2.1  Domestic Regulations 	  3-4
                  3.2.2  1980 Advanced Notice of Proposed Rulemaking 	  3-10
                  3.2.3  Stratospheric Ozone Protection Plan 	  3-10
                  3.2.4  EPA's Risk Assessment 	  3-11
                  3.2.5  International Negotiations 	  3-11
                  3.2.6  The Proposed Rule 	  3-13
             3.3  Need for a Regulatory Impact Analysis 	  3-13

Chapter 4:    Baseline Production and Emissions of Gases That Can
             Influence the Stratosphere 	  4-1

             4.1  Characteristics of Compound Use 	  4-2
                  4.1.1  CFC-11 	  4-3
                  4.1.2  CFC-12 	  4-5
                  4.1.3  CFC-113 	  4-8
                  4.1.4  CFC-114 	  4-8
                  4.1.5  CFC-115 	  4-8
                  4.1.6  Halon 1211 	  4-9
                  4.1.7  Halon 1301 	  4-9

-------
                         TABLE OF CONTENTS (continued)
                                                                           Page

             4.2  1986 Compound Use Estimates 	 4-9
                  4.2.1  CFC-11 and CFC-12 	 4-9
                  4.2.2  CFC-113 	 4-10
                  4.2.3  CFC-114 and CFC-115 	 4-11
                  4.2.4  Halon 1211 and Halon 1301 	 4-11
                  4.2.5  Other Ozone Depleting Compounds 	 4-11
             4.3  Projections of Future Compound Use 	 4-12
                  4.3.1  Previous Projections 	 4-12
                  4.3.2  Uncertainties Inherent in Long Term Projections  . 4-13
                  4.3.3  Baseline Compound Use Projections 	 4-14
                  4.3.4  Results 	 4-20
                  4.3.5  Alternative Growth Projections 	 4-20
                  4.3.6  Technological Rechanneling 	 4-20
             4.4  Other Trace Gases 	 4-23

Chapter 5:    Stringency and Coverage Options 	 5-1

             5.1  Chemical Coverage Options 	 5-1
             5.2  Stringency Options 	 5-3
             5.3  Participation Assumptions 	 5-4
             5.4  Selected Policy Options for Controls on Potential
                      Ozone Depleters 	 5-7

Chapter 6:    Analysis of Atmospheric Response 	 6-1

             6.1  Baseline Case Global Ozone Depletion 	 6-2
             6.2  Global Ozone Depletion for the Control Cases 	 6-4
             6.3  Global Depletion with Alternative
                      Greenhouse Gas Growth 	 6-9
             6.4  Estimates of Global Warming 	 6-9

Chapter 7:    Estimates of Physical Health and Environmental Effects 	 7-1

             7.1  Health Impacts 	 7-1
                  7.1.1  Nonmelanoma Skin Cancer 	 7-1
                  7.1.2  Cutaneous Malignant Melanoma 	 7-2
                  7.1.3  Cataracts 	 7-11
                  7.1.4  Changes to the Immune System 	 7-24
             7.2  Environmental Impacts 	 7-24
                  7.2.1  Risks to Marine Organisms 	 7-24
                  7.2.2  Risks to Crops 	 7-25
                  7.2.3  Impacts Due to Tropospheric Ozone 	 7-28
                  7.2.4  Degradation of Polymers 	 7-32
                  7.2.5  Impacts Due to Sea Level Rise 	 7-36

Chapter 8:    Valuing the Health and Environmental Effects 	 8-1

             8.1  Value of Preventing Health Impacts 	 8-1
                  8.1.1  Nonmelanoma Skin Cancer 	 8-1
                  8.1.2  Melanoma Skin Cancer 	 8-5
                  8.1.3  Cataracts 	 8-10

-------
                         TABLE OF CONTENTS (continued)
                                                                           Page

             8.2  Value of Preventing Environmental Impacts 	  8-10
                  8.2.1   Risks to Aquatic Life 	  8-15
                  8.2.2   Risks to Crops 	  8-15
                  8.2.3   Increased Concentrations of Ground-Based Ozone ..  8-17
                  8.2.4   Degradation of Polymers 	  8-19
                  8.2.5   Damages Due to Sea Level Rise 	  8-19

Chapter 9:    Costs of Control 	  9-1

             9.1  Approach to Estimating Costs 	  9-2
                  9.1.1   Types of Costs Considered 	  9-2
                  9.1.2   Characterizing CFC Reducing Technologies 	  9-3
                  9.1.3   Methods Used to Estimate Costs 	  9-5
             9.2  The Case 1 Scenario 	  9-6
                  9.2.1   Description of Case 1 Scenario 	  9-7
             9.3  Effects of Improved Responses in Individual Industries ..  9-17
                  9.3.1   Case 1A:  Enhanced Recovery of CFCs in
                          Mobile Air Conditioners	  9-18
                  9.3.2   Case IB:  Enhanced Conservation in
                          Solvent Uses 	  9-20
                  9.3.3   Case 1C:  Enhanced Conservation in
                          Hospital Sterilization Uses 	  9-23
                  9.3.4   Case ID:  Switch to DME in Mobile Air
                          Conditioning Uses 	  9-26
                  9.3.5   Case IE:  Switch to Chemical Substitutes
                          in Aerosol Uses 	  9-28
                  9.3.6   Effects of Combined Action by Industry 	  9-32
                  9.3.7   Summary of Industry Analyses 	  9-35
             9.4  The Case 2 Scenario 	:	  9-35
             9.5  Effect of Delays in the Availability of
                  Chemical Substitutes 	  9-42
             9.6  Effect of the Stringency of Regulation on Costs 	  9-46
             9.7  Effect of the Method of Regulation on Costs 	  9-47
                  9.7.1   Effect of a Regulatory Fee on Transfer
                          Payments 	  9 -49
                  9.7.2   Effect of Allocated Quotas on the Availability
                          of Chemical Substitutes 	  9-49
                  9.7.3   Effect of Producer-Imposed Allocations 	  9-51
             9.8  Limitations 	  9-52
             9.9  Summary and Conclusion 	  9-53

Chapter 10:  Benefits and Costs of Various Options with
             Sensitivity Analysis 	  10-1

             10.1  Special Characteristics of This Benefit to Cost
                      Comparison 	  10-1
                   10.1.1  Truncation of Benefit and Cost Streams 	  10-1
                   10.1.2  Uncertainty 	  10-3
                   10.1.3  Non-Quantified Benefits 	  10-4
             10.2  Method for Dealing with Truncated Benefit Streams  	  10-4

-------
                         TABLE OF CONTENTS (continued)
                                                                           Page

             10.3  Comparison of Benefits and Costs 	  10-7
                   10.3.1  Key Assumptions and Parameters 	  10-8
                   10.3.2  Alternatives Analyzed 	  10-8
                   10.3.3  Comparison of the Benefits and Costs 	  10-9
             10.4  Sensitivity Analysis 	  10-13

Chapter 11:   Description and Analysis of Regulatory Options 	  11-1

             11.1  Description of Regulatory Options 	  11-2
                   11.1.1  Auctioned Rights 	  11-2
                   11.1.2  Allocated Quotas 	  11-6
                   11.1.3  Regulatory Fees 	  11-8
                   11.1.4  Engineering Controls and Bans 	  11-10
                   11.1.5  Hybrid Approaches 	  11-11
             11.2  Evaluation of Regulatory Options 	  11-12
                   11.2.1  Environmental Protection 	  11-13
                   11.2.2  Economic Costs and Efficiency 	  11-13
                   11.2.3  Equity 	  11-16
                   11.2.4  Incentives for User Innovation 	  11-17
                   11.2.5  Administrative Burdens and Feasibility 	  11-17
                   11.2.6  Compliance and Enforcement 	  11-21
                   11.2.7  Legal Certainty 	  11-21
                   11.2.8  Impacts on Small Business 	  11-22
             11.3  Regulatory Approach for Halons 	  11-23
             11.4  Summary of Regulatory Options 	  11-23

-------
                         TABLE OF CONTENTS (continued)


VOLUME II:   APPENDICES TO REGULATORY IMPACT ANALYSIS DOCUMENT

             Appendix A:  Executive Summary of the Risk Assessment

             Appendix B:  Final Rule on Protecting Stratospheric Ozone

             Appendix C:  Analysis of How CFC Regulations can Change Future CFC
                          Consumption by Technological Rechanneling

             Appendix D:  CFC Use in Developing Countries and the UNEP Protocol

             Appendix E:  Human Health Effects Modeling

             Appendix F:  Approaches Used for Estimating the Environmental
                          Impacts of Stratospheric Ozone Depletion

             Appendix G:  The Value of Mortality Risk Reductions From the
                          Prevention of Stratospheric Ozone Depletion

             Appendix H:  Selection of Discount Rate

             Appendix I:  Framework and Method for Estimating Costs of Reducing
                          the Use of Ozone-Depleting Compounds in the U.S.

             Appendix J:  Summary of Control Options Simulated

             Appendix K:  International Trade Issues and the UNEP Protocol to
                          Reduce Global Emissions of CFCs and Halons

             Appendix L:  Regulatory Flexibility Act Analysis

             Appendix M:  Administrative Burdens Analysis

VOLUME III:  ADDENDA TO REGULATORY IMPACT ANALYSIS DOCUMENT

             Part 1:  Rigid Foam

             Part 2:  Flexible Foam

             Part 3:  Mobile Air Conditioning

             Part 4:  Refrigerants and Air Conditioning

             Part 5:  Miscellaneous

             Part 6:  Sterilants

             Part 7:  Solvents

             Part 8:  Halons

             Part 9:  Military Uses of Halons

            Part 10:  Supplement:  Revisions to Engineering Data

-------
                                LIST OF EXHIBITS
                                                                      Page

ES-1   Global Ozone Depletion for Alternative Control
       Options Cases 	 ES-5

ES-2   Comparison of Costs and Benefits Through 2075
       by Scenario 	 ES -8
2-1    The Electromagnetic Spectrum 	  2-2

2-2    The Ozone Layer Screens Harmful UV-R   	  2-3

2-3    UV-R Damage to DNA:  Relative Effectiveness by Wavelength ....  2-4

2-4    Damages in U.S. At Current Levels of UV-R 	  2-5

2-5    Chemical Cycles that Affect the Creation and Destruction
       of Ozone	  2-7

2-6    History of Model Predictions of Ozone Depletion 	  2-8


3-1    CFC-11 and CFC-12 Production in the United States 	  3-2

3-2    Cumulative Reductions in CFC-11 and CFC-12 Emissions Due
       to Aerosol Reductions in the U.S. and EEC 	  3-5

3-3    CFC-11 and CFC-12 Production in the Developed World
       (CMA Reporting Companies) 	  3-6

3-4    Per Capita Use of CFC-11 and CFC-12 in the U.S., EEC, and
       Japan 	  3-7

3-5    Per Capita Use of CFC-113 in the U.S., EEC,  and Japan 	  3-8


4-1    Estimated U.S. 1985 End Use by Compound 	  4-4

4-2    Estimated Non-U.S. 1985 End Use by Compound 	  4-6

4-3    Cumulative Fraction Released by Year of Emission and End Use .  4-7

4-4    Comparison of Assumed U.S. CFC-11 and CFC-12 Growths
       in an Earlier Version of This RIA With Actual Growth
       in Production 	  4-15

4-5    Projected Growth Rates for- Compounds by Region 	  4-16

4-6    Projected Global Growth Rates for Controlled Compounds 	  4-17

-------
                         LIST  OF EXHIBITS  (continued)


                                                                       Page

4-7    Projected Global Growth Rates for Potentially Ozone
       Depleting Compounds Which are Not Controlled 	   4-21

4-8    Weighted Global Production and Emissions 	   4-22

4-9    Growth of Trace Gas Concentrations Over Time 	   4-24


5-1    Characteristics of Various Ozone-Depleting Compounds 	    5-2

5-2    Illustrative Use of CFC-11 Under Five Stringency Options ....    5-5

5-3    Nations that Have Signed the Protocol 	    5-6

5-4    Illustration of Participation Rates 	    5-8

5-5    Control Options Analyzed 	    5-10


6-1    Global Ozone Depletion for the No Controls Case 	    6-3

6-2    Global Ozone Depletion Estimates for the No Controls Case
       and CFC 50%/Halon Freeze Case 	    6-5

6-3    Global Ozone Depletion Estimates for Alternative Control
       Options Cases 	    6-6

6-4    Global Ozone Depletion Estimates for the No Controls,
       CFC 50%/Halon Freeze,  and U.S. Only Cases 	    6-7

6-5    Summary of Ozone Depletion Estimated for the Eight Control
       Cases 	    6-8

6-6    Global Ozone Depletion Estimates for the CFC 50%/Halon
       Freeze Case for Alternative Trace Gas Concentration
       Assumptions 	    6-10

6-7    Estimates of Equilibrium Global Warming by 2075 	    6-11

6-8    Global Warming Contributions of Various Gases for the
       No Controls and CFC 50%/Halon Freeze Case:   2075 	    6-13


7-1    Dose-Response Coefficients: Nonmelanoma Skin Cancer 	    7-3

7-2    Additional Cases of Nonmelanoma Skin Cancer in the U.S.
       For People Born by 2075  by Type of Nonmelanoma 	    7-4

7-3    Additional Cases of Nonmelanoma Skin Cancer by Cohort 	    7-5

7-4    Additional Cases of Nonmelanoma Skin Cancer in U.S.
       By 2165 by Type of Nonmelanoma 	    7-6

-------
                         LIST OF  EXHIBITS  (continued)


                                                                       Page

7-5    Additional Mortality From Nonmelanoma Skin Cancer in U.S.
       Among People Born Before 2075 by Type of Nonmelanoma 	    7-7

7-6    Additional Mortality From Nonmelanoma Skin Cancer by Cohort     7-8

7-7    Additional Mortality From Nonmelanoma Skin Cancer in U.S.
       by 2165 by Type of Nonmelanoma 	    7-9

7-8    Dose-Response Coefficients:  Melanoma Skin Cancer Incidence     7-10

7-9    Additional Cases of Melanoma Skin Cancer in U.S. for People
       Born Before 2075 	    7-12

7-10   Additional Cases of Melanoma Skin Cancer by Cohort 	    7-13

7-11   Additional Cases of Melanoma Skin Cancer by 2165 in U.S	    7-14

7-12   Dose-Response Coefficients:  Melanoma Skin Cancer Mortality     7-15

7-13   Additional Mortality From Melanoma Skin Cancer in U.S.
       Among People Born Before 2075 	    7-16

7-14   Additional Mortality From Melanoma Skin Cancer by Cohort ....    7-17

7-15   Additional Mortality From Melanoma Skin Cancer in U.S.
       by 2165 	    7-18

7-16   Estimated Relationship Between Risk of Cataract and UV-B Flux   7-19

7-17   Dose-Response Coefficients -- Cataracts 	    7-20

7-18   Additional Cataract Cases in U.S. Among People Born Before
       2075 	    7-21

7-19   Additional Cataract Cases Among People Born Before 2075
       by Cohort 	    7-22

7-20   Additional Cataract Cases in U.S. by 2165 	    7-23

7-21   Effect of Increased Levels of Solar UV-B Radiation on the
       Predicted Loss of Larval Northern Anchovy from Annual
       Populations, Considering the Dose/Dose-Rate Threshold
       and Three Vertical Mixing Models 	    7-26

7-22   Decline in Commercial Fish Harvests Due to Increased UV
       Radiation 	    7-27

7-23   Decline in U.S. Agricultural Crop Production Levels Due
       to Ozone Depletion 	    7-29

7-24   Increases in Tropospheric Ozone Due to Stratospheric Ozone
       Depletion 	    7-31

-------
                          LIST OF EXHIBITS (continued)


                                                                       Page

7-25   1980 Crop Production Quantities Used in NCLAN 	    7-33

7-26   Declines in Crop Yield Assuming a 25 Percent Increase in
       Tropospheric Ozone 	    7-34

7-27   Increase in Stabilizer for Ranges of Ozone Depletion 	    7-35

7-28   Changes in Sea Level Rise Due to Stratospheric Ozone
       Depletion 	    7-37
8-1    Value of Additional Cases Avoided of Nonmelanoma in U.S.
       for People Born Before 2075 	    8-3

8-2    Value of Additional Cases Avoided from Nonmelanoma in U.S.
       That Occur by 2165 	    8-4

8-3    Value of Additional Deaths Avoided from Nonmelanoma in
       U.S. for People Born Before 2075 	    8-6

8-4    Value of Additional Deaths Avoided from Nonmelanoma in
       U.S. That Occur by 2165 	    8-7

8-5    Value of Additional Cases Avoided of Melanoma in U.S.
       for People Born Before 2075 	    8-8

8-6    Value of Additional Cases Avoided of Melanoma in U.S.
       That Occur by 2165 	    8-9

8-7    Value of Additional Deaths Avoided from Melanoma for
       People Born Before 2075 	    8-11

8-8    Value of Additional Deaths Avoided from Melanoma That Occur
       by 2165 	    8-12

8-9    Value of Avoiding an Increase in the Incidence of Cataracts
       in U.S. in People Born Before 2075 	    8-13

8-10   Value of Avoiding an Increase in the Incidence of Cataracts
       in U.S. Through 2165 	    8-14

8-11   Valuation of Impacts on Fin Fish and Shell Fish Due to
       Increased Radiation 	    8-16

8-12   Valuation of Impacts on Major Grain Crops Due to Increased
       Radiation 	    8-18

8-13   Valuation of Impacts on Major Agricultural Crops Due to
       Tropospheric Ozone 	    8-20

8-14   Valuation of Impacts on Polymers Due to UV Radiation
       Increases 	    8-21

-------
                         LIST OF EXHIBITS  (continued)


                                                                       Page

8-15   Valuation of Impacts of Sea Level Rise on Major Coastal Ports   8-23


9-1    Major Controls Available in All Cost Scenarios 	   9-8

9-2    Case 1 Assumptions About Technical Feasibility of
       CFC Conserving Technologies 	   9-10

9-3    Projected CFC and Halon Price Increases for the
       Case 1 Cost Scenario 	         9-13

9-4    Social Cost and Transfer Payment Estimates for the Case 1
       Case Cost Scenario 	   9-14

9-5    Estimated Reductions in CFC Use by Industrial Sector
       for the Case 1 Cost Scenario 	   9-16

9-6    Analysis of the Impacts of Enhanced Recovery During the
       Servicing of Mobile Air Conditioners (Case 1A) 	   9-21

9-7    Analysis of the Impacts of Accelerated Responses in
       the Solvent Sector (Case IB) 	   9-24

9-8    Analysis of the Impacts of Accelerated Responses
       in the Hospital Sector (Case 1C) 	   9-27

9-9    Analysis of the Impacts of the Use of DME in
       Mobile Air Conditioners (Case ID) 	   9-29

9-10   Analysis of the Impacts of the Use of Chemical
       Substitutes in the Aerosol Sector (Case IE) 	   9-31

9-11   CFC Price Increase and Social Cost Estimates:
       Case 1 and Combined Industry Scenarios 	   9-33

9-12   Estimated CFC Price Increases for
       Industry Scenarios 	    9-36

9-13   Estimated Social Costs and Transfer Payments
       for Industry Scenarios 	   9-37

9-14   Case 2 Assumptions About Technical Feasibility of
       CFC-Conserving Technologies 	   9-38

9-15   Comparison of Results for the Case 1 and 2 Scenarios:
       Social Costs, Transfer Payments, CFC Price Increases,
       and Industry Reductions 	    9-41

9-16   Results of the Delayed Chemical Substitute Scenarios:
       Social Costs, Transfer Payments, CFC Price Increases
       and Industry Reductions 	    9-43

-------
                          LIST OF EXHIBITS  (continued)

                                                                       Page

9-17   Social Cost Estimates for Seven Stringency and
       Coverage Options 	    9-48


10-1   Example of Truncated Time Stream 	   10-2

10-2   Illustration of Truncated Population Stream and Associated
       Benefit and Cost Streams  	   10-5

10-3   Summary of the Health Benefits for People Born Before
       2075 by Scenario 	   10-10

10-4   Summary of the Health Benefits Through 2165 by Scenario
       for People Born After 2075 	   10-11

10-5   Summary of the Environmental Benefits Through 2075 by
       Scenario 	   10-12

10-6   Summary of the Costs of Control by Scenario 	   10-14

10-7   Comparison of Benefits and Costs Beyond 2075 	   10-15

10-8   Net Present Value Comparison of Costs and Health Benefits
       Through 2075 by Scenario  	   10-16

10-9   Comparison of Costs and Benefits Through 2075 by Scenario ...   10-17

10-10  Summary of Results of Sensitivity Analyses for Costs and
       Major Health Benefits for People Born Before 2075 	   10-21
11-1   Short-Term Social Cost Estimates (1989-2000) for Different
       Cost Assumptions:  Case 6 - CFC 50%, Halon Freeze 	   11-15
11-2   Comparison of Administrative Burden Estimates 	     11-18

11-3   Summary of Issues Related to CFC Regulatory Options 	   11-24

-------
                               EXECUTIVE SUMMARY
Results in Brief

    On September 16, 1987, the United States, along with 23 other nations and
the European Economic Community, signed an international protocol (the "Montreal
Protocol") calling for a freeze on the use of CFCs beginning in approximately
mid-1989, a 20 percent reduction in their use beginning in mid-1993, and another
30 percent reduction in their use beginning in mid-1998.  In addition, this
protocol calls for a freeze on halon usage at 1986 levels beginning in
approximately 1992.  The protocol will only enter into force when eleven
nations, constituting two-thirds of global consumption of the controlled
substances (i.e., CFCs and halons), have ratified it.  On April 5, 1988, the
President signed the Montreal Protocol, which the United States Senate had
approved on March 14, 1988.  As of July 1988, 37 nations have signed and two
have ratified the Protocol.

    On December 14, 1987, the U.S. Environmental Protection Agency published
proposed regulations for protecting stratospheric ozone.   Accompanying these
proposed regulations was a preliminary Regulatory Impact Analysis (RIA)
examining the probable effects of regulatory action.  Its major conclusion was
that under virtually all sets of assumptions examined the benefits of limiting
future CFC and halon use far outweigh the increased costs which these
regulations would impose on the economy.

    Since the publication of the proposed regulations, EPA has received comments
from numerous interested parties and conducted further analyses of the costs to
the economy of responding to the regulation.  This final RIA2 reflects revisions
to the preliminary RIA incorporating the information obtained from these public
comments and additional analyses.   This final RIA does not reflect the recent
evidence contained in the Ozone Trends Panel Report on the increasing severity
of ozone depletion.   The major conclusion of the preliminary RIA is unchanged
-- under virtually all possible assumptions about ozone depletion and CFC use,
the benefits of CFC and halon regulation far exceed the costs.

Purpose

    Since 1974, there has been increasing scientific evidence that increased
emissions of CFCs and halon compounds would deplete stratospheric ozone.  These
compounds, commonly used in many applications such as refrigeration, foam
blowing, sterilization, and fire protection, have extremely long atmospheric
lives, meaning that current levels of CFC and halon production could affect the
welfare of the human population for a number of generations.
     1 Federal Register. December 14, 1987, pages 47489-47523

     2 To distinguish it from the preliminary RIA, the remainder of the document
refers to this version of the RIA as the "final RIA."

        U. S. National Aeronautics and Space Administration, Executive Summary
of Ozone Trends Panel Report. March 15, 1988.

-------
                                      ES-2
    The best available scientific evidence suggests that if CFC and halon
emissions continue to increase, significant stratospheric ozone depletion would
result.  Decreases in stratospheric ozone would result in increases in the
penetration of biologically-damaging ultraviolet-B radiation (i.e., 290 to 320
nanometers) reaching the earth's surface.

    Under the auspices of the United Nations Environment Programme (UNEP),  24
nations and the European Economic Community signed an international protocol on
September 16, 1987, in Montreal, Canada, which addressed the ozone depletion
problem.  Assuming entry into force on January 1, 1989, the protocol calls for a
freeze on CFC use at 1986 levels beginning on July 1, 1989; a 20 percent
reduction from 1986 levels beginning on July 1, 1993; and a 50 percent reduction
from 1986 levels beginning on July 1, 1998.  The protocol also calls for a
freeze on halon use at 1986 levels beginning approximately on January 1, 1992.

    To implement the obligations of the United States under this protocol and
under its own authority as set out in Section 157(b) of the Clean Air Act of
1977, the Environmental Protection Agency is promulgating regulations
restricting the use of CFC and halon compounds.  Executive Order 12291 requires
that the costs and benefits of "major rules" such as these CFC and halon
restrictions be evaluated in a Regulatory Impact Analysis (RIA).   This document
presents the results of this evaluation.

Methodology

    This final RIA estimates the costs and benefits of the proposed regulations
by considering their effect in the future relative to a projected baseline of
effects which would occur in the absence of any regulation.  In this baseline
case, CFC/halon use is projected to grow through 2050, and then level off.
These growth projections are based upon analyses of past CFC/halon growth
patterns that appear to be closely correlated to growth rates in per capita GNP
levels.  CFC and halon use is assumed to level off in 2050.

    Associated with this increased use of CFCs and halons are projections of
decreases in stratospheric ozone that lead to increased ultraviolet radiation
levels and global climate change.  These projected levels of ozone depletion are
based upon the representations of the chemical processes affecting the
atmosphere, particularly the stratosphere.  In the baseline case (i.e., no
regulations), levels of stratospheric ozone are projected to decrease by 50
percent or more by the end of the 21st century.

    This final RIA considers seven options for regulating CFC/halon use.  They
range from a simple freeze on CFC use without any controls on halon use, to an
option comparable to the protocol reached in Montreal, to an option which
expands the Montreal Protocol by imposing an 80 percent reduction in CFC usage.
Still another option considers the costs and benefits of CFC/halon regulation by
the United States alone in the absence of any regulatory actions in the rest of
the world.  Given the existence of the Montreal Protocol, this case is presented
for comparison purposes only.  Analysis of all options takes into account which
nations participate.  A summary description of each scenario is provided below:

         •    No Controls --No controls on CFCs or halons occur.  This
              is the baseline scenario against which the impacts of
              various control options are measured.

-------
                                     ES-3
         •    CFG Freeze -- CFC use is held constant at 1986
              levels starting in 1989.

         •    CFC 20% -- In addition to the CFC freeze in 1989, a
              20% CFC reduction worldwide occurs in 1993.

         •    CFC 50% -- In addition to the CFC freeze in 1989 and
              the 20% reduction in 1993, a 50% CFC reduction
              occurs in 1998.

         •    CFC 80% -- In addition to the CFC freeze in 1989,
              the 20% reduction in 1993, and the 50% reduction in
              1998, an 80% CFC reduction occurs in 2003.

         •    CFC 50%/Halon Freeze --In addition to the freeze on CFC
              use in 1989, the 20% reduction in 1993, and the 50%
              reduction in 1998, halon use is held constant at 1986
              levels starting in 1992.  This case is intended to
              resemble the Montreal Protocol as closely as possible.

         •    CFC 50%/Halon Freeze/U.S. 80% -- Same as the CFC
              50%/Halon Freeze case, except that the U.S. reduces
              to 80% of 1986 CFC levels in 2003.

         •    U.S. Only/CFC 50%/Halon Freeze -- Same as the CFC
              50%/Halon Freeze case, except the U.S. is the only
              country in the world that participates.

    The benefits of these regulations were estimated by assembling the best
available scientific estimates on the effects of decreases in stratospheric
ozone on human health and the environment.  The major health benefits are due to
avoiding ultraviolet radiation effects, which include increased numbers of skin
cancers and cataracts.  The value of reductions in skin cancer incidence was
estimated by first estimating the additional numbers of skin cancers likely to
occur due to decreased stratospheric ozone levels.  Then the proportion of skin
cancers that were fatal were estimated and multiplied by an estimated
statistical value of human life.  For the remaining nonfatal skin cancers and
all cataracts, cases were valued by multiplying by an estimated social cost of
treatment.  Estimates of pain and suffering were not included in the valuation
of the skin cancer cases; pain and suffering estimates were included for the
cataract cases.  In order to assess the potential effects of possible
improvements in medical technology, additional analyses were performed to
measure the sensitivity of estimated health benefits to decreased incidence
rates of skin cancer.

    The major environmental effects were more difficult to quantify due to a
lack of scientific data on the likely magnitude of these effects.  Although
limited in scope, some studies of decreased crop yields (for soybeans) and fish
harvests (for anchovies) associated with increased levels of ultraviolet
radiation are available.  The effects of ultraviolet radiation on yields in
these studies were used to estimate the probable decreased productivity of
specified agricultural and marine industries due to stratospheric ozone

-------
                                      ES-4
depletion.  For the purposes of calculating benefits, values were assigned to
increased crop and fish harvests using current market prices of each commodity.

    Additionally, decreased stratospheric ozone can be expected to lead to
increased tropospheric (ground-based) ozone (which can also reduce crop yields),
and to more rapid deterioration of polymers.  Also, CFCs and changes in the
vertical distribution of ozone can increase global temperatures, resulting in a
rising sea level.  Although the benefits of reductions in ground-based ozone
levels to humans is no doubt quite large due to avoided human health impacts,
this final RIA quantitatively assesses only the impacts of these reductions on
crop production levels.  The benefits accruing to avoidance of faster
deterioration of polymers were assessed by estimating the costs of adding light
stabilizers to polymers to retard the absorption of ultraviolet radiation.  The
impacts of a rising sea level were valued by estimating potential impacts on
major ports.

    The costs attributable to reducing CFG and halon use through regulation were
estimated by examining the costs of alternative technologies and materials for
producing CFC-based and halon-based products.   This final RIA examines a wide
range of alternative approaches, including replacing CFCs and halons with less
ozone-depleting chemicals, recycling or recovering CFCs and halons, or
eliminating the CFC-based or halon-based product entirely.

    Extensive engineering analyses were performed to estimate the costs of
producing each CFC-based or halon-based product with the alternative
technologies.  These analyses included all variable costs, such as material,
labor, energy, and operating expenses; capital costs, properly discounted for
the expected useful life of the equipment; and nonrecurring costs, such as the
costs of retooling, research and development or training.  For the cost
analysis, technologies were selected that minimized the increases in production
costs required to achieve each level of reduction in CFC and halon use.

    Two types of costs result from the reduced availability and higher prices of
CFC-based and halon-based products induced by regulations.  Social costs are the
additional amount of resources required to produce an equivalent amount of goods
and services for consumers.  Regulation also transfers income from consumers of
CFC-based and halon-based products, who now must pay higher prices, to other
sectors of society.  These transfer payments are not losses in welfare to
society and are not counted as costs of regulation.

Results

    Each of the options analyzed significantly reduces the depletion of
stratospheric ozone.  Exhibit ES-l(a) shows the pattern of these reductions over
time for each alternative control option (except the U.S. Only/CFC 50%/Halon
Freeze case); Exhibit ES-l(b) shows the U.S. Only/CFC 50%/Halon Freeze case
along with the No Controls and CFC 50%/Halon Freeze cases.  (Note that the
scales differ in the two panels.)  The least stringent control option reduces
the ozone depletion percentage by the end of the 21st century from 50 percent to
approximately 8 percent.   In contrast, by 2100 the most stringent control option
reduces the ozone depletion percentage to about 1 percent.  In all cases except
the "U.S. only" case, depletion estimates assume substantial levels of
participation by other nations.  (See Chapter 6 for additional information.)

-------
                                      ES-5
                                  EXHIBIT ES-1

                           GLOBAL OZONE DEPLETION FOR
                       ALTERNATIVE CONTROL OPTIONS CASES
(a)
                                                               CFC 50* /
                                                               HAL ON FREEZE

-------
                                      ES-6
    In the baseline case, depletion of stratospheric ozone is estimated to cause
nearly 178 million additional nonmelanoma skin cancers and over 890,000
additional melanoma skin cancers for persons born before the year 2075 in the
U.S.  Both types of skin cancers combined are estimated to result in about 3.7
million additional deaths for people born before the year 2075 in the U.S.  (See
Chapter 7 for additional information.)

    Regulation of CFG and halon use reduces the additional incidence of skin
cancers for people born before 2075 by about 55 million cases in the least
stringent regulatory option and about 174 million cases avoided in the most
stringent regulatory option.  Deaths avoided range from 1.2 million to 3.7
million over the same range of options.  The present value of benefits to United
States citizens born before 2075 from avoiding these cancers ranges from $1.4
trillion to $3.5 trillion.

    A second part of the human health benefits of CFC and halon regulation is
the reduced incidence of cataracts.  Of the 20 million additional cases of
cataracts projected to occur among people born before 2075 in the U.S. due to
ozone depletion, from 4.1 to 19.2 million cases are estimated to be avoided
under the various CFC and halon regulatory options.  The present value of the
benefits in the U.S. of these avoided cases ranges from $1 to $3 billion.

    The quantifiable environmental benefits in the U.S. due to CFC and halon
regulation, although substantial, are small when compared to the value of the
avoided cancer benefits:

         •    The estimated increased value of crops harvested due
              to decreased levels of damaging ultraviolet
              radiation ranges from $8.6 billion to $27.7 billion.

         •    The estimated increased value of fish harvested due
              to decreased levels of damaging ultraviolet
              radiation ranges from $2.4 billion to $6.7 billion.

         •    The estimated increased value of crops harvested due
              to decreased levels of tropospheric (ground-based)
              ozone ranges from $6.4 billion to $15.6 billion.

         •    The decreased costs in protecting polymer products
              from increased ultraviolet radiation ranges from
              $0.8 billion to $3.6 billion.

         •    The estimated benefits of avoiding costs due to a
              rise in the sea level range from $1.4 billion to
              $5.1 billion.

The basis for these environmental effects estimates is much less certain than
the human health impacts; the actual environmental impacts could be
significantly higher or lower.  (See Chapter 8 for additional information.)

    The costs of regulating CFCs and halons are more sensitive to the regulatory
option selected than are the benefits.  The costs of these regulations are
expected to depend on the speed at which specific CFC-user industries and the
economy as a whole can adopt techniques to reduce CFC and halon use and on the

-------
                                      ES-7
potential for these technologies to achieve the reductions required.  For th.e
least stringent case--a freeze on CFCs only--the present value of the costs for
the United States are estimated to range from $7 to $19 billion through the year
2075.  However, for the most stringent regulatory option--in which ultimately
CFC usage is reduced 80 percent in the U.S. (50 percent in the rest of the
world) and halon use is frozen at 1986 levels--the present value of costs range
from $24 to $65 billion through the year 2075.

    The level of transfer payments generated by CFC regulation is significant,
particularly in the initial years of regulation.  The present value of these
transfer payments is estimated to range from $1.9 to $7.3 billion through the
year 2000.  If allocated quotas were the regulatory option chosen, these
transfer payments would accrue to CFC producers and their presence could provide
an incentive for producers to delay the introduction of chemical substitutes.
Using pessimistic assumptions about the speed with which industries adopt CFC
conservation techniques, a one year delay in the introduction of these
substitutes is estimated to increase transfer payments by $2.7 billion.  Using
the same pessimistic assumptions, a two year delay increases transfer payments
by over $10 billion and makes it difficult to achieve the mandated reduction to
80 percent of 1986 usage levels scheduled to occur in 1993.  Using moderate
assumptions about industries' responsiveness to CFC conservation, a one year
delay in the introduction of CFC substitutes has little effect, but a two year
delay increases transfer payments by $1.3 billion.  Using optimistic assumptions
about industries' responsiveness to CFC conservation, delays in the introduction
of CFC substitutes has little impact because the price of these substitutes
usually exceeds the cost of alternative conservation measures.  (See Chapter 9
for additional information.)

    A major uncertainty in performing the cost analysis is the speed at which
the new technologies would be adopted by CFC user industries.  A series of
alternative cost simulations was performed to assess the impact on costs if
certain key industries implement technologies to reduce CFC use widely and
quickly.  The key industries identified in these analyses are:  the mobile air
conditioner servicing industry, the solvent industry, the hospital industry, the
mobile air conditioner manufacturing industry,  and the aerosol industry.  Even
if all other industries implemented CFC reduction measures slowly and with
reduced effectiveness, the rapid and effective implementation of reduction
measures by these key industries reduces the present value of social costs
incurred by society through the year 2000 from $2.9 billion to $1.1 billion.

    Because the costs of regulation are incurred immediately while the benefits
of reduced ozone depletion accrue over hundreds of years, it is difficult to
determine an appropriate time period for conducting the cost-benefit
comparisons.  Exhibit ES-2 compares the benefits accruing to persons born prior
to 2075 to the costs incurred prior to 2075.  If the benefits exceed the costs
of regulation for this comparison, then social welfare is increased because
additional benefits from actions taken prior to 2075 continue to accrue in years
following 2075 and benefits of stratospheric ozone regulation continue to
increase while costs are relatively constant after 2075.  As Exhibit ES-2 shows,
the present value of benefits through the year 2075 far exceeds the costs
imposed by the regulatory options.  Of particular note is that not all costs and
benefits have been quantified.  These unquantifiable costs and benefits are also
itemized in Exhibit ES-2.  In any evaluation of the relative merits of various

-------
                                                            EXHIBIT ES-2

                                                      OCMPABISGH OF COSTS AHD
                                                 aausfos TBROUGQ 2075 BY SCENARIO
                                                    (billions of 1985 dollars^
Health and
Envi ronmental
Benefits B/
Net Benefits
Costs (Minus Costs)
Net Incremental
Benefits (Minus
Costs) Sf
Costs and Benefits That Have Not Been Quantified
No Controls

CFC Freeze                   3,314

CFC 20Z                      3,396

CFC 50Z                      3,488

CFC 80Z                      3,553

CFC SOZ/Halon Freeze         3,575

CFC SOZ/Halon Freeze/        3,589
   U.S. 80Z

U.S. Only CFC SOZ/Halon      1,373
   Freeze
 7

12

13

22

21

24


21
3,307

3,384

3,475

3,531

3,554

3,565


1,352
3,307

   77

   91

   56

   23

   11


1,352
Coats

Transition costs, such as  temporary Layoffs
  while new capital  equipment  is  installed
Administrative costs
Costs of unknown environmental hazards  due to
  use of chemicals replacing CFCs

Health Benefits

Increase in actinic keratosis  from  UV radiation
Changes to the human immune system
 Tropospheric ozone impacts on the  pulmonary
  system
Fain and suffering from skin cancer

Environmental Benefits

Temperature rise
Beach erosion
Loss of coastal wetlands
Additional sea level rise  impacts due to
  Antarctic ice discharge, Greenland  ice
  discharge,  and Antarctic meltwater
UV radiation impacts on recreational  fishing,
  the overall marine ecosystem, other crops,
  forests, and other plant species, and
  materials currently in use
Tropospheric  ozone impacts on  other crops,
  forests, other plant species, and man-made
  materials
                                                                                                                                                PI
                                                                                                                                                c/J
                                                                                                                                                oo
    a/  All dollar values reflect the difference between the No Controls scenario and the specified alternative scenario, unless
        otherwise indicated.  Valuation of the health and environmental benefits applies only to people born before 2075, costs are
        estimated through 2075.  In all scenarios, benefits through 2165 for people born from 2075 to 2165 exceed the costs of control
        from 2075 to  2165.  Estimates assume a 2 percent discount rate.  Costs are for the "Case 2" cost assumptions which assumes
        controls are  adopted expeditiously
    b/  Assumes  $3 million for the value of human life (unit mortality risk reduction).
        values for human life had been assumed.
                                             Estimated benefits would be higher if larger
    c/  Change  in net incremental benefits from the indicated scenario to the scenario listed above it, e g
        Controls," unless otherwise indicated.
                                                                  "CFC Freeze" minus "Ho
    d/  Compared  to No Controls Case.

-------
                                      ES-9
policy options, all costs and benefits, whether they have been quantified or
not, should be recognized.

    As a final stage of the analysis, a series of sensitivity runs were
performed to test whether large changes in the assumptions used to estimate
either costs or benefits would alter the recommendations of the RIA.  Among the
many assumptions altered during the sensitivity runs were:

         •    the rate of growth in baseline CFC use;

         •    the value of unit mortality risk reductions;

         •    the discount rate;

         •    the participation of other nations in the Montreal
              Protocol;

         •    the rate of growth of other trace gases affecting stratospheric
              ozone;

         •    the rate of incidence of skin cancer in the
              population; and

         •    the rate of improvement in medical technology.

The results were most sensitive to the choice of the social discount rate.
However, even when this value was increased from its original value of two
percent to a higher estimate of six percent, benefits due to cancer deaths
avoided still exceeded social costs incurred by .about 12:1 for the CFC 50%/Halon
Freeze case.  (See Chapter 10 for additional information.)

    A review of the approaches for implementing various regulatory options
considered the use of auctioned rights, regulatory fees, allocated quotas,
engineering controls/bans, and hybrid combinations of these approaches.
Regulatory fees and engineering controls/bans, used alone, do not ensure that
regulatory goals will be satisfied.  Auctioned rights create substantial
uncertainties in their early years of operation.  Allocated quotas, therefore,
appear to offer the most straightforward approach to implementing the CFC and
halon regulations, although they raise equity concerns because of the
potentially large transfers to producers they create which could also result in
the delay in the introduction of new chemical substitutes.  Adding a regulatory
fee to the allocated quota system would remove the economic incentive for delay.
In addition, the analysis indicates that if delays in the adoption of CFC-
conserving technologies are likely, command-and-control engineering
requirements, in conjunction with allocated quotas, could significantly reduce
costs faced by business in the next 15 years.  (See Chapter 11 for additional
information.)

-------
                                   CHAPTER 1

                         INTRODUCTION AND ORGANIZATION
    Concern about stratospheric ozone depletion led Congress,  as part of its
1977 amendments to the Clean Air Act, to include Part B on stratospheric ozone
protection.  Under the Authority granted by that Act, EPA has  promulgated a
regulation on August 1, 1988.  As part of the process of promulgating a
regulation, EPA prepared a regulatory impact analysis that evaluates the
consequences of various options for limiting ozone-depleting chemicals.  This
chapter presents the basic logic and organization of this Regulatory Impact
Analysis (RIA) which examines the regulatory options that could be used to
reduce future emissions of chlorofluorocarbons (CFCs) and halons under Part B of
the Clean Air Act.

    This RIA is divided into three volumes.  Volume I is the main report; Volume
II contains the appendices supporting the analysis and findings of Volume I; and
Volume III contains further documentation, primarily on costs  of technical
options to limit ozone depleting substances.  The organization of each of these
volumes is discussed in turn, after a brief review of the history of this
document.

1.1 HISTORY OF THIS REGULATORY IMPACT ANALYSIS

    In December 1987, EPA proposed a regulation to protect the stratospheric
ozone layer.  Accompanying that proposed rule was a draft RIA, the precursor to
this document.  Based on the proposed rule and draft RIA, the  EPA received some
497 comments, many referring specifically to the RIA.  A summary of these
comments and responses to them is contained in the Background Information
Document (EPA, 1988).  The present document is the final RIA to accompany the
final rule on protecting stratospheric ozone (see Appendix B).  It reflects
considerable analysis motivated by comments on the December 1987 RIA.  In
particular, major changes between the December 1987 RIA and the present version
include the following:

    •  Revision of the estimates of baseline use and emissions of ozone-
       modifying chemicals (Chapter 4).   These revisions incorporated data on
       1986 production, import and export levels received by the EPA in response
       to their data request (Federal Register, pages 47486-47488, December 14,
       1987).  Also, assumptions about the growth in baseline  use between 1987
       and 1992 were increased based upon observations that growth in production
       in 1986 and 1987 were higher than expected.

    •  Extensive revision to the analysis of the costs of achieving reductions
       in use (Chapter 9).  Data on the costs of options for reducing use were
       updated to incorporate:   (1) information received from  public comments;
       (2) information received through continuing contacts with industry
       officials; and (3) emerging technologies unknown at the time of the
       preparation of the draft RIA.  The cost analysis includes new scenarios
       which describe the important effects that technical progress can have on
       costs.

-------
                                      1-2
    •  Revision of the discussion of regulatory options (Chapter 11).  This
       section was revised to include information received from public comments
       about the effects of each regulatory alternative.

    •  Addition of a copy of the proposed rule (Federal Register, pages 47489-
       47523, December 14, 1987) and the final rule to Appendix B.

    •  Revision of the regulatory flexibility analysis (Appendix L).  This
       analysis was revised to incorporate all changes included in the overall
       analysis of costs of control.  The analysis also was revised to reflect
       additional information received through public comments about the effects
       of the proposed rule on the various foam-blowing industries.

    •  Revision of the administrative burden analysis (Appendix M).  This
       analysis was revised to incorporate additional information gained from
       industry officials about the administrative costs of recordkeeping and
       reporting.  The analysis also incorporates additional information on the
       costs to EPA of administering the proposed rule and its alternatives
       based, in part, on its experience in processing the 1986 data received in
       reference to its December 14 rule (§ 40 Part 82.20).

    •  Additional sensitivity analysis.   Based on comments received, additional
       sensitivity analyses were performed.  For example,  a set of analyses
       examines the potential implications of improvements in medical technology
       on the incidence of skin cancer.

1.2 ORGANIZATION OF VOLUME I

    Volume I analyzes the regulatory options to limit CFCs and other ozone-
depleting substances.  It is divided into eleven chapters that analyze various
aspects of the options.

    Following this introductory chapter, Chapter 2 lays the scientific basis for
concern about stratospheric ozone depletion and for preventing stratospheric
change.  This chapter is not intended to provide a detailed scientific analysis
related to ozone depletion.  The primary scientific basis for this RIA is
contained in the risk assessment on stratospheric protection published by EPA in
December 1987.  This assessment has been reviewed by the Environmental
Protection Agency's Science Advisory Board and is available from EPA.
Similarly, assessments on atmospheric science by the World Meteorological
Organization (1986) and NASA (1986) are also used extensively in evaluating
issues related to atmospheric ozone.  Readers wishing a detailed presentation of
the science should consult these source documents.  Most recently, the Ozone
Trends Panel convened by NASA has summarized at length the latest scientific
findings on the Antarctic ozone hole and recent trends in ozone depletion (see
NASA (1988)).  Because this information has only recently become available,
preventing its full consideration by EPA as part of this rulemaking, it has not
been incorporated in this final RIA.

    Chapter 3 lays the legal basis for regulating emissions that could affect
the stratosphere.  Chapters 4 through 10 evaluate alternatives to protect the
stratosphere by analyzing factors that could result in ozone depletion and its
effects.  Various control levels (i.e.,  chemical coverage and stringency) are
evaluated in terms of their costs and effects

-------
                                      1-3
    Chapter 4 lays out the baseline production for CFCs, halons and other
relevant trace gases that would occur if there is no regulation.  This chapter
considers not just ozone-depleters but concentrations of trace gases that also
influence stratospheric ozone.  Some of these gases increase ozone levels, while
others could contribute to depletion.  All are greenhouse gases.  These
scenarios of future growth in trace gases are inputs into the atmospheric
models.

    Chapter 5 lays out the chemical stringency and coverage options that could
be used to reduce emissions over time, specifying four control level options
that could be undertaken.  These control level options cover a range of
stringency both weaker and stronger than that contained in the protocol
concluded in Montreal under the auspices of the United Nations Environment
Programme (UNEP).   Also considered is the effect of unilateral U.S. action, of
U.S. action more stringent than the international protocol, and of exclusion of
halons from control.

    Chapter 6 outlines the potential atmospheric response to the baseline
scenario and to the various control level options.  This response is projected
using a statistical representation of a one-dimensional atmospheric model.

    Chapter 7 presents estimates of the health and environmental impacts of
projected atmospheric change, including effects on skin cancers, cataracts, sea
level, crop production, aquatics, tropospheric ozone, and polymers.  This
chapter examines these impacts both for the baseline and control level options.

    Chapter 8 presents the economic value of avoiding the damages projected in
Chapter 7,  attaching dollar values to those impacts where quantitative estimates
are possible.  (Note that not all effects have been quantitatively estimated and
that not all effects can be valued in dollar terms.)

    Chapter 9 presents estimates of the costs that would be associated with each
control level option.  In this chapter, a range of cost estimates are presented.
At one extreme,  a "Case 1" scenario assumes that the CFC reduction potential of
these technologies is reduced and that industries delay their adoption.  At the
other extreme,  a "Case 2" cost estimate assumes that CFC-conserving technology
is rapidly adopted and is relatively successful at reducing CFC use.

    Chapter 10 integrates the costs and benefits of alternative control level
options so that the net benefit of each can be assessed.  Sensitivity analyses
are included that examine the dependency of this analysis on various assumptions
about emissions,  atmospheric response, physical effects, economic valuation
assumptions, and advances in medical technology.

    Together Chapters 4-10 analyze the benefits and costs of different control
level options.   The analysis of costs varies based on assumptions about the
penetration and availability of options to limit CFC and halon use.  The method
of implementation of these options could also affect costs.   Chapter 11 has been
devoted to the regulatory alternatives that could be used to implement any of
the control level  options.

    Chapter 11 focuses on evaluating five regulatory options:   allocated quotas:
production quotas  allocated to producers and importers;  auctioned rights:  rights

-------
                                      1-4
auctioned to any interested party; fees that would be used to provide incentives
to reduce demand; engineering regulations such as technology standards for
industrial processes and bans on products; and hybrid systems such as the
combination of allocated quotas with some engineering controls/bans or with
regulatory fees.  Chapter 11 examines how these options differ by qualitatively
assessing such issues as costs, administrative burden, equity', legal certainty,
enforcement, and impacts on small businesses.  It draws on the cost analysis
presented in Volume 1 and two additional studies on administrative burdens and
regulatory flexibility, both of which are contained in Volume II.

    Throughout these chapters, assumptions critical to understanding the
analysis are presented.  However, in order to allow the document to be read by a
large audience of interested parties, detailed explanations of methodologies and
assumptions are relegated to Volume II and Volume III.

1.3 ORGANIZATION OF VOLUME II

    Volume II includes 13 appendices.  Appendix A presents the Executive Summary
of EPA's risk assessment.  Appendix B presents EPA's Stratospheric Ozone
Protection Plan, which was published in the Federal Register on January 10,
1986, as well as copies of the proposed and final rule for Protection of
Stratospheric Ozone, the latter being the subject of this RIA.  Appendix C
presents an analysis of how CFC regulations can lead to technological
rechanneling, thereby altering the demand for CFCs in both nations participating
and not participating in the international protocol to protect ozone.  Appendix
D discusses factors affecting the use of CFCs specific to developing nations.
Appendix E presents details of the human health effects modeling, while Appendix
F focuses on the environmental effects.  Appendix G discusses the value ascribed
to preventing premature deaths now and in the future.  Appendix H discusses
issues related to specifying a base discount rate and sensitivity rates which
are used to analyze the time flow of costs and benefits.  Appendix I lays out in
detail the framework and method for estimating control costs.  Appendix J
specifies the sequence of technical control options that would be taken to
implement the protocol control level.  Appendix K discusses issues related to
international trade.  Appendix L analyzes actions under the Regulatory
Flexibility Act.  Appendix M presents an Administrative Burdens Analysis.

1.4 ORGANIZATION OF VOLUME III

    The addenda focus on detailed uses of CFCs and the costs of undertaking
controls.  The addenda are presented in nine parts:  (1) rigid foam; (2)
flexible foam; (3) automobile air conditioning; (4) refrigeration and other air
conditioning; (5) miscellaneous uses (such as aerosols and food freezing); (6)
sterilants; (7) solvents; (8) civilian uses of halons; and (9) military uses of
halons.   In each area, the use area is reviewed, and control options are
discussed (broadly defined to include both technology controls, substitutes,
etc.).  For each control option, costs and penetration rates for three time
periods are presented.  This body of work forms the documentation of the
database used in the cost modeling discussed in Appendix I.   A supplement to the
nine volumes of addenda presents changes and additions to the information on
control options contained therein.

-------
                                      1-5
                                   REFERENCES
U.S. EPA (1987), Assessing the Risks of Trace Gases that Can Modify the
    Stratosphere. U.S. EPA, Washington, D.C.  This is a revised version of:  EPA
    (1986), An Assessment of the Risks of Stratospheric Modification. U.S.
    Environmental Protection Agency, Washington, D.C.

U.S. EPA (1988), Background Information Document. U.S. EPA, Washington, D.C.

National Aeronautics and Space Administration (NASA)  (1986), Present State of
    Knowledge of the Upper Atmosphere:  An Assessment Report.  Processes That
    Control Ozone and Other Climatically Important Trace Gases. NASA Reference
    Publication 1162, NASA, Washington, D.C.

National Aeronautics and Space Administration (NASA)  (1988), Executive Summary
    of Ozone Trends Panel Report. March 15, 1988.

World Meteorological Organization (WMO) (1986),  Atmospheric Ozone 1985. Global
    Ozone Research and Monitoring Project, Report No. 16, NASA, Washington, D.C.

-------
                                   CHAPTER 2

            THE SCIENTIFIC BASIS FOR CONCERN ABOUT THE STRATOSPHERE
2.1  ULTRAVIOLET RADIATION

    The process of nuclear fusion in the sun provides energy transferred by
photons to the earth.  These photons have both wavelengths and energy levels.
As shown in Exhibit 2-1, wavelengths less than 400 nanometers (nm) are
"ultraviolet radiation" (UV-R).   Wavelengths below 290 nm are "UV-C" radiation,
wavelengths from 290 to 320 nm are "UV-B" radiation, and wavelengths from 320 to
400 nm are "UV-A" radiation.

    Much of the ultraviolet energy that strikes the earth's atmosphere does not
reach the planet's surface, but is absorbed by ozone (03) molecules in the
stratosphere (Exhibit 2-2).  As Exhibit 2-2 demonstrates, stratospheric ozone
absorbs lower wavelengths most effectively.  In fact, no UV-C radiation reaches
the earth's surface.  Stratospheric ozone partially absorbs UV-B radiation, and
does not absorb any UV-A radiation.

    This selective absorption of ultraviolet radiation by the earth's ozone
layer has allowed life to develop on earth.  Exposure to low UV-C and UV-B
radiation has been shown to be deadly to many organisms,  and it is doubtful that
life in its current form could have evolved without the protective screening by
the ozone layer.

    For many biological targets, the probability of photon absorption increases
with decreasing wavelength, especially for UV-B and UV-C.  The relative
effectiveness of UV-R in producing a biological effect is therefore greater at
lower wavelengths.  For example, Exhibit 2-3 shows experimental data on the
relative effectiveness of UV-R wavelengths in damaging DNA, e.g., radiation at
300 nm is about 2.5 orders of magnitude more damaging than radiation at 320 nm.

    Current levels of UV-R are responsible for significant damages to human
health, welfare, and the environment.  Molecular,  cellular, animal, and
epidemiological evidence supports this conclusion.  Examples of current UV-B
effects include skin cancer and damage to outdoor polymers.  Exhibit 2-4 shows
that current U.S. incidence of nonmelanoma skin cancer cases is over 500,000 per
year, and incidence of melanoma skin cancer is 25,000 cases per year.   In
addition, large sums of money are spent to prevent polymer degradation due to
ambient levels of UV-R.  A $72 million per year plastic stabilizer market has
developed (Hattery, McGinniss, and Taussig, 1985).

2.2  CONCERN ABOUT STRATOSPHERIC OZONE DEPLETION

    The creation of ozone has a simple basis:   solar radiation breaks
stratospheric oxygen (02) molecules into single oxygen atoms (0).  Ozone is then
naturally created by the reaction of 0 and 02.   If this were the only process
occurring,  it would ultimately lead to increasing concentrations of ozone.  In
reality,  a series of reactions also destroys ozone.   In particular, ozone (03)
reacts with odd oxygen atoms (0) to form 02 molecules.   This natural

-------
                                            2-2


                                        EXHIBIT 2-1

                               THE ELECTROMAGNETIC SPECTRUM
!<«•*•
 .fin
   xuv
          • uv
                  Ml IV
                           HI IV
      too
              100
300
                               400
                                       900
                                                        700
     Ultraviolet radiation  (UV-R)  is  defined as  electromagnetic energy with
     wavelengths less than  400 nanometers  (nm).  UV-R is further divided into UV-C
     (less than 290 nm), UV-B (290 nm to 320 nm),  and UV-A (320 nm to 400 nm) .
     Source:  Adapted from Scotto, J.,  (1986),  "Nonmelanoma Skin Cancer - UV-B
              Effects" in J.G. Titus  (ed.),  Effects  of Changes in Stratospheric Ozone
              and Global Climate.  Volume  II:  Stratospheric Ozone.  U.S. Environmental
              Protection Agency, Washington, D.C., p.  34.

-------
                                      2-3


                                  EXHIBIT 2-2

                      THE OZONE LAYER SCREENS HARMFUL UV-R
                      01
                    = 001
                     0001
                           2*0
                                                   JJO
The upper line shows that significant amounts of UV-C and UV-B reach the top of
the earth's atmosphere. The lower line, which represents the UV-R that reaches
the earth's surface, demonstrates that the ozone layer effectively screens these
harmful wavelengths.
Source:  Adapted from National Academy of Sciences,  (1982), Causes and Effects
         of Stratospheric Ozone Reduction. National Academy Press, Washington,
         D.C., p. 40.

-------
                                       2-4
                                   EXHIBIT 2-3

                               UV-R DAMAGE TO DMA:
                      RELATIVE EFFECTIVENESS BY WAVELENGTH
                                 0. • Rekrtwt dmr y«d pe
                                 —ARHotTvt MaHty  pv quota
                                 •—tRekaiw outoricilr pv
                                 	tarap ONA
                                     (SdkM,B74)
                                     Xtran tamp
                                 A.O Hg lints
                                         ITwrill, 19731
                     290     300     350     400     490
The relative effectiveness of wavelengths in  inducing damage constitutes an
action spectrum.  The  action spectrum for DNA  damage  is shown above. Note that
radiation at 300  nm is  2.5 orders of magnitude more  effective at inducing DNA
damage as radiation at  320 nm.
Source:  Peak, M.J.,  J.G.  Peak, M.P. Moerhing, and R.B.  Webb (1984),
         "Ultraviolet Action Spectra for DNA Dimer Induction,  Lethality, and
         Mutagenesis  in Enscherichia coli with Emphasis  on the UVB Region,"
         Photochemistry and Photobiology. 40, 613-620.

-------
                                      2-5


                                  EXHIBIT 2-4

                   DAMAGES IN U.S. AT CURRENT LEVELS OF DV-R
          Non-melanoma skin cancer incidence:      >500,000 per year

          Melanoma skin cancer incidence:            25,000 per year

          UV-stabilizers for outdoor materials:     $72 million per year


Sources:   Non-melanoma skin cancer incidence is based on rates in Scotto,  Fears,
          and Fraumeni (1981).  Melanoma incidence is based on rates in Scotto
          and Fears (1987).  Methodology used to calculate total incidence is
          presented in EPA (1987).   UV stabilizer estimates are reported in
          Mattery, G.R., V.D. McGinniss, and P.R. Taussig (1985).

-------
                                      2-6
cycle of creation and destruction (which includes many other species and
interactions) leads to an "equilibrium" level of ozone, which if it were brought
to ground level pressure could be 3 mm wide.

    Since the early 1970s, researchers have theorized that the natural
destruction of ozone can be enhanced by other anthropogenically-produced
compounds that could participate in catalytic reactions that destroy ozone.  Of
particular concern are chlorine, bromine, and nitrogen, which are believed to
have the potential to reach the stratosphere in sufficient quantities to cause
significant depletion of stratospheric ozone.  Exhibit 2-5 shows the basic
outline of these chlorine, bromine, and nitrogen cycles.

    Natural sources of chlorine, bromine, and nitrogen contribute a small and
stable amount of these species to the stratosphere.  Researchers hypothesize,
however, that man's activities may lead to rapidly increasing amounts of these
molecules in the stratosphere.  The scientific focus on this issue began in the
early 1970s with analysis of nitrogen compounds from supersonic transport
aircraft, the exhaust of emissions from the proposed space shuttle, and
emissions of nitrous oxide from fertilizer applications.

    In 1974, Molina and Rowland first outlined the potential effects of
chlorofluorocarbons (CFCs) on the stratospheric ozone layer.  They hypothesized
that CFCs, a class of industrial chemicals valued for their stability, would
accumulate in the lower atmosphere and eventually be transported to the
stratosphere, where they would be photodissociated by the sun's high-energy UV-R
and yield chlorine atoms, which would participate in catalytic reactions that
destroy ozone.

    Since 1974 there have been substantial improvements in the ability of
researchers to evaluate the effects of CFCs on stratospheric ozone.  Significant
advances have enabled researchers to measure more accurately the rates of
important chemical reactions affecting ozone that occur in the atmosphere and
simulate these reactions affecting ozone in mathematical models.  Comparisons of
the calculated profiles of ozone and other atmospheric constituents with field
measurements have allowed further refinements of atmospheric models.
One-dimensional atmospheric models have been developed which can simulate both
chemical reactions and vertical transport of compounds.  Since 1974, the results
of these models have been relatively consistent (Exhibit 2-6).  For the
"standard case" of constant emissions of CFC-11 and CFC-12 only, the Lawrence
Livermore National Laboratory one-dimensional model has projected a mean
depletion of 12.4 percent, plus or minus 3.8 percent (one standard deviation).
No excursion was more than 8 percent from the mean and none ever went
"positive."

    Recent concern about potential stratospheric ozone depletion has been
intensified by several developments.  First, researchers recognized that total
worldwide CFC emissions, which had remained relatively constant after the U.S.
and others abandoned their use in aerosol sprays, were beginning to rise due to
continued growth in non-aerosol uses such as air conditioning, refrigeration,
and foam blowing.  In addition, growing use of other chlorine-containing
compounds, such as CFC-113 used in electronics as a solvent, was adding to the
chlorine burden in the stratosphere.

-------
                                      2-7
                                  EXHIBIT 2-5

                    CHEMICAL CYCLES THAT AFFECT THE CREATION
                            AND DESTRUCTION OF OZONE
1.  Chlorine cycle:
2.  Bromine cycle:
3.  Nitrogen cycle:
                               Cl + 03  	> CIO + 02
                                0 + CIO 	> Cl  + 02

                           Net  0 + 03  	> 202
                               Br  + 03 	> BrO + 02
                               BrO + 0  	> Br  + 02

                           Net   0 + 03 	> 202
                               NO  + 03 	> N02 + 02
                               N02 + 0  	> NO  + 02

                           Net   0 + 03 	> 202
Chlorine, bromine, and nitrogen act as catalysts,  converting ozone molecules
into oxygen molecules, but emerging ready to eliminate another 03 molecule after
the two reactions.

-------
                                      2-8


                                  EXHIBIT 2-6

                HISTORY OF MODEL PREDICTIONS OF OZONE DEPLETION
6 -
4 -
2 -
-2 -
-4 -
-6 -
-8 -
•10 -
•12 -

14 -
18 -

18 -
20 -
22 -
24 -
26 -





• *
•
• •

• 9 » f
a

B
' - 	 *









1 std
1 1
Mean


1 std





1975
             1977
1979
1981
1983
1985
The one-dimensional model of the Lawrence Livermore National Laboratory has been
used to project ozone depletion and has shown consistent results over the last
12 years.  For the standard case of constant CFC-11 and CFC-12 emissions at 1974
levels, mean projected depletion is 12.4 percent, with a standard deviation of
3.8 percent.
Source:  Calculated from reported results of LLNL model.  Data for 1975 to 1981
         from Wuebbles (1983).  Data for 1983 to 1985 taken from Figure 13-37 of
         WHO (1986).

-------
                                      2-9
    The unexpected finding of the British Antarctic Survey in 1985 that
concentrations of ozone above Antarctica were rapidly decreasing during the
Spring also intensified concern.  This depletion had not been predicted by
atmospheric models, and considerable debate followed on the fundamental
mechanism responsible for this "ozone hole".  Nonetheless, the losses of ozone
in Antarctica raise the possibility that atmospheric models might be
underpredicting the effects of CFCs on ozone.  Preliminary data from satellites
and ground-based monitoring stations also raise the possibility that worldwide
depletion of ozone has occurred in the last decade beyond what current models
have predicted.  The EPA risk assessment (EPA 1987) stated that data on the
Antarctic ozone hole or the possible global depletion need additional scientific
analysis before being used for policy decisions.  Additional analysis is
underway in the scientific community which may lead to further revision of the
models used in this RIA.  At this time, these data, as contained in the Ozone
Trends Panel Report are not used as a basis for decisionmaking.

2.3  THE STRATOSPHERE AND GLOBAL CLIMATE

    In addition to its role in absorbing UV-R, the stratosphere is an important
determinant of global climate.  The vertical distribution of ozone, projected to
change due to CFC emissions, plays a role in establishing the earth's radiative
balance.  Stratospheric water vapor also affects its radiative balance.  While
the current concentration of stratospheric water vapor is low, increases in
methane, which by increasing ozone could partially offset losses in ozone from
CFCs, would also increase water vapor concentrations.   Some recent evidence
suggests that water vapor may play a role in decreasing ozone in the
stratosphere.  The vertical distribution of ozone in the stratosphere may also
have a role in controlling climatic circulation patterns, but the exact
implications for weather and climate circulation patterns are uncertain.
Projected changes in the stratosphere will alter vertical distribution and alter
global temperatures.

2.4  HEALTH AND ENVIRONMENTAL EFFECTS OF STRATOSPHERIC MODIFICATION

    Major reviews of scientific issues related to changes in stratospheric ozone
have been conducted over the years by the National Academy of Sciences, the
National Aeronautics and Space Administration, and the World Meteorological
Organization.  In its recently completed risk assessment, the U.S. Environmental
Protection Agency also reviewed scientific work on the health and environmental
effects of stratospheric change.  Its report, Assessing the Risks of Trace Gases
That Can Modify the Stratosphere,  was reviewed by the Agency's Science Advisory
Board and provides the scientific basis for developing regulations to protect
the stratosphere.   The Summary Findings of the risk assessment are listed below.
     * Most recently, the Ozone Trends Panel (NASA,  1988) reported larger than
previously expected losses in global ozone levels over the past 17 years and
clearly identified a link between CFCs and the Antarctic ozone hole.   It is
premature to modify the methods employed here to reflect these recent findings.
The cause of the Antarctic ozone hole and the apparent ozone depletion over the
past decade reported by the Ozone Trends Panel, although reasons for  concern,
are not yet well enough understood to use as a basis for modifying the models
used in this assessment.

-------
                                      2-10
SUMMARY FINDINGS

1.  Considerable research has taken place since 1974 when the theory linking
    chlorine from chlorofluorocarbons (CFCs) and depletion of ozone was first
    developed.  While uncertainties remain, the evidence to date continues to
    support the original theory that CFCs have the potential to decrease
    stratospheric ozone.

2.  Atmospheric measurements show that the chemical composition of the
    atmosphere -- including gases that affect ozone -- has been changing.
    Recently measured annual rates of growth in global atmospheric
    concentrations of trace gases that influence ozone include:  CFC-11:
    5 percent; CFC-12: 5 percent; CFC-113: 10 percent; carbon tetrachloride: 1
    percent; methyl chloroform: 7 percent; nitrous oxide: 0.2 percent; carbon
    monoxide: 1 to 2 percent; carbon dioxide: 0.5 percent; and methane: 1
    percent.  More limited measurements of halon 1211 show recent annual
    increases of 23 percent in atmospheric concentrations.

3.  CFCs, halons, methyl chloroform, and carbon tetrachloride release chlorine
    or bromine into the stratosphere where they act as catalysts to reduce the
    net amount of ozone.  In contrast, carbon dioxide and methane either add to
    the total column of ozone or slow the rate of depletion.  The effect of
    increases in nitrous oxide varies depending on the relative level of
    chlorine.

4.  CFCs, methyl chloroform, carbon tetrachloride, and halons are industrially
    produced.  Emissions of methane, carbon dioxide, and nitrous oxide occur
    from both human activity and the natural biosphere.  Because all these gases
    (with the exception of methane and methyl chloroform) remain in the
    atmosphere for many decades to over a century, emissions today will
    influence ozone levels for more than a century.  Also, as a result of these
    long lifetimes, concentrations of these gases will rise for more than a
    century, even if emissions remain at constant levels.  For example, to
    stabilize concentrations of CFC-11 or -12 would require a reduction in
    current global emissions of about 85 percent.

5.  In order to assess risks, scenarios of atmospheric change were evaluated
    using models.  For CFCs, methyl chloroform, carbon tetrachloride, and
    halons,  demand for goods that contain or are manufactured with these
    chemicals (e.g., refrigerators, computers, automobile air conditioners) and
    the historic relationship between economic activity and the use of these
    chemicals were analyzed.  These analyses indicate that in the absence of
    regulation,  the use and emissions of these compounds are expected to
    increase in the future.  However, for purposes of analyzing risks, six
    "what-if" scenarios were adopted that cover a greater range of future
    production of ozone-depleting substance than is likely to occur.

6.  Atmospheric chemistry models were used to assess the potential effects of
    possible future changes in atmospheric concentrations of trace gases.  These
    models attempt to simulate processes that influence the creation and
    destruction of ozone.  While the models replicate many of the
    characteristics of the atmosphere accurately, they are inconsistent with

-------
                                     2-11
    measured values of other constituents,  thus lowering our confidence in their
    ability to predict future ozone changes accurately.

7.  Based on the results from these models, the cause of future changes in ozone
    will be highly dependent on future emissions of trace gases.
    One-dimensional models project that if the use of chlorine and bromine
    containing substances remains constant globally, and other trace gas
    concentrations continue to grow, total column ozone levels would at first
    decrease slightly, and then would subsequently increase.  If the use of CFCs
    continues to grow at past rates and other gases also increase at recent
    rates, substantial total column ozone depletion would occur by the middle of
    the next century.  If the use of CFCs stays at current levels and the growth
    in the concentrations of other trace gases slows over time, model results
    indicate total column ozone depletion will also occur.

8.  In all scenarios examined, substantial changes are expected in the vertical
    distribution of ozone.  Ozone decreases are generally expected at higher
    altitudes in all scenarios in which CFC concentrations increase.  Ozone
    increases are expected at lower altitudes in some scenarios examined due to
    increases in methane concentrations.  Such changes may have important
    climatic effects.

9.  Two-dimensional (2-D) models provide information on possible changes in
    ozone by season and by latitude.  Results from 2-D models suggest that
    global average depletion could be higher than estimates from a
    one-dimensional (1-D) model for the same scenario.  Moreover, the 2-D model
    results suggest that average annual ozone depletion above the global average
    would occur at higher latitudes (above 40 degrees), while depletion over
    tropics is predicted to be lower than the global average; and depletion
    would be greater in the spring than the annual average.  Uncertainties in
    the representation of the transport of chemical species used in 2-D models
    introduces uncertainty in the magnitude of the latitudinal gradient of ozone
    depletion, but all 2-D models project a gradient.

10. Measurements of ozone concentrations are another valuable tool for assessing
    the risks of ozone modification.  Based on analysis of data for over a
    decade from a global network of ground-based monitoring stations,  ozone
    concentrations have decreased at mid-latitudes in the upper and lower
    stratosphere and increased in the troposphere.  According to studies using
    ground-based instruments, there appears to have been no statistically
    significant change in column ozone between 1970 and 1983.  High altitude,
    lower stratospheric, and total column trends are roughly consistent with
    current two-dimensional model predictions.

11. Recent evidence indicates that since the late 1970s substantial decreases in
    ozone (up to 50 percent) have occurred over and near Antarctica during its
    springtime.   These losses have been verified by different measurement
    techniques,  and different theories have been suggested to explain the cause
    of the seasonal loss in ozone.  Insufficient data exist to state whether
    chlorine and bromine are responsible for the observed depletion, or whether
    some other factor is the cause (e.g., dynamics or changes in solar flux that
    alters NOx).   Furthermore, even if man-made chemicals are the cause of the
    phenomenon,  stratospheric conditions surrounding Antarctica are different
    from the stratospheric conditions for the rest of the world, so that it

-------
                                      2-12
    cannot be assumed that similar depletion would occur elsewhere.  Models did
    not predict the Antarctic ozone depletion, however.  Consequently, the
    change in Antarctica suggests that ozone abundance is sensitive to yet
    unknown natural or anthropogenic factors not yet incorporated in current
    models.

12. Preliminary data from Nimbus-7 suggest a decrease in global ozone
    concentrations (4-6 percent) may have occurred during the past several
    years.  These data have not yet been published and require additional review
    and verification.  If verified, further analysis would be required to
    determine if chlorine is responsible for the reported decrease in ozone
    levels, or whether the decrease is due to other factors or reflects
    short-term natural variations.

13. Decreases in total column ozone would increase the penetration of
    ultraviolet-B (UV-B) radiation (i.e., 290-320 nanometers) reaching the
    earth's surface.

14. Exposure to UV-B radiation has been implicated by laboratory and
    epidemiologic studies as a cause of two common types of skin cancers
    (squamous cell and basal cell).  It is estimated that there are more than
    400,000 new cases of these skin cancers each year.  While uncertainty exists
    concerning the appropriate action spectrum (i.e., the relative biological
    effectiveness of different wavelengths of ultraviolet radiation), a range of
    relationships was developed that allows increased incidence of these skins
    cancers to be estimated for future ozone depletion (these cancers are also
    referred to as nonmelanoma skin cancers).

15. Studies predict that for every 1 percent increase in UV-B radiation (which
    corresponds to less than a 1 percent decrease in ozone because the amount of
    increase in UV-B radiation, depending on the action spectrum, is greater
    than rather than proportional to ozone depletion), nonmelanoma skin cancer
    cases would increase by about 1 to 3 percent.  The mortality for these forms
    of cancer has been estimated at approximately 1 percent of total cases based
    on limited available information.

16. Malignant melanoma is a less common form of skin cancer.   There are
    currently approximately 25,000 cases per year and 5,000 deaths.  The
    relationship between cutaneous malignant melanoma and UV-B radiation is a
    complex one.  Laboratory experiments have not succeeded in transforming
    melanocytes with UV-B radiation.  However, recent epidemiological studies,
    including large case control studies, suggest that UV-B radiation plays an
    important role in causing melanoma.  Uncertainties in action spectrum, dose
    measurement, and other factors necessitates the use of a range of
    dose-response estimates.  Taking into account such uncertainties, recent
    studies predict that for each 1 percent change in UV-B intensity, the
    incidence of melanoma could increase from 0.5 to 1 percent.
       The Ozone Trends Panel (NASA, 1988) report concluded that significant
instrument drift resulted in their inability to verify these losses which are
substantially greater than other ground-based and satellite measurements.

-------
                                      2-13
17. Studies have demonstrated that UV-B radiation can suppress the immune
    response system in animals and possibly humans.  While UV-B-induced immune
    suppression has been linked to chronic reinfection with herpes simplex virus
    and leishmaniasis in animals, its possible impact on other diseases and its
    impact on humans has not been studied.

18. Increases in exposure to UV-B radiation are likely to increase the incidence
    of cataracts and could adversely affect the retina.

19. While studies generally show adverse impacts on plants from increased UV-B
    exposure, difficulties in experimental design, the limited number of species
    and cultivars tested, and the complex interactions between plants and their
    environments prevent firm conclusions from being made for the purpose of
    quantifying risks.  Field studies on soybeans suggest that yield reductions
    could occur in some cultivars of soybeans, while evidence from laboratory
    studies suggest that two out of three cultivars are sensitive to UV-B.

20. Laboratory studies with numerous other crop species also show many to be
    adversely affected by UV-B.   Increased UV-B has been shown to alter the
    balance of competition between plants.  While the magnitude of this change
    cannot be presently estimated, the implications of UV-altered, competitive
    balance for crops and weeds and for nonagricultural areas such as forests,'
    grasslands, and desert may be far reaching.

21. Aquatic organisms, particularly phytoplankton, zooplankton, and the larvae
    of many fishes, appear to be susceptible to harm from increased exposure to
    UV-B radiation because they spend at least part of their time at or near
    surface waters.  However, additional research is needed to better understand
    the ability of these organisms to mitigate adverse effects and any possible
    implications of changes in community composition as more susceptible
    organisms decrease in numbers.  The implications of possible effects on the
    aquatic food chain requires additional study.

22. Research has only recently been initiated into the effects of UV-B on the
    formation of tropospheric ozone (an air pollutant with negative health and
    plant effects).  An initial chamber and model study shows that tropospheric
    ozone levels could increase, resulting in additional urban areas being in
    non-compliance with National Ambient Air Quality Standards.  The increase in
    UV-B would also produce ozone peaks closer to urban centers, exposing larger
    populations to unhealthy concentrations of tropospheric ozone.  The same
    study also predicts substantial increase in hydrogen peroxide, an acid rain
    precursor.  However, because only one study has been done, the results must
    be treated with caution.   Additional theoretical and empirical work will be
    needed to verify these projections.

23. Research indicates that increased exposure to UV-B would likely cause
    accelerated weathering of polymers, necessitating polymer reformulation or
    the use of stabilizers in some products, and possibly curtailing use of
    certain polymers in some areas.

24. The National Academy of Sciences (NAS) has recommended that 1.5°C to 4.5°C
    represents a reasonable range of uncertainty about the temperature
    sensitivity of the Earth to a doubling of C02 or an increase in other trace
    gases of the equivalent radiative forcing.  While some of the trace gases

-------
                                      2-14
    discussed above deplete ozone and others result in higher ozone levels, all,
    on net, would increase the radiative forcing of the Earth and would
    contribute to global warming.

25. Using the middle of the NAS range for the Earth's temperature sensitivity
    and a wide range of future trace gas growth (e.g., from a phase-down of CFCs
    by 80 percent from current levels by 2010 to a 5 percent annual increase
    through 2050; C02 doubling by 2060;  N20 increasing at 0.2 percent; CH4
    increasing by 0.017 ppm/year through 2100), equilibrium temperatures can be
    expected to rise from 4°C to 11.6°C by 2075.  Of this amount, depending on
    the scenario, CFCs and changes in ozone would be responsible for
    approximately 15-25% of the projected climate change.

26. In most situations, inadequate information exists to quantify the risks
    related to climate change.  Studies predict that sea level could rise by
    10-20 centimeters by 2025, and by 55-190 centimeters by 2075.  Such
    increases could damage wetlands, erode coastlines, and increase damage from
    storms.  Changes in hydrology, along with warmer temperatures,  could affect
    forests and agriculture.   However, lack of information about the regional
    nature of climatic change makes quantification of risks difficult.  A study
    suggests that rising temperatures could adversely affect human health if
    acclimatization lags.

27. To perform the computations necessary to evaluate the risks associated with
    stratospheric modification, an integrating model was developed to evaluate
    the joint implications of scenarios or estimates for: (1) potential future
    use of CFCs and change in other trace gases; (2) ozone change as a
    consequence of trace gas emissions;  (3) changes in UV-B radiation associated
    with ozone change; and (4) changes in skin cancer cases and cataracts
    associated with changes in UV-B radiation.  Potential impacts of
    stratospheric modification that could not be quantified were not addressed
    by the integrating model.  On a global basis,  the risks of ozone depletion
    may be greatest for plants, aquatic systems and the immune system, even
    though knowledge to assess these efforts is much less certain than for skin
    cancers.

28. Uncertainty about future risks is partly driven by the rate at which CFC and
    halon use and other trace gases grow or decline.  For this reason, a wide
    range of "what-if" scenarios of potential CFC and halon use and growth in
    trace gas concentration was evaluated.  To reflect the large uncertainties,
    the scenarios range from an 80 percent global phase-down in the use of CFCs
    by 2010 to an average annual growth in use of 5 percent per year from 1985
    to 2050.  For ozone-modifying gases other than CFCs, scenarios were based on
    recently measured trends, with uncertainties being evaluated by considering
    a range of future emissions and concentrations.

29. Across the wide range of "what-if" scenarios considered, ozone change by
    2075 could vary from as high as over 50 percent ozone depletion to increased
    abundance of ozone of approximately 3 percent.   This range of ozone change
    implies a change in the number of skin cancer cases among people alive today
    and born through 2075 ranging from an increase of over 200 million to a
    decrease on the order of 6.5 million.  The overwhelming majority (over 95
    percent) of the increases and decreases in skin cancer cases estimated for
    this wide range of scenarios is associated with basal and squamous cell

-------
                                      2-15
    cancers (i.e., nonmelanoma skin cancer).  Mortality impacts are estimated to
    be on the order of 1.5 to 2.0 percent of the changes in total cases, and a
    large percentage of the estimated impacts are associated with people born in
    the future.  The statistical uncertainty of these estimates is on the order
    of plus and minus 50 percent.  Additional uncertainties exist, some of which
    cannot be quantified.   The greatest single uncertainty about future risks is
    driven by the rate at which CFC and halon use grows or declines.  This
    uncertainty is reflected in the assessment by examining a wide range of
    "what if" scenarios of future use.

2.5  SUMMARY

     The stratosphere plays an important role in protecting human health,
welfare and the environment. The stratospheric ozone layer acts as a protective
shield against harmful ultraviolet radiation. In addition, the stratosphere
influences global climate.  Increased emissions of CFCs and other trace gases
are projected to deplete stratospheric ozone and contribute to global climate
change.

-------
                                      2-16
                                  REFERENCES
Hattery, G.R., V.D. McGinniss, and P.R. Taussig (1985), "Final Report on Costs
    Associated with Increased Ultraviolet Degradation of Polymers," Battelle
    Columbus Laboratory, Columbus, OH.

Scotto, J., T.R. Fears, and J.F.  Fraumeni, Jr.  (1981), Incidence of
    Nonmelanoma Skin Cancer in the United States.  NIH/82-2433, U.S. Department
    of Health and Human Services, Bethesda, MD.

Scotto, J., and T.R. Fears (1987), "The Association of Solar Ultraviolet
    and Skin Melanoma Incidence Among Caucasians in the United States," Cancer
    Investigations. 5(4), 275-283.

U.S. Environmental Protection Agency (1987), Assessing the Risks of Trace
    Gases that Can Modify the Stratosphere. U.S. EPA, Washington, D.C.  This is
    a revised version of:  U.S. Environmental Protection Agency (1986), An
    Assessment of the Risks of Stratospheric Modification. U.S. EPA, Washington,
    D.C.

U.S. National Aeronautics and Space Administration (NASA) (1988), Executive
    Summary of Ozone Trends Panel Report. March 15, 1988.

World Meteorological Organization (WMO) (1986),  Atmospheric Ozone 1985.
    Assessment of Our Understanding of the Processes Controlling Its Present
    Distribution and Change.  WMO Global Ozone Research and Monitoring Project
    Report No. 16, WMO, Geneva, Switzerland.

Wuebbles, D.J. (1983), "Chlorocarbon Emission Scenarios:  Potential Impact on
    Stratospheric Ozone," Journal of Geophysical Research. 88(C2), 1433-1443.

-------
                                   CHAPTER 3

                           LEGAL BASIS  FOR REGULATION
                        AND REGULATORY  IMPACT ASSESSMENT
    Concern about protecting stratospheric ozone began in 1974 soon after Molina
and Rowland published their paper theorizing depletion from chlorofluorocarbons
(CFCs).  In the U.S., voluntary action by consumers and manufacturers soon
resulted in significant reductions in CFC use.   In 1978, the Environmental
Protection Agency (EPA) and Food and Drug Administration (FDA) banned the use of
CFCs in non-essential aerosol propellants.  Congress strengthened EPA's
regulatory authority in the 1977 amendments to the Clean Air Act.  In 1980, EPA
issued an Advance Notice of Proposed Rulemaking (ANPR) that stated that it was
evaluating further restrictions on CFC use.

    In 1986 EPA published its Stratospheric Ozone Protection Plan, which
superseded its 1980 ANPR and outlined a program of further research and
decisionmaking.  The plan called for research and analysis to narrow scientific
uncertainties, and proposed that the Agency evaluate domestic regulations
concurrently with ongoing international efforts to develop a CFC control
protocol to protect stratospheric ozone.  In 1987, EPA published a proposed rule
for protecting stratospheric ozone.  This rule would constitute the
implementation by the United States of its obligations under the Montreal
Protocol.  (Appendix B contains copies of both the Stratospheric Ozone
Protection Plan and the proposed rule.)

3.1  DOMESTIC AND INTERNATIONAL REGULATORY HISTORY PRIOR TO THE 1977 CLEAN AIR
     ACT REVISIONS

    In 1974, aerosol propellants accounted for approximately half of CFC use in
the United States.  By 1980, this use had fallen to five percent of previous
totals in the U.S. (Exhibit 3-1).  A number of events -- economic forces,
environmental concern, and regulations -- contributed to the reduction of the
use of CFCs (Kavanaugh, et al., 1986).

    The initial impetus away from CFC use in aerosols was the environmental
concern of consumers and producers.  Consumers, alerted by news reports and
television, sought other products.  Taking advantage of such environmental
concern, producers of non-CFC propelled aerosols and of alternative delivery
systems, such as pumps and hydrocarbon propelled sprays, advertised that their
products did not contain CFCs.  The overall effect of these activities was a
reduction in sales of personal care aerosols.

    Governmental restrictions on CFCs were first discussed in Congressional
hearings in December 1974.  In 1976, EPA, the FDA, and the Consumer Product
Safety Commission (CPSC) began to evaluate regulations restricting CFC use in
aerosols.

    The ban on CFC use in non-essential aerosol propellants was promulgated in
1978 (43 FR 11301; March 17, 1978).  The FDA acted pursuant to its authority
under the Federal Food, Drug and Cosmetic Act to ban most CFC use in food, drug,
and cosmetic aerosol devices.  EPA, acting under the Toxic Substances Control
Act, banned non-essential CFC use in all aerosols.  The CPSC issued regulations

-------
                                     3-2


                                EXHIBIT 3-1

              CFC-11 AND CFG-12 PRODUCTION IN THE UNITED STATES*
     400
     350-


     300-


     250


     200


     150


     100


      50
       NONAEROSOL
                                                      \   AEROSOL
        1960
•  •  •
1965
      1970        1975        1980
* Aerosol/Nonaerosol divisions are estimates
1985
    *Production of CFC-11  and  CFC-12 in the United States increased rapidly
throughout the 1960s and early 1970s.  Production reached a maximum of 376.4
mill kg in 1974,  with 56 percent used in aerosol sprays.  Non-essential use of
CFCs in aerosol sprays was banned  in 1978, and aerosol use today accounts  for
only 5 percent of total CFC-11 and CFC-12 production.

-------
                                      3-3
                                  EXHIBIT 3-1

              CFC-11 AND CFC-12 PRODUCTION IN THE UNITED STATES*
                                  (Continued)
Sources:
    (a)   Total CFC-11 and CFC-12 production from 1960 to 1985 from United States
         International Trade Commission,  Synthetic QrEanic Chemicals.  USITC,
         Washington,  DC,  annual series.

    (b)   Total CFC-11 and CFC-12 production in 1985 and 1986 from United States
         International Trade Commission,  "Preliminary Report on U.S.   Production
         of Selected Synthetic Organic Chemicals (Including Synthetic  Plastics
         and Resin Materials), USITC,  Washington,  D.C., March 31, 1987,  and
         February 26, 1988.

    (c)   Aerosol share of production is estimated for three periods:   (i)
         estimates for 1960-69 assume that in 1960, aerosol share for  CFC-11 was
         81 percent,  declining smoothly to 54 percent in 1970.   For CFC-12,
         aerosol share assumed to be constant at 60 percent; (ii) estimates for
         1970-78 from Wolf,  K.A.,  Regulating Chlorofluorocarbon Emissions:
         Effects on Chemical Production.  N/1483-EPA, The RAND Corporation, Santa
         Monica, CA;  and (iii) estimates for 1979 to 1986 assume that  aerosol
         use in essential applications has remained constant at the level
         reported for 1985 by Hammitt, J.K., et al., (1986), Product Uses and
         Market Trends for Potential Ozone-Depleting Substances. R-3386-EPA,  The
         RAND Corporation, Santa Monica,  CA.

    (d)   Non-aerosol use equals total production minus aerosol use.

-------
                                      3-4
requiring that exempted aerosol products bear a warning label that they
contained CFCs, which may deplete ozone.

    Reductions in aerosol propellant use of CFCs by the U.S. and other nations
caused world CFC use to remain approximately constant from 1974 through the
early 1980s.  Belgium, Canada, Norway and Sweden banned CFC use in aerosol
sprays.  Member nations of the European Economic Community (EEC) adopted
measures to reduce CFC use in aerosols by 30 percent from 1976 levels.  Exhibit
3-2 shows an estimate of the cumulative CFC-11 and CFC-12 emission reductions
achieved by the U.S. and EEC due to reductions in CFC aerosol use.

    In addition to reducing aerosol use, EEC nations agreed not to increase
their CFC production capacity, and adopted engineering codes of practice to
discourage unnecessary CFC emissions from other applications.  Restrictions
adopted by other nations include the Netherlands, which requires a warning label
on CFC-propelled products; Portugal, which banned CFC production and established
CFC import quotas; Brazil, which implemented a production capacity cap;
Australia, which reduced CFC use in aerosols by 66 percent; and Japan, which
also reduced CFC aerosol use and discourages increases in production capacity of
CFC-11 and CFC-12.  In the last few years, however, total world use has
increased (Exhibit 3-3).

    One measure of the relative effectiveness of CFC restrictions is the per
capita use of CFCs.  Exhibit 3-4 shows that per capita use of CFC-11 and CFC-12
in the U.S. is now roughly equivalent with that in the EEC, and is still higher
than Japan.  When CFC-113 is included, however, the differences between Japan
and the U.S. are dramatically reduced (Exhibit 3-5).

    Because CFC emissions from all nations mix uniformly in the global
atmosphere, it is important to review international efforts to reduce CFC use.
Concerted international efforts began in 1981 under the auspices of the United
Nations Environment Programme (UNEP).   At the 1981 Montevideo Senior Level
Meeting on Environmental Law, this subject was recommended as a priority for
future work within UNEP.  On the basis of this recommendation, the UNEP
Governing Council established the Ad Hoc Working Group of Legal and Technical
Experts, which in 1982 began negotiating a global framework for a convention to
protect the ozone layer.

3.2  EPA AUTHORITY UNDER THE CLEAN AIR ACT

3.2.1  Domestic Regulations

    In 1977, Congress strengthened EPA's authority to regulate and to protect
the stratosphere.  Part B of the Clean Air Act (Section 157(b)) requires that:

            ... the Administrator (of EPA) shall propose regulations
        for the control of any substance, practice, process,  or
        activity (or any combination thereof) which in his judgment
        may reasonably be anticipated to affect the stratosphere,
        especially ozone in the stratosphere, if such effect in the
        stratosphere may reasonably be anticipated to endanger public
        health or welfare.  Such regulations shall take into account
        the feasibility and costs of achieving such control.

-------
                                      3-5
                                  EXHIBIT 3-2

                   CUMULATIVE REDUCTIONS  IN  CFC-11 AND CFG-12
                      EMISSIONS DUE TO AEROSOL REDUCTIONS
                              IN THE U.S. AND EEC
                                  Total Use
                                  in 1985
                                           501 mill kg
                                               Total UM
                                               in 1985
                                          Y////////.
                         U.S.
                                      EEC
Cumulative reductions in use of CFC-11 and CFC-12 in the U.S. and EEC due to
reductions in aerosol use.  For purposes of illustration, assumes that in
absence of environmental concerns, CFC use would have remained constant at peak
levels: 1974 level in U.S. and 1976 level in EEC.
Sources:
    (a)
    (b)
U.S. historical use of CFC-11 and CFC-12 from 1974 to 1977 for aerosol
propellants based on total production and aerosol shares reported in
Wolf, K.A., (1980), Regulating Chlorofluorocarbon Emissions:  Effects
on Chemical Production. N/1483-EPA, The RAND Corporation, Santa Monica,
CA.  Aerosol use from 1978 to 1985 assumed to be constant at level
reported by Hammitt, J.K., et al. ,  (1986), Product Uses and Market
Trends for Potential Ozone-De-pie ting Substances.  R-3386-EPA, The RAND
Corporation, Santa Monica, CA.  Total production of CFC-11 and CFC-12
in 1985 from USITC, "Preliminary Report on U.S. Production of Selected
Synthetic Organic Chemicals (Including Synthetic Plastics and Resin
Materials), Preliminary Totals, 1986", USITC, Washington, DC., March
31, 1987.

EEC historical aerosol use from EEC (1985), "Chlorofluorocarbons in the
Environment:  Updating the Situation," Communication from the
Commission to the Council.  1985 total sales of CFC-11 and CFC-12 from
EFCTC (1986), "CFC Production and Use Statistics for the EEC," paper
submitted to UNEP Chlorofluorocarbon Workshop, 1986.

-------
                                      3-6
                                  EXHIBIT 3-3

              CFG-11 AND CFG-12 PRODUCTION IN THE DEVELOPED WORLD
                           (CMA REPORTING COMPANIES)
    900
       1960
1965         1970        1975
         * Dashed line indicate estimates
The Chemical Manufacturers Association collects CFC-11 and CFC-12 production
data from all producers in the non-communist developed world.  The data show
that CFC-11 and CFC-12 production increased rapidly throughout the 1960s and
1970s.  Production reached a maximum of 812.5 mill kg in 1974, with 59 percent
used in aerosol sprays.  Aerosol use fell from 1974 to 1982 following announce-
ment of the CFC-ozone hypothesis, while non-aerosol use has continued to
increase.  Current production, 703.1 mill kg, is 85 percent of the 1974 level.
Source:  Chemical Manufacturers Association (CMA), (1987), Production. Sales.
         and_Cfllculated Release of CFC-11 and CFC-12 Through 1986. CMA,
         Washington, D.C.  Estimates for the aerosol share of total production
         from 1960 to 1975 are based on the 1976 share reported in the CMA
         schedule.

-------
                                   3-7
                                EXHIBIT 3-4

                     PER CAPITA USE OF CFC-11 AND CFC-12
                        IN THE U.S., EEC, AND JAPAN
                                (kg/capita)
                                  0.81
                                                               0.48
    U.S.
EEC
Japan
Per capita use of CFC-11 and CFC-12 is roughly equivalent in the U.S.  and EEC,
Japanese per capita use is significantly lower.
Sources:  See sources  for Exhibit 3-5.

-------
                                      3-8
                                  EXHIBIT 3-5

                            PER CAPITA USE OF CFC-113
                           IN THE U.S., EEC,  AND JAPAN
                                  (kg/capita)
0.45


 0.4 -


0.35 -


 0.3 -


0.25 -


 0.2 -


0.15 -


 0.1 -


0.05 -


   0
                                                             0.4T
0.31
                               0.12
         U.S.
                               EEC
Japan
   Per capita use of CFC-113 is higher in Japan than  in the U.S.  or  EEC.
   Sources:  See following page.

-------
                                                  3-9
                                      EXHIBIT 3-5  (Continued)

                                     PER CAPITA USE OF CPC-113
                                     IB THE U.S.. EEC, AHD JAPAN
                                             (kg/capita)

                           Per Capita Use of CFCs in U S ,  EEC,  and Japan

                                                          CFC-11
                                              CFC-11      and -12              CFC-113     Total
        Population                            and  -12     Per Cap              Per Cap    CFC Use
           (mill)      CFC-11      CFC-12      Net  Use    (kg/cap)   CFC-113    (kg/cap)   (kg/cap)

U S     234 49 a/     79 73 b/    136 94 b/   212 34 e/    0 906     73 20 £/    0.312      1.218

EEC     269 01 a/    126.40 c/    91.30 c/   217.70       0 809     32 50 c/    0.121      0 930

Japan   119 25 a/     27.80 d/    34.70 d/    57.50 f/    0 482     51.53 h/    0.432      0 914
a/    1983 population estimates from The World Bank (1966), "The World Bank Atlas, 1986,"
Washington, D.C.

b/    CFC-11 and CFC-12 1985 production from USITC, "Preliminary Report on U.S. Production of
Selected Synthetic Organic Chemicals (Including Synthetic Plastics and Resin Materials).
Preliminary Totals, 1986," March 31, 1987.

c/    1984 sales within EEC of CFC-11, CFC-12, and CFC-113 from Bevington, C.F.P. (1986),
"Projections of Production Capacity, Production and Use of CFCs in the Context of EEC Regulations,"
paper submitted for UNEP Chlorofluorocarbon Workshop, April 1986.

d/    1985 production of CFC-11 and CFC-12 from Kurosawa, K., and K. Imazeki (1986),  "Topic 2:
Projections of the Production, Use and Trade of CFCs in Japan in the next Five to Ten Years," Paper
submitted to UNEP Chlorofluorocarbon Workshop, April 1986.

e/    Net domestic use of CFC-11 and CFC-12.  Import and export data from Weigel, C.M.,  and R.M.
Whitfield (1986), "Reply to the RAND Corporation's Response to DRI's review of RAND's working draft,
'Projected Use, Emissions and Banks of Potential Ozone Depleting Substances," DRI.  Total CFC
Imports in 1985 reported to be 7.08 mill kg.  Exports of "fluormated hydrocarbons" reported to be
13.418 mill kg.  CFC-11 and CFC-12 assumed to be 85 percent of this total (11.406 mill kg) mid-range
of Weigel/Whitfield estimate.

f/    CFC-11 and CFC-12 production minus estimated exports reported in Kurosawa and Imazeki (see
note d) of 2.7 mill kg for CFC-11 and 2.3 mill kg for CFC-12.

g/    US. CFC-113 production in 1985 estimated by Hammitt, J.K., et al.  (1986),  "Product Use and
Market Trends for Potential Ozone Depleting Substances," R-3386-EPA, The  RAND Corporation, Santa
Monica,  CA.  Does not exclude substantial exports.

h/    1985 Japanese CFC-113 production reported by I.  Araki of MITI Basic Industries  Bureau Chemical
Products Division summarized in State Dept. cable ref.  Tokyo 1525;  State  21900.  Does not include
substantial imports.

-------
                                 3-10
It is important to consider the key provisions of this section:

    1.   "may reasonably be anticipated".   The law does not require
        a finding that harm has occurred.   Rather,  it requires the
        Administrator to act if there is  a reasonable probability
        that the stratosphere will be affected,  and that the
        effects would endanger health or  welfare.
    2.
            "any substance, practice, process, or activity".  The
            scope of the Agency's authority is broad.

        3.  "affect the stratosphere".  The law is concerned with all
            effects in the stratosphere.  While the main focus is on
            stratospheric ozone, the law also grants authority for EPA
            to act on other stratospheric concerns such as
            stratospherically-induced climate change.

3.2.2  1980 Advanced Notice of Proposed Rulemaking (ANFR)

    In 1980,  EPA issued an Advance Notice of Proposed Rulemaking (ANPR),
"Ozone-Depleting Chlorofluorocarbons: Proposed Production/Restriction" (45 FR
66726; October 7, 1980) which called for limits on non-aerosol uses of CFCs.
The Agency announced its objective to freeze current emissions of
ozone-modifying compounds.  It considered two approaches to achieve this goal:
mandated engineering controls and market-based controls.

    In 1984,  the Natural Resources Defense Council sued the Agency in District
Court, arguing that the ANPR constituted a finding of a reasonable threat to the
stratosphere, which required the Agency promptly either to issue regulations or
formally withdraw the ANPR.  In 1985, EPA and NRDC were joined by the Alliance
for Responsible CFC Policy, Inc. in filing a joint settlement motion calling for
a proposed regulatory decision by May 1, 1987 and a final decision by November
1, 1987.  This consent decree was extended in 1987 with deadlines set for
December 1, 1987, and August 1, 1988, for proposal and final action,
respectively.

3.2.3  Stratospheric Ozone Protection Plan

    The Agency announced its Stratospheric Ozone Protection Plan in 1986 (51 FR
1257; January 10, 1986), which reviewed past EPA activities, called for an
expanded program of research and analysis, and established a framework for the
development of domestic and international regulations to protect the strato-
sphere.  The  program plan called for further research in several areas:

    SCIENTIFIC ASSESSMENTS

    The scientific community completed several major reviews of atmospheric
science issues.  A major review coordinated by the World Meteorological
Organization (WMO),  the National Aeronautics and Space Administration (NASA),
the United Nations Environment Programme (UNEP),  and several other national
and international scientific organizations, was published in 1986.   A companion
report was published by NASA in 1986.  Other scientific issues, particularly
regarding the effects of ozone depletion on human health and the environment,
were reviewed by UNEP's Coordinating Committee on the Ozone Layer,  whose panel

-------
                                      3-11
of scientific and technical experts released its findings in 1986.  Issues
related to climate change were evaluated in a report prepared by WMO in Villach,
Austria in October 1985.

    KEY AREAS OF EPA ANALYSIS

    The program plan called for a series of domestic and international workshops
and conferences aimed at improving understanding of all aspects of stratospheric
protection.  In March and May 1986, workshops were held which focused on
analysis of future supply and demand for CFCs, and possible technical controls
to reduce their use and emissions.  In July and September 1986, workshops were
held which covered the analysis of potential strategies to protect stratospheric
ozone.  In June 1986 an international conference discussed the health and
environmental effects of stratospheric ozone depletion and global climate change
(U.S. EPA, 1986).

3.2.4  EFA's Risk Assessment

    In December 1986, EPA submitted a draft risk assessment to the Science
Advisory Board (SAB).  The document reviewed the scientific understanding of all
aspects of stratospheric protection.  The Executive Summary of that risk
assessment was again reviewed in January 1987.  The Executive Summary, the body
of the assessment, and supporting appendices were further revised and reviewed
by SAB panel members and published in October 1987.  The SAB closure letter
stated that the final document "had adequately responded to the subcommittees
advice on all major scientific issues" (Nelson 1988).  The risk assessment,
Assessing the Risks of Trace Gases that Can Modify the Stratosphere, serves as
the scientific basis for future Agency decisionmaking, including this Regulatory
Impact Analysis.

3.2.5  International Negotiations

    Section 156 of the Clean Air Act calls for international cooperation to
protect the stratosphere:

            The President shall undertake to enter into international
        agreements to foster cooperative research which complements
        studies and research authorized by this part, and to develop
        standards and regulations which protect the stratosphere
        consistent with the regulations applicable within the United
        States.

    Since 1981, international negotiations to protect the stratosphere have been
conducted under the auspices of UNEP.  In 1985, the negotiations resulted in the
adoption of the Vienna Convention for Protection of the Ozone Layer.  The
Convention was ratified by the U.S. Senate in July 1985 and signed by the
President in September 1985.  The Convention has now been signed by 28 parties,
11 of which have completed their formal ratification or acceptance.  While it
sets no specific targets for CFC restrictions, the Convention establishes a
framework for further international negotiations to develop such limits,  and
requires member nations to submit CFC production and use data to UNEP.

    While early negotiations on a Protocol to limit CFCs had failed, nations had
agreed in 1985 that prior to the resumption of negotiations scheduled for

-------
                                      3-12
December 1986, a series of workshops were to be held to discuss technical
issues.  These workshops were companions to domestic workshops that focused on
future supply and demand for CFCs, technical control options, control
strategies, and the health and environmental effects of ozone modification.

    When negotiations resumed in December 1986 and February 1987,  initial
agreement was reached that CFC use should at least be frozen at or near current
levels of production.  Disagreement continued over the necessity for further
limitations.

    In April 1987, another round of negotiations was held in Geneva,
Switzerland.  A working draft protocol text emerged from this session calling
for a CFC production freeze, 20% cutback in three years, followed by a possible
further 30% cutback in two years.   Disagreement remained over several
significant issues relating to stringency, timing, and special provisions for
developing countries.

    In September 1987 in Montreal, Canada, a final Diplomatic Conference was
held that concluded protocol negotiations.  The major provisions of the protocol
include:

        •   Reductions in CFC Use.  The use of CFC-11,  -12,  -113,
            -114 and -115 is to be frozen at 1986 levels starting in
            approximately mid-1989, reduced to 80 percent of 1986
            levels in 1993, and reduced to 50 percent of 1986 levels
            in 1998.  The reduction from 80 percent to 50 percent
            will take place unless the parties vote otherwise.

        •   Reduction in Halon Use.  The use of Halon 1211, 1301 and
            2402 is to be frozen at 1986 levels starting in
            approximately 1992.

        •   Assessment and Review.  Beginning in 1990, and at least
            every four years thereafter, the Parties will assess the
            control measure in light of the current data available.
            Based on these assessments the Parties may adjust the
            control levels and substances covered by the Protocol.

        •   Trade.  Each Party shall ban the import of the
            controlled substances (bulk CFCs and halons) from any
            state not party to the Protocol beginning one year after
            entry into force.  Additionally, the Parties shall
            develop a list of products that contain the controlled
            substances which will be subject to the same trade
            restrictions.  The feasibility of restricting trade in
            products manufactured with the controlled substances
            shall also be assessed.

        •   Developing Countries.   Developing countries with low
            levels of use per capita are permitted to delay their
            compliance with the protocol for up to 10 years.  The
            Parties also agree to assist developing countries to
            make expeditious use of environmentally-safe alternative
            substances and technologies.

-------
                                      3-13
3.2.6   The Proposed Rule

    On December 14, 1987, EPA announced in the Federal Register its intention to
limit the production and consumption of CFCs and halons.  The proposed
limitations corresponded to those set out in the Montreal Protocol and were to
be implemented only if the United States ratified the Protocol and following
entry into force.  In a separate notice, EPA also required all firms producing,
importing or exporting CFCs or halons to report on the extent of these
activities during 1986.

    EPA conducted a public hearing on this proposed rulemaking on January 7, and
8, 1988, at which 27 persons presented statements.  In addition, EPA received
written comments on the proposed rulemaking from 497 individuals, corporations,
and public agencies.  Summaries and responses to these comments are available in
the Background Information Document accompanying this final RIA.  As noted in
Chapter 1, many of the revisions made in this RIA respond to comments received
on the proposed rulemaking.

3.3  NEED FOR A REGULATORY IMPACT ANALYSIS

    Executive Order 12291 requires that the costs and benefits of "major rules"
be evaluated in a Regulatory Impact Analysis:

            "A 'major rule' means any regulation that is likely to
        result in:

            (1)  An annual effect on the economy of $100 million or
                 more;

            (2)  A major increase in costs or prices for consumers,
                 individual industries, Federal, State, or local
                 government agencies, or geographic regions; or

            (3)  Significant adverse effects on competition,
                 employment, investment, productivity, innovation, or
                 on the ability of United States-based enterprises to
                 compete with foreign-based enterprises in domestic or
                 export markets."

    Under these definitions, a rule is considered major if it meets at least one
of these three conditions.  Condition (1) is probably met by the proposed rule.
Because options of the stringency under consideration are likely to result in a
total cost to the economy of $100 million or more per year,  this RIA is being
prepared.

-------
                                      3-U
                                   REFERENCES
Kavanaugh, M.,  M. Barth, and T. Jaenicke (1986), "An Analysis of the Economic
    Effects of Regulatory and Non-Regulatory Events Related to the Abandonment
    of Chlorofluorocarbons as Aerosol Propellants in the United States from 1970
    to 1980, with a Discussion of Applicability of the Analysis to Other
    Nations," Aerosol Working Paper Series, Paper 1, ICF Incorporated,
    Washington, D.C.

National Aeronautics and Space Administration (NASA) (1986), Present State of
    Knowledge of the Upper Atmosphere:  An Assessment Report.  Processes That
    Control Ozone and Other Climatically Important Trace Gases.  NASA Reference
    Publication 1162, NASA, Washington, D.C.

Nelson, Norton (Chairman of the Executive Committee of the Science Advisory
    Board), letter to Mr. Lee Thomas (EPA Administrator), January 29, 1988.

United Nations Environment Programme (1986), "Report of the Coordinating
    Committee on the Ozone Layer:  Effects of Stratospheric Modification and
    Climate Change," UNEP, Nairobi, Kenya.

U.S. Environmental Protection Agency (1987), Assessing the Risks of Trace
    Gases that Can Modify the Stratosphere. U.S. EPA, Washington, D.C.  This is
    a revised version of:  U.S. Environmental Protection Agency (1986),  An
    Assessment of the Risks of Stratospheric Modification. U.S.  EPA, Washington,
    D.C.

U.S. Environmental Protection Agency (1986), Effects of Stratospheric Ozone and
    Global Climate Change. J.G. Titus, ed., Volumes I-IV, U.S. EPA, Washington,
    D.C.

World Meteorological Organization (WMO) (1985),  Report of the International
    Conference on the Assessment of the Role of Carbon Dioxide and of Other
    Greenhouse Gases in Climate Variations and Associated Impacts. WMO - No.
    661, WMO, Geneva, Switzerland.

World Meteorological Organization (WMO) (1986),  Atmospheric Ozone 1985.
    Assessment of Our Understanding of the Processes Controlling Its Present
    Distribution and Change.  WMO Global Ozone Research and Monitoring Project -
    Report No.  16, WMO, Geneva, Switzerland.

-------
                                   CHAPTER 4

                      BASELINE USE AND EMISSIONS OF GASES
                      THAT CAN INFLUENCE THE STRATOSPHERE
    This chapter summarizes estimates of the potential use and emissions of
ozone-modifying compounds that may be expected in the absence of regulatory
intervention.  These estimates are referred to as the baseline, which is used
for estimating (in the absence of future regulation) levels of ozone depletion,
and the associated impacts on human health, welfare, and the environment.  This
baseline is also used for estimating the costs of foregoing the use of
ozone-depleting compounds.

    Because ozone depletion is a global phenomenon, influenced by worldwide
emissions, the analysis must assess the global use and emissions of ozone-
modifying compounds.  The analysis in this final RIA divides the world into the
following six regions for purposes of specifying baseline compound use.

            United States (U.S.);
            USSR and Eastern Bloc;
            Other Developed Countries;
            People's Republic of China (China) and India;
            Developing Countries with 1985 compound use of 0.1 to
            0.2 kilograms per capita (Group I Developing
            Countries) , and
        •   Other Developing Countries (Group II Developing
            Countries).

    The potential control of seven compounds of concern is the primary focus of
this RIA.  These seven compounds are CFC-11, CFC-12, CFC-113, CFC-114, CFC-115,
Halon 1211, and Halon 1301.3  Therefore, most of the discussion in this chapter
addresses the estimation of the baseline use and emissions of these seven
chemicals.  Other compounds such as HCFC-22, carbon tetrachloride, and methyl
chloroform have been identified as potential ozone depleters but are not
currently under consideration for control because they have low ozone-depletion
potential, low emissions, or short atmospheric lifetimes.  Because the future
use and emissions of these compounds influence ozone depletion, baseline
assumptions for these compounds are also presented.
     1 Areas included in each region are:  Other Developed Countries:  Canada,
Western Europe, Japan, Australia, and New Zealand; Group I Developing Countries:
Algeria, Argentina, Liberia, Malaysia, Mexico, Panama, South Korea, Taiwan,
Tunisia, and Turkey; Group II Developing Countries:  countries in Central Asia,
Africa, Middle East, Latin America, South America, and South and East Asia not
included in the other five regions.
     n
     *- Dupont (1987) identified the Group I Developing countries as having 0.1
to 0.2 kg per capita CFG use (Algeria, Argentina, Liberia, Malaysia, Mexico,
Panama, South Korea, Taiwan, Tunisia, and Turkey).  For purposes of this
analysis, these countries are assumed to have 0.2 kg per capita use of combined
CFC-11 and CFC-12.

     3 The Montreal Protocol also includes Halon 2402.  However, due to lack of
data this compound is not analyzed in this RIA.

-------
                                      4-2
    For purposes of this analysis, the baseline level is defined in terms of
compound use (as opposed to compound production).  In the U.S., production is
approximately equal to use, because imports and exports of these compounds are
approximately equal (as well as relatively small).   For other regions, use and
production may differ significantly.  Developing countries, for example, are net
importers of CFCs,  so that use exceeds production; other developed countries are
net exporters of CFCs, so that production exceeds use.

    Each compound is used in a variety of ways, referred to as end uses.  Total
use within each region must be identified in terms of its end uses for purposes
of identifying the level of CFC or halon releases anticipated over time.  Each
end use has a rate at which its chemical compounds are released to the
atmosphere, which may vary from "prompt" (e.g., CFCs in aerosols are released
immediately upon use), to being retained within products for many years (e.g.,
CFCs are contained or "banked" in rigid foam for many decades).

    Of note is that three additional trace gases are important determinants of
ozone depletion:  carbon dioxide (C02); methane (CH4); and nitrous oxide (N20).
These gases are considered to be key "greenhouse gases" that may warm the
Earth's climate in the coming decades.  Because the rising atmospheric
concentrations of these gases are expected to counter somewhat the potential
ozone depletion caused by the compounds of concern (which are also greenhouse
gases), the baseline assumptions regarding the future concentrations of these
gases are important.  In addition to countering ozone depletion, the increasing
concentrations of these three trace gases are expected to cause changes in
climate which themselves will have significant impacts.  These potential climate
change impacts induced by these trace gases are not the focus of this RIA.
Climate change impacts are discussed in EPA (1987a).

    This chapter is organized as follows:

        •   Section 4.1 describes each compound and its use(s) for
            each of the regions examined;

        •   Section 4.2 describes the assumptions that were used to
            estimate each region's compound use in 1986;

        •   Section 4.3 describes the methods used to project future
            compound use in each region; and

        •   Section 4.4 presents the projections of other trace gas
            concentrations.

4.1  CHARACTERISTICS OF COMPOUND USE

    Each of the seven compounds of concern is discussed in turn.  The major uses
of each compound are first described briefly, then data are presented on the
distribution of the compound's use across its defined end uses for the U.S. and
the rest of the world.  Finally, release rates are presented for each end use.
       Industry data reported to EPA indicates that U.S.  exports may have
increased in 1987.  This analysis adjusts use to account for these recent data.

-------
                                      4-3
4.1.1  CFC-11

    CFC-11 currently is used in the following ways throughout the world:

        •   aerosol propellant;
        •   blowing agent for flexible foam;
        •   blowing agent for rigid polyurethane foam;
        •   refrigeration; and
        •   miscellaneous uses.

As noted below, non-essential aerosol propellant uses of CFC-11 have been banned
in the United States.

    The U.S. is estimated to have approximately 20 percent of global CFC-11 use
while the EEC's use is about 35 percent.  The USSR and East Bloc countries are
estimated to have about seven percent of global use.  The developing nations are
estimated to account for roughly 25 percent of non-U.S. use, or about 20 percent
of the world total.

    Exhibit 4-1 presents the distribution of CFC-11 use in the U.S. (in percent)
for each of up to 10 different use categories (the distributions for the other
six compounds of concern are also shown in the exhibit).   These end use data
were derived from the information available from Volume III.^  As shown in the
exhibit, CFC-11 is used primarily in rigid polyurethane foam.  Aerosol
propellant use is small because non-essential aerosol propellant applications
have been banned.  (Certain uses are still allowed, however, including medical
uses and uses in which the CFC is an active ingredient - - for example, as a
foaming agent in children's party products that leave colored strings of foam
sticking to the wall.)
     •* This estimate for developing countries is consistent with the available
data that indicate that the EEC exports a significant share of its CFC-11 and
CFC-12 production to areas outside the EEC (over one-third, see EFCTC (1985)).
Additionally, a significant portion of the developing nation use is probably
concentrated in Group I countries and large developing nations (see Appendix D).
Nevertheless, data on the use of CFC-11 (as well as the other compounds of
concern) in developing nations is very uncertain.  Some "use" may actually occur
as products containing or made with CFCs are used in developing nations.
However, the global and U.S. values are considered reliable.

     ° Volume III presents detailed data on the use of CFCs and halons in each
of 74 applications.  The 10 use categories in Exhibit 4-2 are aggregations of
the detailed use categories presented in Volume III.  These estimates are
similar to previously published estimates, e.g., in Hammitt (1986).  Of note is
that the distributions of use shown in the exhibit are for the known uses of the
compounds.  A significant portion of CFC-11 and CFC-12 use in the U.S. cannot be
allocated to individual uses based on available data.  The implications of the
inability to identify 100 percent of the use of CFC-11 and CFC-12 for the
evaluation of costs is described in Chapter 9.

-------
                                                           EXHIBIT  4-1

                                             ESTIMATED U.S. 1985 EHD USE BY CCHPOUHD
                                                 (Percent of Total Allocated Use)

CFC-11
CFC-12
CFC-113
CFC-114
CFC-115
Halon 1211
Halon 1301
1
Aerosol |
5.7
5.2

—
—
—
—
— ^^^— ^— ^^^
1
Flexible)
Foam
23.6


—
—
—
1
Rigid |
Polyur ethane |
Foam
62.4
8.9

—
—
—
—
1
Rigid |
Nonur ethane |
Foam
7.1

76.2
--
--
--
Fast
Release b/ |
Refrigeration!
1
8.3
52.7

23.8
1
1
1 "
Medium |
Release b/ |
Refrigeration)
1
6.7


100
-- a/
" S/
Slow
Release b/ |
Refrigeration |
3.3


—
-- a/
" S/
1
Solvent |

100
~ —
	
--
~ —
1
Fire
Extinguishing)



~"~
100
| 100
Miscellaneous
0.0
16 1
"


	

    a/ These may be minor uses.

    b/ Includes air conditioning categories.
Source:  Derived from data presented  in Volume III

-------
                                      4-5
    Exhibit 4-2 shows the end use distributions for CFC-11 use outside the U.S.
For purposes of emission release rates, all the regions outside the U.S. are
assumed to have the end use allocations shown in the exhibit.  These end use
estimates were calculated by subtracting the U.S. estimates from end use
estimates reported in CMA (1986).  As expected, the end use distribution for
CFC-11 outside the U.S. differs significantly from the distribution for the U.S.
because of the U.S. aerosol ban.  Although actual end use distributions may, in
fact, vary among the non-U.S. regions, the impact of this variation is not
likely to be significant in terms of estimated atmospheric concentrations and
ozone depletion.

    Finally, Exhibit 4-3 shows the manner in which releases occur from all of
the end uses that are examined (as shown above in Exhibits 4-1 and 4-2, CFC-11
is used in only a subset of all the end uses examined).  The exhibit is
constructed to show cumulative releases that occur following the year of initial
compound use.  For instance, for rigid polyurethane foam releases, the total
amount of chemical that is released within six years of its initial use is 31.7
percent.  A final cumulative release rate of "1.000" indicates that all compound
use eventually is emitted into the atmosphere.  Note that aerosol propellant and
some foam applications have immediate releases and hence the "1.0" release rate
for year 1.

    Also note that there are several release rates that describe the
refrigeration end use.  Several types of refrigeration uses have been identified
with varying release characteristics.  These types have been grouped into three
categories: fast, medium, and slow release.  A "fast" release implies an
approximate 10 percent annual release of the compound remaining in use, with a
total venting after 4 years.  A "medium" release implies an approximate 10
percent annual release with a total venting occurring on average after 17 years.
Finally, a "slow" release implies an approximate 1.5 percent annual release,
with a total venting after 17 years.   Mobile Air Conditioning and Centrifugal
Chillers end uses have been identified as fast releasers.  Hermetically-sealed
units (such as Home Refrigerators) are assumed to be slow releasers.^

4.1.2  CFC-12

    CFC-12 has the following principal end uses:

            aerosol propellant;
            blowing agent for rigid nonurethane foam;
            blowing agent for rigid polyurethane foam;
            refrigeration; and
            miscellaneous uses.

    We note the following significant factors regarding the use of CFC-12:

        •   U.S. use is approximately 30 percent of world use.
     ' The following are the three refrigeration release types and some of the
uses that are assumed to have similar release characteristics:  Fast Release --
Mobile Air Conditioning, Centrifugal Chillers; Medium Release -- Retail Food,
Cold Storage; Slow Release -- Vending Machines, Water Coolers, Ice Machines,
Freezers, Refrigerators, Dehumidifiers.

-------
                                                             EXHIBIT 4-2

                                             ESTIMATED RDH-U.S. 1985 END USE BY OCHFODHD
                                                   (Percent of Total Allocated Use)

CFC-11
crc-12
CFC-113
CFC-114
CFC-115
Balon 1211
Halon 1301
1
1
(Flexible
Aerosol | Foam
38.9
46.6
—




18 1

—
—



Rigid
Polyurethane
Foam
27.3
7.6




~
Rigid
Nonux ethane
Foam
--
4.4

76.2

—
--
1
Fast | Medium
Release b/| Release b/
Refrigeration (Refrigeration
8.2
13.6
—
23.8




18.6

—
100
-- a/
-- a/
Slow
Release b/
Refrigeration
—
9.2
—


" a/
-- a/
1
| Solvent
--

100

--
--

Fire
Extinguishing
--




100
100
Miscellaneous
7.5
0.0
--



—
    a/ These may be minor uses.

    b/ Includes air conditioning  categories.
Sources:  Derived from CMA (1986)  and  data presented  in Volume  III.

-------
                                                                          EXHIBIT 4-3






                                                 CDMDLBlIVE FRACTION RELEASED BY YEAR OF EMISSION AND END USE
Year of
Initial
Use
1



&
7
3

m

12
13
I A

16
17
18
19
20
25
30
35
40

a/
Aeroso
1.0























S/
Flex-
ible
Foam
1.0























a/
Rigid
Polyurethane
Foam
0 141
0.179
0.216
0 251
0 285
0.317
0.348
0.377
0.405
0.432
0 458
0 482
0 505
0 528
0 549
0 569
0 589
0 607
0.625
1 000





1' \ a/ | a/
(Rigid (Fast (Medium
| Nonure- | Release | Release
(thane JRefrig- (Ref rig-
Foam (eration | oration
1.0





















1
1
0 190
0.271
0 344
1.000




















0 190
0 271
0 344
0 410
0 469
0.522
0.570
0.613
0.651
0.686
0.718
0.746
0.771
0.794
0.815
0.833
1.000







b/
Slow
Release
Refrig-
eration
0.094
0 107
0.121
0 134
0.147
0 160
0 172
0.185
0.197
0.209
0.221
0.233
0.244
0.255
0.267
0 278
1 000







a/ Release assumptions derived from estimates in Quinn (1986).
a/
Solvent
0.85
























£/l £/
| U.S. Halon | ROW Halon
| 1211 Fire | 1211 Fire
(Extinguishing (Extinguishing
0.062
0.085
0.108
0.130
0.151
0.172
0.192
0.212
0.232
0.250
0.269
0.287
0.304
0.321
0.337
0.353
0 369
0.384
0 399
0.693
0.727
0.866



0 029
0 069
0 108
0 144
0 180
0 214
0 246
0 277
0 307
0 335
0 362
0 388
0 413
0.437
0 460
0.482
0.503
0 523
0 542
0 945
0.938
0 979

1

1 £/
| U S Halon
1301 Fire
(Extinguishing
0 111
0 140
0 169
0 197
0 224
0 249
0 275
0 299
0 322
0 345
0 367
0 388
0 408
0 428
0 447
0 465
0 483
1 c/
ROM Halon
| 1301 Fire
(Extinguishing
0 167
0 198
0 228
0 257
0 285
0 312
0 338
0.363
0 387
0.410
0.432
0 454
0.474
0 494
0 513
0.531
0 549
0 500 0.566
0 517 0.582
0 533 0.598
0 665 0.779
0 717 0 817
0 760 0.849
0 853 0.944

b/ Release assumptions derived from estimates in Gamlen (1986).





c/ Release assumptions derived from estimates from lEc (1987).

-------
                                      4-8
         •   U.S. CFC-12 aerosol use is a small proportion of total
            U.S. CFC-12 use because of the ban on aerosol uses in the
            U.S. (Exhibit 4-1).  The percent of CFC-12 use in aerosols
            outside the U.S. is estimated to be about 47 percent
            (Exhibit 4-2).

         •   The largest proportion, almost 53 percent, of U.S. CFC-12
            use is assigned to the fast release refrigeration group.
            This allocation reflects widespread use of CFC-12 in
            mobile (i.e., automobile) air conditioning.  End use
            allocations for "fast" release refrigeration outside the
            U.S. are much smaller  (14 percent).

4.1.3  CFC-113

    CFC-113 is used almost exclusively in rapidly-growing solvent applications,
including Vaporized Degreasing, Cold Cleaning, Conveyorized Degreasing, and some
specialty Dry Cleaning applications.  CFC-113 is an attractive solvent because
it is non-flammable and has few toxic side-effects.  CFC-113 global and non-U.S.
estimates are considered to be more uncertain than the CFC-11 and CFC-12
estimates because the CMA does not report data on CFC-113 production and use.

    We note the following significant factors regarding the use of CFC-12:

         •   U.S. use accounts for nearly 40 percent of global use.

         •   Exhibit 4-3 shows that 85 percent of CFC-113 use in
            solvents is released in one year with no additional
            releases thereafter.  This implies that only 85 percent of
            the solvent use is ever released to the atmosphere,
            reflecting the estimated 15 percent of annual production
            that is buried or reacted (Quinn 1986).

4.1.4  CFC-114

    In the U.S. CFC-114 is used primarily as a blowing agent for nonurethane
foam.  CFC-114 is also used as a refrigerant in Centrifugal Chiller
applications.

     End use shares for U.S. CFC-114 use are based on data reported in Volume
III (see Exhibit 4-1).  Because detailed data on CFC-114 are not available for
areas outside the U.S., the U.S. end use share estimates are adopted for regions
outside of the U.S. (see Exhibit 4-2).   CFC-114 represents only a minor source
of total CFC use.   The data used to describe the production,  use, and emissions
of CFC-114 contain significant uncertainty.

4.1.5  CFC-115

    In the U.S. virtually all of CFC-115 is used as a refrigerant in combination
with HCFC-22 in Retail Food and Cold Storage applications.  Therefore, the
"medium" release refrigeration category is used to estimate CFC-115 emissions
(see Exhibit 4-3).   Because detailed data on CFC-115 are not available for areas
outside the U.S.,  the U.S. end use share estimates are adopted for other regions

-------
                                      4-9
(see Exhibit 4-1 and 4-2).  Like CFC-114, CFC-115 constitutes only a minor
portion of total CFC use, and the production, use, and emissions data for
CFC-115 contain significant uncertainty.

4.1.6  Halon 1211

    Halon 1211 is used almost exclusively for portable fire extinguishing
applications in both the U.S. and other regions.

    Exhibit 4-3 shows the slow release characteristics of Halon 1211, reflecting
emissions from the sealed canisters that hold the compound.  The last year of
the release table does not equal "1.000", indicating that some portion of Halon
1211 use is never released into the atmosphere.  This portion represents
recovery from existing systems and destruction of the chemical during fires.
Halon 1211 release rates for the U.S. differ from release rates for the non'-U.S.
or "Rest of World" (ROW) regions, reflecting alternative assumptions about halon
recovery when units are disposed and about discharge testing (see lEc 1987).

    Halon 1211 has only recently been identified as an important ozone-depleting
compound.  Therefore, data on its current use is somewhat sketchy.  The
estimates of Halon 1211 use and emissions are very uncertain.**

4.1.7  Halon 1301

    Halon 1301 is used exclusively for total flooding fire extinguishing
systems.  Because it is held in permanent fixed systems, Halon 1301 has a longer
release period than Halon 1211 (Exhibit 4-3).  In addition, Halon 1301 release
rates estimated for the U.S. differ from release rates for other regions (see
lEc 1987).

4.2  1986 COMPOUND USE ESTIMATES

    To estimate baseline compound use over the period from 1986 through 2050, we
first estimate the pattern of compound use in 1986 and then project these
estimates through 2100.  Global estimates of 1986 compound use are based on
published estimates of compound use.  U.S. compound data are compiled from
industry reports submitted in response to the final rule requiring the reporting
of all production, import, or export of potentially controlled substances.
(Federal Register. December 14, 1987.)  In this analysis, these data are
referred to as EPA (1988).  This information is considered confidential business
information and cannot be published.  Therefore in the discussion of this
section we describe the methodology used to construct 1986 compound use
estimates but do not present data describing the results of this methodology.

4.2.1  CFC-11 and CFC-12

    CFC-11 and CFC-12 use is estimated from data provided by the U.S., Chemical
Manufacturer's Association (CMA), and country reports. ' The methods and sources
for the CFC-11 and CFC-12 estimates in this analysis are as follows:
     Q
     0 Of note is that the impacts of Halon 1211 and Halon 1301 on stratospheric
ozone are more uncertain than the impacts of the CFCs.  The atmospheric
characteristics of the halons have not been studied as extensively.

-------
                                      4-10
    •   United States - Production, export, and import information for 1986 use
        is provided by EPA (1988).  Compound use for the U.S. is estimated by
        adding imports and subtracting exports from production data.  In
        addition, industry reports on production and export levels for 1987 are
        incorporated in this analysis (EPA 1988).

    •   Other Developed - EEC production is estimated from U.S. industry
        sources.  Production is adjusted to reflect imports and exports based on
        1985 data presented in EFCTC (1986).  Estimates for Japan are from
        Kurosawa and Imazeki (1986).  Estimates for Australia are from UNEP
        (1986).   Estimates for all remaining countries in the Other Developed
        Region9 are calculated by multiplying estimated use per capita by each
        country's population.  Estimates of per capita use are taken from DuPont
        (1987).   Population estimates are from The World Bank (1987).

    •   USSR and East Bloc - The USSR estimates were obtained by EPA during
        recent international negotiations held in Montreal on substances that
        deplete the ozone layer.  The estimated use in East Bloc countries is
        assumed to be 40 percent of USSR compound use.

    •   China and India - Estimated use for China is presented in Zhijia (1986).
        India use estimates are discussed in Appendix K.

    •   Developing I Countries - Group I developing countries use estimates from
        DuPont (1987) and are derived using the same procedure described for the
        remaining countries in the Other Developed Region.^

    •   Developing II Countries - Group II developing countries use is
        calculated by subtracting the sum of estimated use in each other region
        for each compound from a global estimate.  Global estimates are
        estimated based on CMA (1986) and Hammitt (1986).

4.2.2   CFC-113

    The 1986 use of CFC-113 is estimated by combining estimates of regional and
global use as well as assumptions about the share of CFC-113 used in regions
where no direct estimates are available.  The methods and sources for estimated
CFC-113, use are as follows:

    •   United States - U.S. 1986 production, export, and import information is
        provided by EPA (1988).  In addition, industry reports on production and
        export levels for 1987 are incorporated in this analysis (EPA 1988).
       These developed countries are Bahrain; Norway; Venezuela; Austria;
Finland; Israel; Kuwait; Singapore; Switzerland; and UAE.  For purposes of this
analysis it was assumed that 40 percent of the combined CFC-11 and CFC-12 use in
these countries is CFC-11.

        Group I developing countries are those countries in which CFC use is
currently between 0.1 and 0 2 kilograms per capita, and is likely to reach the
0.3 kilogram per capita limit established in the Protocol prior to 1999.   All
other countries are included in Group II.

-------
                                      4-11
     0   Other Developed - EEC production is estimated from U.S. industry
        sources.  Production is adjusted to reflect imports and exports based on
        data presented in EFCTC (1986).  The estimate for Japan is based on a
        State Department cable from Araki  (1986).  Australia use estimates are
        from UNEP (1986).  Other developed countries are assumed to have the
        same average share of non-U.S. use as reflected in CFC-11 and CFC-12
        use.

     0   Remaining Regions - Estimates for all other regions are developed
        according to each region's share of the non-U.S. use of CFC-11 and CFC-
        12.  Global estimates are estimated based on Hammitt (1986).

4.2.3   CFC-114 and CFC-115

    The 1986 use of CFC-114 and CFC-115 is estimated by combining estimates of
U.S. and global use as well as assumptions about the shares of CFC-114 and CFC-
115 in regions where no direct estimates are available.  The methods and sources
for CFC-114 and CFC-115 are as follows:

    0   United States - U.S. 1986 production, export, and import information is
        provided by EPA (1988).  In addition, 1987 industry estimates for
        production and exports have been reported and are incorporated in this
        analysis (EPA 1988).

    0   Remaining regions - Non-U.S. CFC-114 and CFC-115 use is allocated
        according to the non-U.S.  share of CFC-11 and CFC-12 use.  Global
        estimates are based on industry estimates provided to EPA.

4.2.4   Halon 1211 and Halon 1301

    The 1986 use of Halon 1211 and Halon 1301 is estimated by combining
estimates of U.S. and global use as well as assumptions about the shares of
halons in regions where no direct estimates are available.  The methods and
sources for Halon 1211 and Halon 1301 are as follows:

    °   United States - U.S. 1986 Halon 1211 and Halon 1301 production, export,
        and import information is provided by EPA (1988).

    0   Remaining Regions - Non-U.S. halon use is allocated according to the
        non-U.S. share of CFC-11 and CFC-12 use.  Global estimates are based on
        lEc (1987).

4.2.5   Other Ozone Depleting Compounds

    Three other substances -- HCFC-22, methyl chloroform,  and carbon
tetrachloride - - are potentially ozone depleting compounds,  but are not
currently being considered for regulatory action.  Estimates of the use and
emissions of these compounds are necessary to project future trends in
stratospheric ozone.

    Estimates of HCFC-22 use for 1986 in the U.S. are based on ITC (1987).   The
global estimates for HCFC-22 are calculated assuming that the U.S. share of
world production is  approximately 56 percent (WMO,  1986).   All HCFC-22 estimates

-------
                                      4-12
are adjusted to account for compound use in polymer manufacturing because HCFC-
22 is not subsequently emitted from this use.

    Methyl chloroform use estimates for 1986 are provided by ITC (1987) for the
U.S.  World estimates are based on assumptions for other developed (Prinn 1983)
and East Bloc nations (Hammitt 1986).

    Carbon tetrachloride is the primary precursor chemical in the production of
CFC-11 and CFC-12 (Hammitt 1986).  Therefore, carbon tetrachloride use is
estimated to vary directly with the use of CFC-11 and CFC-12.^

4.3  PROJECTIONS OF FUTURE COMPOUND USE12

    Ozone-modifying compounds are assumed to grow in the future primarily
because of their strong historical correlation with economic growth.   Quinn
(1986) found that historical growth in CFG use generally exceeded growth in per
capita national income.   Gibbs (1986)  found similar results.  In addition,
studies on lesser developed countries  discussed in Appendix D suggest that
future economic growth and compound use growth may be of comparable magnitudes.
Therefore, projections of economic growth imply growth of the compounds of
concern.

    The degree to which compound use is correlated with GNP varies with the
maturity of the products and technologies that use the compounds.  For instance,
a mature product market in the developed world (such as refrigeration) is
expected to grow at rates comparable to population growth rates.  Developing
products and technologies (such as new solvent uses) are expected to grow more
rapidly than GNP.  In addition, new products not yet introduced may create new
demand for these ozone-depleting substances.

4.3.1  Previous Projections

    Several previous studies project U.S. and global production of CFCs,
including:  Camm (1986), Hammitt (1986), Nordhaus and Yohe (1986), and Gibbs
(1986).  All these studies link compound growth to economic projections.  Some
of the factors these authors have identified as critical in determining
chemical use in the future are:  development of chemical markets in developing
countries; development of chemical markets in the USSR and East Bloc countries;
development of new products that use ozone-depleting compounds; development of
new products that will replace products that use ozone-depleting compounds; and
the manner in which the relationship between chemical use and income will change
as income rises.
        Hammitt (1986) reports that approximately 1.12 kg and 1.27 kg of carbon
tetrachloride are needed to produce every kilogram of CFC-11 and CFC-12
respectively.  Hammitt estimates that 2.7 percent of this carbon tetrachloride
use is eventually emitted.

     •" These projections of future use are similar to the scenarios presented
in EPA (1987).   Several updates have been incorporated based on data received
during the recent Montreal negotiations.

-------
                                     4-13
    In addition, several reports have explored production and use of CFCs for
specific countries, including:  Sheffield (1986), EFCTC (1985), Bevington
(1986), Kurosawa (1986), and Hedenstrom (1986)."  These studies focus on growth
of aerosol and non-aerosol markets.  Aerosol markets generally are projected to
remain constant or grow slowly.  This is important because historically (in the
1970s) global reductions in aerosol markets offset rapid growth in non-aerosol
applications.  This indicates that future growth of CFCs will be driven by
non-aerosol applications.

    EPA (1987) presents a synthesis of these projections, and presents a range
of scenarios for policy testing.  These scenarios form the basis for the
projections used in this RIA.

4.3.2  Uncertainties Inherent in Long Term Projections

    Use of the seven compounds is projected from 1986 to 2050.  For modeling
purposes use is held constant after 2050.  It is important to note that these
projections are subject to great uncertainty.  Uncertainty derives from various
sources, including:

        •   The long period of the forecast.  The lifetimes of the
            most damaging ozone-modifying compounds are generally
            longer than 75 years.  In addition, a significant lag
            period exists between tropospheric compound emissions and
            stratospheric ozone damage.  Therefore, once they are
            emitted, damage to the ozone layer (and subsequent
            effects) will occur for more than 100 years.  To evaluate
            potential damages properly in these future years, chemical
            use and emissions must be projected for these extended
            periods.  Projections for such long periods are
            necessarily speculative.

        •   The poor quality and incomplete data that are available
            (especially from developing nations).  The seven compounds
            are used in a wide variety of end uses.  Aggregating end
            use data (bottom up approach) is subject to inaccuracies
            (Hammitt (1986) could not account for 31 percent of U.S.
            CFC-12 use for 1985), while the production information
            (top down approach) is considered reliable.  Developing
            country data are particularly poor because many of these
            countries lack a centralized trade center that would track
            the products that use the examined compounds.  The
            combination of these factors leads to large uncertainties
            about production and use data for the recent years.  Since
            projections for this analysis are based on applying annual
            growth rates to base year compound use, uncertainty in the
            base year creates uncertainty in all succeeding years.
     •I O
     J-3 These projections were presented in the 1986 UNEP meeting in Rome and
are summarized in UNEP (1986).

-------
                                      4-14
        •   Uncertainty inherent when projecting estimates that depend
            on forecasted rates of economic growth.  Compound
            projections based on economic projections not only include
            the uncertainty of the economic projection, but also the
            uncertainty of how closely the intensity of use for the
            products that use these compounds are linked to economic
            growth.

    In addition, chemical use and economic relationships are based on a limited
historical record.  In the future, GNP will exceed the historical ranges where
these relationships were developed.  Therefore, even existing linkages between
compound use and economic growth are uncertain for use projections.

4.3.3  Baseline Compound Use Projections

    Projections of growth rates in use for the ten compounds examined are made
for the six regions from 1986 to 2050. ^  These projections are developed by
applying annual growth rates to the base year of use (1986).   CFC and halon use
is assumed to level off in the year 2050 for modeling purposes.  Hence,
projections are presented here only through that year.  End use shares and
release rates for all regions are assumed constant over time.

    The projections used in this final RIA differ from those used in an earlier
draft (EPA 1987b).  The growth rates used in that earlier draft had been based
upon analyses of long-term trends in CFC use (EPA 1987a).   Exhibit 4-4 compares
the growth rates assumed in the earlier version of the RIA to the growth rates
reported by the U.S. International Trade Commission for two major CFC compounds.
The previously assumed growth rate (2.5 percent) substantially underestimated
growth from 1986 to 1987.  Therefore, the rates assumed in this final RIA
incorporate higher projected growth in CFC use through the year 1992.  For the
year 1987, actual data on CFC use in the United States is utilized.  These 1987
data are taken from reports made by producers to the EPA and are confidential
business information but are generally similar to the data reported to the
ITC.15

    Projections for the seven compounds of concern are discussed in turn.  The
regional annual growth rates used to construct the projections are displayed in
Exhibit 4-5.  Exhibit 4-6 presents the global growth rates over selected years.

    CFC-11 PROJECTED USE

    In EPA's risk assessment (EPA 1987), a series of future growth rates for
global CFC use were used for policy testing.   The estimate of 2.5 percent per
year was the middle of a wide range of potential rates of growth, recognizing
        U.S. estimates are based on 1987 use data.  Therefore, growth rate
projections are made for the U.S. from 1987 through 2050.

     I5 Estimates of U.S. use for 1987 have been adjusted to reflect increases
in exports of most controlled substances.  The ITC growth rates presented in
Exhibit 4-4 do not adjust for trade and are therefore overestimates of the
growth in use.

-------
                                      4-15
                                  EXHIBIT 4-4

              COMPARISON OF ASSUMED U.S.  CFC-11 AND CFG-12 GROWTHS
                     IN AN EARLIER VERSION OF THIS  RIA WITH
                          ACTUAL GROWTH IN PRODUCTION
             Growth Rate Assumed
                  EPA (1987b)^/
ITC Estimated
  Growth Rates^/
                                            1985-1986
           1986-1987
CFC-11
CFC-12
2.5
2.5
14.5
6.8
11.0
14.3
a/  Growth Rates assumed from 1986 to 2000.  Rates correspond to those presented
    in Exhibit 4-5 in EPA (1987b).

b/  "Report on U.S. Production of Selected Synthetic Organic Chemicals," U.S.
    International Trade Commission, 1988.  Growth rates for CFC-113, CFG-114,
    CFC-115 are not reported.

-------
                                          4-16
                                       EXHIBIT 4-5

                      PROJECTED GROWTH RAXES FEE COMPOUNDS BY REGICH
                                     (ANNUAL PERCENT)

CFC-11, CFC-12, CFC-114, AND CFC-115
UNITED STATES
USSR & EAST BLOC
OTHER DEVELOPED
CHINA & INDIA
DEVELOPING (GROUP I)
DEVELOPING (GROUP II)
CFC-113^ UNITED STATES
USSR & EAST BLOC
OTHER DEVELOPED
CHINA & INDIA
DEVELOPING (GROUP I)
DEVELOPING (GROUP II)
HALON 1211 UNITED STATES
USSR & EAST BLOC
OTHER DEVELOPED
CHINA & INDIA
DEVELOPING (GROUP I)
DEVELOPING (GROUP II)
HALON 1301 UNITED STATES
USSR & EAST BLOC
OTHER DEVELOPED
CHINA & INDIA
DEVELOPING (GROUP I)
DEVELOPING (GROUP II)
1986-1992

3.75^
656*'
3.75
15 00
7.50
1.50
5.63*'
9.83
5.63
22 50
11.25
2.25
8 69
11.95
9.21
20.74
13.00
6.91
2.61
5.94
3.34
14.25
6.93
1.16
1992-2000

2 50
2 50
2 50
10 00
5.00
1.00
3.75
3.75
3.75
15.00
7 50
1 50
3.85
3 58
4.60
12.21
7.51
3.15
-2.46
-2 51
-2.49
-4.60
-0.11
-3.84
2000-2050

2 50
2.50
2 50
2 50
2.50
2.50
2.50
2.50
2.50
2 50
2.50
2.50
2.75
2.99
2.99
2.99
2.99
2.99
3.12
3.20
3.20
3.20
3.20
3.20
2050-2100

0 00
0 00
0 00
0 00
0.00
0.00
0.00
0.00
0 00
0.00
0.00
0.00
0.00
0.00
0.00
0 00
0 00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
a/  Growth rates from 1987 through 1992   Growth rates from 1986  to 1987  are  reported to EPA as
    confidential business information and are not shown
-/  The USSR and East BLoc grow at eight percent annually until 1990 to reflect chemical plants
    that will be completed that year.   From 1990 through 1992 use grows at 3.75 percent.

-1  CFC-113 growth rates are assumed to be 1.5 times other growth rates from 1986 through 2000.

-------
                                     4-17






                                  EXHIBIT 4-6




           PROJECTED GLOBAL GROWTH RATES FOR CONTROLLED COMPOUNDS
Projected Global Growth Rate

CFC-11
CFC-12
CFC-113
CFC-114
CFC-115
Halon 1211
Halon 1301
1986-1992
4.34
5.32
7.03
4.95
3.20
9.77
3.46
1992-2000
2.71
3.06
4.09
2.79
2.73
4.80
-2.20
2000-2050
2.50
2.50
2.50
2.50
2.50
2.93
3.16
2050-2100
0.00
0.00
0.00
0.00
0.00
0.00
0.00
a/  Average annual rates computed using data cited in Exhibit 4-5.

-------
                                      4-18
that, as described above, the future rates of CFC use over the long term are
very uncertain.  However, as discussed above, recent ITC reports and data
reported to the EPA indicate more rapid rates of growth in CFC usage in 1986 and
1987.  Consequently, these projections for the U.S. assume a more rapid growth
rate, 3.75 percent in the short-term (through 1992).  The middle growth
assumption of the Risk Assessment -- 2.5 percent annual growth -- is used for
years after 1992 (see Exhibit 4-5).

    Other regions are also assumed to have accelerated growth rates in the short
term.  Other developed countries are assumed to have growth rates that are
identical to the U.S.  No data for growth in other developed countries are
available for 1987.  Available data do indicate growth in other developed
countries was less than the U.S. from 1985 to 1986.  However, analysis of past
trends in nonaerosol CFC usage shows this use in other developed countries to be
even more sensitive to economic growth than in the U.S.  Also, the latest
projections of income growth in 1987 for these countries (Wharton, 1987)
indicate that their growth probably slightly exceeded that of the U.S.
Therefore, it is reasonable to presume that their CFC usage rates would also be
growing at least as rapidly as those in the U.S. for these countries.

    The rates of growth for the USSR and Eastern Bloc, China and India, and the
developing countries are primarily based upon information received during the
Montreal negotiations.  In particular, the USSR announced its plans for 8.0
percent annual growth through 1990 (see Exhibit 4-5).  The Protocol incorporates
provisions allowing for this growth.  Following 1990, baseline annual growth in
the USSR and Eastern Bloc is assumed to equal the rate of growth for other
developed countries.

    The rate of future growth in developing countries is particularly uncertain.
The developing countries that are experiencing rapid economic growth will likely
have larger than average CFC use growth (see Appendix D).  Therefore, for the
period 1986 to 2000 the annual rate of CFC growth in Group I Developing
Countries is assumed to be 7.5 percent.  China and India are assumed to grow
about four times as fast as the United States.  Therefore, 15 percent annual
growth is assumed for this region.  Growth from 1992 through 2000 is assumed to
be 10 percent annually (four times the projected U.S. growth rate for that time
period).   The annual rate of growth in Group II Developing Countries is assumed
to be 1.5 percent from 1986 to 1992 and 1.0 percent from 1992 through 2000 based
on the assumption that these countries are experiencing slow economic growth.

    As shown in Exhibit 4-5 all regions are assumed to grow at 2.5 percent per
year from 2000 to 2050.   The growth rates for each region are applied to the
estimates of 1986 use to project regional use in all years through 2050.
Regional projections are then summed to estimate global use through 2050.
Global growth rates are presented by compound in Exhibit 4-6.

    CFC-12 PROJECTED USE

    The annual average regional growth rates for CFC-11 use were also applied to
regional CFC-12 use (see Exhibit 4-5).   Because the regional distribution of use
for CFC-12 is different from the regional distribution of use for CFC-11, the

-------
                                      4-19
implied global annual growth rates differ between CFC-11 and CFC-12 (Exhibit 4-
6).

    CFG-113 PROJECTED USE

    CFC-113 use is expected to grow more rapidly than CFC-11 and CFC-12 use
because of its application in making electronic components (see EPA 1987).  For
purposes of EPA's risk assessment, it was assumed that the annual CFC-113 growth
would be 1.5 times the CFC-11 and CFC-12 growth in the period 1986 to 2000, and
would be equal to CFC-11 and CFC-12 growth for the period 2000 to 2050.  This
assumption of a 50 percent higher growth rate for CFC-113 through the year 2000
was retained in the baseline scenario examined here.  As shown in Exhibit 4-5,
the assumed rates of growth in the U.S. for CFC-113 are 5.63 percent for the
period 1987 to 1992 and 3.75 percent for the period 1993 to 2000.  Global growth
rates for CFC-113 are presented in Exhibit 4-6.  Following 2000, the 2.5 percent
annual rate is used for all regions.

    CFC-114 AND CFC-115 PROJECTED USE

    Global and regional use of CFC-114 and CFC-115 is assumed to grow at the
same rates as those used for CFC-11 and CFC-12 (see Exhibit 4-5).  Global growth
rates differ from CFC-11 and CFC-12 because U.S share of global use is different
in 1986 for each compound.  Global growth rates for CFC-114 and CFC-115 are
presented in Exhibit 4-6.  Because of limited information available for these
compounds, these projections are uncertain.

    HALON 1211 AND HALON 1301 PROJECTED USE

    lEc (1987) presents projected estimates of U.S. and global Halon 1211 and
Halon 1301 use through the year 2050.  This analysis assumes that these rates
are applied to U.S. and global 1986 halon estimates.  U.S. rates are presented
in Exhibit 4-5; global rates are presented in Exhibit 4-6.  Regional halon use
is estimated by assuming non-U.S. use is allocated in any given year by the
average share of non-U.S. CFC-11 and CFC-12 use.   The implied regional growth
rates from these use estimates are presented in Exhibit 4-5.

    The global growth rates for Halon 1211 are relatively large in the short-
term:  approximately 10 percent through 1992, and about five percent from 1992
to 2000.  From 2000 to 2050 the growth rates are about three percent.   The
projected growth rates for Halon 1301 are smaller and include a period of
decline from 1992 to 2000.  This period of decline in sales of newly-produced
Halon 1301 is caused by increased recovery of the chemical from retiring
systems.  The recovered halon reduces the levels of new halon required to be
produced.  Over the long term (2000 through 2050) the increase in demand is
estimated to exceed the increased levels of recovery that are achieved, so that
production increases.

    The growth rates in Exhibit 4-5 are applied to 1986 estimates to produce
scenarios of future halon use.  Note that no estimates are made at this time for
Halon 2402 (also covered by the Protocol) for which information is not currently
available.

-------
                                      4-20
    PROJECTIONS OF OTHER OZONE DEPLETING COMPOUNDS

    Exhibit 4-7 presents the global growth rates for HCFC-22, methyl chloroform,
and carbon tetrachloride.  Growth rates for these compounds are based on CFC-11
and CFC-12 growth rates.

    As described above, these scenarios of future use for these compounds are
subject to considerable uncertainty.  As presented in EPA (1987a) and Chapter
10, alternative assumptions reflecting these uncertainties must be evaluated.

4.3.4  Results

    Exhibit 4-8 shows the global weighted CFC and halon use and emissions from
1986 to 2075.  Total weighted CFC use grows from about one billion kilograms in
1986 to over seven billion kilograms in 2050.  CFC and halon use are assumed
constant after 2050.  Emissions lag use because in some uses these chemicals are
not released to the atmosphere immediately.  Also, in some instances, they are
destroyed during use, e.g., Halon 1301 is destroyed when used to extinguish
fires.

4.3.5  Alternative Growth Projections

    To present sensitivities of all results to changes in usage rates, an
alternative usage scenario is developed.  This scenario, labelled the Slower
Growth Scenario, assumes a lower rate of growth in compound use from 1986 to
1992.  In the following chapters, the baseline use scenario described above is
referred to as the Middle Growth Scenario.

    The Slower Growth Scenario assumes that growth rates for 1986 to 1992 equal
the rates assumed for 1992 through 2000 in the Middle Growth Scenario.16  All
other growth rates are identical to those of the Middle Growth Scenario.  This
results in approximately 34 percent less global weighted use in 1992.  The cost
and health and environmental implications of'reduced baseline use of CFCs and
halons are presented in Chapter 10.

4.3.6  Technological Rechanneling

    The projections discussed above are based on the assumption that no
regulatory intervention takes place.  In such a situation, the future use and
emissions of CFCs and halons will be driven by GNP and population growth,
product maturation and saturation, and technological change.  Of particular
importance is technological change, which has several key influences:  (1)
existing products that require CFCs and halons will improve, so that CFCs and
halons will be used less intensively; (2) existing products that require CFCs
and halons may become obsolete; and (3) new products that require CFCs and
halons will be developed.
     16 One exception to this is that USSR and East Bloc projections remain
identical through the year 1990 for both compound use projection scenarios.

-------
                                      4-21
                                  EXHIBIT 4-7

                 PROJECTED GLOBAL GROWTH RATES FOR POTENTIALLY
                    OZONE DEPLETING COMPOUNDS WHICH ARE NOT
                                  CONTROLLED^/
                                  Projected Global Growth Rate
                       1986-1992
1992-2000
2000-2050
2050-2100
HCFC-22
Methyl chloroform
Carbon tetrachloride
4.37
4.70
4.90
2.74
2.78
2.91
2.50
2.50
2.50
0.00
0.00
0.00
a/  Based upon average growth rates for CFC-11 and CFC-12 cited in Exhibit 4-5.

-------
                                    4-22
                                EXHIBIT 4-8



                  WEIGHTED GLOBAL PRODUCTION AND EMISSIONS

                           (Billions of Kilograms)
W
cc
o
o

5
LL
O
W

o
GO
     0.0
       1985
2000
2015
2030
2045
2060
2075

-------
                                      4-23
    Historically, the development of new products that require CFCs has been an
important factor fueling the continued growth of CFC use.  Because CFCs have
attractive properties, and because people are familiar with the characteristics
of CFCs, a steady stream of research investments has been made to develop new
products and improve old ones.  It is likely that in the absence of regulatory
interventions that new products could continue to develop.

    Once regulations are contemplated or required, however, the investments
required to create new uses for CFCs and improve existing products will slow and
likely stop, reducing the expected future use of the compounds.  Individuals
will move away from the familiar CFC compounds and toward alternative solutions
that may be more or less costly than using CFCs.  Of note is the possibility
that alternative methods that do not require CFCs may be less costly or
preferred to using CFCs.  Appendix C describes this phenomenon as "technological
rechanneling," where individuals continue to exploit a technology (such as CFCs)
even though alternatives may be preferred.  Channeling occurs due to limited
information and other factors (see Appendix C).

    The key factor to assess is that once regulations are contemplated, the
baseline levels of use described above will not be realized because individuals
will "rechannel" their research and development investment resources away from
CFCs and into other approaches.  Consequently, new products that require CFCs
will not develop, and total use will be less.  The magnitude and sign of the
costs associated with this rechanneling cannot be assessed easily, nor can the
magnitude of the impact that rechanneling will have on the level of CFC use.
Appendix C describes a range of assumptions used to assess this phenomenon, and
the next chapter presents the baseline assumptions which assume that the level
of rechanneling varies with the stringency of the proposed regulations.

4.4  OTHER TRACE GASES

    Three other trace gases that have an important impact on ozone depletion
are:

        »   Carbon dioxide (C02);
        0   Methane (CH4); and
        »   Nitrous oxide (N20).

Future stratospheric ozone levels appear to be especially sensitive to future
trends in CH4 concentrations.  Methane and carbon dioxide act to offset
potentially some or all of the ozone depletion from CFCs and halons.  Nitrous
oxide could either increase or decrease ozone levels depending on its level
relative to CFC levels.  The sources, sinks, and projections of concentrations
of these influential trace gases are discussed in EPA (1987a).   Here we present
the middle case from that study.

    Exhibit 4-9 presents projections for the concentrations of the three trace
gases from 1985 through 2165.  The implied annual growth rate for C02 is
approximately 0.7 percent over the 180 year period (NAS 1984).   Concentrations
grow at 5.9 ppm annually after 2100.   Obviously, such growth is unlikely if
society becomes concerned with the greenhouse effects.   CH4 grows at 0.017 ppm
for the 180 years of the analysis (EPA 1987a).  N20 concentrations are assumed
to grow at a 0.2 percent rate from 1985 concentration values for the entire
period of analysis (EPA 1987a).

-------
                    4-24







                 EXHIBIT 4-9




GROWTH OF TRACE GAS CONCENTRATIONS OVER TIME
Year
1985
2000
2025
2050
2075
2100
2165
C02
(PPM)
350.2
366.0
422.0
508.0
625.0
772.0
1,154.2
CH4
(PPM)
1.8
2.0
2.4
2.9
3.3
3.7
4.8
N20
(PPB)
303.1
312.3
328.3
345.1
362.8
381.4
434.3
 Source:  EPA  (1987a).

-------
                                     4-25


                                  REFERENCES
Bevington, C.F.P. (1986),  "Projections of Production Capacity,  Production and
    Use of CFCs in the Context of EEC Regulation,"  Metra Consulting  Group,  Ltd.,
    prepared for the European Economic Community.

Buxton, V., Environment Canada,  Personal communication,  August  14,  1987.

Camm, F. and J K. Hammitt (1986), "Analytic Method  for Constructing  Scenarios
    from a Subjective Joint Probability Distribution," The RAND Corporation,
    prepared for the U.S.  Environmental Protection  Agency, Santa Monica,
    California.

Chemical Manufacturers Association,  (CMA) (1986),  "Production,  Sales,  and
    Calculated Release of CFC-11 and CFC-12 Through 1985," Washington,  D.C.

DuPont (1987), Dupont estimates of per capita consumption of CFCs,  provided to
    EPA.

Edmonds, J. and J. Reilly (1984), "An Analysis of Possible Future Atmospheric
    Retention of Fossil Fuel C02," prepared for U.S. Department of Energy,
    Washington, D.C.

EPA (1987a),  Assessing the Risks of Trace Gases That Can Modify The
    Stratosphere. U.S. Environmental Protection Agency,  Washington,  D.C.   This
    is a revision of:  U.S. Environmental Protection Agency (1986),  An
    Assessment of the Risks of Stratospheric Modification.  U.S. Environmental
    Protection Agency, Washington, D.C.

EPA (1987b),  Regulatory Impact Analysis:  Protection of Stratospheric Ozone.
    U.S. Environmental Protection Agency, Washington, D.C. Vol. I, December
    1987.

EPA (1988), 1986 and 1987 estimates of CFC-11, CFC-12, CFC-113, CFC-114,  CFC-
    115, Halon 1301 and Halon 1211 are provided from industry sources.  These
    data are considered confidential business information.

European Fluorocarbon Technical Committee (EFCTC) (1985), Halocarbon Trend
    Study 1983-1995.

Gamlen, P.H., et al. (1986), "The Production and Release  to the Atmosphere of
    CC13F and CC12F2 (Chlorofluorocarbons CFC-11 and CFC-12), Atmospheric
    Environment. pp. 1077-1085.

Gibbs, M.J. (1986), Scenarios of CFC Use 1985-2075. prepared for U.S.
    Environmental Protection Agency, ICF Incorporated, Washington, D.C.

Hammitt J.A., et al. (1986), "Product Uses and Market Trends for Potential
    Ozone-Depleting Substances:  1985," prepared for U.S. Environmental
    Protection Agency, The RAND  Corporation, Santa Monica, California.

Hedenstrom, 0.,  S. Samuelsson, and A  Ostman  (1986),  "Projections of CFC Use
    in Sweden,"  prepared  for Statens naturvardsverk.

-------
                                      4-26
lEc (1987), Industrial Economics, Inc.  "Historical and Projected Growth of
    Halons Bank and Emissions," prepared for the U.S. Environmental Protection
    Agency, Cambridge, Massachusetts.  The numbers presented in the baseline are
    revised Halon  scenarios presented in this document.

ITC (1987), U.S. International Trade Commission, "Synthetic Organic Chemicals,"
    ITC, Washington D.C.

Kurosowa, K. and K. Imazeki (1986), "Projections of the Production Use and
    Trade of CFCs in Japan in the Next 5-10 Years," Japan Fluoride Gas
    Association and the Japan Aerosol Association.

NAS (1984), National Academy of Sciences, "Causes and Effects of Changes in
    Stratospheric Ozone," Washington, D.C.

Nordhaus, W.D. and G.W. Yohe (1986), "Probabilistic Projections of
    Chlorofluorocarbon Consumption:  Stage One," Yale University and Wesleyan
    University, prepared for the U.S. Environmental Protection Agency,
    Washington, D.C.

Prinn et al. (1983), "The Atmospheric Lifetime Experiment:  Results for CH3CC13
    Based on Three Years of Data,"  Journal of Geophysical Research. 88 (C13),
    p. 8421.

Quinn, T.H., et al. (1986), "Projected Use, Emissions, and Banks of Potential
    Ozone-Depleting Substances," The RAND Corporation, prepared for U.S.
    Environmental Protection Agency, Santa Monica, California.

Sheffield, A. (1986),  "Canadian Overview of CFG Demand Projections to the Year
    2005," Commercial Chemicals Branch, Environmental Protection Service,
    Environment Canada.

UNEP (1986), United Nations Environment Programme, "UNEP Workshop on
    Protection of the Ozone Layer," May 1986.

Wharton Economic Forecasting Associates (1987), World Economic Outlook. December
    1987, Table 1-1.

World Bank, The, (1987), "World Development Report 1987," Oxford University
    press, New York, NY.

WMO (1986), World Meteorological Organization,  "Atmospheric Ozone 1985:
    Assessment of Our Understanding of the Processes Controlling its Present
    Distribution and Change," WMO, Geneva, Switzerland,  Vol. I, p. 71.

Zhijia, W. (1986),  "County Paper for Topic 1: UNEP Workshop on the Protection of
    the Ozone Layer,"  National Environmental Protection Agency of the People's
    Republic of China.

-------
                                   CHAPTER 5

                        STRINGENCY AND COVERAGE OPTIONS


    This chapter presents the stringency and coverage options (i.e., the control
levels) currently being considered for domestic action.  These control level
options define the extent of reductions in chemical use that may be required.
The options do not define the regulatory means by which the reductions are
achieved (see Chapter 11).  To a large extent, the stringency and coverage
alternatives can be defined and evaluated without consideration of the specifics
of the regulatory mechanisms used to implement the requirements.

    The remainder of this chapter is organized as follows:

        0   Section 5.1 identifies the chemical coverage options considered;

        9   Section 5.2 presents the control stringency options;

        »   Section 5.3 defines the country participation assumptions; and

        °   Section 5.4 presents the options selected for analysis.

5.1  CHEMICAL COVERAGE OPTIONS

    As described in Chapter 4, the following eleven compounds are currently
identified as potential ozone-depleters:  CFC-11; CFC-12; HCFC-22; CFC-113;
CFC-114; CFC-115; carbon tetrachloride (CC14); methyl chloroform (CH3CCL3);
Halon 1211; Halon 1301; and Halon 2402.  Chapter 4 presents the baseline use
assumptions for all compounds except Halon 2402.  Halon 2402, which is not
produced in the U.S., is not addressed here due to a lack of data on this
compound at this time.

    Any chlorinated or brominated substance that survives long enough to reach
the stratosphere could contribute to ozone depletion.  However, the lifetimes of
methyl chloroform and HCFC-22 are shorter than those of the other ozone-
depleters  because they contain hydrogen, and therefore break down by combining
with the hydroxyl (OH) radical in the lower atmosphere.  Consequently, the ozone
depletion potential per pound is much lower for methyl chloroform and HCFC-22
compared to the other gases (see Exhibit 5-1).

    In addition, their shorter lifetimes have another important implication for
assessing risks.  In the event that ozone depletion occurs, the recovery time
and the level of control needed to arrest an increase in the chlorine
contribution to the stratosphere would be much shorter.  For example, to
stabilize CFC-11 concentrations would require an 80% reduction in emissions.  To
stabilize methyl chloroform concentrations would take about a 15% reduction.
Thus,  if an unexpected ozone depletion problem develops, it is both easier to
arrest and rollback depletion for short-lived substances than for long-lived
ozone-depleters.  As a consequence of these characteristics, and because of
their capability to displace CFC-11, -12, and -113, substances with shorter

-------
                                      5-2


                                  EXHIBIT 5-1

              CHARACTERISTICS OF VARIOUS OZONE-DEPLETING COMPOUNDS

CFC-11
CFC-12
CFC-113
CFC-114
CFC-115
Halon 1211
Halon 1301
HCFC-22
Methyl Chloroform
Ozone Depletion
Potential Weight
(Mass Basis) a/
1.0
1.0
0.8
1.0
0.6
3.0 b/
10.0 b/
0.05
0.1 c/
Lifetime
(years) d/
64
108
88
185
380
25
110
22
10
1985 U.S. Production
(Metric Tons)
Unweighted
79,700
136,900
68,500
4,000
4,500
2,800
3,500
99,200
190,955
Weighted
79,700
136,900
54,800
4,000
2,700
8,400
35,000
4,960
19,096
a/ Measured relative to CFC-11, which is set to 1.0.  The values for all
   compounds, except HCFC-22 and Methyl Chloroform, were adopted in the Montreal
   Protocol.

b/ Preliminary estimates with large uncertainties.

c/ Range 0.06-0.15.

d/ Some uncertainty exists for these estimates.

-------
                                      5-3
lifetimes are considered part of the solution to potential ozone depletion
problems.^

    Thus, the following two chemical coverage options are being considered for
purposes of preventing potential stratospheric ozone modification:

         •    Fullv-haloeenated CFCs:   CFC-11, CFC-12, CFC-113,
              CFC-114, and CFC-115; and

         •    Fully-halogenated compounds:  CFC-11, CFC-12, CFC-113,
              CFC-114, CFC-115, Halon 1301, Halon 1211, and Halon
              2402.

The difference between these two options is the inclusion of the halon
compounds.

    In evaluating these options it is assumed that the fully-halogenated CFCs
would be controlled as a group, and that the halons would also be controlled as
a group  (if covered) but would be controlled separately from the CFCs.  As
discussed in Chapter 4 above, the halon uses (primarily as fire extinguishants)
are significantly different from the CFC applications.  In addition, the ozone
depletion potentials of halons are more uncertain (although clearly higher than
CFCs) and are dependent on the level of chlorine in the atmosphere.
Consequently, tradeoffs with CFCs could not assume a linear or fixed ratio.
(Tradeoffs between these brominated compounds, however, may make sense.)

5.2  STRINGENCY OPTIONS

    The following stringency options are considered for control of the
fully-halogenated CFCs.  Each option is evaluated in terms of total ozone
depletion potential.  Individual substances are weighted with the requirement
for control applied against all CFCs based on their ozone depletion potential
(e.g., 1.25 kilograms of CFC-113 would be equal to 1.00 kilograms of CFC-11 in
terms of meeting a control limit):

         •    No Controls (Baseline Case);

         •    Freeze use (in terms of ozone depletion potential) at
              1986 levels starting in 1989;

         •    20 percent:  Freeze use  at 1986 levels starting in 1989;
              and reduce use by 20 percent starting in 1993;

         •    50 percent:  Freeze use  at 1986 levels starting in 1989;
              reduce use by 20 percent in 1993;  and reduce use by 50
              percent in 1998;  and

         •    80 percent:  Freeze use  at 1986 levels in 1989;  reduce
              use by 20 percent in 1993;  reduce use by 50 percent in
              1998; and reduce use by  80 percent in 2003.
       Carbon tetrachloride is not currently considered for control because it
is used primarily as a chemical intermediate,  and its emissions are small.

-------
                                      5-4
Exhibit 5-2 shows graphically the expected use of CFC-11 for these five
stringency options if it were controlled separately (in reality, controls will
likely be applied against the pool of CFCs so CFC-11 use could be higher or
lower depending on whether it was more or less expensive to control than other
CFCs).  CFC-11 use in the No Controls scenario grows at a 3.75 percent annual
rate from 1987 to 1992 and a 2.5 percent annual rate from 1992 to 2050, after
which use remains constant.  Each of the four other lines in the exhibit
reflects CFC-11 use assuming 100 percent participation worldwide in a global
control protocol.  As noted below, however, it may be unlikely that 100 percent
participation will be achieved.

    The stringency for halons in the Montreal Protocol is for a freeze at
current (e.g., 1986) levels of production.  This is the only stringency option
considered for halons at this time.

5.3  PARTICIPATION ASSUMPTIONS

    It is unlikely that all nations of the world will participate in the
international protocol to protect stratospheric ozone through reductions in the
use and emissions of ozone-depleting compounds.  For purposes of assessing the
impact of alternative U.S. domestic requirements, assumptions regarding
potential participation internationally are required.   In particular, the
influence of alternative U.S. actions on participation abroad should be
assessed.

    For purposes of this analysis, it is assumed that the U.S. will participate,
and that 100 percent compliance will be achieved in the U.S.  Although this 100
percent compliance figure may seem high for most engineering-related
requirements, it is probably reasonable for a market-based regulatory approach
(such as production and import rights) where few producers and importers are
involved.  Therefore, the 100 percent compliance rate for the U.S. is used.

    It is expected that many of the nations of the world will participate in and
comply with the international protocol.  Exhibit 5-3 lists the nations that have
signed the Montreal Protocol.  As shown in the exhibit, 37 nations plus the EEC
have signed the Protocol.  Virtually all industrialized nations have indicated
an intention to sign the protocol.

    It is estimated that the nations who have signed the Protocol or have been
involved in the protocol development process account for a large majority of
global CFC production.  However, a significant portion of this production (e.g.,
one-third of production in the EEC) is exported, some portion possibly to
nations that have not been involved to date.  Also, many CFC-related products
(such as automobiles) are exported.  Therefore, the effective global
participation in the protocol may be expected to be less than 100 percent, and
possibly considerably less, depending on the effectiveness of trade provisions
in the protocol.

-------
                                            5-5
                                        EXHIBIT 5-2

                             ILLUSTRATIVE USE OF CFC-11 UNDER
                                 FIVE STRINGENCY OPTIONS
CFC-11
  Use
                                                                               No controls
                                                                               Freeze
            1985
2065

-------
                 5-6


             EXHIBIT 5-3

NATIONS THAT HAVE SIGNED THE PROTOCOL
     Argentina
     Australia
     Belgium
     Byelorussian Soviet Socialist Republic
     Canada
     Chile
     Denmark
     Egypt
     European Economic Community
     Finland
     France
     Germany
     Ghana
     Greece
     Indonesia
     Israel
     Italy
     Japan
     Kenya
     Luxembourg
     Maldives
     Mexico
     Morocco
     Netherlands
     New Zealand
     Norway
     Panama
     Portugal
     Senegal
     Spain
     Sweden
     Switzerland
     Togo
     Ukranian Soviet Socialist Republic
     Union of Soviet Socialist Republics
     United Kingdom
     United States
     Venezuela
     Source:   U.S.  EPA.

-------
                                      5-7
    For purposes of analysis it is assumed that, among other developed nations,
94 percent participation may be expected.  (Sensitivity analysis was performed
with 75 percent and 100 percent.)  Among developing nations, participation may
be lower, and is assumed to be 65 percent.  (Sensitivity analysis was performed
using 40 percent and 100 percent.)  Because few developing nations have been
involved in the protocol process to date an additional sensitivity analysis was
performed assuming participation only by nations who are already signatories to
the protocol.  It is further assumed for purposes of analysis that those nations
who participate achieve 100 percent compliance.

    For nations that do not participate in the protocol, their continued use of
CFCs is assumed to follow the modified path of demand defined in Appendix C.^
The adoption of "rechanneled" technologies in developing countries will be
strongly influenced by:  (1) technology transfer from developed countries; and
(2) the ability to sell products in developed countries (see Appendix D for a
description of the factors affecting CFG use in developing nations).  If new
technologies are not adopted in the non-participating developing nations, then
their CFG use may approach their baseline use in the absence of global
restrictions.  However, transnational corporations (TNCs) or protocol trade
restrictions may cause non-participating nations to modify their CFG use.
Therefore, a range of values must be assessed.  It is important to note that the
participation rates and the reduced growth rates assumed here for analysis
purposes are based on qualitative assessments of the relevant forces influencing
future use of CFCs.  Alternative hypotheses are plausible.

    Exhibit 5-4 illustrates graphically how the protocol participation rates are
used in the analysis, and how the growth in CFC use is reduced for non-
participants.  As shown in Exhibit 5-4(a), the total baseline use is divided
between participants and non-participants.  The participants are analyzed
assuming that they achieve the reductions (e.g., 50 percent) set forth by the
protocol (see Exhibit 5-4(b)).  The non-participants would experience reduced
growth (as shown in Exhibit 5-4(c)).

5.4  SELECTED POLICY OPTIONS FOR CONTROLS ON POTENTIAL OZONE DEPLETERS

    Exhibit 5-5 shows the control level options selected for analysis in future
chapters of this final RIA.  These cases reflect varying coverage and stringency
assumptions.  The stringency varies from no controls to an 80 percent reduction,
and two sets of compound coverage are analyzed.

    Each coverage option is assumed to be applied globally,  unless indicated
otherwise.  Similarly,  with two exceptions,  each stringency option is assumed to
be applied globally.  However, for cases 7 and 8 in Exhibit 5-5, it is assumed
that other parties implement less stringent requirements.
     o
     L As described in Appendix C, the discussion and implementation of
regulations will influence people's investments in research and development,
resulting in a "rechanneling" of technology away from CFC-related products.
This rechanneling results in less CFC use than would be expected in the absence
of any restrictions on CFCs.

-------
                                     5-8



                                 EXHIBIT  5-4


                    ILLUSTRATION OF PARTICIPATION RATES
 CFC-11
  Use
CFC-11
  Use
                                                                  Non-
                                                                  Participants
                                                                  Participants
        1985    1995    2005   2015    2025    2035    2045   2055    2065

                                 Participants
                                                                  Reduction
                                                                  to S0%
                                                                  of 1986
                                                                  use
                                                                  Remaining
                                                                  use
        1985
1995
                     2005
                            2015
                    2025
                                          2035
                                 2045
2055
2065
(a) Total  Baseline use is divided into participants  and non-participants
    according to the participation rate  (in this case 80%).


(b) The participants reduce use  according to the requirements  of the
    protocol (e.g.,  to 50% of  1986 use).

-------
                                    5-9
                                EXHIBIT 5-4


                   ILLUSTRATION OF PARTICIPATION RATES
                                (Continued)
                               Non-Participants
 CFC-11
   Use
                                  (c)
                                                                 Reduced
                                                                 growth
                                                                 Remaining
                                                                 use
         1985    1993    2005    2015    2025     2035     2045    2055
(c) The non-participants experience reduced rates of growth due to the
    technological changes  induced by reductions undertaken  by the
    participants.

-------
                                                            EXHIBIT S-S
                                                     CONTROL OPTIONS ANALYZED
Case
1
2
3
4
5
6
7
8
U.S. Reouirements
Fully-Hal.
CFCs Halons
No Controls
Freeze
20Z
SOZ
SOZ
SOZ Freeze
SOZ Freeze
SOZ Freeze

Fully-Hal.
CFCs Halons
No Controls
Freeze
20Z
SOZ
80Z
SOZ Freeze
SOZ Freeze
--
Non-U.S. Reductions


Participation and Reduced Growth
Non-U S. Developed c/
--
94Z participation and 1/2 growth 6SZ
94Z participation and 1/2 growth 6SZ
94Z participation and 3/8 growth 6SZ
94Z participation and 3/8 growth 6SZ
94Z participation and 3/8 growth 65Z
94Z participation and 3/8 growth 6SZ
OZ participation and full growth OZ
Developing
--
participation and 3/4
participation and 5/8
participation and 1/2
participation and 1/2
participation and 1/2
participation and 1/2


growth
growth
growth
growth
growth
growth
participation and full growth
a/        The control options  analyzed reflect a variety of coverage and stringency cases.  The stringency  ranges  from a freeze to an
          80 percent reduction.  The  coverage includes all the fully-halogenated CFCs, and as an option  includes the  halon compounds
          (cases 6-8).

b/        U.S. participation is  assumed to  always be 100Z; reductions in U.S. growth are equal to the  assumptions  on  reduced growth
          for the other (non-U.S.) developed countries.  In Case 8, the reductions in U.S. growth are  equal to  the U.S  reductions in
          Case 6.

c/        Prior to the Montreal  Protocol  it was estimated that developed countries other than the U.S  would achieve  a participation
          rate of 80 percent (excluding the U.S.S.R. and other Eastern Bloc countries).  With the signing of the Protocol by the
          USSR, it is estimated  that  participation  among non-U.S. developed countries could be about 94  percent based on 1986 CFC
          production levels.

-------
                                      5-11
    A summary description of each scenario is provided below:

         •    No Controls --No controls on CFCs or halons occur.
              This is the baseline scenario from which the impacts
              of various control options are measured.

         •    CFC Freeze -- CFC use is held constant at 1986
              levels starting in 1989.

         •    CFC 20% -- In addition to the CFC freeze in 1989, a
              20% CFC reduction worldwide occurs in 1993.

         •    CFC 50% -- In addition to the CFC freeze in 1989 and
              the 20% reduction in 1993, a 50% CFC reduction
              occurs in 1998.

         •    CFC 80% -- In addition to the CFC freeze in 1989,
              the 20% reduction in 1993, and the 50% reduction in
              1998, an 80% CFC reduction occurs in 2003.

         •    CFC 50%/Halon Freeze -- In addition to the freeze on CFC
              use in 1989, the 20% reduction in 1993, and the 50%
              reduction in 1998, halon use is held constant at 1986
              levels starting in 1992.  This case is intended to
              resemble as closely as possible the Montreal Protocol.3

         •    CFC 50%/Halon Freeze/U.S. 80% -- Same as the CFC
              50%/Halon Freeze case, except that the U.S. reduces
              to 80% of 1986 CFC levels in 2003.

         •    U.S. Only/CFC 50%/Halon Freeze -- Same as the CFC
              50%/Halon Freeze case, except the U.S. is the only
              country in the world that participates.

Throughout this report each scenario is referenced by the underlined title
listed above.
     •* Assuming entry into force on January 1, 1989, the Montreal Protocol
specifies that the CFC freeze would begin on July 1, 1989, the 20% CFC reduction
on July 1, 1993, and the 50% reduction on July 1, 1998.  For purposes of
analysis in this study, the effective dates were analyzed on a calendar year
basis with a six month delay.  This adjustment has been made for all of the
alternative control scenarios; it has less than a 0.5 percent impact on the
estimated costs and benefits presented in later chapters.

-------
                                      5-12
                                  REFERENCES
U.S. Environmental Protection Agency (1987), Assessing the Risks of Trace
    Gases That Can Modify the Stratosphere. U.S. Environmental Protection
    Agency, Washington, D.C.   This is a revised version of:  U.S. Environmental
    Protection Agency (1986), An Assessment of the Risks of Stratospheric
    Modification. U.S. EPA,  Washington, D.C.

-------
                                   CHAPTER 6

                        ANALYSIS OF ATMOSPHERIC RESPONSE
    This chapter presents estimates of the atmospheric response to perturbations
due to emissions of ozone-depleting compounds.  The cases being analyzed are
presented in Exhibit 5-5 in Chapter 5.  The global ozone depletion associated
with each of these cases is presented below.  These ozone depletion estimates
are used in subsequent chapters to assess the potential risks that ozone
depletion may pose to human health and the environment.  The potential impacts
of the emissions associated with each of the cases on global climate is also
evaluated.

    There is currently some uncertainty surrounding the potential impacts of CFC
emissions on stratospheric ozone.  Historically, many models have been developed
and used to assess the potential impact of various emissions and concentrations
on stratospheric ozone.  Over time the results of these models have varied, but
always have projected depletion in the event of increasing chlorine.  A recent
UNEF-sponsored model intercomparison workshop concluded that the major
1-dimensional models currently produce about the same results.  The simplified
model used in this assessment was found to produce ozone depletion estimates
that are within the range of the estimates of the more complex models, although
slightly on the low side (i.e., underestimating ozone depletion) in some cases
(UNEP 1987).

    The largest uncertainties related to current atmospheric models are driven
by recent empirical findings on ozone itself.  The identification of the
Antarctic ozone hole, and the inability of current theories and models to
predict or account for the hole, reduce the level of confidence that can be
placed in the current model estimates.  Nevertheless, because the atmosphere in
the Antarctic is very different from the atmosphere over most of the rest of the
globe, it is premature to alter the current models until a better understanding
of the hole is achieved.

    Additionally, preliminary global ozone trends based on both satellite and
ground-based estimates indicate that a reduction of global ozone appears to be
occurring at rates faster than those predicted by the models.  This is possibly
a second indication that the current models underestimate the response of
stratospheric ozone to perturbations.  However, changes to the atmospheric
models to reflect recent ozone trends analyses have not yet been undertaken.
Therefore, the analysis presented throughout this report, but especially in the
following chapters on effects, does not reflect the information.

    One mechanism that could lead to the current models being incorrect is the
existence of chemical reactions whereby gaseous species interact on particles
(such as particulates).  These reactions (referred to as "heterogeneous"
chemistry because they occur at the interface between two phases,  such as
gas-liquid or gas-solid) are not included in the current atmospheric models used
to assess ozone depletion.   Considerable investigation is required before the
implications of this reaction mechanism for estimates of ozone depletion can be
assessed.  One preliminary study shows that heterogeneous chemistry could
significantly increase the sensitivity of stratospheric ozone to perturbations
from chlorine-containing compounds such as CFCs.  Another possibility is that
Antarctic depletion itself could have an impact on global ozone.

-------
                                      6-2
    The remainder of this chapter is organized as follows:

        •   Section 6.1 presents estimates of global ozone depletion
            for the baseline case of no controls.  The uncertainty in
            this estimate associated with the understanding of the
            atmospheric chemistry currently included in the model is
            also presented.

        •   Section 6.2 presents estimates of global ozone depletion
            for the control cases defined in Chapter 5.  These
            estimates form the basis for the analyses presented in
            Chapters 7-10.

        •   Section 6.3 presents an estimate of ozone depletion with
            alternative assumptions for growth of greenhouse gases.
            (Not carried forward to effects chapters.)

        •   Section 6.4 presents estimates of global warming
            associated with the eight cases defined in Chapter 5.

6.1  BASELINE CASE GLOBAL OZONE DEPLETION

    This section presents estimates of global ozone depletion for the No
Controls Case using the baseline CFC, halon and trace gas assumptions defined
above in Chapter 4.  A statistical representation of a 1-dimensional model is
used to relate emissions and concentrations to ozone depletion.^

    Exhibit 6-1 displays estimates of ozone depletion over time for the No
Controls Case.   As shown in the exhibit, the horizontal axis is time (1985 to
2100) and the vertical axis is the level of global ozone depletion simulated to
occur.  Note that ozone depletion is identified as negative, so that increasing
levels of ozone depletion are depicted as downward-sloping curves.  Note also
that in Exhibit 6-1 the ozone depletion beyond 50 percent is not shown.
Throughout this analysis (including the impacts assessments in subsequent
chapters) ozone depletion is truncated at 50 percent.  Although the model used
to evaluate ozone depletion indicates levels in excess of 50 percent, the data
used to develop the parameterized model do not allow it to be carried beyond
this point.  This truncation at 50 percent results in an underestimate of ozone
depletion and impacts over the long term in the No Controls Case.

    The No Controls Case shows average column ozone depletion of 2 percent by
the year 2010 from 1985 levels; depletion that may have occurred prior to 1985
is ignored.  Note that depletion continues to get worse after 2050 when
     1 The model used to evaluate ozone depletion is described in EFA's recent
risk assessment of stratospheric modification (EPA 1987).  The statistical model
is presented in Connell (1986).
     «
       Recall that in this no controls case CFC/Halon use is assumed to grow
through 2050, and then remain constant.  As described below, ozone depletion
continues to get worse after 2050 even though CFC use has leveled out.

-------
                                       6-3


                                   EXHIBIT 6-1

                GLOBAL OZONE DEPLETION FOR THE NO CONTROLS CASE
 x
 I
       0.0
      -10.0 -
      •20.0 -
      -30.0 -
      -40.0 -
      -SO.O
         tees
                   2008
                             202S
                                        2048
                                                  2065
                                                             2089
    Ozone depletion  is  estimated for the no controls case defined in Chapter 5.
The baseline CFC, halon,  and trace gas assumptions are defined in Chapter 4.
Note that ozone depletion is truncated at 50 percent.  This  truncation results
in an underestimate  of  ozone depletion over the long term in this No Controls
Case.  See text.
    Source:  Estimates  based on the statistical method developed by Connell
             (1986).

-------
                                      6-4
CFC/halon use is assumed arbitrarily to level out.  The depletion continues
because the concentrations of chlorine and bromine in the stratosphere do not
reach steady state by 2050, and the concentrations continue to increase with
constant emissions.  To prevent continued depletion beyond 2050  (or at any point
in the time horizon examined) CFC/halon emissions would have to be reduced
significantly in order to prevent chlorine and bromine concentrations from
continuing to grow.

6.2  GLOBAL OZONE DEPLETION FOR THE CONTROL CASES

    Exhibit 6-2 displays the estimates of global ozone depletion for the No
Controls Case, and the CFC 50%/Halon Freeze Case.  As shown in the exhibit, the
more stringent policy results in less ozone depletion.  With No Controls ozone
depletion reaches 50 percent by 2075, at which point it is arbitrarily
constrained in this analysis.  The CFC 50%/Halon Freeze Case leads to ozone
depletion of only about 2.0 percent in the same time frame.

    Ozone depletion estimates are presented in Exhibit 6-3 for the alternative
control option cases (except the U.S. Only/CFC 50%/Halon Freeze case).  These
cases include:

        •   CFC Freeze;

        •   CFC 20%;

        •   CFC 50%;

        •   CFC 80%;

        •   CFC 50%/Halon Freeze; and

        •   CFC 50%/Halon Freeze/U.S. 80%.

As expected, the more stringent policies result in less ozone depletion over
time.  By 2100, the CFC Freeze leads to depletion of almost 8 percent.  The CFC
80% Case reduces depletion to about 2.5 percent by 2100.

    The final two cases shown in Exhibit 6-3 show even less ozone depletion,
which is to be expected as the CFC 50%/Halon Freeze case and the CFC 50%/Halon
Freeze/U.S. 80% case incorporate a freeze on halon production.  The CFC
50%/Halon Freeze case leads to depletion of 1.0 percent in 2100, and the CFC
50%/Halon Freeze/U.S. 80% case to depletion of 0.8 percent.

    Finally, Exhibit 6-4 presents the No Controls Case, CFC 50%/Halon Freeze
Case, and U.S. Only/CFC 50%/Halon Freeze Case.  While the CFC 50%/Halon Freeze
case shows a marked decrease in depletion from the No Controls case, the U.S.
Only/CFC 50%/Halon Freeze case shows a large increase over the CFC 50%/Halon
Freeze case.  This is a result of having only the U.S. participate in the
control policy (U.S. Only/CFC 50%/Halon Freeze case) as opposed to the policy
being globally implemented (CFC 50%/Halon Freeze case).

    Exhibit 6-5 summarizes the results of the control cases in tabular form.
For each case the estimated ozone depletion for the years 2000, 2025, 2050,
2075, and 2100 are listed.   As shown in the exhibit, the more stringent the

-------
                                      6-5
                                  EXHIBIT  6-2

          GLOBAL OZONE DEPLETION ESTIMATES FOR THE NO CONTROLS CASE
                         AND CFG 50%/HALON FREEZE CASE
                                   (Percent)
i
§
N
o
     -10.0 -
     -20.0 -
     -30.0 -
     -40.0 -
     -50.0
        1985
                  2006
                             2025
                                        2045
                                                  2065
                                                             2065
   Source: Estimates  based on the statistical method developed by Connell
           (1986).

-------
                                        6-6
                                    EXHIBIT 6-3



                        GLOBAL OZONE DEPLETION ESTIMATES

                      FOR ALTERNATIVE CONTROL OPTIONS CASES^/
a
•
a
O


4
O
      0.0
      -1.0 -
      -2.0 -
      -3,0 -
      -4.0 -
-5.0 -
      -8.0 -
      -7.0 -
     -8.0
                                                                          CFC 50V. /

                                                                          HALON FREEZE
                                                                          CFC 80%
                                                                          CFC 5 0%
                                                                          CFC 20%
                                                                          CFC FREEZE
        1985
                   2005
                              2025
                                         2045
                                                    2065
                                                               2065
     a/ All alternative cases  except the  U.S.  Only  case.



     Source: Estimates based on the statistical method developed by Connell

             (1986).

-------
                                       6-7
                                   EXHIBIT  6-4



             GLOBAL OZONE DEPLETION ESTIMATES FOR THE NO CONTROLS,

                   CFG 50%/HALON FREEZE, AND U.S. ONLY CASES
g
M
O

75
a
o
a
      0.0
     -10.0 -
     -20.0 -
-30.0 -
     -40.0 -
     -SO.O
        1985
                  2005
                             2025
                                        2045
                                                   2065
                                                             2065
   Source:  Estimates based on the statistical method developed by Connell

            (1986).

-------
                                  6-8
                              EXHIBIT 6-5

      SUMMARY OF OZONE DEPLETION ESTIMATED FOR THE 8  CONTROL CASES
                 (Ozone Depletion Reported in Percent)

1.
2.
3.
4.
5.
6.
7.

8.

Case a/
No controls
CFC Freeze
CFC 20%
CFC 50%
CFC 80%
CFC 50%/Halon Freeze
CFC 50%/Halon Freeze/
U.S. 80%
U.S. Only/CFC 50%/Halon
Freeze
2000
1.0
0.8
0.8
0.8
0.8
0.8
0.8

0.9

2025
4.6
2.5
2.1
1.6
1.3
1.5
1.4

3.5

2050
15.7
4.7
3.8
2.7
1.9
1.9
1.8

10.3

2075
50.0 b-/
6.9
5.6
4.0
2.7
1.9
1.6

27 .4

2100
50.0 b/
7.6
6.0
4.0
2.6
1.2
0.8

49.0

a/  Cases are defined in Chapter 5.

b/  Global ozone depletion arbitrarily constrained at 50 percent in this
    analysis.

-------
                                      6-9
control policy, the less ozone depletion occurs.  Interesting to note is that in
the later years (2075-2100) a freeze on halons becomes increasingly important in
keeping ozone depletion to a minimum.

6.3  GLOBAL DEPLETION WITH ALTERNATIVE GREENHOUSE GAS GROWTH

    As described in EPA (1987) there is uncertainty surrounding the potential
rates of growth of the atmospheric concentrations of C02, N20, and CH4.  The
potential level of future ozone depletion is sensitive to these growth rates,
particularly the rates for CH4.  Exhibit 6-6 displays estimates of ozone
depletion for the CFC 50%/Halon Freeze case with the following trace gas
concentration sensitivity assumptions:

    •   Low Trace Gas:

        --  C02:  NAS 25th percentile growth estimate;
            N20:  0.15 percent per year; and
            CH4:  0.01275 ppm/year (75 percent of the baseline assumption of
                  0.017 ppm/year).

    •   High Trace Gas:

            C02:  NAS 75th percentile growth estimate;
        --  N20:  0.25 percent per year; and
            CH4:  1.0 percent per year compounded annually.

As shown in the exhibit, by 2100 the ozone depletion estimates vary by several
percentage points due to these alternative trace gas assumptions.

    Also shown in the exhibit is an estimate of ozone depletion for the CFC
50%/Halon Freeze case in which equilibrium global warming is limited to 2.0
degrees C by 2075.  This case is undertaken to reflect the potential
implications of nations undertaking policies to prevent significant global
warming.  In order to perform this simulation, the trace gas concentration
growth rates were reduced to 10 percent of their baseline assumption values
after the year 2000.  When the equilibrium global warming is limited to 2.0
degrees C by 2075 in this manner, the resulting ozone depletion estimates are
much higher than the other sensitivities, indicating that reducing the growth in
concentrations for purposes of preventing global warming may have important
implications for ozone depletion.

6.4  ESTIMATES OF GLOBAL WARMING

    As presented in EPA's risk assessment (EPA 1987), CFCs may also contribute
to global warming through the "Greenhouse Effect."  Exhibit 6-7 summarizes
estimates of equilibrium global warming from 1985 to 2075 associated with each
of the 8 control level cases, assuming a climate sensitivity of 3 degrees C for
doubled C02.

    As shown in the exhibit, global warming may reach 6.0 degrees C in the No
Controls Case for equilibrium conditions in 2075.  The warming is less for the
other cases,  but remains fairly substantial because the carbon dioxide (C02),

-------
                                        6-10
                                    EXHIBIT  6-6

                     GLOBAL OZONE DEPLETION ESTIMATES  FOR THE
                             CFC 50%/HALON FREEZE CASE
               FOR ALTERNATIVE TRACE GAS CONCENTRATION ASSUMPTIONS
       5.0
       4.0 -


       3.0 -


       2.0 -


       1.0 -


       0.0
 o
 M
 o
-1.0 -


-2.0 -


-3.0 -


-4.0 -


-5.0 -


-6.0 -


-7.0 -


-8.0
        1985
                   2005
                              2025
                                        	1	
                                        2045
                                                   2065
                                                       	1	
                                                        2085
                                                                   HIGH TRACE GAS
                                                                         BASELINE

                                                                         TRACE GAS
                                                                         LOW TRACE GAS
                                                                         WARMING LIMITED
Source: Ozone depletion estimates are based  on the statistical  method developed
        by  Connell (1986).   Global warming estimated based on a statistical
        representation of  a  1-dimensional model of the ocean  and atmosphere, see
        Hoffman,  et al (1986)  and assuming a climate sensitivity of 3 degrees C
        for doubled C02.

-------
                             6-11
                         EXHIBIT 6-7

       ESTIMATES OF EQUILIBRIUM GLOBAL WARNING BY 2075
                     (Degrees  Centigrade)
                                     Climate           CFC/Halon
                                   Sensitivity       Contribution

1.
2.
3.
4.
5.
6.
7.
8.
Case S/ 3,
No controls
CFC Freeze
CFC 20%
CFC 50%
CFC 80%
CFC 50%/Halon Freeze
CFC 50%/Halon Freeze/U.S. 80%
U.S. Only/CFC 50%/Halon Freeze
. 0 Degrees C k/
6.0
4.6
4.5
4.4
4.2
4.4
4.3
5.6
(%)£/
37%
17%
14%
10%
7%
9%
9%
32%
a/ See Chapter 5 for the case definitions.

b/ A range of climate sensitivity can be used from 1.5 to 4.5
   degrees C based on NAS (1979) although recent climate model
   developments indicate that 4.0 degrees C is the most likely
   estimate.  Estimates of equilibrium warming for 1.5°C and
   4.5°C can be made simply by multiplying the values by 50
   percent and by 150 percent.  See EPA (1987).

c/ Estimate of the contribution to estimated global warming
   from CFC-11, CFC-12, and Halon-1301.  The contributions of
   other controlled substances to global warming have not yet
   been evaluated and are therefore not included in the global
   warming computation.

Source:  Estimates based on a statistical representation
         of a 1-dimensional model of the ocean and atmosphere, see
         Hoffman, et al. (1986).

-------
                                      6-12
methane (CH4),  and nitrous oxide (N20) concentrations are assumed to increase in
all the cases (see Chapter 4 for a summary of the trace gas concentration
assumptions).  Also shown in the exhibit is the contribution of CFC-11, CFC-12
and Halon-1301 to the estimated warming.^  The contribution of these compounds
ranges from under 7.0 percent to over 35 percent.  CFC-11 and CFC-12 account for
the majority of this contribution, with Halon-1301 accounting for 0.5 percent or
less in all cases.

    Also of note is that the global warming estimate (as well as the ozone
depletion estimates) are sensitive to the baseline growth assumptions for the
compounds of concern.  Sensitivity analyses that vary the baseline growth
assumptions are presented in Chapter 10.

    Exhibit 6-8 compares the contributions of CFC-11 and CFC-12 to the
contributions of other major greenhouse gases.  The exhibit illustrates the
significant decrease in projected global warming through 2075 attributable to
the control of CFCs through the Montreal Protocol.
     3 The other controlled compounds (CFC-113, CFC-114, CFC-115, and Halon
1211) are not included in the global warming calculation.

-------
                                       6-13
                                    EXHIBIT 6-8

                          GLOBAL WARMING CONTRIBUTIONS  OF
                       VARIOUS GASES FOR THE NO CONTROLS  AND
                        CFC 50%/HALON FREEZE CASE:   2075  ^/
o
.£?
"c
 o
O
 w
 
 i_
 O
 O
0
o
7-

6 -


5

4-
3i

2
1 -

n



























.,-..>-. ,"


No Controls
6.6 C
Other


CFC-12


\/y' y^ \'
>\V X >.'
''>'
O\X>w
6.6%

19.8%
Protocol $ 2°X
4.9° C f
CFC- 11 | |s. 8%
N,p
CH4

C02



""••^^
^S-M:




",

9.3%
8.8%

47%




-.'' /XN/V
•i^B^BHBB
§^8^>

. . •
i '• . ' • •]'•
i "'•''ti:l%¥.;-


A6.1
-^ 	
12.2°/e
1 1.6°/c

61.7°/c



                      2.2%
                  1985
2075
   Note:  a/  Equilibrium global warming relative to 1985,  computed by modified GISS
             parameterized radiative-convective model.   No controls case assumes
             CFC  growth of 2.7%/yr; protocol case simulates 50% phased reduction
             with 94% participation by developed nations and 65% by developing
             nations.  Both scenarios assume C02 concentrations increase at
             0.7%/yr; N20 concentrations at 0.2%/yr;  and CH4 concentrations at 17
             ppb/yr.  Assumes temperature sensitivity of 3° for doubled C02.

-------
                                      6-14
                                   REFERENCES
Connell, P.S. (1986), A Parameterized Numerical Fit to Total Column Ozone
    Changes Calculated by the LLNL 1-D Model of the Troposphere and
    Stratosphere. Lawrence Livermore National Laboratory, Livermore, CA.

Hoffman, J.S., J.B. Wells, andJ.G. Titus (1986), Future Global Warming and
    Sea Level Rise. U.S. Environmental Protection Agency and The Bruce Company,
    Washington, D.C.

National Academy of Science, 1979, Carbon Dioxide and Climate:  A Scientific
    Assessment.  Washington, D.C., National Academy of Sciences Press.

UNEP (1987), "Ad Hoc Scientific Meeting to Compare Model Generated Assessments
    of Ozone Layer Change for Various Strategies for CFC Control," Wurzburg,
    Federal Republic of Germany, 9-10 April 1987, UNEP/WG.167/INF.1.

U.S. Environmental Protection Agency (1987), Assessing the Risks of Trace Gases
    That Can Modify the Stratosphere. U.S. EPA, Washington, D.C.  This is a
    revised version of:  U.S. Environmental Protection Agency (1986), An
    Assessment of the Risks of Stratospheric Modification. U.S. EPA, Washington,
    D.C.

WMO (1986), Atmospheric Ozone 1985. Global Ozone Research and Monitoring
    Project, Report No. 16, NASA, Washington, D.C.

-------
                                   CHAPTER 7

             ESTIMATES OF PHYSICAL HEALTH AND ENVIRONMENTAL EFFECTS
    This chapter discusses the types of physical effects that can occur due to
stratospheric ozone depletion.  These physical effects are divided into health
and environmental (non-health) impacts.  The analysis of each physical effect
begins with a brief description of the physical effect, followed by a summary of
the scientific evidence indicating the potential severity of the problem.
Estimates of the physical magnitude of the effects are presented for the
baseline (i.e., no controls) case and the alternative cases.  These scenarios
are described in detail in Chapter 4 (for the baseline) and Chapter 5 (for the
alternative control level scenarios).

    This chapter is only intended to provide an overview of the health and
non-health impacts that could result from stratospheric ozone depletion.  For
greater detail, see EPA's risk assessment (EPA 1987) and Appendix E for more
information on the health impacts and Appendix F for more detail on the
environmental impacts.

7.1  HEALTH IMPACTS

    This section of the chapter discusses the potential health impacts from
stratospheric ozone depletion.  These impacts include:

         •    Nonmelanoma skin cancer, specifically basal and squamous cell
              carcinoma;
         •    Cutaneous malignant melanoma;
         •    Cataracts; and
         •    Changes to the immune system.

Actinic keratosis, the most common form of UV-B-induced skin damage, is not
considered in this chapter (see Appendix E for further discussion).

7.1.1  Nonmelanoma Skin Cancer

    As a result of ozone depletion, the amount of potentially-damaging UV
radiation reaching the earth's surface is likely to increase.  The cumulative
increase in lifetime exposure to UV radiation that individuals would experience
could increase the incidence of nonmelanoma cancers, specifically basal and
squamous cell carcinoma.

    To estimate changes in the incidence of nonmelanoma skin cancer as a
function of the changes in exposure, the following equation has been used:

Fractional change in incidence = (Fractional change in exposure+1)  -1.

where the fractional change in exposure is defined as the change in UV flux
reaching the earth's surface and "b" is the  dose-response coefficient.  This
dose-response coefficient is often referred to as the "biological amplification
factor" or BAF; it equals the percent  change in incidence associated with a one
percent change in exposure.   The estimates of the BAF used in this analysis are

-------
                                      7-2
taken from EPA's risk assessment (1987), and are summarized in Exhibit 7-1 for
white males and females (non-whites are assumed not to be affected).

    The number of additional nonmelanoma cases that would result from the
dose-response coefficients shown in Exhibit 7-1 is a function of the size of the
U.S. population exposed to the higher UV levels.  This population is described
in terms of (1) the total population over time, specifically (a) all people born
by 2075 as defined by three cohorts -- people alive today, people born from
1986-2029, and people born from 2030-2074, and (b) all people born through 2165;
(2) the fraction of the total population that resides in each of three regions
within the U.S. (the regions vary by latitude); and (3) the fraction of the
population in each region that is white, non-white, male, female, and in each of
nine age groups.  Exhibit 7-2 shows the additional number of nonmelanoma cases
that occur in people born by 2075 in the No Controls case and the alternative
scenarios by type of nonmelanoma.  In Exhibit 7-3 the number of nonmelanoma
cases that occur in people born by 2075 is shown for each of the three
population cohorts; this exhibit indicates that the vast majority of cases occur
in people not yet born.  Exhibit 7-4 shows the additional number of nonmelanoma
cases that occur in all people by 2165.

    The increase in incidence in nonmelanoma skin cancer is expected to cause an
increase in mortality as well.  Based on the information available on mortality
rates (one percent of all cases), basal cases resulting in death have been
assigned a fraction of 0.0031, and the squamous cases resulting in death have
been assigned a fraction of approximately 0.0375.  These fractions have been
multiplied in Exhibit 7-5 by the estimated additional cases of nonmelanoma skin
cancer in Exhibit 7-2 to determine additional mortality due to nonmelanoma skin
cancer for people born before 2075.  Exhibit 7-6 shows the additional mortality
among people born before 2075 by the three population cohorts; most of the
additional deaths occur in later generations.  Exhibit 7-7 shows the total
increase in mortality from nonmelanoma by 2165 (including people born from
2075-2165).

7.1.2  Cutaneous Malignant Melanoma

    The increase in UV radiation from ozone depletion can also cause an increase
in the incidence and mortality of melanoma skin cancer.  The dose/response
equation used for melanoma is similar in form to the equation used for
nonmelanoma:

    Fractional  change  in incidence  =  (Fractional  change in exposure +  1)   -1

where the fractional change in exposure is defined as the change in UV flux
reaching the earth's surface and "b" is the dose-response coefficient.  This
dose-response coefficient is often referred to as the "biological amplification
factor" or BAF; it equals the percent change in incidence associated with a one
percent change in exposure.  The estimates of the BAF used in this analysis are
taken from EPA's risk assessment (1987), and are summarized in Exhibit 7-8 for
whites by location on the body (non-whites are assumed not to be affected).

-------
                                7-3
                            EXHIBIT 7-1

        DOSE-RESPONSE COEFFICIENTS:  NONMELANOMA SKIN CANCER
                           (Whites Only)
DNA-Damage Action Spectrum
Low fl/ Middle High ^/
Squamous
Male
Female
Basal
Male
Female
1.42
1.47
0.932
0.316
2.03
2.22
1.29
0.739
2.64
2.98
1.65
1.16
Erythema Action
Low &/
1.54
1.57
1.02
0.346
Middle
2.21
2.42
1.41
0.809
Spectrum
High b/
2.88
3.26
1.80
1.27
a/ Middle minus one standard error.

b/ Middle plus one standard error.

Source:  EPA (1987).

-------
                                  7-4
                            EXHIBIT  7-2

            ADDITIONAL CASES OF NONMELANOMA SKIN CANCER
    IN THE U.S. FOR PEOPLE BORN BY 2075 BY TYPE OF NONMELANOMA-'
                             (Whites Only)
Scenario
No Controls
Freeze
CFC 20%
CFC 50%
CFC 80%
CFC 50%/Halon
Ozone Depletion
by 2075 (%)
50. O^/
6.8
5.5
3.9
2.7
1.9
Basal
91,465,100
10,683,900
8,488,000
5,968,700
4,147,900
3,220,600
Squamous
86,533,000
6,656,900
5,215,400
3,603,600
2,470,900
1,883,300
Total
177,998,100
17,340,800
13,703,400
9,575,000
6,618,800
5,103,900
   Freeze

CFC 50%/Halon          1.6
   Freeze/U.S. 80%

U.S. Only/CFC 50%/    27.1
   Halon Freeze
 2,785,900    1,618,600     4,404,500
65,005,300   58,031,300   123,036,600
 a/ Skin cancer is already a serious problem;  in the absence of any
    ozone depletion, 122.9 million cases of basal cancers would occur
    and 37.0 million cases of squamous cancers would occur among people
    born before 2075.

 -/ Global ozone depletion is arbitrarily constrained at 50 percent in this
    analysis.

-------
                                      7-5
                                  EXHIBIT 7-3

             ADDITIONAL CASES OF NONMELANOMA SKIN CANCER BY COHORT
                                 (Whites only)
Scenarios
No Controls
CFC Freeze
CFC 20%
CFC 50%
CFC 80%
CFC 50%/Halon Freeze
CFC 50%/Halon Freeze
People
Alive Today
3,513,900
1,508,100
1,294,700
1,050,500
886,900
937,700
899,200
People Born
1986-2029
42,457,800
5,756,800
4,649,900
3,360,800
2,425,200
2,237,100
2,015,700
People Born
2029-2074
132,026,400
10,075,900
7,758,800
5,163,700
3,306,700
1,929,100
1,489,600
Total
177,998,100
17,340,800
13,703,400
9,575,000
6,618,800
5,103,900
4,404,500
   U.S. 80%

U.S. Only/CFC 50%/
   Halon Freeze
2,412,300    23,493,700
97,130,600   123,036,600

-------
                             7-6
                         EXHIBIT 7-4

     ADDITIONAL CASES OF NONMELANOMA SKIN CANCER IN U.S.
                BY 2165  BY TYPE OF NONMELANOMA
                         (Whites Only)
Scenario
No Control
Freeze
CFC 20%
CFC 50%
CFC 80%
CFC 50%/Halon
Basal
129,763,400
14,041,100
10,988,200
7,518,100
5,015,200
3,410,500
Squamous
119,790,400
8,402,000
6,491,200
4,380,700
2,898,100
1,975,500
Total
249,553,800
22,443,100
17,479,400
11,898,800
7,913,300
5,386,000
  Freeze

CFC 50%/Halon
  Freeze/
  U.S. 80%

U.S. Only/
  CFC 50%/
     Halon Freeze
  2,815,700
101,814,700
 1,633,200
4,448,900
89,391,600     191,206,300

-------
                              7-7
                          EXHIBIT 7-5

   ADDITIONAL MORTALITY FROM NONMELANOMA SKIN CANCER IN U.S.
     AMONG PEOPLE BORN BEFORE 2075  BY TYPE OF NONMELANOMA-'
                       (Whites Only)
Scenario
No Controls
Freeze
CFC 20%
CFG 50%
CFC 80%
CFC 50%/Halon
Ozone Depletion
by 2075 (%)
50. O^/
6.8
5.5
3.9
2.7
1.9
Basal
283,600
33,200
26,300
18,500
12,900
10,000
Squamous
3,245,100
249,600
195,600
135,200
92,600
70,600
Total
3,528,700
282,800
221,900
153,700
105,500
80,600
   Freeze

CFC 50%/Halon       1.6
   Freeze/U.S. 80%
U.S. Only/CFC
   50%/Halon
   Freeze
27.1
               8,600
             60,500
69,300
201,500   2,176,200   2,377,700
a/ Nonmelanoma skin cancer deaths among people born before 2075
   assuming no ozone depletion is estimated at 1.77 million.

b/ Global ozone depletion is arbitrarily constrained at 50 percent
   in this analysis.

-------
                                      7-8
                                  EXHIBIT 7-6

          ADDITIONAL MORTALITY FROM NONMELANOMA SKIN CANCER BY COHORT
                                 (Whites only)
People
Scenarios Alive Today
No Controls
CFC Freeze
CFC 20%
CFC 50%
CFC 80%
CFC 50%/Halon Freeze
CFC 50%/Halon Freeze/
60,000
24,800
21,200
17,100
14,300
15,200
14,500
People Born
1986-2029
798,100
93,700
75,400
54,100
38,800
35,500
31,800
People Born
2029-2074
2,670,600
164,200
125,300
82,500
52,400
29,900
23,000
Total
3,528,700
282,800
221,900
153,700
105,500
80,600
69,300
   U.S. 80%

U.S. Only/CFC 50%/
   Halon Freeze
40,400
423,800
1,913,500     2,377,700

-------
                           7-9
                       EXHIBIT 7-7

ADDITIONAL MORTALITY FROM NONMELANOMA SKIN CANCER IN U.S.
              BY  2165 BY TYPE  OF NONMELANOMA
                      (Whites Only)
Scenario
No Control
Freeze
CFC 20%
CFC 50%
CFC 80%
CFC 50%/Halon
Basal
402,300
43,500
34,100
23,300
15,500
10,600
Squamous
4,492,100
315,100
243,400
164,300
108,700
74,100
Total
4,894,400
358,600
277,500
187,600
124,200
84,700
      Freeze

   CFC 50%/Halon     8,700        61,200        69,900
      Freeze/
      U.S.  80%

   U.S.  Only/      315,600     3,352,200     3,667,800
      CFC 50%/
      Halon Freeze

-------
                             7-10
                         EXHIBIT 7-8

                 DOSE-RESPONSE COEFFICIENTS:
                MELANOMA SKIN CANCER INCIDENCE
                        (Whites Only)
Low
Middle
                                                      High
Face . Head
Male
Female
Trunk and L
Male
Female
and Neck


,ower Extremities



0.398
0.477

0.200
0.268

0.512
0.611

0.310
0.412

0.624
0.744

0.420
0.553
a/  Middle minus one standard error.

b/  Middle plus one standard error.

Source:  Derived from:  Scotto and Fears,  "The Association of
         Solar Ultraviolet and Skin Melanoma Incidence Among
         Caucasians in the United States," Cancer
         Investigation. (1987).

-------
                                      7-11
    The number of additional cases of melanoma resulting from the dose-response
relationships in Exhibit 7-8 can be determined by applying these dose-response
coefficients to the population estimates discussed above for a specified
increase in UV radiation.  The results of this procedure lead to the additional
melanoma cases listed in Exhibit 7-9 for people born before 2075 for the
baseline and alternative control level scenarios.  The additional melanoma cases
for people born before 2075 are shown in Exhibit 7-10 by the three population
cohorts; the large majority of cases occur in later generations.  Exhibit 7-11
summarizes the additional melanoma cases that occur by 2165 (including people
born from 2075-2165).

    The increase in incidence of melanoma is also expected to lead to an
increase in mortality.  The extent to which mortality will increase has been
calculated from estimates developed by Pitcher (1986).  These dose-response
coefficients are summarized in Exhibit 7-12; the number of additional deaths
resulting from melanoma among people born before 2075 are summarized in Exhibit
7-13 for the baseline and alternative control level scenarios.  The number of
additional deaths from melanoma are summarized in Exhibit 7-14 for the three
population cohorts; this exhibit indicates that most deaths from melanoma will
occur in people not yet born.  Exhibit 7-15 summarizes the number of additional
deaths that occur by 2165 among the U.S. population (including people born from
2075-2165).

7.1.3  Cataracts

    Several epidemiological studies have identified a correlation between the
prevalence of various types of cataracts in humans and the flux of sunlight or
ultraviolet radiation reaching the earth's surface.  Killer, Sperduto, and
Ederer (1983) developed a multivariate logistic risk function that describes the
correlation found between the prevalence of senile cataracts and the flux of
UV-B and other risk factors.  Based on the Killer study, the change in the
prevalence of cataract for each 1.0 percent change in UV-B is estimated to be
approximately 0.5 percent.  This estimated relationship between UV-B and
cataract prevalence varies with age, as shown in Exhibit 7-16.  This exhibit
displays the expected percent increase in cataract prevalence due to increases
in UV-B for persons of different ages.

    To evaluate the impact of ozone depletion on cataract incidence, a model
developed from the Killer (1983) study was used to relate increases in
prevalence to changes in lifetime UV radiation exposure.  The dose-response
coefficients resulting from this approach are provided in Exhibit 7-17.  These
values were then used to estimate the increase in cataract incidence for the
baseline and alternative control level scenarios.  These estimates are provided
in Exhibit 7-18 for people born before 2075.  Exhibit 7-19 summarizes the
increase in cataract incidence among people born before 2075 by each of the
three population cohorts; this exhibit indicates that the majority of cases will
occur in people not yet born.  Exhibit 7-20 indicates all cataract cases that
occur by 2165 (including cases that occur in people born from 2075-2165).

-------
                      7-12
                   EXHIBIT 7-9

ADDITIONAL CASES OF MELANOMA SKIN CANCER IN U.S.
          FOR PEOPLE BORN BEFORE  2075-'
                  (Whites Only)
Scenarios
No Controls
Freeze
CFC 20%
CFC 50%
CFC 80%
CFC 50%/Halon
Freeze
CFC 50%/Halon
Freeze/U.S.
U.S. Only/CFC
Halon Freeze
Ozone Depletion
by 2075 (%)
50. O^/
6.8
5.5
3.9
2.7
1.9
1.6
50%/ 27.1
Total
Cases
893,300
139,700
112,400
80,400
56,900
45,900
40,200
647,400
  a/ Melanoma  is already a serious problem  in
     the U.S.;  in the absence of ozone depletion
     4.2 million cases would be expected for people
     born before 2075.

  b/ Global ozone depletion is arbitrarily
     constrained at  50 percent in this analysis.

-------
                                      7-13
                                  EXHIBIT 7-10

               ADDITIONAL CASES  OF MELANOMA SKIN CANCER BY COHORT
                                 (Whites only)
Scenarios
No Controls
CFC Freeze
CFC 20%
CFC 50%
CFC 80%
CFC 50%/Halon Freeze
CFC 50%/Halon Freeze/
People
Alive Today
21,800
10,400
9,100
7,500
6,500
6,900
6,600
People Born
1986-2029
222,200
45,300
37,200
27,500
20,400
19,700
18,000
People Born
2029-2074
649,300
84,000
66,100
45,400
30,000
19,300
15,600
Total
893,300
139,700
112,400
80,400
56,900
45,900
40,200
   U.S. 80%

U.S. Only/CFC 50%/
   Halon Freeze
15,700
136,900
494,800
647,400

-------
                          7-14
                      EXHIBIT 7-11

ADDITIONAL CASES OF MELANOMA SKIN CANCER BY 2165 IN U.S.
                      (Whites Only)
        Scenarios                          Total


     No Controls                         1,442,700

     Freeze                               207,500

     CFC 20%                              163,500

     CFG 50%                              112,600

     CFC 80%                                75,200

     CFC 50%/Halon Freeze                   50,000

     CFC 50%/Halon Freeze/U.S. 80%          40,900

     U.S. Only/CFC 50%/Halon Freeze      1,181,900

-------
                              7-15
                          EXHIBIT 7-12

                  DOSE-RESPONSE COEFFICIENTS:
                 MELANOMA SKIN CANCER MORTALITY
                         (Whites Only)
         DNA-Damage Action Spectrum    Erythema Action Spectrum
         Low a/   Middle   High b/     Low a/   Middle   High b/
Male
Female
0.39
0.25
0.42
0.29
0.46
0.33
0.42
0.28
0.46
0.32
0.50
0.36
a/  Middle estimate minus one standard error.

b/  Middle estimate plus one standard error.

Source:  Pitcher, H.M.,  "Examination of the Empirical
         Relationship Between Melanoma Death Rates in
         the United States 1950-1979 and
         Satellite-Based Estimates of Exposure to
         Ultraviolet Radiation."  U.S. EPA, Washington,
         D.C., March 17, 1987, draft.

-------
                              7-16
                          EXHIBIT 7-13

     ADDITIONAL MORTALITY FROM MELANOMA SKIN CANCER IN U.S.
                AMONG PEOPLE BORN BEFORE 2075^
                          (Whites Only)
Scenarios
No Controls
Freeze
CFC 20%
CFG 50%
CFC 80%
CFC 50%/Halon Freeze
CFC 50%/Halon Freeze/U.S. 80%
U.S. Only/CFG 50%/Halon Freeze
Ozone Depletion
by 2075 (%)
50. O^/
6.8
5.5
3.9
2.7
1.9
1.6
27.4
Total
211,300
33,600
27,000
19,300
13,500
10,800
9,300
156,900
a/ In the absence of ozone depletion, melanoma mortality would
   be expected to be 1.2 million for people born before 2075.

b/ Global ozone depletion is arbitrarily constrained at 50 percent in
   this analysis.

-------
                                      7-17
                                  EXHIBIT 7-14

            ADDITIONAL MORTALITY FROM MELANOMA SKIN CANCER BY COHORT
                                  (Whites only)
Scenarios
No Controls
CFC Freeze
CFC 20%
CFC 50%
CFC 80%
CFC 50%/Halon Freeze
CFC 50%/Halon Freeze/
People
Alive Today
6,000
2,800
2,400
2,000
1,700
1,800
1,700
People Born
1986-2029
57,600
11,100
9,100
6,700
4,900
4,700
4,200
People Born
2029-2074
147,700
19,700
15,500
10,600
6,900
4,300
3,400
Total
211,300
33,600
27,000
19,300
13,500
10,800
9,300
   U.S. 80%

U.S. Only/CFC 50%/
   Halon Freeze
4,300
35,700
116,900
156,900

-------
                     7-18
                 EXHIBIT 7-15

          ADDITIONAL MORTALITY FROM
     MELANOMA SKIN CANCER IN U.S.  BY 2165
                (Whites Only)
         Scenarios                     Total


No Controls                           310,000

Freeze                                 46,300

CFC 20%                                36,600

CFC 50%                                25,300

CFC 80%                                17,000

CFC 50%/Halon Freeze                   11,500

CFC 50%/Halon Freeze/U.S. 80%           9,500

U.S. Only/CFC 50%/Halon Freeze        252,900

-------
                                          7-19
                                      EXHIBIT 7-16


                           ESTIMATED RELATIONSHIP BETWEEN RISK
                                OF CATARACT AND UV-B FLUX
Percent
Increase
in
Cataract
Prevalence
                                                                      AGE

                                                                      AGE
                                               50

                                               60
                                     _~!  AGE «  70
  10        15        20        25


Percent Increase in UV-B Flux
                                                                   30
    Increased UV-B flux  (measured with  an RB-meter)  is associated with increased
    prevalence of cataract.  The percent  change in prevalence varies by age.


    Source: Developed from data presented in R.  Hiller,  R.  Sperduto, and F. Ederer,
            "Epidemiologic Associations with Cataract in the 1971-1972 National
            Health and Nutrition Examination Survey," American Journal of
            Epidemiology. Vol. 118, No. 2,  pp.  239-249,  1983.

-------
                  7-20
              EXHIBIT 7-17

DOSE-RESPONSE COEFFICIENTS -- CATARACTS




Low £/          Middle          High b/


0.127           0.225            0.296


a/ Middle minus one standard error.

b/ Middle plus one standard error.

Source:   Derived from data presented
          in:  Hiller, Sperduto, and
          Ederer, "Epidemiologic
          Associations with Cataract in
          1971-1972 National Health and
          Nutrition Examination Survey,"
          American Journal of
          Epidemiology. Vol.  118,  No. 2,
          pp. 239-249, 1983.

-------
                              7-21
                          EXHIBIT 7-18

               ADDITIONAL CATARACT CASES IN U.S.
                AMONG PEOPLE BORN BEFORE 20753'
Scenarios
No Controls
Freeze
CFC 20%
CFC 50%
CFC 80%
CFC 50%/Halon Freeze
CFC 50%/Halon Freeze/U.S. 80%
U.S. Only/CFG 50%/Halon Freeze
Ozone Depletion
by 2075 (%)
50. O^-/
6.8
5.5
3.9
2.7
1.9
1.6
27.1
Total
Cases
19,962,800
3,178,000
2,531,200
1,774,100
1,214,300
876,100
740,600
15,824,100
a/ Cataracts are already a serious problem in the U.S.; in the
   absence of ozone depletion 182 million cases would be
   expected for people born before 2075.

b/ Global ozone depletion is arbitrarily constrained at 50 percent in
   this analysis.

-------
                                      7-22
                                  EXHIBIT 7-19

            ADDITIONAL CATARACT CASES AMONG  PEOPLE BORN BEFORE 2075
                                   BY COHORT
Scenarios
No Controls
CFC Freeze
CFC 20%
CFC 50%
CFC 80%
CFC 50%/Halon Freeze
CFC 50%/Halon Freeze
People
Alive Today
1,023,100
398,700
338,800
268,100
218,600
231,200
219,600
People Born
1986-2029
7,084,900
1,141,400
922,100
662,200
468,300
398,100
335,100
People Born
2029-2074
11,854,800
1,637,900
1,270,300
843,800
527,400
246,800
170,000
Total
19,962,800
3,178,000
2,531,200
1,774,100
1,214,300
876,100
740,600
   U.S. 80%

U.S. Only/CFG 50%/
   Halon Freeze
686,200    4,670,300
10,467,600    15,824,100

-------
                     7-23
                 EXHIBIT 7-20

  ADDITIONAL CATARACT CASES IN U.S. BY 2165
                                       Total
         Scenarios                     Cases
No Controls                        25,131,600

Freeze                              3,888,500

CFC 20%                             3,060,400

CFG 50%                             2,097,600

CFC 80%                             1,383,100

CFC 50%/Halon Freeze                  888,800

CFC 50%/Halon Freeze/U.S. 80%         742,000

U.S. Only/CFC 50%/Halon Freeze     21,023,700

-------
                                      7-24
7.1.4  Changes to the Immune System

    The increases in solar radiation brought about by depletion of the ozone
layer could have a detrimental effect on the immune system of both humans and
animals.  In particular, UV radiation reduces the ability of the immune system
to respond adequately to antigens.  This UV radiation-induced immunosuppression
can reduce the host's ability to fight the development of tumors.  It can,also
affect the host's ability to respond to infectious diseases that enter through
the skin, possibly including such diseases as the parasite Leishmania sp. and
the Herpes simplex virus.

    Although there are no experimental data that have specifically documented
the precise nature of UV radiation-induced immunosuppression, based on research
to date a number of hypotheses seem reasonable:  (1) All populations, black and
white, may be at risk; (2) Individuals who are already immunosuppressed, such as
transplant patients, could be at greater risk than the rest of the population
due to additive effects; and (3) In developing countries, particularly those
exposed to higher UV-B levels near the Equator, parasitic infections of the skin
could be exacerbated.

    Insufficient information exists to estimate the effects of UV radiation on
human immune systems.  Although the extent of immunosuppression cannot be
quantified, some evidence suggests that immunosuppression could be induced with
much lower doses of UV radiation than those required for carcinogenesis.  This
may mean that exposure to low doses of UV radiation, even doses that do not
cause a sunburn, may decrease the ability of the human immune system to provide
an effective defense against neoplastic skin cells or skin infections.

7.2   ENVIRONMENTAL IMPACTS

    This section of the chapter discusses the environmental (non-health) impacts
that could occur due to stratospheric ozone depletion.  These impacts include:

         •   Risks to marine organisms;

         •   Risks to crops;

         •   Increased concentrations of tropospheric (ground-based)
             ozone;

         •   Degradation of polymers;  and

         •   Impacts due to sea level rise.

7.2.1  Risks to Marine Organisms

    The increased levels of ultraviolet radiation that result from stratospheric
ozone depletion pose a hazard to various marine organisms.   Higher UV radiation
levels have been shown to cause decreases in fecundity,  growth,  survival, and
other functions in a variety of marine organisms,  including fish larvae and
juveniles,  shrimp larvae,  crab larvae, copepods,  and plants essential to the
aquatic food chain (EPA,  1987).   These impacts occur mainly in organisms located

-------
                                      7-25
near the surface of the water since they tend to be most directly exposed to the
increased UV radiation levels.  Although it has also been hypothesized that
these effects would likely cause a change in species composition as organisms
more resistant to the increase in UV radiation predominated, it is not known
what the long-term effects of these impacts on the ecosystem might be.

    The extent to which increased UV radiation levels may affect aquatic
organisms depends on several variables, including the degree to which UV
radiation penetrates the water, the amount of vertical mixing that occurs, and
the seasonal abundance and vertical distributions of the organisms.  UV-B
penetration has been measured to depths of more than twenty feet in clear waters
and more than five feet in unclear water.  However, the scientific evidence
currently available is generally insufficient to allow estimates to be made of
the amount of damage to expect in the natural environment for a given increase
in UV radiation.

    In one study by Hunter, Kaupp, and Taylor (1982), analyses were conducted on
anchovy larvae to estimate the potential effects of increased UV radiation on
anchovy populations.  The anchovy losses were estimated for three different
models of mixing within the surface waters of the ocean -- static, mixing within
the top ten meters, and mixing within the top fifteen meters.  The results of
this study are summarized in Exhibit 7-21.

    To develop a rough estimate of the effects on aquatic organisms likely to
result due to increases in UV radiation, the dose-response relationship
estimated by Hunter, et. al. (1982) for anchovy larvae with vertical mixing
occurring within the top ten meters has been assumed to apply to the adult
anchovy population in the natural environment.  This dose-response relationship
is used as a measure of potential impacts on all major commercial aquatic
organisms in the natural environment because it is the most reliable
quantitative information available on the magnitude of these impacts.

    Increased UV radiation levels were assumed to affect harvest levels for the
major commercial fish species, including fin fish and shell fish.  Average
harvest levels for the 1981-1985 period were used to represent average annual
harvest levels through 2075 for these species.  Then, the physical impacts on
these commercial fishes were estimated by using the dose-response relationship
for anchovy larvae indicated in Exhibit 7-21 for mixing within the top ten
meters of the ocean to represent the decrease in harvest levels that would occur
due to increased UV radiation.  (This relationship, of course, is very uncertain
and in reality, ozone depletion could result in greater or smaller losses.)
These physical effects are summarized in Exhibit 7-22 for the baseline and
alternative scenarios.  For each scenario, the estimated increase in UV
radiation by 2075 is shown, along with the decline in fish populations estimated
to occur due to the indicated UV radiation increase.  Clearly, this approach to
damage estimation is highly extrapolative.  Actual impacts will be species
specific and could be greater or lower.

7.2.2  Risks to Crops

    The increases in ultraviolet radiation that would occur due to stratospheric
ozone depletion have the potential to affect agricultural crops and other

-------
                             7-26
                         EXHIBIT 7-21
        Effect of increased Levels of Solar UV-B Radiation on the
    Predicted Loss of Larval Northern Anchovy from Annual Populations,
       Considering  the Dose/Dose-Rate Threshold and Three Vertical
                         Mixing Models
  30
5 25
          Larval Northern  Anchovy
                                 10-m Mixed layer
                                            15-m Mixed layer
    OA3—i
     0       10      20      30      40      50      60       70

             INCREASED  UV-B  RADIATION   (%)
 Based on data of Hunter, Kaupp, and Taylor 1982.

-------
                                  7-27
                              EXHIBIT 7-22

                  DECLINE IN COMMERCIAL FISH HARVESTS
                     DUE TO INCREASED UV RADIATION
UV Radiation
Scenario Increase by 2075 (%)
No
Controls
Freeze
CFC
CFC
CFC
CFC
CFC
U.S
20%
50%
80%
50%/Halon Freeze
50%/Halon Freeze/U.S. 80%
. Only/CFC 50%/Halon Freeze
156.7^
15.1
11.9
8.2
5.8
4.0
3.5
82.8^
Harvest Decrease
by 2075 (%) &/
>25.0
2.5
0.9
0.0
0.0
0.0
0.0
>25.0
a/ These estimates are very uncertain; actual changes could be
   significantly higher or lower.

b/ UV radiation increases above 60 percent were assumed not to have any
   additional effects on harvest levels; this assumption was made to avoid
   extrapolating beyond the range analyzed by Hunter, Kaupp, and Taylor
   (1982).

Source:  Based on Hunter, Kaupp, and Taylor (1982).

-------
                                      7-28
terrestrial ecosystems.  For example, in a number of studies on a variety of
different crops (and different varieties of the same crop),  UV-B radiation has
been shown to adversely affect crop yield and quality.  In most instances, the
available information does not indicate the extent to which crops may be
affected; that is, the studies that have been conducted provide some qualitative
indication of the adverse impacts that could occur, but insufficient data are
available to develop crop-specific quantitative dose-response relationships
required to estimate the amount of damage that may occur.

    To develop estimates of the amount of damage that may occur, studies by
Teramura on soybean cultivars, which are the most extensively studied crop, have
been used.1  Teramura's studies have been conducted for a period of several
years under field conditions that allow for determination of a dose-response
relationship between UV-B radiation and soybean yield.  Teramura has analyzed
the potential impacts for stratospheric ozone depletion estimates of up to 25
percent.   Although there has been some variation in results,  the general
relationship considering a sample of tolerant and sensitive cultivars has been a
0.3 percent decline in soybean yield for each one percent decrease in
stratospheric ozone.  Since Teramura has only examined the possible relationship
for ozone depletion estimates up to 25 percent, the maximum decline in soybean
yield is limited to 7.5 percent to avoid extrapolating outside the range of the
analyses.

    To determine the magnitude of UV impacts on agricultural crops, average
production levels from 1980 to 1983 for the major agricultural crops in the U.S.
were used to represent annual crop production levels through 2075.  Then, using
the dose-response relationship developed from Teramura's work for soybeans as a
reasonable estimate for UV impacts on the major agricultural crops, declines in
crop production levels were estimated from the average 1980-83 production
levels.  The estimates of the crop production declines are presented for the
baseline and alternative scenarios in Exhibit 7-23.  The amount of the yield
decrease is shown for 2075, along with the amount of stratospheric ozone
depletion estimated by that date.  Clearly, this approach to damage estimation
is highly extrapolative; actual impacts will be crop-specific and could be
significantly greater or lower.

7.2.3  Impacts Due To Tropospheric Ozone

    Tropospheric (ground-based) ozone, commonly known as smog, is an air
pollutant formed near the earth's surface as a result of photochemical reactions
involving ultraviolet radiation,  hydrocarbons, nitrogen oxides, oxygen, and
sunlight.  Because ultraviolet radiation is one of the factors that can affect
the development of tropospheric ozone, depletion of stratospheric ozone, which
leads to increased UV radiation,  can cause increases in the  amount of
tropospheric ozone.
       For example, see Teramura, A.H. and N.S. Murali,  "Intraspecific
Differences in Growth and Yield of Soybean Exposed to Ultraviolet-B Radiation
Under Greenhouse and Field Conditions," in Env. Exp.  Bot..  in press, 1986.

-------
                                  7-29
                              EXHIBIT 7-23

              DECLINE IN U.S.  AGRICULTURAL CROP PRODUCTION
                     LEVELS DUE TO OZONE DEPLETION
Scenario
No Controls
Freeze
CFC 20%
CFC 50%
CFC 80%
CFC 50%/Halon
CFC 50%/Halon
U.S. Only/CFC
Ozone Depletion
by 2075 (%)
50. O^/
6.8
5.5
3.9
2.7
Freeze 1 . 9
Freeze/U.S. 80% '1.6
50%/Halon Freeze 27.1
Decline in Production
Levels by 2075 (%) &/
>7.50
2.1
1.7
1.2
0.8
0.6
0.5
7.5








a/ These estimates are highly uncertain; actual impacts could be
   significantly higher or lower.

k-/ Global ozone depletion is arbitrarily constrained at 50 percent in
   this analysis.

Source:  Based on Teramura (1987).

-------
                                      7-30
    The extent to which increased UV radiation levels may increase the
concentration of tropospheric ozone has been examined by Whitten (1986).  In
this analysis, the potential relationship between UV radiation and smog levels
were estimated from studies conducted in three cities--Nashville, Tennessee;
Philadelphia, Pennsylvania; and Los Angeles, California.  These three cities
were chosen to represent the variability in atmospheric conditions that could be
encountered in the U.S.--Nashville is nearly in compliance with the 0.12 ppm
Federal ozone standard; Philadelphia is moderately out of compliance (a 30-50
percent reduction in organic precursors would be required to come into
compliance); and Los Angeles has one of the most severe smog problems in the
U.S.  The increase in tropospheric ozone for each one percent increase in UV
radiation is based on the average results from these three areas.^  Exhibit 7-24
indicates the percentage change in tropospheric ozone levels by 2075 for the
baseline and alternative scenarios, along with the estimated increase in UV
radiation.

    At high concentrations, tropospheric ozone has been shown to adversely
affect human health, agricultural crops, forests, and materials:

         •   The human health impacts include alterations in pulmonary
             function, respiratory and non-respiratory symptoms (such
             as chest tightness, throat dryness, difficulty in deep
             breathing, coughing, wheezing, etc.), effects on work
             performance, aggravation of preexisting respiratory
             diseases, morphological effects (such as lung damage),
             alterations in the host defense system (e.g., increased
             susceptibility to respiratory infection),  and
             extrapulmonary effects (such as effects on the liver,
             central nervous system, blood enzymes, etc.).

         •   Agricultural crops and forests experience reduced growth
             and declines in yield.

         •   Materials degrade more quickly, particularly elastomers,
             textile fibers and dyes,  and certain types of paints.

    In this chapter, however, only the potential impacts on agricultural crops
are quantified since insufficient information exists to quantify the impacts on
human health, forests, and materials.   That is, the available evidence on the
last three areas indicates that damage does occur, but the state of the research
is too limited to define specific dose-response relationships for different
levels of tropospheric ozone.  Nevertheless, these impacts are not
inconsequential.  In fact, the primary National Ambient Air Quality Standard
(NAAQS) for ozone is determined based on human health considerations; the
importance of these unquantifiable impacts should not be underestimated.
     o
       The dose-response relationship between UV radiation and tropospheric
ozone levels may be linear or non-linear depending on the interplay between
several factors, including local conditions, temperature, etc.

-------
                                7-31
                            EXHIBIT 7-24

                  INCREASES IN TROPOSFHERIC OZONE
                DUE TO STRATOSPHERIC OZONE DEPLETION
Scenario
No Controls
Freeze
CFC 20%
CFC 50%
CFC 80%
CFC 50%/Halon Freeze
CFC 50%/Halon Freeze/U.S. 80%
U.S. Only/CFC 50%/Halon Freeze
Increase in
UV Radiation
by 2075 (%)
156.7
15.1
11.9
8.2
5.8
4.0
3.5
82.8
Increase in
Tropospheric Ozone
by 2075 (%) &/
>30.9
5.7
4.6
3.2
2.3
1.6
1.4
24.5
a/ These estimates are highly uncertain; actual impacts could be
   significantly higher or lower.
Source:  Based on Whitten (1986).

-------
                                      7-32
      The impacts on agricultural production due to tropospheric ozone increases
were quantified by Rowe and Adams (1987) using the National Crop Loss Assessment
Network (NCLAN).   NCLAN was developed to assist EPA in the development of
alternative NAAQS for ozone and is designed to evaluate the impacts that occur
due to changes in tropospheric ozone.

    To measure the magnitude of potential changes in agricultural output, Rowe
and Adams (1987)  used average 1980-83 data on the quantity of agricultural crop
production to establish a baseline from which all changes were measured.
980 -- is summarized in Exhibit 7-25.  Declines in agricultural output were then
estimated on an annual basis; these declines are indicated by state for the
major agricultural crops in Exhibit 7-26 for a tropospheric ozone increase of 25
percent.  The three cities on which these estimates are based -- Nashville,
Philadelphia, and Los Angeles --do not constitute a representative sample for
ground-based ozone levels throughout the U.S.; therefore, actual changes could
vary significantly from these estimates.

7.2.4  Degradation of Polymers

    Many polymers have a tendency to absorb UV radiation due to various
impurities that are present in their formulations.  The UV radiation tends to
degrade polymers by affecting their mechanical and optical properties, e.g.,
reductions in tensile strength and impact strength, chalking, cracking, loss of
transparency or color, yellowing, etc.  Many of these UV radiation impacts
currently affect polymeric materials causing manufacturers to take steps, such
as the addition of light stabilizers, to reduce the amount of damage that can
occur.

    The extent to which polymers would require additional protection due to
increases in UV radiation depends on the degree of outdoor exposure the polymer
receives.   However, there is insufficient information on the wide variety of
applications for polymers to determine precisely which polymers would require
additional protection from UV radiation.  In a study by Andrady (1986), major
applications where sunlight exposure was expected included polyvinyl chloride
(PVC), polyester, polycarbonate, and acrylics, plus several other applications
where exposure may occur on an intermittent basis.

    To determine the impact of increased UV radiation on polymers, it has been
assumed that polymer manufacturers would increase the amount of light stabilizer
in the polymer to counteract the effects of the higher UV radiation levels.
This alteration in the manufacturing process is assumed to be sufficient to
prevent any additional UV-related impacts.  (In this analysis, any impacts to
polymeric materials currently in use have not been considered; these impacts to
in-place products could be substantial.)  The amount of increased stabilizer
that would be required is a function of the increase in UV radiation due to
stratospheric ozone depletion.  The relationship between stratospheric ozone
depletion and the need for increases in light stabilizers was estimated by
Andrady (1986).  This relationship is summarized in Exhibit 7-27.

-------
                      7-33
                  EXHIBIT 7-25

 1980 CROP PRODUCTION QUANTITIES USED IN NCLAN^/
Commodity
Cotton
Corn
Soybeans
Wheat
Sorghum
Rice
Barley
Oats
Silage
Hay
Soybean Meal
Soybean Oil
1980 Prices
($/unit) &/
366.72
3.25
7.74
3.71
3.00
12.79
2.91
1.93
19.46
70.90
0.11
0.24
1980 Quantities
(million units)
17.45
7,339.85
1,778.07
2,633.94
700.88
164.78
335.50
472.91
91.24
141.58
46,180.80
10,755.81
a/  Average values from 1980-1983 were actually
    used in this analysis.  Documentation for
    these average values was not publicly
    available in time for this study, so only
    1980 data is shown here.

b/  Units are as follows:  500 pound bales for
    cotton; bushels for corn, soybeans, wheat,
    barley, oats, and surghum; hundred weight for
    rice; tons for hay and silage; pounds for
    soybean meal and oil.

Source:  Adams (1984).

-------
                                      7-34
                                  EXHIBIT 7-26

                     DECLINES IN CROP YIELD ASSUMING A
                25 PERCENT INCREASE  IN TROPOSPHERIC OZONE
STATE
AL ABABA
ARIZONA
ARKANSAS
CALIFORNIA
COLORADO
CONNECTICUT
DELAWARE
FLORIDA
GEORGIA
IDAHO
ILLINOIS
INDIANA
I QUA
KANSAS
KENTUCKY
LOUISIANA
nAiNE
HARYLANO
flASSACHUSETTS
niCHKAN
niNNESOTA
nississiPPi
nissouRi
flONTANA
NEBRASKA
NEVADA
NEU HAMPSHIRE
NEU JERSEY
NEU I1EXICO
NEU YORK
NORTH CAROLINA
NORTH DAKOTA
OHIO
OKLAHCflA
OREGON
PENNSYLVANIA
RHODE ISLAND
SOUTH CAROLINA
SOUTH DAKOTA
TENNESSEE
TEXAS
UTAH
VEfflONT
VIRGINIA
WASHINGTON
UEST VIRGINIA
WISCONSIN
UYOniNC
CORN SOYBEANS
.990
.977
.984
.976
.978
.964
.994
.996
.960
.98$
.988
.986
.992
.98$
.990
.989
.994
.986
988
993
.994
.986
.986
.986
.989
.978
.991
.982
.985
.991
.982
.994
988
.988
.996
.986
.978
.980
.991
987
.992
.975
.988
.972
.998
.987
.986
983
.958
.000
.952
.000
.000
.000
.954
.974
.962
.000
.955
945
.961
.953
.957
.944
.000
.951
.000
y5l
.963
.953
.985
.000
.954
.000
.000
950
.000
.957
.950
•354
943
.956
.000
.939
000
.945
.956
.950
966
000
.000
.924
.000
.000
.963
000
COTTON
.947
.840
.933
.837
.000
.000
.000
.971
.952
.000
.000
.000
.000
.000
.000
.939
.000
.000
.000
.000
.000
.938
.940
.000
.000
.846
.000
.000
.880
.000
.924
.000
.000
.973
.000
.000
.000
.919
.000
.938
.978
.000
.000
.M4
.000
.000
.000
.000
SPRING UIMTEI
UHEAT UHEAT
.000
.974
.000
.973
.975
.000
.000
.000
.000
.981
.000
.000
.000
.000
.000
.000
.000
.000
.000
.000
.991
.000
.000
.982
.000
.975
.000
.000
.000
.000
.000
.992
.000
.000
.993
.000
.000
.000
.988
.000
.000
.972
.000
.000
.996
.000
.991
.979
.971
.957
.9*9
.998
.991
.000
.964
.000
.973
.9)1
.973
.979
.979
.979
.976
.973
.000
.973
.000
.975
.979
.966
.967
.991
.970
.997
.000
.974
.962
.974
.962
.973
.978
.985
.Ml
.966
.000
.994
.973
.966
.978
.940
.000
.953
.984
.969
.970
.991
GRAIN
SORCHUn BARLEY
.993
.967
.978
.987
.987
.000
.000
.000
.993
.000
.992
.990
.994
.992
.993
.992
.000
.000
.000
.000
.000
.992
.992
.000
.992
.000
.000
.000
.990
.000
.990
.000
.000
.992
.000
.990
.000
.989
.994
.991
.993
.000
.000
.989
.000
.000
.000
.000
.000
.996
.000
.996
.996
.000
.999
.000
.000
.997
.998
.000
.000
.999
.999
.000
.000
.998
.000
.999
.999
.000
.000
.998
.999
.996
.000
.997
.997
.998
.996
995
908
.998
.999
.998
.000
.996
.998
998
999
995
.000
.994
.999
.998
.999
997
Source:  Adams (1984)

-------
                         7-35
                 EXHIBIT 7-27

            INCREASE IN STABILIZER
         FOR RANGES OF OZONE DEPLETION
Ozone Depletion          Stabilizer Increase (%)
(percent)
0-5
5-10
10-20
Low
1.0
1.0
3.0
Middle
3.0
5.0
20.5
High
5.0
9.0
38.0
Source:   Derived from Horst (1986), p. 6-10.

-------
                                      7-36
7.2.5  Impacts Due To Sea Level Rise

    Increased concentrations of CFCs are one of the factors expected to
contribute to global warming, of which one impact is the rise in the level of
the seas.  As global warming occurs, sea level rise is likely due to three basic
mechanisms:  the warming and resulting expansion of the upper layers of the
ocean, the melting of alpine glaciers, and the melting and disintegration of
polar ice sheets in Greenland and Antarctica.  Increases in the level of the sea
will flood coastal wetlands and lowlands, accelerate coastal erosion, exacerbate
coastal flooding, and increase the salinity of estuaries and aquifers.

    Using a model originally developed by Lacis (1981) that evaluates the
expected change in average global air temperature due to trace gas
concentrations, sensitivity to greenhouse-gas forcings, and heat diffusion into
the oceans, the change in global sea level was estimated.  This change was
evaluated for the effects of thermal expansion, alpine meltwater, and Greenland
meltwater.  The impact of these factors on sea level rise are provided in
Exhibit 7-28 for the baseline and alternative control level scenarios.  Note
that the sea level rise estimates shown in Exhibit 7-28 do not evaluate the
potential changes due to Antarctic ice discharge, Antarctic meltwater, or
Greenland ice discharge.  Antarctic ice discharge is not sensitive to rates of
change of temperatures in the model used, and Antarctic meltwater and Greenland
ice discharge were not considered.

-------
                                    7-37
                               EXHIBIT 7-28

                         CHANGES  IN SEA LEVEL RISE
                   DUE TO STRATOSPHERIC OZONE DEPLETION
                                    Decrease In
                                Stratospheric Ozone          Sea Level Rise
                                     by 2075                    by 2075
 Scenario                               (%)                       (cm)
No Controls
Freeze
CFC 20%
CFC 50%
CFC 80%
CFC 50%/Halon Freeze
CFC 50%/Halon Freeze/U.S. 80%
U.S. Only /CFC 50%/Halon Freeze
50. O^/
6.8
5.5
3.9
2.7
1.9
1.6
27.1
99.6
89.6
88.5
87.1
85.9
87.0
86.6
95.0
» Global ozone depletion is arbitrarily constrained at 50 percent in this
   analysis.

Source:  Based on Lacis (1981).

-------
                                     7-38
                                  REFERENCES
Andrady, Anthony, Analysis of Technical Issues Related to the Effect of UV-B
    on Polymers.  Research Triangle Institute,  Research Triangle Park, North
    Carolina, March 1986.

Bureau of the Census,  "Projections of the Population of the United States,  by
    Age, Sex, and Race:   1983 to 2080," U.S.  Department of Commerce, Washington,
    D.C.,  Series  D-25,  No. 952.

Connell, P.S. (1986),  "A Parameterized Numerical Fit to Total Column Ozone
    Changes Calculated by the LLNL I-D Model  of the Troposphere and
    Stratosphere," Lawrence Livermore National Laboratory, Livermore,
    California.

EPA 1986.   Review of the National Ambient Air Quality Standards for Ozone.
    Preliminary Assessment of Scientific and  Technical Information, Office of
    Air Quality Planning and Standards Staff  Paper.  March 1986.

Miller, R., R. Sperduto and F. Ederer (1981),  "Epidemiologic Association with
    Cataract in the 1971-1972 National Health and Nutrition Examination Survey,"
    American Journal of Epidemiology. Vol. 118, No. 2, pp. 239-298.

Hoffman, J.S., D. Keyer, andJ.G. Titus (1983), Projecting Future Sea Level
    Rise.   Methodology.  Estimates to the Year 2100. and Research Needs.  U.S.
    EPA, Washington, D.C.

Hoffman, J.S., J.B. Wells, and J.G. Titus (1986), "Future Global Warming and
    Sea Level Rise," U.S. EPA and the Bruce Company, Washington, D.C.

Hunter, J.R., Kaupp, S.E., Taylor, J.H. (1982).  "Assessment of effects of
    radiation on marine fish larvae."  In: Calkins, J. (e.) The Role of Solar
    Ultraviolet Radiation in Marine Ecosystems, pp 459-497, Plenum, New York.

Isaksen, I.S.A.  (1986),  "Ozone Perturbations  Studies in a Two Dimensional
    Model with Temperature Feedbacks in the Stratosphere Included," presented at
    UNEP Workshop on the Control of Chlorofluorocarbons,  Leesburg, Virginia,
    September 1986.

Kelen, T., Polymer Degradation.  Van Nostrand Reinhold Company, Inc., New York,
    1983.

Lacis, A.  et al.  (1981), "Greenhouse Effect of Trace Gases," Geophysical
    Research Letters.  8:1035-1038.

Leske, C.L. and R.D. Sperduto (1983), "The Epidemiology of Senile Cataracts:
    A Review," American Journal of Epidemiology. Vol. 118, No. 2, pp. 152-165.

Mao, W. and T. Hu  (1982), "An Epidemiologic Survey of Senile Cataract in
    China," Chinese Medical Journal. 95(11):813-818.

-------
                                      7-39
National Academy of Sciences (1983), Changing Climate. National Academy Press,
    Washington, D.C.

Pitcher, H. (1986), "Melanoma Death Rates and Ultraviolet Radiation in the
    United States 1950-1979," U.S. Environmental Protection Agency, Washington,
    D.C.

Rowe, R.D. and Adams, R. M. (1987).  Analysis of Economic Impacts of Lower
    Crop Yields Due to Stratospheric Ozone Depletion, draft report for the U.S.
    EPA, Washington, D.C., August 1987.

Scotto J., T. Fears, and Fraumeni (1981), "Incidence of Nonmelanoma Skin
    Cancer in the United States," U.S. Department of Health and Human Services,
    (NIH) 82-2433, Bethesda, Maryland.

Scotto, J. and T. Fears (1987), "The Association of Solar Ultraviolet
    and Skin Melanoma Incidence Among Caucasians in the United States," Cancer
    Investigation. 5(4), 275-283.

Serafino, G. and J. Frederick (1986), "Global Modeling of the Ultraviolet
    Solar Flux Incident on the Biosphere," prepared for the U.S. Environmental
    Protection Agency, Washington, D.C.

Setlow, R.B., "The Wavelengths in Sunlight Effective in Producing Skin Cancer:
    A Theoretical Analysis," Proceedings of the National Academy of Science.
    71(9):3363-3366, 1974.

Taylor, H.R. (1980), "The Environment and the Lens."  Brit. J. Ophthal. 64:
    303-310.

Teramura, A.H., (1983).  "Effects of Ultraviolet-B Radiation on the Growth and
    Yield of Crop Plants,"  Plant Physiology. 58:415-427.

Teramura, A.H. andN.S. Murali (1986).  Introspective differences in growth
    and yield of soybean exposed to ultraviolet-B radiation under greenhouse and
    field conditions.  Env. Exp. Bot.  In press 1986.

Teramura, A.H., "Current Understanding of the Effects of Increased Levels of
    Solar Ultra-violet radiation to Crops and Natural Plant Ecosystems,"
    Testimony before U.S.  Senate, May 1987.

Thomas, R.H. (1985), "Response of the Polar Ice Sheets to Climate Warning,"
    Glaciers. Ice Sheets,  and Sea Level:  Effect of a C02-Induced Climatic
    Change. Seattle, Washington, September 13-15, 1984, U.S. Department of
    Energy, DOE/EV/60235-1, Washington, D.C.

U.S. EPA (1987), Assessing the Risks of Trace Gases that Can Modify the
    Stratosphere. U.S. Environmental Protection Agency, Washington, D.C.

-------
                                      7-40
Whitten, G.Z. and M. Gery (1986).  "Effects of Increased UV Radiation on Urban
    Ozone," Presented at EPA Workshop on Global Atmospheric Change and EPA
    Planning.  Edited by Jeffries, H. EPA Report 600/9-8 6016, July 1986.

The World Almanac and Book of Facts 1987.  Hoffman, M.S. (ed.), New York, New
    York, 1987.

-------
                                   CHAPTER 8

                  VALUING THE HEALTH AND ENVIRONMENTAL EFFECTS
    Chapter 7 presented estimates on the physical magnitude of the health and
environmental effects that could result due to stratospheric ozone depletion.
In this chapter these health and environmental effects are valued to estimate
the economic impact associated with these effects.  This valuation is designed
to represent the benefits to society for avoiding these effects.  Estimates of
the value of each benefit are provided for the baseline scenario (as described
in Chapter 4) and alternative control level scenarios (as described in Chapter
5).

    This chapter is only intended to summarize the results of the valuation of
the benefits.  For greater detail on the methods used to value the health
effects see Appendix E; for the environmental effects, see Appendix F.

8.1  VALUE OF PREVENTING HEALTH IMPACTS

    This section of the chapter discusses the value of avoiding the health
impacts due to stratospheric ozone depletion.  These impacts include:

        •   Higher incidence and mortality of nonmelanoma skin cancer;

        •   Higher incidence and mortality of melanoma skin cancer;
            and

        •   Higher incidence of cataracts.

    There are other health impacts associated with stratospheric ozone depletion
that are not valued here because the extent of the impacts are unknown.  These
impacts include possible harmful effects on the immune system, including less
resistance to infections, a higher incidence of skin damage from actinic
keratosis due to UV radiation effects, and effects due to increased levels of
tropospheric ozone (primarily impacts on the pulmonary system).

8.1.1  Nonmelanoma Skin Cancer

    Increased UV radiation from stratospheric ozone depletion can lead to a
higher incidence of nonmelanoma skin cancer, specifically basal and squamous
cell carcinoma.  An increase in the number of nonmelanoma skin cancer cases is
also expected to cause an increase in the number of deaths from this type of
cancer.

    Although there is a substantial amount of information evaluating the
magnitude of the physical effects from nonmelanoma, there are no publicly
available data sources to indicate the magnitude of the costs incurred by
society for nonmelanoma.  To determine the magnitude of these costs, a Skin
Cancer Focus Group was organized to discuss the costs incurred by nonmelanoma

-------
                                      8-2
patients.  The Skin Cancer Focus Group comprised skin cancer specialists who
were able to address the different types of treatment that various skin cancer
patients would receive, including medical costs for treatment, recommended
follow-up visits/treatments for the patient, the amount of time lost from work,
and recommended preventive activities for the patient outside of the doctor's
office or hospital.  The objective of this procedure was to identify the primary
components incurred by the individual and/or society for the "average" skin
cancer case.  These cost components include medical costs associated with
treatment, the amount of work lost due to treatment, and costs due to
preventative measures recommended for those people that have skin cancer.  The
costs of caregiving and chores performed by others, and pain and suffering
incurred by skin cancer patients were not estimated by the Skin Cancer Focus
Group.  Therefore, the values of non-fatal health effects are likely to be
underestimated.

    The primary reasons that costs vary among different types of nonmelanoma
cases are the size of the nonmelanoma and the likelihood of a recurrence once
the nonmelanoma is treated.  Based on the results from the Skin Cancer Focus
Group (see Appendix E for additional discussion), the average costs across all
types of nonmelanoma are estimated to be about $4000 for a basal cell carcinoma
case and $7000 for a case of squamous cell carcinoma (it should be emphasized
that the averages include a small number of serious cases and a number of less
serious cases).  Using these values to represent the average costs to society
for nonmelanoma, the costs incurred for the additional nonmelanoma cases as a
result of ozone depletion for all people born before 2075 are summarized in
Exhibit 8-1.  These costs represent the benefit to society for avoiding the
increase in the number of nonmelanoma cases in people born before 2075.  These
costs are shown for a discount rate of two percent for the reference and
alternative scenarios.  For alternative results based on one and six percent
discount rates, see Chapter 10.1  Exhibit 8-2 summarizes the cost estimates for
all additional nonmelanoma cases that occur by 2165 (including people born from
2075-2165).

    The increase in the number of nonmelanoma cases will also lead to an
increase in the number of deaths from nonmelanoma.  This analysis generates two
separate values for these mortality effects.  Most cases use $3 million,^ but a
case is included which uses $12 million values for a unit mortality risk
reduction.  Furthermore, these values are assumed to grow in value at a rate
equal to the annual rate of growth in GNP per capita (see Appendix G for an in-
depth discussion of the valuations of mortality risk reductions used in this
analysis).  This analysis assumes that the total cost to society for these
additional mortality risks is determined by multiplying these values for
     1 Some analysts argue that values associated with human life should not be
discounted.  Results of a zero discount case are also shown in Chapter 10.
     o
       As discussed in Appendix G, establishing a value of preventing risks to
human life is context dependent.  Presentation of $3 million dollars as the most
commonly shown case should not be taken by readers as an indication that all
analytical questions have been addressed to support this value rather than the
higher values suggested by Viscusi and Ashford for non-voluntary risks.

-------
                                8-3
                            EXHIBIT 8-1

      VALUE OF ADDITIONAL CASES AVOIDED OF NONHELANOMA IN U.S.
                    FOR PEOPLE BORN BEFORE 2075
                   (billions of 1985 dollars) S/
Scenario
No Controls
CFC Freeze
(Case 2)
CFC 20%
(Case 3)
CFC 50%
(Case 4)
CFC 80%
(Case 5)
CFC 50%/
Total
Additional
Cases
by 2165
177,998,100
17,408,000
13,703,400
9,575,000
6,618,800
5,103,900
Total
Cfist
(10 $)
76.90
10.40
8.48
6.27
4.70
4.28
Decrease
No Controls
Additional
Cases
Avoided
-
160,657,300
164,294,700
168,423,100
171,379,300
172,894,200
From
Scenario
Value
of Avoided
Cases
(ioy $) k
-
66.50
68.42
70.63
72.20
72.62
Halon Freeze
(Case 6)

CFC 50%/
Halon Freeze/
U.S. 80%
(Case 7)

U.S. Only/CFC
50%/Halon Freeze
(Case 8)
  4,404,500
3.91
123,036,300    49.70
173,593,600     72.99
            54,962,100     27.20
a/ Assumes a 2 percent discount rate.

b/ Value per case avoided based on results from the Skin Cancer
   Focus Group, July 23, 1987 (see Appendix E).

-------
                                8-4
                            EXHIBIT 8-2

               VALUE OF ADDITIONAL CASES AVOIDED FROM
               NONMELANOMA IN U.S. THAT OCCUR BY 2165 j
Decrease From
No Controls Scenario


Scenario
No Controls
CFG Freeze
(Case 2)
CFC 20%
(Case 3)
CFC 50%
(Case 4)
CFC 80%
(Case 5)
CFC 50%/
Total
Additional
Cases
by 2165
249,553,800
22,443,100
17,479,400
11,898,800
7,913,300
5,386,000

Total
Cost
(109 $)
90.70
11.40
9.20
6.73
4.96
4.34

Additional
Cases
Avoided
-
227,110,700
232,074,400
237,655,000
241,640,500
244,167,800
Value of
Avoided
Cases
(109 $) b/
-
79.30
81.50
83.97
85.74
86.36
Halon Freeze
(Case 6)

CFC 50%/
Halon Freeze/
U.S. 80%
(Case 7)

U.S. Only/CFC
50%/Halon Freeze
(Case 8)
  4,448,900     3.93
245,104,900
191,206,300    62.70
 58,347,500
86.77
28.00
a/ Assumes a 2 percent discount rate.

b/ Value per case avoided based on results from the Skin Cancer
   Focus Group, July 23, 1987 (see Appendix E).

-------
                                      8-5
mortality risk reduction by the aggregated population mortality risk.  Exhibit
8-3 summarizes these estimates for people born before 2075 for the reference and
alternative scenarios using a discount rate of two percent.  For alternative
results based on one and six percent discount rates, see Chapter 10.  The
aggregate population risk due to nonmelanoma is also shown for people born
before 2075.  Exhibit 8-4 summarizes these estimates for the aggregate
population risk from nonmelanoma by 2165, including people born from 2075 to
2165.

8.1.2  Melanoma Skin Cancer

    Increased UV radiation from stratospheric ozone depletion can also lead to a
higher incidence of melanoma skin cancer, specifically cutaneous malignant
melanoma.  Any increase in the number of melanoma skin cancer cases is also
expected to cause an increase in the number of deaths from this type of cancer.

    Both nonmelanoma and melanoma are similar in that there are no publicly-
available data sources to indicate the magnitude of the costs incurred by
society.  The Skin Cancer Focus Group discussed above was also used to determine
the magnitude of these costs, including medical costs for treatment, recommended
follow-up visits/treatments for the patient, the amount of time lost from work,
and recommended preventive activities for the patient outside of the doctor's
office or hospital.  The objective of this procedure was to identify the primary
components incurred by the individual and/or society for the "average" skin
cancer case.  A more in-depth discussion of the Skin Cancer Focus Group and the
results obtained from it can be found in Appendix E.

    Based on the information obtained from the Skin Cancer Focus Group, the cost
of different melanoma cases were categorized according to the most likely
location that the patient would receive treatment -- the doctor's office, on an
outpatient basis, or in the hospital.  Given these different types of cases, the
average cost for a case of cutaneous malignant melanoma is assumed to be
$15,000.  Using this value to represent the average cost to society for
melanoma, the costs incurred for the additional melanoma cases as a result of
ozone depletion for people born before 2075 are summarized in Exhibit 8-5.
These costs represent the benefit to society for avoiding the increase in the
number of melanoma cases in people born before 2075.  These costs are shown for
a discount rate of two percent for the reference and alternative scenarios.   The
costs to society for all cases of melanoma that occur by 2165, including people
born from 2075-2165, are shown in Exhibit 8-6.  For alternative results based on
one and six percent discount rates, see Chapter 10.

    The increase in the number of melanoma cases will also lead to an increase
in the number of deaths from this illness.  This analysis generates two separate
values for these mortality effects.  Most cases use $3 million.   A case using
$12 million is included in Chapter 10.   Furthermore, these values are assumed to
grow in value at a rate equal to the annual rate of growth in GNP per capita
(see Appendix G for an in-depth discussion of the valuations of mortality risk
reductions used in this analysis).   This analysis assumes that the total cost to
society for these additional mortality risks is determined by multiplying these

-------
                                    8-6
                                EXHIBIT 8-3

            VALUE OF ADDITIONAL DEATHS AVOIDED FROM NONMELANOHA
                    IN U.S. FOR PEOPLE BORN BEFORE 2075 ^*
Decrease From
No Controls Scenario


Scenario
No Controls
CFC Freeze
(Case 2)
CFC 20%
(Case 3)
CFC 50%
(Case 4)
CFC 80%
(Case 5)
CFC 50%/
Total
Additional
Deaths
by 2165
3,528,700
282,800
221,900
153,700
105,500
80,600

Total
Cost
(109 $)
3,340
341
273
197
142
124

Additional
Deaths
Avoided
-
3,245,900
3,306,800
3,375,000
3,423,200
3,448,100
Value
of Avoided
Deaths
(109 $) k
-
2,999
3,067
3,143
3,198
3,216
    Halon Freeze
    (Case 6)

    CFC 50%/
    Halon Freeze/
    U.S. 80%
    (Case 7)

    U.S. Only/CFC
    50%/Halon Freeze
    (Case 8)
69,300
                111
3,459,400
2,377,700
           2,090
1,151,000
3,229
1,250
a/  Assumes a 2 percent discount rate and that the value of mortality risk
    reductions increases at the rate of increase in per capita income, i.e.,
    an average 1.7 percent per year through 2075.

b/  Assumes $3 million value per unit mortality risk reduction.  Those wishing
    to use a value of $12 million should multiply by 4.

-------
                                    8-7
                                EXHIBIT 8-4

            VALUE OF ADDITIONAL DEATHS AVOIDED FROM NONMELANOMA
                         IN U.S. THAT OCCUR BY 2165^
Decrease From
No Controls Scenario


Scenario
No Controls
CFC Freeze
(Case 2)
CFC 20%
(Case 3)
CFC 50%
(Case 4)
CFC 80%
(Case 5)
CFC 50%/
Total
Additional
Deaths
by 2165
4,894,400
358,600

227,500

187,600

124,200

84,700

Total
Cost
(109 $)
3,960
375

299

212

151

126

Additional
Deaths
Avoided
-
4,535,800

4,666,900

4,706,800

4,770,200

4,809,700
Value

of Avoided
Deaths
(109 $)
-
3,585

3,661

3,748

3,809

3,834
b/










    Halon Freeze
    (Case 6)

    CFC 50%/
    Halon Freeze/
    U.S. 80%
    (Case 7)
69,900
112
4,824,500
    U.S. Only/CFC    3,667,800
    50%/Halon Freeze
    (Case 8)
            2,660
          1,226,600
3,848
               1,300
a/  Assumes a 2 percent discount rate and that the value of mortality risk
    reductions increases at the rate of increase in per capita income, i.e.,
    an average 1.7 percent per year through 2075.

b/  Assumes $3 million value per unit mortality risk reduction.  Those wishing
    to use a value of $12 million should multiply by 4.

-------
                                8-8
                            EXHIBIT 8-5

           VALUE OF ADDITIONAL CASES AVOIDED OF MELANOMA
               IN U.S.  FOR PEOPLE BORN BEFORE  2075 3/


Scenario
No Controls
CFC Freeze
(Case 2)
CFC 20%
(Case 3)
CFC 50%
(Case 4)
CFC 80%
(Case 5)
CFC 50%/
Hal on Freeze
(Case 6)
CFC 50%/
Halon Freeze/
U.S. 80%
(Case 7)
U.S. Only/CFG
50%/Halon Freeze
(Case 8)
Total
Additional
Cases
by 2165
893,300
139,700
112,400
80,400
56,900
45,900

40 , 200

647,400
Decrease
No Controls

Total Additional
Cost Cases
(109 $) Avoided
1.45
0.30 753,600
0.24 780,900
0.18 812,900
0.14 836,400
0.13 847,400

0.12 853,100

0.99 245,900
From
Scenario
Value
of Avoided
Cases
(109 $) 1
-
1.15
1.21
1.27
1.31
1.32

1.33

0.46
a/ Assumes a 2 percent discount rate.

b/ Value per case avoided based on results from the Skin Cancer
   Focus Group, July 23,  1987 (see Appendix E).

-------
                                8-9
                            EXHIBIT 8-6

           VALUE OF ADDITIONAL CASES AVOIDED OF MELANOMA
                    IN U.S. THAT OCCUR BY 2165 &





Scenario
No Controls
CFC Freeze
(Case 2)
CFC 20%
(Case 3)
CFC 50%
(Case 4)
CFC 80%
(Case 5)
CFC 50%/
Halon Freeze
(Case 6)
CFC 50%/
Halon freeze/
U.S. 80%
(Case 7)
U.S. Only/CFG
50%/Halon Freeze
(Case 8)


Total
Additional
Cases
by 2165
1,442,700
207,500

163,500

112,600

75,200

50,000


40,900



1,181,900


Decrease From
No Controls Scenario
Value
Total Additional of Avoided
Cost Cases Cases
(109 $) Avoided (109 $) ^
1.83
0.34 1,235,200 1.49

0.28 1,279,200 1.55

0.20 1,330,100 1.63

0.15 1,367,500 1.68

0.13 1,392,700 1.70


0.12 1,401,800 1.71



1.35 260,800 0.48


a/ Assumes a 2 percent discount rate.

b/ Value per case avoided based on results from the Skin Cancer
   Focus Group, July 23, 1987 (see Appendix E).

-------
                                      8-10
values for mortality risk reduction by the aggregated population mortality risk.
Exhibit 8-7 summarizes these estimates for people born before 2075 for the
reference and alternative scenarios using a discount rate of two percent.
Exhibit 8-8 summarizes the estimates which include risk reductions for people
born between 2075 and 2165 for the reference and alternative scenarios using a
discount rate of two percent.  For alternative results based on one and six
percent discount rates, see Chapter 10.

8.1.3  Cataracts

    Increases in UV-B radiation due to stratospheric ozone depletion may
increase the incidence of cataracts.  An increase in the incidence rate would
cause some individuals to be diagnosed with cataracts who would otherwise not
have developed them and some individuals who would have incurred them later in
life to develop them earlier in life.

    The value of preventing an increase in the number of cataract cases has been
developed from an analysis by Rowe, Neithercut, and Schulze (1987).  In their
study Rowe et. al. determined the social costs associated with cataract cases.
These costs were defined as society's willingness to pay to avoid the cataracts,
and included four major cost components:  increased medical costs, increased
work loss, increased costs for chores and caregiving, and other indirect social
and economic costs.  Rowe, et. al. (1987) obtained their data from a review of
the literature, contacts with various health providers, and a survey of cataract
patients.  Based on their analysis, the average value assumed for a cataract
case is $15,000.

    Using an estimate of $15,000 per case, the value to society for avoiding the
increase in cataracts in people born before 2075 is shown in Exhibit 8-9 for the
reference and alternative scenarios.  The value under each scenario is shown for
a discount rate of two percent; the number of additional cataract cases that
occur in people born before 2075 is also shown.  The costs to society for all
additional cataracts that occur by 2165, including cataracts that occur in
people born from 2075-2165, are shown in Exhibit 8-10.  For alternative results
based on one and six percent discount rates, see Chapter 10.

8.2  VALUE OF PREVENTING ENVIRONMENTAL IMPACTS

    This section of the chapter discusses the value of avoiding the
environmental impacts due to stratospheric ozone depletion.  These impacts
include:

        •   Risks to aquatic life;

        •   Risks to crops;

        •   Increased concentrations of tropospheric (ground-based)
            ozone;

        •   Degradation of polymers; and

        •   Impacts due to sea level rise.

-------
                                    8-11
                                EXHIBIT 8-7

              VALUE OF ADDITIONAL DEATHS AVOIDED FROM MELANOMA
                       FOR PEOPLE BORN BEFORE 2075 */
Decrease From
No Controls Scenario


Scenario
No Controls
CFC Freeze
(Case 2)
CFC 20%
(Case 3)
CFC 50%
(Case 4)
CFC 80%
(Case 5)
CFC 50%/
Total
Additional
Deaths
by 2165
211,300
33,600

27,000

19,300

13,500

10,800

Total
Cost
(109 $)
241
44

36

26

20

17

Additional
Deaths
Avoided
-
177,700

184,300

192,400

197,800

200,500
Value
of Avoided
Deaths
(109 $) k
-
197

205

215

221

224
    Halon Freeze
    (Case 6)

    CFC 50%/            9,300
    Halon Freeze/
    U.S. 80%
    (Case 7)

    U.S. Only/CFC     156,900
    50%/Halon Freeze
    (Case 8)
 16
167
202,000
 54,400
225
 74
a/  Assximes a 2 percent discount rate and that the value of mortality risk
    reductions increases at the rate of increase in per capita income, i.e.,
    an average 1.7 percent per year through 2075.

b/  Assumes $3 million value per unit mortality risk reduction.  Those wishing
    to use a value of $12 million should multiply by 4.

-------
                                    8-12
                                EXHIBIT 8-8

              VALUE OF ADDITIONAL DEATHS AVOIDED FROM MELANOMA
                            THAT OCCUR BY 2165 S/
Scenario
No Controls
CFC Freeze
(Case 2)
CFC 20%
(Case 3)
CFC 50%
(Case 4)
CFC 80%
(Case 5)
CFC 50%/
Decrease From
No Controls Scenario
Total Value
Additional Total Additional of Avoided
Deaths Cost Deaths Deaths
by 2165 (109 $) Avoided (109 $) ^
310,000 290
46,300 51 263,700 239
36,600 41 273,400 249
25,300 29 284,700 261
17,000 21 293,000 269
11,500 18 298,500 272
    Halon Freeze
    (Case 6)

    CFC 50%/            9,500
    Halon Freeze/
    U.S. 80%
    (Case 7)

    U.S. Only/CFC     252,900
    50%/Halon Freeze
    (Case 8)
 16
214
300,500
 57,100
274
 76
a/  Assumes a 2 percent discount rate and that the value of mortality risk
    reductions increases at the rate of increase in per capita income, i.e.,
    an average 1.7 percent per year through 2075.

b/  Assumes $3 million value per unit mortality risk reduction.  Those wishing
    to use a value of $12 million should multiply by 4.

-------
                                8-13
                            EXHIBIT 8-9

    VALUE OF AVOIDING AN INCREASE IN THE INCIDENCE OF CATARACTS
                 IN U.S. IN PEOPLE BORN BEFORE 2075
Decrease
No Controls


Scenario
No Controls
CFC Freeze
(Case 2)
CFC 20%
(Case 3)
CFC 50%
(Case 4)
CFC 80%
(Case 5)
CFC 50%/
Halon Freeze
(Case 6)
CFC 50%/
Halon Freeze/
U.S. 80%
(Case 7)
U.S. Only/CFC
50%/Halon Freeze
(Case 8)
Total
Additional
Cases
by 2165
19,962,800
3,178,000
2,531,200
1,774,100
1,214,300
876,100

740,600

15,824,100

Total
Cost
(109 $)
3.21
0.64
0.52
0.38
0.29
0.26

0.23

2.33


Additional
Cases
Avoided

16,514,
17,161,
17,918,
18,478,
18,816,

18,952,

3,868,
-
800
600
700
500
700

200

700
From
Scenario
Value
of Avoided
Cases
(109 $) a
-
2.57
2.69
2.83
2.92
2.95

2.98

0.88
a/ Value per case avoided based on Rowe,  Neithercut,  and Schulze
   (1987).

-------
                                8-14
                            EXHIBIT 8-10

         VALUE OF AVOIDING AN INCREASE IN THE INCIDENCE OF
                   CATARACTS IN U.S.  THROUGH  2165
Decrease From
No Controls Scenario


Scenario
No Controls
CFC Freeze
(Case 2)
CFC 20%
(Case 3)
CFC 50%
(Case 4)
CFC 80%
(Case 5)
CFC 50%/
Total
Additional
Cases
by 2165
25,131,600
3,888,500

3,060,400

2,097,600

1,383,100

888,800

Total
Cost
(109 $)
3.48
0.67

0.55

0.40

0.30

0.26

Additional
Cases
Avoided
-
21,243,100

22,071,200

23,034,000

23,748,500

24,242,800
Value

of Avoided
Cases
(109 $)
-
2.81

2.93

3.08

3.18

3.22
a/










Halon Freeze
(Case 6)

CFC 50%/
Halon Freeze/
U.S. 80%
(Case 7)
742,000
0.23
24,389,600
U.S. Only/CFC   21,023,700
50%/Halon Freeze
(Case 8)
             2.61
           4,107,900
3.25
                 0.87
a/  Value per case avoided based on Rowe, Neithercut, and Schulze
    (1987).

-------
                                      8-15
     It  is  important  to emphasize  that this analysis  focuses exclusively on  the
above environmental  effects, all  of which have anticipated, direct economic
consequences.  Damage to other aspects of the natural environment and to
ecosystems are not estimated herein, although their  long-term economic
consequences could be highly significant, perhaps catastrophic.  Therefore,
these potential additional environmental consequences should be considered  in
interpreting the results of this  analysis.

     In  this section  the valuation procedures are discussed only briefly.  For
further detail, see  Appendix F.

8.2.1   Risks to Aquatic Life

     The potential risks to aquatic life were expressed  in Chapter 7 as a decline
in the  commercial fish harvests.  The commercial fish species evaluated were:

        •   Fin fish, including menhaden, Pacific trawlfish,
            anchovies, halibut, sea herring, jack mackerel, Atlantic
            mackerel, sablefish,  and tuna.

        •   Shell fish, including clams, crabs, American lobster,
            spiny lobster, oysters, shrimp, scallops, and squid.

     To  determine the value associated with avoiding  these declines, average
commercial harvest levels and market values for these fish species from
1981-1985 were estimated from data available from the U.S. Department of
Commerce.  These average values were 5.9 million tons harvested with an average
annual  value of $3.65 billion, and were used to represent annual harvest levels
and  market values over the 1985-2075 period.  For each  scenario, the percentage
decline in the amount harvested each year was estimated from these averages and
valued  based on the  average market value, i.e., $3.65 billion, or about $620 per
ton.  The net present values of these annual impacts were calculated using a
discount rate of two percent.

     Sensitivity analyses were also conducted to capture some of the uncertainty
by assuming that the impacts would range from one-half  to twice the level
estimated using the  average annual values.  The benefit estimates that result
from this procedure  are summarized in Exhibit 8-11.  These estimates are quite
speculative and could be higher or lower by significant margins.

8.2.2  Risks to Crops

     The impacts on agricultural crops were valued by estimating the net present
value of the forecasted yield declines due to increased UV radiation levels.
Yield declines were estimated for the major grain crops:  wheat, rye,  rice,
corn, oats, barley,  sorghum,  and  soybeans.  Potential impacts on other crops,
including fruits and vegetables,  forests, and other non-commercial species have
not been evaluated.

     The impacts on the major grain crops were valued by first estimating the
value of the impacts on soybeans  only.   These impacts were analyzed by Rowe and

-------
                                      8-16
                                  EXHIBIT 8-11

                     VALUATION OF IMPACTS ON FIN FISH
                AND SHELL FISH DUE TO INCREASED RADIATION
                           (billions of 1985 dollars)
I
Scenario
No Controls
CFC Freeze
(Case 2)
CFC 20%
(Case 3)
CFC 50%
(Case 4)
CFC 80%
(Case 5)
CFC 50%/
iarvest Decline
by 2075
(Percent)
>25.0
2.5
0.9
0.0
0.0
0.0
Decrease from No Controls --
Total Cost Value of Avoided Impacts
(io y$) (io9 $)
0.5 1.0 2.0 0.5 1.0 2.0
3.36 6.72 13.44
0.12 0.24 0.48 3.24 6.48 12.96
0.02 0.04 0.08 3.34 6.68 13.36
0.00 0.00 0.00 3.36 6.72 13.44
0.00 0.00 0.00 3.36 6.72 13.44
0.00 0.00 0.00 3.36 6.72 13.44
Halon Freeze
(Case 6)

CFC 50%/            0.0
Halon Freeze/
U.S. 80%
(Case 7)

U.S. Only/CFG     >25.0
50%/Halon Freeze
(Case 8)
0.00   0.00    0.00    3.36      6.72     13.44
2.18   4.36    8.72    1.18
2.36
4.72
Source:  Based on Hunter, Kaupp, and Taylor (1982).

-------
                                      8-17
Adams  (1987) using the National Crop Loss Assessment Network (NCLAN),  from which
they developed the following relationship between soybean yield and economic
damage:
                       D2 = 0.1068 * SOY -  0.00029 * SOY2
where:
     D2 = annual change in economic surplus, in billions of 1982 dollars,
          resulting from changes in soybean yield due to UV-B.

    SOY = percent change in soybean yield due to UV-B, which was defined as
          0.30 times the percentage decrease in stratospheric ozone.


    The value of potential impacts on the major grain crops was then calculated
by increasing the estimated impacts on soybeans by a factor of 3.85 to reflect
the larger size of the market for all major grain crops compared to the size of
the market for soybeans only.  The factor of 3.85 was determined by using
average annual crop production levels from 1981-1985 to represent average annual
production levels for each crop, and the market value was estimated using the
average market price for these crops during 1981-1985.  This information was
obtained from the U.S. Department of Agriculture;  the average annual value of
all soybean production was about $13 billion and the average annual value of all
major grain crops was $50 billion (1985 dollars).

    The net present value of these annual production declines was calculated for
each scenario using a discount rate of two percent.  Sensitivity analyses were
also conducted by assuming that the impacts would range from one-half to twice
the level estimated by the approach described above.  The benefit estimates from
this approach are summarized in Exhibit 8-12.  These estimates are quite
speculative and could be significantly higher or lower.

8.2.3  Increased Concentrations of Ground-based Ozone

    The economic impact of tropospheric (ground-based) ozone on agricultural
crops was determined from the National Crop Loss Assessment Network (NCLAN),
which was developed to assist EPA in the evaluation of National Ambient Air
Quality Standards (NAAQS) for ground-based ozone.  In an analysis by Rowe and
Adams (1987), the value of potential crop losses for soybeans, corn, wheat,
cotton, rice, barley, sorghum, and forage was estimated using the following
relationship between tropospheric ozone changes and economic damage:
                        Dl  = -0.0678  * T  -  0.000195  *  T2
where:
    Dl = annual change in economic surplus, in billions of 1982 dollars, due
         to tropospheric ozone.

     T = percent change in tropospheric ozone.

-------
                                      8-18
                                  EXHIBIT 8-12

                   VALUATION OF IMPACTS ON MAJOR GRAIN CROPS
                           DUE TO INCREASED RADIATION
                           (billions of 1985 dollars)
Harvest Decli
by 2075
Scenario (Percent)
No Controls >7.50
CFG Freeze 2.1
(Case 2)
CFC 20% 1.7
(Case 3)
CFC 50% 1.2
(Case 4)
CFC 80% 0.8
(Case 5)
CFC 50%/ 0.6
Decrease from No Controls --
Total-Cost Value of Avoided Impacts
ne (10* $) (10* $)
0.5 1.0 2.0 0.5 1.0 2.0
16.83 33.66 67.32
6.14 12.28 24.56 10.69 21.38 42.76

5.16 10.32 20.64 11.68 23.34 46.68

3.98 7.97 15.94 12.84 25.69 51.38

3.16 6.31 12.62 13.68 27.35 54.70

3.18 6.35 12.70 13.66 27.31 54.62
Halon Freeze
(Case 6)

CFC 50%/          0.5          2.48   5.97  11.94     13.84    27.69    55.38
Halon Freeze/
U.S. 80%
(Case 7)

U.S. Only/CFC    >7.50        12.52  25.04  50.08      4.31     8.62    17.24
50%/Halon Freeze
(Case 8)
Source:  Based on Rowe and Adams (1987).

-------
                                      8-19
    This approach was used to generate a stream of annual impacts through 2075.
The present value of these annual impacts was then calculated using a discount
rate of two percent.  Sensitivity analyses were also conducted by assuming that
the impacts would range from one-half to twice the level estimated by the
approach described above.  A summary of the decreases in economic value for each
scenario is provided in Exhibit 8-13.  The estimated increase in tropospheric
ozone by 2075 is also indicated.  These estimates are quite speculative and
could be significantly higher or lower.

8.2.4  Degradation of Polymers

    The economic impact of UV radiation on polymers has been determined from
work done by Horst (1986).  Horst assumed that polymer manufacturers would
increase the amount of light stabilizer in their products as a result of higher
UV radiation levels.  The amount of stabilizer was assumed to increase about one
percent for each one percent decrease in stratospheric ozone, although- this
varied depending on amount of depletion and intensity of the UV radiation, among
other factors.  Also, the maximum change allowed due to manufacturing
limitations was a 25 percent increase in stabilizer, which was estimated to lead
to a 1.86 percent increase in the price of the polymer.  Although the analysis
by Horst was conducted on rigid PVC products only, these dose-response and
price-response relationships were assumed to apply to acrylic and polyester
applications as well (these products are also frequently exposed to UV
radiation).  The market size for all of these UV-sensitive materials was
estimated to be 3.75 times larger than the market for rigid PVC products only.

    For these polymer products, cost impacts through 2075 were calculated for
each year using three basic steps:

        •   The size of the market for each polymer product was
            estimated.

        •   The amount of damage to polymer products (i.e.,  the amount
            of additional stabilizer required) due to increased UV
            radiation levels was assessed.

        •   The damage costs were determined based on the
            price-response relationship presented above.

    The benefit estimates that result from this approach (i.e., the amount of
damage that could be avoided if the amount of ozone depletion is reduced) are
summarized in Exhibit 8-14 for the reference scenario and alternative scenarios.
These damage estimates are shown for a discount rate of two percent.   The amount
of ozone depletion estimated to occur by 2075, from which the level of UV damage
is determined, is also shown for each scenario.

8.2.5  Damages Due To Sea Level Rise

    Sea level rise can cause loss of wetlands, higher storm surges,  flooding,
and beach erosion,  among other factors   In this section only the impacts on the
major coastal ports have been valued.  These impacts were valued using an
analysis by Gibbs (1984) that evaluated the effects of a 0.75 to 2.2 meter rise

-------
                                      8-20
                                      EXHIBIT 8-13

                    VALUATION OF IMPACTS ON MAJOR AGRICULTURAL CROPS
                               DUE TO TROPOSPHERIC OZONE
                               (billions of 1985 dollars)
Decrease from No Controls --
Tropospheric Total Cost Value of Avoided Impacts
Ozone Increase (10 $) (10 $)
hv 907S 	 	 	
Scenario
No Controls
CFC Freeze
(Case 2)
CFC 20%
(Case 3)
CFC 50%
(Case 4) •
CFC 80%
(Case 5)
CFC 50%/
(Percent) 0.5 1.0 2.0 0.5 1.0 2.0
>30.9 9.18 18.37 36.74
5.7 2.83 5.66 11.32 6.36 12.71 25.42

4.6 3.38 4.75 9.50 6.81 13.62 27.24

3.2 1.83 3.66 7.32 7.36 14.71 29.42

2.3 1.45 2.90 5.80 7.74 15.47 30.94

1.6 1.46 2.92 5.84 7.72 15.45 30.90
Halon Freeze
(Case 6)

CFC 50%/           1.4        1.37    2.74   5.48     7.82     15.63    31.26
Halon Freeze/
U.S. 80%
(Case 7)

U.S. Only/CFC     24.5        5.97   11.94  23.88     3.22      6.43    12.86
50%/Halon Freeze
(Case 8)
Source:  Based on Rowe and Adams (1987).

-------
                                      8-21
                                  EXHIBIT 8-14

                        VALUATION OF IMPACTS ON POLYMERS
                         DUE TO UV RADIATION INCREASES
                           (billions of 1985 dollars)
c
C

Scenario
No Controls
CFC Freeze
(Case 2)
CFC 20%
(Case 3)
CFC 50%
(Case 4)
CFC 80%
(Case 5)
CFC 50%/
Stratospheric
)zone Decrease
V»v 907S
uy £.\j 1 j
(Percent)
50. O^/
6.8

5.5

3.9

2.7

1.9
1

0.5
2.57
1.24

1.04

0.89

0.80

0.78
fotal Cc
(ioy sj

1.0
5.14
2.49

2.07

1.78

1.61

1.57
>st
1

2.0
10.28
4.98

4.14

3.56

3.22

3.14
Decrease from No Controls --
Value of Avoided Impacts
(ioy $)

0.5 1.0 2.0
-
1.18 2.65 4.74

1.54 3.07 6.14

1.68 3.36 6.72

1.77 3.53 7.06

1.78 3.57 7.14
Halon Freeze
(Case 6)

CFC 50%/           1.6        0.78   1.57    3.14     1.78     3.57     7.14
Halon Freeze/
U.S. 80%
(Case 7)

U.S. Only/CFG     27.1        2.20   4.39    8.78     0.37     0.75     1.50
50%/Halon Freeze
(Case 8)
-/ Global ozone depletion is arbitrarily constrained at 50 percent in this
   analysis.
Source:  Based on Horst (1986).

-------
                                      8-22
in sea level by 2075 on two coastal communities -- Charleston, South Carolina
and Galveston, Texas.  Gibbs analyzed impacts for two types of community
responses -- damages if actions anticipating the rise in sea level were
undertaken and damages if no anticipatory actions were undertaken.

    The damage estimates developed by Gibbs for Charleston and Galveston were
used to estimate a range of potential damages for all major coastal ports.
Using the amount of tonnage shipped through each port each year as an
approximate measure of the size of the port, the damage estimates developed by
Gibbs were divided by the amount of tonnage shipped to represent the potential
range of impacts due to sea level rise.   For sea level rise of 98 cm, these cost
estimates were $8 to $66 per ton shipped if anticipatory actions were taken and
$16 to $181 per ton shipped if they were not.  All costs are in 1985 dollars
assuming a three percent discount rate.   The primary reason for the variation in
damages is the amount of protection a port has from severe storms - - costs are
lower if the port is protected (like Galveston) or higher if the port is
relatively unprotected (like Charleston).

    These cost ranges were then used to determine potential impacts at all major
coastal ports.  These damage estimates are summarized in Exhibit 8-15 for the
baseline scenario and alternative scenarios.  The amount of sea level rise by
2075 is indicated for each scenario.  Damage estimates are provided for
anticipated and unanticipated responses.  Low, medium, and high estimates are
also provided -- the low estimates assume most ports will be relatively
protected; the high estimates assume they will be relatively unprotected; and
the medium estimates reflect a port-by-port assessment on whether the port
appeared to be unprotected (hence higher damage estimates were assumed) or
protected (hence lower damage estimates were assumed).  Clearly, this is a crude
estimating technique and real damages could be much higher or lower than
indicated by these estimates.  However,  many sea level damage issues, such as
flooding of coastal wetlands, beach erosion, increases in salinity in aquifers,
among other factors, are not included here.

-------
                                      8-23
                                  EXHIBIT 8-15

                       VALUATION OF IMPACTS OF SEA LEVEL
                          RISE ON MAJOR COASTAL PORTS
                         (billions of 1985 dollars) */
Scenario
Sea Level Rise       Anticipated          Unanticipated
 by 2075 (cm)    Low   Medium   High   Low   Medium   High
No Controls           99.6

CFC Freeze            89.6
(Case 2)

CFC 20%               88.5
(Case 3)

CFC 50%               87.1
(Case 4)

CFC 80%               85.9
(Case 5)

CFC 50%/              87.0
Halon Freeze
(Case 6)

CFC 50%/              86.6
Halon "Freeze/
U.S. 80%
(Case 7)

U.S. Only/CFC         96.0
50%/Halon Freeze
(Case 8)
                 13.0   55.1   106.2   26.1    145.7  290.7

                 12.4   51.2    98.2   24.0    136.3  272.5


                 12.4   50.8    97.3   23.7    135.2  270.5


                 12.3   50.2    96.2   23.4    133.9  268.0


                 12.2   49.7    95.3   23.2    132.8  265.8


                 12.3   50.2    96.2   23.4    133.8  267.8



                 12.3   50.0    95.8   23.3    133.5  267.1
                 12.8   53.7   103.3   25.3    142.3  284.2
a/  All damage estimates were calculated assuming a three percent
    discount rate.
Source:  Based on Gibbs (1984).

-------
                                      8-24
                                   REFERENCES
Gibbs, M. "Economic Analysis of Sea Level Rise:  Methods and Results."  In:
    Earth, M.C. andJ.G. Titus (eds.), Greenhouse Effect and Sea Level Rise:  A
    Challenge for this Generation. New York, Van Nostrand Reinhold, 1984.

Horst, R., K. Brown, R. Black, and M. Kianka, The Economic Impact of Increased
    UV-B Radiation on Polymer Materials:  A Case Study of Rigid PVC. Mathtech,
    Inc., Princeton, New Jersey, June 1986.

Hunter, J.R., Kaupp, S.E., Taylor, J.H. (1982).  "Assessment of Effects of
    Radiation on Marine Fish Larvae."  In:  Calkins, J. (e.) The Role of Solar
    Ultraviolet Radiation in Marine Ecosystems, pp. 459-497, Plenum, New York.

Jewell, L. Duane (1986).  Agricultural Statistics 1986.  U.S. Department of
    Agriculture, Washington, D.C.

Rowe, R.D. and Adams, R.M.,  (1987).  Analysis of Economic Impacts of Lower Crop
    Yields Due to Stratospheric Ozone Depletion, draft report for the U.S. EPA,
    Washington, D.C., August 1987.

Rowe, R.D., T.N. Neithercut, and W.D. Schulze (1987), Economic Assessment of
    the Impacts of Cataracts.  Draft Report, prepared for U.S. Environmental
    Protection Agency, January 30, 1987.

Thomas, B.C., (1986).  Fisheries of the United States. 1985. U.S. Department of
    Commerce, National Oceanic and Atmospheric Administration, Washington, D.C.,
    April 1986.

U.S. Environmental Protection Agency, An Assessment of the Risks of
    Stratospheric Modification. Submitted to Science Advisory Board, October
    1986.

U.S. EPA (1987), Assessing the Risks of Trace Gases that Can Modify the
    Stratosphere. U.S. Environmental Protection Agency, Washington, D.C.

-------
                                   CHAPTER 9

                               COSTS OF CONTROL
    This chapter presents estimates of the costs that would be incurred if the
use of CFCs and halons is regulated.  A major objective of the chapter is the
analysis of how user industries may respond to the reduced availability of CFCs.
Because industry responses are uncertain,  the chapter evaluates costs for a
range of possible responses.   In addition, the chapter estimates the costs of
each of the stringency and coverage options described in Chapter 5.   The costs
presented in this chapter, when combined with the benefit estimates  presented in
Chapter 8,  provide the basis  for the cost-benefit comparisons presented in
Chapter 10.

    The chapter is organized  as follows:

    •   Section 9.1 summarizes the approach used to estimate the costs
        of CFG regulation.

    •   Section 9.2 presents  cost estimates for an initial scenario  of
        industry responses.   In this scenario,  labeled Case 1,  responses
        by industry start slowly,  are implemented slowly, and achieve
        relatively small reductions in CFC use.

    •   Section 9.3 presents  variations on the Case 1 scenario in which the
        responses (e.g., adoption of controls)  of particular industries are
        evaluated, one industry at a time.  Case 1 assumptions are relaxed
        on an industry-by-industry basis  to analyze how the improved
        responses of individual industries can affect the costs of
        regulation.

    •   Section 9.4 then describes a second broad cost scenario,  Case 2,
        in which industry responses start  quickly,  are implemented
        quickly,  and achieve  relatively large reductions in CFC use.
        This scenario includes all of the  responses examined in Section
        9.3 plus a similar set of responses in several other industries.

    •   Section 9.5 examines  the sensitivity of the cost estimates to
        the development and introduction  of long-term chemical
        substitutes for CFCs.   Cost estimates are presented for a one-
        year delay in the initial availability of three important
        substitute chemicals  -- FC-134a, HCFC-141b,  and HCFC-123.

    •   Section 9.6 presents  cost estimates for each of the stringency
        and coverage options  described in  Chapter 5.

    •   Section 9.7 discusses  how costs might differ depending on the
        regulatory approaches  used to restrict the  domestic use of CFCs.

    •   Finally,  Section 9.8  describes the major limitations to the  cost
        estimates and Section 9.9  provides conclusions of the analysis.

-------
                                      9-2
9.1  APPROACH TO ESTIMATING COSTS

    This section describes the analytical approach used to estimate the costs
borne by society due to CFG and halon regulation.  The economic theory
underlying this approach is presented more fully in Appendix I.  Section 9.1.1
describes the major types of costs resulting from regulation.  Section 9.1.2
discusses the ways in which specific industry responses to reduce the use of
CFCs are characterized in the analysis.  Section 9.1.3 describes the methods
used to estimate the size of these costs.

9.1.1  Types of Costs Considered1

    The regulation of CFCs will restrict the supply of CFCs and possibly
increase their price.  Industries that use CFCs and consumers that buy CFC-
based products can respond by:

    •   Switching from CFC-using products to other products; for example,
        replacing alternative materials for foam insulation produced with CFG-11
        or CFG-12.  This response reduces CFC use in direct proportion to the
        extent of the replacement --if one-half of all foam insulation is
        replaced, CFC use in foam insulation decreases by one-half.

    •   Switching to production methods that use fewer CFCs per unit of output;
        for example, collecting and recycling CFCs when mobile air conditioners
        are serviced.  As CFC prices rise in response to regulation, servicers
        of mobile air conditioners will have increased incentive to capture and
        reuse CFC-12 that otherwise would be discharged and replaced with new
        CFC-12 refrigerant.

    •   Switching from CFC-based production methods to ones using other
        chemicals; for example, using HCFC-22 in the production of packaging
        foams.  After the U.S. Food and Drug Administration approved the use of
        HCFC-22 in food-contact packaging applications, foam manufacturers
        announced plans to eliminate completely the use of CFCs during foam
        production.

    Each type of response may increase the amount of resources used to produce
or consume the same amount of goods and services.  A product switch may increase
resources used because consumers must pay more for a different product than they
were paying previously for the CFC-based product.  A switch in production
methods or the use of a substitute chemical similarly may increase the resources
required to produce the same product.  The manufacturer will, of course, pass as
much of these increased production costs on to consumers as possible given
market conditions.

    For this RIA, the increase in resources necessary to produce the same amount
of goods and services is termed a social cost.  Other analyses often use the
equivalent term real resource cost.  Social costs measure the extent to which
society as a whole is poorer due to regulation of CFCs.
       The discussion of this section refers only to CFCs, although all points
made apply equally to the regulation of halons.

-------
                                      9-3

    Social costs can take different forms:  capital costs (e.g., for purchasing
equipment), labor, materials, energy, and one-time costs (e.g., product
reformulations or research and development).  For example, changing
sterilization procedures for medical instruments might increase labor costs if
workers must spend additional time preparing batches of medical equipment to
minimize the number of times the sterilization chamber must be operated.
Capital equipment costs could increase if stronger chambers are needed to
protect workers against hazards of explosion due to reduced use of CFCs.  Raw
materials costs could increase if more expensive chemicals were substituted for
CFCs.  If less expensive materials are substituted, costs could decline.

    The costs of CFC regulations are not all resource or social costs.  For
example, if a tax increases the price of a commodity, consumers pay more for the
commodity, but more resources are not required to produce the product.^  The tax
only transfers money from consumers to the government.  Similarly, if the supply
of a commodity is restricted by government regulation or by a monopolist,
consumers will have to pay more for the commodity but again no additional
resources (machinery, labor, raw materials, etc.) will be needed to manufacture
the commodity.  If the price rises, it provides extra profit -- that is, money
is transferred from consumers to producers, but no additional resources are
used.

    Economists distinguish such transfer payments from real resource or social
costs.  The distinction is important because if a regulation increases the
social costs of production, society as a whole is poorer.  However, a regulation
that induces transfer payments but not resource costs makes someone in society
poorer, but someone els-e richer by an equal amount.  The society as a whole is
neither poorer nor richer.

9.1.2  Characterizing CFC Reducing Technologies

    The costs of CFC restrictions are estimated by identifying the costs of
adjustments likely to be made by CFC users in response to the restrictions.  As
the availability of CFCs is reduced, industries and consumers will have
increased incentive to conserve on the use of CFCs.  As new methods of
production which avoid using CFCs are discovered, social costs decrease.

    To develop numerical estimates of social costs and transfer payments, data
were gathered describing the production methods of each CFC-using industry.  The
major industries using CFCs are:  mobile air conditioners; refrigeration; foam
blowing; solvent cleaning; sterilization; and miscellaneous uses, which
primarily include aerosols.  Halons are primarily used in fire extinguishing
applications.  Using 1985 as the base period for the analysis, each of these
industries was characterized according to its CFC consumption; CFC emissions;
levels of output (e.g.,  metric tons of foam manufactured); and the stock of CFC-
consuming equipment (e.g., number of mobile air conditioning units).3
     o
       For simplicity, this discussion assumes the tax does not decrease the
amount of this commodity purchased by consumers.

     o
     J The engineering and other data gathered for this analysis are described
in a series of technical addenda, found in Volume III of this RIA.

-------
                                      9-4

    For this analysis, these industries were divided into 74 application
categories that further differentiate the types of products made with CFCs.
(A list of these applications is provided in Appendix I and each application is
discussed in Volume III of this RIA.)

    For each of these applications, it was necessary to characterize all
possible responses to reduce the use of CFCs.  For the 74 applications, nearly
900 possible responses were identified.  Of these responses, about 350 were
excluded from further analysis because of reasons relating to risk/toxicity,
technical feasibility, and cost.  For the remaining responses (approximately
550),  estimates were prepared concerning the cost of the response and its
possible reduction in annual CFC use.

    Each response was characterized in terms of its capital costs; variable
costs, such as materials, labor, and energy expenses; and nonrecurring costs,
such as research and development.  For example, one possible response to CFC
regulation is the substitution of alternative materials for insulating foams
that are manufactured with CFCs.  Because these alternative materials may be
less efficient insulators, additional costs were estimated to be incurred over
the life of the alternative product.  These costs were either the additional
labor and materials costs necessary to install insulation of equivalent energy
efficiency or the additional energy costs resulting from the use of less
efficient insulation.

    The potential implementation of response actions was estimated based on
analyses of the expected availability of each alternative technology.  Not all
chemical substitutes, product substitutes, or process changes are available
immediately;  many require research and development before becoming commercially
available.  Therefore, the ability of any action to reduce CFC use was
constrained based on estimates of:

    •   Starting Date: the time at which the action is first available
        to be adopted by at least one producer;

    •   Penetration Time: the time which the action would take to be
        evaluated by the entire industry and adopted by all producers
        for whom it would be cost effective given estimated CFC prices;
        and

    •   Reduction Potential:   the amount by which CFC use can be reduced
        when all producers who wish to take the action have in fact
        adopted it.

    Each of these factors is important.  Some .responses may be relatively easy
to adopt but able to achieve only small reductions in CFC use.  These types of
responses are typically changes in existing production procedures.  For example,
CFC emissions can be controlled through the use of covers on the tanks used in
solvent cleaning or through better production scheduling in running
sterilization chambers.  These types of responses often provide inexpensive
short term methods to reduce CFC use but are limited in achieving the larger
reductions in use which may be necessary in the longer term.

    Some responses which have a larger potential reduction may face a greater
number of obstacles to their adoption.  An example is the use of a chemical
substitute which is non-ozone depleting,  but would require the installation of

-------
                                      9-5

new machinery.  Any requirement for a substantial modification or replacement of
existing equipment can be expected to delay the date at which producers would
begin to adopt the response action and slow the rate at which it would penetrate
throughout the industry.  Such obstacles could exist even if the response is
cheaper than current production methods.  For example, it could be less
expensive in the long run to install new capital equipment to use existing
alternative solvents.  However, firms may prefer to depreciate their existing
equipment and continue use of CFCs for some period before switching to the new
chemical.

    Alternatively, some responses with a large reduction potential take a
substantial time to achieve their maximum use.  For example, mobile air
conditioners may be converted to use FC-134a.  Despite this conversion, older
cars with existing air conditioners could possibly continue the use of CFC-12
throughout their lifetime, which could extend 10 to 15 years.

    Another obstacle which could impede the implementation of some responses are
risks associated with the new technology.  For example, helium air conditioning
may be a good alternative to CFC-12 in mobile air conditioners, but that is not
certain because the technology is new and untested.  Until uncertainties about
its use are resolved, helium air conditioning is unlikely to penetrate the
market.

9.1.3   Methods Used to Estimate Costs

    Based on the engineering data, the CFC or halon price increases necessary to
trigger one or more of these responses were estimated.  Trigger prices were
estimated based on a calculation of the annual cost of each response as seen by
industrial users of CFCs.  Trigger prices were estimated using discounted cash
flow analysis.  This analysis:  (1) specified the magnitude and timing of pre-
tax capital and operating costs that would be incurred; (2) calculated after-tax
cash flows to the industry (including reductions in taxes associated with
depreciation of capital equipment); (3) discounted the stream of after-tax cash
flows using the private cost of capital to compute a present value private cost;
and (4) converted the present value private cost into an equivalent annual
stream of costs, again using the private cost of capital as a discount rate.
The resulting annualized costs were divided by the total kilogram reduction in
CFC use that can be achieved to produce an annualized private cost per kilogram
of CFC use avoided.^

    Firms were assumed to choose the production technology that minimizes their
production costs.  As CFC prices rise in response to supply restrictions, firms
were assumed to compare the costs of paying more for CFCs to the costs of
available chemical substitutes, product substitutes, and process changes.
Options with a trigger price less than or equal to the price increases were
simulated to be undertaken, subject to technical constraints identified in the
engineering analysis.  Estimates of trigger prices were used to determine the
order in which these responses to CFC regulation would be taken.
       Because this private annualized cost was computed on an after-tax basis,
and CFC prices are observed in the economy on a before-tax basis, private
annualized costs were divided by (1 - Tax Rate) so that CFC price increases and
trigger prices would be comparable (i.e., each on a before-tax basis).

-------
                                      9-6

    Next, the responses available to each industry were combined into compatible
sets of options.  To specify a set of compatible responses, the full list of
possible responses was evaluated, and a subset of responses was chosen based on
the responses most likely to be implemented.  During this step, many of the
possible responses described in Volume III were eliminated from the cost
analysis.   For example, some applications may have two possible chemical
substitutes, where only one would realistically be used.  The resulting set of
responses, totalling about 300 actions, includes only those considered
technically feasible and internally consistent.  Appendix J lists the options
simulated to be undertaken in the analysis and the CFC reductions associated
with each.

    As a final step in the analysis, the responses simulated to be adopted
across industries in a particular scenario were combined.  Since the responses
affect different CFC compounds,  the reductions in CFC use were weighted to
reflect the relative ozone-depletion potential of the various CFCs (e.g., under
the regulation CFC-11 has an ozone-depletion potential of one, but CFC-113 has
an ozone-depletion potential of 0.80).  This combined list of response actions
is sorted by trigger prices to determine the order in which each action would be
taken.  Given any required level of total weighted CFC reduction, the list
defines the trigger price necessary to initiate all sufficient responses to
achieve the reduction.  This trigger price is the estimated CFC price change
resulting from CFC regulation.
9.2  THE CASE 1 SCENARIO

    This section presents estimates of the costs of CFC regulation for a
scenario that characterizes the adoption of CFC conserving methods by U. S.
industry.  This section analyzes an initial case, labeled Case 1 for discussion
purposes, in which industry responses to CFC regulation are characterized by
slow starts, slow penetration rates, and small reductions.  Later sections
examine the implications of accelerated responses in five major CFC-using
industries and the impacts of delays in the introduction of substitute
chemicals.

    In Case 1, industry responses start slowly, are implemented slowly, and
achieve small reductions relative to the engineering data developed and
displayed in Volume III of this RIA.  These engineering data present best
estimates of the potential implementation of response actions.  All cost
scenarios analyzed in this chapter are based on variations in these engineering
estimates.

    The analysis in this and the following sections concentrates on four
principal effects of CFC regulation:  increases in CFC and halon prices; social
costs; transfer payments; and the reductions in CFC use in individual industrial
sectors.  As noted above, social costs capture the increased resources necessary
to replace the use of CFCs.   Transfer payments capture the increased prices paid
by consumers for the remaining CFCs.  Industry reductions are measured by
comparing CFC use after regulation to the baseline use which was estimated to
have occurred if CFC use had not been regulated.
     •* About 250 of the 550 responses remaining after the initial screening were
eliminated at this point.

-------
                                      9-7
    The cost scenarios presented in this chapter reflect varying assumptions
about the technical feasibility of possible industry responses.  Industry
responses that are included in some cost scenarios are excluded from others.
However, response actions that are known to exist today (e.g., HCFC-22 in
packaging foams) are included in all cost scenarios.  Exhibit 9-1 lists the
possible industry responses that are common to all cost scenarios.  Not all of
the responses shown are simulated; whether particular responses are implemented
depends on the extent of the CFC price rise.

9.2.1  Description of Case 1 Scenario

    Although difficult to quantify, delays in the development and adoption of
any of the responses that reduce CFC use are possible.  The nature of the
research and development process, i.e., solving previously unsolved problems,
emphasizes the uncertainty of predicting its completion. Furthermore, even when
developed and commercially available, technologies may not be adopted by
producers and consumers.

    Therefore, to capture some of the likely "stickiness" present when
converting from one set of manufacturing technologies to another, the initial
cost scenario assumes that for many responses available to reduce CFC use:

    •   industries delay the start of many of their responses;

    •   the pace at which the use of these responses spreads through an
        industry is relatively slow compared to an "ideal" engineering
        response;  and

    •   the maximum reduction of CFCs achieved is relatively small.

We label this cost scenario, Case 1.  The basic rationale behind its development
is that some of the industry hesitates to commit to specific action until CFC
prices rise in response to regulation, not perceiving the effect that their
joint inaction could have on raising prices.  In this case, the effects on the
economy of CFC regulation are magnified.  The Case 1 scenario serves as a
reference for comparison against which the impacts of faster implementation of
these responses, as assumed in later cases, can be measured.  It should not be
viewed as the most likely option but as one against which others can be
compared.

    Exhibit 9-2 lists the assumptions made in Case 1 about starting dates,
penetration times, and reduction potentials for selected methods of reducing CFC
use.  The exhibit shows reduction potentials for 1998.  By that year, most of
the responses are simulated to have reached their maximum level of
implementation.  Although each of the responses listed in this exhibit is
available for use by its industry, whether it is actually implemented in any
year is determined by the extent of the CFC price rise.   Before a response
action is simulated to be undertaken, the price rise must equal or exceed the
estimated trigger price of the action.
     " Appendix J provides a complete listing of all response actions simulated
to be undertaken in some of the key years of the simulation.

-------
                                      9-8

                                  EXHIBIT 9-1

                 MAJOR CONTROLS AVAILABLE IN ALL COST SCENARIOS
Application
Response Actions
Aerosols
Flexible PU Foam - Molded
Flexible PU Foam - Slabstock
Mobile Air Conditioners
Rigid Insulating Foams
Packaging Foams


Refrigeration
Solvents
Carbon Dioxide^/
HCFC-22^/

Water-Blown Processes^/
HCFC-141b^/
HCFC-123^/

Modified Polyol Systems^/
HCFC-141bS/
HCFC-123
                                  Recovery at Service
                                  Recovery at Service
                                  Recovery at Service
                                  Quality Engineering
                      Large Shops
                      Medium Shops
                      Small Shops
Product Substitutes^/
HCFC-141b
HCFC-123
CFC-11/22 (in poured applications)
FC-134a

HCFC-22^/
Product Substitutes^/

Shift to other currently available systems
 (e.g., HCFC-22 chillers)^/
HCFC-123
FC-134a
CFC-502
HCFC-22^/

Terpenes and Aqueous Cleaning^/
Reclaim Waste Solvent.
CFC-113 Azeotropes^/
Improved Housekeeping Practices
Methyl Chloroform
Carbon Adsorption and Drying Tunnel
 (Conveyorized Vapor Degreasing)»
Petroleum (Cold Cleaning)^/
Refrigerated Freeboard Chiller
 (Open Top Vapor Degreasing)
CFC-113 Automatic Cover
 (Open Top Vapor Degreasing)

-------
                                      9-9

                            EXHIBIT 9-1 (continued)

                MAJOR CONTROLS AVAILABLE IN ALL COST SCENARIOS
Application                       Response Actions
                                  CFC-113 Automatic Hoist
                                   (Open Top Vapor Degreasing)

Sterilization                     Nitrogen Purge then Pure Ethylene Oxide
                                  Acid-Water Scrubber and
                                   Condensation/Reclamation^/
                                  FC-134a/Ethylene Oxide Blend^/
                                  Contract Out^/
                                  Disposables (in Hospitals)»
Note:   a/  Reduction potential, implementation time, or starting date for these
            responses vary among different cost scenarios.  All other responses
            listed here are available and remain the same in all cost scenarios.
            The chemical substitutes HCFC-123, FC-134a, and HCFC-141b are varied
            separately in Section 9.5.

-------
                      9-10

                   EXHIBIT 9-2

CASE 1 ASSUMPTIONS ABOUT TECHNICAL FEASIBILITY OF
          CFC-CONSERVING  TECHNOLOGIES
Use-Specific
Reduction
Sector/ Start Penetration Potential
Technology Date £/ Time k/ in 1998 £/
Mobile Air Conditioning
Recovery at Service -Large Shops
Recovery at Service -Medium Shops
Recovery at Service -Small Shops
DME
Solvents
Terpenes and Aqueous Cleaning
CFC-113 Azeotropes
Housekeeping
HCFC-123
Hospital Sterilization
Disposables
Alternate Blends
Contracting Out
Steam Cleaning
Refrigeration
Recovery at Service
Recovery at Rework
FC-134a
Foam Insulation
Product Substitutes
HCFC-123
HCFC-141b
Flexible Foam-Molded
Water-Blown Processes
HCFC-141b
Flexible Foam- Slabs tock
HCFC-123
HCFC-141b
Foam Packaging
Product Substitutes
HCFC-22
1989
d/
d/
d/

1988
1989
1989
d/
1988
1988
1988
d/
1988
1988
1992
1990
1992
1991

1988
1991

1992
1991
1988
1988
3
d/
d/

5
4
d/
9
5
9
d/
5
3
10-21 £/
5-10 f/
3
3

3
9

9
9
3-5 £/
2
6.5%
d/
d/
d/

24%
5-12% £/
d/
22%
7%
4%
d/
3-11%
2%
5-53% £/
20-40% £/
27-50% £/
30-50% £/

41%
18%

26%
18%
10-51% £/
0-90% £/

-------
                                      9-11
                            EXHIBIT 9-2 (Continued)

               CASE 1 ASSUMPTIONS ABOUT TECHNICAL FEASIBILITY OF
                          CFC-CONSERVING TECHNOLOGIES
                                                               Use-Specific
                                                                 Reduction
Sector/                                  Start     Penetration   Potential
Technology                               Date £/     Time k/     in 1993 £/
Aerosols
      Carbon Dioxide                       1988           4           25%
      HCFC-22 Blends                       1988           2           25%
Notes:    a/  Year in which technology initially becomes available for
              commercial use.

          b/  Years until maximum use of technology is achieved.

          c/  Possible reduction in CFC use for the sector in 1998 for this
              control only.  Some technologies can only control a small
              percentage of an application's use.  Thus, a number smaller than
              100% may not indicate low penetration but may indicate that the
              control can only eliminate a small percentage of the application's
              use.

          d/  Case 1 assumes that no CFC reductions are possible through this
              technology.

          e/  Azeotrope consists of 70 percent CFC-113.   The reduction shown
              reflects the 30 percent reduction in CFC-113 achieved when using
              the azeotrope and the fraction of the solvent sector adopting the
              azeotropes.

          f/  Ranges reflect differences in assumptions about technical
              feasibility across subsectors within this sector (e.g., in some
              subsectors the reductions are lower than others).   Within
              particular subsectors, the reductions do not exceed 100 percent.

-------
                                      9-12

    Other assumptions in addition to those about industry responses are needed
to analyze costs of CFC regulation.  For all the analyses presented in this
chapter, it is assumed that:

    •   baseline use grows according to the middle growth assumptions
        described in Chapter 4;
        the rate of social discount is two percent ;  and

        the rate of private discount is six percent.
The implications of alternative assumptions about baseline use and discount
rates are presented in the sensitivity cases in Chapter 10.  Additionally, for
all analyses except those presented in Exhibit 9-15 below, it is assumed that
the chemicals covered by regulation and the schedule of reductions imposed are
those set out in the CFC 50%/Halon Freeze Option, the Protocol Option, described
in Chapter 5.

    Using these assumptions, Exhibit 9-3 displays the estimated price increases
for CFCs and halons.  The prices shown in this exhibit are weighted for the
ozone depletion potential of each chemical as stipulated in the Montreal
Protocol.  Thus the estimated increase for CFC-11, which has an ozone depletion
potential of 1, equals the values shown in the table, but the estimated increase
for CFC-113, which has an ozone depletion potential of .8, would be 80. percent
of the reported CFC increases.  Prices are shown in 1985 constant dollars and
thus do not reflect any inflation that might occur during the period.

    The increase in CFC prices in 1989, the year the freeze is initially
implemented, is estimated to exceed $6 per kilogram -- increasing the price of
CFCs more than four-fold.  The price increase remains high through 1990 and
drops significantly in 1991 as many of the industry responses listed in Exhibit
9-2 begin to penetrate and achieve reductions in CFC use.  The price increases
again when a 20 percent reduction in CFC use is imposed in 1993.  Over the
longer term when CFC use is reduced to half its 1986 levels (1998 and beyond),
the price of CFCs is estimated appears to depend on the cost of replacing CFC-12
with FC-134a in mobile air conditioning uses -- $5.48 per kilogram of CFC-12
replaced.

    Exhibit 9-3 also shows the pattern of halon price increases.  The price of
halons increases slightly immediately upon the imposition of the freeze in 1992
and continues at this level through the year 2010.  Over the longer term, the
price is projected to increase by $2.75 per kilogram (weighted for ozone-
depleting potential).  This estimate assumes that replacement chemicals will be
developed.

    Exhibit 9-4 shows the estimated social costs and transfer payments for the
Case 1 scenario.  These estimates are for the United States only.  No data on
     ' The rate of social discount is the interest rate at which society
translates a dollar amount into its present value.  Thus, using a two percent
discount rate, society would value $1.02 next year as equal to $1.00 today.  The
private rate of discount is the interest rate at which private citizens make the
same translation.  Appendix H provides a more complete description of these
concepts.

-------
                                      9-13

                                  EXHIBIT 9-3

                    PROJECTED CFC AND HALON PRICE INCREASES
                           FOR CASE 1 COST SCENARIO £/
                               (in 1985 dollars)
                                      -- Increases in the Prices of -
                                      CFCs                   Halons
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2010
2025
2050
6.69
5.32
1.84
1.60
3.93
3.77
3.77
3.77
3.77
5.48
5.48
5.48
5.48
5.48
5.48
0.00
0.00
0.00
0.49
0.49
0.49
0.49
0.49
0.49
0.49
0.49
0.49
2.75
2.75
2.75
Note:   a/  The stringency and coverage assumptions used are those of the CFC
            50%/Halon Freeze case described in Chapter 5.   CFCs are regulated
            with an initial freeze in 1989 at 1986 levels, 20 percent reduction
            in 1993 and 50 percent reduction in 1998, and halons are frozen at
            1986 levels in 1992.  The assumed growth in baseline use is the
            Middle Growth Case described in Chapter 4.  Price increases are
            cited on a standardized "ozone-depleting equivalent" basis per
            kilogram.

-------
                                      9-14

                                  EXHIBIT 9-4
                 SOCIAL COST AND TRANSFER PAYMENT ESTIMATES FOR
                           THE CASE 1 COST SCENARIO &
                         (in millions of 1985 dollars)
                                  Social Costs^-/           Transfer Payments^/
  Annual Values

        1989                            47                       2,030
        1990                            36                       1,610
        1991                            40                         552
        1992                            59                         500
        1993                           183                         981
        1995                          '232                         908
        1998                           707                         868
        2000                           707                         891
        2025                         1,240                         938
        2050                         1,880                         969
        2075                         1,880                         969
        2100                         1,880                         969
        2165                         1,880                         969

  Present Values

        1989-2000                    2,730                       7,280

        1989-2075                   39,500                      13,700

        1989-2165                   52,700                      13,710
Notes:  a/   The assumed stringency and coverage assumptions used are those of
             the CFC 50%/Halon Freeze case described in Chapter 5.  CFCs are
             regulated with an initial freeze in 1989 at 1986 levels, 20 percent
             reduction in 1993, and 50 percent reduction in 1998, and halons are
             frozen at 1986 levels in 1992.  The assumed rate of growth in
             baseline use is the Middle Growth Scenario described in Chapter 4.

        b/   Social costs are discounted at a 2 percent rate of social discount.

        c/   Transfer payments are discounted at a rate of 6
             percent to reflect the opportunity cost of funds in
             the private sector.

-------
                                      9-15

possible industry responses in other countries were gathered for this analysis.
Social costs and transfer payments are presented on an annual basis for 1989-
2000 and for selected years thereafter.  The present value of social costs and
transfer payments are shown at the bottom of the exhibit for three time
periods.The present value of social costs were calculated using an assumed
social discount rate of 2 percent.  For transfer payments a discount rate of 6
percent was used.

    During the initial freeze on CFC use  (1989-1992), annual transfer payments
exceed annual social costs.  Social costs are relatively low in these years
because small reductions in CFC use are required to satisfy the freeze.
Transfer payments are large, however, because (1) industry continues to use CFCs
up to the amount allowed by the freeze (1986 levels), and (2) industry must pay
more for the remaining CFCs they use.  Exhibit 9-3 shows price increases of
$6.69 and $5.32 in 1989 and 1990, a three- to four-fold increase in CFC prices.

    After 1998, annual social costs begin to exceed transfer payments.  The
large increase in social costs results from the increasing levels of reductions
required by regulation.  Larger reductions are simulated because (1) baseline
demand for products that would use CFCs is estimated to increase in the absence
of regulation, and (2) the reductions required to meet the regulatory limits
also increase.  Thus, society must incur increasing amounts of capital and
operating costs to achieve the required reductions.  Annual social costs and
transfer payments are constant after 2050 because, by assumption, CFC use in the
absence of regulation is held fixed after that year.

    For the three time periods, the results for social costs and transfer
payments are divided into those incurred through the year 2000, through the year
2075, and through the year 2165.  In all three cases, 1989 is the assumed
beginning year.  Through the year 2000, the present value of social costs are
estimated to be $2.7 billion.  Over longer time periods, the present value of
social costs grows significantly--to nearly $40 billion by 2075.  These results
indicate that, even with the technical progress projected in the analysis, the
regulation of CFCs forces society to commit additional resources to the
production of goods currently produced with CFCs.

    In the short term, the present value of transfer payments is $7.3 billion.
The increase in transfer payments over longer periods is much smaller, to $14
billion through 2075, with little change thereafter.  Annual transfer payments
are lower in the long term because fewer kilograms of CFCs are allowed to be
produced after the 50 percent reduction limit is imposed in 1998.

    The increase in CFC prices accompanying regulation induces each industrial
sector to reduce its use of CFCs.  Exhibit 9-5 displays the magnitude of these
reductions.  The reductions presented are relative to the level of use which
would have occurred in the absence of regulation.  Thus, the 2.17 percent
reduction figure for mobile air conditioning in 1989 represents a 2.17 percent
reduction from the amount of CFCs which would have been used in mobile air
conditioning in 1989 if CFC prices had not increased.
     o
       Of course, technical options that were not included in the analysis may
emerge in the future and reduce these costs substantially.

-------
                                      9-16

                                  EXHIBIT 9-5

              ESTIMATED REDUCTIONS IN CFG USE BY INDUSTRIAL SECTOR
                         FOR THE CASE 1 COST SCENARIO £/
                                    1989
              1993
              1998
Total Reductions

    Mobile Air Conditioning
    Refrigeration
    Solvents
    Sterilization
    Flexible Foams
    Rigid Insulating Foams
    Rigid Packaging Foams
    Aerosols
    Other
 2.17%
 8.22%
48.67%
20.80%
12.61%
 7.44%
63.73%
40.00%
 5.49%
 8.50%
23.02%
62.32%
40.98%
25.82%
78.21%
88.66%
50.01%
 0.00%
62.17%
53.05%
64.10%
93.07%
53.96%
95.95%
91.51%
50.01%
22.84%
Notes:  a/ Percentage reduction in CFC use relative to projected baseline use in
           each year.  The assumed rate of growth in baseline use is the Middle
           Growth Scenario described in Chapter 4.  The assumed stringency and
           coverage assumptions used are those of the CFC 50%/Halon Freeze case
           described in Chapter 5.  CFCs are regulated with an initial freeze in
           1989 at 1986 levels, 20 percent reduction in 1993, and 50 percent
           reduction in 1998, and halons are frozen at 1986 levels in 1992.

-------
                                       9-17

     Reductions are not spread evenly among industries.  In 1989, industries with
 many low cost alternatives to CFCs show the highest reductions.  For example,
 the use of CFCs as solvents is reduced substantially by a switch by electronics
 users to aqueous and terpene cleaning.  Thus,  the actions of some of the large
 electronics firms that have announced CFG reduction programs lead to reductions
 in 1989.  Similarly,  the plans announced by the food packaging industry to
 switch to alternative chemicals lead to large  reductions in CFG use.  Other
 industries, such as mobile air conditioning and refrigeration, for which no
 "drop-in" chemical substitutes exist and which produce an essential service with
 few substitutes, experience small reductions.

     Use of CFCs in various sectors decreases in 1993 and 1998 because more
 stringent reductions  are imposed.   Relative reductions across sectors also
 change.   In 1993,  rigid insulating foams start switching to the use of HCFC-141b
 and HCFC-123 as an alternative blowing agent and substantially reduce their use
 of CFC-11 and CFC-12.   By 1998,  both rigid foam sectors are estimated to have
 almost completely eliminated their use of fully halogenated CFCs by switching to
 alternative chemicals.   Similar shifts to alternative chemicals (primarily FC-
 134a)  by the refrigeration and mobile air conditioning sectors enables them to
 substantially decrease  their use of CFCs by 1998.

 9.3  EFFECTS OF IMPROVED RESPONSES IN INDIVIDUAL INDUSTRIES

     Because of the importance of industries' responses to CFC regulation,
 analysis of the available responses in specific sectors is useful.   For this
 purpose,  this section  identifies five key industries using CFCs and analyzes the
 implications of accelerated action in each.  The five industries identified are:

         Mobile Air Conditioner Servicing (Case  1A)
         Solvents (Case  IB)
         Hospitals  (Case  1C)
         Mobile Air Conditioner Manufacturing (Case  ID)
         Aerosols (Case  IE)

 This section examines impacts  of improved responses--earlier  start  dates,  faster
 penetrations,  and  larger  achieved  reductions--in each of  these  sectors.  'A
 common reference for comparison  of the  improved responses  is  used:   the  Case 1
 scenario.   The analysis for  each industry is presented in  a separate  subsection.

    The  analysis begins by describing  in  the text (in a boxed insert)  the  manner
 in which  the  start  date, penetration  time, and  reduction potential varies  from
 the Case  1  scenario.  Then,  an exhibit provides  data  on the effects of the
 altered assumptions on social  costs,  transfer payments, CFC price increases,  and
 reductions by  industry.  The analysis of  each industry  is  assigned a  case
 designation  (e.g.,  Case 1A for mobile air conditioner  servicing), shown  above.

    Changes  in  the  responses of halon users are  not analyzed  in  the exhibits  to
 follow.  Because there are few responses  available to  reduce halon use and the
 stringency cases analyzed call for only a freeze on halon use, the remaining
 analyses concentrate on CFC markets only.  In all these cases, halon prices are
 simulated to be  identical to those displayed in  Exhibit 9-3 and are not  shown.
The costs of achieving a freeze on halon use are, however, included in all
social cost estimates.

-------
                                      9-18

9.3.1  Case 1A:  Enhanced Recovery of CFCs in Mobile Air Conditioners

    Mobile air conditioners, which cool the passenger compartments of
automobiles, trucks, and buses, are the largest single use of CFCs in the United
States, accounting for an estimated 19 percent of total CFC use.  CFC-12 is used
as a refrigerant agent to install the initial refrigerant charge in new motor
vehicles and to replace the charge that is lost during vehicle operation and
service.

    Because most CFC use in mobile air conditioners goes to replace operating
and servicing losses, recovery and recycling of CFCs from mobile air
conditioners is an important method of conservation.  When mobile air
conditioners are serviced, either to repair the unit or to replace lost
refrigerant, the remaining refrigerant charge often is vented into the
atmosphere.  Also, small cans of CFC refrigerant often are used to refill the
refrigerant charge, sometimes leading to spillage and wastage of unused amounts
in the cans.

    Recovery and recycling equipment could be used to prevent the loss of CFC-12
when mobile air conditioners are serviced.   With this equipment, the CFC
refrigerant would be (1) withdrawn during servicing of the mobile air
conditioners, (2) purified, and (3) returned to the mobile air conditioners or
sold.  Recovery and recycling both avoids the venting of the refrigerant charge
and eliminates the need to use small cans during servicing.

    In Case 1 above, it was assumed that these recovery responses occurred only
in large automobile servicing centers, such as those servicing large fleets of
automobiles.  To perform the recovery, servicing centers would be required to
purchase recovery equipment.  In Case 1, only large shops were assumed to be
able to afford or obtain access to the equipment.  This limited response to
recycling reduces the use of CFCs in mobile air conditioning by 6.5 percent when
fully adopted by all such shops (after a three year penetration period.)

    The box below shows, in contrast to Case 1, an alternative set of responses
in which recovery and recycling equipment is available for use in all automobile
service shops.   The wider adoption of recovery equipment could eventually reduce
the use of CFCs in mobile air conditioning by an estimated 32.7 percent.

    The improved implementation of recovery and recycling equipment in Case 1A
affects the opportunities for reducing CFC consumption from other possible
responses to CFC regulation.  As shown in the box below, FC-134a, a possible
long-term chemical substitute for CFC-12 in mobile air conditioners,  is
simulated to be available to reduce a smaller portion of CFC use in Case 1A than
in Case 1.   The difference is accounted for by the larger reductions possible
from recovery at service, which shrinks the reductions available for FC-134a in
Case 1A.

    Several steps would be required before the widespread implementation of
recovery and recycling in mobile air conditioners could occur.  In particular:

    •   Automobile manufacturers must allow continued warranty coverage
        of mobile air conditioners that are refilled with recycled CFC-
        12 refrigerant.

-------
                                      9-19
             ASSUMED CHANGES IN START DATE, PENETRATION TINES, AND
       REDUCTION POTENTIAL FOR THE MOBILE AIR CONDITIONER SERVICING CASE
Case 1

Recovery at Service - Large Shops
Recovery at Service - Medium Shops
Recovery at Service - Small Shops
Quality Engineering
FC-134a
Case 1A:  MAC Servicing Case

Recovery at Service - Large Shops
Recovery at Service - Medium Shops
Recovery at Service - Small Shops
Quality Engineering
FC-134a
                                         Start
                                          Date
1989
   aJ
1992
1992
        Penetration
            Time
 &/
 a/
       Use-Specific
         Reduction
         Potential
          in 1998
6.5%
  &/
1989
1989
1989
1992
1992
10          7.0%
12         48.5%
   Total - 62.0%
 3
 3
 3
10
12
                                                            Total
a/ Case 1 assumes that no CFC reductions are possible through this technology.
    •   Mobile air conditioner servicemen must be trained to operate the
        recovery equipment.

    •   An industry testing program must be completed that determines
        the necessary purity of recycled refrigerant.

    •   CFC recovery equipment must be readily available and accepted by
        most mobile air conditioner service shops (including medium-
        sized and small shops), thus avoiding the use of CFC-12 to
        recharge mobile air conditioners and eliminating wastage of CFC-
        12 associated with the use of small recharge cans.

    The availability of options to recycle CFC-12 from mobile air conditioners
does not imply these actions would be taken in all cases.  The cost of recycling
equipment could make the use of this option prohibitively expensive for some
shops that would use this equipment only sporadically.  Thus, whether
accelerated implementation occurs depends on how the recharging business
evolves.  If larger shops capture a larger portion of the business, or smaller
shops can purchase lower priced equipment, then more rapid penetration is
likely.

-------
                                      9-20
    Exhibit 9-6 shows the results of accelerated action by the mobile air
conditioner servicing sector in recycling CFCs.  CFC prices are reduced by $2.20
in 1989 and $0.83 in 1990.  Social costs are reduced slightly in the short term
and by $3.4 billion through 2075.  Transfer payments are reduced by $774 million
through the year 2000.

    The enhanced recovery of CFCs in mobile air conditioners increases the
estimated reduction in CFC use in this sector from 2.17 percent to 8.56 percent
in 1989.  Because of this larger reduction, other industrial sectors are able to
use more CFCs, i.e., must achieve much smaller reductions.  Although not shown
in Exhibit 9-6, increased reductions in CFC use due to enhanced recycling are
even greater in later years, providing all other industrial sectors with greater
access to CFCs.

9.3.2 Case IB:  Enhanced Conservation in Solvent Uses

    Solvent cleaning uses various chemicals, including CFC-113, to remove
contaminants from the surfaces of manufactured parts.  Electronics components
and metal parts account for most of the CFC-113 usage in solvent cleaning,
although many other products and processes use CFC-113 for this purpose.

    CFC-113 is used in different solvent cleaning processes.  The major
processes are:

    •   cold cleaning, in which electronic components or metal parts are
        immersed in, sprayed,  or wiped with CFC-113 at or above room
        temperature; and

    •   vapor degreasing, a process that uses hot CFC-113 vapor.

Several alternatives to CFC-113 exist in both solvent processes.

    In Case IB, costs are evaluated for the improved implementation of three
possible responses available for conserving CFCs in solvent uses:

    •   Substitution of a CFC-113 azeotrope for the pure CFC-113 currently used
        as a solvent.  CFC-113 azeotropes are mixtures of CFC-113 with other
        compounds that are not ozone depleting.  CFC-113 azeotropes are expected
        to cost the same as pure CFC-113 solvent and to be equally, and possibly
        more, effective as a solvent.

    •   Improved housekeeping procedures.  Housekeeping practices, such as
        inventory control and careful handling of CFCs to prevent spillage, are
        expected to provide a low-cost means for solvent users to conserve on
        some CFC-113 consumption.

    •   Terpene- and aqueous-based cleaning.  A major electronics manufacturer
        recently announced that terpene-based cleaning methods could replace up
        to one-third of the CFCs it uses in electronics manufacturing.  Aqueous
        cleaning offers additional opportunities for replacing CFC-113 solvent
        cleaning.

-------
                                                  9-21

                                             EXHIBIT 9-6

                       ANALYSIS  OF THE  IMPACTS OF ENHANCED RECOVERY
            DURING THE  SERVICING OF  MOBILE AIR CONDITIONERS  (CASE LA) */

Social Costs ^/
1989-2000
1989-2075
Transfer Payments £/
1989-2000
1989-2075
CFC Price Increases £/
1989
1990
1991
1992
1993
1995
1998
2000
Case 1

2,730
39,500

7,280
13,600

6.69
5.32
1.84
1.60
3.93
3.77
5.48
5.48
Case 1A

2,580
36,100

6,540
13,100

4.49
4.49
1.84
1.60
3.93
3.77
5.48
5.48
Difference
(Savings)

(150)
(3,400)

(740)
(500) fl/

(2.20)
(0.83)
0.00
0.00
0.00
0.00
0.00
0.00
Notes  a/  The assumed stringency and coverage assumptions used are those of the CFC SOX/Halon Freeze case
          described in Chapter  5.  CFCs are regulated with an initial freeze in 1989 at 1986 levels, 20 percent
          reduction in 1993,  and SO percent reduction in 1998, and halons are frozen at 1986 levels in 1992
          The assumed rate of growth in baseline use is the Middle Growth Scenario described in Chapter 4

       b/  Social costs discounted at a 2 percent discount rate and cited in millions of 1985 dollars.

       £/  Transfer payments discounted at a 6 percent discount rate and cited in millions of 198S dollars.

       d/  The model used for  this analysis predicts that transfer payments during 2001-207S will be slightly
          larger in Case 1A than those in Case 1 (i.e , 500 is less than 740).  This anomalous result occurs
          because the model assumes all responses with trigger prices up to and equalling the reported CFC
          price increases axe fully implemented,  when full implementation is not required to achieve a given
          reduction in CFC use.  During the 2001-207S period,  actual reductions in Case 1A slightly exceed
          those in Case 1  This induces a corresponding reduction in estimated transfer payments in Case 1A.

       e/  Price increases are for all CFC compounds weighted by ozone depletion potential and are cited in
          constant 198S dollars.

-------
                                      9-22
As shown in the box below, the response of the solvent sector to CFC regulation
could be improved if greater reductions could be achieved from each of these
response actions.9  In addition, a potential CFC substitute, HCFC-123, could
possibly be employed as a solvent.
             ASSUMED CHANGES IN START DATE, PENETRATION TIMES, AND
              REDUCTION POTENTIAL FOR RESPONSES IN SOLVENT SECTOR
Case 1
Terpenes and Aqueous Cleaning
CFC-113 Azeotropes
Housekeeping
HCFC-123
Carbon Adsorption and Drying Tunnel
Reclaim Waste Solvent
Methyl Chloroform

Case IB:  Solvent Case
Terpenes and Aqueous Cleaning
CFC-113 Azeotropes
Housekeeping
HCFC-123
Carbon Adsorption and Drying Tunnel
Reclaim Waste Solvent
Methyl Chloroform
                                         Start
                                         Date
1988
1989
1989
 by
1992
1988
1988
1988
1989
1989
1992
1988
1988
1988
                       Use-Specific
                         Reduction
           Penetration   Potential
             Time         in 1998
 5
 4

 b
 3
 2
 2
 5
 4
 1
10
 2
 2
 2
        24%
         6%
         by
        16%-
         2%
Total = 62%

        50%
        14%
         2%
        10%
         1%
                                                            Total = 85%
a/  Azeotrope consists of 70 percent CFC-113.  The reduction shown reflects the
    30 percent reduction of CFC-113 achieved when using the azeotrope and the
    fraction of the solvent sector adopting the azeotrope.

b/  Case 1 assumes that no CFC reductions are possible through this technology.
    The improved implementation of these responses changes the simulated mix of
reductions available from other response actions in the solvents sector.  By
increasing the reductions possible for terpenes and aqueous cleaning, CFC-113
azeotropes, and housekeeping practices, the reductions possible from other
     9 For purposes of illustration, the box shows Case 1 and Case IB for one
solvent application of CFC-113, Conveyorized Vapor Degreasing.

-------
                                      9-23

responses are lowered in Case IB.  These other responses, shown in the box
below, are carbon adsorption, reclaiming waste solvent, and methyl chloroform (a
possible chemical substitute).

    To achieve the responses assumed in Case IB:

    •   Firms within the solvents sector must shift 50 percent of solvent
        cleaning operations to aqueous cleaning or terpene-based solvents by
        1992; achieving this shift requires:  (1) terpene-based solvents must be
        available in commercial quantities; (2) use-specific technology must be
        developed for aqueous cleaning equipment; (3) capital equipment must be
        purchased for aqueous cleaning; and (4) cost-effective methods for
        complying with state and local regulations on aqueous cleaning waste
        disposal must be developed.

    •   CFG-113 azeotropes must be available in commercially useful quantities
        and adopted by 33 percent of the CFG-113 solvent sector.

    •   Solvent users must improve housekeeping practices by adopting identified
        operating procedures that minimize wasted solvent and achieve immediate
        reductions in CFC-113 emissions.

    Exhibit 9-7 shows impacts on costs of enhanced solvent conservation of CFCs.
The rise in CFG prices is reduced by $4.74 in 19.89 and $3.48 in 1990.  Smaller
reductions in CFG prices persist through 1997.

    In the short term, accelerated response by the solvent sector reduces social
costs by over $400 million.  The effect on transfer payments is even greater--
these increased payments by consumers are reduced by $2.3 billion.  The longer
term impacts of larger reductions in the solvent sector are an additional
reduction in transfer payments of about $380 million.

    The reductions in CFG use in the solvent sector in 1989 provide additional
time for the refrigeration, flexible foam, aerosol,  and other sectors to make a
transition out of CFCs.  The decrease in the simulated reductions in 1989 in the
aerosol sector--from 40 percent to 15 percent--is particularly large.

    Thus, faster and larger responses in the solvent sector lower the costs of
meeting CFC restrictions in the short term.  CFG prices are substantially
reduced in 1989 and 1990 and transfer payments decrease by over $2.3 billion.
Over the longer term, when many other responses are available,  particularly the
use of FC-134a in mobile air conditioners, CFC conservation in the solvent
sector has a lesser impact on social costs.

9.3.3   Case 1C:  Enhanced Conservation in Hospital Sterilization Uses

    Hospital sterilization is another important use of CFCs.  CFC-12 is used in
a gas mixture to sterilize surgical instruments and medical items.  Gas
sterilization involves placing the instruments and items into specially designed
chambers and exposing them to a sterilant gas under pressure.  In the gas
mixture, ethylene oxide gas is the active ingredient, and CFC-12 is an inert
ingredient that dilutes the mixture's flammability.

-------
                                                 9-24

                                            EXHIBIT 9-7
                   ANALYSIS OF THE IMPACTS  OF ACCELERATED RESPONSES
                             IN THE SOLVENT SECTOR  (CASE IB) £/

Social Costs k/
1989-2000
1989-2075
Transfer Payments £/
1989-2000
1989-2075
CFC Price Increases ^/
1989
1990
1991
1992
1993
1995
1998
2000
Case 1

2,730
39,500

7,280
13,600

6.69
5.32
1.84
1.60
3.93
3.77
5.48
5.48
Case IB

2,310
36,400

4,960
10,900

1.95
1.84
1.59
1.55
3.55
3.55
5.48
5.48
Difference
(Savings)

(420)
(3,100)

(2,320)
(2,700)

(4.74)
(3.48)
(0.25)
(0.05)
(0.38)
(0.22)
0.00
0.00
Notes-  a/ The assumed stringency and  coverage assumptions used are those of the CFC SOZ/Ealon Freeze case
         described in Chapter 5.  CFCs are regulated with an initial freeze in 1969 at 1986 levels, 20 percent
         reduction in 1993, and 50 percent reduction in 1998, and halons are frozen at 1986 levels in 1992
         The assumed rate of growth  in baseline use is the Middle Growth Scenario described in Chapter 4

       b/ Social costs discounted at  a 2 percent discount rate and cited in millions of 1965 dollars.

       £/ Transfer payments discounted at a 6 percent discount rate and cited in millions of 1982 dollars.

       d/ Price increases are for all CFC compounds weighted by ozone depletion potential and are cited in
         constant 1985 dollars

-------
                                      9-25
    The four major methods of conserving CFG use in hospital sterilization
considered in this analysis are:

    •   substitution of disposable medical items for those needing
        sterilization;

    •   use of steam cleaning instead of gas sterilization for equipment and
        instruments that are not heat- or moisture-sensitive;

    •   substitution of alternate blends such as a blend of ethylene oxide with
        carbon dioxide, which requires higher operating pressures; and

    •   use of centralized facilities ("Contract Out") in which pure ethylene
        oxide could be used as a sterilant.

    The box below lists the assumptions used to analyze accelerated responses by
the hospital sector in conserving CFCs.  They involve modest use of steam
cleaning; slightly greater use of centralized sterilization facilities; and
faster penetration and increased use of disposable items and alternate blends.
             ASSUMED CHANGES IN START DATE, PENETRATION TIMES, AND
              REDUCTION POTENTIAL FOR RESPONSES  IN HOSPITAL SECTOR
                                         Start
                                          Date
        Penetration
           Time
       Use-Specific
        Reduction
        Potential
         in 1998
Case 1
Disposables
Contract Out
Alternate Blends
Steam Cleaning
FC-134a
Case 1C: Hospital Case
Disposables
Contract Out
Alternate Blends
Steam Cleaning
FC-134a
1988
1988
1988
   a/
1992
1988
1988
1988
1988
1992
9
9
4
9
3
1
8
                                                              Total
                                                              Total
22%
 4%
 7%
 */
50%
83%
35%
 5%
35%
10%
Jti
89%
a/  Case 1 assumes that no CFC reductions are possible through this technology.
Note that the acceleration of these responses lowers the simulated role of FC-
134a in achieving CFC reductions in Case 1C.

-------
                                      9-26
    The following steps are necessary for hospitals to implement the improved
responses assumed in Case 1C:

    •   expanding the use of disposable medical equipment requires that more of
        these disposables must become commercially available at reasonable costs
        and the problems with waste disposal of these items be solved;

    •   shifting a portion of in-house sterilization to external contract
        facilities requires:  (1) the development of off-site facilities (there
        is currently only one in U.S.); (2) analysis of financial costs and
        benefits of off-site sterilization; (3) acceptance by hospital
        administrators; and (4) overcoming a strong preference for in-house
        sterilization among central processing staff, surgeons and physicians,
        and other clinical staff;

    •   increasing the use of steam cleaning requires a review of instruments
        and medical items that are gas sterilized to determine those that can be
        steam sterilized; and

    •   using alternate blends requires solving technical problems (e.g., blends
        of ethylene oxide and carbon dioxide require better distribution lines
        and mixing technology).

    Exhibit 9-8 compares the results of the Case 1 assumptions and altered
assumptions of the responses for the hospital sector.  Results are similar to
those for the solvent sector.  CFG prices are reduced substantially in 1989 and
1990,  slightly from 1991 through 1997, and not at all after 1997.  Social costs
decrease by $300 million in the short term and by $1.6 billion in the long term.
Transfer payments decrease by nearly $2 billion in both time periods.  The
increased reduction in sterilization uses allows four other sectors--
refrigeration, solvents, flexible foams, and other uses--more time to achieve a
transition away from CFCs.

    9.3.4  Case ID:  Switch to DUE in Mobile Air Conditioning Uses

    As noted above, the largest single use of CFCs is in mobile air
conditioners.  An important short term response action by mobile air conditioner
manufacturers would be to substitute a mixture of dimethyl ether (DME) and CFC-
12 for the pure CFC-12 currently used.  By replacing a portion of the CFC-12
with a non-ozone depleting compound, this action could eliminate about 20
percent of the amount of CFC-12 used in mobile air conditioning.  DME mixtures
may also be viable chemical substitutes in other refrigeration applications
(e.g., commercial refrigeration).

    In Case 1, the DME/CFC-12 mixture is assumed not to be a viable method for
reducing CFC consumption.  For Case ID, this substitution could begin in 1989
and is assumed fully to penetrate the market over a period of three years.   If
viable, the DME mixture would be a "drop in" chemical substitute that could be
used in existing mobile air conditioners.   The major obstacle to substituting
DME for some CFC-12 in mobile air conditioners uses is a decision by mobile air
conditioner manufacturers to accept DME use under their equipment warranties.
Studies on the toxicity and combustibility of using DME would also need to be
completed.

-------
                                                  9-27
                                              EXHIBIT  9-8
                   ANALYSIS  OF THE  IMPACTS OF  ACCELERATED  RESPONSES
                             IN THE  HOSPITAL SECTOR  (CASE  1C) £/

Social Costs k/
1989-2000
1989-2075
Transfer Payments £/
1989-2000
1989-2075
e/
CFG Price Increases -/
1989
1990
1991
1992
1993
1995
1998
2000
Case 1

2,730
39,500

7,280
13,600


6.69
5.32
1.84
1.60
3.93
3.77
5.48
5.48
Case 1C

2,430
37,900

5,300
11,700


2.21
1.95
1.60
1.59
3.77
3.55
5.48
5.48
Difference
(Savings)

(300)
(1,600)

(1,980)
(i.goo)27


(4.48)
(3.37)
(0.24)
(0.01)
(0.16)
(0.22)
0.00
0.00
Notes  a/  The assumed stringency and coverage assumptions used are those of the CFC SOZ/Halon Freeze case
          described in Chapter 5  CFCs are regulated with an initial freeze in 1989 at 1986 levels,  20 percent
          reduction in 1993,  and SO percent reduction in 1998, and halons'are frozen at 1986 levels in 1992
          The assumed rate of growth in baseline use is the Middle Growth Scenario  described in Chapter 4

       b/  Social costs discounted at a 2 percent discount rate and cited in millions of 1985 dollars.

       c/  Transfer payments discounted at a 6 percent discount rate and cited in millions of 198S dollars

       d/  The model used for this analysis predicts that transfer payments during 2001-2075 will be slightly
          larger in Case 1C than those in Case 1 (i e , 1,900 is less than 1,980)    This anomalous result
          occurs because the model assumes all responses with trigger prices below  or equal to the reported CFC
          price increases are fully implemented, when full implementation is not required to achieve a given
          reduction in CFC use.   During the 2001-2075 period, actual reductions in  Case 1C slightly exceed
          those in Case 1.  This induces a corresponding reduction in estimated transfer payments in Case 1C.

       e/  Price increases are for all CFC compounds weighted by ozone depletion potential and are cited in
          constant 1985 dollars.

-------
                                      9-28
             ASSUMED CHANGES IN START DATE, PENETRATION TIMES, AND
         REDUCTION POTENTIAL FOR USE OF DME IN MOBILE AIR CONDITIONERS
                                                                Use-Specific
                                                                  Reduction
                                         Start     Penetration    Potential
                                         Date         Time         in 1998

Case 1
DME                                       £/           a/               a/

Case ID:  DME Case
DME                                    1989            3              20%
a/ Case 1 assumes that no CFC reductions are possible through this technology.
    Exhibit 9-9 shows the estimated impacts of the substitution of DME/CFC-12
for CFC-12 in mobile air conditioner uses.  This substitution results in
considerable decreases in social costs both in the short term and long term--
$730 million and $6.1 billion, respectively.  Transfer payments decrease by
about $2.4 billion, with virtually all of this decrease occurring in the short
term.  CFC price increases are reduced sharply in 1989 and 1990 (by $4.48 and
$3.48, respectively), and by lesser amounts through 1995.  Thereafter, the DME
substitution does not affect the price increase.  The sectors benefitting from
this DME substitution are the refrigeration, solvents, flexible foams, and other
use sectors.

9.3.5  Case IE:  Switch to Chemical Substitutes in Aerosol Uses

    The fifth, and final, industry-specific contrast to the Case 1 scenario
relates to CFC use in aerosols.  Although the use of CFCs in most aerosols was
banned by the United States in 1978, some uses in which the CFC is an essential
ingredient of the aerosol were exempted from the ban.  Examples of existing
exemptions are uses in mining, aircraft operations, military applications, and
pesticides.  Also, uses in which CFCs are claimed as active ingredients, such as
a foaming agent in novelty items, are allowed.

    Two types of alternate blowing agents for these aerosols could substitute
for the CFC-11 and CFC-12 currently in use: (1) carbon dioxide or (2) a blend of
HCFC-22 and either DME or CFC-142b.  In Case 1, both these substitutions were
assumed to occur, but eventually to replace only half of the current CFC usage
in aerosols.  In Case IE, it is assumed that these substitutions could
eventually eliminate all usage of CFC-11 and CFC-12 in aerosols.^
        Note that the reductions from the two responses are additive.

-------
                                                  9-29

                                              EXHIBIT  9-9

                         ANALYSIS OF THE IMPACTS OF THE USE OF DUE
                           IN MOBILE  AIR CONDITIONERS (CASE ID)  3/

Social Costs &/
1989-2000
1989-2075
Transfer Payments £/
1989-2000
1989-2075
CFC Price Increases £/
1989
1990
1991
1992
1993
1995
1998
2000
Case 1

2,730
39,500

7,280
13,600

6.69
5.32
1.84
1.60
3.93
3.77
5.48
5.48
Case ID

2,000
33,400

4,850
11,400

2.21
1.84
0.88
1.54
2.92
3.50
5.48
5.48
Difference
(Savings)

(730)
(6,100)

(2,430)
(2,200)^

(4.48)
(3.48)
(0.96)
(0.06)
(1.01)
(0.27)
0.00
0.00
Notes:  a/ The  assumed stringency and coverage assumptions used are  those of the CFC SOZ/Halon Freeze case
          described in Chapter 5   CFCs  are regulated with an initial freeze in 1989 at 1986 levels, 20 percent
          reduction in 1993, and SO percent reduction in 1998,  and  halons are frozen at 1986 levels in 1992
          The  assumed rate of growth in  baseline use is the Middle  Growth Scenario described in Chapter 4.

       b/ Social costs discounted at a 2 percent discount rate and  cited in millions of 1985 dollars.

       £/ Transfer payments discounted at a 6 percent discount rate and cited in millions  of 1985 dollars.

       d/ The  model used for this analysis predicts that transfer payments during 2001-2075 will be slightly
          larger in Case ID than those in Case 1 (i.e., 2,200 is less than 2,430).  This anomalous result
          occurs because the model assumes all responses with trigger prices below or equal to the reported CFC
          price increases are fully implemented, when full implementation is not required  to achieve a given
          reduction in CFC use.   During  the 2001-207S period, actual reductions in Case ID slightly exceed
          those in Case 1.  This induces a corresponding reduction  in estimated transfer payments in Case ID.

       e/ Price increases are for all CFC compounds weighted by ozone depletion potential  and are cited in
          constant 198S dollars.

-------
                                      9-30
             ASSUMED CHANGES IN START DATE, PENETRATION TIMES, AND
          REDUCTION POTENTIAL FOR USE OF CHEMICAL SUBSTITUTES IN AEROSOLS
Case 1
Carbon Dioxide
HCFC-22 Blends
1988
1988
                                                    Penetration
                                                       Time
                      Use-Specific
                       Reduction
                       Potential
                        in 1998
4             25%
2             25%
      Total = 50%
Case IE:  Aerosol Case
Carbon Dioxide
HCFC-22 Blends
1988
1988
              50%
              50%
     Total = 100%
a/    25 percent reduction assumed in two years and 50 percent reduction assumed
      after four years.
    Achieving this reduction in CFC use in aerosols would require several
actions:

    •   a finding that HCFC-22 blends are not toxic in areas of substantial
        human exposure (e.g., the use of CFC-11 as an insecticide propellant);

    •   an agreement between EPA and the Department of Defense to replace
        essential military uses of aerosols with alternate blends;

    •   a review of those aerosol uses exempted from the 1978 ban to determine
        whether these exemptions should be continued;

    •   the development of higher pressure cans to utilize the HCFC-22 blends;
        and
    •   the refinement of spray can technology so that the use of carbon dioxide
        produces a uniform spray.

    Exhibit 9-10 shows the results for Case IE.  Price decreases again occur
primarily in 1989 and 1990.  Social costs decrease by $260 million over 1989-
2000 and by $2.5 billion over the long term.  Transfer payments decline by about
$1.2 billion.  The accelerated implementation of chemical substitutes in the
aerosols sector lowers the size of the reductions in the solvents and flexible
foams sectors.

-------
                                                  9-31

                                             EXHIBIT  9-10
                     ANALYSIS  OF THE  IMPACTS OF THE  USE OF CHEMICAL
                     SUBSTITUTES IN THE AEROSOL SECTOR (CASE IE) S/

Social Costs k/
1989-2000
1989-2075
Transfer Payments £/
1989-2000
1989-2075
CFC Price Increases £/
1989
1990
1991
1992
1993
1995
1998
2000
Case 1

2,730
39,500

7,280
13,600

6.69
5.32
1.84
1.60
3.93
3.77
5.48
5.48
Case IE

2,470
37,000

6,120
12,600

5.32
2.21
1.84
1.59
3.70
3.55
5.48
5.48
Difference
(Savings)

(260)
(2,500)

(1,160)
(l.OOO)37

(1.37)
(3.11)
(0.00)
(0.01)
(0.23)
(0.22)
0.00
0.00
Notes  a/  The assumed stringency and  coverage assumptions used are those of the CFC SOZ/Balon Freeze case
          described in Chapter 5   CFCs are regulated with an initial freeze in 1989 at 1986 levels, 20  percent
          reduction in 1993,  and SO percent reduction in 1998, and halons are frozen at 1986 levels in 1992.
          The assumed rate of growth  in baseline use is the Middle Growth Scenario described in Chapter  4.

       b/  Social costs discounted at  a 2 percent discount rate and cited in millions of 198S dollars.

       £/  Transfer payments discounted at a 6 percent discount rate and cited in millions of 1985 dollars.

       d/  The model used for this analysis predicts that transfer payments during 2001-2075 will be slightly
          larger with trigger prices  below or equal to the reported CFC price increases than those in Case 1
          (i.e., 1,000 is less than 1,160).  This anomalous result occurs because the model assumes all
          responses with trigger prices below or equal to the reported CFC price increases are fully
          implemented, when full implementation is not required to achieve a given reduction in CFC use.
          During the 2001-2075 period, actual reductions in Case IE slightly exceed those in Case 1.  This
          induces a corresponding reduction in estimated transfer payments in Case IE.

       —  Price increases are for all CFC compounds weighted by ozone depletion potential and are cited  in
          constant 1985 dollars.

-------
                                      9-32

9.3.6  Effects of Combined Action by Industry

    Individually, improved responses in each of the five industries analyzed
above lower the magnitude of social costs and transfer payments incurred and
lessens the reductions simulated in other industries.  Collective action by two
or more of these industries further reduces the costs of CFC regulation.
Exhibit 9-11 shows the results of such joint actions.  The first column of the
exhibit repeats the Case 1 results first displayed in Exhibits 9-3 through 9-5.
The second column shows the results of the Case 1 scenario plus accelerated
responses by the mobile air conditioner servicing sector and the solvent sector
(Case 1A+B).   The following columns show the impacts of successively adding
accelerated responses in each of the other three sectors.  Thus, the last column
of the exhibit (on a following page) shows the impacts of accelerated responses
in all five sectors (Case 1A+B+C+D+E).

    As expected, the savings in CFC prices, social costs, and transfer payments
of joint action exceed the savings when responses are limited to a single
sector.  If only the mobile air conditioning service sector and the solvent
sector were to accelerate their responses (Case 1A+B), social costs, which are
$2.7 billion between 1989-2000 in Case 1, decrease by $600 million to $2.12
billion.  The addition of accelerated responses in the hospital sector (Case
1A+B+C) decreases social costs by another $150 million to $1.97 billion.  The
addition of the use of DME in mobile air conditioners decreases social costs by
another $550 million.   Finally, the addition of chemical substitutes in aerosol
uses decreases costs to $1.3 billion--about 49 percent of their Case 1 level.
Note that the decreases in costs associated with each additional control depend
on the order in which the controls are added.   If mobile car air conditioner
servicing was added last, rather than first, its incremental savings potentially
would be smallest.

    Transfer payments similarly are reduced by joint action.  Compared to Case
1, transfer payments during 1989-2000 decline by $2.3 billion with accelerated
responses in the mobile air conditioner servicing and solvents sectors (Case
1A+B).   Another $230 million reduction in transfer payments occurs with the
addition of accelerated responses in hospital sterilization (Case 1A+B+C).   The
addition of the use of DME in mobile air conditioners decreases transfer
payments by another $2.1 billion.  If all five sectors improve their responses,
an overall decrease of $4.8 billion in transfer payments is achieved.

    The impacts on long term social costs and transfer payments of combined
industrial actions are similarly pronounced.  If all five sectors accelerate
their responses, long term social costs are reduced by 37 percent of their Case
1 levels.  Long term transfer payments are reduced by 38 percent from their Case
1 levels.

    The pattern of industry effects is, for the most part,  as would be expected.
For each case, reductions increase in sectors which accelerate their responses
and decrease in all other sectors.  Some exceptions to this rule do occur.   For
example, there are no increased reductions in the mobile air conditioning sector
in the combined MAC Servicing/Solvent Case.  Recycling CFCs in mobile air
conditioning is estimated to be profitable in small and medium repair shops only
if CFC prices rise by more than $4.49 per kilogram.  Because the acceleration of
responses in the solvent sector alone is sufficient to forestall any price
increases of this magnitude,  no additional CFC reductions beyond those assumed
in Case 1 occur in the mobile air conditioning sector.

-------
                                      9-33

                                  EXHIBIT 9-11

                 CFG PRICE INCREASE AND SOCIAL COST ESTIMATES:
                   CASE 1 AND COMBINED INDUSTRY SCENARIOS 3/
                                     Case 1        Case 1A+B     Case 1A+B+C
Social Costs £/
    1989-2000                         2,730           2,120           1,970
    1989-2075                        39,500          33,300          31,800

Transfer Payments £/
    1989-2000                         7,280           4,980           4,750
    1989-2075                        13,600          11,100          10,900

CFC Price Increases ^/
      1989                             6.69            1.95            1.55
      1990                             5.32            1.84            1.43
      1991                             1.84            1.59            1.54
      1992                             1.60            1.55            1.54
      1993                             3.93            3.55            3.52
      1995                             3.77            3.55            3.52
      1998                             5.48            5.48            5.48
      2000                             5.48            5.48            5.48
Notes:  a/ The assumed stringency and coverage assumptions used are those of the
           CFC 50%/Halon Freeze case described in Chapter 5.  CFCs are regulated
           with an initial freeze in 1989 at 1986 levels, 20 percent reduction
           in 1993, and 50 percent reduction in 1998, and halons are frozen at
           1986 levels in 1992.  The assumed rate of growth in baseline use is
           the Middle Growth Scenario described in Chapter 4.

        b/ Social costs discounted at a 2 percent discount rate and cited in
           millions of 1985 dollars.

        c/ Transfer payments discounted at a 6 percent discount rate and cited
           in millions of 1985 dollars.

        d/ Price increases are for all CFC compounds weighted by ozone depletion
           potential and are cited in constant 1985 dollars.

-------
                                      9-34

                            EXHIBIT 9-11 (continued)

                 CFG FRIGE INCREASE AND SOCIAL COST ESTIMATES:
                   CASE 1 AND COMBINED INDUSTRY SCENARIOS £/
                                     Case 1    Case 1A+B+C+D   Case 1A+B+C+D+E
Social Costs «/
    1989-2000                         2,730           1,420           1,330
    1989-2075                        39,500          26,500          24,900

Transfer Payments £/
    1989-2000                         7,280           2,640           2,450
    1989-2075                        13,600           8,440           7,950

CFC Price Increases &
      1989                             6.69            0.39            0.39
      1990                             5.32            0.39            0.39
      1991                             1.84            0.39            0.39
      1992                             1.60            0.39            0.39
      1993                             3.93            1.84            1.60
      1995                             3.77            1.84            1.84
      1998                             5.48            4.97            4.49
      2000                             5.48            4.50            4.49
Notes:  a/ The assumed stringency and coverage assumptions used are those of the
           CFC 50%/Halon Freeze case described in Chapter 5.  CFCs are regulated
           with an initial freeze in 1989 at 1986 levels, 20 percent reduction
           in 1993, and 50 percent reduction in 1998, and halons are frozen at
           1986 levels in 1992.  The assumed rate of growth in baseline use is
           the Middle Growth Scenario described in Chapter 4.

        b/ Social costs discounted at a 2 percent discount rate and cited in
           millions of 1985 dollars.

        c/ Transfer payments discounted at a 6 percent discount rate and cited
           in millions of 1985 dollars.

        d/ Price increases are for all CFC compounds weighted by ozone depletion
           potential and are cited in constant 1985 dollars.

-------
                                      9-35

9.3.7  Summary of Industry Analyses

    Accelerated responses in any of these five industrial sectors would reduce
the short term costs of CFC regulation.  Exhibits 9-12 and 9-13 summarize the
results of the industry analyses.  The accelerated responses of individual
sectors could reduce the rise in CFC prices by as much as $4.74 in the critical
initial two years of CFC regulation.  In turn, reductions in CFC prices would
substantially reduce the transfer payments generated by CFC regulation.
Comparisons of results between the five scenarios is complicated by differences
in the size of and the nature of responses available within each CFC-using
sector.  However, under the assumptions described above, the largest gains in
terms of reductions in social costs and transfer payments were obtained in Cases
IB and ID in which accelerated actions by the solvent sector and a switch to
DME/CFC-11 mixture in mobile air conditioners were assumed.

    In the short term, accelerated response in any one industrial sector frees
for use in other sectors CFCs which this sector might have used.  Consequently,
accelerated responses in any one of these five sectors results in lower CFC
reductions in other sectors.

    Over the longer term, these accelerated responses have a much smaller
effect.  The estimated price of CFCs in the years 1998 and beyond is not
affected in any of the five cases.  The price is determined by the cost of using
FC-134a in mobile air conditioning systems and is insensitive to any of the
accelerated responses examined here.  Impacts of these accelerated responses on
social costs, and transfer payments are also much smaller in the years after
1998 than in the years 1989 to 1997, during which adjustment to CFC regulation
occurs.
9.4  THE CASE 2 SCENARIO

    Given the finding above that accelerated responses in selected CFC-using
industries substantially decrease social costs of CFC regulation, it is useful
to examine the implications of accelerated responses throughout all sectors in
the economy.  Other major sectors using CFCs are the foam blowing and
refrigeration industries.  An alternate scenario to Case 1, labelled Case 2,
assumes that all industries respond forcefully to implementing available CFC
reduction techniques.  Using the two sets of results, it is possible to gauge
the range of social costs of CFC regulations.

    Exhibit 9-14 shows the assumptions about industrial responses used for the
analysis of Case 2.11  (The responses listed are the same as those shown in
Exhibit 9-2.)  As before, each response is characterized according to its
starting date, penetration time, and maximum reduction potential.  Although each
of the responses listed in the exhibit is available for use by industry, whether
it is actually implemented in any year depends upon the extent of the CFC price
rise.  Section 9.3 discussed improved responses for five industries.  Case 2
repeats these same assumptions.  In addition, assumptions about improved
responses for the foam blowing and refrigeration industries include:
      1 Appendix J contains a listing of all responses simulated to be
undertaken in both Case 1 and Case 2.

-------
PRICE INCREASE
(1985S/kg)
                                            9-36

                                        EXHIBIT 9-12

                               ESTIMATED CFC PRICE  INCREASES
                                   FOR INDUSTRY SCENARIOS
                       (Price increases in 1985 dollars per kilogram)
                                                                                CASE 1
                                                                         	  CASE 1A
                                                                                CASE 1B
                                                                         	   CASE 1C
                                                                         	  CASE ID
                                                                         	CASE IE
                  1989   1990    1991   1992   1993   1994   1995   1996

                                          YEAR
      Key:  Case 1A = Case 1 with improved responses in mobile air conditioner
                      servicing.
            Case IB - Case 1 with accelerated responses in the solvents sector.
            Case 1C - Case 1 with improved responses in hospital sterilization.
            Case ID - Case 1 with use of DME/CFC-12 mixture in mobile air
                      conditioners.
            Case IE = Case 1 with improved adoption of chemical substitutes in the
                      aerosols sector.

-------
DOLLARS (billions)
                10
                 8   -
                 6   -
                 2  -
                                        9-37

                                    EXHIBIT 9-13

                             ESTIMATED SOCIAL COSTS AND
                           TRANSFER PAYMENTS FOR INDUSTRY
                                      SCENARIOS
                            (in billions of 1985  dollars)
                        CASE 1  CASE 1A CASE 1B CASE 1C CASE 1D CASE 1E
                                                               SOCIAL COSTS
                                                               TRANSFER PAYMENTS
  Key:  Case 1A = Case 1 with improved responses  in mobile  air  conditioner
                  servicing.
        Case IB = Case 1 with accelerated responses in  the  solvents  sector.
        Case 1C - Case 1 with improved responses  in hospital  sterilization.
        Case ID = Case 1 with use of DME/CFC-12 mixture  in  mobile  air
                  conditioners.
        Case IE = Case 1 with improved adoption of chemical substitutes  in the
                  aerosols sector.

-------
                        9-38

                    EXHIBIT 9-14

CASE 2 ASSUMPTIONS ABOUT TECHNICAL FEASIBILITY OF
            CFC-CONSERVING TECHNOLOGIES
Sector/
Technology
Mobile Air Conditioning
Recovery at Service -Large Shops
Recovery at Service -Medium Shops
Recovery at Service -Small Shops
DME
Solvents
Terpenes and Aqueous Cleaning
CFG- 113 Azeotropes
Housekeeping
HCFC-123
Hospital Sterilization
Disposables
Alternate Blends
Contracting Out
Steam Cleaning
Refrigeration
Recovery at Service
Recovery at Rework
FC-134a
Foam Insulation
Product Substitutes
HCFC-123
HCFC-141b
Flexible Foam-Molded
Water-Blown Processes
HCFC-141b
Flexible Foam-Slabstock
HCFC-123
HCFC-141b
Start
Date S/

1989
1989
1989
1989

1988
1989
1989
1992

1988
1988
1988
1988

1988
1988
1992

1990
1992
1991

1988
1991

1992
1991
Penetration
Time k/

3
3
3
3

5
4
1
10

5
3
9
1

4-9 £/
2
10-21 £/

5
3
3

1
9

9
9
Use-Specific
Reduction
Potential
in 1998 £/

6.5%
19.2%
7%
20%

50%
12% 4/
14%
3%

35%
35%
5%
10%

6-27% £/
2%
50-100% £/

10-80% fi/
17-50% fi/
20-50% */

63%
36%

24%
40%

-------
                                      9-39

                            EXHIBIT 9-14 (Continued)

              CASE 2 ASSUMPTIONS ABOUT TECHNICAL FEASIBILITY OF
                          CFG-CONSERVING TECHNOLOGIES
Sector/
Technology
Start
Date
Penetration
  Time fe/
                                                                Use-Specific
                                                                 Reduction
                                                                 Potential
                                                                 in 1998 £/
Foam Packaging
    Product Substitutes
    HCFC-22

Aerosols
    Carbon Dioxide
    HCFC-22 Blends
                                         1988
                                         1988
                                         1988
                                         1988
            3-5 £/
              2
              4
              4
               20-60%
                0-96%
                  50%
                  50%
Notes:  a/  Year in which technology initially becomes available for commercial
            use.

        b/  Years until maximum use of technology is achieved.

        c/  Possible reduction potential for response action in 1998 for this
            control only.  Some technologies can only control a small percentage
            of an applications use.  Thus a number smaller than 100% may not
            indicate low penetration but may indicate that the control can only
            eliminate a small percentage of the applications use.

        d/  Azeotrope consists of 70 percent CFG-113.  The reduction shown
            reflects the 30 percent reduction in CFC-113 achieved when using the
            azeotrope and the fraction of the solvent sector adopting the
            azeotropes.

        e/  Ranges reflect differences in assumptions about technical
            feasibility across subsectors within this subsector (e.g., in some
            subsectors the reductions are lower than others).   Within particular
            subsectors,  the reductions do not exceed 100 percent.

-------
                                      9-40

    •   Recovery at service is available immediately in many refrigeration
        applications (e.g., chillers, retail food coolers, refrigerators) with a
        penetration rate from 4 to 9 years.  The maximum reduction of CFC use
        achievable ranges from 6 percent to 27 percent depending on the
        application.

    •   FC-134a is expected to be available in 1992 as a substitute for- CFC-12
        in refrigeration applications.  Its use can eliminate CFC use fully in
        some applications (e.g., centrifugal chillers using CFC-114 and
        refrigerators), though it takes from 10 years to 21 years to fully
        penetrate its markets depending on the average lifetime of the equipment
        used.

    •   Product substitutes (e.g., thick fiberglass batting as insulation and
        paper for plates) are available immediately to replace some foam
        products.

    •   HCFC-123 is expected to be available in 1992 for use in flexible
        polyurethane slabstock and some rigid insulating foam industries.

    •   HCFC-141b is expected to be available in 1991 for use in flexible
        polyurethane slabstock, molded flexible foam, and some rigid insulating
        foam industries.  Methylene chloride is a feasible alternative in
        flexible slabstock production, but due to toxicity concerns is not used
        as an option for reducing CFC use.

    •   Water-blown processes are immediately available in molded flexible foam
        production.  They have a maximum reduction potential of 98 percent.

    •   HCFC-22 is available immediately for use in blowing foam for packaging
        products.   Its use is expected to reduce CFC use in this industry by as
        much as 96 percent.

     Exhibit 9-15 compares the results of the Case 1 and Case 2 scenarios.  The
differences between the two are substantial.  Instead of a substantial near-
term increase in CFC prices with the imposition of a freeze on CFC use in 1989,
as occurs in Case 1, there is no price increase at all using the Case 2
assumptions.  No price increase is projected in Case 2 because, in this
scenario, sufficient CFC reduction options exist that either save money or can
be executed at zero cost, so that it is possible to achieve the reductions
necessary to achieve the mandated freeze without a price rise.  Price increases
using the Case 2 assumptions are also less than half those using the Case 1
assumptions in the medium term.  In the longer term, CFC prices increase by
about $4.00 in Case 2,  about $1.50 less than the price increase occurring in
Case 1.

    Social costs are significantly less using the Case 2 assumptions.  In the
short term, Case 2 social costs are slightly more than $1 billion, about $1.7
billion less than the short term social costs of $2.7 billion in Case 1.  Over
the longer term, Case 2 social costs are about half of the social costs incurred
in Case 1.

    The reduction in transfer payments in Case 2 is even greater than the
reduction in social costs.  Transfer payments are reduced significantly in Case
2 because CFC prices do not increase in this scenario until 1993 and even then

-------
                                                9-41

                                          EXHIBIT  9-15

                COMPARISON OF RESULTS FOR THE  CASE 1  AND  2 SCENARIOS:
             SOCIAL COSTS, TRANSFER PAYMENTS,  CFC PRICE  INCREASES,  AND
                                      INDUSTRY REDUCTIONS  3/

Social Costs ^/
1989-2000
1989-2075
Transfer Payments £/
1989-2000
1989-2075
CFC Price Increases ^/
1989
1990
1991
1992
1993
1995
1998
2000
Case 1

2,730
39,500

7,280
13,600

6.69
5.32
1.84
1.60
3.93
3.77
5.48
5.48
Case 2

1,010
20,800

1,890
6,880

0.00
0.00
0.00
0.00
1.55
1.59
4.49
3.77
Difference
(Savings)

(1,720)
(18,700)

(5,390)
(6,720)

(6.69)
(5.32)
(1.84)
(1.60)
(2.38)
(2.18)
(0.99)
(1.71)
Notes' a/ The assumed stringency and coverage assumptions used are those of the CFC SOZ/Balon Freeze case
         described in Chapter 5.  CFCs are regulated with an initial freeze in 1989 at 1986 levels, 20 percent
         reduction in 1993, and SO percent reduction in 1998, and halons are frozen at 1986 levels in 1992.
         The assumed rate of growth in baseline use is the Middle Growth Scenario described in Chapter 4.

      b/ Social costs discounted at a 2 percent discount rate and cited in millions of 1985 dollars

      £/ Transfer payments discounted at a 6 percent discount rate and cited in millions of 198S dollars.

      d/ Price increases are for all CFC compounds weighted by ozone depletion potential and are cited in
         constant 1985 dollars.

-------
                                      9-42

the price increase is much smaller than in Case 1.  Transfer payments in Case 2
are only $1.9 billion in the short term, $5.4 billion less than in Case 1.  In
the long term, as with social costs, transfer payments in Case 2 are about one-
half of those in Case 1.

    There are considerable differences in the pattern of CFC reductions by
industry in the two scenarios.  All industries are assumed to accelerate their
responses to CFC regulation in Case 2.  However, some industries are assumed to
have a greater capability to accelerate their responses than others.  Thus the
solvent, sterilization, and rigid foam packaging sectors in which substitute
chemicals are more readily available increase their CFC reductions, i.e.,
decrease their CFC use, while other sectors decrease their reductions, i.e., use
more CFCs.
9.5  EFFECT OF DELAYS IN THE AVAILABILITY OF CHEMICAL SUBSTITUTES

    Using new chemicals to substitute for CFCs will be an important means for
achieving CFC reductions.  Three important substitutes, FC-134a, HCFC-123, and
HCFC-141b, are now undergoing development and/or toxicity testing.  This section
examines the effect of a one year delay in the commercial availability of these
substitutes on the costs of CFC regulation.

    The three chemical substitutes currently are not available for commercial
use.  In most industries, widespread substitution will require several years of
research and development.  In particular, industries must test the effectiveness
of the substitutes and solve technical problems before they can be used.  The
major future applications of the new substitutes are:

    •   FC-134a:  commercial and home refrigeration, including mobile air
        conditioning;

    •   HCFC-123:  solvent cleaning and rigid foam blowing; and

    •   HCFC-141b:  rigid foam blowing.

In the cases examined above, FC-134a and HCFC-123 are assumed to be initially
available for commercial use (in small quantities) in 1992.  HCFC-141b is
assumed to be available starting in 1991.

    Exhibit 9-16 shows the impact of a one and two year delay in the
introduction of these substitutes.   For comparison purposes, social costs,
transfer payments, and CFC price increases are evaluated for three cost
scenarios:  Case 1, Case 2, and Case 1A+B.  Case 1A+B, representing Case 1 plus
improved responses in both the mobile air conditioning and solvent sectors,  was
chosen as a middle case between Cases 1 and 2.

    The analysis shown in Exhibit 9-16 leads to the following principal
conclusions:

    •   Social costs, transfer payments, and CFC price increases are very
        sensitive to the introduction of chemical substitutes when the
        implementation of other response actions is limited (Case 1).   Short-
        term social costs (1989-2000) increase by 56 percent in Case 1 with a
        two year delay.  Effects on CFC prices are especially pronounced.  In

-------
                                      9-43

                                  EXHIBIT 9-16
            RESULTS  OF THE  DELAYED CHEMICAL SUBSTITUTE  SCENARIOS:
            SOCIAL COSTS, TRANSFER PAYMENTS,  CFC  PRIpE INCREASES AND
                              INDUSTRY REDUCTIONS
                                    Case 1
              Case 1
              1 Year
              Delay
                Case 1
                2 Year
                Delay
Social Costs
    1989-2000
    1989-2075

Transfer Payments £
    1989-2000
    1989-2075

CFG Price Increases
    1989
    1990
    1991
    1992
    1993
    1995
    1998
    2000
 2,730
39,500
 7,280
13,600
    69
    32
    84
    60
    93
    77
    48
  5.48
 2,810
39,500
10,000
16,400
  6.69
  5.32
  5.88
  1.95
 14.99
  3.77
  5.88
  5.48
 4,250
41,000
17,400
23,800
  6.69
    32
    88
    88
 50.00
  5.00
 17.69
  5.48
Notes:  a/  The assumed stringency and coverage assumptions used are those of
            the CFC 50%/Halon Freeze case described in Chapter 5.  CFCs are
            regulated with an initial freeze in 1989 at 1986 levels, 20 percent
            reduction in 1993, and 50 percent reduction in 1998, and halons are
            frozen at 1986 levels in 1992.  The assumed rate of growth in
            baseline use is the Middle Growth Scenario described in Chapter 4.

        b/  Social costs discounted at a 2 percent discount rate and cited in
            millions of 1985 dollars.

        c_/  Transfer payments discounted at a 6 percent discount rate and cited
            in millions of 1985 dollars.

        d/  Price increases are for all CFC compounds weighted by ozone
            depletion potential and are cited in constant 1985 dollars.

-------
                                     9-44

                            EXHIBIT  9-16  (continued)

            RESULTS  OF THE  DELAYED  CHEMICAL SUBSTITUTE  SCENARIOS:
            SOCIAL COSTS, TRANSFER PAYMENTS,  CFC PRICE INCREASES AND
                              INDUSTRY REDUCTIONS
                                  Case 1A+B     Case 1A+B     Case 1A+B
                                                 1 Year         2 Year
                                                  Delay         Delay


Social Costs k/
    1989-2000                        2,120         2,150          2,220
    1989-2075                       33,300        33,300         33,300

Transfer Payments £/
    1989-2000                        4,980         5,170          6,330
    1989-2075                       11,100        11,300         12,500
CFC Price Increases S/
1989
1990
1991
1992
1993
1995
1998
2000

1.95
1.84
1.59
1.55
3.55
3.55
5.48
5.48

1.95
1.84
1.84
1.60
4.49
3.55
5.48
5.48

1.95
1.84
1.84
1.95
10.84
3.77
5.48
5.48
Notes:  a/  The assumed stringency and coverage assumptions used are those of
            the CFC 50%/Halon Freeze case described in Chapter 5.  CFCs are
            regulated with an initial freeze in 1989 at 1986 levels, 20 percent
            reduction in 1993,  and 50 percent reduction in 1998, and halons are
            frozen at 1986 levels in 1992.   The assumed rate of growth in
            baseline use is the Middle Growth Scenario described in Chapter 4.

        b/  Social costs discounted at a 2  percent discount rate and cited in
            millions of 1985 dollars.

        c/  Transfer payments discounted at a 6 percent discount rate and cited
            in millions of 1985 dollars.

        d/  Price increases are for all CFC compounds weighted by ozone
            depletion potential and are cited in constant 1985 dollars.

-------
                                      9-45
                            EXHIBIT 9-16 (Continued)

             RESULTS OF THE DELAYED CHEMICAL SUBSTITUTE SCENARIOS:
            SOCIAL COSTS,  TRANSFER PAYMENTS,  CFC PRICE INCREASES AND
                             INDUSTRY REDUCTIONS
                                    Case 2        Case 2         Case 2
                                                  1 Year         2 Year
                                                   Delay         Delay
Social Costs £/
    1989-2000                        1,010         1,010          1,030
    1989-2075                       20,800        20,800         20,800

Transfer Payments »
    1989-2000                        1,890         1,910          1,990
    1989-2075                        6,880         6,890          7,000

CFC Price Increases ^/
    1989                              0.00          0.00           0.00
    1990                              0.00          0.00           0.00
    1991                              0.00          0.00           0.00
    1992                              0.00          0.00           0.00
    1993                              1.55          1.59           1.84
    1995                              1.59          1.59           1.59
    1998                              4.49          4.49           4.49
    2000                              3.77          3.77           4.35
Notes:  a/  The assumed stringency and coverage assumptions used are those of
            the CFC 50%/Halon Freeze case described in Chapter 5.  CFCs are
            regulated with an initial freeze in 1989 at 1986 levels, 20 percent
            reduction in 1993, and 50 percent reduction in 1998, and halons are
            frozen at 1986 levels in 1992.  The assumed rate of growth in
            baseline use is the Middle Growth Scenario described in Chapter 4.

        b/  Social costs discounted at a 2 percent discount rate and cited in
            millions of 1985 dollars.

        c/  Transfer payments discounted at a 6 percent discount rate and cited
            in millions of 1985 dollars.

        d/  Price increases are for all CFC compounds weighted by ozone
            depletion potential and are cited in constant 1985 dollars.

-------
                                      9-46

        1993, there are insufficient controls available in the cost modeling
        framework to achieve the reductions called for in the Montreal Protocol.
        As a result, CFC price increases reach $50, the maximum allowable price
        increase permitted in the modeling framework.

        The costs of regulation also are sensitive to the availability of
        chemical substitutes when individual industries accelerate their
        responses.  A two year delay with Case 1A+B has a small effect on social
        costs, but short term transfer payments increase by 27 percent.  Most of
        this increase stems from a price spike with the two year delay in 1993
        ($10.84).  CFC prices also are higher in other years with the two year
        delay (e.g., 1991-1992, 1995).

        Social costs, transfer payments, and CFC price increases are most
        sensitive to the availability of new chemical substitutes during the
        short term (1989-2000).  For example, a one year delay with the Case 1
        scenario causes a large price increase of $15 in 1993.  The delay in
        Case 1A+B raises CFC price increases by $0.94, to $4.49 in 1993.

        Delays in chemical substitutes have only a small impact on CFC prices
        and social costs when industries accelerate their implementation of
        other responses to CFC regulations.  In the Case 2 scenario, there are
        virtually no impacts because the prices of the new substitutes are
        higher in most case's than the costs of alternative responses.  Thus,
        minimal use of longer-term substitutes occurs in Case 2, making delay in
        substitution less relevant.

        Longer-term costs and CFC prices are not very sensitive to the
        availability date of new chemical substitutes.  For example, social
        costs for 1989-2075 for Case 1 increase by less than 1 percent with the
        one year delay.  Longer-term costs are less sensitive because effects on
        costs are most significant during the mid-1990s when the initial
        introduction of the substitutes is expected.

        Longer delays in the availability of these substitutes can have a
        pronounced impact on the costs of CFC regulation.  With longer delays,
        the response actions evaluated here are insufficient to meet the target
        reductions mandated under the Montreal Protocol.
9.6  EFFECT OF THE STRINGENCY OF REGULATION ON COSTS

    Chapter 5 defined eight stringency options for the control of fully
halogenated CFCs and halons.  The first option, No Controls, is used in other
chapters as a baseline against which the benefits of CFC regulation could be
measured.  The next four stringency options (numbers two through five) assume
four increasing steps in reductions of CFC use: (2) a freeze on CFC use in 1989
at 1986 levels; (3) a freeze followed by a 20 percent reduction in use in 1993;
(4) a freeze and a 20 percent reduction followed by a 50 percent reduction
(relative to 1986 levels) in 1998; and (5) a freeze, 20 percent, and a 50
percent reduction followed by an 80 percent reduction (relative to 1986 levels)
in 2002.  All these reductions are assumed to occur worldwide, although not all
countries are assumed to participate.

-------
                                      9-47

    A sixth option assumes that all CFCs are successively controlled to the 50
percent reduction level in 1998 and, in addition, halons are frozen at 1986
levels beginning in 1992.  This option replicates the reduction schedule called
for in the Montreal Protocol.

    Two other options examine United States actions which deviate from those
taken by other nations.  In the seventh option, the rest of the world is assumed
to control CFCs and halons according to the restrictions mandated in the
Montreal Protocol.  The United States, however, is assumed to institute
additional restrictions (a reduction in CFC use of 80 percent of 1986 levels) in
2002.  In an eighth option, which given the signing of the Montreal Protocol may
be seen as useful for comparison purposes only, assumes no other countries
control CFC use.

    Exhibit 9-17 shows the social costs of each of these stringency options.
Social costs are estimated for both Case 1 and Case 2 and for two time periods,
the short term (1989-2000) and the long term (1989-2075).  Even though most of
these cases assume worldwide action, the costs shown are for the United States
only.  Thus the costs presented for the last alternative (U.S. Only/CFC
50%/Halon Freeze case), in which only the U.S. imposes CFC and halon controls,
are identical to the CFC 50%/Halon Freeze case.  This occurs because the only
difference between the two alternatives is the choice by other nations of
whether to regulate CFCs and halons.  In either case, the U.S. undertakes the
same actions and only cost results for the U.S. are presented.

    The exhibit shows that the costs of reduction vary significantly according
to the level of stringency and assumptions of industrial responsiveness.  The
social costs of a CFC Freeze in the long term are $7.3 billion using the Case 2
assumptions.  In the most stringent option, CFC 50%/Halon Freeze/U.S. 80%,
social costs are estimated to be nearly $32 billion in the long term.  Under
Case 1 assumptions, the social costs of each stringency option are much greater.
Even the CFC Freeze costs nearly $20 billion in the long term.  As in Case 2,
the range of costs across each of the stringency options is wide -- long term
social costs exceed $65 billion in the most stringent regulatory option.


9.7  EFFECT OF THE METHOD OF REGULATION ON COSTS

    To this point, the analysis has not considered the impact of how EPA chooses
to restrict CFC production, except to assume that whatever method is chosen,
rights to CFC production can be bought and sold in the marketplace.  As
discussed further in Chapter 11,  EPA can choose to implement market-based CFC
regulations using three different regulatory approaches:

    0   allocated quotas in which rights to CFC production and import are
        allocated to existing producers and importers based on 1986 levels of
        activity;

    0   auctioned rights in which rights to CFC production and imports are
        auctioned to the highest bidder; and

    0   regulatory fees in which any party desiring to produce or import CFCs
        must pay a fee to the government.

-------
                                      9-48

                                  EXHIBIT 9-17

       SOCIAL COST ESTIMATES FOR SEVEN STRINGENCY AND COVERAGE OPTIONS
                           (millions of 1985 dollars)



Tm^™
(1989-2000) (1989-2075)
Case 1 Case 2 Case 1 Case 2
2.
3.
4.
5.
6.
7.
8.
CFC Freeze
CFC 20%
CFC 50%
CFC 80%
CFC 50%/Halon Freeze
CFC 50%/Halon Freeze/
U.S. 80%
U.S. Only/CFC 50%/
Halon Freeze
692 50 19,400
1,720 430 27,800
2,720^ l.OOQb-/ 36,600
2,720^ 1,000^ 62,300
2,730^/d/ l.oiOB/d/ 39,500d/
2,730£/ I.OIO^/ 65,200.
2,730^/ 1,010 39,500^
7,310
12,000
17,800
29,000
20,800^/
32,000
20,800^
Notes:  a/  Options defined in Chapter 5.  Social costs discounted at a rate of
            2 percent.  The assumed rate of growth in baseline use is the Middle
            Growth Scenario.

        b/  Social costs equal in short term (1989-2000) because 80 percent
            reduction is not imposed until 2002.

        c/  Social costs equal in short term (1989-2000) because 80 percent
            reduction is not imposed until 2002.

        d/  Social costs equal because regulation stringency is the same in the
            United States.

-------
                                      9-49
    This section briefly examines the impacts which the choice of an allocated
quota system, as recommended in the proposed rule, could have on the actual
level of social costs incurred by society and on transfer payments flowing to
CFC producers.

9.7.1   Effect of a Regulatory Fee on Transfer Payments

    As discussed above, consumers must pay substantially higher prices for CFCs
and CFC-based products under many of the scenarios analyzed here.  These
transfer payments flow to producers under the allocated quota system,
recommended by EPA in its proposed rulemaking.  The results cited above indicate
these transfer payments would be substantial--ranging from $1.9 billion to $7.2
billion in the period 1989 to 2000 (see Exhibit 9-15).

    Some analysts (see, for example, Sobotka (1988)) have questioned whether
firms currently producing CFCs should receive such large windfall profits.
Sobotka recommends the institution of a regulatory fee on CFC production to
redirect a portion of these transfer payments to the government.

    Sobotka notes that arguments by producers that increased transfer payments
are necessary to fund the development of alternative chemicals are unfounded.
Research and development expenses for CFC substitutes, estimated to be
approximately $30 million in 1987, are trivial compared to the size of these
transfer payments.  Also, according to Sobotka, decisions about the development
of new chemicals would be made on the basis of the potential profits of the new
chemicals, not whether new funding was available to finance the costs of the
development.

    Producers have also argued that production costs will increase due to CFC
regulation because the costs of feedstock chemicals will increase.  Sobotka
finds an increase in feedstock prices solely due to lower production volumes of
CFCs unlikely.

    Sobotka also argues the use of a regulatory fee would not likely increase
the price of CFCs.  The amount of windfall profit accruing from each unit of CFC
sold equals the difference between the market price for CFCs and CFC production
costs.  A regulatory fee less than this difference implicitly increases
production costs and reduces windfall profits.  A regulatory fee exceeding this
difference would force market prices to rise.

    As long as rights to CFC production and import are transferable in the
marketplace,  the method of restricting supply should have little if any impact
on the level of social costs and transfer payments anticipated.  Buyers' needs
and available supply combine to set the market price.   Whether or not a
regulatory fee is imposed as part of the allocated quota system, buyers' needs
and the restrictions on supply will be the same.   Therefore the market price
will be the same.  Because the market price would be the same, the associated
social cost would also be identical.

9.7.2  Effect of Allocated Quotas on the Availability of Chemical Substitutes

    One recent analysis (DeCanio,  1988) has pointed out that the potential to
receive large transfer payments under an allocated quota system could affect the
level of social costs and transfer payments incurred.   DeCanio compares the

-------
                                      9-50

result of the allocated quota system to the formation of a cartel organized
among CFC producers to restrict output and raise CFG prices.  In the case of
compliance with regulatory cutbacks, firms restricting output levels and
receiving increased profits as a result are free from antitrust penalties.

    DeCanio states that under an allocated quota system there is an incentive
for producers to delay the development of alternative chemicals to substitute
for CFCs.  Any useful substitute chemical would have a market price less than
that of CFCs.  The availability of this chemical in large quantities would force
CFC producers to lower their prices and thus decrease their profits.
Consequently, a potential for delay exists.

    Delay is possible because current CFC producers probably can control the
rate of new chemical development.  There are only a small number of firms with
the technical and/or financial capability to develop these chemicals.  One
mechanism by which the firms could slow the development is through the joint
toxicity testing program recently set up by these producers to test two
promising potential CFC substitutes.  Because more tests always are possible, an
industry agreement could be made to perform another test that would delay new
chemical introduction.

    The joint toxicity program has another drawback.  Although all companies
jointly receive increased profits due to the reductions in CFC output imposed by
regulation, a single firm acting on its own still would have incentive to market
a CFC substitute.  Profits gained from the sales of the substitute could exceed
the firm's share of the joint windfall profits earned from CFC sales.  The
incentive to introduce a substitute would be particularly large if (1) other
producers did not also market substitutes and (2) the firm maintained only a
small share of the existing CFC market.  By allowing all companies to monitor
each other's progress toward marketing substitutes, and offering a vehicle
through which peer pressure can be exerted on individual companies, the joint
toxicity program reduces the likelihood companies will market substitutes on
their own incentive.

    To illustrate, the analysis above showed that if the rate at which new
chemical substitutes for CFCs are introduced were slowed,  transfer payments
could increase by as much as $2.7 billion for even a one year delay in the
introduction of these chemicals (Exhibit 9-14.)   Delays in the development of
new chemicals also would increase the social costs of CFC regulation.  A system
that does not produce large transfer payments for producers (such as an
allocated quota with a regulatory fee system) would eliminate any incentive on
the part of producers to slow the development of these substitute chemicals.

    DeCanio recommends the addition of a regulatory fee to the allocated quota
option.  The fee would increase the incentive for the development of new
substitutes by reducing the size of transfer payments received by producers.
With the disincentive for developing new chemicals removed, the joint toxicity
program could proceed to accomplish its legitimate goals of providing economies
of scale to producers and avoiding duplication of effort.

    Consumers and CFC users would not pay more under this system because, as
noted above, buyers' needs and the level of restricted supply would not be
affected by the imposition of the fee.   As a result, the market prices of CFCs
would not change.

-------
                                      9-51

9.7.3  Effect of Producer-Imposed Allocations

    The analyses of this chapter have implicitly assumed that CFCs are always
allocated to their highest valued uses.  Thus, under an allocated quota option
it is assumed that producers always sell CFCs to the highest bidder.  Bidders
who would not choose to buy CFCs in the marketplace would be those who have less
expensive options for reducing CFC use.  By allowing individual firms to
determine their own actions based on comparisons of CFC costs with the costs of
conservation methods, this allocation scheme would minimize social costs.  At
the same time, selling CFCs to the highest bidder would maximize producer
profits (and transfer payments).

    In contrast to this assumption, some producers have suggested that they
intend to implement programs for allocating CFCs to existing customers based on
historical patterns of use.  By allocating the remaining supply of CFCs to
customers (as opposed to selling the supply at the market-clearing price as
assumed in the framework described above),  the producers would reduce their
opportunity to receive additional profits in the form of transfer payments.
According to producers, such allocations would protect existing CFC customers
and increase the markets for substitute chemicals once they are developed and
therefore would be in the producers' long term interest.

    If CFCs were allocated and used in a manner that did not coincide with the
most highly-valued uses of the CFCs, then the resulting social costs would be
greater than the amounts estimated in this analysis.  Social costs would be
greater because the least cost methods of reducing CFC use would not be
undertaken.  Thus, more resources would be used to produce CFC-using products.

    As an example, consider the rigid foam packaging industry and the
refrigeration industry.  The analysis above showed that the foam packaging
industry has some low cost options for reducing CFC-12 use such as substituting
the use of HCFC-22 as a blowing agent.  The refrigeration industry, on the other
hand, has fewer options for reducing CFC-12 use in the near term.  (Over the
longer term, FC-134a will likely be available to substitute for CFC-12.)  If
CFC-12 is allocated to each industry, foam packaging will use slightly less
expensive CFC-12 and save society a small amount of resources.  However, the
cost of this action will be expensive for society because fewer refrigerators
will be produced.

    The details of the manner in which such an allocation scheme would work are
not known.  It would be virtually impossible to prevent the resale of these
chemicals once allocated.  Consequently, the use of such an allocation scheme
would not prevent the estimated transfer payments from being extracted from
consumers.  It merely allows CFC distributors and manufacturers in CFC-using
industries to receive these transfer payments instead of CFC producers.

    However, a secondary market (organized among CFC-using industries) cannot
operate as efficiently as a primary market.   First, the secondary market would
impose additional transactions costs on CFC buyers and sellers.   The expenses of
drawing up contracts, finding brokers to conduct transfers, and obtaining
information will be far higher in a situation where new channels of commerce are
being established than in the existing CFC distribution system.

    Second, under a producer allocation system,  individual markets will exist
for each CFC compound.   In a system where CFCs are sold to the highest bidder,

-------
                                      9-52

production of different CFC compounds changes according to market demands.
Thus, in the case of producer allocations, the solvent industry in which many
low cost alternatives to the use of CFC-113 exist would continue using this
chemical even though it would be to society's advantage to use less CFC-113.
Under the market-based system proposed by EPA, less CFC-113 would be used,
allowing more use of other CFCs, such as CFC-12 in refrigeration.  Because the
trade between CFC-12 and CFC-113 reflects their ozone depletion potential in the
EPA market system, no additional ozone depletion occurs but output of the
economy increases because CFCs would be allocated to their highest valued use.

9.8  LIMITATIONS

    Any comprehensive attempt to measure the costs of a regulatory action
requires a number of simplifying assumptions.  This section describes those
assumptions that most seriously affect the quality of the costs estimated for
CFC regulation.

    First and most important, these estimates are contingent on the technologies
available to reduce CFC use over time.  Although the analysis explicitly
identifies emerging options for reducing CFC use, it is likely that as CFC
prices rise due to regulation, unforeseen opportunities will develop,
particularly over the very long time horizon of this analysis.  Consequently,
long-term costs are likely to be overestimated.  The possibility also exists
that technologies forecast to come on line at a particular time and cost will be
delayed and/or more expensive.

    Thus the cost modeling framework developed here should be considered a
policy analysis tool and not a system for predicting future events.  The model
is a useful aggregation of all available knowledge about CFC use.  The model
cannot,  however, predict unforeseen technologies that will emerge as CFC
regulation is implemented.

    Because the economy has never before adapted to a reduction in CFC use, it
is impossible to predict the exact nature of all actions which will be chosen by
industries.  Thus the precise path of adjustment will almost certainly differ
from the course estimated by the model and described in this chapter.  However,
the information presented here,  synthesizing all currently available information
about industry responses to CFC reductions,  is still the best basis for policy
judgments.   The cost estimates presented in this chapter should be viewed as
indications of the potential order of magnitude of costs,  and their changes due
to industry responses or regulatory decisions.  Actual costs incurred in the
future may be very different as new technologies develop.

    As an example, since the development of the modeling framework, information
has been obtained about an emerging chemical substitute,  a mixture of HCFC-22
and HCFC-142b compounds.   This mixture may be a replacement for CFC-12 in
refrigeration applications,  but must undergo testing and development to resolve
potential flammability and other problems.  If successful, the implementation of
this substitute could reduce the costs of CFC regulation.

    Second, we were unable  to identify usage patterns for a significant portion
of CFC use --as much as 20 percent for some compounds.   This percentage
represents the difference between the production of CFC compounds and the amount

-------
                                      9-53

estimated to be consumed in particular applications.^  The cost estimates
presented in this chapter assume that this "unallocated" production is spread
among the applications of CFCs in proportion to their identified consumption in
1985.  Therefore, the unallocated production is assumed to be controllable at
the same mix of response actions available in these applications.

    To analyze the significance of this assumption, an alternative cost
simulation was performed in which much of the unallocated production was
assigned to mobile air conditioner servicing.  Compared to response actions in
other applications, responses available in mobile air conditioner servicing are
more expensive.  This allocation increased social costs by 20 percent in the
short term.  Over a longer period the difference is inconsequential.

    Third, the cost estimates presented here do not include some costs that
could be of interest.  Some transition costs involved in switching from one type
of technology to another are not included.  An example of the type of transition
cost that was not included is the unemployment experienced by workers who are
temporarily out of work while new capital equipment is being installed.  Also,
administrative costs, discussed in Chapter 11, are not included.  Finally, these
costs do not adequately portray currently undefined risks and associated costs
that could occur with the use of substitute chemicals.

9.9  SUMMARY AND CONCLUSION

    After a discussion of the methodology used in this analysis, the chapter
examined a range of scenarios for the implementation of response actions.  Each
scenario is defined by three factors relating to the response actions:  start
date, speed of penetration in the market, and maximum extent of market
penetration.  Four effects of each scenario were examined: CFC price increases,
social costs,  transfer payments,  and reductions in industry use of CFCs.

    The analysis began with the definition of a scenario, Case 1, which combined
relatively late start dates, slow rates of implementation, and modest reductions
in CFC use for many CFC conservation methods.  Then, these characteristics were
changed for five industries, one industry at a time.  Next,  a second major
scenario, Case 2, was defined by assuming earlier start dates, more rapid
implementations,  and greater reductions in CFC use for these same conservation
methods.   The analysis then examined the impacts on costs of delays in the
development of chemical substitutes for CFCs and concluded with estimates of the
social costs of the stringency and coverage options described in Chapter 5.

    The following points summarize key results of this analysis.

    •   If the reactions of industries to CFC regulation are slow,  then the cost
        of these regulations could be substantial --as much as $2.7 billion
        dollars through the year 2000 and as much as $40 billion through the
        year 2075.   Transfer payments would be even higher;  thus, under an
        allocated quota system alone, using industries and consumers would be
        worse off while producers would be better off.
     1 9
        Estimates of the quantity of CFCs used in primary applications are
presented in Appendix I and in Volume III, the addenda to this RIA.

-------
                                      9-54

    •   Accelerated responses by industry can considerably reduce social costs.
        Analysis showed that faster and wider adoption of technically feasible
        means of reducing CFG use could reduce these costs to $1 billion dollars
        through the year 2000  (from $2.7 billion) and to $21 billion through
        the year 2075 (from $40 billion).

    •   Accelerated responses by industry can have an even larger effect in
        reducing transfer payments -- from 2.7 billion by 2000 in the worst case
        described to $1.9 billion by 2000 in the best case described.

    •   The major decreases in costs of CFC regulation can be achieved by
        accelerated responses in five key applications:  mobile air conditioner
        servicing, solvent cleaning in electronics, hospital sterilization,
        short-term chemical substitution in mobile air conditioner
        manufacturing, and aerosols.  Accelerated responses in any one of these
        areas considerably reduces the cost of achieving reductions in CFC use
        in 1989 and 1990.

    The chapter closed with an examination of how the method of regulation might
affect costs.  Recent analyses suggest that substantial profits could accrue to
producers of CFCs and that the level of social costs could be raised.  These
analyses also indicate that these problems could be minimized by combining a
regulatory fee with a quota system.   If producers decided to allocate a short
supply of CFCs to users,  it is .possible that social costs would be higher than
these estimates and that resale of CFCs would yield substantial profits for CFC
users and distributors.

-------
                                      9-55

                                   REFERENCES
DeCanio, Stephen J. "Allocated Quotas and Regulatory Fees:  A Mixed Strategy for
    CFC and Halon Control," Santa Barbara, CA, The Economics Group, Inc., 1988.

Mooz, William E., Kathleen A. Wolff and Frank Canun, Potential Constraints on
    Cumulative Global Production of Chlorofluorocarbons.  Santa Monica, CA, The
    Rand Corporation, 1986.

Sobotka & Co., Inc. "Combining a Fee With an Allocated Quota System," discussion
    paper, April 11, 1988.

U.S. Environmental Protection Agency (1987), Assessing the Risks of Trace
    Gases that Can Modify the Stratosphere. U.S. EPA, Washington, D.C.

-------
                                   CHAPTER 10

                     BENEFITS AND COSTS OF VARIOUS OPTIONS
                           WITH SENSITIVITY ANALYSIS
    The previous several chapters of this final Regulatory Impact Analysis have
defined, measured, and, where possible, quantified benefits and costs associated
with stratospheric ozone protection.  This chapter develops and implements a
method to compare benefits with costs.  Several characteristics of the benefit
and cost streams that make this problem particularly complex are examined in
Section 10.1.  Section 10.2 presents the methodology for the analysis.  Section
10.3 presents the several benefit-cost comparisons and Section 10.4 subjects
these results to a sensitivity analysis.

10.1  SPECIAL CHARACTERISTICS OF THIS BENEFIT TO COST COMPARISON

    The analysis of stratospheric ozone protection is unavoidably carried out
over a period measured in decades to centuries.  Two problems follow from this
factor -- truncation of benefit and cost streams and great uncertainty.  The
long time period of the analysis and the nature of the benefits makes uniform
quantification difficult.  The implications of these factors are discussed in
turn.

10.1.1  Truncation of Benefit and Cost Streams

    As a result of some action, (e.g., a regulation), benefits (or costs) could
accrue during each of a series of years.  The set of such benefits (or costs) is
referred to as a time stream.  If the measurement of a time stream is cut off at
a point in time after which it would logically continue, the time stream is said
to have been truncated.  This is illustrated in Exhibit 10-1, in which a time
stream of benefits is represented as beginning at time tl and continuing to
grow.  If this hypothetical benefit stream is truncated at time t2,  benefits
occurring after time t2 (i.e., to the right of the line t2-a) would not be
included in the analysis.  In effect, such benefits would be valued at zero.  If
such benefits were the consequence of actions whose costs were estimated to be
incurred prior to time t2, truncation of the benefits stream would result in an
inappropriate benefit-cost comparison.  In this example, because costs occur
prior to t2, estimates of net benefits (or estimates of a benefit-cost ratio)
would be biased downward.

    In the case of stratospheric ozone protection, benefits accrue
contemporaneously with costs as well as long afterward for two reasons:

        (1)  Ozone-depleting compounds have very long atmospheric
             lifetimes.  Therefore,  foregoing the use (and emission)  of
             a compound in any given year (presumably at some cost)
             helps to reduce ozone depletion immediately, as well as
             for many decades and centuries to come.^
     1 For example, the e-folding atmospheric lifetime of CFC-12 is estimated at
nearly 140 years.  This means that 38 percent of the CFC-12 molecules remain in
the atmosphere 140 years after their release.  The benefit of foregoing the use
(and emission) of CFC-12 has benefits that extend through this time period and
beyond.

-------
                                      10-2






                                  EXHIBIT 10-1




                        EXAMPLE OF TRUNCATED TIME STREAM
Benefits
                                                               Time

-------
                                      10-3
         (2)  Skin cancer risks in humans, a major consequence of ozone
             depletion, is believed to be associated with cumulative
             lifetime exposure to UV radiation.  Therefore, reduced
             exposure during the early part of a person's life (realized
             as a consequence of protecting stratospheric ozone) has
             benefits for that person later in life (i.e., reduced risk
             of skin cancer).  The benefit of reduced skin cancer
             incidence is realized after the reduction in exposure
             occurs.

Because of these two factors, a comparison of benefits and costs measured over
the same finite time horizon produces an underestimate of net benefits.  Because
benefits accrue for long periods after costs are incurred, the underestimate may
be significant.

    Of note is that extending the time horizon does not necessarily resolve this
issue.  An arbitrarily long, but finite, time horizon will still generally
result in a biased benefit-cost comparison.  Although a preferred analytic
solution may be to perform the analysis over an infinite period, this is
generally not feasible because the system does not reach steady state^ within
the acceptable time limits of the models.

    Therefore, although it would be best to avoid truncation, it is not possible
to do so in this case.  Particular care must be taken in structuring a
benefit-cost comparison, and a method for doing so is presented below.

10.1.2  Uncertainty

    Evaluating the effects of regulations to protect the stratospheric ozone
layer involves measuring complex phenomena over very long periods of time.
Factors such as invention, research and development, technological change, and
industry and consumer response to price change and altered product and input
availability, must be forecasted.  While such analyses are difficult, they are
often performed in regulatory analysis.  In this case the challenge is the very
large number of years -- nearly two centuries -- over which such phenomena must
be considered.

    There is no definitive way to deal with this uncertainty.  One must make the
most informed projections one can, be clear about their source and their
implications, and then subject them to a sensitivity analysis.  Such an analysis
seeks to vary uncertain assumptions or projections in order to indicate how
sensitive the results of the analysis -- and the policy implications that follow
-- are to alternative values.  Section 10.4 presents a sensitivity analysis of
the benefit-cost analysis for this study.
     r\
       Once the system reaches steady state, results for an infinite horizon
case can be obtained by extrapolation.  Acceptable time limits are determined by
(1) the costs of running the model and (2) the ability to create appropriate
inputs over so long a period

-------
                                      10-4
10.1.3  Non-Quantified Benefits

    A traditional benefit-cost analysis compares only what can be quantified and
transformed into dollar units or monetized.  If all of the relevant benefits and
costs are quantifiable, no problem exists.  If, however, some costs cannot be
quantified, a benefit-cost contrast that did not take this into account would
overestimate net benefits and be biased in favor of adopting the policy being
analyzed.  If, on the other hand, some benefits could not be quantified, while
all costs could be, the benefit-cost analysis would be biased against adopting
the policy.

    Reduced skin cancer incidence and mortality provide the major quantifiable
benefits.  Yet other major factors, such as impacts on aquatic and terrestrial
ecosystems, global warming, and the incidence of infectious diseases in humans,
are not satisfactorily captured in the quantified benefits examined below.  Such
benefits, and others discussed in Chapter 8, are difficult or impossible to
quantify because doing so involves the resolution of conceptual problems and
assembly of data that have not been completed.  In many instances some of these
issues may never be completely resolved.

    The fact that some benefits are quantified and thus conveniently comparable
to costs should not blind the policymaker to the existence of non-quantified
benefits.  Rather, policymakers must array all factors -- costs and benefits;
monetized and non-monetized; quantified and non-quantified -- when making policy
choices.  The task of weighting cost and benefit factors that are presented in
different units is extremely difficult.  Nonetheless, making sensible choices
among complex regulatory alternatives requires that this be done.

10.2  METHOD FOR DEALING WITH TRUNCATED BENEFIT STREAMS

    Our goal is to develop a feasible and logical way to contrast the costs and
benefits of regulations to protect the stratospheric ozone layer,  given that the
benefit stream must be truncated.  As a result of this truncation, benefits
associated with measured and counted costs go uncounted, thus potentially
biasing the evaluation against the policy.

    The problem of truncation can be more easily examined by referring to
Exhibit 10-2, which measures population on the vertical axi-s and time in years
on the horizontal axis.  This exhibit plots population over time,  and divides it
into two groups depending on when the people were born.  Line ABC represents the
population of people born prior to 2075, with the population today (1985) given
by point A.  This population group continues to grow until the year 2075.  Since
line ABC measures the population of only those born prior to 2075, the line has
a parabolic shape because, with no new additions, deaths cause this population
subgroup to decline.  This population declines to zero by 2165 since, by
assumption, no one lives for more than 90 years.  Another assumption of this
analysis is that zero population growth (ZPG) is achieved after year 2075.
Thus, total population is given by line ABDF, with segment BDF being horizontal.
The population of people born after 2075 is represented by the (increasing)
vertical distance between BC and BD.  After year 2165, each member of the
population will have been born after 2075.

    The choice of years, 2075 and 2165, is arbitrary but convenient for the
analysis that follows.  People born prior to 2075 represent ourselves, our

-------
                                       10-5
                                   EXHIBIT 10-2

                  ILLUSTRATION OF TRUNCATED POPULATION STREAK AND
                        ASSOCIATED BENEFIT AND COST STREAMS
Population
        1985
2075
2165   Time

-------
                                      10-6
children, and our children's children.  The year 2165 represents, by assumption,
the last year that someone born prior to 2075 is simulated to be alive.  Recall
that the goal is to establish a way to contrast benefits and costs, in the
context of a truncated benefit stream, that yields plausible and reasonably
unambiguous benefit-cost comparisons.  We choose the year 2165 to truncate the
benefit stream.  Recall that the major monetized benefit is the value due to
reduced skin cancer incidence and mortality.  The aggregate value of this
benefit, in turn, depends on the size of the population (as well as incidence of
UV radiation and its effects).

    To illustrate the methodology, we relate costs and benefits to time and the
population relevant to that time.  First, we define two benefit concepts:

        •   Benefit 1 -- the benefit associated with the population of persons
            alive today and born prior to 2075.   This benefit is functionally
            related to the area under the line ABC in Exhibit 10-2; therefore,
            we place a Bl in this area.

        •   Benefit 2 -- the benefit associated with the population of persons
            born after 2075.  Note that someone born in the year 2100 could, by
            assumption, live to the year 2190.  By our truncation at year 2165,
            any benefits associated with such a person would go uncounted for
            the period 2165 to 2190.  For someone born in 2165, the uncounted
            benefit period would be 2166 to 2255.  Thus, the benefits excluded
            as a result of the inevitable truncation could be quite large.  We
            place a B2 in the area BDC, recognizing that B2 is an underestimate
            of benefits beyond 2075 since it excludes any benefits beyond 2165.

    Next, we also define two cost concepts:

        •   Cost 1 -- costs incurred from the present to 2075.  These are
            associated with some of Benefit 1, but also with some of Benefit 2
            (as well as benefits that occur beyond 2165, if they were
            evaluated).  This is because some costs incurred in, say, 2050, will
            result in a life saved of someone born after 2075.  However,  that
            benefit is counted as part of Benefit 2.  We place a Cl at the top
            of Exhibit 10-2 to indicate the period of time for which Cost 1 is
            relevant.

        •   Cost 2 -- costs incurred from 2075 to 2165.   Note that Cost 2 could
            be associated with Benefit 1 and Benefit 2.   That is, someone born
            in 2025, who would be 65 in 2090, might have his or her life
            prolonged by a cost incurred in 2076.  A C2 is placed in the  exhibit
            to indicate the time period during which Cost 2 is incurred.
     3 In order to simplify this presentation of the methodology,  in this
section we do not discuss the benefit stream in terms of present values of
dollar amounts.  In practice, of course,  this is how benefits are measured;
i.e., below they are presented in present value terms.   Note also that in
Exhibit 10-2 "Bl" represents benefits that are a function of the area (under
line ABC) in which it is placed; this area is not a benefit measure.

-------
                                      10-7
    Now, we examine a reasonable set of hypotheses about how Benefit 1 and
Benefit 2 relate to Cost 1 and Cost 2.  If these hypotheses are borne out by the
data, they yield an unambiguous conclusion to the benefit-cost analysis, even in
the presence of the truncation.

    Consider first the following propositions.  We know Benefit 2 is likely to
be an underestimate of benefits associated with Cost 2.  If Cost 2 is less than
Benefit 2, even in the presence of the truncation, then it is straightforward to
justify Cost 2 based only on the truncated measure of Benefit 2.  Now, compare
Benefit 1 and Cost 1.  If Benefit 1 exceeds Cost 1, the overall net benefits
must be positive.   It might seem problematic that part of Benefit 1 is
associated with Cost 2.  But, by the prior conclusion (Benefit 2 exceeds Cost
2), Cost 2 has already been paid for.  Thus, Benefit 1 and Cost 1 can be
directly compared without concern for the contribution of Cost 2 to Benefit 1.

    The method for contrasting benefits and costs requires that, for each
regulatory alternative, the Bl to Cl and B2 to C2 comparisons be made.  We now
examine how to do so for a set of regulatory alternatives when the ranking of
the alternatives is of interest.  Recall that this analysis examines eight
regulatory alternatives:  (1) No Controls; (2) CFC Freeze; (3) CFC 20%; (4) CFG
50%; (5) CFC 80%;  (6) CFC 50%/Halon Freeze; (7) U.S. 80%/Halon Freeze; and (8)
U.S. Only CFC 50%/Halon Freeze.  It may be that in contrast to the No Controls
Case (i.e., the baseline of no regulation), all alternatives are desirable.  The
goal is to know which is most desirable.

    The following procedure is suggested.  First, determine if the B2 to C2
test is passed (i.e., whether B2 exceeds C2 or not; B and C are measured in
present value terms).  The amount of the B2 - C2 difference is not factored into
the analysis because of the speculative nature of estimates so far into the
future.  Next, measure the Bl - Cl difference for all regulatory alternatives
that pass the first test.  Each alternative is evaluated relative to the No
Controls Case.  The Bl - Cl differences are enumerated only for the alternatives
that passed the first test (B2 > C2), and the Bl - Cl differences are used for
ranking.^

10.3  COMPARISON OF BENEFITS AND COSTS

    This section presents limited comparisons of benefits and costs for the
various alternatives that have been analyzed.  These comparisons are limited
because they do not incorporate several potentially significant categories of
effects, such as pain and suffering resulting from skin cancer or general
ecological effects.   Therefore, these cost-benefit comparisons must be
interpreted carefully.  The reader is encouraged to review the detailed
assumptions and criticisms associated with the methodologies used in the
analysis presented in the appendices.
       In fact, even if B2 < C2, the policy could still have positive net
benefits.  The truncated benefit stream, Benefit 2, is biased downward, and
Benefit 1 may exceed Cost 1 by a sufficient amount to result in positive net
benefits.  Because the data presented below shows that B2 > C2 in all cases
examined, we do not deal with this complication.

-------
                                      10-8
    The first part of this section discusses the key assumptions and parameters
used to measure the costs and the benefits.  The second section reviews the
specific alternatives analyzed throughout the last several chapters.  The last
section presents the comparison of the costs and benefits.

10.3.1  Key Assumptions and Parameters

    To conduct the benefit-cost comparison, the following key assumptions and
parameters have been defined:

        •   Two time periods are used in the benefit-cost comparison --
            (1) 1985 to 2075 and (2) 2075 to 2165.  As discussed
            previously in this chapter,  all benefits enjoyed by people
            born before 2075 are compared to costs incurred by 2075,
            while costs incurred between 2076 and 2165 are compared to
            benefits received by 2165 by people born from 2075 to 2165
            (even though, as discussed earlier, benefits may accrue
            after 2165 from costs incurred prior to 2165).  The choice
            of these time periods allows for a reasonable comparison of
            future costs and benefits from stratospheric ozone
            protection to be made.

        •   All costs and benefits that could be quantified are
            expressed on a present value basis in 1985 dollars.  The
            present values have been determined by applying a two
            percent real discount rate to the future streams of costs
            and benefits.  (Alternative discount rates are presented in
            the sensitivity analysis.)

        •   For purposes of the benefit-cost comparison, the benefits
            evaluated in Chapters 7 and 8 are compared to the costs
            presented in Chapter 9 for the "Case 1" and "Case 2" cost
            assumptions.  As discussed in Chapter 9, these cases
            represent a wide range of assumptions regarding costs of
            control.  If other cost estimates were used, the benefit-
            cost comparison would be slightly different because the
            benefit estimates associated with other cost scenarios would
            be slightly different than the benefits identified for these
            scenarios due to changes in CFC control options from one
            cost scenario to the next (e.g., the choice of control
            options can affect whether the CFC emissions occur promptly
            or are delayed, which could change the type and magnitude of
            the benefits).   Despite this focus on these two cost
            scenarios, the results of the benefit-cost comparison would
            not change significantly if other cost scenarios were
            evaluated.

10.3.2  Alternatives Analyzed

    The costs and benefits of eight regulatory alternatives are analyzed and
compared.  (A more complete discussion of these alternatives can be found in
Chapter 5.)

-------
                                      10-9
        •   No Controls--No controls on CFCs or halons occur.  This is the
            baseline scenario from which the impacts of various control options
            are measured.

        •   CFG Freeze--CFC use is held constant at 1986 levels starting
            in 1989.

        •   CFG 20%--In addition to the freeze in 1989, a 20% reduction
            worldwide occurs in 1993.

        •   CFC 50%--In addition to the freeze in 1989 and the 20%
            reduction in 1993, a 50% reduction occurs in 1998.

        •   CFC 80%--In addition to the freeze in 1989, the 20%
            reduction in 1993, and the 50% reduction in 1998, an 80%
            reduction occurs in 2003.

        •   CFC 50%/Halon Freeze--In addition to the freeze on CFC use
            in 1989, the 20% reduction in 1993, and the 50% reduction in
            1998, halon use is held constant to 1986 levels starting in
            1992.

        •   CFC 50%/Halon Freeze/U.S. 80%--Same as the CFC 50%/Halon
            Freeze case, except that the U.S. reduces to 80% of 1986
            levels of CFC use in 2003.

        •   U.S. Only/CFC 50%/Halon Freeze--Same as the CFC 50%/Halon
            Freeze case, except the U.S. is the only country in the
            world that participates.

10.3.3  Comparison of the Benefits and Costs

    As discussed above, two time periods are used in the benefit-cost
comparison:  (1) 1985 to 2075 and (2) 2075 to 2165.  All benefits enjoyed by
people born before 2075 (i.e., Benefit 1) are compared to costs incurred by 2075
(i.e., Cost 1), while all costs incurred between 2076 and 2165 (Cost 2) are
compared to benefits received by 2165 by people born after 2075 (Benefit 2).

    The benefits evaluated are divided into two categories--health impacts
(which are typically less difficult to quantify) and environmental impacts
(which are usually more difficult to quantify).  The specific health benefits
valued in this analysis include changes in the number of cases and deaths from
nonmelanoma and melanoma and changes in the number of cases of cataracts.
Exhibit 10-3 summarizes the magnitude of these benefits (relative to No
Controls) for people born before 2075.  Exhibit 10-4 summarizes these benefits
for people born after 2075 (see Chapter 8 for valuation of these benefits and
Appendix G for a discussion of the limitations of such valuations).

    The specific environmental (non-health) impacts valued in this analysis
include UV radiation impacts on agricultural crops, UV radiation impacts on the
major commercial fish species, increased tropospheric ozone levels on
agricultural production, UV radiation damage to polymers,  and impacts on harbors
(primarily from storm damages) due to increases in the level of the seas.
Exhibit 10-5 summarizes the magnitude of these benefits for the No Controls and

-------
                                 10-10
                              EXHIBIT 10-3

                   SUMMARY OF THE HEALTH BENEFITS FOR
                  PEOPLE BORN BEFORE 2075 BY SCENARIO
                      (billions  of 1985  dollars)^/
Scenario
No Controls
CFC Freeze
CFC 20%
CFC 50%
CFC 80%
CFC 50%/Halon Freeze
CFC 50%/Halon Freeze/
U.S. 80%
U.S. Only/CFC 50%/
Halon Freeze
Value
Avoided
Skin Cancer
-
68
70
72
73
74
74
28
of
Cases
Cataracts
-
3
3
3
3
3
3
1
Value of
Avoided Skin
Cancer Deaths ^
-
3,196
3,272
3,358
3,419
3,440
3,454
1,324
Total Value
J (Benefit 1
-
3,267
3,345
3,433
3,495
3,517
3,531
1,353
a/  All dollar values reflect the difference between the No Controls
    scenario and the specified alternative scenario.  Estimates assume a 2
    percent discount rate.

b/  Assumes the value of an avoided death (reduction in unit mortality risk)
    to be $3 million.  Results for an alternative assumption, e.g., $12
    million, can be obtained by multiplying by 4.

-------
                                     10-11
                                  EXHIBIT 10-4

            SUMMARY OF THE HEALTH BENEFITS THROUGH 2165 BY SCENARIO
                           FOR PEOPLE BORN AFTER 2075
                           (billions  of 1985  dollars) */
Scenario
No Controls
CFC Freeze
CFC 20%
CFC 50%
CFC 80%
CFC 50%/Halon Freeze
CFC 50%/Halon Freeze/
Value of
Avoided Cases
Skin Cancer Cataracts
-
13 +
13 +
14 +
14 +
14 +
14 +
Value of
Avoided Skin
Cancer Deaths -
-
628
638
651
659
666
668
Total Value
J (Benefit 2)
-
641
651
665
673
680
682
   U.S. 80%

U.S. Only/CFC 50%/Halon     1             +               52               53
   Freeze
+ = Less than $500 million.
    a/  All dollar values reflect the difference between the No Controls
        scenario and the specified alternative scenario.  Estimates assume a 2
        percent discount rate.

    b/  Assumes the value of an avoided death (reduction in unit mortality risk)
        to be $3 million.  Results for an alternative assumption, e.g., $12
        million, can be obtained by multiplying by 4.

-------
                                     10-12
                                  EXHIBIT 10-5

         SUMMARY OF THE ENVIRONMENTAL BENEFITS THROUGH 2075 BY SCENARIO
                           (billions of 1985 dollars)V

Scenario
No Controls
CFC Freeze
CFC 20%
CFC 50%
CFC 80%
CFC 50%/Halon
UV
Damage
to
Crops k/
-
21.4
23.3
25.7
27.4
27.3
UV
Damage
to
Fish V
-
6.5
6.7
6.7
6.7
6.7

Damage
from
Ozone ^/
-
12.7
13.6
14.7
15.5
15.5

UV
Damage to
' Polymers ^/
-
2.6
3.1
3.4
3.5
3.6

Sea
Level
Rise £/
-
3.9
4.3
4.9
5.4
4.9

Total
Benefits
(Benefit 1)
-
47.1
51.0
55.4
58.5
58.0
   Freeze

CFC 50%/Halon      27.7      6.7      15.6
   Freeze/U.S. 80%

U.S. Only/CFC 50%/  8.6      2.4       6.4
   Halon Freeze
3.6
0.8
5.1
1.4
58.7
19.6
    a/  All dollar values reflect the difference between the No Controls
        scenario and the specified alternative scenario.  Estimates assume a 2
        percent discount rate.

    b/  Middle values were used.

    c/  Medium values assuming impacts are anticipated were used.

-------
                                     10-13
alternative scenarios (see Chapter 8 for valuation of these benefits and
Appendix F for a discussion of the limitations of such valuations); the value of
these benefits has been estimated through the year 2075.

    The costs to achieve the goals of each regulatory alternative are based on
the "Case 1" and "Case 2" scenarios discussed in Chapter 9.  A summary of these
costs is provided in Exhibit 10-6; costs incurred by 2075 (Cost 1) and between
2076 and 2165 (Cost 2) are shown.

    Following the methodology set forth above, we first compare B2 and C2.   This
comparison is shown in Exhibit 10-7.  The analysis shows that for all cases B2
exceeds C2.  Therefore,  we proceed to compare Bl to Cl.

    Exhibit 10-8 compares the costs of control through 2075 with only the health
benefits incurred by people born before 2075 for each scenario.  Exhibit 10-9
provides a similar comparison of costs and benefits that includes the health and
environmental (non-health) impacts; it also lists major costs and benefits that
were not quantified and therefore are not captured by a comparison of monetized
values.

    As shown in Exhibit 10-9, benefits to all people born by 2075 (Benefit 1)
exceed the costs of control through 2075 (Cost 1) for every case.  Moreover, it
was shown earlier that the benefits after 2075 (Benefit 2) exceed the costs of
control incurred after 2075 (Cost 2).  From these results, it appears that the
benefits of the alternatives analyzed exceed the costs of control for CFCs and
halons.  However, the quantitative benefit-cost comparison in Exhibit 10-9 is an
incomplete summary of all factors that should be considered by policymakers when
making policy choices since that comparison includes only those factors that
could be quantified and monetized.  However, as discussed earlier, several
potential benefits of stratospheric ozone protection and costs of control could
not readily be quantified and monetized.  The major unquantified benefits and
costs are enumerated in the last column of Exhibit 10-9.  These factors should
also be considered when evaluating various policy choices.

10.4  SENSITIVITY ANALYSIS

    The analysis in the preceding section indicates that the benefits of
stratospheric ozone protection exceed the costs of control of ozone-depleting
substances by a substantial margin.  This result is sensitive to several key
assumptions.  The following sensitivities are analyzed to determine how
sensitive the results are to each factor:

        •   Social discount rates of zero, one, and six percent.

        •   The value of unit mortality risk reduction of two and twelve
            million dollars.
       As discussed in Appendix G, establishing a value of reducing risks to
human life is context dependent.  The use of a value of $3 million as a
reference case should not be taken by the reader as an indication that all
analytical questions have been addressed to support this value.   Some
authorities, e.g., Moore and Viscusi (1988) and Ashford and Stone (1988),
suggest much higher values in cases where non-voluntary risks are reduced.

-------
                                 10-14
                              EXHIBIT 10-6

              SUMMARY OF THE COSTS OF CONTROL BY SCENARIO
                       (billions of 1985 dollars) S/
Scenario
No Controls
CFC Freeze
CFC 20%
CFC 50%
CFC 80%
CFC 50%/Halon Freeze
CFC 50%/Halon Freeze/
U.S. 80%
U.S. Only/CFC 50%/Halon
Freeze
Total Costs By 2075
(Cost 1)
--
7-19
12-27
13-37
22-62
21-40
24-65
21-40
Costs Between 2076 and 2165
(Cost 2)
--
4-9
5-11
6-11
9-23
7-13
10-24
7-13
a/  All dollar values reflect the difference between the No Controls
    scenario and the specified alternative scenario.  Estimates assume a 2
    percent discount rate.  Range is for "Case 1" and "Case 2" cost
    assumptions (see Chapter 9.)

-------
                                     10-15
                                  EXHIBIT 10-7

                  COMPARISON OF BENEFITS  AND COSTS  BEYOND 2075
                         (billions of 1985 dollars) */
Scenario
Benefits Through
2165 for People
Born After 2074
  (Benefit 2) ^/
Costs from 2075-2165
       (Cost 2)
Is B2 Greater
   Than C2?
No Controls
CFC Freeze
CFC 20%
CFC 50%
CFC 80%
CFC 50%/Halon Freeze
CFC 50%/Halon Freeze/
U.S. 80%
U.S. Only /CFC 50%/Halon
Freeze
-
641
651
665
673
680
682
53
-
4-9
5-11
6-11
9-23
7-13
10-24
7-13
-
Yes
Yes
Yes
Yes
Yes
Yes
Yes
a/  All dollar values reflect the difference between the No Controls scenario
    and the specified alternative scenario.  Estimates assume a 2 percent
    discount rate.  Range of costs is for "Case 1" and "Case 2" cost
    assumptions.

b/  Assumes the value of an avoided death (reduction in unit mortality risk) to
    be $3 million.  Includes values of avoided cancer cases and avoided
    cataracts.

-------
                                 10-16
                              EXHIBIT 10-8

               NET PRESENT VALUE COMPARISON OF COSTS AND
                HEALTH BENEFITS THROUGH 2075  BY SCENARIO
                       (billions of 1985 dollars) */

Incremental
Health Benefits Costs Benefits -
(Benefit 1) ^/ (Cost 1) Benefits-Costs Costs £/
No Controls
CFC
CFC
CFC
CFC
CFC
CFC
U
Freeze 3,267
20% 3,345
50% 3,433
80% 3,495
50%/Halon Freeze 3,517
50%/Halon Freeze/ 3,531
. S. 80%
U.S. Only/CFC 50%/Halon 1,353
Freeze
7-19 3,248-3,260 3,245-3,260
12-27 3,318-3,333 70-73
13-37 3,396-3,420 78-87
22-62 3,433-3,473 37-53
21-40 3,477-3,496 23-44
24-65 3,466-3,507 (ll)-ll
21-40 1,313-1,332 1, 313-1, 332^/
a/  All dollar values reflect the difference between the No Controls
    scenario and the specified alternative scenario unless noted otherwise.
    Valuation of the health benefits applies only to people born before
    2075; costs are estimated through 2075.  In all scenarios, benefits
    through 2165 for people born from 2075 to 2165 exceed the costs of
    control from 2075 to 2165.  Estimates assume a 2 percent discount rate.
    Range of costs is for "Case 1" and "Case 2" cost assumptions.

b/  Assumes the value of an avoided death (reduction in unit mortaility
    risk) to be $3 million.  Includes values of avoided cancer cases and
    avoided cataracts.

c_/  Change in (benefits-costs) from the indicated scenario to the scenario
    listed above it, e.g., "CFC Freeze" minus "No Controls," unless noted
    otherwise.

d/  Compared to No Controls Case.

-------
                                                            EXE
                                                                     0-9
                                                      COMPARISON OF (JUSTS AHD
                                                  BENEFITS THROUGH 2075 BY SCENARIO
                                                    (billions of 1985 dollars)3'
                          Health and
                         Environmental
                           Benefits
                                          Costs
      Net Benefits
      (Minus Costs)
            Net Incremental
            Benefits (Minus
               Costs)  B/
                                                                                  Costs and Benefits That Have Not Been Quantified
No Controls

CFC Freeze                   3,314

CFC 20Z                      3,396

CFC 50Z                      3,488

CFC 80Z                      3,553

CFC 50Z/Halon Freeze         3,575

CFC 50Z/Halon Freeze/        3,589
   U.S. 80Z

U S. Only CFC 50Z/Halon      1,373
   Freeze
 7

12

13

22

21

24


21
3,307

3,384

3,475

3,531

3,554

3,565


1,352
3,307

   77

   91

   56

   23

   11
Costs

Transition costs, such as temporary layoffs
  while new capital equipment is installed
Administrative costs
Costs of unknown environmental hazards due to
  use of chemicals replacing CFCs

Health Benefits

Increase in actinic keratosis from UV radiation
Changes to the human immune system
 Tropospheric ozone impacts on the pulmonary
  system
Pain and suffering from skin cancer

Environmental Benefits

Temperature rise
Beach erosion
Loss of coastal wetlands
Additional sea level rise impacts due to
  Antarctic ice discharge, Greenland ice
  discharge, and Antarctic meltwater
UV radiation impacts on recreational fishing,
  the overall marine ecosystem, other crops,
  forests, and other plant species, and
  materials currently in use
Tropospheric ozone impacts on other crops,
  forests, other plant species, and man-made
  materials
    a/  All dollar values reflect  the  difference between the No Controls scenario and the specified alternative scenario, unless
        otherwise indicated.   Valuation  of  the health and environmental benefits applies only to people born before 2075; costs are
        estimated through 2075.  In  all  scenarios, benefits through 2165 for people born from 2075 to 2165 exceed the costs of control
        from 2075 to 2165.   Estimates  assume  a 2 percent discount rate   Costs are for the "Case 2" cost assumptions.
    b/  Change in net incremental benefits  from the  indicated scenario to the scenario listed above it, e g
        Controls," unless otherwise  indicated.
                                                                  "CFC  Freeze"  minus "No
    £/  Compared to No Controls Case.

-------
                                 10-18
    •   Rate of growth in CFC use is altered; the results above
        assume growth of approximately 4.0 percent per year from
        1986 to 2000 and 2.5 percent per year from 2000 to 2050.  A
        slightly lower case (approximately 3.4 percent per year from
        1986 to 2000 and 2.5 percent per year from 2000 to 2050) is
        also analyzed.

    •   Previous results used the DNA action spectrum; the erythema
        spectrum is substituted.

    •   To capture uncertainties in the dose-response coefficients,
        low and high values are evaluated based on the statistical
        variation about each coefficient (+ one standard error about
        each coefficient).

    •   The value of unit mortality risk reduction has been adjusted
        over time at the rate of growth in per capita income
        (averaging approximately 1.5 percent real growth per year
        from 1985 to 2075,  with no growth thereafter); this
        assumption is evaluated at one-half and double this rate of
        growth.

    •   Protocol participation rates for other parts of the world
        are altered to provide lower and higher estimates than
        assumed in the analysis above.  These participation rates
        are indicated below (the middle assumptions were used for
        the base case estimates):

           U.S.      Other Developed Countries     Developing Countries

High       100%                100%                         100%
Middle     100%                 94%                          65%
Low        100%                 75%                          40%

        An additional case  was also examined assuming that no additional
        developing nations  sign the Protocol.  In this case, developing
        nations  are estimated to have approximately a 2.5 percent
        participation rate  while developed countries participate at a 94
        percent  rate.

    •   The technological rechanneling estimates used above are
        evaluated at a higher level, lower level,  and at a zero
        impact level.  These rates are presented below as a percent
        of the assumed growth rate in CFC use (the middle
        assumptions were used for the base case estimates, see
        Appendix C):

-------
                                     10-19
                 Amount of       U.S. and Other
                 Reduction     Developed Countries     Developing Countries

      High       CFC Freeze           0.375                   0.5
                 CFC 20%              0.375                   0.375
                 CFC 50%              0.250                   0.250
                 CFC 80%              0.250                   0.250

      Middle     CFC Freeze           0.5                     0.75
                 CFC 20%              0.5                     0.625
                 CFC 50%              0.375                   0.5
                 CFC 80%              0.375                   0.5

      Low        CFC Freeze           0.75                    0.875
                 CFC 20%              0.75                    0.75
                 CFC 50%              0.50                    0.625
                 CFC 80%              0.50                    0.625

      None       All cases            1.00                    1.00

        •   The rates of growth in trace gas concentrations,
            specifically methane, C02, and N20, are altered to provide
            lower and higher growth rates than used in the results
            presented above.   These lower and higher growth rates are
            presented below,  along with the middle assumptions used for
            the base case estimates:
           	Methane	     	C02	        N20

High       1% annual compounded growth     NAS 75th percentile     0.25%/year

Middle     0.017 ppm/year                  NAS 50th percentile     0.20%/year

Low        0.01275 ppm/year                NAS 25th percentile     0.15%/year

        •   The upper limit on ozone depletion used in the analysis is
            varied.  In the base case assumptions, ozone depletion is
            artificially constrained at 50 percent due to model
            limitations.  Alternative limits of 30 percent and 95
            percent are examined.

        •   The baseline mortality rates are reduced to examine the
            implications of changes in lifestyle or medical technology
            that result in reduced mortality from skin cancer.  First,
            skin cancer mortality rates are reduced exponentially so
            that by 2100 rates decline from 1985 levels by 25 percent.
            This decline, which is not evidenced in current data, would
            require that people significantly alter their outdoor

-------
                                     10-20


            behavior, thereby reducing exposure.*"  Second, all mortality
            rates (including skin cancer mortality rates) for
            individuals age 35 and older are reduced by 25 percent, 50
            percent, and 75 percent by 2100.  Significant improvements
            in medical technology (including the detection and treatment
            of all cancers, including skin cancers) would be required in
            order to achieve these reductions in mortality.  Of note is
            that by'reducing all the mortality rates, the expected
            lifetime of individuals in the analysis increases by 1.7,
            3.6, and 5.7 years by 2100, respectively.

    For all of the above sensitivity analyses, comparisons are made between two
scenarios only -- the No Controls scenario and the CFC 50%/Halon Freeze
scenario.  These two cases are shown to indicate the magnitude of the changes in
costs and benefits due to each sensitivity analysis.  For all sensitivities only
the health benefits due to avoided deaths are shown; these benefits provide the
vast majority of all quantifiable health and environmental benefits from
stratospheric ozone protection.  Also, only the costs estimated based on the
"Case 2" cost assumptions scenario are shown.  Exhibit 10-10 summarizes the
results from the sensitivity analyses.

    Also shown in Exhibit 10-10 are the following two cases:

        •   Low discount rate and high value of life, shows the combined
            effects of assuming a 1 percent discount rate and a $12
            million value of life growing at the rate of growth of GNP
            per capita.

        •   High discount rate and low value of life, shows the combined
            effects of assuming a 6 percent discount rate and a $2
            million value of life growing the rate of growth of GNP per
            capita.

    The results for these two cases are shown for each of the control cases
discussed above.
       The cost of foregoing outdoor activity (e.g.,  foregoing recreation) is
not estimated in this analysis.   These costs would be substantial.

-------
                                                     10-21
                                                 EXHIBIT 10-10
SIMUKZ OF RESULTS OF SENSITIVITY ANALYSES FOR COSTS AHD
MAJOR HEALTH BENEFITS FOR PEOPLE BORH BEFORE 2075
(Estimates assuna a 2 percent discount rate)**'


Sensitivity
1 Base Case
No Controls
CFC SOZ/Halon Freeze
(Protocol)
Difference
2. Discount Rates
A 0 Percent Discount Rate
No Controls
CFC SOZ/Halon Freeze
Difference
B. 1 Percent Discount Rate
No Controls
CFC 50Z/Halon Freeze
Difference
C 6 Percent Discount Rate
No Controls'
CFC SOZ/Halon Freeze
Difference
3. Value of Unit Mortality Risk
Reduction (VUMRR)
A VUMRR at $2 million
No Controls
CFC SOZ/Halon Freeze
Difference
B. VUMRR at $12 million
No Controls
CFC SOZ/Halon Freeze
Difference
Ozone
Depletion
in
207S (Z)

SO 0
1.9

48.1


50.0
1.9
48 1

50.0
1.9
48.1

SO.O
1.9
48.1



50.0
1 9
48. 1

SO.O
1.9
48.1

Additional Value Net Present Value
Deaths by of Lives Control of Benefits - Costs
2165 (106) Lost (109) Costs (109) (109)

3 74 3,581
0.09 141 21

3.65 3,440 21 3,419


3 74 44,200
0.09 986 60
3.65 43,214 60 43,154

3.74 12,140
0.09 1,232 35
3.65 10,908 35 10,873

3.74 63
0.09 9 5
3 65 54 5 49



3.74 2,387
0.09 94 21
3.65 2,293 21 2,272

3.74 14,325
0.09 S64 21
3. 65 13,761 21 13,740
a/ Unless noted otherwise,  ozone depletion is constrained to 50 percent.

-------
                                                     10-22

                                                 EXHIBIT 10-10
                                                  (continued)

                            St*M&RY OF RESULTS OF SEHSITIVITY ANALYSES FOR COSTS AID
                               MAJCK HEALTH UIOIEP1TS FOB PEOPLE BCBB HEFDBE 2075
                                 (Estimates  assume a 2 percent discount rate)2'
      Sensitivity
                                Ozone
                              Depletion
                                 in
                              2075 (X)
Additional     Value
Deaths by     of Lives
2165 (106)    Lost (109)
                            Control
                          Costs (109)
 Net Present Value
of Benefits - Costs
       (109)
   Slower Growth in Baseline
CFC/Halon Use
Ho Controls
CFC 50Z/Halon Freeze
Difference

44.7
1.6
43.1

3.41
O.OB
3.33

3,178
122
3,056

_
IB
IB
5. Erythema Action Spectrum

      No Controls                     50.0
      CFC 50Z/Halon Freeze             1.9
      Difference                      48.1

6  Dose Response Coefficients

      A. Low Dose Response Coefficients
3.28
0 08
3.20
                                                           3,152
                                                             127
                                                           3,025
                                 21
                                 21
                                                                                                   3,038
                                                3,004
           No Controls                50.0
           CFC 50%/Halon Freeze        1.9
           Difference                 48.1

      B   High Dose Response Coefficients
1.94
0.06
1.88
                                                           1,945
                                                             100
                                                           1,845
                                 21
                                 21
                                                1,824



7

No Controls
CFC 50Z/Halon Freeze
Difference
Growth Rates in Value of Unit
Mortality Risk Reduction (VUMRR)
50.0
1.9
48.1


6.89
0.12
6.77


6,287
184
6,103


-
21
21


                                                                                                   6,082
A. VUMRR Grows at 1/2 x Rate of GNF/Capita

     No Controls                50.0
     CFC 50Z/Halon Freeze        1.9
     Difference                 48.1

B. VUMRR Grows at 2.0 x Rate of GHP/Capita
3 74
0 09
3.65
                                                                 1,825
                                                                   79
                                                                 1,746
                                 21
                                 21
                                                1,725
           No Controls                 50  0         3 74          13,598
           CFC 50Z/Halon Freeze         19         0 09            465
           Difference                 48.1         3 65          13,133

a/ Unless noted otherwise,  ozone depletion  is  constrained to 50  percent.
                              21
                              21
                                               13,112

-------
                                                     10-23
EXHIBIT 10-10
SUMMARY OF RESULTS
MAJOR HEALTH HE)
(Estimates as:


Sensitivity
8 Global Participation Rates
A High Participation
No Controls
CFC SOZ/Halon Freeze
Difference
B. Low Participation
No Controls
CFC SOZ/Halon Freeze
Difference
Ozone
Depletion
in
2075 (Z)


SO 0
0.9
49.1

50.0
3 5
46. S
(continued)
OF SUISIIIVITX i
itMis FOR FEOFL
sane a 2 percent

Additional
Deaths by
2165 (106)


3.74
O.OS
3.69

3.74
0.16
3. 58
UUL7SES FOR COSTS AD)
E BCBH HKTOKfi 2075
discount rate)*'

Value
of Lives
Lost (109)


3,581
95
3,486

3,581
216
3,365

Net Present Value
Control of Benefits - Costs
Costs UO9) (109)


-
21
21 3,465

-
21
21 3,344
C. Developing Nations Signatories Only
No Controls
CFC SOZ/Halon Freeze
Difference
9. Technological Rechanneling
50.0
3.3
46.7

3.74
0.15
3.59

3,581
201
3,380

-
21
21 3,359

A High Technological Rechanneling
No Controls
CFC SOZ/Halon Freeze
Difference
SO.O
1.7
48 3
3.74
0 08
3.66
3,581
130
3,451
-
17
17 3,434
B Low Technological Rechanneling
No Controls
CFC SOZ/Halon Freeze
Difference
SO.O
2.2
47.8
3.74
0.10
3 64
3,581
149
3432
_
27
27 3,405
C. No Technological Rechanneling
No Controls
CFC SOZ/Halon Freeze
Difference
50.0
3.0
47 0
3.74
0.13
3 61
3,581
183
3,398
-
51
51 3,347
a/ Unless noted otherwise,  ozone depletion is constrained to SO percent

-------
                                                     10-24

                                                 EXHIBIT 10-10
                                                  (continued)

                            SUNURZ OF RESULTS OF SENSITIVITY ANALYSES FOR COSTS AHD
                               MAJOR HEALTH BENEFITS FOR PEOPLE BOB! BEFORE 2075
                                (Estimates assume a 2 percent discount rate) ^
                                      Ozone


Sensitivity
Depletion
in
2075 (X)
Additional
Deaths by
2165 (106)
Value
of Lives
Lost (109)
Net Present Value
Control
Costs (109)
of Benefits -
UO9)
Costs

10  Other Trace Gas Growth

      A  Low Trace Gas Growth

           No Controls                50.0         3.92
           CFC 50Z/Halon Freeze        36         0.16
           Difference                 46.4         3.76

      B.  High Trace Gas Growth

           No Controls                42 9•         3.36
           CFC SOX/Halon Freeze       -0.8 b/     -0.03
           Difference                 43.7         3.39

11.    Limit on Ozone Depletion

      A    Limit of 30Z Ozone Depletion
                                                                 3,625
                                                                   226
                                                                 3,599
              3,136
                 12
              3,124
                              21
                              21
                                                3,578
                                                                                 21
                                                                                 21
                                                                                                   3,103
           No Controls                30 0
           CFC SOZ/Halon Freeze        1 9
           Difference                 28.1

      B    Limit of 95Z Ozone Depletion
1 97
0.09
1.88
                                                                 2,088
                                                                   141
                                                                 1,947
21
21
                                                1,926
12.
No Controls S2.3
CFC SOZ/Halon Freeze 1 9
Difference 50 4
Reduction in Baseline Mortality
5.09
0.09
S.OO

4,556
141
4,415

-
21
21

      Rates
           25* Reduction in Baseline Skin Cancer Mortality

           No Controls                50.0         2.83          2,747
           CFC SOt/Balon Freeze        1.9         0.07            114
           Difference                 48.1         2.76          2,633
                                                                                                   4,394
                              21
                              21
                                                2,612
a/ Unless noted otherwise,  ozone depletion is constrained to 50 percent.
b/ Increased ozone abundance.
£/ Lives saved due to increased ozone abundance
d/ Includes value of lives saved

-------
                                                     10-25
SIHURY OF RESULTS OF
MAJOR HEALTH HEHEF
(Estimates assun
Ozone
Depletion A
in E
Sensitivity 2075 (X) 2
B 251 Reduction in All
No Controls
CFC 50X/Halon Freeze
Difference
C. SOX Reduction in All
No Controls
CFC 50X/Halon Freeze
Difference
D. 75Z Reduction in All
No Controls
CFC 50X/Halon Freeze
Difference
Mortality Rates
50 0
1.9
48 1
Mortality Rates
50 0
1.9
48 1
Mortality Rates
50 0
1.9
48 1
EXHIBIT 10-
(continue)
SUIS1T1V1]
ITS FOR PEC
e a 2 percc
dditional
leaths by
165 (106)

3 12
0.08
3.04

2 25
0.06
2.19

1.23
0.04
1.19
-10
i)
X ANALYSES FOR COSTS AHD
IPLE BCRH BEFORE 2075
mt discount rate)^
Value
of Lives Control
Lost (109) Costs (109)

2,903
119
2,784

2,100
92
2,008

1,169
59
1,110

.
21
21

.
21
21

_
21
21
Net Present Value
of Benefits - Costs
UO9)



2,763



1,987



1,089
13 Low Discount Rate and High Value of
Unit Mortality Risk Reductions
No Controls
CFC Freeze
Difference
No Controls
CFC 202
Difference
No Controls
CFC SOX
Difference
No Controls
CFC BOX
Difference
No Controls
CFC SOZ/Halon Freeze
Difference
50 0
6 9
43.1
50.0
5.6
44.4
50.0
4.0
46 0
50.0
2.7
47.3
50 0
1 9
48 1
3 74
0 32
3.42
3.74
0 25
3.49
3 74
0.17
3 57
3.74
0.12
3.62
3.74
0 09
3 65
48,560
4,476
44,084
48,560
3,544
45,016
48,560
2,492
46,068
48,560
1,744
46,816
48,560
1,412
47,148
.
14
14
-
21
21
.
30
30
.
48
48
-
35
35


44,070


44,995


46,038


46,768


47,113
a/ Unless noted otherwise,  ozone depletion is constrained to 50 percent

-------
                                                     10-26
EXHIBIT 10-10

SUMMARY OF RESULTS
MAJOR HEALTH BE
(continued)
HETIIS FOB PBOH
(Estimates assure a 2 percent


Sensitivity
No Controls
CFC SOX/Halon
U S 80Z
Difference
No Controls
U.S. Only /CFC
Ozone
Depletion
in
2075 (Z)
50.0
Freeze/ 1 6

48.4
50.0
50Z 27.4
Halon Freeze 22.6
Difference
14 High Discount Rate

and Low Value

Additional
Deaths by
2165 (106)
3 74
0.08

3.66
3.74
2.54
1.20


ANALYSES FOR GObTS AHD
LE BQRB BEFORE 2075
discount rate) ^

Value
of Lives Control
Lost (109) Costs (109)
48,560
1,236 53

47,324 53
48,560
31,684 35
16,876 35





Net Present Value
of Benefits - Costs
(109)



47,271


16,841


of Unit Mortality Risk Reductions
No Controls
CFC Freeze
Difference
No Controls
CFC 20X
Difference
No Controls
CFC SOX
Difference
No Controls
CFC SOX
Difference
No Controls
CFC SOX/Halon
Difference
No Controls
CFC SOX/Halon
U.S. 80Z
Difference
No Controls
U S. Only /CFC
50.0
6.9
43.1
50.0
5.6
44.4
50.0
4.0
46.0
50.0
2.7
47 3
50 0
Freeze 1.9
48.1
50.0
Freeze 1.6

48.4
50.0
50X/ 27 4
3.74
0.32
3.42
3.74
0.25
3.49
3.74
0.17
3.57
3.74
0.12
3.62
3.74
0.09
3.65
3.76
0.08

3.66
3 74
2 53
42
11 11
31 1.1
42
9 2
33 2
42
7 4
35 4
42
6 7
36 7
42
6 5
36 5
42
6 7

36 7
42
23 5


30


31


31


29


31



29


             Halon Freeze
           Difference
                                      22 6
                                                    1.21
                                                                    19
                                                                                                       14
a/ Unless noted otherwise, ozone depletion is constrained to 50 percent

-------
                                   CHAPTER 11

                 DESCRIPTION AND ANALYSIS OF REGULATORY OPTIONS
    This chapter presents and evaluates the range of regulatory options
considered for limiting the production and consumption of chlorofluorocarbons
(CFCs) and halons.  It explores two generic types of regulatory approaches --
the use of economic incentives and the use of more traditional engineering
controls or product bans.  Within each of these general approaches, several
options are discussed and evaluated.  Specifically, the chapter focuses on the
following five regulatory options:

        •   auctioned rights;

        •   allocated quotas;

        •   regulatory fees;

        •   process and engineering controls and product bans; and

        •   hybrid combinations of allocated quotas plus controls/bans
            and allocated quotas plus fees.

    Economic incentive approaches (auctioned rights, quotas, and fees) generally
provide incentives through higher CFC/halon prices for firms to reduce their use
of these chemicals.  Those firms who can make relatively low-cost reductions
will do so, while those firms who do not have such options will continue to use
CFCs or halons, albeit at a higher price.

    The first section of the chapter discusses the design of each of these
options.  In developing these designs, a wide range of possibilities was
evaluated.   For example, in the case of auctioned rights, auctions could be held
at specific times and places with only attendees bidding, or they could be
conducted through the mail.  Bidding could be limited to certain people or open
to anyone.   The process used in selecting among the many possible design options
for each of the five approaches was to create the most straightforward option
possible so as to facilitate its potential to be successfully implemented and to
choose design characteristics in light of the following evaluation criteria:

        •   Environmental protection;
        •   Economic costs and efficiency;
        •   Incentives for innovation;
        •   Equity;
        •   Administrative burden and feasibility;
        •   Compliance and enforcement;
        •   Legal certainty;  and
        •   Impacts on small business.

    The analysis of the five options against .these criteria draws from several
sources.  Cost estimates, including transfer payments,  were developed from the
Integrated Assessment Model described in earlier chapters and in Appendix I.
Estimates of administrative burdens were drawn from a separate study of this
aspect of costs presented in Appendix M.   Impacts on small businesses were
assessed as part of the Regulatory Flexibility Analysis presented as Appendix L.
Other information and discussion draws from numerous meetings of the

-------
                                      11-2
Stratospheric Ozone Protection Workgroup which contains representation of
interested offices within EPA and from a series of meetings with CFC and halon
user and producer industries.

    The remaining sections of this chapter analyze and evaluate the five
options.  Given the complexities of the options, a simple quantitative
evaluation was not possible.  However, considerable information was developed to
provide a basis for comparing, both quantitatively and qualitatively, the
options under consideration.

11.1  DESCRIPTION OF REGULATORY OPTIONS

    For each of the five options listed above, this section presents a brief
summary of how that option would be structured and then a discussion of key
design features.  For simplicity, the discussion focuses on CFCs.  Section 11.3
below discusses the same options in the context of halons and explains why the
two families of chemicals are being treated separately.

11.1.1  Auctioned Rights

    SUMMARY OF SYSTEM DESIGN

    CFC rights would be auctioned to any interested party.  Firms using or
producing CFCs could elect to participate in the auction.  The number of rights
auctioned would be determined by the desired regulatory goal (e.g., production
freeze, 20% or 50% reduction) and could be reduced over time to reflect a CFC
phasedown.  Revenues from the auction would go to the U.S. Treasury.

    The right would allow a firm to produce a specified amount of CFCs (the
amount would be specified as so many kilograms of CFC-11 or CFC-12, 1.25 times
that amount of CFC-113, etc.).  CFC production in any given year would equal the
quantity of rights auctioned.  Multi-year rights and banking are inconsistent
with meeting the annual obligations for production limits required in the
international protocol and therefore would not be allowed.  (Firms could,
however, use the rights to buy CFCs and then stockpile the chemicals themselves
or rights permitting specific levels in each of two or more years could be
auctioned.)

    Firms now producing CFCs are likely to participate and obtain rights
directly through the auction.  They would then have the option of selling CFCs
that have already been permitted to their customers (presumably for a higher
price reflecting their auction bid).  Alternatively,  they could also sell CFCs
to user firms that had directly obtained rights at auction or in secondary
markets.  Similarly, user firms could elect to buy CFCs from any producer that
had already obtained rights at auctions (or from wholesalers or processors that
had rights),  or they could elect to buy rights separately at auction or on a
secondary market and then assign them to their suppliers at the time of CFC
purchase.  Most CFC users would probably not become directly involved with
rights, but would instead rely on their existing distribution chain to obtain
the required rights and CFCs.

    EPA recordkeeping would begin with an account being established for each
winning bidder at the time of auction.  Future transactions would be credited
and debited against that account, similar to a checking account at a bank.

-------
                                      11-3
Because all rights eventually reach the hands of the CFC producers (or
importers), monitoring compliance involves ensuring that the five CFC producers
and ten or so importers have total rights equal to or greater than their actual
production/import levels.

    DISCUSSION OF DETAILED DESIGN FEATURES

    •   Number of rights.  The Montreal Protocol and discussions of domestic
rules have focused on setting regulatory goals, directly linked to CFC
production and domestic consumption.  This simplifying assumption is appropriate
because it reflects the very long atmospheric lifetimes of CFCs which minimizes
any need to be concerned about prompt versus delayed emissions.  To the extent
the regulatory requirement involves a gradual or stepwise phasedown of
production, the number of rights issued would likewise be diminished over time.

        The number of rights would be determined by the regulatory
        goal (e.g.. a freeze. 20%. 50%. reduction) and be modified to
        reflect any changes in that goal over time.

    •   Definition of rights.  Rights could be defined for each type of CFC
(CFC-11, -12, -113, etc.) or a standard CFC depletion unit could be developed
and used for any of the regulated CFCs based on its relative depletion potential
(e.g., a pound of CFC-11 and -12 would be 1 unit, a pound of 113 would be 0.8
units, etc.).  The latter system results in a larger market, provides additional
flexibility to firms, and does so without sacrificing the goals of environmental
protection.  The UNEP protocol recognizes the desirability of permitting trading
among CFCs based on their relative ozone-depleting potential.

        A standard CFC depletion unit would be defined and trading
        among regulated CFCs would be permitted based on their
        relative ozone-depleting potential.

    •   Length of right.  Rights could be for an amount of CFCs consumed during
a single specified year (e.g., 100 kilograms in 1987), an amount which could be
consumed annually for several years (e.g., 100 metric tons for each year from
1990 to 1994) or they could specify a total amount over a given a period of
years (e.g., 500 kilograms from 1990-1994).  Rights of several years duration
could reduce the frequency of required allocations as well as ease the
transition to tighter standards.  However, the terms of an international
agreement appear to limit EPA's flexibility in developing multi-year design
features.  Also, enforcement and compliance monitoring would be hindered by
rights of long duration, since in many cases EPA would not be able to evaluate
compliance until the end of the multi-year period.

        Rights will specify a quantity of CFCs for each year or for
        each of several years.

    •   Banking of unused rights.   A related issue is whether rights that are
issued for a specified time period should be able to be "banked" and used
sometime after that date.  While the use of either banked or multi-year rights
provides increased flexibility and certainty for industrial planning,  neither
use adversely affects the environment -- while more production or use might
occur in a particular year, that would only result if less than permitted
production occurred in a prior year.  Once rights are sold, it is assumed that

-------
                                      11-4
the emissions have occurred and may not care what year they are actually used.
However, banking does not appear consistent with the formula for determining
compliance in the international agreement, and it would also complicate domestic
compliance monitoring.  Firms seeking additional flexibility would have to
stockpile CFG supplies instead of rights.

        Banking of unused rights would not be permitted.   It is
        inconsistent with the international agreement.

    •   Allocation of rights.  Rights could be initially allocated either by
distributing them to past CFC user industries (or producers, see quota option,
below) or by auctioning them.  In general, the first option -- grandfathering
past users or producers -- involves granting them a potentially valuable
property interest (CFC rights) and may be criticized primarily on equity grounds
(e.g., why benefit current users and producers and discriminate against future
users and consumers).  Because of the large number of CFC users, giving rights
directly to them would be administratively quite complicated.   The second option
-- auctions -- would be more equitable.  Furthermore, under an auction instead
of the revenues raised in accomplishing this regulatory objective initially
going to past producers or users, it would go to the federal government in the
form of the auction price.  However, legal concerns have been raised about EPA's
authority to hold an auction that would result in revenues greater than the
costs of administering the program.  A third possible option would be to give
production rights to producers and consumption rights to user industries.
However, this option would not substantially reduce the market power of
producers and would not be feasible administratively because of the many
thousands of user firms.

        Initial allocation would be based on auctions.

    •   Participation in the auction.  Auctions could be open to any interested
party or they could be restricted to bona fide producers or users.  A "producers
only" auction would be limited to seven firms (possibly plus importers) and
might not create enough of a market to avoid market domination or possible
collusion among one or more firms.  An auction limited to users could involve
40,000 firms or more, but only a small portion are likely to participate with
the remainder probably relying on their CFC distribution chain to provide them
with CFCs that have already been permitted at the time of production.  If the
auctions were open to both producers and users,  maximum flexibility might be
achieved.  Large or small users across all industries, along with chemical
producers (and wholesalers and reprocessors) could participate.  Barring
non-users or non-producers might seem attractive, but would involve the
administratively complicated task of qualifying who was or was not a real user.
Nonparticipants or firms  not winning adequate rights at auction could satisfy
their requirements through their CFC distribution chain or through secondary
market transactions and would not likely become involved with rights at all.

        Auctions would be open to anyone.

    •   Structure of auctions.  Many different types of auctions are possible,
including those with open versus sealed bids and those where winning bids pay
the same or different prices.  The structure of the auction may influence its
competitiveness, efficiency,  and its final price.  Sealed bids have the
advantage of being able to be done through the mails and therefore would not

-------
                                      11-5
require representation at one central location.  They also may more directly
reflect the value of the right for an individual firm rather than what the party
thinks an oral auction will produce.  However, sealed bids limit the firm's
flexibility to respond to information made available during the oral bid.  Once
all the bids have been assembled, the winning ones could be awarded from the
highest bid on down until all the rights are assigned.  Alternatively, the same
price (as established above) could be charged to all firms submitting bids above
the lowest accepted one (a uniform price auction).  This latter approach would
reduce the overall costs to firms (the transfer costs) without substantially
reducing incentives for reducing emissions, but might encourage firms to bid
higher than they expect to pay.  While set asides (e.g., a portion of total
rights) could be earmarked for certain users or for small firms, this option may
not be necessary if an active secondary market develops.

        The structure of the auction would involve sealed bids.  The
        rights would be awarded based on the highest bid to the lowest
        successful bid until the supply is exhausted.  A uniform
        auction price could be set or another mechanism could be used
        for determining price.

    •   Trading of rights.  Once the initial allocation has been completed
through auctions, parties may transact the purchase or sale of rights.  These
secondary market transactions would provide greater flexibility for firms
electing not to participate in the auction or whose bids were not accepted.  It
also provides greater flexibility for firms to meet short-term changes in their
business activity (e.g., they may have bought either too few or too many
rights).   An active secondary market will also correct any inefficiencies at the
time of the initial auction moving the system in the direction of lower total
costs.  The advantages of trading must be evaluated in the context of possible
increases in administrative burden.   To create an active market requires an
effective and timely recordkeeping system be established to allow producers and
possible buyers of rights to validate transactions before they are completed.

        Unrestricted trading of CFC rights would be encouraged.

    •   Recordkeeping requirements.   To ensure the integrity of any trading
system and to determine compliance,  some form of recordkeeping will be
necessary.   At the time of the initial auction, winning bidders could be awarded
rights and at the same time have an EPA account established.   EPA (or its
designee responsible for operating the system) would have to be notified of any
future transactions involving those rights and appropriate accounts would be
debited or credited accordingly, along the lines of a checking account.
Eventually rights would move along the chain of chemical distribution (from
users to processors to CFC producers) where they would be held.  CFC producers
would have to have adequate rights,  either bought at the auction or obtained
from customers, to match their production.  EPA would monitor compliance by
periodically comparing the number of rights surrendered by a CFC producer (or
importer) with its actual production data.  In order to check production
records,  EPA would also need to review records on production.   Buyers and
sellers of rights would have to register each transaction with EPA (or its
designee) and chemical producers could only sell CFCs equivalent to their rights
total bought at the auction or obtained in exchange from sales to users.
Administrative burdens would depend on how effectively the tracking system
operated

-------
                                      11-6
        A recordkeeping system to track all rights transfers would be
        established by EPA as a compliance and enforcement mechanism.
        Records would also be required of all producers/importers.

    •   Recycling of CFCs.  The regulatory and permitting system described above
is based on limiting new production of CFCs over time and does not restrict the
continued recycling and reuse of past CFC production.  Indeed, because rights
are required for only newly produced or "virgin" CFCs, this system provides an
incentive for recycling.  Recycled CFCs may, however, create some difficulties
from an enforcement perspective.   Recycled CFCs could be permitted through a
crediting system which would be consistent with rights required for virgin CFC
production.  While recycling activities are now used by a limited number of
firms, this practice is likely to become more widespread over time and may
involve thousands of firms.  Alternatively, EPA could allow recycling without
rights or could simply require that all recycled CFCs be labelled.

        Recycled CFCs would be kept apart from the rights system: no
        labelling of recycled CFCs would be required.

    •   Detection and definition of violations.  The ability to enforce against
users and producers of CFCs will necessarily differ under a rights system than
under more traditional EPA regulations which include specific emission limits
over specified and relatively short periods of time.  Firms may be out of
compliance because they have purchased and used CFCs without rights, have
produced and/or sold CFCs without adequate rights or to parties lacking their
own rights, or they may have fraudulently sold rights.  Moreover, EPA may have
to determine the liable party in fraudulent activities which could be
complicated due to the large number of participants in the system, and could
hinder enforcement.  EPA will have to develop an enforcement policy to accompany
this regulatory package which defines the nature of a violation, rules governing
liability, and the basis for calculating penalties.

        Violations and accompanying penalties will be defined as part
        of a penalty policy developed in conjunction with this
        regulation.

11.1.2  Allocated Quotas

    SUMMARY OF SYSTEM DESIGN

    Based on the regulatory goal (e.g., production freeze, or 20% or 50%
reduction) production and consumption quotas would be allocated to the five CFC
producers and ten or so importers based on their historic 1986 market share.   As
demand for products made with CFCs continues to increase over time, these limits
on supply will result in a shortfall of supply relative to demand and could
result in increases in the CFC market price.  Individual CFC users are then
faced with the decision of whether to take steps to reduce consumption or to pay
the higher costs of CFCs.   Producers could be allowed to trade their quotas to
provide added flexibility (e.g.,  shifts in business plans or the desire to close
specific facilities).

    EPA would issue rights only to the seven producers and fourteen or so
importers.  Periodic reports would be submitted to EPA by these firms to verify

-------
                                      11-7
compliance with production levels contained in rights.  Occasional site visits
could further verify compliance.  No rights or enforcement would involve CFG
users.

    DISCUSSION OF DETAILED DESIGN FEATURES

    •   Production and consumption limits.  The total production and consumption
limits would be determined by the regulatory goal'.  Since international and
domestic regulatory discussions have focused on limiting production and
consumption as the key parameter, this approach should be straightforward.
Production and consumption limits would be set on an annual basis (e.g., annual
production equal to 1986 levels) to reflect current levels of control.   If the
regulatory requirement is reduced over time, the overall production  and
consumption limit and allocations to producers/importers would also be reduced.
Trade-offs among the regulated chemicals would be permitted based on their
relative ozone-depletion potential.

        Total production and consumption limits would be determined by
        regulatory goals.  Trade-offs among regulated chemicals would
        be permitted based on their relative ozone-depleting
        potential.

    •   Allocation of production and consumption limits.  Total production and
consumption limits could be allocated among existing producers and importers
based on historic levels.  Allocation could be based on 1986 levels.  Auctions
involving the seven producers and fourteen importers represent an alternative
allocation system.  However, with the small number of firms involved, market
dominance and possible collusion could be a problem.  An auction among producers
would, however, address concerns about equity, but might raise additional legal
issues.  Under an auction, the revenue created by the regulatory scarcity would
go to the U.S. Treasury instead of the chemical companies.  These reveues could
then be appropriated by Congress and directed toward projects to improve the
social welfare.

        Production and consumption rights would be allocated among
        current producers and importers based on historic market
        share.

    •   Banking of unused Quotas.  Producers may decide not to produce their
full quota in any given year and "bank" the unused portion for future years.
Banking provides added flexibility for producers and users and will allow them
to better accommodate year-to-year fluctuations in demand for CFCs due to the
business cycle.  However, banking complicates compliance monitoring.  While
producers may stockpile production in any given year consistent with their
quota, banking of rights is not consistent with the terms of the international
protocol.

        Banking of unused production rights is not consistent with the
        international agreement and therefore would not be allowed.

    •   Trading of allocated quotas.   Once initial allocations are determined,
firms could be given the option of using their quotas themselves or trading them
to other producers.   (Because of the capital expense of a CFG production
facility and the likely scheduled phasedown of allowable production, it is

-------
                                      11-8
unlikely that new producers would want to enter the market.)  If trading among
producers were permitted, this would allow greater flexibility for existing
chemical producers to gradually reduce, consolidate or eliminate their
production facilities.  However, fewer producers might result in greater market
dominance.  All trades would have to be recorded with EPA.

        Trading among producers and among importers of their quotas
        should be permitted.

    *   Recordkeeping requirements and compliance monitoring.  Producing and
importing firms would be required to maintain records of quantities of the
regulated chemicals produced and imported and to submit reports periodically to
EPA.  Producers would also be required to keep records which serve as checks on
their production figures.  EPA would conduct periodic site visits to verify
information.  All producers and importers would be required by regulation to
report their activities related to the controlled chemicals.

    Recordkeeping. reporting and monitoring would focus only on
    producers and importers.

    •   Recycling of CFCs.  Because the above system focuses on production
limits, any recycled CFCs would not be counted against the yearly quota.  In
fact, recycling could be encouraged by the higher market price of virgin CFG
production.  Moreover, since only records of new production would be required,
no permitting or reporting would be required.  If, for enforcement or monitoring
purposes, it were important to distinguish recycled CFCs from virgin production,
labelling could be required.

        No restrictions would be applied to recycled CFCs.

    •   Definition of violations.  Producers or importers may be out of
compliance by producing quantities in excess of their quota.  Periodic reporting
of production would be required to aid EPA in making this assessment.

        Penalties will be defined consistent with current statutory
        language as part of a policy developed in conjunction with the
        regulation.

11.1.3  Regulatory Fees

    SUMMARY OF SYSTEM DESIGN

    Under this regulatory option the price of CFCs is increased directly by EPA
in order to provide an incentive for firms to reduce their use of CFCs.   The
regulatory fee would be set (based on EPA analysis or a predetermined cost
index) at a level thought adequate to achieve the desired regulatory goal.
Future modifications to the initial fee level could compensate for missing the
mark, though not without some time lag.  In addition, the fee could be increased
over time to reflect the phase-in of more stringent reduction targets.  The fee
would be collected directly from CFC producers/importers with revenues going to
the U.S. treasury.

-------
                                      11-9
    DISCUSSION OF DETAILED DESIGN FEATURES

    •   Scope of fee.  The fee would be assessed against the regulated chemicals
based on their relative ozone-depleting potential.  For example, the fee on
CFC-11 would be higher than that on CFC-113.  Since CFC production costs will
not have changed, the fee would be in excess of the current market price of CFCs
(e.g., a fee of $.50/pound would approximately double the current price of
CFC-12).

        Fees would cover all regulated chemicals and be based on their
        relative ozone-depleting potential.

    •   Payment of fees by producers and importers.  Fees would be collected
from chemical producers and importers.  While these firms are likely to pass on
the costs of the fee to their customers, it will be administratively easier to
collect the fee directly from the seven producing companies and from importers.
The total amount paid would be based on the quantity of the fee as determined by
EPA regulation and the quantity of regulated chemicals produced or imported.
The latter information should be readily available as part of periodic reporting
requirements to EPA.

        Fees would be collected from chemical producers and importers.

    •   Initial setting of fee amount.  The goal of the regulatory fee is to
provide an adequate economic incentive for enough firms to reduce their
consumption of the regulated chemicals to meet a regulatory goal (e.g., a
freeze, 20% or 50% reduction).  Thus, in determining the initial fee schedule,
EPA must evaluate the likely decisions by firms --to either pay the fee and
continue to use CFCs or to take alternative steps to reduce consumption.  Given
the diversity of firms,  this analysis is not a simple one.  If the fee is set
too low, the regulatory goal will not be satisfied and the U.S. would be out of
compliance with its international obligations.  If it is set too high, firms may
make unnecessary expenditures to reduce CFC consumption.

        Based on an analysis of likely firm behavior, with some margin
        of error to ensure compliance. EPA will determine the initial
        level of a fee.

    •   Shifts in fee over time.  The fee may have to shift over time to
compensate for missing the target regulatory goal or to achieve changes in the
goal (e.g., a scheduled production phasedown).  Such shifts could be determined
by administrative action or they could be predetermined with automatic increases
in the fee if not enough reductions occur,  or automatic decreases in the fee if
reductions in excess of the regulatory goal occur.  However, in changing the fee
EPA must consider that industry's response may lag by one or more years, and
that considerable annual variability in CFC demand due to the business cycle may
mask changes in use due to the amount of the fee alone.

        A self-adjusting fee formula should be included in the
        regulation with periodic assessments of the formula based on
        administrative discretion.

-------
                                     11-10
    •   Monitoring and enforcement.  Periodic reports of production would be
required of producers and importers.  Checks on production would also be
required.  These reports, along with the amount of the fee set by regulation and
adjusted accordingly, would be used as the basis for determining the amount of
fee owed by a firm.  EPA would conduct periodic audits to determine accuracy of
reports.

        Reporting of production would be required by producers and
        importers.  This would provide a record for assessing fees and
        a basis for enforcement.

    •   Definition of violation.  A violation would occur for every day that a
company owed but did not pay a fee.  This would apply if a firm were found to be
underreporting its production.  At a minimum, the fine could be based on the
amount of the fee not paid.  Periodic site visits would aid EPA in verifying
production quantities reported to EPA.

        A penalty policy would be defined in conjunction with the
        development of the regulation consistent with current
        statutory requirements.

    •   Recycling of CFCs.  Since only new production would be assessed a fee,
recycled CFCs would not be subject to this charge.  No permitting or
recordkeeping would be necessary.  If labelling of recycled CFCs would assist in
enforcement, it could be required.

        No requirements would be placed on recycled CFCs.

11.1.4  Engineering Controls and Bans

    SUMMARY OF SYSTEM DESIGN

    In line with the usual EPA approach to limiting emissions of a pollutant,
the Agency could develop a series of specific control measures requiring
targeted CFC user industries to reduce their consumption of these chemicals.
For example, EPA could ban the use of CFC-blown packaging,  require recovery and
recycling from users of CFCs in automobile air conditioning,  and require
substitution or recycling of CFCs used in sterilization.  The list of controls
would be developed based on considerations of costs,  effectiveness,
administrability, and other concerns and would be administered through the EPA
headquarters and regional offices, along with state and local pollution control
agencies.

    DISCUSSION OF DETAILED DESIGN FEATURES

    •   Selection of regulations.  EPA contractors and staff have developed
engineering cost data on controls for each of the major uses  of CFCs.   Based on
this analysis, EPA would select control options based on the  following criteria:
currently available technologies; relatively low cost of reductions;
administrative burden and enforceability;  quantity of reductions achieved;  and
effects on small businesses.  Specific regulations could include engineering or
process controls, product substitutes or bans.

-------
                                     11-11
        EPA would select specific regulations aimed at achieving
        low-cost reductions based on currently available technologies.
        and other traditional Agency concerns.

    •   Quantity of reductions required.  The number of specific regulations
will be determined by the amount of reduction achieved by each, the likely
growth in non-regulated uses of CFCs, and the regulatory target (e.g., freeze,
20% or 50% reduction).   A priority listing of regulations could be developed as
part of the proposal with the top several taking effect in the near-term, with
others down the list taking effect only as required to meet the regulatory goal.
Like an emissions fee,  EPA would have to carefully analyze current CFC markets
and uses to determine the likely quantity of reductions required in order to
avoid over- or under-regulation.  However, future modifications to the list of
requirements would involve time lags, and EPA could not ensure that it satisfied
its obligation under the international agreement.

        EPA would publish a priority list of specific controls and
        items on the list would take effect, as necessary, over time
        to meet regulatory requirements.

    •   Compliance and enforcement.  CFC regulations would be enforced in the
same manner as other EPA regulations.  Recordkeeping and reporting requirements
would be established which would allow EPA to determine compliance with the
regulations.  Site visits would allow for inspection of records, operation of
control equipment and work practices.  Where appropriate, rights would be
issued, reports required, and site visits undertaken.  Where control equipment
is required, allowable levels of emissions, test methods and performance test
requirements would be established.  Where bans are instituted, compliance
monitoring might primarily involve reporting.  Given the large number of firms
which might be affected, substantial resources may be required and regional
offices along with State and local agencies would be involved.

        Compliance and enforcement activities would follow traditional
        EPA practices.

11.1.5  Hybrid Approaches

    SUMMARY OF SYSTEM DESIGN:  ALLOCATED QUOTAS PLUS CONTROLS/BANS

    This hybrid approach would set a production ceiling based on the regulatory
goal and allocate quotas to current producers/importers.  In addition, EPA could
specify one or more regulations requiring specific industry sectors to reduce
emissions.  The specific regulations would be based on potential costs,
reductions and administrative feasibility.  Those industries where low-cost
reductions are possible, but might not be taken, would be likely candidates for
regulation.  The specific regulations could take effect at the start of the
regulatory program or they could be prospective, taking effect in order to meet
more stringent deadlines.  They could act as guidelines (e.g., be voluntary) or
they could be mandatory.

    SUMMARY OF SYSTEM DESIGN:  ALLOCATED QUOTAS PLUS REGULATORY FEES

    This hybrid approach would ensure that the Protocol's reduction requirement
were satisfied by only allocating the allowable production and consumption

-------
                                     11-12
rights to producers and importers as described above under Option 2.  In
addition, EPA would require a regulatory fee on consumption (defined as
production plus imports minus experts) aimed at capturing the transfers
(windfall profits) accruing to the producers and importers.  By capturing this
windfall, the addition of a fee to the quota system would remove any economic
incentive by the producers to delay the introduction of chemical substitutes and
thus have both environmental and economic advantages over the allocated quota
system alone.

11.2  EVALUATION OF REGULATORY OPTIONS

    This section presents the criteria used to evaluate each of the options and
analyzes each option based on those criteria.  The criteria are:

            Environmental protection;
            Economic costs and efficiency;
            Incentives for innovation;
            Equity;
            Administrative burdens and feasibility;
            Compliance and enforcement;
            Legal certainty; and
            Impacts on small businesses.

    The goal of environmental protection involves evaluating the control option
to determine whether it ensures that a specific regulatory goal (e.g. production
freeze, 20 or 50 percent reduction) will be achieved.  This criteria is
particularly important in this program area, because failure to obtain that goal
in any given year would result in the United States' failing to meet its
obligation under the international protocol.

    Economic costs and efficiency are important considerations because of the
widespread use of CFCs throughout many industrial categories and the desire by
EPA to minimize the economic burden of its actions.  Cost estimates are based on
analysis using the Integrated Assessment Model detailed in Appendix I.  Output
from this model also provides a basis for examining the magnitude of transfer
payments which will be discussed in the section below dealing with equity.

    Providing strong across-the-board incentives for innovation is critical
because of the ten-year period and increasing stringency of the proposed
reductions.  Long-term costs of compliance could be substantially reduced if
timely research and development into low-cost alternatives, new chemicals, and
controls occurs before such measures are required.

    Administrative burdens differ substantially among these options and are
presented in detail in Appendix M and are summarized below in this section.

    Legal certainty relates to EPA's statutory authority under the Clean Air Act
for implementing the approaches under consideration.

    Finally, a Regulatory Flexibility Analysis was conducted and is summarized
below and presented in Appendix L.   This study focussed on potential impact on
small businesses and the possibility of plant closures, particularly in the foam
blowing industry.

-------
                                     11-13
11.2.1  Environmental Protection

    The regulatory approaches considered in this analysis differ substantially
in terms of their ability to ensure that a specified goal of environmental
protection (e.g., freeze, 20 or 50 percent reduction) will be satisfied.

    Four approaches -- allocated quotas, auctioned rights and the two hybrids --
provide straightforward mechanisms for achieving a set level of CFC reduction.
Under auctioned rights, the quantity of rights available at auction would be
linked directly to the specified environmental goal.  Because this goal is
specified in terms of a baseline level of production, the number of available
rights at auction can easily be calculated.  Under the allocated quota and
hybrid options, the amount allocated to producers and importers would also
directly reflect the desired environmental goal.

    Regulatory fees by themselves present a more difficult situation.  EPA would
establish the fee based on its assessment of the required price incentive to
achieve the desired reduction in CFC production.  Given the many factors
affecting a firm's decision to reduce its consumption of CFCs or to continue
their use at a higher price, the fee may not result in the required level of
reductions.  This situation is likely given the past volatility in CFC demand
driven by general economic conditions.  Thus, in years where the U.S. economy is
expanding, demand for products produced with CFCs will also be expanding and CFC
production levels would likely exceed the specified limits.  While increases to
the fee in higher years could compensate for missing the mark, this would put
the United States in the position of being out of compliance with its
obligations under the international protocol.  To compensate for these potential
problems, EPA would have to set the regulatory fee at a higher level to provide
for an adequate margin of safety.

    A similar problem could develop in the case of the engineering controls/ban
option.  While EPA would promulgate regulations sufficient to reduce CFC use in
line with the regulatory goal, it is possible that growth in unregulated uses
would offset these reductions, thus jeopardizing U.S. compliance with its
international protocol obligations.  Moreover, EPA could not assume 100 percent
compliance for those firms subject to regulation.  As a result, a margin of
safety would have to be maintained to safeguard against violating environmental
protection goals.  However,  the problem of ensuring that the regulatory goal is
achieved is avoided in the two hybrid options by combining quotas with fees or
engineering controls/bans.

11.2.2  Economic Costs and Efficiency

    Estimates of economic costs for various control stringencies and coverage
were presented in Chapter 9.  These costs were developed using the Integrated
Assessment Model (IAM) which is discussed in greater detail in Appendix I.

    These cost estimates provide only a limited basis for comparing the costs
under the different regulatory options.  In fact, economic theory would suggest
that the three economic-based approaches should result in the same costs of
meeting a specified reduction goal.  As a result, these three options cannot be
distinguished using the IAM   However, by modifying assumptions to the model to

-------
                                     11-14
reflect possible behavioral responses to economic incentives, it might be
possible to gain some insights to the costs of economic-based approaches in
general.

    Exhibit 11-1 summarizes the economic cost estimates under three scenarios
defining a range of responses by CFC users and producers.  It shows that
aggregate costs through the end of the century would differ substantially
depending on the rate at which firms institute available lower cost reduction
measures.  Thus, for the scenarios discussed in Chapter 9, the costs range from
$1,010 million for the Case 2 Cost Scenario in which firms adopt CFC
conservation measures relatively quickly to $2.7 billion for the Case 1 Cost
Scenario in which firms adopt these conservation measures more slowly.  Under an
intermediate scenario in which only automobile air conditioning services and
electronics industries adopt CFC conservation measures quickly (Case 1A+B),  the
costs were estimated to be $2.1 billion through the year 2000.  While the costs
through 2075 also vary, the percentage differences among cases is substantially
less over this longer time period.

    Thus, an important factor in evaluating the costs and economic efficiency
among the regulatory options is the extent to which each provides incentives for
lower cost reductions to be realized in the short term.  While no quantitative
information is available to distinguish among the economic-based approaches
based on differing behavioral responses, the general point can be made that
economic costs will be reduced and efficiency improved substantially if low cost
reductions are taken in the initial years following implementation of any
regulation.

    Given the large number and diverse nature of industrial users of CFCs,
developing specific engineering controls and product bans by themselves as the
basis for meeting the regulatory goal would not likely result in capturing the
lowest-cost available reductions.  EPA regulations would necessarily be
developed based on "model" firms and therefore might result in too great or too
little reductions and associated costs for individual firms.  Moreover, certain
industries where low cost reductions might be available would be difficult to
regulate because of the large number of affected firms or because the controls
would be achieved through changes in work practices which cannot easily be
monitored.

    While no cases were examined based on specific options available for direct
regulation, a qualitative assessment based on the considerations raised above
would suggest that economic costs would be greater than under the economic
incentive approaches, but the extent of the higher costs would depend on the
degree to which firms responded to price increases by reducing their use of CFCs
and halons.  In fact, it is conceivable that a set of engineering controls and
bans could actually result in lower costs than any of the economic incentive
approaches if a substantial number of firms delayed making reductions in
response to CFC price incentives.  The results of the cost scenarios presented
above illustrate this possibility.

    The hybrid approach linking quotas with selective engineering controls/bans
attempts to respond to the concern that firms in certain industries may not be
sensitive to CFC price increases and would instead elect to continue their use
of CFCs.   By requiring that certain low-cost reductions be taken, this option
reduces demand for CFCs.  To the extent these reductions would have been taken

-------
                              11-15
                       EXHIBIT 11-1

          SHORT-TERM SOCIAL COST ESTIMATES (1989-2000)
                FDR DIFFERENT COST ASSUMPTIONS:
                 CASE 6 - CFC 50%, HALON FREEZE



Case 1 Scenario
Case 1A+B Scenario
Case 2 Scenario
Cost^/
(millions of
1985 dollars)
2,730
2,120
1,010
Transfers^/
(millions of
1985 dollars)
7,280
4,980
1,890
a/  Assumes 2% real discount rate.

b/  Assumes 6% real discount rate.

Source:  See Exhibits 9-11 and 9-15.

-------
                                     11-16
anyway under the economic incentives options, economic costs would not differ
between these approaches.  To the extent however, that some regulated firms may
face higher compliance costs, overall costs are increased and economic
efficiency is reduced.

11.2.3  Equity

    There are two important issues concerning equity that arise in evaluating
these regulatory options.  How do the options vary in terms of the quantity and
beneficiary of any transfer payments?  Which industries would likely bear the
costs of reducing use under the engineering controls/ban options?

    Under the three economic incentive systems and the hybrid option,
potentially substantial amounts of transfers (e.g., the amount of the auction
price, fee or quota) would be created.  Because only those firms who are
targeted for reductions would incur costs, the engineering controls/ban option
would not result in the creation of any transfer payments.

    Under the cases examined above in Exhibit 11-1, the amount of the transfers
varied from $1.9 billion through 2000 in the Case 2 Scenario to $17.3 billion
over the same period for the Case 1 Scenario.  This range suggests that options
which provide the strongest inducement for low-cost reductions to be realized
early would substantially reduce the quantity of transfer payments paid by
consumers.  In fact, it is clear that from the perspectives of fairness and
efficiency, the greatest loss could occur if firms with low cost reductions fail
to make them, resulting in harm to firms that cannot reduce emissions in the
short term or survive price hikes.

    In the case of auctioned rights and the regulatory fee, the transfers would
go from CFC user industries and consumers to the U.S. Treasury.  The quantity of
transfers would be the revenue raised by the fee or the auction.  In the case of
allocated quotas, transfers would accrue to the CFC producers and importers.  In
the case of the hybrid of quotas plus fees, the transfers would be split between
the U.S. Treasury and CFC producers and importers.

    In theory, equity is better served when monies are returned to the Treasury
to be distributed in turn to citizens through programs deemed by Congress to be
most socially beneficial.  The quantity of transfers would be determined by the
CFC price increases charged by the producers/importers.  In theory, the revenues
in each of these options should be equal.  However, CFC producers might elect to
limit price increases over time to minimize near term impacts on their customers
in order to ensure future markets for chemical substitutes.  To the extent
producers limit price increases (and allocate their quotas to users instead),
transfers would be reduced under this option, however, economic efficiency would
be compromised.

    Another implication of the substantial transfers for producers created by
the allocated quota system is the potential economic incentive that could result
in the delayed introduction of new chemical substitues.  Producers may seek to
avoid reducing their windfall profits by delaying these chemical substitutes.
The net effect of any such delays would be higher costs of control to society
and decreased enviromental protection.  (DeCanio, 1988; Sobotka, 1988).

-------
                                     11-17
    Engineering controls and bans and the hybrid approach (to a lesser extent)
present possible inequities of a different nature.  Under these options,
specific industries would be targeted for reductions and therefore would bear
the entire costs of protecting the environment.  However, if regulations were
aimed only at lowest cost reductions and excluded firms that were outliers
(i.e., had high costs), this would not be an issue.

11.2.4  Incentives for User Innovation

    Incentives for user innovation are important given the phase-down of
allowable reductions over an approximately ten year period.   To the extent
timely investments are made in developing future low-cost reductions, the
overall costs and efficiency of achieving that goal will be substantially
improved.

    The three economic-based approaches and the hybrid options all provide
across-the-board incentives for user industry innovation.  Since all firms face
higher costs of using CFCs, all have the incentive to search for alternatives to
their current reliance on these chemicals.

    In contrast, the engineering controls/ban approach would not provide an
across-the-board incentive for innovation.  By only targeting certain CFC user
industries, no incentive would exist for other industries to innovate away from
using CFCs.  In fact, because demand for CFCs would be reduced reflecting those
regulated firms, CFC prices would not likely change substantially and
unregulated users might actually increase their use over time.  Moreover, firms
might hold off making reductions in order to avoid possible problems (e.g.
tighter baseline, conflicting technology requirements) if EPA promulgated
regulations for their industry in future years.

11.2.5  Administrative Burdens and Feasibility

    This section evaluates the administrative costs associated with each of the
six options.  It examines both burdens placed on EPA and industry, and divides
those costs into a start-up costs (e.g., one-time costs to develop compliance,
reporting and recordkeeping systems) and annual operating costs (e.g.,  annual
costs to comply with reporting and recordkeeping activities).  Appendix M
provides a detailed study of these costs and assumptions which are summarized in
this section.

    The regulatory options differ substantially in the administrative costs to
both EPA and industry.  In general,  the four economic-based approaches result in
relatively low administrative costs, while the two approaches involving
engineering controls/bans necessitate more substantial resource burdens.
Exhibit 11-2 provides a summary of these administrative costs.

    a.  Auctioned Rights.   EPA's start-up costs involved in this option
primarily involve developing and testing various aspects of the auction system
and establishing a computer tracking system for recordkeeping purposes.
Industry start-up costs are primarily concerned with establishing procedures for
assessing the CFC market and determining whether and how much to bid at auction.

    The operations phase of this option involves EPA holding an annual auction,
and recording and tracking all transactions.   The costs of tracking transactions

-------
                                                  EXHIBIT 11-2




                               COMPARISON  OF ADMINISTRATIVE BURDEN ESTIMATES

SLarl-Up




Operations




Total. Cost
Through
The First
Year Of
Operations


Auc 1 1 onod Rlnhts
EPA
SI 9 million
1 9 FTE
Industry
$37 9 million
EPA
S4 B million
25 2 FTE
Industry
$45 7 million
EPA
S6 7 million
27 1 FTE
Industry
$83 6 million
I 	 1
Allocated Quotas
EPA
$1 0 million
1 1 FTE
Industry
$0 5 million
EPA
$2 1 million
13 8 FTE
Industry
$1 9 million
EPA
3 I million
14 9 FfE
Industry
$2 4 million
	 1
Regulatory Fees 	
EPA
SI 1 million
1 7 FTE
Industry
SO 4 million
EPA
$1 2 million
7 6 FTE
Industry
SO 5 million
EPA
S2 3 million
9 3 FTE
Industry
SO 9 million
| 	 1
Direct Regulations 	
EPA
SO 6 million
0 2 FTE
Industry
$226 8 million
EPA
S23 0 million
32 6 FTE
Industry
$122 4 million
EPA
$23 6 million
32 8 FTE
Industry
$349 2 million
Allocated Quotas
Renulatorv Feos
EPA
SI 6 million
2 2 FTE
Industry
$0 9 million
EPA
S2 8 million
14 8 FTE
Industry
$2 1 million
EPA
$4 4 million
17 0 FTE
Industry
S3 0 million
ALlocated Quotas
Direct Regulation
EPA
SI 4 million
1 2 FTE
Industry
*
$225 6 million
EPA
$24 9 million
45 9 FTE
Industry
$123 7 million
EPA
$26 3 million
47 1 FTE

$349 3 million
                                                                                                                          CO
'• Does not Include the expense ot engineering and cost studies to develop regulations
 Source:  See Appendix M.

-------
                                     11-19
will depend on the total number of such actions and on how efficiently the
recordkeeping system works  (e.g., the number of problem transactions).  Initial
estimates suggest that EPA  operating costs will not be substantial, however,
they will be higher than for either of the other two economic incentive
approaches.  This system would also be complex from an administrative standpoint
due to the annual auctions, and the need to monitor the potentially large number
of trading transactions each year.

    Total industry operating costs will depend on the number of firms who elect
to participate in the auction and the number of transactions which occur
afterwards.  Initial estimates are that annual administrative costs to industry
could be on the order of $46 million.  The majority of these burdens are
associated with the buying  and selling of rights.  Unlike the other two economic
incentive approaches where  almost no administrative cests would be incurred by
CFC user industries, to the extent some percentage of CFC user firms wanted to
obtain their own rights, under this option they would incur some relatively
small administrative costs.

    b.  Allocated Quotas.   Because this option only involves allocating quotas
to the seven CFC producers  and fourteen importers, the total costs of starting
and operating this system is relatively low although the costs incurred in
developing the allocations  is significant.  Moreover, because fewer trades are
likely to occur than under  auctioned rights, industry's costs of participating
and EPA's costs of tracking are substantially reduced.  Compliance only involves
the few producers and importers.  In terms of feasibility, this approach is most
easily implemented.

    c.  Regulatory Fees.  The administrative costs associated with this option
are similar in magnitude to those resulting from allocated quotas.  Since fees
would be assessed at the point of production or importation, only those few
firms involved in these activities would be involved.  CFC user industries would
simply pay a higher price for CFCs at the time of purchase to their suppliers
reflecting the regulatory fee.  EPA compliance monitoring and enforcement would
be limited to the few CFC producers and importers.

    d.  Engineering Controls/Bans.  Because of the large number of firms that
use CFCs, the administrative costs of this approach were estimated to be
substantially greater than the previous options.   For example, for the purposes
of illustrating this option, three specific regulations were imposed:  a ban on
the use of CFC-12 in blown packaging; a reduction in the use of CFC-12 in large
automobile air conditioning shops; and a reduction in the use of CFC-12 in
medical sterilization.   The number of facilities assumed to be affected by these
regulations were 100 for foam packaging,  20,000 for automobile air conditioning,
and 150 for medical sterilization.

    The start-up phase would require each affected facility to prepare a
compliance plan stating how it intended to meet the EPA ban or work practice,  or
demonstrating the facility's ability to meet required performance standards.
For example,  in the case of a ban on foam packaging,  facilities could substitute
one of several possible alternative blowing agents.   In the case of automobile
air conditioning,  firms would add specialized equipment allowing the recovery
and recycling of CFC-12 as part of the regulation maintenance of air
conditioners.   The purpose of the compliance plan is  for the facility to notify
EPA of its intentions.   Where facilities  must put on  control equipment to

-------
                                     11-20
recover a specified percentage of CFCs or to meet a specified emission limit for
example, the facility would be required to submit an initial performance test
report which demonstrates the facility's ability to meet the required level of
recovery or emission limit and which establishes the operating parameters at
which compliance is achieved.  Because of the large number of firms required to
file such plans or initial reports, the total industry start-up costs were
estimated to be $227 million.  However, to the extent outright bans instead of
emission control are required, costs could be substantially reduced.

    Industry operating costs would also be substantial, reflecting the reporting
requirements and the costs associated with occasional site visits to review
compliance.  Annual operating costs associated with administrative requirements
were estimated to be approximately $122 million.  Because more regulations than
the three examined might be necessary, depending on the level of reduction
required, this figure may underestimate actual costs.

    EPA start-up and operating costs would also be substantially greater than
under the previous regulatory options.  Agency staff would be required to review
the compliance plans to make certain that proposed actions would result in the
required level of reductions.  They would also have to modify the compliance
plans, where necessary, to provide a basis for compliance monitoring and
enforcement.  On a monthly basis, EPA would review compliance reports to
determine if the facilities are meeting the required work practice or emission
reduction required.  Finally, site visits would be conducted to review
compliance.

    In addition to EPA Headquarters staff, enforcement against a large number of
firms would necessarily involve EPA Regional offices and state and local air
pollution control agencies.  The costs of coordinating and involving several
additional layers of agencies has not been estimated in this analysis, but could
be substantial.  However, such costs could be substantially reduced to the
extent that bans instead of control limits are utilized.

    e.  Hybrid -- Allocated Quotas Plus Controls/Bans.   This option combines the
administrative requirements of allocated quotas with a subset of those
requirements associated with the previous option.   Depending on the number of
firms affected by the engineering controls/ban regulations adopted under this
approach, the administrative costs to industry and EPA could be substantial.

    In Appendix M,  the analysis assumes that two regulations are promulgated.
The use of CFC-12 is banned in foam packaging and CFC-12  must be recycled by
large automobile air conditioning shops.   Because of the  large number of
affected facilities (particularly in the case of automobile air conditioning),
the initial estimate of administrative costs are substantial.

    Industry first year start-up and operating costs were estimated to total
over $348 million.   Of this amount, about $121 million were annual operating
costs associated with quarterly reporting and occasional  site visits.   EPA
costs, particularly during the operational stage,  would also be substantial.

    f.  Hybrid -- Allocated Quotas Plus Regulatory Fees.   This option combines
the administrative requirements of allocated quotas with  those of regulatory
fees.  Because of the similarity in the administrative  requirements of both of
these market-based options, total costs of starting up  and operating this hybrid

-------
                                     11-21
option is about the same as the relatively low costs of the allocated quota
option itself.  Compliance monitoring and enforcement would be limited to the
few CFC producers and importers.

11.2.6  Compliance and Enforcement

    The regulatory options were designed in a manner to facilitate compliance
and enforcement.  In the-case of the economic-based approaches, all compliance
and enforcement actions focus on the few CFC producers and importing firms.
These firms would be required to keep track of and report their CFC-related
activities and would be monitored periodically to determine if they were in
compliance.  Given the high capital costs associated with developing new
production facilities, "black market" CFCs are unlikely to become a problem.
Importation limits may be monitored by U.S. Customs.

    In the case of the engineering controls/bans option, substantial efforts and
resources would be required to monitor compliance.  Depending on the number of
firms affected by direct regulations, EPA's ability to ensure compliance, and,
where necessary, to take enforcement action might be limited by resource
constraints.  Moreover, the implementation of this option would necessarily
involve EPA Regions and State/local agencies.  Given the large number and
diverse nature of CFC-using industries, it is likely that if this option were
selected, that compliance and enforcement could be substantially more difficult.
However, to the extent outright bans used instead of control requirement,
administrative costs will be substantially less.

    Under the hybrid approach of quotas plus controls/bans, compliance and
enforcement would combine the activities of both allocated quotas and
engineering controls/bans.  Thus, the approach has the advantages and
disadvantages of each of these options.  However, to the extent fewer mandatory
regulations are utilized, the difficulties associated with compliance and
enforcement under the controls/ban option would be reduced.  Finally, the hybrid
of quotas and fees by only involving producers and importers represents a
straightforward administrative process.

11.2.7  Legal Certainty

    Section 157(b) of the Clean Air Act provides EPA with the authority to
regulate "any substance practice, process, activity" (or any combination
thereof).  This clearly provides EPA with broad authority in terms of its
traditional approach to engineering controls or bans.  However, the
economic-based approaches represent a departure from past regulations and raise
legal issues concerning Congressional intent and EPA authority.

    Specifically, under the auctioned right and regulatory fee options,
substantial revenues would be raised for the U.S. Treasury.  The legal issue is
whether EPA has the authority under the Clean Air Act to raise revenues in
excess of the cost of operating a program.  The hybrid approach linking
allocated quotas plus fees would avoid undermining the regulatory program if the
fee part of the program was invalidated.

    No legal issues have been raised in the context of the other options

-------
                                     11-22
11.2.8  Impacts on Small Business

    To determine the impact on small businesses, a Regulatory Flexibility
Analysis  (RFA) was performed.  This analysis is summarized here and included in
Appendix L.

    The purpose of a Regulatory Flexibility Analysis (RFA) is to evaluate
impacts of regulatory options on small businesses and to evaluate alternatives
to minimize those impacts consistent with achieving the desired regulatory goal.

    The RFA first examined the range of industries using CFCs or halons to
identify those where these chemicals are a significant percent (greater than
five percent) of final product or service.  Thus, the analysis assumed that
where CFCs or halons are only a small part of total costs, any expenses incurred
in complying with the regulation would not substantially impact the affected
firms.

    Based primarily on this initial screen, the analysis focused on the foam
blowing industry as the only industry group with a large percentage of small
businesses and a potential to be affected substantially by regulations on CFCs.
The detailed analyses of this industry was limited due to the availability of
information on individual firms.  However, based on data that was publicly
accessible, the RFA focused on the extent to which compliance costs would exceed
five percent of total product costs and the extent to which firms using CFCs
could be forced to close due to loss of markets to product substitutes (e.g.,
replacement of fiberglass for CFC-blown insulation).

    The results of this analysis suggest that a relatively small percentage of
market share may be lost particularly in the CFC-blown foam packaging and to a
lesser extent in CFC-blown insulation industries.  The loss of market share by
these firms does not automatically translate into the closure of existing firms.
Because substantial growth in these markets would have occurred in the absettee
of CFC regulation,  the analysis assumed that losses in market share would first
foreclose the entry of new firms into the market before forcing existing firms
to shut down.  Using these assumptions, the analysis found that using the Case 1
cost scenario (in which the penetration of alternative products into foam
markets is reduced),  virtually no existing foam facilities were forced to shut
down.  Using the Case 2 cost scenario (in which the penetration of alternative
products into foam markets is increased), approximately 20 percent of foam
facilities in the insulating boardstock and packaging industries are estimated
to shut down.  Even this 20 percent, however, can avoid shutting down if they
are willing to suffer lower profits in the short term while switching to
alternative blowing agents predicted to become available in the mid-1990s.

    The estimated loss in market share is also substantially lower if firms in
other industries act in a timely manner to reduce their use of CFCs.
Furthermore,  some segments of the foam industry are not likely to be affected at
all.  For example,  the food packaging industry recently announced an agreement
with environmental groups to switch to HCFC-22 by the end of 1988.

-------
                                     11-23
11.3  REGULATORY APPROACH FOR HALONS

    Because they contain bromine, which is considered to be a substantially more
effective ozone-depleting chemical than chlorine, Halon 1301, 2402, and 1211 are
also included in the international protocol and in the proposed domestic rule.
Chapter 6 examines in detail the effects on ozone depletion of varying levels of
control of halons including the possibility of excluding these chemicals from
regulation.

    Because halons have substantially different emission characteristics and
because greater uncertainties exist concerning their relative ozone-depleting
potential, they are treated separately from the CFCs in the protocol and the
proposal.  In addition, primarily because of limited information about current
worldwide production, use and emissions, the international agreement took the
interim step of freezing production at 1986 production levels beginning in
approximately 1990  but did not call for reductions.

    The options discussed above are also possible for regulating halons.  In
general, the same issues and concerns about these options raised in the context
of CFCs are also applicable to these chemicals.  Thus, regulatory fees and
engineering controls/bans would not ensure that the regulatory goal was
satisfied.  The same legal issues and concerns about transfer payments would
develop.  Administrative burdens would be greatest in the options involving
engineering controls/bans.

    Halons are substantially more expensive than CFCs.  Furthermore, unlike CFCs
which are critical elements of products, the only time halon emissions are
essential is in putting out a fire.  As a result of the unique characteristics,
it may be possible to significantly reduce the current level of halon emissions.
The halon producer and user industries have recently initiated a program aimed
at cutting back emissions from testing, servicing and accidental discharge of
total flooding systems and from training using handheld systems.  These steps
could substantially reduce current halon emissions.  As a result, most of the
ongoing halon production would be contained in cylinders unless used to
extinguish a fire.

11.4  SUMMARY OF REGULATORY OPTIONS

    This chapter has defined and evaluated six different approaches for
regulating CFCs and halons.   It examined the results of several different
studies in comparing these options.  Criteria used in this evaluation include
economic costs, equity considerations,  administrative burdens, legal issues and
impacts on small businesses.   While many of these comparisons could be made only
in a qualitative manner, nonetheless, several important distinctions were
highlighted between these options.

    Exhibit 11-3 summarizes the results of this review.   It shows that for
several options, significant issues were raised which could undermine their
viability.  Auctioned rights raises the issue of market uncertainty,
particularly in its early years of operation.   Regulatory fees and engineering
controls/bans alone do not ensure that the regulatory goal will be satisfied.
Administrative costs under the engineering controls/ban and the hybrid approach
could be substantial.

-------
                                                                      EXHIBIT 11-3

                                                  SUMMARY OF ISSUES RELATED TO CPC REGULATORY OPTIONS
Evaluation Criteria
Environmental Protection

Economic Efficiency

Equity

Administrative Feasibility
Legal Certainty

Auctioned Rights
Right number
directly linked
to regulation goal

Efficiency
achieved if low
cost reductions
achieved I/
Large transfers
from users to
treasury 2/

Easy to administer
through producers/
importers
Legal uncertainty
related to auctions

Allocated Quotas
Quotas directly
linked to regula-
tion goal

Efficiency
achieved, if low
cost reductions
realized I/
Large transfers
to producers 2/

Easy to administer
through producers/
importers
No problems
identified
Options
Regulatory Fees
No certainty;
would have to
modify fee over
time

Efficiency
achieved, if low
costs reductions
realized I/
Large transfers
from users to
treasury 2/

Easy to administer
through producers/
importers
Legal uncertainty
related to fees

Controls /Ban
No certainty; may
have to add con-
trols to offset
increases in
unregulated uses
Not all low cost
reductions assess-
able to direct
regulation
Those industries
unaffected avoid
burdens

Potentially large
number of users
involved
No problems
identified

Hybrid —
Quotas/Controls
Quotas directly
linked to regula-
tory goal

Some low cost
reductions guaran-
teed, some effi-
ciency sacrificed
Transfers reduced;
cost to regulation
firms

Depends on number
firms affected by
industry-specific
regulations
No problems
identified

Hybrid —
Quotas /Fees
Quotas directly
linked to
regulatory goal

Efficiency
achieved if fees
reflect market
prices
Transfers
reduced, incen-
tive to delay
substitutes
eliminated
Easy to adminis-
ter through
producers
Legal uncertaint;
related to fees
Incentives for Innovation
Compliance and Enforcement
Across-the-
board incentives

Involves only pro-
ducers/importers
Across-the-board
user incentives

Involves only pro-
ducers/importers
Strong across-the-
board incentives

Involves only pro-
ducers/importers
of regulations
Only incentives
for targeted
industries
Could involve many
firms
Across-the-board
incentives

Depends on quan-
tity and coverage
Across-the-board
incentives

Involves Quotas
on producers
\l     Concern exists that  some  industries  — particularly those like car air conditioners and computers where CFC prices are a  tiny  fraction of total
       product costs —  would not  take  full advantage of low cost of reduction opportunities and instead would absorb the costs  of  fees,  rights,  and
       quotas   By doing so, the costs  of these approaches would increase to other industries and economic efficiency would be sacrificed

2/     Transfer costs are those  expenses incurred in paying for rights, fees, or quotas in excess of the costs directly incurred/putting  on  controls,
       switching to substitutes) by  reducing CFC use

-------
                                     11-25
    Because of these above concerns, it appears that allocated quotas offers the
most attractive approach to limiting the use of CFCs and halons.  This approach
was very similar to auctioned rights in that it should provide for economically
efficient reductions.  Moreover, it involves a minimum of administrative costs,
is the most easily enforced option, and does not raise any potential legal
issues.  The major concerns about allocated quotas involve the effects of the
potential windfall profits to the producers from government restrictions on
supply and the possibility that user firms will be slow to implement low cost
reduction measures.  The two hybrid options, either alone or in conjunction,
could effectively address these concerns.

-------