United States Office of Water EPA 821-B-99-008
Environmental Protection (4303) November 1999
Agency
Economic Analysis of
Final Effluent Limitations
Guidelines and
Standards for
Commercial Hazardous
Waste Combustors
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ECONOMIC ANALYSIS OF FINAL EFFLUENT LIMITATIONS
GUIDELINES AND STANDARDS FOR
COMMERCIAL HAZARDOUS WASTE COMBUSTORS
William Anderson, Economist
Engineering and Analysis Division
Office of Science and Technology
U.S. Environmental Protection Agency
Washington, DC 20460
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Table of Contents
Economic Analysis of Final Effluent Limitations Guidelines and Standards for
Commercial Hazardous Waste Combustors
Chapter 1 Introduction 1-1
Chapter 2 Data Sources 2-1
Chapter 3 Profile of the Commercial Hazardous Waste Combustor Industry 3-1
Chapter 4 Facility Impact Analysis 4-1
Chapter 5 Firm-Level Impact Analysis 5-1
Chapter 6 Foreign Trade Impacts 6-1
Chapter 7 Community Impacts 7-1
Chapter 8 Impacts on New Sources 8-1
Chapter 9 Regulatory Flexibility Analysis 9-1
Chapter 10 Summary Environmental Assessment 10-1
Chapter 11 Cost-Reasonableness Test 11-1
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Chapter 1
Introduction and Overview
1.1 Overview and definitions
The Federal Water Pollution Control Act Amendments of 1972 established a comprehensive program to
"restore and maintain the chemical, physical, and biological integrity of the Nation's waters" (Section
101(a)). To implement these amendments, the U.S. Environmental Protection Agency (EPA) issues
effluent limitations guidelines and standards for categories of industrial dischargers. By regulation, EPA
establishes guidelines and standards that represent the following.
Best Practicable Control Technology Currently Available (BPT) BPT regulations apply to
existing industrial direct dischargers, and generally cover discharge of conventional pollutants.
• Best Available Technology Economically Achievable (BAT) BAT regulations apply to existing
industrial direct dischargers and the control of priority and non-conventional pollutant discharges.
• Best Conventional Pollutant Control Technology (BCT) BCT regulations are an additional
level of control for direct dischargers beyond BPT for conventional pollutants.
• Pretreatment Standards for Existing Sources (PSES) PSES regulations apply to existing
indirect dischargers (i.e., facilities which introduce their discharges into Publicly Owned
Treatment Works, or POTWs). They generally cover discharge of toxic and non-conventional
pollutants that pass through the POTW or interfere with its operation. They are analogous to the
BAT controls.
• New Source Performance Standards (NSPS) NSPS regulations apply to new industrial direct
dischargers and cover all pollutant categories.
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• Pretreatment Standards for New Sources (PSNS) PSNS regulations apply to new indirect
dischargers and generally cover discharge of toxic and non-conventional pollutants that pass
through the POTW or interfere with its operation.
Table 1-1 below provides more detailed information about these six types of regulations.
This economic analysis (EA) assesses the economic impact of the effluent limitation guidelines and
standards for the Commercial Hazardous Waste Combustor (CHWC) Industry. This rulemaking
establishes BPT, BAT, BCT, PSES, NSPS and PSNS effluent limitations guidelines.
The final rule establishes national effluent limitations and pretreatment standards for a segment of the
waste combustion industry - "commercial hazardous waste combustors." The segment of the universe of
incineration units for which EPA has adopted regulations includes units that operate commercially and that
use controlled flame combustion to treat or recover energy from hazardous industrial waste. For example,
industrial boilers, industrial furnaces, rotary kiln incinerators and liquid-injection incinerators are all types
of units included in the Commercial Hazardous Waste Combustor Subcategory. However, the rule does
not include cement kilns, since EPA specifically exempts cement kilns from this final rule.
For the final rule, EPA identified only ten facilities that were discharging CHWC wastewater to a receiving
stream or introducing wastewater to a POTW. Of these ten facilities, two facilities have, since 1992, either
stopped accepting waste from off site for combustion or have closed their combustion operations. The
economic analysis addresses the remaining eight operating facilities.
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Table 1-1. Levels of Pollutant Controls
CONTROLS ON DIRECT DISCHARGERS
CONTROLS ON INDIRECT DISCHARGERS
_ f^T Best Practicable Control Technology
Dr I Currently Available
The lowest level of control, BPT targets
conventional pollutants but can also control
priority and nonconventional pollutants.
No controls for indirect dischargers comparable to
BPT for directs, since indirect dischargers
discharge wastewater into a POTW, which treats
conventional pollutants.
cc
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Best Conventional Pollutant Control
Technology
Controls conventionals (i.e., conventional
pollutants) only. Limits for conventionals must be
equal to or more stringent than BPT.
No controls for indirect dischargers comparable to
BCT for directs, since indirect dischargers
discharge wastewater into a POTW, which treats
conventional pollutants.
_ . _ Best Available Technology
D/\ I Economically Achievable
Applies to existing facilities. Usually, BAT limits
only apply to priority pollutants and
nonconventionals. BAT can only control
conventional incidentally or as a surrogate /
indicator for priority pollutants and/or
nonconventionals. BAT limits can be equal to or
more stringent than BPT regulations.
Pretreatment Standards for
Existing Sources
Generally analogous to BAT regulations for direct
dischargers. EPA determines which pollutants to
regulate in PSES on the basis of whether or not
they pass through, cause an upset in, or otherwise
interfere with the operation of a POTW or its
sludge practices. PSES usually begins with BAT
control technology, adjusted on the basis of pass-
through and interference considerations. Limits
usually apply only to priority pollutants and
nonconventionals. PSES can only control
conventionals incidentally, as a surrogate /
indicator for priority pollutants and
nonconventionals, or if the industry discharges
large enough loadings to cause a national problem
for pass-through or interference.*
NSPS
New Source Performance
Standards
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Applies to new sources. EPA can promulgate
NSPS for conventionals on the basis of BPT
limitations. NSPS limits can be equal to or more
stringent than BPT regulations (e.g., require BPT
technology plus additional treatment). EPA can
promulgate NSPS for priority pollutants and
nonconventionals on the basis of BAT limitations.
NSPS limits can be equal to or more stringent
than BAT regulations.
DC Kl Q Pretreatment Standards for
HO N O New Sources
Applies to new sources. Generally analogous to
NSPS. Generally promulgated for priority
pollutants and nonconventionals
Limits for oil and grease were set in Petroleum Refining to prevent nationwide interference problems. See 40 CFR-419.
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1.2 Summary of the rule
The rule includes BPT, BAT, BCT, PSES, NSPS and PSNS limitations and standards. These are
discussed below.
Best Practicable Control Technology (BPT)
EPA is promulgating BPT limitations for nine priority and non-conventional metal pollutants, TSS and pH.
Best Available Technology Economically Achievable (BAT)
EPA is promulgating BAT limitations equal to the BPT limitations for the non-conventional and priority
pollutants.
Best Conventional Pollutant Control Technology (BCT)
EPA is promulgating BCT limitations equal to the BPT limitations for conventional pollutants.
New Source Performance Standards (NSPS)
EPA is promulgating NSPS limitations equal to the BPT/BCT/BAT effluent limitations for conventional,
priority and non-conventional pollutants.
Pretreatment Standards for Existing Sources (PSES)
EPA is promulgating PSES limitations for nine priority and non-conventional pollutants.
Pretreatment Standards for New Sources (PSNS)
EPA is promulgating PSNS effluent limitations equal to the PSES effluent limitations.
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1.3 Rationale for the limitations and standards
1.3.1 Rationale for the BPT/BAT/PSES Limitations and Standards
EPA is basing the final BPT limitations on the same treatment technologies it considered at proposal with
one modification. The technology forming the basis of the limitations and standards is: two-stage chemical
precipitation with and without sand filtration as a final step. See 63 FR at 6404. Based on a thorough
analysis of the sampling data, EPA considered only one option for the final BPT/BAT/PSES limitations.
EPA concluded that a two-stage precipitation process with or without a sand filtration polishing step
provided the greatest overall pollutant removals at a cost that is economically achievable at most
commercial hazardous waste combustion facilities.
The treatment system for which the EPA assessed performance is: Chromium Reduction (as necessary),
Primary Precipitation, Solid-Liquid Separation, Secondary Precipitation, and Solid-Liquid Separation with
(or without) Sand Filtration.
EPA is basing BPT limitations upon two stages of chemical precipitation, each followed by some form of
separation and sludge dewatering. The pH levels used for chemical precipitation vary to promote optimal
removal of metals because different metals are preferentially removed at different pH levels. In addition,
chromium reduction precedes the first stage of chemical precipitation, when necessary. In some cases,
BPT limitations would require the current treatment technologies in place to be improved by use of
increased quantities of treatment chemicals and additional chemical precipitation/sludge dewatering
systems. Sand filtration is employed at the end of the treatment train, if necessary.
The Agency has concluded that this treatment system represented the best practicable technology currently
available and should be the basis for the BPT limitations for the following reasons. First, the demonstrated
effluent reductions attainable through this control technology represent performance that may be achieved
through the application of demonstrated treatment measures currently in operation in this industry. Three
facilities demonstrate achievement of these removals and the technology is readily applicable to all
facilities. Second, the adoption of this level of control would represent a significant reduction in pollutants
discharged into the environment (approximately 94,000 pounds of TSS and metals). Third, the Agency
assessed the total cost of water pollution controls likely to be incurred to meet the BPT limitations and
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standards in relation to the effluent reduction benefits and determined these costs were not wholly
disproportionate to the effluent benefits achieved.
EPA is establishing BAT limitations based upon the same treatment technology used to establish BPT
limitations. EPA did consider and reject zero discharge as a possible BAT technology for reasons
discussed at length in the Notice of Final Rulemaking (published in the Federal Register) and in the
"Development Document for Final Effluent Limitations Guidelines and Standards for Commercial
Hazardous Waste Combustors" (EPA 821-R-99-020) (hereafter "Technical Development Document").
Based on new data received and analyzed by EPA following the proposal of the rule, EPA has decided to
base PSES and BPT/BAT on the same treatment technology. This treatment technology is chromium
reduction (as necessary) and two stages of chemical precipitation with (or without) sand filtration. EPA
developed BPT/BAT limitations using sampling data from facilities both with and without a final sand
filtration step. The data show that filtration may or may not be necessary to meet the final limitations,
depending upon the level of treatment provided in the initial two stages of chemical precipitation. EPA,
however, costed the PSES technology standards with sand filtration to ensure its economic achievability.
Section 307(b) of the Act requires EPA to promulgate pretreatment standards for pollutants that are not
susceptible to treatment by POTWs or which would interfere with the operation of POTWs. EPA looks at
a number of factors in deciding whether a pollutant was not susceptible to treatment at a POTW or would
interfere with POTW operations - the predicate to establishment of pretreatment standards. First, EPA
assesses the pollutant removals achieved at POTWs relative to those achieved by directly discharging
systems using BAT treatment. Second, EPA estimates the quantity of pollutants likely to be discharged to
receiving waters after POTW removals. Third, EPA studies whether any of the pollutants introduced to
POTWs by combustors interfere with or are otherwise incompatible with POTW operations. EPA, in some
cases also looks at the costs and other economic impacts of pretreatment standards and the effluent
reduction benefits in light of treatment systems currently in-place at POTWs.
EPA is establishing PSES for this industry to prevent pass-through of the same pollutants controlled by
BPT/BAT from POTWs to waters of the U.S. EPA has determined that all of the pollutants that "passed
through" at proposal would "pass-through" and has consequently developed pretreatment standards for
these pollutants.
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1.3.2 Rationale for the BCT Limitations
EPA could not identify any technologies that achieve greater removals of conventional pollutants other than
those associated with the BPT limitations. Because EPA did not identify any incremental conventional
removal technology options that pass the BCT cost reasonable test, EPA is promulgating BCT limitations
equal to the BPT limitations.
1.3.3 Rationale for New Source Performance Standards
EPA establishes NSPS limitations that are identical to those for BPT/BCT/BAT. The technologies used to
control pollutants at existing facilities are fully applicable to new facilities. The Agency did consider basing
NSPS on zero discharge but rejected this technology for reasons described in the Notice of Final
Rulemaking (published in the Federal Register) and in the Technical Development Document.
1.3.4 Rationale for Pretreatment Standards for New Sources
EPA established PSNS limitations that are identical to those for PSES. EPA has decided to base PSNS on
the same technology as it used for BPT/BAT and for PSES. The Agency considered energy requirements
and other non-water quality environmental impacts and found no basis for any different standards than the
established PSNS.
1.4 Structure of the economic analysis
This EA describes both the methodology employed to assess impacts of the rule and the results of the
analyses. Figure 1-1 summarizes the overall structure of the impact analysis. The two main inputs to the
analysis are data on industry baseline financial and operating conditions and projected costs of complying
with the rule. EPA based the industry baseline financial and operating data are based principally on the
CFiWC survey conducted under the authority of Section 308 of the Clean Water Act.
All eight facilities EPA expects to be affected by the CFiWC rule received and completed the detailed
survey. The survey asked for balance sheet and income statement information, as well as quantitative and
qualitative information regarding each facility's dependence on market sectors, types of customers and
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business activity. The survey asked facilities to characterize the competition they faced in various markets.
The survey also gathered data regarding facility liquidation value, cost of capital and the facility's owning
firm. EPA supplemented data obtained from the survey with secondary sources, including trade literature
and public filings.
In addition to baseline facility data, the second major type of data input to the analysis is the technical
estimate of costs associated with compliance with the regulatory options. EPA developed these estimates
based on engineering analysis of the facilities. EPA incorporated the cost estimates into the economic
analysis by adding an annualized capital cost of compliance to the estimated annual operating and
maintenance costs of compliance to yield a single, total annualized compliance cost estimate.
EPA used baseline financial data and estimated annualized compliance costs to calculate baseline and post-
compliance cash flows at the level of the entire facility as well as for waste treatment operations alone.
EPA considers facilities that change from non-negative to negative facility-level cash flows as a result of
incurring compliance costs closures associated with the regulation. EPA also calculated the ratio of
compliance costs to revenue as a secondary measure of financial stress short of closure.
The economic analysis uses the results of the facility-level cash flow analysis to develop the other
components of the EA (see Figure 1-1). The firm-level impact analysis evaluates the effect of facility-level
compliance costs on the parent firm. The community impact analysis examines how employment losses
due to projected facility closures affect not only the people employed by the facility but also the
communities to which these people belong. EPA examined whether CHWC closures might influence the
U.S. trade balance by decreasing export-related activity and increasing imports.
EPA also examined the guideline to determine if it would create barriers to entry. If existing firms were to
gain a significant financial advantage over new firms in complying with the guideline, then the guideline
might deter new entrants and reduce market competition.
Finally, EPA assessed the regulatory impact on small businesses, in accordance with the requirements of
the Regulatory Flexibility Act. The key methodological component of this analysis was the identification of
small businesses. EPA used small business thresholds provided by the Small Business Administration,
which defines small businesses by firm-level employment or revenues, depending on the industry. In the
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Regulatory Flexibility Analysis, EPA applied these thresholds and found no small businesses among the ten
facilities.
1.5 Organization of the economic analysis report
This report presents the remaining parts of the economic analysis as follows. Chapter 2 describes the data
sources consulted for this EA. Chapter 3 profiles the CHWC industry and examines the economic and
financial structure and performance of its markets. Following the background material in Chapters 2 and
3, Chapter 4 details the methodology used to estimate facility impacts and presents the results. Chapters 5
through 9 connect the results of the facility impact analysis to potential collateral effects on firms, foreign
trade, communities, new entrants and small businesses. Chapter 10 presents the water quality-related
benefits associated with achievement of the rule. Chapter 11 details the cost reasonableness methodology
and presents the results.
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Figure 1-1
Economic Impact Analysis of the CHWC Industry
Effluent Limitations Guidelines: Analytic Components
1 Waste Treatment Industry |
| Phase II: CHWCs l^
| Facility Survey for '
1 1991-1992 '
i 1
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Compliance Canital
& Operating Costs ,
1 1
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1 Secondary Source Economic '
1 and Financial Data ^
1 1
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Economic Models
Privately-Owned
Facilities: Cash Flov
md Compliance Cos
ihare of Revenue
\nalyses
Municipally-
Owned Facilities.
Analysis of
Compliance Cost
and Total Waste
Disposal Cost
Shares of
Household Income
f
t
Employment
Impacts
Production
Losses
: Facility
I Impacts
Community
Impacts
Foreign
Trade
Impacts
Small :
Business !
Impacts :
,::::::::::::::::: •/
New i
Source j
Impacts i
Labor j
Requirements;
Impacts ;
Firm
Impacts
f I Data Inputs
Key Analytical Components \ \ Analytical Outputs
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Chapter 2
Data Sources
2.1 Introduction
This chapter describes the primary and secondary sources that provided economic and financial data used
to assess the expected economic impact of the CHWC rule.
2.2 Primary source data
EPA, under the authority of CWA Section 308, sent out the Waste Treatment Industry Phase II:
Incinerators 1992 Screener Survey (OMB Approval Number: 2040-0162) and the 1994 Waste Treatment
Industry Phase II: Incinerators Questionnaire (OMB Approval Number: 2040-0167). These survey efforts
covered all ten of the facilities EPA is regulating under the CHWC rule. Two of these facilities have either
stopped accepting waste from off-site for combustion or have closed their combustion operations. The
survey obtained 1991 and 1992 information on the technical and financial characteristics of facilities to
estimate how facilities would be affected by an effluent guideline.
The technical data obtained by the survey include information on facility operating processes that use
water, the quantities of water and pollutants discharged by the various processes, and the treatment systems
that are currently in place for managing discharge of pollutants and other data. These data provided the
basis for estimating treatment system and process change costs for complying with various rule options.
The estimated technical costs for compliance in turn yielded estimates of the capital and operating costs of
treatment systems and any production costs or savings that would accompany installation and operation of
a treatment system. For a detailed description of the technical data obtained by the survey and the related
engineering and cost analyses leading to estimates of technical compliance costs, see the Technical
Development Document.
The survey also obtained a variety of financial data from the facilities. These data include the following.
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two years (1991-1992) of income statements and balance sheets at the facility and firm levels
• selected financial data for incinerator and waste treatment operations
• estimated value of facility assets and liabilities in liquidation
• borrowing costs
• employment at the level of the facility as well as by type of operation
• characterizations of market structure
Some respondents attached annual reports or equivalent supporting documents. The financial data obtained
in the survey provided the basis for assessing how the effluent guidelines are likely to affect facilities and
product lines.
In addition to the survey, EPA obtained facility- and firm-specific data from Form 10-K submissions to the
Securities and Exchange Commission and from company press releases and profiles on the internet.
EPA received detailed financial data from all ten facilities included in the CHWC rule.
2.3 Secondary source data
EPA used secondary source data in a number of economic analyses in this document. In addition,
secondary source data helped to characterize and update background economic and financial conditions in
the national economy and in the CHWC industry. For example, EPA used secondary source data to track
the numerous consolidations and facility closures since administering the survey. Secondary source data
also contributed significantly to the firm-level analysis and to the characterization of future prospects.
Secondary sources used in the analysis included the following.
• 1987 to 1992 U.S. Industrial Outlooks, published by the Department of Commerce, which
supplied information for Chapter 3
Small business thresholds, by 4-digit industry group from the Small Business Administration,
used in the Regulatory Flexibility Analysis and in the preliminary statistical analyses
• Industry sources and trade publications (especially El Digest and The Hazardous Waste
Consultant), which contributed to the incinerators profile presented in Chapter 3 and to the
facility and firm-level impact analyses
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• Regional Multipliers: A User Handbook for the Regional Input-Output Modeling System (RIMS
II) 2nd Edition, published by the Bureau of Economic Analysis, provided regional multipliers
• Financial databases, including Robert Morris Associates' Annual Statement Studies, Dun &
Bradstreet's Million Dollar Directory and the Dun & Bradstreet company database. These
sources provided diagnostic financial ratios and firm-level income statement and balance sheet
values, as well as supplementary identification data
• The FY 1997 Economic Report of the President provided Producer Price Index series
• County Business Patterns, published by U.S. Bureau of Census
• Canadian News Wire
Market Guide "Company Snapshots"
Chapters for each component of the economic analysis discuss in detail relevant sources.
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Chapter 3
Profile of the Commercial
Hazardous Waste Combustor Industry
3.1 Introduction
Though still relatively young, the Commercial Hazardous Waste Combustor1 Industry has progressed from
rapid growth in its inception to overcapacity during the early- and mid-90s to a period of increasing
financial stability that appears to be emerging from recent consolidations.
This chapter presents a brief economic profile of the market segment to which the CHWC effluent
guidelines will likely apply. Because the industry continues to evolve, the profile provides information on
the recent years since the proposed rule and to the near-term future. The Economic Analysis and Cost-
Effectiveness Analysis of Proposed Effluent Limitations Guidelines and Standards for Industrial Waste
Combustors (EPA 821-B-97-010) provides an extensive economic profile of the entire commercial waste
combustion industry and compares the 1991-1992 period of the survey to the period through 1997.
Since this chapter supports the economic analysis, it emphasizes economic characteristics that relate to the
industry's ability to absorb or pass-through compliance costs to customers. The two most important
characteristics involve market risk.
1. The capital intensiveness of the production process and the long lead-times needed for facility
construction and permitting make it difficult for firms to respond quickly to exogenous market
shocks, such as unforeseen technological or regulatory developments.
2. Waste combustors potentially face considerable short term volatility in market demand, because
they depend closely upon client industries that respond strongly to business cycles. A significant
1 For the purposes of this economic analysis, "waste combustors" will refer to the commercial hazardous waste
incinerators, boilers and industrial furnaces subject to the rule.
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portion of waste combustor client industries also have access to close substitutes - especially waste
minimization.
Management strategies apparently exist that can deal effectively with the special challenges waste
combustors face. While some members of the industry have suffered crippling financial setbacks in recent
years, others have managed to grow. Waste combustor parent firms have reduced risk from market
volatility by consolidating. Various types of waste combustor facilities have responded to the emergent
regulatory and technological environment through an aggressive series of market entry and exit decisions.
In short, the industry responded in recent years to some of the risk issues inherent to the waste treatment
business and to the secular decline in aggregate market size. It remains to be seen what effect these
responses will have on the financial condition of facilities, but the perennially pessimistic forecasts that
have become the norm for the industry no longer seem viable.
The following section defines relevant terms and explains the structure of the hazardous waste combustion
industry. After the overview, the profile discusses likely economic prospects for the industry in the near
future. The profile then focuses on the portion of hazardous waste combustion EPA expects will be
required to comply with a CHWC rule, drawing from the incinerators survey, publicly available electronic
databases and the sources previously cited.
3.2 Industry definitions
The CHWC industry includes facilities that provide a waste treatment or disposal service by burning
hazardous industrial wastes. Some facilities use the heat energy generated from combustion to produce
some other commodity. Facilities that burn wastes without recovering heat energy as an input to some
other industrial application are incinerators. Facilities that use the heat of combustion as an input to some
other industrial production process are boilers and industrial furnaces, or BIFs.
Another characteristic that subdivides the industry is whether a facility provides waste combustion services
to other facilities or burns wastes produced by other activities at the same site. Commercial waste
combustors offer services to off-site generators (sources) of wastes. Commercial waste combustors also
include those incinerators and BIFs that accept both on-site and off-site wastes. Facilities that burn only
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on-site wastes are non-commercial incinerators or BIFs. A full discussion of the scope and applicability of
the final rule, including relevant definitions is presented in the Notice of Final Rulemaking (published in the
Federal Register).
The final rule establishes national effluent limitations and pretreatment standards for a segment of the
waste combustion industry - "commercial hazardous waste combustors." The segment of the universe of
incineration units for which EPA has adopted regulations includes units which operate commercially and
which use controlled flame combustion in the treatment or recovery of energy values from hazardous
industrial waste. For example, industrial boilers, industrial furnaces, rotary kiln incinerators and liquid-
injection incinerators are all types of units included in the Commercial Hazardous Waste Combustor
Subcategory. However, it does not include cement kilns, since EPA specifically exempts cement kilns from
this final rule.
Incinerators burn a wide range of wastes, including those that have low energy content and those that have
a high hazardous content. BIFs burn a more limited range of wastes than other incinerators, depending on
the production process in which they are integrated, but they can do so at a lower cost. BIF's costs are
lower than costs for other incinerators because the value of their produced energy offsets purchased energy
costs. Furthermore, some costs of BIF combustion equipment is required for the associated production
process. Thus, incinerators are generally more versatile, while BIFs are generally less costly.
The decision to send wastes to an off-site, commercial waste combustor as opposed to an on-site facility
depends largely upon the quantity of wastes generated. A manufacturer that produces a large quantity of
wastes can save transportation costs, reduce combustion cost variability, address liability concerns and/or
utilize existing equipment by combusting waste on-site, in a non-commercial incinerator or BIF. On the
other hand, a manufacturer that produces lesser quantities of wastes may not be able to recover the capital
and operating costs of an on-site incinerator or BIF, and might thus turn to a commercial waste combustor.
3.3 Recent changes in the CHWC market
The CHWC industry is a small and contracting industry that is becoming increasingly integrated, both
vertically and horizontally. After several decades of growth, the industry found itself mired in overcapacity
by the beginning of the 1990s, when the regulatory environment that had launched waste combustion as a
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growth industry began to yield more complex, and sometimes adverse, effects on the size and profitability
of the market.
In 1984, EPA promulgated restrictions on how hazardous waste generators could dispose of their wastes.
Where generators had previously sent untreated waste to landfills, they now had to find alternative methods
of treating and disposing wastes. Combustion proved attractive because it often met the Best Demonstrated
Available Technology requirement of EPA's disposal restrictions and because combustion effectively
destroyed some organic wastes that other treatment methods could not manage as well.
Over time regulation of waste disposal encouraged generators to reduce their output of wastes in the first
place. Not only can waste minimization often cost less than alternative management methods, but some
waste minimization and pollution prevention techniques improve the technical and economic efficiency of
the production process. Generators found numerous ways to increase profits by reducing wastes.
Related regulatory actions since proposal
Recently, under the joint authority of the Clean Air Act (CAA) and the Resource Conservation Recovery
Act (RCRA), EPA promulgated the Hazardous Waste Combustion (HWC) MACT (64 FR 52828,
September 30, 1999). These final regulations apply to the following types of combustors:
• RCRA Incinerators (as defined in 40 CFR 260.10)
• RCRA Cement Kilns and RCRA Lightweight Aggregate Kilns (as defined in 40 CFR 260.10 under
the Industrial Furnace definition)
These regulations do not apply to:
• RCRA Boilers and Industrial Furnaces (other than Cement Kilns and Lightweight Aggregate Kilns,
as defined in 40 CFR 260.10)
The HWC regulations establish stack emission limits for several hazardous air pollutants (HAPs). Under
the Clean Air Act (CAA), these limits must require the maximum achievable degree of emission reductions
of HAPs, taking into account the cost of achieving such reductions and non-air quality health and
environmental impacts and energy requirements ~ so-called Maximum Achievable Control Technologies
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(MACT) standards. The HWC regulation does not set limits on the water effluents from the air pollution
control systems (APCS) (like wet scrubbers, quench systems). As a result of promulgation of these
standards, it is likely that some facilities using dry air pollution control, not presently generating
wastewater, may switch to using wet APCS.
Changes since proposal and future prospects
Despite the inherent difficulty of forecasting the commercial hazardous waste combustion market, the data
show several unequivocal trends.
The industry will clearly be more heavily concentrated, as major players continue to buy former
competitors. Consolidation makes strategic sense, from a theoretical perspective, because of the high entry
and exit costs. Uncertainty in market demand exposes individual facilities to a high risk of being unable to
finance their substantial sunk costs. However, large firms that control a number of different stages in the
waste treatment, storage and disposal process, employing a range of technologies, can belter hedge against
shifts in preferred waste management methods in response to unexpected regulatory developments or
unforeseeable technological changes in client industries.
Consolidation is also the theoretically expected response to the fierce price competition that characterized
the 1990s. In fact, the reduction in capacity during the period before proposal (often due to acquisitions)
greatly lessened one of the most important reasons cited by industry participants for depressed prices:
overcapacity. In 1999, El Digest reported that commercial incinerator utilization rates remained high, at
70 percent of practical capacity in 1998, and consolidations, conversions and closures have continued
strongly.2 In 1998, utilization of total capacity declined slightly to 67 percent because total capacity grew
slightly faster than combustion volume.
The future path of capacity and utilization is unclear in the face of proposed expansion as well as
anticipated exits. Finalization of the Hazardous Waste Combustion MACT standards also introduces
uncertainty.
2 Cited in the HWCR EIA, page 2-14.
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Significant obstacles clearly remain. Waste minimization continues to threaten the total size of the market.
However, even in the face of steady or declining aggregate volumes of hazardous waste, commercially
incinerated quantities could nevertheless rise. Public opposition to new permits continues, but this is less of
an issue since the industry is more interested in consolidating ownership and closing excess capacity than
applying for new permits.
While no one forecasts a financial boom, the elements appear to be in place to reverse some of the severe
stresses to date. High entry and exit barriers plus horizontal and vertical integration make a recipe for
economic empowerment. Major players expect market demand to stabilize or grow slightly. Finally, a
growing number of states have adopted differential fees for disposing of wastes - fees that favor
combustion over land disposal.
3.4 Potentially Affected Facilities
In 1994, EPA received detailed data from all ten CHWCs relevant to the rule. This section of the profile
examines the survey data as well as other, secondary source data for these facilities. The survey requested
data for the 1991 and 1992 fiscal years.
Market structure and size
While the choice of combustion over alternative methods of managing wastes may respond sensitively to
economic and regulatory events, the financial health of facilities does not share the volatility characteristic
of combustion quantities. In addition to the fact that a few large firms dominate a market of relatively
atomistic customers, commercial hazardous waste combustion tends to be a relatively small part of all the
activities at the facilities and the firms that own them.
Since 1992, the industry has consolidated under fewer parent firms, and many of the facilities have ceased
hazardous waste combustion. In the survey, two respondents identified themselves as "independently
owned." However, as of the beginning of 1997, all of the respondents belonged to a multi-site firm.3
3 While it is probable that some of this difference may arise from the ambiguous interpretation of the question's
term "independently owned," EPA has identified the pattern of consolidation on a facility-by-facility basis from
secondary sources.
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This section presents most of the discussion of current conditions in the industry at the firm level, because
of the recent consolidations. The ability of facilities to finance compliance costs should be seen in the
context of parent corporation financial health and market strategies. Information regarding firms come
from two trade journals - El Digest and Hazardous Waste Consultant - in addition to the following
sources: Form 10-Ks, attachments to survey responses, facility and parent firm press releases, Canadian
News Wire and the "Market Guide Company Snapshot."
Consolidation among suppliers in the commercial hazardous waste combustion market appears to have
augmented the market power of suppliers asymmetrically, compared to customers. The expectation of
industry observers that prices will recover from their recent declines supports the implications of the
structural developments in the market.
Survey responses identify other incinerators and BIFs as the primary source of competition. Only one
respondent identified a landfill as a major competitor in the respondent's market.
Financial condition
The financial performance of facilities varies widely between facilities as well as over time. This instability
applies to both the survey and current periods, making generalizations and comparisons difficult. Revenues
are currently increasing for the firms for which financial data were available from public sources.
Corporate Form 10-Ks indicate less financial stress in recent years than they did in the survey period.
Because directly comparable data are scarce, this section will present some summary facility data from
1991 and 1992, selecting highlights from available financial news regarding the recent performance of
firms that own facilities.
Return on assets is a more stable measure of profitability than return on equity, which can be and
frequently is manipulated through debt-equity management. Return on assets averaged 11.57 percent in
1991 and 18.37 percent the following year. Both of these are healthy values, but they exclude two facilities
that changed ownership during the period and were not able to provide complete data.
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Management strategies
Hazardous waste combustors responded to the financial stress of the 1980's and 1990's by integrating both
horizontally and vertically, resulting in the industry structure described earlier in this chapter. These firms
continue to pursue a strategy of reducing market risk by mixing asset types and closing facilities
particularly vulnerable to market volatility.
One firm that exemplifies the current strategies describes itself as a "one source service provider" with over
a dozen facilities in 1996. Through acquisitions, the firm sought to integrate vertically rather than
horizontally, closing some duplicative capacity while maintaining facilities that diversified its capabilities.
However, the firm has not completely eliminated its access to the capacity it has closed. Recognizing the
variability in market demand, this firm created a "ready" status where "incineration can begin quickly when
market demand warrants."4 This kind of flexible capacity strategy has helped a number of industries retain
market share during periods of peak demand without incurring high costs of idle capacity during periods of
lower demand.
The same illustrative firm also developed an interesting strategy of accumulating wastes for periodic rather
than continuous incineration. Therefore, facilities can operate at economically and technically efficient
flow rates even if the total quantity of wastes varies widely from one month or year to the next.
3.5 Representativeness of the survey period
When EPA developed the survey, the Agency selected 1991 and 1992 as the years for which respondents
would report economic and financial data. These were the years with the most recent complete data
available at the time, and no other years were more representative of the industry than the selected years.
The reason for this is two-fold. First, the CHWC industry has undergone a continuous progression of
changes from the 1980's to the present. The most recent data resemble the current state of the industry
more than any prior year of data. This is not true of all industry surveys; industries that exhibit a cyclical
4 From a Form 10-K filing with the Securities and Exchange Commission.
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pattern of performance may be better represented by selecting a specific segment of the business cycle
rather than the most recent year.
Another consequence of the monotonic pattern of the industry's development is that a brief period is more
accurate than a broad period of analysis. Unlike a cyclical industry, where gathering data over several
years can allow averaging over a business cycle, an industry undergoing continuous change in one direction
over a long period of time is not expected to return to conditions present at any point in the past. Therefore
averaging over a greater period of time includes increasingly irrelevant data. EPA's choice of two years
rather than more provides a snapshot that is less "contaminated" by conditions in an earlier period that the
industry had left behind. Choosing two years rather than one allows some accommodation of random
shocks not associated with time and also allows EPA to recognize and analytically accommodate facilities
that began or ceased operations immediately before or after a particular year.
The period selected captures characteristics of the industry that followed some significant consolidations,
though significant further acquisitions have continued in intervening years. However, even current data are
not likely to reflect the impact of other management strategies described above relating to capacity control.
Any trends in profitability due to increasing integration since the survey years probably would not be
statistically distinguishable from the profitability data gathered, because of the extremely high variability of
observed data. The standard deviation of observed return on assets across the relevant facilities, for
instance, is over 1.05 (105 percent) - far overwhelming any change in observed return on assets ratios one
could reasonably expect between the survey years and the present.5
While the industry has undergone some important changes since the survey, the survey period probably
represents the current economic and financial condition of the industry better than any other period that
EPA could have selected at the time. Current quantitative measures of financial performance are likely to
be statistically indistinguishable from measures calculated on survey data. Integration has continued, with
Canadian-ownership increasing its presence in the hazardous waste market. The industry has introduced
some management strategies aimed at reducing the risk of demand fluctuations.
5 This 1.05 value is not the same as the observational standard deviation from which a confidence interval can
be directly calculated. However, combined with the small number of observations, the variation in profitability
presented does indicate the difficulty of determining statistically significant changes.
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Chapter 4
Facility Impact Analysis
4.1 Introduction
The facility-level economic impact analysis assesses how the CHWC rule would affect individual facilities,
as opposed to the firms that own them. While facilities are geographically contiguous entities, a firm might
own more than one facility, at various locations. While Chapter 5 assesses firm-level impacts, this chapter
provides the basis for estimating the extent of facility closures and associated production and employment
losses that may result from the rule.
This analysis draws largely from facility data obtained from EPA's 1994 Waste Treatment Industry Phase
II: Incinerators Questionnaire. EPA used engineering analysis of technical survey and other data to
generate estimates of facility costs of complying with each regulatory option. In this chapter, EPA uses
economic and financial responses from the survey to evaluate the impact of compliance costs on the
financial condition of facilities.
Based on this analysis, EPA finds that the incinerator rule is economically achievable and will not subject
affected facilities to unmanageable or unreasonable financial or economic burdens.
The major sections of this chapter explain the methodology behind each component of the facility impact
analysis and present the results. EPA applied two kinds of financial tests:
• After-Tax Cash Flow Test. This test examines whether a facility loses money on a cash basis. If
a facility's cash flow is negative when averaged over the period of analysis, then EPA finds that
the facility's management and ownership will experience unmanageable or unreasonable financial
or economic burdens.
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• Compliance Cost Share of Revenue. This test examines whether a facility's estimated
compliance costs amount to more than 5 percent of revenue, in which case EPA finds that the
facility will experience unmanageable or unreasonable financial or economic burdens.
EPA applied the cash flow test to all eleven facilities that returned detailed surveys. Two additional
facilities that EPA expects will incur costs under the CHWC rule did not submit the detailed financial data
necessary for the cash flow test, so EPA conducted only the compliance cost share of revenue test for these
two facilities.
4.2 Compliance costs
EPA technical analysis yielded estimates of how much each facility would need to spend to comply with
each regulatory option.6 There are two components to estimated expenditures: operating and maintenance
costs component, which recurs annually, and a one-time capital cost of compliance component. In order to
perform the economic impact tests, EPA combined the two cost components into a single annualized cost.
Based on properly calculated annualized cost is properly calculated, the facility should be indifferent
between: a) incurring the annualized cost every year, and b) incurring a capital cost plus operating and
maintenance cost the first year and then only operating and maintenance costs each subsequent year.
EPA conducted the facility impact analysis on an after-tax basis because after-tax cash flow is the portion
of cash flow that the facility can use to meet regulatory compliance costs. After-tax cash flow commonly
indicates the ongoing viability of business enterprises. In this analysis, EPA calculated after-tax annualized
costs (ATCAm) as follows:
= ATCOM
where
ATCAm = After-tax annualized cost of compliance
ATCOM = After-tax operating and maintenance cost of compliance
6 See Development Document for Final Effluent Limitations Guidelines and Standards for Commercial
Hazardous Waste Combustors, EPA-821-R-99-020.
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ATCCAnn = After-tax annualized capital cost of compliance
The only adjustment needed to calculate ATCOM from technical estimates of operating and maintenance
costs is to subtract the offsetting benefit the facility would experience from reduced taxes. EPA used a
marginal corporate tax rate of 34 percent, which implies that for every dollar of operating and maintenance
compliance costs, before taxes, the facility would lose 66 cents in after-tax profit. Therefore,
ATCOM = (1-T) x COM
where
ATCOM = After-tax operating and maintenance cost of compliance
COM = Operating and maintenance cost of compliance (pre-tax)
T = Marginal corporate tax rate (34% in this analysis)
After adjusting for taxes, EPA annualized the technical estimates of capital costs of compliance. EPA
annualized capital costs by amortizing them over 15 years, using a discount rate of 7 percent. The 15 year
time period conforms with EPA practice and reflects a technical estimate of the useful life of the relevant
kinds of capital. The 7 percent discount rate - also OMB's measure of the social opportunity cost of
capital (see Executive Order #12866) - represents a reasonable estimate of the real, after-tax cost of
capital for a typical facility using both equity and debt financing.7 EPA showed, in developing the CHWC
rule impact methodology, that annualized compliance costs are only modestly sensitive to large variations
in the discount rate.
To calculate offsetting tax benefits, EPA used straight-line depreciation over 15 years - the estimated
useful lifetime of the relevant capital goods. Therefore, the facility applies l/15th of the capital cost of
compliance to each year's income calculations for tax purposes. Tax codes in effect at the time of this
7 EPA performed a sensitivity test in the Metal Products and Machinery Phase 1 proposed effluent guidelines
economic analysis to show that annualized costs are quite insensitive to discount rates over a reasonable range.
In a review of prior economic impact analyses, the Office of Water similarly found that the use of OMB's 7
percent rate may be preferable to collecting facility-specific measures of costs of capital because of the
burdensome data requirements and the practically insignificant analytical benefits associated with alternatives.
(See "Review of Data Gathering and Methodology Issues for Effluent Guideline Economic Impact Analyses
(Draft)," August 1996.)
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analysis allow businesses to use straight-line depreciation or a Modified Accelerated Cost Recovery
(MACRS) depreciation schedule.8 EPA chose the straight-line method for this analysis because it is the
simpler and more conservative method.
The following equation calculates the annualized, after-tax capital cost of compliance.
C.
Aia
t
where
ATCQAnn = After-tax annualized capital cost of compliance
Cc = Capital cost of compliance
r = Discount rate (7 percent in this analysis)
t = Amortization period (15 years)
T = Corporate tax rate (34 percent)
In the above formula, the first expression on the right-hand side is the annualized equivalent of the lump
sum capital cost, Cc. The second expression is the offsetting benefit in the form of reduced taxes
associated with depreciation. Each year, the taxable income is reduced by 1/15 the total capital cost of
compliance. The tax associated with that depreciation is T times the depreciation.
Substituting numeric values into the above formulas, the calculation of annualized, after-tax compliance
costs becomes:
= 0.66xCOM + (0.1098xCc - *0.
where
8 The "15-year" class of depreciable property includes "municipal wastewater treatment plants" and other
property with a class life of 20 to 25 years. 1992 U.S. Master Tax Guide, Commerce Clearing House, Inc., 1991.
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ATCAm = After-tax annualized cost of compliance
Cc = Capital cost of compliance
COM = Operating and maintenance cost of compliance
ATCAm is the compliance cost subtracted from baseline cash flow in the after-tax cash flow test, and it is
also the value compared to total revenue in the compliance cost share of revenue test.
Offsetting revenue increases
While some facilities might offset a portion of compliance costs by passing them through to customers in
the form of higher prices, EPA used the conservative assumption in this analysis of zero cost pass-through.
Since EPA finds that no facilities would bear unmanageable impacts in the zero cost pass-through case, it
follows that none would bear unmanageable impacts under any other cost pass-through assumption.
Some facilities might also substitute non-hazardous for hazardous waste or change from combustion
activities to alternative waste treatment techniques. The current facility impact analysis excludes these
dynamic, long-run responses that can mitigate the financial impact of effluent guidelines.
Table 4-1 shows the aggregate compliance costs for the selected options.
Table 4-1. Total Costs of Regulatory Options
Pre-Tax After-Tax
Capital Costs O&M Costs Annualized Costs Annualized Costs
Sites (Million 1998$) (Million 1998$) (Million 1998$) (Million 1998$)
AllCHWCs 8 8.19 1.97 2.87 2.01
4.3 After-tax cash flow test (severe impacts)
EPA conducted the after-tax cash flow test both in the baseline case and post-compliance case as an
indicator of severe impacts. If a facility's baseline cash flow is not negative, but, after incurring estimated
compliance costs, the facility's cash flow becomes negative, then EPA determines that facility will
experience unmanageable or unreasonable financial or economic burdens as a result of the rule and the
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facility will likely close. If, on the other hand, a facility exhibits negative cash flow before the adoption of
a CHWC rule, then the negative cash flow must be attributed to some prior cause.
EPA conducted the after-tax cash flow test once using facility-wide income statement values and again
using revenues, costs and expenses specifically associated with waste treatment operations. The former
analysis measures the impact of alternative regulatory options on the financial health of the affected
business entity. The second analysis yields additional insight into how management may perceive the
impact the CHWC rule has on the mix of operations within a facility.
Methodology
The after-tax cash flow test involves calculating, for each sample facility, the average after-tax cash flow
(ATCF) over the years for which income statement data were obtained in the survey. The calculations are
as follows:
1. Express all income statement values for a sample facility as a two-year average, in 1992 constant
dollars, based on the Producer Price Index for finished goods (PPI). The PPI is the appropriate
deflator because waste combustion services are purchased primarily by commodity producers late
in the production process. The survey requested financial data for 1991 and 1992, and most
facilities reported values for each of these years. However, a few facilities were not in operation
in one or more of these years, or accounting procedures changed during the period in a way that
precluded responding for one of the years. For these facilities, the average is the properly deflated
value for the year for which the respondent reported data.
2. Compute facility-level after-tax cash flow in 1992 dollars for each year of data. The following
equation computes the After-Tax Cash Flow (ATCF).
ATCF = (l-t)(R-CT+D)
where
ATCF = After-tax cash flow
R = Total revenue (1991-1992 average)
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c
D
T
Total costs and expenses (1991-1992 average)
Depreciation expense (1991-1992 average)
Average tax rate, calculated by dividing average reported income taxes by
average earnings before taxes
3. Repeat using revenue and costs specific to waste treatment operations.9 In this iteration, the
relevant revenue is the revenue from waste treatment, as reported in the survey responses.
Facilities reported costs specifically for the waste treatment portion of facility activities. EPA
allocated overhead expenses - including sales, general and administrative, and depreciation
expenses - were allocated to waste treatment in proportion to costs. The calculation of after-tax
cash flow becomes:
ATCF^ = (l-T)[Rwt-(Cwt+o>xCOH)+o>xD]
where
ATCFwt
Rwt
*-^wt
(•'
OH
D
So
After-tax cash flow, waste treatment operations alone
Waste treatment revenue (1991-1992 average)
Waste treatment costs (1991-1992 average)
Facility overhead expenses (1991-1992 average), including sales, G&A,
interest and depreciation
Depreciation expense (1991-1992 average)
Share of facility costs attributable to waste treatment, recycling/recovery,
and/or disposal operations, calculated by dividing total waste treatment
costs by the sum of waste treatment costs, costs of goods sold for products
manufactured, and cost of other goods and services sold
Average tax rate, calculated by dividing average reported income taxes by
average earnings before taxes
9 To target combustion operations alone, EPA performed the cash flow test using the same methodology
described here, but substituted combustion response values for waste treatment response values. EPA performed
this alternative analysis and found no difference in results.
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4. Calculate post-compliance cash flows. The above calculations yielded baseline after-tax cash
flows, based on survey responses. EPA estimated post-compliance cash flows by subtracting
After-tax annualized compliance costs from baseline cash flows. Thus,
ATCF = ATCF - ATCA
pc Ann
= ATCF^ -
where
ATCAm = After-tax annualized cost of compliance
ATCF = Baseline after-tax cash flow, facility
ATCFwt = Baseline after-tax cash flow, waste treatment only
ATCFpc = Post-compliance after-tax cash flow
ATCFwt>pc = Post-compliance after-tax cash flow, waste treatment operations alone
Results
At the level of the facility, EPA found that none of the CFiWCs in the analysis will experience negative cash
flows as a result of the rule.
EPA conducted the analysis at the waste treatment level for six facilities that submitted detailed facility
data. Of the six facilities, one experiences negative cash flow post-compliance. Therefore, EPA determines
one facility to be a regulatory closure. Table 4-2 presents a summary of these results. EPA concludes the
cost of installation of the selected control technology is economically achievable, with only one facility
experiencing a line closure as a result of the CFiWC final rule. Because the BPT/BAT/PSES technology is
economically achievable for 7 of the 8 CFiWC facilities identified, EPA concludes that it is an appropriate
technology upon which to base BPT/BAT/ PSES.
Table 4-2. Summary of After-Tax Cash Flow Test Results
Waste Treatment Operations All Facility Operations
# of Facilities Baseline Post-Compliance Baseline Post-Compliance
Total 6688
Cashflow <0 0100
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4.4 Compliance cost share of revenue test (moderate impacts)
In addition to the after-tax cash flow test, EPA also conducted a compliance cost share of revenue analysis
that offers perspectives on economic impacts that cash flow analysis cannot offer. In this test, annualized
compliance costs (CAm) calculated in the usual way are expressed as a ratio to revenues. EPA judged
compliance costs that amount to less than 5 percent of revenues to cause moderate adverse impacts short of
closure, though ratios greater than 5 percent do not necessarily indicate unachievable. EPA has frequently
used this standard in the past to measure the financial impact of compliance costs.
EPA performed the compliance cost share of revenue test once using facility-wide revenues and again using
revenues specifically associated with waste treatment operations. As in the cash flow test, the facility-level
analysis provides the best assessment of economic achievability for the regulated business entity.
EPA included all eight regulated facilities in the share of revenue test, but one facility submitted only
sufficient data to conduct the test at the facility level. Compliance costs amounted to less than 2.3 percent
of facility revenues in every case analyzed. EPA did not conduct the compliance cost share of revenue test
on the waste treatment operations previously identified to experience serious impacts in the after-tax cash
flow test. Table 4-3 summarizes the results. EPA concludes the results support the determination of
technology option as economically achievable.
Table 4-3. Summary of Compliance Cost Share of Revenue Test Results
Waste Treatment
Number of Facilities Operations* All Facility Operations*
Facilities in test 6 8
Share > 5% 0 0
* One facility submitted insufficient data for this test.
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Chapter 5
Firm-Level Impact Analysis
The firm level analysis evaluates the effects of regulatory compliance on firms owning one or more affected
CHWC facilities. It also serves to identify impacts not captured in the facility level analysis. For example,
some companies might be too weak financially to undertake the investment in the required effluent
treatment, even though the investment might seem financially feasible at the facility level. Such
circumstances can exist at companies owning more than one facility subject to regulation.
The firm-level analysis uses ratio analysis to assess the impacts of compliance costs at all facilities owned
by the firm. Ratio analysis employs two indicators of financial viability: the rate of return on assets (ROA)
and the interest coverage ratio (ICR). ROA is a measure of the profitability of a company's capital assets.
ROA is computed as the earnings before interest and taxes minus taxes divided by total assets. ICR is a
measure of the financial leverage of a company, computed as the earnings before interest and taxes divided
by interest expense.
The first step is to calculate the baseline ROA and ICR for each company absent the rule. The
post-compliance analysis then calculates the ratios after the projected investment in wastewater treatment
equipment and the associated compliance costs. ROA decline by less than 1 percent of assets in each case
and remained above 19 percent, which is very healthy. Similarly, ICR declined by no more than 1.5 percent
of interest expenses and remained above 9 percent, which again shows robust financial performance even
post-compliance. EPA finds the firm-level analysis supports the conclusion of economic achievability
obtained in the facility-level analysis.
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Chapter 6
Foreign Trade Impacts
To the extent that effluent guidelines change the total production costs of domestic businesses without
similarly affecting production costs for foreign competitors, regulation may affect the national balance of
trade. Furthermore, if compliance costs cause facility closures, domestic and foreign facilities would
compete to replace, in whole or in part, the sales associated with the closing facility.
However, based on survey responses and the profile analysis, EPA finds foreign trade in the CHWC
industry to be practically non-existent, due to legal and economic restrictions on the transport of wastes
across national borders. Therefore, even though international firms have purchased some U.S. hazardous
waste incinerators recently, and some U.S. facilities receive some wastes from Canadian sources, these
transactions will have no appreciable effect on the trade balance. EPA finds that the rule will not have a
significant adverse impact of foreign trade.
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Chapter 7
Community Impacts
The community impact analysis builds from the facility impact analysis to determine if facility closures
might adversely affect the general public welfare. EPA assesses community impacts by estimating the
expected change in employment in communities with CHWCs that are affected by the rule. Possible
community employment effects include the employment losses in the facilities expected to close because of
the regulation and the related employment losses in other businesses in the affected community. In
communities where plants continue to operate, employment may increase as a result of facilities' operation
of treatment systems for regulatory compliance. Job gains will mitigate community employment losses only
if they occur in the same communities in which facility closures occur.
EPA estimated that the rule will result in the post-compliance closure of the waste burning operations of one
facility. The post-compliance closure results in the direct loss of 27 Full-Time Equivalent (FTE) positions.
EPA based its estimates of secondary employment impacts on multipliers that relate the change in
employment in a directly affected industry to aggregate employment effects in linked industries. These
multipliers also account for employment changes in consumer businesses whose employment is affected by
changes in the earnings and expenditures of the employees in the directly and indirectly affected industries.
The Bureau of Economic Analysis calculates appropriate multipliers using its Regional Input-Output
Modeling System (RIMS).10 Multiplying the RIMS national multiplier of 4.049 to the 27 direct FTE losses
leads to an estimated community impact of 110 total FTE losses as the result of the rule. The county in
which EPA projects the closure to occur has a current employment of 170,000 FTEs dispersed among
9,900 establishments.11 The direct and secondary job losses represent 0.06 percent of current employment
in the affected county.
10 The "direct-effect multiplier" measures the "total change in number of jobs in all row industries for each
additional job in the industry corresponding to the entry." Source: Regional Multipliers: A User Handbook for
the Regional Input-Output Modeling System (RIMS II) 2nd Edition, Bureau of Economic Analysis, May 1992.
11 U.S. Bureau of the Census, County Business Patterns 1994, U.S. Government Printing Office, Washington,
DC, 1996.
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Estimated national job gains of 10 FTEs associated with the operation of control equipment mitigates the
FTEs losses. EPA estimated the secondary and indirect effects at the national level by using the average
multiplier of 4.049, resulting in an estimate of 40 total FTE gains associated with expenditures on pollution
control equipment.
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Chapter 8
Impacts on New Sources
The rule includes limitations that will apply to new discharging sources within the CHWC industry. EPA
examined the impact of these regulations on new dischargers to determine if they would impose an undue
economic and financial burden on new sources seeking to enter the industry.
In general, EPA finds that, when new and existing sources face the same discharge limitations, new sources
will be able to comply with those limitations at the same or lower costs than those incurred by existing
sources. Engineering analysis indicates that the cost of installing pollution control systems during new
construction is generally less than the cost of retrofitting existing facilities. Thus, a finding that discharge
limitations are economically achievable by existing facilities also means that those same discharge
limitations will be economically achievable to new facilities.
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Chapter 9
Regulatory Flexibility Analysis
Since none of the facilities in the analysis are owned by small businesses under the Small Business
Administration (SBA) definition, EPA has concluded that the rule will not have a significant economic
impact on a substantial number of small entities.
In evaluating the small business status of each facility, EPA used SBA standards for testing the small
business status of the parent of each facility. These standards specify a revenue or employment threshold
for each SIC code, below which the firm is considered a small business.
EPA obtained SIC codes for parent firms from SEC filings of the firms themselves. When the SEC filing
did not cite an SIC code, EPA used an SIC code 4953 for known refuse companies. EPA searched its
Facility Index System (FINDS) to determine the SIC codes of the remaining firms. Within the database,
EPA gave precedence to Dun & Bradstreet SIC code assignments. In their absence, the analysis used the
RCRA SIC code assignment.
EPA could not assign some firms to a single SIC code. In these cases, the threshold is a two-part value
comprised of both the highest employment threshold and revenue threshold over all the SIC codes that apply
to the firm. If firm-level revenues or employment failed to exceed the relevant threshold, the facility would
be categorized as a small business.
One firm is a very large conglomerate. Instead of examining all the SIC codes that actually apply to the
parent firm, EPA applies the highest employment and revenue thresholds among all industries to the firm.
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Chapter 10
Summary Environmental Assessment
10.1 Introduction
This environmental assessment quantifies the water quality-related benefits associated with achieving the
Best Available Technology (BAT) limitations and Pretreatment Standards for Existing Sources (PSES)
EPA promulgated to regulate commercial hazardous waste combustors (CHWCs). Using site-specific
analyses of current conditions and changes in discharges associated with the regulation, the U.S.
Environmental Protection Agency (EPA) estimated instream pollutant concentrations for 15 priority and
nonconventional pollutants from direct and indirect discharges using stream dilution modeling.
EPA assessed the potential impacts and benefits to aquatic life by comparing the modeled instream pollutant
concentrations to published EPA aquatic life criteria guidance or to toxic effect levels. EPA projected
potential adverse human health effects and benefits by:
• comparing estimated instream concentrations to health-based water quality toxic effect levels or
criteria, and
• estimating the potential reduction of carcinogenic risk and noncarcinogenic hazard (systemic) from
consuming contaminated fish or drinking water.
The assessment estimated upper-bound individual cancer risks, population risks, and systemic hazards using
modeled instream pollutant concentrations and standard EPA assumptions. The assessment evaluated
modeled pollutant concentrations in fish and drinking water to estimate cancer risk and systemic hazards
among the general population, sport anglers and their families, and subsistence anglers and their families.
EPA used the findings from the analyses of reduced occurrence of instream pollutant concentrations in
excess of both aquatic life and human health criteria or toxic effect levels to assess improvements in
recreational fishing habitats that are impacted by CHWC wastewater discharges (ecological benefits). EPA
expects these improvements in aquatic habitats will improve the quality and value of recreational fishing
opportunities and nonuse (intrinsic) values of the receiving streams.
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This assessment also evaluated potential inhibition of operations at publicly owned treatment works
(POTWs) and sewage sludge contamination (here defined as a sludge concentration in excess of that
permitting land application or surface disposal of sewage sludge) at current and final pretreatment levels.
The assessment estimated inhibition of POTW operations by comparing modeled POTW influent
concentrations to available inhibition levels. The assessment estimated contamination of sewage sludge by
comparing projected pollutant concentrations in sewage sludge to available EPA regulatory standards for
land application and surface disposal of sewage sludge. EPA estimated economic productivity benefits on
the basis of the incremental quantity of sludge that, as a result of reduced pollutant discharges to POTWs,
meets criteria for the generally less expensive disposal method, namely land application and surface
disposal.
In addition, the report presents the potential fate and toxicity of pollutants of concern associated with
CHWC wastewater on the basis of known characteristics of each chemical. The report includes reviews of
recent literature and studies, as well as information obtained from State environmental agencies, as evidence
of documented environmental impacts on aquatic life, human health, POTW operations, and on the quality
of receiving water.
Performed analyses included discharges from the 8 commercial hazardous waste combustors identified as
within the scope of the CHWC guidelines. This report provides the results of these analyses.
10.2 Comparison of instream concentrations with ambient water
quality criteria (AWQC)/lmpacts at POTWs
The water quality modeling results for 8 CHWC facilities discharging 15 pollutants (metals) to 8 receiving
streams indicate that at current discharge levels, instream concentrations of 3 pollutants will likely exceed
acute aquatic life criteria or toxic effect levels in 1 of the 8 receiving streams (12 percent). Instream
concentrations of 5 pollutants will likely exceed chronic aquatic life criteria or toxic effect levels in 38
percent (3 of the total 8) of the receiving streams. The CHWC guidelines will reduce acute aquatic life
excursions from 3 pollutants to 1 pollutant in the 1 receiving stream. The guidelines will also reduce the
chronic aquatic life excursions from 5 pollutants to 4 pollutants in the 3 receiving streams. Additionally,
the assessment projects that at current discharge levels, instream concentrations of 2 pollutants (using a
target risk of 10~6 (1E-6) for carcinogens) will exceed human health criteria or toxic effect levels (developed
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for consumption of water and organisms) in 62 percent (5 of the total 8) receiving streams. It also projects
the instream concentrations of 1 pollutant (using a target risk of 10~6 (1E-6) for carcinogens) will exceed the
human health criteria or toxic effect levels (developed for organisms consumption only) in 38 percent (3 of
the total 8) of the receiving streams. The CHWC guidelines will eliminate excursions of human health
criteria and toxic effect levels (developed both for consumption of water and organisms and for
consumption of organisms only) in 1 receiving stream. The CHWC guidelines also will reduce pollutant
loadings by 88 percent.
In addition, the analysis projects POTW sludge contamination problems at current discharge levels. Sludge
contamination will likely occur at 1 POTW due to the discharge of 1 pollutant. The CHWC guidelines will
eliminate sludge contamination problems. The analysis projects that no inhibition problems will occur at
any of the POTWs.
10.3 Human health risks and benefits
The CHWC guidelines will reduce total excess annual cancer cases from the ingestion of contaminated fish
by 7.1E-3 cancer cases. The monetary value of benefits to society from these avoided cancer cases is
$17,700-$92,800 (1998 dollars). The analysis projects no total excess annual cancer cases will result from
the consumption of contaminated drinking water. In addition, using the estimated hazard calculated for
each receiving stream, the analysis projects no systemic toxicant effects from exposure to contaminated fish
or drinking water.
10.4 Ecological benefits
The analysis projects the following potential ecological benefits resulting from improvements in recreational
fishing habitats. According to the projections, the final regulation will completely eliminate instream
concentrations in excess of aquatic life and human health ambient water quality criteria (AWQC) in 1
stream receiving wastewater discharges from a CHWC facility. The analysis estimates the monetary value
of improved recreational fishing opportunities by first calculating the baseline value of the receiving stream
using a value per person/day of recreational fishing, and the number of person-days fished on the receiving
stream. It then calculates the value of improving water quality in this fishery, based on the increase in value
to anglers of achieving contaminant-free fishing. The resulting estimate of the increase in value of
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recreational fishing to anglers on the improved receiving stream is $93,300 to $333,700 (1998 dollars). In
addition, the estimate of the nonuse (intrinsic) benefits to the general public, as a result of the same
improvements in water quality, ranges from at least $46,700 to $166,900 (1992 dollars). These nonuse
benefits are estimated as one-half of the recreational benefits and may be significantly underestimated.
The estimated benefit of improved recreational fishery opportunities is only a limited measure of the value
to society of the improvements in aquatic habitats expected to result from the regulation. Additional
benefits, which cannot be quantified in this assessment, include increased assimilation capacity of the
receiving stream, protection of terrestrial wildlife and birds that consume aquatic organisms, maintenance of
an aesthetically pleasing environment, and improvements to other recreational activities such as swimming,
water skiing, boating, and wildlife observation. Such activities contribute to the support of local and State
economies.
10.5 Economic productivity benefits
The analysis projects no potential economic productivity benefits from reduced sewage sludge
contamination and sewage sludge disposal costs at the POTWs receiving CHWC discharges. One POTW
is expected to accrue a modest benefit through reduced record-keeping requirements and exemption from
certain sewage sludge management practices. EPA cannot currently estimate a monetary value for these
modest benefits.
10.6 Pollutant fate and toxicity
EPA identified 16 pollutants of concern (10 priority pollutants, 1 conventional pollutant, and 5
nonconventional pollutants) in wastestreams from CHWC facilities. EPA evaluated 15 of these pollutants
(all metals) to assess their potential fate and toxicity based on known characteristics of each chemical.
All of the 15 pollutants have at least one known toxic effect. Using available physical-chemical properties
and aquatic life and human health toxicity data for these pollutants, the analysis determined that 10 exhibit
moderate to high toxicity to aquatic life; 3 are classified as known or probable human carcinogens, 14 are
human systemic toxicants, 12 have drinking water values, and 10 are designated by EPA as priority
pollutants. In terms of projected partitioning, 4 have a moderate to high potential to bioaccumulate in
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aquatic biota, potentially accumulating in the food chain and causing increased risk to higher trophic level
organisms and to exposed human populations via consumption offish and shellfish. All of the modeled
pollutants are metals, which in general are not applicable to evaluation based on volatility and adsorption to
solids. The analysis assumes that all of the metals have a high potential to sorb to solids.
Evaluations do not include the impacts of the 1 conventional pollutant when modeling the effect of the final
regulation on receiving stream water quality and POTW operations or when evaluating the potential fate
and toxicity of discharged pollutants. This pollutant is total suspended solids (TSS). The discharge of TSS
may have adverse effects on human health and the environment. For example, habitat degradation may
result from increased suspended particulate matter that reduces light penetration, and thus primary
productivity, or from accumulation of sludge particles that alter benthic spawning grounds and feeding
habitats.
10.7 Documented environmental impacts
This assessment also summarizes documented environmental impacts on aquatic life, human health, POTW
operations, and receiving stream water quality. The summaries are based on a review of published
literature abstracts, State 304(1) Short Lists, State Fishing Advisories, and contact with State environmental
agencies. States identified 1 direct discharging CFiWC facility and 1 POTW receiving the discharge from 1
CFiWC facility as being point sources causing water quality problems, these are included on their 304(1)
Short List. State contacts indicate that the 1 direct facility is currently in compliance with its permit limits
and is no longer a source of impairment. The POTW listed is also currently in compliance for the listed
pollutants. In addition, 2 CFiWC facilities are located on waterbodies with State-issued fish consumption
advisories. However, the advisories are based on dioxin levels, which are not pollutants of concern for the
CFiWC industry.
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Chapter 11
Cost-Reasonableness Test
11.1 Introduction
CWA Section 304(b)(l)(B) requires a cost-reasonableness assessment for BPT limitations. In determining
BPT limitations, EPA must consider the total cost of treatment technologies in relation to the effluent
reduction benefits achieved by such technology. This inquiry does not limit EPA's broad discretion to adopt
BPT limitations that are achievable with available technology unless the required additional reductions are
wholly out of proportion to the costs of achieving such marginal level of reduction.
The C-R ratio is the average cost per raw pound of conventional pollutants removed by a BPT regulatory
option.
This chapter presents the C-R ratio for the CHWC final rule and a brief discussion of methodology. An
earlier document, "Economic and Cost-Effectiveness Analysis of Proposed Effluent Limitations Guidelines
and Standards for Industrial Waste Combustors" (EPA 821-B-97-010) presents a more detailed discussion
of the C-R methodology. To protect confidential business information, EPA presents detailed results from
the cost-reasonableness analysis in a memo, "Results of the Cost-Reasonableness Analysis," (November 29,
1999) which appears in the administrative record.
The cost-reasonableness analysis uses the estimated annual costs of complying with the CHWC rule. The
annual costs include annual expenses for operating and maintaining compliance equipment and for meeting
monitoring requirements, and an annual allowance for the capital outlays for pollution prevention and
treatment systems needed for compliance. EPA calculated compliance costs on a pre-tax basis, without any
adjustment for tax treatment of capital outlays and operating expenses. In these calculations, EPA used a
discount rate of 7 percent.
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11.2 Summary of methodology
EPA calculated the reduction in at-stream pollutant loadings to the receiving water body for the final rule
and estimated associated costs of achieving these reductions. The Technical Development Document and
the economic analysis of the proposed rule present full details of the methods used to estimate loadings and
the costs of complying with the regulatory options. A brief summary of the compliance cost analysis
follows.
The C-R analysis include two categories of compliance costs: (1) capital costs, including costs for
equipment, retrofitting and upgrading control technology, permit modification, and land; and (2) operating,
maintenance, and monitoring costs. While operating, maintenance, and monitoring costs occur annually,
capital costs are a one-time "lump sum" cost. To express the capital costs on an annual basis, EPA
annualized capital costs over the expected useful life of the capital equipment - 15 years - at a discount rate
of 7 percent. Total annualized costs are the sum of annualized capital costs and the annual operating,
maintenance and monitoring costs. The cost-effectiveness analysis presented in the main body of this report
uses pre-tax costs as the basis for its calculations.
The engineering analysis yielded compliance cost estimates in 1992 dollars, the base year of the landfill
industry regulatory analysis. EPA converted these compliance costs to 1998 dollars using the Engineering
News Records Construction Cost Index (CCI). This adjustment factor is:
AJ- +~ , r , 1998 CC/ 5920 . ..__.,
Adjustment factor = = = 1.18756
1992 CCI 4985
11.3 Results
The CHWC rule is associated with a C-R ratio of $27 per pound of pollutants removed, in 1998 dollars.
EPA considers the cost-reasonableness value of the rule to be acceptable and that the rule is cost-
reasonable. Detailed results appear in the confidential record.
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