Regulatory Impact Analysis (RIA) for the
Reconsideration of the Existing Stationary
      Compression Ignition (CI) Engines
                             NESHAP
                            Final Report

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                                                                   EPA-452/R-13-001
                                                                        January 2013
Regulatory Impact Analysis (RIA) for Reconsideration of the Existing Stationary Compression
                            Ignition (CI) Engines NESHAP
                         U.S. Environmental Protection Agency
                      Office of Air Quality Planning and Standards
                      Health and Environmental Impacts Division
                   Air Economics Group and Risk and Benefits Group
                             Research Triangle Park, NC

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                                     CONTENTS

Section                                                                            Page

   Section 1        Executive Summary	1-1
       ES. 1 Summary of Impacts for CI RICE NESHAP Reconsideration	1-1
       ES.2 Comparison with Results from 2010 Final CI RICE NESHAP	1-2

   Section!        Introduction	2-1
        2.1  Organization of this Report	2-1

   Section 3        Industry Profile	3-1
             3.1.1   Overview	3-1
             3.1.2   Goods and Services Used	3-4
             3.1.3   Business Statistics	3-5
        3.2  Oil and Gas Extraction	3-7
             3.2.1   Overview	3-7
             3.2.2   Goods and Services Used	3-10
             3.2.3   Business Statistics	3-11
        3.3  Pipeline Transportation of Natural Gas	3-16
             3.3.1   Overview	3-16
             3.3.2   Goods and Services Used	3-17
        3.4  General Medical and Surgical Hospitals	3-21
             3.4.1   Overview	3-21
             3.4.2   Goods and Services Used	3-21
             3.4.3   Business Statistics	3-23
        3.5  Irrigation  Sets and Welding Equipment	3-26
             3.5.1   Overview	3-26
             3.5.2   Irrigation and Welding Services	3-26
             3.5.3   Business Statistics	3-32
                                           in

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Section 4         Regulatory Alternatives, Costs, and Emission Impacts	4-1

     4.1   Background	4-1

     4.2   Summary of the Final Reconsideration Rule	4-4
          4.2.1   Emergency Demand Response	4-4
          4.2.2   Peak Shaving	4-13
          4.2.3   Stationary Agricultural Engines - San Joaquin Valley	4-18
          4.2.4   Remote Areas of Alaska	4-20
          425   Offshore Vessels                                               4-23
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     4.4   Cost Impacts	4-26
          4.4.1   Introduction	4-26
          4.4.2   Major Sources	4-18
          4.4.3   Area Sources	4-21

     4.5   Baseline Emissions and Emission Reductions	4-42
Section 5         Economic Impact Analysis, Energy Impacts, and Social Costs	5-1

     5.1   Compliance Costs of the Final Rule	5-1

     5.2   Social Cost Estimate	5-4

     5.3   How Might People and Firms Respond? A Partial Equilibrium Analysis	5-5
          5.3.1   Changes in Market Prices and Quantities	5-5
          5.3.2   Regulated Markets: The Electric Power Generation, Transmission,
                 and Distribution Sector	5-7
          5.3.3   Partial Equilibrium Measures of Social Cost: Changes Consumer
                 and Producer Surplus	5-8

     5.4   Energy Impacts	5-9

     5.5   Unfunded Mandates	5-10
          5.5.1   Future and Disproportionate Costs	5-11
          5.5.2   Effects on the National Economy	5-11

     5.6   Environmental Justice	5-12
     5.7   Employment Impacts	5-12
          5.7.1   Employment Impacts from Pollution Control
   Requirements	5-14
                                       IV

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          5.7.2  Employment Impacts within the Regulated Industry	5-17

Section 6        Small Entity Screening Analysis	6-1
     6.1   Small Entity Data Set	6-1
     6.2   Small Entity Economic Impact Measures	6-2
          6.2.1  Model Establishment Receipts and Annual Compliance Costs	6-2
     6.3   Small Government Entities	6-12

Section 7        Human Health Benefits of Emissions Reductions	7-1
     7.1   Calculation of PM2.5-Related Human Health Co-Benefits	7-1
     7.2   Unquantified Benefits	7-15
          7.2.1 HAP Benefits	7-15
          7.2.2  Ozone Co-Benefits	7-26
          7.2.3  Carbon Monoxide Co-Benefits	7-26
          7.2.4  Visibility Impairment Co-Benefits	7-26
     7.3   Characterization of Uncertainty in the Monetized Co-Benefits	7-27
     7.4   Comparison of Co-Benefits and Costs	7-32
     7.5   References	7-35

Section 8        References forRIA	8-1

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                                 LIST OF FIGURES
Number                                                                         Page

   3-1.  Industrial Product!on Index (NAICS 2211)	3-3
   3-2.  Internal Combustion Generators by State: 2006	3-4
   3-3.  2002 Regional Distribution of Establishments: Electric Power Generation,
         Transmission, and Distribution Industry (NAICS 2211)	3-6
   3-4.  Industrial Product!on Index (NAICS 211)	3-13
   3-5.  Distribution of Establishments within Pipeline Transportation (NAICS 486)	3-18
   3-6.  Distribution of Revenue within Pipeline Transportation (NAICS 486)	3-18
   3-7.  Share of Establishments by Legal Form of Organization in the Pipeline
         Transportation of Natural Gas Industry (NAICS 48621): 2002	3-20
   3-8.  Share of Establishments by Legal Form of Organization in the General Medical
         and Surgical Hospitals Industry (NAICS 6221): 2002	3-24
   3-9.  Industrial Production Index (NAICS 333111)	3-29

   5-1.  Distribution of Annualized Direct Compliance Costs by Industry: 2013	5-2
   5-2.  Distribution of Engine Population by Horsepower Group: 2013	5-3
   5-3.  Average Annualized Cost per Engine by Horsepower Group: 2013 ($2007)	5-3
   5-4.  Market Demand and Supply Model: With and Without Regulation	5-6
   5-5.  Electricity Restructuring by State	5-9

   7-1.  Breakdown of Monetized PM2.5 Health Co-benefits using Mortality Function
         from Pope et al.  (2002)	7-10
   7-2.  Total Monetized PM2.5 Co-Benefits of CI RICE NESHAP Reconsideration in
         2013	7-14
   7-3.  Breakdown of Total Monetized Co-benefits for CI RICE NESHAP
         Reconsideration by Engine Size	7-15

   7-4. Estimated Chronic Census Tract Carcinogenic Risk from HAP exposure from
        outdoor sources (2005 NATA) 	7-17
   7-5.  Estimated Chronic Census Tract Noncancer (Respiratory)Risk from HAP
         exposure from outdoor sources (2005 NATA)	7-18
   7-6.  Percentage of Adult Population by Annual Mean PM2.5 Exposure in the
         Baseline	7-29
   7-7   Cumulative Distribution of Adult Population by Annual Mean PM2.5 Exposure
         in the Baseline	7-30
   7-8.  Net Benefits for Proposed CI RICE NESHAP Reconsideration
         at 3% discount rate	7-34
                                          VI

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7-9.   Net Benefits for Proposed CI RICE NESHAP Reconsideration
      at 7% discount rate	7-35
                                     vn

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                                  LIST OF TABLES

Number                                                                         Pas
    1-1.   Summary of the Annualized Monetized Benefits, Social Costs, and Net
         Benefits for the Reconsidered CIRICENESHAP in 2013 (millions of 2010$)	1-2
    1-2.    Comparison of Benefits and Costs for 2020 CI RICE Final Rule and 2012
          Reconsideration CI RICE Rule	1-3

    1-3.    Summary of the Monetized Benefits, Compliance Costs and Net benefits for the 2010
          Rule with the Final Amendments to the Stationary CI Engine NESHAP in 2013
          (millions of 2010
          dollars)	1-9
    3-1.   Key Statistics: Electric Power Generation, Transmission, and Distribution
         (NAICS 2211) ($2007)	3-2
    3-2.   Direct Requirements for Electric Power Generation, Transmission, and
         Distribution (NAICS 2211): 2007	3-5
    3-3.   Firm Concentration for Electric Power Generation, Transmission, and
         Distribution (NAICS 2211): 2002	3-7
    3-4.   United States Retail Electricity Sales Statistics: 2008	3-8
    3-5.   FY 2010 Financial Data for 70 U.S. Shareholder-Owned Electric Utilities	3-10
    3-6.   Aggregate Tax Data for Accounting Period 7/07-6/08: NAICS 2211 	3-10
    3-7.   Key Enterprise Statistics by Receipt Size for Electric Power Generation,
         Transmission, and Distribution (NAICS 2211): 2007	3-11
    3-8.   Key Statistics: Crude Petroleum and Natural Gas Extraction (NAICS 211111):
         ($2007)	3-11
    3-9.   Key Statistics: Natural Gas Liquid Extraction (NAICS 211112) ($2007)	3-12
    3-10. Direct Requirements for Oil and Gas Extraction (NAICS 211): 2002	3-12
    3-11. Key Statistics for Crude Petroleum and Natural Gas Extraction (NAICS
         211111): 2007	3-13
    3-12. Key Statistics for Crude Natural Gas Liquid Extraction (NAICS 211112): 2007.... 3-13
    3-13. Aggregate Tax Data for Accounting Period 7/07-6/08: NAICS 211	3-14
    3-14. Key Statistics: Pipeline Transportation of Natural Gas (NAICS 48621) ($2007) .... 3-15
    3-15. Direct Requirements for Pipeline Transportation (NAICS 486): 2002	3-17
    3-16. Aggregate Tax Data for Accounting Period 7/07-6/08: NAICS 486	3-19
    3-17  Key Enterprise Statistics by Employee Size for Pipeline Transportation of
         Natural Gas (NAICS 48621): 2007	3-20
    3-18. Key Statistics: General Medical and Surgical Hospitals (NAICS 6221) ($2007).... 3-23
    3-19. Direct Requirements for Hospitals (NAICS 622): 2002	3-23
                                         Vlll

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3-20.  Data for General Medical and Surgical Hospitals (NAICS 6221): 2007	3-24
3-21.  Hospital Statistics: 2010	3-25
3-22.  Aggregate Tax Data for Accounting Period 7/05-6/06: NAICS 622-4	3-25
3-23.  Key Enterprise Statistics by Receipt Size for General Medical and Surgical
      Hospitals (NAICS 6221): 2007 ($2007)	3-27
3-24.  Key Statistics: Farm Machinery and Equipment Manufacturing (NAICS
      333111) ($2007)	3-28
3-25.  Key Statistics: Welding and Soldering Equipment Manufacturing (NAICS
      333992) ($2007)	3-29
3-26.  Expenses per Acre by Type of Energy: 2008	3-30
3-27.  Number of On-Farm Pumps of Irrigation Water by Type of Energy: 2003 and
      2008	3-30
3-28.  Aggregate Tax Data for Accounting Period 7/05-6/06: NAICS 3331 and 3 339	3-31
3-29.  Key Enterprise Statistics by Receipt Size for Heavy Construction: 2007	3-34

4-1.   CI RICE Control Technologies and Costs	4-26
4-2.   Summary of Major Source and Area Source Costs for the CI RICE NESHAP	4-24
4-3.   Summary of Major Source and Area Source NAICS Costs for the CI RICE
      NESHAP	4-25
4-4.   Summary of Major Source and Area Source NAICS Costs for the CI RICE
      NESHAP - by Size	4-26
4-5.   Summary of Major Source and Area Source NAICS Costs for the CI RICE
      NESHAP-by Number of Engines	4-29
4-6.   Summary of Major Source and Area Source Baseline Emissions for the CI RICE
NESHAP - 2013 	4-44

4-7.   Summary of Major Source and Area Source Emission Reductions for the CI RICE
NESHAP - by 2013 	4-45

5-1.   Selected Industry-Level Annualized Compliance Costs as a Fraction of Total
      Industry Revenue: 2008	5-4
5-2.   Hypothetical Price Increases for a 1% Increase in Unit Costs	5-7
5-3.   Hypothetical Consumption Decreases for a 1 % Increase in Unit Costs	5-8
5-4.   U.S. Electric Power3 Sector Energy Consumption (Quadrillion BTUs): 2013	5-11
5-5   Labor-based Employment Estimates for Reporting and Recordkeeping and Installing,
      Operating, and Maintaining Control Equipment Requirements for the Final
      Reconsideration CI RICE NESHAP	5-16
6-1.   Final NESHAP for Existing Stationary Reciprocating Internal Combustion
      Engines (RICE): Affected Sectors and SB A Small Business Size Standards	6-3
6-2.   Average Receipts for Affected Industry by Enterprise: 2007 ($2008
      Million/establishment)	6-5
                                      IX

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6-3.   Average Receipts for Affected Industry by Enterprise Receipt Range: 2007
      ($2008/establishment)	6-6
6-4.   Representative Establishment Costs Used for Small Entity Analysis ($2008)	6-8

7-1.   Human Health and Welfare Effects of PM2.5	7-3
7-2.   General Summary of Monetized PM2.5-Related Co-benefits Estimates for the
      CI RICE Reconsideration (millions of 2010$)	7-11
7-3.   Summary of Reductions in Health Incidences from PM2.s-Related Co-benefits
      for CI RICE Reconsideration in 2013	7-12
7-4   All PM2.5 Co-benefits Estimates for the RICE NESHAP Reconsideration at
      discount rates of 3% and 7% in 2013 (in millions of 2010$)	7-13
7-5.   Summary of the Monetized Benefits, Compliance Costs and Net benefits for
      the 2010 Rule with the Final Amendments to the Stationary CI Engine
      NESHAP in 2013 (millions of 2010 dollars)51	7-32

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                                     SECTION 1
                               EXECUTIVE SUMMARY

       ES. 1.   Summary of Impacts for CI RICE NESHAP Final Reconsideration

       The EPA estimates that complying with the reconsideration of the stationary compression
ignition (CI) reciprocating internal combustion engine (RICE) rule will have an annualized cost
of approximately $372 million per year (2008 dollars) or $373 million per year (2010 dollars) in
the year of full implementation of the rule (2013). Using these costs, EPA estimates in its
economic impact analysis that the NESHAP will have limited impacts on the industries affected
and their consumers. Using sales data obtained for affected small entities in an analysis of the
impacts on small entities, EPA expects that the NESHAP will not result in a SISNOSE
(significant economic impacts for a substantial number of small entities). EPA also does not
expect significant adverse energy impacts based on Executive Order 13211, an Executive Order
that requires analysis of energy impacts for rules such as this one that are economically
significant under Executive Order 12866. All of these analysis results are practically identical to
the results for the CI RICE NESHAP when it was promulgated in March 2010.

       The RICE rule is also considered subject to the requirements of the Office of
Management and Budget's (OMB's) Circular A-4 because EPA expects that either the annual
benefits or the costs are potentially $100 million or higher. EPA estimates the total monetized
co-benefits of the NESHAP to be $770 million to $1.9 billion (2010$) at a 3% discount rate and
$690 million to $1.7 billion at a 7% discount rate in the year of full implementation of the rule
(2013). These co-benefit estimates are lower than those for the CI rule promulgated two years
ago.  The previous co-benefit estimates were $940 million to $2,300 million (2008 dollars) at a
3-percent discount rate and $850 million to $2,100 million (2008 dollars) at a 7-percent discount
rate. The previous estimates will be greater in a nominal (not inflation-adjusted) sense  if shown
in 2010 dollars, and thus the reduction in the benefits for the reconsidered rule compared to the
benefits for the 2010 final rule will therefore be greater. Since the reconsideration proposal, we
have made several updates to the approach we use to estimate mortality and morbidity benefits in
the PM NAAQS RIAs (U.S. EPA,  2012a,b) including updated epidemiology studies, health
endpoints, and population data. Although we have not re-estimated the benefits for this rule to
apply this new approach, these updates generally offset each other, and we anticipate that the
rounded benefits estimated for this rule are unlikely to be different than those provided below.
                                          1-1

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        The net benefits of the final CI RICE reconsideration are therefore $400 million to $1.5
billion at a 3% discount rate and $320 million to $1.3 billion at a 7% discount rate (in 2010$) in
2013.  These estimates are shown in Table 1-1.   EPA believes that the benefits are likely to
exceed the annualized costs by a substantial margin under this rulemaking even when taking into
account uncertainties in the cost and benefit estimates  These estimates are "snapshots" of
benefits and costs at year 2013.
Table 1-1.    Summary of the Annualized Monetized Benefits, Social Costs, and Net

Benefits for the Reconsidered CI RICE NESHAP in 2013 (millions of 2010S)1
                                          3% Discount Rate                7% Discount Rate

Total Monetized Benefits2
Total Compliance Costs3
Net Benefits
$770

$400
to
$373
to
$1,900

$1,500
$690

$320
to
$373
to
$1,700

$1,300
Non-monetized Benefits
                                    Ecosystem effects

                                    Visibility impairment
                                    Health effects from HAP exposure

                                    Health effects from PM2 5 exposure from VOC emissions
 All estimates are for the implementation year (2013), and are rounded to two significant figures.
2 The total monetized benefits reflect the human health benefits associated with reducing exposure to PM2 5 through
  reductions of PM25 precursors such as directly emitted fine particles. Human health benefits are shown as a range
  from Pope et al. (2002) to Laden et al. (2006). These models assume that all fine particles, regardless of their
  chemical composition, are equally potent in causing premature mortality because the scientific evidence is not yet
  sufficient to allow differentiation of effects estimates by particle type. Although we have not re-estimated the
  benefits for this rule to apply the updated methods in the PM NAAQS RIA (U.S. EPA, 2012b), these updates
  generally offset each other, and we anticipate that the rounded benefits estimated for this rule are unlikely to be
  different than those provided here.
 The annual compliance costs serve as a proxy for the annual social costs of this rule given the lack of difference
between the two. The engineering compliance costs are annualized using a 7 percent discount rate. These costs are
$372 million in 2008 dollars.  Costs are updated to 2010 dollars using the Marshall & Swift (M&S) Annual Cost
Index.  The escalation is done by multiplying the 2008 costs by the ratio of the 2010  annual M&S index value
(1,457.4), and the 2008 annual M&S index value (1,449.3).
                                                1-2

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ES-2. Comparison with Results from 2010 Final CI RICE NESHAP

        The EPA analyzed the costs, economic impacts and benefits of this final rule using the
identical methodology as the RIA for the CI RICE final rule promulgated in May, 2010.
Therefore, all changes to the costs, benefits, and economic impacts for this rule are due to
changes (or amendments) to this rule for CI RICE, which are fully described later in this RIA
and the preamble for the final rule. Our baseline does not assume compliance with the 2010 CI
RICE final rule.  This assumption is based on the fact that full implementation of the final rule
has not taken place as of yet (it will take place by May, 2013).  In addition, this assumption is
consistent with the baseline definition applied in the recently finalized ICI boilers and CISWI
NESHAP rulemakings. Monetized benefits are the co-benefits of this rule from reductions in
directly emitted PM2.5 emissions.

       The following table shows an approximation of the changes in monetized benefits and
engineering costs due to changes to the CI RICE rule included in the CI RICE reconsideration,
and includes values that show a comparison based on the final rule emissions inventory. All
values in Table 1-2 are in 2010 dollars.
Table 1-2.   Comparison of Benefits and Costs for 2012 CI RICE Final Rule and 2012
Final Reconsideration CI RICE Rule

CI RICE Final Rule (May 2010)
Changes due to the final amendments to
the final CI RICE rule
Final CI RICE rule (2012)
Monetized Benefits in 2013
$0.940 to $2.3 billion
-$0.1 70 to $0.400 billion
+$0.770 to $1.9 billion
Annual Engineering Costs in
2013
$373 million
-$0.7 million
$372 million
* Monetized benefits are shown at a 3% discount rate and are from reductions in PM2 5 emissions. These benefits do
not include benefits associated with reduced exposure to HAP, visibility impairment, or ecosystem effects.
Monetary estimates are in 2010 dollars.
       The results for the economic impacts are essentially unchanged from those for the CI
final rule. This outcome is due to the minor changes in compliance costs associated with the
amendments in this final rule. All of these results for this rule are found in Section 5 in this RIA.

       The results for sales tests (i.e.  annual cost/sales analysis) for small businesses are also
essentially unchanged from those calculated for the final CI RICE rule. This outcome is also due
                                           1-3

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to the overall minor changes in compliance costs.  All of these results for this rule are found in
Section 6 in this RIA.

       We estimate changes in employment for this CI RICE rule.  These estimates reflect the
employment impacts associated with installation and operation of monitoring equipment, and
also activities for recordkeeping, reporting, and testing. We estimate that 1,300 full-time
equivalents (FTEs) will be required as one-time labor for installation of equipment, and 2,000
FTEs will be required as ongoing labor for compliance with the proposed rule.  The results are
presented and explained in detail in Section 5 of this RIA.  We did not estimate changes in
employment for the 2010 final CI RICE rule.

       The benefits estimates decreased for the final reconsidered CI RICE as  compared to the
2010 final CI RICE NESHAP. The range for the 2010 final CI  RICE RIA was  $940 million
(2008$) to $2.3 billion (2008$) at 3 percent discount rate. The range for this rule is $770 million
(2010$) to $1.9 billion (2010$) at 3 percent discount rate.  The range for the 2010 final SI RICE
RIA was $850 million (2008$) to $2.1 billion (2008$) at 7 percent discount rate. The range for
this final rule was $690 million (2010$) to $1.7 billion (2010$) at 7 percent discount rate.
                                          1-4

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       Table 1-3 shows the estimated costs and benefits for the 2010 final CI Rule and the
reconsideration. The estimated net benefits for the reconsideration are smaller than the range for
the 2010 final CI RICE rule RIA, which was $480 million to $1.7 billion at a 7 percent discount
rate and was $520 million to $1.9 billion at 3 percent (in 2010 dollars).
 Table 1-3. Summary of the Monetized Benefits, Compliance Costs and Net benefits for the
 2010 Rule with the Amendments to the Stationary CI Engine NESHAP in 2013 (millions of
                                        2010 dollars)3
3% Discount Rate

Total Monetized Benefits
Total Social Costs
Net Benefits

Total Monetized Benefits
Total Social Costs
Net Benefits
2010 Final CI
$940

$520
Reconsideration
$770

$400
RICE
to
$373
to
NESHAP
$2,300

$1,900
7% Discount Rate

$850

$480

to
$373
to

$2,100

$1,700
CI RICE NESHAP
to
$373
to
$1,900

$1,500
$690

$320
to
$373
to
$1,700

$1,300
 All estimates are for the implementation year (2013), and are rounded to two significant figures. All monetized
  benefits are from reductions of PM25 emissions, a co-benefits of this rule . The annual ized compliance costs are
  $373 million in 2010$ as noted earlier in this RIA, and are annualized using a 7% interest rate. Compliance costs
  are used as an approximation for social costs in this RIA. Although we have not re-estimated the benefits for this
  rule to apply the updated methods in the PM NAAQS RIA (U.S. EPA, 2012b), these updates generally offset each
  other, and we anticipate that the rounded benefits estimated for this rule are unlikely to be different than those
  provided here.
                                              1-5

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1-6

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                                     SECTION 2
                                  INTRODUCTION

       EPA has reconsidered national emission standards for hazardous air pollutants
(NESHAP) for existing stationary compression ignition (CI) reciprocating internal combustion
engines (RICE) that either are located at area sources of hazardous air pollutant (HAP) emissions
or that have a site rating of less than or equal to 500 brake horsepower (HP) and are located at
major sources of HAP The final amendments to the CI RICE NESHAP are provided in detail in
Section 4 of this RIA.

       The rule is economically significant according to Executive Order 12866. As part of the
regulatory process of preparing these standards, EPA has prepared a regulatory impact analysis
(RIA). This analysis includes an analysis of impacts to small entities as part of compliance with
the Small Business Regulatory Enforcement Fairness Act (SBREFA) and an analysis of impacts
on energy consumption and production to comply with Executive Order 13211 (Statement of
Energy Effects).  An analysis of economic impacts, along with an analysis of impacts on
employment, is also included in this RIA. Finally, an analysis of the benefits of the rule is
included in this RIA. It should be noted that the data that supports the analyses listed above have
been updated where possible and appropriate from the data used in the RIA for the CI RICE
NESHAP promulgated in March 2010.
2.1     Organization of this Report
       The remainder of this report supports and details the methodology and the results of the
RIA:
          Section 3 presents a profile of the affected industries.
       •   Section 4 presents a summary of the final  amendments to the rule, and provides the
          compliance costs and emission reductions estimated for the rule.
          Section 5 describes the estimated costs of the regulation and describes the EIA
          methodology and reports market, welfare, energy, and employment impacts.
       •   Section 6 presents estimated impacts on small entities.
       •   Section 7 presents the benefits and net benefits (benefits - costs) estimates.

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                                      SECTION 3
                                 INDUSTRY PROFILE

       Stationary CI engines almost always operate as lean burn engines. They can be
configured as either two-stroke lean burn (2SLB) or 4-stroke lean burn (4SLB); the distinction is
that CI engines are fueled by distillate fuel oil (diesel fuel), not by natural gas or any other
gaseous fuel. Industries in which stationary CI engines are found are:

       •  electric power generation, transmission, and distribution (NAICS 2211),
       •  oil and gas extraction (including marginal wells) (NAICS 211111),
       •  pipeline transportation of natural gas (NAICS 211112),
       •  general medical and surgical hospitals (NAICS 622110), and
       •  irrigation sets and welding equipment (NAICS 335312 and 333992).

       This section provides an introduction to the industries affected by the reconsidered rule.
The purpose is to give the reader a general understanding of the economic aspects of the
industry; their relative size, relationships with other sectors in the economy, trends for the
industries, and financial statistics.
3.1    Electric Power Generation, Transmission, and Distribution
3.1.1   Overview
       Electric power generation, transmission, and distribution (NAICS 2211) is an industry
group within the utilities sector (NAICS 22). It includes establishments that produce electrical
energy or facilitate its transmission to the final consumer.

       From 2002 to 2007, revenues from electric power grew about 18% to over $440 billion
($2007) (Table 3-1). At the same time, payroll rose about 7.6% and the number of employees
decreased by over 6%. The number of establishments rose by a little more than 2%, resulting in a
increase in average establishment revenue of almost 24%. Industrial production within NAICS
2211 has increased 25% since 1997 (Figure 3-1).

       Electric utility companies have traditionally been tightly regulated monopolies. Since
1978, several laws and orders have been passed to encourage competition within the electricity
market. In the late  1990s,  many states began the process of restructuring their utility regulatory
framework to support a competitive market. Following market manipulation in the early 2000s,

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however, several states have suspended their restructuring efforts. The majority (58%) of diesel
power generators controlled by combined heat and power (CHP) or independent power
producers are located in states undergoing active restructuring (Figure 3-2).
Table 3-1.   Key Statistics: Electric Power Generation, Transmission, and Distribution
             (NAICS 2211) ($2007)

                                             2002                            2007
 Revenue ($106)                              373,309                          440,342
 Payroll ($106)                                40,842                           43,266
 Employees                                 535,675                          503,134
 Establishments                                9,394                            9,611
Source: U.S. Census Bureau; Number of Firms, Number of Establishments, Employment, Annual Payroll, and
Estimated Receipts by Enterprise Receipt Size for the United States, All Industries: 2007. Statistics for U.S.
Businesses. Found at http://www.census.gov/econ/susb/data/susb2007.html.

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                               000000000000000000000000
                               000000000000000000000000
Figure 3-1.   Industrial Production Index (NAICS 2211)
 Source: The Federal Reserve Board. "Industrial Production and Capacity Utilization: Industrial Production" Series
  ID: G17/IP_MINING_AND_UTILITY_DETAIL/IP.G221 l.S .
  (January 27, 2010).
3.1.2   Goods and Services Used
       In Table 3-2, we use the latest detailed benchmark input-output data report by the Bureau
of Economic Analysis (BEA) (2002) to identify the goods and services used in electric power
generation. As shown, labor and tax requirements represent a significant share of the value of

-------
 Diesel and Natural Gas Internal
 Combustion Generators By State
      ^_\ No Restructuring
      ^ Suspended Restructuring
      | Active Restructuring
               100
Figure 3-2.   Internal Combustion Generators by State: 2006
Source: U.S. Department of Energy, Energy Information Administration. 2007. "2006 EIA-906/920 Monthly Time
  Series."

power generation. Extraction, transportation, refining, and equipment requirements potentially
associated with reciprocating internal combustion engines (oil and gas extraction, pipeline
transportation, petroleum refineries, and turbine manufacturing) represent around 10% of the
value of services.
3.1.3  Business Statistics
       The U.S. Economic Census and Statistics of U.S. Businesses (SUSB) programs provide
national information on the distribution of economic variables by industry, location, and size of
business. Throughout this section and report, we use the following definitions:
       •   Establishment. An establishment is a single physical location where business is
           conducted or where services or industrial operations are performed.

-------
Table 3-2.  Direct Requirements for Electric Power Generation, Transmission, and
            Distribution (NAICS 2211): 2002
Commodity
V00100
V00200
211000
212100
482000
230301
486000
722000
52AOOO
541100
Commodity Description
Compensation of employees
Taxes on production and imports, less subsidies
Oil and gas extraction
Coal mining
Rail transportation
Nonresidential maintenance and repair
Pipeline transportation
Food services and drinking places
Monetary authorities and depository credit intermediation
Legal services
Direct Requirements
Coefficients"
20.52%
13.71%
6.16%
5.86%
3.01%
2.83%
1.70%
1.40%
1.39%
1.13%
a  These values show the amount of the commodity required to produce $1.00 of the industry's output. The values
  are expressed in percentage terms (coefficient *100).
Source: U.S. Bureau of Economic Analysis. 2002. 2002 Benchmark Input-Output Accounts: Detailed Make Table,
  Use Table and Direct Requirements Table. Tables 4 and 5.

       •   Receipts: Receipts (net of taxes) are defined as the revenue for goods produced,
          distributed, or services provided,  including revenue earned from premiums,
          commissions and fees,  rents, interest, dividends, and royalties. Receipts exclude all
          revenue collected for local, state, and federal taxes.

       •   Firm: A firm is a business organization consisting of one or more domestic
          establishments in the same state and industry that were specified under common
          ownership or control. The firm and the establishment are the same for single-
          establishment firms. For each multiestablishment firm, establishments in the same
          industry within a state are counted as one firm;  the firm employment and annual
          payroll are summed from the associated establishments.

       •   Enterprise: An enterprise is a business organization consisting of one or more
          domestic establishments that were specified under common ownership or control. The
          enterprise and the establishment are the same for single-establishment firms. Each
          multiestablishment company forms one enterprise; the enterprise employment and
          annual payroll are summed from the associated establishments. Enterprise size
          designations are determined by the summed employment of all associated
          establishments.

       In 2002, Texas had almost 1,000 power establishments, while California, Georgia, and
Ohio all had between 400 and 500 (Figure 3-3). Hawaii, Nebraska, and Rhode Island all had
fewer than 20 establishments in their states.

-------
 Establishments by State
      ^ Lessthan 100
      f 100-199
    \^^\ 200-349
    ^^| 350-500
    ^^1 More than 500
Figure 3-3.   2002 Regional Distribution of Establishments: Electric Power Generation,
              Transmission, and Distribution Industry (NAICS 2211)
Source: U.S. Census Bureau; generated by RTI International; using American FactFinder; "Sector 22: Utilities:
  Geographic Area Series: Summary Statistics: 2002." ; (November 10, 2008).

       As shown in Table 3-3, the four largest firms owned over 1,200 establishments and
accounted for about 16% of total industry receipts/revenue. The 50 largest firms accounted for
almost 6,000 establishments and about 78% of total receipts/revenue.

       Investor-owned energy providers accounted for 67.5% of retail electricity sold in the
United States in 2006 (Table 3-4). In 2010, less regulated investor-owned electric utility
companies were on average more profitable than companies with greater regulation (Table 3-5).
In 2006, enterprises within NAICS 2211  had a pre-tax profit margin of only 0.9% (Table 3-6).
3.2    Oil and Gas Extraction
3.2.1   Overview
       Oil and gas extraction (NAICS 211) is an industry group within the mining sector
(NAICS 21). It includes establishments that operate or develop oil and gas field properties

-------
Table 3-3.   Firm Concentration for Electric Power Generation, Transmission, and
            Distribution (NAICS 2211): 2002
Receipts/Revenue
Commodity
All firms
4 largest firms
8 largest firms
20 largest firms
50 largest firms
Establishments
9,394
1,260
2,566
3,942
5,887
Amount ($106)
$325,028
$52,349
$95,223
$173,207
$253,015
Percentage
of Total
100.0%
16.1%
29.3%
53.3%
77.8%
Number of
Employees
535,675
68,432
151,575
271,393
408,021
Employees per
Establishment
57
54
59
69
69
Source: U.S. Census Bureau; generated by RTI International; using American FactFinder; "Sector 22: Utilities:
  Subject Series—Estab & Firm Size: Concentration by Largest Firms for the United States: 2002."
  ; (November 21, 2008).

through such activities as exploring for oil and gas, drilling and equipping wells, operating on-
site equipment, and conducting other activities up to the point of shipment from the property.

       Oil and gas extraction consists of two industries: crude petroleum and natural gas
extraction (NAICS 211111) and natural gas liquid extraction (NAICS 211112). Crude petroleum
and natural gas extraction is the larger industry; in 2007, it accounted for 93% of establishments
and 75% of oil and gas extraction revenues.

       Industrial production in this industry is particularly sensitive to hurricanes in the Gulf
Coast. In September of both 2005 and 2008, production dropped 14% from the previous month.

       From 2002 to 2007, revenues from crude petroleum and natural gas extraction (NAICS
211111) nearly doubled to $194 billion ($2007) (Table 3-8). At the same time, payroll increased
55% and the number of employees dropped by almost 40%. The number of establishments
increased only slightly (1%); as a result, the average establishment revenue nearly doubled%.

       From 2002 to 2007, revenue from natural gas liquid extraction (NAICS 211112) grew
over 19% to about $40 billion (Table 3-9). At the same time, payroll increased by only 1% and
the number of employees dropped by almost 14%. The number of establishments dropped by
over 59%, resulting in an increase of revenue per establishment of about 85%.

-------
Table 3-4.   United States Retail Electricity Sales Statistics: 2008
Full-Service Providers
Item
Number of entities
Number of retail customers
Retail sales (103 megawatthours)
Percentage of retail sales
Revenue from retail sales ($106)
Percentage of revenue
Average retail price (cents/kWh)
Investor-Owned
3
46,985
2,257
2
113
1.33
5.01
Public
62
2,160,220
70,303
67
5,934
69.65
8.44
Federal
1
36
9,625
9
473
5.55
4.91
Cooperative
25
940,697
21,868
21
1,994
23.41
9.12
Facility
1
1
117
0
6
0.07
5.25
Other Providers
Energy
NA
NA
NA
—
NA
—
NA
Delivery
NA
NA
NA
—
NA
—
NA
Total
92
3,147,939
104,170
100
8,520
100
8.18
Source: U.S. Department of Energy, Energy Information Administration. 2009. "State Electricity Profiles 2008." DOE/EIA-0348(01)/2. p. 260. <
http://www.eia. doe.gov/cneaf/electricity/st_profiles/sep2008.pdf>.

-------
Table 3-5.   FY 2010 Financial Data for 70 U.S. Shareholder-Owned Electric Utilities

Investor-Owned Utilities
Regulated3
Mostly regulatedb
Diversified0
Profit Margin
4.81%
6.80%
8.50%
-16.78%
Net Income
$27,728
$12,341
$17,815
-$2,429
Operating Revenues
$371,545
$158,657
$175,218
$37,671
a 80%+of total assets are regulated.
b 50% to 80% of total assets are regulated.
0 Less than 50% of total assets are regulated.
 Source: Edison Electric Institute. "Income Statement: Q4 2010 Financial Update. Quarterly Report of the U.S.
  Shareholder-Owned Electric Utility Industry." .

Table 3-6.   Aggregate Tax Data for Accounting Period 2009: NAICS 2211

 Number of enterprises3                                                  1,187
 Total receipts (103)                                              $323,522,443
 Net sales(103)                                                  $328,017,143
 Profit margin before tax                                                3.1 %
 Profit margin after tax                                                  2.0%

a Includes corporations with and without net income.
Source: Internal Revenue Service, U.S. Department of Treasury. 2010. "Corporation Source Book: Data Files 2000-
  2009." ; (May 2, 2010).
3.2.2  Goods and Services Used
       The oil and gas extraction industry has similar labor and tax requirements as the electric
power generation sector. Extraction, support, power, and equipment requirements potentially
associated with reciprocating internal combustion engines (oil and gas extraction, support
activities, electric power generation, machinery and equipment rental and leasing, and pipeline
transportation) represent around 8% of the value of services (Table 3-10).
                                             3-10

-------
3.2.3   Business Statistics
       The U.S. Economic Census and SUSB programs provide national information on the
distribution of economic variables by industry, location, and size of business. Throughout this
section and report, we use the following definitions:
       •   Establishment: An establishment is a single physical location where business is
          conducted or where services or industrial operations are performed.
                                          3-11

-------
to
       Table 3-7. Key Enterprise Statistics by Employee Size for Electric Power Generation, Transmission, and Distribution (NAICS
       2211): 2007
Variable
Firms
Establishments
Employment
Receipts ($103)
Receipts/firm ($103)
Receipts/establishment
($103)
Receipts/employment
($)
All Enterprises
1,687
9,611
503,134
$440,342,284
$261,021
$45,817
$875
<20
Employees
630
687
3,622
$8,364,773
$13,277
$12,176
$2,309
20-99
Employee s
670
1,110
31,455
$21,825,969
$32,576
$19,663
$694
100^99
Employees
251
999
42,527
$41,370,375
$164,822
$41,412
$973
500+
Employees
136
6,815
425,530
$368,781,167
$2,711,626
$54,113
$867
       Source: U.S. Census Bureau. 2010. "Firm Size Data from the Statistics of U.S. Businesses: U.S. All Industries Tabulated by Receipt Size: 2007."
        .

-------
   o
   o
   (N
   O
   o
   (N
      110
      105
100
 95
    3   90
   15

    x
    01
   "i   85
       80
       75
          !"•«•  S-  S- 00  00  CT1 CT1
          O")  O")  O") O")  O")  O") O")
          CTl  CT1  CT1 CT1  CT1  CT1 CT1  CT1
                         000000000000000000000000
                         000000000000000000000000
                         rNfNrNrNrNrNrNrN(N(N(N(N(N(N(N(N(N(N(N(N(N(N(N(N
Figure 3-4.    Industrial Production Index (NAICS 211)

 Source: The Federal Reserve Board. "Industrial Production and Capacity Utilization: Industrial Production" Series
  ID: G17/IP_MINING_AND_UTILITY_DETAIL/IP.G21 l.S .
  (January 27, 2010).


Table 3-8.   Key Statistics: Crude Petroleum and Natural Gas Extraction (NAICS 211111):
             ($2007)

Revenue ($106)
Payroll ($106)
Employees
Establishments
2002
98,667
5,785
94,886
7,178
2007
194,107
8,988
133,286
7,221
Source: U.S. Census Bureau; Factfinder Series: "2002 and 2007." ; (February 23,
  2012).


       •   Receipts: Receipts (net of taxes) are defined as the revenue for goods produced,
           distributed, or services provided, including revenue earned from premiums,
           commissions and fees,  rents, interest, dividends, and royalties. Receipts exclude all
           revenue collected for local, state, and federal taxes.
                                             3-13

-------
       •  Firm: A firm is a business organization consisting of one or more domestic
          establishments in the same state and industry that were specified under common
          ownership or control. The firm and the establishment are the same for single-

Table 3-9.  Key Statistics: Natural Gas Liquid Extraction (NAICS 211112) ($2007)

                                          2002                          2007
 Revenue ($106)                              33,579                        39,978
 Payroll ($106)                                  607                          617
 Employees                                   9,693                        8,523
 Establishments                                  511                          321

Source: U.S. Census Bureau; 2002 and 2007." ; (February 23, 2012).

Table 3-10. Direct Requirements for Oil and Gas Extraction (NAICS 211): 2002
Commodity
V00200
V00100
230301
211000
213112
221100
541300
532400
33291A
541511
Commodity Description
Taxes on production and imports, less subsidies
Compensation of employees
Nonresidential maintenance and repair
Oil and gas extraction
Support activities for oil and gas operations
Electric power generation, transmission, and distribution
Architectural, engineering, and related services
Commercial and industrial machinery and equipment rental and leasing
Valve and fittings other than plumbing
Custom computer programming services
Direct Requirements
Coefficients"
8.93%
6.67%
6.36%
1.91%
1.51%
1.47%
1.24%
1.20%
1.10%
0.99%
a  These values show the amount of the commodity required to produce $1.00 of the industry's output. The values
  are expressed in percentage terms (coefficient *100).
Source: U.S. Bureau of Economic Analysis. 2002. 2002 Benchmark Input-Output Accounts: Detailed Make Table,
  Use Table and Direct Requirements Table. Tables 4 and 5.

          establishment firms. For each multiestablishment firm, establishments in the same
          industry within a state are counted as one firm; the firm employment and annual
          payroll are summed from the associated establishments.

       •  Enterprise: An enterprise is a business organization consisting of one or more
          domestic establishments that were specified under common ownership or control. The
          enterprise and the establishment are the same for single-establishment firms. Each
          multiestablishment company forms one enterprise; the enterprise employment and
          annual payroll are summed from the associated establishments. Enterprise size
                                           3-14

-------
           designations are determined by the summed employment of all associated
           establishments.
       As of 2007, there were 6,563 firms within the NAICS 211111 code, of which 6427 (98

percent) were considered small businesses (Table 3-11).  Within NAICS 211111, large firms

compose about 2 percent of the firms, but account for 59 percent of employment and generate

about 80 percent of estimated receipts listed under the NAICS.  Within NAICS 211112, there

are 139 firms, of which 95 (71 percent) were considered small businesses (Table 3-12).  As

shown in this table, large firms compose 29 percent of the firms, but account for 78 percent of

employment and generate about 95 percent of estimated receipts.


       Enterprises within NAICS 211111 generated $194 billion in total receipts in 2007.

Enterprises within NAICS 211112 generated nearly $40 billion in total receipts in 2007.

Including those enterprises without net income, NAICS 211 averaged an after-tax profit margin

of 8.5% in 2008 (Table 3-13).

Table 3-11.   Key Statistics for Crude Petroleum and Natural Gas Extraction  (NAICS
211111): 2007

                                               SBA Size     Small
NAICS	NAICS Description	Standard	Firms	Large Firms   Total Firms
Number of Firms by Firm Size
        Crude Petroleum and Natural Gas Extraction       500          6,329          95        6,424
Total Employment by Firm Size
                                                              55,622       77,664       133,286
Estimated Receipts by Firm Size ($1000)
                                                          44,965,936   149,141,316   194,107,252

Note: *The counts of small and large firms in NAICS 486210 is based upon firms with less than $7.5 million in
receipts, rather than the $7 million required by the SBA Size Standard. We used this value because U.S. Census
reports firm counts for firms with receipts less than $7.5 million. **Employment and receipts could not be split
between small and large businesses because of non-disclosure requirements faced by the U.S. Census Bureau.
Source: U.S. Census Bureau. 2010. "Number of Firms, Number of Establishments, Employment, Annual Payroll,
and Estimated Receipts by Enterprise Receipt Size for the United States, All Industries:  2007."

                                            3-15

-------
Table 3-12. Key Statistics for Crude Natural Gas Liquid Extraction (NAICS 211112): 2007
                   NAICS Description
SBA Size
Standard
Small
Firms
Large Firms   Total Firms
Number of Firms by Firm Size
         Natural Gas Liquid Extraction

Total Employment by Firm Size
  500
     98
                                                                  1,875
        41
                             6,648
139
                             8,523
Estimated Receipts by Firm Size ($1000)
                                                               2,164,328    37,813,413    39,977,741
Note: *The counts of small and large firms in NAICS 486210 is based upon firms with less than $7.5 million in
receipts, rather than the $7 million required by the SBA Size Standard.  We used this value because U.S. Census
reports firm counts for firms with receipts less than $7.5 million. **Employment and receipts could not be split
between small and large businesses because of non-disclosure requirements faced by the U.S. Census Bureau.
Source: U.S. Census Bureau. 2010. "Number of Firms, Number of Establishments, Employment, Annual Payroll,
and Estimated Receipts by Enterprise Receipt Size for the United States, All Industries:  2007."

Table 3-13. Aggregate Tax Data for Accounting Period 7/07-6/08: NAICS 211
 Number of enterprises3

 Total receipts (103)

 Net sales(103)

 Profit margin before tax

 Profit margin after tax
                     19,441

               $193,230,241

               $166,989,539

                     12.9%

                      8.5%
a Includes corporations with and without net income.

Source: Internal Revenue Service, U.S. Department of Treasury. 2010. "Corporation Source Book: Data Files 2004-
  2007." ; (May 2, 2010).
3.3     Pipeline Transportation of Natural Gas

3.3.1   Overview

        Pipeline transportation of natural gas (NAICS 48621) is an industry group within the
transportation and warehousing sector (NAICS 48-49), but more specifically in the pipeline
                                              3-16

-------
transportation subsector (486). It includes the transmission of natural gas as well as the
distribution of the gas through a local network to participating businesses.

       From 2002 to 2007, natural gas transportation revenues fell by 10% to just under $21
billion ($2007)  (Table 3-15). At the same time, payroll decreased by 18%, while the number of
paid employees decreased by nearly 32%. The number of establishments decreased by 13% from
1,701 establishments in 2002 to 1,479 in 2007.
3.3.2  Goods and Services Used
       The BEA reports pipeline transportation of natural gas only for total pipeline
transportation (3-digitNAICS  486). In addition to pipeline transportation of natural gas (NAICS
4862), this industry includes pipeline transportation of crude oil (NAICS 4861) and other
pipeline transportation (NAICS 4869). However, the BEA data are likely representative of the
affected sector  since pipeline transportation of natural gas accounts for 68% of NAICS 486
establishments  and 72% of revenues (Figures 3-5 and 3-6).
Table 3-14. Key Statistics: Pipeline Transportation of Natural Gas (NAICS 48621) ($2007)

 Year                                                2002                    2007
 Revenue ($106)                                       22,964                  20,797
 Payroll ($106)                                         2,438                   2,064
 Employees                                           32,542                  24,683
 Establishments                                         1,701                   1,479
Source: U.S. Census Bureau; generated by RTI International; using American FactFinder; "Sector 48: EC0748I1:
  Transportation and Warehousing: Industry Series: Preliminary Summary Statistics for the United States: 2002 and
  2007." http://factfinder.census.gov (January 27, 2010).

       In Table 3-15, we use the latest detailed benchmark input-output data report by the BEA
(2002) to identify the goods and services used by pipeline transportation (NAICS 486). As
shown, labor, refineries, and maintenance requirements represent significant share of the cost
associated with pipeline transportation. Power and equipment requirements potentially associated
with reciprocating internal combustion engines (electric power generation and commercial and
industrial machinery and equipment repair and maintenance) represent less than 2% of the value
of services.
                                           3-17

-------

80% -
70% -
cno/
bO%
oO%
ono/
oUvo
20% -
1 0% •
no/. .









68%







	




21%

                    4862 Pipeline
               Transportation of Natural
                        Gas
4869 Other Pipeline
  Transportation
      4861 Pipeline
Transportation of Crude Oil
Figure 3-5.    Distribution of Establishments within Pipeline Transportation (NAICS 486)

Source: U.S. Census Bureau; generated by RTI International; using American FactFinder; "Sector 48:
  Transportation and Warehousing: Industry Series: Summary Statistics for the United States: 2002"
  ; (December 12, 2008).
1 UU 70
90% -
80% -
70% -
60% -
50% -
40%
30% -
20% -
10% -

	
72%




















	 16% 	 1?0/n 	

I
                    4862 Pipeline
               Transportation of Natural
                        Gas
4869 Other Pipeline
   Transportation
       4861 Pipeline
 Transportation of Crude Oil
Figure 3-6.    Distribution of Revenue within Pipeline Transportation (NAICS 486)

Source: U.S. Census Bureau; generated by RTI International; using American FactFinder; "Sector 48:
  Transportation and Warehousing: Industry Series: Summary Statistics for the United States: 2002"
  ; (December 12, 2008).
                                              3-18

-------
Table 3-15. Direct Requirements for Pipeline Transportation (NAICS 486): 2002
Commodity
V00100
324110
230301
211000
333415
561300
5416AO
541300
420000
332310
5419AO
524100
531000
52AOOO
V00200
541100
221100
Commodity Description
Compensation of employees
Petroleum refineries
Nonresidential maintenance and repair
Oil and gas extraction
Air conditioning, refrigeration, and warm air heating equipment
manufacturing
Employment services
Environmental and other technical consulting services
Architectural, engineering, and related services
Wholesale trade
Plate work and fabricated structural product manufacturing
All other miscellaneous professional, scientific, and technical services
Insurance carriers
Real estate
Monetary authorities and depository credit intermediation
Taxes on production and imports, less subsidies
Legal services
Electric power generation, transmission, and distribution
Direct
Requirements
Coefficients"
14.78%
13.55%
6.07%
4.94%
4.40%
4.26%
3.04%
3.04%
2.79%
2.72%
2.48%
2.38%
2.33%
1.76%
1.41%
1.19%
1.13%
a These values show the amount of the commodity required to produce $1.00 of the industry's output. The values
  are expressed in percentage terms (coefficient *100).
Source: U.S. Bureau of Economic Analysis. 2002. 2002 Benchmark Input-Output Accounts: Detailed Make Table,
  Use Table and Direct Requirements Table. Tables 4 and 5.

       According to 2007 U.S.  Census data, about 86% of transportation of natural gas
establishments were owned by corporations and about 8% were owned by individual
proprietorships. About 6% were owned by partnerships (Figure 3-7).

       Enterprises within  pipeline transportation (NAICS 486) generated $11.1 billion in total
receipts in 2007. Including those enterprises without net income, the industry averaged an after-
tax profit margin of 9.6% (Table 3-16).

       The 2007 SUSB shows that about half of all firms have fewer than 20 employees, but
only 1% of all employees in this industry.  Firms with more than 500 employees generate 89% of
all receipts in this industry (Table 3-17).
                                           3-19

-------
1 UU"/o •
ono/
yuvo
ono/
OUTo
7fw .
/ U/o
cno/
OUTO
cno/
OUvo
yino/
**{) /o
ono/
oUTo
ono/ .
£\J 10
10% -












86%



















8% 6o/0
I I I
                    Corporations
                         Individual Proprietorships
Partnerships
Figure 3-7.
Share of Establishments by Legal Form of Organization in the Pipeline
Transportation of Natural Gas Industry (NAICS 48621): 2002
Source: U.S. Census Bureau; generated by RTI International; using American FactFinder; "Sector 48-49:
  Transportation and Warehousing: Subject Series—Estab & Firm Size: Legal Form of Organization for the United
  States: 2002" ; (December 12, 2008).
Table 3-16. Aggregate Tax Data for Accounting Period 7/07-6/08: NAICS 486
 Number of enterprises3

 Total receipts (103)

 Net sales (103)

 Profit margin before tax

 Profit margin after tax
                                                         321

                                                  $11,062,608

                                                  $10,210,083


                                                       13.2%

                                                        9.6%
a      Includes corporations with and without net income.

Source: Internal Revenue Service, U.S. Department of Treasury. 2010. "Corporation Source Book: Data Files 2004-
  2007." ; (May 2, 2010).
                                              3-20

-------
 Table 3-17. Key Enterprise Statistics by Employee Size for Pipeline Transportation of
             Natural Gas (NAICS 48621): 2007
                                       <20       20-99     100-499
       Variable        All Enterprises  Employees  Employees  Employees   500+ Employees
Firms

Establishments
Employment
Receipts ($10
Receipts/firm

3)
($103)
Receipts/establishment

1
24
$20,796
$165
$14
126
.479
,683
,681
,053
,061
63
66
241
N/A
N/A
N/A



$518
$43
$19
12
26
382
,341
,195
,936


1,
$1,448
$160,
$20,
9
70
479
,020
891
686

1
22
42
,317
,581
$18,498,143
$440
$14
,432
,046
 ($10J)
 Receipts/employment              $843     N/A       $1,357        $979       $819
_($)	
 Source: U.S. Census Bureau. 2011. Firm Size Data from the Statistics of U.S. Businesses, U.S. All Industries
   Tabulated by Employee Size: 2007. http://www2.census.gov/csd/susb/2007/usalli_r07.xls.
 3.4     General Medical and Surgical Hospitals
 3.4.1   Overview
        General medical and surgical hospitals (NAICS 6221) is an industry group within the
 health care and social assistance sector (NAICS 62). It includes hospitals engaged in diagnostic
 and medical treatment (both surgical and nonsurgical) for inpatients with a broad range of
 medical conditions. They usually provide other services as well, including outpatient care,
 anatomical pathology, diagnostic X-rays, clinical laboratory work, and pharmacy services.

        From 2002 to 2007, hospital revenues grew about 21% to over $650 billion ($2007)
 (Table  3-18). At the same time, payroll rose about 15%, while the number of employees
 increased by only 6%. The number of establishments increased during this period by almost 4%,
 resulting in an increase in revenue per establishment of almost 16%.
 3.4.2   Goods and Services Used
        The BEA reports hospital expenditures only for hospitals (3-digit NAICS 622). In
 addition to general hospitals (NAICS 6221), this industry includes psychiatric and substance
 abuse hospitals (NAICS 6222) and specialty hospitals (NAICS 6223). However, these data
                                           3-21

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should be representative of the affected sector since in 2007, general medical and surgical
hospitals accounted for 92% of NAICS 622 establishments and 94% of revenues.

      In Table 3-19, we use the latest detailed benchmark input-output data report by the BEA
(2002) to identify the goods and services used by hospitals (NAICS 622). As shown, labor and
land requirements represent a significant share of the value of hospital services. Power and
equipment requirements potentially associated with reciprocating internal combustion engines
(electric power generation and commercial and industrial machinery and equipment repair and
maintenance) represent less than 2% of the value of services.
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Table 3-18.    Key Statistics: General Medical and Surgical Hospitals (NAICS 6221)

($2007)


                                              2002                           2007

 Revenue ($106)                                539,502                        651,639

 Payroll ($106)                                 209,063                        240,638

 Employees                                  4,772,422                          5,042

 Establishments                                  5,193                          5,404

Source: U.S. Census Bureau; generated by RTI International; using American FactFinder; "Sector 62: Health Care
  and Social Assistance: Geographic Area Series: 2002 and 2007." ; (February 22,
  2012).


Table 3-19.  Direct Requirements for Hospitals (NAICS 622): 2002
Commodity
V00100
531000
550000
621BOO
561300
325412
325413
524100
420000
221100
Direct Requirements
Commodity Description Coefficients"
Compensation of employees
Real estate
Management of companies and enterprises
Medical and diagnostic labs and outpatient and other ambulatory care
services
Employment services
Pharmaceutical preparation manufacturing
In-vitro diagnostic substance manufacturing
Insurance carriers
Wholesale trade
Electric power generation, transmission, and distribution
51.90%
10.76%
4.02%
2.22%
1.90%
1.86%
1.66%
1.66%
1.62%
1.14%
a These values show the amount of the commodity required to produce $1.00 of the industry's output. The values
  are expressed in percentage terms (coefficient *100).

Source: U.S. Bureau of Economic Analysis. 2002. 2002 Benchmark Input-Output Accounts: Detailed Make Table,
  Use Table and Direct Requirements Table. Tables 4 and 5.

3.4.3  Business Statistics

       In 2010, the United States had 5,754 hospitals (Table 3-20).  As shown in Table 3-1,

nongovernmental not-for-profit hospitals accounted for 2,904 (or 50%)  of these hospitals, and

State and local government hospitals accounted for  1,068 (or 19%) of these hospitals.
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        General medical and surgical hospitals (NAICS 6221) generated $652 billion in total
receipts in 2007. Including those enterprises without net income, the industry averaged an after-
tax profit margin of 3.1% (Table 3-22).  Also, each firm in this industry had an average of about
$202 million in revenue and a great majority of these firms had more than 500 employees in
2007 (Table 3-23).
IUU/0 •
Qf~10/ -
pno/ .
OU /o
7f~10/ .
I\J70
60%
50%
A HO/
4U/0
oU/o
20%
1 0%











79.6%















19.5%

0.7% 0.1%
               Corporations
              Partnerships
                     Individual
                  Proprietorships
         Other Legal Forms
           of Organization
Figure 3-8.   Share of Establishments by Legal Form of Organization in the General
              Medical and Surgical Hospitals Industry (NAICS 6221): 2002
Source: U.S. Census Bureau; generated by RTI International; using American FactFinder; "Sector 62: Health Care
  and Social Assistance: Subject Series—Estab & Firm Size: Legal Form of Organization for the United States:
  2002" ; (November 21, 2008).

Table 3-20.   Data for General Medical and Surgical Hospitals (NAICS 6221): 2007
     Commodity
               Amount   Number of  Employees per
Establishments    ($106)    Employees  Establishment
All firms
    5,404
$651,639    5,041,848
933
Source: U.S. Census Bureau, 2011; Statistics for U.S. Businesses (SUSB), 2007.
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Table 3-21. Hospital Statistics: 2010
         Hospitals
Number
 Total

 Nongovernment not-for-
 profit

 Investor-owned (for-profit)

 State and local government

 Federal government
  5,754


  2,904

  1,013

  1,068

   213
NA = Not available
Source: American Hospital Association. 2011. "AHA Hospital Statistics: 2010 Edition." Health Forum.


Table 3-22. Aggregate Tax Data for Accounting Period 7/05-6/06: NAICS 622-4
 Number of enterprises3

 Total receipts (103)

 Net sales(103)

 Profit margin before tax

 Profit margin after tax
                                       18,263

                                  $108,074,793

                                  $102,300,229

                                         4.4%

                                         3.1%
a Includes corporations with and without net income.

Source: Troy, Leo. 2008. "Almanac of Business and Industrial Financial Ratios: 2009 Edition." CCH.
Table 3-23. Key Enterprise Statistics by Employee Size for General Medical and Surgical
             Hospitals (NAICS 6221): 2007 ($2007)
Variable
Firms
Establishments
Employment
Receipts ($103)
Receipts/firm ($103)
Receipts/establishment
All
Enterprises
3,225
5,404
5,041,848
$651,639,328
$202,059
$120,585
<20 Employees
170
173
606
346.216
2,037
2,001
20-99
Employees
277
282
18,718
1,553,004
5,607
5,508
100-499
Employees
1,227
1,286
294,247
$27,889,532
$22,730
$21,687
500+ Employees
1,551
3,663
4,728,277
$621,850,576
$400,935
$169,766
($103)
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 Receipts/employment         $129             $571           $83          $95           $132
_($)	
 Source: U.S. Small Business Administration (SBA). 2010. "Firm Size Data from the Statistics of U.S. Businesses:
   U.S. All Industries Tabulated by Receipt Size: 2007." .
 3.5    Irrigation Sets and Welding Equipment
 3.5.1  Overview
       The U.S. Economic Census classifies irrigation equipment under the farm machinery and
 equipment manufacturing industry group (NAICS 333111). This U.S. industry comprises
 establishments primarily engaged in manufacturing agricultural and farm machinery and
 equipment and other turf and grounds care equipment, including planting, harvesting, and grass-
 mowing equipment (except lawn and garden type).

       From 2002 to 2007, farm machinery and equipment manufacturing revenues increased
 by $8 billion from $15 billion to $23 billion (Table 3-24).  At the same time, payroll increased by
 21% and the number of paid employees increased by nearly 9%. The number of establishments
 dropped by 2% from 1,214 establishments in 2002 to 1,191 in 2007. Industrial production in the
 industry has been increasing since 1997 (Figure 3-9).

       The U.S. Economic Census classifies welding equipment under the welding and
 soldering equipment manufacturing industry group (NAICS 333992). This U.S. industry
 comprises establishments primarily engaged in manufacturing welding and soldering equipment
 and accessories (except transformers), such as welding electrodes, welding wire, and soldering
 equipment (except handheld).

       From 2002 to 2007 welding and soldering equipment manufacturing revenue increased
 by about 53% to nearly $6 billion (Table 3-25). At the same time, payroll increased by  12% and
 the number of paid employees increased by nearly 9%. The number of establishments increased
 by 31% from 250 establishments in 2002 to 303 in 2007.
 3.5.2  Irrigation and Welding Services
       The demand for equipment is derived from the demand for the services the equipment
 provides. We describe uses and industrial consumers of this equipment.
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3.5.2.1 Irrigation
      Demand for irrigation equipment is driven by farm operation decisions, optimal
replacement considerations, and climate and weather conditions. The National Agriculture
Statistics Service (NASS) 2008 Farm and Ranch Irrigation Survey (USDA-NASS, 2010) shows
                                         3-27

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to

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Table 3-24. Key Statistics: Farm Machinery and Equipment Manufacturing (NAICS
            333111)($2007)
                                                      2002
                        2007
 Revenue ($106)

 Payroll ($106)

 Employees

 Establishments
$15,006

 $2,132

 53,817

  1,214
$23,009

 $2,580

 58,838

  1,191
Source: U.S. Census Bureau, Statistics of U.S. Business (SUSB), 2007.
                              Industrial Production Index (NAICS 333111)
    130
    120
Figure 3-9.   Industrial Production Index (NAICS 333111)
                                            3-29

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Table 3-25. Key Statistics: Welding and Soldering Equipment Manufacturing (NAICS
            333992)($2007)

                                                  2002                     2007
 Revenue ($106)                                     $3,880                    $5,935
 Payroll ($106)                                       $811                     $910
 Employees                                         16,128                    17,529
 Establishments                                        231                      303
Source: U.S. Census Bureau; using American FactFinder; "Sector 31: Manufacturing: Industry Series: Historical
  Statistics for the Industry: 2002 and 2007" ; (February 15, 2012).
that the top five states ranked by total acres irrigated are Nebraska, California, Texas, Arkansas,
and Idaho.  Virtually all of the irrigated areas in the U.S. are west of the Mississippi River.

       The survey reported that approximately 546,000 pumps were used on U.S. farms in 2008
with energy expenses totaling approximately $2.7 billion. Electricity is the dominant form of
energy expense for irrigation pumps, accounting for 59% of total energy expenses. Diesel fuel is
second (25%), followed by natural gas (17%) and other forms of energy such as gasoline (2%).

       Per-acre operating costs for these irrigation systems vary by fuel type, and natural  gas
was the most expensive in 2008 ($93 per acre for well systems and $44 per acre for surface water
systems) (Table 3-26). Systems using diesel fuel were operated at approximately half of these
per-acre costs ($54 per acre for well systems and $42 per acre for surface water systems).
Gasoline- and gasohol-powered systems offered the least expensive operating costs for well
systems ($39 per acre)  and electricity-power systems offered the least expensive operating costs
for surface water systems ($45 per acre). As shown in Table 3-27,  the number  of on-farm pumps
increased to 546,308 from 489,434 (12%) between 2003 and 2008. The use of electric- and
diesel-powered pumps increased during this period  (21% and 3%, respectively), while other fuel
sources such as liquid petroleum (LP) gas,  propane, and butane declined significantly (31%).  It
should be noted that the acreages included  in Table  3-27 incorporate both irrigated and non-
irrigated land.
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Table 3-26.  Expenses per Acre by Type of Energy: 2008
Fuel Type
Electricity
Natural gas
LP gas, propane, butane
Diesel fuel
Gasoline and gasohol
Total
Irrigated by Water from Wells
$57.80
$93.03
$38.72
$54.20
$84.98
$60.90
Irrigated by Surface Water
$35.07
$43.85
$45.40
$41.94
$39.24
$36.13
Source: U.S. Department of Agriculture, National Agricultural Statistics Service. 2010. "2008 Farm and Ranch
  Irrigation Survey." Washington, DC: USDA-NASS. Table 20. Found on the Internet at
  http://www.agcensus.usda.gov/Publications/2007/Online Highlights/Farm and Ranch Irrigation Survev/frisOS
  1 20.pdf.


Table 3-27.  Number of On-Farm Pumps of Irrigation Water by Type of Energy: 2003 and
             2008
Fuel Type
Electricity
Natural gas
LP gas, propane, butane
Diesel fuel
Gasoline and gasohol
Total
2003
312,145
41,768
17,786
112,133
5,602
489,434
2008
377,492
36,176
12,203
115,249
5,188
546,308
Percentage Change
21%
-13%
-31%
3%
-7%
12%
Source: U.S. Department of Agriculture, National Agricultural Statistics Service. 2010. "2008 Farm and Ranch
  Irrigation Survey." Washington, DC: USDA-NASS. Table 20. Found on the Internet at
  http://www.agcensus.usda.gov/Publications/2007/Online Highlights/Farm and Ranch Irrigation Survev/frisOS
  1 20.pdf


No information is available on the use and construction of on-farm pumps specifically. USDA

reports that planted acres of the eight major crops hit a 5-year high of 252  million acres in 2008

but will fall and level off to around 244 million acres over the next 2 to 4 years (USDA, 2008).

3.5.2.2 Welding

       Welding is used in a wide variety of applications.  One of the biggest manufacturers of

welding products identifies the following key end-user segments:

       •   general metal  fabrication;
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       •  infrastructure including oil and gas pipelines and platforms, buildings, bridges, and
          power generation;
       •  transportation and defense industries (automotive, trucks, rail, ships, and aerospace);
       •  equipment manufacturers in construction, farming, and mining;
       •  retail resellers; and
       •  rental market (Lincoln Electric Holdings, 2006).

Lincoln Electric further describes the following key applications: power generation and process
industries, offshore production of oil and gas, pipelines/pipemills, and heavy fabrication
(earthmoving and construction equipment and agricultural and farm equipment.
3.5.3  Business Statistics
       Enterprises within agriculture, construction,  and mining machinery manufacturing
(NAICS 3331) generated $88 billion of total receipts in 2007, while those in other general
purpose machinery manufacturing (NAICS 3339) generated $85.7 billion. The average after-tax
profit margin in  these two industries was 6.9% and 4.7%, respectively (Table 3-28).
Table 3-28. Aggregate Tax Data for Accounting Period 7/05-6/06: NAICS 3331 and 3339

                        Agriculture, Construction, & Mining     Other General Purpose Machinery
                            Machinery Manufacturing                  Manufacturing
 Number of enterprises3                       3,064                             6,231
 Total receipts (103)                   $88,255,496                        $85,653,046

 Profit margin before tax                      9.1%                              6.1 %
 Profit Margin after tax                       6.9%                              4.7%
a Includes corporations with and without net income.
Source: Troy, Leo. 2008. "Almanac of Business and Industrial Financial Ratios: 2009 Edition." CCH.

       As noted earlier, welding equipment is used  in heavy fabrication such as earthmoving and
construction equipment. We focus on the size distribution for a representative sector in this
section (NAICS  237, Heavy and Civil Engineering Construction); other subsections in Section 3
cover other sectors that potentially use equipment powered by diesel engines (e.g., power
generation and offshore gas distribution). As shown in Table 3-29, SUSB data suggest that more
than 80% of firms are below the Small Business Administration (SB A) small business size
                                           3-32

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standard for this industry.  However, it is not clear what fraction of these firms use stationary
diesel engines.
                                           3-33

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Table 3-29. Key Enterprise Statistics by Receipt Size for Heavy Construction: 2007a
Variable
Firms
Establishments
Employment
Receipts ($103)
Receipts/firm ($103)
Receipts/establishment
($103)
Receipts/employment
($)
All Enterprises
49,228
51,421
1,016,407
$263,941,774
$5,362
$5,133
$260
<20
Employees
40,654
40,670
183,487
$46,766,241
$1,150
$1,150
$255
20-99
Employees
6,793
6,947
273,867
$68,078,765
$10,022
$9,800
$249
100-499
Employees
1,422
1,847
238,342
$69,190,739
$48,657
$37,461
$290
500+
359
1,987
320,711
$79,906,029
$222,579
$40,214
$249
a 2007 SUSB. The most comparable 2007 NAICS code for this industry is 237.

Source: U.S. Census Bureau. 2012b. Firm Size Data from the Statistics of U.S. Businesses, U.S. All Industries Tabulated by Receipt Size: 2007.
  http://www2.census.gov/csd/susb/2007/usalli r07.xls.

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                                     SECTION 4
        REGULATORY ALTERNATIVES, COSTS, AND EMISSION IMPACTS
4.1    Background
       This section of the RIA includes a discussion of the regulatory alternatives considered for
the final reconsidered rule, the costs associated with these regulatory alternatives, and the
impacts on affected emissions (both HAP and non-HAP). All impacts presented are for the year
of full implementation, 2013. Costs in the chapter are in 2008$. Costs in 2010$ shown in other
parts of the RIA are updated values of these 2008$.  Although the estimates presented are
annualized, they should be understood as a "snapshot" in analyzing costs. Annualized costs are
estimated as equal for each year that control equipment is operated.

       After promulgation of the 2010 RICE NESHAP amendments, the EPA received several
petitions for reconsideration, legal challenges, and other communications raising issues of
practical implementability, and certain factual information that had not been brought to the
EPA's attention during the rulemaking. The EPA has considered this information and believes
that amendments to the rule to address certain of these issues are appropriate.  Therefore, the
EPA is finalizing amendments to NESHAP for stationary RICE signed in March 2010 for CI
engines and August 2010 for SI engines under section 112 of the Clean Air Act. This final rule
was developed to address certain issues that have been raised by different stakeholders through
lawsuits, several petitions for reconsideration of the 2010 RICE NESHAP amendments and other
communications.  The EPA is also finalizing revisions to 40 CFR part 60, subparts IIII and JJJJ
for consistency with the RICE NESHAP and to  make minor corrections and clarifications. The
current regulation  applies to  owners and operators of existing and new stationary RICE at major
and area sources of HAP emissions. The applicability of the CI rule remains the same and is not
changed by this final rule. The EPA is also finalizing amendments to the NSPS for stationary
engines to conform with certain amendments finalized for the RICE NESHAP.

       Certain stationary RICE are maintained in order to be able to respond to emergency
power needs. This action finalizes limitations on the operation of emergency engines for
emergency demand response programs. The final rule limits operation of stationary emergency
RICE as part of an emergency demand response program to within the 100 hours per year that
were already permitted for maintenance and testing of the engines. The limitation of 100 hours
per year ensures that a sufficient number of hours are available for engines to meet regional
transmission organization and independent system operator tariffs and other requirements for
participating in various emergency demand response programs and will assist in stabilizing the
                                          4-1

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grid during periods of instability, preventing electrical blackouts and supporting local electric
system reliability. The final rule also limits operation of certain emergency engines used to avert
potential voltage collapse or line overloads that could lead to the interruption of power supply in
a local area or region to 50 hours per year; this operation counts as part of the 100 hours of year
permitted for maintenance and testing of the engine. This rule also establishes fuel and reporting
requirements for emergency engines larger than 100 horsepower (HP) used for this purpose or
used (or contractually obligated to be available) for more than  15 hours of emergency demand
response per calendar year.

       To address how certain existing compression ignition (CI) engines are currently
regulated, the EPA is specifying that any existing CI engine above 300 HP at an area source of
HAP emissions that was certified to meet the Tier 3 engine standards and was installed before
June 12, 2006, is in compliance with the NESHAP. This provision creates regulatory consistency
between the same engines installed before and after June 12, 2006. Engines at area sources of
HAP for which construction commenced before June 12, 2006, are considered existing engines
under the NESHAP.

       The EPA is finalizing amendments to the requirements for existing stationary Tier 1 and
Tier 2 certified CI engines located at area sources that are subject to state and locally enforceable
requirements requiring replacement of the engine by June 1, 2018. This addresses a specific
concern regarding the interaction of the NESHAP with certain rules for agricultural engines in
the San Joaquin Valley in California. The EPA is allowing these engines to meet management
practices under the RICE NESHAP from the May 3, 2013, compliance date until January 1,
2015, or 12 years after installation date, but not later than June 1, 2018. This provision addresses
concerns about requiring owners and operators to install controls on their engines in order to
meet the RICE NESHAP, and then having to replace their engines shortly thereafter due to state
and local rules specifying the replacement of engines. Owners  and operators will have additional
time to replace their engines without having to install controls, but are required to use
management practices during that period.

       Another change the EPA is making is to broaden the definition of remote area sources in
Alaska in the RICE NESHAP. Previously, remote areas were considered those that are not on the
Federal Aid Highway System (FAHS). This change permits existing stationary  CI engines at
other remote area sources in Alaska to meet management practices rather than numerical
emission standards likely to require aftertreatment. These remote areas have the same challenges
as areas not on the FAHS, and complying with the current rule would similarly  be prohibitively
costly and potentially infeasible. In addition to area sources located in areas of Alaska that are

                                          4-2

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not accessible by the FAHS being defined as remote and subject to management practices, any
stationary RICE in Alaska meeting all of the following conditions are subject to management
practices:

       (1) The only connection to the FAHS is through the Alaska Marine Highway System, or
the stationary RICE operation is within an isolated grid in Alaska that is not connected to the
statewide electrical grid referred to as the Alaska Railbelt Grid, and

       (2) At least 10 percent of the power generated by the stationary RICE on an annual basis
is used for residential purposes, and

       (3) The generating capacity of the area source is less than 12 megawatts (MW), or the
stationary RICE is used exclusively for backup power for renewable energy.

       The last significant change the EPA is finalizing is to require compliance with
management practices rather than numeric emission limits in the RICE NESHAP for existing CI
RICE on offshore drilling vessels on the Outer Continental Shelf (OCS) that become subject to
the RICE NESHAP as a result of the operation of the OCS regulations (40 CFR part 55). The
final amendments specify that owners and operators of existing non-emergency CI RICE with a
site rating greater than 300 HP on offshore drilling vessels on the OCS are required to change the
oil every 1,000 hours of operation or annually, whichever occurs first; inspect and clean air
filters every 750 hours of operation or annually and replace as necessary; inspect fuel filters and
belts, if installed,  every 750 hours of operation or annually and replace as necessary; and inspect
all flexible hoses every 1,000 hours of operation or annually and replace as necessary. Owners
and operators can elect to use an oil analysis program to extend the oil change requirement

       EPA has taken several actions over the past several years to reduce exhaust pollutants
from stationary diesel engines, but believes that further  reducing exhaust pollutants from
stationary diesel engines, particularly existing stationary diesel engines that have not been
subject to federal  standards, is justified. Therefore, EPA is issuing this rulemaking that
reconsiders the 2010 final rule requiring emissions reductions from existing stationary diesel
engines. The full preamble for the final CI RICE NESHAP and the rule itself can be reviewed at
http://www.epa.gov/ttn/atw/rice/fr03mrlO.pdf
                                           4-3

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4.2    Summary of the Final Reconsideration Rule
4.2.1. Emergency Demand Response.

       The EPA proposed to limit operation of emergency stationary RICE as part of an
emergency demand response program to within the 100 hours per year that is already permitted
for maintenance and testing of the engines. The EPA proposed that owners and operators of
stationary emergency engines could operate the engines for emergency demand response when
the Reliability Coordinator, or other authorized entity as determined by the Reliability
Coordinator, has declared an EEA Level 2 as defined  in the NERC Reliability Standard EOP-
002-3, Capacity and Energy Emergencies, plus during periods where there is a deviation of
voltage or frequency of 5 percent or more below standard voltage or frequency. After
considering public comments received on the proposed rule, the EPA is finalizing the proposed
amendment to limit operation for maintenance  and testing and emergency demand response to no
more than 100 hours per year.

       The EPA received some comments in support  of the provision for emergency demand
response operation, while other commenters opposed  the limitation. The commenters who
supported the provision noted that the engines are rarely called for emergency demand response,
and that the EPA has limited the emergency demand response operation to emergency situations
where a blackout is imminent. The commenters also noted that the public health impacts created
by a widespread power outage outweigh the air quality impacts from the engines. The EPA
agrees with the commenters that it is appropriate to include a provision for operation of
emergency engines for a limited number of hours per  year as part of emergency demand
response programs to help prevent grid failure or blackouts. Preventing stationary emergency
engines from being able to qualify and participate in emergency demand response programs
without having to apply aftertreatment could force owners and operators to remove their engines
from these programs, which could impair the ability of regional transmission organizations and
independent system operators to use these relatively small, quick-starting and reliable sources of
energy to protect the reliability of their systems.

       The commenters who opposed the provision for demand response provided no significant
argument that the conditions under which these engines would be permitted to operate for
emergency demand response would not be emergency conditions.

       Commenters who opposed the provision were  concerned about the air quality and health
impacts of emissions from stationary engines. The commenters were concerned that  recent
actions by the Federal Energy Regulatory Commission (FERC) that impact demand response
                                         4-4

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compensation in organized wholesale energy markets will greatly increase the amount of demand
response participating in organized wholesale capacity markets. In response to the commenters,
the EPA notes that, prior to the 2013 compliance dates for existing engines, there are no
limitations on the hours of operation for those engines. The standards that go into effect in 2013
will for the first time establish requirements for these engines, including limitations on their
hours of operation in certain situations such as emergency demand response, and ULSD fuel
requirements which will reduce HAP emissions from the engines. Regarding the FERC
regulations and their effect on use of demand response in capacity markets, these are comments
more appropriately directed towards the FERC. As noted above, the emergency demand response
situations during which the emergency engines may be used for a limited number of hours per
year are appropriately considered emergency situations.

       Commenters were  also concerned that these engines would be called to operate for
demand response on high ozone days, further contributing to nonattainment with ozone
standards. However, other commenters noted that emergency demand response events do not
predominantly occur on ozone exceedance days.  These commenters also note that some of the
commenters opposing use of emergency engines  during emergency demand response would
benefit by such a limitation because other emission sources may be used instead of the
emergency engines, including sources that some  of these commenters may operate, and that the
effect on total emissions of using these alternative emission sources is not clear. Concerns about
contribution to ozone nonattainment by stationary engines can be addressed through area-
specific requirements such as state-based State Implementation Plans that would be directed
towards ozone nonattainment areas. More detail regarding the public comments and the EPA's
responses can be found in  the Response to Public Comments document available in the
rulemaking docket.

       As mentioned in the previous paragraph, in response to the concerns about the air quality
impact of emissions from emergency engines operating in emergency demand response
programs, and based on public comments received on the proposed rule, the EPA is finalizing a
requirement for owners and operators of existing emergency CI stationary RICE with a site
rating of more than 100 brake HP and a displacement of less than 30 liters per cylinder that use
diesel fuel and operate or are contractually obligated to be available for more than 15 hours per
year (up to a maximum of 100 hours per year)  for emergency demand response to use diesel fuel
that meets the requirements in 40 CFR 80.510(b) for nonroad diesel fuel. This fuel requirement
also applies to owners and operators of new emergency CI stationary RICE with a site rating of
more than 500 brake HP with a displacement of less than 30 liters per cylinder located at a major
                                          4-5

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source of HAP that use diesel fuel and operate or are contractually obligated to be available for
more than 15 hours per year (up to a maximum of 100 hours per year) for emergency demand
response. Owners and operators must begin meeting this ULSD fuel requirement on January 1,
2015, except that any existing diesel fuel purchased (or otherwise obtained) prior to January 1,
2015, may be used until depleted. As noted by commenters on the proposed amendments and as
discussed in section II.B of the preamble, requiring the use of diesel fuel meeting the
requirements of 40  CFR 80.510(b) is expected to reduce the HAP emissions significantly from
the engines compared to emissions resulting from use of unregulated diesel fuel. The fuel
requirement begins on January 1, 2015, in order to give affected sources appropriate lead time to
institute these new requirements and make any physical adjustments to engines and other
facilities like tanks  or containment structures, as  well as any needed adjustments to contracts and
other business activities, that may be necessitated by these new requirements.

       The final amendments also require owners and operators of emergency stationary RICE
larger than 100 HP  that operate or are contractually obligated to be available for more than 15
hours per year (up to a maximum of 100 hours per year) for emergency demand response to
submit an annual report to the EPA documenting the dates and times that the emergency
stationary RICE operated for emergency demand response, beginning with the 2015 calendar
year. Commenters on the proposed amendments  recommended that the EPA gather information
on the impacts of the emissions from emergency engines during emergency demand response
situations. The EPA agrees that a reporting requirement will increase the EPA's ability to ensure
that these engines are operating in compliance with the regulations and that it will provide
further information regarding the impacts of these engines on emissions. In response to these
comments, the EPA is establishing a requirement to annually report to EPA the engine location
and duration of operation for emergency demand response. This information will be used by the
EPA, as well as state and local air pollution control agencies, to assess the health impacts of the
emissions from these engines and to aid the EPA in ensuring that these engines comply with the
regulations. Additional discussion of the rationale for the fuel and reporting requirements, as
well as responses to other significant comments regarding emergency engines engaged in
emergency demand response, can be found in the Response to Public Comments document in the
docket.

       Public commenters, in particular the National Rural Electric Cooperative Association
(NRECA), indicated that the proposed EEA Level 2 and 5 percent voltage or frequency deviation
triggers did not account for situations when the local balancing authority or transmission
operator for the local electric system has determined that electric reliability is in jeopardy, and
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recommended that the EPA include additional situations where the local transmission and
distribution system operator has determined that there are conditions that could lead to a blackout
for the local area. The comments from NRECA indicated that rural distribution lines are not
configured in a typical grid pattern, but instead have distribution lines that can run well over 50
miles from a substation and regularly extend 15 miles or longer. During periods of exceptionally
heavy stress within the region or sub-region, electricity from regional power generators may not
be available because of transmission constraints, according to the commenter. The commenter
indicated that in many cases, there may be only one transmission line that feeds the rural
distribution system, and no alternative means to transmit power into the local system.

       In response to those comments and in recognition of the unique challenges faced by the
local transmission and distribution system operators in rural areas, the EPA is specifying in the
final rule that existing emergency stationary RICE at area sources can be used for 50 hours per
year as part of a financial arrangement with  another entity if all of the following conditions are
met:

    •   The engine is dispatched by the local balancing authority or local transmission and
       distribution system operator.
    •   The dispatch is intended to mitigate local transmission and/or distribution limitations so
       as to avert potential voltage collapse or line overloads that could lead to the interruption
       of power supply in a local area or region.
    •   The dispatch follows reliability, emergency operation or similar protocols that follow
       specific NERC, regional, state, public utility commission or local standards or guidelines.
    •   The power is provided only to the facility itself or to support the local transmission and
       distribution system.
    •   The owner or operator identifies and records the specific NERC, regional, state, public
       utility commission or local standards or guidelines that are being followed for dispatching
       the engine. The local balancing authority or local transmission and distribution system
       operator may keep these records on behalf of the engine owner or operator.

Engines operating in systems that do not meet the conditions described here will not be
considered emergency engines if they operate for these purposes as part of a financial
arrangement with another entity.

       Stationary emergency CI RICE with a site rating of more than 100 brake HP and a
displacement of less than 30 liters per cylinder located at area sources that operate for this
purpose are also required to use diesel fuel meeting the specifications of 40 CFR 80.510(b)
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beginning January 1, 2015, except that any existing diesel fuel purchased (or otherwise obtained)
prior to January 1, 2015, may be used until depleted. Owners and operators of these engines are
also required to report the dates and times the engines operated for this purpose annually to the
EPA, beginning with operation during the 2015 calendar year. The report must also identify the
entity that dispatched the engine and the situation that necessitated the dispatch of the engine.
Further discussion of the rationale for the changes is available in the Response to Public
Comments document in the docket.

4.2.2. Peak Shaving

       The EPA proposed a temporary provision for existing stationary emergency engines
located at area sources to apply the 50 hours per year that is allowed under §63.6640(f) for non-
emergency operation towards any non-emergency operation, including operation as part of a
financial agreement with another entity. The peak shaving provision was proposed to expire in
April 2017. The purpose of the proposed provision for peak shaving was to give sources an
additional resource for maintaining reliability while facilities are coming into compliance with
the NESHAP From Coal and Oil-Fired Electric Utility Steam Generating Units (77 FR 9304).
Based on public comments received on the proposal, the EPA is not finalizing the proposed
provision for peak shaving in this action. Commenters noted that the allowance was not
necessary for maintaining electric reliability, and that alternative methods for meeting peak
demand are readily available. In  addition, commenters indicated that use for peak shaving does
not fairly come under the definition of emergency use as it is designed to increase capacity in the
system. Further discussion is available in the Response to Public Comments document in the
docket.

       However, in consideration of the short time between this final rule and the May 3, 2013,
or October 19, 2013 compliance dates for affected sources, this final rule permits the use of
existing stationary emergency engines located at area sources for 50 hours per year through May
3, 2014 for peak shaving or non-emergency demand response to generate income for a facility,
or to otherwise supply power as part of a financial arrangement with another entity if the engines
are operated as part of a peak shaving (load management) program with the local distribution
system operator and the power is provided only to the facility itself or to support the local
distribution system.  Owners and operators of these engines, which have heretofore not been
regulated, may have taken actions based on the June 7, 2012, proposal that would now leave
them in danger of being in noncompliance with the applicable requirements for the engine in the
RICE NESHAP.
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4.2.3. Final Amendment - Stationary Agricultural RICE in San Joaquin Valley

       In the 2010 amendments to the RICE NESHAP, the EPA required existing non-
emergency CI engines above 300 HP to meet a standard of either 70 percent reduction of CO
emissions or 49 ppmvd CO, for engines between 300 and 500 HP, or 23 ppmvd CO for engines
above 500 HP. The requirements also included testing and monitoring provisions. As with all
requirements for existing engines in that rule, owners and operators were required to meet the
requirements within 3 years of the effective date of the regulations (May 3, 2013).

       Since the finalization of the 2010 rule for existing stationary CI engines, stakeholders
from the agricultural industry in the San Joaquin Valley area of California have expressed
concern regarding the effect of certain of these requirements on engines in the San Joaquin
Valley. The San Joaquin Valley Air Pollution Control District (APCD) has indicated that there
are 17 stationary CI engines at area sources in San Joaquin Valley certified to the Tier 3
standards in 40 CFR part 89 that were installed between January  1 and June 12, 2006. Under the
NESHAP, stationary CI engines at area sources are existing if construction of the engine
commenced prior to June 12, 2006. These 17 Tier 3 engines in the San Joaquin Valley, which
were built to meet stringent emission standards, would not be able to comply with the applicable
RICE NESHAP emission standards for existing engines without further testing and monitoring,
and possible retrofit with further controls, due to differences in the emission standards and
testing protocols in the RICE NESHAP versus the Tier 3 standards in 40 CFR part 89. However,
an identical engine certified to the Tier 3 standards (or Tier 2 standards for engines above 560
kilowatts (kW)) in 40 CFR part 89 that was installed after June 12, 2006, would not have to be
retrofit in order to comply with the NESHAP. Stationary CI engines installed after June 12,
2006, at area sources of HAP are required to comply with the NSPS for stationary CI engines,
which requires engines to be certified to the standards in 40 CFR parts 89, 94, 1039, and 1042, as
applicable. Thus, a 2006 model year stationary CI engine installed after June 12, 2006, that is
certified to the applicable standards would meet the requirements of the NESHAP without
further controls or testing. While the EPA does not know if other certified Tier 3 engines besides
these 17 engines in the San Joaquin Valley were installed prior to June 12, 2006, EPA believes
the same rationale should apply to any such engine.

       The EPA believes that the Tier 3 standards (Tier 2 for engines above 560 kW) are
technologically stringent regulations and believes it is unnecessary to require further regulation
of engines meeting these standards. In order to address this concern, the EPA is finalizing
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changes to amend the requirements for any certified Tier 3 (Tier 2 for engines above 560 kW)
stationary CI engine located at an area source and installed before June 12, 2006. The EPA is
finalizing amendments to specify that any existing certified Tier 3 (Tier 2 for engines above 560
kW) CI engine that was installed before June 12, 2006, is in compliance with the NESHAP. This
amendment would include any existing stationary Tier 3  (Tier 2 for engines above 560 kW)
certified CI engine located at an area source of HAP emissions.

       Another concern brought to the EPA's attention by the San Joaquin Valley agricultural
industry is that due to state and local requirements in the  San Joaquin Valley, many of the Tier 1
and Tier 2 stationary CI engines that are regulated as existing sources under the NESHAP must
be replaced in the next few years, only a short time after the emission standards for existing
engines must be met. Specifically, the San Joaquin Valley APCD rule for internal combustion
engines (Rule 4702) requires Tier 1 and Tier 2 certified engines to meet Tier 4 standards by
January 1, 2015, or 12 years after the installation date, but no later than June 1, 2018. The
concern is that owners and operators of these engines  would have to install aftertreatment by
2013 to meet the emission standards of the RICE NESHAP and then only a few years later be
required to replace their engines per San Joaquin Valley APCD Rule 4702. The San Joaquin
Valley APCD has identified 49 Tier  1 engines and 360 Tier 2 engines that are scheduled to be
replaced under the local rule. The EPA has not identified any engines outside the San Joaquin
Valley APCD area that are in the same or similar situation (i.e., required to be replaced shortly
after the compliance date for existing engines), but the EPA does not preclude the possibility that
there are such engines in other areas, and requests comment and information on other areas that
may have similar concerns.

       The EPA does not think it is appropriate to require emission controls on a stationary CI
engine that is going to be retired only a short time after the rule goes into effect.  Stationary CI
engines would have to comply with this rule by May 3, 2013, and owners of engines above 300
HP are expected to have to install aftertreatment on their  engines in order to meet the emission
standards. The EPA estimates that the one-time cost to equip a 500 HP  stationary CI engine with
the controls necessary to meet the emission standards under this rule is  close to $14,000 and
more than $3,000 on a yearly basis, not accounting for additional costs  associated with
monitoring, testing, recordkeeping and reporting. These engines (equipped with aftertreatment)
could end up being in operation for less than 2 years or at most only 5 years before having to be
replaced with a certified Tier 4  engine, as required by San Joaquin Valley District Rule 4702. It
would not be reasonable to require the engine owner to invest in costly  controls and monitoring
equipment for an engine that will be replaced shortly after the installation of the  controls.
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       Consequently, the EPA is finalizing amendments to existing stationary CI engines located
at area sources of HAP emissions to address this concern. The EPA is amending the
requirements for existing stationary Tier 1 and Tier 2 certified CI engines located at area sources
that are greater than 300 HP that are subject to a state or local rule that requires the engine to be
replaced. The EPA is allowing these engines to meet management practices for a period of 2
years starting with the applicable May 3, 2013, compliance date until January 1, 2015, or 12
years after installation date (whichever is later), but not later than June 1, 2018.  This change
would provide owners enough time to replace their engines without mandating a possibly cost
prohibitive requirement to change all of the engines in a short amount of time, while still
requiring that replacement of the engine or a retrofit of the engine occur relatively quickly after
the owner would have to comply with the NESHAP. The EPA is requiring that these engines be
subject to management practices until January 1, 2015, or 12 years after installation date
(whichever is later), but  not later than June 1, 2018,  after which time the CO emission standards
discussed above (and that are in Table 2d of the rule) apply. The management practices include
requirements for when to inspect and replace the engine oil and filter, air cleaner, hoses and
belts. The complete details of which management practices are required are shown in Table  2d of
the rule. Owners and operators of these existing stationary CI engines located at area sources of
HAP emissions that intend to meet management practices rather than the emission limits prior to
May 3, 2015, must submit a notification by March 3, 2013, stating that they intend to use this
provision and identifying the state or local regulation that the engine is subject to.

4.2.4 Final Amendments - for Remote Areas of Alaska

       The EPA proposed to expand the definition of remote areas of Alaska to extend beyond
areas that are not accessible by the FAHS. Specifically, the EPA proposed that areas of Alaska
that are accessible by the FAHS and that met all of the following criteria would  also be
considered remote and subject to management practices under the rule: (1) the stationary CI
engine is located in an area not connected to the Alaska Railbelt Grid; (2) at least 10 percent of
the power generated by the engine per year is used for residential purposes; and (3) the
generating capacity of the area source is less than 12 MW, or the engine is used  exclusively  for
backup power for renewable energy and is used less than 500 hours per year on  a 10-year rolling
average.

       After considering the public comments received on the proposed criteria, the EPA is
finalizing the first two criteria as proposed, but finalizing a slightly different third criterion. In
this final rule, existing CI engines at area sources of HAP are considered remote if they meet the
first  and second criteria above and they are either at a source with a generating capacity less than

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12 MW, or used exclusively for backup power for renewable energy. Based on public comments
received on the proposal, the EPA is not finalizing the limitation that the engine be used less than
500 hours per year on a 10-year rolling average. Commenters indicated that basing the
applicability on the previous 10 years of operation would ignore recent investments in renewable
energy that have significantly decreased engine hours of operation in recent years. The EPA is
also defining "backup power for renewable energy" in this final rule as engines that provide
backup power to a facility that generates electricity from renewable energy resources, as that
term is defined in  Alaska Statute 42.45.045(1)(5). The rationale for these changes can be found in
the Response to Public Comments document available in the docket.

4.2.5.  Offshore Vessels

       The RICE  NESHAP does not on its face apply to mobile sources, including marine
vessels. However, the regulations applicable to sources on the OCS, codified at 40 CFR part 55,
specify that vessels are OCS sources when they are (1) permanently or temporarily attached to
the seabed and erected thereon and used for the purpose of exploring, developing or producing
resources there from, within the meaning of section 4(a)(l) of the OCS Lands Act (43 U.S.C.
§1331, et seq.): or (2) physically attached to an OCS facility, in which case only the stationary
sources aspects of the vessels will be regulated. 40 CFR 55.2. The OCS regulations provide that
NESHAP requirements  apply to a vessel that is an OCS source where the provisions are
"rationally related to the attainment and maintenance of the federal or state ambient air quality
standards or the requirements of part C of title I of the Act." 40 CFR 55.13(e).

       The EPA received comments during the public comment period for the June 7, 2012,
proposal recommending that the RICE NESHAP be amended such that for any existing non-
emergency CI RICE above 300 HP on offshore vessels on the OCS that become subject to the
RICE NESHAP as a result of the operation of the OCS regulations (40 CFR part 55), such
engines may meet the NESHAP through management  practices rather than numeric emission
limits. This amendment was not contained or contemplated in the June 7, 2012, proposal.
However, the comments indicated several significant issues related to application of the
NESHAP to regulation of existing marine vessel engines located in the OCS as a result of the
OCS regulations; in particular, whether the numerical standards applicable to other CI engines
located at area sources (marine vessels located in the OCS are generally located at area sources)
are technologically feasible for existing marine engines located in the OCS. Some commenters
noted specific technological issues relevant to engines on marine vessels in the OCS. The
commenters indicated that emission controls for existing CI RICE to meet the NESHAP may be
technically infeasible due to weight and space constraints, catalyst fouling from the low-load

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engine operation required by the U.S. Coast Guard, safety concerns regarding engine
backpressure and lack of catalyst vendor experience with retrofitting. Commenters suggested
that, to the extent marine vessel engines become subject to the NESHAP as a result of the OCS
regulations, these engines should be subject to GACT requirements that the commenters believe
are more appropriate for these types of engines. The commenters indicated that management
practices similar to those currently required in the rule for existing non-emergency stationary CI
RICE smaller than 300 HP are more appropriate as GACT for existing non-emergency stationary
CI RICE above 300 HP on vessels operating on the OCS.

Based on these comments, the EPA published a reopening of the comment period to take further
comment on whether the RICE NESHAP should be revised to require management practices for
these vessels. Based on the comments received during the two comment periods, the EPA agrees
with the commenters that management practices are more reasonable as GACT for existing non-
emergency stationary CI RICE larger than 300 HP on vessels operating on the OCS and is
finalizing management practices for these engines. The EPA did not receive any public
comments indicating that HAP emission controls were generally available and had been
demonstrated for the large engines on the vessels. The final management practices include
changing the oil every 1,000 hours of operation or annually, whichever comes first; inspecting
and cleaning air filters every 750 hours of operation or annually, whichever comes first, and
replacing as  necessary; inspecting fuel filters  and belts, if installed, every 750 hours of operation
or annually,  whichever comes first, and replacing as necessary; and inspecting all flexible hoses
every 1,000 hours of operation or annually, whichever comes first, and replacing as necessary.
Facilities have the option of using an oil  analysis program to extend the oil change requirement.
Additional discussion of the rationale for these changes can be found in the Response to Public
Comments document available in the docket.
4.3    What Are the Pollutants Regulated by this Final Reconsideration Rule?
       The final reconsideration rule regulates emissions of HAP. Available emissions data
show that several HAP, which are formed during the combustion process or which are contained
within the fuel burned, are emitted from  stationary engines. The HAP which have been measured
in emission tests conducted on diesel fired RICE include: 1,3-butadiene, acetaldehyde, acrolein,
benzene, ethylbenzene, formaldehyde, n-hexane, naphthalene, polycyclic aromatic hydrocarbons,
polycyclic organic matter, styrene, toluene, and xylene. Metallic HAP from diesel fired
stationary RICE that have been measured are: cadmium, chromium, lead, manganese, mercury,
nickel, and selenium.
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       EPA described the health effects of these HAP and other HAP emitted from the operation
of stationary RICE in the preamble to 40 CFR part 63, subpart ZZZZ, published on June 15,
2004 (69 FR 33474). These HAP emissions are known to cause, or contribute significantly to air
pollution, which may reasonably be anticipated to endanger public health or welfare.  More
details on the health effects of these HAP and other HAP emitted from operation of stationary
RICE can be found in Section 7 of this RIA.

       The final amendments will continue to limit emissions of HAP through emissions
standards for CO for existing stationary CI RICE in similar quantities as estimated for the 2010
final rule. Carbon monoxide has been shown to be an appropriate surrogate for HAP emissions
from CI engines. For the NESHAP promulgated in 2004, EPA found that there is a relationship
between CO emissions reductions  and HAP emissions reductions from CI stationary engines.
Therefore, because testing for CO  emissions has many advantages over testing for HAP
emissions, CO emissions were chosen as a surrogate for HAP emissions reductions for CI
stationary engines.

       For the standards included  in this action, EPA believes that previous decisions regarding
the appropriateness of using CO in concentration (ppm) levels as has been done for stationary
sources before as surrogates for HAP are still valid.1 Therefore, the EPA is retaining the emission
standards for CO for CI engines in order to regulate HAP emissions.

       In addition to reducing HAP and CO, the final amendments will result in the reduction of
PM emissions from existing diesel engines. The aftertreatment technologies expected to be used
to reduce HAP and CO emissions also reduce emissions of PM from diesel engines. Also, the
final rule requires the use of ULSD for diesel-fueled stationary non-emergency CI engines
greater than 300 hp with a displacement of less than 30 liters per cylinder. This will result in
lower emissions of sulfur oxides (SOX) and sulfate paniculate from these engines by reducing the
sulfur content in the fuel.
4.4    Cost Impacts
4.4.1   Introduction
       The cost impacts associated with this rule consist of different types of costs, which
include the annual and capital costs of controls, costs associated with keeping records of
:In contrast, mobile source emission standards for diesel engines (both nonroad and on-highway) are promulgated
   on a mass basis rather than concentration.
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 information necessary to demonstrate compliance, costs associated with reporting requirements
 under the General Provisions of 40 CFR part 63, subpart A, costs of purchasing and operating
 equipment associated with continuous parametric monitoring, and the cost of conducting
 performance testing to demonstrate compliance with the emission standards. The capital and
 annual costs presented in this section are calculated based on the control cost methodology
 presented in the EPA (2002) Air Pollution Control Cost Manual prepared by the U.S.
 Environmental Protection Agency.2 This methodology sets out a procedure by which capital and
 annualized costs are defined and estimated, and this procedure is often used to estimate the costs
 of rulemakings such as this one. The capital costs presented in this section are annualized using a
 7% interest rate, a rate that is consistent with the guidance provided in the Office of Management
 and Budget's (OMB's) (2003) Circular A-4.3  The following sections describe how the various
 cost elements were estimated. Note that the methodologies and procedures presented in the
 following sections are the same as those used for the 2010 final rule.
 4.4.1.1 Control Costs
       For engines that will need to add control technology to meet the emission standards, the
 following equations were used to estimate capital and annual control costs as shown in Table 4-
 1:

                     Table 4-1: CI RICE Control Technologies and Costs
	Technology	Capital Cost ($2008)        Annual Cost ($2008)
    Diesel oxidation catalyst (DOC)	$27.4 x hp - $939	$4.99 x hp + $480
  Open crankcase ventilation (OCV)	$0.26 x hp + $997	$0.065 x hp + $254

       The control costs for DOC were calculated using cost data obtained from a California Air
 Resources Board (CARB) study.4 The study provided cost ranges for diesel engines ranging from
 40 hp to 1400 hp.  The average cost from the range was selected and was adjusted to 2008
 dollars. The capital and annual cost were calculated using maintenance data from the CARB
 study and cost assumptions from the EPA Air Pollution Control Cost Manual. The control costs
 for the OCV system were calculated using 2008 cost data obtained from a diesel engine
 equipment vendor. An equipment life of 10 years was used to calculate the capital recovery
 factor (CRF) for developing the annual cost for each of the control devices. A linear regression
 equation was developed for the capital cost of the DOC and OCV using the capital cost data and
  Available on the Internet at http://epa.gov/ttn/catc/products.htmMcccinfo.
 3 Available on the Internet at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf.
 4Diesel PM Control Technologies, Appendix IX, California Air Resource Board, October 2000.
   http://www.arb.ca.gov/diesel/documents/rrpapp9.pdf
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the engine size in hp. This approach was used to develop a linear regression equation for annual
cost.
4.4.1.2 Recordkeeping
       Minimal recordkeeping costs were attributed to the requirement of following the
manufacturer's emission-related operation and maintenance (O&M) requirements or the owner
or operator's own maintenance plan. It is expected that the majority of owners and operators are
already following some type of O&M requirements and a small additional burden is expected.
The EPA expects that at most 1 hour will be necessary per year in order to keep track of
maintenance. Owners and operator of stationary emergency engines are required to keep track of
the hours of operation and 1 hour per year was estimated to cover that recordkeeping activity.
For emergency engines 1  hour is expected to cover tracking hours of operation plus recording
maintenance activities. No cost is attributed to purchasing and installing an hour-meter since the
majority of stationary engines already come equipped with such equipment. Labor costs
associated with recording the hours of operation of emergency engines are based on a technical
labor rate of $68 per hour which was obtained from the Department of Labor Statistics web site.5
The final total wage rate was based on the 2005 compensation rates for professional staff and
adjusted by an overhead and profit rate of 167 percent. The year 2005 was used for consistency
in order to have the same  basis for all costs. All costs were later converted to 2008 dollars for
purposes of presenting costs associated with the rule in present day terms.
4.4.1.3 Reporting
       Most engines affected by this rule will be subject to reporting requirements such as
reading instructions, training personnel, submitting an initial notification, submitting a
notification of performance  test(s), and submitting a compliance report. However, owners and
operators of engines less than 100 HP, existing stationary emergency engines, and existing
stationary engines less than  300 HP located at area sources are not subject to any specific
reporting requirements. For stationary non-emergency limited use CI engines that operate less
than 100 hours per year, EPA is finalizing less burdensome reporting requirements by requiring
these engines to submit compliance reports on an annual basis, as opposed to semiannually as  is
required for other engines subject to numerical emission limitations. The reporting requirements
are based on $68 per hour for technical labor to comply with the reporting requirements. It is
estimated that a total of 14 hours will be needed, and 13 hours for limited use engines.
5U.S. Department of Labor, Employer Costs for Employee Compensation,
   http://www.bls.gov/news.release/ecec.toc.htm
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4.4.1.4 Monitoring
       The cost of monitoring includes the purchase of a continuous parametric monitoring
system (CPMS). Non-emergency engines greater than 500 hp that have add-on controls are
required to use a CPMS to monitor the catalyst inlet temperature and pressure drop across the
catalyst to ensure those parameters do not exceed the operating limitations. The cost of
purchasing and operating a CPMS was obtained from vendor quotes received for previous
rulemaking and adjusted to 2008 dollars.6 The capital cost of a CPMS for a large engine facility
is $531. It is estimated that 30 hours per year is necessary to operate and maintain the CPMS and
that 6 hours per year (or 0.5 hours per month) is needed to record information from the CPMS. It
is assumed that all engines subject to continuous monitoring would be located at large engine
facilities.
4.4.1.5 Performance Testing
       Initial performance testing is required for non-emergency engines greater than 100 hp at
major sources and non-emergency engines greater than 300 hp located at area sources. The cost
of conducting a performance test on a CI engine is based on cost information gathered for
previous rulemakings.7 The performance testing cost is based the use of a portable analyzer and
was estimated to cost $1,000 per day of testing. This daily performance test cost was adjusted to
2008 dollars and was estimated to be $1,165. Because the regulation requires three-1 hour runs,
EPA assumed that two engines could be tested at each facility in one day. Therefore, the
estimated impacts performance testing cost will be assumed to be $583  per engine (or half of the
$1,165 daily cost) using a portable analyzer.
4.4.1.6 Work Practices
       The costs for performing work practices for CI engines less than 100 hp located at a
major source was assumed to be negligible and were not included in these impact calculations.
The work practices are based on engine maintenance procedures that the owner/operators
perform regardless of the regulation. These work practices include:
       •  Changing the oil and filter;
       •  Inspecting the air cleaner and replacing as necessary; and
       •  Inspecting all hoses and belts, and replacing as necessary.
6Part A of the Supporting Statement for Standard Form 83 Stationary Reciprocating Internal Combustion Engines,
   November 17, 2003.
'Memorandum from Bradley Nelson, Alpha-Gamma Technologies, Inc. to Sims Roy,
   EPA/OAQPS/ESD/Combustion Group, Portable Emissions Analyzer Cost Information, August 31, 2005.

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       EPA believes that these work practices will limit HAP emissions from these engines,
because these work practices ensure that the engine is operating efficiently. Owner/operators of
these engines regularly perform these work practices as part of the preventive maintenance
schedule for the engine. Therefore, EPA believes that it is appropriate to not include these work
practice costs in the impacts determination.
4.4.1.7 Management Practices
       The costs for performing management practices for non-emergency CI engines less than
or equal to 300 hp located at area sources and all emergency engines located at area sources was
assumed to be negligible and were not included in these impact calculations. The management
practices are based on engine maintenance procedures that the owner/operators perform
regardless of the regulation. These management practices include:
       •  Changing the oil and filter;
       •  Inspecting the air cleaner, and replacing as necessary; and
       •  Inspecting all hoses and belts, and replacing as necessary.

       EPA believes that these work practices will limit HAP emissions from these engines,
because these work practices ensure that the engine is operating efficiently. Owner/operators of
these engines regularly perform these work practices as part of the preventive maintenance
schedule for the engine. Therefore, EPA believes that it is appropriate to not include these work
practice costs in the impacts determination.
4.4.2  Major Sources
       The cost impacts for stationary RICE vary depending on the engine type and size. The
following  sections describe the specific costs that apply to each subcategory of CI engines
located at  major sources.
4.4.2.1 All CI Engines hp < 100
       The costs associated with CI engines less than 100 hp include minimal requirements.
Owners and operators of engines less than 100 hp are required to follow the manufacturer's
emission-related O&M requirements or must develop their own maintenance plan to follow.
Emergency engines must record the hours of operation, which is estimated at one hour per year
at $72 per hour.
                                          4-18

-------
4.4.2.2Non-emergency CIEngines 100   300 hp
       The costs associated with non-emergency CI engines above 300 hp include the cost of
installing and operating an oxidation catalyst for reducing HAP, as well as the cost of installing
an open crankcase ventilation system. Non-emergency CI engines greater than 500 hp are also
subject to continuous monitoring requirements. In addition, owners and operators must conduct
an initial performance test to demonstrate compliance with the emission limitation. Owners and
operators of engines above 500 hp must conduct subsequent performance testing every 8,760
hours or 3 years, whichever comes first to demonstrate compliance. The cost estimates for this
subcategory of engines do not account for possible fuel price increases that may result from
8Exhaust and Crankcase Emission Factors for Nonroad Engine Modeling-Compression-Ignition, U.S. EPA, Office
   of Transportation and Air Quality, Assessment and Standards Division, EPA420-P-04-009, Revised April 2004.
   http://www.epa.gov/oms/models/nonrdmdl/nonrdmdl2004/420p04009.pdf
'Memorandum from Melanie Taylor and Brad Nelson, AGTI to Sims Roy, EPA OAQPS BSD Combustion Group,
   Lubricity of Ultra Low Sulfur Diesel Fuel, June 2, 2004.

                                          4-19

-------
using ULSD. EPA estimated the cost of lubricity additives to ULSD would increase the cost of
the fuel by 0.2 cents per gallon,10 which EPA believes is negligible. In addition, there are no
additional maintenance requirements for owner/operators using ULSD in existing diesel engines.
Many owner/operators have found that time between oil changes can be extended for engines
using ULSD fuel, which would decrease the overall cost of switching to ULSD fuel. Therefore,
EPA believes that it is appropriate to not include any costs for switching to ULSD in the impacts
for this NESHAP.
4.4.2.4 Emergency CI Engines
       The costs associated with emergency CI engines greater than 300 hp and less than or
equal to 500 hp (emergency CI engines above 500 hp were subject to an earlier rule and are not
subject to further regulation in this rule) include minimal recordkeeping requirements. The
owners and operators must follow the manufacturer's emission-related operating and
maintenance (O&M) requirements or must develop their own maintenance plan to follow and
must also keep records of the hours of operation. It is estimated that one hour per year at $68 per
hour would be sufficient to record the hours of operation. Regarding the reporting requirements,
the EPA anticipates that in most cases regarding demand response, the entity that dispatches the
engines to operate, such as the curtailment service provider or utility, will report the information
to EPA on behalf of the facility that owns the engine. Thus, the burden of the reporting
requirement will likely be on the entities that dispatch the engines. The number of entities is
uncertain, but the EPA estimates that approximately 446 local utilities would engage in the
reporting requirement. The EPA estimates that each utility would spend approximately 16 hours
per year reporting the information to the EPA. As of June 2012, the total compensation for
management/professional staff was $51.23 per hour. Adjusting this compensation rate by
applying an overhead rate of 167 percent yields a total wage rate of $85.60 per hour.11 This
results in an estimated burden of 7,136 hours at a cost of $611,000 per year, beginning in the
year 2015. For curtailment service providers, the EPA estimated the burden of the requirement to
be 1,000 hours at a cost of $60,000 in the first year of implementation, 2015, and 250 hours at a
cost of $15,000 in subsequent years (using a wage rate of $60 per hour). Using an estimated
number of 70 curtailment service providers nationwide that are operating engines for emergency
demand response, the burden for curtailment service providers would be 70,000 hours at a cost
of $4.2 million in the first year of implementation, 2015, and 17,500 hours at a cost of $1 million
in subsequent years. Summing the totals for the cooperatives and curtailment service providers
10Memorandum from Melanie Taylor and Brad Nelson, AGTI to Sims Roy, EPA OAQPS BSD Combustion Group,
   Lubricity of Ultra Low Sulfur Diesel Fuel, June 2, 2004.
11
  http://www.bls.gov/news.release/ecec.t05.htm

                                          4-20

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yields a total of 77,136 labor hours at a cost (in 2012 dollars) of $4.8 million in the first year that
reporting is required, 2015, and 24,636 labor hours at a cost of $1.7 million (in 2012 dollars) in
subsequent years.

       No costs were included in the impacts for following the manufacturer's emission-related
O&M plan, because it is expected that owner/operators will follow this plan regardless of the
regulation. The cost of the ULSD fuel requirement including the cost of fuel and the potential
cost of segregating the fuel is not included in the cost estimate. The cost of the ULSD fuel
requirement including the cost of fuel and the potential cost of segregating the fuel is not
included in the cost estimate.  The EPA believes the ULSD fuel cost would be balanced out by
the reduced engine maintenance that is expected from using this fuel. Also, the cost difference
between ULSD fuel and higher sulfur fuel is small, especially considering that the yearly
operation for emergency DR would be limited to no more than 100 hours per year, and
subsequently also the fuel consumption. More information on the burden cost and ULSD cost
estimates can be found in the impacts memo for the final reconsideration rulemaking.12
4.4.3   Area Sources
4.4.3.1 All Emergency CI Engines
       The costs associated with emergency CI engines include recordkeeping requirements for
tracking the hours of operation, but these engines are not subject to any performance testing. The
owners and operators must follow the manufacturer's emission-related O&M requirements or
must develop their own maintenance plan to follow. It is estimated that one hour per year at $68
per hour would be sufficient to record the hours of operation. The EPA anticipates that in most
cases, the entity that dispatches the engines to operate, such as the curtailment service provider
or utility, will report the information to EPA on behalf of the facility that owns the engine. Thus,
the burden of the reporting requirement will likely be on the entities that dispatch the engines.
The number of entities is uncertain, but the EPA estimates that approximately 446 local utilities
would engage in the reporting requirement. The EPA estimates that each utility would spend
approximately 16 hours per year reporting the information to the EPA. As of June 2012, the total
compensation for management/professional staff was $51.23  per hour. Adjusting this
compensation rate by applying an overhead rate of 167 percent yields a total wage rate of $85.60
12 Memorandum to Melanie King, U.S. EPA. RICE NESHAP Reconsideration Final Amendments - Cost and
   Environmental Impacts. Prepared by Tanya Parise, Ec/R, Inc. January 14, 2013.
                                          4-21

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per hour.13 This results in an estimated burden of 7,136 hours at a cost of $611,000 per year,
beginning in the year 2015. For curtailment service providers, the EPA estimated the burden of
the requirement to be 1,000 hours at a cost of $60,000 in the first year of implementation, 2015,
and 250 hours at a cost of $15,000 in subsequent years (using a wage rate of $60 per hour).
Using an estimated number of 70 curtailment service providers nationwide that are operating
engines for emergency demand response, the burden for curtailment service providers would be
70,000 hours at a cost of $4.2 million in the first year of implementation, 2015, and 17,500 hours
at a cost of $1 million in subsequent years. Summing the totals for the cooperatives and
curtailment service providers yields a total of 77,136 labor hours at a cost of $4.8 million (2012
dollars) in the first year that reporting is required, 2015, and 24,636 labor hours at a cost of $1.7
million (2012 dollars) in subsequent years.

       Emergency CI engines at areas sources will be subject to management practices, rather
numerical emission limits. The management practices do not require aftertreatment controls.
Therefore, no control costs have been estimated for these engines. These engines will be subject
to management practices which are not included in the costs, because it is assumed that these
management practices are performed regardless of the regulation. The cost of the ULSD fuel
requirement including the cost of fuel and the potential cost of segregating the fuel is not
included in the cost estimate for the same reasons as mentioned in the previous subsection of this
section of the RIA.
4.4.3.2 Non-emergency CI Engines < 300 hp
       The costs associated with nonemergency CI engines less than or equal to 300 hp are
minimal and only include following the manufacturer's emission-related O&M requirements or
the owner or operator's own maintenance plan. These engines are not subject to any numerical
emission limitations, therefore no control costs apply and no performance testing is required.
These engines will be subject to management practices which are not included in the costs,
because it is assumed that these management practices are done regardless of the regulation.
4.4.3.3 Non-emergency CI Engines > 300 hp
       The costs associated with nonemergency CI engines above 300 hp include the cost of
installing and operating an oxidation catalyst for reducing HAP, as well as the cost of installing
an open crankcase ventilation system. Nonemergency CI engines greater than 500 hp are also
13 http://www.bls.gov/news.release/ecec.t05.htm

                                          4-22

-------
subject to continuous monitoring requirements. In addition, owners and operators must conduct
an initial performance test to demonstrate compliance with the emission limitation and engines
above 500 hp must conduct subsequent performance testing every 8,760 hours or 3 years,
whichever comes first. The cost estimates for this subcategory of engines do not account for
possible fuel price increases that may result from using ULSD. The cost estimates for this
subcategory of engines do not account for possible fuel price increases that may result from
using ULSD. EPA estimated the cost of lubricity additives to ULSD would increase the cost of
the fuel by 0.2 cents per gallon, which EPA believes is negligible. In addition, there are no
additional maintenance requirements for owner/operators using ULSD in existing diesel engines.
Many owner/operators have found that time between oil changes can be extended for engines
using ULSD fuel, which would decrease the overall cost of switching to ULSD fuel. Therefore,
EPA believes that it is appropriate to not include any costs for switching to ULSD in the impacts
for this NESHAP.

      A summary of the total costs associated with the rule by major source and area source
categories is found in Table 4-2.  A summary of the costs by NAICS codes is found in Table 4-3.
Table 4-4 provides a summary of costs by engine size, and a presentation of the number of
engines by engine size is in Table 4-5.  All cost estimates are from "RICE NESHAP
Reconsideration Amendment - Cost and Environmental Impacts RICE," prepared by Tanya
Parise, EC/R, Inc. for Melanie King, U.S. EPA, Office of Air Quality Planning and Standards.
These costs, presented in 2008 dollars, can be updated to 2010 dollars by applying the ratio of
the 2010 Marshall & Swift (M&S) annual cost index and the 2008 M&S annual cost index,
which is 1,457.4/1,449.3 = 1.01.
                                         4-23

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Table 4-2.  Summary of Major Source and Area Source Costs for the CI RICE NESHAP"
Size Non-Emergency
Range CI Capital
(hp) Control Cost
Non-Emergency
CI Annual
Control Cost
Initial Test
Recordkeeping
Reporting
Monitoring -
Capital Cost
Monitoring -
Annual Cost
Total Annual
Costs
Total Capital
Costs
Major Sources
50-100
100-175
175-300
300-500
500-600
600-750
>750
Total
$0
$24,057,778
$35,917,270
$107,841,136
$13,126,952
$8,240,540
$26,903,091
$216,086,768
$0
$9,918,465
$10,740,189
$26,722,727
$3,020,849
$1,824,295
$5,618,803
$57,845,329
$0
$14,150,269
$10,730,759
$5,645,923
$500,530
$256,204
$565,163
$31,848,848
$6,654,888
$8,719,731
$6,612,548
$3,479,152
$61,688
$31,576
$69,653
$25,629,236
$0
$5,973,016
$4,529,595
$2,383,219
$211,280
$108,147
$238,563
$13,443,820
$0
$0
$0
$0
$481,765
$246,599
$543,975
$1,272,338
$0
$0
$0
$0
$2,220,755
$1,136,729
$2,507,521
$5,865,005
$6,654,888
$38,761,480
$32,613,092
$38,231,021
$6,015,102
$3,356,951
$8,999,703
$134,632,238
$0
$24,057,778
$35,917,270
$107,841,136
$13,608,716
$8,487,139
$27,447,066
$217,359,106
•**• Area Sources
-^ 50-100
100-175
175-300
300-600
600-750
>750
Total
Grand Total
Total
$0
$0
$0
269, 176, 789
67,576,980
177,179,667
513,933,435

$730,020,203
$0
$0
$0
$64,764,947
$14,964,227
$37,004,585
$116,729,759

$174,575,088
$0
$0
$0
$12,533,931
$2,101,015
$3,722,077
$18,357,024

$50,205,872
$9,183,746
$12,033,196
$9,125,316
$7,180,954
$1,203,716
$2,132,457
$40,859,384

$66,480,620
$0
5,231,824
$3,967,529
$5,290,738
$886,866
$1,571,138
$16,948,096

$30,391,916
$0
$0
$0
$4,021,343
$674,082
$1,194,178
$5,889,603

$7,161,941
$0
$0
$0
$18,536,893
$9,321,806
$16,514,152
$44,372,851

$50,237,856
$9,183,746
$17,265,000
$13,092,845
$108,307,463
$28,473,630,
$60,944,409
$237,267,114

$371,899,352
$0
$0
$0
$273,198,131
$68,251,062,
$178,373,845
$519,823,039

$737,182,145
a  Costs are presented in 2008 dollars.

-------
      Table 4-3.   Summary of Major Source and Area Source NAICS Costs for the CI RICE NESHAPa
NAICS
Electric Power Generation
(2211)
Hospitals (622 110)
Crude Petroleum & NG
Production (21 11 11)
Natural Gas Liquid Producers
(211112)
National Security (92811)
Hydro Power Units (335312)
Irrigation Sets (3 3 53 12)
Welders (333992)
Total
Major Source
Capital Cost
$161,766,376
$20,220,797
$2,374,401
$2,374,401
$20,220,797
$0
$10,294,073
$108,260
$217,359,106
Annual Cost
$90,982,105
$11,372,763
$3,807,478
$3,807,478
$11,372,763
$16,637
$11,791,567
$1,481,447
$134,632,238
Area
Capital Cost
$464,947,798
$0
$1,590,115
$1,590,115
$51,660,866
$0
$34,145
$0
$519,823,039
Source
Annual Cost
$202,463,116
$0
$2,597,836
$2,597,836
$22,495,902
$22,959
$5,208,084
$1,881,380
$237,267,114
Total (Major + Area)
Capital Cost
$626,714,174
$20,220,797
$3,964,516
$3,964,516
$71,881,663
$0
$10,328218
$108,260
$737,182,145
Annual Cost
$293,445,222
$11,372,763
$6,405,314
$6,405,314
$33,868,665
$39,597
$16,999,651
$3,362,827
$371,899,352
-^
to
       Costs are presented in 2008 dollars.

-------
Table 4-4.   Summary of Major Source and Area Source NAICS Costs for the CI RICE NESHAP - by Size"
NAICS
Electric Power Generation (2211)
50-100 hp
100-175 hp
175-300 hp
300-600 hp
600-750 hp
>750 hp
Total 2211
Hospitals (622110)
50-100 hp
^ 100-175 hp
to 175-300 hp
300-600 hp
600-750 hp
>750 hp
Total 622110
Crude Petroleum & NG Production
50-100 hp
100-175 hp
175-300 hp
300-600 hp
600-750 hp
>750 hp
Total 211111
Major
Capital Cost

$0
$13,406,919
$23,012,914
$96,907,266
$6,789,032
$21,650,245
$161,766,376

$0
$1,675,865
$2,876,614
$12,113,408
$848,629
$2,706,281
$20,220,797
(211111)
$0
$2,026,868
$3,592
$151,812
$0
$192,129
$2,374,401
Source
Annual Cost

$3,396,123
$21,600,998
$20,895,861
$35,304,866
$2,685,292
$7,098,966
$90,982,105

$424,515
$2,700,125
$2,611,983
$4,413,108
$335,662
$887,371
$11,372,763

$420,256
$3,265,655
$3,261
$55,308
$0
$62,998
$3,807,478
Area
Capital Cost

$0
$0
$0
$245,239,035
$61,419,814
$158,288,950
$464,947,798

$0
$0
$0
$0
$0
$0
$0

$0
$0
$0
$341,498
$0
$1,248,617
$1,590,115
Source
Annual Cost

$5,272,480
$10,824,132
$9,437,454
$97,223,277
$25,623,705
$54,082,069
$202,463,116

$0
$0
$0
$0
$0
$0
$0

$579,954
$1,454,578
$1,309
$135,384
0
$426,611
$2,597,836
Total (Major + Area)
Capital Cost

$0
$13,406,919
$23,012,914
$342,146,301
$68,208,846
$179,939,195
$626,717,174

$0
$1,675,865
$2,876,614
$12,113,408
$848,629
$2,706,281
$20,220,797

$0
$2,026,868
$3,592
$493,310
$0
$1,440,746
$3,964,516
Annual Cost

$8,668,603
$32,425,129
$30,333,314
$132,528,144
$28,308,997
$61,181,035
$293,445,222

$424,515
$2,700,125
$2,611,983
$4,413,108
$335,662
$887,371
$11,372,763

$1,000,210
$4,720,233
$4,571
$190,692
$0
$489,609
$6,405,314
                                                                                                    (continued)

-------
Table 4-4.   Summary of Major Source and Area Source NAICS Costs for the CI RICE NESHAP - by Size" (continued)
NAICS
Major Source
Capital Cost Annual Cost
Area Source
Capital Cost Annual Cost
Total (Major + Area)
Capital Cost
Annual Cost
Natural Gas Liquid Producers (211112)
50-100 hp
100-175 hp
175-300 hp
300-600 hp
600-750 hp
>750 hp
Total 211112
National Security (92811)
50-100 hp
^ 100-175 hp
to 175-300 hp
300-600 hp
600-750 hp
>750 hp
Total 92811
Hydro Power Units (335312)
50-100 hp
100-175 hp
175-300 hp
300-600 hp
600-750 hp
>750 hp
Total 335312
$0 $420,256
$2,026,868 $3,265,655
$3,592 $3,261
$151,812 $55,308
0 0
$192,129 $62,998
$2,374,401 $3,807,478

$0 $424,515
$1,675,865 $2,700,125
$2,876,614 $2,611,983
$12,113,408 $4,413,108
$848,629 $335,662
$2,706,281 $887,371
$20,220,797 $11,372,763

$0 $16,637
$0 $0
$0 $0
$0 $0
$0 $0
$0 $0
$0 $16,637
$0 $579,954
$0 $1,454,578
$0 $1,309
$341,498 $135,384
0 0
$1,248,617 $426,611
$1,590,115 $2,597,836

$0 $585,831
$0 $1,202,681
$0 $1,048,606
$27,248,782 $10,802,586
$6,824,424 $2,847,078
$17,587,661 $6,009,119
$51,660,866 $22,495,902

$0 $22,959
$0 $0
$0 $0
$0 $0
$0 $0
$0 $0
$0 $22,959
$0
$2,026,868
$3,592
$493,310
$0
$1,440,746
$3,964,516

$0
$1,675,865
$2,876,614
$39,362,190
$7,673,053
$20,293,942
$71,881,663

$0
$0
$0
$0
$0
$0
$0
$1,000,210
$4,720,233
$4,571
$190,692
$0
$489,609
$6,405,314

$1,010,346
$3,902,806
$3,660,589
$15,215,695
$3,182,740
$6,896,489
$33,86,665

$39,597
$0
$0
$0
$0
$0
$39,597
                                                                                                     (continued)

-------
     Table 4-4.  Summary of Major Source and Area Source NAICS Costs for the CI RICE NESHAP - by Size" (continued)
to
oo
Major Source
NAICS
Irrigation Sets (335312)
50-100 hp
100-175 hp
175-300 hp
300-600 hp
600-750 hp
>750 hp
Total 335312
Welders (333992)
50-100 hp
100-175 hp
175-300 hp
300-600 hp
600-750 hp
>750 hp
Total 333992
Grand Total
Total
Capital Cost Annual Cost

$0 $245,565
$3,137,134 $5,054,497
$7,143,945 $6,486,744
$12,145 $4,425
$849 $336
$0 $0
$10,294,073 $11,791,567

$0 $1,307,020
$108,260 $174,427
$0 $0
$0 $0
$0 $0
$0 $0
$108,260 $1,481,447

$217,359,106 $134,632,238
Area Source
Capital Cost Annual Cost

$0 $338,880
$0 $2,251,359
$0 $2,604,167
$27,320 $10,831
$6,825 $2,847
$0 $0
$34,145 $5,208,984

$0 $1,803,688
$0 $77,693
$0 $0
$0 $0
$0 $0
$0 $0
$0 $1,881,380

$519,823,039 $237,267,114
Total (Major + Area)
Capital Cost

$0
$3,137,134
$7,143,945
$39,465
$7,674
$0
$10,328,218

$0
$108,260
$0
$0
$0
$0
$108,260

$737,182,145
Annual Cost

$584,446
$7,305,856
$9,090,911
$15,255
$3,183
$0
$16,999,651

$3,110,708
$252,119
$0
$0
$0
$0
$3,362,827

$371,899,352
a Costs are presented in 2008 dollars.

-------
     Table 4-5.  Summary of Major Source and Area Source NAICS Costs for the CI RICE NESHAP - by Number of Engines"
to
VO
Number of Engines
NAICS
Electric Power Generation (2211)
50-100 hp
100-175 hp
175-300 hp
300-600 hp
600-750 hp
>750 hp
Total 2211
Hospitals (622110)
50-100 hp
100-175 hp
175-300 hp
300-600 hp
600-750 hp
>750 hp
Total 622110
Crude Petroleum & NG Production (211111)
50-100 hp
100-175 hp
175-300 hp
300-600 hp
600-750 hp
>750 hp
Total 211111
Major

47,324
67,713
59,039
42,113
1,760
3,828
221,777

5,916
8,464
7,380
5,264
220
479
27,722

5,856
10,237
9
66
0
34
16,202
Area

79,859
114,266
99,627
97,919
16,455
28,746
436,872

0
0
0
0
0
0
0

8,784
15,355
14
136
0
227
24,517
Total
Total (Major + Area)
Capital Cost

127,183
181,980
158,666
140,032
18,215
32,574
658,649
$0
$13,406,919
$23,012,914
$342,146,301
$68,208,846
$179,939,195
$626,717,174

5,916
8,464
7,380
5,264
220
479
27,722
$0
$1,675,865
$2,876,614
$12,113,408
$848,629
$2,706,281
$20,220,797

14,640
25,592
23
202
0
261
$0
$2,026,868
$3,592
$493,310
$0
$1,440,746
40,719 $3,964,516
Annual Cost

$8,668,603
$32,425,129
$30,333,314
$132,528,144
$28,308,997
$61,181,035
$293,445,222

$424,515
$2,700,125
$2,611,983
$4,413,108
$335,662
$887,371
$11,372,763

$1,000,210
$4,720,233
$4,571
$190,692
$0
$489,609
$6,405,314
                                                                                                         (continued)

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Table 4-5.   Summary of Major Source and Area Source NAICS Costs for the CI RICE NESHAP - by Number of Engines"
           (continued)
NAICS
Natural Gas Liquid Producers (211112)
50-100 hp
100-175 hp
175-300 hp
300-600 hp
600-750 hp
>750 hp
Total 211112
National Security (92811)
^ 50-100 hp
g 100-175 hp
175-300 hp
300-600 hp
600-750 hp
>750 hp
Total 92811
Hydro Power Units (335312)
50-100 hp
100-175 hp
175-300 hp
300-600 hp
600-750 hp
>750 hp
Total 335312

Major

5,856
10,237
9
66
0
34
16,202

5,916
8,464
7,380
5,264
220
479
27,722

232
0
0
0
0
0
232
Number of Engines
Area

8,784
15,355
14
136
0
227
24,517

8,873
12,696
11,070
10,880
1,828
3,194
48,541

348
0
0
0
0
0
348

Total
Total (Major + Area)
Capital Cost

14,640
25,592
23
202
0
261
40,719
$0
$2,026,868
$3,592
$493,310
$0
$1,440,746
$3,964,516

14,789
21,160
18,450
16,144
2,048
3,672
76,263
$0
$1,675,865
$2,876,614
$39,362,190
$7,673,053
$20,293,942
$71,881,663

580
0
0
0
0
0
580
$0
$0
$0
$0
$0
$0
$0
Annual Cost

$1,000,210
$4,720,233
$4,571
$190,692
$0
$489,609
$6,405,314

$1,010,346
$3,902,806
$3,660,589
$15,215,695
$3,182,740
$6,896,489
$33,868,665

$39,597
$0
$0
$0
$0
$0
$39,597
                                                                                                     (continued)

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Table 4-5.  Summary of Major Source and Area Source NAICS Costs for the CI RICE NESHAP - by Number of Engines"
           (continued)
NAICS
Irrigation Sets (335312)
50-100 hp
100-175 hp
175-300 hp
300-600 hp
600-750 hp
>750 hp
Total 335312
Welders (333992)
50-100 hp
100-175 hp
175-300 hp
300-600 hp
600-750 hp
>750 hp
Total 333992
Grand Total
Total

Major

3,422
15,845
18,327
5
0
0
37,599

18,213
547
0
0
0
0
18,760

366,217
Number of Engines
Area

5,133
23,767
27,491
11
2
0
56,403

27,319
820
0
0
0
0
28,140

619,337

Total
Total (Major + Area)
Capital Cost

8,555
39,611
45,819
16
2
0
94,003
$0
$3,137,134
$7,143,945
$39,465
$7,674
$0
$10,328,218

45,532
1,367
0
0
0
0
46,899
$0
$108,260
$0
$0
$0
$0
$108,260

957,832
$737,182,145
Annual Cost

$584,446
$7,305,856
$9,090,911
$15,255
$3,183
$0
$16,999,651

$3,110,708
$252,119
$0
$0
$0
$0
$3,362,827

$371,899,352
  Costs are presented in 2008 dollars.

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      4.5    Baseline Emissions and Emission Reductions

             Baseline emissions are estimated for 2013 using the emissions dataset generated for the
      final CI RICE rule in 2010. The baseline emissions thus assume the final CI RICE rule has not
      been implemented.  The emissions reductions in 2013 associated with the reconsidered rule are
      based on requiring emission standards that are based on applying add-on controls to non-
      emergency CI engines greater than 500 HP. Baseline emissions from the current population of
      stationary RICE less than or equal to 500 HP at major sources and existing stationary RICE at
      area sources were calculated based on non-emergency CI engines operating 1,000 hrs/yr, and
      emergency CI engines operating 50 hrs/yr. While the amendments for stationary emergency
      engines increases the time allowed for participation in emergency demand response programs
      and for certain engines to operate for peak shaving or other income-generating activities, the
_^     EPA believes that 50 hours per year is still representative of emergency engine operation. There
^     is a wide range in how much stationary emergency engines operate. Some emergency units
      operate well below 50 hrs/yr, while some emergency engines are run above 50 hrs/yr. However,
      on average and to be conservative, the EPA believes that 50 hrs/yr is still representative and
      consequently to estimate emissions from stationary emergency engines, the EPA has retained the
      assumption that 50 hrs/yr is appropriate.  The following additional assumptions were used:
      Emission Factors:	
         Engine         HAP           CO            PM            SO2
     	(Ib/hp-hr)       (Ib/hr)       (Ib/hp-hr)      (Ib/hp-hr)
           CI          l.OTxlO'4       6.96x10!      V.OOxlO'4     0.00809x5?
     *Obtained from AP-42, section 3.4 where Si is sulfur content.
      Control Efficiencies:	
          Technology	HAP	CO	PM
       Oxidation catalyst	70%	70%	30%
             Based on the above assumptions and the existing population of engines shown earlier in
      this section, the HAP, CO, and PM baseline emissions and reductions were calculated.

             The estimated baseline emissions for each HAP and criteria pollutant in tons per year
      (tpy) for the final rule are shown in Table 4-6. The estimated emission reductions for each HAP
      and criteria pollutant reductions in tons per year (tpy) as a result of the final rule are shown in
      Table 4-7. In addition, it is expected that additional PM reductions will be achieved by the

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requirement to use ULSD for CI engines that install a DOC.  The use of ULSD reduces the
formation of sulfates in the exhaust gas, therefore reducing the emission of these sulfate PM
emissions from the exhaust. EPA has estimated that the use of ULSD can reduce PM emissions
by 5 to 30 percent depending on the sulfur concentration of the diesel fuel that is being replaced.
Because EPA has no information on the type of fuel that CI engines are currently using, the PM
reductions from switching to ULSD were not quantified and included in this summary.

       The EPA is requiring that existing stationary Tier 1 and Tier 2 certified CI engines
located at area sources that are subject to state and locally enforceable rules requiring
replacement of the engine by January 1, 2018 can meet management practices under the RICE
NESHAP for a period of 2 years until May 3, 2015. The San Joaquin Valley APCD has
identified 49 Tier 1 engines and 360 Tier 2 engines that are scheduled to be replaced under the
local rule. The EPA has not identified any engines outside the San Joaquin Valley APCD area
that are in the same or similar situation and although the EPA does not preclude the possibility
that there are additional such engines, the EPA has no information on this. Therefore, for
purposes of estimating reductions under the final amendments, the EPA has subtracted only
those 409 engines from the previous control cost estimate and assumed that an additional 409
engines will be meeting management practices under the rule.

       The EPA is also specifying that any existing certified Tier 3 CI engine that was installed
before June 12, 2006, is in compliance with the NESHAP. This amendment would include any
existing stationary Tier 3 certified CI engine located at  an area source of HAP emissions. There
are 17 Tier 3 engines (2006 model year) located in San Joaquin Valley that were installed
between January 1 and June 12, 2006. The EPA does not know if there are additional engines in
other areas that in a similar situation and the EPA has no information indicating how many such
engines there could be  in the rest of the country. Therefore, for purposes of calculating
reductions,  the EPA has included  17 less engines from the control cost estimate. These 17
engines would under the final amendments be subject to management practices.

       The work practice requirement of using an open crankcase ventilation system to control
metallic HAP emissions is expected to achieve additional HAP reductions from CI engines.
However, the metallic HAP emission reduction cannot be quantified because of the difficulty of
measuring metallic HAP from the crankcase exhaust. Therefore, the metallic HAP reductions
are not included in the total emission reductions.  Also, all PM emissions are assumed to be in
the fine particle emissions; thus all emissions and PM emission reductions are assumed to be
PM2.5.

-------
Table 4-6.  Summary of Major Source and Area Source Baseline Emissions for the
                    CI RICE NESHAP in 2013
Size Range (HP)
Baseline Emissions (tpy)
HAP
CO
NOX
PM
S02
VOC
Major Sources
50-100
100-175
175-300
300-500
500-600
600-750
>750
Total
89
215
281
249
25
16
52
927
7,745
10,148
7,696
4,049
299
153
338
30,428
18,361
44,107
57,774
51,196
5,201
3,267
10,677
190,583
584
1,403
1,838
1,629
165
104
340
6,064
338
811
1,062
941
115
72
236
3,575
2,412
5,794
7,589
6,725
683
429
1,402
25,035
Area Sources
50-100
100-175
175-300
300-600
600-750
>750
Total
132
316
414
613
154
404
2,034
11,424
14,969
11,351
8,857
1,485
2,630
50,717
27,083
65,058
85,217
106,551
26,791
70,314
381,015
862
2,070
2,711
4,009
1,008
2,645
13,305
498
1,196
1,567
2,083
589
1,546
7,479
3,558
8,546
11,194
16,550
4,161
10,921
54,930

Grand Total
2,961
81,145
571,598
19,369
11,053
79,965

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        Table 4-7.  Summary of Major Source and Area Source Emissions Reductions for
                             the CI RICE NESHAP in 2013
Size Range (HP)
Major Sources
50-100
100-175
175-300
300-500
500-600
600-750
>750
Total
Area Sources
50-100
100-175
175-300
300-600
600-750
>750
Total
Total
Emission Reductions (tpy)
HAP

0
44
57
145
18
11
36
312

0
0
0
363
91
239
693
1,005
CO

0
2,072
1,571
2,362
209
107
236
6,558

0
0
0
5,244
879
1,557
7,680
14,238
PM

0
123
161
407
50
31
102
874

0
0
0
1,017
256
671
1,944
2,818
VOC

0
1,183
1,549
3,923
478
300
982
8,416

0
0
0
9,798
2,463
6,466
18,727
27,142
                                                          28
PM Estimate for
2010 Final CI Rule
Difference
1,014
9
14,342
104
2,844
26
27,395
253
Note:  All emission reduction estimates are from " RICE NESHAP Reconsideration Amendments- Cost
and Environmental Impacts," prepared by Tanya Parise, Ec/R, Inc. for Melanie King, U.S. EPA, Office of
Air Quality Planning and Standards. January 26, 2012.

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                                      SECTION 5
    ECONOMIC IMPACT ANALYSIS, ENERGY IMPACTS, AND SOCIAL COSTS

       The EIA provides decision makers with social cost estimates and enhances understanding
of how the costs may be distributed across stakeholders (EPA, 2010). Although several
economic frameworks can be used to estimate social costs for regulations of this size and sector
scope, OAQPS has typically used partial equilibrium market models. However, the current data
do not provide sufficient details to develop a market model; the data that are available have little
or no  sector/firm detail and are reported at the national level. In addition, some sectors have
unique market characteristics (e.g., hospitals) that make developing partial equilibrium models
difficult. Given these constraints, we believed the direct compliance costs as a reasonable
approximation of total social  costs. In addition, we also provide a qualitative analysis of the
proposed rule's economic impact on stakeholder decisions, a qualitative discussion on if
unfunded mandates occur as a result of this final rule, and a qualitative discussion of the
potential distribution of social costs between consumers and producers.
5.1     Compliance Costs of the Final Rule
       For the year 2013, EPA's engineering cost analysis estimates the total annualized costs of
the final rule are $372 million (in 2008 dollars) (EC/R, 2012).

       As shown in Figure 5-1, the majority of the costs fall on the electric power sector (79%),
followed by national security (9%).  The remaining industries  each account for 5% or less of the
total annualized cost.  The industrial classification for each engine is taken from the Power
Systems Research (PSR) database, which is the major source  of data for the engines affected by
the final rule. The PSR database used as a basis for the analyses in this RIA contains
information on both mobile and stationary onroad and nonroad engines, among other data, and
does so not only for the U.S. but worldwide.  PSR has collected such data for more than 30
years.  The Office of Transportation and Air Quality (OTAQ) uses  this database frequently in the
development of their mobile source rules.

       The annualized compliance costs per engine vary by the engine size (see Figure 5-2). For
300 hp engines or less, the annualized per-engine costs are below $215 per engine. Per-engine
costs for higher horsepower (hp) engines range between $950 and $1,900.

       The final rule will affect approximately one million existing stationary diesel engines. As
shown in Figure 5-3, most of the affected engines fall within the 100 to 175 hp category (31%).
                                          5-1

-------
The next highest categories are 50 to 100 hp (24%) and 175 to 300 hp (23%). The remaining

engines are concentrated in the 300 to 600 hp category (16%).
   100%

    90%

    80%

    70%

    60%

    50%

    40%

    30%

    20%

    10%

     0%
2%
         2%
                                      5%
                                               1%
                              
-------
    $2,000






    $1,800






    $1,600






    $1,400






    $1,200






    $1,000






     $800






     $600






     $400






     $200
             50-100 hp
100-175 hp
175-300 hp
300-600 hp
600-750 hp
>750 hp
Figure 5-2.    Average Annualized Cost per Engine by Horsepower Group: 2013 ($2008)
    100%
    90%
    80%
    70%
    60%
    50%
    40%
    30%
    20%
    10%
     0%
                            31%
            50-100 hp
100-175 hp
175-300 hp
300-600 hp
600-750 hp
>750 hp
Figure 5-3.    Distribution of Engine Population by Horsepower Group: 2013
                                               5-3

-------
       To assess the size of the compliance cost relative to the value of the goods and services
for industries using affected engines, we collected Census data for selected industries. At the
industry level, the annualized costs represent a very small fraction of revenue (less than 0.07%)
(Table 5-1). These industry level cost-to-sales ratios can be interpreted as an  average impact on
potentially affected firms in these industries. Based on the cost-to-sales ratios, we can conclude
that the annualized cost of this rule should be no higher than 1% of the sales on average for a
firm in each of these industries.

Table 5-1. Selected Industry-Level Annualized Compliance Costs as a Fraction of Total
Industry Revenue:  2008
Industry
(NAICS)
2211
622110
211111
Industry Name
Electric Power Generation
Hospitals
Crude Petroleum & NG
Total Annualized
Costs
($ million)3
$293.4
$11.4
$6.4
Sales, Shipments, Receipt, or
Revenue ($ Billion)
($2007) ($2008)
$440.4 $449.8
$663.6 $677.8
$214.2 $218.8
Cost-to-Sales
Ratio
0.07%
0.00%
0.00%
            Production
   211112   Natural Gas Liquid
            Producers
$6.4
$42.4
$43
0.02%
92811
333992
111 and 112
National Security
Welders
Agriculture using irrigation
systems3
$33,9
$3.4
$17.0
#N/A
$5.2
$27.9
#N/A
$5.3
$28.5
#N/A
0.06%
0.05%
a Irrigation engine costs assumed to be passed on to agricultural sectors that use irrigation systems.
N/A: receipts are Not Available for National Security
Sources: U.S. Census Bureau; generated by RTI International; using American FactFinder; "Sector 00: All sectors:
  Geographic Area Series: Economy-Wide Key Statistics: 2007" ; (January 4th,
  2010).
  U.S. Department of Agriculture (USDA), National Agricultural Statistics Service (NASS). 2009. "2008 Farm and
  Ranch Irrigation Survey." Washington, DC: USDA-NASS.
  Nelson, B., EC/R Inc. February 17, 2010. Memorandum to Melanie King, U.S. Environmental Protection
  Agency. Impacts Associated with NESHAP for Existing Stationary CI RICE.

5.2    Social Cost Estimate
       As shown in Table 5-1, the compliance costs are only a small fraction of the affected
product value; this suggests that shift of the supply curve may also be small and result in small
changes in market prices and consumption. EPA believes the national annualized compliance
cost estimates provide a reasonable approximation of the social cost of this final rule. EPA
believes this  approximation is better for industries  whose markets are well characterized as
                                             5-4

-------
perfectly competitive.  This approximation is less well understood for industries where the
characterization of markets is not always perfectly competitive such as electric power generation
whose legal incidence of this rule is approximately 80 percent of the annualized compliance cost.
However, given the data limitation noted earlier, EPA believes the accounting for compliance
cost is a reasonable approximation to inform policy discussion in this rulemaking.  To shed more
light on this issue, EPA ran hypothetical analyses and the results are later in the RIA in Tables 5-
2 and 5-3.
5.3    How Might People and Firms Respond? A Partial Equilibrium Analysis
       Markets are composed of people as consumers and producers trying to maximize utility
(consumers) and maximize profits (producers) they can given their economic circumstances. One
way economists illustrate behavioral responses to pollution control costs is by using market
supply and demand diagrams.  The market supply curve describes how much of a good or service
firms are willing and able to sell to people at a particular price; this curve is  typically upward
sloping because some production resources are fixed. As a result, the cost of producing an
additional unit typically rises as more units are made. The market demand curve describes how
much of a good or service consumers are willing and able to buy at some price. Holding other
factors constant, the quantity demand is assumed to fall when prices rise. In  a perfectly
competitive market,  equilibrium price (Po) and quantity (Qo) is determined by the intersection of
the supply and demand curves (see Figure 5-4).
5.3.1   Changes in Market Prices and Quantities
       To qualitatively assess how the regulation may influence the equilibrium price and
quantity in the affected markets, we assumed the market supply function shifts up by the
additional cost of producing the good or service; the unit cost increase is typically calculated by
dividing the annual compliance cost estimate by the baseline quantity (Qo) (see Figure 5-4). As
shown, this model makes two predictions: the price of the affected goods and services are likely
to rise and the consumption/production levels are likely to fall.
                                          5-5

-------
     Price
    Increase
                                                                   Si: With Regulation

                                                            Unit Cost Increase
                                                                   S0: Without Regulation
                                           Qi         Qo                Output
                                   consumer surplus = -[fghd + dhc]
                                   producer surplus = [fghd - aehb] - bdc
                                   total surplus = consumer surplus + producer surplus
                                   -[aehb + dhc + bdc]
Figure 5-4.   Market Demand and Supply Model: With and Without Regulation
       The size of these changes depends on two factors: the size of the unit production cost
increase (supply shift) and differences in how each side of the market (supply and demand)
responds to changes in price. Economists measure responses using the concept of price elasticity,
which represents the percentage change in quantity divided by the percentage change in price.
This dependence has been expressed in the following formula:1
       Share ofper-umtproductioncost =
                                                      Price Elasticity of Supply
                                        (rice Elasticity of Supply - Price Elasticity of Demand)
       As a general rule, a higher share of the per-unit cost increases will be passed on to
consumers in markets where
       •  goods and services are necessities and people do not have good substitutes that they
          can switch to easily (demand is inelastic) and
:For examples of similar mathematical models in the public finance literature, see Nicholson (1998), pages 444-447,
   or Fullerton and Metcalf (2002).
                                           5-6

-------
       •   suppliers have excess capacity and can easily adjust production levels at minimal
          costs, or the time period of analysis is long enough that suppliers can change their
          fixed resources; supply is more elastic over longer periods.

       Short-run demand elasticities for energy goods (electricity and natural gas), agricultural
products, and construction are often inelastic. Specific estimates of short-run demand elasticities
for these products can be obtained from existing literature. For the short-run demand of energy
products, the National Energy Modeling System (NEMS) buildings module uses values between
0.1 and 0.3;  a 1% increase in price leads to a 0.1 to 0.3% decrease in energy demand (Wade,
2003). For the short-run demand of agriculture and construction, the EPA has estimated
elasticities to be 0.2 for agriculture and approximately 1 for construction (EPA, 2004). As a
result, a 1%  increase in the prices of agriculture products would lead to a 0.2% decrease in
demand for those products, while a 1% increase in construction prices would lead to
approximately a 1% decrease in demand for construction. Given these demand elasticity
scenarios (shaded in gray), approximately a 1% increase unit costs would result in a price
increase of 0.1 to 1% (Table 5-2). As a result, 10 to 100% of the unit cost increase could be
passed on to consumers in the form of higher goods/services prices. This price increase would
correspond to a 0.1 to 0.8% decline in consumption in these markets (Table 5-3).
Table 5-2.  Hypothetical Price Increases for a 1% Increase in Unit Costs
Market Demand
Elasticity
-0.1
-0.3
-0.5
-0.7
-1.0
-1.5
-3.0
Market Supply Elasticity
0.1
0.5%
0.3%
0.2%
0.1%
0.1%
0.1%
0.0%
0.3
0.8%
0.5%
0.4%
0.3%
0.2%
0.2%
0.1%
0.5
0.8%
0.6%
0.5%
0.4%
0.3%
0.3%
0.1%
0.7
0.9%
0.7%
0.6%
0.5%
0.4%
0.3%
0.2%
1
0.9%
0.8%
0.7%
0.6%
0.5%
0.4%
0.3%
1.5
0.9%
0.8%
0.8%
0.7%
0.6%
0.5%
0.3%
3
1.0%
0.9%
0.9%
0.8%
0.8%
0.7%
0.5%
5.3.2   Regulated Markets: The Electric Power Generation, Transmission, and Distribution
       Sector
       Given that the electric power sector bears majority of the estimated compliance costs
(Figure 5-1) and the industry is also among the last major regulated energy industries in the
United States (EIA, 2000), the competitive model is not necessarily applicable for this industry.
                                           5-7

-------
Table 5-3.  Hypothetical Consumption Decreases for a 1% Increase in Unit Costs
Market Demand
Elasticity
-0.1
-0.3
-0.5
-0.7
-1.0
-1.5
-3.0
Market Supply Elasticity
0.1
-0.1%
-0.1%
-0.1%
-0.1%
-0.1%
-0.1%
-0.1%
0.3
-0.1%
-0.2%
-0.2%
-0.2%
-0.2%
-0.3%
-0.3%
0.5
-0.1%
-0.2%
-0.3%
-0.3%
-0.3%
-0.4%
-0.4%
0.7
-0.1%
-0.2%
-0.3%
-0.4%
-0.4%
-0.5%
-0.6%
1
-0.1%
-0.2%
-0.3%
-0.4%
-0.5%
-0.6%
-0.8%
1.5
-0.1%
-0.3%
-0.4%
-0.5%
-0.6%
-0.8%
-1.0%
3
-0.1%
-0.3%
-0.4%
-0.6%
-0.8%
-1.0%
-1.5%
Although the electricity industry continues to go through a process of restructuring, whereby the
industry is moving toward a more competitive framework (see Figure 5-5 for the status of
restructuring by state),2 in many states, electricity prices continue to be fully regulated by Public
Service Commissions. As a result, the rules and processes outlined by these agencies would
ultimately determine how these additional regulatory costs would be recovered by affected
entities.
5.3.3   Partial Equilibrium Measures of Social Cost: Changes Consumer and Producer
       Surplus
       In partial equilibrium analysis, the social costs are estimated by measuring the changes in
consumer and producer surplus, and these values can be determined using the market supply and
demand model (Figure 5-4). The change in consumer surplus is measured as follows:

                          ACS = -[AQj x 47]+ [0.5 xAQxAp].                      (5.1)

Higher market prices and lower quantities lead to consumer welfare losses.  Similarly, the change
in producer surplus is measured as follows:

                    APS = [AQj x Ap] - [AQj x t] - [0.5 x AQ x (Ap - t)].                (5.2)

       Higher unit costs and lower production level reduce producer surplus because the net
price change (Ap -1) is negative. However, these losses are mitigated because market prices tend
to rise.
2http://tonto.eia.doe.gov/energy_in_brief/print_pages/electricity.pdf.

                                           5-8

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                           Electricity Restructuring by State
Figure 5-5.   Electricity Restructuring by State
Source. U.S. Energy Information Administration. 2010a.
  . Last updated September
  2010.
5.4    Energy Impacts
       Executive Order 13211 (66 FR 28355, May 22, 2001) provides that agencies will prepare
and submit to the Administrator of the Office of Information and Regulatory Affairs, Office of
Management and Budget, a Statement of Energy Effects for certain actions identified as
"significant energy actions." Section 4(b) of Executive Order 13211 defines "significant energy
actions" as any action by an agency (normally published in the Federal Register) that
promulgates or is expected to lead to the promulgation of a final rule or regulation, including
notices of inquiry, advance notices of proposed rulemaking, and notices of proposed rulemaking:
(1) (i) that is a significant regulatory action under Executive Order 12866 or any successor order,
and (ii) is likely to have a significant adverse effect on the supply, distribution, or use of energy;
or (2) that is designated by the Administrator of the Office of Information and Regulatory Affairs
as a significant energy action.
                                            5-9

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       This rule is not a significant energy action as designated by the Administrator of the
Office of Information and Regulatory Affairs because it is not likely to have a significant adverse
impact on the supply, distribution, or use of energy. EPA has prepared an analysis of energy
impacts that explains this conclusion as follows below.

       With respect to energy supply and prices, the analysis in Table 5-1 suggests at the
industry level, the annualized costs represent a very small fraction of revenue (less than 0.7%).
As a result, we can conclude supply and price impacts should be small.

       To enhance understanding regarding the regulation's influence on energy consumption,
we examined publicly available data describing energy  consumption for the electric power sector
that will be affected by this rule. The Annual Energy Outlook 2011  (EIA, 2011) provides energy
consumption data. As shown in Table 5-4, this industry account for about 0.3% of the U.S. total
liquid fuels and less than 8% of natural gas. As a result, any energy  consumption changes
attributable to the regulatory program should not significantly influence the supply, distribution,
or use of energy.
5.5     Unfunded Mandates
       Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), 2 U.S.C. 1531-1538,
requires Federal agencies, unless  otherwise prohibited by law, to assess the effects of their
regulatory actions on State, local, and tribal governments and the private sector. This rule
contains a Federal mandate that may result in expenditures of $100  million or more for State,
local, and tribal governments, in the aggregate, or the private sector in any one year.
Accordingly, EPA has prepared under section 202 of the UMRA a written statement which is
summarized below in this section.
                                          5-10

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Table 5-4.  U.S. Electric Power" Sector Energy Consumption (Quadrillion BTUs): 2013
Quantity Share of Total Energy Use
Distillate fuel oil
Residual fuel oil
Liquid fuels subtotal
Natural gas
Steam coal
Nuclear power
Renewable energyb
Electricity Imports
Total Electric Power Energy Consumption0
Delivered Energy Use
Total Energy Use
0.09
0.22
0.31
7.63
17.37
8.50
4.63
0.12
38.77
70.56
96.66
0.1%
0.2%
0.3%
7.9%
18.0%
8.8%
4.8%
0.1%
40.1%
73.2%
100.0%
Includes consumption of energy by electricity-only and combined heat and power plants whose primary business is
  to sell electricity, or electricity and heat, to the public. Includes small power producers and exempt wholesale
  generators.
blncludes conventional hydroelectric, geothermal, wood and wood waste, biogenic municipal solid waste, other
  biomass, petroleum coke, wind, photovoltaic and solar thermal sources. Excludes net electricity imports.
Includes non-biogenic municipal waste not included above.
Source: U.S. Energy Information Administration. 201 la. Supplemental Tables to the Annual Energy Outlook 2011,
  projections for 2013. Available at: http://www.eia.gov/oiaf/aeo/tablebrowser/#release=EARLY2012&subject=6-
  EARLY2012&table=2-EARLY2012®ion= l-0&cases=ful!2011 -d02091 Ia,early2012-dl2101 Ib
5.5.1  Future and Disproportionate Costs
       The UMRA requires that we estimate, where accurate estimation is reasonably feasible,
future compliance costs imposed by the rule and any disproportionate budgetary effects. Our
estimates of the future compliance costs of the final rule are discussed previously in Section  4 of
this RIA. We do not believe that there will be any disproportionate budgetary effects of the final
rule  on any particular areas of the country, State or local governments, types of communities
(e.g., urban, rural), or particular industry segments.
5.5.2  Effects on the National Economy
       The UMRA requires that we estimate the effect of the final rule on the national economy.
To the extent feasible, we must estimate the effect on productivity, economic growth, full
employment, creation of productive jobs, and international competitiveness of the U.S. goods
and services if we determine that accurate estimates are reasonably feasible and that such effect
is relevant and material. The nationwide economic impact of the  final rule is presented earlier in
this RIA chapter. This analysis provides estimates of the effect of the rule on most of the
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categories mentioned above, and these estimates are presented earlier in this RIA chapter. In
addition, we have determined that the final rule contains no regulatory requirements that might
significantly or uniquely affect small governments. Therefore, today's rule is not subject to the
requirements of section 203 of the UMRA.
5.6    Environmental Justice

       Executive Order (EO) 12898 (59 FR 7629 (Feb. 16, 1994)) establishes federal executive
policy on environmental justice.  Its main provision directs federal agencies, to the greatest
extent practicable and permitted by law, to make environmental justice part of their mission by
identifying and addressing, as appropriate, disproportionately high and adverse human health or
environmental effects of their programs, policies, and activities on minority populations and low-
income populations in the United States.

       Assuming that our baseline for this RIA does not include implementation of the final
2010 CI RICE rule, as we state earlier in this document, EPA has determined that this final rule
will not have disproportionately high and adverse human health or environmental effects on
minority or low-income populations because it increases the level  of environmental protection
for all affected populations without having any disproportionately high and adverse human
health or environmental effects on any population, including any minority or low-income
population. This rule is a nationwide standard that reduces air toxics emissions from existing
stationary  CI engines, thus decreasing the amount of such emissions to which all affected
populations are exposed.
5.7  Employment Impact Analysis

       In addition to addressing the costs and benefits of the final rule, EPA has analyzed the
impacts of this rulemaking on employment, which are presented in this section. While a
standalone analysis of employment impacts is not included in a standard cost-benefit analysis,
such an analysis is of particular concern in the current economic climate of sustained high
unemployment. Executive Order 13563, states, "Our regulatory system must protect public
health, welfare, safety, and our environment while promoting economic growth, innovation,
competitiveness, and job creation" (emphasis  added). Therefore, and consistent with recent
efforts to characterize the employment effects of economically significant rules, the Agency has
provided this analysis to inform the discussion of labor demand and  employment impacts.
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       This employment impact analysis includes estimates of certain short-term and on-going
labor requirements (increase in labor demand) associated with reporting and recordkeeping, and
the installation, operating and maintenance of control devices. EPA estimates that
approximately 1,300 full-time equivalents (FTEs) will be created or supported in the short-term
(the compliance period of the regulation) and approximately 2,000 FTEs will be created or
supported annually on a permanent basis. EPA also provides a qualitative discussion of other
potential employment effects, including both increases and decreases. Because of the
uncertainties involved, these sets of estimates should not be added in an attempt to characterize
the overall employment effect.

       We have not quantified the rule's net effects on the overall labor market, or the potential
changes to workers' incomes. EPA continues to explore the relevant theoretical and empirical
literature and to seek public comments in order to ensure that such estimates are as accurate,
useful and informative as possible.

       From an economic perspective, labor is an input into producing goods and services; if
regulation requires that more labor be used to produce a given amount of output, that additional
labor is reflected in an increase in the cost of production.3  When an increase in employment
occurs as a result of a regulation, it is a cost to firms. Moreover, when the economy is at full
employment, we would not expect an environmental regulation to have an impact on overall
employment because labor is being shifted from one sector to another. On the other hand, in
periods of high unemployment, an increase in labor demand due to regulation may result in a
short-term net increase in overall employment due to the potential hiring of previously
unemployed workers by the regulated sector to help meet new requirements (e.g., to install new
equipment) or by the environmental protection  sector to produce new abatement capital. When
significant numbers of workers are unemployed, the opportunity costs associated with displacing
jobs in other sectors are likely to be smaller.  To provide a partial picture of the employment
consequences of this rule, EPA takes two approaches. First, EPA uses information such as
monitoring, recordkeeping, and reporting estimates derived from its cost analysis documentation
to generate estimates of employment impacts. Second, the analysis considers the results of
Morgenstern, Pizer, and Shih (2002) in estimating the effects of the regulation on the regulated
industry. This  approach has been used by EPA previously in recent Regulatory Impact Analyses.
3 It should be noted that if more labor must be used to produce a given amount of output, then this implies a decrease
   in labor productivity. A decrease in labor productivity will cause a short-run aggregate supply curve to shift to
   the left, and businesses will produce less, all other things being equal.
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EPA is interested in public comments on the merits of including information derived in this
fashion for assessing the employment consequences of regulations.

 5.7.1 Employment Impacts from Pollution Control Requirements

       Regulations set in motion new orders for pollution control equipment and services. When
a new regulation is promulgated, one typical response of industry is to order pollution control
equipment and services in order to comply with the regulation when it becomes effective, while
closure of plants that choose not to comply is assumed to occur after the compliance date. With
such a response by industry as a basis, this section presents estimates for short term labor
requirement needed associated with the monitoring, recordkeeping, and reporting requirements
for this final rule. Environmental regulation may  increase revenue and employment in the
environmental technology industry.  While these increases represent gains for that industry, they
are costs to the regulated industries required to install the equipment. As with any pool of labor,
the gross size of the labor pool does not reflect the net impact on overall employment after
adjusting for shifts in other sectors.

       Regulated firms may hire workers to design and build pollution controls. Once the
equipment is installed, regulated firms may hire workers to operate and maintain the pollution
control equipment - much like they may  hire workers to produce more output. Of course, these
firms may also reassign existing employees to do  these activities. A study including an analysis
of environmental protection employment in six U.S. states in 2003 by Bezdek, Wendling, and
DiPernab (2008) found that "investments in environmental protection create jobs and displace
jobs, but the net effect on employment is positive."4

       Once the equipment is installed, regulated  firms may hire workers to operate and
maintain the pollution control equipment - much like they may hire workers to produce more
output.
       The focus of this part of the analysis is on labor requirements related to the compliance
actions of the affected entities within the affected sector. The employment analysis uses a
bottom-up engineering-based methodology to estimate employment impacts. The engineering
cost analysis summarized in Section 4 of this RIA includes estimates of the labor requirements
4 Environmental protection, the economy, and jobs: National and regional analyses, Roger H. Bezdek, Robert M.
   Wendling and Paula DiPerna, Journal of Environmental Management Volume 86. Issue 1, January 2008, Pages
   63-79.
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associated with implementing the final regulations. Each of these labor changes may either be
required as part of an initial effort to comply with the new regulation or required as a continuous
or annual effort to maintain compliance.  We estimate up-front and continual, annual labor
requirements by estimating hours of labor required and converting this number to full-time
equivalents (FTEs) by dividing by 2,080 (40 hours per week multiplied by 52 weeks). We note
that this type of FTE estimate cannot be used to make assumptions about the specific number of
people involved or whether new jobs are created for new employees.

      The results of this employment estimate are presented in Table 5-5 for the final
reconsidered NESHAP. The tables breaks down the installation, operation, and maintenance
estimates by type of pollution control evaluated in the RIA and present both the estimated hours
required and the conversion of this estimate to FTE. For the final NESHAP, reporting and
recordkeeping requirements were estimated requirements were estimated for the entire rule
rather than by anticipated control requirements; the reporting and recordkeeping estimates are
consistent with estimates EPA submitted as part of its Information Collection Request (ICR) that
is in the Supporting Statement for the final reconsideration rule.

      The up-front labor requirement is estimated at 1,300 FTEs for the reconsidered NESHAP.
These up-front FTE labor requirements can be viewed as short-term labor requirements required
for affected entities to comply with the new regulation. Ongoing requirements are estimated at
about 2,000 FTEs for the reconsidered NESHAP. These ongoing FTE labor requirements can be
viewed as sustained labor requirements required for affected entities to continuously comply
with the new regulation. All of this data is found in the cost memorandum for this reconsidered
rule, and can be found in the docket for the rulemaking. It is important to recognize that these
seemingly precise estimates are not to be assumed to be exact measures of the employment
impacts of this rulemaking. They represent a rough approximation of the  small positive impacts
that this rule may have on employment.
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Table  5-5.  Labor-based Employment Estimates for Reporting and Recordkeeping and
Installing, Operating, and Maintaining Control Equipment Requirements for
Reconsidered CI RICE NESHAP
Source
All CI RICE
-O&M
Recordkeeping
Non-Emergency
CI RICE 100-
300 HP
-Testing

-Reporting
Non-Emergency
CI RICE > 300
HP
-Testing
-Reporting
-CPMS Install
-CPMS O&M
-CPMS
Recording
Area Sources
All CI RICE
-O&M
Recordkeeping
Non-Emergency
CI RICE 100-
300 HP
-Testing
-Reporting
Non-Emergency
CI RICE > 300
HP
-Testing
-Reporting
-CPMS Install
CPMS O&M
-CPMS
Recording
Total


Emission
Control
Measure


Projected
No. of
Affected
Units
Per-Unit

One-
Time
Labor
Estimate
(Hours)
Total

One-
Time
Labor
Estimate
(Hours)

Per-Unit
Annual
Labor
Estimate
(Hours)

Total
Annual
Labor
Estimate
(Hours)


One-Time
Full-Time
Equivalent


Annual
Full-Time
Equivalent
N/A
Oxidation
Catalyst
Oxidation
Catalyst+
Crankcase
Ventilation
N/A

N/A

Oxidation
Catalyst+
Crankcase
Ventilation
+ CPMS
366,217
54,697
N/A
11
                                                N/A
                                                593,496
                           11,966
          47
           563,170
569,364

64,095
31,526
N/A
N/A
47
                                                N/A
                                                N/A
                                                1,483,695
                                           3.5
                                           3.5
                                           1

                                           30
                                           3.5
                                           1
                                           30
                                           124
366,217
738,404
N/A
285
176
355
                                                                     636,134    271
                      306
569,364

128,190
N/A
N/A
1,675,922   713
274
62
            806
                                          4,114,232   1,269
                                                      1,978
                                      105        2,640,361
Note: Full-time equivalents (FTE) are estimated by first multiplying the projected number of affected units by the
per unit labor requirements and then dividing by 2,080 (40 hours multiplied by 52 weeks). Totals may not sum due
to independent rounding.
CPMS = Continuous Parameter Measurement System
HP = horsepower
N/A = Not Applicable.
O&M = Operating and Maintenance
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              5.7.2  Employment Impacts within the Regulated Industry

              In recent RIAs we have applied estimates from a study by Morgenstern, Pizer and
       Shih (2002)5 to derive the employment effects of new regulations within the regulated
       industry. (See, for example, the Regulatory Impact Analyses for the recently released
       final MATS and final CSAPR regulations). Determining the direction of employment
       effects in the regulated industry is also challenging due to competing effects. Complying
       with the new or more stringent regulation requires additional inputs, including labor, and
       may alter the relative proportions of labor and capital used by regulated firms in their
       production processes. Morgenstern, et al. (2002) demonstrate that environmental
       regulations can be understood as requiring regulated firms to add  a new output
       (environmental quality) to their product mixes. Although legally compelled to satisfy this
       new demand, regulated firms have to finance this additional production with the proceeds
       of sales of their other (market) products. Satisfying this new demand requires additional
       inputs, including labor, and may alter the relative proportions of labor and capital used by
       regulated firms in their production processes.

       More specifically, Morgenstern, Pizer, and  Shih (2002) decompose the effect of
regulation on net employment in the regulated sector into the following three subcomponents:
       •    The Demand Effect: higher production costs from complying with the regulation will
           raise market prices, reducing consumption (and production), thereby reducing
           demand for labor within the regulated industry. The "extent of this effect depends on
           the cost increase passed on to consumers as well as the demand elasticity of industry
           output." (p. 416)
           The Cost Effect: Assuming that the capital/labor ratio in the production process is
           held fixed, as "production costs  rise, more inputs, including labor, are used to produce
           the same amount of output," (p.  416). For example, to reduce pollutant emissions
           while holding output levels constant, regulated firms may require additional labor.
5 Morgenstern, R. D., W. A. Pizer, and J. S. Shih. 2002. Jobs versus the Environment: An Industry-Level
       Perspective. || Journal of Environmental Economics and Management 43(3):412-436.
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       •  The Factor-Shift Effect: Regulated firms' production technologies may be more or
          less labor intensive after complying with the regulation (i.e., more/less labor is
          required relative to capital per dollar of output). "Environmental activities may be
          more labor intensive than conventional production," meaning that "the amount of
          labor per dollar of output will rise." However, activities may, instead, be less labor
          intensive because "cleaner operations could involve automation and less employment,
          for example." (p. 416)

       The demand effect is expected to have an unambiguously negative effect on employment,
the cost effect to have an unambiguously positive effect on employment, and the factor-shift
effect to have an ambiguous effect on employment.  Without more information with respect to
the magnitudes of these three competing effects, it is not possible to predict the net
environmental employment effect in the regulated sector.

       Using plant-level Census information between the years  1979 and 1991, Morgenstern et
al. estimate the effects of pollution abatement expenditures on net employment in four highly
polluting/regulated sectors (pulp and paper, plastics, steel, and petroleum refining).  They
conclude that increased abatement expenditures generally have not caused a significant change in
net employment in those sectors. More specifically, their results show that, on average across the
industries studied, each additional $1 million (in 1987$)  spent on pollution abatement results in a
(statistically insignificant) net increase of 1.55 (+/- 2.24) jobs. As a result, the authors conclude
that increases in pollution abatement expenditures can have positive effects on employment and
do not necessarily cause economically significant employment changes. The conclusion is
similar to Berman and Bui (2001), who found that increased air quality regulation in Los
Angeles did not cause large employment changes.

       Ideally, the EPA would first apply the methodology of Morgenstern et al. to current
pollution expenditure and market data for the regulated firms to identify the relationship between
abatement costs and employment, then use this relationship to extrapolate the effect of new
projected abatement costs on these firms. Unfortunately, current firm-level abatement cost and
market characteristics are not available. In addition, there are important differences in the
markets and regulatory settings analyzed in their study and the setting presented here that lead us
to conclude that it is inappropriate to utilize their quantitative estimates to estimate the
employment impacts from this reconsideration proposal. The differences between the underlying
regulations motivating the abatement expenditures studied in Morgenstern et al. are potentially
too many to allow for the direct transfer of their quantitative estimates  for use in analysis of the
proposed rule. There are also important differences between the industries affected by this rule

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and the four manufacturing industries studied by Morgenstern et al. For these reasons, we
conclude there are too many uncertainties as to the comparability of the Morgenstern et al. study
to apply their estimates to quantify the employment impacts within the regulated sector for this
regulation.
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                                       SECTION 6
                       SMALL ENTITY SCREENING ANALYSIS

       The Regulatory Flexibility Act as amended by the Small Business Regulatory
Enforcement Fairness Act (SBREFA) generally requires an agency to prepare a regulatory
flexibility analysis of any rule subject to notice and comment rulemaking requirements under the
Administrative Procedure Act or any other statute, unless the agency certifies that the rule will
not have a significant economic impact on a substantial number of small entities. Small entities
as defined by the Small Business Administration (SBA) include small businesses, small
governmental jurisdictions, and small not-for-profit enterprises.

       After considering the economic impact of the final reconsideration rule on small entities,
the screening analysis indicates that this rule will not have a significant economic impact  on a
substantial number of small entities (or "SISNOSE"). Under the primary cost analyses EPA
considered, sales and revenue tests for establishments owned by model small entities are less
than 3% and only one group of establishments (irrigated farms with receipts less than $25,000)
has a ratio exceeding 1%.  These results are identical to those from the small entity analysis done
for the final CI RICE rule promulgated in March 2010.
6.1    Small Entity Data Set
       The industry  sectors covered by the final rule were identified during the development of
the cost analysis (Nelson, 2012). The SUSB provides national information on the distribution of
economic variables by industry and enterprise size (U.S. Census, 2006a, b).1 The Census Bureau
and the Office of Advocacy of the SBA supported and developed these files for use in a broad
range of economic analyses.2 Statistics include the total number of establishments and receipts
for all entities in an industry; however, many of these entities may not necessarily be covered by
the final rule. SUSB  also provides statistics by enterprise employment and receipt size.

       The Census Bureau's definitions used  in the SUSB, which are stated in Section 3 and
restated here for clarity of presentation, are as follows:
       •  Establishment.  An establishment is a single physical location where business is
          conducted or where services or industrial operations are performed.
lrThe SUSB data do not provide establishment information for the national security NAICS code (92811) or irrigated
   farms. Since most national security installations are owned by the federal government (e.g., military bases), EPA
   assumes these entities would not be considered small. For irrigated farms, we relied on receipt data provided in
   the 2008 Farm and Irrigation Survey (USDA, 2009).
2See http://www.census.gov/csd/susb/ and http://www.sba.gov/advo/research/data.html for additional details.
                                           6-1

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       •  Receipts: Receipts (net of taxes) are defined as the revenue for goods produced,
          distributed, or services provided, including revenue earned from premiums,
          commissions and fees, rents, interest, dividends, and royalties. Receipts exclude all
          revenue collected for local, state, and federal taxes.
       •  Enterprise: An enterprise is a business organization consisting of one or more
          domestic establishments that were specified under common ownership or control. The
          enterprise and the establishment are the same for single-establishment firms. Each
          multiestablishment company forms one enterprise—the enterprise employment and
          annual payroll are summed from the associated establishments. Enterprise size
          designations are determined by the summed employment of all associated
          establishments.
       Because the SBA's business size definitions (SBA, 2010) apply to an establishment's
"ultimate parent company," we assumed in this analysis that the "enterprise" definition above is
consistent with the concept of ultimate parent company that is typically used for SBREFA
screening analyses and the terms are used interchangeably.
6.2    Small Entity Economic Impact Measures
       The analysis generated a set of establishment sales tests (represented as cost-to-receipt
ratios)3 for NAICS codes associated with sectors listed in Table 6-1.  Although the appropriate
SBA size definition should be applied at the parent company (enterprise) level, we can only
compute and compare ratios for a model establishment owned by an enterprise within an  SUSB
size range (employment or receipts). Using the SUSB  size range helps us account for receipt
differences between establishments owned by large and small enterprises and also allows us to
consider the variation in small business definitions across affected industries. Using
establishment receipts is also a conservative approach, because an establishment's parent
company (the "enterprise") may have other economic resources that  could be used to cover the
costs of the final rule.
6.2.1   Model Establishment Receipts and Annual Compliance Costs
       The sales test compares a representative establishment's total annual engine costs to the
average establishment receipts for enterprises in several size categories.4 For industries with SBA
3The following metrics for other small entity economic impact measures (if applicable) would potentially include
      small governments (if applicable): "revenue" test; annualized compliance cost as a percentage of annual
      government revenues and
      small nonprofits (if applicable): "expenditure" test; annualized compliance cost as a percentage of annual
      operating expenses,
4For the 1 to 20 employee category, we excluded SUSB data for enterprises with zero employees. These enterprises
   did not operate the entire year.
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employment size standards, we calculated average establishment receipts for each enterprise
employment range (Table 6-2).5 For industries with SBA receipt size standards, we calculated

Table 6-1.   Final NESHAP for Existing Stationary CI Reciprocating Internal Combustion
             Engines (RICE): Affected Sectors and SBA Small Business Size Standards
   Industry Description
   Corresponding
      NAICS
   SBA Size Standard for
Businesses (effective January
         7 ,2013)
  Type of Small Entity
 Electric power generation
       2211
                            Business and government
 Natural Gas Transmission

 General medical &
 surgical hospitals

 Crude petroleum and
 natural gas production

 Natural gas liquid
 producers

 National security

 Hydro power units

 Irrigation sets


 Welders
       48621

      622110


      211111


      211112


       92811

See NAICS 2211

 Affects NAICS 111
      and 112
 $7.0 million in annual receipts          Business

$35.5 million in annual receipts  Business and government
       500 employees
       500 employees
           NA
 Generally $750,000 or less in
       annual receipts
Affects industries that   Varies by 6-digit NAICS code;
use heavy equipment        Example industiy.

                     NAICS 238 = $14 million in
                           annual receipts
       Business


       Business


     Government

Business and government

       Business


       Business
                          such as construction,
                           mining, farming
"NAICS codes 221111, 221112, 221113, 221119, 221121, 221122: A firm is small if, including its affiliates, it is
  primarily engaged in the generation, transmission, and/or distribution of electric energy for sale and its total
  electric output for the preceding fiscal year did not exceed 4 million megawatt hours.
 Source: U.S. Small Business Administration (SBA). 2010. "Table of Small Business Size Standards Matched to
  North American Industry Classification System Codes." Effective  January 7th, 2013. Downloaded 1/7/13.

average establishment receipts for each enterprise receipt range (Table 6-3). We included the
utility sector in the second group, although the SBA size standard for this industry is defined in
terms of physical units (megawatt hours) versus receipts.  Crop and animal  production (NAICS
111 and 112) also have an SBA receipt size standard that defines a small business as receiving
$750,000 or less in  receipts per year. However, SUSB data were not  available for these
industries. Therefore, we conducted the sales test using the following range of establishment
5We use 2007 Economic Census data in estimating number of establishments by industry. The release schedules for
   different types of 2007 Economic Census data are at
   http://www.census.gov/econ/census07/pdf/EconCensusScheduleBvDate.pdf.
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receipts: farms with annual receipts of $25,000 or less, farms with annual receipts of $100,000 or
less, farms with annual receipts of $500,000 or less, and farms with annual receipts of $750,000
or less.
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Table 6-2.     Average Receipts for Affected Industry by Enterprise: 2009 ($2008 Million/establishment)




NAICS
211111

211112

335312
333992





NAICS Description
Grade petroleum &
natural gas extraction
Natural gas liquid
extraction
Motor & generator mfg
Welding & soldering
equipment mfg
SBA Size
Standard
for Businesses
(effective
January 7,2013)
500 employees

500 employees

1,000 employees
500 employees

Owned By Enterprises with Employee Range:


All
Enterprises
$30.22

$172.81

$18.58
$18.51



1-20
Employees
$2.15

$0.30

$1.37
$1.56



20-99
Employees
$33.02

NA

$6.14
$6.60



100-499
Employees
$151,76

$11.88

$15.96
$33.25



500+
Employees
1,570

NA

$29.47
NA

NA = Not available.

Source: U.S. Census Bureau. 2012a. "Firm Size Data from the Statistics of U.S. Businesses: U.S. Detail Employment Sizes: 2009.:
  
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         Table 6-3.   Average Receipts for Affected Industry by Enterprise Receipt Range: 2007 ($2008 /establishment)
                                                                                                     Owned By Enterprises with Receipt Range:
         NAICS   NAICS Description
                              SBA Size Standard
                                for Businesses
                              (effective January 7,
                                    2013)
                       100-      500-     1,000-    5,000,000-             10,000-   50,000-
    All       0-99K   499.9K   999.9K   4,999.9K   9,999,999K  <10,OOOK  49,999K  99,999K  100,OOOK+
Enterprises  Receipts  Receipts  Receipts   Receipts    Receipts   Receipts   Receipts  Receipts   Receipts
Oi
          2211    Electric Power                  a             $261.0
                  Generation
         622110   General Medical and   $35.5 million in annual $202,058.7
                  Surgical Hospitals     receipts
         237310   Highway , street, and   $33.5 million in           $7.74
                  bride construction     Annual Receipts
         237110   Water and sewer line   $33.5 million in           $3.89
                  and related structures,  Annual Receipts
                  construction
                                                               $31.2     $272.5    $724.9    $2,399.5    $7,330.5    $2,617.7   $24,786.   $67,706.  $1,394,051
                                                                                                                              98           .0
                                                                 NA
237130  Power and            $33.5 million in
        communication line    Annual Receipts
        and related structures
        construction
237990   Other heavy and civil  $33.5 million in
        engineering           Annual Receipts
        construction
 92811   National Security               NA
                                                               $3.39
                                                               $2.66
                                                               NA
$0.06     $0.32

$0.06     $0.32


$0.06     $0.31
                       $23.82   NA

                                $0.84
                $3,255.0    $7,291.0    $4,692.1   $23,481.   $67,545,  $508,705.5
                                                    9         6
              $0.06
              NA
 3.30
NA
                                                                                   $0.85
                                $0.83
                    3.83
                   NA
$2.74

$2.73


$2.52



$2.48


 NA
$8.11

$8.17


$7.75



$7.76


 NA
                                        $2.00     $22.62    $56.48

                                        $1.84     $20.62    $45.05


                                        $1.32     $16.84    $34.50
 3.99
NA
$18.72   $40.53
 NA
NA
$56.81

$47.27


$23.86



$42.35


NA
         Notes: . National Security is included in this table but does not have size standards.
         a  NAICS codes 221111, 221112, 221113, 221119, 221121, 221122: A firm in these industries is defined as small by SBA if, including its affiliates, it is
           primarily engaged in the generation, transmission, and/or distribution of electric energy for sale and its total electric output for the preceding fiscal year did not
           exceed 4 million megawatt hours.

         NA = Not available. SUSB  did not report this data for disclosure or other reasons.

         Source: U.S. Census Bureau. 2009a. "Firm Size Data from the Statistics of U.S. Businesses: U.S. Detail Employment Sizes: 2009."
           
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       Annual entity compliance costs vary depending on the size of the diesel engines used at
the affected establishment. Absent facility-specific information, we computed per-entity
compliance costs based for three different cases based on representative establishments—Cases
1, 2, and 3  (see Table 6-4). Each representative establishment differs based on the size and
number of diesel engines being used. Compliance costs are calculated by summing the total
annualized compliance costs for the relevant engine categories, dividing the sum by the total
existing population of those engines, and multiplying the average engine cost by the number of
engines assumed to be at the establishment. Since NAICS 2211 and 622110 are fundamentally
different than other industries considered in this analysis, we used different assumptions about
what constitutes the representative establishment and report these assumptions separately.
       •   Case  1: The representative establishment for all industries uses three 750+ hp engines
           with an average compliance cost of $1,878 per engine, resulting in a total annualized
           compliance cost of approximately $5,634 for this representative establishment.
       •   Case 2: The representative establishment in NACIS 2211 and 622110 uses two 50 to
           750+ hp engines with an average compliance cost of $419 per engine, resulting in a
           total annualized compliance cost of $838 for this representative establishment. For all
           other industries, the representative establishment uses two 50 to 300 hp engines with
           an average compliance cost of $146 per engine, resulting in  a total compliance cost of
           $292  for this  representative establishment.
       •   Case 3: The representative establishment for all industries uses two 50 to 100 hp
           engines with  an average compliance cost of $68 per engine,  resulting in a total
           compliance cost of $137 for this representative establishment.

       EPA believes that small entities are most likely to face costs similar to Case 2 (columns
shaded in gray in Table 6-4) because most of the engines to be affected by this proposal in
NAICS 335312,  333992, 211111, and 211112 are under 300 hp capacity, and most small entities
in these industries will own engines of this size or smaller. This is corroborated by Figure 6-1
and 6-2 which shows the distribution of engine population and compliance costs by engine size
for all industries. However, it is difficult to make a similar claim for NAICS 2211 and 622110
based on the existing distribution of engines in these industries.6  As noted earlier in the RIA,
only 20 percent of the existing distribution of engines is expected to be  classified as non-
emergency.
6This claim also cannot be made for NAICS 92811: National Security. However, since most national security
   installations are owned by the federal government (e.g., military bases), EPA assumes these entities would not be
   considered small.
                                           6-7

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       For the sales test, we divided the representative establishment compliance costs reported
in Table 6-4 by the representative receipts reported in Tables 6-2 and 6-3. This is known as the
cost-to-receipt (i.e., sales) ratio, or the "sales test." The "sales test" is the impact
Table 6-4.  Representative Establishment Costs Used for  Small Entity Analysis ($2008)


Total Annualized Costs ($)
Engine Population
Average Engine Cost
($/engine)
Assumed Engines Per
Establishment
Total Annualized Costs per
Establishment
Case
NAICS 2211,
622110
(+750 hp
only)
$62,068,406
33,052
$1,878
3
$5,634
1
All Other
NAICS
(+750 hp
only)
$7,875,707
4,194
$1,878
3
$5,634
Case 2
NAICS 2211,
622110
(50-750+ hp)
$304,817,985
727,090
$419
2
$838
All Other
NAICS
(50-300 hp)
$40,407,406
276,374
$146
2
$292
Case 3
NAICS 2211,
622110
(50-100 hp
only)
$9,093,118
133,099
$68
2
$137
All Other
NAICS
(50-100 hp
only)
$6,745,516
98,736
$68
2
$137
* Engine population estimates taken from "Impacts Associated with NESHAP for Existing Stationary CI RICE,"
  prepared by Bradley Nelson, EC/R, Inc. for Melanie King, U.S. EPA, Office of Air Quality Planning and
  Standards, February 19, 2010.
                                             6-8

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   50%
   40%
   30%
   20%
   10%
    0%
 >750hp

 600-750 hp

I 300-600 hp

 175-300 hp

1100-175 hp

I 50-100 hp
         Electric Power    Hospitals   Crude Petroleum   Natural Gas  National Security  Hydro Power   Irrigation Sets     Welders
          Generation     (622110)   &NG Production Liquid Producers   (92811)     Units (335312)    (335312)       (333992)
            (2211)                   (211111)      (211112)
Figure 6-1.    Distribution of Engine Population by Size for All Industries
                                                          6-9

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   90%
   70%
   60%
   0%
                                                                                       >750hp
                                                                                       600-750 hp
                                                                                       300-600 hp
                                                                                       175-300 hp
                                                                                       100-175 hp
                                                                                       50-100 hp
       Electric Power   Hospitals  Crude Petroleum  Natural Gas  National Security  Hydro Power  Irrigation Sets   Welders
        Generation    (622110)  &NG Production Liquid Producers  (92811)   Units (335312)   (335312)     (333992)
         (2211)               (211111)    (211112)
Figure 6-2.    Distribution of Compliance Costs by Engine Size for All Industries


methodology EPA employs in analyzing small entity impacts as opposed to a "profits test," in
which annualized compliance costs are calculated as a share of profits.

        This is because revenues or sales data are commonly available data for entities normally
impacted by EPA regulations and profits data normally made available are often not the true
profit earned by firms because of accounting and tax considerations. Revenues as typically
published are usually correct figures and are more reliably reported when compared to profit
data. The use of a "sales test" for estimating small business impacts for a rulemaking such as this
one is consistent with guidance offered by EPA on compliance with SBREFA7 and is consistent
with guidance  published by the U.S. SBA's Office of Advocacy that suggests that cost as a
7The SBREFA compliance guidance to EPA rulewriters regarding the types of small business analysis that should be
   considered can be found at http://www.epa.gov/sbrefa/documents/rfafinalguidance06.pdf, pp. 24-25.
                                             6-10

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percentage of total revenues is a metric for evaluating cost increases on small entities in relation
to increases on large entities.8

       If the cost-to-receipt ratio is less than 1%, then we consider the final rule to not have a
significant impact on the establishment company in question. We summarize the industries with
cost-to-receipt ratios exceeding 1% below:

       Primary Analysis:
       -  Case 2: NAICS 2211
       •  Case 3: No industries

       Sensitivity Analysis (unlikely):
       -  Case 1: NAICS 211111,211112, with less than 20 employees, NAICS 2211 with
          receipts less than $500,000 per year, NAICS 234 with receipts less than $500,000 per
          year, and irrigated farms with receipts of $500,000 or less per year

       In the Case 2 primary analysis, only establishments in NAICS 2211 with receipts less
than $100,000 per year have cost-to-receipt ratios above 1%. These establishments represent less
than 5 percent of affected small establishments.  However, establishments earning this level of
receipts are likely to be using smaller engines than  those assumed in Case 2, such as 50 to 100 hp
engines. The results of our Case 3 analysis demonstrate that these establishments are not
significantly impacted when taking this  engine size into account.

       After considering the economic impacts of this final rule on small entities, we certify that
this action will not have a significant economic impact  on a substantial number of small entities.
This certification is based on the economic impact  of this action to all affected small entities
across all industries affected. The percentage of small entities impacted by this final rule having
annualized costs greater than 1 percent of sales is less than 2 percent according to this analysis.
We thus conclude that there is no significant economic impact on a substantial number of small
entities  (SISNOSE) for this final rule.

       Although the final rule would not have a significant economic impact on a substantial
number of small entities, EPA nonetheless tried to  reduce the impact of the rule on small entities.
When developing the revised standards, EPA took  special steps to ensure that the burdens
imposed on small entities were minimal. EPA conducted several meetings with industry trade
8U.S. SBA, Office of Advocacy. A Guide for Government Agencies, How to Comply with the Regulatory
   Flexibility Act, Implementing the President's Small Business Agenda and Executive Order 13272, May 2003.
                                          6-11

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associations to discuss regulatory options and the corresponding burden on industry, such as
recordkeeping and reporting. In addition, as mentioned in the preamble, EPA is reducing
regulatory requirements for a variety of area sources affected under this RICE rule with
amendments to the final RICE rules promulgated in 2010
6.3    Small Government Entities
       The rule also covers sectors that include entities owned by small and large governments.
However, given the uncertainty and data limitations associated with identifying and
appropriately classifying these entities, we computed a "revenue" test for a model small
government, where the annualized compliance cost is a percentage of annual government
revenues (U.S. Census, 2005a,b). The use of a "revenue test" for estimating impacts to small
governments for a rulemaking such as this one is consistent with guidance offered by EPA on
compliance with SBREFA,9 and is consistent with guidance published by the US SBA's Office
of Advocacy.10 For example, from the 2002 Census (in 2008 dollars), the average revenue for
small governments (counties and municipalities) with populations fewer than 10,000 are $3
million per entity, and the average revenue for local governments with populations fewer than
50,000 is $8 million per entity. For the smallest group of local governments (<10,000 people),
the cost-to-revenue ratio would be 0.2% or less under each case. For the larger group of
governments (<50,000 people), the cost-to-revenue ratio is 0.1% or less under all cases.
9The SBREFA compliance guidance to EPA rule writers regarding the types of small business analysis that should
   be considered can be found at http://www.epa.gov/sbrefa/documents/rfafinalguidance06.pdf. pp. 24-25.
10U.S. SBA, Office of Advocacy. A Guide for Government Agencies, How to Comply with the Regulatory
   Flexibility Act, Implementing the President's Small Business Agenda and Executive Order 13272, May 2003.
                                          6-12

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                                     SECTION 7
            HUMAN HEALTH BENEFITS OF EMISSIONS REDUCTIONS
Synopsis
       Implementation of emissions controls required by the CI RICE NESHAP reconsideration
is expected to reduce emissions of hazardous air pollutants (HAP) and have ancillary co-benefits
that would lower ambient concentrations of PM2.5 and ozone. In this section, we quantify the
monetized co-benefits for this rule associated with reducing exposure to ambient fine particulate
matter (PlV^.s) by reducing emissions of precursors. We estimate the total monetized co-benefits
to be $770 million to $1.9 billion at a 3% discount rate and $690 million to $1.7 billion at a 7%
discount rate in 2013. All estimates are in 2010$.  These estimates reflect the monetized human
health benefits of reducing cases of morbidity and premature mortality among populations
exposed to PM2.5 reduced by this rule. These estimates reflect EPA's most current interpretation
of the scientific literature. Higher or lower estimates of benefits are possible using other
assumptions; examples of this are provided in Figure 7-2. Data, resource, and methodological
limitations prevented EPA from monetizing the benefits from several important benefit
categories, including benefits from reducing exposure to HAP,  carbon monoxide, and ozone, as
well as visibility impairment. In addition to reducing emissions of PM precursors, this rule would
reduce 1,000 tons of HAP and 14,000 tons of carbon monoxide each year.
7.1     Calculation of PMi.s-Related Human Health Co-Benefits

       Assuming that the baseline for this RIA does not include implementation of the 2010
final CI RICE rule, as we state earlier in this document, this final  reconsideration would reduce
emissions of directly emitted particles and VOCs. Because these emissions are precursors to
PM2.5, reducing these emissions would also reduce PIVb.s formation, human exposure and the
incidence of PM2.s-related health effects. Due to analytical limitations, it was not possible to
provide a comprehensive estimate of PIVb.s-related benefits or provide estimates of the health
benefits associated with exposure to HAP, CO,  or ozone. Instead, we used the "benefit-per-ton"
approach to estimate these benefits. The methodology employed in this analysis is similar to the
work described in Fann, Fulcher, and Hubbell (2009), but represents an improvement that EPA
believes would provide more reliable estimates  of PM2.s-related health benefits for emissions
reductions in specific sectors. The key assumptions are described in detail below. These PM2.5
benefit-per-ton estimates provide the total monetized human health benefits (the sum of
premature mortality and premature morbidity) of reducing one ton of PM2.5 from a specified
                                          7-1

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source. EPA has used the benefit per-ton technique in several previous RIAs, including the
recent SO2 NAAQS RIA (U.S. EPA, 2010).

       The Integrated Science Assessment (ISA) for Particulate Matter (U.S. EPA, 2009b)
identified the human health effects associated with ambient PM2.s; which include premature
morality and a variety of morbidity effects associated with acute and chronic exposures. Table 7-
1 shows the quantified and unquantified benefits captured in  those benefit-per-ton estimates, but
this table does not include entries for the unquantified health effects associated with exposure to
HAP, CO, or ozone nor welfare effects such visibility impairment that are described in section
7.2.  It is important to emphasize that the list of unquantified benefit categories is not exhaustive,
nor is quantification of each effect complete.
                                           7-2

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Table 7-1:  Human Health Effects of PM2.5
Category
Specific Effect
Effect Has
Been
Quantified
Effect Has
Been
Monetized
More
Information
(refers to
CSAPR RIA)
Improved Human Health
Reduced incidence of
premature mortality
from exposure to PM2 5
Reduced incidence of
morbidity from
exposure to PM2 5
Adult premature mortality based on cohort
study estimates and expert elicitation
estimates (age >25 or age >30)
Infant mortality (age <1)
Non-fatal heart attacks (age > 18)
Hospital admissions — respiratory (all
ages)
Hospital admissions — cardiovascular (age
>20)
Emergency room visits for asthma (all
ages)
Acute bronchitis (age 8-12)
Lower respiratory symptoms (age 7-14)
Upper respiratory symptoms (asthmatics
age 9-11)
Asthma exacerbation (asthmatics age 6-
18)
Lost work days (age 18-65)
Minor restricted-activity days (age 18-65)
Chronic Bronchitis (age >26)
Emergency room visits for cardiovascular
effects (all ages)
Strokes and cerebrovascular disease (age
50-79)
Other cardiovascular effects (e.g., other
ages)
Other respiratory effects (e.g., pulmonary
function, non-asthma ER visits, non-
bronchitis chronic diseases, other ages and
populations)
Reproductive and developmental effects
(e.g., low birth weight, pre-term births,
etc)
Cancer, mutagenicity, and genotoxicity
effects

-------
          One estimate is based on the concentration-response (C-R) function developed from
          the extended analysis of American Cancer Society (ACS) cohort, as reported in Pope
          et al. (2002), a study that EPA has previously used to generate its primary benefits
          estimate. When calculating the estimate, EPA applied the effect coefficient as
          reported in the study without an adjustment for assumed concentration threshold of 10
          |ig/m3 as was done in recent (2006-2009) Office of Air and Radiation RIAs.
          One estimate is based on the C-R function developed from the extended analysis of
          the Harvard  Six Cities cohort, as reported by Laden et al (2006). This study,
          published after the completion of the Staff Paper for the 2006 PM2.5 NAAQS, has
          been used as an alternative estimate in the PM2.5 NAAQS  RIA and PM2.5 benefits
          estimates in  RIAs completed since the PM2.5 NAAQS. When calculating the
          estimate, EPA applied the effect coefficient as reported in the study without an
          adjustment for assumed concentration threshold of 10 |ig/m3 as was done in recent
          (2006-2009) RIAs.
          Twelve estimates are based on the C-R functions from EPA's expert elicitation study
          (Roman et al., 2008) on the PM2.5 -mortality relationship and interpreted for benefits
          analysis in EPA's final RIA for the PM2.5 NAAQS. For that study, twelve experts
          (labeled A through L) provided independent estimates of the PM2.5 -mortality
          concentration-response function.  EPA practice has been to develop independent
          estimates of PM2.5 -mortality estimates corresponding to the concentration-response
          function provided by each of the twelve experts, to better  characterize the degree of
          variability in the expert responses.
       The effect coefficients are drawn from epidemiology studies examining two large
population cohorts: the American Cancer Society cohort (Pope et al., 2002) and the Harvard Six
Cities cohort (Laden et al., 2006).l These are logical choices for anchor points in our
presentation because, while both studies are well designed and peer reviewed, there are strengths
and weaknesses inherent in each, which we believe argues for using both studies to generate
benefits estimates. Previously, EPA had calculated benefits based on these two empirical
studies, but derived the range of benefits, including the minimum and maximum results, from an
expert elicitation of the relationship between exposure to PM2 5 and premature mortality (Roman
 These two studies specify multi-pollutant models that control for SO2, among other co-pollutants.

                                          7-4

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et al., 2008).  Within this assessment, we include the benefits estimates derived from the
concentration-response function provided by each of the twelve experts to better characterize the
uncertainty in the concentration-response function for mortality and the degree of variability in
the expert responses. Because the experts used these cohort studies to inform their
concentration-response functions, benefits estimates using these functions generally fall between
results using these epidemiology studies (see Figure 7-2).  In general, the expert elicitation
results support the conclusion that the benefits of PM2.5 control are very likely to be substantial.

       Readers interested in reviewing the general methodology for creating the benefit-per-ton
estimates used in this analysis should consult the draft Technical Support Document (TSD) on
estimating the benefits per ton of reducing PM2.5 and its precursors in the "Other Non-EGU
Point" category (U.S. EPA, 2012).3 The primary difference between the estimates used in this
analysis and the estimates reported in Fann, Fulcher, and Hubbell (2009) is the air quality
modeling data utilized.  The air quality modeling data used in this analysis use more narrow
sectors. In  addition, the updated air quality modeling data reflects more recent emissions data
(2005 rather than 2001) and has a higher spatial resolution (12km rather than  36 km grid cells).
The benefits methodology, such as health endpoints assessed, risk estimates applied, and
valuation techniques applied did not change. As noted below in the characterization of
uncertainty, these updated  estimates still have similar limitations as all  national-average benefit-
per-ton estimates in that they reflect the geographic distribution of the modeled emissions, which
may not exactly match the emission reductions in this rulemaking, and they may not reflect local
variability  in population density, meteorology, exposure, baseline health incidence rates, or other
local factors for any specific location.  In this analysis, we apply these national benefit-per-ton
estimates calculated for this category for directly emitted particles and multiply them by the
corresponding emission reductions.

       These models assume that all fine particles, regardless of their chemical composition, are
equally potent in causing premature mortality because the scientific evidence is not yet sufficient
to allow differentiation of effects estimates by particle type. Directly emitted particles are the
primary PM2.5 precursors affected by this rule. Even though we assume that all fine particles
2 Please see the Section 5.2 of the Portland Cement PJA in Appendix 5A for more information regarding the change
   in the presentation of benefits estimates.
3 Stationary engines are included in the other non-EGU point source category. If the affected stationary engines are
   more rural than the average of the non-EGU sources modeled, then it is possible that the benefits may be
   somewhat less than we have estimated here. The TSD provides the geographic distribution of the air quality
   changes associated with this sector. It is important to emphasize that this modeling represents the best available
   information on the air quality impact on a per ton basis for these sources.
                                             7-5

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have equivalent health effects, the benefit-per-ton estimates vary between precursors depending
on the location and magnitude of their impact on PM2.5 levels, which drive population exposure.
The sector-specific modeling does not provide estimates of the PM2.5-related benefits associated
with reducing VOC emissions, but these unquantified benefits are generally small compared to
other PM2.5 precursors (U.S. EPA, 2012).

       The benefit-per-ton coefficients in this analysis were derived using modified versions of
the health impact functions used in the PM NAAQS Regulatory Impact Analysis (U.S. EPA,
2006).  Specifically, this analysis uses the method first applied in the Portland Cement NESHAP
RIA (U.S. EPA, 2009a), which applied the functions directly from the epidemiology studies
without an adjustment for an assumed threshold. Removing the threshold assumption is a key
difference between the method used in this analysis of PM benefits and the methods used in
RIAs prior to Portland Cement proposal, and we now calculate incremental benefits down to the
lowest modeled PM2.5 air quality levels.4

       Based on our review of the current body of scientific literature, EPA now estimates PM-
related mortality without applying an assumed concentration threshold.  EPA's Integrated
Science Assessment for Paniculate Matter (U.S. EPA, 2009b), which was reviewed by EPA's
Clean Air Scientific Advisory Committee (U.S. EPA-SAB, 2009a; U.S. EPA-SAB, 2009b),
concluded that the scientific literature consistently finds that a no-threshold log-linear model
most adequately portrays the PM-mortality concentration-response relationship while
recognizing potential uncertainty about the exact shape of the  concentration-response function.

       Consistent with this finding,  we have conformed the previous threshold sensitivity
analysis to the current state of the PM science by incorporating a "Lowest Measured Level"
(LML) assessment, which is a method EPA has employed in several recent RIAs including the
Cross-State Air Pollution Rule (U.S. EPA, 201 Ib). This information allows readers to determine
the portion  of population exposed to annual mean PM2.s levels at or above the LML of each
study; in general, our confidence in the estimated PM mortality decreases as we consider air
quality levels further below the LML in major cohort studies that estimate PM-related mortality.
While an LML assessment provides some insight into the level of uncertainty in the estimated
PM mortality benefits, EPA does not view the LML as a threshold and continues to quantify PM-
related mortality impacts using a full range of modeled air quality concentrations. It is important
to emphasize that we have high confidence in PM2.s-related effects down to the lowest LML of
the major cohort studies, which is 5.8 |ig/m3. Just because we have greater confidence in the
  Additional updates since the Cement RIA include a revised VSL and updated baseline incidence rates.

                                          7-6

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benefits above the LML, this does not mean that we have no confidence that benefits occur
below the LML.  For a summary of the scientific review statements regarding the lack of a
threshold in the PM2.5-mortality relationship, see the Technical Support Document (TSD)
entitled Summary of Expert Opinions on the Existence of a Threshold in the Concentration-
Response Function for PM2.5-related Mortality (U.S. EPA, 201 Ob).

       For this analysis, policy-specific air quality data is not available due to time or resource
limitations.  For these rules, we are unable to estimate the percentage of premature mortality
associated with this specific rule's emission reductions at each PM2.5 level.  However, we believe
that it is still important to characterize the distribution of exposure to baseline air quality levels.
As a surrogate measure of mortality impacts, we provide the percentage of the population
exposed at each PM2.5 level using the source apportionment modeling used to calculate the
benefit-per-ton estimates for this sector. It is important to note that baseline exposure is only one
parameter in the health impact function, along with baseline incidence rates population, and
change in air quality. In other words, the percentage of the population  exposed to air pollution
below the LML is not the same as the percentage of the population experiencing health  impacts
as a result of a specific emission reduction policy. The most important aspect, which we are
unable to quantify for rules without rule-specific air quality modeling, is the shift in exposure
associated with this specific rule.  Therefore, caution is warranted when interpreting the LML
assessment for this rule.  The results of this analysis are provided in Section 7.3.

       As is the nature of RIAs, the assumptions and methods used to estimate air quality
benefits evolve over time to reflect the Agency's most current interpretation of the scientific and
economic literature. For a period of time (2004-2008), the Office of Air and Radiation  (OAR)
valued mortality risk reductions using a value of statistical life (VSL) estimate derived from a
limited analysis of some of the available studies.  OAR arrived at a VSL using a range of $1
million to $10 million (2000$) consistent with two meta-analyses of the wage-risk literature.
The $1 million value represented the lower end of the interquartile range from the Mrozek and
Taylor (2002) meta-analysis of 33 studies.  The $10 million value represented the upper end of
the interquartile range from the Viscusi and Aldy (2003) meta-analysis of 43 studies. The mean
estimate of $5.5 million  (2000$)5 was also  consistent with the mean VSL of $5.4 million
estimated in the Kochi et al. (2006) meta-analysis. However, the Agency neither changed its
official guidance on the  use of VSL in rulemakings nor subjected the interim estimate to a
 1 After adjusting the VSL for a different currency year (2010$) and to account for income growth to 2015 of the $5.5
  million value, the VSL is $8.0 million.

                                           7-7

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scientific peer-review process through the Science Advisory Board (SAB) or other peer-review
group.

       During this time, the Agency continued work to update its guidance on valuing mortality
risk reductions, including commissioning a report from meta-analytic experts to evaluate
methodological questions raised by EPA and the SAB on combining estimates from the various
data sources. In addition, the Agency consulted several times with the Science Advisory Board
Environmental Economics Advisory Committee (SAB-EEAC) on the issue. With input from the
meta-analytic experts, the SAB-EEAC advised the Agency to update its guidance using specific,
appropriate meta-analytic techniques to combine estimates from unique data sources and
different studies, including those using different methodologies (i.e., wage-risk and stated
preference) (U.S. EPA-SAB, 2007).

       Until updated guidance is available, the Agency determined that a single, peer-reviewed
estimate applied consistently best reflects the SAB-EEAC advice it has received. Therefore, the
Agency has  decided to apply the VSL that was vetted and endorsed by the SAB in the Guidelines
for Preparing Economic Analyses (U.S. EPA, 2000)6 while the Agency continues its efforts to
update its guidance on this issue. This approach calculates a mean value across VSL estimates
derived from 26 labor market and contingent valuation studies published between  1974 and
1991.  The mean VSL across these  studies is $6.3 million (2000$).7 The Agency is committed to
using scientifically sound, appropriately reviewed evidence in valuing mortality risk reductions
and has made significant progress in responding to the  SAB-EEAC's specific recommendations.

       In implementing these rules, emission controls may lead to reductions in ambient PM2.5
below the National Ambient Air Quality Standards (NAAQS) for PM in some areas and assist
other  areas with attaining the PM NAAQS. Because the PM NAAQS RIAs also calculate PM
benefits, there are important differences worth noting in the design and  analytical objectives of
each RIA. The NAAQS RIAs illustrate the potential costs and benefits of attaining a new air
quality standard nationwide based on an array of emission control strategies for different sources.
In short, NAAQS RIAs hypothesize, but do not predict, the control strategies that States may
choose to enact when implementing a NAAQS. The setting of a NAAQS does not directly result
6 In revised Economic Guidelines (U.S. EPA, 2010c), EPA retained the VSL endorsed by the SAB with the
understanding that further updates to the mortality risk valuation guidance would be forthcoming in the near future.
Therefore, this report does not represent final agency policy.
7 This value is $4.8 million in 1990$. In this analysis, we adjust the VSL to account for a different currency year
($2010) and to account for income growth to 2015. After applying these adjustments to the $6.3 million value, the
VSL is $9.2 million.
                                           7-8

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in costs or benefits, and as such, the NAAQS RIAs are merely illustrative and are not intended to
be added to the costs and benefits of other regulations that result in specific costs of control and
emission reductions. However, some costs and benefits estimated in this RIA account for the
same air quality improvements as estimated in the illustrative PM2.5 NAAQS RIA.

       By contrast, the emission reductions for implementation rules are from a specific class of
well-characterized sources. In general, EPA is more confident in the  magnitude and location of
the emission reductions for implementation rules rather than illustrative NAAQS analyses.
Emission reductions achieved under these and other promulgated rules will ultimately be
reflected in the baseline of future NAAQS analyses, which would reduce the incremental costs
and benefits associated with attaining the NAAQS. EPA remains forward looking towards the
next iteration of the 5-year review cycle for the NAAQS, and as a result does not issue updated
RIAs for existing NAAQS that retroactively update the baseline for NAAQS implementation.
For more information on the relationship between the NAAQS and rules  such as analyzed here,
please see Section 1.2.4 of the SO2 NAAQS RIA (U.S. EPA, 2010a).
                                          7-9

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       Figure 7.1 illustrates the relative breakdown of the monetized PM2.5 health benefits.
      dult Mortality - Pope et
           al. 93%
                                                  /
                                                  K             Infant Mnrtalitx/n 4%
                                                                 Infant Mortality 0.4%


                                                                 Work Loss Days 0.2%

                                                                Iospital Admissions, Cardio
                                                                      0.2%
                                                                              jHospitalAdmissions, Resp
                                                                                      0.04%
                                                                                Asthma Exacerbation 0.01%
                                                                                Acute Bronchitis0.01%
                                                                                Upper Resp Symp 0.00%
                                                                                Lower Resp Symp 0.00%
                                                                                ERVisits, RespO.00%


Figure 7-1:   Breakdown of Monetized PMi.s Health Benefits using Mortality Function
               from Pope et al. (2002)*
*This pie chart breakdown is illustrative, using the results based on Pope et al. (2002) as an example. Using the
Laden et al. (2006) function for premature mortality, the percentage of total monetized benefits due to adult
mortality would be 97%. This chart shows the breakdown using a 3% discount rate, and the results would be similar
if a 7% discount rate was used.


        Table 7-2 provides a general summary of the monetized PM-related health benefits by

precursor, including the emission reductions and benefit-per-ton estimates at discount rates of

3% and 7%.8 Table 7-3 provides a summary of the reductions in health incidences as a result of

the pollution reductions. In Table 7-4, we provide the benefits using our anchor points of Pope

et al. and Laden et al. as well as the results from the expert elicitation on PM mortality. Figure

7-2 provides a visual representation of the range of PM2.s-related benefits estimates using
' To comply with Circular A-4, EPA provides monetized benefits using discount rates of 3% and 7% (OMB, 2003).
   These benefits are estimated for a specific analysis year (i.e., 2013), and most of the PM benefits occur within
   that year with two exceptions: acute myocardial infarctions (AMIs) and premature mortality. For AMIs, we
   assume 5 years of follow-up medical costs and lost wages. For premature mortality, we assume that there is a
   "cessation" lag between PM exposures and the total realization of changes in health effects. Although the
   structure of the lag is uncertain, EPA follows the advice of the SAB-HES to assume a segmented lag structure
   characterized by 30% of mortality reductions in the first year, 50% over years 2 to 5, and 20% over the years 6 to
   20 after the reduction in PM2 5 (U.S. EPA-SAB, 2004). Changes in the lag assumptions do not change the total
   number of estimated deaths but rather the timing of those deaths. Therefore, discounting only affects the AMI
   costs after the analysis year and the valuation of premature mortalities that occur after the analysis year. As such,
   the monetized benefits using a 7% discount rate are only approximately 10% less than the monetized benefits
   using a 3% discount rate.


                                                7-10

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concentration-response functions supplied by experts.  Figure 7-3 shows a breakdown of
monetized benefits by engine size.

       The benefit-per-ton estimates shown in this RIA are different than the benefit-per-ton
estimates cited in the 2010 final SI RICE RIA for two reasons. First, these estimates are based
on updated air quality modeling, which results in slightly higher benefits per ton for other non-
EGU point sources than the previous modeling.  Second, these estimates have been inflated to
2010$. Third, the new air quality modeling did not provide estimates associated with reducing
VOCs.  Since the reconsideration proposal, EPA has made several updates to the approach we
use to estimate mortality and morbidity benefits in the PM NAAQS RIAs (U.S. EPA, 2012a,b)
including updated epidemiology studies, health endpoints, and population data. Although we
have not re-estimated the benefits for this rule to apply this new approach, these updates
generally offset each other, and we anticipate that  the rounded benefits estimated for this rule are
unlikely to be different than those provided below.
Table 7-2:   General Summary of Monetized PMi.s-Related Health Co-Benefits Estimates
             for the CI RICE NESHAP Reconsideration (millions of 2010$)*
Pollutant
Emissions
Reductions
(tons)
Benefit
per ton
(Pope,
3%)
Benefit
per ton
(Laden,
3%)
Benefit
per ton
(Pope,
7%)
Benefit
per ton
(Laden,
7%)
Total Monetized
Benefits (millions
of 2010$ at 3%)
Total Monetized
Benefits (millions
of 2010$ at 7%)
PM2.5 Precursors
Direct
PM25

2,818

$270,000

$670,000

$240,000

$610,000
Total
$770 to $1,900
$770 to $1,900
$690 to $1,700
$690 to $1,700
 All estimates are for the analysis year (2013), and are rounded to two significant figures so numbers may not sum
across columns.  It is important to note that the monetized benefits do not include reduced health effects from direct
exposure to NO2, ozone exposure, ecosystem effects, or visibility impairment. All fine particles are assumed to have
equivalent health effects, but the benefit per ton estimates vary because each ton of precursor reduced has a different
propensity to form PM2 5. The monetized benefits incorporate the conversion from precursor emissions to ambient
fine particles. Confidence intervals are unavailable for this analysis because of the benefit-per-ton methodology.
Although we have not re-estimated the benefits for this rule to apply the updated methods in the PM NAAQS RIA
(U.S. EPA, 2012b), these updates generally offset each other, and we anticipate that the rounded benefits estimated
for this rule are unlikely to be different than those provided here.
                                             7-11

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Table 7-3:   Summary of Reductions in Health Incidences from PMi.s-Related Co-Benefits
              for CI RICE NESHAP Reconsideration*

Avoided Premature Mortality
  Pope et al.                                                                85
  Laden et al.                                                              220
Avoided Morbidity
  Chronic Bronchitis                                                        59
  Emergency Department Visits, Respiratory                                    66
  Hospital Admissions, Respiratory                                            16
  Hospital Admissions, Cardiovascular                                         35
  Acute Bronchitis                                                         130
  Lower Respiratory                                                        1,700
  Upper Respiratory                                                        1,300
  Minor Restricted Activity Days                                            68,000
  Work Loss Days                                                        12,000
  Asthma Exacerbation                                                      2,800
  Acute Myocardial Infarction                                                94
* All estimates are for the analysis year (2013) and are rounded to whole numbers with two significant figures. All
fine particles are assumed to have equivalent health effects because the scientific evidence is not yet sufficient to
allow differentiation of effects estimates by particle type. Confidence intervals are unavailable for this analysis
because of the benefit-per-ton methodology.
                                                7-12

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Table 7-4:  All PM2.5 Co-Benefits Estimates for the CI RICE NESHAP Reconsideration at
             discount rates of 3% and 7% in 2013 (in millions of 2010$)*

Benefit-per-ton
Pope et al.
Laden et al.
Benefit-per-ton
Expert A
Expert B
Expert C
Expert D
Expert E
Expert F
Expert G
Expert H
Expert I
Expert J
Expert K
Expert L
3%
Coefficients Derived from Epidemiology Literature
$770
$1,900
Coefficients Derived from Expert Elicitation
$2,000
$1,500
$1,500
$1,100
$2,500
$1,400
$920
$1,200
$1,500
$1,200
$290
$1,000
7%

$690
$1,700

$1,800
$1,400
$1,400
$970
$2,200
$1,200
$820
$1,000
$1,400
$1,100
$260
$910
 All estimates are rounded to two significant figures. The benefits estimates from the Expert Elicitation are provided
as a reasonable characterization of the uncertainty in the mortality estimates associated with the concentration-
response function. Confidence intervals are unavailable for this analysis because of the benefit-per-ton methodology
                                               7-13

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       $2,500
       $2,000
  —   $1,500
       $1,000
        $500
          $0
                    3% DR
                    7% DR
                PM2.5 mortality benefits estimates derived from 2 epidemiology functions and 12 expert functions
Figure 7-2:    Total Monetized PM2.5 Co-Benefits of CI RICE NESHAP Reconsideration in
                2013
*This graph shows the estimated benefits at discount rates of 3% and 7% using effect coefficients derived from the
Pope et al. study and the Laden et al study, as well as 12 effect coefficients derived from EPA's expert elicitation on
PM mortality. The results shown are not the direct results from the studies or expert elicitation; rather, the estimates
are based in part on the concentration-response function provided in those studies.
                                                 7-14

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                           Area >600 HP
                               33%
                                                      Major <500 HP
                                                          25%
                                                         Major >500 H
                                                              6%
                                            Area <600 HP
                                                36%
Figure 7-3:    Breakdown of Total Monetized PM2.5 Co-Benefits of CI RICE NESHAP
              Reconsideration by Engine Size

7.2    Unquantified Benefits

       The monetized benefits estimated in this RIA only reflect a subset of benefits attributable
to the health effect reductions associated with ambient fine particles. Data, time, and resource
limitations prevented EPA from quantifying the impacts to, or monetizing the benefits from
several important benefit categories, including benefits from reducing exposure to HAP, CO, and
ozone exposure, as well as ecosystem effects, and visibility impairment. This does not imply that
there are no benefits associated with these emission reductions. These benefits are described
qualitatively in this section.

7.2.1 HAP Benefits

     Even though emissions of air toxics from all sources in the U.S. declined by approximately
42% since 1990, the 2005 National-Scale Air Toxics Assessment (NAT A) predicts that most
Americans are exposed to ambient concentrations of air toxics at levels that have the potential to
cause adverse health effects (U.S. EPA, 201 lc).9 The levels of air toxics to which people are
exposed vary depending on where people live and work and the kinds of activities in which they
engage. In order to identify and prioritize air toxics, emission source types and locations that are
5 The 2005 NATA is available on the Internet at http://www.epa.gov/ttn/atw/nata2005/.
                                          7-15

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of greatest potential concern, U.S. EPA conducts the NATA.10 The most recent NAT A was
conducted for calendar year 2005 and was released in March 2011. NATA includes four steps:

        1) Compiling a national emissions inventory of air toxics emissions from outdoor sources

        2) Estimating ambient and exposure concentrations of air toxics across the United States

        3) Estimating population exposures across the United States

        4) Characterizing potential public health risk due to inhalation of air toxics including both
        cancer and noncancer effects

        Based on the 2005 NATA, EPA estimates that about 5% of census tracts nationwide have
increased cancer risks greater than 100 in a million.  The average national cancer risk is about 50
in a million. Nationwide, the key pollutants that contribute most to the overall  cancer risks are
formaldehyde and benzene.11  Secondary formation (e.g., formaldehyde forming from other
emitted pollutants) was the largest contributor to cancer risks, while stationary, mobile and
background sources contribute almost equal portions of the remaining cancer risk.

        Noncancer health effects can result from chronic,12 subchronic,13 or acute14 inhalation
exposures to air toxics, and include neurological, cardiovascular, liver, kidney,  and respiratory
effects  as well as effects on the immune and reproductive systems. According to the 2005
NATA, about three-fourths of the U.S. population was exposed to an average chronic
concentration of air toxics that has the potential for adverse noncancer respiratory health effects.
Results from the 2005 NATA indicate that acrolein is the primary driver for noncancer
respiratory risk.
10 The NATA modeling framework has a number of limitations that prevent its use as the sole basis for setting
   regulatory standards. These limitations and uncertainties are discussed on the 2005 NATA website. Even so,
   this modeling framework is very useful in identifying air toxic pollutants and sources of greatest concern, setting
   regulatory priorities, and informing the decision making process.  U.S. EPA. (2011) 2005 National-Scale Air
   Toxics Assessment, http://www.epa.gov/ttn/atw/nata2005/
11 Details about the overall confidence of certainty ranking of the individual pieces of NATA assessments including
   both quantitative (e.g., model-to-monitor ratios) and qualitative (e.g., quality of data, review of emission
   inventories) judgments can be found at http://www.epa.gov/ttn/atw/nata/roy/pagel6.html.
12 Chronic exposure is defined in the glossary of the Integrated Risk Information (IRIS) database
   (http://www.epa.gov/iris ) as repeated exposure by the oral, dermal, or inhalation route for more than
   approximately 10% of the life span in humans (more than approximately 90 days to 2 years in typically used
   laboratory animal species).
13 Defined in the IRIS database as repeated exposure by the oral, dermal, or inhalation route for more than 30 days,
   up to approximately 10% of the life span in humans (more than 30 days up to approximately 90 days in typically
   used laboratory animal species).
14Defined in the IRIS database as exposure by the  oral, dermal, or inhalation route for 24 hours or less.


                                              7-16

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       Figure 7-4 and Figure 7-5 depict the estimated census tract-level carcinogenic risk and
noncancer respiratory hazard from the assessment. It is important to note that large reductions in
HAP emissions may not necessarily translate into significant reductions in health risk because
toxicity varies by pollutant, and exposures may or may not exceed levels of concern.  For
example, acetaldehyde mass emissions are more than double acrolein emissions on a national
basis, according to EPA's 2005 National Emissions Inventory (NEI).  However, the Integrated
Risk Information System (IRIS)  reference concentration (RfC) for acrolein is considerably lower
than that for acetaldehyde, suggesting that acrolein could be potentially more toxic than
acetaldehyde. Thus, it is important to account for the toxicity and exposure, as well as the mass
of the targeted emissions.
Figure 7-4   Estimated Chronic Census Tract Carcinogenic Risk from HAP exposure
from outdoor sources (2005 NATA)
                                          7-17

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   Total Respiratory
   Hazard Index
      o-1
      1-5
   •1 5-10
   ^B 10-15
   ^H 15-20
   ^H >20
      Zero Population Tracts
Figure 7-5    Estimated Chronic Census Tract Noncancer (Respiratory) Risk from HAP
exposure from outdoor sources (2005 NATA)

       Due to methodology and time limitations under the court-ordered schedule, we were
unable to estimate the benefits associated with the hazardous air pollutants that would be reduced
as a result of these rules. In a few previous analyses of the benefits of reductions in HAP, EPA
has quantified the benefits of potential reductions in the incidences of cancer and non-cancer risk
(e.g., U.S. EPA, 1995). In those analyses, EPA relied on unit risk factors (URF) developed
through risk assessment procedures.15 These URFs are designed to be conservative, and as such,
are more likely to represent the high end of the distribution of risk rather than a best or most
likely estimate of risk. As the purpose of a benefit analysis is to describe the benefits most likely
to occur from a reduction in pollution, use of high-end, conservative risk estimates would
overestimate the benefits of the regulation. While we used high-end risk estimates in past
analyses, advice from the EPA's Science Advisory Board (SAB) recommended that we avoid
15The unit risk factor is a quantitative estimate of the carcinogenic potency of a pollutant, often expressed as the
   probability of contracting cancer from a 70-year lifetime continuous exposure to a concentration of one ug/m3 of
   a pollutant.
                                           7-18

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using high-end estimates in benefit analyses (U.S. EPA-SAB, 2002). Since this time, EPA has
continued to develop better methods for analyzing the benefits of reductions in HAP.

       As part of the second prospective analysis of the benefits and costs of the Clean Air Act
(U.S. EPA, 201 la), EPA conducted a case study analysis of the health effects associated with
reducing exposure to benzene in Houston from implementation of the Clean Air Act (ffic, 2009).
While reviewing the draft report, EPA's Advisory Council on Clean Air Compliance Analysis
concluded that "the challenges for assessing progress in health improvement as a result of
reductions in emissions of hazardous air pollutants (HAPs) are daunting... due to a lack of
exposure-response functions, uncertainties in emissions inventories and background levels, the
difficulty of extrapolating risk estimates to low doses and the challenges of tracking health
progress for diseases, such as cancer, that have long latency periods" (U.S. EPA-SAB, 2008).

       In 2009, EPA convened a workshop to address the inherent complexities, limitations, and
uncertainties in current methods to quantify the benefits of reducing HAP. Recommendations
from this workshop included identifying research priorities, focusing on susceptible and
vulnerable populations, and  improving dose-response relationships (Gwinn et al., 2011).

       In summary, monetization of the benefits  of reductions in cancer incidences requires
several important inputs, including central estimates of cancer risks, estimates  of exposure to
carcinogenic HAP, and estimates of the value of an avoided case of cancer (fatal and non-fatal).
Due to methodology and time limitations under the court-ordered schedule, we did not attempt to
monetize the health benefits of reductions in HAP in this analysis. Instead, we provide a
qualitative analysis of the health effects associated with the HAP anticipated to be reduced by
these rules.EPA remains committed to improving methods for estimating HAP benefits by
continuing to explore additional concepts of benefits, including changes in the distribution of
risk.

       Although numerous HAP may be emitted from CI RICE,  a few HAP account for over 90% of
the total mass of HAP emissions  emitted. These HAP are formaldehyde (72%), acetaldehyde (8%),
acrolein (7%), methanol (3%), and benzene (3%). Although we do not have estimates of emission
reductions for each HAP, this rule for existing CI engines is anticipated to reduce  1,000 tons of HAP
each year. Below we describe the health effects associated with the top 5 HAP by mass emitted from
CI RICE.
                                          7-19

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Formaldehyde

       Since  1987, EPA has classified formaldehyde as a probable human carcinogen based on
evidence in humans and in rats, mice, hamsters, and monkeys.16  Substantial additional research
since that time informs current scientific understanding of the health effects associated with
exposure to formaldehyde. These include recently published research conducted by the National
Cancer Institute (NCI) which found an increased risk of nasopharyngeal cancer and
lymphohematopoietic malignancies such as leukemia among workers exposed to
formaldehyde.17'18 In an analysis of the lymphohematopoietic cancer mortality  from an extended
follow-up of these workers, NCI confirmed an association between lymphohematopoietic cancer
risk and peak  formaldehyde exposures.19 A recent NIOSH study of garment workers also found
                                                                              90
increased risk of death due to leukemia among workers exposed to formaldehyde.   Extended
follow-up of a cohort of British chemical workers did not find evidence of an increase in
nasopharyngeal or lymphohematopoietic cancers, but a continuing statistically significant excess
in lung cancers was reported.21

       In the  past 15 years there has been substantial research on the inhalation dosimetry for
formaldehyde in rodents and primates by the Chemical Industry Institute of Toxicology (CUT,
now renamed the Hamner Institutes for Health Sciences), with a focus on use of rodent data for
refinement of the quantitative cancer dose-response assessment.22'23'24 CIIT's risk assessment of
16U.S. EPA. 1987. Assessment of Health Risks to Garment Workers and Certain Home Residents from Exposure to
   Formaldehyde, Office of Pesticides and Toxic Substances, April 1987. Docket EPA-HQ-OAR-2010-0162.
17Hauptmann, M..; Lubin, J. H.; Stewart, P. A.; Hayes, R. B.; Blair, A. 2003. Mortality from lymphohematopoetic
   malignancies among workers in formaldehyde industries.  Journal of the National Cancer Institute 95: 1615-
   1623. Docket EPA-HQ-OAR-2010-0162.
18Hauptmann, M..; Lubin, J. H.; Stewart, P. A.; Hayes, R. B.; Blair, A. 2004. Mortality from solid cancers among
   workers in formaldehyde industries.  American Journal of Epidemiology 159: 1117-1130. Docket EPA-HQ-
   OAR-2010-0162.
19Beane Freeman, L. E.; Blair, A.; Lubin, J. H.; Stewart, P. A.; Hayes, R. B.; Hoover, R. N.; Hauptmann, M. 2009.
   Mortality from lymphohematopoietic malignancies among workers in formaldehyde industries: The National
   Cancer Institute cohort. J. National Cancer Inst. 101: 751-761. Docket EPA-HQ-OAR-2010-0162.
20Pinkerton, L. E. 2004. Mortality among a cohort of garment workers exposed to formaldehyde: an update.
   Occup. Environ. Med. 61: 193-200. Docket EPA-HQ-OAR-2010-0162.
21 Coggon, D, EC Harris, J Poole, KT Palmer. 2003. Extended follow-up of a cohort of British chemical workers
   exposed to formaldehyde. J National Cancer Inst. 95:1608-1615. Docket EPA-HQ-OAR-2010-0162.
22 Conolly, RB, JS Kimbell, D Janszen, PM Schlosser, D Kalisak, J Preston, and FJ Miller. 2003. Biologically
   motivated computational modeling of formaldehyde carcinogenicity in the F344 rat. Tox Sci 75: 432-447.
   Docket EPA-HQ-OAR-2010-0162.
23 Conolly, RB, JS Kimbell, D Janszen, PM Schlosser, D Kalisak, J Preston, and FJ Miller. 2004. Human respiratory
   tract cancer risks of inhaled formaldehyde: Dose-response predictions derived from biologically-motivated
   computational modeling of a combined rodent and human dataset. Tox Sci 82: 279-296. Docket EPA-HQ-OAR-
   2010-0162.
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formaldehyde incorporated mechanistic and dosimetric information on formaldehyde. These data
were modeled using a biologically-motivated two-stage clonal growth model for cancer and also
a point of departure based on a Benchmark Dose approach.  However, it should be noted that
recent research published by EPA indicates that when two-stage modeling assumptions are
varied, resulting dose-response estimates can vary by several orders of magnitude.25'26'27'28 These
findings are not supportive of interpreting the CUT model results as providing a conservative
(health protective) estimate of human risk.29 EPA research also examined the contribution of the
two-stage modeling for formaldehyde towards characterizing the relative weights of key events
in the mode-of-action of a carcinogen.  For example, the model-based inference in the published
CUT study that formaldehyde's direct mutagenic action is not relevant to the compound's
tumorigenicity was found not to hold under variations of modeling assumptions.30

       Based on the developments of the last decade, in 2004, the working group  of the IARC
concluded that formaldehyde is carcinogenic to humans (Group  1), on the basis of sufficient
evidence in humans and sufficient evidence in experimental animals - a higher classification than
previous IARC evaluations.  After reviewing the currently available epidemiological  evidence,
the IARC (2006) characterized the human evidence for formaldehyde carcinogenicity as
"sufficient," based upon the data on nasopharyngeal cancers; the epidemiologic evidence on
leukemia was characterized as "strong."31

       Formaldehyde exposure also causes a range of noncancer health effects, including
irritation of the eyes (burning and watering of the eyes), nose and throat. Effects from repeated

24 Chemical Industry Institute of Toxicology (CUT). 1999. Formaldehyde: Hazard characterization and dose-response
   assessment for carcinogenicity by the route of inhalation. CUT, September 28, 1999. Research Triangle Park,
   NC. Docket EPA-HQ-OAR-2010-0162.
25 U.S. EPA. Analysis of the Sensitivity and Uncertainty in2-Stage Clonal Growth Models for Formaldehyde with
   Relevance to Other Biologically-Based Dose Response (BBDR) Models. U.S. Environmental Protection Agency,
   Washington, D.C., EPA/600/R-08/103, 2008. Docket EPA-HQ-OAR-2010-0162.
26 Subramaniam, R; Chen, C; Crump, K; .et .al. (2008) Uncertainties in biologically-based modeling of
   formaldehyde-induced cancer risk: identification of key issues. Risk  Anal 28(4): 907-923. Docket EPA-HQ-
   OAR-2010-0162.
27 Subramaniam RP; Crump KS; Van Landingham C; et. al. (2007) Uncertainties in the CUT model for
   formaldehyde-induced carcinogenicity in the rat: A limited sensitivity analysis-I. Risk Anal, 27: 1237-1254.
   Docket EPA-HQ-OAR-2010-0162.
28 Crump, K; Chen, C; Fox, J; .et .al. (2008) Sensitivity analysis of biologically motivated model for formaldehyde-
   induced respiratory cancer in humans. Ann Occup Hyg 52:481-495. Docket EPA-HQ-OAR-2010-0162.
29 Crump, K; Chen, C; Fox, J; .et .al. (2008) Sensitivity analysis of biologically motivated model for formaldehyde-
   induced respiratory cancer in humans. Ann Occup Hyg 52:481-495. Docket EPA-HQ-OAR-2010-0162.
30 Subramaniam RP; Crump KS; Van Landingham C; et. al. (2007) Uncertainties in the CUT model for
   formaldehyde-induced carcinogenicity in the rat: A limited sensitivity analysis-I. Risk Anal, 27: 1237-1254.
   Docket EPA-HQ-OAR-2010-0162.
31 International Agency for Research on Cancer (2006) Formaldehyde, 2-Butoxyethanol and l-tert-Butoxypropan-2-
   ol. Monographs Volume 88. World Health Organization, Lyon, France. Docket EPA-HQ-OAR-2010-0162.

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exposure in humans include respiratory tract irritation, chronic bronchitis and nasal epithelial
lesions such as metaplasia and loss of cilia. Animal studies suggest that formaldehyde may also
cause airway inflammation - including eosinophil infiltration into the airways. There are several
studies that suggest that formaldehyde may increase the risk of asthma - particularly in the
young.32'33

        The above-mentioned rodent and human studies, as well as mechanistic information and
their analyses, were evaluated in EPA's recent Draft Toxicological Review of Formaldehyde -
Inhalation  Assessment through the Integrated Risk Information System (IRIS) program. This
draft IRIS  assessment was released in June 2010 for public review and comment and external
peer review by the National Research Council (NRC).  The NRC released their review report in
April 2011 (http://www.nap.edu/catalog.php7record_id=l3142).  The EPA is currently revising
the draft assessment in response to this review.

Acetaldehyde

        Acetaldehyde is classified in EPA's IRIS database as a probable human carcinogen, based
on nasal tumors in rats, and is considered toxic by the inhalation, oral, and intravenous routes.34
Acetaldehyde is reasonably anticipated to be a human carcinogen by the U.S. Department of
Health and Human Services (DHHS) in the 11* Report on Carcinogens and is classified as
possibly carcinogenic to humans (Group 2B) by the IARC.35'36  The primary noncancer effects of
exposure to acetaldehyde vapors include irritation of the eyes, skin, and respiratory tract.37
32 Agency for Toxic Substances and Disease Registry (ATSDR). 1999. Toxicological profile for Formaldehyde.
   Atlanta, GA: U.S. Department of Health and Human Services, Public Health Service.
   http://www.atsdr.cdc.gov/toxprofiles/tpl 11.html. Docket EPA-HQ-OAR-2010-0162.
33 WHO (2002) Concise International Chemical Assessment Document 40: Formaldehyde. Published under the joint
   sponsorship of the United Nations Environment Programme, the International Labour Organization, and the
   World Health Organization, and produced within the framework of the Inter-Organization Programme for the
   Sound Management of Chemicals.  Geneva. Docket EPA-HQ-OAR-2010-0162.
34 U.S. Environmental Protection Agency (U.S. EPA). 1991. Integrated Risk Information System File of
   Acetaldehyde. Research and Development, National Center for Environmental Assessment, Washington, DC.
   This material is available electronically at http://www.epa.gov/iris/subst/0290.htm.
35 U.S. Department of Health and Human Services National Toxicology Program 11th Report on Carcinogens
   available at: http://ntp.niehs.nih.gov/go/16183 .
36 International Agency for Research on Cancer (IARC). 1999. Re-evaluation of some organic chemicals, hydrazine,
   and hydrogen peroxide. IARC Monographs on the Evaluation of Carcinogenic Risk of Chemical to Humans,
   Vol 71. Lyon, France.
37 U.S. Environmental Protection Agency (U.S. EPA). 1991. Integrated Risk Information System File of
   Acetaldehyde. Research and Development, National Center for Environmental Assessment, Washington, DC.
   This material is available electronically at http://www.epa.gov/iris/subst/0290.htm.
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Acrolein

        EPA determined in 2003 that the human carcinogenic potential of acrolein could not be
determined because the available data were inadequate.  No information was available on the
carcinogenic effects of acrolein in humans and the animal data provided inadequate evidence of
carcinogen!city.38 The IARC determined in  1995 that acrolein was not classifiable as to its
carcinogenicity in humans.39

        Acrolein is extremely acrid and irritating to humans when inhaled, with acute exposure
resulting in upper respiratory tract irritation, mucus hypersecretion and congestion. The intense
irritancy of this carbonyl has been demonstrated during controlled tests in human subjects, who
suffer intolerable eye and nasal mucosal sensory reactions within minutes of exposure.40  These
data and additional studies regarding acute effects of human exposure to acrolein are
summarized in EPA's 2003 IRIS Human Health Assessment for acrolein.41  Evidence available
from studies in humans indicate that levels as low as 0.09 ppm (0.21 mg/m3) for five minutes
may elicit subjective complaints of eye irritation with increasing concentrations leading to more
extensive eye, nose and respiratory symptoms.42 Lesions to the lungs and upper respiratory tract
of rats,  rabbits, and hamsters have been observed after subchronic exposure to acrolein.43 Acute
exposure effects in animal studies report bronchial hyper-responsiveness.44  In a recent study, the
acute respiratory irritant effects of exposure to 1.1 ppm acrolein were more  pronounced in mice
with allergic airway disease by comparison to non-diseased mice which also showed decreases in
38 U.S. Environmental Protection Agency (U.S. EPA). 2003. Integrated Risk Information System File of Acrolein.
   Research and Development, National Center for Environmental Assessment, Washington, DC. This material is
   available at http://www.epa.gov/iris/toxreviews/0364tr.pdf.
39 International Agency for Research on Cancer (IARC). 1995. Monographs on the evaluation of carcinogenic risk of
   chemicals to humans, Volume 63, Dry cleaning, some chlorinated solvents and other industrial chemicals, World
   Health Organization, Lyon, France.
40U.S. Environmental Protection Agency (U.S. EPA). 2003. Integrated Risk Information System File of Acrolein.
   EPA/635/R-03/003. p. 10. Research and Development, National Center for Environmental Assessment,
   Washington, DC. This material is available at http://www.epa.gov/iris/toxreviews/0364tr.pdf.
41U.S. Environmental Protection Agency (U.S. EPA). 2003. Integrated Risk Information System File of Acrolein.
   2003. Research and Development, National Center for Environmental Assessment, Washington, DC.
   EPA/635/R-03/003. This material is available at http://www.epa.gov/iris/toxreviews/0364tr.pdf.
42 U.S. Environmental Protection Agency (U.S. EPA). 2003. Integrated Risk Information System File of Acrolein.
   Research and Development, National Center for Environmental Assessment, Washington, DC. EPA/635/R-
   03/003. p. 11. This material is available at http://www.epa.gov/iris/toxreviews/0364tr.pdf.
43 U.S. Environmental Protection Agency (U.S. EPA). 2003. Integrated Risk Information System File of Acrolein.
   Research and Development, National Center for Environmental Assessment, Washington, DC. EPA/635/R-
   03/003. This material is available at http://www.epa.gov/iris/toxreviews/0364tr.pdf.
44 U.S. Environmental Protection Agency (U.S. EPA). 2003. Integrated Risk Information System File of Acrolein.
   Research and Development, National Center for Environmental Assessment, Washington, DC. EPA/635/R-
   03/003. This material is available at http://www.epa.gov/iris/toxreviews/0364tr.pdf.
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respiratory rate.45 Based on these animal data and demonstration of similar effects in humans
(i.e., reduction in respiratory rate), individuals with compromised respiratory function (e.g.,
emphysema, asthma) are expected to be at increased risk of developing adverse responses to
strong respiratory irritants such as acrolein.

Benzene

        The EPA's IRIS database lists benzene as a known human carcinogen (causing leukemia)
by all routes of exposure, and concludes that exposure is associated with additional health effects,
including genetic changes in both humans and animals and increased proliferation of bone marrow
cells in mice.46'47'48 EPA states in its IRIS  database that data indicate a causal relationship between
benzene exposure and acute lymphocytic leukemia and suggest a relationship between benzene
exposure and chronic non-lymphocytic leukemia and chronic lymphocytic leukemia. The IARC
has determined that benzene is a human carcinogen and the DHHS has characterized benzene as a
known human carcinogen.49'50 A number of adverse noncancer health effects including blood
disorders, such as preleukemia and aplastic anemia, have also been associated with long-term
exposure to benzene.51'52
45 Morris JB, Symanowicz PT, Olsen JE, et al. 2003. Immediate sensory nerve-mediated respiratory responses to
   irritants in healthy and allergic airway-diseased mice. J Appl Physiol 94(4): 1563-1571.
46 U.S. Environmental Protection Agency (U.S. EPA). 2000. Integrated Risk Information System File for Benzene.
   Research and Development, National Center for Environmental Assessment, Washington, DC. This material is
   available electronically at: http://www.epa.gov/iris/subst/0276.htm .
47 International Agency for Research on Cancer, IARC monographs on the evaluation of carcinogenic risk of
   chemicals to humans, Volume 29, Some industrial chemicals and dyestuffs, International Agency for Research
   on Cancer, World Health Organization, Lyon, France, p. 345-389, 1982.
48 Irons, R.D.; Stillman, W.S.; Colagiovanni, D.B.; Henry, V.A. (1992) Synergistic action of the benzene metabolite
   hydroquinone on myelopoietic stimulating activity of granulocyte/macrophage colony-stimulating factor in vitro,
   Proc. Natl. Acad. Sci. 89:3691-3695.
49 International Agency for Research on Cancer (IARC). 1987. Monographs on the evaluation of carcinogenic risk
   of chemicals to humans, Volume 29, Supplement 7, Some industrial chemicals and dyestuffs, World Health
   Organization, Lyon, France.
50 U.S. Department of Health and Human Services National Toxicology Program 11th Report on Carcinogens
   available at: http://ntp.niehs.nih.gov/go/16183  .
51 Aksoy, M. (1989). Hematotoxicity and carcinogenicity of benzene. Environ. Health Perspect. 82:193-197.
52 Goldstein, B.D. (1988). Benzene toxicity. Occupational medicine. State of the Art Reviews. 3:541-554.


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Methanol

        Exposure of humans to methanol by inhalation or ingestion may result in central nervous
system depression and degenerative changes in the brain and visual systems. After inhaled or
ingested, methanol is converted to formate, a highly toxic metabolite that within the course of a
few hours can cause narcosis, metabolic acidosis, headaches, severe abdominal and leg pain and
visual degeneration that can lead to blindness.53

        Methanol has been demonstrated to cause developmental toxicity in rats and mice, and
reproductive and developmental toxicity in monkeys. A number of studies have reported adverse
effects in the offspring of rats and mice exposed to methanol by inhalation including reduced
weight of brain pituitary gland, thymus, thyroid, reduced overall fetal body weight and increased
incidence of extra ribs and cleft palate.54'55'56 Methanol inhalation studies using rhesus monkeys
have  reported a decrease in the length of pregnancy, and limited evidence of impaired learning
ability in offspring.57'58'59'60  EPA has not classified methanol with respect to its carcinogenicity.

Other Air Toxics

        In addition to the compounds described above, other toxic compounds might be affected
by these rules. Information regarding the health effects  of those compounds can be found in
EPA's IRIS database.61
53Rowe, VK and McCollister, SB. 1981. Alcohols. In: Patty's Industrial Hygiene and Toxicology, 3rd ed. Vol. 2C,
   GD Clayton, FE Clayton, Eds. John Wiley & Sons, New York, pp. 4528-4541.
54 New Energy Development Organization (NEDO).  1987. Toxicological research of methanol as a fuel for power
   station: summary report on tests with monkeys, rats and mice. Tokyo, Japan.
55Nelson, BK; Brightwell, WS; MacKenzie, DR; Khan, A; Burg, JR; Weigel, WW; Goad, PT. 1985. Teratological
   assessment of methanol and ethanol at high inhalation levels in rats. Toxicol Sci, 5: 727-736.
56 Rogers, JM; Barbee, BD; Rehnberg, BF. 1993. Critical periods of sensitivity for the developmental toxicity of
   inhaled methanol. Teratology, 47:  395.
57 Burbacher, T; Grant, K; Shen, D; Damian, D; Ellis, S; Liberate, N. 1999. Reproductive and offspring
   developmental effects following maternal inhalation exposure to methanol in nonhuman primates Part II:
   developmental effects in infants exposed prenatally to methanol. Health Effects Institute. Cambridge, MA.
58 Burbacher, T; Shen, D; Grant, K; Sheppard, L; Damian, D; Ellis,  S; Liberate, N. 1999. Reproductive and offspring
   developmental effects following maternal inhalation exposure to methanol in nonhuman primates Part I:
   methanol disposition and reproductive toxicity in adult females. Health Effects Institute. Cambridge, MA.
59Burbacher, TM; Grant, KS; Shen, DD; Sheppard, L; Damian, D; Ellis, S; Liberate, N. 2004. Chronic maternal
   methanol inhalation in nonhuman primates (Macaca fascicularis): reproductive performance and birth outcome.
   Neurotoxicol Teratol, 26: 639-650.
60Burbacher, TM; Shen, DD; Lalovic, B; Grant, KS; Sheppard, L; Damian, D; Ellis, S; Liberate, N. 2004. Chronic
   maternal methanol inhalation in nonhuman primates (Macaca fascicularis): exposure and toxicokinetics prior to
   and during pregnancy. Neurotoxicol Teratol, 26: 201-221.
61 U.S. EPA Integrated Risk Information System (IRIS) database is available at: www.epa.gov/iris


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7.2.2  Ozone Co-Benefits
       In the presence of sunlight, NOx and VOCs can undergo a chemical reaction in the
atmosphere to form ozone. Reducing ambient ozone concentrations is associated with
significant human health benefits, including mortality and respiratory morbidity (U.S. EPA,
2008a). Epidemiological researchers have associated ozone exposure with adverse health effects
in numerous lexicological, clinical and epidemiological studies (U.S. EPA, 2006c). These health
effects include respiratory morbidity such as fewer asthma attacks, hospital and ER visits, school
loss days, as well as premature mortality.
7.2.3  Carbon Monoxide Co-Benefits
       Carbon monoxide in ambient  air is formed primarily by the incomplete combustion of
carbon-containing fuels and photochemical reactions in the atmosphere. The amount of CO emitted
from these reactions, relative to carbon dioxide (CO2), is sensitive to conditions in the combustion
zone, such as fuel oxygen content, burn temperature, or mixing time. Upon inhalation, CO diffuses
through the respiratory system to the blood, which can cause hypoxia (reduced oxygen availability).
Carbon monoxide can elicit a broad range of effects in multiple tissues and organ systems that are
dependent upon concentration and duration of exposure. The Integrated Science Assessment for
Carbon Monoxide (U.S. EPA, 2010a) concluded that short-term exposure to CO is "likely to have a
causal relationship" with cardiovascular morbidity, particularly in individuals with coronary heart
disease. Epidemiologic studies associate short-term CO exposure with increased risk of emergency
department visits and hospital  admissions. Coronary heart disease includes those who have angina
pectoris (cardiac chest pain), as well as those who have experienced a heart attack. Other
subpopulations potentially at risk include individuals with diseases such as chronic obstructive
pulmonary disease (COPD), anemia, or diabetes, and individuals in very early or late life  stages, such
as older adults or the developing young. The evidence is suggestive of a causal relationship between
short-term exposure  to CO and respiratory morbidity and mortality. The evidence is also suggestive
of a causal relationship for birth outcomes and developmental effects following long-term exposure
to CO, and for central nervous system effects linked to short- and long-term exposure to CO.

7.2.4  Visibility Impairment Co-Benefits

       Reducing secondary formation of PM2.5 would improve visibility throughout the U.S.
Fine particles with significant light-extinction efficiencies include sulfates, nitrates, organic
carbon, elemental carbon, and soil (Sisler,  1996). Suspended particles and gases degrade
visibility by scattering and absorbing light. Higher visibility impairment levels in the East are
due to generally higher concentrations of fine particles, particularly sulfates, and higher average
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relative humidity levels. Visibility has direct significance to people's enjoyment of daily
activities and their overall sense of wellbeing. Good visibility increases the quality of life where
individuals live and work, and where they engage in recreational activities. Previous analyses
(U.S. EPA, 2006; U.S. EPA, 201 la; U.S. EPA, 201 Ib) show that visibility benefits are a
significant welfare benefit category. Without air quality modeling, we are unable to estimate
visibility related benefits, nor are we able to determine whether VOC emission reductions would
be likely to have a significant impact on visibility in urban areas or Class I areas.
       7.3    Characterization of Uncertainty in the Monetized Co-Benefits
       In any complex analysis, there are likely to be many sources of uncertainty. Many inputs
are used to derive the final estimate of economic benefits, including emission inventories, air
quality models (with their associated parameters and inputs), epidemiological estimates of
concentration-response (C-R) functions, estimates of values, population estimates, income
estimates, and estimates of the future state of the world (i.e., regulations, technology, and human
behavior).  For some parameters or inputs it may be possible to provide a statistical
representation of the underlying uncertainty distribution. For other parameters or inputs, the
necessary information is not available. As discussed in the PIVb.s NAAQS RIA (Table 5.5) (U.S.
EPA, 2006), there are a variety of uncertainties associated with these PM benefits. Therefore,
the estimates of annual benefits should be viewed as representative of the magnitude of benefits
expected, rather than the actual benefits that would occur every year.

       It is important to note that the monetized benefit-per-ton estimates used here reflect
specific geographic patterns of emissions reductions and specific air quality and benefits
modeling assumptions. For example, these estimates do not reflect local variability in population
density, meteorology, exposure, baseline health incidence rates, or other local factors. Use of
these $/ton values to estimate benefits may lead to higher or lower benefit estimates than if
benefits were calculated based on direct air quality modeling. Great care should be taken in
applying these estimates to emission reductions occurring in any specific location, as these are
all based on national or broad regional emission reduction programs and therefore represent
average benefits-per-ton over the entire United States. The benefits-per-ton for emission
reductions in specific locations may be very different than the estimates presented here. For more
information, see the TSD describing the calculation of the new benefit-per-ton estimates (U.S.
EPA, 2012).
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       PM2.5 mortality benefits are the largest benefit category that we monetized in this
analysis. To better characterize the uncertainty associated with mortality impacts that are
estimated to occur in areas with low baseline levels of PM2.5, we included the LML assessment.
For this analysis, policy-specific air quality data is not available due to time or resource
limitations, thus we are unable to estimate the percentage of premature mortality associated with
this specific rule's emission reductions at each PM2.5 level. As a surrogate measure of mortality
impacts, we provide the percentage of the population exposed at each PM2.5 level using the
source apportionment modeling used to calculate the benefit-per-ton estimates for this sector.  A
very large proportion of the population is exposed at or above the lowest LML of the cohort
studies (Figures 7-6 and 7-7), increasing our confidence in the PM mortality analysis. Figure 7-6
shows a bar chart of the percentage of the population exposed to various air quality levels in the
pre- and post-policy policy. Figure 7-7 shows a cumulative distribution function of the same
data.  Both figures identify the LML for each of the major cohort studies. As the policy shifts
the distribution of air quality levels, fewer people are exposed to PM25 levels  at or above the
LML.  Using the Pope et al. (2002) study, the 77% of the population is exposed to annual mean
PM2.5 levels at or above the LML of 7.5 |ig/m3. Using the Laden et al. (2006) study, 25% of the
population is exposed above the LML of 10 |ig/m3. As we model avoided premature deaths
among populations exposed to levels of PM2 5, we have lower confidence in levels below the
LML for each study. It is important to emphasize that we have high confidence in PM2 s-related
effects down to the lowest LML of the major cohort studies.  Just because we have greater
confidence in the benefits above the LML, this does not mean that we have no confidence that
benefits occur below the LML.

       A large fraction of the baseline exposure occurs below the level of the National Ambient
Air Quality Standard (NAAQS) for annual PM2.5 at 15 |ig/m3, which was set in 2006. It is
important to emphasize that NAAQS are not set at a level of zero risk. Instead, the NAAQS
reflect the level determined by the Administrator to be protective of public health within an
adequate margin of safety, taking into consideration effects on susceptible populations. While
benefits occurring below the standard may be less certain than those occurring above the
standard, EPA considers them to be legitimate components of the total benefits estimate.
                                          7-28

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        25%
        20%
      I
      c
      o

      1

      I
      o
      Q.

      •5




      I
      V


      S
      0.
15%
10%
         5%
                LML of Pope et al. 2002 study
                                                                        LML of Laden et al. 2006 study
                                                                        I
                                      6    7    7.5    8    9    10    12



                                        Baseline annual mean PM2 s level (|jg/m3)
                                                                        14   16    18    20    22
 Among the populations exposed to PM25 in the baseline:


            77% are exposed to PM,5 levels at or above the LML of the Pope et al. (2002) study


            25% are exposed to PM25 levels at or above the LML of the Laden et al. (2006) study
Figure 7-6.    Percentage of Adult Population by Annual Mean PMi.s Exposure in the

                Baseline
                                                 7-29

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       100%
       90°,
       so;
       70%
    "5  60%
       50°-i
       40%
    JS  30%
       20%
       10%
        0% r-
                LML of Pope et al. 2002 study
                                              7
LML of Laden et al. 2006 study
            I    2    3    4   5    6    7   7.5   8    9    10   12    14   16   18   20   22
                                   Baseline annual mean PM2.s level (|jg/m3)

Among the populations exposed to PM25 in the baseline:
          77% are exposed to PM2s levels at or above the LML of the Pope et al. (2002) study
          25% are exposed to PM25 levels at or above the LML of the Laden et al. (2006) study
Figure 7-7.   Cumulative Distribution of Adult Population by Annual Mean
              Exposure in the Baseline
       Above we present the estimates of the total benefits, based on our interpretation of the
best available scientific literature and methods and supported by the SAB-HES and the NAS
(NRC, 2002). The benefits estimates are subject to a number of assumptions and uncertainties.
For example, for key assumptions underlying the estimates for premature mortality, which
typically account for more than 90% of the total benefits, we were able to quantify include the
following:
           PM2.5 benefits were derived through benefit per-ton estimates, which do not reflect
           local variability in population density, meteorology, exposure, baseline health
           incidence rates, or other local factors that might lead to an over-estimate or under-
           estimate of the actual benefits of controlling directly emitted fine particulates. We do
           not have data on the specific  location of the air quality changes associated with this
           rulemaking;  as such, it is not feasible to estimate the proportion of benefits occurring
           in different locations, such as designated nonattainment areas.  In addition, the
           benefit-per-ton estimates are  based on emissions from existing sources. To the extent
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          that the geographic distribution of the emissions reductions for this rule are different
          than the modeled emissions, the benefits may be underestimated or overestimated. In
          general, there is inherently more uncertainty for new sources, which may not be
          included in the emissions inventory, than existing sources.
       2.  We assume that all fine particles, regardless of their chemical composition, are
          equally potent in causing premature mortality.  This is an important assumption,
          because PM2.5 produced via transported precursors emitted from EGUs may differ
          significantly from direct PIVb.s released from diesel engines and other industrial
          sources, but no clear scientific grounds exist for supporting differential effects
          estimates by particle type.
       3.  We assume that the health impact function for fine particles is linear  down to the
          lowest air quality levels modeled in this analysis. Thus, the estimates include health
          benefits from reducing fine particles in areas with varied concentrations of PM^^
          including both regions that are in attainment with fine particle standard and those that
          do not meet the standard down to the lowest modeled concentrations.
       4.  To characterize the uncertainty in the relationship between PM2.5 and premature
          mortality (which typically accounts for 85% to 95% of total monetized benefits), we
          include a set of twelve estimates based on results of the expert elicitation study in
          addition to our core estimates. Even these multiple characterizations omit the
          uncertainty in air quality estimates, baseline incidence rates, populations exposed and
          transferability of the effect estimate to diverse locations.  As a result, the reported
          confidence intervals and range of estimates give an incomplete picture about the
          overall uncertainty in the PM2.5 estimates.  This information should be interpreted
          within the context of the larger uncertainty surrounding the entire analysis.  For more
          information on the uncertainties associated with PlV^.s benefits, please consult the
          PM2.5NAAQS  RIA (Table 5.5).


       This RIA does not  include the type of detailed uncertainty assessment found in the PM
NAAQS RIA because we lack the necessary air quality input and monitoring data to run the
benefits model. In addition, we have not conducted any air quality modeling for this rule.
Moreover, it was not possible to develop benefit-per-ton metrics  and associated  estimates of
uncertainty using the benefits estimates from the PM RIA because of the significant differences
between the sources affected in that rule and those regulated here. However, the results of the
Monte Carlo  analyses of the health and welfare benefits presented in Chapter 5 of the PM RIA
can provide some evidence of the uncertainty surrounding the benefits results presented in this
analysis.
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7.4    Comparison of Co-Benefits and Costs
       Using a 3% discount rate, we estimate the total combined monetized co-benefits of the
reconsidered CI RICE NESHAP to be $770 million to $1.9 billion in the implementation year
(2013). Using a 7% discount rate, we estimate the total monetized co-benefits of the reconsidered
CI RICE NESHAP proposal to be $690 million to $1.7 billion. The annualized social costs of the
reconsidered CI RICE NESHAP are $373 million (2010$) at a 7% interest rate.62 The annualized
social costs of the reconsidered NESHAP are $372 million in 2008$.  As stated in Section 4 of
this RIA, the costs in 2008 dollars can be updated to 2010 dollars by applying the ratio of the
2010 Marshall & Swift (M&S) annual cost index and the 2008 M&S annual cost index, which is
1,457.4/1,449.3 = 1.01.  Thus, the net benefits are $400 million to $1.5 billion at a 3% discount
rate and $320 million to $1.3 billion at a 7% discount  rate. All  of these estimates are in 2010$ for
the year 2013.

       Table 7-5 shows a summary of the monetized co-benefits, social costs, and net benefits
for the reconsidered CI RICE NESHAP, respectively.  Figures 7-8 and 7-9 show the full range of
net benefits estimates (i.e., annual co-benefits minus annualized costs) utilizing the 14 different
PM2.5 mortality functions at discount rates of 3% and 7%. In addition, the benefits from reducing
14,000 tons of carbon monoxide and 1,000 tons  of HAP each year from existing CI RICE have
not been included in these estimates. EPA believes that the co-benefits are likely to exceed the
costs under this rulemaking even when taking into account uncertainties in the cost and benefit
estimates.

Table 7-5.     Summary of the Monetized Benefits, Compliance Costs and Net benefits for
the 2010 Rule with the Final Amendments to the Stationary CI Engine NESHAP in 2013
(millions of 2010 dollars)3

3% Discount Rate
7% Discount Rate

Total Monetized Benefits2
Total Compliance Costs3
Net Benefits
$770 to $1,900
$373
$400 to $1,500
$690 to $1,700
$373
$320 to $1,300
                                Health effects from HAP exposure
Non-monetized Benefits              Health effects from PM25 exposure from VOC emissions
                                Ecosystem effects
 ! For more information on the annualized social costs, please refer to Section 5 of this RIA.

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                                       Visibility impairment
 All estimates are for the implementation year (2013), and are rounded to two significant figures. The annual ized
  compliance costs are $373 million in 2010$ as noted earlier in this RIA. These costs, presented in 2008 dollars,
  can be updated to 2010 dollars by applying the ratio of the 2010 Marshall & Swift (M&S) annual cost index and
  the 2008 M&S annual cost index, which is 1,457.4/1,449.3 = 1.01.  Compliance costs are used as an
  approximation for social costs in this RIA.

2 The total monetized benefits reflect the human health benefits associated with reducing exposure to PM2 5 through
  reductions of PM25 precursors such as directly emitted fine particles. Human health benefits are shown as a range
  from Pope et al. (2002) to Laden et al. (2006). These models assume that all fine particles, regardless of their
  chemical composition, are equally potent in causing premature mortality because the scientific evidence is not yet
  sufficient to allow differentiation of effects estimates by particle type. Although we have not re-estimated the
  benefits for this rule to apply the updated methods in the PM NAAQS RIA (U.S. EPA, 2012b), these updates
  generally offset each other, and we anticipate that the rounded benefits estimated for this rule are unlikely to be
  different than those provided here.
  The engineering compliance costs are annualized using a 7 percent discount rate.
                                                  7-33

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      $2,500
      $2,000
      $1,500
      $1,000
       $500
        $0
      -$500
           X~


           X

               Cost estimate combined with total monetized benefits estimates derived from 2 epidemiology functions and 12 expert
                                                    functions
Figure 7-8.    Net Benefits for CI RICE NESHAP Reconsideration at 3% discount rate*
*Net Benefits are quantified in terms of PM25 at a 3% discount rate for 2013 and are in 2010$. This graph shows 14
benefits estimates combined with the cost estimate.  All fine particles are assumed to have equivalent health effects,
but the benefit per ton estimates vary because each ton of precursor reduced has a different propensity to become
PM2 5.  The monetized benefits incorporate the conversion from precursor emissions to ambient fine particles.
                                                  7-34

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     $2,500
     $2,000
     $1,500
            •~
           •
   S
   ~ $1,000  "
      $500
        $0
      -$500
           •
              Cost estimate combined with total monetized benefits estimates derived from 2 epidemiology functions and 12 expert
                                                 functions
                                                                                              -•
Figure 7-9.   Net Benefits for CI RICE NESHAP Reconsideration at 7% discount rate*
*Net Benefits are quantified in terms of PM2 5 benefits at a 7% discount rate at a 7% discount rate for 2013 and are
in 2010$. This graph shows 14 benefits estimates combined with the cost estimate.  All fine particles are assumed to
have equivalent health effects. The monetized benefits incorporate the conversion from precursor emissions to
ambient fine particles.
7.5     References

Fann, N., C.M. Fulcher, BJ. Hubbell. 2009. "The influence of location, source, and emission
    type in estimates of the human health benefits of reducing a ton of air pollution." Air Qual
    Atmos Health 2:169-11'6.
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Gwinn, M.R., J. Craig, D.A. Axelrad, R. Cook, C. Dockins, N. Fann, R. Fegley, D.E. Guinnup,
       G. Helfand, B. Hubbell, S.L. Mazur, T. Palma, R.L. Smith, J. Vandenberg, and
       B. Sonawane. 2011. "Meeting report: Estimating the benefits of reducing hazardous air
       pollutants—summary of 2009 workshop and future considerations." Environ Health
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Laden, F., J. Schwartz, F.E. Speizer, and D.W. Dockery. 2006. Reduction in Fine Particulate Air
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                                         7-36

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   .

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U.S. Environmental Protection Agency (U.S. EPA). 2006. Regulatory Impact Analysis, 2006
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U.S. Environmental Protection Agency (U.S. EPA). 201 Ib. Regulatory Impact Analysis for the
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                                     SECTION 8
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                                          8-2

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                                           8-3

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                                          8-4

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                                         8-5

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 United States                 Office of Air Quality Planning and          EPA-452/R-13-001
 Environmental Protection                 Standards                           January 2013
 Agency                      Health and Environmental Impacts
                                        Division
	Research Triangle Park, NC	
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